Form 20-F
Table of Contents
0001445930falseFYKRKRM5American Depositary Shares, each representing one share of Common StockIncludes post-employment benefits amounting to ￦ 2,840 million, ￦ 3,194 million and ￦ 3,383 million recognized as other operating expenses for the years ended December 31, 2020, 2021, 2022 and ￦ 176 million and ￦ 137 million recognized as prepayment for the years ended December 31, 2020 and 2022.Items meeting the definition of cash are excluded in accordance with IAS No.7 Statement of Cash Flows. Detailed information on the effects of this change in accounting policy is described in Note 2.1 Application of IFRS.Fees from financial instruments at fair value through profit or lossDue to amendments of tax laws at the end of 2022, the effect of corporate tax rate change is reflected in deferred income tax assets and liabilities that are expected to be realized after 2023. (Corporate tax rates after the amendments: 10% for tax base ￦ 200 million or less, 21% for tax base over ￦ 200 million to ￦ 20,000 million, 23.2% for tax base over ￦ 20,000 million to ￦ 300,000 million, 26.5% for tax base over ￦ 300,000 million)After netting of allowanceAmount includes loans measured at fair value through profit or loss, other comprehensive income, and amortized cost.Financial liabilities measured or designated at fair value through profit or loss and derivatives held for trading are not managed by contractual maturity because they are expected to be traded or redeemed before maturity. Therefore, the carrying amounts of those financial instruments are included in the ‘On demand’ category.Cash flows of derivatives held for hedging are shown at net amount of cash inflows and outflows by remaining contractual maturity.Deposits that are contractually repayable on demand or on short notice are included in the ‘On demand’ category.Cash flows under financial guarantee contracts are classified based on the earliest period that the contract can be executed.Commitments are included in the ‘On demand’ category because payments can be requested at any time.Gains or losses arising from some daily mark-to-market futures are reflected in the margin accounts.Provision for credit losses in the consolidated statements of comprehensive income also includes provision (reversal) for credit losses of due from financial institutions (Note 7.3), provision (reversal) for credit losses of financial investments (Note 12.5), provision (reversal) for credit losses of unused commitments, acceptances and guarantees (Note 24.2), provision (reversal) for credit losses of financial guarantee contracts (Note 24.3), and provision (reversal) for credit losses of other financial assets (Note 19.2).Includes ￦ 387,860 million and ￦ 415,998 million of collections from written-off loans for the years ended December 31, 2021 and 2022, respectively.Includes deferred loan origination fees related to loans in foreign currencies executed by PT Bank KB Bukopin Tbk and PRASAC Microfinance Institution Plc.Includes deferred loan origination costs related to credit card receivables, loans for installment credit, and finance lease receivables.Includes transfers with investment properties and assets held for sale.Includes depreciation expenses amounting to ￦ 196 million and ￦ 255 million recorded as other operating expenses and others for the years ended December 31, 2021 and 2022, respectively.Includes net exchange difference.Includes transfers with property and equipment and assets held for sale.Assets and liabilities of the reporting segments are amounts before intersegment transactions.As of December 31, 2021 and 2022, the Group can exercise significant influence on the decision-making processes of the associate’s financial and business policies through participation in governing bodies.In order to direct relevant activities, it is necessary to obtain the consent of the two co-operative members; the Group has applied the equity method as the Group cannot control the investee by itself.The ownership of Food Factory Co., Ltd. would be 30.00% and 30.00% as of December 31, 2021 and 2022, respectively, considering the potential voting rights of convertible bonds.The ownership of Paycoms Co., Ltd. would be 21.84% and 21.68% as of December 31, 2021 and 2022, respectively, considering the potential voting rights of convertible bonds.As of December 31, 2021 and 2022, the Group participates in the investment management committee but cannot exercise control.The investment was classified as assets of a disposal group held for sale as of December 31, 2021.The condensed financial information of the associates and joint ventures is adjusted to reflect adjustments, such as fair value adjustments recognized at the time of acquisition and adjustments for differences in accounting policies.Gains on disposal of investments in associates and joint ventures amount to ￦ 62,048 million ￦ 20,585 million for the years ended December 31, 2021 and 2022, respectively.Includes Purchase Price Allocation (“PPA”) amount arising from the acquisition of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.), KB Insurance Co., Ltd. and others.Fair value of the liability component of exchangeable bonds is calculated by using market interest rate of bonds under the same conditions without the exchange right. The residual amount after deducting the liability component from the issuance amount, represents the value of the exchange right and is recorded in equity. Shares to be exchanged are 5 million treasury shares of KB Financial Group Inc. with the exchange price of ￦ 48,000. Exercise period for exchange right is from the 60th day of the issuance date to 10 days before the maturity date.Includes provisions for redemption-suspended funds.The net defined benefit liabilities of ￦ 125,438 million is calculated by subtracting ￦ 100,083 million of net defined benefit assets from ￦ 225,521 million of net defined benefit liabilities as of December 31, 2021. The net defined benefit assets of ￦ 393,189 million is calculated by subtracting ￦ 85,745 million of net defined benefit liabilities from ￦ 478,934 million of net defined benefit assets as of December 31, 2022.With respect to the allocation of net profit earned in a fiscal term, the Parent Company must set aside in its legal reserve an amount equal to at least 10% of its profit after tax as reported in the financial statements, each time it pays dividends on its net profits earned until its legal reserve reaches the aggregate amount of its paid-in capital in accordance with Article 53 of the Financial Holding Company Act. This reserve is not available for the payment of cash dividends, but may be transferred to share capital, or used to reduce accumulated deficit.Applicable income tax rate for ￦ 200 million and below is 11%, for over ￦ 200 million to ￦ 20 billion is 22%, for over ￦ 20 billion to ￦ 300 billion is 24.2% and for over ￦ 300 billion is 27.5% for the years ended December 31, 2020, 2021 and 2022.Maximum exposure includes the asset amounts, after deducting loss (provisions for credit losses, impairment losses, and others), recognized in the consolidated financial statements of the Group.Excluded from the Group’s related party as of December 31, 2022, therefore, the remaining outstanding balances with those entities are not disclosed.Includes KB Securities Co., Ltd.’s OTC derivatives consisting of ￦ 404,334 million of financial assets at fair value through profit or loss (debt instruments), ￦ 8,241,509 million of financial liabilities designated at fair value through profit or loss, ￦ 120,775 million of derivative financial assets, and ￦ 777,542 million of derivative financial liabilities.Borrowings of ￦ 2,143 million and ￦ 18,266 million included in Level 2 are the carrying amounts which are reasonable approximations of fair value as of December 31, 2021 and 2022, respectively.The amounts included in Level 2 are the carrying amounts which are reasonable approximations of fair value.The amounts included in Level 3 are the carrying amounts which are reasonable approximations of fair value.Transfers into or out of Level 3 of the fair value hierarchy occurred due to the change in the availability of observable market data.The Group has an obligation to early redeem the securitized debentures in the event of situations prescribed by the asset securitization contract, such as the remaining balance of the eligible underlying assets in trust-type asset securitization is below the solvency ratio (minimum ratio: 104.5%) of the beneficiary interest in the trust. To avoid such early redemption, the Group entrusts credit card accounts and deposits in addition to the previously entrusted credit card accounts.The Group has an obligation to early redeem the securitized debentures in the event of situations prescribed by the asset securitization contract, such as when the trusted assets do not meet the eligibility requirements.Excluded from the Group’s related party as of December 31, 2022.Financial information is based on its consolidated financial statements.Operating revenue consists of interest income, fee and commission income, insurance income and others.Includes fair value adjustments arising from the acquisition.Before netting of allowanceNet carrying amount after impairment lossesDerivatives held for hedging purposes are the net amount after offsetting liabilities and assets.Includes bonds sold under repurchase agreements to customers.Investments in subsidiaries were accounted at cost method in accordance with IAS No.27.Amount determined under the promotion compensation type defined contribution plan is excluded.5 million treasury shares are deposited at the Korea Securities Depository for the exchange of exchangeable bonds.The regulatory reserve for credit losses the Group appropriated in retained earnings is ￦ 4,116,579 million and ￦ 4,355,734 million for the years ended December 31, 2021 and 2022, respectively..Net carrying amount after allowances for credit lossesFinancial instruments to be expired before transition to alternative interest rate benchmark are excluded. 0001445930 2020-01-01 2020-12-31 0001445930 2021-01-01 2021-12-31 0001445930 2022-01-01 2022-12-31 0001445930 2021-12-31 0001445930 2022-12-31 0001445930 2022-04-01 2022-06-30 0001445930 2022-07-01 2022-09-30 0001445930 2021-10-01 2021-12-31 0001445930 2022-01-01 2022-03-31 0001445930 2020-12-31 0001445930 2023-02-07 2023-02-07 0001445930 2019-12-31 0001445930 kb:AcceptancesAndGuaranteesContractsMember 2022-12-31 0001445930 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As filed with the Securities and Exchange Commission on April 26, 2023
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
 
20-F
(Mark One)
 
    
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
    
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2022
OR
 
    
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
    
    
    
    
 
to
 
    
    
    
    
.
OR
 
    
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
 
    
    
    
    
.
Commission file number
000-53445
KB Financial Group Inc.
(Exact name of Registrant as specified in its charter)
KB Financial Group Inc.
(Translation of Registrant’s name into English)
The Republic of Korea
(Jurisdiction of incorporation or organization)
 
26, Gukjegeumyung-ro 8-gi
l
,
Yeongdeungpo-gu
,
 
Seoul
07331
,
Korea
(Address of principal executive offices)
Peter BongJoong Kwon
18F, Kookmin Bank
,
141, Uisadang-daero
,
 
Yeongdeungpo-gu
,
 
Seoul
07332
, Korea
Telephone No.:
 
+82-2
-
2073-2845
Facsimile No.:
 
+82-2-2073-2848
E-mail: peter.kwon@kbfg.com
(Name, telephone,
e-mail
and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
Title of each class
  
Trading Symbol(s)
   
Name of each exchange on which registered
American Depositary Shares, each
representing one share of Common Stock
  
KB
   
New York Stock Exchange
Common Stock, par value ￦5,000 per share
  
KB
   
New York Stock Exchange
*
Securities registered or to be registered pursuant to Section 12(g) of the Ac
t
.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
389,634,335
shares of Common Stock, par value
 
￦
5,000 per share
Indicate by check mark if the registrant is a
 
well-known
 
seasoned issuer, as defined in Rule 405 of the Securities Act.  ☒
Yes
  ☐ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange
Act of 1934.  ☐ Yes  ☒
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒
Yes
  ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
 
S-T
 
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒
Yes
  ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
 
non-accelerated
 
filer or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule
 
12b-2
 
of the Exchange Act:
☒    
Large accelerated filer
            ☐     Accelerated filer            ☐
 
    Non-accelerated
 
filer            
☐
    Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act:  ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 201
2
.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
☒
Yes  ☐ No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements:  ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §
 
240.10D-1(b):  ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
☐ U.S. GAAP
    ☒
International Financial Reporting Standards
as issued by the International Accounting Standards Board		   
☐
    Other
 
Auditor Name: 
KPMG Samjong Accounting Corp.
    Auditor Location:
Seoul, Korea
   
Auditor Firm ID: 01357
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  ☐ Item 17  ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
 
12b-2
 
of the Exchange Act).  ☐ Yes  ☒ No
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
☒
Yes  ☐ No
* Not for trading, but only in connection with the registration of the American Depositary Shares.
 
 
 

Table of Contents

TABLE OF CONTENTS

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION      1  
FORWARD-LOOKING STATEMENTS      2  

Item 1.

   

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

      3  

Item 2.

   

OFFER STATISTICS AND EXPECTED TIMETABLE

      3  

Item 3.

   

KEY INFORMATION

      3  
  

Item 3.A.

   

[Reserved]

      3  
  

Item 3.B.

   

Capitalization and Indebtedness

      3  
  

Item 3.C.

   

Reasons for the Offer and Use of Proceeds

      3  
  

Item 3.D.

   

Risk Factors

      3  

Item 4.

   

INFORMATION ON THE COMPANY

     32  
  

Item 4.A.

   

History and Development of the Company

      33  
  

Item 4.B.

   

Business Overview

      34  
  

Item 4.C.

   

Organizational Structure

      106  
  

Item 4.D.

   

Property, Plants and Equipment

      108  

Item 4A.

   

UNRESOLVED STAFF COMMENTS

     109  

Item 5.

   

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     109  
  

Item 5.A.

   

Operating Results

      109  
  

Item 5.B.

   

Liquidity and Capital Resources

      146  
  

Item 5.C.

   

Research and Development, Patents and Licenses, etc.

      151  
  

Item 5.D.

   

Trend Information

      151  
  

Item 5.E.

   

Critical Accounting Estimates

      151  

Item 6.

   

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     151  
  

Item 6.A.

   

Directors and Senior Management

      151  
  

Item 6.B.

   

Compensation

      158  
  

Item 6.C.

   

Board Practices

      159  
  

Item 6.D.

   

Employees

      161  
  

Item 6.E.

   

Share Ownership

      162  
  

Item 6.F.

   

Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation

      164  

Item 7.

   

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     164  
  

Item 7.A.

   

Major Shareholders

      164  
  

Item 7.B.

   

Related Party Transactions

      164  
  

Item 7.C.

   

Interests of Experts and Counsel

      165  

Item 8.

   

FINANCIAL INFORMATION

     165  
  

Item 8.A.

   

Consolidated Statements and Other Financial Information

      165  
  

Item 8.B.

   

Significant Changes

      172  

 

i

Table of Contents

Item 9.

   

THE OFFER AND LISTING

     172  
  

Item 9.A.

   

Offering and Listing Details

      172  
  

Item 9.B.

   

Plan of Distribution

      174  
  

Item 9.C.

   

Markets

      175  
  

Item 9.D.

   

Selling Shareholders

      175  
  

Item 9.E.

   

Dilution

      175  
  

Item 9.F.

   

Expenses of the Issue

      175  

Item 10.

   

ADDITIONAL INFORMATION

     175  
  

Item 10.A.

   

Share Capital

      175  
  

Item 10.B.

   

Memorandum and Articles of Association

      175  
  

Item 10.C.

   

Material Contracts

      182  
  

Item 10.D.

   

Exchange Controls

      182  
  

Item 10.E.

   

Taxation

      183  
  

Item 10.F.

   

Dividends and Paying Agents

      189  
  

Item 10.G.

   

Statement by Experts

      189  
  

Item 10.H.

   

Documents on Display

      189  
  

Item 10.I.

   

Subsidiary Information

      189  
  

Item 10.J.

   

Annual Report to Security Holders

      189  

Item 11.

   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      189  

Item 12.

   

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

      211  

Item 13.

   

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

      212  

Item 14.

    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS      212  

Item 15.

   

CONTROLS AND PROCEDURES

      212  

Item 16.

   

[RESERVED]

      213  
  

Item 16A.

   

AUDIT COMMITTEE FINANCIAL EXPERT

      213  
  

Item 16B.

   

CODE OF ETHICS

      213  
  

Item 16C.

   

PRINCIPAL ACCOUNTANT FEES AND SERVICES

      214  
  

Item 16D.

    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES      214  
  

Item 16E.

    PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      215  
  

Item 16F.

    CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT      215  
  

Item 16G.

   

CORPORATE GOVERNANCE

      216  
  

Item 16H.

   

MINE SAFETY DISCLOSURE

      217  
  

Item 16I.

    DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS      217  

 

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Item 17.

   

FINANCIAL STATEMENTS

      217  

Item 18.

   

FINANCIAL STATEMENTS

      217  

Item 19.

   

EXHIBITS

      217  

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As such, we make an explicit and unreserved statement of compliance with IFRS as issued by the IASB with respect to our consolidated financial statements as of December 31, 2021 and 2022 and for the years ended December 31, 2020, 2021 and 2022 included in this annual report. Unless indicated otherwise, the financial information in this annual report as of and for the years ended December 31, 2020, 2021 and 2022 has been prepared in accordance with IFRS as issued by the IASB, which is not comparable to information prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

In this annual report:

 

  •  

references to “we,” “us” or “KB Financial Group” are to KB Financial Group Inc. and, unless the context otherwise requires, its subsidiaries;

 

  •  

references to “Korea” are to the Republic of Korea;

 

  •  

references to the “government” are to the government of the Republic of Korea;

 

  •  

references to “Won” or “￦” are to the currency of Korea; and

 

  •  

references to “U.S. dollars,” “$” or “US$” are to United States dollars.

Discrepancies between totals and the sums of the amounts contained in any table may be a result of rounding.

For your convenience, this annual report contains translations of Won amounts into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York for Won in effect on December 31, 2022, which was ￦1,260.2 = US$1.00.

 

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FORWARD-LOOKING STATEMENTS

The U.S. Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report contains forward-looking statements.

Words and phrases such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “estimate,” “expect,” “future,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “predict,” “project,” “risk,” “seek to,” “shall,” “should,” “will likely result,” “will pursue,” “plan” and words and terms of similar substance used in connection with any discussion of future operating or financial performance or our expectations, plans, projections or business prospects identify forward-looking statements. In particular, the statements under the headings “Item 3.D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 4.B. Business Overview” regarding our financial condition and other future events or prospects are forward-looking statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

In addition to the risks related to our business discussed under “Item 3.D. Risk Factors,” other factors could cause actual results to differ materially from those described in the forward-looking statements. These factors include, but are not limited to:

 

  •  

our ability to successfully implement our strategy;

 

  •  

future levels of non-performing loans;

 

  •  

our growth and expansion;

 

  •  

the adequacy of allowances for credit and investment losses;

 

  •  

technological changes;

 

  •  

interest rates;

 

  •  

investment income;

 

  •  

availability of funding and liquidity;

 

  •  

cash flow projections;

 

  •  

our 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 actually occurs in the future. As a result, actual future gains, losses or impact on our income or results of operations could materially differ from those that have been estimated. For example, revenues could decrease, costs could increase, capital costs could increase, capital investment could be delayed and anticipated improvements in performance might not be fully realized.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this annual report could include, but are not limited to:

 

  •  

the occurrence of severe health epidemics (including the COVID-19 pandemic) in Korea or other parts of the world;

 

  •  

general economic and political conditions in Korea or other countries that have an impact on our business activities or investments;

 

  •  

the monetary and interest rate policies of Korea;

 

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  •  

inflation or deflation;

 

  •  

unanticipated volatility in interest rates;

 

  •  

foreign exchange rates;

 

  •  

prices and yields of equity and debt securities;

 

  •  

the performance of the financial markets in Korea and globally;

 

  •  

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.

For further discussion of the factors that could cause actual results to differ, see the discussion under “Item 3.D. Risk Factors” contained in this annual report. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this annual report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this annual report.

 

Item 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

Item 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

Item 3.

KEY INFORMATION

 

Item 3.A.

[Reserved]

 

Item 3.B.

Capitalization and Indebtedness

Not applicable.

 

Item 3.C.

Reasons for the Offer and Use of Proceeds

Not applicable.

 

Item 3.D.

Risk Factors

Risks relating to our retail credit portfolio

Future changes in market conditions as well as other factors may lead to increases in delinquency levels of our retail loan portfolio.

For most of the recent past, consumer debt has increased significantly in Korea, although the rate of such increase has slowed in the past year due to rising interest rate levels. Our portfolio of retail loans, including mortgage and home equity loans, increased from ￦166,307 billion as of December 31, 2019 to ￦182,437 billion

 

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as of December 31, 2020 and ￦191,641 billion as of December 31, 2021, although it decreased to ￦186,939 billion as of December 31, 2022. As of December 31, 2022, our domestic retail loans represented 42.4% of our total lending. Within our retail loan portfolio, the outstanding balance of other consumer loans, which unlike mortgage or home equity loans are often unsecured and therefore tend to carry a higher credit risk, increased from ￦59,596 billion as of December 31, 2019 to ￦65,997 billion as of December 31, 2022; as a percentage of total outstanding retail loans, such balance decreased from 35.8% as of December 31, 2019 to 35.3% as of December 31, 2022. Our retail lending business, which generally offers higher margins than other lending activities, has contributed significantly to our interest income and profitability in recent years.

The growth of our retail loan portfolio in most of the recent past, together with fluctuating economic conditions in Korea and globally in recent years, especially in light of the COVID-19 pandemic, as well as the high level of consumer debt and rising interest rate levels, may lead to increases in delinquency levels and a deterioration in asset quality. The amount of our non-performing retail loans (defined as those loans that are past due by 90 days or more) was ￦376 billion as of December 31, 2019, ￦306 billion as of December 31, 2020, ￦259 billion as of December 31, 2021 and ￦311 billion as of December 31, 2022. Higher delinquencies in our retail loan portfolio in the future will require us to increase our loan loss provisions and charge-offs, which in turn will adversely affect our financial condition and results of operations.

Our large exposure to consumer debt means that we are exposed to changes in economic conditions affecting Korean consumers. Accordingly, economic difficulties in Korea that hurt consumers could result in a deterioration in the credit quality of our retail loan and credit card portfolios. For example, the debilitating impact of the COVID-19 pandemic on Korea’s economy has disrupted the business, activities and operations of consumers, which in turn has resulted in, and in the future could result in, a significant decrease in the number of financial transactions or the inability of our customers to meet existing payment or other obligations to us. See “Other risks relating to our business—The COVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.” In addition, a rise in unemployment, an increase in interest rates or a decline in real estate prices in Korea could adversely affect the ability of consumers to make payments and increase the likelihood of potential defaults, while reducing demand for retail loans and credit card spending. See “Risks relating to Korea—Unfavorable financial and economic developments in Korea may have an adverse effect on us.” Despite our efforts to minimize our risk as a result of such exposure, there is no assurance that we will be able to prevent significant credit quality deterioration in our retail loan portfolio.

In addition, we are exposed to changes in regulations and policies on retail lending by the Korean government, which may adopt measures to restrict retail lending or encourage financial institutions to provide financial support to certain types of retail borrowers. From the second half of 2016 to 2021, the Korean government introduced various measures to tighten regulations on mortgage and other lending and housing subscription in response to the rapid growth in consumer debt and concerns over speculative investments in real estate in certain areas. The Korean government has since begun to reverse some of these measures by introducing a number of policy measures that seek to sustain housing prices and activity levels in the Korean real estate market, in light of an overall decrease in housing prices over the course of 2022. A continued decrease in housing prices, together with the high level of consumer debt and higher interest rate levels, could result in declines in consumer spending and reduced economic growth, which may lead to an increase in the delinquency level of our retail loan portfolio.

Under a pre-workout program established by the Credit Counseling and Recovery Service, a public service organization that provides debt adjustment services to low-income families in Korea, a number of Korean banks, including us, have provided individual borrowers with outstanding short-term debt in default with maturity extensions and/or interest reductions since April 2009. Such borrowers must have total loans of ￦1.5 billion or less (consisting of no more than ￦500 million of unsecured loans and ￦1 billion of secured loans) from one or more financial institutions, be in arrears on their payments for more than one day but less than 90 days, and either have an income in excess of the minimum cost of living or be deemed by the Credit Counseling and Recovery

 

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Service to have the ability to repay their loans. In addition, in March 2015 and September 2019, in response to increasing levels of consumer debt and amid concerns over the debt-servicing capacity of retail borrowers if interest rates were to rise, the Korean government launched, and requested Korean banks to participate in, mortgage loan refinancing programs aimed at reducing the payment burden on and improving the asset quality of outstanding mortgage loans. Under such refinancing programs, qualified retail borrowers were able to convert their outstanding non-amortizing floating-rate mortgage loans from Korean commercial banks (including us) into amortizing fixed-rate mortgage loans with lower interest rates. Our participation in such refinancing programs may lead to a decrease in our interest income on our outstanding mortgage loans, as well as in our overall net interest margin. Moreover, our participation in such initiatives led by the Korean government to provide financial support to retail borrowers may lead us to offer credit terms for such borrowers that we would not generally offer, which may have an adverse effect on our results of operations and financial condition.

Our credit card operations may generate losses in the future, which could hurt our financial condition and results of operations.

With respect to our credit card portfolio, our delinquency ratio (which represents the ratio of amounts that are overdue by 30 days or more to total outstanding balances) was 1.06% as of December 31, 2020, which decreased to 0.91% as of December 31, 2021 but increased to 1.01% as of December 31, 2022. In line with industry practice, we have restructured a portion of delinquent credit card account balances (defined as balances overdue by 30 days or more) as loans. As of December 31, 2022, these restructured loans outstanding amounted to ￦117 billion. Because these loans are not treated as being delinquent at the time of conversion or for a period of time thereafter, our delinquency ratios may not fully reflect all delinquent amounts relating to our outstanding loans. Including all restructured loans, outstanding balances overdue by 30 days or more accounted for 1.4% of our credit card receivables (including credit card loans) as of December 31, 2022. Delinquencies may increase in 2023 and in the future as a result of, among other things, adverse economic conditions in Korea, increases in interest rates, additional government regulations or the inability of Korean consumers to manage increased household debt.

Despite our continuing efforts to sustain and improve our credit card asset quality and performance, we may experience increased delinquencies or deterioration of the asset quality of our credit card portfolio, which would require us to increase our loan loss provisions and charge-offs and adversely affect our overall financial condition and results of operations.

Risks relating to our small- and medium-sized enterprise loan portfolio

We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.

One of our core businesses is lending to small- and medium-sized enterprises (as defined under “Item 4.B. Business Overview—Corporate Banking—Small- and Medium-sized Enterprise Banking”). Our loans to small- and medium-sized enterprises increased from ￦112,487 billion as of December 31, 2019 to ￦149,068 billion as of December 31, 2022. During that period, non-performing loans (defined as those loans that are past due by 90 days or more) to small- and medium-sized enterprises decreased from ￦204 billion as of December 31, 2019 to ￦162 billion as of December 31, 2020 and ￦102 billion as of December 31, 2021, but increased to ￦123 billion as of December 31, 2022. The non-performing loan ratio for such loans decreased from 0.2% as of December 31, 2019 to 0.1% as of December 31, 2020, 2021 and 2022. However, our non-performing loans and non-performing loan ratio may increase in 2023. According to data compiled by the Financial Supervisory Service, the delinquency ratio for Won-currency loans by Korean commercial banks to small- and medium-sized enterprises was 0.3% as of December 31, 2022. The delinquency ratio for Won-currency loans to small- and medium-sized enterprise is calculated as the ratio of (1) the outstanding balance of such loans in respect of which either principal or interest payments are overdue by one month or more to (2) the aggregate outstanding balance

 

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of such loans. Our delinquency ratio for such Won currency loans decreased from 0.2% as of December 31, 2019 to 0.1% as of December 31, 2022. However, our delinquency ratio for such Won currency loans may increase in 2023.

The Korean government has historically introduced policies and initiatives intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise borrowers. For example, the Financial Services Commission implemented a swift financial assistance program for small- and medium-sized enterprise borrowers in January 2017. Financial institutions participating in such program, including us, have provided financial assistance (including in the form of new loans, extension of maturity on existing obligations and provision of lower interest rates) to small- and medium-sized enterprise borrowers that are experiencing temporary liquidity crises but have a credit rating exceeding a certain threshold. The overall prospects for the Korean economy in 2023 and beyond remain uncertain, and the Korean government may extend or renew existing or past policies and initiatives or introduce new policies or initiatives to encourage Korean banks to provide financial support to small- and medium-sized enterprises. In particular, the COVID-19 pandemic affecting many countries worldwide, including Korea, has prompted the Korean government to implement various emergency aid initiatives involving Korean banks, including Kookmin Bank, to provide liquidity assistance to small- and medium-sized enterprise borrowers. See “Other risks relating to our business—The COVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.” Such initiatives include the provision of new loans to borrowers with low credit ratings, extension of maturity dates for existing loans and suspension of interest payment obligations for an extended period of time. Our participation in such government-led initiatives may lead us to extend credit to small- and medium-sized enterprise borrowers that we would not otherwise lend to, or offer terms for such credit that we would not otherwise offer, in the absence of such initiatives. Furthermore, there is no guarantee that the financial condition and liquidity position of our small- and medium-sized enterprise borrowers benefiting from such initiatives will improve sufficiently for them to service their debt on a timely basis, or at all. Accordingly, increases in our exposure to small- and medium-sized enterprise borrowers resulting from such government-led initiatives may have a material adverse effect on our financial condition and results of operations.

A substantial part of our small- and medium-sized enterprise lending comprises loans to “small office/home office” customers, or SOHOs. SOHOs, which we currently define to include sole proprietorships and individual business interests, are usually dependent on a limited number of suppliers or customers. SOHOs tend to be affected to a greater extent than larger corporate borrowers by fluctuations in the Korean economy. In addition, SOHOs often maintain less sophisticated financial records than other corporate borrowers. Although we continue to make efforts to improve our internally developed credit rating systems to rate potential borrowers, particularly with respect to SOHOs, and intend to manage our exposure to these borrowers closely in order to prevent any deterioration in the asset quality of our loans to this segment, we may not be able to do so as intended.

In addition, many small- and medium-sized enterprises have close business relationships with the largest Korean commercial conglomerates, known as “chaebols”, primarily as suppliers. Any difficulties encountered by those chaebols would likely hurt the liquidity and financial condition of related small- and medium-sized enterprises, including those to which we have exposure, also resulting in an impairment of their ability to repay loans.

In recent years, we have taken measures which sought to stem rising delinquencies in our loans to small- and medium-sized enterprises, including through strengthening of the review of loan applications and closer monitoring of the post-loan performance of small- and medium-sized enterprise borrowers in industry sectors that are relatively more sensitive to downturns in the economy and have shown higher delinquency ratios, such as shipping, construction, lodging, retail and wholesale, restaurants and real estate. Despite such efforts, however, there is no assurance that delinquency levels of our loans to small- and medium-sized enterprises will not rise in the future. In particular, financial difficulties experienced by small- and medium-sized enterprises as a result of, among other things, adverse economic conditions in Korea and globally, could have an adverse impact on the

 

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ability of small- and medium-sized enterprises to make payments on our loans. For example, the COVID-19 pandemic has had a significant adverse impact on the Korean and global economy, which in turn has subjected, and could continue to subject, small- and medium-sized enterprises to disruptions in supply chains, a decline in sales and/or deterioration in financial conditions. In addition, aggressive marketing and competition among banks to lend to this segment may lead to a deterioration in the asset quality of our loans to this segment in the future. Any such deterioration would result in increased charge-offs and higher provisioning and reduced interest and fee income from this segment, which would have an adverse impact on our financial condition and results of operations.

We have exposure to Korean construction, shipbuilding and shipping companies, and financial difficulties of these companies may have an adverse impact on us.

As of December 31, 2022, we had loans outstanding to construction (most of which are small- and medium-sized enterprises), shipbuilding and shipping companies in the amount of ￦5,984 billion, ￦583 billion and ￦212 billion, or 1.36%, 0.13% and 0.05% of our total loans, respectively. We also have other exposures to Korean construction, shipbuilding and shipping companies, including in the form of guarantees extended on behalf of such companies and debt and equity securities of such companies held by us. In the case of construction companies, such exposures include guarantees provided to us by general contractors with respect to financing extended by us for residential and commercial real estate development projects. In the case of shipbuilding companies, such exposures include refund guarantees extended by us on behalf of shipbuilding companies to cover their obligation to return a portion of the ship order contract amount to customers in the event of performance delays or defaults under shipbuilding contracts.

The construction industry in Korea has undergone significant fluctuations in recent years. Following a period of growth from 2015 to 2018, the construction industry had stagnated from 2019 to 2020, caused mainly by the uncertainty resulting from the Korean government’s strengthening of mortgage and other lending regulations to control the increasing real property prices, as well as temporary suspensions in construction projects due to the COVID-19 pandemic. After a brief period of recovery, the construction industry has experienced a rapid downturn starting in the second half of 2022, caused by a rise in interest rates and the resulting decline in demand for residential property throughout Korea, adverse changes in the price and availability of construction materials due to disruptions in global supply chains caused by, among others, the ongoing invasion of Ukraine by Russia, and financing difficulties faced by construction companies as investors became reluctant to invest in real estate. The shipbuilding industry in Korea has remained relatively stable despite the global downturn of the industry in recent years, mainly due to a large increase in the number of orders for liquefied natural gas carriers. The prospects for this industry currently remain uncertain, however, given the slowdown in the global economy and a rise in shipbuilding costs and resulting prices. In the case of shipping companies in Korea, the COVID-19 pandemic and the ensuing global lockdown caused a severe downturn in the industry in 2020. Although the industry subsequently showed signs of recovery from the pandemic as the levels of consumer spending and global trade began to rise, the industry has again entered a downturn starting in the second quarter of 2022 resulting from a decrease in shipping volume and an increase in the supply of ships. The shipping industry continues to face difficulties arising from, among others, a deteriorating global economy, a decrease in shipping volume and the strengthening of international shipping regulations.

The allowances that we have established against our credit exposures to Korean construction, shipbuilding and shipping companies may not be sufficient to cover all future losses arising from such exposures. If the asset quality of our exposures to such companies declines further, we may incur substantial additional provisions (including in connection with restructurings of such companies) and charge-offs, which could adversely impact our results of operations and financial condition. See “—Risks relating to our large corporate loan portfolio—We have exposure to large corporate borrowers that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions being required and/or the adoption of restructuring plans with which we do not agree.” Furthermore, although a portion of our credit exposures to construction, shipbuilding and shipping companies are secured by collateral, such collateral may not be sufficient to cover

 

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uncollectible amounts in respect of such credit exposures. See “—Other risks relating to our business—A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.”

Risks relating to our financial holding company structure and strategy

We may not succeed in implementing our strategy to take advantage of, or fail to realize the anticipated benefits of, our financial holding company structure.

One of our principal strategies is to take advantage of our financial holding company structure to become a comprehensive financial services provider capable of offering a full range of products and services to our large existing base of retail and corporate banking customers. The continued implementation of these plans may require additional investments of capital, infrastructure, human resources and management attention. This strategy entails certain risks, including the possibility that we may face significant competition from other financial holding companies and more specialized financial institutions in particular segments. If our strategy does not succeed, we may incur losses on our investments and our results of operations and financial condition may suffer.

Furthermore, our success under a financial holding company structure depends on our ability to realize the anticipated synergies, growth opportunities and cost savings from coordinating the businesses of our various subsidiaries. Although we have been integrating certain aspects of our subsidiaries’ operations into our financial holding company structure, our subsidiaries will generally continue to operate as independent entities with separate management and staff and our ability to direct our subsidiaries’ day-to-day operations may be limited. Some of our major acquisitions include the following:

 

  •  

In March 2014, we acquired 52.02% of the outstanding shares of KB Capital Co., Ltd. (formerly named Woori Financial Co., Ltd.), a publicly listed Korean consumer finance company, from Woori Finance Holdings Co., Ltd. for ￦280 billion. We conducted a tender offer in May 2017, through which we acquired 5,949,300 shares of KB Capital at ￦27,500 per share, increasing our shareholding in KB Capital to 79.70%. We subsequently acquired the remaining outstanding shares of KB Capital in exchange for 2,269,057 shares of common stock of our company through a comprehensive stock swap effected in July 2017, as a result of which KB Capital became a wholly-owned subsidiary.

 

  •  

In June 2015, we acquired 19.47% of the outstanding shares of KB Insurance Co., Ltd. (formerly named LIG Insurance Co., Ltd.), a publicly listed Korean non-life insurance company, from a group of individual shareholders for ￦651 billion. In November 2015, we increased our shareholding in KB Insurance to 33.29% by acquiring its treasury shares for ￦231 billion, and in December 2016, we further increased our shareholding in KB Insurance to 39.81% by purchasing new shares of KB Insurance for ￦171 billion in a rights offering. Through a tender offer conducted in May 2017, we acquired 36,237,649 shares of KB Insurance at ￦33,000 per share, increasing our shareholding to 94.30%. We subsequently effected a comprehensive stock swap in July 2017 to acquire the remaining outstanding shares of KB Insurance in exchange for 2,170,943 shares of common stock of our company, as a result of which KB Insurance became a wholly-owned subsidiary.

 

  •  

In May 2016, we acquired 22.56% of the outstanding shares of Hyundai Securities Co., Ltd., a publicly listed Korean securities firm, from Hyundai Merchant Marine Co., Ltd. and other shareholders for ￦1,242 billion, and further increased our shareholding in Hyundai Securities to 29.62% in June 2016 by acquiring treasury shares of Hyundai Securities for ￦107 billion. In October 2016, we effected a comprehensive stock swap of the outstanding shares of Hyundai Securities for 31,759,844 newly issued shares of common stock of our company, as a result of which Hyundai Securities became a wholly-owned subsidiary. Following such transaction, we merged an existing subsidiary, KB Investment & Securities, with and into Hyundai Securities in December 2016 and changed the name of the surviving entity to KB Securities Co., Ltd.

 

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  •  

In August 2020, we acquired all of the outstanding shares of The Prudential Life Insurance Company of Korea, Ltd. (“Prudential Life Insurance”), a provider of life insurance services in Korea, from Prudential Financial, Inc. for ￦2.3 trillion, as a result of which Prudential Life Insurance became a wholly-owned subsidiary. In January 2023, in order to maximize the synergy effects in our life insurance operations, we merged an existing wholly-owned subsidiary, KB Life Insurance Co., Ltd. (the “Former KB Life Insurance”), with and into Prudential Life Insurance, which had been renamed KB Life Insurance Co., Ltd. in December 2022 shortly before the merger and became the surviving entity (“KB Life Insurance”).

See “Item 5.A. Operating Results—Overview—Acquisitions.”

We may continue to increase our equity interest in our subsidiaries or investees and may also consider acquiring or merging with other financial institutions to achieve more balanced growth and further diversify our revenue base. For example, as part of our continued efforts to expand our businesses abroad, in particular in Southeast Asia, we acquired a 70% stake in PRASAC Microfinance Institution Plc., or PRASAC, a provider of microfinance and deposit-taking services in Cambodia, through Kookmin Bank, in April 2020. Subsequently, in October 2021, we acquired the remaining 30% interest in PRASAC, which increased our ownership of PRASAC to 100%. In addition, through a series of acquisitions from July 2018 to September 2020, we obtained a 67% interest in PT Bank Bukopin TBK of Indonesia, or Bank Bukopin, through Kookmin Bank, and changed its name to PT Bank KB Bukopin, Tbk in February 2021. The integration of our new subsidiaries’ or investees’ separate businesses and operations, as well as those of any companies we may acquire or merge with in the future, under our financial holding company structure could require a significant amount of time, financial resources and management attention. Moreover, that process could disrupt our operations (including our risk management operations) or information technology systems, reduce employee morale, produce unintended inconsistencies in our standards, controls, procedures or policies, and affect our relationships with customers and our ability to retain key personnel. The realization of the anticipated benefits of our financial holding company structure and any mergers or acquisitions we decide to pursue may be blocked, delayed or reduced as a result of many factors, some of which may be outside our control. These factors include:

 

  •  

difficulties in integrating the diverse activities and operations of our subsidiaries or investees or any companies we may merge with or acquire, including risk management operations and information technology systems, personnel, policies and procedures;

 

  •  

difficulties in reorganizing or reducing overlapping personnel, branches, networks and administrative functions;

 

  •  

restrictions under the Financial Holding Company Act and other regulations on transactions between a financial holding company and, or among, its subsidiaries;

 

  •  

unforeseen contingent risks, including lack of required capital resources, increased tax liabilities or restrictions in our overseas operations, relating to our financial holding company structure;

 

  •  

unexpected business disruptions;

 

  •  

failure to attract, develop and retain personnel with necessary expertise;

 

  •  

loss of customers; and

 

  •  

labor unrest.

Accordingly, we may not be able to realize the anticipated benefits of our financial holding company structure, and our business, results of operations and financial condition may suffer as a result.

We depend on limited forms of funding to fund our operations at the holding company level.

We are a financial holding company with no significant assets other than the shares of our subsidiaries. Our primary sources of funding and liquidity are dividends from our subsidiaries, direct borrowings and issuances of

 

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equity or debt securities at the holding company level. In addition, as a financial holding company, we are required to meet certain minimum financial ratios under Korean law, including with respect to liquidity, leverage and capital adequacy. Our ability to meet our obligations to our direct creditors and employees and our other liquidity needs and regulatory requirements at the holding company level depends on timely and adequate distributions from our subsidiaries and our ability to sell our securities or obtain credit from our lenders.

The ability of our subsidiaries to pay dividends to us depends on their financial condition and operating results. In the future, our subsidiaries may enter into agreements, such as credit agreements with lenders or indentures relating to high-yield or subordinated debt instruments, that impose restrictions on their ability to make distributions to us, and the terms of future obligations and the operation of Korean law could prevent our subsidiaries from making sufficient distributions to us to allow us to make payments on our outstanding obligations. See “—As a financial holding company, we depend on receiving dividends from our subsidiaries to pay dividends on our common stock.” Any delay in receipt of or shortfall in payments to us from our subsidiaries could result in our inability to meet our liquidity needs and regulatory requirements, including minimum liquidity and capital adequacy ratios, and may disrupt our operations at the holding company level.

In addition, creditors of our subsidiaries will generally have claims that are prior to any claims of our creditors with respect to their assets. Furthermore, our inability to sell our securities or obtain funds from our lenders on favorable terms, or at all, could also result in our inability to meet our liquidity needs and regulatory requirements and may disrupt our operations at the holding company level.

As a financial holding company, we depend on receiving dividends from our subsidiaries to pay dividends on our common stock.

Since our principal assets at the holding company level are the shares of our subsidiaries, our ability to pay dividends on our common stock largely depends on dividend payments from those subsidiaries. Those dividend payments are subject to the Korean Commercial Code, the Bank Act and regulatory limitations, generally based on capital levels and retained earnings, imposed by the various regulatory agencies with authority over those entities. For example:

 

  •  

under the Korean Commercial Code, dividends may only be paid out of distributable income, an amount which is calculated by subtracting the aggregate amount of a company’s paid-in capital and certain mandatory legal reserves as well as certain unrealized profits from its net assets, in each case as of the end of the prior fiscal period;

 

  •  

under the Bank Act, a bank also must credit at least 10% of its net profit to a legal reserve each time it pays dividends on distributable income until that reserve equals the amount of its total paid-in capital; and

 

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under the Bank Act and the requirements of the Financial Services Commission, if a bank fails to meet its required capital adequacy ratio or otherwise becomes subject to management improvement measures imposed by the Financial Services Commission, then the Financial Services Commission may restrict the declaration and payment of dividends by that bank.

Our subsidiaries may not continue to meet the applicable legal and regulatory requirements for the payment of dividends in the future. If they fail to do so, they may stop paying or reduce the amount of the dividends they pay to us, which would have an adverse effect on our ability to pay dividends on our common stock.

Although increasing our fee income is an important part of our strategy, we may not be able to do so.

We have historically relied on interest income as our primary revenue source. While we have developed new sources of fee income as part of our business strategy, our ability to increase our fee income and thereby reduce our dependence on interest income will be affected by the extent to which our customers generally accept

 

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the concept of fee-based services. Historically, customers in Korea have generally been reluctant to pay fees in return for value-added financial services, and their continued reluctance to do so will adversely affect the implementation of our strategy to increase our fee income. Furthermore, the fees that we charge to customers are subject to regulation by Korean financial regulatory authorities, which may seek to implement regulations or measures that may also have an adverse impact on our ability to achieve this aspect of our strategy.

We may suffer customer attrition or our net interest margin may decrease as a result of government regulations or our competition strategy.

We have pursued a strategy of enhancing our margins by maintaining relatively low interest rates on our deposit products while charging relatively higher interest rates on loans. We may need to adjust such strategy, however, in order to comply with stricter government regulations, which would also require us to pursue a more effective competition strategy in order to minimize customer attrition.

For example, the successive increases in interest rates in Korea from August 2021 to the first quarter of 2023 has led to a significant increase in the net interest spreads (the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities) reported by many Korean banks, including Kookmin Bank, as the rise in interest rates for loans have generally outpaced the rise in interest rates for deposit products. See “—Significant increases in interest rates could decrease the value of our debt securities portfolio and raise our funding costs while reducing loan demand and the repayment ability of our borrowers, which, as a result, could adversely affect us.” In response to widespread public outcry against such increase in net interest spreads and the high levels of profits realized by Korean banks, the Korean government and the Financial Services Commission have recently announced that they intend to impose stricter regulations on Korean banks, including Kookmin Bank, to reduce such net interest spreads and pursue measures to increase competition among financial institutions in Korea. Such regulations could force us to compete to a greater extent based on interest rates, which could lead to a decrease in our net interest margins. In addition, if other banks and financial institutions adopt a strategy of expanding market share through interest rate competition, we may suffer customer attrition due to rate sensitivity. See “—Competition in the Korean financial industry is intense, and we may lose market share and experience declining margins as a result.”

Although it is not possible to predict what, if any, new regulations will ultimately be imposed on Kookmin Bank and the financial industry, such regulations could reduce our profit margins, limit our operational flexibility and increase competition, which, in turn, could have a materially adverse effect on our results of operations and financial condition.

Risks relating to competition

Competition in the Korean financial industry is intense, and we may lose market share and experience declining margins as a result.

Competition in the Korean financial industry has been and is likely to remain intense. Some of the financial institutions that we compete with have longer operating histories as financial holding companies, greater financial resources or more specialized capabilities than us and our subsidiaries. In the retail and small- and medium-sized enterprise lending business, which has been our traditional core business, competition has increased significantly and is expected to increase further. Most Korean banks have been focusing on retail customers and small- and medium-sized enterprises in recent years, although they have begun to generally increase their exposure to large corporate borrowers. In addition, the profitability of our retail lending and credit card operations may decline as a result of growing market saturation in the retail lending and credit card segments, increased interest rate competition, pressure to lower the fee rates applicable to our credit cards (particularly merchant fee rates) and higher marketing expenses. Intense and increasing competition has made and continues to make it more difficult for us to secure retail, credit card and small- and medium-sized customers with the credit quality and on credit terms necessary to achieve our business objectives in a commercially acceptable manner.

 

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Furthermore, the introduction of Internet-only banks in Korea has led to an increase in competition in the Korean banking industry. Internet-only banks operate without branches and conduct most of their operations through electronic means, which enables them to minimize costs and offer customers higher interest rates on deposits or lower lending rates. In April 2017, Kbank, the first Internet-only bank in Korea, commenced operations. Kakao Bank, another Internet-only bank, in which Kookmin Bank held a 4.9% equity interest as of December 31, 2022, commenced operations in July 2017. Most recently, Toss Bank, another Internet-only bank, commenced operations in October 2021.

In the Korean insurance industry, there has been downward pressure in recent years on margins of insurance products as some of our competitors have sought to obtain or maintain market share by reducing margins and increasing marketing efforts. As the Korean non-life insurance and life insurance sectors continue to mature, they may experience a slowdown in growth as well as a stagnation in market penetration. Due to these and other factors, we believe that competition in the Korean insurance industry will likely remain intense in the future. Sustained or increased competition may lead to decreases in the market share and profitability of our non-life insurance and life insurance businesses.

In addition, we believe that regulatory reforms and the general modernization of business practices in Korea will lead to increased competition among financial institutions in Korea. In the second half of 2015, the Korean government implemented measures to facilitate bank account portability of retail customers by requiring commercial banks to establish systems that allow retail customers to easily switch their bank accounts at one commercial bank to another and automatically transfer the automatic payment settings of their former accounts to the new ones. Such measures have further intensified competition among financial institutions in Korea. Moreover, in March 2016, the Financial Services Commission introduced an individual savings account scheme in Korea, which enables individuals to efficiently manage a wide range of retail investment vehicles, including cash deposits, funds and securities investment products, from a single integrated account with one financial institution and offers tax benefits on investment returns. Since the scheme backed by the Korean government allows only one individual savings account per person, financial institutions have been competing to retain existing customers and attract new customers since the launch of the individual savings account scheme. Over 30 financial institutions, including banks, securities companies and insurance companies, have registered with the Financial Services Commission to sell their individual savings account products and competition among these financial institutions is expected to remain intense. More recently, in August 2020, amendments to the Credit Information Use and Protection Act established the framework for MyData services in Korea, which allow the collection of customers’ personal credit information from credit information providers/users or public institutions upon the customer’s request and subject to compliance requirements, so that customers may access such collected personal credit information in whole or in part. As of December 31, 2022, the Financial Services Commission had granted licenses to 64 companies to operate as MyData service providers, 23 of which were fintech firms, and competition between traditional financial institutions and fintech firms is expected to intensify, particularly with respect to asset management services. MyData services are currently offered through several channels including KB Star Banking, our mobile banking application, KB Pay, our credit card services application and KB M-able, our securities trading application. In order to further boost competition in the Korean banking industry, the relevant regulatory authorities in Korea are also planning to introduce various measures to lower the barriers to entry for certain financial institutions. See “—We may suffer customer attrition or our net interest margin may decrease as a result of government regulations or our competition strategy.”

Moreover, a number of significant mergers and acquisitions in the financial industry have taken place in Korea in recent years, including Hana Financial Group’s acquisition of a controlling interest in Korea Exchange Bank in 2012 and the subsequent merger of Hana Bank into Korea Exchange Bank in 2015. In addition, as part of the Korean government’s plans to privatize Woori Finance Holdings Co., Ltd. (the former financial holding company of Woori Bank), certain subsidiaries of Woori Finance Holdings were sold to other financial institutions and Woori Finance Holdings itself was merged into Woori Bank in 2014, which established a new financial holding company, Woori Financial Group Inc., in January 2019. In the insurance sector, China’s Anbang Insurance Group acquired controlling interests in Tong Yang Life Insurance Co., Ltd. and Allianz Life

 

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Insurance Korea Co., Ltd. in 2015 and 2016, respectively, while Mirae Asset Life Insurance Co., Ltd. acquired PCA Life Insurance Co., Ltd. in 2017. Meanwhile, Orange Life Insurance, Ltd. (formerly known as ING Life Insurance Korea, Ltd.) became a wholly-owned subsidiary of Shinhan Financial Group following the acquisition of equity interests by Shinhan Financial Group in February 2019 and January 2020, and subsequently merged with and into Shinhan Life Insurance Co., Ltd. in July 2021. In the securities sector, in 2016, Mirae Asset Securities Co., Ltd. acquired a 43% interest in KDB Daewoo Securities Co., Ltd., which subsequently merged with and into Mirae Asset Securities to create Mirae Asset Daewoo Securities Co., Ltd., one of the largest securities companies in Korea in terms of capital.

We expect that consolidation in the Korean financial industry will continue. The financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. We also believe that foreign financial institutions, many of which have greater experience and resources than we do, may seek to compete with us in providing financial products and services either by themselves or in partnership with existing Korean financial institutions. Increased competition and continuing consolidation may lead to decreased margins, resulting in a material adverse impact on our future profitability. Accordingly, our results of operations and financial condition may suffer as a result of increasing competition in the Korean financial industry.

Risks relating to our large corporate loan portfolio

We have exposure to chaebols, and, as a result, financial difficulties of chaebols may have an adverse impact on us.

Of our 20 largest corporate exposures (including loans, debt and equity securities and guarantees and acceptances) as of December 31, 2022, eleven were to companies that were members of the 32 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures. As of that date, the total amount of our exposures to 32 of such largest highly-indebted business groups among chaebols was ￦39,535 billion, or 6.2% of our total exposures. If the credit quality of our exposures to chaebols declines as a result of financial difficulties they experience or for other reasons, we could require substantial additional loan loss provisions, which would hurt our results of operations and financial condition.

We cannot assure you that the allowances we have established against these exposures will be sufficient to cover all future losses arising from these exposures. In addition, with respect to those companies that are in or in the future enter into workout or liquidation proceedings, we may not be able to make any recoveries against such companies. We may, therefore, experience future losses with respect to those loans.

We have exposure to large corporate borrowers that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions being required and/or the adoption of restructuring plans with which we do not agree.

As of December 31, 2022, our loans and guarantees to large corporate borrowers that were in workout, restructuring or rehabilitation amounted to ￦41 billion, or 0.01% of our total loans and guarantees, most of which was classified as impaired. As of the same date, our allowances for credit losses on these loans and guarantees amounted to ￦40 billion, or 97.6% of these loans and guarantees. These allowances may not be sufficient to cover all future losses arising from our exposure to these companies. Furthermore, we have other exposure to such companies, in the form of debt and equity securities of such companies held by us (including equity securities we acquired as a result of debt-to-equity conversions). Our exposures as of December 31, 2022 with respect to such securities of large corporate borrowers in workout, restructuring or rehabilitation amounted to less than ￦1 billion, or less than 0.01% of our total debt securities and equity securities, but may increase in the future. In addition, in the case of borrowers that are or become subject to workout or restructuring, we may be forced to restructure our credits pursuant to restructuring plans approved by other creditor financial institutions of the borrower, or to dispose of our credits to other creditors on unfavorable terms.

 

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In particular, as of December 31, 2022, we had ￦558 billion of outstanding exposures, comprising ￦111 billion of loans, ￦0 billion of debt securities, ￦20 billion of equity securities and ￦427 billion of guarantees (mainly in the form of refund guarantees relating to shipbuilding contracts), to Daewoo Shipbuilding & Marine Engineering Co., Ltd., or DSME, which has been pursuing a voluntary restructuring program. In April 2017, the creditors of DSME agreed on a plan to provide additional financial support to DSME in connection with its voluntary restructuring program, under which the Korea Development Bank and the Export-Import Bank of Korea would provide ￦2.9 trillion of new loans to DSME, on the condition that DSME’s other creditors and bondholders agree to a ￦2.9 trillion debt-to-equity swap. The financial support plan requires the Korean commercial bank creditors of DSME (including us) to swap 80% of our outstanding unsecured loans into equity of DSME and extend the maturity of the remaining loans for a period of five years. The financial support plan, which is currently scheduled to expire in December 2023, also requires DSME’s creditors (including us) to provide additional refund guarantees in connection with future shipbuilding contracts of DSME. The implementation of the financial support plan for DSME has required and may continue to require us to increase our loan loss provisions and recognize write-offs and impairment losses with respect to our exposures to DSME and may therefore have a material adverse impact on our results of operations and financial condition. In December 2022, Hanwha Group agreed to acquire newly issued shares of DSME for approximately ￦2 trillion, following which Hanwha Group is expected to become DSME’s largest shareholder with a 49.3% equity stake. The consummation of the acquisition currently remains subject to various conditions, including regulatory approval from a number of relevant jurisdictions. The creditors of DSME are expected to extend the financial support plan by another five years if such acquisition is completed before December 31, 2023.

A large portion of our credit exposure is concentrated in a relatively small number of large corporate borrowers, which increases the risk of our corporate credit portfolio.

As of December 31, 2022, our loans and guarantees to our 20 largest borrowers totaled ￦12,613 billion and accounted for 2.8% of our total loans and guarantees. As of that date, our single largest corporate credit exposure was to The Korea Securities Finance Corporation, to which we had outstanding debt securities of ￦4,532 billion and an additional exposure of ￦83 billion in the form of equity securities. Any deterioration in the financial condition of The Korea Securities Finance Corporation or our other large corporate borrowers may require us to record substantial additional provisions and charge-offs and may have a material adverse impact on our results of operations and financial condition.

Risks relating to our insurance operations

Our profitability may be adversely affected if actual benefits and claims amounts on our in-force insurance policies exceed the amounts that we have reserved, or we increase the amount of reserves due to a change in our underlying assumptions.

We operate our insurance business through KB Insurance Co., Ltd., our non-life insurance subsidiary which became a consolidated subsidiary in May 2017, and KB Life Insurance, which was formed in January 2023 through a merger of our existing life insurance subsidiaries, the Former KB Life Insurance and Prudential Life Insurance. With respect to our insurance operations, we establish and carry, as a liability, policy reserves based on the greater of statutory reserves and actuarial estimates of how much we will need to pay for future benefits and claims on our in-force non-life insurance and life insurance policies. The profitability of our insurance operations depends significantly upon the extent to which our actual claims results are consistent with the assumptions used in setting the prices for our insurance products and establishing the liabilities in our financial statements for our obligations for future insurance policy benefits and claims. We establish the liabilities for obligations for future insurance policy benefits and claims based on the expected payout of benefits, calculated through the use of assumptions for investment returns, mortality, morbidity, expenses and persistency, as well as certain macroeconomic factors such as inflation. We also use methods to analyze loss trends with respect to certain risk assumptions relating to natural disasters. These assumptions are based on our previous experience and published data from third party industry sources, as well as judgments made by our management. These

 

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assumptions and estimates may deviate from our actual experience due to various factors that are beyond our control, including as a result of unexpected changes in the scope of coverage by the Korean national health insurance program and advancements in health care that result in increased life expectancy and early detection of diseases, as well as re-interpretations of our insurance policy terms by Korean regulators or courts. In addition, the occurrence of unexpected catastrophic events in Korea, including pandemics or natural or man-made disasters, may result in claims that significantly exceed our expectations. As a result, we cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of, actual benefits and claims or whether the assets supporting the insurance policy liabilities will grow to the level we assume prior to payment of benefits or claims. These amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future.

We evaluate the adequacy of our insurance policy liabilities periodically based on changes in the assumptions used to determine our best estimates of claims, expenses, persistency rates and interest rates, as well as based on our actual policy benefits and claims results. To the extent that trends in actual claims results are less favorable than our underlying assumptions used in establishing these liabilities, and our total insurance policy liabilities are considered to be inadequate to meet our future contractual obligations as and when they arise, we could be required to increase our liabilities. We record increases in our insurance policy liabilities as expenses in the period in which the liabilities are established or re-evaluated. If actual benefits and claims amounts exceed the amounts that we have reserved, or we increase the amount of insurance policy liabilities due to a change in our underlying assumptions, it could have a material adverse effect on our results of operations and financial condition.

Our insurance subsidiaries may be required to raise additional capital or reduce their growth or business scale if their risk-based capital adequacy ratio deteriorates or the applicable capital requirements change in the future.

Pursuant to the risk-based capital adequacy requirements implemented by the Financial Services Commission, insurance companies in Korea are required to maintain a statutory ratio of available regulatory capital to risk-weighted assets of not less than 100% on a consolidated basis. Furthermore, the Financial Supervisory Service had previously recommended that insurance companies maintain a risk-based capital adequacy ratio of not less than 150%, and its former administrative guidelines had required insurance companies failing to maintain such recommended 150% ratio to submit a capital increase plan. Although the Financial Supervisory Service has since withdrawn such administrative guidelines, we believe that a risk-based capital adequacy ratio of not less than 150% is still considered standard in the Korean insurance industry. Risk-based capital adequacy requirements require insurance companies to hold adequate capital to cover their exposures to interest rate risk, market risk, credit risk and operational risk as well as insurance risk by reflecting such risks in their calculation of risk-weighted assets. As of December 31, 2022, KB Insurance, Prudential Life Insurance and the Former KB Life Insurance had a risk-based capital adequacy ratio of 171.66%, 248.37% and 130.48%, respectively.

On January 1, 2023, the Financial Supervisory Service introduced the Korean-Insurance Capital Standard, or K-ICS, a new regulatory solvency regime for insurance companies based on the International Capital Standard developed by the International Association of Insurance Supervisors, which is similar in substance to the Solvency II Directive of the European Union. The Solvency II Directive, which has been in effect in the European Union since January 1, 2016, is a comprehensive program of regulatory requirements for insurance companies, covering authorization, corporate governance, supervisory reporting, public disclosure and risk assessment and management, as well as solvency. Under K-ICS, insurance contract liabilities are expected to be measured based on market value, rather than book value, at the time of the computation of available capital. K-ICS has also introduced new risk subcategories, including those related to termination, business expenses, longevity, catastrophes and asset concentration, to be considered at the time of the computation of required capital. It is expected that these changes, among others, would require a number of insurance companies in Korea with a large portfolio of high guaranteed rate of return products to obtain additional capital to meet their capital

 

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adequacy requirements. However, the Financial Supervisory Service has allowed for a gradual deduction from available capital and a gradual recognition of risks in relation to required capital, for up to ten years. In order to ease the burden on insurance companies, corrective measures will be withheld for up to five years even if the solvency ratio under K-ICS is less than 100%, if the risk-based capital adequacy ratio exceeds 100%. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Insurance Companies—Capital Adequacy.”

There is no guarantee that our insurance subsidiaries will not be required to raise additional capital to sustain their risk-based capital adequacy ratio above the required level in connection with the implementation of K-ICS. Any material deterioration in the risk-based capital adequacy ratio of our insurance subsidiaries, as a result of the implementation of K-ICS or otherwise, could change their customers’ or business counterparties’ perception of their financial health, which in turn could adversely affect their business and profitability. Furthermore, if they grow rapidly or if their asset quality deteriorates in the future, our insurance subsidiaries may be required to raise additional capital, which we may need to provide in whole or in part, to meet their capital adequacy requirements. If we or our insurance subsidiaries are not able to raise any required additional capital, we may be forced to reduce the growth or scale of our insurance operations.

Changes in accounting standards for insurance contracts and their implementation could adversely impact our reported results of operations and financial condition and their comparability with those from prior periods.

In response to a lack of comparability in the global insurance industry stemming from variations in accounting policies being applied, in May 2017, the IASB issued IFRS 17, a new IFRS accounting standard for insurance contracts to supersede IFRS 4 with an effective date of January 1, 2021, which was subsequently deferred to January 1, 2022 and again to January 1, 2023. With IFRS 17 currently in effect, we expect compliance with such revised accounting standards to significantly affect the way in which we and other operators of insurance businesses in Korea account for insurance policies, annuity contracts and financial instruments and how our financial statements are presented.

IFRS 17 has introduced a fundamentally different approach to previous accounting policies under IFRS 4 in terms of both liability measurement and profit recognition. Under IFRS 17, insurance contract liabilities are no longer calculated based on historical or past assumptions and are now based on the present value of future insurance cash flows using a discount rate reflecting current interest rates and the characteristics of the insurance contracts, with a risk adjustment and deferral of up-front profits. Among other effects, this may result in an increase in the level of the liabilities of our insurance subsidiaries, which would lead to a decrease in the balance of their available capital, which in turn may lower their risk-based capital adequacy ratio, depending on the solvency regime applicable at the time. In addition, under IFRS 17, certain parts of premium income from insurance contracts will be recognized over the coverage period in proportion to the value of expected coverage and other services that the insurer will provide over such period, rather than recognized at the time of receipt of premium payments, and the investment component of an insurance contract (which refers to amounts to be repaid to policyholders even if the insured event does not occur) will be disaggregated and excluded from premium income. Such changes to revenue recognition methodology will likely have the effect of, among other things, reducing the reported revenue from our insurance operations in our financial statements.

Given the complexity of IFRS 17 and the significant amount of time and resources required to adopt IFRS 17 accounting, we have been investing in information technology systems and processes designed to enhance our financial analysis and impact assessment with respect to our insurance operations. We have also taken other measures to reduce the amount of our statutorily required capital under IFRS 17, including developing new products with improved capital efficiency and strengthening our asset-liability management and our monitoring of interest rate risk. Potential challenges that we have faced, and may continue to face, in terms of implementation of IFRS 17 include:

 

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interpretation of the requirements and potential operational difficulties when applying such requirements;

 

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data collection, storage and analysis;

 

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integration of existing systems and processes with new actuarial systems;

 

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increased finance, actuarial and risk management coordination;

 

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implementation of new business strategies in preparation for IFRS 17, including adjusting the duration of interest-earning assets and interest-bearing liabilities and our asset-liability management policies within our insurance operations;

 

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impact of the transition to a new Korean regulatory solvency regime, which was implemented on January 1, 2023; and

 

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changes to other aspects of our insurance business, such as product design, remuneration policies and business planning.

The effect of changes required to our accounting policies as a result of implementing IFRS 17 is currently uncertain, but these changes can be expected to, among other things, alter the timing of IFRS profit recognition. The implementation of IFRS 17, as well as any other new or revised insurance accounting standards we are required to adopt in the future, could result in significant costs and may have a material adverse effect on our business and our reported results of operations and financial condition.

Other risks relating to our business

The COVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.

COVID-19, an infectious disease caused by severe acute respiratory syndrome coronavirus 2, has spread globally and was declared a “pandemic” by the World Health Organization in March 2020. The COVID-19 pandemic has materially and adversely affected the global economy and financial markets as well as disrupted our business operations.

Risks associated with a prolonged COVID-19 pandemic or other types of widespread infectious diseases include:

 

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an increase in defaults on loan payments from our customers that are particularly affected by the COVID-19 pandemic (such as those in the transportation, food and beverage, hotel, leisure and shipping industries and certain sectors of the manufacturing industry), who may not be able to meet payment obligations, which may lead to an increase in delinquency ratios and a deterioration in asset quality (see “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Loan Concentration by Industry”);

 

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depreciation of the Won against major foreign currencies, which in turn may increase our cost in servicing our foreign currency denominated debt and result in foreign exchange losses;

 

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disruption in the normal operations of our business resulting from contraction of infectious diseases by our employees, which may necessitate our employees to be quarantined and/or our offices to be temporarily shut down;

 

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disruption resulting from the necessity for social distancing, including, for example, temporary arrangements for employees to work remotely, which may lead to a reduction in labor productivity; and

 

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impairments in the fair value of our investments in companies that may be adversely affected by the pandemic.

It is not possible to predict the duration or the full magnitude of the overall harm that may result from COVID-19 in the long term. In the event that COVID-19 or other types of widespread infectious diseases cannot be effectively and timely contained, our business, financial condition and results of operations will likely suffer.

 

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Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.

The overall prospects for the Korean and global economy in 2023 and beyond remain uncertain. In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

 

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the occurrence of severe health epidemics, including the COVID-19 pandemic;

 

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hostilities, political or social tensions involving Russia (including the invasion of Ukraine by Russia and ensuing actions that the United States and other countries have taken or may take in the future, such as the imposition of sanctions against Russia) and the resulting adverse effects on the global supply of oil and other natural resources and the global financial markets;

 

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interest rate fluctuations as well as perceived or actual changes in policy rates by, or other monetary and fiscal policies set forth by, the U.S. Federal Reserve and other central banks;

 

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a rise in inflation rates and volatility in stock markets and exchange rates worldwide;

 

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adverse developments in the global financial markets and industry, including difficulties faced by several banks in the United States and Europe;

 

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a deterioration in economic and trade relations between the United States and its major trading partners, including China;

 

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financial and social difficulties affecting many countries worldwide, in particular in Latin America and Europe;

 

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escalations in trade protectionism globally and geopolitical tensions in East Asia and the Middle East;

 

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the slowdown of economic growth in China and other major emerging market economies; and

 

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political and social instability in various countries in the Middle East, including Iran, Syria and Iraq.

In light of the high level of interdependence of the global economy, unfavorable changes in the global financial markets, including as a result of any of the foregoing developments, could have a material adverse effect on the Korean economy and financial markets, and in turn on our business, financial condition and results of operations.

We are also exposed to adverse changes and volatility in the global and Korean financial markets as a result of our liabilities and assets denominated in foreign currencies and our holdings of trading and investment securities, including structured products. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years and has been subject to significant volatility as a result of the COVID-19 pandemic, the invasion of Ukraine by Russia and the ensuing sanctions against Russia and, more recently, the widening difference in policy rates between the United States and Korea. A depreciation of the Won will increase our cost in Won of servicing our foreign currency-denominated debt, while continued exchange rate volatility may also result in foreign exchange losses for us. Furthermore, as a result of the deterioration in global and Korean economic conditions, there has been downward pressure on securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Such developments have resulted in and may lead to further trading and valuation losses on our trading and investment securities portfolio as well as impairment losses on our investments accounted for under the equity method.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, could adversely affect our results of operations and financial condition.

In early 2023, difficulties at several banks in the United States and Europe have caused uncertainty for financial services companies, in particular the banking sector, and fear of instability in the global financial system generally, including in Korea. Such difficulties were caused, among others, by rising levels of inflation rates and rapid increases in interest rates, which have led to declines in the values of previously issued

 

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government securities held by such banks. Although the relevant financial authorities have intervened directly and indirectly in notable cases, there is a risk that other financial institutions could face difficulties, including from contagion disconnected from market fundamentals or for other reasons, and it is unclear what steps regulators would take, if any, in the event of further bank difficulties or continuing (or increasing) market distress. Many financial institutions have experienced volatile stock prices and significant losses in their equity value, and there is concern that depositors have withdrawn, or could withdraw in the future, significant sums from their accounts at these institutions. Any negative perceptions resulting from such developments concerning the soundness of savings banks, Internet-only banks or the banking system generally in Korea could impact where customers choose to maintain deposits, which could lead certain banks in Korea to experience closure or other significant distress. In such event, the Korean government has in the past and may in the future require us, as one of the largest financial holding companies in Korea, to intervene, which could strain our resources, divert our management’s attention and have an adverse impact on our results of operations and financial condition.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect the financial services industry generally or financial institutions, transactional counterparties or other companies in the financial services industry, or concerns or rumors about any events of these kinds or other similar risks, may in the future lead to market-wide liquidity problems or increase our risk in various dealings with our counterparties, among others. If, as a result of such developments, any parties with whom we conduct business are unable to access their deposits with a distressed financial institution or any of their other funds loaned to such distressed financial institution, including through financial instruments or lending arrangements, such parties’ credit quality, ability to pay their obligations to us, or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. In addition, our ability to access funding sources and other arrangements in amounts adequate to finance or capitalize our current and projected future business operations could also be affected by such disruptions or instability in the financial services industry or financial markets. Furthermore, we could be impacted by current or future negative perceptions and expectations about the prospects for the financial services industry, which could worsen over time and result in downward pressure on, and continued or accelerated volatility of, bank securities. Any of these developments resulting from the general instability of the financial services industry could materially adversely impact our results of operations and financial condition.

Our business may be materially and adversely affected by legal claims and regulatory actions against us.

We are subject to the risk of legal claims and regulatory actions in the ordinary course of our business, which may expose us to substantial monetary damages and legal costs, injunctive relief, criminal and civil penalties, sanctions against our management and employees and regulatory restrictions on our operations, as well as significant reputational harm. See “Item 8A. Consolidated Statements and Other Financial Information—Legal Proceedings.”

We are unable to predict the outcome of the legal claims and regulatory actions in which we are involved, and the scope of the claims or actions or the total amount in dispute in such matters may increase. Furthermore, adverse final determinations, decisions or resolutions in such matters could encourage other parties to bring related claims and actions against us. Accordingly, the outcome of current and future legal claims and regulatory actions, particularly those for which it is difficult to assess the maximum potential exposure or the ultimate adverse impact with any degree of certainty, may materially and adversely impact our business, reputation, results of operations and financial condition.

Our risk management system may not be effective in mitigating risk and loss, including operational risk.

We seek to monitor and manage our risk exposure through a group-wide risk management platform, encompassing a multi-layered risk management governance structure, reporting and monitoring systems, early warning systems, credit risk management systems for our banking operations and other risk management infrastructure, using a variety of risk management strategies and techniques. See “Item 11. Quantitative and

 

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Qualitative Disclosures about Market Risk.” However, such risk management strategies and techniques employed by us and the judgments that accompany their application cannot anticipate the economic and financial outcome in all market environments, and many of our risk management strategies and techniques have a basis in historical market behavior that may limit the effectiveness of such strategies and techniques in times of significant market stress or other unforeseen circumstances. Furthermore, our risk management strategies may not be effective in a difficult or less liquid market environment, as other market participants may be attempting to use the same or similar strategies as us to deal with such market conditions. In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants.

We also seek to identify and manage our exposure to operational risk, which we define broadly to include all financial and non-financial risks, other than credit risk, market risk, interest rate risk and liquidity risk, that may arise from our operations that could negatively impact our capital, including the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events as defined under Basel II. In addition to our internal audits and inspections, the Financial Supervisory Service conducts general annual audits of our operations, as well as special audits and investigations as the need arises on particular aspects of our operations, such as risk management, internal control, credit monitoring and liquidity. In the ordinary course of these audits or investigations, the Financial Supervisory Service routinely issues warning notices where it determines that a regulated financial institution or such institution’s employees have failed to comply with the applicable laws or rules, regulations and guidelines of the Financial Supervisory Service. We have in the past received, and expect in the future to receive, such notices, and we have taken and will continue to take appropriate actions in response to such notices. While we intend to fully cooperate with the Financial Supervisory Service in its audits and investigations and take any remedial measures as necessary, no assurance can be given that these remedial measures would be sufficient to prevent similar or more adverse operational risks from materializing.

We may suffer losses due to employee misconduct.

Our businesses are exposed to risk from potential non-compliance by our employees with policies or regulations, employee misconduct or negligence and fraud, which could result in civil, regulatory or criminal investigations, litigations and charges, regulatory sanctions and reputational or financial harm. For example, in January 2023, we discovered through internal investigations that an employee of Kookmin Bank had misappropriated an aggregate of ￦14.9 billion between May 2021 and December 2022. We have reported such incident to the Financial Supervisory Service, which began investigations in January 2023. As of the date of this annual report, the Financial Supervisory Service has not released the results of such investigation. There can be no assurance that we will be able to fully recoup any financial losses that we may have sustained as a result of any employee misconduct. Furthermore, it is not always possible to deter or fully prevent employee misconduct and the precautions we take to prevent and detect such activity may not always be fully effective. Accordingly, there can be no assurance that employee misconduct will not occur again in the future.

Uncertainties regarding the transition away from the London Interbank Offered Rate, or LIBOR, or any other interest rate benchmark could have adverse consequences for market participants, including us.

The ICE Benchmark Administration, the administrator of LIBOR, ceased publication of short-term U.S. dollar LIBOR settings and all non-U.S. dollar LIBOR settings on a representative basis after December 31, 2021, with plans to cease publication of all other U.S. dollar LIBOR settings after June 30, 2023.

Given the extensive use of LIBOR across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including us, and in particular, Kookmin Bank, our banking subsidiary. As a commercial bank, Kookmin Bank used various financial products that referenced LIBOR, including, among others, commercial loans, deposits, borrowings and debentures. Kookmin Bank had also entered into derivatives contracts in order to address the needs of its corporate clients to hedge their risk

 

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exposure as well as the need to hedge its own risk exposure that results from such client contracts. In February 2020, Kookmin Bank assembled a task force team in order to assess, identify, monitor and manage risks that may arise from the transition away from LIBOR, and to date, has substantively completed such transition, with a strategy in place for the remainder of such transactions that involve LIBOR settings that expire in 2023. LIBOR has not been used in any of Kookmin Bank’s new agreements since May 2022.

The ongoing transition away from LIBOR or any other interest rate benchmark could result in increased financial, operational, legal, reputational and/or compliance risks. For example, a significant challenge in our benchmark transition has been managing the impact of the LIBOR transition on the contractual mechanics of LIBOR-based financial instruments and contracts that mature after the announced deadlines. Certain of the remaining instruments and contracts do not provide for alternative reference rates, and even if such instruments and contracts provide for alternative reference rates, such alternative reference rates are likely to differ from the prior benchmark rates and may require us to pay interest at higher rates on the related obligations, which could adversely impact our interest expense, results of operations and cash flows. For information on our remaining financial instruments that reference LIBOR, see Notes 4.4.2 and 9.6 of the notes to our consolidated financial statements included elsewhere in this annual report. While there are a number of international working groups focused on transition plans and the provision of fallback contract language that seek to minimize market disruption, replacement of LIBOR or any other benchmark, such as the Secured Overnight Financing Rate, or SOFR, with a new benchmark rate could adversely impact the value of and return on existing instruments and contracts. Moreover, replacement of LIBOR or other benchmark rates could result in market dislocations and have other adverse consequences for market participants, including the potential for increased costs, and litigation risks stemming from potential disputes with customers and counterparties regarding the interpretation and enforceability of fallback contract language in the LIBOR-based financial instruments and contracts.

We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which may differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the U.S. Securities and Exchange Commission and listed on the New York Stock Exchange, we are subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002. However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the New York Stock Exchange. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.

A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.

A substantial portion of our loans is secured by real estate, the values of which have fluctuated significantly in recent years. Although it is our general policy to lend up to 40% to 88% of the appraised value of collateral (except in certain regulated areas designated by the Korean government where we generally limit our lending to between 10% and 60% of the appraised value of collateral) and to periodically re-appraise our collateral, a downturn in the real estate market in Korea, which most recently commenced in 2022, may result in declines in the value of the collateral securing our mortgage and home equity loans. If collateral values decline in the future, they may not be sufficient to cover uncollectible amounts in respect of our secured loans. Any future declines in the value of the real estate or other collateral securing our loans, or our inability to obtain additional collateral in the event of such declines, could result in a deterioration in our asset quality and may require us to take additional loan loss provisions.

 

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In Korea, foreclosure on collateral generally requires a written petition to a court. An application, when made, may be subject to delays and administrative requirements that may result in a decrease in the value realized with respect to such collateral. We cannot guarantee that we will be able to realize the full value on our collateral as a result of, among other factors, delays in foreclosure proceedings and defects in the perfection of our security interest in collateral. Our failure to recover the expected value of collateral could expose us to losses.

The secondary market for corporate bonds in Korea is not fully developed, and, as a result, we may not be able to realize the full book value of debt securities we hold at the time of any sale of such securities.

As of December 31, 2022, we held debt securities issued by Korean companies and financial institutions (other than those issued by the Bank of Korea, the Korea Development Bank, Korea Housing Finance Corporation, Industrial Bank of Korea and the Export-Import Bank of Korea, which are government-owned or -controlled enterprises or financial institutions) with a total carrying amount of ￦51,325 billion in our trading and investment securities portfolio. The market value of these securities could decline significantly due to various factors, including future increases in interest rates or a deterioration in the financial and economic condition of any particular issuer or of Korea in general. Any of these factors individually or a combination of these factors would require us to write down the fair value of these debt securities, resulting in impairment losses. Because the secondary market for corporate bonds in Korea is not fully developed, the market value of many of these securities as reflected on our statements of financial position is determined by references to suggested prices posted by Korean rating agencies or the Korea Financial Investment Association. These valuations, however, may differ significantly from the actual value that we could realize in the event we elect to sell these securities. As a result, we may not be able to realize the full book value at the time of any such sale of these securities and thus may incur losses.

We may be required to make transfers from our general banking operations to cover shortfalls in our guaranteed trust accounts, which could have an adverse effect on our results of operations.

We manage a number of money trust accounts through Kookmin Bank, our banking subsidiary. Under Korean law, trust account assets of a bank are required to be segregated from the assets of that bank’s general banking operations. Those assets are not available to satisfy the claims of a bank’s depositors or other creditors of its general banking operations. For some of the trust accounts we manage, we have guaranteed either the principal amount of the investor’s investment or the principal and a fixed rate of interest.

If, at any time, the income from our guaranteed trust accounts is not sufficient to pay any guaranteed amount, we will have to cover the shortfall first from the special reserves maintained in these trust accounts, then from our fees from such trust accounts and finally from funds transferred from our general banking operations. As of December 31, 2022, we had ￦115 billion of special reserves in respect of trust accounts for which we provided guarantees of principal. There was no transfer from general banking operations to cover deficiencies in guaranteed trust accounts in 2020, 2021 and 2022. However, we may be required to make transfers from our general banking operations to cover shortfalls, if any, in our guaranteed trust accounts in the future. Such transfers may adversely impact our results of operations.

Our operations have been, and will continue to be, subject to increasing and continually evolving cyber security and other technological risks.

With the proliferation of new technologies and the increasing use of the Internet and mobile devices to conduct financial transactions, our operations as a large financial institution have been, and will continue to be, subject to an increasing risk of cyber incidents relating to these activities, the nature of which is continually evolving. Our computer systems, software and networks are subject to cyber incidents, such as disruptions, delays or other difficulties from our information technology system, computer viruses or other malicious codes, loss or destruction of data (including confidential client information), unauthorized access, account takeover attempts and cyber attacks. A significant portion of our daily operations relies on our information technology

 

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systems, including customer service, billing, the secure processing, storage and transmission of confidential and other information as well as the timely monitoring of a large number of complex transactions. Although we have made substantial and continual investments to build systems and defenses to address cyber security and other technological risks, there is no guarantee that such measures or any other measures can provide adequate security. In addition, because methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, we may be unable to implement effective preventive measures or proactively address these methods. Furthermore, these cyber threats may arise from human error, accidental technological failure and third parties with whom we do business. Although we maintain insurance coverage that may cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. If we were to be subject to a cyber incident, it could result in the disclosure of confidential client information, damage to our reputation with our customers and in the market, customer dissatisfaction, additional costs to us, regulatory penalties, exposure to litigation and other financial losses to both us and our customers, which could have an adverse effect on our business and results of operations.

Risks relating to liquidity and capital management

Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.

We meet a significant amount of our funding requirements through short-term funding sources, which consist primarily of customer deposits. As of December 31, 2022, approximately 95.5% of our deposits had maturities of one year or less or were payable on demand. In the past, a substantial proportion of our customer deposits have been rolled over upon maturity. We cannot guarantee, however, that depositors will continue to roll over their deposits in the future. In the event that a substantial number of our short-term deposit customers withdraw their funds or fail to roll over their deposits as higher-yielding investment opportunities emerge, our liquidity position could be adversely affected. We may also be required to seek more expensive sources of short-term and long-term funding to finance our operations. See “Item 5.B. Liquidity and Capital Resources—Financial Condition—Liquidity.”

We may be required to raise additional capital if our capital adequacy ratio deteriorates or the applicable capital requirements change in the future, but we may not be able to do so on favorable terms or at all.

Under the capital adequacy requirements of the Financial Services Commission, as of December 31, 2022, both we and Kookmin Bank, our banking subsidiary, were required to maintain a total minimum common equity Tier I capital adequacy ratio of 8.0%, Tier I capital adequacy ratio of 9.5% and combined Tier I and Tier II capital adequacy ratio of 11.5%, on a consolidated basis (including applicable additional capital buffers and requirements as described below). As of December 31, 2022, our common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 13.24%, 14.86% and 16.16%, respectively, and Kookmin Bank’s common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 14.50%, 14.92% and 17.46%, respectively, all of which exceeded the minimum levels required by the Financial Services Commission. However, our capital base and capital adequacy ratios may deteriorate in the future if our results of operations or financial condition deteriorates for any reason, including as a result of a deterioration in the asset quality of our retail loans (including credit card balances) and loans to small- and medium-sized enterprises, or if we are not able to deploy our funding into suitably low-risk assets.

The current capital adequacy requirements of the Financial Services Commission are derived from a new set of bank capital measures, referred to as Basel III, which the Basel Committee on Banking Supervision initially introduced in 2009 and began phasing in starting from 2013. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean banks and bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to

 

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4.5% and 6.0%, respectively, from January 1, 2015. The amended regulations also require an additional capital conservation buffer of 2.5% from January 2019, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission and may be fully or partially enforced in 2023. Furthermore, we and Kookmin Bank were each designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2022 by the Financial Services Commission and were subject to an additional capital requirement of 1.0% in 2022. In July 2022, we and Kookmin Bank were each again designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2023, which would again subject us to an additional capital requirement of 1.0% in 2023. All such requirements are in addition to the pre-existing requirement for minimum ratios of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets set forth above. The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean financial institutions, including us. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy” and “—Principal Regulations Applicable to Banks—Capital Adequacy.”

We may be required to obtain additional capital in the future in order to remain in compliance with more stringent capital adequacy and other regulatory requirements. However, we may not be able to obtain additional capital on favorable terms, or at all. Our ability to obtain additional capital at any time may be constrained to the extent that banks or other financial institutions in Korea or from other countries are seeking to raise capital at the same time. To the extent that we fail to comply with applicable capital adequacy ratios or other regulatory requirements in the future, Korean regulatory authorities may impose penalties on us ranging from a warning to suspension or revocation of our banking license.

Significant increases in interest rates could decrease the value of our debt securities portfolio and raise our funding costs while reducing loan demand and the repayment ability of our borrowers, which, as a result, could adversely affect us.

Interest rates in Korea have been subject to significant fluctuations in recent years. After the Bank of Korea reduced its policy rate to 1.50% in 2015 and again to 1.25% in June 2016 amid deflationary concerns and interest rate cuts by central banks around the world, it increased its policy rate to 1.50% in November 2017 and 1.75% in November 2018 in light of improved growth prospects in Korea and rising interest rate levels globally. However, the Bank of Korea again lowered its policy rate to 1.50% in July 2019 and to 1.25% in October 2019 in order to address the sluggishness of the global and domestic economy. Subsequently, the Bank of Korea further lowered its policy rate to 0.75% in March 2020 and to 0.50% in May 2020 in response to deteriorating economic conditions resulting from the COVID-19 pandemic. However, as the economy began to show signs of recovery from the COVID-19 pandemic starting from the second half of 2021, the Bank of Korea gradually raised its policy rate to pre-pandemic levels of 1.25% from August 2021 through January 2022. More recently, in response to rising levels of household debt and inflation in Korea as well as globally, the Bank of Korea raised its policy rate further to 1.50% in April 2022, 1.75% in May 2022, 2.25% in July 2022, 2.50% in August 2022, 3.00% in October 2022, 3.25% in November 2022 and 3.50% in January 2023. All else being equal, increases in interest rates in the future could lead to a decline in the value of our portfolio of debt securities, which generally pay interest based on a fixed rate. A sustained increase in interest rates will also raise our funding costs, while reducing loan demand, especially among retail borrowers. Rising interest rates may therefore require us to re-balance our asset portfolio and our liabilities in order to minimize the risk of potential mismatches and maintain our profitability.

In addition, rising interest rate levels may adversely affect the Korean economy and the financial condition of our corporate and retail borrowers, including holders of our credit cards, which in turn may lead to a deterioration in our credit portfolio. In particular, since most of our retail and corporate loans bear interest at rates that adjust periodically based on prevailing market rates, a sustained increase in interest rate levels will increase the interest costs of our retail and corporate borrowers and could adversely affect their ability to make payments on their outstanding loans.

 

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Furthermore, in periods of increasing interest rates, the yields on the general account assets of our insurance subsidiaries may not be sufficient to fund the higher floating interest credit rates necessary to keep their interest-sensitive insurance products competitive. They may therefore have to accept a lower spread and thus lower profitability or face a decline in sales and greater attrition among their existing policyholders. In addition, in periods of increasing interest rates, the value of the debt securities and other general account assets of our insurance subsidiaries may decline, resulting in lower unrealized gains within other comprehensive income in their total equity, which in turn would lower their available capital and their risk-based capital adequacy ratio. Moreover, surrenders and withdrawals of insurance policies may increase as policyholders seek to buy products with perceived higher returns. This process may lead to a cash outflow from our insurance subsidiaries. Such cash outflows may require them to sell their investment assets at a time when the prices of those assets are lower because of the increase in market interest rates, which may result in investment losses.

Risks relating to government regulation and policy

Strengthening of consumer protection laws applicable to financial institutions could adversely affect our operations.

As a financial service provider, we are subject to a variety of regulations in Korea that are designed to protect financial consumers. In recent years, in light of heightened public concern regarding privacy issues, the Korean government has placed greater emphasis on the protection of personal information by financial institutions and has implemented a number of measures to enhance consumer protection, including considerable restrictions on the transfer or provision of personal information by financial institutions to their affiliates or holding company. Under the Personal Information Protection Act, financial institutions, as personal information managers, may not collect, store, maintain, utilize or provide resident registration numbers of their customers, unless other laws or regulations specifically require or permit the management of resident registration numbers. In addition, under the Use and Protection of Credit Information Act, a financial institution has a higher duty to protect all information that it collects from its customers and is required to treat such information as credit information. There are considerable restrictions on the transfer or provision of the information by financial institutions to their affiliates or holding company. Quintuple damages may be imposed on a financial institution for leakage of such information. Furthermore, under the Electronic Financial Transaction Act, a financial institution is primarily responsible for compensating its customers harmed by a cyber security breach affecting the financial institution even if the breach is not directly attributable to the financial institution.

Under the Financial Consumer Protection Act, which was enacted in March 2020, we, as a financial instrument distributor, are subject to heightened investor protection measures, including stricter distribution guidelines, improved financial dispute resolution procedures, increased liability for customer losses and newly imposed penalty surcharges. Following the enactment of the Financial Consumer Protection Act, financial regulators have published subordinate regulations to such Act, including the Enforcement Decree, Supervisory Regulations and Enforcement Rules to the Supervisory Regulations governing consumer protection within the financial industry.

These and other measures that may be implemented by the Korean government to strengthen consumer protection laws applicable to financial institutions may limit our operational flexibility and cause us to incur significant additional compliance costs, as well as subject us to increased potential liability to our customers, which could adversely affect our business and performance.

The Korean government may promote lending and financial support by the Korean financial industry to certain types of borrowers as a matter of policy, which financial institutions, including us, may decide to follow.

Through its policies and recommendations, the Korean government has promoted and, as a matter of policy, may continue to attempt to promote lending by the Korean financial industry to particular types of borrowers. For

 

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example, the Korean government has in the past provided and may continue to provide policy loans, which encourage lending to particular types of borrowers. It has generally done this by identifying sectors of the economy it wishes to promote and making low interest funding available to financial institutions that may voluntarily choose to lend to these sectors. All loans or credits we choose to make pursuant to such policy loans would be subject to review in accordance with our credit approval procedures. However, the availability of policy loans may influence us to lend to certain sectors or in a manner in which we otherwise would not in the absence of such loans from the government.

In the past, the Korean government has also announced policies under which financial institutions in Korea are encouraged to provide financial support to particular sectors. For example, in light of the deteriorating financial condition and liquidity position of small- and medium-sized enterprises in Korea and adverse conditions in the Korean economy affecting such enterprises, the Korean government had temporarily introduced measures in April 2020 intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise and retail borrowers, including guidelines for Korean banks to extend loan terms and defer interest payments with respect to small- and medium-sized enterprises and SOHOs affected by the COVID-19 pandemic. See “—Risks relating to our small- and medium-sized enterprise loan portfolio—We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.” and “—Risks relating to our retail credit portfolio—Future changes in market conditions as well as other factors may lead to increases in delinquency levels of our retail loan portfolio.” The Korean government may in the future request financial institutions in Korea, including us, to make investments in or provide other forms of financial support to particular sectors of the Korean economy as a matter of policy, which financial institutions, including us, may decide to accept. We may incur costs or losses as a result of providing such financial support.

The Financial Services Commission may impose burdensome measures on us if it deems us or one of our subsidiaries to be financially unsound.

If the Financial Services Commission deems our financial condition or the financial condition of our subsidiaries to be unsound, or if we or our subsidiaries fail to meet applicable regulatory standards, such as minimum capital adequacy and liquidity ratios, the Financial Services Commission may order or recommend, among other things:

 

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capital increases or reductions;

 

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stock cancellations or consolidations;

 

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transfers of businesses;

 

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sale of assets;

 

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closures of subsidiaries or branch offices;

 

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mergers with other financial institutions; and

 

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suspensions of a part of our business operations.

If any of these measures is imposed on us by the Financial Services Commission, they could hurt our business, results of operations and financial condition. In addition, if the Financial Services Commission orders us to partially or completely reduce our capital, you may lose part or all of your investment.

Risks relating to Korea

Escalations in tensions with North Korea could have an adverse effect on us and the market value of our ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events.

 

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In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

 

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North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. North Korea has increased the frequency of its missile tests in 2022, firing over 60 ballistic missiles, including eight intercontinental ballistic missiles. In response, the Korean government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

 

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In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Korean government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Korean government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although bilateral summit meetings were held between Korea and North Korea in April, May and September 2018 and between North Korea and the United States in June 2018, February 2019 and June 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea or between the United States and North Korea break down or military hostilities occur, could have a material adverse effect on the Korean economy and on our business, financial condition and results of operations and the market value of our common stock and American depositary shares, or ADSs.

Unfavorable financial and economic developments in Korea may have an adverse effect on us.

We are incorporated in Korea, and substantially all of our operations are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea, and our performance and successful fulfillment of our operational strategies are dependent to a large extent on the overall Korean economy. The economic indicators in Korea in recent years have shown mixed signs of deterioration and recovery. Following a period of deterioration due to the debilitating effects of the COVID-19 pandemic on the Korean economy as well as on the economies of Korea’s major trading partners in 2020, the overall Korean economy has shown some signs of recovery in 2021. See “Other risks relating to our business—The COVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.” However, the Korean economy in 2022 was characterized by high levels of uncertainty resulting from high inflation rates, a rise in interest rates and a depreciation of the Won against the U.S. dollar. As a result, future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.

 

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In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the increasing weakness of the global economy, among others due to the COVID-19 pandemic and more recently due to Russia’s invasion of Ukraine and ensuing sanctions against Russia, have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. See “Other risks relating to our business—Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.” The value of the Won relative to major foreign currencies has fluctuated significantly and, as a result of deteriorating global and Korean economic conditions, there recently has been significant volatility in the stock prices of Korean companies. Further declines in the Korea Composite Stock Price Index, or the KOSPI, and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Korea’s economy include:

 

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declines in consumer confidence and a slowdown in consumer spending in the Korean or global economy;

 

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the occurrence of severe health pandemics, such as the COVID-19 pandemic, or other severe health epidemics in Korea or other parts of the world, such as the Middle East Respiratory Syndrome outbreak in Korea in 2015;

 

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deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy;

 

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adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union;

 

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adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets;

 

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hostilities, political or social tensions involving Russia (including the invasion of Ukraine by Russia and ensuing actions that the United States and other countries have taken or may take in the future) and the resulting adverse effects on the global supply of oil and other natural resources and the global financial markets;

 

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increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;

 

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a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers in Korea;

 

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a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean government’s policies to increase minimum wages and limit working hours of employees;

 

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investigations of large Korean business groups and their senior management for possible misconduct;

 

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social and labor unrest;

 

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substantial changes in the market prices of Korean real estate;

 

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a decrease in tax revenues or a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs, particularly

 

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in light of the Korean government’s ongoing efforts to provide emergency relief payments to households and emergency loans to corporations in need of funding due to the COVID-19 pandemic, which, together, may lead to an increased government budget deficit;

 

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financial problems or lack of progress in the restructuring of chaebols, other large troubled companies (including those in the construction, shipbuilding and shipping sectors) and their suppliers or the financial sector;

 

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loss of investor confidence arising from corporate accounting irregularities or corporate governance issues at certain chaebols;

 

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increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

 

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the economic impact of any pending or future free trade agreements or of any changes to existing free trade agreements;

 

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geo-political uncertainty and the risk of further attacks by terrorist groups around the world;

 

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natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners;

 

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political uncertainty or increasing strife among or within political parties in Korea;

 

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hostilities or political or social tensions involving oil-producing countries in the Middle East (including a potential escalation of hostilities between the United States and Iran) and Northern Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

 

  •  

increased reliance on exports to service foreign currency borrowings, which could cause friction with Korea’s trading partners;

 

  •  

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States; and

 

  •  

changes in financial regulations in Korea.

Labor unrest in Korea may adversely affect our operations.

Economic difficulties in Korea or increases in corporate reorganizations and bankruptcies could result in layoffs and higher unemployment. Such developments could lead to social unrest and substantially increase government expenditures for unemployment compensation and other costs for social programs. According to statistics from the Korea National Statistical Office, the unemployment rate decreased from 4.0% in 2020 to 3.6% in 2021 and 2.9% in 2022. Increases in unemployment and any resulting labor unrest in the future could adversely affect our operations, as well as the operations of many of our customers and their ability to repay their loans, and could adversely affect the financial condition of Korean companies in general, depressing the price of their securities. These developments would likely have an adverse effect on our financial condition and results of operations.

Risks relating to our common stock and ADSs

We or our major stockholders may sell shares of our common stock or ADSs in the future, and these and other sales may adversely affect the market price of our common stock and ADSs and may dilute your investment and relative ownership in us.

We have no current plans for any public offerings of our common stock, ADSs or securities exchangeable for or convertible into such securities. However, it is possible that we may decide to offer or sell such securities in the future. In addition, our major stockholder, the Korean National Pension Service, held approximately 7.95% of our total issued common stock as of December 31, 2022, which it may sell at any time.

 

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Any future offerings or sales by us of our common stock or ADSs or securities exchangeable for or convertible into such securities, significant sales of our common stock by a major stockholder, or the public perception that an offering or sales may occur, could have an adverse effect on the market price of our common stock and ADSs. Furthermore, any offerings by us in the future of any such securities could have a dilutive impact on your investment and relative ownership interest in us.

Ownership of our common stock is restricted under Korean law.

Under the Financial Holding Company Act, a single stockholder, together with its affiliates, is generally prohibited from owning more than 10.0% of the issued and outstanding shares of voting stock of a bank holding company such as us that controls a nationwide bank, with the exception of certain stockholders that are non-financial business group companies, whose applicable limit has been reduced from 9.0% to 4.0% pursuant to an amendment of the Financial Holding Company Act which became effective from February 14, 2014. To the extent that the total number of shares of our common stock (including those represented by ADSs) that a holder and its affiliates own exceeds the applicable limits, that holder will not be entitled to exercise the voting rights for the excess shares, and the Financial Services Commission may order that holder to dispose of the excess shares within a period of up to six months. Failure to comply with such an order would result in an administrative fine of up to 0.03% of the book value of such shares per day until the date of disposal. Non-financial business group companies can no longer acquire more than 4.0% of the issued and outstanding shares of voting stock of a bank holding company pursuant to the amended Financial Holding Company Act, which grants an exception for non-financial business group companies which, at the time of the enactment of the amended provisions, held more than 4.0% of the shares thereof with the approval of the Financial Services Commission before the amendment. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Ownership of a Financial Holding Company.”

A holder of our ADSs may not be able to exercise dissent and appraisal rights unless it has withdrawn the underlying shares of our common stock and become our direct stockholder.

In some limited circumstances, including the transfer of the whole or any significant part of our business and the merger or consolidation of us with another company, dissenting stockholders have the right to require us to purchase their shares under Korean law. However, holders of our ADSs will not be able to exercise such dissent and appraisal rights if the depositary refuses to do so on their behalf. Our deposit agreement does not require the depositary to take any action in respect of exercising dissent and appraisal rights. In such a situation, holders of our ADSs must withdraw the underlying common stock from the ADS facility (and incur charges relating to that withdrawal) and become our direct stockholder prior to the record date of the stockholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights.

A holder of our ADSs may be limited in its ability to deposit or withdraw common stock.

Under the terms of our deposit agreement, holders of common stock may deposit such stock with the depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the depositary and receive common stock. However, to the extent that a deposit of common stock exceeds the difference between:

 

  (1)

the aggregate number of common shares we have deposited or we have consented to allow to be deposited for the issuance of ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to ADSs); and

 

  (2)

the number of shares of common stock on deposit with the custodian for the benefit of the depositary at the time of such proposed deposit,

such common stock will not be accepted for deposit unless:

 

  (A)

our consent with respect to such deposit has been obtained; or

 

  (B)

such consent is no longer required under Korean laws and regulations.

 

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Under the terms of the deposit agreement, no consent is required if the shares of common stock are obtained through a dividend, free distribution, rights offering or reclassification of such stock. We have consented, under the terms of the deposit agreement, to any deposit to the extent that, after the deposit, the number of deposited shares does not exceed such number of shares as we determine from time to time (which number shall at no time be less than 100,000,000 shares), unless the deposit would be prohibited by applicable laws or ownership restrictions or violate our articles of incorporation. We might not consent to the deposit of any additional common stock. As a result, if a holder surrenders ADSs and withdraws common stock, it may not be able to deposit the stock again to obtain ADSs.

A holder of our ADSs will not have preemptive rights in some circumstances.

The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer stockholders the right to subscribe for new shares of our common stock in proportion to their existing shareholding ratio whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, to the extent practicable, the depositary may make the rights available to holders of our ADSs or dispose of the rights on behalf of such holders and make the net proceeds available to such holders. The depositary, however, is not required to make available to holders any rights to purchase any additional shares of our common stock unless it timely receives evidence satisfactory to it from us that it may lawfully do so and:

 

  •  

a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or

 

  •  

the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act.

Similarly, holders of our common stock located in the United States may not exercise any such rights they receive absent registration or an exemption from the registration requirements under the Securities Act.

We are under no obligation to file any registration statement with the U.S. Securities and Exchange Commission or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, a holder of our ADSs may be unable to participate in our rights offerings and may experience dilution in its holdings. If a registration statement is required for a holder of our ADSs to exercise preemptive rights but is not filed by us or is not declared effective, the holder will not be able to exercise its preemptive rights for additional ADSs and it will suffer dilution of its equity interest in us. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or practicable, it will allow the rights to lapse, in which case the holder will receive no value for these rights.

Dividend payments and the amount a holder of our ADSs may realize upon a sale of its ADSs will be affected by fluctuations in the exchange rate between the U.S. dollar and the Won.

Our common stock is listed on the KRX KOSPI Market of the Korea Exchange and quoted and traded in Won. Cash dividends, if any, in respect of the shares represented by the ADSs will be paid to the depositary in Won and then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Won and the U.S. dollar will affect, among other things, the amounts a holder of our ADSs will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that it would receive upon sale in Korea of the shares of our common stock obtained upon surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our common stock.

 

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The market value of an investment in our ADSs may fluctuate due to the volatility of the Korean securities market.

Our common stock is listed on the KRX KOSPI Market, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European countries. The market value of ADSs may fluctuate in response to the fluctuation of the trading price of shares of our common stock on the KRX KOSPI Market. The KRX KOSPI Market has experienced substantial fluctuations in the prices and volumes of sales of listed securities and the KRX KOSPI Market has prescribed a fixed range in which share prices are permitted to move on a daily basis. The KOSPI was 2,523.5 on April 24, 2023. There is no guarantee that the stock prices of Korean companies will not decline again in the future. Like other securities markets, including those in developed markets, the Korean securities market has experienced problems including market manipulation, insider trading and settlement failures. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Korean companies, including our common stock and ADSs, in both the domestic and the international markets.

The Korean government has the potential ability to exert substantial influence over many aspects of the private sector business community, and in the past has exerted that influence from time to time. For example, the Korean government has promoted mergers to reduce what it considers excess capacity in a particular industry and has also encouraged private companies to publicly offer their securities. Similar actions in the future could have the effect of depressing or boosting the Korean securities market, whether or not intended to do so. Accordingly, actions by the government, or the perception that such actions are taking place, may take place or has ceased, may cause sudden movements in the market prices of the securities of Korean companies in the future, which may affect the market price and liquidity of our common stock and ADSs.

If the Korean government deems that emergency circumstances are likely to occur, it may restrict holders of our ADSs and the depositary from converting and remitting dividends and other amounts in U.S. dollars.

If the Korean government deems that certain emergency circumstances, including, but not limited to, severe and sudden changes in domestic or overseas economic circumstances, extreme difficulty in stabilizing the balance of payments or implementing currency exchange rate and other macroeconomic policies, have occurred or are likely to occur, it may impose certain restrictions provided for under the Foreign Exchange Transaction Act, including the suspension of payments or requiring prior approval from governmental authorities for any transaction. See “Item 10.D. Exchange Controls—General.”

A holder of our ADSs may not be able to enforce a judgment of a foreign court against us.

We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this document reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this document and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of our ADSs to effect service of process within the United States, or to enforce against them or us in the United States judgments obtained in United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.

 

Item 4.

INFORMATION ON THE COMPANY

For certain of the information required by subpart 1400 of Regulation S-K not included in this Item 4, see “Item 8.A. Consolidated Statements and Other Financial Information.”

 

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Item 4.A.

History and Development of the Company

Overview

We were established as a new financial holding company on September 29, 2008 pursuant to a “comprehensive stock transfer” under Korean law, whereby holders of the common stock of Kookmin Bank and certain of its subsidiaries transferred all of their shares to us in return for shares of our common stock. We were established pursuant to the Financial Holding Company Act, which was enacted in October 2000 and which, together with associated regulations and a related Enforcement Decree, has enabled banks and other financial institutions, including insurance companies, investment trust companies, credit card companies and securities companies, to be organized and managed under the auspices of a single financial holding company.

Our legal and commercial name is KB Financial Group Inc. Our registered office and principal executive offices are located at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea. Our telephone number is +82-2-2073-7114. Our agent in the United States, Kookmin Bank, New York Branch, is located at 565 Fifth Avenue, 24th Floor, New York, NY 10017. Its telephone number is (212) 697-6100. The address of our English website is https://www.kbfg.com/Eng/index.jsp.

The U.S. Securities and Exchange Commission maintains a website (http://www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the U.S. Securities and Exchange Commission.

History of the Former Kookmin Bank

The former Kookmin Bank was established by the Korean government in 1963 under its original name of Citizens National Bank under the Citizens National Bank Act of Korea with majority government ownership. Under this Act, we were limited to providing banking services to the general public and to small- and medium-sized enterprises. In September 1994, we completed our initial public offering in Korea and listed our shares on the KRX KOSPI Market.

In January 1995, the Citizens National Bank Act of Korea was repealed and replaced by the Repeal Act of the Citizens National Bank Act. Our status was changed from a specialized bank to a nationwide commercial bank and in February 1995, we changed our name to Kookmin Bank. The Repeal Act allowed us to engage in lending to large businesses.

History of H&CB

H&CB was established by the Korean government in 1967 under the name Korea Housing Finance Corporation. In 1969, Korea Housing Finance Corporation became the Korea Housing Bank pursuant to the Korea Housing Bank Act. H&CB was originally established to provide low and middle income households with long-term, low-interest mortgages in order to help them purchase their own homes, and to promote the increase of housing supply in Korea by providing low-interest housing loans to construction companies. Until 1997 when the Korea Housing Bank Act was repealed, H&CB was the only entity in Korea allowed to provide mortgage loans with a term of longer than ten years. H&CB also had the exclusive ability to offer housing-related deposit accounts offering preferential rights to subscribe for newly-built apartments.

Merger of the Former Kookmin Bank and H&CB

Effective November 1, 2001, the former Kookmin Bank and H&CB merged into a new entity named Kookmin Bank. This merger resulted in Kookmin Bank becoming the largest commercial bank in Korea. Kookmin Bank’s ADSs were listed on the New York Stock Exchange on November 1, 2001 and its common shares were listed on the KRX KOSPI Market on November 9, 2001.

 

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Establishment of KB Financial Group

We were established on September 29, 2008 pursuant to a “comprehensive stock transfer” under Article 360-15 of the Korean Commercial Code, whereby holders of the common stock of Kookmin Bank and certain of its subsidiaries transferred all of their shares to us, a new financial holding company, and in return received shares of our common stock. In the stock transfer, each holder of one share of Kookmin Bank common stock received one share of our common stock, par value ￦5,000 per share. Holders of Kookmin Bank ADSs and global depositary shares, each of which represented one share of Kookmin Bank common stock, received one of our ADSs for every ADS or global depositary share they owned. In addition, holders of the common stock of certain of Kookmin Bank’s subsidiaries transferred all of their shares to us and, as consideration for such transferred shares, received shares of our common stock in accordance with the specified stock transfer ratio applicable to each such subsidiary. Following the completion of the stock transfer, Kookmin Bank and these subsidiaries—KB Investment & Securities Co., Ltd., KB Asset Management Co., Ltd., KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KB Futures Co., Ltd., KB Credit Information Co., Ltd., and KB Data Systems Co., Ltd.—became our wholly-owned subsidiaries.

The purpose of the stock transfer and our establishment as a financial holding company was to reorganize the different businesses of Kookmin Bank and its subsidiaries under a holding company structure, the adoption of which we believed would:

 

  •  

assist us in creating an integrated system that facilitates the sharing of customer information and the development of integrated products and services by the different businesses within our subsidiaries;

 

  •  

assist us in expanding our business scope to include new types of business with higher profit margins;

 

  •  

enhance our ability to pursue strategic investments or reorganizations by way of mergers, acquisitions, spin-offs or other means;

 

  •  

maximize our management efficiency; and

 

  •  

further enhance our capacity to expand our overseas operations.

Following the stock transfer, our common stock was listed on the KRX KOSPI Market on October 10, 2008 and our ADSs were listed on the New York Stock Exchange on September 29, 2008.

 

Item 4.B.

Business Overview

Business

We are one of the largest financial holding companies in Korea, in terms of consolidated total assets, and our operations include Kookmin Bank, one of the leading commercial banks in Korea. Our subsidiaries collectively engage in a broad range of businesses, including commercial banking, credit cards, asset management, non-life and life insurance, capital markets activities and international banking and finance. As of December 31, 2022, we had consolidated total assets of ￦701 trillion, consolidated total deposits of ￦389 trillion and consolidated total equity of ￦50 trillion.

As part of our commercial banking activities, we provide credit and related financial services to individuals and small- and medium-sized enterprises and, to a lesser extent, to large corporate customers. We also provide a full range of deposit products and related services to both individuals and enterprises of all sizes. We provide these services predominantly through Kookmin Bank.

By their nature, our core consumer and small- and medium-sized enterprise operations place a high premium on customer access and convenience. Our combined banking network of 856 branches as of December 31, 2022, one of the most extensive in Korea, provides a solid foundation for our business and is a major source of our competitive strength. This network provides us with a large, stable and cost effective funding

 

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source, enables us to provide our customers convenient access and gives us the ability to provide the customer attention and service essential to conducting our business, particularly in an increasingly competitive environment. Our branch network is further enhanced by automated banking machines and fixed-line, smartphone and Internet banking. As of December 31, 2022, we had a customer base of approximately 37.1 million retail customers, which represented over one-half of the Korean population.

The following table sets forth the principal components of our lending business as of the dates indicated. As of December 31, 2022, retail loans and credit card loans and receivables accounted for 47.5% of our total loan portfolio:

 

     As of December 31,  
     2021     2022  
     (in billions of Won, except percentages)  

Retail

           

Mortgage and home equity(1)

    ￦ 120,418        28.6 %    ￦ 120,942        27.4 % 

Other consumer(2)

      71,223        16.9       65,997        15.0  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total retail

      191,641        45.5       186,939        42.4  
  

 

 

     

 

 

    

 

 

     

 

 

  

Credit card

      20,768        4.9       22,562        5.1  

Corporate

      183,522        43.5       199,432        45.3  

Foreign

      25,654        6.1       31,756        7.2  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total loans

    ￦ 421,585        100.0 %    ￦ 440,689        100.0 % 
  

 

 

     

 

 

    

 

 

     

 

 

  

 

(1) 

Includes ￦7,644 billion and ￦5,408 billion of overdraft loans secured by real estate in connection with home equity loans as of December 31, 2021 and 2022, respectively.

(2)

Includes ￦10,956 billion and ￦10,241 billion of overdraft loans as of December 31, 2021 and 2022, respectively.

We provide a full range of personal lending products and retail banking services to individual customers, including mortgage loans. We are the largest private sector mortgage lender in Korea.

Lending to small- and medium-sized enterprises is the single largest component of our non-retail credit portfolio] and represents a widely diversified exposure to a broad spectrum of the Korean corporate community, both by type of lending and type of customer, with one of the categories being collateralized loans to SOHO customers that are among the smallest of the small- and medium-sized enterprises. The volume of our loans to small- and medium-sized enterprises requires a customer-oriented approach that is facilitated by our large and geographically diverse branch network.

With respect to large corporate customers, we continue to seek to maintain and expand quality relationships by providing them with an increasing range of fee-related services.

Strategy

Our strategic focus is to become a world-class financial group that ranks among the leaders of the financial industry in Asia and globally. We plan to continue to solidify our market position as Korea’s leading financial group, enhance our ability to provide comprehensive financial services to our retail and corporate customers and strengthen our overseas operating platform and network. In addition, we continually strive to achieve our goal of creating “a happier life and a better world” through a customer-centric management philosophy. We believe our strong market position in the commercial banking area in Korea is an important competitive advantage, which will enable us to compete more effectively based on convenient delivery, product breadth and differentiation, and service quality while focusing on our profitability.

 

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The key elements of our strategy are as follows:

Providing comprehensive financial services and maximizing synergies among our subsidiaries through our financial holding company structure

We believe the Korean financial services market has been undergoing and will continue to undergo significant change, resulting from, among other things, fluctuations in the Korean and global economy and the evolving social landscape in Korea, including the acceleration of population aging in Korea, the prevalence of smartphone usage, developments in digital and mobile technologies and the ensuing trend toward high-tech “smart banking” in the banking sector. In the context of such changes, we plan to become a comprehensive financial services provider capable of offering a full range of products and services to our large existing base of retail and corporate customers, as well as a global firm that can effectively compete with leading international financial institutions. To that end, we are continuing to implement specific initiatives including the enhancement of our group-wide integrated customer relationship management system to facilitate the sharing of customer information in accordance with applicable laws and the integration of various customer loyalty programs among our subsidiaries.

We believe our financial holding company structure gives us a competitive advantage over commercial banks and unaffiliated financial services providers by:

 

  •  

allowing us to offer a more extensive range of financial products and services;

 

  •  

enabling us to share customer information, which is not permitted outside a financial holding company structure, thereby enhancing our risk management capabilities;

 

  •  

enhancing our ability to reduce costs in areas such as back-office processing and procurement; and

 

  •  

enabling us to raise and manage capital on a centralized basis.

Identifying, targeting and marketing to attractive customer segments and providing superior customer value and service to such segments

In recent years, rather than focusing on developing products and services to satisfy the overall needs of the general population, we have increasingly targeted specific market segments in Korea that we expect to generate superior growth and profitability. We will continue to implement a targeted marketing approach that seeks to identify the most attractive customer segments and to develop strategies to build market share in those segments. In particular, we intend to increase our “wallet share” of existing high net worth customers by using our advanced customer relationship management technology to better identify and meet the needs of our most creditworthy customers, on whom we intend to concentrate our marketing efforts. For example, as part of this strategy, we operate a “priority customer” program called KB Star Club through five of our subsidiaries, Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card and KB Life Insurance. We select and classify KB Star Club customers based on their transaction history with the five entities and provide such customers with preferential treatment in various areas, including interest rates and transaction fees, depending upon how they are classified. We also provide private banking services, including wealth management services through our exclusive brand “Gold & Wise,” to increase our share of the priority customer market and in turn increase our profitability and strengthen our position in retail banking.

We are also focusing on attracting and retaining creditworthy customers by offering more differentiated fee-based products and services that are tailored to meet their specific needs. The development and marketing of our products and services are, in part, driven by customer segmentation to ensure that we meet the needs of each customer segment. For instance, we continue to develop hybrid financial products with enhanced features, including various deposit products and investment products, for which consumer demand has increased in recent years. We are also focusing on addressing the needs of our customers by providing the highest-quality products and services and developing an open-architecture strategy, which allows us to sell such products through one of

 

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the largest branch networks in Korea. In short, we aim to offer our customers a convenient one-stop financial services destination where they can meet their traditional retail and corporate banking requirements, as well as find a broad array of fee-based products and services tailored to address more specific financial needs, including in investment banking, securities brokerage, insurance and wealth management. We believe such differentiated, comprehensive services and cross-selling will not only enhance customer loyalty but also increase profitability.

One of our key customer-related strategies continues to be creating greater value and better service for our customers. We intend to continue improving our customer service, including through:

 

  •  

Improved customer relationship management technology. Management has devoted substantial resources toward development of our customer relationship management system, which is designed to provide our employees with the information needed to continually improve the level of service and incentives offered to our preferred customers. Our integrated customer relationship system allows for better customer management and streamlines our customer reward system. We have also developed state-of-the-art call centers, smartphone applications and online Internet capabilities to provide shorter response times to customers seeking information or to execute transactions. Our goals are to continually focus on improving customer service to satisfy our customers’ needs through continuing efforts to deliver new and improved services and to upgrade our customer relationship management system to provide the best possible service to our customers in the future.

 

  •  

Enhanced distribution channels. We also believe we can improve customer retention and usage rates by increasing the range of products and services we offer and by developing a differentiated, multi-channel distribution network, including branches, ATMs, call centers, smartphone banking and Internet banking. We believe that our leading market position in the commercial banking area in Korea gives us a competitive advantage in developing and enhancing our distribution capabilities.

Focusing on expanding and improving credit quality in our corporate lending business and increasing market share in the corporate financial services market

We plan to focus on corporate lending as one of our core businesses through attracting top-tier corporate customers and providing customized and distinctive products and services to build our position as a leading service provider in the Korean corporate financial market. To increase our market share in providing financial services to the corporate market, we intend to:

 

  •  

promote a more balanced and strengthened portfolio with respect to our corporate business by developing our large corporate customer base and utilizing our improved credit management operations to better evaluate new large corporate and small- and medium-sized enterprise customers;

 

  •  

develop and sell more varied corporate financial products, consisting of transactional banking products which provide higher margin and less risk;

 

  •  

generate more fee income from large corporate customers through business-to-business transactions, foreign exchange transactions and derivative and other investment products, as well as investment banking services;

 

  •  

strengthen our marketing system based on our accumulated expertise in order to attract top-tier corporate customers;

 

  •  

focus on enhancing our channel network in order to provide the best service by strengthening our corporate customer management; and

 

  •  

further develop and train our core professionals with respect to this market, including through programs such as the “Career Development Path.”

Strengthening internal risk management capabilities

We believe that ensuring strong asset quality through effective credit risk management is critical to maintaining stable growth and profitability and risk management will continue to be one of our key focus areas.

 

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One of our highest priorities is to improve our asset quality and more effectively price our lending products to take into account inherent credit risk in our portfolio. Our goal is to maintain the soundness of our credit portfolio, profitability and capital base. To this end, we intend to continue to strengthen our internal risk management capabilities by tightening our underwriting and management policies and improving our internal compliance policies. To accomplish this objective, we have undertaken the following initiatives:

 

  •  

Strengthening underwriting procedures with advanced credit scoring techniques. We have centralized our credit management operations into our Credit Management and Analysis Group. Through such centralization, we aim to enhance our credit management expertise and improve our system of checks-and-balances with respect to our credit portfolio. We have also improved our ability to evaluate the credit of our small- and medium-sized enterprise customers through assigning experienced credit officers to our regional credit offices. We also require the same officer to evaluate, review and monitor the outstanding loans and other credits with respect to a customer, which we believe enhances the expertise and improves the efficiency and accountability of such officer, while enabling us to maintain a consistent credit policy. We have also, as a general matter, implemented enhanced credit analysis and scoring techniques, which we believe will enable us to make better-informed decisions about the credit we extend and improve our ability to respond more quickly to incipient credit problems. We are also focusing on enhancing our asset quality through improvement of our early monitoring systems and collection procedures.

 

  •  

Improving our internal compliance policy and ensuring strict application in our daily operations. We have improved our monitoring capabilities with respect to our internal compliance by providing training and educational programs to our management and employees. We have also implemented strict compliance policies to maintain the integrity of our risk management system.

Cultivating a performance-based, customer-oriented culture that emphasizes market best practices

We believe a strong and dedicated workforce is critical to our ability to offer our customers the highest quality financial services and is integral to our goal of maintaining our position as one of Korea’s leading financial services providers. In the past, we have dedicated significant resources to develop and train our core professionals, and we intend to continue to enhance the productivity of our employees, including by regularly sponsoring in-house training and educational programs. We have also been seeking to cultivate a performance-based culture to create a work environment where members of our staff are incentivized to maximize their potential and in which our employees are directly rewarded for superior performance. We intend to maintain a professional workforce whose high quality of customer service reflects our goal to achieve and maintain global best practice standards in all areas of operations.

Retail Banking

Due to Kookmin Bank’s history and development as a retail bank and the know-how and expertise we have acquired from our activities in that market, retail banking has been and will continue to remain one of our core businesses. Our retail banking activities consist primarily of lending and deposit-taking.

 

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Lending Activities

We offer various loan products that target different segments of the population, with features tailored to each segment’s financial profile and other characteristics. The following table sets forth the balances and the percentage of our total retail lending represented by the categories of our retail loans as of the dates indicated:

 

     As of December 31,  
     2021     2022  
     (in billions of Won, except percentages)  

Retail:

           

Mortgage and home equity loans

    ￦ 120,418        62.8 %    ￦ 120,942        64.7 % 

Other consumer loans(1)

      71,223        37.2       65,997        35.3  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total

    ￦ 191,641        100.0 %    ￦ 186,939        100.0 % 
  

 

 

     

 

 

    

 

 

     

 

 

  

 

(1) 

Excludes credit card loans, but includes overdraft loans.

Our retail loans consist of:

 

  •  

Mortgage loans, which are loans made to customers to finance home purchases, construction, improvements or rentals; and home equity loans, which are loans made to our customers secured by their homes to ensure loan repayment. We also provide overdraft loans in connection with our home equity loans.

 

  •  

Other consumer loans, which are loans made to customers for any purpose (other than mortgage and home equity loans). These include overdraft loans, which are loans extended to customers to cover insufficient funds when they withdraw funds from their demand deposit accounts with us in excess of the amount in such accounts up to a limit established by us.

For secured loans, including mortgage and home equity loans, our policy is to lend up to 100% of the adjusted collateral value (except in areas of high speculation designated by the government where we generally limit our lending to between 10% and 60% of the appraised value of collateral) minus the value of any lien or other security interests that are prior to our security interest. In calculating the adjusted collateral value for real estate, we use the appraisal value of the collateral multiplied by a factor, generally between 40% to 88% (10% to 70% in the case of mortgage and home equity loans). This factor varies depending upon the location and use of the real estate and is established in part by taking into account court-supervised auction prices for nearby properties.

A borrower’s eligibility for our mortgage loans depends on the value of the mortgage property, the appropriateness of the use of proceeds and the borrower’s creditworthiness. A borrower’s eligibility for home equity loans is determined by the borrower’s credit and the value of the property, while the borrower’s eligibility for other consumer loans is primarily determined by the borrower’s credit. If the borrower’s credit deteriorates, it may be difficult for us to recover the loan. As a result, we review the borrower’s creditworthiness, collateral value, credit scoring and third party guarantees when evaluating a borrower. In addition, to reduce the interest rate of a loan or to qualify for a loan, a borrower may provide collateral, deposits or guarantees from third parties.

Mortgage and Home Equity Lending

The housing finance market in Korea is divided into public sector and private sector lending. In the public sector, two government entities, the National Housing and Urban Fund and the National Agricultural Cooperative Federation, are responsible for most of the mortgage lending.

Private sector mortgage and home equity lending in Korea has expanded substantially in recent years. We provide customers with a number of mortgage and home equity loan products that have flexible features,

 

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including terms, repayment schedules, amounts and eligibility for loans, and we offer interest rates on a commercial basis. The maximum term of mortgage loans is 40 years and the majority of our mortgage loans have long-term maturities, which may be renewed. Non-amortizing home equity loans have a maturity of one to five years and home equity loans subject to amortization of principal may have a maximum term of up to 35 years. As of December 31, 2022, we had ￦26,267 billion of amortizing home equity loans, representing 96.2% of our total home equity loans, and ￦1,026 billion of non-amortizing home equity loans, representing 3.8% of our total home equity loans. Any customer is eligible for a mortgage or an individual home equity loan regardless of whether it participates in one of our housing related savings programs and so long as that customer is not barred by regulation from obtaining a loan because of bad credit history. However, customers with whom we frequently transact business and provide us with significant revenue receive preferential interest rates on loans.

As of December 31, 2022, 49.6% of our mortgage loans were secured by residential property which is the subject of the loan, 25.7% of our mortgage loans were guaranteed by the Housing Finance Credit Guarantee Fund, a government housing-related entity, and the remaining 24.7% of our mortgage loans, contrary to general practices in the United States, were unsecured (although the use of proceeds from these loans is restricted to financing of home purchases and some of these loans are guaranteed by a third party). One reason that a relatively high percentage of our mortgage loans are unsecured is that we, along with other Korean banks, provide advance loans to borrowers for the down payment of new housing (particularly apartments) that is in the process of being built. Once construction is completed, which may take several years, these mortgage loans become secured by the new housing purchased by these borrowers. For the year ended December 31, 2022, the average initial loan-to-value ratio of our mortgage loans, which is a measure of the amount of loan exposure to the appraised value of the security collateralizing the loan, was approximately 39.7%. There are three reasons that our loan-to-value ratio is relatively lower (as is the case with other Korean banks) compared to similar ratios in other countries, such as the United States. The first reason is that housing prices are high in Korea relative to average income, so most people cannot afford to borrow an amount equal to the entire value of their collateral and make interest payments on such an amount. The second reason relates to the “jeonsae” system, through which people provide a key money deposit while residing in the property prior to its purchase. At the time of purchase, most people use the key money deposit as part of their payment and borrow the remaining amount from Korean banks, which results in a loan that will be for an amount smaller than the appraised value of the property for collateral and assessment purposes. The third reason is that Korean banks discount the appraised value of the borrower’s property for collateral and assessment purposes so that a portion of the appraised value is reserved in order to provide recourse to a renter who lives at the borrower’s property. This is in the event that the borrower’s property is seized by a creditor, and the renter is no longer able to reside at that property. See “Item 3.D. Risk Factors—Other risks relating to our business—A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.”

The following table sets forth our unsecured and secured mortgage loans and home equity loans as of December 31, 2021 and 2022, based on their loan classification categories under IFRS and our internal credit ratings for loans (which are described in Note 4.2.4 of the notes to our consolidated financial statements):

 

     As of December 31, 2021  
     Stage 1      Stage 2      Stage 3      Total  
     Grade 1      Grade 2      Grade 3      Grade 4      Grade 5                       
            (in billions of Won)                       

Mortgage:

                        

Secured(1)

    ￦ 83,737      ￦ 1,299      ￦ 110      ￦ 4      ￦ 3      ￦ 6,225      ￦ 134      ￦ 91,512  

Unsecured

      1,341        6        —        —        —        31        3        1,381  

Home Equity:

                        

Secured

      24,868        732        166        11        1        1,671        71        27,520  

Unsecured

      4        —        1        —        —        —        —        5  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 109,950      ￦ 2,037      ￦ 277      ￦ 15      ￦ 4      ￦ 7,927      ￦ 208      ￦ 120,418  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

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     As of December 31, 2022  
     Stage 1      Stage 2      Stage 3      Total  
     Grade 1      Grade 2      Grade 3      Grade 4      Grade 5                       
            (in billions of Won)                       

Mortgage:

                        

Secured(1)

    ￦ 83,611      ￦ 1,457      ￦ 125      ￦ 28      ￦ 9      ￦ 5,900      ￦ 167      ￦ 91,297  

Unsecured

      2,306        11        —        —        —        32        3        2,352  

Home Equity:

                        

Secured

      24,656        750        102        44        3        1,661        77        27,293  

Unsecured

      —        —        —        —        —        —        —        —  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 110,573      ￦ 2,218      ￦ 227      ￦ 72      ￦ 12      ￦ 7,593      ￦ 247      ￦ 120,942  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1) 

Includes advance loans guaranteed by the Housing Finance Credit Guarantee Fund to borrowers for the down payment of new housing that is in the process of being built.

Our home equity loan portfolio includes loans that are in a second lien position. In addition to the underwriting procedures we perform when we issue home equity loans in general, we perform additional underwriting procedures with respect to home equity loans secured by a second lien to assess and confirm the value and status of any loans secured by security interests on the collateral which would be prior to our security interest under the second lien home equity loan. Under regulations implemented by the Financial Supervisory Service, our home equity loans are subject to maximum loan-to-value ratios (i.e., the ratio of the aggregate principal amount of loans, including first and second lien loans, secured by a particular item of collateral to the appraised value of such collateral) of between 10% and 70%. As such, for home equity loans, we do not lend more than an amount equal to the adjusted collateral value (i.e., the collateral value as discounted by the required loan-to-value ratio) minus the value of any loans secured by security interests on the collateral that are prior to our security interest. Accordingly, in order to ascertain the value of loans secured by security interests on the collateral which would be prior to our security interest and to confirm the status of such loans, we perform additional underwriting procedures including a review of the relevant title and security interest registration documents and bank documents and certificates regarding such loans. In addition, for purposes of calculating debt-to-income ratios applicable to loans secured by certain types of housing under regulations implemented by the Financial Supervisory Service (see “—Supervision and Regulation—Principal Regulations Applicable to Banks—Regulations Relating to Retail Household Loans”), which we apply on a nationwide basis for our home equity loans, we perform additional adjustments in our debt-to-income ratio calculations with respect to second lien home equity loans to account for the value of loans secured by security interests on the collateral that are prior to our security interest.

Following the issuance of a home equity loan, we make use of the Korea Credit Information Services’ database of delinquent borrowers to generally monitor the compliance of our borrowers with their other loan obligations, including the compliance of our second lien borrowers with their first lien loans. If a borrower in Korea is past due on payments of interest or principal for more than three months on any of its outstanding loans to Korean financial institutions (including mortgage, home equity, other consumer and credit card loans), such borrower is registered on the Korea Credit Information Services’ database of delinquent borrowers, which we monitor on a daily basis. The information disclosed by such database, which includes the outstanding loan amount which is past due, the identity of the delinquent borrower and the name of the applicable lending institution for such loan, provides an early warning about such borrower to our loan officers at the branch level, who then closely monitor our outstanding loans to such delinquent borrower and take appropriate preventive and remedial measures (including requiring such borrower to provide additional collateral) as necessary. Upon the occurrence of a default in the first lien position, we treat the second lien home equity loan as part of our potential problem loans or non-performing loans. More specifically, upon learning of the occurrence of a default in the first lien position, we examine our second lien home equity loan to determine whether the loan should be re-classified as “precautionary,” “substandard” or “doubtful” according to the asset classification guidelines of the Financial Services Commission. Assuming that such second lien home equity loan is not delinquent, if the outstanding principal amount of the relevant first lien loan is less than ￦15 million, we classify the entire amount of the second lien home equity loan as “precautionary” and closely monitor it as a loan that may

 

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potentially become problematic. If the outstanding principal amount of the relevant first lien loan is ￦15 million or more or the borrower is undergoing, or preparing to undergo, foreclosure proceedings with respect to the underlying collateral, we classify the estimated recoverable amount of the second lien home equity loan as “substandard” and the rest of such loan amount as “doubtful.”

Pricing. The interest rates on our retail mortgage loans are generally based on a periodic floating rate (which is based on a base rate determined for three-month, six-month or twelve-month periods using our Market Opportunity Rate system, which reflects our internal cost of funding, further adjusted to account for our expenses related to lending). Our interest rates also incorporate a margin based among other things on the type of security, the credit score of the borrower and the estimated loss on the security. We can adjust the price to reflect the borrower’s current and/or expected future contribution to us. The applicable interest rate is determined at the time of the loan. If a loan is terminated prior to its maturity, the borrower is obligated to pay us an early termination fee of approximately 1.2% to 1.4% of the loan amount in addition to the accrued interest.

The interest rates on our home equity loans are determined on the same basis as our retail mortgage loans.

As of December 31, 2022, the Market Opportunity Rate was 4.03% for a three-month period, 4.40% for a six-month period and 4.41% for a twelve-month period.

Other Consumer Loans

Other consumer loans are primarily unsecured. However, such loans may be secured by real estate, deposits or securities. As of December 31, 2022, approximately ￦38,700 billion, or 58.6% of our consumer loans (other than mortgage and home equity loans) were unsecured loans (although some of these loans were guaranteed by a third party). Overdraft loans are also classified as other consumer loans, are primarily unsecured and generally have an initial maturity of one year, which is typically extended automatically on an annual basis and may be extended up to a maximum of five years. The amount of overdraft loans as of December 31, 2022 was approximately ￦10,241 billion.

Pricing. The interest rates on our other consumer loans (including overdraft loans) are determined on the same basis as on our mortgage and home equity loans, except that, for unsecured loans, the borrower’s credit score as determined during our loan approval process is also taken into account. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk Management.”

Deposit-taking Activities

Due to our extensive nationwide network of branches, together with our long history of development and our resulting know-how and expertise, as of December 31, 2022, we had the largest number of retail customers and retail deposits among Korean commercial banks. The balance of our deposits from retail customers was ￦221,429 billion and ￦229,891 billion as of December 31, 2021 and 2022, respectively, which constituted 59.5% and 59.1%, respectively, of the balance of our total deposits.

We offer many deposit products that target different segments of our retail customer base, with features tailored to each segment’s financial profile, characteristics and needs, including:

 

  •  

Demand deposits, which either do not accrue interest or accrue interest at a lower rate than time deposits. Demand deposits allow the customer to deposit and withdraw funds at any time and, if they are interest bearing, accrue interest at a variable rate depending on the amount of deposit. Retail and corporate demand deposits constituted 38.3% of our total deposits as of December 31, 2022 and paid average interest of 0.25% for 2022.

 

  •  

Time deposits, which generally require the customer to maintain a deposit for a fixed term, during which the deposit accrues interest at a fixed rate or a variable rate based on the KOSPI, or to deposit

 

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specified amounts on an installment basis. If the amount of the deposit is withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered. The term for time deposits typically ranges from one month to three years, and the term for installment savings deposits ranges from six months to five years. Retail and corporate time deposits constituted 48.7% of our total deposits as of December 31, 2022 and paid average interest of 2.11% for 2022. Most installment savings deposits offer fixed interest rates.

 

  •  

Certificates of deposit, the maturities of which typically range from 30 days to 730 days with a required minimum deposit of ￦10 million. Interest rates on certificates of deposit are determined based on the length of the deposit and prevailing market rates. Our certificates of deposit are sold at a discount to their face value, reflecting the interest payable on the certificates of deposit.

 

  •  

Foreign currency deposits, which are available to Korean and foreign residents, non-residents and overseas immigrants. We offer foreign currency demand deposits and time deposits as well as checking accounts in 11 currencies. Foreign currency demand deposits, which accrue interest at a variable rate, allow customers to deposit and withdraw funds at any time. Foreign currency time deposits generally require customers to maintain the deposit for a fixed term, during which the deposit accrues interest at a fixed rate. If the funds in a foreign currency time deposit are withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered.

We offer varying interest rates on our deposit products depending upon average funding costs, the rate of return on our interest-earning assets and the interest rates offered by other commercial banks.

We also offer comprehensive savings deposits for housing subscription, which are monthly installment savings deposits that provide the holder with preferential rights to subscribe for both public and private housing under the Housing Act. This law is the basic law setting forth various measures supporting the purchase of houses and the supply of such houses by construction companies. These deposits require monthly installments of ￦20,000 to ￦500,000 and accrue interest at variable rates depending on the term. An eligible account holder with ￦70 million or less in annual salary income may also claim a tax deduction for 40% of its annual installment amounts, subject to a maximum deductible amount, in its income tax return for the year under the Special Tax Treatment Control Law.

In 2002, after significant research and planning, we launched private banking operations at Kookmin Bank’s headquarters. Shortly thereafter, we launched a comprehensive strategy with respect to customers with higher net worth, which included staffing appropriate representatives, marketing aggressively, establishing IT systems, selecting appropriate branch locations and readying such branches with the necessary facilities to service such customers. As of December 31, 2022, we operated 23 main private banking centers through Kookmin Bank.

The Monetary Policy Board of the Bank of Korea, or the Monetary Policy Board, imposes a reserve requirement on Won currency deposits of commercial banks based generally on the type of deposit instrument. The reserve requirement is currently up to 7%. See “—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity.”

The Depositor Protection Act provides for a deposit insurance system where the Korea Deposit Insurance Corporation guarantees to depositors the repayment of their eligible bank deposits. The deposit insurance system insures up to a total of ￦50 million per depositor per bank. See “—Supervision and Regulation—Principal Regulations Applicable to Banks—Deposit Insurance System.”

Credit Cards

Credit cards are another of our core retail products. We issue most of our credit cards under the “KB Kookmin Card” brand. Our credit card business is operated by our subsidiary, KB Kookmin Card Co., Ltd.

 

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The following table sets forth certain data relating to our credit card operations, on a non-consolidated basis, as of the dates and for the periods indicated:

 

     As of and for the Year Ended December 31,  
             2020                     2021                     2022          
     (in billions of Won, except number of
holders, accounts and percentages)		  

Number of credit cardholders (at year end) (thousands)

       

General accounts

      10,586       10,879       11,493  

Corporate accounts

      550       554       611  
  

 

 

    

 

 

    

 

 

  

Total

      11,136       11,433       12,104  
  

 

 

    

 

 

    

 

 

  

Number of merchants (at year end) (thousands)

      2,743       2,856       2,924  

Active ratio (at year end)(1)

      90.4 %      90.8 %      90.2 % 

Credit card fees

       

Merchant fees(2)

    ￦ 1,302     ￦ 1,420     ￦ 1,423  

Installment and cash advance fees

      475       463       541  

Annual membership fees

      157       169       182  

Other fees

      982       1,015       1,094  
  

 

 

    

 

 

    

 

 

  

Total

    ￦ 2,916     ￦ 3,067     ￦ 3,240  
  

 

 

    

 

 

    

 

 

  

Charge volume(3)

       

General purchase

    ￦ 81,328     ￦ 91,313     ￦ 105,479  

Installment purchase

      19,321       20,417       22,174  

Cash advance

      8,591       8,891       9,424  

Card loan(4)

      7,184       7,248       7,178  
  

 

 

    

 

 

    

 

 

  

Total

    ￦ 116,424     ￦ 127,869     ￦ 144,255  
  

 

 

    

 

 

    

 

 

  

Outstanding balance (at year end)

       

General purchase

    ￦ 6,732     ￦ 7,987     ￦ 8,611  

Installment purchase

      5,360       5,842       6,565  

Cash advance

      1,054       1,153       1,237  

Card loan(4)

      5,623       5,821       6,249  
  

 

 

    

 

 

    

 

 

  

Total

    ￦ 18,769     ￦ 20,803     ￦ 22,662  
  

 

 

    

 

 

    

 

 

  

Average outstanding balances

       

General purchase

    ￦ 6,841     ￦ 7,455     ￦ 8,631  

Installment purchase

      5,198       5,503       6,161  

Cash advance

      1,098       1,081       1,155  

Card loan(4)

      5,440       5,846       6,146  
  

 

 

    

 

 

    

 

 

  

Total

    ￦ 18,577     ￦ 19,885     ￦ 22,093  
  

 

 

    

 

 

    

 

 

  

Delinquency ratios (at year end)(5)

       

From 1 month to 3 months

      0.50 %      0.45 %      0.62 % 

From 3 months to 6 months

      0.46       0.38       0.36  

Over 6 months

      0.10       0.07       0.03  
  

 

 

    

 

 

    

 

 

  

Total

      1.06 %      0.91 %      1.01 % 
  

 

 

    

 

 

    

 

 

  

Non-performing loan ratio

      0.55 %      0.47 %      0.40 % 

Write-offs (gross)

    ￦ 501     ￦ 422     ￦ 444  

Recoveries(6)

      137       136       123  
  

 

 

    

 

 

    

 

 

  

Net write-offs

    ￦ 364     ￦ 286     ￦ 321  
  

 

 

    

 

 

    

 

 

  

Gross write-off ratio(7)

      2.70 %      2.10 %      1.99 % 

Net write-off ratio(8)

      1.96 %      1.42 %      1.44 % 

 

(1) 

The active ratio represents the ratio of accounts used at least once within the last six months to total accounts as of year-end.

(2) 

Merchant fees consist of maintenance fees and costs associated with prepayment by us (on behalf of customers) of sales proceeds to merchants, processing fees relating to sales and membership applications, costs relating to the management of delinquencies and recoveries, provision for loan losses, general variable expenses and other fixed costs that are charged to our member merchants. We

 

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  typically charge our member merchants fees that range from 0.5% to 2.3%. We offer discounts for member merchants that are small- and medium-sized enterprises pursuant to applicable laws.
(3)

Represents the aggregate cumulative amount charged during the year.

(4) 

Card loans consist of loans that are provided on an unsecured basis to cardholders upon prior agreement. Payment on such a loan can be due either in one payment or in installments after a fixed period, in the case of principal payments, and will be due in installments, in the case of interest payments.

(5) 

Represents ratio of credit card balances overdue by one month or more to outstanding balance. In line with industry practice, we have restructured a portion of delinquent credit card account balances as loans. As of December 31, 2021 and 2022, these restructured loans amounted to ￦112 billion and ￦117 billion, respectively. Because these restructured loans are not treated as being delinquent at the time of conversion or for a period of time thereafter, our delinquency ratios may not fully reflect all delinquent amounts relating to our outstanding balances.

(6) 

Does not include proceeds that we received from sales of our non-performing loans that were written off.

(7) 

Represents the ratio of gross write-offs for the year to average outstanding balance for the year. Our charge-off policy is generally to write off balances which have been overdue for four payment cycles or more or which have been classified as expected loss.

(8) 

Represents the ratio of net write-offs for the year to average outstanding balances for the year. Our charge-off policy is generally to write off balances which have been overdue for four payment cycles or more or which have been classified as expected loss.

In contrast to the system in the United States and many other countries, where most credit cards are revolving cards that allow outstanding amounts to be rolled over from month to month so long as a required minimum percentage is repaid, credit cardholders in Korea are generally required to pay for their purchases within approximately 14 to 44 days of purchase depending on their payment cycle. However, we also offer revolving payment plans to individuals that allow outstanding amounts to be rolled over to subsequent payment periods. Delinquent accounts (defined as amounts overdue for one day or more) are charged penalty interest and closely monitored. For installment purchases, we charge interest on unpaid installments at rates that vary according to the individual cardholder’s membership level, which is based on, among others, transaction history, the length of the cardholder’s relationship with us and contribution to our profitability.

We are committed to continuing to enhance our credit card business by strengthening our risk management and maximizing our operational efficiency. In addition, we believe that our extensive branch network, brand recognition and overall size will enable us to cross-sell products such as credit cards to our existing and new customers.

To promote our credit card business, we offer services targeted to various financial profiles and customer requirements and are concentrating on:

 

  •  

strengthening cross-sales to existing customers and offering integrated financial services;

 

  •  

offering cards that provide additional benefits such as frequent flyer miles and reward program points that can be redeemed by the customer for complementary services, prizes and cash;

 

  •  

offering platinum cards, VVIP cards and other prime members’ cards, which have a higher credit limit and provide additional services in return for a higher fee;

 

  •  

acquiring new customers through strategic alliances and cross-marketing with retailers;

 

  •  

encouraging increased use of credit cards by existing customers through special offers for frequent users;

 

  •  

introducing new features such as travel services and insurance through alliance partners; and

 

  •  

developing fraud detection and security systems to prevent the misuse of credit cards.

As of December 31, 2022, we had approximately 12.1 million credit cardholders. Of the credit cards outstanding, approximately 90.2% were active, meaning that they had been used at least once during the previous six months.

Our card revenues consist principally of cash advance fees, merchant fees, credit card installment fees, interest income from credit card loans, annual fees paid by cardholders, interest and fees on late payments and, with respect to revolving payment plans we offer, interest and fees relating to revolving balances.

 

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Under non-exclusive license agreements with overseas financial services corporations, we also issue MasterCard, Visa, American Express, JCB and China UnionPay credit cards.

We issue debit cards and charge merchants commissions in the amount of approximately 1.0% of the amounts purchased using a debit card. We also issue “check cards,” which are similar to debit cards except that “check cards” are accepted by all merchants that accept credit cards, and charge merchants commissions that typically range from 0.25% to 1.50%. Much like debit cards, check card purchases are also debited directly from customers’ accounts with us.

Corporate Banking

We lend to and take deposits from small- and medium-sized enterprises and, to a lesser extent, large corporate customers. Kookmin Bank, our banking subsidiary, had 432,172 small- and medium-sized enterprise borrowers and 1,896 large corporate borrowers for Won-currency loans as of December 31, 2022. For 2022, we received fee revenue from cash management services offered to corporate customers, which include “firm-banking” services such as inter-account transfers, transfers of funds from various branches and agencies of a company (such as insurance premium payments) to the account of the headquarters of such company and transfers of funds from various customers of a company to the main account of such company, in the amount of ￦114.5 billion. Of our branch network as of December 31, 2022, we had two branches that primarily handled large corporate banking.

The following table sets forth the balances and the percentage of our total corporate lending represented by our small- and medium-sized enterprise business loans and our large corporate business loans as of the dates indicated, estimated based on our internal classifications of corporate borrowers:

 

     As of December 31,  
     2021     2022  
     (in billions of Won, except percentages)  

Corporate:

           

Small- and medium-sized enterprise loans

    ￦ 136,587        80.3 %    ￦ 147,012        80.2 % 

Large corporate loans

      33,592        19.7       36,364        19.8  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total

    ￦ 170,179        100.0 %    ￦ 183,376        100.0 % 
  

 

 

     

 

 

    

 

 

     

 

 

  

On the deposit-taking side, we currently offer our corporate customers several types of corporate deposits. Our corporate deposit products can be divided into two general categories: (1) demand deposits that have no restrictions on deposits or withdrawals, but which offer a relatively low interest rate; and (2) deposits from which withdrawals are restricted for a period of time, but offer higher interest rates. We also offer installment savings deposits, certificates of deposit and repurchase instruments. We offer varying interest rates on deposit products depending upon the rate of return on our income-earning assets, average funding costs and interest rates offered by other nationwide commercial banks.

The total amount of deposits from our corporate customers amounted to ￦151,006 billion as of December 31, 2022, or 38.8% of our total deposits.

Small- and Medium-sized Enterprise Banking

Our small- and medium-sized enterprise banking business has traditionally been and will remain one of our core businesses because of both our historical development and our accumulated expertise. We believe that we possess the necessary elements to succeed in the small- and medium-sized enterprise market, including our extensive branch network, our credit rating system for credit approval, our marketing capabilities (which we believe have provided us with significant brand loyalty) and our ability to take advantage of economies of scale.

 

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We use the term “small- and medium-sized enterprises” as defined in the Framework Act on Small and Medium Enterprises and related regulations. Under the Framework Act on Small and Medium Enterprises and related regulations, an enterprise must meet each of the following criteria in order to meet the definition of a small- and medium-sized enterprise: (i) total assets at the end of the immediately preceding fiscal year must be less than ￦500 billion, (ii) the average or annual sales revenue standards as prescribed by the Enforcement Decree of the Framework Act on Small and Medium Enterprises that are applicable to the enterprise’s primary business must be met and (iii) the standards of management independence as prescribed by the Enforcement Decree of the Framework Act on Small and Medium Enterprises must be met. However, pursuant to an amendment to the Framework Act on Small and Medium Enterprises, which has become effective in June 2020, an enterprise that qualifies as a small- and medium-sized enterprise pursuant to the above definition shall no longer be considered a small- and medium-sized enterprise if it is incorporated into, or is deemed to be incorporated into, a business group subject to certain disclosure requirements under the Monopoly Regulation and Fair Trade Act. Moreover, certified social enterprises (as defined in the Social Enterprise Promotion Act) and cooperatives and federations of cooperatives (each as defined in the Framework Act on Cooperatives, the Consumer Cooperatives Act and the Small and Medium Enterprise Cooperatives Act) that satisfy the requirements prescribed by the Framework Act on Small and Medium Enterprises may also qualify as small- and medium-sized enterprises.

Lending Activities

Our principal loan products for our small- and medium-sized enterprise customers are working capital loans and facilities loans. Working capital loans are provided to finance working capital requirements and include notes discounted and trade financing. Facilities loans are provided to finance the purchase of equipment and the establishment of manufacturing assembly plants. As of December 31, 2022, working capital loans and facilities loans accounted for 48.9% and 51.1%, respectively, of our total small- and medium-sized enterprise loans. As of December 31, 2022, Kookmin Bank, our banking subsidiary, had 432,172 small- and medium-sized enterprise customers on the lending side.

Loans to small- and medium-sized enterprises may be secured by real estate or deposits or may be unsecured. As of December 31, 2022, secured loans and guaranteed loans accounted for, in the aggregate, 82.7% of our small- and medium-sized enterprise loans. Among the secured loans, 97.8% were secured by real estate and 2.2% were secured by deposits or securities. Working capital loans generally have a maturity of one year, but may be extended for additional terms of up to one year in length for an aggregate term of five years. Facilities loans have a maximum maturity of 15 years.

When evaluating the extension of working capital loans, we review the corporate customer’s creditworthiness and capability to generate cash. Furthermore, we take credit guaranty letters from other financial institutions and use time deposits that the borrower has with us as collateral, and may require additional collateral.

The value of any collateral is defined using a formula that takes into account the appraised value of the property, any prior liens or other claims against the property and an adjustment factor based on a number of considerations including, with respect to property, the value of any nearby property sold in a court-supervised auction during the previous five years. We revalue any collateral on a periodic basis (generally every year) or if a trigger event occurs with respect to the loan in question.

We also offer mortgage loans to home builders or developers who build or sell single- or multi-family housing units, principally apartment buildings. Many of these builders and developers are categorized as small- and medium-sized enterprises. We offer a variety of such mortgage loans, including loans to purchase property or finance the construction of housing units and loans to contractors used for working capital purposes. Such mortgage loans subject us to the risk that the housing units will not be sold. As a result, we review the probability of the sale of the housing unit when evaluating the extension of a loan. We also review the borrower’s

 

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creditworthiness and the adequacy of the intended use of proceeds. Furthermore, we take a lien on the land on which the housing unit is to be constructed as collateral. If the collateral is not sufficient to cover the loan, we also take a guarantee from the Housing Finance Credit Guarantee Fund as security.

A substantial number of our small- and medium-sized enterprise customers are SOHOs, which we currently define to include sole proprietorships and individual business interests. With respect to SOHOs, we apply credit risk evaluation models, which not only use quantitative analysis related to a customer’s accounts, personal credit and financial information and due amounts but also require our credit officers to perform a qualitative analysis of each potential SOHO customer. With respect to SOHO loans in excess of ￦1 billion, our credit risk evaluation model also includes a quantitative analysis of the financial statements of the underlying business. We generally lend to SOHOs on a secured basis, although a small portion of our SOHO exposures are unsecured.

Pricing

We establish the price for our corporate loan products based principally on transaction risk, our cost of funding and market considerations. Transaction risk is measured by such factors as the credit rating assigned to a particular borrower, the size of the borrower and the value and type of collateral. Our loans are priced based on the Market Opportunity Rate system, which is a periodic floating rate system that takes into account the current market interest rate. For the Market Opportunity Rate as of December 31, 2022, see “—Retail Banking—Lending Activities—Mortgage and Home Equity Lending—Pricing.”

While we generally utilize the Market Opportunity Rate system, depending on the price and other terms set by competing banks for similar borrowers, we may adjust the interest rate we charge to compete more effectively with other banks.

Large Corporate Banking

Large corporate customers include all companies that are not small- and medium-sized enterprise customers. Kookmin Bank’s articles of incorporation provide that financial services to large corporate customers must be no more than 40% of the total amount of our Won-denominated loans. Our business focus with respect to large corporate banking is to selectively increase the proportion of high quality large corporate customers. Specifically, we are carrying out various initiatives to improve our customer relationship with large corporate customers and have been seeking to expand our service offerings to this segment.

Lending Activities

Our principal loan products for our large corporate customers are working capital loans and facilities loans. As of December 31, 2022, working capital loans and facilities loans accounted for 77.6% and 22.4%, respectively, of our total large corporate loans. We also offer mortgage loans to large corporate clients who build or sell single- or multi-family housing units, as described above under “—Small- and Medium-sized Enterprise Banking—Lending Activities.”

As of December 31, 2022, secured loans and guaranteed loans accounted for, in the aggregate, 39.3% of our large corporate loans. Among the secured loans, 71.1% were secured by real estate and 28.9% were secured by deposits or securities. Working capital loans generally have a maturity of one year, but may be extended for additional terms ranging from three months to one year in length for an aggregate term of five years. Facilities loans have a maximum maturity of 15 years.

In our unsecured lending to large corporate customers, a critical consideration in our policy regarding the extension of such unsecured loans is the borrower’s creditworthiness. We assign each borrower a credit rating based on the judgment of our experts or scores calculated using the appropriate credit rating system, taking into account both financial factors and non-financial factors (such as our perception of a borrower’s reliability,

 

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management and operational risk and risk relating to the borrower’s industry). The credit ratings, along with such factors, are key determinants in our lending to large corporate customers. Large corporate customers generally have higher credit ratings due to their higher repayment capability compared to other types of borrowers, such as small- and medium-sized enterprise borrowers. In addition, large corporate borrowers generally are affected to a lesser extent than small- and medium-sized enterprise borrowers by fluctuations in the Korean economy and also maintain more sophisticated financial records. As of December 31, 2022, 92.4% of our large corporate customers had credit ratings of BBB- or above according to the internal credit rating system of Kookmin Bank, compared to 83.9% of our small- and medium-sized enterprise customers. A credit rating of BBB- is assigned to customers whose ability to repay the principal and interest on their outstanding loans is determined by us to be generally satisfactory but nonetheless subject to adverse effects under unfavorable economic conditions or during downturns in the business environment. Based on our internal analysis of historical data, we believe that the probability of default for loans extended to large corporate customers with a credit rating of BBB- or above is between 0.00% and 2.26%.

We monitor the credit status of large corporate borrowers and collect information to adjust our ratings appropriately. We also manage and monitor our large corporate customers through a dedicated Corporate Banking Branch and Kookmin Bank’s Large Corporate Business Department. In addition, Kookmin Bank’s Credit Risk Department manages the exposures to each large corporate customer and conducts in-depth analysis of various economic and industry-related risks that are relevant to large corporate customers.

As of December 31, 2022, in terms of our outstanding loan balance, 29.1% was extended to borrowers in the financial industry, 26.8% of our large corporate loans was extended to borrowers in the manufacturing industry, and 22.7% was extended to borrowers in the service industry.

Pricing

We determine pricing of our large corporate loans in the same way as we determine the pricing of our small- and medium-sized enterprise loans. See “—Small- and Medium-sized Enterprise Banking—Pricing” above. As of December 31, 2022, the Market Opportunity Rate, which is utilized in pricing loans offered by us, was the same for our large corporate loans as for our small- and medium-sized enterprise loans.

Capital Markets Activities and International Banking/Finance

Through our capital markets operations, we invest and trade in debt and equity securities and, to a lesser extent, engage in derivatives and asset securitization transactions and make call loans. We also provide investment banking and securities brokerage services.

Securities Investment and Trading

We invest in and trade securities for our own account in order to maintain adequate sources of liquidity and to generate interest and dividend income and capital gains. As of December 31, 2021 and 2022, our investment portfolio, which consists primarily of financial assets at amortized cost and financial assets at fair value through other comprehensive income and our trading portfolio had a combined total carrying amount of ￦170,523 billion and ￦181,287 billion (including the investment and trading portfolios of our insurance operations) and represented 25.7% and 25.9% of our total assets, respectively.

Our trading and investment portfolios consist primarily of Korean treasury securities and debt securities issued by Korean government agencies, local governments or certain government-invested enterprises and debt securities issued by financial institutions. As of December 31, 2021 and 2022, we held debt securities with a total carrying amount of ￦163,739 billion and ￦175,693 billion, respectively, of which:

 

  •  

financial assets at amortized cost accounted for ￦44,476 billion and ￦58,295 billion, or 27.2% and 33.2%, respectively;

 

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  •  

debt securities at fair value through other comprehensive income accounted for ￦56,260 billion and ￦55,610 billion, or 34.4% and 31.7%, respectively; and

 

  •  

debt securities at fair value through profit or loss accounted for ￦63,003 billion and ￦61,788 billion, or 38.4% and 35.1%, respectively.

Of these amounts, debt securities issued by the Korean government and government agencies as of December 31, 2021 and 2022 amounted to:

 

  •  

￦21,448 billion and ￦23,180 billion, or 48.2% and 39.8%, respectively, of our financial assets at amortized cost;

 

  •  

￦14,317 billion and ￦15,974 billion, or 25.4% and 28.7%, respectively, of our financial assets at fair value through other comprehensive income; and

 

  •  

￦8,294 billion and ￦8,406 billion, or 13.2% and 13.6%, respectively, of our debt securities at fair value through profit or loss.

From time to time we also purchase equity securities for our securities portfolios. Our equity securities consist primarily of marketable beneficiary certificates and equities listed on the KRX KOSPI Market, the KRX KOSDAQ Market or the KRX KONEX Market. As of December 31, 2021 and 2022:

 

  •  

equity securities at fair value through other comprehensive income had a carrying amount of ￦3,803 billion and ￦2,326 billion, or 6.3% and 4.0%, respectively, of our securities at fair value through other comprehensive income portfolio; and

 

  •  

equity securities at fair value through profit or loss had a carrying amount of ￦2,419 billion and ￦2,495 billion, or 3.7% and 3.9%, respectively, of our securities at fair value through profit or loss portfolio.

Our trading portfolio also includes derivative-linked securities, the underlying assets of which were linked to, among other things, interest rates, exchange rates, stock price indices or credit risks. As of December 31, 2021 and 2022, derivative-linked securities in our trading portfolio had a carrying amount of ￦1,543 billion and ￦1,714 billion, or 2.4% and 2.7% of our trading portfolio, respectively. See “—Derivatives Trading.”

 

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The following tables show, as of the dates indicated, the unrealized gains and losses on financial assets at fair value through other comprehensive income and financial assets at amortized cost within our investment portfolio, and the amortized cost and fair value of the portfolio by type of financial asset:

 

    As of December 31, 2021  
    Amortized
Cost(7)		     Net Unrealized
Gain and Loss(8)		     Loss Allowance
for Expected
Credit Losses(9)		     Fair Value  
    (in billions of Won)  

Financial assets at fair value through other comprehensive income:

        

Debt securities

        

Korean treasury securities and government agencies

   ￦ 15,316     ￦ (999 )    ￦ —     ￦ 14,317  

Financial institutions(1)

     22,022       (89 )      4       21,929  

Corporate(2)

     19,350       (356 )      8       18,986  

Asset-backed securities(3)

     1,000       (4 )      —       996  

Others

     30       1       —       31  
 

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     57,718       (1,447 )      12       56,259  

Equity securities

     912       2,891       —       3,803  
 

 

 

    

 

 

    

 

 

    

 

 

  

Total financial assets at fair value through other comprehensive income

   ￦ 58,630     ￦  1,444     ￦ 12     ￦ 60,062  
 

 

 

    

 

 

    

 

 

    

 

 

  

Financial assets at amortized cost:

        

Korean treasury securities and government agencies

   ￦ 21,448     ￦ (66 )    ￦ —     ￦ 21,382  

Financial institutions(4)

     3,851       4       1       3,854  

Corporate(5)

     12,246       104       1       12,349  

Asset-backed securities(6)

     6,900       (101 )      2       6,797  

Others

     31       (2 )      —       29  
 

 

 

    

 

 

    

 

 

    

 

 

  

Total financial assets at amortized cost

   ￦ 44,476     ￦ (61 )    ￦   4     ￦ 44,411  
 

 

 

    

 

 

    

 

 

    

 

 

  

 

    As of December 31, 2022  
    Amortized
Cost(7)		     Net Unrealized
Gain and Loss(8)		     Loss Allowance
for Expected
Credit Losses(9)		     Fair Value  
    (in billions of Won)  

Financial assets at fair value through other comprehensive income:

        

Debt securities

        

Korean treasury securities and government agencies

   ￦ 18,785     ￦ (2,811 )    ￦ —     ￦ 15,974  

Financial institutions(1)

     21,050       (415 )      3       20,632  

Corporate(2)

     19,651       (1,364 )      5       18,282  

Asset-backed securities(3)

     452       (15 )      —       437  

Others

     283       2       —       285  
 

 

 

    

 

 

    

 

 

    

 

 

  

Subtotal

     60,221       (4,603 )      8       55,610  

Equity securities

     1,103       1,223       —       2,326  
 

 

 

    

 

 

    

 

 

    

 

 

  

Total financial assets at fair value through other comprehensive income

   ￦ 61,324     ￦ (3,380 )    ￦ 8     ￦ 57,936  
 

 

 

    

 

 

    

 

 

    

 

 

  

Financial assets at amortized cost:

        

Korean treasury securities and government agencies

   ￦ 23,180     ￦ (1,430 )    ￦ —     ￦ 21,750  

Financial institutions(4)

     11,325       (247 )      2       11,076  

Corporate(5)

     15,770       (1,695 )      1       14,074  

Asset-backed securities(6)

     7,655       (620 )      3       7,032  

Others

     364       (4 )      —       360  
 

 

 

    

 

 

    

 

 

    

 

 

  

Total financial assets at amortized cost

   ￦ 58,294     ￦ (3,996 )    ￦ 6     ￦ 54,292  
 

 

 

    

 

 

    

 

 

    

 

 

  

 

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(1) 

Includes debt securities issued by the Bank of Korea, the Korea Development Bank, Industrial Bank of Korea and the Export-Import Bank of Korea in the aggregate amount of ￦15,634 billion as of December 31, 2021 and ￦14,618 billion as of December 31, 2022. These financial institutions are owned or controlled by the Korean government.

(2)

Includes debt securities issued by the Korea Development Bank, Korea Housing Finance Corporation and the Export-Import Bank of Korea in the aggregate amount of ￦737 billion as of December 31, 2021 and debt securities issued by the Korea Development Bank and Korea Housing Finance Corporation in the aggregate amount of ￦637 billion as of December 31, 2022. These entities are owned or controlled by the Korean government.

(3) 

Includes mortgage-backed securities issued by Korea Housing Finance Corporation, which have residential mortgage loans as underlying assets, in the amount of ￦963 billion as of December 31, 2021 and ￦406 billion as of December 31, 2022. Korea Housing Finance Corporation is owned by the Korean government.

(4) 

Includes debt securities issued by the Bank of Korea, the Korea Development Bank, Industrial Bank of Korea and the Export-Import Bank of Korea in the aggregate amount of ￦2,530 billion as of December 31, 2021 and ￦4,856 billion as of December 31, 2022. These financial institutions are owned or controlled by the Korean government.

(5)

Includes debt securities issued by Korea Housing Finance Corporation and the Korea Development Bank in the aggregate amount of ￦1,057 billion as of December 31, 2021 and ￦1,814 billion as of December 31, 2022. These entities are owned or controlled by the Korean government.

(6) 

Includes mortgage-backed securities issued by Korea Housing Finance Corporation, which have residential mortgage loans as underlying assets, in the amount of ￦6,796 billion as of December 31, 2021 and ￦7,269 billion as of December 31, 2022. Korea Housing Finance Corporation is owned by the Korean government.

(7) 

Gross carrying amount before adjusting for loss allowance for expected credit losses in accordance with IFRS 9.

(8) 

Net unrealized gain and loss after adjusting for loss allowance for expected credit losses in accordance with IFRS 9.

(9) 

Loss allowance for expected credit losses in accordance with IFRS 9.

Derivatives Trading

We engage in derivatives trading, including on behalf of our customers. Our trading volume increased from ￦469,477 billion in 2020 to ￦549,312 billion in 2021 and ￦612,302 billion in 2022. Our net trading revenue from derivatives for the year ended December 31, 2020, 2021 and 2022 was ￦323 billion, ￦204 billion and ￦178 billion, respectively.

We provide and trade a range of derivatives products, including:

 

  •  

interest rate swaps and options, relating to interest rate risks;

 

  •  

cross-currency swaps, forwards and options relating to foreign exchange risks; and

 

  •  

stock price index options linked to the KOSPI index.

Our derivatives operations focus on addressing the needs of our corporate clients to hedge their risk exposure and the need to hedge our risk exposure that results from such client contracts. We also engage in derivatives trading activities to hedge the interest rate and foreign currency risk exposures that arise from our own assets and liabilities. In addition, we engage in proprietary trading of derivatives within our regulated open position limits.

 

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The following shows the estimated fair value of our derivatives as of December 31, 2021 and 2022:

 

     As of December 31,  
     2021      2022  
     Estimated
Fair Value
Assets		      Estimated
Fair Value
Liabilities		      Estimated
Fair Value
Assets		      Estimated
Fair Value
Liabilities		  
     (in billions of Won)  

Foreign exchange derivatives(1)

    ￦ 2,436      ￦ 2,403      ￦ 6,520      ￦ 6,672  

Interest rate derivatives(1)

      813        773        2,265        1,560  

Equity derivatives

      433        381        584        941  

Credit derivatives

      19        7        33        17  

Commodity derivatives

      —        —        3        2  

Others

      21        118        42        314  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 3,722      ￦ 3,682      ￦ 9,447      ￦ 9,506  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1) 

Includes those for trading purposes and hedging purposes.

The following table shows certain information related to our derivatives designated as fair value hedges for the years ended December 31, 2021 and 2022:

 

     Year Ended December 31,  
     2021     2022  
     Hedging
Instruments		     Hedged
Item		      Ineffective
Portion		     Hedging
Instruments		     Hedged
Item		     Ineffective
Portion		  
     (in billions of Won)  

Foreign exchange derivatives

    ￦ (175 )    ￦ 181      ￦ 6     ￦ (129 )    ￦ 151     ￦ 22  

Interest rate derivatives

      (13 )      8        (5 )      28       (29 )      (1 ) 
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ (188 )    ￦ 189      ￦ 1     ￦ (101 )    ￦ 122     ￦ 21  
  

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

 

 

  

The following table shows certain information related to our derivatives designated as cash flow hedges for the years ended December 31, 2021 and 2022:

 

     Year Ended December 31,  
     2021      2022  
     Hedging
Instruments		      Effective
Portion		      Ineffective
Portion		      Hedging
Instruments		     Effective
Portion		     Ineffective
Portion		  
     (in billions of Won)  

Foreign exchange derivatives

    ￦ 60      ￦ 59      ￦ 1      ￦ (6 )    ￦ (6 )    ￦ —  

Interest rate derivatives

      36        36        —        76       77       (1 ) 
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ 96      ￦ 95      ￦ 1      ￦ 70     ￦ 71     ￦ (1 ) 
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

    

 

 

  

 

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The following table shows certain information related to financial instruments designated as net investment hedges in foreign operations for the years ended December 31, 2021 and 2022:

 

     Year Ended December 31,  
     2021      2022  
     Hedging
instruments		     Effective
Portion		     Ineffective
Portion		      Hedging
instruments		     Effective
Portion		     Ineffective
Portion		  
     (in billions of Won)  

Foreign exchange derivatives(1)

    ￦ (89 )    ￦ (89 )    ￦ —      ￦ (104 )    ￦ (104 )    ￦ —  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

Total

    ￦ (89 )    ￦ (89 )    ￦ —      ￦ (104 )    ￦ (104 )    ￦ —  
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

  

 

(1)

Includes the gain (loss) on a non-derivative instrument designated as a hedging instrument.

Asset Securitization Transactions

We are active in the Korean asset-backed securities market. Based on our diverse experience with respect to product development and management capabilities relating to asset securitization, we offer customers a wide range of financial products and participate in various asset securitization transactions, including through our subsidiary KB Securities, to reinforce our position as a leading financial services provider with respect to the asset securitization market. We were involved in asset securitization transactions with an initial aggregate issue amount of ￦9,495 billion in 2020, ￦9,677 billion in 2021 and ￦6,013 billion in 2022, a significant portion of which were public offerings of asset-backed securities.

Call Loans

We make call loans and borrow call money in the short-term money market. Call loans are defined as short-term lending among banks and financial institutions either in Won or in foreign currencies with maturities of 90 days or less. Typically, call loans have maturities of one day. As of December 31, 2022 we had made call loans of ￦6,416 billion and borrowed call money of ￦4,154 billion, compared to ￦5,773 billion and ￦1,678 billion, respectively, as of December 31, 2021.

Investment Banking

We have focused on selectively expanding our investment banking activities in order to increase our fee income and diversify our revenue base. We provide investment banking services primarily through KB Securities and Kookmin Bank. Our principal investment banking services include:

 

  •  

securities underwriting;

 

  •  

financing and financial advisory services for mergers and acquisitions;

 

  •  

project finance and financial advisory services for social overhead capital projects such as highway, port, power, water and sewage projects;

 

  •  

financing and financial advisory services for real estate development projects; and

 

  •  

structured finance.

In May 2016, we acquired 22.56% of the outstanding shares of Hyundai Securities Co., Ltd., a publicly listed Korean securities firm, and further increased our shareholding in Hyundai Securities to 29.62% in June 2016 by acquiring treasury shares of Hyundai Securities. In October 2016, we effected a comprehensive stock swap of the outstanding shares of Hyundai Securities for newly issued shares of our company, as a result of which Hyundai Securities became a wholly-owned subsidiary. Following such transaction, we merged our existing subsidiary, KB Investment & Securities, with and into Hyundai Securities in December 2016 and changed the name of the surviving entity to KB Securities. Through the acquisition of Hyundai Securities and the creation of an integrated securities firm, we sought to strengthen our investment banking and securities brokerage capabilities, as well as to achieve economies of scale.

 

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In 2022, we generated net investment banking income of ￦970 billion, consisting of ￦204 billion of net interest income and ￦766 billion of net non-interest income.

Securities Brokerage

We provide securities brokerage services through KB Securities. Our activities include provision of brokerage services to our retail and corporate customers relating to a wide range of investment products, including stocks, futures, options, equity- and derivative-linked securities and debt instruments, as well as provision of prime brokerage services to hedge funds. In addition, we offer self-directed brokerage services through KB Securities’ online and smartphone brokerage platforms.

As of December 31, 2022, KB Securities operated a brokerage network consisting of 104 branches and sub-branches in Korea. In 2022, KB Securities generated commission income of ￦422 billion through its securities brokerage activities.

International Banking and Finance

We engage in various international banking and finance activities, including foreign exchange services and derivatives dealing, import and export-related services, offshore lending, syndicated loans, foreign currency securities investment and non-life insurance. These services are provided primarily to our domestic customers and overseas subsidiaries and affiliates of Korean corporations and, to a limited extent, to local companies and individuals. We also raise foreign currency funds through our international banking and finance operations.

The table below sets forth certain information regarding our foreign currency assets and borrowings:

 

     As of December 31,  
     2021      2022  
     (in millions of US$)  

Total foreign currency assets

    US$ 59,424      US$ 65,457  
  

 

 

     

 

 

  

Foreign currency borrowings:

      

Borrowings

      16,122        18,968  

Debentures

      7,183        8,590  
  

 

 

     

 

 

  

Total borrowings

    US$ 23,305      US$ 27,558  
  

 

 

     

 

 

  

 

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The table below sets forth our overseas subsidiaries, branches and representative and liaison offices in operation as of December 31, 2022:

 

Business Unit(1)

    Location  

Subsidiaries (23)

   

Kookmin Bank Cambodia PLC (including seven branches)

      Cambodia  

Kookmin Bank (China) Ltd. (including five branches)

      China  

KB Microfinance Myanmar Co., Ltd. (including 23 branches)

      Myanmar  

PRASAC Microfinance Institution Plc. (including 182 branches)

      Cambodia  

PT Bank KB Bukopin, Tbk (including 275 branches)

      Indonesia  

KB Bank Myanmar Ltd.

      Myanmar  

KBFG Securities America Inc.

      United States  

KB Securities Hong Kong Ltd.

      Hong Kong  

KB Securities Vietnam Joint Stock Company (including three branches)

      Vietnam  

KB FINA Joint Stock Company

      Vietnam  

PT KB Valbury Sekuritas (including 15 branches)

      Indonesia  

KBFG Insurance (China) Co., Ltd. (including one branch)

      China  

PT. Kookmin Best Insurance Indonesia (including two branches)

      Indonesia  

Leading Insurance Services, Inc.

      United States  

KB Daehan Specialized Bank PLC. (including four branches)

      Cambodia  

PT. KB Finansia Multi Finance (including 134 branches)

      Indonesia  

KB J Capital Co., Ltd.

      Thailand  

i-Finance Leasing Plc. (including four branches)

      Cambodia  

KB Asset Management Singapore Pte. Ltd.

      Singapore  

KBAM Shanghai Advisory Services Co., Ltd.

      China  

KB KOLAO Leasing Co., Ltd. (including one branch)

      Laos  

PT Sunindo Kookmin Best Finance (including one branch)

      Indonesia  

PT KB Data Systems Indonesia

      Indonesia  

Branches (10)

   

Kookmin Bank, Tokyo Branch

      Japan  

Kookmin Bank, Auckland Branch

      New Zealand  

Kookmin Bank, New York Branch

      United States  

Kookmin Bank, London Branch

      United Kingdom  

Kookmin Bank, Ho Chi Minh City Branch

      Vietnam  

Kookmin Bank, Hanoi Branch

      Vietnam  

Kookmin Bank, Hong Kong Branch

      Hong Kong  

Kookmin Bank, Gurugram Branch

      India  

Kookmin Bank, Singapore Branch

      Singapore  

Kookmin Best Insurance Co., Ltd. U.S. Branch

      United States  

Representative and Liaison Offices (5)

   

KB Securities Shanghai Representative Office

      China  

KB Insurance, Hanoi Liaison Office

      Vietnam  

KB Insurance, Ho Chi Minh City Liaison Office

      Vietnam  

KB Kookmin Card, Yangon Representative Office

      Myanmar  

KB Asset Management, Ho Chi Minh City Representative Office

      Vietnam  

 

(1) 

Does not include subsidiaries and branches in liquidation or dissolution.

Trustee and Custodian Services Relating to Investment Trusts and Other Functions

We act as a trustee for 107 financial investment companies with a collective investment license, which invest in investment assets using funds raised by the sale of beneficiary certificates of investment trusts to

 

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investors. We also act as custodian for 274 financial institutions and as fund administrator for 138 financial institutions with respect to various investments, as well as acting as settlement agent in connection with such services. We receive a fee for acting in these capacities and generally perform the following functions:

 

  •  

holding assets for the benefit of the investment trusts or institutional investors;

 

  •  

receiving and making payments in respect of such investments;

 

  •  

acting as settlement agent in respect of such investments on behalf of the investment trust or institutional investors, in the domestic and overseas markets;

 

  •  

providing reports on assets held in custody;

 

  •  

providing certain foreign exchange services for overseas investment and foreign investors; and

 

  •  

providing fund-related administration and accounting services.

For the year ended December 31, 2022, our fee income from our trustee and custodian services was ￦36 billion and revenue collected as a result of administration of the underlying investments was ￦21 billion.

Other Businesses

Trust Account Management Services

Money Trust Management Services

We provide trust account management services for both specified money trusts and unspecified money trusts. We receive fees for our trust account management services consisting of basic fees that are based upon a percentage of either the net asset value of the assets or the principal under management and, for certain types of trust account operations, performance fees that are based upon the performance of the trust account operations. In 2022, our basic money trust fees ranged from 0.1% to 2.0% of total assets under management depending on the type of trust account. We also charge performance fees with respect to certain types of trust account products. We receive penalty payments when customers terminate their trust accounts prior to the original contract maturity.

We currently provide trust account management services for 20 types of money trusts. The maturities of the money trusts we manage vary by the type of the trust. Approximately 2.8% of our money trusts also provide periodic payments of dividends which are added to the assets held in such trusts and not distributed.

Under Korean law, the assets of our trust accounts are segregated from our banking account assets and are not available to satisfy the claims of any of our potential creditors. We are, however, permitted to deposit surplus funds generated by trust assets into our banking accounts in certain circumstances as set forth under the Financial Investment Services and Capital Markets Act and the regulations thereunder.

As of December 31, 2022, the total balance of our money trusts was ￦67,345 billion (as calculated in accordance with Statement of Korea Accounting Standard No. 5004, Trust Accounts, and the Enforcement Regulations of Financial Investment Services under the Financial Investment Services and Capital Markets Act, which we refer to as an “SKAS basis”). As for unspecified money trust accounts, we have investment discretion over all money trusts, which are pooled and managed jointly for each type of trust account. Specified money trust accounts are established on behalf of individual customers who direct our investment of trust assets.

 

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The following table shows the balances of our money trusts by type as of the dates indicated. Under IFRS, we consolidate trust accounts for which we guarantee both the repayment of the principal amount and a fixed rate of interest as well as trust accounts for which we guarantee only the repayment of the principal amount.

 

     As of December 31,  
     2021      2022  
     (in billions of Won)  

Principal and interest guaranteed trusts(1)

    ￦ 0.1      ￦ 0.1  

Principal guaranteed trusts(1)

      3,874        3,741  

Performance trusts(1)(2)

      55,549        63,604  
  

 

 

     

 

 

  

Total

    ￦ 59,423      ￦ 67,345  
  

 

 

     

 

 

  

 

(1) 

Calculated on an SKAS basis.

(2) 

Trusts which are primarily non-guaranteed.

The balance of our money trusts increased 13.3% between December 31, 2021 and December 31, 2022. As of December 31, 2022, the trust assets we managed consisted principally of securities investments and loans from the trust accounts. As of December 31, 2022, on an SKAS basis, our trust accounts had invested in securities in the aggregate amount of ￦28,528 billion, of which ￦19,423 billion was debt securities and derivative-linked securities. Securities investments consist of government-related debt securities, corporate debt securities, including bonds and commercial paper, equity securities, derivative-linked securities and other securities. Loans made by our trust account operations are similar in type to the loans made by our bank account operations. As of December 31, 2022, on an SKAS basis, our trust accounts had made loans in the principal amount of ￦322 billion (excluding loans from the trust accounts to our banking accounts of ￦2,099 billion), which accounted for 0.5% of our money trust assets. Loans by our money trusts are subject to the same credit approval process as loans from our banking accounts. As of December 31, 2022, substantially all loans from our money trust accounts were collateralized or guaranteed.

Our money trust accounts also invest, to a lesser extent, in equity securities, including beneficiary certificates issued by financial investment companies with a collective investment license. On an SKAS basis, as of December 31, 2022, equity securities in our money trust accounts amounted to ￦9,109 billion, which accounted for 13.2% of our total money trust assets. Of this amount, ￦8,977 billion was from specified money trusts and ￦132 billion was from unspecified money trusts.

If the income from a money trust for which we provide a guarantee is less than the amount of the payments we have guaranteed, we will need to pay the amount of the shortfall with funds from special reserves maintained with respect to trust accounts followed by basic fees from that money trust and funds from our general banking operations. In 2020, 2021 and 2022, we made no payment from our banking accounts to cover shortfalls in our guaranteed trusts. On an SKAS basis, we derived trust fees with regard to trust account management services (including those fees related to property trust management services) of ￦216 billion in 2020, ￦281 billion in 2021 and ￦176 billion in 2022.

Property Trust Management Services

We also offer property trust management services, where we manage non-monetary assets in return for a fee. Non-monetary assets include mostly securities, but can also include other liquid receivables and real estate. Under these arrangements, we render custodial services for the property in question and collect fee income in return.

In 2022, our basic property trust fees ranged from 0.001% to 0.3% of total assets under management depending on the type of trust accounts. On an SKAS basis, as of December 31, 2022, the aggregate balance of our property trusts was ￦12,025 billion, compared to ￦12,146 billion as of December 31, 2021.

Under IFRS, the property trusts are not consolidated within our financial statements.

 

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Investment Trust Management

Through KB Asset Management and KB Securities, we offer investment trust products to customers and manage the funds invested by them in investment trusts. As of December 31, 2022, KB Asset Management and KB Securities had an aggregate of ￦82,000 billion of investment trust assets under management.

Insurance

Non-Life Insurance

In June 2015, we acquired a 19.47% stake in KB Insurance Co., Ltd. (formerly named LIG Insurance Co., Ltd.), a publicly listed Korean non-life insurance company. In November 2015 and December 2016, we increased our shareholding in KB Insurance to 33.29% and 39.81%, respectively. Through a tender offer conducted in May 2017, we acquired 36,237,649 shares of KB Insurance at ￦33,000 per share, increasing our shareholding to 94.30%. We subsequently effected a comprehensive stock swap in July 2017 to acquire the remaining shares of KB Insurance in exchange for 2,170,943 shares of common stock of our company, as a result of which KB Insurance became a wholly-owned subsidiary. KB Insurance offers a variety of non-life insurance products, including principally the following:

 

  •  

Long-term insurance products. Long-term insurance products are sold to retail customers and provide protection against various types of losses, with specified coverage periods of at least three years and ranging up to 30 years or ending at specified ages. Unlike general property and casualty insurance products, which usually have a coverage period of one year or less and only have pure protection features, substantially all long-term insurance policies in Korea also have an integrated savings feature. KB Insurance offers a broad range of long-term insurance products covering the policyholder’s injuries, illnesses, long-term care, disabilities, accidents, property losses or other events.

 

  •  

Automobile insurance products. Automobile insurance products are sold to both retail and institutional customers and generally provide coverage for the following types of losses resulting from the policyholder’s ownership or use of an insured automobile: (i) liability to third parties for bodily injuries or death as well as damage to automobiles or other personal property; and (ii) the policyholder’s own bodily injuries and automobile damage or theft. KB Insurance’s automobile insurance policies typically have a coverage period of one year or less.

 

  •  

General property and casualty insurance products. General property and casualty insurance products are sold to institutional customers and include the following: (i) fire and allied lines insurance policies, providing protective coverage for damage to buildings and facilities and their contents against fire, flood, storm, lightening, explosion, theft and other risks; (ii) marine insurance policies, providing protective coverage for damage to marine vessels and their cargo; and (iii) specialty insurance policies, which cover various other types of specified risks faced by businesses, including liabilities and business interruption.

 

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The following table sets forth certain information regarding the operations of KB Insurance, on a standalone basis, as of the dates or for the periods indicated:

 

     As of or for the Year Ended December 31,  
     2020     2021     2022  
     (in billions of Won, except as otherwise indicated)  

Total policies in force (in thousands)

      17,525       18,522       19,579  

Number of new policies sold (in thousands)

      10,535       10,604       10,818  

Gross direct written premiums(1)

    ￦ 10,975     ￦ 11,524     ￦ 12,233  

Long-term insurance

      7,017       7,233       7,841  

Automobile insurance

      2,611       2,668       2,816  

General property and casualty insurance

      1,074       1,167       1,292  

Other

      273       456       285  

Net earned premiums(2)

    ￦ 9,577     ￦ 10,298     ￦ 10,889  

Loss ratio(3)

      85.50 %      84.95 %      82.51 % 

Risk-based capital adequacy ratio(4)

      174.76 %      179.39 %      171.66 % 

 

(1)

The amount of direct written premiums recognized in a specified period in respect of policies in force during such period, on a standalone basis.

(2)

The sum of (i) gross direct written premiums for the specified period, (ii) reinsurance premium income for such period, (iii) return of surrender refunds for such period and (iv) total unearned premiums deferred from the previous period, less the sum of (x) reinsurance expenses for the specified period, (y) surrender refunds for such period and (z) total unearned premiums deferred to the next period, on a standalone basis.

(3)

The ratio of (i) total claims paid for the specified period to (ii) net earned premiums for such period, on a standalone basis.

(4) 

Calculated in accordance with the applicable requirements of the Financial Supervisory Service. See “—Regulation and Supervision—Principal Regulations Applicable to Insurance Companies—Capital Adequacy.”

KB Insurance operates a multi-channel distribution platform in Korea, comprising agencies (which are independent insurance brokerage companies), a network of financial consultants, bancassurance arrangements with commercial banks and other financial institutions, direct marketing channels (including home shopping television networks and the Internet) and a corporate sales force.

As of December 31, 2022, KB Insurance had ￦33,529 billion of general account investment assets on a standalone basis, of which domestic debt securities, loans, beneficiary certificates, domestic equity securities and overseas securities accounted for 39.0%, 24.4%, 19.9%, 0.3% and 10.2%, respectively.

Life Insurance

In January 2023, in order to maximize the synergy effects in our life insurance operations, we merged the Former KB Life Insurance with and into Prudential Life Insurance, and the surviving entity is called KB Life Insurance Co., Ltd. Through KB Life Insurance, we offer a variety of individual and group life insurance products, including annuities, savings insurance, variable life insurance, whole life insurance and term life insurance as well as health insurance. We utilize our multi-channel distribution platforms to market these products, which includes sales through agencies, financial consultants, telemarketers and bancassurance arrangements with commercial banks and other financial institutions.

Prior to the merger, the Former KB Life Insurance generated gross premiums (not including separate account premiums) of ￦1,476 billion in 2020, ￦1,838 billion in 2021 and ￦2,014 billion in 2022, each on a standalone basis. As of December 31, 2022, the Former KB Life Insurance had ￦8,106 billion of general account investment assets on a standalone basis, of which domestic debt securities, beneficiary certificates, loans, domestic equity securities and overseas securities accounted for 50.4%, 19.3%, 19.1%, 0.0% and 11.2%, respectively. As of such date, the Former KB Life Insurance’s risk-based capital adequacy ratio was 130.48%.

Prior to the merger, Prudential Life Insurance, a wholly-owned subsidiary which we had acquired from Prudential Financial, Inc. for ￦2.3 trillion in August 2020, generated gross premiums (not including separate

 

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account premiums) of ￦451 billion in 2020 (excluding such amount for the period before Prudential Life Insurance became our consolidated subsidiary), ￦1,351 billion in 2021 and ￦1,507 billion in 2022, each on a standalone basis. As of December 31, 2022, Prudential Life Insurance had ￦17,524 billion of general account investment assets on a standalone basis, of which domestic debt securities, beneficiary certificates, loans, domestic equity securities and overseas securities accounted for 86.8%, 3.7%, 6.0%, 0.6% and 2.9%, respectively. As of such date, Prudential Life Insurance’s risk-based capital adequacy ratio was 248.37%.

For further information regarding our insurance-related assets and liabilities, see Note 38 of the notes to our consolidated financial statements included elsewhere in this annual report.

Bancassurance

Through the bancassurance operations of Kookmin Bank, we offer insurance products of other institutions to retail customers in Korea. We currently market a wide range of bancassurance products and seek to generate additional fee-based revenues by expanding our offering of these products.

Currently, our bancassurance business has alliances with 22 life insurance companies (including our subsidiary, KB Life Insurance) and 11 non-life insurance companies (including our subsidiary, KB Insurance) and offers 62 different products through our branch network. These products are composed of 55 types of life insurance policies, such as annuities, savings insurance and variable life insurance, and 7 types of non-life insurance products. In 2022, our commission income from our bancassurance business amounted to ￦131.1 billion.

Consumer Finance

We provide consumer finance services through KB Capital Co., Ltd. We acquired 52.02% of the outstanding shares of KB Capital (formerly known as Woori Financial Co., Ltd.) in March 2014 for ￦280 billion. We conducted a tender offer in May 2017, through which we acquired 5,949,300 shares of KB Capital at ￦27,500 per share, increasing our shareholding in KB Capital to 79.70%. We subsequently acquired the remaining outstanding shares of KB Capital in exchange for 2,269,057 shares of common stock of our company through a comprehensive stock swap effected in July 2017, as a result of which KB Capital became a wholly-owned subsidiary. KB Capital provides leasing services and installment finance services for various products, including automobiles, heavy machineries and medical equipment, as well as microlending services. We expect KB Capital to continue to expand our customer base by providing a variety of non-banking financial services to retail customers, as well as synergies through coordinated business operations with our other subsidiaries, including Kookmin Bank.

Management of the National Housing and Urban Fund

The National Housing and Urban Fund is a government fund that provides financial support to low-income households in Korea by providing mortgage financing and construction loans for projects to build small-sized housing. The operations of the National Housing and Urban Fund include providing and managing National Housing and Urban Fund loans, issuing National Housing and Urban Fund bonds and collecting subscription savings deposits.

In February 2013, the Ministry of Land, Infrastructure and Transport (formerly the Ministry of Land, Transport and Maritime Affairs) designated us as one of the managers of the National Housing and Urban Fund. In 2022, we received total fees of ￦29 billion for managing the National Housing and Urban Fund, compared to ￦33 billion in 2021 and ￦35 billion in 2020.

The financial accounting for the National Housing and Urban Fund is entirely separate from our financial accounting, and the non-performing loans and loan losses of the National Housing and Urban Fund, in general,

 

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do not impact our financial condition. Regulations and guidelines for managing the National Housing and Urban Fund are issued by the Minister of Land, Infrastructure and Transport pursuant to the Housing and Urban Fund Act.

Distribution Channels

Banking Branch Network

As of December 31, 2022, Kookmin Bank operated a network of 856 branches and sub-branches in Korea, which was one of the largest branch networks among Korean commercial banks. An extensive branch network is important to attracting and maintaining retail customers, who use branches extensively and value convenience. We believe that our extensive branch network in Korea and retail customer base provide us with a source of stable and relatively low cost funding. Approximately 37.7% of our branches and sub-branches are located in Seoul, and approximately 20.7% of our branches are located in the six next largest cities. The following table presents the geographical distribution of our branch network in Korea as of December 31, 2022:

 

Area

    Number of
Branches		      Percentage  

Seoul

      323        37.7 % 

Six largest cities (other than Seoul)

      177        20.7  

Other

      356        41.6  
  

 

 

     

 

 

  

Total

      856        100.0 % 
  

 

 

     

 

 

  

In addition, we have continued to implement the specialization of our branch functions. Of our branch network as of December 31, 2022, we had two branches that primarily handled large corporate banking.

In order to support our branch network, we have established an extensive network of ATMs, which are located in branches and in unmanned outlets known as “autobanks.” As of December 31, 2022, we had 4,563 ATMs.

We have actively promoted the use of these distribution outlets in order to provide convenient service to customers, as well as to maximize the marketing and sales functions at the branch level, reduce employee costs and improve profitability. The aggregate number of transactions conducted using our ATMs amounted to approximately 295 million in 2020, 251 million in 2021 and 224 million in 2022.

Other Banking Channels

The following table sets forth information, for the periods indicated, on the number of users and transactions of the other banking channels for our retail and corporate banking customers, which are discussed below:

 

     For the Year Ended December 31,  
     2020      2021      2022  

Internet banking:

         

Number of users(1)

      25,313,463        26,415,723        27,711,718  

Number of transactions (thousands)(2)

      14,794,331        18,941,829        4,827,755  

Phone banking:

         

Number of users(3)

      5,073,346        5,076,733        5,076,895  

Number of transactions (thousands)(2)

      76,595        62,835        51,594  

Smartphone banking:

         

Number of users(4)

      16,681,329        17,930,859        19,584,887  

Number of transactions (thousands)(2)

      13,811,431        20,828,944        21,741,324  

 

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(1) 

Number of users is defined as the total cumulative number of retail and corporate customers who have registered through our branch offices to use our Internet banking services.

(2) 

Number of transactions includes balance and transaction inquiries, fund transfers and other transactions.

(3) 

Number of users is defined as the total cumulative number of retail and corporate customers who have registered through our branch offices to use our phone banking services.

(4) 

Number of users is defined as the total cumulative number of retail customers who have registered through our branch offices, or the customers’ smartphones, to use our smartphone banking services.

Internet Banking

Our goal is to consolidate our position as a market leader in online banking. Our Internet banking services currently include:

 

  •  

basic banking services, including fund transfers, balance and transaction inquiries, pre-set automatic transfers, product inquiries, online bill and tax payments and foreign exchange services;

 

  •  

investment services, including opening deposit accounts and investing in funds;

 

  •  

processing of loan applications;

 

  •  

electronic certification services, which permit users to authenticate their identity and transactions on a confidential basis through digital signatures; and

 

  •  

wealth management and advisory services, including financial planning and real estate information services.

Phone Banking

We offer a variety of phone banking services, including inter-account fund transfers, balance and transaction inquiries, customer service inquiries and bill payments. We also have call centers, which we primarily use to:

 

  •  

advise clients with respect to deposits, loans and credit cards and to provide our customers a way to report any emergencies with respect to their accounts;

 

  •  

allow our customers to conduct transactions with respect to their accounts, such as balance and transfer inquiries, transfers or payments and opening accounts; and

 

  •  

conduct telemarketing to our customers or potential customers to advertise products or services.

Smartphone Banking

“KB Star Banking,” our mobile banking application for smartphones, allows our customers the flexibility to conduct a variety of financial transactions, including balance and transaction inquiries, fund transfers and asset management, anywhere at any time. It is also intended to act as a hub for all of our finance services, including securities transactions and insurance, by providing our customers with access to the key services offered by a number of our subsidiaries, such as KB Securities and KB Insurance. Our smartphone banking services currently include:

 

  •  

basic banking services, including fund transfers, balance and transaction inquiries, bill payments and foreign exchange services;

 

  •  

investment services, including investing in savings deposits that are designed specifically for and offered to smartphone banking customers; and

 

  •  

processing of loan applications and bancassurance services.

We also continue to develop innovative mobile applications that cater to specific customer needs and lifestyles. For example, we offer “Liiv Next,” a finance platform that provides easy-to-use banking services such

 

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as wire transfers and electronic payments as well as a variety of non-banking services such as games and quizzes to our younger “Generation Z” customers. We also offer a range of other mobile applications, including “Liiv Talk Talk,” our mobile peer-to-peer payment and messaging application, “Liiv M,” a mobile virtual network operator (MVNO) that offers a fusion of finance and mobile services and “KB Real Estate,” our new cloud-based real estate application that provides various information on real properties. We also offer MyData services through several channels including KB Star Banking, our mobile banking application, and KB Pay, a MyData-based platform operated by KB Kookmin Card.

Other Channels

We provide cash management services, which include automatic transfers, connection services to other financial institutions, real-time firm banking, automatic fund concentration and transmittal of trading information.

Distribution Channels for Other Services

Through our non-banking subsidiaries, we operate a network of dedicated branches and other distribution channels through which our customers can access credit card, securities brokerage, insurance and consumer finance products and services. The following table sets forth information regarding the number and geographical distribution of the branches in Korea operated by KB Kookmin Card, KB Securities and KB Insurance as of December 31, 2022:

 

Area

    KB Kookmin Card      KB Securities      KB Insurance  

Seoul

      7        40        58  

Six largest cities (other than Seoul)

      8        21        67  

Other

      11        43        136  
  

 

 

     

 

 

     

 

 

  

Total

      26        104        261  
  

 

 

     

 

 

     

 

 

  

Our other non-banking subsidiaries also operate a number of branches in Seoul and other areas. We also provide credit card, securities brokerage, insurance and consumer finance services through dedicated call centers, smartphone applications and Internet websites operated by KB Kookmin Card, KB Securities, KB Insurance, KB Life Insurance and KB Capital.

Competition

We compete principally with other financial holding companies and nationwide commercial banks, as well as regional banks, development banks, specialized banks and branches of foreign banks operating in Korea. We also compete with other types of financial institutions in Korea, including savings institutions (such as mutual savings and finance companies and credit unions and credit cooperatives), investment institutions (such as merchant banking corporations), life insurance companies, non-life insurance companies, securities companies and other financial investment companies.

Competition in the domestic banking industry is generally based on the types and quality of the products and services offered, including the size and location of retail networks, the level of automation and interest rates charged and paid. Competition has increased significantly in our traditional core businesses, retail banking, small- and medium-sized enterprise banking and credit card lending, contributing to some extent to the asset quality deterioration in retail and small- and medium-sized loans. As a result, our margins on lending activities may decrease in the future.

Furthermore, the introduction of Internet-only banks in Korea has led to an increase in competition in the Korean banking industry. Internet-only banks operate without branches and conduct most of their operations

 

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through electronic means, which enables them to minimize cost and offer customers higher interest rates on deposits or lower lending rates. In April 2017, Kbank, the first Internet-only bank in Korea, commenced operations. Kakao Bank, another Internet-only bank, in which Kookmin Bank held a 4.9% equity interest as of December 31, 2022, commenced operations in July 2017. Most recently, Toss Bank, another Internet-only bank, commenced operations in October 2021.

In the Korean insurance industry, competition is based on a number of factors, including brand recognition, service, product features and pricing, investment performance and perceived financial strength. There has been downward pressure in recent years on margins of insurance products as some of our competitors have sought to obtain or maintain market share by reducing margins and increasing marketing efforts. As the Korean non-life insurance and life insurance sectors continue to mature, they may experience a slowdown in growth as well as a stagnation in market penetration. Due to these and other factors, we believe that competition in the Korean insurance industry will likely remain intense in the future.

In addition, general regulatory reforms in the Korean financial industry have increased competition among banks and other financial institutions in Korea. As the reform of the financial sector continues, foreign financial institutions, some with greater resources than us, have entered, and may continue to enter, the Korean market either by themselves or in partnership with existing Korean financial institutions and compete with us in providing financial and related services.

Moreover, the Korean financial industry is undergoing significant consolidation. The number of nationwide commercial banks in Korea has decreased from 16 as of December 31, 1997, to six as of December 31, 2022. A number of significant mergers and acquisitions in the financial industry have taken place in Korea in recent years, including Hana Financial Group’s acquisition of a controlling interest in Korea Exchange Bank in 2012 and the subsequent merger of Hana Bank into Korea Exchange Bank in 2015. In addition, as part of the Korean government’s plans to privatize Woori Finance Holdings Co., Ltd. (the former financial holding company of Woori Bank), certain subsidiaries of Woori Finance Holdings were sold to other financial institutions and Woori Finance Holdings itself was merged into Woori Bank in 2014, which established a new financial holding company, Woori Financial Group Inc., in January 2019. In the insurance sector, China’s Anbang Insurance Group acquired controlling interests in Tong Yang Life Insurance Co., Ltd. and Allianz Life Insurance Korea Co., Ltd. in 2015 and 2016, respectively, while Mirae Asset Life Insurance Co., Ltd. acquired PCA Life Insurance Co., Ltd. in 2017. Meanwhile, Orange Life Insurance, Ltd. (formerly known as ING Life Insurance Korea, Ltd.) became a wholly-owned subsidiary of Shinhan Financial Group following the acquisition of equity interests by Shinhan Financial Group in February 2019 and January 2020, and subsequently merged with and into Shinhan Life Insurance Co., Ltd. in July 2021. In the securities sector, in 2016, Mirae Asset Securities Co., Ltd. acquired a 43% interest in KDB Daewoo Securities Co., Ltd., which subsequently merged with and into Mirae Asset Securities to create Mirae Asset Daewoo Securities Co., Ltd., one of the largest securities companies in Korea in terms of capital. We expect that consolidation in the Korean financial industry will continue. The financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. We intend to review potential acquisition opportunities as they arise. We cannot guarantee that we will not be involved in any future mergers or acquisitions.

Information Technology

We regularly implement various IT system-related initiatives and upgrades at the group and subsidiary level. We believe that continual improvement of our IT systems is crucial in supporting our operations and management and providing high-quality customer service. Accordingly, we continue to upgrade and improve our systems through various activities, including projects to develop next generation banking systems for Kookmin Bank, further strengthen system security and timely develop and implement various new IT systems and services (including group-wide software) that support our business operations and risk management activities.

Our mainframe-based banking and credit card IT systems are designed to ensure continuity of services even where there is a failure of the host data center due to a natural disaster or other accidents by utilizing backup

 

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systems in disaster recovery data centers. In addition, through the implementation of Parallel Sysplex, a “multi-CPU system,” our bank and credit card systems are designed and operated to be able to process transactions without material interruption in the event of CPU failure. From 2019 to 2020, we implemented a next-generation credit card IT system that applies an enhanced platform to ensure greater flexibility and versatility, as well as a banking IT system designed to promote digital transformation and innovation in our IT infrastructure. In addition, we implemented new technologies, including Multi Channel Integration and Enterprise Application Integration systems, to standardize our IT system and better manage IT system operational risk.

The integrity of our IT systems, and their ability to withstand potential catastrophic events (such as natural calamities and internal system failures), are crucial to our continuing operations. We currently test our disaster recovery systems on a quarterly basis using a new disaster recovery system that has been implemented to ensure the continuity of our operations. For additional information, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Operational Risk Management.”

In 2022, we spent approximately ￦869 billion for our IT system implementation and operations, including expenses related to the construction of new IT systems, implementation of hardware and software technologies and other new systems, as well as related labor costs.

As of December 31, 2022, we employed a total of 2,316 full-time employees in our IT operations.

Assets and Liabilities

The tables below set out selected financial highlights regarding our operations and our assets and liabilities. Except as otherwise indicated, amounts as of and for the years ended December 31, 2020, 2021 and 2022 are presented on a consolidated basis under IFRS.

Certain information with respect to our loan portfolio and the asset quality of our loans is presented below on a basis consistent with certain requirements of the Financial Services Commission applicable to Korean financial institutions, which differs (as described below where applicable) from the presentation of such information in our financial statements prepared in accordance with IFRS, as we believe that such alternative presentation allows us to provide additional details regarding our loan portfolio and the asset quality of our loans which would be helpful to our investors.

Loan Portfolio

As of December 31, 2022, our total loan portfolio was ￦440,689 billion compared to ￦421,585 billion as of December 31, 2021. As of December 31, 2022, 89.6% of our total loans were Won-denominated loans compared to 91.1% as of December 31, 2021.

 

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Loan Types

The following table presents loans by type as of the dates indicated. Except where we specify otherwise, all loan amounts stated below are before deduction of allowances for loan losses. Total loans reflect our loan portfolio, including past due amounts.

 

     As of December 31,  
     2021      2022  
     (in billions of Won)  

Domestic:

      

Corporate

      

Small- and medium-sized enterprise

    ￦ 138,627      ￦ 149,068  

Large corporate(1)

      44,895        50,364  

Retail

      

Mortgage and home equity

      120,418        120,942  

Other consumer

      71,223        65,997  

Credit cards

      20,768        22,562  
  

 

 

     

 

 

  

Total domestic

      395,931        408,933  

Foreign

      25,654        31,756  
  

 

 

     

 

 

  

Total gross loans

    ￦ 421,585      ￦ 440,689  
  

 

 

     

 

 

  

 

(1) 

Large corporate loans include ￦703 billion and ￦1,306 billion of loans to the Korean government and government related agencies (including the Korea Deposit Insurance Corporation) as of December 31, 2021 and 2022, respectively.

Loan Concentrations

On a consolidated basis, our exposure to any single person (including an individual or an entity) or any single borrower (any single person together with any individual and/or entity that shares the same credit risk with such person) is limited by law to 20% and 25%, respectively, of our “net aggregate equity capital,” as defined under the Enforcement Decree of the Financial Holding Company Act. See “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Financial Exposure to Any Individual Customer and Major Investor.” In addition, Kookmin Bank’s exposure to any single person or any single borrower is limited by the Bank Act to 20% and 25%, respectively, of its total Tier I and Tier II capital.

Loan Concentration by Industry

The following table presents the aggregate balance of our domestic and foreign corporate loans, by industry concentration, as of December 31, 2021 and 2022:

 

     As of December 31,  
     2021     2022  

Industry

    Amount      %     Amount      %  
     (in billions of Won, except percentages)  

Services

    ￦ 86,916        42.4 %    ￦ 98,204        43.5 % 

Manufacturing

      48,974        23.9       53,165        23.5  

Wholesale and retail

      26,850        13.1       29,653        13.1  

Financial institutions

      21,911        10.7       23,177        10.3  

Construction

      5,654        2.8       6,846        3.0  

Public sector

      2,071        1.0       1,903        0.8  

Others

      12,477        6.1       12,847        5.7  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total

    ￦ 204,853        100.0 %    ￦ 225,795        100.0 % 
  

 

 

     

 

 

    

 

 

     

 

 

  

 

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Maturity Analysis

We typically roll over our working capital loans and unsecured consumer loans (other than those payable in installments) after we conduct our normal loan review in accordance with our loan review procedures. Working capital loans may generally be extended on an annual basis for an aggregate term of five years and unsecured consumer loans may generally be extended for another term of up to 12 months for an aggregate term of 10 years.

The following table sets out the scheduled maturities (time remaining until maturity) of our loan portfolio as of December 31, 2022. The amounts disclosed are before deduction of allowances for loan losses:

 

    1 Year or
Less		     Over 1 Year
But Not More
Than 5 Years		     Over 5 Years
But Not
More Than
15 Years		     Over 15 Years     Total  
    (in billions of Won)  

Domestic:

          

Corporate

          

Small- and medium-sized enterprises

   ￦ 105,244     ￦ 36,811     ￦ 5,241     ￦ 1,772     ￦ 149,068  

Large corporate

     30,558       14,840       3,318       1,648       50,364  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total corporate

     135,802       51,651       8,559       3,420       199,432  

Retail

          

Mortgage and home equity

     20,898       20,859       7,536       71,649       120,942  

Other consumer

     39,307       15,720       3,836       7,134       65,997  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total retail

     60,205       36,579       11,372       78,783       186,939  

Credit cards

     18,669       3,707       186       —       22,562  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total domestic

     214,676       91,937       20,117       82,203       408,933  

Foreign:

     11,799       12,176       7,503       278       31,756  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   ￦ 226,475     ￦ 104,113     ￦ 27,620     ￦ 82,481     ￦ 440,689  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Interest Rate Sensitivity

The following table shows, as of December 31, 2022, the total amount of loans due after one year, which have fixed interest rates and variable or adjustable interest rates:

 

    Fixed Rate(1)     Variable or adjustable rates(2)     Total  
    (in billions of Won)  

Domestic:

      

Corporate

      

Small- and medium-sized enterprises

   ￦ 20,933     ￦ 22,892     ￦ 43,825  

Large corporate

     9,957       9,849       19,806  
 

 

 

    

 

 

    

 

 

  

Total corporate

     30,890       32,741       63,631  

Retail

      

Mortgage and home equity

     9,478       90,568       100,046  

Other consumer

     10,595       16,093       26,688  
 

 

 

    

 

 

    

 

 

  

Total retail

     20,073       106,661       126,734  

Credit cards

     3,893       —       3,893  

Total domestic

     54,856       139,402       194,258  
 

 

 

    

 

 

    

 

 

  

Foreign:

     12,082       7,875       19,957  
 

 

 

    

 

 

    

 

 

  

Total

   ￦ 66,938     ￦ 147,277     ￦ 214,215  
 

 

 

    

 

 

    

 

 

  

 

(1) 

Fixed rate loans are loans for which the interest rate is fixed for the entire term.

(2) 

Variable or adjustable rate loans are loans for which the interest rate is not fixed for the entire term.

 

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For additional information regarding our management of interest rate risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Market Risk Management—Market Risk Management for Non-Trading Activities.”

Credit Exposures to Companies in Workout, Restructuring or Rehabilitation

Workout is a voluntary procedure through which we, together with the borrower and its other creditors, seek to restore the borrower’s financial stability and viability. Previously, workouts were regulated under a series of Corporate Restructuring Promotion Acts, which expired on June 30, 2018. In September 2018, the National Assembly of Korea adopted a new Corporate Restructuring Promotion Act, which became effective in October 2018 and is scheduled to expire in October 2023. Under the new Corporate Restructuring Promotion Act, creditors of a financially troubled borrower may participate in a creditors’ committee, which is authorized to prohibit such creditors from exercising their rights against the borrower, commence workout procedures and approve or make revisions to a reorganization plan prepared by the lead creditor bank, the borrower and external experts. The composition of the creditors’ committee is determined at the initial meeting of the committee by the approval of creditors holding not less than 75% of the borrower’s total outstanding debt held by creditors who were notified of the initial meeting of the committee. Although creditors that are not financial institutions or hold less than 1% of the total outstanding debt of the borrower need not be notified of the initial meeting of the creditors’ committee, if such creditors wish to participate, they may not be excluded. Any decision of the creditors’ committee requires the approval of creditors holding not less than 75% of the total outstanding debt of the borrower. However, if a single creditor holds 75% or more of the borrower’s total outstanding debt held by the creditors comprising the creditors’ committee, any decision of the creditors’ committee requires the approval of not less than 40% of the total number of creditors (including such single creditor) comprising the committee. An additional approval of creditors holding not less than 75% of the secured debt is required with respect to the borrower’s debt restructuring. Once approved, any decision made by the creditors’ committee is binding on all creditors of the borrower, with the exception of those creditors that were excluded by a resolution of the committee at its initial meeting and those who exercised their right to request that their claims be purchased. Creditors that voted against commencement of workout, approval or revision of the reorganization plan, debt restructuring, granting of new credit, extension of the joint management process or other resolutions of the committee have the right to request the creditors that voted in favor of such matters to purchase their claims at a mutually agreed price. In the event that the parties are not able to agree on the terms of purchase, a coordination committee consisting of experts would determine the terms. The creditors that oppose a decision made by the coordination committee may request a court to change such decision.

Upon approval of the workout plan, a credit exposure is initially classified as precautionary or lower and thereafter cannot be classified higher than precautionary with limited exceptions. If a corporate borrower is in workout, restructuring or rehabilitation, we take the status of the borrower into account in valuing our loans to and collateral from that borrower for purposes of establishing our allowances for credit losses.

Korean law also provides for corporate rehabilitation proceedings, which are court-supervised procedures to rehabilitate an insolvent company. Under these procedures, a restructuring plan is adopted at a meeting of interested parties, including creditors of the company. Such restructuring plan is subject to court approval.

A portion of our loans to and debt securities of corporate customers are currently in workout, restructuring or rehabilitation. As of December 31, 2022, ￦170 billion or 0.03% of our total loans were in workout, restructuring or rehabilitation. This included ￦41 billion of loans to large corporate borrowers and ￦129 billion of loans to small- and medium-sized enterprises.

 

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Provisioning Policy

Under IFRS 9 Financial Instruments, or IFRS 9, we establish allowances for credit losses based on expected credit losses instead of incurred losses by assessing changes in expected credit losses and recognizing such changes as impairment loss (or reversal of impairment loss) in profit or loss. According to the three stages of credit risk deterioration under IFRS 9, the allowance required to be established with respect to a loan or receivable since its initial recognition is (i) the amount of the expected 12-month credit loss for stage 1 loans or receivables and (ii) the expected lifetime credit loss for stages 2 and 3 loans or receivables.

If additions or changes to the allowances for loan losses are required, then we record a provision for loan losses, which is included in impairment losses on credit loss and treated as a charge against current income. Credit exposures that we deem to be uncollectible, including actual loan losses, net of recoveries of previously charged-off amounts, are charged directly against the allowances for loan losses.

We generally consider the following loans to be impaired loans:

 

  •  

loans that are past due by 90 days or more;

 

  •  

loans that are subject to legal proceedings related to collection;

 

  •  

loans to a borrower that has received a warning from the Korea Credit Information Services indicating that such borrower has exhibited difficulties in making timely payments of principal and interest;

 

  •  

loans to corporate borrowers that are rated C or D according to Kookmin Bank’s internal credit ratings for large companies or small-and medium-sized enterprises;

 

  •  

loans for which account-specific provisions have been made resulting from a significant perceived decline in credit quality; and

 

  •  

loans with respect to which the amount of principal and interest payable has been materially decreased due to restructuring.

We regularly evaluate the adequacy of the overall allowances for loan losses and we believe that the allowances for loan losses reflect our best estimate of probable loan losses as of each balance sheet date.

Non-Performing Loans

Non-performing loans are defined as loans that are past due by 90 days or more. These loans are generally classified as “substandard” or below. For further information on the classification of non-performing loans under Korean regulatory requirements, see “—Regulatory Reserve for Credit Losses” below.

The following table shows, as of the dates indicated, certain details of our total non-performing loan portfolio:

 

     As of December 31,  
     2021     2022  
     (in billions of Won, except percentages)  

Total non-performing loans

    ￦ 1,458     ￦ 1,918  

As a percentage of total loans

      0.4 %      0.4 % 

 

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Analysis of Non-Performing Loans

The following table sets forth, as of the dates indicated, our total non-performing loans by type of borrower:

 

     As of December 31,  
     2021     2022  
     Amount      %     Amount      %  
     (in billions of Won, except percentages)  

Domestic:

   

Corporate

           

Small- and medium sized enterprise

    ￦ 102        7.0 %    ￦ 123        6.4 % 

Large corporate

      100        6.9       51        2.7  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total corporate

      202        13.9       174        9.1  

Retail

           

Mortgage and home equity

      102        7.0       134        7.0  

Other consumer

      157        10.8       177        9.2  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total retail

      259        17.8       311        16.2  

Credit cards

      97        6.7       91        4.7  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total domestic

      558        38.4       576        30.0  

Foreign:

      900        61.6       1,342        70.0  
  

 

 

     

 

 

    

 

 

     

 

 

  

Total non-performing loans

    ￦ 1,458        100.0 %    ￦ 1,918        100.0 % 
  

 

 

     

 

 

    

 

 

     

 

 

  

Top 20 Non-Performing Loans

As of December 31, 2022, our 20 largest non-performing loans accounted for 13.8% of our total non-performing loan portfolio. The following table shows, as of December 31, 2022, certain information regarding our 20 largest non-performing loans:

 

    

Industry

    Gross Principal
Outstanding		      Allowances for
Loan Losses(1)		  
     (in billions of Won)  

Borrower A

    Others    ￦ 63      ￦ 18  

Borrower B

    Wholesale and retail      24        17  

Borrower C

    Construction      20        2  

Borrower D

    Construction      20        10  

Borrower E

    Public sector      18        13  

Borrower F

    Others      18        17  

Borrower G

    Services      15        4  

Borrower H

   

Wholesale and retail

      13        13  

Borrower I

    Construction      12        10  

Borrower J

    Others      10        —  

Borrower K

    Services      8        1  

Borrower L

   

Services

      6        2  

Borrower M

    Construction      6        2  

Borrower N

    Wholesale and retail      5        5  

Borrower O

    Manufacturing      5        2  

Borrower P

    Others      5        4  

Borrower Q

    Others      4        4  

Borrower R

    Services      4        1  

Borrower S

    Services      4        1  

Borrower T

    Wholesale and retail      4        3  
     

 

 

     

 

 

  

Total

       ￦ 264      ￦ 129  
     

 

 

     

 

 

  

 

(1) 

If the estimated recovery value of collateral for a non-performing loan is sufficient compared to the outstanding loan balance, we record no allowances for loan losses for such non-performing loan.

 

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Non-Performing Loan Strategy

One of our primary objectives is to prevent our loans from becoming non-performing. Through our corporate credit rating systems, we believe that we have reduced our risks relating to future non-performing loans. Our credit rating systems are designed to prevent our loan officers from extending new loans to borrowers with high credit risks based on the borrower’s credit rating. Our early warning system is designed to bring any sudden increase in a borrower’s credit risk to the attention of our loan officers, who then closely monitor such loans. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk Management—Credit Review and Monitoring.”

Notwithstanding the above, if a loan becomes non-performing, an officer at the branch level responsible for monitoring non-performing loans will commence a due diligence review of the borrower’s assets, send a notice either demanding payment or stating that we will take legal action and prepare for legal action.

At the same time, we also initiate our non-performing loan management process, which begins with:

 

  •  

identifying loans subject to a proposed sale by assessing the estimated losses from such sale based on the estimated recovery value of collateral, if any, for such non-performing loans;

 

  •  

identifying loans subject to charge-off based on the estimated recovery value of collateral, if any, for such non-performing loans and the estimated rate of recovery of unsecured loans; and

 

  •  

on a limited basis, identifying corporate loans subject to normalization efforts based on the cash-flow situation of the borrower.

Once the details of a non-performing loan are identified, we pursue early solutions for recovery. While the overall process is the responsibility of Kookmin Bank’s Credit Division, actual recovery efforts on non-performing loans are handled at the operating branch level.

In addition, we use the services of our wholly-owned loan collection subsidiary, KB Credit Information Co., Ltd., which receives payments from recoveries made on charged-off loans and certain loans that are overdue for over three months (28 days on average in the case of credit card loans). KB Credit Information has approximately 126 employees, including legal experts and management employees. The fees that it receives are based on the amounts of non-performing and charged-off loans that are recovered. In 2020, 2021 and 2022, the amount recovered was ￦302 billion, ￦257 billion and ￦238 billion, respectively.

Methods for resolving non-performing loans include the following:

 

  •  

non-performing loans are managed by the operating branches of Kookmin Bank until such loans are charged off;

 

  •  

a demand note is dispatched by mail if payment is generally one month past due;

 

  •  

calls and visits are made by Kookmin Bank’s operating branches to customers encouraging them to make payments;

 

  •  

borrowers who are past due on payments of interest and principal are registered on the Korea Credit Information Services’ database of non-performing loans;

 

  •  

for unsecured loans other than credit card loans, the loans are transferred to KB Credit Information for collection on a case-by-case basis;

 

  •  

for secured loans, actions to enforce or protect the security interests (including foreclosure and auction of the collateral) are commenced within five months of such loans becoming past due; and

 

  •  

charged-off loans are given to KB Credit Information for collection, except for loans where the cost of collection exceeds the possible recovery or where the statute of limitations for collection has expired.

 

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In addition, credit card loans that are in arrears for over 28 days on average are transferred to KB Credit Information for collection.

If a loan becomes non-performing, it is managed by an operating branch of Kookmin Bank until such loan is charged off. However, in order to promote speedy recovery on loans subject to foreclosures and litigation, our policy is to permit the branch responsible for handling these loans to request one of Kookmin Bank’s regional head offices for assistance with litigation proceedings and proceedings related to foreclosure and auction of the collateral.

In addition to making efforts to collect on these non-performing loans, we also undertake measures to reduce the level of our non-performing loans, which include:

 

  •  

selling our non-performing loans to third parties, including the Korea Asset Management Corporation; and

 

  •  

entering into asset securitization transactions with respect to our non-performing loans.

We generally expect to suffer a partial loss on loans that we sell or securitize, to the extent such sales and securitizations are recognized under IFRS as sale transactions.

Regulatory Reserve for Credit Losses

If our allowances for credit losses are deemed insufficient for regulatory purposes, we are required to compensate for the difference by recording a regulatory reserve for credit losses, which is segregated within our retained earnings. Regulatory reserve for credit losses are not available for distribution to shareholders as dividends. The level of regulatory reserve for credit losses required to be recorded is equal to the amount by which our allowances for credit losses under IFRS are less than the greater of (x) the amount of expected loss calculated using the internal ratings-based approach under Basel III and as approved by the Financial Supervisory Service and (y) the required amount of credit loss reserve calculated based on standards prescribed by the Financial Services Commission. As of December 31, 2022, our regulatory reserve for credit losses was ￦4,356 billion.

The following tables set forth the Financial Services Commission’s guidelines for the classification of loans and the minimum percentages of the outstanding principal amount of the relevant loans or balances that the credit loss reserve must cover:

 

Loan Classification

   

Loan Characteristics

Normal

    Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, do not raise concerns regarding their ability to repay the loans.

Precautionary

    Loans extended to customers that (i) based on our consideration of their business, financial position and future cash flows, show potential risks with respect to their ability to repay the loans, although showing no immediate default risk or (ii) are in arrears for one month or more but less than three months.

Substandard

   

(i) Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, are judged to have incurred considerable default risks as their ability to repay has deteriorated; or

 

(ii) the portion that we expect to collect of total loans (a) extended to customers that have been in arrears for three months or more, (b) extended to customers that have incurred serious default risks due to the occurrence of, among other things, final refusal to pay their debt instruments, entry into liquidation or bankruptcy proceedings or closure of their businesses, or (c) extended to customers who have outstanding loans that are classified as “doubtful” or “estimated loss.”

 

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Loan Classification

   

Loan Characteristics

Doubtful

   

Loans exceeding the amount that we expect to collect of total loans to customers that:

 

(i) based on our consideration of their business, financial position and future cash flows, have incurred serious default risks due to noticeable deterioration in their ability to repay; or

 

(ii) have been in arrears for three months or more but less than 12 months.

Estimated loss

   

Loans exceeding the amount that we expect to collect of total loans to customers that:

 

(i) based on our consideration of their business, financial position and future cash flows, are judged to be accounted as a loss because the inability to repay became certain due to serious deterioration in their ability to repay;

 

(ii) have been in arrears for 12 months or more; or

 

(iii) have incurred serious risks of default in repayment due to the occurrence of, among other things, final refusal to pay their debt instruments, liquidation or bankruptcy proceedings or closure of their business.

 

Loan Classifications

    Corporate(1)      Consumer      Credit Card
Balances(2)		      Credit Card Loans(3)  

Normal

      0.85% or above        1% or above        1.1% or above        2.5% or above  

Precautionary

      7% or above        10% or above        40% or above        50% or above  

Substandard

      20% or above        20% or above        60% or above        65% or above  

Doubtful

      50% or above        55% or above        75% or above        75% or above  

Estimated loss

      100%        100%        100%        100%  

 

(1) 

Subject to certain exceptions pursuant to the Banking Industry Supervision Regulations of Korea.

(2) 

Applicable for credit card balances from general purchases.

(3) 

Applicable for cash advances, card loans and revolving credit card assets.

Loan Charge-Offs

Basic Principles

We attempt to minimize loans to be charged off by adhering to a sound credit approval process based on credit risk analysis prior to extending loans and a systematic management of outstanding loans. However, if charge-offs are necessary, we charge off loans subject to our charge-off policy at an early stage in order to maximize accounting transparency, to minimize any waste of resources in managing loans which have a low probability of being collected and to reduce our non-performing loan ratio.

Loans To Be Charged Off

Loans are charged off if they are deemed to be uncollectible by falling under any of the following categories:

 

  •  

loans for which collection is not foreseeable due to insolvency, bankruptcy, compulsory execution, disorganization, dissolution or the shutting down of the business of the debtor;

 

  •  

loans for which collection is not foreseeable due to the death or disappearance of the debtor;

 

  •  

loans for which expenses of collection exceed the collectable amount;

 

  •  

loans on which collection is not possible through legal or any other means;

 

  •  

payments in arrears in respect of credit cards that have been overdue for a period of six months or more and have been classified as expected loss (excluding instances where there has been partial payment of the overdue balance, where a related balance is not overdue or where a charge off is not possible due to Korean regulations); and

 

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  •  

the portion of loans classified as “estimated loss,” net of any recovery from collateral, which is deemed to be uncollectible.

Procedure for Charge-off Approval

In order to charge off corporate loans, an application for a charge-off must be submitted to Kookmin Bank’s Credit Management Department promptly after the corporate loan is classified as estimated loss or deemed uncollectible. The Credit Management Department refers the charge-off application to Kookmin Bank’s Audit Department for their review to ensure compliance with our internal procedures for charge-offs. Then, the Credit Management Department, after reviewing the application to confirm that it meets relevant requirements, seeks an approval from the Financial Supervisory Service for our charge-offs, which is typically granted. Once we receive approval from the Financial Supervisory Service, we must also obtain approval from our senior management to charge off those loans.

With respect to credit card balances and unsecured retail loans, we follow a different process to determine which credit card balances and unsecured retail loans should be charged off, based on the length of time those loans or balances are past due. We charge off unsecured retail loans deemed to be uncollectible and credit card balances which have been overdue for a period of six months or more or which have been deemed to be uncollectible under IFRS.

Treatment of Loans Charged Off

Once loans are charged off, we classify them as charged-off loans and remove them from our balance sheet. These loans are managed based on a different set of procedures. We continue our collection efforts in respect of these loans, including through our subsidiary, KB Credit Information, although loans may be charged off before we begin collection efforts in some circumstances.

If a collateralized loan is overdue, we will, typically within one year from the time that such loan became overdue (or after a longer period in certain circumstances), petition a court to foreclose and sell the collateral through a court-supervised auction. If a debtor ultimately fails to repay and the court grants its approval for foreclosure, we will sell the collateral, net of expenses incurred from the auction.

 

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Net Charge-Offs

The following table presents our net charge-offs for each of the years indicated:

 

    For the Year Ended December 31,  
    2020     2021     2022  
    Average
Loans		     Net
Charge-
Offs		     Net
Charge-
Offs/
Average
Loans		     Average
Loans		     Net
Charge-
Offs		     Net
Charge-
Offs/
Average
Loans		     Average
Loans		     Net
Charge-
Offs		     Net Charge-
Offs/Average
Loans		  
    (in billions of Won, except percentages)  

Domestic:

                  

Corporate

                  

Small- and medium sized enterprise

   ￦ 121,376     ￦ (9 )      0.0 %    ￦ 129,410     ￦ (11 )      0.0 %    ￦ 148,198     ￦ (3 )      0.0 % 

Large corporate

     37,132       102       0.3       39,458       100       0.3       48,974       72       0.1  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total corporate

     158,508       93       0.1       168,868       89       0.1       197,172       69       0.0  

Retail

                  

Mortgage and home equity

     110,447       (3 )      0.0       116,102       (28 )      0.0       119,039       (9 )      0.0  

Other consumer

     64,220       328       0.5       71,587       234       0.3       69,789       204       0.3  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total retail

     174,667       325       0.2       187,689       206       0.1       188,828       195       0.1  

Credit cards

     18,586       366       2.0       19,923       289       1.5       22,103       327       1.5  

Total domestic

     351,761       784       0.2       376,480       584       0.2       408,103       591       0.1  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Foreign:

     14,683       121       0.8       22,580       120       0.5       32,309       509       1.6  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total

   ￦ 366,444     ￦ 905       0.2 %    ￦ 399,060     ￦ 704       0.2 %    ￦ 440,412     ￦ 1,100       0.2 % 
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Investment Portfolio

Investment Policy

We invest in and trade Won-denominated and, to a lesser extent, foreign currency-denominated securities for our own account to:

 

  •  

maintain the stability and diversification of our assets;

 

  •  

maintain adequate sources of back-up liquidity to match our funding requirements; and

 

  •  

supplement income from our core lending activities.

We also invest in and trade such securities as part of the general account investments of our insurance subsidiaries that support their insurance policy liabilities. In making securities investments, we take into account a number of factors, including macroeconomic trends, industry analysis, credit evaluation and maturity in determining whether to make particular investments in securities.

Our investments in securities are also subject to a number of guidelines, including limitations prescribed under the Financial Holding Company Act and the Bank Act. Under these regulations, a bank holding company may not own (i) more than 5% of the total issued and outstanding shares of another finance-related company, (ii) any shares of its affiliates, other than its direct or indirect subsidiaries or (iii) any shares of a non-finance-related company. In addition, Kookmin Bank must limit its investments in equity securities and debt securities with a redemption period of over three years (other than government bonds, the Monetary Stabilization Bonds issued by the Bank of Korea, among others) to 100.0% of its total Tier I and Tier II capital amount (less any capital deductions). Generally, Kookmin Bank is also prohibited from acquiring more than 15.0% of the shares with voting rights issued by any other corporation subject to certain exceptions. Pursuant to the Bank Act, a bank and its trust accounts are prohibited from acquiring the shares of a major shareholder (for the definition of

 

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“major shareholder,” see “—Supervision and Regulation—Principal Regulations Applicable to Banks—Financial Exposure to Any Individual Customer and Major Shareholder”) of that bank in excess of an amount equal to 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions). Further information on the regulatory environment governing our investment activities is set out in “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Liquidity,” “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Shareholdings in Other Companies,” “—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity” and “—Supervision and Regulation—Principal Regulations Applicable to Banks—Restrictions on Shareholdings in Other Companies.”

The following table sets out the definitions of the three categories of securities we hold:

 

Category

   

Classification

Financial assets at fair value through profit or loss

    Financial assets that are either classified as held for trading, designated by us at fair value through profit or loss upon initial recognition or required to be mandatorily measured at fair value through profit or loss.

Financial assets at fair value through other comprehensive income

   

Debt instruments held with a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and are consistent with representing solely payments of principal and interest on the principal amount outstanding; or

 

Equity instruments not held for trading with the objective of generating a profit from short-term fluctuations in price or dealers’ margin, designated as financial assets at fair value through other comprehensive income.

Financial assets at amortized cost

    Financial assets held with a business model whose objective is to hold assets in order to collect contractual cash flows, and are consistent with representing solely payments of principal and interest on the principal amount outstanding.

We also hold limited balances of venture capital securities, non-marketable and restricted equity securities and derivative instruments.

 

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Maturity Analysis

The following table categorizes our debt securities by maturity and weighted average yield as of December 31, 2022:

 

    Within 1
Year		     Weighted
Average
Yield(1)		     Over 1 But
within 5
Years		     Weighted
Average
Yield(1)		     Over 5 But
within 10
Years		     Weighted
Average
Yield(1)		     Over 10
Years		     Weighted
Average
Yield(1)		     Total     Weighted
Average
Yield(1)		  
    (in billions of Won, except percentages)  

Financial assets at fair value through other comprehensive income:

                    

Korean treasury securities and government agencies

   ￦ 6,368       1.60 %    ￦ 5,327       2.14 %    ￦ 666       3.24 %    ￦ 3,613       2.40 %    ￦ 15,974       2.03 % 

Debt securities issued by financial institutions

     10,923       2.08       9,383       2.22       186       2.65       140       3.19       20,632       2.16  

Corporate debt securities

     5,000       2.18       10,952       2.27       1,419       3.15       911       3.35       18,282       2.37  

Asset-backed securities

     290       1.79       68       3.29       50       3.45       29       1.67       437       2.20  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

Total

   ￦ 22,581       1.96 %    ￦ 25,730       2.23 %    ￦ 2,321       3.14 %    ￦ 4,693       2.61 %    ￦ 55,325       2.19 % 
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

Financial assets at amortized cost:

                    

Korean treasury securities and government agencies

   ￦ 1,166       2.55 %    ￦ 5,515       1.84 %    ￦ 6,883       3.33 %    ￦ 9,616       1.73 %    ￦ 23,180       2.27 % 

Debt securities issued by financial institutions

     5,682       2.23       4,704       2.98       363       6.29       577       4.04       11,326       2.76  

Corporate debt securities

     1,824       2.31       7,845       2.34       1,906       2.20       4,195       2.99       15,770       2.49  

Asset-backed securities

     531       5.01       4,934       2.02       2,052       2.00       138       2.49       7,655       2.23  
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

Total

   ￦ 9,203       2.44 %    ￦ 22,998       2.28 %    ￦ 11,204       2.99 %    ￦ 14,526       2.20 %    ￦ 57,931       2.42 % 
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

Total

   ￦ 31,784       2.10 %    ￦ 48,728       2.25 %    ￦ 13,525       3.02 %    ￦ 19,219       2.30 %    ￦ 113,256       2.31 % 
 

 

 

      

 

 

      

 

 

      

 

 

      

 

 

    

 

(1) 

The weighted average yield for the portfolio represents the yield to maturity for each individual security, weighted using its carrying amount (which is the amortized cost in the case of financial assets at amortized cost and the fair value in the case of financial assets at fair value through other comprehensive income).

Funding

We obtain funding for our lending activities from a variety of sources, both domestic and foreign. Our principal source of funding is customer deposits. In addition, we acquire funding through long-term borrowings (comprising debentures and borrowings), short-term borrowings, including borrowings from the Bank of Korea, and call money.

Our primary funding strategy has been to achieve low-cost funding by increasing the average balances of low-cost retail deposits, in particular demand deposits and time deposits. We also have focused our marketing efforts on higher net worth individuals, who account for a significant portion of the assets in our retail deposit base. Customer deposits accounted for 74.9% of total funding as of December 31, 2021 and 73.5% of total funding as of December 31, 2022.

 

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Our borrowings consist of issuances of debentures and borrowings from financial institutions, the Korean government and government-affiliated funds. The majority of our borrowings is long-term, with maturities ranging from one year to 15 years.

Deposits

Although the majority of our deposits are short-term, it has been our experience that the majority of our depositors generally roll over their deposits at maturity, providing us with a stable source of funding.

The following table shows the average balances of our deposits and the average rates paid on our deposits for the periods indicated:

 

     2020     2021     2022  
     Average
Balance(1)		      Average
Rate Paid		     Average
Balance(1)		      Average
Rate Paid		     Average
Balance(1)		      Average
Rate Paid		  
     (in billions of Won, except percentages)  

Demand deposits:

                

Non-interest bearing

    ￦ 4,533        —     ￦ 5,263        —     ￦ 5,427        —  

Interest bearing

      149,141        0.18 %      180,936        0.15 %      182,468        0.25 % 

Time deposits

      166,275        1.56       158,795        1.20       187,934        2.11  

Certificates of deposit

     3,636        1.38       3,618        0.86       5,511        2.36  
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

Average total deposits

    ￦ 323,585        0.91 %    ￦ 348,612        0.65 %    ￦ 381,340        1.21 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

 

(1) 

Average balances are based on daily balances for our banking, credit card and securities operations and monthly or quarterly balances for our other operations.

For a description of our retail deposit products, see “—Business—Retail Banking—Deposit-Taking Activities.”

Uninsured deposits, including uninsured time deposits, are not subject to Korean regulatory reporting requirements. Notwithstanding the foregoing, the Depositor Protection Act provides insurance for certain deposits of banks in Korea through a deposit insurance system. See “—Supervision and Regulation—Principal Regulations Applicable to Banks—Deposit Insurance System.” Other than the maximum ￦50 million per individual or entity for deposits and interest in a single financial institution insured by the Korea Deposit Insurance Corporation in accordance with the foregoing, all deposits are uninsured. Although the Depositor Protection Act provides insurance for the deposits at our foreign branches, to the extent those deposits are recognized by the Korea Deposit Insurance Corporation to also be protected by the deposit insurance systems of the countries where such foreign branches are located, such deposits are not protected by the Korea Deposit Insurance Corporation under the Depositor Protection Act.

The insured status of deposits in our foreign branches, the amount of which we do not consider to be material as of the date of this annual report, are determined based on the individual insurance limits enacted within local regulations, and are thus subject to differing national deposit insurance regimes.

Our total uninsured deposits, including uninsured deposits at our foreign branches, amounted to ￦313,969 billion, ￦343,002 billion and ￦299,356 billion as of December 31, 2020, 2021 and 2022, respectively.

 

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Uninsured Time Deposits

The following table presents the remaining maturities of our uninsured time deposits, including uninsured time deposits at our foreign subsidiaries, as of December 31, 2022:

 

     As of
December 31, 2022		  
     (in billions of Won)  

Maturing within three months

    ￦ 111,721  

After three but within six months

      33,696  

After six but within 12 months

      79,050  

After 12 months

      9,625  
  

 

 

  

Total

    ￦ 234,092  
  

 

 

  

Supervision and Regulation

Principal Regulations Applicable to Financial Holding Companies

General

The Financial Holding Company Act, last amended on January 1, 2023, regulates Korean financial holding companies and their subsidiaries. The entities that regulate and supervise Korean financial holding companies and their subsidiaries are the Financial Services Commission and the Financial Supervisory Service.

The Financial Services Commission exerts direct control over financial holding companies pursuant to the Financial Holding Company Act. Among other things, the Financial Services Commission approves the establishment of financial holding companies, issues regulations on the capital adequacy of financial holding companies and their subsidiaries, and drafts regulations relating to the supervision of financial holding companies.

Following the instructions and directives of the Financial Services Commission, the Financial Supervisory Service supervises and examines financial holding companies and their subsidiaries. In particular, the Financial Supervisory Service sets requirements relating to Korean financial holding companies’ liquidity and capital adequacy ratios and establishes reporting requirements within the authority delegated under the Financial Services Commission regulations. Financial holding companies must submit quarterly reports to the Financial Supervisory Service discussing business performance, financial status and other matters identified in the Enforcement Decree of the Financial Holding Company Act.

Under the Financial Holding Company Act, a financial holding company is a company which primarily engages in controlling its subsidiaries by holding equity stakes in them equal in aggregate to at least 50% of the financial holding company’s aggregate assets based on its balance sheet as of the end of the immediately preceding fiscal year. A company is required to obtain approval from the Financial Services Commission to become a financial holding company.

A financial holding company may engage only in controlling the management of its subsidiaries, as well as certain ancillary activities including:

 

  •  

financially supporting its direct and indirect subsidiaries;

 

  •  

raising capital necessary for investment in its subsidiaries or providing financial support to its direct and indirect subsidiaries;

 

  •  

supporting the business of its direct and indirect subsidiaries, including the development and marketing of financial products;

 

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  •  

providing data processing, legal, accounting and other resources and services that have been commissioned by its direct and indirect subsidiaries so as to support their operations; and

 

  •  

any other businesses exempted from authorization, permission or approval under the applicable laws and regulations.

The Financial Holding Company Act requires every financial holding company (other than a financial holding company that is controlled by another financial holding company) and its subsidiaries to obtain prior approval from the Financial Services Commission before acquiring control of another company or to file a report with the Financial Services Commission within 30 days thereafter in certain cases (including acquiring control of another financial company whose assets are less than ￦100 billion as of the end of the immediately preceding fiscal year). In addition, the Financial Services Commission must grant permission to liquidate or to merge with any other company before the liquidation or merger. A financial holding company must report to the Financial Services Commission when certain events, including the following, occur:

 

  •  

when the largest shareholder changes;

 

  •  

in the case of a bank holding company, when a major investor changes;

 

  •  

when the shareholding of the controlling shareholder (i.e., the “largest shareholder” or a “principal shareholder,” each as defined in the Financial Holding Company Act) or a person who has a “special relationship” with such controlling shareholder (as defined in the Enforcement Decree of the Financial Holding Company Act) changes by 1% or more of the total issued and outstanding voting shares of the financial holding company;

 

  •  

when it changes its corporate name;

 

  •  

when there is a cause for its dissolution; and

 

  •  

when it or its subsidiaries cease to control any of their respective direct or indirect subsidiaries by disposing of their shares of such direct or indirect subsidiary.

Capital Adequacy

The Financial Holding Company Act does not provide for a minimum paid-in capital requirement related to financial holding companies. However, all financial holding companies are required to maintain a specified level of solvency. In addition, with respect to the allocation of net profit earned in a fiscal term, a financial holding company must set aside in its legal reserve an amount equal to at least 10% of its net income after tax each time it pays dividends on its net profits earned until its legal reserve reaches at least the aggregate amount of its paid-in capital.

A bank holding company, which is a financial holding company controlling banks or other financial institutions conducting banking business as prescribed in the Financial Holding Company Act, is required to maintain a total minimum consolidated capital adequacy ratio of 11.5% (including applicable additional capital buffers and requirements as described below) as of January 1, 2019. “Consolidated capital adequacy ratio” is defined as the ratio of equity capital as a percentage of risk-weighted assets on a consolidated basis, determined in accordance with the Financial Services Commission requirements that have been formulated based on Bank of International Settlements (or BIS) standards. “Equity capital,” as applicable to bank holding companies, is defined as the sum of common equity Tier I capital, additional Tier I capital and Tier II capital less any deductible items, each as defined under the Regulation on the Supervision of Financial Holding Companies. “Risk-weighted assets” is defined as the sum of credit risk-weighted assets and market risk-weighted assets.

Pursuant to regulations promulgated by the Financial Services Commission commencing in 2013 to implement Basel III, Korean bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from

 

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December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. The amended regulations also require an additional capital conservation buffer of 2.5% in 2022 and 2023, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission and may be fully or partially enforced in 2023. Furthermore, we and Kookmin Bank were each designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2022 by the Financial Services Commission and were subject to an additional capital requirement of 1.0% in 2022. In July 2022, we and Kookmin Bank were each again designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2023, which would again subject us to an additional capital requirement of 1.0% in 2023. All such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets set forth above.

Liquidity

All financial holding companies are required to match the maturities of their assets and liabilities on a non-consolidated basis in accordance with the Financial Holding Company Act in order to ensure liquidity. Financial holding companies must:

 

  •  

maintain a Won liquidity ratio (defined as Won assets due within one month, including marketable securities, divided by Won liabilities due within one month) of not less than 100% on a non-consolidated basis;

 

  •  

maintain a foreign currency liquidity ratio (defined as foreign currency liquid assets due within three months divided by foreign currency liabilities due within three months) of not less than 80% on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets);

 

  •  

maintain a maturity mismatch ratio for foreign currency assets and liabilities due within seven days (defined as foreign currency assets due within seven days less foreign currency liabilities due within seven days, divided by total foreign currency assets) of 0% or more on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets);

 

  •  

maintain a maturity mismatch ratio for foreign currency liabilities and assets due within a month (defined as foreign currency liabilities due within a month less foreign currency assets due within a month, divided by total foreign currency assets) of 10% or less on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets); and

 

  •  

make quarterly reports regarding their Won liquidity and foreign currency liquidity to the Financial Supervisory Service.

Financial Exposure to Any Individual Customer and Major Investor

Subject to certain exceptions, the aggregate credit (as defined in the Financial Holding Company Act, the Bank Act, the Financial Investment Services and Capital Markets Act, the Insurance Business Act, the Mutual Savings Bank Act and the Specialized Credit Financial Business Act, respectively) of a financial holding company and its direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies (which we refer to as “Financial Holding Company Total Credit”) to a single group of companies that belong to the same conglomerate as defined in the Monopoly Regulations and Fair Trade Act will not be permitted to exceed 25% of net aggregate equity capital (as defined below).

 

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“Net aggregate equity capital” is defined under the Enforcement Decree of the Financial Holding Company Act as the sum of:

 

  (1)

in case of a financial holding company, the capital amount as defined in Article 24-3(7), Item 2 of the Enforcement Decree of the Financial Holding Company Act;

 

  (2)

in case of a bank, the capital amount as defined in Article 2(1), Item 5 of the Bank Act;

 

  (3)

in case of a merchant bank, the capital amount as defined in Article 342(1) of the Financial Investment Services and Capital Markets Act; and

 

  (4)

in case of a financial investment company, the capital amount as defined in Article 37(3) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act;

 

  (5)

in case of an insurance company, the capital amount as defined in Article 2, Item 15 of the Insurance Business Act;

 

  (6)

in case of a savings bank, the capital amount as defined in Article 2, Item 4 of the Mutual Savings Bank Act; and

 

  (7)

in case of a specialized credit financial business company, the capital amount as defined in Article 2, Item 19 of the Specialized Credit Financial Business Act;

less the sum of:

 

  (1)

the amount of shares of direct and indirect subsidiaries held by the financial holding company;

 

  (2)

the amount of shares that are cross-held by each direct and indirect subsidiary that is a bank, merchant bank, financial investment company, insurance company, savings bank or specialized credit financial business company; and

 

  (3)

the amount of shares of a financial holding company held by such direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies.

The Financial Holding Company Total Credit to a single individual or judicial person may not exceed 20% of the net aggregate equity capital. In addition, the Financial Holding Company Total Credit to a shareholder holding (together with the persons who have a “special relationship” with the shareholder, as defined in the Enforcement Decree of the Financial Holding Company Act) in aggregate more than 10% of the total issued and outstanding voting shares of a financial holding company generally may not exceed the lesser of (x) 25% of the net aggregate equity capital and (y) the amount of the equity capital of the financial holding company multiplied by the shareholding ratio of the shareholder (together with the persons who have a special relationship with the shareholder).

Further, the total sum of credits (as defined in the Financial Holding Company Act, the Bank Act, the Financial Investment Services and Capital Markets Act, the Insurance Business Act, the Mutual Savings Bank Act and the Specialized Credit Financial Business Act, respectively) of a bank holding company and its direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies as applicable (“Bank Holding Company Total Credit”) extended to a “major investor” (as defined below) (together with the persons who have a special relationship with that major investor) will not be permitted to exceed the lesser of (x) 25% of the net aggregate equity capital and (y) the amount of the equity capital of the bank holding company multiplied by the shareholding ratio of the major investor, except for certain cases.

“Major investor” is defined as:

 

  •  

a shareholder holding (together with persons who have a special relationship with that shareholder) in excess of 10% (or in the case of a bank holding company controlling regional banks only, 15%) in the aggregate of the bank holding company’s total issued and outstanding voting shares; or

 

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  •  

a shareholder holding (together with persons who have a special relationship with that shareholder) more than 4% in the aggregate of the total issued and outstanding voting shares of the bank holding company controlling nationwide banks, where the shareholder is the largest shareholder or has actual control over the major business affairs of the bank holding company through, for example, appointment and dismissal of the officers pursuant to the Enforcement Decree of the Financial Holding Company Act.

In addition, the total sum of the Bank Holding Company Total Credit granted to all of a bank holding company’s major investor must not exceed 25% of the bank holding company’s net aggregate equity capital. Furthermore, any bank holding company that, together with its direct and indirect subsidiaries, intends to extend credit to the bank holding company’s major investor in an amount equal to or exceeding the lesser of (x) the amount equivalent to 0.1% of the net aggregate equity capital and (y) ￦5 billion, in any single transaction, must obtain prior unanimous board resolutions and then, immediately after providing the credit, must file a report to the Financial Services Commission and publicly disclose the filing of the report.

Restrictions on Transactions Among Direct and Indirect Subsidiaries and Financial Holding Company

Generally, a direct or indirect subsidiary of a financial holding company may not extend credits (excluding the amount of corporate credit card payments issued by a direct or indirect subsidiary of a financial holding company that is engaged in the banking business) to that financial holding company. In addition, a direct or indirect subsidiary of a financial holding company may not extend credits (excluding the amount of corporate credit card payments issued by a direct or indirect subsidiary of a financial holding company that is engaged in the banking business) to other direct or indirect subsidiaries of the financial holding company in excess of 10% of its capital amount on an individual basis or to those subsidiaries in excess of 20% of its capital amount on an aggregate basis. The subsidiary extending the credit must also obtain an adequate level of collateral depending on the type of such collateral from the other subsidiaries unless the credit is otherwise approved by the Financial Services Commission. The adequate level of collateral for each type of collateral is as follows:

 

  (1)

for deposits and installment savings, obligations of the Korean government or the Bank of Korea, obligations guaranteed by the Korean government or the Bank of Korea, obligations secured by securities issued or guaranteed by the Korean government or the Bank of Korea, 100% of the credit extended;

 

  (2)

for obligations of municipal governments under the Local Autonomy Act, local public enterprise under the Local Public Enterprises Act and investment institutions and other quasi-investment institutions under the Basic Act on the Management of Government-Invested Institution or for obligations guaranteed by, or secured by the securities issued or guaranteed by, the aforementioned entities pursuant to the relevant regulations, 110% of the credit extended; and

 

  (3)

for any property other than those set forth in paragraphs (1) and (2) above, 130% of the credit extended.

Subject to certain exceptions, a direct or indirect subsidiary of a financial holding company is prohibited from owning the shares of any other direct or indirect subsidiaries (other than those directly controlled by that direct or indirect subsidiary) under the common control of the financial holding company.

Subject to certain exceptions, a direct or indirect subsidiary of a financial holding company is also prohibited from owning the shares of the financial holding company controlling that direct or indirect subsidiary. The transfer of certain assets classified as precautionary or below between a financial holding company and its direct or indirect subsidiary or between the direct and indirect subsidiaries of a financial holding company is prohibited except for:

 

  (1)

transfers to a special purpose company, or entrustment with a trust company, for an asset-backed securitization transaction under the Asset-Backed Securitization Act;

 

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  (2)

transfers to a mortgage-backed securities issuance company for a mortgage securitization transaction;

 

  (3)

transfers or in-kind contributions to a corporate restructuring vehicle under the Corporate Restructuring Investment Companies Act; and

 

  (4)

transfers to a corporate restructuring company under the Industry Promotion Act.

Disclosure of Management Performance

For the purpose of protecting the depositors and investors in the direct or indirect subsidiaries of financial holding companies, the Financial Services Commission requires financial holding companies to disclose certain material matters including:

 

  (1)

financial condition and profit and loss of the financial holding company and its direct and indirect subsidiaries;

 

  (2)

fund-raising by the financial holding company and its direct and indirect subsidiaries and the appropriation of such funds;

 

  (3)

any sanctions levied on the financial holding company and its direct and indirect subsidiaries under the Financial Holding Company Act or any corrective measures or sanctions under the Law on Improvement of Structure of Financial Industry; and

 

  (4)

occurrence of any non-performing assets or financial incident that may have a material adverse effect, or any other event as prescribed in the applicable regulations.

Restrictions on Shareholdings in Other Companies

Generally, a financial holding company may not own (i) more than 5% of the total issued and outstanding shares of another finance-related company, (ii) any shares of its affiliates, other than its direct or indirect subsidiaries or (iii) any shares of a non-finance-related company.

Restrictions on Shareholdings by Direct and Indirect Subsidiaries

Generally, a direct subsidiary of a financial holding company may not control any other company other than, as an indirect subsidiary of the financial holding company:

 

  •  

financial institutions established in foreign jurisdictions that are relevant to the business of the direct subsidiary;

 

  •  

certain financial institutions that are relevant to the business of the direct subsidiary, which are engaged in any business that the direct subsidiary may conduct without any licenses or permits;

 

  •  

certain financial institutions whose business is related to the business of the direct subsidiary as described by the Enforcement Decree of the Financial Holding Company Act (for example, a bank subsidiary may control only credit information companies, credit card companies and financial investment companies with a dealing, brokerage, collective investment, investment advice, discretionary investment management and/or trust license);

 

  •  

certain financial institutions whose business is related to the financial business as prescribed by the Ordinance of the Prime Minister; and

 

  •  

certain companies which are not financial institutions but whose business is related to the financial business of the financial holding company as prescribed by the Enforcement Decree of the Financial Holding Company Act (for example, a finance-related research company or a finance-related information technology company).

Acquisition of such indirect subsidiaries by direct subsidiaries of a financial holding company requires prior permission from the Financial Services Commission or the submission of a report to the Financial Services

 

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Commission, depending on the types of the indirect subsidiaries and the amount of total assets of the indirect subsidiaries.

Subject to certain exceptions, an indirect subsidiary of a financial holding company may not control any other company. If an indirect subsidiary of a financial holding company had control over another company at the time it became such an indirect subsidiary, the indirect subsidiary is required to dispose of its interest in the other company within two years from such time.

Restrictions on Transactions between a Bank Holding Company and its Major Investor

A bank holding company and its direct and indirect subsidiaries may not acquire (including through their respective trust accounts) shares issued by the bank holding company’s major investor in excess of 1% of the net aggregate equity capital (as defined above). In addition, if those entities intend to acquire shares issued by that major investor in any single transaction equal to or exceeding the lesser of (x) the amount equivalent to 0.1% of the net aggregate equity capital and (y) ￦5 billion, that entity must obtain prior unanimous board resolutions and then, immediately after the acquisition, file a report to the Financial Services Commission and publicly disclose the filing of the report.

Restrictions on Ownership of a Financial Holding Company

Under the Financial Holding Company Act, a financial institution generally may not control a financial holding company. In addition, any single shareholder and persons who have a special relationship with that shareholder may acquire beneficial ownership of up to 10% of the total issued and outstanding shares with voting rights of a bank holding company that controls nationwide banks or 15% of the total issued and outstanding shares with voting rights of a bank holding company that controls only regional banks, subject to certain exceptions. Among others, the Korean government and the Korea Deposit Insurance Corporation are not subject to this limit. “Non-financial business group companies” (as defined below), however, may not acquire the beneficial ownership of shares of a bank holding company controlling nationwide banks in excess of 4% of that bank holding company’s outstanding voting shares unless they obtain the approval of the Financial Services Commission and agree not to exercise voting rights in respect of shares in excess of the 4% limit, in which case they may acquire beneficial ownership of up to 10%. Any other person (whether a Korean national or a foreign investor) may acquire no more than 10% of total voting shares issued and outstanding of a bank holding company controlling nationwide banks unless they obtain approval from the Financial Services Commission in each instance where the total holding will exceed 10% (or 15% in the case of a bank holding company controlling only regional banks), 25% or 33% of the total voting shares issued and outstanding of that bank holding company controlling nationwide banks.

Furthermore, in the case where a person (including Korean and foreign investors, but excluding certain persons prescribed under the Enforcement Decree of the Financial Holding Company Act) (i) acquires in excess of 4% of the total issued and outstanding voting shares of any bank holding company (other than a bank holding company controlling only regional banks), (ii) becomes the largest shareholder of such bank holding company in which such person has acquired in excess of 4% of the total issued and outstanding voting shares, (iii) changes its shareholding in such bank holding company, in which it has acquired in excess of 4% of the total issued and outstanding voting shares, by 1% or more of the total issued and outstanding voting shares of such bank holding company or (iv) is a private equity fund or an investment purpose company holding in excess of 4% of the total outstanding voting shares of a bank holding company and changes its members or shareholders, such person must file a report on such change with the Financial Services Commission (x) in case of (i) and (iii), by the last day of the month immediately following the month in which such change occurred, or (y) in case of (ii) and (iv), within ten days after the end of the month in which such change occurred.

“Non-financial business group companies” as defined under the Financial Holding Company Act include:

 

  (1)

any same shareholder group where the aggregate net assets of all non-financial business companies belonging to that group equals or exceeds 25% of the aggregate net assets of all members of that group;

 

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  (2)

any same shareholder group where the aggregate assets of all non-financial business companies belonging to that group equals or exceeds ￦2 trillion;

 

  (3)

any mutual fund where a same shareholder group identified in (1) or (2) above beneficially owns and/or exercises the voting rights of more than 4% of the total issued and outstanding voting shares of that mutual fund;

 

  (4)

any private equity fund (a) where a person falling under any of items (1) through (3) above is a limited partner holding not less than 10% of the total amount of contributions to the private equity fund, or (b) where a person falling under any of items (1) through (3) above is a general partner, or (c) where the total equity of the private equity fund acquired by each affiliate belonging to several enterprise groups subject to the limitation on mutual investment is 30% or more of the total amount of contributions to the private equity fund; or

 

  (5)

the investment purpose company concerned, where a private equity fund falling under item (4) above acquires or holds stocks in excess of 4% of the stock or equity of such company or exercises de facto control over significant managerial matters of such company through appointment or dismissal of executives or in any other manner.

Sharing of Customer Information among Financial Holding Company and its Subsidiaries

Under the Act on Use and Protection of Credit Information, any individual customer’s credit information may be disclosed only after obtaining consent in writing or otherwise to use that information. In addition, under the Act on Real Name Financial Transactions and Confidentiality, an individual working at a financial institution may not provide or reveal information or data concerning the contents of financial transactions to other persons unless such individual receives a request or consent in writing from the holder of a title deed, except under certain exceptions stipulated in the Act. Under the Financial Holding Company Act, a financial holding company and its direct and indirect subsidiaries, however, may share certain credit information of individual customers among themselves for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act (such as credit risk management, internal control and customer analysis), without the customers’ written consent, subject to the methods and procedures for provision of such information set forth therein. A subsidiary financial investment company with a dealing and/or brokerage license of a financial holding company may provide that financial holding company and its other direct and indirect subsidiaries information relating to the aggregate amount of cash or securities that a customer of the financial investment company with a dealing and/or brokerage license has deposited, for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act, subject to the methods and procedures for provision of such information set forth therein. Certain amendments to the Financial Holding Company Act, which became effective on November 29, 2014, limit the scope of credit information that may be shared without the customers’ prior consent and require certain procedures for provision of customer information as prescribed by the Financial Services Commission. Beginning on November 29, 2014, notice must be given to customers at least once a year regarding (i) the provider of customer information, (ii) the recipient of customer information, (iii) the purpose of providing the information and (iv) the categories of the information provided.

Principal Regulations Applicable to Banks

The banking system in Korea is governed by the Bank Act and the Bank of Korea Act of 1950, as amended (the “Bank of Korea Act”). In addition, Korean banks are subject to the regulations and supervision of the Bank of Korea, the Monetary Policy Board of the Bank of Korea, the Financial Services Commission and its executive body, the Financial Supervisory Service.

The Bank of Korea, established in June 1950 under the Bank of Korea Act, performs the customary functions of a central bank. It seeks to contribute to the sound development of the national economy by price stabilization through establishing and implementing efficient monetary and credit policies with a focus on financial stability. The Bank of Korea acts under instructions of the Monetary Policy Board, the supreme policy-making body of the Bank of Korea.

 

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Under the Bank of Korea Act, the Monetary Policy Board’s primary responsibilities are to formulate monetary and credit policies and to determine the operations, management and administration of the Bank of Korea.

The Financial Services Commission, established in April 1998, regulates commercial banks pursuant to the Bank Act, including establishing guidelines on capital adequacy of commercial banks, and promulgates regulations relating to supervision of banks. Furthermore, the Financial Services Commission regulates market entry into the banking business.

The Financial Supervisory Service, established in January 1999, is subject to the instructions and directives of the Financial Services Commission and carries out supervision and examination of commercial banks. In particular, the Financial Supervisory Service sets requirements both for the prudent control of liquidity and for capital adequacy and establishes reporting requirements pursuant to the authority delegated to it under the Financial Services Commission regulations, pursuant to which banks are required to submit annual reports on financial performance and shareholdings, regular reports on management strategy and non-performing loans, including write-offs, and management of problem companies and plans for the settlement of bad loans.

Under the Bank Act, approval to commence a commercial banking business or a long-term financing business must be obtained from the Financial Services Commission. Commercial banking business is defined as the lending of funds acquired predominantly from the acceptance of demand deposits for a period not exceeding one year or subject to the limitation established by the Financial Services Commission, for a period between one year and three years. Long-term financing business is defined as the lending, for periods in excess of one year, of funds acquired predominantly from paid-in capital, reserves or other retained earnings, the acceptance of time deposits with maturities of at least one year, or the issuance of debentures or other bonds. A bank wishing to enter into any business other than commercial banking and long-term financing businesses must file a report to the Financial Services Commission. For businesses that are subject to a license or approval requirement under applicable laws, such as approval to commence a trust business under the Financial Investment Services and Capital Markets Act, such report must be filed concurrently with a relevant license or approval application to the Financial Services Commission. In addition, approval to merge with any other banking institution, to liquidate, spin off or close a banking business or to transfer all or a part of a business must be obtained from the Financial Services Commission.

If the Financial Services Commission deems a bank’s financial condition to be unsound or if a bank fails to meet the applicable capital adequacy ratio set forth under Korean law, the Financial Services Commission may order:

 

  •  

admonitions or warnings with respect to the bank or its officers;

 

  •  

capital increases or reductions;

 

  •  

assignments of contractual rights and obligations relating to financial transactions;

 

  •  

a suspension of performance by its officers of their duties and the appointment of receivers;

 

  •  

disposals of property holdings or closures of subsidiaries or branch offices or downsizing;

 

  •  

stock cancelations or consolidations;

 

  •  

mergers with other financial institutions;

 

  •  

acquisition of such bank by a third party; and

 

  •  

suspensions of a part or all of its business operations for not more than six months.

Capital Adequacy

The Bank Act requires nationwide banks, such as us, to maintain a minimum paid-in capital of ￦100 billion and regional banks to maintain a minimum paid-in capital of ￦25 billion. All banks, including foreign bank

 

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branches in Korea, are also required to maintain a prescribed solvency position. A bank must also set aside in its legal reserve an amount equal to at least 10% of the net income after tax each time it pays dividends on net profits earned until its legal reserve reaches at least the aggregate amount of its paid-in capital.

Under the Regulation on the Supervision of the Banking Business, the capital of a bank is divided into two categories, Tier I and Tier II capital. Tier I capital (core capital) consists of (i) common equity Tier I capital, including paid-in capital, capital surplus and retained earnings related to common equity and accumulated other comprehensive gains and losses, and (ii) additional Tier I capital, including paid-in capital and capital surplus from the issuance of additional Tier I capital, hybrid capital instruments and other capital securities which meet the standards prescribed by the governor of the Financial Supervisory Service under relevant regulations. Tier II capital (supplementary capital) consists of, among other things, capital and capital surplus from the issuance of Tier II capital, allowances for loan losses on loans classified as “normal” or “precautionary,” subordinated debt and other capital securities which meet the standards prescribed by the governor of the Financial Supervisory Service under Article 26(2) of the Regulation on the Supervision of the Banking Business.

All banks must meet minimum ratios of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets, determined in accordance with Financial Services Commission requirements that have been formulated based on BIS standards. These requirements were adopted and became effective in 1996, and were amended effective January 1, 2008 upon the implementation by the Financial Supervisory Service of Basel II. Under such requirements, all domestic banks and foreign bank branches are required to meet a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean banks and bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. The amended regulations also require an additional capital conservation buffer of 2.5% in 2022 and 2023, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission and may be fully or partially enforced in 2023. Furthermore, we and Kookmin Bank were each designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2022 by the Financial Services Commission and were subject to an additional capital requirement of 1.0% in 2022. In July 2022, we and Kookmin Bank were each again designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2023, which would again subject us to an additional capital requirement of 1.0% in 2023. All such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets set forth above.

Under the Detailed Regulation on the Supervision of the Banking Business, the following risk-weight ratios must be applied by Korean banks in respect of home mortgage loans:

 

  (1)

for those banks which adopted a standardized approach for calculating credit risk capital requirements, a risk-weight ratio between 20% and 150% for home equity loans, depending on the loan-to-value ratio and risk profile of the loan; and

 

  (2)

for those banks which adopted an internal ratings-based approach for calculating credit risk capital requirements, a risk-weight ratio calculated with reference to the probability of default, loss given default and exposure at default, each as defined under the Detailed Regulation on the Supervision of the Banking Business.

Liquidity

All banks are required to ensure adequate liquidity by matching the maturities of their assets and liabilities in accordance with the Regulation on the Supervision of the Banking Business. Banks may not invest an amount

 

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exceeding 100% of their Tier I and Tier II capital (less any capital deductions) in equity securities and certain other securities with a redemption period of over three years. This stipulation does not apply to Korean government bonds, Monetary Stabilization Bonds issued by the Bank of Korea or debentures and stocks referred to in items 1 and 2, respectively, of paragraph (6) of Article 11 of the Act on the Structural Improvement of the Financial Industry. The Financial Services Commission uses the liquidity coverage ratio (described below) as the principal liquidity risk management measure, and currently requires each Korean bank to:

 

  •  

maintain a liquidity coverage ratio (defined as the ratio of highly liquid assets to total net cash outflows over a 30-day period) of not less than 100%, which was temporarily reduced to 92.5% until June 2023 in response to the COVID-19 pandemic;

 

  •  

maintain a foreign currency liquidity coverage ratio of not less than 80%; and

 

  •  

submit monthly reports with respect to the maintenance of these ratios.

The Monetary Policy Board of the Bank of Korea is empowered to fix and alter minimum reserve requirements that banks must maintain against their deposit liabilities. The current minimum reserve ratios are:

 

  •  

7% of average balances for Won currency demand deposits outstanding;

 

  •  

0% of average balances for Won currency employee asset establishment savings deposits, employee long-term savings deposits, employee house purchase savings deposits, long-term house purchase savings deposits, household long-term savings deposits and employee preferential savings deposits outstanding (with respect to employee-related deposits and household long-term savings deposits, only if such deposits were made prior to February 28, 2013); and

 

  •  

2% of average balances for Won currency time deposits, installment savings deposits, mutual installments, housing installments and certificates of deposit outstanding.

For foreign currency deposit liabilities, a 2% minimum reserve ratio is applied to time deposits with a maturity of one month or longer, certificates of deposit with a maturity of 30 days or longer and savings deposits with a maturity of six months or longer and a 7% minimum reserve ratio is applied to other deposits. A 1% minimum reserve ratio applies to deposits in offshore accounts, immigrant accounts and resident accounts opened by financial institutions (excluding bank holding companies) and the Export-Import Bank of Korea, as well as foreign currency certificates of deposit held by account holders of such offshore accounts, immigrant accounts and resident accounts opened by financial institutions (excluding bank holding companies) and the Export-Import Bank of Korea.

Furthermore, under the Regulation on the Supervision of the Banking Business, Kookmin Bank is required to maintain a minimum “mid- to long-term foreign exchange funding ratio” of 100%. “Mid-to long term foreign exchange funding ratio” refers to the ratio of (1) the total outstanding amount of foreign exchange borrowing with a maturity of more than one year to (2) the total outstanding amount of foreign exchange lending with a maturity of one year or more.

Net Stable Funding Ratio and Leverage Ratio Requirements

The Financial Services Commission has implemented the Regulation on Supervision of the Banking Business that impose certain liquidity- and leverage-related ratio requirements on banks in Korea, in accordance with Basel III. Pursuant to such Regulation, each Korean bank is required to:

 

  •  

maintain a net stable funding ratio (defined as the ratio of the available amount of stable funding to the required amount of stable funding) of not less than 100%, where (i) the available amount of stable funding generally refers to the portion of liabilities and capital expected to be reliable over a one-year time horizon and (ii) the required amount of stable funding generally refers to the amount of stable funding that is required to be maintained based on the liquidity characteristics, residual maturities and off-balance sheet exposures of the bank’s assets, each as calculated in accordance with the Detailed Regulation on the Supervision of the Banking Business;

 

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  •  

maintain a leverage ratio (defined as the ratio of core capital to total exposures) of not less than 3%, where (i) the core capital includes paid-in capital, capital surplus, retained earnings and hybrid Tier I capital instruments and (ii) total exposures include on-balance sheet exposures, derivative exposures, securities financing transaction exposures and off-balance sheet exposures, each as calculated in accordance with the Detailed Regulation on the Supervision of the Banking Business; and

 

  •  

submit monthly reports with respect to the maintenance of these ratios.

Financial Exposure to Any Individual Customer or Major Shareholder

Under the Bank Act, subject to certain exceptions, the sum of large exposures by a bank—in other words, the total sum of its credits to single individuals, juridical persons or business groups that exceed 10% of the sum of Tier I and Tier II capital (less any capital deductions)—generally must not exceed five times the sum of Tier I and Tier II capital (less any capital deductions). In addition, subject to certain exceptions, banks generally may not extend credit (including loans, guarantees, purchases of securities (extended for financial support) and any other transactions that directly or indirectly create credit risk) in excess of 20% of the sum of Tier I and Tier II capital (less any capital deductions) to a single individual or juridical person, or grant credit in excess of 25% of the sum of Tier I and Tier II capital (less any capital deductions) to a single group of companies as defined in the Monopoly Regulations and Fair Trade Act.

The Bank Act also provides for certain restrictions on extending credits to a major shareholder. A “major shareholder” is defined as:

 

  •  

a shareholder holding (together with persons who have a special relationship with that shareholder) in excess of 10% (or 15% in the case of regional banks) in the aggregate of the bank’s total issued and outstanding voting shares; or

 

  •  

a shareholder holding (together with persons who have a special relationship with such shareholder) in excess of 4% in the aggregate of the bank’s (excluding regional banks) total issued and outstanding voting shares of a bank (excluding shares subject to the shareholding restrictions on “non-financial business group companies” as described below), where such shareholder is the largest shareholder or has actual control over the major business affairs of the bank through, for example, appointment and dismissal of the officers as prescribed by the Enforcement Decree of the Bank Act. Non-financial business group companies primarily consist of: (i) any single shareholding group whose non-financial company assets comprise no less than 25% of its aggregate net assets; (ii) any single shareholding group whose non-financial company assets comprise no less than ￦2 trillion in aggregate; or (iii) any investment company under the Financial Investment Services and Capital Markets Act of which any single shareholding group identified in (i) or (ii) above, owns more than 4% of the total issued and outstanding shares.

Under these restrictions, banks may not extend credits to a major shareholder (together with persons who have a special relationship with that shareholder) in an amount greater than the lesser of (x) 25% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) and (y) the relevant major shareholder’s shareholding ratio multiplied by the sum of the bank’s Tier I and Tier II capital (less any capital deductions). In addition, the total sum of credits granted to all major shareholders must not exceed 25% of the bank’s Tier I and Tier II capital (less any capital deductions).

Interest Rates

Korean banks generally depend on deposits as their primary funding source. Under the Act on Registration of Credit Business, Etc. and Protection of Finance Users and the regulations thereunder, interest rates on loans made by registered banks in Korea may not exceed 20% per annum, commencing July 2021. Historically, interest rates on deposits and lending were regulated by the Monetary Policy Board. There are no controls on deposit interest rates in Korea, except for the prohibition on interest payments on current account deposits.

 

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Lending to Small- and Medium-sized Enterprises

In order to obtain funding from the Bank of Korea at concessionary rates for their small- and medium-sized enterprise loans, banks are required to allocate a certain minimum percentage of any quarterly increase in their Won currency lending to small- and medium-sized enterprises. Currently, this minimum percentage is 45% in the case of nationwide banks and 60% in the case of regional banks. If a bank does not comply with this requirement, the Bank of Korea may:

 

  •  

require the bank to prepay all or a portion of funds provided to that bank in support of loans to small- and medium-sized enterprises; or

 

  •  

lower the bank’s credit limit.

Disclosure of Management Performance

For the purpose of protecting depositors and investors in commercial banks, the Financial Services Commission requires commercial banks to publicly disclose certain material matters, including:

 

  •  

the financial condition and profit and loss of the bank and its subsidiaries;

 

  •  

fundraising by the bank and the appropriation of such funds;

 

  •  

any sanctions levied on the bank under the Bank Act or any corrective measures or sanctions under the Act on the Structural Improvement of the Financial Industry; and

 

  •  

the occurrence of any of the following events or any other event as prescribed by the applicable regulations, that have damaged or are likely to damage the soundness of the bank’s management, except as may otherwise have been disclosed by a bank or its financial holding company listed on the KRX KOSPI Market in accordance with the Financial Investment Services and Capital Markets Act,:

 

  (i)

loans bearing no profit made to a single business group in an amount exceeding 10% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month (where the loan exposure to that borrower is calculated pursuant to the criteria under the Detailed Regulation on the Supervision of the Banking Business), unless the loan exposure to that group is not more than ￦4 billion; and

 

  (ii)

any loss due to court judgments or similar decisions in civil proceedings in an amount exceeding 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month, unless the loss is not more than ￦1 billion.

Restrictions on Lending

Pursuant to the Bank Act and its sub-regulations, a commercial bank may not provide:

 

  •  

loans secured by a pledge of the bank’s own shares, whether direct or indirect;

 

  •  

loans to enable a natural or juridical person to buy the shares issued by the bank, whether direct or indirect;

 

  •  

loans to any of the bank’s officers or employees, other than de minimis loans of up to (i) ￦20 million in the case of a general loan, (ii) ￦50 million in the case of a general loan plus a housing loan or (iii) ￦60 million in the aggregate for general loans, housing loans and loans to pay damages arising from wrongful acts of employees in financial transactions;

 

  •  

credit (including loans) secured by a pledge of the equity securities of its subsidiary corporation or to enable a natural or juridical person to buy shares of the bank’s subsidiary corporation; or

 

  •  

loans to any officers or employees of the bank’s subsidiary corporation, other than general loans of up to ￦20 million or general and housing loans of up to ￦50 million in the aggregate.

 

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Regulations Relating to Retail Household Loans

The Financial Services Commission has implemented a number of changes in recent years to the regulations relating to retail household lending by banks. Under the currently applicable regulations:

 

  •  

as to any new loans secured by housing (including apartments) located nationwide, the loan-to-value ratio (the aggregate principal amount of loans secured by such collateral over the appraised value of the collateral) should not exceed 70%;

 

  •  

as to any new loans secured by housing (including apartments) located in “excessive investment,” “high speculation” or “adjustment target” areas, in each case as designated by the government, the loan-to-value ratio should not exceed 50%, except that such maximum loan-to-value ratio shall be 70% for low-income households that (i) have a combined annual income of no more than ￦90 million, (ii) do not currently own any housing and (iii) are using the loan to purchase low-price housing valued at no more than ￦900 million (or ￦800 million in the case of adjustment target areas as designated by the Minister of Land, Infrastructure and Transport);

 

  •  

as to any new loans secured by housing (including apartments) located nationwide to be extended to a household that already owns one or more houses, the maximum loan-to-value ratio must be adjusted to 10% lower than the applicable loan-to-value ratio described above;

 

  •  

as to any new loans secured by housing (including apartments) located in excessive investment, high speculation or adjustment target areas, in each case as designated by the government, extended to a household that already owns one or more houses, the maximum loan-to-value ratio shall be 30%;

 

  •  

as to any new loans secured by housing (including apartments) located in excessive investment, high speculation or adjustment target areas, in each case as designated by the government, the borrower’s debt-to-income ratio (calculated as (1) the aggregate annual total payment amount of (x) the principal of and interest on loans secured by such housing and existing mortgage and home equity loans and (y) the interest on other borrowings of the borrower over (2) the borrower’s annual income) should not exceed 40%, except that such maximum debt-to-income ratio is 60% for (i) low-income households that (x) have an annual income of less than ￦90 million, (y) do not currently own any housing, (z) are using the loan to purchase low-price housing valued at ￦900 million or less (￦800 million or less in the case of adjustment target areas) and (ii) first-time homebuyers; and

 

  •  

as to any new loans extended to a household that already has a total loan amount exceeding ￦100 million (including the loan application amount, or in the case of a revolving loan, based on the revolving amount) or has already obtained a loan secured by high priced housing (including apartments) located in excessive investment, high speculation or adjustment target areas, in each case as designated by the government, where the price exceeds ￦600 million, the borrower’s debt-service-ratio (calculated as (1) the aggregate annual total payment amount of the principal of and interest on financial liabilities, including the loans secured by such high-priced housing, divided by (2) the borrower’s annual income) should not exceed 40% unless otherwise specified by the applicable regulations.

Restrictions on Investments in Property

A bank may not invest in the following securities in excess of 100% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions):

 

  •  

debt securities (within the meaning of paragraph (3) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years, but excluding government bonds, monetary stabilization bonds issued by the Bank of Korea and bonds within the meaning of item 2, paragraph (6) of Article 11 of the Act on the Structural Improvement of the Financial Industry;

 

  •  

equity securities, but excluding securities within the meaning of item 1, paragraph (6) of Article 11 of the Act on the Structural Improvement of the Financial Industry;

 

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  •  

derivatives-linked securities (within the meaning of paragraph (7) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years; and

 

  •  

beneficiary certificates, investment contracts and depositary receipts (within the meaning of paragraph (2) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years.

A bank may possess real estate property only to the extent necessary to conduct its business. The aggregate value of such property may not exceed 60% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions). Any property that a bank acquires by exercising its rights as a secured party, or which a bank is prohibited from acquiring under the Bank Act, must be disposed of within three years, unless otherwise specified by the regulations thereunder.

Restrictions on Shareholdings in Other Companies

Under the Bank Act, a bank may not own more than 15% of the shares outstanding with voting rights of another corporation, except where, among other reasons:

 

  •  

that corporation engages in a category of financial businesses set forth by the Financial Services Commission; or

 

  •  

the acquisition of such shares by the bank is necessary for the corporate restructuring of such corporation and is approved by the Financial Services Commission.

In the above exceptional cases, the total investment in corporations in which the bank owns more than 15% of the outstanding shares with voting rights may not exceed (i) 20% of the sum of Tier I and Tier II capital (less any capital deductions) or (ii) 30% of the sum of Tier I and Tier II capital (less any capital deductions) where the acquisition satisfies the requirements determined by the Financial Services Commission.

The Bank Act provides that a bank using its bank accounts and its trust accounts is not permitted to acquire the equity securities issued by the major shareholder of such bank in excess of an amount equal to 1% of the sum of Tier I and Tier II capital (less any capital deductions).

Restrictions on Bank Ownership

Under the Bank Act, a single shareholder and persons who have a special relationship with that shareholder generally may acquire beneficial ownership of no more than 10% of a nationwide bank’s total issued and outstanding shares with voting rights and no more than 15% of a regional bank’s total issued and outstanding shares with voting rights. The Korean government, the Korea Deposit Insurance Corporation and bank holding companies qualifying under the Financial Holding Company Act are not subject to this limit. Pursuant to the Bank Act, non-financial business group companies may not acquire beneficial ownership of shares of a nationwide bank in excess of 4% (or 15% in the case of a regional bank) of that bank’s outstanding voting shares, unless they satisfy certain requirements set forth by the Enforcement Decree of the Bank Act, obtain the approval of the Financial Services Commission and agree not to exercise voting rights in respect of shares in excess of the 4% limit (or the 15% limit in the case of a regional bank), in which case they may acquire beneficial ownership of up to 10% of a nationwide bank’s outstanding voting shares. The Bank Act grants an exception for non-financial business group companies which, at the time of the enactment of the amended provisions, held more than 4% of the shares of a bank.

In addition, if a foreign investor, as defined in the Foreign Investment Promotion Act, owns in excess of 4% of a nationwide bank’s outstanding voting shares, non-financial business group companies may acquire beneficial ownership of up to 10% (or 15% in the case of a regional bank) of that bank’s outstanding voting shares, and in excess of 10% (or 15% in the case of a regional bank), 25% or 33% of that bank’s outstanding

 

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voting shares with the approval of the Financial Services Commission in each instance, up to the number of shares owned by the foreign investor. Any other person (whether a Korean national or a foreign investor), with the exception of non-financial business group companies described above, may acquire no more than 10% of a nationwide bank’s total voting shares issued and outstanding, unless they obtain approval from the Financial Services Commission in each instance where the total holding will exceed 10% (or 15% in the case of regional banks), 25% or 33% of the bank’s total voting shares issued and outstanding provided that, in addition to the foregoing threshold shareholding ratios, the Financial Services Commission may, at its discretion, designate a separate and additional threshold shareholding ratio.

Deposit Insurance System

The Depositor Protection Act provides insurance for certain deposits of banks in Korea through a deposit insurance system. Under the Depositor Protection Act, all banks governed by the Bank Act are required to pay an insurance premium to the Korea Deposit Insurance Corporation on a quarterly basis and the rate is determined under the Enforcement Decree to the Depositor Protection Act. If the Korea Deposit Insurance Corporation makes a payment on an insured amount, it will acquire the depositors’ claims with respect to that payment amount. The Korea Deposit Insurance Corporation insures a maximum of ￦50 million per individual for deposits and interest in a single financial institution, regardless of when the deposits were made and the size of the deposits.

Restrictions on Foreign Exchange Position

Under the Foreign Exchange Transaction Act of Korea, each of a bank’s net overpurchased and oversold positions may not exceed 50% of its shareholder’s equity as of the end of the prior month.

Laws and Regulations Governing Other Business Activities

A bank must register with the Ministry of Economy and Finance to enter the foreign exchange business, which is governed by the Foreign Exchange Transaction Act of Korea. A bank must obtain the permission of the Financial Services Commission to enter the securities business, which is governed by regulations under the Financial Investment Services and Capital Markets Act. Under these laws, a bank may engage in the foreign exchange business, securities repurchase business, governmental/public bond underwriting business and governmental bond dealing business, among others.

Trust Business

A bank must obtain approval from the Financial Services Commission to engage in trust businesses. The Trust Act and the Financial Investment Services and Capital Markets Act govern the trust activities of banks, and they are subject to various legal and accounting procedures and requirements, including the following:

 

  •  

under the Trust Act, assets accepted in trust by a bank in Korea must be segregated from other assets in the accounts of that bank; and

 

  •  

depositors and other general creditors cannot obtain or assert claims against the assets comprising the trust accounts in the event the bank is liquidated or wound-up.

The bank must make a special reserve of 25% or more of fees from each unspecified money trust account for which a bank guarantees the principal amount and a fixed rate of interest until the total reserve for that account equals 5% of the trust amount.

Under the Financial Investment Services and Capital Markets Act, a bank with a trust business license (such as Kookmin Bank) is permitted to offer both specified money trust account products and unspecified money trust account products. However, pursuant to guidelines from regulatory authorities that discourage the sale of unspecified money trust account products, sales of such products have generally been suspended.

 

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Credit Card Business

General

In order to enter the credit card business, a company must obtain a license from the Financial Services Commission. Credit card businesses are governed by the Specialized Credit Financial Business Act, which sets forth specific requirements with respect to the credit card business as well as generally prohibiting unsound business practices relating to the credit card business which may infringe on the rights of credit card holders or negatively affect the soundness of the credit card industry. Credit card companies, including our wholly-owned subsidiary, KB Kookmin Card Co., Ltd., are regulated by the Financial Services Commission and the Financial Supervisory Service.

Disclosure and Reports

Under the Specialized Credit Financial Business Act and the regulations thereunder, a credit card company is required to disclose on a periodic and on-going basis certain material matters and events. In addition, a credit card company must submit periodic reports with respect to its results of operations to the Governor of the Financial Supervisory Service, in accordance with the guidelines of the Financial Supervisory Service.

Restrictions on Funding

Under the Specialized Credit Financial Business Act and the regulations thereunder, a credit card company must ensure that its total assets do not exceed an amount equal to eight times its equity capital and that the ratio of its adjusted equity capital to its adjusted total assets is not less than 8.0%. However, if a credit card company is unable to comply with such limit upon the occurrence of unavoidable events, such as drastic changes in the domestic and global financial markets, such limit may be adjusted through a resolution of the Financial Services Commission.

Risk of Loss Due to Lost, Stolen, Forged or Altered Credit Cards

Under the Specialized Credit Financial Business Act, a credit card company is liable for any loss arising from the unauthorized use of credit cards or debit cards after it has received notice from the holder of the loss or theft of the card. A credit card company is also responsible for any losses resulting from the use of forged or altered credit cards, debit cards and pre-paid cards. A credit card company may, however, transfer all or part of this latter risk of loss to holders of credit card in the event of willful misconduct or gross negligence by holders of credit card if the terms and conditions of the agreement entered between the credit card company and members of such cards specifically provide for that transfer.

For these purposes, disclosure of a customer’s password that is made intentionally or through gross negligence, or the transfer of or giving as collateral of the credit card or debit card, is considered willful misconduct or gross negligence. However, a disclosure of a cardholder’s password that is made under irresistible force or threat to cardholder or his/her relatives’ life or health will not be deemed as willful misconduct or negligence of the cardholder.

Each credit card company must institute appropriate measures to fulfill these obligations, such as establishing provisions, purchasing insurance or joining a cooperative association.

Pursuant to the Enforcement Decree to Specialized Credit Financial Business Act, a credit card company will be liable for any losses arising from loss or theft of a credit card (which was not from the holder’s willful misconduct or negligence) during the period beginning 60 days before the notice by the holder to the credit card company.

Pursuant to the Specialized Credit Financial Business Act, the Financial Services Commission may either restrict the limit or take other necessary measures against the credit card company with respect to such matters as

 

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the maximum limits on the amount per credit card, details of credit card terms and conditions, management of credit card merchants and collection of claims, including the following:

 

  •  

maximum limits for cash advances on credit cards;

 

  •  

use restrictions on debit cards with respect to per day or per transaction usage;

 

  •  

aggregate issuance limits and maximum limits on the amount per card on pre-paid cards; and

 

  •  

other matters prescribed by the Enforcement Decree to the Specialized Credit Financial Business Act.

Lending Ratio in Ancillary Business

Pursuant to the Enforcement Decree to the Specialized Credit Financial Business Act, a credit card company must maintain an aggregate quarterly average outstanding lending balance to credit cardholders (including cash advances and credit card loans, but excluding restructured loans) no greater than the sum of (i) its aggregate quarterly average outstanding credit card balance arising from the purchase of goods and services and (ii) the aggregate quarterly debit card transaction volume.

Issuance of New Cards and Solicitation of New Cardholders

The Enforcement Decree to the Specialized Credit Financial Business Act establishes the conditions under which a credit card company may issue new cards and solicit new members. New credit cards may be issued only to the following persons:

 

  •  

persons who are at least 19 years old when they apply for a credit card;

 

  •  

persons whose capability to pay bills as they come due has been verified using standards established by the credit card company; and

 

  •  

in the case of minors who are 18 years old, persons who submit documents evidencing employment as of the date of the credit card application, such as an employment certificate, or persons for whom the issuance of a credit card is necessitated by governmental policies, such as financial aid.

In addition, a credit card company may not solicit credit card members by:

 

  •  

providing economic benefits or promising to provide economic benefits in excess of 10% of the annual credit card fee (in the case of credit cards with annual fees that are less than the average of the annual fees charged by major credit cards in Korea, the annual fee will be deemed to be equal to such average annual fee) in connection with issuing a credit card; provided, however, that providing economic benefits or promising to provide economic benefits not exceeding the amount of the annual credit card fee to an applicant that becomes a credit card member through an online platform is permissible;

 

  •  

soliciting applicants on roads, public places or along corridors used by the general public;

 

  •  

soliciting applicants through visits, except those visits made upon prior consent and visits to a business area;

 

  •  

soliciting applicants through the Internet without verifying whether the applicant is who he or she purports to be, by means of a digital signature (limited, however, to cases where it can be confirmed that the applicant is the person in question by using identifiable information) under the Digital Signature Act; and

 

  •  

soliciting applicants through pyramid sales methods.

Compliance Rules on Collection of Receivable Claims

Pursuant to Supervisory Regulation on the Specialized Credit Financial Business, a credit card company may not:

 

  •  

exert violence or threaten violence;

 

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  •  

inform a related party (a guarantor of the debtor, blood relative or fiancé(e) of the debtor, a person living in the same household as the debtor or a person working in the same workplace as the debtor) of the debtor’s obligations without just cause;

 

  •  

provide false information relating to the debtor’s obligation to the debtor or his or her related parties;

 

  •  

threaten to sue or sue the debtor for fraud despite lack of affirmative evidence to establish that the debtor has submitted forged or false documentation with respect to his or her ability to make payment;

 

  •  

visit or telephone the debtor during late evening hours (between the hours of 9:00 p.m. and 8:00 a.m.); and

 

  •  

utilize other uncustomary methods to collect the receivables that interfere with the privacy or the peace in the workplace of the debtor or his or her related parties.

Principal Regulations Applicable to Insurance Companies

General

Under the Insurance Business Act, a company seeking to engage in the insurance business in Korea is required to obtain business authorizations and licenses from the Financial Services Commission, and such company is required to comply with the Insurance Business Act and the regulations thereunder. These rules and regulations cover, among other things: (i) the requirements for obtaining business authorizations and licenses to operate an insurance company; (ii) the scope of business an insurance company may undertake; (iii) the operations of an insurance company, including its asset management activities; (iv) the methods of insurance solicitation; (v) the supervision of the insurance business; and (vi) the disciplinary actions for violation of the Insurance Business Act, which may include revocation of a license, imprisonment, suspension of operations, fines, surcharges and penalties.

The Financial Services Commission has the authority to oversee matters involving licenses necessary for, and supervision of, the operation of an insurance business. Pursuant to the Regulation on Supervision of Insurance Business and the Regulation on Corporate Governance of Financial Companies, the Financial Services Commission sets forth detailed criteria for obtaining the authorization necessary to engage in the insurance business, as well as various comprehensive standards required to be met by an insurance company. The Financial Services Commission entrusts the Financial Supervisory Service with certain matters pursuant to the Regulation on Supervision of Insurance Business, as specified under the Detailed Enforcement Regulations on Insurance Supervision.

Since an insurance company falls within the scope of a financial institution under the Act on the Structural Improvement of the Financial Industry, special provisions thereunder apply to an insurance company in the event (i) it merges with, or converts into, another financial institution, (ii) it becomes bankrupt or insolvent or is dissolved or (iii) members of its business group acquire shares of another company in excess of a certain percentage. In addition, an insurance company that offers and sells investment-type insurance products, such as variable insurance products, and manages assets under special accounts for variable insurance policies is deemed a financial investment company under the Financial Investment Services and Capital Markets Act. Such insurance company is subject to certain provisions under the Financial Investment Services and Capital Markets Act, such as regulations on the control of conflicts of interest as well as the establishment and maintenance of firewalls for asset management of special accounts related to variable insurance policies. In addition, pursuant to the Foreign Exchange Transactions Act, an insurance company is required to obtain prior approval from the Ministry of Economy and Finance, the Bank of Korea, the Financial Supervisory Service or a foreign exchange bank and may be required to file periodic reports if the company engages in any of the following: (a) a transaction involving a foreign currency; (b) a transaction with a non-resident involving either the Won or a foreign currency; (c) a transaction that requires an outgoing overseas payment; (d) a transaction that requires receipt of an overseas payment; and (e) any other transaction prescribed under the Foreign Exchange Transactions Act. Furthermore, an insurance company is required to comply with the Act on the Corporate Governance of Financial Companies.

 

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Scope of Business of Insurance Companies

Under the Insurance Business Act, an insurance company is prohibited from concurrently operating a life insurance business and a non-life insurance business (including property, marine and cargo and liability insurance), provided that an insurance company may concurrently operate a “type three” insurance business (including casualty, disease and health care insurance) and provide reinsurance to other insurance companies. However, limited cross-selling of life insurance and non-life insurance products by insurance sales agents working for life insurance or non-life insurance companies in Korea is permitted by the Financial Services Commission.

Upon approval by the Financial Services Commission, a life insurance company may operate (i) a life insurance business, (ii) a pension insurance (including retirement insurance) business and (iii) type three insurance businesses, while a non-life insurance company may operate (i) various types of non-life insurance businesses (including property, marine and cargo, automobile, guarantee, reinsurance and certain other enumerated non-life insurance as designated under the Enforcement Decree of the Insurance Business Act as well as liability insurance) and (ii) type three insurance businesses.

Both life insurance and non-life insurance companies may also operate certain financial businesses and incidental businesses designated under the Enforcement Decree of the Insurance Business Act.

Requirements Relating to Insurance Solicitation

The Insurance Business Act limits entities that may engage in insurance solicitation to insurance sales agents, insurance agencies (including those of financial institutions), insurance brokers and officers and employees of an insurance company. Any person or entity wishing to act as an insurance sales agent, insurance agency (including those of financial institutions) or insurance broker must register with the Financial Services Commission and report promptly to the Financial Services Commission the occurrence of certain changes prescribed under the Insurance Business Act.

Insurance brochures used for insurance solicitation must clearly specify the terms required under the Insurance Business Act in an easy-to-understand manner. Where an insurance company or any person engaging in insurance solicitation persuades an ordinary policyholder to enter into an insurance contract, it must explain to such ordinary policyholder about certain critical matters of the insurance contract prescribed by the Financial Consumer Protection Act, including details of insurance products, insurance premiums (including mutual aid premiums), procedures for payment of insurance proceeds (including mutual aid) and grounds for restricting the payment and coverage scope in a manner the policyholder can easily understand.

Where an insurance company or any person engaging in insurance solicitation advertises an insurance product, it must include the details of such insurance product in such advertisement as prescribed under the Financial Consumer Protection Act and must not engage in any act which, among other things, may lead to a misunderstanding that such insurance product would provide a large amount of insurance proceeds by emphasizing selective terms and conditions of such product or introducing cases where a large amount of insurance proceeds were paid.

In connection with the execution or solicitation of an insurance contract, any person engaging in insurance solicitation must not engage in any act prohibited under the Insurance Business Act and the Financial Consumer Protection Act, including acts of providing a policyholder with false information regarding an insurance product and acts intended to interrupt or prevent a policyholder (including interested parties prescribed by the Enforcement Decree of the Financial Consumer Protection Act) from notifying an insurance company of an important matter relevant to an insurance policy.

Any person engaging in insurance solicitation is prohibited from providing special benefits (including, but not limited to, cash over a certain amount and discounts on insurance premiums) in connection with the

 

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execution of an insurance contract unless such special benefits are stipulated in the underlying documents for such insurance product. In addition, an insurance company is prohibited from entrusting any person other than those who are eligible under the Insurance Business Act to engage in insurance solicitation or paying any compensation to any ineligible persons for his or her insurance solicitation. The Insurance Business Act and the Financial Consumer Protection Act also prescribe in detail certain practices that insurance agencies of financial institutions are restricted from engaging in, including, but not limited to:

 

  •  

forcing entry into contracts on financial products against the will of the policyholder using a position of advantage; and

 

  •  

including insurance premiums in loan transactions without the prior consent of the borrower.

The Insurance Business Act permits insurance sales agents working for life insurance companies to cross-sell non-life insurance products of one non-life insurance company, and insurance sales agents working for non-life insurance companies are correspondingly permitted to cross-sell the life insurance products of one life insurance company.

Capital Adequacy

Pursuant to the risk-based capital adequacy requirements implemented by the Financial Services Commission, insurance companies in Korea are required to maintain a statutory ratio of available regulatory capital to risk-weighted assets of not less than 100% on a consolidated basis (although a risk-based capital adequacy ratio of not less than 150% is still considered standard in the Korean insurance industry). Risk based capital adequacy requirements require insurance companies to hold adequate capital to cover their exposures to interest rate risk, market risk, credit risk and operational risk as well as insurance risk by reflecting such risks in their calculation of risk-weighted assets. The statutory risk-based capital adequacy ratio for insurance companies is computed by dividing available capital by required capital. Available capital of an insurance company is computed as the sum of, among other things, capital stock, reserve for policyholder dividends and bad debt allowance after deducting, among other things, deferred acquisition costs, goodwill, and prepaid expenses. Required capital is computed based on the sum of (i) the square root of the sum of the squares of (w) insurance risk amounts, (x) interest rate risk amounts, (y) credit risk amounts and (z) market risk amounts, and (ii) the operating risk amounts, with each risk amount being calculated in accordance with the detailed criteria set forth under the Regulation on Supervision of Insurance Business and the Detailed Enforcement Regulations on Insurance Supervision.

On January 1, 2023, the Financial Supervisory Service introduced K-ICS, a new regulatory solvency regime for insurance companies based on the International Capital Standard developed by the International Association of Insurance Supervisors, which is similar in substance to the Solvency II Directive of the European Union. The Solvency II Directive, which has been in effect in the European Union since January 1, 2016, is a comprehensive program of regulatory requirements for insurance companies, covering authorization, corporate governance, supervisory reporting, public disclosure and risk assessment and management, as well as solvency. Under K-ICS, insurance contract liabilities are expected to be measured based on market value, rather than book value, at the time of the computation of available capital. K-ICS has also introduced new risk subcategories, including those related to termination, business expenses, longevity, catastrophes and asset concentration, to be considered at the time of the computation of required capital. It is expected that these changes, among others, would require a number of insurance companies in Korea with a large portfolio of high guaranteed rate of return products to obtain additional capital to meet their capital adequacy requirements. However, the Financial Supervisory Service has allowed for a gradual deduction from available capital and a gradual recognition of risks in relation to required capital, for up to ten years. In order to ease the burden on insurance companies, corrective measures will be withheld for up to five years even if the solvency ratio under K-ICS is less than 100%, if the risk-based capital adequacy ratio exceeds 100%.

 

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Regulations on Class Actions Regarding Securities

The Law on Class Actions Regarding Securities was enacted as of January 20, 2004 and last amended on May 28, 2013. The Law on Class Actions Regarding Securities governs class actions suits instituted by one or more representative plaintiff(s) on behalf of 50 or more persons who claim to have been damaged in a capital markets transaction involving securities issued by a listed company in Korea.

Applicable causes of action with respect to such suits include:

 

  •  

claims for damages caused by misleading information contained in a securities statement;

 

  •  

claims for damages caused by the filing of a misleading business report, semi-annual report, or quarterly report;

 

  •  

claims for damages caused by insider trading or market manipulation; and

 

  •  

claims instituted against auditors for damages caused by accounting irregularities.

Any such class action may be instituted upon approval from the presiding court and the outcome of such class action will have a binding effect on all potential plaintiffs who have not joined the action, with the exception of those who have filed an opt out notice with such court.

Financial Investment Services and Capital Markets Act

The Financial Investment Services and Capital Markets Act, which became effective in February 2009, regulates and governs the financial investment business in Korea. The entities that regulate and supervise financial investment companies are the Financial Services Commission, the Financial Supervisory Service and the Securities and Futures Commission.

Under the Financial Investment Services and Capital Markets Act, a company must obtain a license from the Financial Services Commission to commence a financial investment business such as a brokerage business, a dealing business or an underwriting business, or register with the Financial Services Commission to commence a financial investment business such as an investment advisory business or a discretionary investment management business. A bank is permitted to engage in certain types of financial investment business as specified under the Enforcement Decree of the Bank Act. Prior to commencing a financial investment business, a bank must file a report with the Financial Services Commission and apply for a license pursuant to the Financial Investment Services and Capital Markets Act.

Consolidation of Capital Markets-Related Laws

Prior to the effectiveness of the Financial Investment Services and Capital Markets Act, there were separate laws regulating various types of financial institutions depending on the type of financial institution (for example, securities companies, futures companies, trust business companies and asset management companies) and subjecting financial institutions to different licensing and ongoing regulatory requirements (for example, the Korean Securities Exchange Act, the Futures Business Act and the Indirect Investment Asset Management Business Act). By applying one uniform set of rules to the same financial business having the same economic function, the Financial Investment Services and Capital Markets Act attempts to improve and address issues caused by the previous regulatory system under which the same economic function relating to capital markets-related businesses are governed by multiple regulations. To this end, the Financial Investment Services and Capital Markets Act categorizes capital markets-related businesses into six different functions, as follows:

 

  •  

dealing, trading and underwriting of “financial investment products” (as defined below);

 

  •  

brokerage of financial investment products;

 

  •  

establishment of collective investment schemes and the management thereof;

 

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  •  

investment advice;

 

  •  

discretionary investment management; and

 

  •  

trusts (together with the five businesses set forth above, the “Financial Investment Businesses”).

Accordingly, all financial businesses relating to financial investment products have been reclassified as one or more of the Financial Investment Businesses described above, and financial institutions are subject to the regulations applicable to their relevant Financial Investment Businesses, regardless of the type of the financial institution. For example, under the Financial Investment Services and Capital Markets Act, derivative businesses conducted by former securities companies and future companies will be subject to the same regulations.

Banking and insurance businesses are not subject to the Financial Investment Services and Capital Markets Act and will continue to be regulated under separate laws. However, they may become subject to the Financial Investment Services and Capital Markets Act if their activities involve any financial investment businesses requiring a license pursuant to the Financial Investment Services and Capital Markets Act.

Comprehensive Definition of Financial Investment Products

In an effort to encompass the various types of securities and derivative products available in the capital markets, the Financial Investment Services and Capital Markets Act sets forth a comprehensive term “financial investment products,” defined to mean all financial products with a risk of loss in the invested amount (in contrast to “deposits,” which are financial products for which the invested amount is protected or preserved). Financial investment products are classified into two major categories: (i) “securities” (financial investment products in which the risk of loss is limited to the invested amount) and (ii) “derivatives” (financial investment products in which the risk of loss may exceed the invested amount). As a result of the general and broad definition of financial investment products, a variety of financial products may be defined as a financial investment product, which would enable Financial Investment Companies (defined below) to handle a broader range of financial products. Under the Financial Investment Services and Capital Markets Act, entities formerly licensed as securities companies, asset management companies, futures companies and other entities engaging in any Financial Investment Business are classified as “Financial Investment Companies.”

New License System and the Conversion of Existing Licenses

Under the Financial Investment Services and Capital Markets Act, Financial Investment Companies are able to choose the type of Financial Investment Business in which to engage (through a “check the box” method set forth in the relevant license application), by specifying the desired (i) Financial Investment Business, (ii) financial investment product and (iii) target customers to which financial investment products may be sold or distributed (that is, general investors or professional investors). Licenses will be issued under the specific business sub-categories described in the foregoing sentence. For example, it would be possible for a Financial Investment Company to obtain a license to engage in the Financial Investment Business of (i) dealing (ii) over the counter derivatives products (iii) only with sophisticated investors.

Financial institutions that engage in business activities constituting a Financial Investment Business are required to take certain steps, such as renewal of their license or registration, in order to continue engaging in such business activities. Financial institutions that are not licensed Financial Investment Companies are not permitted to engage in any Financial Investment Business.

Expanded Business Scope of Financial Investment Companies

Under the previous regulatory regime in Korea, it was difficult for a financial institution to explore a new line of business or expand upon its existing line of business. For example, previously a financial institution licensed as a securities company generally was not permitted to engage in the asset management business. In

 

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contrast, under the Financial Investment Services and Capital Markets Act, pursuant to the integration of its current businesses involving financial investment products into a single Financial Investment Business, a licensed Financial Investment Company is permitted to engage in all types of Financial Investment Businesses, subject to satisfying relevant regulations (for example, maintaining an adequate “Chinese Wall,” to the extent required). As to incidental businesses (that is, a financial related business which is not a Financial Investment Business), the Financial Investment Services and Capital Markets Act generally allows a Financial Investment Company to freely engage in such incidental businesses by shifting away from the previous positive-list system towards a more comprehensive system. In addition, a Financial Investment Company is permitted to (i) outsource marketing activities by contracting “introducing brokers” that are individuals but not employees of the Financial Investment Company, (ii) engage in foreign exchange businesses related to their Financial Investment Business and (iii) participate in the settlement network, pursuant to an agreement among the settlement network participants.

Improvement in Investor Protection Mechanism

While the Financial Investment Services and Capital Markets Act widens the scope of financial businesses in which financial institutions are permitted to engage, a more rigorous investor-protection mechanism is also imposed upon Financial Investment Companies dealing in financial investment products. The Financial Investment Services and Capital Markets Act distinguishes general investors from sophisticated investors and provides new or enhanced protections to general investors. For instance, the Financial Investment Services and Capital Markets Act expressly provides for a strict know-your-customer rule for general investors and imposes an obligation that Financial Investment Companies should market financial investment products suitable to each general investor, using written explanatory materials. Under the Financial Investment Services and Capital Markets Act, a Financial Investment Company could be liable if a general investor proves (i) damage or losses relating to such general investor’s investment in financial investment products solicited by such Financial Investment Company and (ii) the absence of the requisite written explanatory materials, without having to prove fault or causation. With respect to conflicts of interest between Financial Investment Companies and investors, the Financial Investment Services and Capital Markets Act expressly requires (i) disclosure of any conflict of interest to investors and (ii) mitigation of conflicts of interest to a comfortable level or abstention from the relevant transaction.

Other Changes to Securities / Fund Regulations

The Financial Investment Services and Capital Markets Act changed various securities regulations including those relating to public disclosure, insider trading and proxy contests, which were previously governed by the Korean Securities Exchange Act. For example, the 5% and 10% reporting obligations under the Korean Securities Exchange Act have become more stringent. The Indirect Investment and Asset Management Business Act strictly limited the kind of vehicles that could be utilized under a collective investment scheme, restricting the range of potential vehicles to trusts and corporations, and the type of funds that can be used for investments. However, under the Financial Investment Services and Capital Markets Act, these restrictions have been significantly liberalized, permitting all vehicles that may be created under Korean law, such as limited liability companies or partnerships, to be used for the purpose of collective investments and allowing investment funds to be more flexible as to their investments.

Act on the Corporate Governance of Financial Companies

The Act on the Corporate Governance of Financial Companies, which became effective on August 1, 2016, was enacted to address the need for strengthened regulations on corporate governance of financial institutions and to serve as a uniform set of regulations on corporate governance matters applicable to financial institutions across a variety of industry sectors. It contains several key measures, including (i) eligibility requirements for officers of financial institutions and standards for determining whether officers of financial institutions may hold concurrent positions in other companies, (ii) standards for composition and operation of the board of directors of

 

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financial institutions, (iii) standards for establishment, composition and operation of various committees of the board of directors of financial institutions, (iv) regulations on internal control and risk management, (v) requirements and procedures for the approval of a change of major shareholders and (vi) special regulations to protect the rights of minority shareholders of financial institutions.

Financial Consumer Protection Act

The Financial Consumer Protection Act became effective on March 25, 2021, and certain provisions relating to internal control under such Act have become effective on September 25, 2021. The Financial Consumer Protection Act aims to enhance measures to protect financial consumers and to establish a sound market order in the financial product sales and advisory businesses. The Financial Consumer Protection Act consolidates existing regulations relating to the sale of financial products and consumer protection stipulated in other laws governing the financial sector, such as the Financial Investment Services and Capital Markets Act, the Banking Act and the Insurance Business Act, and applies to the financial industry on a cross-sectoral basis.

Application of the Financial Consumer Protection Act

All financial products that are classified as (i) deposits, (ii) loans, (iii) investment products or (iv) insurance products are subject to the Financial Consumer Protection Act. These four types of products encompass most of the products covered by the Bank Act, the Financial Investment Services and Capital Markets Act and the Insurance Business Act. Financial products offered by credit unions, peer-to-peer (P2P) lending firms and registered credit service providers are also regulated by the Financial Consumer Protection Act.

Six Principles Regulating Selling Activities

The Financial Consumer Protection Act consolidates previously scattered regulations regarding financial business operations into six uniform standards that cover the following: (i) suitability, (ii) appropriateness, (iii) duty to explain, (iv) unfair sales practices, (v) improper solicitation and (vi) advertisements. Among these six principles, suitability, appropriateness and duty to explain apply only to “general financial consumers,” although “professional financial consumers” may elect to be treated as “general financial consumers,” in which case all six principles would apply to them.

Internal Control Requirements for Consumer Protection

The Financial Consumer Protection Act requires sellers of financial products to have adequate internal control standards to protect consumers. The Enforcement Decree to the Financial Consumer Protection Act sets forth details of certain of the internal control standards as follows:

 

  •  

Establishment of the authority and responsibilities of the decision maker, such as the representative director or a director, in the implementation of internal control measures;

 

  •  

Development of an organizational structure and designation of personnel responsible for consumer protection matters, including the establishment of a financial consumer protection committee;

 

  •  

Implementation of (i) inter-departmental consultation procedures for the development and sale of financial products, (ii) processes for internal deliberations and the incorporation of opinions from independent third party advisors, (iii) standards for vetting advertisements, (iv) mandatory training requirements for officers and employees and implementation of qualification requirements, (v) standards for the prevention of conflicts of interest, (vi) proper management of confidential information, and (vii) disclosure obligations when potential harm to consumers arises; and

 

  •  

Establishment of standards for performance-based compensation of officers and employees in charge of sales of financial products.

 

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Right to Withdraw Subscriptions and Right to Terminate Contracts

Under the Financial Consumer Protection Act, consumers have the right to withdraw subscriptions, allowing them to receive a refund during a statutory cooling-off period following the execution of the relevant subscription agreement. This right generally applies to all types of financial products with the exception of deposits, although in the case of investment products, the right to withdraw applies only to highly complex funds and trusts. Consumers also have the right to terminate a contract if the sellers violate the Financial Consumer Protection Act in relation to the sales process. The right to terminate contracts applies to long-term contracts but such right must be exercised within one year from the time that the customer becomes aware that the financial product was sold in violation of the regulatory requirements.

Punitive Penalty Surcharges

In case of a violation of the principles regarding the duty to explain, unfair sales practices, improper solicitation and advertisements, sellers are subject to a punitive penalty of up to half the “amount that is the purpose of the contract” (which would be the deposit amount in case of deposit products, loan amount in case of loan products, investment amount in case of investment products, and insurance premium in case of insurance products), depending on the severity of the violation of the Financial Consumer Protection Act.

Environment, Social Responsibility and Corporate Governance

As part of our mission to become a “financial service delivering changes,” we are committed to a management philosophy focused on issues relating to the environment, social responsibility and corporate governance (“ESG”). Our ESG strategy is to focus on internalizing ESG values across all of our business operations by developing a climate change risk management system, an inclusive society and a transparent corporate governance structure.

We have also developed the “KB Green Wave 2030” program to fulfill our responsibility as a leading financial group and to become a more trusted company to our stakeholders. Under this program, we plan to increase the total value of our ESG-related products, investments and loans to ￦50 trillion by 2030. In addition, we have established a group-wide carbon neutrality program called “KB Net Zero S.T.A.R.” to effectively respond to the problems posed by climate change. Pursuant to the program, we intend to reduce the level of our own carbon emissions by 42% by 2030 to achieve carbon neutrality by 2040 and to reduce the level of carbon emissions of our asset portfolio companies by 33% by 2030 to achieve carbon neutrality by 2050. Moreover, we have established the “KB Diversity 2027” program, which is our mid- to long-term plan aimed at achieving our diversity goals and cultivating a more inclusive culture. The program includes specific goals to promote diversity, such as increasing the hiring levels of people from diverse backgrounds, including people with disabilities, veterans, people from multicultural families and basic livelihood security recipients, to 15%, as well as increasing the ratio of female leaders to 20% and female core professionals to 30%, by 2027.

Since 2011, we have published a group-wide sustainability report on our website on an annual basis.

 

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Item 4.C.

Organizational Structure

The following chart provides an overview of our structure, including our significant subsidiaries and our ownership of such subsidiaries as of March 31, 2023:

 

LOGO

 

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Our largest subsidiary is Kookmin Bank, the assets of which represented approximately 73.8% of our total assets as of December 31, 2022. The following table provides summary information for our operating subsidiaries that are consolidated in our consolidated financial statements as of and for the year ended December 31, 2022, including their consolidated total assets, operating revenue, profit (loss) and total equity:

 

Subsidiaries

    Total Assets      Operating Revenue      Profit (Loss)     Total Equity  
     (in millions of Won)  

Kookmin Bank

    ￦ 517,769,512      ￦ 49,436,046      ￦ 2,996,015     ￦ 33,723,259  

KB Securities Co., Ltd.

      53,824,246        14,264,399        187,784       5,877,313  

KB Insurance Co., Ltd.

      42,736,747        14,959,264        557,680       3,339,580  

KB Kookmin Card Co., Ltd.

      29,721,017        3,694,352        378,592       4,722,802  

KB Life Insurance Co., Ltd. (prior to the merger).

      10,136,909        2,907,001        (64,045 )      86,617  

Prudential Life Insurance Company of Korea, Ltd. (prior to the merger)

      24,710,078        2,255,418        250,308       1,662,477  

KB Asset Management Co., Ltd.

      369,488        233,293        59,345       266,518  

KB Capital Co., Ltd.

      16,053,026        1,906,694        217,139       2,106,226  

KB Savings Bank Co., Ltd.

      3,138,543        191,337        21,814       283,994  

KB Real Estate Trust Co., Ltd.

      518,980        152,686        67,723       405,536  

KB Investment Co., Ltd.

      1,378,550        161,210        4,807       270,286  

KB Credit Information Co., Ltd.

      42,219        36,469        484       17,296  

KB Data Systems Co., Ltd.

      63,645        233,320        3,162       23,075  

Further information regarding our subsidiaries is provided below:

 

  •  

Kookmin Bank was established in Korea in 2001 as a result of the merger of the former Kookmin Bank (established in 1963) and H&CB (established in 1967). Kookmin Bank provides a wide range of banking and other financial services to individuals, small- and medium-sized enterprises and large corporations in Korea. As of December 31, 2022, Kookmin Bank was one of the largest commercial banks in Korea based upon total assets (including loans) and deposits. As of December 31, 2022, Kookmin Bank had approximately 32.9 million customers, with 856 branches nationwide.

 

  •  

KB Securities Co., Ltd., formerly known as Hyundai Securities Co., Ltd., was established in Korea in 1962 to provide various securities brokerage and investment banking services. In 2016, we acquired 100% of the outstanding shares of Hyundai Securities, merged another subsidiary, KB Investment & Securities Co., Ltd., with and into Hyundai Securities and changed the name of the surviving entity to KB Securities Co., Ltd.

 

  •  

KB Insurance Co., Ltd., formerly known as LIG Insurance Co., Ltd., was established in Korea in January 1959 to provide non-life insurance products. KB Insurance became our wholly-owned subsidiary in July 2017 after a series of stock purchases, a tender offer and a comprehensive stock swap.

 

  •  

KB Kookmin Card Co., Ltd. was established in March 2011 as a separate entity upon the completion of a horizontal spin-off of Kookmin Bank’s credit card business, to provide credit card services.

 

  •  

KB Life Insurance Co., Ltd. (prior to the merger) was established in Korea in April 2004 to provide life insurance and wealth management products primarily through our branch network. It merged with and into Prudential Life Insurance in January 2023 to form KB Life Insurance Co., Ltd.

 

  •  

Prudential Life Insurance Company of Korea, Ltd. (prior to the merger), formerly a subsidiary of Prudential Financial, Inc., a U.S.-based provider of insurance, investment management and other financial products and services, was established in Korea in 1989. In August 2020, we acquired all of the outstanding shares of Prudential Life Insurance from Prudential Financial, Inc. for ￦2.3 trillion, as a result of which Prudential Life Insurance became a wholly-owned subsidiary. In January 2023, the Former KB Life Insurance merged with and into Prudential Life Insurance to form KB Life Insurance Co., Ltd.

 

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  •  

KB Asset Management Co., Ltd. was established in Korea in April 1988 as a subsidiary of Citizens Investment Trust Company to provide investment advisory services.

 

  •  

KB Capital Co., Ltd., which provides leasing services and installment finance services, was formerly known as Woori Financial Co., Ltd. and was acquired by us in March 2014. KB Capital became our wholly-owned subsidiary in July 2017 after a tender offer followed by a comprehensive stock swap.

 

  •  

KB Savings Bank Co., Ltd. was established in Korea in January 2012 to provide small-loan finance services. KB Savings Bank was established in connection with our purchase of assets and assumption of liabilities of Jeil Savings Bank in January 2012. We acquired Yehansoul Savings Bank, which provided small-loan finance services, in September 2013 and merged it with KB Savings Bank in January 2014, with KB Savings Bank as the surviving entity.

 

  •  

KB Real Estate Trust Co., Ltd. was established in Korea in December 1996 to provide real estate development and brokerage services by managing trusts related to the real estate industry.

 

  •  

KB Investment Co., Ltd. was established in Korea in March 1990 to invest in and finance small- and medium-sized enterprises.

 

  •  

KB Credit Information Co., Ltd. was established in Korea in October 1999 to collect delinquent loans and to check credit history.

 

  •  

KB Data Systems Co., Ltd. was established in Korea in September 1991 to provide software services to us and other financial institutions.

 

Item 4.D.

Property, Plants and Equipment

Our registered office and corporate headquarters are located at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea. The following table presents information regarding certain of our properties in Korea:

 

Type of facility/building

  

Location

    Area
(square meters)		  

Registered office and corporate headquarters and Kookmin Bank headquarters #1

   26, Gukjegeumyung-ro 8-gil Yeongdeungpo-gu, Seoul 07331      5,354  

Kookmin Bank headquarters #2

   141, Uisadang-daero, Yeongdeungpo-gu, Seoul 07332      4,727  

KB Kookmin Card headquarters building

   Jongno-gu, Seoul      3,923  

Kookmin Bank training institute

   Ilsan      207,560  

Kookmin Bank training institute

   Daecheon      4,158  

Kookmin Bank training institute

   Sokcho      15,559  

Kookmin Bank training institute

   Cheonan      196,649  

Kookmin Bank IT center

   Gangseo-gu, Seoul      13,116  

Kookmin Bank IT center

   Yeouido, Seoul      5,928  

Kookmin Bank IT center

   Yeouido, Seoul      2,006  

Kookmin Bank IT center

   Gimpo      13,144  

Kookmin Bank support center

   Seongbuk-gu, Seoul      9,939  

KB Securities training institute

   Kiheung-gu, Yongin      64,600  

In August 2020, we completed the construction of a second headquarters building for Kookmin Bank in Yeouido, Seoul. Our total capital expenditure for its construction amounted to approximately ￦356.5 billion.

As of December 31, 2022, we had a countrywide network of 856 banking branches and sub-branches, as well as ten branches and sub-branches and seven representative offices for our other operations including our credit card, securities brokerage, insurance and consumer finance businesses. Approximately one-fifth of these

 

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facilities are housed in buildings owned by us, while the remaining branches are leased properties. See “Item 4.B. Business Overview—Capital Markets Activities and International Banking/Finance—International Banking/Finance” for a list of our overseas subsidiaries, branches and representative and liaison offices in operation as of December 31, 2022. Kookmin Bank, Gurgaon Representative Office in India converted to Kookmin Bank, Gurugram Branch in February 2019 and Kookmin Bank, Hanoi Representative Office was liquidated in September 2020. In December 2020, we established KB Bank Myanmar Ltd., a subsidiary, in Myanmar, and in January 2022, we established Kookmin Bank, Singapore Branch in Singapore. Kookmin Bank, Yangon Representative Office was liquidated in February 2023. Lease terms are generally from two to three years and seldom exceed five years. We do not own any material properties outside of Korea.

The net carrying amount of all the properties owned by us at December 31, 2022 was ￦3,998 billion.

 

Item 4A.

UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the U.S. Securities and Exchange Commission staff regarding our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

 

Item 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

Item 5.A.

Operating Results

Overview

The following discussion is based on our consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB. The consolidated financial statements include the accounts of subsidiaries over which substantive control is exercised through majority ownership of voting stock and/or other means. Investments in jointly controlled entities and associates (which are companies over which we have the ability to exercise significant influence) are accounted for by the equity method of accounting.

Trends in the Korean Economy

Our financial position and results of operations have been and will continue to be significantly affected by financial and economic conditions in Korea. In recent years, commercial banks, consumer finance companies and other financial institutions in Korea have made significant investments and engaged in aggressive marketing in retail lending (including mortgage and home equity loans), leading to substantially increased competition in this segment. From the second half of 2016 to 2021, the Korean government introduced various measures to tighten regulations on mortgage and other lending and housing subscription in response to the rapid growth in consumer debt and concerns over speculative investments in real estate in certain areas. Although the Korean government has begun to reverse some of these measures by introducing a number of policy measures that seek to sustain housing prices and activity levels in the Korean real estate market over the course of 2022, the impact of such policy measures is not yet clear. A decrease in housing prices, together with the high level of consumer debt and deteriorating domestic and global economic conditions, could result in declines in consumer spending and reduced economic growth, which may lead to increases in delinquency levels of our portfolio of retail loans. Our portfolio of retail loans decreased from ￦191,641 billion as of December 31, 2021 to ￦186,939 billion as of December 31, 2022. In 2022, we recorded charge-offs of ￦336 billion and provision for credit losses of ￦551 billion in respect of our retail loan portfolio, compared to charge-offs of ￦411 billion and provision for credit losses of ￦461 billion in 2021 and charge-offs of ￦461 billion and provision for credit losses of ￦421 billion in 2020. See “Item 3.D. Risk Factors—Risks relating to our retail credit portfolio.”

Our loans to small- and medium-sized enterprises increased from ￦138,627 billion as of December 31, 2021 to ￦149,068 billion as of December 31, 2022. Substantial growth in lending in Korea to small- and medium-sized enterprises in recent years, and financial difficulties experienced by such enterprises as a result of, among other things, adverse changes in economic conditions in Korea and globally (such as the COVID-19

 

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pandemic), may lead to increasing delinquencies and a deterioration in overall asset quality in the credit exposures of Korean banks to small- and medium-sized enterprises. In 2022, we recorded charge-offs of ￦7 billion in respect of our loans to small- and medium-sized enterprises, compared to charge-offs of ￦8 billion in 2021 and ￦14 billion in 2020. See “Item 3.D. Risk Factors—Risks relating to our small- and medium-sized enterprise loan portfolio—We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.”

The Korean economy is closely tied to, and is affected by developments in, the global economy. The overall prospects for the Korean and global economy in 2023 and beyond remain uncertain. In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

 

  •  

the occurrence of severe health pandemics, such as the global outbreak of the COVID-19 pandemic;

 

  •  

hostilities, political or social tensions involving Russia (including the invasion of Ukraine by Russia and ensuing actions that the United States and other countries have taken or may take in the future) and the resulting adverse effects on the global supply of oil and other natural resources and the global financial markets;

 

  •  

interest rate fluctuations as well as perceived or actual changes in policy rates by, or other monetary and fiscal policies set forth by, the U.S. Federal Reserve and other central banks;

 

  •  

a rise in inflation rates and volatility in stock markets and exchange rates worldwide;

 

  •  

financial and social difficulties affecting many countries worldwide, in particular in Latin America and Europe;

 

  •  

a deterioration in economic and trade relations between the United States and its major trading partners, including China;

 

  •  

escalations in trade protectionism globally and geopolitical tensions in East Asia and the Middle East;

 

  •  

the slowdown of economic growth in China and other major emerging market economies;

 

  •  

increased uncertainties in the global financial markets and industry, including difficulties faced by several banks in the United States and Europe; and

 

  •  

political and social instability in various countries in the Middle East, including Iran, Syria, Iraq and Yemen.

In light of the high level of interdependence of the global economy, unfavorable changes in the global financial markets, including as a result of any of the foregoing developments, could have a material adverse effect on the Korean economy and financial markets, and in turn on our business, financial condition and results of operations. For example, in recent years, the COVID-19 pandemic has led to significant global economic and financial disruptions, including an adverse impact on international trade and business activities, sharp declines and significant volatility in the financial markets as well as decreases in interest rates worldwide. See “Item 3.D. Risk Factors— Other risks relating to our business— The COVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.”

In addition, the interest rates on our interest-earning assets and interest-bearing liabilities, and therefore our net interest income, are affected by The Bank of Korea’s policy rates. The Bank of Korea lowered its policy rate to 1.5% from 1.75% in July 2019 and to 1.25% in October 2019 to address the sluggishness of the global and domestic economy. In March 2020, The Bank of Korea further lowered its policy rate to 0.75%, which was further lowered to 0.5% in May 2020, in response to deteriorating economic conditions resulting from the COVID-19 pandemic. However, as the economy began to show signs of recovery from the COVID-19 pandemic starting from the second half of 2021, The Bank of Korea gradually raised its policy rate to pre-pandemic levels of 1.25% from August 2021 through January 2022. More recently, in response to rising levels of household debt and inflation in Korea as well as globally, The Bank of Korea raised its policy rate further to 1.50% in

 

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April 2022, 1.75% in May 2022, 2.25% in July 2022, 2.50% in August 2022, 3.00% in October 2022, 3.25% in November 2022 and 3.50% in January 2023.

We are also exposed to adverse changes and volatility in the global and Korean financial markets as a result of our liabilities and assets denominated in foreign currencies and our holdings of trading and investment securities, including structured products. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years and has been subject to significant volatility as a result of the COVID-19 pandemic, the invasion of Ukraine by Russia and the ensuing sanctions against Russia and, more recently, the widening difference in policy rates between the United States and Korea, among others. A depreciation of the Won will increase our cost in Won of servicing our foreign currency-denominated borrowings, while continued exchange rate volatility may also result in foreign exchange losses for us. Furthermore, as a result of the deterioration in global and Korean economic, social and political conditions, there has been downward pressure on securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Such developments have resulted in and may lead to further trading and valuation losses on our trading and investment securities portfolio as well as impairment losses on our investments accounted for under the equity method.

As a result of the volatile conditions on the Korean and global economies and financial markets, as well as factors such as fluctuations in oil and commodity prices, high inflation rates, difficulties faced by several banks in the United States and Europe, interest and exchange rate fluctuations, higher unemployment, lower consumer confidence, stock market volatility, changes in fiscal and monetary policies and continued tensions with North Korea, the economic outlook for the financial services sector in Korea in 2023 and for the foreseeable future remains highly uncertain.

Acquisitions

In recent years, we have engaged in a number of acquisitions, which have affected, and may continue to affect, our results of operations and their comparability from period to period.

In August 2020, we acquired all of the outstanding shares of Prudential Life Insurance, which we then subsequently merged with the Former KB Life Insurance in January 2023 to form KB Life Insurance.

Changes in Securities Values, Exchange Rates and Interest Rates

Fluctuations of exchange rates, interest rates and stock prices affect, among other things, the demand for our products and services, the value of and rate of return on our assets, the availability and cost of funding and the financial condition of our customers. The following table shows, for the dates indicated, the stock price index of all equities listed on the KRX KOSPI Market as published in the KOSPI, the Won to U.S. dollar exchange rates and benchmark Won borrowing interest rates.

 

    June 29,
2018		     Dec. 31,
2018		     June 28,
2019		     Dec. 31,
2019		     June 30,
2020		     Dec. 31,
2020		     June 30,
2021		     Dec. 31,
2021		     June 30,
2022		     Dec. 31,
2022		  

KOSPI

     2,326.13       2,041.04 (4)      2,130.62       2,197.67 (5)      2,108.33       2,873.47 (6)      3,296.68       2,977.65 (7)      2,332.64       2,236.40 (8) 

W/US$ exchange rates(1)

   ￦ 1,111.8     ￦ 1,112.9     ￦ 1,156.8     ￦ 1,157.8     ￦ 1,200.7     ￦ 1,088.0     ￦ 1,130.4     ￦ 1,188.6     ￦ 1,299.0     ￦ 1,260.2  

Corporate bond rates(2)

     2.93 %      2.58 %      1.98 %      1.99 %      1.78 %      1.70 %      1.99 %      2.54 %      4.50 %      5.47 % 

Treasury bond rates(3)

     2.12 %      1.82 %      1.47 %      1.36 %      0.85 %      0.97 %      1.45 %      1.80 %      3.55 %      3.73 % 

 

(1)

Represents the noon buying rate on the dates indicated.

(2)

Measured by the yield on three-year Korean corporate bonds rated as A+ by the Korean credit rating agencies.

(3)

Measured by the yield on three-year treasury bonds issued by the Ministry of Economy and Finance of Korea.

(4)

As of December 28, 2018, the last day of trading for the KRX KOSPI Market in 2018.

(5)

As of December 30, 2019, the last day of trading for the KRX KOSPI Market in 2019.

(6)

As of December 30, 2020, the last day of trading for the KRX KOSPI Market in 2020.

(7)

As of December 30, 2021, the last day of trading for the KRX KOSPI Market in 2021.

(8)

As of December 29, 2022, the last day of trading for the KRX KOSPI Market in 2022.

 

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Results of Operations

Net Interest Income

The following table shows, for the periods indicated, the principal components of our net interest income:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020     2022/2021  
     (in billions of Won, except percentages)     (%)  

Interest income

           

Due from financial institutions measured at amortized cost(1)

    ￦ 92     ￦ 66     ￦ 158       (28.3 )      139.4  

Financial instruments at fair value through profit or loss(2)

      659       590       876       (10.5 )      48.5  

Loans(3)

      12,380       12,999       17,543       5.0       35.0  

Financial investments (debt securities)(4)

      1,355       1,557       2,211       14.9       42.0  
  

 

 

    

 

 

    

 

 

      

Total interest income

      14,486       15,211       20,789       5.0       36.7  
  

 

 

    

 

 

    

 

 

      

Interest expense

           

Deposits

      2,917       2,218       4,536       (24.0 )      104.5  

Borrowings(5)

      661       593       1,498       (10.3 )      152.6  

Debentures

      1,186       1,170       1,641       (1.3 )      40.3  
  

 

 

    

 

 

    

 

 

      

Total interest expense

      4,764       3,981       7,676       (16.4 )      92.8  
  

 

 

    

 

 

    

 

 

      

Net interest income

    ￦ 9,722     ￦ 11,230     ￦ 13,113       15.5       16.8  
  

 

 

    

 

 

    

 

 

      

Net interest margin(6)

      1.99 %      2.07 %      2.23 %     

 

(1)

Consists of cash and interest-earning deposits in other banks.

(2)

Consists of deposits, loans and securities at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

(3)

Consists of loans measured at amortized cost and others. For information on interest income arising from such loans, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

(4)

Consists of securities measured at fair value through other comprehensive income and at amortized cost and loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

(5)

Consists of borrowings and others. For information on interest expense arising from such borrowings, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

(6)

The ratio of net interest income to average interest-earning assets. See “Item 8.A. Consolidated Statements and Other Financial Information—Profitability ratios and other data.”

Comparison of 2022 to 2021

Interest income. Interest income increased 36.7% from ￦15,211 billion in 2021 to ￦20,789 billion in 2022, primarily as a result of a 35.0% increase in interest on loans, the effect of which was enhanced by a 42.0% increase in interest on financial investments and a 48.5% increase in interest on financial instruments at fair value through profit or loss. The average yields on our interest-earning assets increased by 72 basis points from 2.81% in 2021 to 3.53% in 2022, which reflected the higher overall level of interest rates prevailing in Korea in 2022 compared to 2021, as discussed above in “—Overview—Trends in the Korean Economy.” The effect of such increase was enhanced by an 8.8% increase in the average volume of our interest-earning assets from ￦541,287 billion in 2021 to ￦588,860 billion in 2022, principally due to growth in our loan portfolio and, to a lesser extent, our financial investments portfolio.

 

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The 35.0% increase in interest on loans from ￦12,999 billion in 2021 to ￦17,543 billion in 2022 was primarily the result of:

 

  •  

a 75 basis point increase in the average yields on corporate loans from 2.67% in 2021 to 3.42% in 2022, which was enhanced by a 16.8% increase in the average volume of such loans from ￦168,868 billion in 2021 to ￦197,172 billion in 2022;

 

  •  

a 43.1% increase in the average volume of foreign-currency loans from ￦22,580 billion in 2021 to ￦32,309 billion in 2022, which was enhanced by a 109 basis point increase in the average yields on such loans from 5.15% in 2021 to 6.24% in 2022;

 

  •  

a 101 basis point increase in the average yields on other consumer loans from 4.08% in 2021 to 5.09% in 2022, which was partially offset by a 2.5% decrease in the average volume of such loans from ￦71,587 billion in 2021 to ￦69,789 billion in 2022; and

 

  •  

a 49 basis point increase in the average yields on mortgage loans from 2.52% in 2021 to 3.01% in 2022, which was enhanced by a 3.4% increase in the average volume of such loans from ￦88,769 billion in 2021 to ￦91,781 billion in 2022.

The average yields on corporate, foreign-currency, other consumer and mortgage loans increased mainly due to the increase in the general level of interest rates in Korea and globally in 2022 compared to 2021. The increases in the average volumes of corporate, foreign-currency and mortgage loans were attributable primarily to an increase in demand for such loans in light of the increasing uncertainty in the Korean and global financial markets in 2022 compared to 2021. The decrease in the average volume of other consumer loans was primarily due to an increase in interest rates applicable to these loans, which led to a decrease in demand for such loans. Overall, the average yields on our loans increased by 72 basis points from 3.26% in 2021 to 3.98% in 2022, while the average volume of our loans increased 10.4% from ￦399,060 billion in 2021 to ￦440,412 billion in 2022.

Our financial investments portfolio consists of securities and loans measured at fair value through other comprehensive income and securities measured at amortized cost, including debt securities issued by government-owned or -controlled enterprises or financial institutions and debt securities issued by Korean banks and other financial institutions. The 42.0% increase in interest on financial investments from ￦1,557 billion in 2021 to ￦2,211 billion in 2022 was the result of a 49 basis point increase in the average yields on financial investments from 1.60% in 2021 to 2.09% in 2022, which was enhanced by an 8.9% increase in the average volume of financial investments from ￦97,296 billion in 2021 to ￦105,980 billion in 2022. The increase in the average yields on financial investments mainly reflected the increase in the general level of interest rates in Korea and globally in 2022 compared to 2021. The increase in average volume of financial investments was primarily due to an increase in our purchases of government and public bonds as well as corporate bonds.

The 48.5% increase in interest on financial instruments at fair value through profit or loss from ￦590 billion in 2021 to ￦876 billion in 2022 was primarily due to a 134 basis point increase in the average yields on such financial instruments from 1.86% in 2021 to 3.20% in 2022, which was partially offset by a 13.6% decrease in the average volume of such financial instruments from ￦31,670 billion in 2021 to ￦27,371 billion in 2022. The increase in average yields on such financial instruments mainly reflected the increase in the general level of interest rates in Korea and globally in 2022 compared to 2021. The decrease in the average volume of such financial instruments mainly reflected a decrease in our purchases of government and public bonds as well as corporate bonds.

Interest expense. Interest expense increased 92.8% from ￦3,981 billion in 2021 to ￦7,676 billion in 2022 due to a 104.5% increase in interest expense on deposits and, to lesser extents, a 152.6% increase in interest expense on borrowings and a 40.3% increase in interest expense on debentures. The average cost of interest-bearing liabilities increased by 64 basis points from 0.84% in 2021 to 1.48% in 2022, which was driven mainly by the increase in the general level of interest rates in Korea and globally in 2022 compared to 2021. The effect of this increase was enhanced by a 10.2% increase in the average volume of our interest-bearing liabilities from

 

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￦472,015 billion in 2021 to ￦519,930 billion in 2022, which reflected increases in the average volumes of deposits and, to lesser extents, borrowings and debentures.

The 104.5% increase in interest expense on deposits from ￦2,218 billion in 2021 to ￦4,536 billion in 2022 was primarily due to a 91 basis point increase in the average cost of time deposits from 1.20% in 2021 to 2.11% in 2022, which was enhanced by an 18.4% increase in the average volume of such deposits from ￦158,795 billion in 2021 to ￦187,934 billion in 2022. The increase in the average cost of such deposits was principally due to the increase in the general level of interest rates in Korea and globally in 2022 compared to 2021. The increase in the average volume of such deposits mainly reflected customers’ increasing demand for such products in light of the higher general level of interest rates in Korea and the increase in the volatility of the financial markets in 2022 compared to 2021. Overall, the average cost of our deposits increased by 56 basis points from 0.65% in 2021 to 1.21% in 2022, while the average volume of our deposits increased 9.5% from ￦343,349 billion in 2021 to ￦375,913 billion in 2022.

The 152.6% increase in interest expense on borrowings from ￦593 billion in 2021 to ￦1,498 billion in 2022 was principally attributable to a 109 basis point increase in the average cost of borrowings from 0.94% in 2021 to 2.03% in 2022, which was enhanced by a 17.5% increase in the average volume of borrowings from ￦62,907 billion in 2021 to ￦73,885 billion in 2022. The increase in the average cost of borrowings mainly reflected the increase in the general level of interest rates in Korea and globally in 2022 compared to 2021, while the increase in the average volume of borrowings was primarily due to our increased use of borrowings to meet our funding needs.

The 40.3% increase in interest expense on debentures from ￦1,170 billion in 2021 to ￦1,641 billion in 2022 was primarily due to a 56 basis point increase in the average cost of debentures from 1.78% in 2021 to 2.34% in 2022, which was enhanced by a 6.7% increase in the average volume of debentures from ￦65,759 billion in 2021 to ￦70,132 billion in 2022. The increase in the average cost of debentures mainly reflected the increase in the general level of interest rates in Korea and globally in 2022 compared to 2021, while the increase in the average volume of debentures was principally due to our increased use of debentures to meet our funding needs.

Net interest margin. Net interest margin represents the ratio of net interest income to average interest-earning assets. Our overall net interest margin increased from 2.07% in 2021 to 2.23% in 2022, as a 16.8% increase in our net interest income from ￦11,230 billion in 2021 to ￦13,113 billion in 2022 outpaced an 8.8% increase in the average volume of our interest-earnings assets from ￦541,287 billion in 2021 to ￦588,860 billion in 2022. The amount of increase in interest income outpaced the amount of increase in interest expense, resulting in an increase in net interest income. The growth in average interest-earning assets was more than offset by a 10.2% increase in average interest-bearing liabilities from ￦472,015 billion in 2021 to ￦519,930 billion in 2022. Our net interest spread, which represents the difference between the average yield on our interest-earning assets and the average cost of our interest-bearing liabilities, increased from 1.97% in 2021 to 2.05% in 2022. The increase in our net interest spread reflected a larger increase in the average yield on interest-earning assets compared to the increase in the average cost of interest-bearing liabilities between the two periods, primarily as interest rates on interest-earning assets adjusted earlier than those on interest-bearing liabilities in the context of a higher interest rate environment in 2022 compared to 2021.

Comparison of 2021 to 2020

Interest income. Interest income increased 5.0% from ￦14,486 billion in 2020 to ￦15,211 billion in 2021, primarily as a result of a 5.0% increase in interest on loans and a 14.9% increase in interest on financial investments, the effect of which was partially offset by a 10.5% decrease in interest on financial instruments at fair value through profit or loss. The average volume of our interest-earning assets increased 10.7% from ￦489,043 billion in 2020 to ￦541,287 billion in 2021, principally due to growth in our loan portfolio and, to a lesser extent, our financial investments portfolio. The effect of such increase was partially offset by a 15 basis point decrease in the average yields on our interest-earning assets from 2.96% in 2020 to 2.81% in 2021, which

 

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reflected the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020, as discussed above in “—Overview—Trends in the Korean Economy.”

The 5.0% increase in interest on loans from ￦12,380 billion in 2020 to ￦12,999 billion in 2021 was primarily the result of:

 

  •  

a 53.8% increase in the average volume of foreign-currency loans from ￦14,683 billion in 2020 to ￦22,580 billion in 2021, which was partially offset by a 36 basis point decrease in the average yields on such loans from 5.51% in 2020 to 5.15% in 2021;

 

  •  

an 11.5% increase in the average volume of other consumer loans from ￦64,220 billion in 2020 to ￦71,587 billion in 2021, which was partially offset by a 3 basis point decrease in the average yields on such loans from 4.11% in 2020 to 4.08% in 2021; and

 

  •  

a 7.3% increase in the average volume of mortgage loans from ￦82,765 billion in 2020 to ￦88,769 billion in 2021, which was partially offset by a 9 basis point decrease in the average yields on such loans from 2.61% in 2020 to 2.52% in 2021;

which were partially offset by:

 

  •  

a 19 basis point decrease in the average yields on home equity loans from 2.84% in 2020 to 2.65% in 2021, which was enhanced by a 1.3% decrease in the average volume of such loans from ￦27,682 billion in 2020 to ￦27,333 billion in 2021; and

 

  •  

a 20 basis point decrease in the average yields on corporate loans from 2.87% in 2020 to 2.67% in 2021, which was partially offset by a 6.5% increase in the average volume of such loans from ￦158,508 billion in 2020 to ￦168,868 billion in 2021.

The increases in the average volumes of foreign-currency, other consumer, mortgage and corporate loans were attributable primarily to an increase in demand from borrowers in need of financing in light of the ongoing COVID-19 pandemic as well as the low interest environment in 2021. The decrease in the average volume of home equity loans was mainly the result of increased government regulations applicable to such loans, which led to a decrease in demand for such loans. The decreases in the average yields on foreign-currency, other consumer, corporate, home equity and mortgage loans mainly reflected the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020. Overall, the average volume of our loans increased 8.9% from ￦366,444 billion in 2020 to ￦399,060 billion in 2021, while the average yields on our loans decreased by 12 basis points from 3.38% in 2020 to 3.26% in 2021.

The 14.9% increase in interest on financial investments from ￦1,355 billion in 2020 to ￦1,557 billion in 2021 was the result of a 21.5% increase in the average volume of financial investments from ￦80,087 billion in 2020 to ￦97,296 billion in 2021, which was partially offset by a 9 basis point decrease in the average yields on financial investments from 1.69% in 2020 to 1.60% in 2021. The increase in the average volume of financial investments was primarily due to an increase in our purchases of government and public bonds as well as corporate bonds. The decrease in average yields on financial investments mainly reflected the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020.

The 10.5% decrease in interest on financial instruments at fair value through profit or loss from ￦659 billion in 2020 to ￦590 billion in 2021 was primarily due to a 32 basis point decrease in the average yields on such financial instruments from 2.18% in 2020 to 1.86% in 2021, which was partially offset by a 4.8% increase in the average volume of such financial instruments from ￦30,232 billion in 2020 to ￦31,670 billion in 2021. The decrease in average yields on such financial instruments mainly reflected the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020. The increase in the average volume of such financial instruments mainly reflected the increased purchases of corporate bonds and other debt securities.

Interest expense. Interest expense decreased 16.4% from ￦4,764 billion in 2020 to ￦3,981 billion in 2021 due to a 24.0% decrease in interest expense on deposits and, to a lesser extent, a 10.3% decrease in interest

 

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expense on borrowings and a 1.3% decrease in interest expense on debentures. The average cost of interest-bearing liabilities decreased by 26 basis points from 1.10% in 2020 to 0.84% in 2021, which was driven mainly by the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020. The effect of this decrease was partially offset by a 9.3% increase in the average volume of our interest-bearing liabilities from ￦431,765 billion in 2020 to ￦472,015 billion in 2021, which reflected increases in the average volumes of deposits and, to a lesser extent, borrowings and debentures.

The 24.0% decrease in interest expense on deposits from ￦2,917 billion in 2020 to ￦2,218 billion in 2021 was primarily due to a 36 basis point decrease in the average cost of time deposits from 1.56% in 2020 to 1.20% in 2021, which was enhanced by a 4.5% decrease in the average volume of such deposits from ￦166,275 billion in 2020 to ￦158,795 billion in 2021. The decrease in the average cost of such deposits was principally due to the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020. The decrease in the average volume of such deposits mainly reflected a decrease in customers’ demand for such deposits in light of the low interest rate environment in Korea. Overall, the average cost of our deposits decreased by 26 basis points from 0.91% in 2020 to 0.65% in 2021, while the average volume of our deposits increased 7.6% from ￦319,052 billion in 2020 to ￦343,349 billion in 2021.

The 10.3% decrease in interest expense on borrowings from ￦661 billion in 2020 to ￦593 billion in 2021 was principally attributable to a 30 basis point decrease in the average cost of borrowings from 1.24% in 2020 to 0.94% in 2021, which was partially offset by a 17.9% increase in the average volume of borrowings from ￦53,334 billion in 2020 to ￦62,907 billion in 2021. The decrease in the average cost of borrowings mainly reflected the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020, while the increase in the average volume of borrowings was primarily due to our increased use of borrowings to meet our funding needs in light of the lower interest rate environment in Korea.

The 1.3% decrease in interest expense on debentures from ￦1,186 billion in 2020 to ￦1,170 billion in 2021 was primarily due to a 22 basis point decrease in the average cost of debentures from 2.00% in 2020 to 1.78% in 2021, which was mostly offset by a 10.7% increase in the average volume of debentures from ￦59,379 billion in 2020 to ￦65,759 billion in 2021. The decrease in the average cost of debentures mainly reflected the lower overall level of interest rates prevailing in Korea in 2021 compared to 2020, while the increase in the average volume of debentures was principally due to our increased use of debentures to meet our funding needs in light of the lower interest rate environment in Korea.

Net interest margin. Our overall net interest margin increased from 1.99% in 2020 to 2.07% in 2021, as a 15.5% increase in our net interest income from ￦9,722 billion in 2020 to ￦11,230 billion in 2021 outpaced a 10.7% increase in the average volume of our interest-earnings assets from ￦489,043 billion in 2020 to ￦541,287 billion in 2021. The increase in interest income was enhanced by a decrease in interest expense, resulting in an increase in net interest income. The growth in average interest-earning assets was largely offset by a 9.3% increase in average interest-bearing liabilities from ￦431,765 billion in 2020 to ￦472,015 billion in 2021. Our net interest spread increased from 1.86% in 2020 to 1.97% in 2021. The increase in our net interest spread reflected a larger decrease in the average cost of interest-bearing liabilities compared to the decrease in the average yield on interest-earning assets between the two periods, primarily due to the earlier adjustment of interest rates on interest-earning assets compared to interest rates on interest-bearing liabilities as interest rates began to rise again in the second half of 2021.

Provision for Credit Losses

Provision for credit losses includes provision for credit losses of loans, provision for credit losses of unused loan commitments, provision for credit losses of acceptances and guarantees, provision for credit losses of financial guarantee contracts and provision for credit losses of other financial assets, in each case net of reversal of provisions. For a discussion of our credit losses provisioning policy, see “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Provisioning Policy.”

 

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In accordance with the guidelines of the Financial Supervisory Service, if our allowances and provisions for credit losses are deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for credit losses, which is segregated within retained earnings. See “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Regulatory Reserve for Credit Losses” and Note 27.5 of the notes to our consolidated financial statements included elsewhere in this annual report.

Comparison of 2022 to 2021

Our provision for credit losses increased 54.9% from ￦1,185 billion in 2021 to ￦1,836 billion in 2022, primarily due to an increase in provision for credit losses of loans.

Our provision for credit losses of loans increased 62.1% from ￦1,089 billion in 2021 to ￦1,765 billion in 2022, mainly due to increases in provision for credit losses in respect of our corporate loans and our retail loans. Such increases mainly reflected our provisioning policy pursuant to which we preemptively accounted for a potential increase in credit losses that could result from a deterioration in the overall asset quality of our loan portfolios, due to an increasing likelihood of default by borrowers in light of the rising interest rate levels and a general slowdown in the economy in Korea, and to a lesser extent, increases in the volumes of such loans. Such increases were offset in part by a decrease in provision for credit losses in respect of our credit card receivables, which resulted from an improvement in the overall asset quality of such receivables. Our loan write-offs increased 38.8% from ￦1,092 billion in 2021 to ￦1,516 billion in 2022, due to increases in write-offs of corporate loans and, to lesser extents, credit card receivables and retail loans.

Comparison of 2021 to 2020

Our provision for credit losses increased 13.6% from ￦1,043 billion in 2020 to ￦1,185 billion in 2021, primarily due to an increase in provision for credit losses of loans and a change in provision (reversal) for credit losses of acceptances and guarantees, the effect of which was partially offset by a decrease in provision for credit losses of unused loan commitments.

Our provision for credit losses of loans increased 15.7% from ￦941 billion in 2020 to ￦1,089 billion in 2021, mainly due to increases in provision for credit losses in respect of our corporate loans and, to a lesser extent, our credit card receivables. Such increases mainly reflected our provisioning policy pursuant to which we preemptively accounted for a potential increase in expected credit losses that could result from a deterioration in the overall asset quality of our loan portfolios due to COVID-19, as well as an increase in the volumes of such corporate and credit card loans. Such increases were offset in part by a decrease in provision for credit losses in respect of our retail loans, which resulted from an improvement in the overall asset quality of our retail loans. Our loan write-offs decreased 15.0% from ￦1,285 billion in 2020 to ￦1,092 billion in 2021, due to decreases in write-offs of corporate loans and, to a lesser extent, credit card receivables and retail loans.

Our provision for credit losses of acceptances and guarantees and unused loan commitments decreased 15.8% from ￦76 billion in 2020 to ￦64 billion in 2021, primarily due to an improvement in the overall credit quality of our acceptances and guarantees and unused loan commitments in 2021.

Allowances for Credit Losses of Loans

We establish allowances for credit losses of loans with respect to loans to absorb such losses. We assess individually significant loans on a case-by-case basis and other loans on a collective basis.

 

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Corporate Loans. The following table shows, for the periods indicated, certain information regarding our impaired corporate loans:

 

     As of December 31,  
     2020      2021      2022  
     (%)  

Impaired corporate loans as a percentage of total corporate loans

      1.2        1.1        0.9  

Allowances for credit losses for corporate loans as a percentage of total corporate loans

      0.9        0.9        0.9  

Allowances for credit losses for corporate loans as a percentage of impaired corporate loans

      76.4          87.3          98.5  

Net charge-offs of corporate loans as a percentage of total corporate loans

      0.1        0.1        0.2  

During 2022, impaired corporate loans as a percentage of total corporate loans decreased due to a decrease in our impaired corporate loans, which mainly reflected an improvement in the overall credit quality of our corporate loans, as well as an increase in our total corporate loans. Allowances for credit losses for corporate loans as a percentage of total corporate loans remained stable, as our allowances for credit losses for corporate loans and our total corporate loans increased. Allowances for credit losses for corporate loans as a percentage of impaired corporate loans increased due to an increase in allowances for credit losses for corporate loans and the decrease in impaired corporate loans.

During 2021, impaired corporate loans as a percentage of total corporate loans decreased due to a decrease in our impaired corporate loans, which mainly reflected an improvement in the overall credit quality of our corporate loans, as well as an increase in our total corporate loans. Allowances for credit losses for corporate loans as a percentage of total corporate loans remained stable, as our allowances for credit losses for corporate loans and our total corporate loans increased. Allowances for credit losses for corporate loans as a percentage of impaired corporate loans increased due to an increase in allowances for credit losses for corporate loans and the decrease in impaired corporate loans.

Retail Loans. The following table shows, for the periods indicated, certain information regarding our impaired retail loans:

 

     As of December 31,  
     2020      2021      2022  
     (%)  

Impaired retail loans as a percentage of total retail loans

      0.4        0.4        0.5  

Allowances for credit losses for retail loans as a percentage of total retail loans

      0.5        0.5        0.7  

Allowances for credit losses for retail loans as a percentage of impaired retail loans

      124.4        125.9        142.2  

Net charge-offs of retail loans as a percentage of total retail loans

      0.2        0.1        0.2  

During 2022, impaired retail loans as a percentage of total retail loans increased due to an increase in our impaired retail loans, which mainly reflected a deterioration in the overall asset quality of our retail loan portfolio, as well as a decrease in the amount of our total retail loans. Allowances for credit losses for retail loans as a percentage of total retail loans increased, as our allowances for credit losses for retail loans increased while our total retail loans decreased. Allowances for credit losses for retail loans as a percentage of impaired retail loans also increased during 2022, reflecting a rate of increase in allowances for credit losses for retail loans that outpaced the rate of increase in the amount of impaired retail loans.

During 2021, impaired retail loans and allowances for credit losses for retail loans, each as a percentage of total retail loans, remained stable, as our impaired retail loans, allowances for credit losses for retail loans and our total retail loans all increased. Allowances for credit losses for retail loans as a percentage of impaired retail loans increased slightly during 2021, reflecting a rate of increase in allowances for credit losses for retail loans that outpaced the rate of increase in the amount of impaired retail loans.

 

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Credit Card Balances. The following table shows, for the periods indicated, certain information regarding our impaired credit card balances:

 

     As of December 31,  
     2020      2021      2022  
     (%)  

Impaired credit card balances as a percentage of total credit card balances

      2.7        2.5        2.6  

Allowances for credit losses for credit card balances as a percentage of total credit card balances

      3.7        3.8        3.7  

Allowances for credit losses for credit card balances as a percentage of impaired credit card balances

      138.5        150.2        140.8  

Net charge-offs as a percentage of total credit card balances

      2.0        1.5        1.5  

During 2022, impaired credit card balances as a percentage of total credit card balances increased as the rate of increase in the amount of our impaired credit card balances outpaced the rate of increase in the amount of our total credit card balances. Allowances for credit losses for credit card balances as a percentage of both total credit card balances and impaired credit card balances decreased during 2022, as the rate of increase in the amount of our allowances for credit losses for credit card balances was outpaced by the rates of increases of both our total credit card balances and our impaired credit card balances.

During 2021, impaired credit card balances as a percentage of total credit card balances decreased as the rate of increase in the amount of our impaired credit card balances was outpaced by the rate of increase in the amount of our total credit card balances. Allowances for credit losses for credit card balances as a percentage of both total credit card balances and impaired credit card balances increased during 2021, as the rate of increase in the amount of our allowances for credit losses for credit card balances outpaced the rates of increases of both our total credit card balances and our impaired credit card balances.

Net Fee and Commission Income

The following table shows, for the periods indicated, the components of our net fee and commission income:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020      2022/2021  
     (in billions of Won)     (%)  

Fee and commission income

    ￦ 4,527     ￦ 5,324     ￦ 5,122       17.6        (3.8 ) 

Fee and commission expense

      (1,568 )      (1,698 )      (1,800 )      8.3        6.0  
  

 

 

    

 

 

    

 

 

       

Net fee and commission income

    ￦ 2,959     ￦ 3,626     ￦ 3,322       22.5        (8.4 ) 
  

 

 

    

 

 

    

 

 

       

Comparison of 2022 to 2021

Our net fee and commission income decreased 8.4% from ￦3,626 billion in 2021 to ￦3,322 billion in 2022, due to a 3.8% decrease in fee and commission income from ￦5,324 billion in 2021 to ￦5,122 billion in 2022, which was enhanced by a 6.0% increase in fee and commission expense from ￦1,698 billion in 2021 to ￦1,800 billion in 2022.

The 3.8% decrease in fee and commission income was primarily due to a 28.7% decrease in commissions received on securities business from ￦881 billion in 2021 to ￦628 billion in 2022 and a 17.6% decrease in trust and other fiduciary fees received from ￦409 billion in 2021 to ￦337 billion in 2022, the effects of which were offset in part by an 11.9% increase in lease fees received from ￦898 billion in 2021 to ￦1,005 billion in 2022. The decrease in commissions received on securities business was mainly due to a decrease in the volume of commission-generating securities instruments sold by KB Securities and the decrease in trust and other fiduciary fees received was primarily due to a decrease in our sales of money trust products, while the increase in lease fees was primarily attributable to an increase in automobile lease fees received by KB Capital.

 

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The 6.0% increase in fee and commission expense was principally attributable to a 12.1% increase in other fees paid from ￦506 billion in 2021 to ￦567 billion in 2022 and a 21.9% increase in outsourcing related fees paid from ￦210 billion in 2021 to ￦256 billion in 2022. The increase in other fees paid was primarily due to increases in miscellaneous other fees paid in Korean Won and securitization fees paid, while the increase in outsourcing related fees paid was primarily due to increases in miscellaneous other outsourcing related fees paid and consulting fees paid.

Comparison of 2021 to 2020

Our net fee and commission income increased 22.5% from ￦2,959 billion in 2020 to ￦3,626 billion in 2021, due to a 17.6% increase in fee and commission income from ￦4,527 billion in 2020 to ￦5,324 billion in 2021, which was offset in part by an 8.3% increase in fee and commission expense from ￦1,568 billion in 2020 to ￦1,698 billion in 2021.

The 17.6% increase in fee and commission income was primarily due to a 41.2% increase in lease fees received from ￦636 billion in 2020 to ￦898 billion in 2021, a 10.8% increase in credit and debit card related fees received from ￦1,378 billion in 2020 to ￦1,527 billion in 2021 and a 44.8% increase in other fees received from ￦315 billion in 2020 to ￦456 billion in 2021. The increase in lease fees received was principally as a result of an increase in automobile lease fees received by KB Capital, the increase in credit and debit card related fees received was primarily attributable to an increase in the volume of credit and debit card transactions in light of the COVID-19 pandemic and the increase in other fees received mainly reflected an increase in investment finance-related commissions received.

The 8.3% increase in fee and commission expense was principally attributable to a 32.8% increase in other fees paid from ￦381 billion in 2020 to ￦506 billion in 2021, primarily due to increases in other miscellaneous fees paid by KB Kookmin Card and KB Securities.

Net Insurance Income

The following table shows, for the periods indicated, the components of our net insurance income:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020      2022/2021  
     (in billions of Won)     (%)  

Insurance income

    ￦ 14,387     ￦ 16,108     ￦ 17,137       12.0        6.4  

Insurance expense

      (14,087 )      (15,551 )      (16,440 )      10.4        5.7  
  

 

 

    

 

 

    

 

 

       

Net insurance income

    ￦ 300     ￦ 557     ￦ 697       85.7        25.1  
  

 

 

    

 

 

    

 

 

       

Comparison of 2022 to 2021

Our net insurance income increased 25.1% from ￦557 billion in 2021 to ￦697 billion in 2022, due to a 6.4% increase in insurance income from ￦16,108 billion in 2021 to ￦17,137 billion in 2022, which was in large part offset by a 5.7% increase in insurance expense from ￦15,551 billion in 2021 to ￦16,440 billion in 2022.

The increase in insurance income was mainly due to a 7.4% increase in premium income from ￦14,684 billion in 2021 to ￦15,766 billion in 2022, which was offset in part by a decrease in income from changes in reinsurance assets from ￦135 billion in 2021 to nil in 2022. The increase in premium income was principally due to an increase in the number of new insurance products sold by the Former KB Life Insurance, Prudential Life Insurance and KB Insurance. The decrease in income from changes in reinsurance assets was mainly due to a decrease in the volume of reinsurance assets of KB Insurance.

The increase in insurance expense was principally attributable to a 37.8% increase in refunds of surrender value paid from ￦4,032 billion in 2021 to ￦5,556 billion in 2022, which was enhanced by a 9.5% increase in insurance claims paid from ￦5,778 billion in 2021 to ￦6,325 billion in 2022 and a 24.4% increase in

 

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amortization of deferred acquisition costs from ￦819 billion in 2021 to ￦1,019 billion in 2022. Such increases were offset in part by a 62.1% decrease in provisions for policy reserves from ￦2,762 billion in 2021 to ￦1,046 billion in 2022. The increases in refunds of surrender value and insurance claims paid mainly reflected an increase in the accumulated number of insurance products sold by the Former KB Life Insurance, Prudential Life Insurance and KB Insurance, and the increase in amortization of deferred acquisition costs mainly reflected an increase in depreciable acquisition costs due to the sale of new insurance products. The decrease in provisions for policy reserves was mainly due to a decrease in our sales of savings-type insurance policies.

Comparison of 2021 to 2020

Our net insurance income increased 85.7% from ￦300 billion in 2020 to ￦557 billion in 2021, due to a 12.0% increase in insurance income from ￦14,387 billion in 2020 to ￦16,108 billion in 2021, which was offset in part by a 10.4% increase in insurance expense from ￦14,087 billion in 2020 to ￦15,551 billion in 2021.

The increase in insurance income was mainly due to a 14.1% increase in premium income from ￦12,873 billion in 2020 to ￦14,684 billion in 2021, which was offset in part by a decrease in income from changes in reinsurance assets from ￦468 billion in 2020 to ￦135 billion in 2021. The increase in premium income was principally due to an increase in the number of new insurance products sold by the Former KB Life Insurance and KB Insurance, as well as the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020. The decrease in income from changes in reinsurance assets was mainly due to an increase in income from a reinsurance claim in connection with a major fire in 2020, which was not repeated in 2021.

The increase in insurance expense was principally attributable to a 22.7% increase in refunds of surrender value paid from ￦3,286 billion in 2020 to ￦4,032 billion in 2021, which was enhanced by a 9.7% increase in insurance claims paid from ￦5,265 billion in 2020 to ￦5,778 billion in 2021. Such increases were mainly due to an increase in the accumulated number of insurance products sold by the Former KB Life Insurance and KB Insurance, as well as the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020.

Net Gains on Financial Instruments at Fair Value through Profit or Loss

The following table shows, for the periods indicated, the components of our net gains on financial instruments at fair value through profit or loss:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020     2022/2021  
     (in billions of Won)     (%)  

Net gains (losses) on financial assets at fair value through profit or loss

    ￦ 1,302     ￦ 831     ￦ (740 )      (36.2 )      N/M (1) 

Net gains on derivatives held for trading

      323       204       178       (36.8 )      (12.7 ) 

Net gains (losses) on financial liabilities at fair value through profit or loss

      (125 )      (8 )      51       (93.6 )      N/M (1) 

Net gains (losses) on financial instruments designated at fair value through profit or loss

      (489 )      (31 )      758       (93.7 )      N/M (1) 
  

 

 

    

 

 

    

 

 

      

Net gains on financial instruments at fair value through profit or loss

    ￦ 1,011     ￦ 995     ￦ 247       (1.6 )      (75.2 ) 
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

 

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Comparison of 2022 to 2021

Our net gains on financial instruments at fair value through profit or loss decreased 75.2% from ￦995 billion in 2021 to ￦247 billion in 2022. Such decrease was primarily attributable to a change in our net gains (losses) on financial assets at fair value through profit or loss from net gains in 2021 to net losses in 2022, the effect of which was offset in part by a change in our net gains (losses) on financial instruments designated at fair value through profit or loss from net losses in 2021 to net gains in 2022.

 

  •  

Our net gains (losses) on financial assets at fair value through profit or loss changed from net gains of ￦831 billion in 2021 to net losses of ￦740 billion in 2022, due to a change in net gains (losses) on debt securities held for trading from net gains of ￦523 billion in 2021 to net losses of ￦688 billion in 2022, which was enhanced by a change in net gains (losses) on equity securities held for trading from net gains of ￦307 billion in 2021 to net losses of ￦51 billion in 2022.

 

  •  

Our net gains (losses) on financial instruments designated at fair value through profit or loss changed from net losses of ￦31 billion in 2021 to net gains of ￦758 billion in 2022. Such change was primarily attributable to a 90.2% increase in gains on financial liabilities designated at fair value through profit or loss from ￦624 billion in 2021 to ￦1,187 billion in 2022, which was enhanced by a 34.5% decrease in losses on financial liabilities designated at fair value through profit or loss from ￦655 billion in 2021 to ￦429 billion in 2022.

Comparison of 2021 to 2020

Our net gains on financial instruments at fair value through profit or loss decreased 1.6% from ￦1,011 billion in 2020 to ￦995 billion in 2021. Such decrease was primarily attributable to decreases in net gains on financial assets at fair value through profit or loss and net gains on derivatives held for trading, the effects of which were mostly offset by substantial decreases in net losses on financial instruments designated at fair value through profit or loss and net losses on financial liabilities at fair value through profit or loss.

 

  •  

Our net gains on financial assets at fair value through profit or loss decreased 36.2% from ￦1,302 billion in 2020 to ￦831 billion in 2021, due to a 48.8% decrease in net gains on debt securities held for trading from ￦1,021 billion in 2020 to ￦523 billion in 2021, which was slightly offset by a 9.3% increase in net gains on equity securities held for trading from ￦281 billion in 2020 to ￦307 billion in 2021.

 

  •  

Our net gains on derivatives held for trading decreased 36.8% from ￦323 billion in 2020 to ￦204 billion in 2021, primarily due to a change from net gains on stock or stock index derivatives held for trading of ￦250 billion in 2020 to net losses on such derivatives of ￦1 billion in 2021, which was enhanced by a 51.4% decrease in net gains on currency derivatives held for trading from ￦144 billion in 2020 to ￦70 billion in 2021. Such effect was partially offset by a change from net losses on interest rate derivatives held for trading of ￦55 billion in 2020 to net gains on such derivatives of ￦151 billion in 2021.

 

  •  

Our net losses on financial instruments designated at fair value through profit or loss decreased 93.7% from ￦489 billion in 2020 to ￦31 billion in 2021 as a result of a decrease in net losses on financial liabilities designated at fair value through profit or loss. Such decrease was primarily attributable to a 42.7% decrease in losses on financial liabilities designated at fair value through profit or loss from ￦1,143 billion in 2020 to ￦655 billion in 2021.

 

  •  

Our net losses on financial liabilities at fair value through profit or loss decreased 93.6% from ￦125 billion in 2020 to ￦8 billion in 2021 as a result of a 47.1% decrease in losses on financial liabilities at fair value through profit or loss from ￦153 billion in 2020 to ￦81 billion in 2021 and a 160.7% increase in gains on financial liabilities at fair value through profit or loss from ￦28 billion in 2020 to ￦73 billion in 2021.

 

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For further information regarding our net gains on financial instruments at fair value through profit or loss, see Note 30 of the notes to our consolidated financial statements included elsewhere in this annual report.

General and Administrative Expenses

The following table shows, for the periods indicated, the components of our general and administrative expenses:

 

     Year Ended December 31,      Percentage Change  
     2020      2021      2022      2021/2020     2022/2021  
     (in billions of Won)            (%)  

Expenses related to employees

    ￦ 4,325      ￦ 4,635      ￦ 4,733        7.2       2.1  

Depreciation and amortization

      875        851        879        (2.7 )      3.3  

Other general and administrative expenses

      1,615        1,715        1,926        6.2       12.3  
  

 

 

     

 

 

     

 

 

       

General and administrative expenses

    ￦ 6,815      ￦ 7,201      ￦ 7,538        5.7       4.7  
  

 

 

     

 

 

     

 

 

       

Comparison of 2022 to 2021

Our general and administrative expenses increased 4.7% from ￦7,201 billion in 2021 to ￦7,538 billion in 2022, primarily as a result of a 12.3% increase in other general and administrative expenses from ￦1,715 billion in 2021 to ￦1,926 billion in 2022, which was enhanced by a 2.1% increase in expenses related to employees from ￦4,635 billion in 2021 to ￦4,733 billion in 2022.

The increase in other general and administrative expenses was attributable mainly to a 26.0% increase in electronic data processing expenses from ￦315 billion in 2021 to ￦397 billion in 2022, a 16.0% increase in taxes and dues paid from ￦268 billion in 2021 to ￦311 billion in 2022 and a 10.6% increase in miscellaneous expenses from ￦321 billion in 2021 to ￦355 billion in 2022.

The increase in expenses related to employees was attributable mainly to a 2.1% increase in salaries from ￦3,007 billion in 2021 to ￦3,071 billion in 2022 and a 6.6% increase in other employee benefits from ￦928 billion in 2021 to ￦989 billion in 2022, which was offset in part by a 43.1% decrease in share-based payments from ￦102 billion in 2021 to ￦58 billion in 2022. The increase in salaries paid was primarily attributable to a general increase in the salaries paid to employees, while the increase in other employee benefits mainly reflected increases in short-term employee benefits. The decrease in share-based payments was primarily due to a decrease in our share price.

Comparison of 2021 to 2020

Our general and administrative expenses increased 5.7% from ￦6,815 billion in 2020 to ￦7,201 billion in 2021, primarily as a result of a 7.2% increase in expenses related to employees from ￦4,325 billion in 2020 to ￦4,635 billion in 2021, which was enhanced by a 6.2% increase in other general and administrative expenses from ￦1,615 billion in 2020 to ￦1,715 billion in 2021 and slightly offset by a 2.7% decrease in depreciation and amortization expenses from ￦875 billion in 2020 to ￦851 billion in 2021.

The increase in expenses related to employees was attributable mainly to a 7.8% increase in salaries from ￦2,789 billion in 2020 to ￦3,007 billion in 2021, which was primarily due to the full-year effect of the increase in the number of employees in connection with the addition of PRASAC and Bank Bukopin as consolidated subsidiaries of Kookmin Bank in April and September 2020, respectively. Such increase was enhanced by a 6.5% increase in other employee benefits from ￦871 billion in 2020 to ￦928 billion in 2021, which was primarily

 

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driven by an increase in performance-based compensation paid to our employees in 2021, and a 108.2% increase in share-based payments from ￦49 billion in 2020 to ￦102 billion in 2021, which was primarily due to an increase in our share price.

The increase in other general and administrative expenses was attributable mainly to a 12.1% increase in electronic data processing expenses from ￦281 billion in 2020 to ￦315 billion in 2021 and an 8.4% increase in miscellaneous expenses from ￦296 billion in 2020 to ￦321 billion in 2021. Such increases were enhanced by an 8.8% increase in service fees from ￦239 billion in 2020 to ￦260 billion in 2021 and a 65.6% increase in repairs and maintenance expenses from ￦32 billion in 2020 to ￦53 billion in 2021. Such increases were partially offset by an 11.4% decrease in advertising expenses from ￦237 billion in 2020 to ￦210 billion in 2021.

Net Other Operating Expenses

The following table shows, for the periods indicated, the components of our net other operating expenses:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020      2022/2021  
     (in billions of Won)     (%)  

Other operating income

    ￦ 4,757     ￦ 4,929     ￦ 13,017       3.6        164.1  

Other operating expenses

      (6,257 )      (6,853 )      (15,382 )      9.5        124.5  
  

 

 

    

 

 

    

 

 

       

Net other operating expenses

    ￦ (1,500 )    ￦ (1,924 )    ￦ (2,366 )      28.3        23.0  
  

 

 

    

 

 

    

 

 

       

Comparison of 2022 to 2021

Our net other operating expenses increased 23.0% from ￦1,924 billion in 2021 to ￦2,366 billion in 2022, as a 124.5% increase in other operating expenses from ￦6,853 billion in 2021 to ￦15,382 billion in 2022 outpaced a 164.1% increase in other operating income from ￦4,929 billion in 2021 to ￦13,017 billion in 2022.

Other operating expenses include principally losses on foreign exchange transactions, losses related to financial assets at amortized cost, losses related to financial instruments at fair value through other comprehensive income and miscellaneous other operating expenses. The 124.5% increase in other operating expenses was mainly the result of a 212.9% increase in losses on foreign exchange transactions from ￦3,571 billion in 2021 to ￦11,173 billion in 2022, which was enhanced by a 41.7% increase in miscellaneous other operating expenses from ￦1,626 billion in 2021 to ￦2,304 billion in 2022. The increase in losses on foreign exchange transactions, which was primarily due to higher exchange rate volatility, was more than offset by an increase in gains on foreign exchange transactions, which is recorded as part of other operating income. On a net basis, our net gains on foreign exchange transactions increased 11.4% from ￦307 billion in 2021 to ￦342 billion in 2022. The increase in miscellaneous other operating expenses was mainly due to an increase in losses on risk hedging related to debt instruments and interest rate swaps.

Other operating income includes principally gains on foreign exchange transactions, gains on financial assets at amortized cost, gains on financial instruments at fair value through other comprehensive income and miscellaneous other operating income. The 164.1% increase in other operating income was primarily attributable to a 196.9% increase in gains on foreign exchange transactions from ￦3,878 billion in 2021 to ￦11,515 billion in 2022, which was enhanced by an 80.0% increase in miscellaneous other operating income from ￦754 billion in 2021 to ￦1,357 billion in 2022. The increase in gains on foreign exchange transactions, which was mainly the result of increased exchange rate volatility, was mostly offset by an increase in losses on foreign exchange transactions, which is recorded as part of other operating expenses, as discussed above. The increase in miscellaneous other operating income was mainly due to an increase in gains on risk hedging related to debt instruments and interest rate swaps.

 

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Comparison of 2021 to 2020

Our net other operating expenses increased 28.3% from ￦1,500 billion in 2020 to ￦1,924 billion in 2021, as a 9.5% increase in other operating expenses from ￦6,257 billion in 2020 to ￦6,853 billion in 2021 outpaced a 3.6% increase in other operating income from ￦4,757 billion in 2020 to ￦4,929 billion in 2021.

The 9.5% increase in other operating expenses was mainly the result of a significant increase in losses on financial instruments at fair value through other comprehensive income from ￦19 billion in 2020 to ￦225 billion in 2021, a 42.2% increase in depreciation expenses of operating lease assets from ￦424 billion in 2020 to ￦603 billion in 2021 and a 7.7% increase in miscellaneous other operating expenses from ￦1,510 billion in 2020 to ￦1,626 billion in 2021. The increase in losses on financial instruments at fair value through other comprehensive income was primarily due to an increase in losses relating to the disposal of government and public bonds. The increase in depreciation expenses of operating lease assets mainly reflected an increase in automobile lease assets of KB Capital.

The 3.6% increase in other operating income was primarily attributable to a 6.7% increase in gains on foreign exchange transactions from ￦3,635 billion in 2020 to ￦3,878 billion in 2021, which was enhanced by a 27.4% increase in miscellaneous other operating income from ￦592 billion in 2020 to ￦754 billion in 2021. Such increases were offset in part by a 58.4% decrease in gains on financial instruments at fair value through other comprehensive income from ￦305 billion in 2020 to ￦127 billion in 2021. The increase in gains on foreign exchange transactions, which was mainly the result of increased exchange rate volatility, was partially offset by an increase in losses on foreign exchange transactions, which is recorded as part of other operating expenses. On a net basis, our net gains on foreign exchange transactions increased 195.2% from ￦104 billion in 2020 to ￦307 billion in 2021.

For further information regarding our net other operating expenses, see Note 31 of the notes to our consolidated financial statements included elsewhere in this annual report.

Net Non-operating Income

The following table shows, for the periods indicated, the components of our net non-operating income:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020     2022/2021  
     (in billions of Won)     (%)  

Share of profit (loss) of associates and joint ventures

    ￦ (44 )    ￦ 94     ￦ (29 )      N/M (1)      N/M (1) 

Net other non-operating income (expenses)

      189       (110 )      186       N/M (1)      N/M (1) 
  

 

 

    

 

 

    

 

 

      

Net non-operating income (expenses)

    ￦ 146     ￦ (16 )    ￦ 157       N/M (1)      N/M (1) 
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

Comparison of 2022 to 2021

Our net non-operating income (expenses) changed from net expenses of ￦16 billion in 2021 to a net income of ￦157 billion in 2022, primarily as a result of a change in net other non-operating income (expenses) from net expenses of ￦110 billion in 2021 to a net income of ￦186 billion in 2022, which was partially offset by a change in share of profit (loss) of associates and joint ventures from a net profit of ￦94 billion in 2021 to a net loss of ￦29 billion in 2022.

The change in net other non-operating income (expenses) from net expenses to a net income was attributable to a 272.0% increase in other non-operating income from ￦125 billion in 2021 to ￦465 billion in

 

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2022, which was partially offset by a 19.1% increase in other non-operating expenses from ￦235 billion in 2021 to ￦280 billion in 2022. The increase in other non-operating income was mainly due to a 250.6% increase in miscellaneous other non-operating income from ￦81 billion in 2021 to ￦284 billion in 2022, which primarily reflected an increase in gains on disposal of assets held for sale, as well as a significant increase in gains on disposal of property and equipment from ￦9 billion in 2021 to ￦155 billion in 2022, which was primarily due to an increase in gains on disposal of investment properties. The increase in other non-operating expenses was mainly due to a 50.4% increase in miscellaneous other non-operating expenses from ￦117 billion in 2021 to ￦176 billion in 2022.

The change in share of profit (loss) of associates and joint ventures from a net profit to a net loss was primarily due to a decrease in profit of equity-method investees of Kookmin Bank.

Comparison of 2021 to 2020

Our net non-operating income (expenses) changed from a net income of ￦146 billion in 2020 to net expenses of ￦16 billion in 2021, primarily as a result of a change in net other non-operating income (expenses) from a net income of ￦189 billion in 2020 to net expenses of ￦110 billion in 2021, which was partially offset by a change in share of profit (loss) of associates and joint ventures from a net loss of ￦44 billion in 2020 to a net profit of ￦94 billion in 2021.

The change in net other non-operating income (expenses) from a net income to net expenses was attributable to a 73.2% decrease in other non-operating income from ￦466 billion in 2020 to ￦125 billion in 2021, which was partially offset by a 15.2% decrease in other non-operating expenses from ￦277 billion in 2020 to ￦235 billion in 2021. The decrease in other non-operating income was mainly due to gains on bargain purchase of ￦145 billion recognized in 2020 resulting from the acquisition of Prudential Life Insurance, which was not repeated in 2021, as well as a 91.9% decrease in gains on disposal of property and equipment from ￦111 billion in 2020 to ￦9 billion in 2021, primarily due to a decrease in gains on disposal of investment property held by our consolidated funds. Such decrease was enhanced by a 69.0% decrease in rental income from ￦113 billion in 2020 to ￦35 billion in 2021, primarily due to a decrease in our holdings of investment property that generated rental income. The decrease in other non-operating expenses primarily reflected an 18.8% decrease in miscellaneous other expenses from ￦144 billion in 2020 to ￦117 billion in 2021.

The change in share of profit (loss) of associates and joint ventures from a net loss to a net profit was primarily due to an increase in profit of equity-method investees of Kookmin Bank.

Income Tax Expense

Our income tax expense is calculated by adding or subtracting changes in deferred income tax liabilities and assets to income tax amounts payable for the period. Deferred income tax assets are recognized for deductible temporary differences, unused tax losses and unused tax credits, while deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are those between the carrying values of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred income tax assets, including unused tax losses and credits, are recognized only to the extent it is probable that sufficient taxable profit will be available against which such deferred income tax assets can be utilized.

Comparison of 2022 to 2021

Income tax expense decreased 4.4% from ￦1,697 billion in 2021 to ￦1,622 billion in 2022, primarily due to a 4.7% decrease in profit before income tax from ￦6,082 billion in 2021 to ￦5,796 billion in 2022, which was enhanced by an increase in income tax refunds for taxes of prior years from ￦14 billion in 2021 to ￦138 billion in 2022. Such effects were offset in part by an increase in temporary differences for which no deferred tax is recognized from ￦5 billion in 2021 to ￦136 billion in 2022. Our effective tax rate was 28.0% in 2022 compared to 27.9% in 2021.

 

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Comparison of 2021 to 2020

Income tax expense increased 34.3% from ￦1,264 billion in 2020 to ￦1,697 billion in 2021, primarily due to a 45.5% increase in income tax payable from ￦1,086 billion in 2020 to ￦1,580 billion in 2021, which was partially offset by a 34.3% decrease in changes in deferred income tax assets and liabilities from ￦327 billion in 2020 to ￦215 billion in 2021 and a 38.3% decrease in income tax recognized directly in equity and others from ￦149 billion in 2020 to ￦92 billion in 2021. The increase in income tax payable was due to a 43.0% increase in current income tax expense from ￦1,099 billion in 2020 to ￦1,572 billion in 2021, which resulted primarily from the increase in our profit before income tax. The decrease in income tax recognized directly in equity and others was primarily attributable to a change in gains or losses on hedging instruments of net investments in foreign operations from net losses of ￦25 billion in 2020 to net gains of ￦26 billion in 2021. Our effective tax rate was 27.9% in 2021 compared to 26.5% in 2020.

See Note 34 of the notes to our consolidated financial statements included elsewhere in this annual report.

Profit for the Year

Comparison of 2022 to 2021

As a result of the factors described above, our profit for the year decreased 4.8% from ￦4,384 billion in 2021 to ￦4,173 billion in 2022.

Comparison of 2021 to 2020

As a result of the factors described above, our profit for the year increased 24.7% from ￦3,516 billion in 2020 to ￦4,384 billion in 2021.

Results by Principal Business Segment

We compile and analyze financial information for our business segments based upon segment information used by our management for the purposes of resource allocation and performance evaluation. We are organized into seven major business segments: retail banking operations, corporate banking operations, other banking operations, credit card operations, securities operations, life insurance operations and non-life insurance operations.

The following table shows, for the periods indicated, our results of operations by segment:

 

     Profit (Loss)(1)
for the Year Ended December 31,		     Total Net Operating Revenues (Expenses)(2)
for the Year Ended December 31,		  
             2020                      2021                      2022                     2020                      2021                      2022          
     (in billions of Won)  

Retail banking operations

    ￦ 421      ￦ 577      ￦ 1,576     ￦ 2,919      ￦ 2,958      ￦ 4,473  

Corporate banking operations

      918        1,021        1,502       2,834        3,590        4,982  

Other banking operations

      980        940        (350 )      1,798        1,585        (188 ) 

Credit card operations

      324        421        383       1,538        1,774        1,781  

Securities operations

      426        594        189       1,448        1,676        1,127  

Life insurance operations

      33        290        186       237        631        502  

Non-life insurance operations

      177        302        558       1,027        1,286        1,424  

Other

      406        332        347       691        984        913  
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

     

 

 

  

Total(3)

    ￦ 3,686      ￦ 4,477      ￦ 4,392     ￦ 12,492      ￦ 14,484      ￦ 15,013  
  

 

 

     

 

 

     

 

 

    

 

 

     

 

 

     

 

 

  

 

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(1)

After deduction of income tax allocated to each segment. See Note 5 of the notes to our consolidated financial statements.

(2)

Represents net operating revenue (expenses) from external customers. See Note 5 of the notes to our consolidated financial statements.

(3)

Prior to adjustments for consolidation, inter-segment transactions and certain differences in classification under our management reporting system.

Our other banking operations, which include treasury activities, provide funding to our retail banking operations and corporate banking operations and receive funds procured through the financing activities of such segments, such as deposit-taking activities. When our retail banking operations or corporate banking operations engage in an investing activity, such as lending, the relevant amount is recognized as an inter-segment borrowing from the other banking operations. When our retail banking operations or corporate banking operations engage in a financing activity, such as deposit-taking, the relevant amount is recognized as an inter-segment lending to the other banking operations (or as a reduction in inter-segment borrowings from the other banking operations). Generally, for our retail banking operations, the amounts procured from financing activities are greater than the amounts used in investing activities, whereas for our corporate banking operations, the amounts used in investing activities are greater than the amounts procured from financing activities. The cost of borrowing from the other banking operations is calculated by multiplying the average balance of the amounts used in investing activities by the applicable internal funding rate on such inter-segment borrowings, whereas the income from lending to the other banking operations is calculated by multiplying the average balance of the amounts procured from financing activities by the applicable internal funding rate on such inter-segment lendings. The applicable internal funding rates on inter-segment borrowings tend to be generally higher than the applicable internal funding rates on inter-segment lendings, primarily due to the difference in the maturity structure of interest rates on the amounts used in investing activities and the amounts procured from financing activities. The cost of borrowing from the other banking operations is offset by the income from lending to the other banking operations, and the difference is recorded as expenses related to inter-segment borrowings, within net other operating expenses, for our retail banking operations and corporate banking operations, while a corresponding amount is recorded as income from inter-segment lending, within net other operating income, for our other banking operations.

Retail Banking Operations

This segment consists of retail banking services provided by Kookmin Bank. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
             2020                     2021                     2022             2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 4,520     ￦ 4,438     ￦ 5,764       (1.8 )      29.9  

Interest expense

      (1,341 )      (896 )      (1,827 )      (33.2 )      103.9  

Net fee and commission income

      407       392       261       (3.7 )      (33.4 ) 

Net other operating income (expenses)

      (666 )      (975 )      275       46.4       N/M (1) 

General and administrative expenses

      (2,073 )      (2,037 )      (2,093 )      (1.7 )      2.7  

Provision for credit losses

      (265 )      (126 )      (282 )      (52.5 )      123.8  
  

 

 

    

 

 

    

 

 

      

Profit before income tax expense

      581       795       2,098       36.8       163.9  

Income tax expense

      (160 )      (219 )      (522 )      36.9       138.4  
  

 

 

    

 

 

    

 

 

      

Profit for the year

    ￦ 421     ￦ 577     ￦ 1,576       37.1       173.1  
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

 

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Comparison of 2022 to 2021

Our profit before income tax expense for this segment increased 163.9% from ￦795 billion in 2021 to ￦2,098 billion in 2022.

Interest income from our retail banking operations increased 29.9% from ￦4,438 billion in 2021 to ￦5,764 billion in 2022. This increase was mainly due to increases in the average yields on other consumer loans, mortgage loans and home equity loans. Such increase was enhanced by an increase in the average volume of mortgage loans but offset in part by a decrease in the average volume of other consumer loans.

Interest expense for this segment increased 103.9% from ￦896 billion in 2021 to ￦1,827 billion in 2022. Our largest and most important funding source is deposits from retail customers, which represent more than half of our total deposits. The increase in interest expense for this segment was mainly due to increases in the average costs on time deposits and demand deposits, the effects of which were enhanced by increases in the average volumes of time deposits and certificates of deposit.

Net fee and commission income attributable to this segment decreased 33.4% from ￦392 billion in 2021 to ￦261 billion in 2022, mainly due to decreases in trust fees for specified money trusts.

Net other operating income (expenses) attributable to this segment changed from net expenses of ￦975 billion in 2021 to net income of ￦275 billion in 2022, primarily due to a decrease in expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment increased 2.7% from ￦2,037 billion in 2021 to ￦2,093 billion in 2022, primarily due to an increase in common general and administrative expenses allocated to the retail banking segment, which was partially offset by decreases in expenses related to employee benefits and depreciation expenses.

Provision for credit losses increased 123.8% from ￦126 billion in 2021 to ￦282 billion in 2022, mainly due to increases in provision for credit losses of retail loans and unused retail loan commitments, reflecting a deterioration in asset quality of our retail loan portfolio resulting from an increasing likelihood of default by borrowers in light of the rising interest rate levels and a general slowdown in the economy in Korea.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment increased 36.8% from ￦581 billion in 2020 to ￦795 billion in 2021.

Interest income from our retail banking operations decreased 1.8% from ￦4,520 billion in 2020 to ￦4,438 billion in 2021. This decrease was mainly due to decreases in the average yields on mortgage loans, other consumer loans and home equity loans, the effects of which were partially offset by increases in the average volumes of mortgage loans and other consumer loans from 2020 to 2021.

Interest expense for this segment decreased 33.2% from ￦1,341 billion in 2020 to ￦896 billion in 2021. Our largest and most important funding source is deposits from retail customers, which represent more than half of our total deposits. The decrease in interest expense for this segment was mainly due to decreases in the average costs on demand deposits, time deposits and certificates of deposit, the effects of which were enhanced by decreases in the average volumes of time deposits and certificates of deposit and partially offset by an increase in the average volume of demand deposits.

Net fee and commission income attributable to this segment decreased 3.7% from ￦407 billion in 2020 to ￦392 billion in 2021, mainly due to an increase in common fee and commission-related expenses allocated to the retail banking segment.

 

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Net other operating expenses attributable to this segment increased 46.4% from ￦666 billion in 2020 to ￦975 billion in 2021, mainly as a result of an increase in expenses related to inter-segment borrowings and a decrease in gains on sale of loans measured at amortized cost.

General and administrative expenses attributable to this segment decreased 1.7% from ￦2,073 billion in 2020 to ￦2,037 billion in 2021, primarily due to decreases in expenses related to employees and depreciation expenses, which were offset in part by an increase in common general and administrative expenses allocated to the retail banking segment.

Provision for credit losses decreased 52.5% from ￦265 billion in 2020 to ￦126 billion in 2021, mainly due to decreases in provision for credit losses of retail loans and unused retail loan commitments, reflecting an improvement in asset quality of our retail loan portfolio resulting from government policies in support of borrowers adversely impacted by the COVID-19 pandemic in 2021.

Corporate Banking Operations

This segment consists of corporate banking services provided by Kookmin Bank. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
             2020                     2021                     2022             2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 4,900     ￦ 5,318     ￦ 7,831       8.5       47.3  

Interest expense

      (1,662 )      (1,515 )      (3,111 )      (8.8 )      105.3  

Net fee and commission income

      363       391       386       7.7       (1.3 ) 

Net gains (losses) on financial instruments at fair value through profit or loss

      (52 )      29       74       N/M (1)      155.2  

Net other operating expenses

      (537 )      (598 )      (182 )      11.4       (69.6 ) 

General and administrative expenses

      (1,555 )      (1,832 )      (1,972 )      17.8       7.6  

Provision for credit losses

      (204 )      (393 )      (778 )      92.6       98.0  

Net other non-operating income (expenses)

      5       (9 )      (13 )      N/M (1)      44.4  
  

 

 

    

 

 

    

 

 

      

Profit before income tax expense

      1,258       1,390       2,234       10.5       60.7  

Income tax expense

      (340 )      (369 )      (732 )      8.5       98.4  
  

 

 

    

 

 

    

 

 

      

Profit for the year

    ￦ 918     ￦ 1,021     ￦ 1,502       11.2       47.1  
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

Comparison of 2022 to 2021

Our profit before income tax expense for this segment increased 60.7% from ￦1,390 billion in 2021 to ￦2,234 billion in 2022.

Interest income from our corporate banking operations increased 47.3% from ￦5,318 billion in 2021 to ￦7,831 billion in 2022. This increase was primarily due to an increase in the average yields on corporate loans of Kookmin Bank, which was enhanced by an increase in the average volume of such loans.

Interest expense for this segment increased 105.3% from ￦1,515 billion in 2021 to ￦3,111 billion in 2022. This increase was principally due to an increase in the average cost of deposits held by corporate customers of Kookmin Bank, which was enhanced by an increase in the average volume of such deposits.

 

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Net fee and commission income attributable to this segment decreased 1.3% from ￦391 billion in 2021 to ￦386 billion in 2022, primarily due to a decrease in investment finance fees received, which was offset in part by an increase in foreign currency transaction fees received.

Net gains on financial instruments at fair value through profit or loss attributable to this segment increased 155.2% from ￦29 billion in 2021 to ￦74 billion in 2022, principally as a result of increases in net gains on currency-related derivatives held by Kookmin Bank’s foreign subsidiaries and net gains on fair value hedges.

Net other operating expenses attributable to this segment decreased 69.6% from ￦598 billion in 2021 to ￦182 billion in 2022, mainly as a result of a decrease in expenses related to inter-segment borrowings, which was offset in part by an increase in losses on sales of loans of Bank Bukopin, a foreign subsidiary of Kookmin Bank.

General and administrative expenses attributable to this segment increased 7.6% from ￦1,832 billion in 2021 to ￦1,972 billion in 2022, principally due to an increase in common administrative expenses allocated to the corporate banking segment.

Provision for credit losses attributable to this segment increased 98.0% from ￦393 billion in 2021 to ￦778 billion in 2022, due mainly to an increase in provisions for credit losses of foreign-currency loans of Kookmin Bank’s foreign subsidiaries, due to a deterioration in the credit quality of such loans.

Net other non-operating expenses attributable to this segment increased 44.4% from ￦9 billion in 2021 to ￦13 billion in 2022, mainly attributable to regulatory fines paid by one of Kookmin Bank’s foreign branches, which was offset in part by an increase in miscellaneous other non-operating expenses of Bank Bukopin, a foreign subsidiary of Kookmin Bank.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment increased 10.5% from ￦1,258 billion in 2020 to ￦1,390 billion in 2021.

Interest income from our corporate banking operations increased 8.5% from ￦4,900 billion in 2020 to ￦5,318 billion in 2021. This increase was primarily due to the full-year effect of the addition of PRASAC and Bank Bukopin as consolidated subsidiaries of Kookmin Bank in April and September 2020, respectively. Such effect was enhanced by an increase in the average volume of corporate loans of Kookmin Bank, which was partially offset by a decrease the average yields on such loans from 2020 to 2021.

Interest expense for this segment decreased 8.8% from ￦1,662 billion in 2020 to ￦1,515 billion in 2021. This decrease was principally due to a decrease in the average cost of deposits held by corporate customers of Kookmin Bank from 2020 to 2021, which was partially offset by an increase in the average volume of such deposits and the full-year effect of the addition of PRASAC and Bank Bukopin, which became consolidated subsidiaries of Kookmin Bank in April and September 2020, respectively.

Net fee and commission income attributable to this segment increased 7.7% from ￦363 billion in 2020 to ￦391 billion in 2021, primarily due to increases in trust and other fiduciary fees received and foreign currency-related fees received.

Net gains (losses) on financial instruments at fair value through profit or loss attributable to this segment changed from net losses of ￦52 billion in 2020 to net gains of ￦29 billion in 2021, principally as a result of an increase in net gains on currency-related derivatives held by Kookmin Bank’s foreign subsidiaries.

Net other operating expenses attributable to this segment increased 11.4% from ￦537 billion in 2020 to ￦598 billion in 2021, mainly as a result of an increase in losses on foreign exchange transactions of Kookmin Bank’s foreign subsidiaries.

 

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General and administrative expenses attributable to this segment increased 17.8% from ￦1,555 billion in 2020 to ￦1,832 billion in 2021, principally due to an increase in salary expenses resulting from the full-year effect of the additions of PRASAC and Bank Bukopin as consolidated subsidiaries of Kookmin Bank in April and September 2020, respectively, the effects of which were enhanced by an increase in common administrative expenses allocated to the corporate banking segment.

Provision for credit losses attributable to this segment increased 92.6% from ￦204 billion in 2020 to ￦393 billion in 2021, due mainly to an increase in provision for credit losses of foreign-currency loans of Bank Bukopin, which was added as a consolidated subsidiary of Kookmin Bank in September 2020.

Net other non-operating income (expenses) attributable to this segment changed from a net income of ￦5 billion in 2020 to net expenses of ￦9 billion in 2021, mainly due to a decrease in net other non-operating income of Bank Bukopin, which became a consolidated subsidiary of Kookmin Bank in September 2020.

Other Banking Operations

This segment primarily consists of Kookmin Bank’s banking operations other than retail and corporate banking operations, including treasury activities and Kookmin Bank’s “back office” administrative operations. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
             2020                     2021                     2022             2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 1,037     ￦ 919     ￦ 1,763       (11.4 )      91.8  

Interest expense

      (698 )      (534 )      (1,130 )      (23.5 )      111.6  

Net fee and commission income

      298       405       449       35.9       10.9  

Net gains on financial instruments at fair value through profit or loss

      297       313       137       5.4       (56.2 ) 

Net other operating income (expenses)

      973       754       (1,037 )      (22.5 )      N/M (1) 

General and administrative expenses

      (574 )      (534 )      (633 )      (7.0 )      18.5  

Provision for credit losses

      (15 )      (4 )      (61 )      (73.3 )      N/M (1) 

Share of profit (loss) of associates and joint ventures

      (48 )      57       13       N/M (1)      (77.2 ) 

Net other non-operating income (expenses)

      23       (70 )      (25 )      N/M (1)      (64.3 ) 
  

 

 

    

 

 

    

 

 

      

Profit (loss) before income tax expense

      1,293       1,306       (523 )      1.0       N/M (1) 

Income tax benefit (expense)

      (313 )      (366 )      173       16.9       N/M (1) 
  

 

 

    

 

 

    

 

 

      

Profit (Loss) for the year

    ￦ 980     ￦ 940     ￦ (350 )      (4.1 )      N/M (1) 
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

Comparison of 2022 to 2021

Our profit (loss) before income tax expense for this segment changed from a profit of ￦1,306 billion in 2021 to a loss of ￦523 billion in 2022.

 

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Interest income from our other banking operations increased 91.8% from ￦919 billion in 2021 to ￦1,763 billion in 2022, mainly due to increases in the average yields on other banking loans and debt securities in this segment, which were enhanced by increases in the average volumes of such loans and securities.

Interest expense for this segment increased 111.6% from ￦534 billion in 2021 to ￦1,130 billion in 2022, primarily due to increases in the average costs of deposits, borrowings and debentures in this segment, which were enhanced by increases in the average volumes of such deposits, borrowings and debentures.

Net fee and commission income attributable to this segment increased 10.9% from ￦405 billion in 2021 to ￦449 billion in 2022, mainly due to an increase in net fee and commission income from our funds and trusts in this segment.

Net gains on financial instruments at fair value through profit or loss attributable to this segment decreased 56.2% from ￦313 billion in 2021 to ￦137 billion in 2022, principally as a result of a decrease in net gains on financial instruments at fair value through profit or loss attributable to our funds and trusts in this segment.

Net other operating income (expenses) attributable to this segment changed from a net income of ￦754 billion in 2021 to net expenses of ￦1,037 billion in 2022, mainly as a result of an increase in net expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment increased 18.5% from ￦534 billion in 2021 to ￦633 billion in 2022, primarily due to an increase in salary expenses.

Provision for credit losses attributable to this segment increased from ￦4 billion in 2021 to ￦61 billion in 2022, due mainly to an increase in provisions for credit losses of loans in foreign currencies held by one of our consolidated subsidiaries.

Share of profit of associates and joint ventures attributable to this segment decreased 77.2% from ￦57 billion in 2021 to ￦13 billion in 2022, principally as a result of a decrease in profits of equity-method investees of Kookmin Bank.

Net other non-operating expenses attributable to this segment decreased 64.3% from ￦70 billion in 2021 to ￦25 billion in 2022, primarily due to an increase in dividend income from equity-method investments.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment increased 1.0% from ￦1,293 billion in 2020 to ￦1,306 billion in 2021.

Interest income from our other banking operations decreased 11.4% from ￦1,037 billion in 2020 to ￦919 billion in 2021, mainly due to decreases in the average yields on other banking loans and debt securities in this segment from 2020 to 2021, which were offset in part by increases in the average volumes of such loans and securities.

Interest expense for this segment decreased 23.5% from ￦698 billion in 2020 to ￦534 billion in 2021, primarily due to decreases in the average costs of deposits, borrowings and debentures in this segment, which were partially offset by increases in the average volumes of deposits, borrowings and debentures.

Net fee and commission income attributable to this segment increased 35.9% from ￦298 billion in 2020 to ￦405 billion in 2021, mainly due to an increase in net fee and commission income from our funds and trusts in this segment.

 

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Net gains on financial instruments at fair value through profit or loss attributable to this segment increased 5.4% from ￦297 billion in 2020 to ￦313 billion in 2021, principally as a result of increases in net gains on derivatives held for trading and other financial instruments, which were partially offset by a decrease in net gains on financial instruments including debt and equity securities.

Net other operating income attributable to this segment decreased 22.5% from ￦973 billion in 2020 to ￦754 billion in 2021, mainly as a result of a decrease in net gains on foreign exchange transactions.

General and administrative expenses attributable to this segment decreased 7.0% from ￦574 billion in 2020 to ￦534 billion in 2021, primarily due to a decrease in common administrative expenses allocated to this segment, which was partially offset by increases in sales promotion expenses and advertising expenses.

Provision for credit losses attributable to this segment decreased from ￦15 billion in 2020 to ￦4 billion in 2021, due mainly to decreases in provision for credit losses of foreign-currency loans in this segment.

Share of profit (loss) of associates and joint ventures attributable to this segment changed from a net loss of ￦48 billion in 2020 to a net profit of ￦57 billion in 2021, principally as a result of an increase in gains on disposal of investments in associates and joint ventures in 2021.

Net other non-operating income (expenses) attributable to this segment changed from a net income of ￦23 billion in 2020 to net expenses of ￦70 billion in 2021, primarily due to a decrease in gains on disposal of investment property, which was partially offset by an increase in dividend income from investments in associates and joint ventures.

Credit Card Operations

This segment consists of credit card activities conducted by KB Kookmin Card. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
             2020                     2021                     2022             2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 1,632     ￦ 1,768     ￦ 1,984       8.3       12.2  

Interest expense

      (366 )      (377 )      (510 )      3.0       35.3  

Net fee and commission income

      400       546       520       36.5       (4.8 ) 

Net insurance income

      13       12       11       (7.7 )      (8.3 ) 

Net gains on financial instruments at fair value through profit or loss

      6       3       2       (50.0 )      (33.3 ) 

Net other operating expenses

      (331 )      (336 )      (375 )      1.5       11.6  

General and administrative expenses

      (515 )      (578 )      (597 )      12.2       3.3  

Provision for credit losses

      (396 )      (465 )      (500 )      17.4       7.5  

Share of profit of associates and joint ventures

      1       1       2       0.0       100.0  

Net other non-operating expenses

      (6 )      (7 )      (7 )      16.7       0.0  
  

 

 

    

 

 

    

 

 

      

Profit before income tax expense

      438       566       527       29.2       (6.9 ) 

Income tax expense

      (114 )      (145 )      (144 )      27.2       (0.7 ) 
  

 

 

    

 

 

    

 

 

      

Profit for the year

    ￦ 324     ￦ 421     ￦ 383       29.9       (9.0 ) 
  

 

 

    

 

 

    

 

 

      

 

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Comparison of 2022 to 2021

Our profit before income tax expense for this segment decreased 6.9% from ￦566 billion in 2021 to ￦527 billion in 2022.

Interest income from our credit card operations increased 12.2% from ￦1,768 billion in 2021 to ￦1,984 billion in 2022. This increase was primarily due to an increase in the average volume of credit card receivables, which was offset in part by a decrease in the average yields on such receivables.

Interest expense for this segment increased 35.3% from ￦377 billion in 2021 to ￦510 billion in 2022. This increase was primarily due to increases in the average costs of debentures and borrowings issued by KB Kookmin Card, which were enhanced by increases in the average volumes of such debentures and borrowings.

Net fee and commission income attributable to this segment decreased 4.8% from ￦546 billion in 2021 to ￦520 billion in 2022, mainly due to a decrease in commissions related to payment gateways received, which was offset in part by a decrease in credit card commissions paid in Korean Won.

Net insurance income attributable to this segment decreased 8.3% from ￦12 billion in 2021 to ￦11 billion in 2022, which was primarily caused by a decrease in the number of customers using related services.

Net gains on financial instruments at fair value through profit or loss attributable to this segment decreased 33.3% from ￦3 billion in 2021 to ￦2 billion in 2022, primarily due to a decrease in gains on valuation of equity securities.

Net other operating expenses attributable to this segment increased 11.6% from ￦336 billion in 2021 to ￦375 billion in 2022, due to a decrease in gains on sales of loans measured at amortized cost and an increase in credit card reward program-related expenses.

General and administrative expenses attributable to this segment increased 3.3% from ￦578 billion in 2021 to ￦597 billion in 2022, mainly due to increases in salary expenses and software depreciation expenses.

Provision for credit losses attributable to this segment increased 7.5% from ￦465 billion in 2021 to ￦500 billion in 2022, mainly due to increases in provision for credit losses of card loans and installment loans.

Share of profit of associates and joint ventures attributable to this segment increased 100.0% from ￦1 billion in 2021 to ￦2 billion in 2022, primarily due to an increase in gains on valuation of equity-method investees.

Net other non-operating expenses attributable to this segment remained stable at ￦7 billion in 2021 and 2022.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment increased 29.2% from ￦438 billion in 2020 to ￦566 billion in 2021.

Interest income from our credit card operations increased 8.3% from ￦1,632 billion in 2020 to ￦1,768 billion in 2021. This increase was primarily due to an increase in the average volume of credit card receivables, which was offset in part by a decrease in the average yields on such receivables.

Interest expense for this segment increased 3.0% from ￦366 billion in 2020 to ￦377 billion in 2021. This increase was primarily due to increases in the average volumes of debentures and borrowings issued by KB Kookmin Card, which were partially offset by decreases in the average costs of such debentures and borrowings.

 

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Net fee and commission income attributable to this segment increased 36.5% from ￦400 billion in 2020 to ￦546 billion in 2021, mainly due to increases in commissions relating to payment gateways received and decreases in credit card commissions paid and other fees paid in Korean Won.

Net insurance income attributable to this segment decreased 7.7% from ￦13 billion in 2020 to ￦12 billion in 2021, which was primarily caused by a decrease in the number of new customers using related services.

Net gains on financial instruments at fair value through profit or loss attributable to this segment decreased 50.0% from ￦6 billion in 2020 to ￦3 billion in 2021, primarily due to decreases in dividend income from equity securities and, to a lesser extent, gains on disposal of investment trust beneficiary certificates.

Net other operating expenses attributable to this segment increased 1.5% from ￦331 billion in 2020 to ￦336 billion in 2021, primarily due to an increase in membership reward program-related expenses, which were offset in part by an increase in net gains on sale of loans at amortized cost.

General and administrative expenses attributable to this segment increased 12.2% from ￦515 billion in 2020 to ￦578 billion in 2021, mainly due to an increase in salary and employee benefit expenses in this segment.

Provision for credit losses attributable to this segment increased 17.4% from ￦396 billion in 2020 to ￦465 billion in 2021, mainly due to increases in provision for card loans and foreign-currency loans.

Share of profit of associates and joint ventures attributable to this segment remained stable at ￦1 billion in 2020 and 2021.

Net other non-operating expenses attributable to this segment increased 16.7% from ￦6 billion in 2020 to ￦7 billion in 2021.

Securities Operations

This segment consists primarily of securities brokerage, investment banking, securities investment and trading and other capital markets activities conducted by KB Securities, including its predecessor entities. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 820     ￦ 825     ￦ 1,157       0.6       40.2  

Interest expense

      (310 )      (268 )      (618 )      (13.5 )      130.6  

Net fee and commission income

      917       1,015       785       10.7       (22.7 ) 

Net gains (losses) from financial instruments at fair value through profit or loss

      118       123       (211 )      4.2       N/M (1) 

Net other operating expenses

      (103 )      (7 )      (24 )      (93.2 )      242.9  

General and administrative expenses

      (845 )      (855 )      (822 )      1.2       (3.9 ) 

Provision for credit losses

      (24 )      (18 )      (28 )      (25.0 )      55.6  

Share of profit of associates and joint ventures

      4       14       3       250.0       (78.6 ) 

Net other non-operating income (expenses)

      4       (18 )      13       N/M (1)      N/M (1) 
  

 

 

    

 

 

    

 

 

      

Profit before income tax expense

      582       810       253       39.2       (68.8 ) 

Income tax expense

      (156 )      (215 )      (64 )      37.8       (70.2 ) 
  

 

 

    

 

 

    

 

 

      

Profit for the year

    ￦ 426     ￦ 594     ￦ 189       39.4       (68.2 ) 
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

 

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Comparison of 2022 to 2021

Our profit before income tax expense for this segment decreased 68.8% from ￦810 billion in 2021 to ￦253 billion in 2022.

Interest income from this segment increased 40.2% from ￦825 billion in 2021 to ￦1,157 billion in 2022, primarily due to increases in the average yields on deposits and other interest-earning assets held by KB Securities, which were enhanced by increases in the average volumes of such financial assets.

Interest expense for this segment increased 130.6% from ￦268 billion in 2021 to ￦618 billion in 2022, principally as a result of increases in the average costs on bonds sold under repurchase agreements, borrowings and debentures, which were enhanced by increases in the average volumes of borrowings and debentures, but partially offset by a decrease in the average volume of bonds sold under repurchase agreements.

Net fee and commission income attributable to this segment decreased 22.7% from ￦1,015 billion in 2021 to ￦785 billion in 2022, primarily due to a decrease in securities brokerage commissions received, resulting from a decrease in the volume of activity in the Korean securities trading market in 2022.

Net gains (losses) on financial instruments at fair value through profit or loss attributable to this segment changed from net gains of ￦123 billion in 2021 to net losses of ￦211 billion in 2022, principally due to increases in net losses on sales and valuations of debt instruments.

Net other operating expenses attributable to this segment increased 242.9% from ￦7 billion in 2021 to ￦24 billion in 2022, primarily due to an increase in net losses on foreign currency valuation with respect to foreign currency-denominated assets and liabilities, mainly as a result of a depreciation of the Korean Won against other foreign currencies.

General and administrative expenses attributable to this segment decreased 3.9% from ￦855 billion in 2021 to ￦822 billion in 2022, primarily due to a decrease in salaries paid, which was partially offset by increases in depreciation and amortization expenses and other administrative expenses.

Provision for credit losses increased 55.6% from ￦18 billion in 2021 to ￦28 billion in 2022, primarily due to increases in provision for credit losses of loans and other financial assets.

Share of profit of associates and joint ventures attributable to this segment decreased 78.6% from ￦14 billion in 2021 to ￦3 billion in 2022, mainly due to a decrease in gains on disposal of investments in associates and joint ventures and an increase in losses on valuation of equity-method investees.

Net other non-operating income (expenses) attributable to this segment changed from net expenses of ￦18 billion in 2021 to net income of ￦13 billion in 2022, mainly due to an increase in miscellaneous other non-operating income, which was partially offset by an increase in miscellaneous other non-operating expenses.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment increased 39.2% from ￦582 billion in 2020 to ￦810 billion in 2021.

Interest income from this segment increased 0.6% from ￦820 billion in 2020 to ￦825 billion in 2021, primarily due to increases in the average volumes of deposits and other interest-earning assets held by KB Securities, which were partially offset by decreases in the average yields on such financial assets.

Interest expense for this segment decreased 13.5% from ￦310 billion in 2020 to ￦268 billion in 2021, principally as a result of decreases in the average costs of bonds sold under repurchase agreements, borrowings and debentures, which were partially offset by increases in the average volumes of borrowings and bonds sold under repurchase agreements.

 

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Net fee and commission income attributable to this segment increased 10.7% from ￦917 billion in 2020 to ￦1,015 billion in 2021, primarily due to increases in securities brokerage commissions received and consulting fees received.

Net gains on financial instruments at fair value through profit or loss attributable to this segment increased 4.2% from ￦118 billion in 2020 to ￦123 billion in 2021, principally due to a decrease in losses on derivative-linked securities at fair value through profit or loss, which was partially offset by a decrease in gains related to derivatives.

Net other operating expenses attributable to this segment decreased 93.2% from ￦103 billion in 2020 to ￦7 billion in 2021, primarily due to a decrease in net losses on foreign currency transactions with respect to foreign currency-denominated assets and liabilities, mainly as a result of increased exchange rate volatility.

General and administrative expenses attributable to this segment increased 1.2% from ￦845 billion in 2020 to ￦855 billion in 2021, primarily due to increases in salaries paid, which were partially offset by decreases in depreciation and amortization expenses and other administrative expenses.

Provision for credit losses decreased 25.0% from ￦24 billion in 2020 to ￦18 billion in 2021, primarily due to a decrease in provision for credit losses of other financial assets, which was partially offset by an increase in provision for credit losses of loans.

Share of profit of associates and joint ventures attributable to this segment increased more than two-fold from ￦4 billion in 2020 to ￦14 billion in 2021, mainly due to an increase in gains on disposal of investments in associates and joint ventures, which was partially offset by a decrease in profit of associates and joint ventures.

Net other non-operating income (expenses) attributable to this segment changed from a net income of ￦4 billion in 2020 to net expenses of ￦18 billion in 2021, mainly due to decreases in gains on disposal of investment property and rental income, which were offset in part by a decrease in other non-operating expenses.

 

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Life Insurance Operations

This segment consists of the life insurance operations of the Former KB Life Insurance and Prudential Life Insurance, which merged into KB Life Insurance in January 2023. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 261     ￦ 524     ￦ 566       100.8       8.0  

Interest expense

      —       (4 )      (11 )      N/A (1)      175.0  

Net fee and commission expense

      (18 )      (27 )      (39 )      50.0 %      44.4  

Net insurance income (expenses)

      (91 )      57       39       N/M (2)      (31.6 ) 

Net gains on financial instruments at fair value through profit or loss

      71       137       67       93.0       (51.1 ) 

Net other operating income (expenses)

      5       (63 )      (150 )      N/M (2)      138.1  

General and administrative expenses

      (152 )      (203 )      (225 )      33.6       10.8  

Reversal of provision for credit losses

      —       2       1       N/A (1)      (50.0 ) 

Net other non-operating income (expenses)

      (16 )      (0 )      (0 )      (100.0 )      N/A (1) 
  

 

 

    

 

 

    

 

 

      

Profit before income tax expense

      60       422       248       603.3       (41.2 ) 

Income tax expense(3)

      (27 )      (133 )      (62 )      392.6       (53.4 ) 
  

 

 

    

 

 

    

 

 

      

Profit for the year

    ￦ 33     ￦ 290     ￦ 186       778.8       (35.9 ) 
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/A” means not applicable.

(2)

“N/M” means not meaningful.

(3)

Represents income tax attributable to the Former KB Life Insurance and Prudential Life Insurance from August 2020.

Comparison of 2022 to 2021

Our profit before income tax expense for this segment decreased 41.2% from ￦422 billion in 2021 to ￦248 billion in 2022.

Interest income from this segment increased 8.0% from ￦524 billion in 2021 to ￦566 billion in 2022, primarily due to increases in the interest income on government and public bonds, debentures and insurance policy loans held by Prudential Life Insurance.

Interest expense for this segment increased 175.0% from ￦4 billion in 2021 to ￦11 billion in 2022, principally due to the Former KB Life Insurance’s issuance of new bonds sold under repurchase agreements.

Net fee and commission expense attributable to this segment increased 44.4% from ￦27 billion in 2021 to ￦39 billion in 2022, primarily due to increases in miscellaneous other service fees paid and consulting fees paid.

Net insurance income attributable to this segment decreased 31.6% from ￦57 billion in 2021 to ￦39 billion in 2022, mainly due to increases in the Former KB Life Insurance’s expenses related to refunds of surrender value and other insurance expenses, the effects of which were offset in large part by an increase in insurance premium income received by the Former KB Life Insurance.

Net gains on financial instruments at fair value through profit or loss attributable to this segment decreased 51.1% from ￦137 billion in 2021 to ￦67 billion in 2022, primarily due to an increase in losses on valuations of investment trust beneficiary certificates and a decrease in gains on sales of equity securities.

Net other operating expenses attributable to this segment increased 138.1% from ￦63 billion in 2021 to ￦150 billion in 2022, principally due to a decrease in gains on valuation of foreign currency-denominated assets and liabilities, and an increase in losses on currency forward contracts held by Prudential Life Insurance.

 

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General and administrative expenses attributable to this segment increased 10.8% from ￦203 billion in 2021 to ￦225 billion in 2022, primarily due to increases in the IT expenses and advertising expenses of Prudential Life Insurance.

Reversal of provisions for credit losses decreased 50.0% from ￦2 billion in 2021 to ￦1 billion in 2022, mainly due to a decrease in reversal of provisions for credit losses relating to loans in Korean Won.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment increased 603.3% from ￦60 billion in 2020 to ￦422 billion in 2021.

Interest income from this segment increased 100.8% from ￦261 billion in 2020 to ￦524 billion in 2021, primarily due to the additional interest income attributable to the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020.

Interest expense for this segment increased from nil in 2020 to ￦4 billion in 2021, principally due to interest expense incurred by the Former KB Life Insurance in connection with its issuance of long-term financial debentures in Korean Won in 2021.

Net fee and commission expense attributable to this segment increased 50.0% from ￦18 billion in 2020 to ￦27 billion in 2021, primarily due to increases in trading activity-related fees paid and outsourcing-related fees paid.

Net insurance income (expenses) attributable to this segment changed from net expenses of ￦91 billion in 2020 to a net income of ￦57 billion in 2021, mainly due to the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020, as well as an increase in life insurance income from the Former KB Life Insurance. Such increases were offset in part by an increase in insurance expenses, which was mainly due to an increase in the Former KB Life Insurance’s insurance expenses and the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020, as discussed above.

Net gains on financial instruments at fair value through profit or loss attributable to this segment increased 93.0% from ￦71 billion in 2020 to ￦137 billion in 2021, primarily due to the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020, which consisted mostly of increases in gains on sale of equity securities and dividend income, as well as an increase in dividends received from investment trust beneficiary certificates held by the Former KB Life Insurance.

Net other operating income (expenses) attributable to this segment changed from a net income of ￦5 billion in 2020 to net expenses of ￦63 billion in 2021, principally due to the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020, which consisted mostly of increases in losses on disposal of debt securities at fair value through other comprehensive income and decreases in gains on disposal of debt securities at fair value through other comprehensive income.

General and administrative expenses attributable to this segment increased 33.6% from ￦152 billion in 2020 to ￦203 billion in 2021, primarily due to the full-year effect of the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020, which consisted mostly of increases in other expenses, depreciation expenses and salary expenses in this segment.

Reversal of credit losses increased from nil in 2020 to ￦2 billion in 2021, mainly due to an increase in reversal of credit losses relating to loans in Korean Won.

Net other non-operating expenses decreased from ￦16 billion in 2020 to nil in 2021, primarily due to the provision for legal proceedings of the Former KB Life Insurance relating to a dispute over the payment of annuities in 2020, which were not repeated in 2021.

 

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Non-Life Insurance Operations

This segment consists of the non-life insurance operations of KB Insurance. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 617     ￦ 635     ￦ 718       2.9       13.1  

Interest expense

      (1 )      (10 )      (24 )      N/M (1)      140.0  

Net fee and commission expense

      (171 )      (173 )      (190 )      1.2       9.8  

Net insurance income

      377       493       655       30.8       32.9  

Net gains on financial instruments at fair value through profit or loss

      259       370       340       42.9       (8.1 ) 

Net other operating expenses

      (48 )      (82 )      (104 )      70.8       26.8  

General and administrative expenses

      (811 )      (834 )      (849 )      2.8       1.8  

Reversal of (provision for) credit losses

      8       (5 )      (6 )      (162.5 )      20.0  

Net other non-operating income

      16       17       190       6.3       N/M (1) 
  

 

 

    

 

 

    

 

 

      

Profit before income tax expense

      246       411       730       67.1       77.6  

Income tax expense

      (69 )      (109 )      (172 )      58.0       57.8  
  

 

 

    

 

 

    

 

 

      

Profit for the year

    ￦ 177     ￦ 302     ￦ 558       70.6       84.8  
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

Comparison of 2022 to 2021

Our profit before income tax expense for this segment increased 77.6% from ￦411 billion in 2021 to ￦730 billion in 2022.

Interest income attributable to this segment increased 13.1% from ￦635 billion in 2021 to ￦718 billion in 2022, primarily due to an increase in interest income earned on government and public bonds, insurance policy loans and other loans.

Interest expense attributable to this segment increased 140.0% from ￦10 billion in 2021 to ￦24 billion in 2022, primarily due to interest expense incurred by KB Insurance in connection with its issuance of subordinated debentures in 2022.

Net fee and commission expense attributable to this segment increased 9.8% from ￦173 billion in 2021 to ￦190 billion in 2022, mainly due to increases in external service fees paid and miscellaneous other fees paid in Korean Won, the effects of which were offset in part by an increase in miscellaneous other fees received.

Net insurance income attributable to this segment increased 32.9% from ￦493 billion in 2021 to ￦655 billion in 2022, primarily due to an increase in insurance income, mainly reflecting an increase in insurance premium income, which was offset in part by an increase in insurance expenses, mainly reflecting increases in refunds of surrender value and insurance claims paid.

Net gains on financial instruments at fair value through profit or loss attributable to this segment decreased 8.1% from ￦370 billion in 2021 to ￦340 billion in 2022, primarily as a result of decreases in net gains on beneficiary certificates and net gains on other foreign currency securities, the effects of which were offset in part by an increase in net gains on currency forward contracts.

Net other operating expenses attributable to this segment increased 26.8% from ￦82 billion in 2021 to ￦104 billion in 2022, due to an increase in other operating expenses, mainly reflecting an increase in losses on

 

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currency swap transactions, which was offset in part by an increase in other operating income, which mainly reflected an increase in miscellaneous other operating income.

General and administrative expenses attributable to this segment increased 1.8% from ￦834 billion in 2021 to ￦849 billion in 2022, principally due to increases in salaries paid.

Provisions for credit losses attributable to this segment increased 20.0% from ￦5 billion in 2021 to ￦6 billion in 2022, primarily due to an increase in provisions for credit losses of loans, the effect of which was mostly offset by an increase in reversals of provisions for credit losses of other financial assets.

Net other non-operating income attributable to this segment increased significantly from ￦17 billion in 2021 to ￦190 billion in 2022, principally due to an increase in gains on disposal of investment property.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment increased 67.1% from ￦246 billion in 2020 to ￦411 billion in 2021.

Interest income attributable to this segment increased 2.9% from ￦617 billion in 2020 to ￦635 billion in 2021, primarily due to an increase in interest income earned on government and public bonds held by KB Insurance. Interest expense attributable to this segment increased significantly from ￦1 billion in 2020 to ￦10 billion in 2021, principally due to interest expense incurred by KB Insurance in connection with its issuance of subordinated fixed rate debentures in 2021.

Net fee and commission expense attributable to this segment increased 1.2% from ￦171 billion in 2020 to ￦173 billion in 2021, mainly due to increases in other fees paid in Korean Won and other outsourcing-related fees paid, which were offset in part by decreases in consulting fees paid and foreign currency-denominated fees paid.

Net insurance income attributable to this segment increased 30.8% from ￦377 billion in 2020 to ￦493 billion in 2021, primarily due to increases in insurance premium income and reinsurance income, which were offset in part by an increase in insurance expenses, mainly reflecting increases in insurance claims paid and refunds of surrender value.

Net gains on financial instruments at fair value through profit or loss attributable to this segment increased 42.9% from ￦259 billion in 2020 to ￦370 billion in 2021, primarily as a result of an increase in net gains on beneficiary certificates at fair value through profit or loss, which was offset in part by a decrease in gains on currency-related derivatives.

Net other operating expenses attributable to this segment increased 70.8% from ￦48 billion in 2020 to ￦82 billion in 2021, due mainly to an increase in losses on disposal of debt securities at fair value through other comprehensive income and a decrease in gains on disposal of debt securities at fair value through other comprehensive income, which were offset in part by an increase in gains on fair value hedges.

General and administrative expenses attributable to this segment increased 2.8% from ￦811 billion in 2020 to ￦834 billion in 2021, principally due to increases in employee compensation and retirement benefits, which were partially offset by decreases in other employee benefits and advertising expenses.

Reversal of (provision for) credit losses changed from a reversal of ￦8 billion in 2020 to provision of ￦5 billion in 2021, primarily due to increases in provision for credit losses of other financial assets and foreign-currency loans.

 

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Net other non-operating income attributable to this segment increased 6.3% from ￦16 billion in 2020 to ￦17 billion in 2021, principally due to an increase in gains on disposal of property and equipment, which was offset in part by an increase in management fees paid in connection with investment property.

Other

“Other” includes the operations of our holding company and all of our subsidiaries that were consolidated under IFRS as issued by the IASB as of December 31, 2022 except Kookmin Bank, KB Kookmin Card, KB Securities, the Former KB Life Insurance, KB Insurance and Prudential Life Insurance, including principally KB Asset Management, KB Real Estate Trust, KB Investment, KB Credit Information, KB Data System, KB Savings Bank and KB Capital. The following table shows, for the periods indicated, our income statement data for this segment:

 

     Year Ended December 31,     Percentage Change  
     2020     2021     2022     2021/2020     2022/2021  
     (in billions of Won)     (%)  

Income statement data

           

Interest income

    ￦ 727     ￦ 817     ￦ 1,065       12.4       30.4  

Interest expense

      (412 )      (405 )      (505 )      (1.7)       24.7  

Net fee and commission income

      776       1,069       1,145       37.8       7.1  

Net gains on financial instruments at fair value through profit or loss

      397       184       22       (53.7 )      (88.0 ) 

Net other operating expenses

      (472 )      (583 )      (608 )      23.5       4.3  

General and administrative expenses

      (406 )      (438 )      (467 )      7.9       6.6  

Provision for credit losses

      (148 )      (176 )      (178 )      18.9       1.1  

Share of profit (loss) of associates and joint ventures

      1       9       (8 )      N/M (1)      N/M (1) 

Net other non-operating income (expenses)

      41       2       (5 )      (95.1)       N/M (1) 
  

 

 

    

 

 

    

 

 

      

Profit before income tax expense

      504       480       461       (4.8)       (4.0 ) 

Income tax expense(2)

      (97 )      (148 )      (113 )      52.6       (23.6 ) 
  

 

 

    

 

 

    

 

 

      

Profit for the year

    ￦ 406     ￦ 332     ￦ 347       (18.2)       4.5  
  

 

 

    

 

 

    

 

 

      

 

(1)

“N/M” means not meaningful.

(2)

Represents income tax attributable to our holding company and all of our subsidiaries that were consolidated under IFRS as issued by the IASB except Kookmin Bank, KB Kookmin Card, KB Securities (including its predecessor entities), the Former KB Life Insurance, KB Insurance and Prudential Life Insurance.

Comparison of 2022 to 2021

Our profit before income tax expense for this segment decreased 4.0% from ￦480 billion in 2021 to ￦461 billion in 2022.

Interest income attributable to this segment increased 30.4% from ￦817 billion in 2021 to ￦1,065 billion in 2022. This increase was primarily due to increases in the average volumes of loans of KB Capital and, to a lesser extent, KB Savings Bank.

Interest expense attributable to this segment increased 24.7% from ￦405 billion in 2021 to ￦505 billion in 2022, mainly due to an increase in the average volume of deposits of KB Savings Bank and an increase in the average yields of debentures of KB Capital.

Net fee and commission income attributable to this segment increased 7.1% from ￦1,069 billion in 2021 to ￦1,145 billion in 2022, principally reflecting increases in lease and rental fees received by KB Capital and, to a lesser extent, an increase in the operating lease fees received by our consolidated funds, which were offset in part by an increase in other service fees paid by our consolidated funds.

 

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Net gains on financial instruments at fair value through profit or loss attributable to this segment decreased 88.0% from ￦184 billion in 2021 to ￦22 billion in 2022, primarily as a result of decreases in gains on valuation of foreign equity securities of KB Investment, gains on sales of equity securities of KB Investment and gains on valuations of debt securities of our consolidated funds.

Net other operating expenses attributable to this segment increased 4.3% from ￦583 billion in 2021 to ￦608 billion in 2022, which mainly reflected a decrease in gains on sales of loans measured at amortized cost of KB Capital.

General and administrative expenses attributable to this segment increased 6.6% from ￦438 billion in 2021 to ￦467 billion in 2022, principally due to an increase in the salary expenses of our holding company, KB Asset Management, KB Real Estate Trust and KB Capital.

Provision for credit losses increased 1.1% from ￦176 billion in 2021 to ￦178 billion in 2022, primarily due to an increase in provisions for credit losses of loans in Korean Won of KB Capital, which was offset in part by a reversal of provisions for credit losses of debentures of our holding company.

Share of profit (loss) of associates and joint ventures attributable to this segment changed from a profit of ￦9 billion in 2021 to a loss of ￦8 billion in 2022, mainly reflecting an increase in valuation losses on equity-method investments, and a decrease in valuation gains on equity-method investments, of KB Investment.

Net other non-operating income (expenses) attributable to this segment changed from a net income of ￦2 billion in 2021 to a net expense of ￦5 billion in 2022, principally reflecting a decrease in other non-operating income of KB Capital and an increase in other non-operating expenses of our consolidated funds.

Comparison of 2021 to 2020

Our profit before income tax expense for this segment decreased 4.8% from ￦504 billion in 2020 to ￦480 billion in 2021.

Interest income attributable to this segment increased 12.4% from ￦727 billion in 2020 to ￦817 billion in 2021. This increase was primarily due to increases in the average volumes of loans of KB Capital and, to a lesser extent, KB Savings Bank.

Interest expense attributable to this segment decreased 1.7% from ￦412 billion in 2020 to ￦405 billion in 2021, mainly due to a decrease in the average volume of debentures of our holding company on a separate basis, which was enhanced by a decrease in the average yields of debentures of KB Capital.

Net fee and commission income attributable to this segment increased 37.8% from ￦776 billion in 2020 to ￦1,069 billion in 2021, principally reflecting increases in lease and rental fees received by KB Capital and, to a lesser extent, an increase in the operating lease fees received by our consolidated funds, which were offset in part by increases in other fees paid by KB Capital and our holding company.

Net gains on financial instruments at fair value through profit or loss attributable to this segment decreased 53.7% from ￦397 billion in 2020 to ￦184 billion in 2021, primarily as a result of a decrease in gains on valuations of debt securities of our consolidated funds.

Net other operating expenses attributable to this segment increased 23.5% from ￦472 billion in 2020 to ￦583 billion in 2021, which mainly reflected an increase in depreciation and amortization expenses with respect to leased assets of KB Capital, which were partially offset by gains on valuations of foreign currency-denominated loans held by our consolidated funds.

 

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General and administrative expenses attributable to this segment increased 7.9% from ￦406 billion in 2020 to ￦438 billion in 2021, principally due to an increase in the salary expenses of our holding company, KB Asset Management, KB Real Estate Trust and KB Capital, which was enhanced by an increase in advertisement expenses of KB Capital and fees and commissions paid by our holding company and KB Asset Management.

Provision for credit losses increased 18.9% from ￦148 billion in 2020 to ￦176 billion in 2021, primarily due to an increase in provision for credit losses of private placement bonds of our consolidated funds and a decrease in reversal of credit losses of loans in Korean Won of our consolidated funds, which were enhanced by an increase in provision for credit losses of other financial assets of KB Real Estate Trust.

Share of profit of associates and joint ventures attributable to this segment increased eight-fold from ￦1 billion in 2020 to ￦9 billion in 2021, mainly reflecting an increase in valuation gains on equity-method investments of KB Investment.

Net other non-operating income attributable to this segment decreased 95.1% from ￦41 billion in 2020 to ￦2 billion in 2021, principally reflecting a decrease in the rental income of our consolidated funds.

 

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Item 5.B.

Liquidity and Capital Resources

Financial Condition

Assets

The following table sets forth, as of the dates indicated, the principal components of our assets:

 

     As of December 31,     Percentage Change  
     2021     2022     2022/2021  
     (in billions of Won)     (%)  

Cash and due from financial institutions

    ￦ 31,009     ￦ 32,063       3.4  

Financial assets at fair value through profit or loss

      66,006       64,935       (1.6 ) 

Derivative financial assets

      3,721       9,446       153.9  

Financial investments

      104,848       116,589       11.2  

Loans measured at amortized cost:

       

Loans to banks

      8,325       9,750       17.1  
  

 

 

    

 

 

    

Loans to customers other than banks:

       

Loans in Korean Won

      346,954       358,521       3.3  

Loans in foreign currencies

      24,856       30,720       23.6  

Domestic import usance bills

      3,311       4,499       35.9  

Off-shore funding loans

      1,065       908       (14.7 ) 

Call loans

      902       119       (86.8 ) 

Bills bought in Korean Won

      2       286       N/M (1) 

Bills bought in foreign currencies

      2,001       1,781       (11.0 ) 

Guarantee payments under acceptances and guarantees

      21       18       (14.3 ) 

Credit card receivables in Korean Won

      20,766       22,562       8.6  

Credit card receivables in foreign currencies

      58       47       (19.0 ) 

Bonds purchased under repurchase agreements

      4,855       3,029       (37.6 ) 

Privately placed bonds

      759       854       12.5  

Factored receivables

      1       0       (100.0 ) 

Lease receivables

      1,292       1,134       (12.2 ) 

Loans for installment credit

      6,416       6,458       0.7  
  

 

 

    

 

 

    

Total loans to customers other than banks

      413,259       430,937       4.3  

Less:

       

Allowances for credit losses

      (3,684 )      (4,157 )      12.8  
  

 

 

    

 

 

    

Total loans measured at amortized cost, net

      417,900       436,531       4.5  

Property and equipment

      5,240       4,991       (4.8 ) 

Other assets(2)

      35,171       36,615       4.1  
  

 

 

    

 

 

    

Total assets

    ￦ 663,896     ￦ 701,171       5.6  
  

 

 

    

 

 

    

 

(1)

“N/M” means not meaningful.

(2)

Includes investments in associates and joint ventures, investment properties, intangible assets, net defined benefit assets, current income tax assets, deferred income tax assets, assets held for sale, assets of a disposal group held for sale and miscellaneous other assets.

For further information on our assets, see “Item 4.B. Business Overview—Assets and Liabilities.”

Our total assets increased 5.6% from ￦663,896 billion as of December 31, 2021 to ￦701,171 billion as of December 31, 2022, principally due to a 4.5% increase in loans from ￦417,900 billion as of December 31, 2021 to ￦436,531 billion as of December 31, 2022, an 11.2% increase in financial investments from ￦104,848 billion as of December 31, 2021 to ￦116,589 billion as of December 31, 2022 and a 153.9% increase in derivative financial assets from ￦3,721 billion as of December 31, 2021 to ￦9,446 billion as of December 31, 2022. The increase in loans was mainly due to increases in loans in Korean Won and, to a lesser extent, loans in foreign currencies. The increase in financial investments was primarily attributable to an increase in our debt securities measured at amortized cost. The increase in derivative financial assets was primarily due to an increase in finance- and insurance-related derivative financial assets.

 

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Liabilities and Equity

The following table sets forth, as of the dates indicated, the principal components of our liabilities and our equity:

 

     As of December 31,     Percentage Change  
     2021     2022     2022/2021  
     (in billions of Won)     (%)  

Liabilities:

       

Financial liabilities at fair value through profit or loss

    ￦ 12,089     ￦ 12,272       1.5  

Deposits

      372,024       388,888       4.5  

Borrowings

      56,912       71,717       26.0  

Debentures

      67,430       68,698       1.9  

Provisions

      809       969       19.8  

Insurance liabilities

      57,166       58,230       1.9  

Other liabilities(1)

      49,172       50,753       3.2  
  

 

 

    

 

 

    

Total liabilities

      615,602       651,528       5.8  
  

 

 

    

 

 

    

Equity:

       

Share capital

      2,091       2,091       0.0  

Hybrid securities

      2,838       4,434       56.2  

Capital surplus

      16,940       16,941       0.0  

Accumulated other comprehensive income (loss)

      1,047       (2,713 )      N/M (2) 

Accumulated other comprehensive income relating to assets of a disposal group held for sale

      8       —       N/A (3) 

Retained earnings

      25,673       28,447       10.8  

Treasury shares

      (1,136 )      (836 )      (26.4 ) 
  

 

 

    

 

 

    

Equity attributable to shareholders of the Parent Company

      47,461       48,363       1.9  

Non-controlling interests

      833       1,280       53.7  
  

 

 

    

 

 

    

Total equity

      48,294       49,643       2.8  
  

 

 

    

 

 

    

Total liabilities and equity

    ￦ 663,896     ￦ 701,171       5.6  
  

 

 

    

 

 

    

 

(1)

Includes derivative financial liabilities, current income tax liabilities, deferred income tax liabilities, net defined benefit liabilities and miscellaneous other liabilities.

(2)

“N/M” means not meaningful.

(3)

“N/A” means not applicable.

Our total liabilities increased 5.8% from ￦615,602 billion as of December 31, 2021 to ￦651,528 billion as of December 31, 2022. The increase was primarily due to a 4.5% increase in deposits from ￦372,024 billion as of December 31, 2021 to ￦388,888 billion as of December 31, 2022, and a 26.0% increase in borrowings from ￦56,912 billion as of December 31, 2021 to ￦71,717 billion as of December 31, 2022. Our deposits increased mainly as a result of an increase in time deposits, which was in large part offset by a decrease in demand deposits. Our increase in borrowings was primarily attributable to an increase in general borrowings.

Our total equity increased 2.8% from ￦48,294 billion as of December 31, 2021 to ￦49,643 billion as of December 31, 2022. This increase mainly resulted from increases in our retained earnings and issuances of hybrid securities, the effects of which were partially offset by a change in our accumulated other comprehensive income (loss) from an income in 2021 to a loss in 2022.

Liquidity

Our primary source of funding has historically been and continues to be deposits. Deposits amounted to ￦372,024 billion and ￦388,888 billion as of December 31, 2021 and 2022, which represented approximately

 

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74.9% and 73.5% of our total funding, respectively. We have been able to use customer deposits to finance our operations generally, including meeting a portion of our liquidity requirements. Although the majority of deposits are short-term, it has been our experience that the majority of our depositors generally roll over their deposits at maturity, thus providing us with a stable source of funding. However, in the event that a substantial number of our depositors do not roll over their deposits or otherwise decide to withdraw their deposited funds, we would need to place increased reliance on alternative sources of funding, some of which may be more expensive than customer deposits, in order to finance our operations. See “Item 3.D. Risk Factors—Risks relating to liquidity and capital management—Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.” In particular, we may increase our utilization of alternative funding sources such as short-term borrowings and cash and cash equivalents (including funds from maturing loans), as well as liquidating our positions in financial assets and using the proceeds to fund parts of our operations, as necessary.

We also obtain funding through debentures and borrowings to meet our liquidity needs. Debentures represented 13.6% and 13.0% of our total funding as of December 31, 2021 and 2022, respectively. Borrowings represented 11.5% and 13.5% of our total funding as of December 31, 2021 and 2022, respectively. For further information on our sources of funding, see “Item 4.B. Business Overview—Assets and Liabilities—Funding.”

The Financial Services Commission of Korea requires each financial holding company in Korea to maintain specific Won and foreign currency liquidity ratios and each bank in Korea to maintain a liquidity coverage ratio and a foreign currency liquidity coverage ratio. These ratios require us and Kookmin Bank to keep the ratio of liquid assets to liquid liabilities above certain minimum levels. For a description of these requirements, see “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Liquidity” and “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity.”

We are exposed to liquidity risk arising from withdrawals of deposits, payments of insurance contract claims and refunds, and maturities of our debentures and borrowings, as well as the need to fund our lending, trading and investment activities (including our capital expenditures) and the management of our trading positions. The goal of liquidity management is for us to be able, even under adverse conditions, to meet all of our liability repayments on time and fund all investment opportunities. For an explanation of how we manage our liquidity risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Liquidity Risk Management.” From time to time, we engage in the purchase and/or cancellation of our own equity securities, as part of our efforts to generate additional shareholder value. For example, from February 8, 2023 to March 29, 2023, we engaged in a series of open-market transactions to purchase a total of 5,385,996 of our shares of common stock at an average price of ￦50,454 per share for an aggregate amount of ￦271.7 billion, followed by the cancellation of such shares in their entirety.

We are a financial holding company, and substantially all of our operations are in our subsidiaries. Accordingly, we rely on distributions from our subsidiaries (as well as associates), direct borrowings and issuances of debt and equity securities to fund our liquidity obligations at the holding company level. We received aggregate dividends of ￦1,573 billion, ￦1,618 billion and ￦1,871 billion from our subsidiaries and associates in 2020, 2021 and 2022, respectively. See “Item 3.D. Risk Factors—Risks relating to our financial holding company structure and strategy.”

 

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Asset Encumbrance

Part of our future funding and collateral needs are supported by assets readily available and unrestricted. The following table sets forth our assets that are available and those that are encumbered and not available to support our future funding and collateral needs as of December 31, 2022.

 

     December 31, 2022  
                   Unencumbered Assets  
     Assets      Encumbered
Asset (1)		      Readily
Available (2)		      Other  
     (in billions of Won)  

On-balance sheet

            

Cash and due from financial institutions

    ￦ 32,063      ￦ 3,165      ￦ 27,190      ￦ 1,708  

Financial assets at fair value through profit or loss

      64,935        12,602        18,542        33,791  

Derivative financial assets

      9,446           —        9,446  

Loans measured at amortized cost

      436,531        16,579        —        419,952  

Financial investments

      116,589        26,936        45,076        44,577  

Investments in associates and joint ventures

      683        —        —        683  

Property and equipment

      4,991        —        —        4,991  

Investment property

      3,148        807        —        2,341  

Intangible assets

      3,200        —        —        3,200  

Net defined benefit assets

      479        —        —        479  

Current income tax assets

      205        —        —        205  

Deferred income tax assets

      251        —        —        251  

Assets held for sale

      212        —        —        212  

Assets of a disposal group held for sale

      —        —        —        —  

Other assets

      28,438        992        —        27,446  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total on-balance sheet

    ￦ 701,171      ￦ 61,081      ￦ 90,808      ￦ 549,282  
  

 

 

     

 

 

     

 

 

     

 

 

  

Off-balance sheet

            

Fair value of securities accepted as collateral

    ￦ 3,344      ￦ —      ￦ 3,344      ￦ —  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total off-balance sheet

    ￦ 3,344      ￦ —      ￦ 3,344      ￦ —  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Represents assets that have been pledged as collateral against an existing liability or are otherwise restricted in their use to secure funding.

(2)

Represents those on- and off-balance sheet assets that are not otherwise encumbered, and which are in freely transferable form.

Commitments and Guarantees

The following table sets forth our commitments and guarantees as of December 31, 2022. These commitments and guarantees are not included within our consolidated statements of financial position.

 

     Payments Due by Period  
     Total      1 Year or Less      1-3 Years      3-5 Years      More Than
5 Years		  
     (in billions of Won)  

Financial guarantees(1)

    ￦ 7,345      ￦ 2,728      ￦ 4,532      ￦ 28      ￦ 57  

Confirmed acceptances and guarantees

      7,855        4,658        2,906        262        29  

Commitments

      189,120        138,800        8,157        2,905        39,258  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    ￦ 204,320      ￦ 146,186      ￦ 15,595      ￦ 3,195      ￦ 39,344  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Includes ￦6,555 billion of irrevocable commitments to provide contingent liquidity credit lines to special purpose entities for which we serve as the administrator. See Note 40 of the notes to our consolidated financial statements.

 

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Capital Adequacy

Kookmin Bank is subject to capital adequacy requirements of the Financial Services Commission applicable to Korean banks. The requirements applicable commencing in December 2013 pursuant to amended Financial Services Commission regulations promulgated in July 2013 were formulated based on Basel III, which was first introduced by the Basel Committee on Banking Supervision, Bank for International Settlements in December 2009. Under the amended Financial Services Commission regulations, all banks in Korea are required to maintain certain minimum ratios of common equity Tier I capital, total Tier I capital and total Tier I and Tier II capital to risk-weighted assets. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Capital Adequacy.”

As of December 31, 2022, Kookmin Bank’s total Tier I and Tier II capital adequacy ratio was 17.46%.

The following table sets forth a summary of Kookmin Bank’s capital and capital adequacy ratios as of December 31, 2021 and 2022, based on applicable regulatory reporting standards.

 

     As of December 31,  
     2021     2022  
     (in billions of Won, except percentages)  

Tier I capital:

    ￦ 30,491     ￦ 30,963  

Common equity Tier I capital

      29,917       30,089  

Paid-in capital

      2,022       2,022  

Capital reserves

      5,025       5,025  

Retained earnings

      23,661       25,834  

Non-controlling interests in consolidated subsidiaries

      —       —  

Others

      (791 )      (2,792 ) 

Additional Tier I capital

      575       874  

Tier II capital:

      5,081       5,270  

Revaluation reserves

      —       —  

Allowances for credit losses(1)

      595       886  

Hybrid debt

      —       —  

Subordinated debt

      4,486       4,384  

Valuation gain on financial investments

      —       —  

Others

      —       —  
  

 

 

    

 

 

  

Total core and supplementary capital

      35,572       36,233  

Risk-weighted assets

      203,569       207,558  

Credit risk:

      181,149       182,294  

Market risk

      10,833       12,611  

Operational risk

      11,587       12,653  

Total Tier I and Tier II capital adequacy ratio

      17.47 %      17.46 % 

Tier I capital adequacy ratio

      14.98 %      14.92 % 

Common equity Tier I capital adequacy ratio

      14.70 %      14.50 % 

Tier II capital adequacy ratio

      2.50 %      2.54 % 

 

(1)

Under the standardized approach, allowances for credit losses in respect of credits classified as normal or precautionary are used to calculate Tier II capital only to the extent they represent up to 1.25% of credit risk-weighted assets. Under the internal ratings-based approach, allowances for credit losses, less estimated losses, are used to calculate Tier II capital only to the extent they represent up to 0.6% of credit risk-weighted assets.

In addition, we, as a bank holding company, are required to maintain certain minimum capital adequacy ratios pursuant to applicable regulations of the Financial Services Commission. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy.”

 

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The following table sets forth a summary of our consolidated capital adequacy ratio as of December 31, 2021 and 2022, based on applicable regulatory reporting standards.

 

     As of December 31,  
     2021     2022  
     (in billions of Won)  

Tier I capital

     

Common equity Tier I capital

    ￦ 39,144     ￦ 40,104  

Additional Tier I capital

      3,161       4,928  
  

 

 

    

 

 

  

Total Tier I capital

    ￦ 42,305     ￦ 45,032  

Tier II capital

      3,577       3,938  
  

 

 

    

 

 

  

Risk-weighted assets

    ￦ 290,914     ￦ 302,968  
  

 

 

    

 

 

  

Total Tier I and Tier II capital adequacy ratio

      15.77 %      16.16 % 

Tier I capital adequacy ratio

      14.54 %      14.86 % 

Common equity Tier I capital adequacy ratio

      13.46 %      13.24 % 

Tier II capital adequacy ratio

      1.23 %      1.30 % 

Recent Accounting Pronouncements

See Note 2.1 of the notes to our consolidated financial statements for a description of other recent accounting pronouncements under IFRS as issued by the IASB that have been issued but are not yet effective.

 

Item 5.C.

Research and Development, Patents and Licenses, etc.

Not applicable.

 

Item 5.D.

Trend Information

These matters are discussed under Item 5.A. and Item 5.B. above where relevant.

 

Item 5.E.

Critical Accounting Estimates

Not applicable.

 

Item 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

Item 6.A.

Directors and Senior Management

Board of Directors

Our board of directors, currently consisting of one executive director, one non-standing director and seven non-executive directors], has the ultimate responsibility for the management of our affairs.

Our articles of incorporation provide that:

 

  •  

we may have no more than 30 directors;

 

  •  

the number of executive directors must be less than 50% of the total number of directors; and

 

  •  

we have five or more non-executive directors.

The term of office for each director is renewable and is subject to the Korean Commercial Code, the Act on the Corporate Governance of Financial Companies and related regulations.

 

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Our board of directors meets on a regular basis to discuss and resolve material corporate matters. Additional extraordinary meetings may also be convened at the request of any director or any committee that serves under the board of directors.

The names and positions of our directors are set forth below. The business address of all of the directors is our registered office at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea.

Executive Director

The table below identifies our executive director as of the date of this annual report:

 

Name

  

Date of Birth

  

Position

  

Director Since

  

End of Term

Jong Kyoo Yoon

   October 13, 1955   Chairman and Chief Executive Officer   November 21, 2014   November 20, 2023

Our executive director does not have any significant activities outside KB Financial Group.

Jong Kyoo Yoon is our chairman and chief executive officer. He has been an executive director since November 2014. He previously served as the president and chief executive officer of Kookmin Bank, our deputy president, chief finance officer and chief risk management officer, a senior advisor of Kim & Chang, a senior executive vice president, chief financial officer and chief strategic officer of Kookmin Bank and a senior partner of Samil PricewaterhouseCoopers. Mr. Yoon received a B.A. in business administration from Sungkyunkwan University, an M.B.A. from Seoul National University and a Ph.D. in business administration from Sungkyunkwan University.

Non-standing Director

The table below identifies our non-standing director as of the date of this annual report:

 

Name

  

Date of Birth

  

Position

  

Director Since

  

End of Term

Jae Keun Lee

   May 27, 1966   Non-standing director; President and Chief Executive Officer of Kookmin Bank   March 25, 2022   Annual general meeting of shareholders in 2024

Jae Keun Lee has been a non-standing director since March 2022. He currently serves as the president and chief executive officer of Kookmin Bank. Mr. Lee previously served as a senior executive vice president of the sales group and a senior managing director of the strategy and finance planning group at Kookmin Bank, as well as our chief finance officer. Mr. Lee received a B.A. in mathematics and an M.A. in economics from Sogang University, and an M.B.A. in financial engineering from the Korea Advanced Institute of Science and Technology.

Non-executive Directors

Our non-executive directors are selected based on the candidates’ knowledge and experience in diverse areas, such as finance, business management, accounting, laws and regulations, finance and risk management, ESG and consumer protection and digital and information technology. All seven non-executive directors below were nominated by our Non-executive Director Nominating Committee and approved by our shareholders.

 

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The table below identifies our non-executive directors as of the date of this annual report:

 

Name

    Date of Birth    Position    Director Since    Date Term Ends(1)

Kyung Ho Kim

    December 21, 1954    Chairman of the Board and
Non-executive Director		    March 27, 2019    March 23, 2024

Seon-joo Kwon

    November 12, 1956    Non-executive Director    March 20, 2020    March 23, 2024

Whajoon Cho

    February 24, 1957    Non-executive Director    March 24, 2023    March 23, 2025

Gyutaeg Oh

    February 20, 1959    Non-executive Director    March 20, 2020    March 23, 2024

Jungsung Yeo

    April 1, 1960    Non-executive Director    March 24, 2023    March 23, 2025

Jaehong Choi

    August 1, 1962    Non-executive Director    March 25, 2022    March 24, 2024

Sung-Yong Kim

    March 16, 1966    Non-executive Director    March 24, 2023    March 23, 2025

 

(1) 

The date on which each term will end will be the date of the general stockholders’ meeting in the relevant year unless otherwise specified.

Kyung Ho Kim has been a non-executive director since March 2019. He is currently an advisor at Jade-K Partners Co., Ltd. He previously served as a professor at Hongik University School of Business Administration, the vice president of Hongik University, a non-executive director of Shinhan Investment Corp., a non-executive director of Citibank Korea Inc., a vice chairman of the Korea Accounting Institute and president of the Korea Association for Government Accounting. Mr. Kim received a B.A. in business administration from Seoul National University and an M.S. and a Ph.D. in management from Purdue University.

Seon-joo Kwon has been a non-executive director since March 2020. She previously served a number of roles at Industrial Bank of Korea, including the chairman and chief executive officer, the head of the risk management division, the head of the credit card business division and the head of the central regional headquarters. She also previously served as a visiting scholar at the Korea Institute of Finance. Ms. Kwon received a B.A. in English from Yonsei University.

Whajoon Cho has been a non-executive director since March 2023. She previously served as the auditor of Mercedes-Benz Financial Services Korea Limited, the president, chief executive officer and chief financial officer of KT Capital Corporation, the chief financial officer of BC Card Co., Ltd. and the investor relations officer at KT Corporation. Ms. Cho received a B.A. in mass communication from Sogang University, an M.A. in sociology from Indiana University, an M.S. in accounting from University of Wisconsin, Madison and a Ph.D. in accounting from Indiana University.

Gyutaeg Oh has been a non-executive director since March 2020. He is currently a professor at Chung-Ang University School of Business Administration. He previously served as a member of the Public Funds Oversight Committee of the Financial Services Commission, an assistant professor at the University of Iowa, a non-executive director at Kiwoom Securities Co., Ltd. and a non-executive director at Moa Savings Bank. Mr. Oh received a B.A. in economics from Seoul National University, an M.S. in management science from the Korea Advanced Institute of Science and Technology and an M.A. and a Ph.D. in economics from Yale University.

Jungsung Yeo has been a non-executive director since March 2023. She is currently a professor in the Department of Consumer Science at Seoul National University and the chairperson of the Consumer Policy Committee of the Korean Government. She previously served as the executive vice president for Academic Affairs at Seoul National University, the executive vice president for Planning and Communication at Seoul National University, the president of the Korean Society of Consumer Studies, a commissioner of the Personal Information Protection Commission of Korea and a commissioned member of the National Economic Advisory Council under the President of Korea. Ms. Yeo received a B.S. in home economics from Seoul National University and an M.S. and a Ph.D. in consumer economics from Cornell University.

Jaehong Choi has been a non-executive director since March 2022. He is currently a professor at Gangneung-Wonju National University Multimedia Engineering. He previously served as a non-executive

 

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director at Kakao Corp., an advisor at NHN Japan Corp. and an advisor at eSamsung Japan Corp. Mr. Choi received a B.S., M.S. and Ph.D. in electronic engineering from Hanyang University.

Sung-Yong Kim has been a non-executive director since March 2023. He is currently a professor at Sungkyunkwan University Law School. He previously served as the chair of the Insolvency Law Institute of Korea, a non-standing commissioner of the Securities and Futures Commission, a member of the management committee for the Key Industries Stabilization Fund and a non-executive director at Woori Bank. Mr. Kim received an LL.B. from Seoul National University College of Law and an LL.M. from the University of Pennsylvania Law School.

Any director having an interest in a transaction that is subject to approval by the board of directors may not vote at the meeting during which the board approves the transaction.

Executive Officers

The table below identifies our executive officers who are not executive directors as of the date of this annual report:

 

Name

   

Date of Birth

   

Position

Jong Hee Yang

    June 10, 1961    Vice Chairman and Head of Retail Customer, Wealth Management and Pension, Small and Medium Enterprise Business Units

Yin Hur

    December 19, 1961    Vice Chairman and Head of Global / Insurance Business Units

Dong Cheol Lee

    October 4, 1961    Vice Chairman and Head of Digital / IT Business Units

Scott Y. H. Seo

    March 26, 1966    Senior Executive Vice President and Chief Finance Officer

Cheal Soo Choi

    October 8, 1966    Senior Executive Vice President and Chief Risk Management Officer

Dong Whan Han

    January 30, 1965    Senior Executive Vice President and Head of KB Research

Se Min Kim

    January 3, 1971    Senior Managing Director and Chief Strategy Officer

Bong Joong Kwon

    November 5, 1969    Senior Managing Director and Head of IR

Yeo Woon Yoon

    April 7, 1967    Senior Managing Director and Chief Human Resources Officer

Hye Ja Seo

    September 26, 1966    Senior Managing Director and Chief Compliance Officer

Jin Gyu Maeng

    January 15, 1966    Senior Managing Director and Head of Audit

Hye Sook Moon

    September 8, 1971    Managing Director and Head of ESG Division

Byung Joo Oh

    January 4, 1973    Managing Director, Insurance Business Unit

Jeong Rim Park

    November 27, 1963    Head of the Capital Market Business / Corporate and Investment Banking Business / Asset Management Business Units

Sung Hyun Kim

    August 5, 1963    Head of Corporate and Investment Banking Business Unit

Hyun Seung Lee

    November 11, 1966    Head of Asset Management Business Unit

Jin Young Kim

    August 5, 1969    Chief Public Relations Officer

Mun Cheol Jeong

    August 3, 1968    Senior Executive Vice President, Retail Customer Business Unit

Jae Young Choi

    June 7, 1967    Senior Executive Vice President, Wealth Management and Pension Business Unit
Sung Ki Kwon    July 3, 1966    Senior Executive Vice President, Small and Medium Enterprise Business Unit
Nam Hoon Cho    June 28, 1968    Chief Global Strategy Officer
Young Suh Cho    February 25, 1971    Chief Digital Platform Officer
Jin Soo Yoon    February 29, 1964    Chief Information Technology Officer
Chang Hwa Yook    December 11, 1967    Chief Data Officer

Sung Pyo Jeon

    August 20, 1966    Chief Customer Contact Officer

 

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Name

   

Date of Birth

   

Position

Jeong Ha    January 31, 1967    Senior Executive Vice President, Capital Market Business Unit
Soon Bae Kang    August 30, 1964    Senior Executive Vice President, Corporate and Investment Banking Business Unit
Nam Che Kang    August 11, 1967    Head of Global Division
Yoon Ha    March 10, 1971    Head of Customer Experience Design Center
Yoo Shim Hur    April 25, 1973    Head of Digital Contents Center
Ki Eun Park    September 27, 1970    Head of Technology Innovation Center
Joo Hyun Kim    November 15, 1970    Head of Group Cloud Center
Soon Young Oh    August 26, 1977    Head of Financial AI Center
Chan Yong Park    September 12, 1965    Head of Office of Planning and Coordination
Min Hyuk Kang    January 8, 1970    Head of Office of Capital Market Planning

None of the executive officers has any significant activities outside KB Financial Group.

Jong Hee Yang is a vice chairman and serves as the head of our retail customer business unit, wealth management and pension business unit and small and medium enterprise business unit. He previously served as the chief executive officer of KB Insurance. Mr. Yang received a B.A. in history from Seoul National University.

Yin Hur is a vice chairman and serves as the head of our global business unit and insurance business unit. He previously served as the president and chief executive officer of Kookmin Bank. Mr. Hur received a B.A. and M.A. in law from Seoul National University.

Dong Cheol Lee is a vice chairman and serves as the head of our digital business unit and IT business unit. He previously served as the chief executive officer of KB Kookmin Card. Mr. Lee received a B.A. in law from Korea University and an L.L.M. from Tulane University Law School.

Scott Y. H. Seo is a senior executive vice president and our chief finance officer. He previously served as a senior managing director of the institution sales business unit of KB Securities. Mr. Seo received a B.A. in business administration from Sogang University.

Cheal Soo Choi is a senior executive vice president and our chief risk management officer. He previously served as a senior managing director of the risk management group of Kookmin Bank. Mr. Choi received a B.A. in agricultural economics from Korea University.

Dong Whan Han is a senior executive vice president and the head of KB Research. He previously served as our chief digital platform officer and chief digital innovation officer. Mr. Han received an M.S. in geography from Seoul National University and an M.B.A. from the University of Washington.

Se Min Kim is a senior managing director and our chief strategy officer. He previously served as a senior managing director and the head of the business management division of KB Capital. Mr. Kim received a B.A. in business administration from Sogang University.

Bong Joong Kwon is a senior managing director and the head of our IR department. He previously served as the general manager of our IR department. Mr. Kwon received a B.A. in law from Hallym University and an M.B.A. from Yonsei University.

Yeo Woon Yoon is a senior managing director and our chief human resources officer. He previously served as the head of the foreign exchange business division of Kookmin Bank. Mr. Yoon received a B.A. in English literature from Korea University.

Hye Ja Seo is a senior managing director and our chief compliance officer. She previously served as the head of Kookmin Bank’s Sangin-yeok regional head office. Ms. Suh received a B.A. in law from Kyungpook National University.

 

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Jin Gyu Maeng is a senior managing director and the head of audit. He previously served as the head of our office of planning and coordination. Mr. Maeng received a B.A. in economics from Dongguk University.

Hye Sook Moon is a managing director and the head of our ESG division. She previously served as a general manager of our ESG strategy department. Ms. Moon received an M.A. in economics from Korea University.

Byung Joo Oh is a managing director in our insurance business unit. He previously served as a general manager of KB Insurance’s strategic planning department. Mr. Oh received a B.A. in statistics from Korea University.

Jeong Rim Park is the head of our capital market business unit, corporate and investment banking business unit and asset management business unit and also serves as the chief executive officer of KB Securities. She previously served as a senior executive vice president of Kookmin Bank and the head of its wealth management group, as well as a senior executive vice president of KB Securities in charge of its wealth management division. Ms. Park received a B.A. in business administration and an M.B.A. from Seoul National University.

Sung Hyun Kim is the head of our corporate and investment banking business unit and also serves as the chief executive officer of KB Securities. He previously served as a senior executive vice president of the investment banking division of KB Securities. Mr. Kim received a B.A. in economics from Yonsei University.

Hyun Seung Lee is the head of our asset management business unit and also serves as the chief executive officer of KB Asset Management. He previously served as the chief executive officer of Hyundai Asset Management. Mr. Lee received a B.A. in business administration and an M.A. in public administration from Seoul National University and an M.A. in public administration from Harvard University.

Jin Young Kim is our chief public relations officer. He also serves as a senior managing director in Kookmin Bank’s brand strategy group. He previously served as a general manager of Kookmin Bank’s brand strategy department. Mr. Kim received a B.A. in law from Hanyang University and an M.A. in advertising and public relations from Yonsei University.

Mun Cheol Jeong is a senior executive vice president and directs our retail customer business unit. He also serves as a senior executive vice president of Kookmin Bank and the head of its retail consumer group. He previously served as the head of our small and medium enterprise business unit and a senior managing director of the strategy and finance planning group of Kookmin Bank. Mr. Jeong received a B.A. in business administration from Seoul National University and an M.B.A. from the Korea Advanced Institute of Science and Technology.

Jae Young Choi is a senior executive vice president and the head of our wealth management and pension business unit. He also serves as a senior executive vice president at the wealth management customer group of Kookmin Bank, a senior executive vice president of the wealth management business unit of KB Securities and a senior executive vice president of the wealth management and pension business unit of KB Insurance. He previously served as the head of our pension business division and Kookmin Bank’s pension business department. Mr. Choi received a B.A. in accounting information from Kookmin University and an M.B.A. from Yonsei University.

Sung Ki Kwon is a senior executive vice president and directs our small and medium enterprise business unit. He also serves as a senior executive vice president in the small and medium enterprise customer group of Kookmin Bank. He previously served as a senior managing director of the management supporting group of Kookmin Bank. Mr. Kwon received a B.A. in international trade from Kyungnam University.

Nam Hoon Cho is a senior managing director and our chief global strategy officer. He also serves as a senior managing director of the global business group at Kookmin Bank. He previously served as a managing director of the global business division of KB Securities. Mr. Cho received a B.A. in economics from Sungkyunkwan University.

 

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Young Suh Cho is our chief digital platform officer. He also serves as a senior managing director of Kookmin Bank’s digital transformation strategy division. He previously served at Shinhan DS (formerly Shinhan Data System) and Shinhan Financial Group, and as a partner at Bain & Company. Mr. Cho received a B.A. in economics from Seoul National University and an M.B.A. from Columbia University.

Jin Soo Yoon is our chief information technology officer. He also serves as a senior executive vice president of the tech group at Kookmin Bank. He previously served as our chief data officer. Mr. Yoon received a B.S. in computer science from Seoul National University and an M.S. and a Ph.D. from the Korea Advanced Institute of Science and Technology.

Chang Hwa Yook is our chief data officer. He also serves as a senior managing director of the data/AI division at Kookmin Bank. He previously served as the head of our data division. Mr. Yook received a B.S. in economics from Chungnam National University.

Sung Pyo Jeon is our chief customer contact officer. He also serves as a senior managing director of Kookmin Bank’s smart customer group. He previously headed our future contact center planning department. Mr. Jeon received a B.S. and an M.S. in land administration from Kangwon National University.

Jeong Ha is a senior executive vice president and directs our capital market business unit. He also serves as a senior executive vice president of Kookmin Bank’s capital markets group and KB Securities’ sales and trading group. He previously served as the head of Kookmin Bank’s capital markets division. Mr. Ha received a B.A. in business administration from Jeonbuk National University and an M.B.A. from the Korea Advanced Institute of Science and Technology.

Soon Bae Kang is a senior executive vice president and directs our corporate and investment banking business unit. He also serves as a senior executive vice president of Kookmin Bank’s corporate investment banking customer group and KB Securities’ investment banking group. He previously served as a senior managing director of Kookmin Bank’s structured finance division. Mr. Kang received an M.B.A. from Ajou University.

Nam Che Kang is the head of our global business division. He also serves as the head of the global growth supporting division at Kookmin Bank. He previously served as a general manager of KB Kookmin Card’s global business department. Mr. Kang received a B.A. in business administration from the University of Southern California.

Yoon Ha is the head of our customer experience design center. He also serves as the head of the customer experience design center at Kookmin Bank. He previously served as a principal designer of the customer experience innovation team at Samsung SDS. Mr. Ha received an M.S in psychology from Yonsei University and an M.S. in industrial design at Hongik University.

Yoo Shim Hur is the head of our digital contents center. She also serves as a managing director of the digital contents center at Kookmin Bank. She previously served as a vice president of SK Broadband. Ms. Hur received a B.A. in mass communication from the Hankuk University of Foreign Studies.

Ki Eun Park is the head of our technology innovation center. He also serves as a senior managing director of the technology innovation division at Kookmin Bank. He previously served as the chief technology officer at Naver Cloud. Mr. Park received a B.S. in electronic computation and an M.S. in computer science from Chung-Ang University.

Joo Hyun Kim is the head of our group cloud center. He also serves as the head of the cloud platform department of Kookmin Bank. He previously served as the head of the service technology center at Naver Cloud. Mr. Kim received a B.S. in computer science and statistics from Seoul National University.

 

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Soon Young Oh is the head of our financial AI center. She also serves as a managing director of the financial AI center at Kookmin Bank. She previously served as the chief technology officer of the research and development division at Hancom Inc. Ms. Oh received a B.S. in computer science from Seoul Women’s University.

Chan Yong Park is the head of our office of planning and coordination. He is also a senior managing director at Kookmin Bank’s planning and coordination department. He previously served as the head of Kookmin Bank’s shared service division. Mr. Park received a B.A. in business administration from Kwandong University.

Min Hyuk Kang is the head of our office of capital market planning. He is also the head of Kookmin Bank’s trading and capital markets planning department and a managing director at KB Securities’ capital market planning department. He previously served as a general manager of Kookmin Bank’s treasury department. Mr. Kang received a B.A. in business administration from Jeju National University and an M.A. in economics from Yonsei University.

 

Item 6.B.

Compensation

The aggregate remuneration paid and benefits-in-kind granted, excluding stock grants, by us and our subsidiaries to our chairman and chief executive officer, our other executive and non-standing directors, our non-executive directors and our executive officers for the year ended December 31, 2022 was ￦25,410 million. For the year ended December 31, 2022, we set aside ￦745 million for allowances for severance and retirement benefits for our chairman and chief executive officer, the other executive directors and our executive officers.

Among those who received total annual compensation exceeding ￦500 million in 2022 at the holding company level, the five highest-paid individuals were as follows:

 

Name

  

Position

  

Total Compensation in 2022
(in millions of Won)(1)

  

Incentive Compensation for Payment
Subsequent to 2022 (number of shares)(2)

Jong Kyoo Yoon

   Chairman and Chief Executive Officer   ￦1,835   14,972

Pil Kyu Im

   Senior Executive Vice President and Chief Risk Management Officer   1,145   8,674

Jong Hee Yang

   Vice Chairman and Head of Retail Customer, Wealth Management and Pension, Small and Medium Enterprise Business Units   737   1,737

Soon Beom Kwon

   Managing Director   596   3,786

Jong Hoon Lee

   Head of the Legal Affairs Unit   587   —

 

(1) 

Includes annual salary and performance-based incentive payments paid by the holding company.

(2) 

Consists of performance-based shares expected to be granted by the holding company in the future. The actual payment amount will be determined at the time of payment based on the then-current market price of our common shares.

We do not have service contracts with any of our directors or executive officers providing for benefits upon termination of their employment with us.

In 2008, we established a stock grant plan. Pursuant to this plan, we have entered into performance share agreements with certain of our and our subsidiaries’ directors and executive officers, whereby we may grant

 

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shares of our common stock (or the equivalent monetary amount based on the market value of such shares) within specified periods as long-term incentive performance shares in accordance with pre-determined performance targets. See “Item 6.E. Share Ownership—Performance Share Agreements.” In 2022, we incurred ￦58,275 million of compensation costs relating to stock grants under such agreements. See Note 32 of the notes to our consolidated financial statements included elsewhere in this annual report.

 

Item 6.C.

Board Practices

See “Item 6.A. Directors and Senior Management” above for information concerning the terms of office and contractual employment arrangements with our directors and executive officers.

Committees of the Board of Directors

We currently have the following committees that serve under the board:

 

  •  

the Audit Committee;

 

  •  

the Risk Management Committee;

 

  •  

the Evaluation & Compensation Committee;

 

  •  

the Non-Executive Director Nominating Committee;

 

  •  

the Audit Committee Member Nominating Committee;

 

  •  

the CEO Nominating Committee;

 

  •  

the Subsidiaries’ CEO Director Nominating Committee; and

 

  •  

the ESG Committee.

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of stockholders.

Audit Committee

The committee currently consists of four non-executive directors, Whajoon Cho, Kyung Ho Kim, Seon-joo Kwon and Sung-Yong Kim. The chairperson of the Audit Committee is Whajoon Cho. The committee oversees our financial reporting and approves the appointment of our independent registered public accounting firm. The committee also reviews our financial information, auditor’s examinations, key financial statement issues, the plans and evaluation of internal control and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors to each general meeting of stockholders. The committee holds regular meetings every quarter.

Risk Management Committee

The committee currently consists of four non-executive directors, Seon-joo Kwon, Gyutaeg Oh, Whajoon Cho and Jungsung Yeo. The chairperson of the committee is Seon-joo Kwon. The Risk Management Committee oversees and makes determinations on all issues relating to our comprehensive risk management function. In order to ensure our stable financial condition and to maximize our profits, the committee monitors our overall risk exposure and reviews our compliance with risk policies and risk limits. In addition, the committee reviews risk and control strategies and policies, evaluates whether each risk is at an adequate level, establishes or abolishes risk management divisions and reviews risk-based capital allocations as well as recovery and resolution plans. The committee holds regular meetings every quarter.

 

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Evaluation & Compensation Committee

The committee currently consists of four non-executive directors, Jungsung Yeo, Kyung Ho Kim, Whajoon Cho and Sung-Yong Kim. The chairperson of the committee is Jungsung Yeo. The Evaluation and Compensation Committee reviews compensation schemes and compensation levels of us and our subsidiaries. The committee is also responsible for deliberating and deciding the compensation of directors, evaluating management’s performance and implementing management training programs, as well as deciding and supervising the performance-based annual salary of the president and the executive officers of us and our subsidiaries. The committee holds regular meetings semi-annually.

Non-executive Director Nominating Committee

The committee currently consists of four non-executive directors, Jaehong Choi, Kyung Ho Kim, Seon-joo Kwon and Gyutaeg Oh. The chairperson of the committee is Jaehong Choi. The committee is responsible for the management and evaluation of a pool of non-executive director candidates and recommendation of the non-executive director candidates to be nominated at the annual general meeting of shareholders.

Audit Committee Member Nominating Committee

The committee currently consists of all seven of our non-executive directors. As of the date of this annual report, the committee has not appointed a chairperson. The committee oversees the selection of Audit Committee member candidates and recommends them annually sometime prior to the general stockholders meeting. The term of office of its members is from the first meeting of the committee held to nominate the Audit Committee members until the Audit Committee members are appointed.

CEO Nominating Committee

The committee currently consists of all seven of our non-executive directors. The chairperson of the CEO Nominating Committee is Kyung Ho Kim. The committee is responsible for establishing and monitoring procedures for our CEO candidate cultivation and succession program pursuant to our “CEO Succession Regulations,” which cover, among other things, the qualifications of CEO candidates, continued maintenance of the candidate pool and the CEO candidate nomination process. The committee holds regular meetings semi-annually.

Subsidiaries’ CEO Director Nominating Committee

The committee currently consists of one non-standing director, Jae Keun Lee, and three non-executive directors, Gyutaeg Oh, Jungsung Yeo and Jaehong Choi, together with our chairman and chief executive officer, Jong Kyoo Yoon. The chairperson of the Subsidiaries’ CEO Director Nominating Committee is Jong Kyoo Yoon. The committee is responsible for candidate cultivation and succession programs for chief executive officers of our subsidiaries. The committee holds regular meetings semi-annually.

ESG Committee

The Committee currently consists of all seven of our non-executive directors, one non-standing director, Jae Keun Lee, and our chairman and chief executive officer, Jong Kyoo Yoon. The chairperson of the ESG Committee is Gyutaeg Oh. The committee is responsible for establishing and enforcing strategies and policies relating to non-financial aspects of our business, which consist of the environment, social responsibility and corporate governance, in order to promote sustainable development and enhance our corporate value. The committee also manages ESG-related products and investments and monitors ESG-related global initiatives and community outreach efforts. The committee holds regular meetings semi-annually.

 

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Item 6.D.

Employees

As of December 31, 2022, we had a total of 145 full-time employees, excluding 32 executive officers, at our financial holding company.

The following table sets forth information regarding our employees at both our financial holding company and our subsidiaries as of the dates indicated:

 

          As of December 31,  
          2020      2021      2022  

KB Financial Group

    Full-time employees(1)      154        149        145  
   Contractual employees      —        —        —  
   Managerial employees      134        133        131  
   Members of Korea Financial Industry Union      —        —        —  

Kookmin Bank

    Full-time employees(1)      16,054        15,333        14,697  
   Contractual employees      1,728        1,899        2,429  
   Managerial employees      9,026        8,474        8,063  
   Members of Korea Financial Industry Union      14,266        13,989        13,016  

Other subsidiaries

    Full-time employees(1)      9,319        9,181        9,171  
   Contractual employees      1,062        1,092        1,233  
   Managerial employees      5,256        5,190        5,341  
   Members of Korea Financial Industry Union      6,565        6,486        6,587  

 

(1) 

Excluding executive officers.

We consider our relations with our employees to be satisfactory. We and our subsidiaries each have a joint labor-management council which serves as a forum for ongoing discussions between our management and employees. At eight of our subsidiaries, Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card, KB Capital, KB Real Estate Trust, KB Data Systems and KB Credit Information, our employees have a labor union. Every year, the unions at Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card, KB Capital, KB Real Estate Trust, KB Data Systems and KB Credit Information and their respective managements negotiate and enter into new collective bargaining agreements and negotiate annual wage adjustments.

Our compensation packages consist of base salary and base bonuses. We also provide performance-based compensation to employees and management officers, including those of our subsidiaries, depending on the level of responsibility of the employee or officer and business of the relevant subsidiary. Typically, executive officers, heads of regional headquarters and employees in positions that require professional skills, such as fund managers and dealers, are compensated depending on their individual annual performance evaluation. Also, Kookmin Bank has implemented a profit-sharing system in order to enhance the performance of Kookmin Bank’s employees. Under this system, Kookmin Bank pays bonuses to its employees, in addition to the base salary and depending on Kookmin Bank’s annual performance.

In January 2016, Kookmin Bank implemented a “mileage stock” program, pursuant to which its employees may receive performance-based cash payments that correspond to the market value of our common shares. The accumulated “miles” of common shares can be exercised for cash during a two-year period commencing on the one-year anniversary of the grant date.

We provide a wide range of benefits to our employees, including our executive directors. Specific benefits provided may vary for each of our subsidiaries but generally include medical insurance, employment insurance, workers compensation, employee and spouse life insurance, free medical examinations, child tuition and fee reimbursement, disabled child financial assistance and reimbursement for medical expenses, and other benefits may be provided depending on the subsidiary.

 

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In accordance with the National Pension Act, we contribute an amount equal to 4.5% of employee wages, and each employee contributes 4.5% of his or her wages, into each employee’s personal pension account. In addition, in accordance with the Guarantee of Worker’s Retirement Benefits Act, we have adopted a retirement pension plan for our employees. Contributions under the retirement pension plan are deposited annually into a financial institution, and an employee may elect to receive a monthly pension or a lump-sum amount upon retirement. Our retirement pension plans are provided in the form of a defined benefit plan and a defined contribution plan. The defined benefit plan guarantees a certain payout at retirement, according to a fixed formula based on the employee’s average salary and the number of years for which the employee has been a plan member. The defined contribution plan, in which the employer’s contribution is determined in advance based on one twelfth of an employee’s total annual pay, is managed directly by the employees. Under Korean law, we may not terminate the employment of full-time employees except under certain limited circumstances. However, from time to time, we invite our employees to apply for our early retirement programs, which provide for varying amounts of severance pay based on the duration of time an employee has worked for us, along with several other key features. We believe that such programs enhance our productivity and efficiency by improving our labor structure.

In June 2009, we established an employee stock ownership association. All of our employees are eligible to participate in this association. We are not required to, and do not, make cash contributions to this plan. Members of our employee stock ownership association have pre-emptive rights to acquire up to 20% of our shares issued in public offerings by us pursuant to the Financial Investment Services and Capital Markets Act. In August 2009, we offered to members of our employee stock ownership association 6,000,000 of the 30,000,000 new shares of common stock to be issued in our rights offering to our existing shareholders, and the entire amount was subscribed by members of our employee stock ownership association. The employee stock ownership association held 9,253,663 shares of our common stock as of December 31, 2022.

Employees of Kookmin Bank have been eligible to participate in its employee stock ownership association, which will be terminated once all of our common stock held by the association (which the association received following the transfer of Kookmin Bank shares held by it as a result of the comprehensive stock transfer pursuant to which we were established) have been distributed to the relevant Kookmin Bank employees at the requests of such employees following the expiration of the required holding periods. As of December 31, 2022, such employee stock ownership association held 236,308 shares of our common stock.

In order to develop our next generation of leaders and enhance the operational capability of our employees at each of our subsidiaries, we operate various employee training programs. These programs, which are aimed at cultivating financial specialists with higher levels of management and business skills, developing regional experts for increased global capabilities and enhancing employee loyalty, comprise a number of customized programs such as training courses for employees of different positions, domestic and foreign M.B.A. courses and intensive human resources development programs for high performers to cultivate future leaders. For example, Kookmin Bank offers training programs at its employees’ worksites to facilitate access to training, as well as a foreign regional expert training program and a global language training course. We also provide financial and other support for our employees to develop their finance-related knowledge and skills by enrolling in training courses or engaging in self-study programs. The broad spectrum of training programs, combined with the state-of-the-art technologies such as cyber training, satellite broadcasting and mobile-learning, maximizes the level of exposure of the trainees to the contents of the programs. We also believe that our training scheme based on classified training courses and a development evaluation system has facilitated systemic development of employee skills and a spontaneous learning environment.

 

Item 6.E.

Share Ownership

Common Stock

As of March 31, 2023, the persons who are currently our directors or executive officers, as a group, held an aggregate of 77,787 shares of our common stock, representing approximately 0.02% of the issued shares of our

 

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common stock as of such date. None of these persons individually held more than 1% of the outstanding shares of our common stock as of such date. The following table presents information regarding our directors and executive officers who beneficially owned our shares as of March 31, 2023:

 

Name of Executive Officer or Director

    Number of Shares
of Common Stock		  

Jong Kyoo Yoon

      21,000  

Jae Keun Lee

      1,119  

Jong Hee Yang

      914  

Yin Hur

      13,506  

Dong Cheol Lee

      3,325  

Scott Y. H. Seo

      0  

Cheal Soo Choi

      4  

Dong Whan Han

      1,100  

Se Min Kim

      174  

Bong Joong Kwon

      286  

Yeo Woon Yoon

      609  

Hye Ja Seo

      1,356  

Jin Gyu Maeng

      1,027  

Hye Sook Moon

      652  

Byung Joo Oh

      940  

Jeong Rim Park

      3,150  

Sung Hyun Kim

      15,468  

Hyun Seung Lee

      0  

Jin Young Kim

      765  

Mun Cheol Jeong

      3,092  

Jae Young Choi

      980  

Sung Ki Kwon

      568  

Nam Hoon Cho

      1,000  

Young Suh Cho

      1,000  

Jin Soo Yoon

      375  

Chang Hwa Yook

      545  

Sung Pyo Jeon

      976  

Jeong Ha

      0  

Soon Bae Kang

      1,290  

Nam Che Kang

      485  

Yoon Ha

      0  

Yoo Shim Hur

      0  

Ki Eun Park

      258  

Joo Hyun Kim

      122  

Soon Young Oh

      0  

Chan Yong Park

      1,011  

Min Hyuk Kang

      690  
  

 

 

  

Total

      77,787  
  

 

 

  

Performance Share Agreements

Pursuant to a stock grant plan we established in 2008, we have entered into performance share agreements with certain of our and our subsidiaries’ directors and executive officers, pursuant to which we may grant shares of our common stock (or the equivalent monetary amount based on the market value of such shares) within specified periods as long-term incentive performance shares in accordance with pre-determined performance

 

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targets. Since January 2010, in accordance with the best practice guidelines for outside directors of banking institutions announced by the Korea Federation of Banks, which have been replaced with the Financial Corporate Governance Code issued by the Financial Services Commission in December 2014, we have not entered into any performance share agreements with our non-executive directors.

 

Item 6.F.

Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation

Not applicable.

 

Item 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

Item 7.A.

Major Shareholders

The following table presents information regarding the beneficial ownership of our shares at December 31, 2022 by each person or entity known to us to own beneficially more than 5% of our issued and outstanding shares.

Except as otherwise indicated, each stockholder identified by name has:

 

  •  

sole voting and investment power with respect to its shares; and

 

  •  

record and beneficial ownership with respect to its shares.

 

Beneficial Owner

    Number of Shares
of Common Stock		     Percentage of
Total Outstanding
Shares of
Common Stock (%)(1)		  

Korean National Pension Service

      32,499,151       8.34 % 

JP Morgan Chase Bank, N.A.(2)

      25,435,390       6.53 % 

BlackRock Fund Advisors

      25,050,939 (3)      6.43 % 

 

(1) 

Calculated based on 389,634,335 shares of our common stock outstanding as of December 31, 2022.

(2)

As depositary bank.

(3)

As of February 26, 2021, based on disclosure made by BlackRock Fund Advisors in a statement of acquisition filing on March 10, 2021.

Other than as set forth above, no other person or entity known by us to be acting in concert, directly or indirectly, jointly or separately, owned 5.0% or more of the issued shares of our common stock or exercised control or could exercise control over us as of December 31, 2022. None of our major stockholders has different voting rights from our other stockholders.

As of December 31, 2022, there were 389,634,335 shares of common stock outstanding. Of the total outstanding shares, 25,435,390 shares were held in the form of ADSs and 99,603,339 shares were held of record in the form of common stock by residents in the United States. As of December 31, 2022, the number of registered holders of our ADSs was 21 and the number of holders of our common stock in the United States was 2,068.

 

Item 7.B.

Related Party Transactions

As of December 31, 2022, we had an aggregate of ￦6,306 million in loans outstanding to our executive officers and directors, executive officers and directors of Kookmin Bank and chief executive officers of our other subsidiaries, including family members of such individuals. In addition, as of such date, we had loans outstanding to various companies whose directors or executive officers were serving concurrently as our directors or executive officers. See Note 43 of the notes to our consolidated financial statements included elsewhere in this annual report. All of these loans were made in the ordinary course of business, on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features.

 

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None of our directors or officers have or had any interest in any transactions effected by us that are or were unusual in their nature or conditions or significant to our business which were effected during the current or immediately preceding year or were effected during an earlier year and remain in any respect outstanding or unperformed.

 

Item 7.C.

Interests of Experts and Counsel

Not applicable.

 

Item 8.

FINANCIAL INFORMATION

 

Item 8.A.

Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-252.

You should read the following data together with the more detailed information contained in “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this annual report. Historical results do not necessarily predict future results.

Profitability ratios and other data

 

     As of or for the year Ended December 31,  
         2020              2021              2022      
     (Percentages)  

Net interest spread(1)

      1.86        1.97        2.05  

Net interest margin(2)

      1.99        2.07        2.23  

Efficiency ratio(3)

      54.56        49.72        50.21  

Cost-to-average assets ratio(4)

      1.19        1.14        1.08  

Won loans (gross) as a percentage of Won deposits

      112.16        112.81        112.02  

Total loans (gross) as a percentage of total deposits

      112.37        113.32        113.32  

 

(1) 

Represents the difference between the yield on average interest-earning assets and cost of average interest-bearing liabilities.

(2) 

Represents the ratio of net interest income to average interest-earning assets.

(3) 

Represents the ratio of general and administrative expenses to the sum of net interest income, net fee and commission income, net insurance income, net gain on financial assets and liabilities at fair value through profit or loss and net other operating income.

(4) 

Represents the ratio of general and administrative expenses to average total assets.

Capital ratios

 

     As of or for the year Ended December 31,  
             2020                 2021                     2022          
     (Percentages)  

Consolidated capital adequacy ratio of KB Financial Group(1)

      15.28 %      15.77 %      16.16 % 

Capital adequacy ratios of Kookmin Bank

       

Tier I capital adequacy ratio(2)

      15.42       14.98       14.92  

Common equity Tier I capital adequacy ratio(2)

      15.10       14.70       14.50  

Tier II capital adequacy ratio(2)

      2.36       2.50       2.54  

Average stockholders’ equity as a percentage of average total assets

      7.14       7.23       6.99  

 

(1) 

Under applicable guidelines of the Financial Services Commission, we, as a bank holding company, were required to maintain a total minimum consolidated capital adequacy ratio of 11.5% (including applicable additional capital buffers and requirements) as of December 31, 2022. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy.”

(2) 

Kookmin Bank’s capital adequacy ratios are computed in accordance with the guidelines issued by the Financial Services Commission. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Capital Adequacy.”

 

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Credit portfolio ratios and other data

 

     As of December 31,  
                 2021                             2022              
     (in billions of Won, except percentages)  

Total loans(1)

    ￦ 421,585     ￦ 440,689  

Total non-performing loans(2)

      1,458       1,918  

Other impaired loans not included in non-performing loans

      2,029       1,636  

Total of non-performing loans and other impaired loans

      3,487       3,554  

Total allowances for loan losses

      3,685       4,158  

Non-performing loans as a percentage of total loans

      0.35 %      0.44 % 

Non-performing loans as a percentage of total assets

      0.22 %      0.27 % 

Total of non-performing loans and other impaired loans as a percentage of total loans

      0.83 %      0.81 % 

Allowances for loan losses as a percentage of total loans

      0.87 %      0.94 % 

 

(1) 

Before deduction of allowances for loan losses.

(2) 

Non-performing loans are defined as those loans, including corporate, retail and other loans, which are past due by 90 days or more.

 

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Selected Statistical Information

Average Balance Sheets and Related Interest

The following table shows our average balances and interest rates for the past three years:

 

    Year Ended December 31,  
    2020     2021     2022  
    Average
Balance(1)		     Interest
Income(2)		     Average
Yield		     Average
Balance(1)		     Interest
Income(2)		     Average
Yield		     Average
Balance(1)		     Interest
Income(2)		     Average
Yield		  
    (in billions of Won, except percentages)  

Assets

                  

Due from financial institutions measured at amortized cost

   ￦ 12,280     ￦ 92       0.75 %    ￦ 13,261     ￦ 66       0.50 %    ￦ 15,097     ￦ 159       1.05 % 

Financial instruments at fair value through profit or loss (debt securities)(3)

     30,232       659       2.18       31,670       590       1.86       27,371       876       3.20  

Financial investments (debt securities)(4)

     80,087       1,355       1.69       97,296       1,557       1.60       105,980       2,211       2.09  

Loans:

                  

Corporate

     158,508       4,547       2.87       168,868       4,511       2.67       197,172       6,745       3.42  

Mortgage

     82,765       2,161       2.61       88,769       2,239       2.52       91,781       2,760       3.01  

Home equity

     27,682       786       2.84       27,333       723       2.65       27,258       903       3.31  

Other consumer(5)

     64,220       2,639       4.11       71,587       2,922       4.08       69,789       3,552       5.09  

Credit cards(6)

     18,586       1,438       7.74       19,923       1,441       7.23       22,103       1,568       7.09  

Foreign(7)

     14,683       809       5.51       22,580       1,162       5.15       32,309       2,015       6.24  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Loans (total)

     366,444       12,380       3.38       399,060       12,998       3.26       440,412       17,543       3.98  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total average interest-earning assets

   ￦ 489,043     ￦ 14,486       2.96 %    ￦ 541,287     ￦ 15,211       2.81 %    ￦ 588,860     ￦ 20,789       3.53 % 
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Cash and due from banks

     13,274       —       —       14,946       —       —       15,893       —       —  

Financial assets at fair value through profit or loss (excluding debt securities):

                  

Equity securities

     5,225       —       —       4,443       —       —       4,671       —       —  

Other

     22,952       —       —       26,566       —       —       33,525       —       —  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Financial assets at fair value through profit or loss (excluding debt securities) (total)

     28,177       —       —       31,009       —       —       38,196       —       —  

Financial investment (equity securities)

     2,427       —       —       3,684       —       —       3,285       —       —  

Investment in associates

     612       —       —       555       —       —       595       —       —  

Derivative financial assets

     4,189       —       —       3,899       —       —       8,903       —       —  

Premises and equipment

     8,048       —       —       8,130       —       —       8,095       —       —  

Intangible assets

     3,000       —       —       3,279       —       —       3,232       —       —  

Allowances for loan losses

     (2,954 )      —       —       (3,606 )      —       —       (4,002 )      —       —  

Other non-interest-earning assets

     25,450       —       —       30,851       —       —       31,818       —       —  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total average non-interest earning assets

     82,223       —       —       92,747       —       —       106,015       —       —  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total average assets

   ￦ 571,266     ￦ 14,486       2.54 %    ￦ 634,034     ￦ 15,211       2.40 %    ￦ 694,875     ￦ 20,789       2.99 % 
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

 

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    Year Ended December 31,  
    2020     2021     2022  
    Average
Balance(1)		     Interest
Expense		     Average
Cost		     Average
Balance(1)		     Interest
Expense		     Average
Cost		     Average
Balance(1)		     Interest
Expense		     Average
Cost		  
    (in billions of Won, except percentages)  

Liabilities

                  

Deposits:

                  

Demand deposits

   ￦ 149,141     ￦ 267       0.18 %    ￦ 180,936     ￦ 280       0.15 %    ￦ 182,468     ￦ 448       0.25 % 

Time deposits

     166,275       2,600       1.56       158,795       1,907       1.20       187,934       3,958       2.11  

Certificates of deposit

     3,636       50       1.38       3,618       31       0.86       5,511       130       2.36  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Deposits (total)

     319,052       2,917       0.91       343,349       2,218       0.65       375,913       4,536       1.21  

Borrowings:

                  

Bonds sold under repurchase agreements

     13,975       126       0.9       14,126       105       0.74       11,257       207       1.84  

Other borrowings(8)

     39,359       535       1.36       48,781       488       1.00       62,628       1,291       2.06  

Borrowings (total)

     53,334       661       1.24       62,907       593       0.94       73,885       1,498       2.03  

Debentures

     59,379       1,186       2.00       65,759       1,170       1.78       70,132       1,641       2.34  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total average interest-bearing liabilities

   ￦  431,765     ￦  4,764       1.10 %    ￦ 472,015     ￦ 3,981       0.84 %    ￦ 519,930     ￦ 7,676       1.48 % 
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Non-interest bearing demand deposits

     4,533       —       —       5,263       —       —       5,427       —       —  

Derivative financial liabilities

     4,474       —       —       3,704       —       —       9,353       —       —  

Financial liabilities at fair value through profit or loss

     13,464       —       —       12,461       —       —       12,704       —       —  

Other non-interest-bearing liabilities

     75,499       —       —       93,885       —       —       97,670       —       —  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total average non-interest bearing liabilities

     97,970       —       —       115,313       —       —       125,154       —       —  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total average liabilities

     529,735       4,764       0.90       587,328       3,981       0.68       645,084       7,676       1.19 % 
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total equity

     41,531       —       —       46,706       —       —       49,791       —       —  
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

Total average liabilities and equity

   ￦ 571,266     ￦ 4,764       0.83 %    ￦ 634,034     ￦ 3,981       0.63 %    ￦ 694,875     ￦ 7,676       1.10 % 
 

 

 

    

 

 

      

 

 

    

 

 

      

 

 

    

 

 

    

 

(1) 

Average balances are based on daily balances for our banking, credit card and securities operations and monthly or quarterly balances for our other operations.

(2) 

We do not invest in any tax-exempt securities.

(3) 

Includes deposits and loans at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

(4)

Comprises financial assets at fair value through other comprehensive income and at amortized cost, and includes loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report. Information related to investment securities classified as financial assets at fair value through other comprehensive income has been computed using amortized cost, and therefore does not give effect to changes in fair value that are reflected as a component of total equity.

(5) 

Includes other interest income.

(6)

Interest income from credit cards includes principally cash advance fees of ￦195 billion, ￦185 billion and ￦190 billion and interest on credit card loans of ￦722 billion, ￦743 billion and ￦768 billion for the years ended December 31, 2020, 2021 and 2022, respectively, but does not include interchange fees.

(7) 

Consists primarily of loans from the overseas branches of our subsidiaries to affiliates of large Korean manufacturing companies for trade financing and working capital.

(8) 

Includes (i) lease-related interest expense pursuant to our adoption of IFRS 16 Leases and (ii) other interest expense.

 

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The following table presents our net interest spread, net interest margin, and asset liability ratio for the past three years:

 

     Year Ended December 31,  
     2020     2021     2022  
     (percentages)  

Net interest spread(1)

      1.86 %      1.97 %      2.05 % 

Net interest margin(2)

      1.99       2.07       2.23  

Average asset liability ratio(3)

      113.27       114.68       113.26  

 

(1) 

The difference between the average rate of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities.

(2) 

The ratio of net interest income to average interest-earning assets.

(3) 

The ratio of average interest-earning assets to average interest-bearing liabilities.

Analysis of Changes in Net Interest Income—Volume and Rate Analysis

The following table provides an analysis of changes in interest income, interest expense and net interest income based on changes in volume and changes in rate for 2020 compared to 2021 and 2021 compared to 2022. Information is provided with respect to: (1) effects attributable to changes in volume (changes in volume multiplied by prior rate) and (2) effects attributable to changes in rate (changes in rate multiplied by prior volume). Changes attributable to the combined impact of changes in rate and volume have been allocated proportionately to the changes due to volume changes and changes due to rate changes.

 

     2021 vs. 2020
Increase/(Decrease)
Due to Change in		     2022 vs. 2021
Increase/(Decrease)
Due to Change in		  
     Volume     Rate     Total     Volume     Rate     Total  
     (in billions of Won)  

Interest-earning assets

             

Due from financial institutions measured at amortized cost

    ￦ 7     ￦ (33 )    ￦ (26 )    ￦ 10     ￦ 83     ￦ 93  

Financial instruments at fair value through profit or loss (debt securities)(1)

      30       (99 )      (69 )      (89 )      375       286  

Financial investments (debt securities)(2)

      277       (75 )      202       148       506       654  

Loans:

             

Corporate

      289       (325 )      (36 )      835       1,399       2,234  

Mortgage

      154       (76 )      78       77       444       521  

Home equity

      (10 )      (53 )      (63 )      (2 )      182       180  

Other consumer

      302       (19 )      283       (75 )      705       630  

Credit cards

      101       (98 )      3       155       (28 )      127  

Foreign

      409       (56 )      353       572       281       853  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total interest income

    ￦ 1,559     ￦ (834 )    ￦ 725     ￦ 1,631     ￦ 3,947     ￦ 5,578  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     2021 vs. 2020
Increase/(Decrease)
Due to Change in		     2022 vs. 2021
Increase/(Decrease)
Due to Change in		  
     Volume     Rate     Total     Volume      Rate      Total  
     (in billions of Won)  

Interest-bearing liabilities

               

Deposits:

               

Demand deposits

    ￦ 58     ￦ (45 )    ￦ 13     ￦ 2      ￦ 166      ￦ 168  

Time deposits

      (113 )      (580 )      (693 )      400        1,651        2,051  

Certificates of deposit

      0       (19 )      (19 )      23        76        99  

 

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     2021 vs. 2020
Increase/(Decrease)
Due to Change in		     2022 vs. 2021
Increase/(Decrease)
Due to Change in		  
     Volume      Rate     Total     Volume     Rate      Total  
     (in billions of Won)  

Borrowings:

               

Bonds sold under repurchase agreements

      1        (22 )      (21 )      (25 )      127        102  

Other borrowings

      112        (159 )      (47 )      170       633        803  

Debentures

      121        (137 )      (16 )      81       390        471  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Total interest expense

      179        (962 )      (783 )      652       3,043        3,695  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

Total net interest income

    ￦ 1,380      ￦ 128     ￦ 1,508     ￦ 979     ￦ 904      ￦ 1,883  
  

 

 

     

 

 

    

 

 

    

 

 

    

 

 

     

 

 

  

 

(1) 

Includes deposits and loans at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

(2)

Comprises financial assets at fair value through other comprehensive income and at amortized cost, and includes loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report. Information related to investment securities classified as financial assets at fair value through other comprehensive income has been computed using amortized cost, and therefore does not give effect to changes in fair value that are reflected as a component of total equity.

Legal Proceedings

Excluding the legal proceedings discussed below, we and our subsidiaries are not a party to any legal or administrative proceedings and no proceedings are known by any of us or our subsidiaries to be contemplated by governmental authorities or third parties, which, if adversely determined, may have a material adverse effect on our consolidated financial condition or results of operations.

In June 2010, Fairfield Sentry Limited, or Fairfield, which is currently in liquidation and whose assets were directly or indirectly invested with Bernard L. Madoff Investment Securities LLC, or BLMIS, filed a lawsuit in the Supreme Court of the State of New York against Kookmin Bank, which acted as a trustee bank for its clients who invested in Fairfield. Fairfield seeks recovery of approximately US$42 million paid to Kookmin Bank by its clients in connection with share redemptions on the ground that such payments were made by mistake, based on inflated values resulting from BLMIS’ fraud. In September 2010, the case was transferred to the United States Bankruptcy Court for the Southern District of New York, or the Bankruptcy Court, which in turn ordered that the case be returned to a state court in September 2011 but then stayed the lawsuit before it was sent to state court. In August 2019, the Bankruptcy Court issued an order to the effect that the case would proceed in a federal court, instead of returning to a state court, on the condition that the proceedings be halted temporarily until a similar lawsuit that Fairfield had filed against a different fund investor (the “Parallel Case”), then pending in the United States District Court for the Southern District of New York, or the District Court, was decided. The Bankruptcy Court had dismissed the Parallel Case in December 2018, which Fairfield had then subsequently appealed to the District Court. In August 2022, the District Court dismissed Fairfield’s appeal related to the Parallel Case, and in September 2022, Fairfield again appealed such dismissal to the United States Court of Appeals for the Second Circuit, or the Second Circuit, where the Parallel Case is currently pending. It is difficult to predict when the Second Circuit will rule on Fairfield’s appeal. Fairfield has filed similar actions against numerous other fund investors to seek recovery of redemption payments.

In May 2012, the trustee appointed for the liquidation of BLMIS filed a lawsuit against Kookmin Bank in the Bankruptcy Court. The trustee seeks recovery of approximately US$42 million, the amount of funds that were allegedly redeemed by Kookmin Bank from Fairfield between June 2004 and January 2006. The trustee alleges that Fairfield was a “feeder fund” that invested in BLMIS and that redemptions from such BLMIS feeder fund are avoidable and recoverable under the U.S. Bankruptcy Code and New York law. The Bankruptcy Court issued an order to dismiss the case during the pleading stage of the litigation in March 2017, and the trustee appealed such decision to the United States Court of Appeals for the Second Circuit, or the Second Circuit,

 

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which reversed the dismissal and vacated the judgment in February 2019. Kookmin Bank, along with other defendants, filed a motion asking the Second Circuit to reconsider its ruling and, after such motion was denied, filed a petition for a writ of certiorari asking the United States Supreme Court to accept an appeal of the Second Circuit’s ruling, which was denied in June 2020. Subsequently, the Second Circuit remanded the case to the Bankruptcy Court for further proceedings, and in December 2022, Kookmin Bank’s motion to dismiss the case was denied. Kookmin Bank is preparing to file its response, and the case is currently ongoing. The trustee has filed similar claw back actions against numerous other institutions.

In February 2014, the Financial Services Commission suspended the new credit card issuance and other related activities of KB Kookmin Card for three months from February to May 2014, in response to an incident involving the misappropriation of the personal information of a large number of its customers by an employee of the Korea Credit Bureau in the first half of 2013. Specifically, during such suspension period, KB Kookmin Card was prohibited from engaging in the following activities:

 

  •  

adding new subscribers for credit cards, prepaid cards and debit cards or issuing such types of cards (except as permitted by the chairman of the Financial Services Commission for public policy purposes);

 

  •  

providing new or additional credit lines to credit card customers; and

 

  •  

providing new services through mail order or telemarketing channels or related to travel or insurance products.

In connection with the misappropriation incident, as of December 31, 2022, there was one remaining lawsuit against KB Kookmin Card filed by certain of KB Kookmin Card’s customers, with claimed damages amounting to approximately ￦0.05 billion. The final outcome of such lawsuit remains uncertain. In addition, KB Kookmin Card could become subject to additional litigation and may incur significant costs relating to the compensation of customers for losses incurred as a result of the fraudulent use of the misappropriated personal information.

In February 2018, pursuant to a request by the Financial Supervisory Service, the Supreme Prosecutors’ Office of Korea commenced an investigation into alleged irregularities in hiring practices at certain Korean banks, including Kookmin Bank. In May 2018, the prosecutors charged four current and former executive officers and employees of Kookmin Bank with obstruction of business and violation of the Act on the Equal Employment for Both Sexes, for violating certain regulations relating to the evaluation and hiring of certain individuals in 2015 and 2016. In October 2018, the Seoul Southern District Court sentenced such executive officers and employees to probation and ordered Kookmin Bank to pay a fine in the amount of ￦5 million. Although the individuals and Kookmin Bank appealed the ruling, such appeal was denied in July 2021. The individuals and Kookmin Bank then subsequently appealed to the Supreme Court, but such appeal was again denied in January 2022.

Commencing in December 2019, a number of plaintiffs brought legal action against KB Securities, alleging that they invested in JB Australia NDIS Private Equity Investment Trust No. 1 through KB Securities based on an offering circular that had made untrue statements of a material fact. The plaintiffs are seeking to terminate the related investment contract on the basis of either breach of contract or mistake, and are demanding ￦135 billion from KB Securities as compensation for the alleged unjust enrichment. In the alternative, they are seeking damages of ￦135 billion from KB Securities for violations of the relevant securities law, among others. As of the date of this annual report, the final outcome of the lawsuits remains uncertain.

Dividends

Dividends must be approved by the stockholders at the annual general meeting of stockholders. Cash dividends may be paid out of retained earnings that have not been appropriated to statutory reserves. See “Item 10.B. Memorandum and Articles of Association—Description of Capital Stock— Dividends and Other Distributions.” In addition to annual dividends, we may declare, and distribute in cash, interim dividends pursuant to board resolutions.

 

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The table below sets forth, for the periods indicated, the dividend per share of common stock and the total amount of dividends declared and paid by us in respect of the years ended December 31, 2020, 2021 and 2022. Except as otherwise noted, the dividends set forth below with respect to each year were paid within 30 days after our annual stockholders meeting, which was held no later than March of the following year.

 

Fiscal Year

    Dividends per
Common Share(1)		      Total Amount of Cash
Dividends Paid		  
            (in millions of Won)  

2020(2)

    ￦ 1,770      ￦ 689,653  

2021(3)(4)

      2,940        1,145,525  

2022(5)(6)

      2,950        1,149,421  

 

(1) 

Won amounts are expressed in U.S. dollars at the noon buying rate in effect at the end of the relevant periods as quoted by the Federal Reserve Bank of New York in the United States.

(2) 

On February 4, 2021, our board of directors passed a board resolution recommending a cash dividend of ￦1,770 per common share (before dividend tax), representing 35.4% of the par value of each share, for the fiscal year ended December 31, 2020. This resolution was approved and ratified by our stockholders on March 26, 2021.

(3) 

On February 8, 2022, our board of directors passed a board resolution recommending a cash dividend of ￦2,190 per common share (before dividend tax), representing 43.8% of the par value of each share, for the fiscal year ended December 31, 2021. This resolution was approved and ratified by our stockholders on March 25, 2022.

(4) 

Includes an interim cash dividend of ￦750 per common share (before dividend tax), representing 15.0% of the par value of each share, declared and paid in 2021.

(5) 

On February 7, 2023, our board of directors passed a board resolution recommending a cash dividend of ￦1,450 per common share (before dividend tax), representing 29.0% of the par value of each share, for the fiscal year ended December 31, 2022. This resolution was approved and ratified by our stockholders on March 24, 2023.

(6) 

Includes an interim cash dividend of ￦500 per common share (before dividend tax), representing 10.0% of the par value of each share, declared in April 2022 and paid in May 2022, an interim cash dividend of ￦500 per common share (before dividend tax), representing 10.0% of the par value of each share, declared in July 2022 and paid in August 2022 and an interim cash dividend of ￦500 per common share (before dividend tax), representing 10.0% of the par value of each share, declared in October 2022 and paid in November 2022.

Future dividends will depend upon our revenues, cash flow, financial condition and other factors. As an owner of ADSs, you will be entitled to receive dividends payable in respect of the shares of common stock represented by such ADSs.

For a description of the tax consequences of dividends paid to our stockholders, see “Item 10.E. Taxation—United States Taxation” and “—Korean Taxation—Taxation of Dividends on Common Shares or ADSs.”

 

Item 8.B.

Significant Changes

Except as disclosed elsewhere in this annual report, there have been no significant changes since the date of our audited financial statements included in this annual report.

 

Item 9.

THE OFFER AND LISTING

 

Item 9.A.

Offering and Listing Details

Principal Trading Market

The principal trading market for our common stock is the KRX KOSPI Market. Our common stock has been listed on the KRX KOSPI Market since October 10, 2008 under the identifying code 105560, and the ADSs have been listed on the New York Stock Exchange under the symbol “KB” since September 29, 2008. The ADSs are identified by the CUSIP number 48241A105.

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of our ADSs in the secondary market outside Korea or for the withdrawal of shares of our common stock underlying the ADSs and the delivery

 

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inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the Financial Supervisory Service as described below. The acquisition of the shares by a foreigner must be immediately reported to the governor of the Financial Supervisory Service, either by the foreigner or by his standing proxy in Korea.

Persons who have acquired shares of our common stock as a result of the withdrawal of shares underlying our ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further Korean governmental approval.

Under current Korean laws and regulations, the depositary is required to obtain our prior consent for the number of shares of our common stock to be deposited in any given proposed deposit that exceeds the difference between:

 

  (1)

the aggregate number of shares of our common stock deposited by us for the issuance of our ADSs (including deposits in connection with the initial issuance and all subsequent offerings of our ADSs and stock dividends or other distributions related to these ADSs); and

 

  (2)

the number of shares of our common stock on deposit with the depositary at the time of such proposed deposit.

We have agreed to grant such consent to the extent that the total number of shares on deposit with the depositary would not exceed 116,583,985 at any time.

Restrictions Applicable to Shares

As a result of amendments to the Foreign Exchange Transaction Act of Korea, the regulations thereunder and Financial Services Commission regulations (which we refer to collectively as the “Investment Rules”), foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or on the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or on the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including:

 

  •  

odd-lot trading of shares;

 

  •  

acquisition of shares (which we refer to as “Converted Shares”) by exercise of warrants, conversion rights or exchange rights under bonds with warrants, convertible bonds or exchangeable bonds or withdrawal rights under depositary receipts issued outside of Korea by a Korean company;

 

  •  

acquisition of shares as a result of inheritance, donation, bequest or exercise of stockholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;

 

  •  

over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners has been reached or exceeded subject to certain exceptions; and

 

  •  

sale and purchase of shares at fair value between foreigners who are part of an investor group comprised of foreign companies investing under the control of a common investment manager pursuant to applicable laws or contract.

The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment. The registration requirement does not, however, apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration card, which must be presented each time the foreign investor opens a

 

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brokerage account with a financial investment company with a brokerage license. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or more, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the Enforcement Decree of the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the governor of the Financial Supervisory Service at the time of each such acquisition or sale. In particular, if a foreign investor acquires or sells his shares in connection with a tender offer or odd-lot trading of shares, such foreign investor or his standing proxy must ensure that the financial investment company that was engaged to facilitate the transaction reports such transaction to the governor of the Financial Supervisory Service. A foreign investor may appoint a standing proxy from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing and/or brokerage license (including domestic branches of foreign financial investment companies with such license), financial investment companies with a collective investment license (including domestic branches of foreign financial investment companies with such license) and internationally recognized custodians which will act as a standing proxy to exercise stockholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than its standing proxy, to exercise rights relating to his shares or perform any tasks related thereto on his behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the governor of the Financial Supervisory Service in cases deemed inevitable, including by reason of conflict between laws of Korea and the home country of the foreign investor.

The shares of a listed Korean company owned by a foreign investor must be electronically registered in accordance with the Act on Electronic Registration of Stocks, Bonds, Etc. through an eligible custodian in Korea. The same entities eligible to act as a standing proxy are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor may be exempted from complying with the above requirement if it (i) acquires shares publicly offered or sold outside Korea for the purpose of listing on an overseas stock exchange or (ii) acquires or disposes of shares through an overseas stock exchange if such shares are simultaneously listed on the Korea Exchange and such overseas stock exchange.

An investment by a foreign investor in 10% or more of the issued and outstanding shares with voting rights of a Korean company is defined as a foreign direct investment under the Foreign Investment Promotion Act of Korea. Generally, a foreign direct investment must be reported to the Ministry of Trade, Industry and Energy of Korea. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign or other shareholding restrictions in the event that the restrictions are prescribed in a specific law that regulates the business of the Korean company. For a description of such restrictions applicable to Korean banks and bank holding companies (such as us), see “Item 4.B. Business Overview—Supervision and Regulation.”

 

Item 9.B.

Plan of Distribution

Not applicable.

 

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Item 9.C.

Markets

See “Item 9.A. Offering and Listing Details.”

 

Item 9.D.

Selling Shareholders

Not applicable.

 

Item 9.E.

Dilution

Not applicable.

 

Item 9.F.

Expenses of the Issue

Not applicable.

 

Item 10.

ADDITIONAL INFORMATION

 

Item 10.A.

Share Capital

Not applicable.

 

Item 10.B.

Memorandum and Articles of Association

Description of Capital Stock

Set forth below is information relating to our capital stock, including brief summaries of certain provisions of our articles of incorporation, the Korean Commercial Code, Financial Investment Services and Capital Markets Act and certain related laws of Korea, all as currently in effect. The following summaries do not purport to be complete and are subject to the articles of incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act, the Korean Commercial Code, and certain other related laws of Korea.

As of December 31, 2022, our authorized share capital is 1,000,000,000 shares. Pursuant to our articles of incorporation, we are authorized to issue shares with preferred dividend, non-voting shares, class shares with conversion rights, class shares with redemption rights and shares with a combination of all or any of the foregoing characteristics (which we refer to collectively as “Class Shares”), as well as common shares. Subject to applicable laws and regulations, we are authorized to issue Class Shares up to one-half of all of our issued and outstanding shares.

Under our articles of incorporation, dividends on non-voting shares with preferred dividend are required to be at least 1% per annum of the par value and the board of directors must determine at the time of issuance of such shares the dividend rate, type of distributable properties, method of determining the value of distributable properties and conditions on payment of dividends. Also, we may, pursuant to a resolution of the board of directors, issue such non-voting shares with preferred dividend as redeemable shares that may be redeemed with profits at the relevant shareholder’s or our discretion, up to one-half of all of our issued and outstanding shares.

In addition, pursuant to a resolution of the board of directors, we may issue shares that are convertible into common shares or Class Shares at the request of the relevant shareholders, up to 20% of all of our issued and outstanding shares. The period during which a relevant shareholder may make a request for conversion may be determined by a resolution of the board of directors and must be a period between one and ten years from the issue date.

 

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Furthermore, through an amendment of the articles of incorporation, we may create new classes of shares, which may be common shares or Class Shares having additional features as prescribed under the Korean Commercial Code. See “—Voting Rights.”

As of the date of this annual report, 403,511,072 shares of common stock were issued and 384,248,339 shares of common stock were outstanding. No Class Shares are currently outstanding. All of the issued and outstanding shares are fully-paid and non-assessable, and are in registered form. Our authorized but unissued share capital consists of 596,488,928 shares. We may issue the unissued shares without further stockholder approval, subject to a board resolution as provided in the articles of incorporation. See “—Preemptive Rights and Issuances of Additional Shares” and “—Dividends and Other Distributions—Distribution of Free Shares.”

Our articles of incorporation provide that our stockholders may, by special resolution, grant to our and our subsidiaries’ officers and employees stock options exercisable for up to 15% of the total number of our issued and outstanding shares. Our board of directors may also grant stock options to officers and employees other than directors exercisable for up to 1% of our issued and outstanding shares, provided that such grant must be approved by a resolution of the subsequent general meeting of stockholders. As of March 31, 2023, none of our officers, directors and employees held options to purchase shares of our common stock.

Share certificates are issued in denominations of one, five, ten, 50, 100, 500, 1,000 and 10,000 shares.

Organization and Register

We are a financial holding company established under the Financial Holding Company Act. We are registered with the commercial registry office of Seoul Central District Court.

Dividends and Other Distributions

Dividends

Dividends are distributed to stockholders in proportion to the number of shares of the relevant class of capital stock owned by each stockholder following approval by the stockholders at an annual general meeting of stockholders. Subject to the requirements of the Korean Commercial Code and other applicable laws and regulations, we expect to pay full annual dividends on newly issued shares for the year in which the new shares are issued.

We declare our dividend annually at the annual general meeting of stockholders, which are held within three months after the end of each fiscal year. Once declared, the annual dividend must be paid to the stockholders of record as of the end of the preceding fiscal year within one month after the annual general meeting unless otherwise resolved thereby. Annual dividends may be distributed either in cash or in shares provided that shares must be distributed at par value and, if the market price of the shares is less than their par value, dividends in shares may not exceed one-half of the total annual dividend (including dividends in shares). In addition, we may declare and distribute interim dividends pursuant to a board resolution.

Under the Korean Commercial Code and our articles of incorporation, we do not have an obligation to pay any annual or interim dividend unclaimed for five years from the payment date.

The Financial Holding Company Act and related regulations require that each time a Korean financial holding company pays an annual dividend, it must set aside in its legal reserve to stated capital an amount equal to at least one-tenth of its net income after tax until the amount set aside reaches at least the aggregate amount of its stated capital. Unless it sets aside this amount, a Korean financial holding company may not pay an annual dividend. We intend to set aside allowances for loan losses and reserves for severance pay in addition to this legal reserve.

For information regarding Korean taxes on dividends, see “Item 10.E. Taxation—Korean Taxation.”

 

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Distribution of Free Shares

In addition to permitting dividends in the form of shares to be paid out of retained or current earnings, the Korean Commercial Code permits a company to distribute to its stockholders, in the form of free shares, an amount transferred from the capital surplus or legal reserve to stated capital. These free shares must be distributed pro rata to all stockholders. Our articles of incorporation provide that the types of shares to be distributed to the holders of non-voting shares with preferred dividend will be the same type of non-voting shares with preferred dividend held by such holders.

Preemptive Rights and Issuances of Additional Shares

Unless otherwise provided in the Korean Commercial Code, a company may issue authorized but unissued shares at such times and upon such terms as the board of directors of the company may determine. The company must offer the new shares on uniform terms to all stockholders who have preemptive rights and who are listed on the stockholders’ register as of the applicable record date. Our stockholders will be entitled to subscribe for any newly issued shares in proportion to their existing shareholdings. However, as provided in our articles of incorporation, new shares may be issued to persons other than existing stockholders if such shares are: (1) publicly offered pursuant to the Financial Investment Services and Capital Markets Act, (2) issued to an employee stock ownership association, (3) issued upon exercise of stock options pursuant to the Financial Investment Services and Capital Markets Act, (4) issued for the issuance of our depositary receipts, (5) issued to certain foreign or domestic financial institutions or institutional investors to raise funds to meet urgent needs for our management or operations or (6) issued primarily to a third party who has contributed to the management of our business, including by providing financing, credit, advanced financing technique, know-how or entering into close business alliances, except that, in the case of issuances of new shares under (1), (4), (5) and (6) above, the number of new shares issued to persons other than existing stockholders may not exceed 50% of our total issued and outstanding capital stock.

Public notice of the preemptive rights to new shares and the transferability thereof must be given not less than two weeks (excluding the period during which the stockholders’ register is closed) prior to the record date. We will notify the stockholders or persons other than existing stockholders, who are entitled to subscribe for newly issued shares of the deadline for subscription at least two weeks prior to the deadline. If such stockholders or persons fail to subscribe on or before such deadline, their preemptive rights will lapse. Our board of directors may determine how to distribute shares in respect of which preemptive rights have not been exercised or where fractions of shares occur.

Under the Financial Investment Services and Capital Markets Act, members of a company’s employee stock ownership association, whether or not they are stockholders, will have a preemptive right, subject to certain exceptions, to subscribe for up to 20% of the shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of shares so acquired and held by such members does not exceed 20% of the total number of shares then issued and outstanding.

Voting Rights

Each outstanding share of our common stock is entitled to one vote per share. However, voting rights with respect to shares of common stock that we hold or any of our subsidiaries holds may not be exercised. Unless stated otherwise in a company’s articles of incorporation, the Korean Commercial Code permits holders of an aggregate of 1% or more of the issued and outstanding shares with voting rights to request cumulative voting when electing two or more directors. Our articles of incorporation do not prohibit cumulative voting. The Korean Commercial Code and our articles of incorporation provide that an ordinary resolution may be adopted if approval is obtained from the holders of at least a majority of those shares of common stock present or represented at such meeting and such majority also represents at least one-fourth of the total of our issued and

 

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outstanding voting shares. Holders of non-voting shares (other than enfranchised non-voting shares) will not be entitled to vote on any resolution or to receive notice of any general meeting of stockholders unless the agenda of the meeting includes consideration of a resolution on which such holders are entitled to vote. The Korean Commercial Code provides that a company’s articles of incorporation may prescribe conditions for the enfranchisement of non-voting shares. For example, if our annual general stockholders’ meeting resolves not to pay to holders of non-voting shares with preferred dividend the annual dividend as determined by the board of directors at the time of issuance of such shares, the holders of non-voting shares with preferred dividend will be entitled to exercise voting rights from the general stockholders’ meeting following the meeting adopting such resolution to the end of a meeting to declare to pay such dividend with respect to the non-voting shares with preferred dividend. Holders of such enfranchised non-voting shares with preferred dividend will have the same rights as holders of common stock to request, receive notice of, attend and vote at a general meeting of stockholders.

The Korean Commercial Code provides that to amend the articles of incorporation, which is also required for any change to the authorized share capital of the company, and in certain other instances, including removal of a director of a company, dissolution, merger or consolidation of a company, transfer of the whole or a significant part of the business of a company, acquisition of all of the business of any other company, acquisition of a part of the business of any other company having a material effect on the business of the company or issuance of new shares at a price lower than their par value, a special resolution must be adopted by the approval of the holders of at least two-thirds of those shares present or represented at such meeting and such special majority also represents at least one-third of the total issued and outstanding shares with voting rights of the company.

In addition, in the case of amendments to the articles of incorporation or any merger or consolidation of a company or in certain other cases, where the rights or interest of the holders of Class Shares are adversely affected, a resolution must be adopted by a separate meeting of holders of Class Shares. Such a resolution may be adopted if the approval is obtained from stockholders of at least two-thirds of the Class Shares present or represented at such meeting and such shares also represent at least one-third of the total issued and outstanding Class Shares of the company.

A stockholder may exercise his voting rights by proxy given to another stockholder. The proxy must present the power of attorney prior to the start of a meeting of stockholders.

Liquidation Rights

In the event we are liquidated, the assets remaining after the payment of all borrowings, liquidation expenses and taxes will first be distributed to holders of Class Shares which have a preference right in respect of the distribution of residual properties as determined by our board of directors at the time of their issuance, and the residue thereafter will be distributed to the other stockholders in proportion to the number of shares held by them.

General Meetings of Stockholders

There are two types of general meetings of stockholders: annual general meetings and extraordinary general meetings. We are required to convene our annual general meeting within three months after the end of each fiscal year. Subject to a board resolution or court approval, an extraordinary general meeting of stockholders may be held when necessary or at the request of the holders of an aggregate of 3% or more of our issued and outstanding shares, or the holders of an aggregate of 0.75% or more of our issued and outstanding stock with voting rights, who have held those shares at least for six months, under the Act on the Corporate Governance of Financial Companies and its sub-regulations. Under the Korean Commercial Code, an extraordinary general meeting of stockholders may also be convened at the request of our Audit Committee, subject to a board resolution or court approval. Holders of non-voting shares may be entitled to request a general meeting of stockholders only to the

 

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extent the non-voting shares have become enfranchised as described under the section entitled “—Voting Rights” above, hereinafter referred to as “enfranchised non-voting shares.” Meeting agendas will be determined by the board of directors or proposed by holders of an aggregate of 3% or more of the issued and outstanding shares with voting rights, or by holders of an aggregate of 0.1% or more of our issued and outstanding shares with voting rights, who have held those shares for at least six months, by way of a written proposal to the board of directors at least six weeks prior to the meeting, under the Act on the Corporate Governance of Financial Companies and its sub-regulations. Written notices or e-mail notices stating the date, place and agenda of the meeting must be given to the stockholders at least two weeks prior to the date of the general meeting of stockholders. Notice may, however, be given to holders of 1% or less of the total number of issued and outstanding shares which are entitled to vote, either by placing at least two public notices at least two weeks in advance of the meeting in at least two daily newspapers or by placing a notice through the electronic disclosure system operated by the Financial Supervisory Service or the Korea Exchange. Stockholders who are not on the stockholders’ register as of the record date will not be entitled to receive notice of the general meeting of stockholders, and they will not be entitled to attend or vote at such meeting. Holders of enfranchised non-voting shares who are on the stockholders’ register as of the record date will be entitled to receive notice of the general meeting of stockholders and they will be entitled to attend and vote at such meeting. Otherwise, holders of non-voting shares will not be entitled to receive notice of or vote at general meetings of stockholders.

The general meeting of stockholders will be held at our head office, which is our registered head office, or, if necessary, may be held anywhere in the vicinity of our head office.

Rights of Dissenting Stockholders

Pursuant to the Financial Investment Services and Capital Markets Act and the Act on the Improvement of the Structure of the Financial Industry, in certain limited circumstances (including, without limitation, if we transfer all or any significant part of our business, if we acquire a part of the business of any other company and such acquisition has a material effect on our business or if we merge or consolidate with another company), dissenting holders of shares of our common stock and our stock with preferred dividends will have the right to require us to purchase their shares. To exercise such a right, stockholders must submit to us a written notice of their intention to dissent prior to the general meeting of stockholders. Within 20 days (10 days in the case of a stock transfer or exchange for the purposes of establishing a financial holding company or acquiring all issued shares of an existing subsidiary under the Financial Holding Company Act) after the date on which the relevant resolution is passed at such meeting, such dissenting stockholders must request in writing that we purchase their shares. We are obligated to purchase the shares from dissenting stockholders within one month after the end of such request period at a price to be determined by negotiation between the stockholder and us. If we cannot agree on a price with the stockholder through such negotiations, the purchase price will be the arithmetic mean of:

 

  •  

the weighted average of the closing stock prices on the KRX KOSPI Market for the two-month period prior to the date of the adoption of the relevant board of directors’ resolution;

 

  •  

the weighted average of the closing stock prices on the KRX KOSPI Market for the one-month period prior to the date of the adoption of the relevant board of directors’ resolution; and

 

  •  

the weighted average of the closing stock prices on the KRX KOSPI Market for the one-week period prior to the date of the adoption of the relevant board of directors’ resolution.

However, any dissenting stockholder who wishes to contest the purchase price may bring a claim in court.

Required Disclosure of Ownership

Any person whose direct or beneficial ownership of our common stock with voting rights, whether in the form of shares of common stock or ADSs, certificates representing the rights to subscribe for shares or equity-related debt securities including convertible bonds and bonds with warrants (which we refer to

 

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collectively as “Equity Securities”), together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5% or more of the total issued and outstanding shares (Equity Securities of us held by such persons and treasury stock) is required to report the status and purpose (in terms of whether the purpose of the shareholding is to exercise control over our management) of the holdings to the Financial Services Commission and the KRX KOSPI Market within five business days after reaching the 5% ownership interest. In addition, any change in (i) the ownership interest subsequent to the report that equals or exceeds 1% of the total issued and outstanding Equity Securities of us or (ii) the purpose of the shareholding is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment, an administrative fine of up to 0.001% of the aggregate market value of the total issued and outstanding stock or ￦500 million, whichever is lower, and/or a loss of voting rights with respect to the ownership of Equity Securities exceeding 5% of the total issued and outstanding Equity Securities with respect to which the reporting requirements were violated. Furthermore, the Financial Services Commission may order the disposal of the unreported Equity Securities.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our stock accounts for 10% or more of the total issued and outstanding stock (which we refer to as a “major stockholder”) must report the status of his/her shareholding to the Korea Securities and Futures Commission and the KRX KOSPI Market within five days after becoming a major stockholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Korea Securities and Futures Commission and the KRX KOSPI Market within five days of the occurrence of the change, provided that such reporting obligation would not apply if the change in the ownership interest consists of less than 1,000 shares and the amount of such change is less than ￦10 million. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment.

Other Provisions

Register of Stockholders and Record Dates

We maintain the register of our stockholders at our principal office in Seoul, Korea. We register transfers of shares on the register of stockholders upon presentation of the share certificates.

The record date for annual dividends is determined through a resolution of our board of directors. Further, the Korean Commercial Code and our articles of incorporation permit us upon at least two weeks’ public notice to set a record date for the purpose of determining the stockholders entitled to certain rights pertaining to the shares, provided, however, that the Korean Commercial Code further requires that the register of stockholders shall not be closed for such purposes for more than three months. The trading of shares and the delivery of certificates in respect thereof may continue while the register of stockholders is closed. Also, we may distribute dividends to stockholders on a quarterly basis, and the record dates for these quarterly dividends are the end of March, June and September of each year.

Annual Reports

Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market an annual business report within 90 days after the end of each fiscal year, a half-year business report within 45 days after the end of the first six months of each fiscal year and quarterly business reports within 45 days after the end of the first three months and nine months of each fiscal year, respectively. In addition, in accordance with the Enforcement Decree of the Commercial Act, we must make available our annual business report and audit report to our shareholders by sending such reports electronically or posting them on our website at least one week before the annual general meeting of stockholders. Copies of such business reports will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.

 

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Transfer of Shares

Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. The Financial Investment Services and Capital Markets Act provides, however, that in case of a company listed on the KRX KOSPI Market such as us, share transfers can be effected by the book-entry method. In order to assert stockholders’ rights against us, the transferee must have his name and address registered on the register of stockholders. For this purpose, stockholders are required to file with us their name, address and seal. Non-resident stockholders must notify us of the name of their proxy in Korea to which our notice can be sent.

Under current Korean regulations, the following entities may act as agents and provide related services for foreign stockholders:

 

  •  

the Korea Securities Depository;

 

  •  

internationally recognized foreign custodians;

 

  •  

financial investment companies with a dealing license (including domestic branches of foreign financial investment companies with such license);

 

  •  

financial investment companies with a brokerage license (including domestic branches of foreign financial investment companies with such license);

 

  •  

foreign exchange banks (including domestic branches of foreign banks); and

 

  •  

financial investment companies with a collective investment license (including domestic branches of foreign financial investment companies with such license).

In addition, foreign stockholders may appoint a standing proxy among the foregoing and generally may not allow any person other than the standing proxy to exercise rights to the acquired shares or perform any tasks related thereto on their behalf. Certain foreign exchange controls and securities regulations apply to the transfer of shares by non-residents or non-Koreans. See “Item 9.A. Offering and Listing Details” and “Item 10.D. Exchange Controls.” Except as provided in the Financial Holding Company Act, the ceiling on the aggregate shareholdings of a single stockholder and persons who stand in a special relationship with such stockholder is 10% of our issued and outstanding voting shares. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Ownership of a Financial Holding Company.”

Acquisition of Our Shares

Under the Korean Commercial Code, we may acquire our own shares upon a resolution of a general meeting of shareholders by either (i) purchasing them on a stock exchange or (ii) purchasing a number of shares, other than redeemable shares as set forth in Article 345, Paragraph (1) of the Korean Commercial Code, from each shareholder in proportion to their existing shareholding ratio through the methods set forth in the Presidential Decree, provided that the total purchase price does not exceed the amount of our profit that may be distributed as dividends in respect of the immediately preceding fiscal year.

Additionally, pursuant to the Financial Investment Services and Capital Markets Act and regulations under the Financial Holding Company Act and after submission of certain reports to the Financial Services Commission, we may purchase our own shares on the KRX KOSPI Market or through a tender offer, subject to the restrictions that:

 

  •  

the aggregate purchase price of such shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year; and

 

  •  

the purchase of such shares shall meet the risk-weighted capital adequacy ratio requirements prescribed in the regulations under the Financial Holding Company Act based on Bank for International Settlements standards.

 

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Subject to certain limited exceptions, our subsidiaries will not be permitted to acquire our shares pursuant to the Financial Holding Company Act.

 

Item 10.C.

Material Contracts

None.

 

Item 10.D.

Exchange Controls

General

The Foreign Exchange Transaction Act of Korea and the Enforcement Decree and regulations under that Act and Decree, which we refer to collectively as the “Foreign Exchange Transaction Laws,” regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The Financial Services Commission has also adopted, pursuant to its authority under the Financial Investment Services and Capital Markets Act, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.

Under the Foreign Exchange Transaction Laws, (1) if the Korean government deems that it is inevitable due to the outbreak of natural calamities, wars, conflict of arms or grave and sudden changes in domestic or foreign economic circumstances or other situations equivalent thereto, the Ministry of Economy and Finance may temporarily suspend payment, receipt or the whole or part of transactions to which the Foreign Exchange Transaction Laws apply, or impose an obligation to safe-keep, deposit or sell means of payment in or to certain Korean governmental agencies or financial institutions; and (2) if the Korean government deems that international balance of payments and international finance are confronted or are likely to be confronted with serious difficulty or the movement of capital between Korea and abroad brings or is likely to bring about serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Economy and Finance may take measures to require any person who intends to perform capital transactions to obtain permission or to require any person who performs capital transactions to deposit part of the payments received in such transactions at certain Korean governmental agencies or financial institutions, in each case subject to certain limitations.

Restrictions Applicable to Shares

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a financial investment company with a dealing and/or brokerage license. Funds in the foreign currency account may be remitted abroad without any Korean governmental approval.

Dividends on shares of Korean companies are paid in Won. No Korean governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s financial investment company with a dealing and/or brokerage license or in his Won account. Funds in the investor’s Won account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with dealing and/or brokerage licenses are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock

 

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investments in Korea. Through these accounts, such financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.

 

Item 10.E.

Taxation

United States Taxation

This summary describes certain U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold the common shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

 

  •  

a broker or dealer in securities or currencies;

 

  •  

a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

 

  •  

a bank;

 

  •  

a life insurance company;

 

  •  

a tax-exempt organization;

 

  •  

an entity treated as a partnership for U.S. federal income tax purposes or a partner in such partnership;

 

  •  

a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks;

 

  •  

a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes;

 

  •  

a person whose functional currency for tax purposes is not the U.S. dollar; or

 

  •  

a person that owns or is deemed to own 10% or more of our stock, measured by voting power or value.

This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

This summary does not discuss the application of the U.S. federal estate and gift taxes, the Medicare net investment income tax or the alternative minimum tax, or state, local or non-U.S. taxes.

Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of common shares or ADSs in your particular circumstances.

For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are:

 

  •  

a citizen or resident of the United States;

 

  •  

a U.S. domestic corporation; or

 

  •  

otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS.

In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common share represented by that ADS.

 

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Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will not be eligible for the dividends received deduction. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

The U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at reduced rates if the dividends are “qualified dividends.” Subject to certain exceptions for short-term and hedged positions, dividends paid on the common shares or ADSs will be treated as qualified dividends if (i) the common shares or ADSs are readily tradable on an established securities market in the United States or we are eligible for the benefits of a comprehensive tax treaty with the United States that the U.S. Treasury determines is satisfactory for purposes of this provision and that includes an exchange of information program; and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company as defined for U.S. federal income tax purposes (“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. In addition, the U.S. Treasury has determined that the Korea-United States income tax treaty (the “Treaty”) meets the requirements for reduced rates of taxation, and we believe we are eligible for the benefits of that treaty. Based on our audited financial statements, we believe that we were not a PFIC in our 2021 or 2022 taxable year. In addition, based on our audited financial statements and current expectations regarding our income, assets and activities, we do not anticipate becoming a PFIC for our 2023 taxable year. Therefore, we believe that dividends received by U.S. holders with respect to either common shares or ADSs will be “qualified dividends.” Holders should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

Distributions of additional shares in respect of common shares or ADSs that are made as part of a pro-rata distribution to all of our stockholders generally will not be subject to U.S. federal income tax.

Sale or Other Disposition

For U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the common shares or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.

If a U.S. holder sells or otherwise disposes of our common shares or ADSs in exchange for currency other than U.S. dollars, the amount realized generally will be the U.S. dollar value of the currency received at the spot rate on the date of sale or other disposition (or, if the shares are traded on an established securities market at such time, in the case of cash basis and electing accrual basis U.S. holders, the settlement date). An accrual basis U.S. holder that does not elect to determine the amount realized using the spot exchange rate on the settlement date will recognize foreign currency gain or loss equal to the difference between the U.S. dollar value of the amount received based on the spot exchange rates in effect on the date of the sale or other disposition and the settlement date. If an accrual basis U.S. holder makes the election described in the first sentence of this paragraph, it must be applied consistently from year to year and cannot be revoked without the consent of the Internal Revenue Service, or the IRS. A U.S. holder should consult its own tax advisors regarding the treatment of any foreign currency gain or loss realized with respect to any currency received in a sale or other disposition of the common shares or ADSs.

 

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Foreign Tax Credit Considerations

Subject to generally applicable limitations and conditions, Korean tax on dividends paid at the appropriate rate applicable to you may be eligible for a credit against your U.S. federal income tax liability. These generally applicable limitations and conditions include new requirements recently adopted by the IRS and any Korean tax will need to satisfy these requirements in order to be eligible to be a creditable tax for a U.S. holder. In the case of a U.S. holder that is eligible for, and properly elects, the benefits of the Treaty, the Korean tax on dividends may be treated as meeting the new requirements and therefore as a creditable tax. The application of these requirements to the Korean tax on dividends is uncertain and we have not determined whether these requirements are met, including requirements applicable to the Treaty. If the Korean tax is not a creditable tax for a U.S. holder or you do not elect to claim a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year, you may be able to deduct the Korean tax in computing your taxable income for U.S. federal income tax purposes. Dividends will constitute income from sources without the United States and, if the withholding tax is a creditable tax for a U.S. holder that elects to claim foreign tax credits, generally will constitute “passive category income” for foreign tax credit purposes.

Additionally, under the new foreign tax credit requirements recently adopted by the IRS, any Korean tax imposed on the sale or other disposition of the common shares or ADSs generally will not be treated as a creditable tax for U.S. foreign tax credit purposes except in the case of a U.S. holder that is eligible for, and properly elects to claim, the benefits of the Treaty. If the Korean tax is not a creditable tax, the tax would reduce the amount realized on the sale or other disposition of the common shares or ADSs even if you have elected to claim a foreign tax credit for other taxes in the same year. You should consult your own tax advisers regarding the application of the foreign tax credit rules to a sale or other disposition of the common shares or ADSs and any Korean tax imposed on such sale or disposition.

Any Korean securities transaction tax or agriculture and fishery special surtax that you pay will not be creditable for foreign tax credit purposes.

Similarly, a U.S. holder will not be able to claim a foreign tax credit against its U.S. federal income tax liability for any Korean inheritance or gift tax imposed in respect of the common shares or ADSs.

The availability and calculation of foreign tax credits and deductions for foreign taxes depend upon a U.S. holder’s particular circumstances and involve the application of complex rules to those circumstances. You should consult your own tax advisers regarding the application of these rules to your particular situation.

Specified Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 on the last day of the taxable year or US$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer (which would include the common shares or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors should consult their own tax advisers concerning the application of these rules to their investment in the common shares or ADSs, including the application of the rules to their particular circumstances.

U.S. Information Reporting and Backup Withholding Rules

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup

 

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withholding unless the U.S. holder provides an accurate taxpayer identification number and makes any other required certification or otherwise establishes an exemption. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a refund or credit against the U.S. holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS in a timely manner.

Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.

Korean Taxation

The following summary of Korean tax considerations applies to you so long as you are not:

 

  •  

a resident of Korea;

 

  •  

a corporation with its head office, principal place of business or place of effective management in Korea; or

 

  •  

engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected.

Taxation of Dividends on Common Shares or ADSs

We will deduct Korean withholding tax from dividends paid to you (whether payable in cash or in shares) at a rate of 22.0% (inclusive of local income surtax). If you are a qualified resident and a beneficial owner of the dividends in a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax. See “—Tax Treaties” below for a discussion on treaty benefits. If we distribute to you free shares representing a transfer of earning surplus or certain capital reserves into paid-in capital, that distribution may be subject to Korean withholding tax.

Taxation of Capital Gains from Transfer of Common Shares or ADSs

As a general rule, capital gains earned by non-residents upon transfer of our common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (inclusive of local income surtax) of the gross proceeds realized or (2) subject to the production of satisfactory evidence of acquisition costs and certain direct transaction costs of the common shares or ADSs, 22.0% (inclusive of local income surtax) of the net realized gain, unless exempt from Korean income taxation under the applicable Korean tax treaty with the non-resident’s country of tax residence. See “—Tax Treaties” below for a discussion on treaty benefits. Even if you do not qualify for an exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you qualify under the relevant Korean domestic tax law exemptions discussed in the following paragraphs.

In regards to the transfer of our common shares through the Korea Exchange, you will not be subject to the withholding tax on capital gains (as described in the preceding paragraph) if you (1) have no permanent establishment in Korea and (2) did not own or have not owned (together with any shares owned by any person with which you have a certain special relationship) 25% or more of the total issued and outstanding shares, which may include the common shares represented by the ADSs, at any time during the calendar year in which the sale occurs and during the five consecutive calendar years prior to the calendar year in which the sale occurs.

Under Korean tax law, ADSs are viewed as shares of common stock for capital gains tax purposes. Accordingly, capital gains from the sale or disposition of ADSs are taxed (if such sale or disposition constitutes a taxable event) as if such gains are from the sale or disposition of the underlying common shares. Capital gains

 

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that you earn (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside of Korea will generally be exempt from Korean income taxation by virtue of the Special Tax Treatment Control Law of Korea, or STTCL, provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL. However, if you transfer ADSs after having converted the underlying common shares, such exemption under the STTCL will not apply and you will be required to file a corporate income tax return and pay tax in Korea with respect to any capital gains derived from such transfer unless the purchaser or a financial investment company with a brokerage license, as applicable, withholds and pays such tax.

If you are subject to tax on capital gains with respect to the sale of ADSs, or of our common shares you acquired as a result of a withdrawal, the purchaser or, in the case of the sale of the common shares on the Korea Exchange or through a financial investment company with a brokerage license in Korea, such financial investment company is required to withhold Korean tax on capital gains from the sales price in an amount equal to the lower of (1) 11.0% (inclusive of local income surtax) of the gross realization proceeds or (2) subject to the production of satisfactory evidence of acquisition costs and certain direct transaction costs of the common shares or ADSs, 22.0% (inclusive of local income surtax) of the net realized gain, and to make payment of these amounts to the Korean tax authority, unless you establish your entitlement to an exemption under an applicable tax treaty or domestic tax law. See the discussion under “—Tax Treaties” below for an additional explanation on claiming treaty benefits.

Tax Treaties

Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, the common shares or ADSs. For example, under the Korea-United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (depending on your shareholding ratio and inclusive of local income surtax) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains, subject to certain exceptions. However, under Article 17 (Investment or Holding Companies) of the Korea-United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividend income or capital gains is substantially less than the tax generally imposed by the United States on corporate profits and (iii) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-United States income tax treaty, the exemption on capital gains does not apply if (a) you have a permanent establishment in Korea and any shares of common stock in which you hold an interest and which gives rise to capital gains are effectively connected with such permanent establishment, (b) you are an individual and you maintain a fixed base in Korea for an aggregate of 183 days or more during a given taxable year and your ADSs or common shares giving rise to capital gains are effectively connected with such fixed base or (c) you are an individual and you are present in Korea for an aggregate of 183 days or more during a given taxable year.

You should inquire for yourself whether you are entitled to the benefit of a tax treaty between Korea and the country where you are a resident. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser or the financial investment company, as applicable, a certificate as to his tax residence. In the absence of sufficient proof, we, the purchaser or the financial investment company, as applicable, must withhold tax at the normal rates. Furthermore, in order for you to claim the benefit of a tax rate reduction or tax exemption on certain Korean source income (such as dividends or capital gains) under an applicable tax treaty, Korean tax law requires you (or your agent) to submit an application (for reduced withholding tax rate, “application for entitlement to reduced tax rate,” and in the case of exemptions from withholding tax, “application for tax exemption,” along with a certificate of your tax residency issued by a competent authority of your country of tax residence, subject to certain exceptions) as the beneficial owner of such Korean source income (“BO application”). For example, a U.S. resident would be

 

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required to provide Form 6166 as a certificate of tax residency together with the application for entitlement to reduced tax rate or the application for tax exemption. Such application should be submitted to the withholding agent prior to the payment date of the relevant income. Subject to certain exceptions, where the relevant income is paid to an overseas investment vehicle (which is not the beneficial owner of such income) (“OIV”), a beneficial owner claiming the benefit of an applicable tax treaty with respect to such income must submit its BO application to such OIV, which must submit an OIV report and a schedule of beneficial owners (and the BO applications collected from each beneficial owner, if such beneficial owner is applying for tax exemption) to the withholding agent prior to the payment date of such income. Effective from January 1, 2022, an OIV is deemed to be a beneficial owner of the Korean source income if (i) under the applicable tax treaty, the OIV bears tax liabilities in the country in which it is established and (ii) the Korean source income is eligible for benefits under the tax treaty. The benefits under a tax treaty between Korea and the country of such OIV’s residence will apply with respect to the relevant income paid to such OIV, subject to certain application requirements as prescribed by the Corporate Income Tax or Individual Income Tax Law. In the case of a tax exemption application, the withholding agent is required to submit such applications (together with the applicable OIV report in the case of income paid to an OIV) to the relevant district tax office by the ninth day of the month following the date of the payment of such income.

Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance tax and gift tax purposes, you will be treated as the owner of the common shares underlying the ADSs. If the tax authority interprets depositary receipts as the underlying share certificates, you may be treated as the owner of the common shares and your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance tax or gift tax presently at the rate of 10% to 50%, provided that the value of the ADSs or the common shares is greater than a specified amount.

If you die while holding a common share or donate a common share, your heir or donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance tax or gift tax at the same rate as indicated above.

At present, Korea has not entered into any tax treaty relating to inheritance tax or gift tax.

Securities Transaction Tax

If you transfer our common shares on the Korea Exchange in 2023, you will be subject to securities transaction tax at the rate of 0.05% (with such rate to be reduced to 0.03% if the transfer is made in 2024 and no such securities transaction tax to be imposed on transfers starting January 1, 2025) and an agriculture and fishery special surtax at the rate of 0.15% of the sale price of the common shares. If your transfer of the common shares is not made on the Korea Exchange, subject to certain exceptions, you will be subject to securities transaction tax at the rate of 0.35% and will not be subject to an agriculture and fishery special surtax.

Under the Securities Transaction Tax Law, depositary receipts (such as American depositary receipts) constitute share certificates subject to the securities transaction tax. However, the transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq Global Market, or other qualified foreign exchanges is exempt from the securities transaction tax.

In principle, the securities transaction tax, if applicable, must be paid by the transferor of the common shares or ADSs. When the transfer is effected through a securities settlement company in Korea, such settlement company is generally required to withhold and pay the tax to the tax authorities. When such transfer is made through a financial investment company only, such financial investment company is required to withhold and pay the tax. Where the transfer is effected by a non-resident without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company, the transferee is required to withhold the securities transaction tax.

 

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Non-reporting or under-reporting of securities transaction tax will generally result in penalties equal to 20% to 60% of the non-reported tax amount or 10% to 60% of under-reported tax amount. Also, a failure to timely pay securities transaction tax will result in a penalty equal to 8.03% per annum of the due but unpaid tax amount. The penalties are imposed on the party responsible for paying the securities transaction tax or, if such tax is required to be withheld, on the party that has the obligation to withhold.

 

Item 10.F.

Dividends and Paying Agents

Not applicable.

 

Item 10.G.

Statement by Experts

Not applicable.

 

Item 10.H.

Documents on Display

We are subject to the information requirements of the Exchange Act, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. As a foreign private issuer, we are also required to make filings with the Commission by electronic means. Any filings we make electronically will be available to the public over the Internet at the Commission’s web site at http://www.sec.gov.

 

Item 10.I.

Subsidiary Information

Not applicable.

 

Item 10.J.

Annual Report to Security Holders

Not applicable.

 

Item 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Overview

As a financial services provider, we are exposed to various risks related to our lending and trading businesses, our funding activities and our operating environment, principally through Kookmin Bank, our banking subsidiary. Our goal in risk management is to ensure that we identify, measure, monitor and control the various risks that arise, and that our organization adheres strictly to the policies and procedures which we establish to address these risks. Under our internal regulations pertaining to our consolidated capital adequacy ratio and internal standards for risk appetite and internal capital under Basel III, we identify the following eight separate categories of risk inherent in our business activities: credit risk, market risk, operational risk, interest rate risk, liquidity risk, credit concentration risk, reputation risk and strategic risk. Of these, the principal risks to which we are exposed are credit risk, market risk, liquidity risk and operational risk, and we strive to manage these and other risks within acceptable limits.

Organization

We have a multi-tiered risk management governance structure. Our Risk Management Committee is ultimately responsible for group-wide risk management, and directs our various subordinate risk management entities. The Risk Management Council coordinates the implementation of policies set forth by the Risk Management Committee with the relevant risk management units of our subsidiaries. The Subsidiary Risk Management Committee of each of our subsidiaries, based on the Risk Management Committee’s policies,

 

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determines risk management strategies and implements risk management policies and guidelines for such subsidiary and directs the activities of the subsidiary’s risk management units within the risk guidelines set at the group level. Each Subsidiary Risk Management Committee generally receives inputs from the respective risk management units of such subsidiary, which report to the Risk Management Committee.

The following chart sets out our risk management governance structure as of the date of this annual report:

 

 

LOGO

Risk Management Committee

Our Risk Management Committee is a board-level committee that is responsible for overseeing all risks and advising the board of directors with respect to risk management-related issues. The committee consists of four non-executive directors (one of whom serves as the chairman of the committee), and convenes on a quarterly basis. Its major roles include:

 

  •  

establishing risk management strategies in accordance with the directives of the board of directors;

 

  •  

determining our target risk appetite;

 

  •  

allocating risk capital to each subsidiary and approving our subsidiaries’ risk limits;

 

  •  

reviewing the level of risks we are exposed to and the appropriateness of our risk management policies, systems and operations; and

 

  •  

reviewing recovery and resolution plans.

Risk Management Council

Our Risk Management Council is responsible for coordinating with the risk management units of our subsidiaries to ensure that they implement the policies, guidelines and limits established by the Risk Management Committee. The Risk Management Council is comprised of our chief risk management officer and the chief risk management officers of all of our subsidiaries. It operates independently from all business units and convenes on a quarterly basis. Its responsibilities include:

 

  •  

analyzing our risk status by using information provided by our subsidiary-level risk management units;

 

  •  

deliberating adjustments to the integrated risk capital allocation plan and risk limits for each of our subsidiaries; and

 

  •  

coordinating issues relating to the group-wide integration of our risk management functions.

Subsidiary Risk Management Committees

Each of our subsidiaries has delegated risk management authority to its Subsidiary Risk Management Committee. Each Subsidiary Risk Management Committee measures and monitors the various risks faced by the

 

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relevant subsidiary and reports to that subsidiary’s board of directors regarding decisions that it makes on risk management issues. It also makes certain strategic risk-related decisions regarding the operations of the relevant subsidiary, such as setting total exposure limits, allocating credit risk limits and market risk-related limits and determining which market risk derivatives instruments the subsidiary can trade. The major activities of each Subsidiary Risk Management Committee include:

 

  •  

determining and monitoring risk policies, guidelines, limits and tolerance levels and the level of subsidiary risk in accordance with group policy;

 

  •  

reviewing and analyzing the subsidiary’s risk profile;

 

  •  

setting limits for and adjusting the risk capital allocation plan and risk levels for each business unit within the subsidiary; and

 

  •  

monitoring compliance with our group-wide risk management policies and practices at the business unit and subsidiary level.

Each Subsidiary Risk Management Committee is comprised of the subsidiary’s non-executive directors on its board of directors.

Credit Risk Management

Credit risk is the risk of expected and unexpected losses in the event of borrower or counterparty defaults. Credit risk management aims to improve asset quality and generate stable profits while reducing risk through diversified and balanced loan portfolios. We determine the creditworthiness of each type of borrower or counterparty through reviews conducted by our credit experts and through our credit rating systems, and we set a credit limit for each borrower or counterparty.

We assess and manage all credit exposures. We measure expected losses and internal capital on assets (whether on- or off-balance sheet) that are subject to credit risk management and use expected losses and internal capital as management indicators. We manage credit risk by allocating credit risk internal capital limits. In addition, we control credit concentration risk exposure by applying and managing total exposure limits to prevent excessive risk concentration to particular industries or borrowers. Credit exposures that we assess and manage include loans to borrowers and counterparties, investments in securities, letters of credit, bankers’ acceptances, derivatives and commitments. Our risk appetite, which is the ratio of our required internal capital to our estimated available book capital, is approved by the Risk Management Committee once a year. Thereafter, we calculate internal capital every month for all of our subsidiaries and on a holding company level based on attributed internal capital in accordance with the risk appetite as approved by the Risk Management Committee, and measure and report profiles of credit risk on a holding company level and by subsidiary regularly to our senior management, including our Risk Management Committee.

We use expected default rates and recovery rates to determine the expected loss rate of a borrower or counterparty. We use the expected loss rate to make credit related decisions, including pricing, loan approval and establishment of standards to be followed at each level of decision making. These rates are calculated using information gathered from our internal database. With respect to large corporate borrowers, we also use information provided by external credit rating services to calculate default rates and recovery rates.    

Our credit risk management processes include:

 

  •  

establishing credit policy;

 

  •  

credit evaluation and approval;

 

  •  

industry assessment;

 

  •  

total exposure management;

 

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  •  

collateral evaluation and monitoring;

 

  •  

credit risk assessment;

 

  •  

early warning and credit review; and

 

  •  

post-credit extension monitoring.

Credit Evaluation

With respect to corporate loans, Kookmin Bank evaluates the ability of all loan applicants to repay their borrowings before it approves any loans, except for loans fully guaranteed by letters of guarantee issued by the Credit Guarantee Fund and the Korea Technology Credit Guarantee Fund, for loans fully secured by deposits and for other loans similarly guaranteed or secured. Kookmin Bank assigns each borrower or guarantor a credit rating based on the judgment of its experts or scores calculated using the appropriate credit rating system. Factors that Kookmin Bank considers in assigning credit ratings include both financial factors and non-financial factors, such as its perception of the borrower’s ability to meet its payment obligations, risks relating to the industry in which the borrower operates, management and operational risks relating to the borrower, the borrower’s financial flexibility and the borrower’s level of reliability based on its transaction history. With respect to retail loans, Kookmin Bank assigns credit ratings based on its internal information regarding the borrower that has been accumulated as well as external information gathered from credit bureaus relating to various criteria, such as the borrower’s profession, annual income, credit card overdue information and transaction history involving both Kookmin Bank and other financial institutions. The credit rating process differs according to the type, size and characteristics of the borrower.

Kookmin Bank uses its internally developed credit rating systems to rate potential borrowers. As the characteristics of each customer segment differ, Kookmin Bank uses several credit rating systems for its customers. The nature of the credit rating system used for a particular borrower depends on whether the borrower is an individual, a SOHO customer, a small- and medium-sized enterprise or a large company. For large companies and small- and medium-sized enterprises, Kookmin Bank has 17 credit ratings ranging from AAA to D for risk management purposes. For retail customers, it has 13 credit ratings ranging from grade 1 to grade 13.

Based on the credit rating of a borrower, Kookmin Bank applies different credit policies, which affect factors such as credit limit, loan period, loan pricing, loan classification and provisioning. Kookmin Bank also uses these credit ratings in evaluating its bank-wide risk management strategy. Factors Kookmin Bank considers in making this evaluation include the profitability of each company or transaction, performance of each business unit and portfolio management. Kookmin Bank monitors the credit status of borrowers and collect information to adjust its ratings appropriately. If Kookmin Bank changes a borrower’s credit rating, it will also change the credit policies relating to that borrower and may also change the policies underlying its loan portfolio.

Retail Loan Approval Process

Mortgage Loans and Secured Retail Loans. Branch staff employees of Kookmin Bank forward loan applications to processing centers and Kookmin Bank’s processing center staff reviews mortgage loans and retail loans secured by real estate or guarantees.    However, in the case of loans secured by deposits with Kookmin Bank, its branch staff approves such loans. Kookmin Bank makes lending decisions based on its assessment of the value of the collateral, debt service capability and the borrower’s score generated from its credit scoring systems.

For mortgage loans and loans secured by real estate, Kookmin Bank evaluates the value of the real estate offered as collateral using a database it has developed that contains information about real estate values throughout Korea. Kookmin Bank also uses information from a third party provider about the real estate market in Korea, which gives it up-to-date market value information for Korean real estate. In addition, Kookmin Bank’s

 

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processing center staff employees review the value of real estate provided by the evaluation system to ensure there are no significant discrepancies. Kookmin Bank bases decisions regarding the approval of such loans primarily on the results of its credit scoring systems.

For loans secured by deposits, Kookmin Bank will generally grant loans up to 95% of the deposit amount if it holds the deposit.

Kookmin Bank generally decides whether to evaluate a loan application within three to five days after recording the relevant information in its credit scoring systems.

Unsecured Retail Loans. Kookmin Bank reviews applications for unsecured retail loans in accordance with its credit scoring systems. These automated systems evaluate loan applications and determine an appropriate pricing for the loan. The major benefits of using a credit scoring system are that it yields uniform results regardless of the user and that it can be used effectively by employees who do not necessarily have extensive experience in credit evaluation. The staff of Kookmin Bank’s processing centers reviews the results of the credit scoring system based on information input by its branch staff and, if approved, issues the loan.

Kookmin Bank’s credit scoring systems take into account factors including borrower’s income, assets, profession, transaction history (with both it and other financial institutions) and other relevant credit information. The systems rank each borrower in an appropriate grade, and that grade is used as a factor in deciding whether to approve loans as well as to determine loan amounts. Kookmin Bank generally bases its decisions on the results of its credit scoring systems to evaluate applications.

Corporate Loan Approval Process

We approve corporate loans at different levels of our organization depending on the size and type of the loan, the credit risk level assessed by the credit rating system, whether the loan is secured by collateral and, if secured, the value of the collateral. The lowest level of authority is the branch staff employee of Kookmin Bank, who can approve small loans and loans that have the lowest range of credit risk. Larger loans and loans with higher credit risk are approved by higher levels of authority depending on where they fall in a matrix of loan size and credit risk. Depending on the size and terms of any particular loan or the credit risk relating to a particular borrower, more than one entity may review the application, although generally loan applications are reviewed only by the entity having corresponding authority to approve the loan.

Kookmin Bank evaluates all of its corporate borrowers by using credit rating systems, except for applicants whose borrowings are fully secured by deposits or applicants who have obtained third-party guarantees from the government or certain other very highly rated guarantors. See “—Credit Evaluation.”

For owner-operated enterprises (which we refer to as SOHOs), Kookmin Bank has put in place a credit rating system known as Small Office Home Office Corporate Rating System, or SOHO CRS. For other small- and medium-sized enterprises, Kookmin Bank has put in place a similar credit rating system known as Corporate Rating System, or CRS. For large corporations, Kookmin Bank has put in place a similar credit rating system known as Large Corporate Rating System, or LCRS. For financial institutions, certain non-profit organizations and public institutions, Kookmin Bank has put in place a credit rating system known as Financial Institute, Non-profit, Public Corporate Rating System, or FNP CRS. The SOHO CRS, the CRS, the LCRS and the FNP CRS models consist of the following four parts:

 

  •  

Financial Model. The financial model uses financial ratios such as stability ratio, profitability ratio and cash flow ratio to make credit determinations.

 

  •  

Non-financial Model. The non-financial model uses various qualitative and quantitative factors, such as future repayment capability, industry-related risks, management-related risks and operation-related risks, to evaluate borrowers.

 

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  •  

CEO Evaluation Model. The CEO evaluation model is relevant for the SOHO CRS in particular (including business entities without external audits), and evaluates the credit information of the individual owner of SOHOs by reviewing such owner’s personal information, bank transaction records and external credit ratings.

 

  •  

Default Signal Check Model. The default signal check model checks factors that have low frequency of occurrence but are highly likely to lead to a default in the event of an occurrence. The results of the default signal check model may be used to cap a borrower’s credit grade.

Credit Card Approval Process

We make decisions on all credit card approvals based on the Financial Supervisory Service standard of review for payment ability (such as the occupation and income of the applicant), as well as a combination of KB Kookmin Card’s internal application scoring system and a credit scoring system developed by independent credit bureaus.

KB Kookmin Card’s application scoring system reflects various credit information, including basic customer information (such as credit history), transaction history with it, if any, delinquency and transaction history with other card companies and financial institutions and credit information provided by Korea Credit Information Services and other credit bureaus. KB Kookmin Card also considers repayment ability, total assets, total outstanding borrowings and the length of the applicant’s relationship, if any, and past contribution to our profitability, if any.

The credit scoring system developed by credit bureaus, reflects various sources of information regarding the credit risk of customers, including delinquency and transaction history with other credit card companies and financial institutions.

On the basis of the standard of review for payment ability and the combination of the scores from our application scoring system and the credit scoring system developed by independent credit bureaus, KB Kookmin Card establishes, among other things, the term of any new approvals, initial limits and differentiation of fee rates with respect to its credit cards. KB Kookmin Card’s systems allow it to differentiate applicants into groups that receive immediate credit card approval or rejection, or that may require it to further investigate that applicant’s credit qualifications. The initial limits of new applicants are based on their estimated disposable income, which is based on their occupation and the value of their personal assets. KB Kookmin Card applies its fee rates to applicants differently according to risk premium and profitability.

Total Exposure Management

We establish and manage total exposure limits for industries, chaebols and corporations, as well as certain small- and medium-sized enterprises, in order to efficiently manage financial assets and to optimize our credit portfolio. Kookmin Bank establishes total exposure limits for (i) main debtor groups designated by the Financial Supervisory Service, (ii) groups to which Kookmin Bank has total exposure of ￦50 billion or more, (iii) enterprises that belong to a main debtor group or large enterprises, in both cases to which Kookmin Bank has total exposure of ￦40 billion or more, (iv) small- and medium-sized enterprises to which Kookmin Bank has total exposure of ￦30 billion or more and (v) other groups or individual enterprises designated by the head of Kookmin Bank’s Risk Management Group as necessary. Kookmin Bank establishes total exposure limit by reviewing factors such as industry, size, cash flows, financial ratios and credit ratings, while establishing exposure limits for industries by reviewing the sales growth rate and risk concentration for each industry. The total exposure limits for a specific industry are set following approval by Kookmin Bank’s Risk Management Council after review by the Credit Risk Management Subcommittee, while the exposure limits for a specific company or company group are set during the review of their credit application by the relevant approval authority.

 

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Kookmin Bank’s maximum exposure limit is within 25% of its Tier I and Tier II capital for a single group, and within 10% of its Tier I and Tier II capital for a single corporation.

We manage and control exposure limits on a daily basis. The principal system that we use for this purpose is the Total Exposure Management System. This system allows us to monitor and control our total exposure to corporations, chaebols and industries. Kookmin Bank monitors its exposure to large corporations to which it has an exposure of ￦40 billion or more, individual corporations to which it has an exposure of ￦30 billion or more, and also its exposure to 168 business groups, which comprise the 32 largest highly-indebted business groups, such groups being the main debtor groups in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures as well as 136 business groups to which it has exposures (in the form of securities or loans) of ￦50 billion or more. We also monitor our exposure to 37 industries. Our Total Exposure Management System integrates all of our credit-related risk including credit extended by our overseas branches and affiliates. The assets subject to the system include all Won-denominated and foreign currency-denominated loans, all assets in trust accounts except specified money trusts, guarantees, trade-related credits, commercial paper, corporate bonds and other securities and derivatives.

Collateral Evaluation and Monitoring System

Kookmin Bank uses the Collateral Evaluation and Monitoring System to manage the liquidation value of collateral it holds. The Collateral Evaluation and Monitoring System is a computerized collateral management system that can be accessed from Kookmin Bank’s headquarters and its branches. Using this system, Kookmin Bank can more accurately assess the actual liquidation value of collateral, determine the recovery rate on its loans and use this information in setting its credit risk management and loan policies. Kookmin Bank can monitor the value of all the collateral a borrower provides and the value of that collateral based on its liquidation value. When appraising the value of real estate collateral, which makes up the largest part of Kookmin Bank’s collateral, Kookmin Bank consults a regularly updated database provided by a third party that tracks the prices at which various types of real estate in various regions of Korea are sold. Kookmin Bank appraises the value of collateral when it makes a loan, when the loan is due for renewal and when events occur that may change the value of the collateral.

Credit Risk Management and Monitoring

Kookmin Bank’s Credit Risk Department establishes loan portfolio policies and appropriate credit risk limits, including those applicable to internal capital and total exposures to certain assets and business groups, to prevent excessive credit risk. It also analyzes and monitors our loan portfolios and monitors our compliance with the applicable limits for credit risk on a regular basis. In addition, it implements an industrial risk management plan by monitoring industrial trends and evaluating industry ratings. It also separately manages high-risk products, such as real estate project financing loans and over-the-counter derivative products, by setting appropriate limits.

Credit Review

Kookmin Bank’s credit review function is independent of the business groups which manage our assets. Its Credit Review Department:

 

  •  

reviews internal credit regulations, policies and systems;

 

  •  

analyzes the credit status of selected loan assets and verifies the appropriateness of the credit evaluations/approvals made by branches and headquarters; and

 

  •  

evaluates the corporate credit risk of potentially insolvent companies.

More specifically, Kookmin Bank’s Credit Review Department continually reviews the financial condition of selected borrowers with respect to their current debt, collateral, business, transactions with related parties and

 

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debt service capability. Based on such review, Kookmin Bank may adjust the borrower’s credit rating, lending policy or asset quality classification of the loan provided to the borrower, depending on the applicable circumstances. Kookmin Bank also regularly reviews other aspects of the lending process, including industries and regions in which its borrowers operate and the quality of its domestic and overseas assets. Kookmin Bank’s industry reviews focus on growth, stability, competition and ability to adapt to a changing environment. Based on the results of a particular industry review, Kookmin Bank may revise the total exposure limit assigned to that industry and lending policy for each company within that industry. When a review takes place, Kookmin Bank may adjust not only the credit ratings of its borrowers based on a variety of factors, but also asset quality classification, credit limits and its credit policies. Credit review results are reported to Kookmin Bank’s chief risk management officer and its Risk Management Committee on a quarterly basis.

Kookmin Bank’s Credit Review Department also conducts on-site reviews of selected branches that are experiencing increasing delinquency ratios and bad debts. During these visits Kookmin Bank examines the loan processes and recommends improvement plans and appropriate follow-up measures.

Also, based on guidelines provided by the Financial Supervisory Service to all Korean banks, Kookmin Bank operates a corporate credit risk assessment program to facilitate the identification of weak companies and possible commencement of corporate restructuring. Through this program, Kookmin Bank, together with other banks, is able to detect symptoms of financially troubled companies at an early stage, assess related credit risk and support the normalization of companies that are likely to turnaround through a workout process, or seek to liquidate those companies that are not likely to recover.

Kookmin Bank’s Credit Review Department also analyzes issues related to credit risk and provides information necessary for the formulation of effective credit policies and strategies and for effective credit risk management.

Market Risk Management

The major risks to which we are exposed are interest rate risk on debt instruments and interest bearing securities and foreign exchange risk and, to a lesser extent, stock price risk. The financial instruments that expose us to these risks are securities and financial derivatives. We are also exposed to interest rate risk and liquidity risk in Kookmin Bank’s banking book. We divide market risk into risks arising from trading activities and risks arising from non-trading activities.

Kookmin Bank’s Risk Management Council establishes overall market risk management principles. It has delegated the responsibility for the market risk management for trading activities to the Market Risk Management Subcommittee of Kookmin Bank, which is chaired by Kookmin Bank’s chief risk management officer. This subcommittee meets on a regular basis each month and as required to respond to developments in the market and the economy. Based on the policies approved by Kookmin Bank’s Risk Management Council, the Market Risk Management Subcommittee reviews and approves reports as required that include trading profits and losses, position reports, limit utilization, sensitivity analysis and VaR results for our trading activities.

Kookmin Bank’s Risk Management Council is responsible for interest rate and liquidity risk management for its non-trading activities. The council meets on a regular basis and as required to respond to developments in the market and the economy. Members of the Risk Management Council, acting through Kookmin Bank’s Risk Management Department, review Kookmin Bank’s interest rate and liquidity gap position monthly, as well as the business profile and its impact on asset and liability management.

To ensure adequate interest rate and liquidity risk management, we have assigned the responsibilities for our asset and liability risk management to Kookmin Bank’s Risk Management Department in Kookmin Bank’s Risk Management Group, which monitors and reviews the asset and liability operating procedures and activities of Kookmin Bank’s Financial Planning Department, and independently reports to the management on the related issues.

 

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Market Risk Management for Trading Activities

Our trading activities consist of:

 

  •  

trading activities for our own account to realize short-term trading profits in Won-denominated debt and equities markets and foreign exchange markets based on our short-term forecast of changes in the market situation; and

 

  •  

trading activities involving derivatives, such as swaps, forwards, futures and option transactions, to realize profits primarily from selling derivative products to our customers and to hedge market risk incurred from those activities.

We use derivative instruments to hedge our market risk and, to a limited extent, to make profits by trading derivative products within acceptable risk limits. The principal objective of our hedging strategy is to manage our market risk within established limits. We use the following hedging instruments to manage relevant risks:

 

  •  

to hedge interest rate risk arising from its trading activities, the Capital Markets Group of Kookmin Bank occasionally uses interest rate futures (Korea Treasury Bond Futures) and interest rate swaps;

 

  •  

to hedge interest rate risk and foreign exchange risk arising from our foreign currency-denominated asset and liability positions as well as our trading activities, the Capital Markets Group of Kookmin Bank uses interest rate swaps, cross-currency interest rate swaps, foreign exchange forwards and futures, Euro-dollar futures and currency options; and

 

  •  

to change the interest rate characteristics of certain assets and liabilities after the original investment or funding, we use swaps. For example, depending on the market situation, we may choose to obtain fixed rate funding instead of floating rate funding if we believe that the terms are more favorable, which we can achieve by entering into interest rate swaps.

We generally manage our market risk at the portfolio level. To control our exposure to market risk, we use internal capital limits set by Kookmin Bank’s Risk Management Committee for Kookmin Bank and at the group level within Kookmin Bank, VaR, position and stop loss limits set by Kookmin Bank’s Risk Management Council for Kookmin Bank and at the group level within Kookmin Bank, and VaR, position, stop loss and sensitivity limits (PVBP, Delta, Gamma, Vega) set by Kookmin Bank’s Market Risk Management Subcommittee at the department level within Kookmin Bank. We prepared our risk control and management guidelines for derivative trading based on the regulations and guidelines promulgated by the Financial Supervisory Service.

In addition, we have implemented internal processes which include a number of key controls designed to ensure that fair value is measured appropriately, particularly where a fair value model is internally developed and used to price a significant product. See Notes 4.4 and 6 of the notes to our consolidated financial statements. For example, each year, Kookmin Bank’s Risk Management Department reviews the existing pricing and valuation models, with a focus on their underlying modeling assumptions and restrictions, to assess the appropriateness of their continued use. In consultation with Kookmin Bank’s Trading Department, the Risk Management Department recommends potential valuation models to Kookmin Bank’s Fair Value Evaluation Committee. Upon approval by Kookmin Bank’s Fair Value Evaluation Committee, the selected valuation models are reported to its Market Risk Management Subcommittee.

We monitor market risk arising from trading activities of our business groups and departments. The market risk measurement model we use for both our Won-denominated trading operations and foreign currency-denominated trading operations is implemented through our integrated market risk management system called Adaptiv, which enables us to generate consistent VaR numbers for all trading activities.

Value at Risk analysis. We use VaR to measure market risk. VaR is a statistically estimated maximum amount of loss that could occur over a given period of time at a given level of confidence. VaR is a commonly used market risk management technique. However, this approach does have some shortcomings. VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past

 

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market movement, however, is not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses can be different depending on the assumptions made at the time of calculation. In addition, the time periods used for the model, generally one or ten days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate or overstate the potential loss. Different VaR methodologies and distributional assumptions could produce a materially different VaR. VaR is most appropriate as a risk measure for trading positions in liquid capital markets and will understate the risk associated with severe events, such as a period of extreme illiquidity.

We use a 99% single tail confidence level to measure VaR, which means the actual amount of loss may exceed the VaR, on average, once out of 100 business days. Until 2011, we used the “variance-covariance method” or parametric VaR (“PVaR”) methodology to measure our daily VaR, which took into account the diversification effects among different risk categories as well as within the same risk category. In 2012, we received authorization from the Financial Services Commission to use a historical simulation VaR (“HSVaR”) methodology, which we believe to be more accurate and responsive in reflecting market volatilities, to measure market risk. Our ten-day HSVaR method, which is computed using a full valuation and is computationally intensive, uses an archive of historic price data and the VaR for a portfolio is estimated by creating a hypothetical time series of returns on that portfolio, obtained by running the portfolio through actual ten-day historical data and computing the changes that would have occurred in each ten-day period.

The following table shows the volume and types of positions held by Kookmin Bank for which the VaR method is used to measure market risk as of December 31, 2021 and 2022.

 

     As of December 31,  
     2021      2022  
     (in millions of Won)  

Securities—Bond(1)

    ￦ 11,744,275      ￦ 12,580,957  

Securities—Equity(1)

      61,485        65,914  

Spot exchanges(2)

      2,776,925        6,340,438  

Derivatives(3)

      5,900,343        15,181,621  
  

 

 

     

 

 

  

Total

    ￦ 20,483,028      ￦ 34,168,929  
  

 

 

     

 

 

  

 

(1) 

Represents amounts marked to market and as shown on the balance sheet information that is prepared and submitted to the Financial Supervisory Service for risk management purposes.

(2) 

Represents the overall net open currency position in each currency, which is the greater of (i) the sum of the absolute value of all short positions and (ii) the sum of the absolute value of all long positions.

(3) 

For over-the-counter derivatives, represents the absolute value of over-the-counter derivatives measured at fair value at year end. For exchange-traded derivatives, includes the amount of deposits and the collateral posted for such derivatives.

The following table shows Kookmin Bank’s ten-day HSVaRs (at a 99% confidence level for a ten-day holding period) as of December 31, 2021 and 2022 for interest risk, stock price risk and foreign exchange risk relating to its trading activities. The following figures were calculated on a consolidated basis.

 

     As of December 31,  
         2021             2022      
     (in billions of Won)  

Risk categories:

   

Interest risk

    ￦ 16.5     ￦ 47.1  

Stock price risk

      5.5       9.4  

Foreign exchange risk

      21.5       41.2  

Less: diversification

      (13.0 )      (5.1 ) 
  

 

 

    

 

 

  

Diversified VaR for overall trading activities

    ￦ 30.5     ￦ 92.5  
  

 

 

    

 

 

  

 

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In 2022, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows:

 

     Trading activities VaR for 2022  
     Average      Minimum      Maximum      As of
December 31,
2022		  
     (in billions of Won)  

Interest risk

    ￦ 34.9      ￦ 16.5      ￦ 64.4      ￦ 47.1  

Stock price risk

      8.6        5.1        11.1        9.4  

Foreign exchange risk

      24.1        14.4        41.8        41.2  

Less: diversification

               (5.1 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Diversified VaR for overall trading activities

    ￦ 49.7      ￦ 22.1      ￦ 99.4      ￦ 92.5  
  

 

 

     

 

 

     

 

 

     

 

 

  

In 2021, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows:

 

     Trading activities VaR for 2021  
     Average      Minimum      Maximum      As of
December 31,
2021		  
     (in billions of Won)  

Interest risk

    ￦ 20.0      ￦ 6.3      ￦ 55.6      ￦ 16.5  

Stock price risk

      9.0        4.5        24.8        5.5  

Foreign exchange risk

      27.8        17.8        49.2        21.5  

Less: diversification

               (13.0 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Diversified VaR for overall trading activities

    ￦ 40.9      ￦ 15.9      ￦ 115.3      ￦ 30.5  
  

 

 

     

 

 

     

 

 

     

 

 

  

In 2020, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows:

 

     Trading activities VaR for 2020  
     Average      Minimum      Maximum      As of
December 31,
2020		  
     (in billions of Won)  

Interest risk

    ￦ 59.3      ￦ 9.6      ￦ 106.0      ￦ 50.8  

Stock price risk

      15.2        3.8        24.3        24.8  

Foreign exchange risk

      36.1        5.3        67.8        49.3  

Less: diversification

               (7.3 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Diversified VaR for overall trading activities

    ￦ 105.4      ￦ 14.2      ￦ 158.8      ￦ 117.6  
  

 

 

     

 

 

     

 

 

     

 

 

  

Standardized Method. Market risk for positions not measured by VaR are measured using the standardized method for measuring market risk-based required equity capital specified by the Financial Supervisory Service, which takes into account certain risk factors. Under the standardized method, the required equity capital is measured using the risk-weighted values for each risk factor. The method used to measure the market risk-based required equity capital for each risk factor is as follows:

 

  •  

Interest rate risk:

 

  •  

General market risk: General market risk relates to the risk of losses from macroscopic events which could have an impact on interest rates, stock prices, exchange rates, and market prices of general commodities. General market interest rate risk of a debt security is calculated on its net position, taking into consideration the remaining maturity and coupon rate.

 

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  •  

Specific risk: Specific risk relates to the risk of loss from changes in credit risk of issuers of debt securities or equities, excluding changes in general market prices. Specific interest rate risk of a debt security is measured by multiplying the interest rate position appraised based on the market price of such security by the risk-weighted value applicable to the type of debt security, credit rating and the remaining maturity.

 

  •  

Equity risk: General and specific equity risk are calculated by multiplying the bought or sold position by the relevant risk-weighted values.

 

  •  

Foreign exchange risk: Foreign exchange risk is measured by multiplying the larger of the absolute values among the net bought or sold positions of each currency by the relevant risk-weighted values.

 

  •  

Option risk: Option risk is measured using the delta, gamma and vega of the option.

The standardized method is used to measure the market risk of the positions for which the Financial Supervisory Service has not approved the use of the VaR method. In addition, we use the standardized method for positions which are held by certain subsidiaries or for which measuring VaR is difficult due to the lack of daily position data. See Note 4.4.3 of the notes to our consolidated financial statements included elsewhere in this annual report.

The following table shows the volume and types of instruments held by Kookmin Bank for which the standardized method is used to measure its required equity capital as of December 31, 2021 and 2022.

 

     As of December 31,  
     2021      2022  
     (in millions of Won)  

Bonds(1)

    ￦ 125,722      ￦ 177,016  

Swaps and foreign exchange positions(2)

      452,615        340,847  

Derivative-linked securities

      —        —  

Debt-equity swap stock put options(3)

      17        33  
  

 

 

     

 

 

  

Total

    ￦ 578,354      ￦ 517,895  
  

 

 

     

 

 

  

 

(1) 

Bonds held by our overseas consolidated subsidiaries, which cannot be measured through the use of our internal models.

(2) 

Includes our overseas consolidated subsidiaries’ currency positions and their positions for foreign exchange swaps, total return swaps held by special purpose vehicles and foreign exchange derivatives that have not been authorized by the Financial Supervisory Service, which cannot be measured through the use of our internal models.

(3) 

Reflects the value of our debt-equity swap stock put options in purchase agreements, which cannot be measured through the use of our internal models.

The following table shows Kookmin Bank’s required equity capital measured using the standardized method as of December 31, 2021 and 2022.

 

     As of December 31,  
     2021      2022  
     (in millions of Won)  

Risk categories:

   

Interest risk

    ￦ 25,431      ￦ 18,545  

Stock price risk

      5        4,686  

Foreign exchange risk

      46,173        70,756  
  

 

 

     

 

 

  

Total

    ￦ 71,610      ￦ 93,987  
  

 

 

     

 

 

  

Back-Testing. We conduct back testing on a daily basis to validate the adequacy of our market risk model. In back testing, we compare both the actual and hypothetical profit and loss with the VaR calculations and analyze any results that fall outside our predetermined confidence interval of 99%. The number of times the

 

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actual changes in fair values, earnings or cash flows from the market risk sensitive instruments exceeded the VaR amounts in 2020, 2021 and 2022 was 9, 2 and 7, respectively.

Stress testing. In addition to VaR, which assumes normal market situations, we use stress testing to assess our market risk exposure to abnormal market fluctuations. Abnormal market fluctuations include significant declines in the stock market and significant increases in the general level of interest rates. This is an important way to supplement VaR, as VaR is a statistical expression of possible loss under a given confidence level and holding period. It does not cover potential loss if the market moves in a manner that is outside our normal expectations. Stress testing projects the anticipated change in value of holding positions under certain scenarios assuming that no action is taken during a stress event to change the risk profile of a portfolio. According to Kookmin Bank’s stress testing, we estimate that as of December 31, 2022, Kookmin Bank’s trading portfolio could have lost ￦530 billion for an assumed short-term extreme decline of approximately 25% in the equity market and an approximate 111 basis point increase in the Korean treasury bond rates under an abnormal stress environment.

We monitor the impact of market turmoil or any abnormality by conducting stress tests and confirming that the results are within our market risk limits. If the impact is large, Kookmin Bank’s chief risk management officer may request that our portfolio be restructured or other appropriate action be taken.

Interest Risk

Interest risk from trading activities arises mainly from our trading of Won-denominated debt securities. Our trading strategy is to benefit from short-term movements in the prices of debt securities arising from changes in interest rates. As our trading accounts are marked-to-market daily, we manage the interest risk related to our trading accounts using market value-based tools such as VaR and sensitivity analysis. As of December 31, 2022, the VaR of Kookmin Bank’s interest risk from trading was ￦47.1 billion and the weighted average duration, or weighted average maturity, of its Won-denominated debt securities at fair value through profit or loss was approximately 4.7 years.

Foreign Exchange Risk

Foreign exchange risk arises because we have assets and liabilities that are denominated in currencies other than Won, as well as off-balance sheet items such as foreign exchange forwards and currency swaps. Our assets and liabilities denominated in U.S. dollars, Japanese Yen, Euro, Chinese Renminbi and Indonesian IDR have typically accounted for the majority of our foreign currency assets and liabilities.

The difference between our foreign currency assets and liabilities is offset against forward foreign exchange positions, currency options and currency swaps to obtain our net foreign currency open position. Kookmin Bank’s Risk Management Council and Market Risk Management Subcommittee oversee Kookmin Bank’s foreign exchange exposure for both trading and non-trading purposes by establishing a limit for this net foreign currency open position, together with stop loss limits. VaR limits are established on a combined basis for our domestic operations and foreign branches.

 

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The following table shows Kookmin Bank’s non-consolidated net open positions at the end of 2021 and 2022. Positive amounts represent long positions and negative amounts represent short positions. The net open positions held by subsidiaries other than Kookmin Bank are not significant.

 

     As of December 31,(1)  
     2021      2022  
     (in millions of US$)  

Currency:

   

U.S. dollars

    US$ (783.4 )     US$ (448.7 ) 

Japanese Yen

      (4.2 )       5.0  

Euro

      7.0        17.7  

Chinese Renminbi

      50.8        67.0  

Indonesian IDR

      618.7        954.6  

Others

      96.7        91.6  
  

 

 

     

 

 

  

Total

    US$ (14.4 )     US$ 687.2  
  

 

 

     

 

 

  

 

(1) 

Amounts prepared on a non-consolidated basis.

Equity Price Risk

Equity price risk results from our equity derivatives trading portfolio in Won since we do not have any trading exposure to shares denominated in foreign currencies.

The equity derivatives trading portfolio in Won consists of exchange-traded stocks and equity derivatives under strict limits on diversification as well as position limits and stop loss limits.

Kookmin Bank’s Risk Management Council and Market Risk Management Subcommittee set annual and monthly stop loss limits that are monitored by Kookmin Bank’s Risk Management Department. In order to ensure timely action, the stop loss limit of individual securities is monitored by the relevant middle office.

As of December 31, 2022, Kookmin Bank’s equity trading position was ￦65.9 billion.

Derivative Market Risk

Our derivative trading includes interest rate and cross-currency swaps, foreign exchange forwards, stock index and interest rate futures and currency options. These activities consist primarily of the following:

 

  •  

sales of tailor-made derivative products that meet various needs of our corporate customers and related transactions to reduce our exposure resulting from those sales;

 

  •  

taking positions in limited cases when we expect short-swing profits based on our market forecasts; and

 

  •  

trading to hedge our interest rate and foreign currency risk exposure as described above.

Market risk from trading derivatives is not significant since our derivative trading activities are primarily driven by customer deals with very limited open trading positions.

Market Risk Management for Non-Trading Activities

Interest Rate Risk

Our principal market risk from non-trading activities is interest rate risk. Interest rate risk arises due to mismatches in the maturities or re-pricing periods of these rate-sensitive assets and liabilities. We measure interest rate risk for Won and foreign currency assets and liabilities in our bank accounts (including derivatives)

 

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and our principal guaranteed trust accounts. Most of our interest-earning assets and interest-bearing liabilities are denominated in Won and our foreign currency-denominated assets and liabilities are mostly denominated in U.S. dollars.

Our principal interest rate risk management objectives are to generate stable net interest revenues and to protect our asset value against interest rate fluctuations. We principally manage this risk for our non-trading activities by analyzing and managing maturity and duration gaps between our interest-earning assets and interest-bearing liabilities. In addition, we use hedging instruments for interest rate risk management for our non-trading assets and liabilities.

Interest rate gap analysis measures expected changes in net interest revenues by calculating the difference in the amounts of interest-earning assets and interest-bearing liabilities at each maturity and interest resetting date. We perform interest rate gap analysis for Won-denominated and foreign currency-denominated assets and trust assets on a monthly basis or more frequently when deemed necessary.

Interest Rate Gap Analysis. We perform interest rate gap analysis based on interest rate repricing maturities of assets and liabilities. However, for some of our assets and liabilities with either no maturities or unique characteristics, we use or assume certain maturities, including the following examples:

 

  •  

With respect to asset maturities, we assume remaining maturities of prime rate-linked loans with remaining maturities of over one year to be one year and use the actual maturities for prime rate-linked loans with remaining maturities of less than one year.

 

  •  

With respect to liability maturities, we use last 120 months’ average balance to segregate “non-core” and “core” demand deposits. We assume “non-core” demand deposits to have remaining maturities of one day or less, and we assume “core” demand deposits to have remaining maturities between one month and five years.

The following table shows Kookmin Bank’s interest rate gap for Won-denominated accounts and foreign currency-denominated accounts as of December 31, 2022.

 

     As of December 31, 2022  
     0-3 Months     3-6 Months     6-12 Months     1-3 Years     Over 3 Years     Total  
     (in billions of Won, except percentages)  

Won-denominated
Interest-earning assets:

             

Loans

    ￦ 136,256     ￦ 83,762     ￦ 60,517     ￦ 36,680     ￦ 11,693     ￦ 328,908  

Securities

      8,045       5,057       9,750       30,238       13,886       66,976  

Others

      2,599       16       37       3       0       2,655  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 146,900     ￦ 88,835     ￦ 70,304     ￦ 66,921     ￦ 25,579     ￦ 398,539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Interest-bearing liabilities:

             

Deposits

    ￦ 135,570     ￦ 37,820     ￦ 85,860     ￦ 49,968     ￦ 37,697     ￦ 346,915  

Borrowings

      16,661       0       24       144       0       16,829  

Others

      18,354       4,010       2,130       1,720       2,450       28,664  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 170,585     ￦ 41,830     ￦ 88,014     ￦ 51,832     ￦ 40,147     ￦ 392,408  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Sensitivity gap

      (23,685 )      47,005       (17,710 )      15,089       (14,568 )      6,131  

Cumulative gap

      (23,685 )      23,320       5,610       20,699       6,131    

% of total assets

      (5.9 )%      5.9 %      1.4 %      5.2 %      1.5 %   

 

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     As of December 31, 2022  
     0-3
Months		     3-6 Months     6-12 Months     1-3 Years     Over 3 Years     Total  
     (in billions of Won, except percentages)  

Foreign currency-denominated
Interest-earning assets:

             

Due from banks

    ￦ 5,851     ￦ 144     ￦ 129     ￦ 152     ￦ 0     ￦ 6,276  

Loans

      27,846       4,077       3,143       2,714       5,150       42,930  

Securities

      5,366       1,179       2,043       1,236       1,900       11,724  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 39,063     ￦ 5,400     ￦ 5,315     ￦ 4,102     ￦ 7,050     ￦ 60,930  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Interest-bearing liabilities:

             

Deposits

    ￦ 20,383     ￦ 4,761     ￦ 5,488     ￦ 2,606     ￦ 2,475     ￦ 35,713  

Borrowings

      15,590       4,776       2,885       3,008       4,233       30,492  

Others

      1,211       0       0       0       0       1,211  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

    ￦ 37,184     ￦ 9,537     ￦ 8,373     ￦ 5,614     ￦ 6,708     ￦ 67,416  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Sensitivity gap

      1,879       (4,137 )      (3,058 )      (1,512 )      342       (6,486 ) 

Cumulative gap

      1,879       (2,258 )      (5,316 )      (6,828 )      (6,486 )   

% of total assets

      3.1 %      (3.7 )%      (8.7 )%      (11.2 )%      (10.6 )%   

Duration Gap Analysis. We also perform duration gap analysis to measure and manage interest rate risk. Duration gap analysis is a more long-term risk indicator than interest rate gap analysis, as interest rate gap analysis focuses more on accounting income as opposed to the market value of the assets and liabilities. We emphasize duration gap analysis because, in the long run, our principal concern with respect to interest rate fluctuations is the net asset value rather than net interest revenue changes. In 2022, our Won-denominated asset and liability duration gap was positive and it moved between +0.020 years and +0.143 years. Accordingly, our net asset value would have declined (or increased) between ￦357 billion and ￦78 billion if interest rates had increased (or decreased) by one percentage point.

For duration gap analysis we use or assume the same maturities for different assets and liabilities that we use or assume for our interest rate gap analysis.

The following table shows Kookmin Bank’s duration gaps and net asset value changes when interest rates decrease by one percentage point as of the specified dates, on a non-consolidated basis.

 

Won-denominated    Asset
Duration		      Liability
Duration		      Duration
Gap		      Net Asset Value
Change		  
Date    (in years)      (in years)      (in years)      (in billions of
Won)		  

June 30, 2022

      0.944        0.894        0.093      ￦ 357  

December 31, 2022

      0.827        0.838        0.020        78  

 

Foreign currency-denominated    Asset
Duration		      Liability
Duration		      Duration
Gap		      Net Asset Value
Change		  
Date    (in years)      (in years)      (in years)      (in billions of
Won)		  

June 30, 2022

      0.906        0.743        0.136      ￦ 85  

December 31, 2022

      0.841        0.682        0.102        63  

We set interest rate risk limits using historical interest rate volatility of financial bonds and duration gaps with respect to expected asset and liability positions based on our annual business plans. The Risk Management Department in Kookmin Bank’s Risk Management Group submits interest rate gap analysis reports, duration gap analysis reports and interest rate risk limit compliance reports monthly to Kookmin Bank’s Risk Management Council and quarterly to Kookmin Bank’s Risk Management Committee.

 

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The following table summarizes Kookmin Bank’s interest rate risk, taking into account asset and liability durations as of December 31, 2022.

 

     As of December 31, 2022  
     3 Months
or Less		     3-6
Months		     6-12
Months		     1-3
Years		     Over
3 Years		     Total  
     (in billions of Won, except percentages and maturities in years)  

Won-denominated:

             

Asset position

    ￦ 146,900     ￦ 88,835     ￦ 70,304     ￦ 66,921     ￦ 25,579     ￦ 398,539  

Liability position

      170,585       41,830       88,014       51,832       40,147       392,408  

Gap

      (23,685 )      47,005       (17,710 )      15,089       (14,568 )      6,131  

Average maturity

      0.085       0.331       0.646       1.596       4.407    

Interest rate volatility

      11.57 %      10.87 %      9.11 %      6.39 %      3.77 %   

Amount at risk

      807       1,738       (1,294 )      1,637       (1,741 )      1,147  

Foreign currency-denominated:

             

Asset position

    ￦ 39,063     ￦ 5,400     ￦ 5,315     ￦ 4,102     ￦ 7,050     ￦ 60,930  

Liability position

      37,184       9,537       8,373       5,614       6,708       67,416  

Gap

      1,879       (4,137 )      (3,058 )      (1,512 )      342       (6,484 ) 

Average maturity

      0.092       0.360       0.702       1.758       4.576    

Interest rate volatility

      (3.82 )%      (4.13 )%      (3.62 )%      (2.62 )%      0.37 %   

Amount at risk

      (9 )      61       78       46       238       414  

IRRBB Analysis. Prior to January 2020, we estimated the maximum possible loss on net non-trading assets due to unfavorable changes in interest rates by calculating interest rate VaR using a historical simulation method with actual historical price, volatility and yield changes in comparison with the current position to generate hypothetical portfolios and calculate a distribution of position and portfolio market value changes. Using this method, Kookmin Bank’s interest rate VaR was ￦837 billion as of December 31, 2021 and ￦1,561 billion as of December 31, 2022.

Recent amendments to the Detailed Regulation on the Supervision of the Banking Business, which became effective in November 2019, require banks, including Kookmin Bank, to adopt the standards of the Interest Rate Risk in the Banking Book, or IRRBB, issued by the Basel Committee on Banking Supervision for calculating interest rate risk exposure. Such amendments were adopted in order to promote more financial stability for banks by requiring them to maintain a sufficient level of capital through a more robust risk management system. Under the new IRRBB analysis standards, Kookmin Bank estimates its interest rate risk by calculating the changes in economic value of equity and the changes in net interest income based on various interest rate risk scenarios. Under this method, Kookmin Bank’s interest risk exposure was ￦290 billion as of December 31, 2022.

For additional information, see Note 4.4 of the notes to our consolidated financial statements included elsewhere in this annual report.

Foreign Exchange Risk

We manage foreign exchange rate risk arising from our non-trading operations together with such risks arising from our trading operations. See “—Market Risk Management for Trading Activities—Foreign Exchange Risk” above.

Liquidity Risk Management

Liquidity risk is the risk of insolvency or loss due to a disparity between the inflow and outflow of funds resulting from, for example, maturity mismatches, obtaining funds at a high price or disposing of securities at an unfavorable price due to lack of available funds. We manage our liquidity in order to meet our financial liabilities

 

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from withdrawals of deposits, redemption of matured debentures and repayments at maturity of borrowed funds. We also require sufficient liquidity to fund loans, to extend other credits and to invest in securities. Our liquidity management goal is to meet all our liability repayments on time and fund all investment opportunities even under adverse conditions. To date, we have not experienced significant liquidity risk.

We maintain liquidity by holding sufficient quantities of assets that can be liquidated to meet actual or potential demands for funds from depositors and others. We also manage liquidity by ensuring that the excess of maturing liabilities over maturing assets in any period is kept to manageable levels relative to the amount of funds we believe we could raise by issuing securities. We seek to minimize our liquidity costs by managing our liquidity position on a daily basis and by limiting the amount of cash at any time that is not invested in interest-earning assets or securities.

We maintain diverse sources of liquidity to facilitate flexibility in meeting our funding requirements. We fund our operations principally by accepting deposits from retail and corporate depositors, accessing the call loan market (a short-term market for loans with maturities of less than 90 days), issuing debentures and borrowing from the Bank of Korea. We use the majority of funds we raise to extend loans or purchase securities. Generally, deposits are of shorter average maturity than loans or investments.

For Won-denominated assets and liabilities, we manage liquidity using a cash flow structure based on holding short-term liabilities and long-term assets. Generally, the average initial contract maturity of our new Won-denominated time deposits was less than one year, while during the same period most of our new loans and securities had maturities over one year.

We manage liquidity risk within the limits set on Won and foreign currency accounts in accordance with the regulations of the Financial Services Commission. The Financial Services Commission generally requires Korean banks, including Kookmin Bank, to maintain a liquidity coverage ratio of not less than 100%. The Financial Services Commission defines the liquidity coverage ratio as the ratio of highly liquid assets to total net cash outflows over a 30-day period. The highly liquid assets and total net cash outflows included in the calculation of the liquid coverage ratio are determined in accordance with the “Standards for Calculation of Liquidity Coverage Ratio” under the Detailed Regulation on the Supervision of the Banking Business. In addition, the Financial Services Commission requires Korean banks, including Kookmin Bank, to maintain a foreign currency liquidity coverage ratio of not less than 80%.

In April 2020, in order to encourage financial institutions to provide financial support to companies adversely affected by COVID-19, the Financial Services Commission announced that it would temporarily lower the required liquidity coverage ratio to 85%, and the required foreign currency liquidity coverage ratio to 70%. In June 2022, the Financial Services Commission began phasing out such temporary measures. The liquidity coverage ratio requirement is currently 92.5% and is expected to return to 100% in July 2023, while the foreign liquidity coverage ratio requirement returned to the pre-pandemic level of 80%.

Kookmin Bank’s Financial Planning Department is responsible for daily liquidity management with respect to its Won and foreign currency exposure. It reports monthly plans for funding and operations to the Asset Liability Management Committee of Kookmin Bank, which discusses factors such as interest rate movements and maturity structures of its deposits, loans and securities and establishes strategies with respect to deposit and lending rates.

 

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The following table shows Kookmin Bank’s liquidity coverage ratio and foreign currency liquidity coverage ratio on an average balance basis for the month of December 2022 in accordance with Financial Services Commission regulations:

 

Liquidity coverage ratio:

    30 Days
or Less		  
     (in billions of Won,
except percentages)		  

Highly liquid assets (A)

    ￦ 76,781  

Cash outflows (B)

      99,884  

Cash inflows (C)

      22,475  

Total net cash outflows (D = B-C)

      77,409  

Liquidity coverage ratio (A/D)

      99.19 % 

Minimum limit

      92.50 % 

 

Foreign currency liquidity coverage ratio:

    30 Days
or Less		  
     (in millions of US$,
except percentages)		  

Highly liquid assets (A)

    US$ 6,333  

Cash outflows (B)

      13,798  

Cash inflows (C)

      9,443  

Total net cash outflows (D = B-C)

      4,355  

Liquidity coverage ratio (A/D)

      145.42 % 

Minimum limit

      80.00 % 

The Risk Management Department in Kookmin Bank’s Risk Management Group reports whether it is complying with these limits monthly to Kookmin Bank’s Risk Management Council and quarterly to Kookmin Bank’s Risk Management Committee.

Operational Risk Management

Overall Status

There is no complete consensus on the definition of operational risk in the banking industry. We define operational risk broadly to include all financial and non-financial risks, other than credit risk, market risk, interest rate risk and liquidity risk, that may arise from our operations that could negatively impact our capital, including the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events as defined under Basel II. Our operational risk management objectives include not only satisfying regulatory requirements, but also providing internal support through the growth of a strong risk management culture, reinforcement of internal controls, improvement of work processes and provision of timely feedback to management members and staff throughout the group.

Each of our subsidiaries manages operational risks related to its own business, and we regularly monitor them. Kookmin Bank, our banking subsidiary, uses an operational risk management framework meeting the Basel II Advanced Measurement Approach, or AMA, under which Kookmin Bank:

 

  •  

calculates its operational risk VaR on a quarterly basis using the “loss distribution approach VaR” and “scenario based VaR” methodology;

 

  •  

monitors operational risk in terms of Key Risk Indicators, or KRIs, using tolerance levels for each indicator;

 

  •  

executes integrated compliance and operational risk Control Self Assessments, or CSAs, that enhance the effect on internal controls, which Kookmin Bank employees are able to access and use for process improvement;

 

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  •  

collects and analyzes internal and external loss data;

 

  •  

conducts scenario analyses to evaluate exposure to high-severity events;

 

  •  

manages certain insurance-related activities relating to insurance strategies established to mitigate operational risk;

 

  •  

examines operational risks arising in connection with the development of, changes in or discontinuance of products, policies or systems;

 

  •  

uses a detailed business continuity plan covering all of its operations and locations to prepare against unexpected events, including an alternate back-up site for use in disaster events as well as annual full-scale testing of such site;

 

  •  

refines bank-wide operational risk policies and procedures;

 

  •  

provides appropriate training and support to business line operational risk managers; and

 

  •  

reports overall operational risk status to our senior management.

While Kookmin Bank’s Risk Management Department advises relevant business units with respect to the review of and suggested improvements on related operational processes and procedures, each of Kookmin Bank’s relevant business units has primary responsibility for the management of its own operational risk. In addition, the Operational Risk Unit, which is part of Kookmin Bank’s Risk Management Department, monitors bank-wide operational risk. Kookmin Bank also has business line operational risk managers in all of its subsidiaries, departments and branches who periodically conduct CSAs and monitor KRIs. For example, Kookmin Bank has developed KRIs relating to customer data protection, which are applied and monitored at all domestic branches and offices. In addition, in order to strengthen risk management of its overseas operations, Kookmin Bank designates expert auditors for overseas branches and conducts internal audits designed especially to check key risks identified for each overseas branch. Kookmin Bank has also established a risk CSA system for overseas branches, pursuant to which all employees (including locally hired staff) of such branches are required to perform a risk CSA on a quarterly basis. Furthermore, Kookmin Bank regularly monitors operational risks related to new businesses as well as existing operating processes and seeks to develop appropriate new KRIs and risk CSA measures on an ongoing basis. Through such methods, Kookmin Bank is able to ensure proper monitoring and measurement of operational risk in each of its business groups and overseas operations.

Internal Control

To monitor and control operational risks, we maintain a system of comprehensive policies and have put in place a control framework designed to provide a stable and well-managed operational environment throughout our organization. We have in place a prescribed leave policy for employees in certain high-risk categories to safeguard against fraud and to check for weaknesses in internal controls. In addition, we maintain an external whistleblower “ombudsman” channel to encourage whistleblowing and voluntary reporting of fraudulent behavior.

Each of our subsidiaries establishes its own internal control system in accordance with the group-level internal control principles. Our Compliance Supporting Department is responsible for monitoring and advising our subsidiaries regarding their internal control systems. Our Audit Committee, which consists of four non-executive directors, is an independent authority that evaluates the effectiveness and efficiency of our group-wide internal control systems and business processes and monitors our subsidiaries’ compliance with such systems and processes, as well as reviews the reliability of our financial statements to secure the transparency and stability of our management (including through the activities of our independent auditors). In particular, we have established group-wide internal guidelines with respect to our subsidiaries’ reporting requirements. Our subsidiaries review their operations and their level of compliance with internal control systems and business processes on a periodic basis and, as part of this process, they are required to report any problems discovered and

 

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any remedial actions taken to our chief compliance officer, who is responsible for reporting to our Audit Committee. Based on the results of these reports, or on an ad hoc basis in response to any problem or potential problem that it identifies, the Audit Committee may direct a subsidiary to conduct an audit of its operations or, if it chooses to do so, conduct its own audit of those operations. The Audit Committee interacts on a regular basis with our Audit Department, Compliance Supporting Department and our independent auditors. In carrying out these duties, the Audit Committee ultimately protects our property for the benefit of our shareholders, investors and customers by independently monitoring our management.

Our Audit Department supports our Audit Committee in monitoring our accounting and business operations and overseeing the management of our subsidiaries’ internal control systems by performing the following activities:

 

  •  

general audits, which include full-scale audits of the overall operations performed according to an annual audit plan, and sectional audits of selected operations; and

 

  •  

special audits of troubled or weak operations, which are performed when our Audit Committee or executive officer responsible for audits deems it necessary or pursuant to requests by our board, executive officers or supervisory authorities, such as the Financial Supervisory Service.

The Financial Supervisory Service periodically conducts a general examination of our operations. It also performs specific audits on particular aspects of our operations, such as risk management, credit monitoring and liquidity, as the need arises. We and our subsidiaries have in the past been subject to, and expect in the future to be subject to, the receipt of warning notices or the imposition of penalties in connection with our or our subsidiaries’ failure to comply with the applicable laws or rules, regulations and guidelines of the Financial Supervisory Service. For example, in November 2020, the Financial Supervisory Service conducted a risk management evaluation of our company and Kookmin Bank, the result of which was deemed satisfactory. More recently, in June 2021, the Financial Supervisory Service conducted a comprehensive annual inspection of overall operations at our company and Kookmin Bank, and imposed administrative fines on us and Kookmin Bank for certain alleged deficiencies in operations, risk management and asset quality management. We and Kookmin Bank are working to improve the areas which the Financial Supervisory Service has noted required improvement.

Kookmin Bank’s Audit Department is the execution body for its audit committee and supports Kookmin Bank’s management objectives by auditing the operations of its branches using a risk analysis system and reviewing the operations of its headquarters and subsidiaries through the use of “risk-based audit” in accordance with the “business measurement process” audit methodology, which requires that the Audit Department evaluate the risk and process of its business units and concentrate its audit capacity with respect to high risk areas.

As a result of recent regulatory trends, Kookmin Bank’s Audit Department is continuing its efforts to establish an advanced audit system and value-added internal audit by introducing risk-based audit techniques.

Our Compliance Supporting Department operates a compliance system to ensure that all of our employees comply with the relevant laws and regulations. This system’s main function is to establish and manage our compliance program, educate employees and management and improve our internal control process.

Legal Risk

We consider legal risk as a part of our operational risk. The uncertainty of the enforceability of the obligations of our customers and counterparties creates legal risk. Changes in laws and regulations could also adversely affect us. Legal risk is higher in new areas of business where the law is often untested in the courts, although legal risk can also increase in our traditional business to the extent that the legal and regulatory landscape in Korea is changing and many new laws and regulations governing the financial industry remain untested. Our Compliance Supporting Department seeks to minimize legal risk by using stringent legal documentation, employing procedures designed to ensure that transactions are properly authorized and consulting legal advisers.

 

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IT System Operational Risk

The integrity of our IT systems, and their ability to withstand potential catastrophic events, are crucial to our continuing operations. Accordingly, we are continuing to strengthen our disaster recovery capabilities. In order to minimize operational risks relating to our IT systems, we have implemented a multi-CPU system that runs multiple CPUs simultaneously on-site and ensures system continuity in case any of the CPUs fails. This system backs up our data systems at an off-site location on a real-time basis to ensure that our operations can be carried out normally and without material interruption in the event of CPU failure. Also, in order to protect our Internet banking services from system failures and cyber attacks, we process our Internet transactions through two separate data processing centers.

We currently test our disaster recovery systems on a quarterly basis, with the comprehensive testing covering our branches and the main IT center’s disaster recovery system, and our Infrastructure System Department monitoring all of our computerized network processes and IT systems. In addition, we monitor and report on any unusual delays or irregularities reported by our branches. Moreover, Kookmin Bank’s Information Security Department is responsible for the daily monitoring of its information security system. Our business operations regularly conduct IT security inspections with respect to such operations and have implemented measures to identify and respond collectively to security breach attempts, such as hacking attempts. Furthermore, KB Kookmin Card and Kookmin Bank have each established technical as well as management-related standards governing information protection under which they operate their businesses.

In particular, at Kookmin Bank, we have taken steps to establish a comprehensive security system aimed at detecting and responding to internal and external threats to its IT system and have implemented network segregation on the computers of all employees so that Intranet and Extranet functions are segregated. We have endeavored to enhance protection of customer data by using personal identification numbers internally generated and managed by Kookmin Bank in all customer financial transaction, in lieu of the resident registration numbers of its customers, and by amending forms and templates to minimize collection of potentially sensitive customer data. Kookmin Bank’s chief information security officer is responsible for ensuring protection of information assets and technologies and reducing IT risks.

At KB Kookmin Card, we have taken steps to strengthen its information security infrastructure by implementing a solution to prevent attacks on its website and a security system to prevent unauthorized access to local networks and information. As part of its efforts to strengthen its operational processes and procedures for customer information protection and to ensure compliance with relevant laws and regulations, KB Kookmin Card continually conducts annual status reviews, monthly information security inspections, information protection training for its employees and officers and mock training sessions for responding to malicious e-mails.

In 2009, Kookmin Bank obtained ISO 27001 certification, which relates to information security. In 2011, Kookmin Bank also obtained ISO 20000 certification, which relates to IT service management, and BS 25999 certification, which relates to business continuity management. Kookmin Bank is the first Korean bank to have obtained all three such international certifications. In addition, between 2013 and 2022, we, Kookmin Bank, KB Insurance and KB Kookmin Card obtained ISMS certification, which relates to information security management, and KB Securities, KB Kookmin Card and Kookmin Bank obtained ISMS-P certification, which relates to personal information in addition to information security management. In 2017, KB Kookmin Card obtained PCI DSS certification, which relates to protection of credit card data.

We implement various year-round education programs and training sessions designed to raise the information security awareness of both management and employees.

 

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Item 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees and Charges

Under the terms of the deposit agreement, as a holder of our ADSs, you are required to pay the following service fees to the depositary:

 

Services

   

Fees

Issuance of ADSs

    Up to $5.00 per 100 ADSs (or portion thereof) issued

Delivery of deposited shares against surrender of ADSs

    Up to $5.00 per 100 ADSs (or portion thereof) surrendered

Distribution of cash dividends or other cash distributions

    Up to $0.02 per ADS held

Transfer of ADSs, combination and split-up of American depositary receipts or interchange of certificated and uncertificated ADSs

    Up to $1.50 per American depositary receipt transferred

Distribution or sale of securities pursuant to stock dividends, free stock distributions, exercise of rights or any other non-cash distributions

    A fee equivalent to the fee that would be payable if securities distributed or sold, as the case may be, had been shares and such shares had been deposited for issuance of ADSs

Depositary Services

    Up to $0.02 per ADS (or portion thereof) held on the applicable record date(s) established by the depositary

As a holder of our ADSs, you are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

 

  •  

Fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and withdrawal of shares).

 

  •  

Expenses incurred for converting foreign currency into U.S. dollars.

 

  •  

Expenses for cable, telex and fax transmissions and for delivery of securities.

 

  •  

Taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit).

 

  •  

Fees and expenses incurred in connection with the delivery or servicing of shares on deposit or other deposited securities.

Depositary fees payable upon the issuance and surrender of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for surrender. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Depository Trust Company, or DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding

 

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ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs.

Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes.

Fees and Payments from the Depositary to Us

In 2022, we received the following payments from the depositary:

 

Reimbursement of listing fees:

    $ 74,000  

Reimbursement of SEC filing fees:

    $ 76,038  

Reimbursement of expenses related to our investor relations activities (investor conferences and investor relations agency fees, etc.) and legal fees (expenses related to the preparation of our Form 20-F for fiscal year 2021):

    $ 1,305,579  

In addition, as part of its service to us, the depositary waives its fees for the standard costs and operating expenses associated with the administration of the ADS facility.

 

Item 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

 

Item 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

 

Item 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have evaluated, with the participation of our chief executive officer and chief finance officer, the effectiveness of our disclosure controls and procedures as of December 31, 2022. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief finance officer concluded that our disclosure controls and procedures as of December 31, 2022 were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief finance officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the

 

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supervision and with the participation of our management, including our chief executive officer and chief finance officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS as issued by the IASB, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by KPMG Samjong Accounting Corp., an independent registered public accounting firm, as stated in its report included herein, which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2022.

Attestation Report of the Registered Public Accounting Firm

The attestation report of our independent registered public accounting firm is included in Item 18 of this Form 20-F.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 16.

[RESERVED]

 

Item 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Kyung Ho Kim and Whajoon Cho, our non-executive directors and members of our Audit Committee, qualify as “audit committee financial experts” and are independent within the meaning of this Item 16A.

 

Item 16B.

CODE OF ETHICS

We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our chief executive officer and chief finance officer, as well as to our non-executive directors, non-standing directors and other officers and employees. Our code of ethics is available on our website at

 

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https://www.kbfg.com/Eng/about/ethics.htm. If we amend the provisions of our code of ethics that apply to our chief executive officer and chief finance officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address.

 

Item 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-audit Fees

The following table sets forth the fees billed to us by independent registered public accounting firm KPMG Samjong Accounting Corp. during the fiscal year ended December 31, 2021 and 2022:

 

     Year Ended December 31,  
     2021      2022  
     (in millions of Won)  

Audit fees

    ￦ 12,459      ￦ 13,265  

Audit-related fees

      561        550  

Tax fees

      220        440  
  

 

 

     

 

 

  

Total fees

    ￦ 13,240      ￦ 14,255  
  

 

 

     

 

 

  

Audit fees in the above table are the aggregate fees billed by KPMG Samjong Accounting Corp. in connection with:

 

  •  

the audits of our annual financial statements and the review of our interim financial statements;

 

  •  

the audits of our special purpose entities in connection with the Financial Investment Services and Capital Markets Act; and

 

  •  

our financial debenture offering services.

Audit-related fees in the above table are the aggregate fees billed by KPMG Samjong Accounting Corp. in connection with due diligence services rendered in the ordinary course of our business.

Tax fees in the above table are fees billed by KPMG Samjong Accounting Corp. in connection with tax audit-related services performed for KB Capital Co., Ltd. in 2021 and fees expected to be billed by KPMG Samjong Accounting Corp. in connection with tax audit-related services for Kookmin Bank in 2022.

Audit Committee Pre-Approval Policies and Procedures

Our Audit Committee pre-approves the engagement of our independent auditors for audit services with respect to our financial statements. Our Audit Committee has implemented a policy regarding pre-approval of certain other services provided by our independent auditors to our subsidiaries that the Audit Committee has deemed as not affecting their independence. Under this policy, pre-approvals for the following services to our subsidiaries have been granted by our Audit Committee to each of our subsidiaries’ audit committees: (i) services related to the audit of financial statements prepared in accordance with IFRS as adopted by Korea and internal controls under Korean laws and regulations; (ii) general tax services; (iii) issuance of comfort letters in connection with offering of securities; and (iv) educational services provided to employees.

Any other audit or permitted non-audit service must be pre-approved by the Audit Committee on a case-by-case basis. Our Audit Committee did not pre-approve any non-audit services under the de minimis exception of Rule 2.01(c)(7)(i)(C) of Regulation S-X as promulgated by the Securities and Exchange Commission.

 

Item 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

 

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Item 16E.

PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

 

Item 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

On December 7, 2022, our Audit Committee approved the appointment of Samil PricewaterhouseCoopers, or PwC, as our principal accountant to audit our financial statements prepared in accordance with IFRS as issued by the IASB for the fiscal years ending December 31, 2023, 2024 and 2025 and the dismissal of KPMG Samjong Accounting Corp., or KPMG, our independent registered public accountants. PwC was appointed on December 29, 2022, with such appointment to be effective from January 1, 2023, and KPMG will be dismissed effective upon completion of its audit of our financial statements as of and for the year ended December 31, 2022, and the issuance of its report thereon.

The decision of our Audit Committee to dismiss KPMG, and to appoint PwC, as our principal accountant to audit our financial statements prepared in accordance with IFRS as issued by the IASB, was due to the expiration of KPMG’s term of engagement, which covered the fiscal years ended December 31, 2020, 2021 and 2022, following their designation as our external auditor by the Securities and Futures Commission in November 2019. Pursuant to the Act on External Audit of Stock Companies, as amended, a corporation that was audited by an external auditor designated by the Securities and Futures Commission cannot be audited by the same designated external auditor in the period immediately following the designated audit period.

KPMG’s reports on our consolidated financial statements prepared in accordance with IFRS as issued by the IASB for each of the fiscal years ended December 31, 2022 and 2021 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. Furthermore, during the fiscal years ended December 31, 2022 and 2021 and in the subsequent interim period preceding KPMG’s dismissal, or the Pre-Engagement Period, there were no disagreements with KPMG on any matter of accounting principles or practice, financial statement disclosure or auditing scope or procedure that if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the disagreement in its reports. In addition, during the Pre-Engagement Period, there were no “reportable events” requiring disclosure pursuant to Item 16F(a)(1)(v) of Form 20-F.

We provided a copy of the disclosure in this Item 16F to KPMG and requested that KPMG furnish us with a letter addressed to the Commission stating whether it agrees with such disclosure, and if it does not agree, stating the respects in which it does not agree. A copy of KPMG’s letter dated April 26, 2023 is filed as Exhibit 15.1 to this annual report on Form 20-F for the fiscal year ended December 31, 2022.

During the Pre-Engagement Period, neither we nor anyone acting on our behalf consulted with PwC regarding any matter that was either the subject of a disagreement, as that term is defined in Item 16F(a)(1)(iv) of Form 20-F (and the related instructions thereto), or a reportable event as described in Item 16F(a)(1)(v) of Form 20-F.

 

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Item 16G.

CORPORATE GOVERNANCE

Differences in Corporate Governance Practices

Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers like us that are listed on the New York Stock Exchange, we are required to disclose significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law and in accordance with our own internal procedures. The following is a summary of such significant differences:

 

NYSE Corporate Governance Standards

   

KB Financial Group

Director Independence   
Listed companies must have a majority of independent directors.    The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), as seven out of nine directors are non-executive directors.

Executive Session

   
Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year.    Our non-executive directors hold executive sessions as needed in accordance with the Regulation of the Board of Directors.

Nomination/Corporate Governance Committee

   
A nomination/corporate governance committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee.   

We maintain a Non-executive Director Nominating Committee composed of four non-executive directors.

 

We maintain a CEO Nominating Committee composed of all seven of our non-executive directors.

Compensation Committee

   

A compensation committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of the Dodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company that will materially affect that member’s duties to the compensation committee.

 

Additionally, the committee may obtain or retain the advice of a compensation adviser only after taking into consideration all factors relevant to determining that adviser’s independence from management.

    We maintain an Evaluation and Compensation Committee composed of four non-executive directors.

Audit Committee

   
Listed companies must have an audit committee that satisfies the independence and other requirements of Rule 10A-3 under the Exchange Act. All members must be independent. The committee must have a charter    We maintain an Audit Committee composed of four non-executive directors. Accordingly, we are in compliance with Rule 10A-3 under the Exchange Act.

 

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addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s website.   

Audit Committee Additional Requirements

   
Listed companies must have an audit committee that is composed of at least three directors.    Our Audit Committee has four members, as described above.

Shareholder Approval of Equity Compensation Plan

   
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan.   

We currently have two equity compensation plans: (i) performance share agreements with certain of our directors and executive officers and (ii) an employee stock ownership plan, or ESOP. Matters related to the performance share agreements or ESOP are not subject to shareholders’ approval under Korean law.

 

Our Articles of Incorporation provide that our stockholders may, by special resolution, grant stock options to officers, directors and employees. All material matters related to stock options are provided in our Articles of Incorporation, and any amendments to the Articles of Incorporation are subject to shareholders’ approval.

Corporate Governance Guidelines

   
Listed companies must adopt and disclose corporate governance guidelines.    We have adopted corporate governance standards, the Korean-language version of which is available on our website.

 

Item 16H.

MINE SAFETY DISCLOSURE

Not applicable.

 

Item 16I.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

 

Item 17.

FINANCIAL STATEMENTS

Not applicable.

 

Item 18.

FINANCIAL STATEMENTS

Reference is made to Item 19(a) for a list of all financial statements filed as part of this annual report.

 

Item 19.

EXHIBITS

 

(a)

List of Financial Statements:

 

     Page  

Audited consolidated financial statements of KB Financial Group Inc. and subsidiaries, prepared in accordance with IFRS as issued by the IASB

   

Report of independent registered public accounting firm

      F-1  

Consolidated statements of financial position as of December 31, 2021 and 2022

      F-5  

Consolidated statements of comprehensive income for the years ended December 31, 2020, 2021 and 2022

      F-6  

Consolidated statements of changes in equity for the years ended December 31, 2020, 2021 and 2022

      F-9  

Consolidated statements of cash flows for the years ended December 31, 2020, 2021 and 2022

      F-13  

Notes to consolidated financial statements

      F-15  

 

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(b)

Exhibits

Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, KB Financial Group has filed certain agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties made by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate, (ii) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the company’s filings or are not required to be disclosed in those filings, (iii) may apply materiality standards different from what may be viewed as material to investors and (iv) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments. Accordingly, these representations and warranties may not describe KB Financial Group’s actual state of affairs at the date of this annual report.

 

Number   

Description

1.1    Articles of Incorporation of KB Financial Group (translation in English).
2.1(1)    Form of Share Certificate of KB Financial Group’s common stock, par value ￦5,000 per share (translation in English).
2.2(2)    Form of Fifth Amended and Restated Deposit Agreement among KB Financial Group, JPMorgan Chase Bank, N.A., as depositary, and all owners and holders from time to time of American depositary receipts issued thereunder, evidencing American depositary shares, including the form of American depositary receipt.
2.3(3)    Description of KB Financial Group’s Capital Stock.
2.4(4)    Description of KB Financial Group’s American Depositary Shares.
8.1(5)    List of subsidiaries of KB Financial Group.
11.1(6)    Code of Ethics.
12.1    Section 302 certifications.
13.1    Section 906 certifications.
15.1    Letter of KPMG Samjong Accounting Corp. dated April 26, 2023.
101.INS    Inline XBRL Instance Document.
101.SCH    Inline XBRL Taxonomy Extension Schema Document.
101.CAL    Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF    Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB    Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE    Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104    Cover Page Interactive Data File (Embedded within Inline XBRL Document).

 

(1)

Incorporated by reference to the registrant’s filing on Form 20-F (No. 000-53445), filed on June 15, 2009 (https://www.sec.gov/Archives/edgar/data/1445930/000095012309013901/h03411exv2w1.htm).

(2)

Incorporated by reference to the registrant’s filing on Form F-6 (No. 333-208008), filed on November 13, 2015 (https://www.sec.gov/Archives/edgar/data/1445930/000119380515001876/e614274_ex99-a.htm).

(3)

Incorporated by reference to “Item 10.B. Memorandum and Articles of Association—Description of Capital Stock” of this annual report.

(4)

Incorporated by reference to exhibit 2.4 to the registrant’s filing on Form 20-F (No. 000-53445) filed on April 24, 2020 (https://www.sec.gov/Archives/edgar/data/1445930/000119312520118233/d862752dex24.htm).

(5)

Incorporated by reference to Note 41 of the consolidated financial statements of the registrant included in this annual report.

(6)

Incorporated by reference to the registrant’s filing on Form 20-F (No. 000-53445), filed on April 28, 2016 (https://www.sec.gov/Archives/edgar/data/1445930/000119312516561071/d181570dex111.htm).

 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

KB FINANCIAL GROUP INC.
(Registrant)
/s/ Jong Kyoo Yoon
(Signature)
Jong Kyoo Yoon
Chairman and Chief Executive Officer
(Name and Title)

Date: April 26, 2023

 

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0.5 p.0.5 p.0.5 p.Positive correlationPositive correlationNegative correlationNegative correlationNegative correlationNegative correlationNegative correlationNegative correlationCash-settledFinancial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.Financial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.Financial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.Financial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.Financial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.Financial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.Financial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.Financial information is based on its consolidated financial statements. Includes fair value adjustments arising from the acquisition.2022-12-312021-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312021-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-312022-12-31Services fulfillment, market performance3 0~50%, and non-market performance4 50~100%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 30~50%, and non-market performance4 50~70%Services fulfillment, market performance3 30%, and non-market performance4 70%Services fulfillment, market performance3 30%, and non-market performance4 70%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 30%, and non-market performance4 70%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 35%, and non-market performance5 65%Services fulfillment, market performance3 30%, and non-market performance4 70%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 30%, and EPS & Asset Quality6 70%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Services fulfillment, market performance3 0~30%, and non-market performance4 70~100%Cash-settled
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
KB Financial Group Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated statements of financial position of KB Financial Group Inc. and its subsidiaries (“the Group”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Group’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Group’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the Group’s consolidated financial statements and an opinion on the Group’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
F-1
Table of Contents
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
(i) Assessment of the allowance for credit losses for loans
As discussed in Notes 3.6, 4.2, 10, and 11 to the consolidated financial statements, the Group recognized an allowance for credit losses using the Expected Credit Loss (ECL) impairment model for loans at amortized cost amounting to KRW 4,158,625 million as of December 31, 2022. A lifetime ECL is recognized for those loans that have experienced a Significant Increase in Credit Risk (SICR) since initial recognition or are credit impaired, otherwise a
12-month
ECL is recognized. The Group measures ECL allowances on an individual basis for individually significant corporate loans which are credit impaired and for those which have experienced a SICR and demonstrate certain other high risk indicators (for example, debt restructuring). The individual assessment involves judgment by the Group in estimating the future cash flows, including the value of related collateral. The allowance for credit losses for other loans are measured on a collective basis. For these loans, the Group measures ECL based on its estimates of the Probability of Default (PD), the Loss Given Default (LGD) and the Exposure at Default (EAD) as well as the impact of Forward-Looking Information (FLI). For the corporate loans measured on a collective basis, one of the relevant inputs for determining PD is the internal credit risk rating of the borrower. The internal credit risk rating of the borrower is defined by the Group using quantitative and qualitative factors.
We identified the assessment of the allowance for credit losses for loans as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved to evaluate the Group’s estimates of future cash flows, including from the sale of collateral, for the corporate loans with ECL measured on an individual basis. In addition, a high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved to evaluate the Group’s estimates and judgments with respect to the measurement of ECL on a collective basis. This included
 
F-2
Table of Contents
the analysis of the qualitative factors considered in determining the internal credit risk ratings of corporate loans, the calculation of 12 month and lifetime PD, the calculation of LGD and the evaluation of FLI incorporated in the measurement of collective ECL.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to: (i) the estimation of future cash flows for individually assessed corporate loans, including controls over the work of external valuation professionals engaged by the Group to assess the future cash flows together with the value of collateral; (ii) the validation of the models used to determine the inputs to the collective ECL calculation and the impact of FLI; (iii) the assessment of quantitative and qualitative factors in the process of determining the internal credit risk rating of the loans, including the review of internal credit risk ratings performed by an independent department with access to the same qualitative information; and (iv) the completeness and accuracy of data used in the determination of the credit risk ratings. We assessed the estimates of future cash flows expected from collateral on a sample of individually assessed corporate loans by: (i) comparing assumptions made with information obtained from internal and external sources; and (ii) assessing the reliability of information used in the estimates, including the qualification of external valuation professionals engaged by the Group. We involved credit risk and information technology professionals with specialized skills and knowledge who assisted in: (i) evaluating the methodology and key judgments used in determining the PD and LGD parameters; (ii) evaluating how FLI was incorporated in the collective ECL model; and (iii) checking the accuracy of the calculation of PDs, and a sample of LGDs. We evaluated whether, for a sample of corporate loans with ECL measured on a collective basis, Group policy was applied in the internal credit risk rating process.
(ii) Assessment of the measurement of fair value of certain level 3 derivatives and level 3 derivative-linked securities
As discussed in Notes 3.3.2 and 6.1.2 to the consolidated financial statements, as of December 31, 2022 the Group has level 3 derivative assets and liabilities of KRW 123,256 million and KRW 783,071 million, respectively, level 3 debt securities at fair value through profit or loss of KRW 14,061,903 million and level 3 financial liabilities designated at fair value through profit or loss of KRW 8,231,303 million, which include derivatives and derivative-linked securities measured using internally developed valuation models. Level 3 financial instruments are those for which the determination of the fair value requires the use of one or more significant inputs which are not based on observable market data. To measure the fair value of certain of these level 3 derivatives and derivative-linked securities, the Group uses internally developed valuation models, such as discounted cash flow models and option models, which use various inputs and assumptions depending on the nature of the financial instruments.
We identified the assessment of the measurement of fair value of the level 3 derivatives and the level 3 derivative-linked securities that are valued using internally developed valuation models as a critical audit matter. Subjective auditor judgment was required to evaluate the models used by the Group to estimate the fair value of these level 3 financial instruments. In addition, assessing the significant inputs to the models which were not directly observable in financial markets, such as volatility of underlying assets, correlations, regression coefficients and discount rates, required subjective auditor judgment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of fair value of the level 3 derivatives and derivative-linked securities that are valued using internally developed valuation models. This included controls related to: (i) the development, validation and changes in the models used to value these financial instruments; (ii) the development and application of the significant unobservable inputs and assumptions used in the measurement of fair values; and (iii) the monitoring of changes to these inputs and assumptions. We involved valuation professionals with specialized skills and knowledge, who assisted in: (i) evaluating the valuation techniques and significant unobservable inputs for a selection of the level 3 derivatives and derivative-linked securities that are valued using internally developed valuation models; and
 
F-3
Table of Contents
(ii) developing models and significant unobservable inputs independently for a selection of these financial instruments and comparing the resulting fair value estimates to the Group’s fair value measurements.
/s/ KPMG Samjong Accounting Corp.
 
We have served as the Group’s auditor since 2019.
Seoul, Korea
April 26, 2023
 
F-4
Table of Contents
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2021 AND 2022
 
    
Dec. 31 2021
    
Dec. 31 2022
    
Dec. 31 2022
  
                
Translation into
U.S. dollars
(Note 3)
  
    
(In millions of Korean won)
    
(In thousands)
  
ASSETS
                         
Cash and due from financial institutions
    ￦ 31,009,374     ￦ 32,063,421     US$ 25,443,525  
Financial assets at fair value through profit or loss
      66,005,815       64,935,344       51,528,626  
Derivative financial assets
      3,721,370       9,446,134       7,495,861  
Loans measured at amortized cost
      417,900,273       436,530,502       346,403,293  
Financial investments
      104,847,871       116,588,575       92,517,398  
Investments in associates and joint ventures
      448,718       682,670       541,724  
Property and equipment
      5,239,898       4,991,467       3,960,916  
Investment property
      2,514,944       3,148,340       2,498,326  
Intangible assets
      3,266,357       3,200,399       2,539,636  
Net defined benefit assets
      100,083       478,934       380,052  
Current income tax assets
      98,798       204,690       162,429  
Deferred income tax assets
      159,093       251,085       199,245  
Assets held for sale
      237,318       211,758       168,038  
Assets of a disposal group held for sale
      171,749       —         —     
Other assets
      28,174,173       28,437,529       22,566,244  
    
 
 
    
 
 
    
 
 
  
Total assets
    ￦ 663,895,834     ￦ 701,170,848     US$ 556,405,314  
    
 
 
    
 
 
    
 
 
  
LIABILITIES
                         
Financial liabilities at fair value through profit or loss
    ￦ 12,088,980     ￦ 12,271,604     US$ 9,737,977  
Derivative financial liabilities
      3,682,258       9,506,709       7,543,929  
Deposits
      372,023,918       388,888,452       308,597,543  
Borrowings
      56,912,374       71,717,366       56,910,414  
Debentures
      67,430,188       68,698,203       54,514,596  
Provisions
      808,604       968,819       768,794  
Net defined benefit liabilities
      225,521       85,745       68,042  
Current income tax liabilities
      662,672       997,675       791,692  
Deferred income tax liabilities
      1,470,981       22,693       18,008  
Insurance liabilities
      57,165,936       58,230,303       46,207,925  
Other liabilities
      43,130,482       40,140,365       31,852,882  
    
 
 
    
 
 
    
 
 
  
Total liabilities
      615,601,914       651,527,934       517,011,803  
    
 
 
    
 
 
    
 
 
  
TOTAL EQUITY
                         
Share capital
      2,090,558       2,090,558       1,658,936  
Hybrid securities
      2,838,221       4,434,251       3,518,744  
Capital surplus
      16,940,231       16,940,731       13,443,104  
Accumulated other comprehensive income
      1,047,274       (2,713,053 )      (2,152,909 ) 
Accumulated other comprehensive income relating to assets of a disposal group held for sale
      7,671       —       —  
Retained earnings
      25,672,815       28,446,513       22,573,373  
Treasury shares
      (1,136,188 )      (836,188 )      (663,546 ) 
    
 
 
    
 
 
    
 
 
  
Equity attributable to shareholders of the Parent Company
      47,460,582       48,362,812       38,377,702  
Non-controlling
interests
      833,338       1,280,102       1,015,809  
    
 
 
    
 
 
    
 
 
  
Total equity
      48,293,920       49,642,914       39,393,510  
    
 
 
    
 
 
    
 
 
  
Total liabilities and equity
    ￦ 663,895,834     ￦ 701,170,848     US$ 556,405,314  
    
 
 
    
 
 
    
 
 
  
The above consolidated statements of financial position should be read in conjunction with the accompanying notes.
 
F-5
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
   
2020
    
2021
    
2022
    
2022
  
                     
Translation into
U.S. dollars
(Note 3)
  
   
(In millions of Korean won,
except per share amounts)
    
(In thousands,
except per share
amounts)
  
Interest income
   ￦ 14,485,747     ￦ 15,210,878     ￦ 20,788,518     US$ 16,496,467  
Interest income from financial instruments at fair value through other comprehensive income and amortized cost
     13,826,382       14,620,490       19,912,128       15,801,019  
Interest income from financial instruments at fair value through profit or loss
     659,365       590,388       876,390       695,448  
Interest expense
     (4,763,473 )      (3,981,306 )      (7,675,584 )      (6,090,863 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Net interest income
     9,722,274       11,229,572       13,112,934       10,405,604  
   
 
 
    
 
 
    
 
 
    
 
 
  
Fee and commission income
     4,527,024       5,323,606       5,121,520       4,064,118  
Fee and commission expense
     (1,568,085 )      (1,698,023 )      (1,799,888 )      (1,428,278 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Net fee and commission income
     2,958,939       3,625,583       3,321,632       2,635,839  
   
 
 
    
 
 
    
 
 
    
 
 
  
Insurance income
     14,386,640       16,107,858       17,136,842       13,598,726  
Insurance expense
     (14,086,647 )      (15,551,147 )      (16,440,329 )      (13,046,016 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Net insurance income
     299,993       556,711       696,513       552,709  
   
 
 
    
 
 
    
 
 
    
 
 
  
Net gains on financial instruments at fair value through profit or loss before applying overlay approach
     1,221,610       1,160,981       (359,158 )      (285,005 ) 
Losses on overlay adjustments
     (210,244 )      (165,677 )      606,515       481,292  
   
 
 
    
 
 
    
 
 
    
 
 
  
Net gains on financial instruments at fair value through profit or loss
     1,011,366       995,304       247,357       196,287  
   
 
 
    
 
 
    
 
 
    
 
 
  
Net other operating expenses
     (1,499,930 )      (1,923,567 )      (2,365,791 )      (1,877,344 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
General and administrative expenses
     (6,814,812 )      (7,200,853 )      (7,537,802 )      (5,981,528 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Operating income before provision for credit losses
     5,677,830       7,282,750       7,474,843       5,931,568  
   
 
 
    
 
 
    
 
 
    
 
 
  
Provision for credit losses
     (1,043,498 )      (1,185,133 )      (1,835,988 )      (1,456,925 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Net operating income
     4,634,332       6,097,617       5,638,855       4,474,643  
   
 
 
    
 
 
    
 
 
    
 
 
  
Share of profit (loss) of associates and joint ventures
     (43,750 )      93,526       (28,758 )      (22,821 ) 
Net other
non-operating
income (expenses)
     189,390       (109,537 )      185,529       147,224  
   
 
 
    
 
 
    
 
 
    
 
 
  
Net
non-operating
income (expenses)
     145,640       (16,011 )      156,771       124,404  
   
 
 
    
 
 
    
 
 
    
 
 
  
Profit before income tax expense
     4,779,972       6,081,606       5,795,626       4,599,046  
   
 
 
    
 
 
    
 
 
    
 
 
  
Income tax expense
     (1,264,394 )      (1,697,225 )      (1,622,387 )      (1,287,425 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Profit for the year
   ￦ 3,515,578     ￦ 4,384,381     ￦ 4,173,239     US$ 3,311,621  
   
 
 
    
 
 
    
 
 
    
 
 
  
 
(Continued)
 
F-6
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
   
2020
    
2021
    
2022
    
2022
  
                     
Translation into
U.S. dollars
(Note 3)
  
   
(In millions of Korean won,
except per share amounts)
    
(In thousands,
except per share
amounts)
  
Items that will not be reclassified to profit or loss
                                
Remeasurements of net defined benefit liabilities
   ￦ (13,434 )    ￦ (45,510 )    ￦ 239,702     US$ 190,213  
Share of other comprehensive income (loss) of associates and joint ventures
     (1 )      51       183       145  
Gains (losses) on equity securities at fair value through other comprehensive income
     822,140       903,398       (931,731 )      (739,363 ) 
Fair value changes on financial liabilities designated at fair value through profit or loss due to own credit risk
     8,819       13,715       38,867       30,842  
   
 
 
    
 
 
    
 
 
    
 
 
  
      817,524       871,654       (652,979 )      (518,163 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Items that may be reclassified subsequently to profit or loss
                                
Currency translation differences
     (187,283 )      255,907             164,530       130,561  
Gains (losses) on debt securities at fair value through other comprehensive income
     (356,572 )      (924,698 )      (2,375,084 )      (1,884,718 ) 
Shares of other comprehensive income (loss) of associates and joint
 
ventures
     (6,846 )      498       (545 )      (432 ) 
Gains (losses) on cash flow hedging instruments
     (1,264 )      20,864       31,474       24,976  
Gains (losses) on hedging instruments of net investments in foreign operations
     64,269         (57,935 )      (79,085 )      (62,757 ) 
Other comprehensive income (loss) arising from separate account
     (9,683 )      (63,814 )      (159,619 )      (126,664 ) 
Gains
(losses) 
on overlay adjustment
     152,125       120,282       (440,129 )      (349,259 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
      (345,254 )      (648,896 )      (2,858,458 )      (2,268,293 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Other comprehensive income for the year, net of tax
     472,270       222,758       (3,511,437 )      (2,786,457 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Total comprehensive income for the year
        3,987,848           4,607,139            661,802              525,165  
   
 
 
    
 
 
    
 
 
    
 
 
  
 
(Continued)
 
F-7
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
   
2020
    
2021
    
2022
    
2022
  
                     
Translation into
U.S. dollars
(Note 3)
  
   
(In millions of Korean won,
except per share amounts)
    
(In thousands,
except per share
amounts)
  
Profit attributable to:
                                
Shareholders of the Parent Company
        3,468,448           4,409,543          4,394,830           3,487,462  
Non-controlling
interests
     47,130       (25,162 )      (221,591 )      (175,841 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
      3,515,578       4,384,381       4,173,239       3,311,621  
   
 
 
    
 
 
    
 
 
    
 
 
  
Total comprehensive income for the year attributable to:
                                
Shareholders of the Parent Company
     3,966,361       4,610,549       869,854       690,262  
Non-controlling
interests
     21,487       (3,410 )      (208,052 )      (165,097 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 3,987,848       ￦ 4,607,139     ￦ 661,802     US$ 525,165  
   
 
 
    
 
 
    
 
 
    
 
 
  
Earnings per share
                                
Basic earnings per share
   ￦ 8,843     ￦ 11,134     ￦ 10,955     US$ 8.69  
Diluted earnings per share
     8,730       10,890       10,705       8.49  
The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.
 
F-8
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
   
Equity attributable to shareholders of the Parent Company
              
   
Share

capital
    
Hybrid
securities
    
Capital

surplus
    
Accumulated

other
comprehensive
income
    
Retained
earnings
    
Treasury
shares
    
Non-controlling

interests
    
Total equity
  
   
(In millions of Korean won)
  
Balance as of January 1, 2020
   ￦ 2,090,558     ￦ 399,205     ￦ 17,122,777     ￦ 368,744     ￦ 19,719,472     ￦ (1,136,188 )    ￦ 585,407     ￦ 39,149,975  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income for the year
                                                                
Profit for the year
     —       —       —       —       3,468,448       —       47,130       3,515,578  
Remeasurements of net defined benefit liabilities
     —       —       —       (13,145 )      —       —       (289 )      (13,434 ) 
Currency translation differences
     —       —       —       (162,906 )      —       —       (24,377 )      (187,283 ) 
Gains (losses) on financial instruments at fair value through other comprehensive income and transfer to retained earnings
     —       —       —       229,899       236,648       —       (979 )      465,568  
Share of other comprehensive loss of associates and joint ventures
     —       —       —       (6,847 )      —       —       —       (6,847 ) 
Losses on cash flow hedging instruments
     —       —       —       (1,264 )      —       —       —       (1,264 ) 
Gains on hedging instruments of net investments in foreign operations
     —       —       —       64,269       —       —       —       64,269  
Other comprehensive loss arising from separate account
     —       —       —       (9,683 )      —       —       —       (9,683 ) 
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
     —       —       —       8,819       —       —       —       8,819  
Gains on overlay adjustments
     —       —       —       152,125       —       —       —       152,125  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total comprehensive income for the year
     —       —       —       261,267       3,705,096       —       21,485       3,987,848  
Transactions with shareholders
                                                                
Annual dividends paid to shareholders of the Parent Company
     —       —       —       —       (861,092 )      —       —       (861,092 ) 
Issuance of hybrid securities
     —       1,296,783       —       —       —       —       —       1,296,783  
Dividends on hybrid securities
     —       —       —       —       (22,860 )      —       (25,658 )      (48,518 ) 
Non-controlling
interests changes in business combination
     —       —       —       —       —       —       247,008       247,008  
Others
     —       —       (399,188 )      —       —       —       29,541       (369,647 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total transactions with shareholders
     —       1,296,783       (399,188 )      —       (883,952 )      —       250,891       264,534  
Balance as of December 31, 2020
   ￦ 2,090,558     ￦ 1,695,988     ￦ 16,723,589     ￦ 630,011     ￦ 22,540,616     ￦ (1,136,188 )    ￦ 857,783     ￦ 43,402,357  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
(Continued)
 
F-9
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
 
                                                                         
   
Equity attributable to shareholders of the Parent Company
              
   
Share

capital
    
Hybrid

securities
    
Capital

surplus
    
Accumulated

other

comprehensive

income
    
Accumulated

other

comprehensive

income relating

to assets of a

disposal group

held for sale
    
Retained

earnings
    
Treasury

shares
    
Non-controlling

interests
    
Total equity
  
   
(In millions of Korean won)
  
Balance as of January 1, 2021
   ￦ 2,090,558     ￦ 1,695,988     ￦ 16,723,589     ￦ 630,011     ￦ —     ￦ 22,540,616     ￦ (1,136,188 )    ￦ 857,783     ￦ 43,402,357  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income for the year
  
      
                  
 
  
      
                 
 
  
      
                   
 
  
      
                 
 
  
      
         
 
  
      
               
 
  
      
                  
 
          
      
                  
 
Profit for the year
     —       —       —       —       —       4,409,543       —       (25,162 )      4,384,381  
Remeasurements of net defined benefit liabilities
     —       —       —       (45,742 )      —       —       —       232       (45,510 ) 
Currency translation differences
     —       —       —       241,273       —       —       —       14,634       255,907  
Gains (losses) on financial instruments at fair value through other comprehensive income and transfer to retained earnings
     —       —       —       201,697       —       (223,928 )      —       931       (21,300 ) 
Share of other comprehensive income of associates and joint ventures
     —       —       —       549       —       —       —       —       549  
Gains on cash flow hedging instruments
     —       —       —       20,864       —       —       —       —       20,864  
Losses on hedging instruments of net investments in foreign operations
     —       —       —       (57,935 )      —       —       —       —       (57,935 ) 
Other comprehensive loss arising from separate account
     —       —       —       (63,814 )      —       —       —       —       (63,814 ) 
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
     —       —       —       13,715       —       —       —       —       13,715  
Gains on overlay adjustments
     —       —       —       120,282       —       —       —       —       120,282  
Transfer within equity
     —       —       —       (7,671 )      7,671       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total comprehensive income for the year
     —       —       —       423,218       7,671       4,185,615       —       (9,365 )      4,607,139  
Transactions with shareholders
                                                                        
Annual dividends paid to shareholders of the Parent Company
     —       —       —       —       —       (689,653 )      —       —       (689,653 ) 
Quarterly dividends paid to shareholders of the Parent Company
     —       —       —       —       —       (292,226 )      —       —       (292,226 ) 
Issuance of hybrid securities
     —       1,142,233       —       —       —       —       —       —       1,142,233  
Dividends on hybrid securities
     —       —       —       —       —       (71,537 )      —       (24,145 )      (95,682 ) 
Non-controlling
interests changes in business combination
     —       —       —       —       —       —       —       1,994       1,994  
Transactions with
non-controlling
interests
     —       —       216,853       (5,955 )      —       —       —       (18,306 )      192,592  
Others
     —       —       (211 )      —       —       —                 —       25,377       25,166  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total transactions with shareholders
     —       1,142,233       216,642       (5,955 )      —       (1,053,416 )      —       (15,080 )      284,424  
Balance as of December 31, 2021
   ￦ 2,090,558     ￦ 2,838,221     ￦ 16,940,231     ￦ 1,047,274     ￦ 7,671      ￦ 25,672,815     ￦ (1,136,188 )    ￦         833,338     ￦  48,293,920  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
(Continued)
 
F-10
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
   
Equity attributable to shareholders of the Parent Company
              
   
Share

capital
    
Hybrid
securities
    
Capital

surplus
    
Accumulated

other
comprehensive
income
    
Accumulated

other

comprehensive

income relating

to assets of a

disposal group
held for sale
    
Retained
earnings
    
Treasury
shares
    
Non-controlling
interests
    
Total equity
  
   
(In millions of Korean won)
  
Balance as of January 1, 2022
   ￦ 2,090,558     ￦ 2,838,221     ￦ 16,940,231     ￦ 1,047,274     ￦ 7,671     ￦ 25,672,815     ￦ (1,136,188 )    ￦ 833,338     ￦ 48,293,920  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income for the year
  
      
                 
 
  
      
                 
 
  
      
                 
 
  
      
                 
 
  
      
                 
 
  
      
                 
 
  
      
                 
 
  
      
                 
 
  
      
                 
 
Profit for the year
     —       —       —       —       —       4,394,830       —       (221,591 )      4,173,239  
Remeasurements of net defined benefit liabilities
     —       —       —       239,624       —       —       —       78       239,702  
Currency translation differences
     —       —       —       157,281       (7,671 )     —       —       14,920       164,530  
Gains (losses) on financial instruments at fair value through other comprehensive income and transfer to retained earnings
     —       —       —       (3,548,378 )      —       243,021       —       (1,458 )      (3,306,815 ) 
Share of other comprehensive income of associates and joint ventures
     —       —       —       (362 )      —       —       —       —       (362 ) 
Gains on cash flow hedging instruments
     —       —       —       31,474       —       —       —       —       31,474  
Losses on hedging instruments of net investments in foreign operations
     —       —       —       (79,085 )      —       —       —       —       (79,085 ) 
Other comprehensive loss arising from separate account
     —       —       —       (159,619 )      —       —       —       —       (159,619 ) 
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
     —       —       —       38,867       —       —       —       —       38,867  
Losses
on overlay adjustments
     —       —       —       (440,129 )      —       —       —       —       (440,129 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total comprehensive income for the year
     —       —       —       (3,760,327 )      (7,671 )     4,637,851       —       (208,051 )      661,802  
Transactions with shareholders
                                                                        
Annual dividends paid to shareholders of the Parent Company
     —       —       —       —       —       (853,299 )      —       —       (853,299 ) 
Quarterly dividends paid to shareholders of the Parent Company
     —       —       —       —       —       (584,452 )      —       —       (584,452 ) 
Issuance of hybrid securities
     —       1,596,030       —       —       —       —       —       431,807       2,027,837  
Dividends on hybrid securities
     —       —       —       —       —       (126,402 )      —       (36,094 )      (162,496 ) 
Retirement of treasury share
     —       —       —       —       —       (300,000 )      300,000       —       —  
Others
     —       —       500       —       —       —       —       259,102       259,602  
Total transactions with shareholders
     —       1,596,030       500                      —       —       (1,864,153 )          300,000          654,815       687,192  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance as of December 31, 2022
   ￦ 2,090,558     ￦ 4,434,251     ￦  16,940,731      ￦ (2,713,053 )    ￦ —     ￦ 28,446,513     ￦ (836,188 )    ￦    1,280,102     ￦  49,642,914  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
(Continued)
 
F-11
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
   
Equity attributable to shareholders of the Parent Company
              
   
Share

capital
    
Hybrid
securities
    
Capital

surplus
    
Accumulated

other
comprehensive
income
    
Accumulated

other

comprehensive

income relating

to assets of a

disposal group
held for sale
    
Retained
earnings
    
Treasury
shares
    
Non-controlling
interests
    
Total equity
  
   
Translation into U.S. dollars (Note 3) (In thousands)
  
Balance as of January 1, 2022
   US$ 1,658,936     US$ 2,252,235     US$ 13,442,707     US$ 831,051     US$ 6,087     US$ 20,372,340     US$ (901,608 )    US$ 661,285     US$ 38,323,033  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income for the year
                                                                        
Profit for the year
     —       —       —       —       —       3,487,462       —       (175,841 )      3,311,621  
Remeasurements of net defined benefit liabilities
     —       —       —       190,151       —       —       —       62       190,213  
Currency translation differences
     —       —       —       124,808       (6,087 )     —       —       11,840       130,561  
Gains (losses) on financial instruments at fair value through other comprehensive income and transfer to retained earnings
     —       —       —       (2,815,771 )      —       192,846       —       (1,157 )      (2,624,081 ) 
Share of other comprehensive income of associates and joint ventures
     —       —       —       (287 )      —       —       —       —       (287 ) 
Gains on cash flow hedging instruments
     —       —       —       24,976       —       —       —       —       24,976  
Losses on hedging instruments of net investments in foreign operations
     —       —       —       (62,757 )      —       —       —       —       (62,757 ) 
Other comprehensive loss arising from separate account
     —       —       —       (126,664 )      —       —       —       —       (126,664 ) 
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
     —       —       —       30,842       —       —       —       —       30,842  
Losses
on overlay adjustments
     —       —       —       (349,259 )      —       —       —       —       (349,259 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total comprehensive income for the year
     —       —       —       (2,983,960 )      (6,087 )     3,680,308       —       (165,096 )      525,165  
Transactions with shareholders
                                                                        
Annual dividends paid to shareholders of the Parent Company
     —       —       —       —       —       (677,125 )      —       —       (677,125 ) 
Quarterly dividends paid to shareholders of the Parent Company
     —       —       —       —       —       (463,785 )      —       —       (463,785 ) 
Issuance of hybrid securities
     —       1,266,510       —       —       —       —       —       342,655       1,609,165  
Dividends on hybrid securities
     —       —       —       —       —       (100,305 )      —       (28,642 )      (128,947 ) 
Retirement of treasury share
     —       —       —       —       —       (238,061 )      238,061       —       —  
Others
     —       —       397       —       —       —       —       205,607       206,004  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total transactions with shareholders
     —       1,266,510       397       —       —       (1,479,275 )      238,061       519,620       545,313  
Balance as of December 31, 2022
   US$ 1,658,936     US$ 3,518,744     US$   13,443,104     US$ (2,152,909 )    US$ —     US$ 22,573,373     US$ (663,546)     US$ 1,015,809     US$ 39,393,510  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
the above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
 
F-12
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
    
2020
    
2021
    
2022
    
2022
  
                      
Translation into
U.S. dollars
(Note 3)
  
    
(In millions of Korean won)
    
(In thousands)
  
Cash flows from operating activities:
                                 
Profit for the year
    ￦ 3,515,578     ￦ 4,384,381     ￦ 4,173,239     US$ 3,311,621  
    
 
 
    
 
 
    
 
 
    
 
 
  
Adjustment for
non-cash
items
                                 
Net gains on financial assets at fair value through profit or loss
      (566,447 )      (274,515 )      (437,347 )      (347,051 ) 
Net losses on derivative financial instruments for hedging purposes
      (52,696 )      213,996       141,759       112,491  
Adjustment of fair value of derivative financial instruments
      (3,198 )      —       —       —  
Provision for credit losses
      1,043,498       1,185,133       1,835,988       1,456,925  
Net losses on financial investments
      (278,805 )      97,813       236,685       187,818  
Share of loss (profit) of associates and joint ventures
      43,750       (93,526 )      28,758       22,821  
Depreciation and amortization expense
      874,911       850,614       878,841       697,393  
Amortization expense of VOBA
      173,866       156,074       137,617       109,204  
Other net losses (gains) on property and equipment/intangible assets
      (124,218 )      1,974       (251,858 )      (199,859 ) 
Share-based payments
      49,364       101,935       58,275       46,243  
Provision for policy reserves
      2,709,818       2,761,135       1,046,300       830,278  
Post-employment benefits
      216,891       237,315       249,874       198,284  
Net interest expense (income)
      458,210       256,736       (89,588 )      (71,091 ) 
Losses (gains) on foreign currency translation
      (116,786 )      (665,282 )      669,989       531,661  
Gain on a bargain purchase
      (145,067 )      (288 )      —       —  
Other expenses
      524,742       721,459       800,935       635,572  
    
 
 
    
 
 
    
 
 
    
 
 
  
       4,807,833       5,550,573       5,306,228       4,210,691  
    
 
 
    
 
 
    
 
 
    
 
 
  
Changes in operating assets and liabilities
                                 
Financial asset at fair value through profit or loss
      (7,139,647 )      (6,149,781 )      3,121,774       2,477,245  
Derivative financial instruments
      (38,376 )      39,343       546,095       433,347  
Loans measured at fair value through other comprehensive income
      81,803       (24,618 )      (49,352 )      (39,163 ) 
Loans measured at amortized cost
      (31,126,636 )      (41,457,544 )      (21,129,553 )      (16,767,091 ) 
Current income tax assets
      (54,539 )      10,581       (105,892 )      (84,029 ) 
Deferred income tax assets
      (15,108 )      (92,967 )      (91,429 )      (72,552 ) 
Other assets
      (5,996,324 )      950,313       (1,222,952 )      (970,458 ) 
Financial liabilities at fair value through profit or loss
      (3,247,108 )      759,989       1,252,561       993,954  
Deposits
         27,381,662           32,497,922       16,566,047       13,145,778  
Current income tax liabilities
      323,313       (102,273 )      335,003       265,837  
Deferred income tax liabilities
      (120,023 )      294,130       (152,767 )      (121,226 ) 
Other liabilities
      3,216,600       1,314,561       (2,862,918 )      (2,271,833 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
       (16,734,383 )      (11,960,344 )      (3,793,383 )      (3,010,191 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net cash inflow (outflow) from operating activities
    ￦ (8,410,972 )    ￦ (2,025,390 )    ￦      5,686,084     US$       4,512,120  
    
 
 
    
 
 
    
 
 
    
 
 
  
 
(Continued)
 
F-13
KB FINANCIAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED December 31, 2020, 2021 and 2022
 
   
2020
    
2021
    
2022
    
2022
  
                     
Translation into
U.S. dollars
(Note 3)
  
   
(In millions of Korean won)
    
(In thousands)
  
Cash flows from investing activities:
                                
Net cash flows from derivative financial instruments for hedging purposes
   ￦ (64,177 )    ￦ 427     ￦ (166,066 )    US$ (131,780 ) 
Disposal of financial asset at fair value through profit or loss
     14,169,758       13,788,604       9,513,537       7,549,348  
Acquisition of financial asset at fair value through profit or loss
     (13,923,371 )      (12,298,792 )      (12,807,238 )      (10,163,023 ) 
Disposal of financial investments
     83,143,443       50,825,909       25,993,266       20,626,630  
Acquisition of financial investments
     (92,206,817 )      (56,633,996 )      (43,612,269 )      (34,607,968)
Disposal of investments in associates and joint ventures
     210,266       678,636       167,690       133,068  
Acquisition of investments in associates and joint ventures
     (515,342 )      (261,881 )      (430,400 )      (341,539)  
Disposal of property and equipment
     6,465       7,016       31,181       24,743  
Acquisition of property and equipment
     (424,862 )      (286,613 )      (296,937 )      (235,631 ) 
Disposal of investment property
     646,263       177,033       1,292,114       1,025,341  
Acquisition of investment property
     (53,196 )      (118,961 )      (649,961 )      (515,768 ) 
Disposal of intangible assets
     14,303       8,203       5,654       4,487  
Acquisition of intangible assets
     (182,859 )      (191,696 )      (237,258 )      (188,273 ) 
Net cash flows from changes in ownership of subsidiaries
     (1,951,245 )      374,992       932,428       739,917  
Others
     142,961       75,105       (21,456 )      (17,026 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Net cash outflow from investing activities
     (10,988,410 )      (3,856,014 )      (20,285,715 )      (16,097,474 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Cash flows from financing activities:
                                
Net cash flows from derivative financial instruments for hedging purposes
     (16,202 )      5,870       33,402       26,506  
Net increase in borrowings
     10,683,659       7,321,582       14,669,649       11,640,916  
Increase in debentures
     119,705,016       121,767,039       107,607,314       85,390,432  
Decrease in debentures
     (107,760,800 )      (117,509,585 )      (106,631,213 )      (84,615,859 ) 
Increase (decrease) in other payables to trust accounts
     2,326,495       (509,106 )      (1,225,402 )      (972,402 ) 
Dividends paid to shareholders of the Parent Company
     (861,092 )      (981,879 )      (1,437,751 )      (1,140,909 ) 
Dividends paid on hybrid securities
     (22,860 )      (71,537 )      (126,402 )      (100,305 ) 
Issuance of hybrid securities
     1,296,783       1,142,233       1,596,030       1,266,510  
Decrease in
non-controlling
interests
     (25,658 )      (24,145 )      395,713       314,013  
Redemption of principal of lease liabilities
     (235,498 )      (253,248 )      (257,570 )      (204,391 ) 
Others
     172,433       (65,826 )      694,473       551,090  
   
 
 
    
 
 
    
 
 
    
 
 
  
Net cash inflow from financing activities
     25,262,276       10,821,398       15,318,243       12,155,599  
   
 
 
    
 
 
    
 
 
    
 
 
  
Effect of exchange rate changes on cash and cash equivalents
     (261,665 )      241,544       170,639       135,408  
   
 
 
    
 
 
    
 
 
    
 
 
  
Net increase (decrease) in cash and cash equivalents
     5,601,229       5,181,538       889,251       705,654  
Cash and cash equivalents at the beginning of the year
     14,490,506       20,091,735       25,273,273       20,055,288  
   
 
 
    
 
 
    
 
 
    
 
 
  
Cash and cash equivalents at the end of the year
   ￦ 20,091,735     ￦ 25,273,273     ￦ 26,162,524     US$ 20,760,942  
   
 
 
    
 
 
    
 
 
    
 
 
  
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.
 
F-14
Table of Contents
1. The Parent Company
KB Financial Group Inc. (the “Parent Company”) was incorporated on September 29, 2008, under the Financial Holding Companies Act of Korea. KB Financial Group Inc. and its subsidiaries (the “Group”) derive substantially all of their revenue and income from providing a broad range of banking and related financial services to consumers and corporations. The Parent Company’s main business purpose is to control subsidiaries that engage in the financial business or subsidiaries closely related to the financial business through the stock ownership. The Parent Company’s headquarter is located at 26,
Gukjegeumyung-ro
8-gil,
Yeongdeungpo-gu,
Seoul. In 2011, Kookmin Bank spun off its credit card business segment and established a new separate credit card company, KB Kookmin Card Co., Ltd. and KB Investment & Securities Co., Ltd. merged with KB Futures Co., Ltd. The Group established KB Savings Bank Co., Ltd. in January 2012, acquired Yehansoul Savings Bank Co., Ltd. in September 2013, and KB Savings Bank Co., Ltd. merged with Yehansoul Savings Bank Co., Ltd. in January 2014. In March 2014, the Group acquired Woori Financial Co., Ltd. and changed the name to KB Capital Co., Ltd. Meanwhile, the Group included LIG Insurance Co., Ltd. as an associate and changed the name to KB Insurance Co., Ltd. in June 2015, and KB Insurance Co., Ltd. became one of the subsidiaries through a tender offer in May 2017. Also, the Group included Hyundai Securities Co., Ltd. as an associate in June 2016 and included as a subsidiary in October 2016 by comprehensive exchange of shares. Hyundai Securities Co., Ltd. merged with KB Investment & Securities Co., Ltd. in December 2016 and changed its name to KB Securities Co., Ltd. in January 2017. In August 2020, the Group acquired Prudential Life Insurance Company of Korea Ltd., which was classified as a subsidiary and the name was changed to KB Life Insurance Co., Ltd. in December 2022.
The Parent Company’s share capital as of December 31, 202
2
, is ￦2,090,558 million. The Parent Company has been listed on the Korea Exchange (“KRX”) since October 10, 2008, and on the New York Stock Exchange (“NYSE”) for its American Depositary Shares (“ADS”) since September 29, 2008. Number of shares authorized in its Articles of Incorporation is 1,000 million.
2. Basis of Preparation
2.1 Application of IFRS
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS are the standards and related interpretations issued by the International Accounting Standards Board (“IASB”).
The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. Management also needs to exercise judgment in applying the Group’s accounting policies. The areas that require a more complex and higher level of judgment or areas that require significant assumptions and estimations are disclosed in Note 2.4.
2.1.1 The Group has applied the following amended standards for the first time for its annual reporting period commencing January 1, 2022.
 
  •  
Amendments to IFRS No.16 Leases –
COVID-19-Related
Rent Concessions, etc. beyond June
 30, 2021
The application of the practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the
COVID-19
pandemic is a lease modification, is extended to lease payments originally due on or before 30 June 2022. A lessee shall apply the practical expedient consistently to eligible contracts with similar characteristics and in similar circumstances. These amendments do not have a significant impact on the consolidated financial statements.
 
 
•
  
Amendments to IFRS No.3 Business Combination – Reference to the Conceptual Framework
The amendments update a reference of definition of assets and liabilities to qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition
 
F-15
of liabilities and contingent liabilities within the scope of IFRS No.37
Provisions, Contingent Liabilities and Contingent Assets
, and IFRS No.21
Levies
. The amendments also confirm that contingent assets should not be recognized at the acquisition date. These amendments do not have a significant impact on the consolidated financial statements.
 
 
•
  
Amendments to IAS No.16 Property, Plant and Equipment – Proceeds Before Intended Use
The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, as profit or loss. These amendments do not have a significant impact on the consolidated financial statements.
 
 
•
  
Amendments to IAS No.37 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts: Cost of Fulfilling a Contract
The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. These amendments do not have a significant impact on the consolidated financial statements.
 
 
•
 
Annual improvements to IFRS 2018-2020
These amendments do not have a significant impact on the consolidated financial statements.
 
 
•
 
IFRS No.1
First-time Adoption of International Financial Reporting Standards
– Subsidiary as a first-time adopter
 
 
•
 
IFRS No.9
Financial Instruments
– Fees in the ‘10 per cent’ test for derecognition of financial liabilities
 
 
•
 
IFRS No.16
Leases
– Lease incentives
 
 
•
 
IAS No.41
Agricultur
e – Measuring fair value
2.1.2 The Group has changed the following accounting policy for its annual reporting period commencing January 1, 2022.
The Group had classified due from financial institutions with restriction to use, such as reserve requirement deposits, as due from financial institutions measured at amortized cost rather than cash and cash equivalents; however, following the IFRS Interpretations Committee’s decision that cash and cash equivalents include restricted demand deposits, some classified due from financial institutions with restriction to use, such as reserve requirement deposits, the Group has retrospectively classified these accounts as cash and cash equivalents from January 1, 2022. The comparative consolidated financial statements have been restated to reflect the changes made to retrospective application.
The application of these accounting policy changes has no effect on the consolidated statements of financial position as of January 1, 2021, December 31, 2021 and 2022, and the consolidated statements of comprehensive income for the years ended December 31, 2020, 2021 and 2022. The effects on the consolidated statements of cash flows for the years ended December 31, 2020, 2021 and 2022, are as follows:

 
 
  
2020
 
 
2021
 
  
2022
 
 
  
(In millions of Korean won)
 
Increase in changes in other assets
 
￦
3,129,722
 
    ￦ 4,674,874      ￦ 175,012  
Increase (decrease) in effect of exchange rate changes on cash and cash equivalents in foreign currency
 
 
(89,860
 )
 
      83,297        88,082  
Increase in beginning balance of cash and cash equivalents
 
 
8,366,781
 
      11,406,643        16,164,814  
Increase in ending balance of cash and cash equivalents
 
 
11,406,643
 
      16,164,814        16,427,908  
 
F-16
2.1.3 The following new and amended standards have been published that are not mandatory for December 31, 2022 reporting period and have not been adopted by the Group.
 
 
•
  
Amendments to IAS No.1 Presentation of Financial Statements – Classification of Liabilities as Current or
Non-current
The amendments clarify that liabilities are classified as either current or
non-current,
depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise the right to defer settlement of the liability or the management’s expectations thereof. Also, the settlement of liability includes the transfer of the entity’s own equity instruments; however, it would be excluded if an option to settle the liability by the transfer of the entity’s own equity instruments is recognized separately from the liability as an equity component of a compound financial instrument. The amendments should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
 
 
•
  
Issuance of IFRS No.17 Insurance Contracts
(a) Major changes in accounting policy
IFRS No.17
 Insurance Contracts
 will replace IFRS No.4
 Insurance Contracts
. This standard requires an entity to estimate future cash flows of an insurance contract and measure insurance liabilities using discount rates applied with assumptions and risks at the measurement date and recognize insurance revenue on an accrual basis including services (insurance coverage) provided to the policyholder by each annual reporting period. In addition, investment components (refunds due to termination and maturity) repaid to a policyholder even if an insured event does not occur, are excluded from insurance revenue, and net insurance income and net investment income are presented separately to enable users of the information to understand the sources of net income. This standard should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted for entities that applied IFRS No.9
 Financial Instruments
. The Group is scheduled to apply this standard for annual reporting period beginning on January 1, 2023. If the Group prepares consolidated financial statements by applying IFRS No.17, the following parts are expected to make significant differences with the current consolidated financial statements. It does not mean to include all differences that are arising in the future and can be changed based on the future additional analysis results.
(Measurement of Insurance liabilities, etc.)
Under IFRS No.17, the Group estimates all cash flows from insurance contracts and measures the insurance liabilities using discount rate that reflects assumptions and risks at the reporting date.
In details, the Group identifies a portfolio of insurance contracts that comprises contracts exposed to similar risks and managed together, then separates the contracts with similar profitability within the portfolio as groups of insurance contracts. The groups of insurance contracts are measured as the sum of the estimate of future cash flows (including cash flows related to policy loans and reflecting time value of money, etc.), risk adjustment, and the contractual service margin. With the adoption of IFRS No.17, account of the contractual service margin will be introduced, which means unearned profit that would be recognized by providing insurance service in the future.
Meanwhile, reinsurance contracts mean insurance contracts issued by a reinsurance company to compensate claims arising from original insurance contracts issued by other insurance companies. The groups of insurance contracts also apply assumptions consistent with the groups of original insurance contracts when estimating the present value of future cash flows for the groups of insurance contracts ceded.
 
F-17
(Recognition and measurement of financial performance)
Under IFRS No.17, the Group recognizes insurance revenue on an accrual basis for services (insurance coverage) provided to the policyholder by each annual reporting period, excluding investment component (refunds due to termination and maturity) to be paid to the policyholder regardless of the insured event. In addition, net insurance income and net investment income are presented separately to enable users of the information to understand the sources of net income.
The Group also includes the time value of money, financial risk and effects of their fluctuations related to the group of insurance contracts and the Group should select accounting policy whether the insurance finance income or expenses for the periods are divided to profit or loss, or other comprehensive income.
(Accounting policy for transition of insurance contracts)
Under transition requirements of IFRS No.17, the Group shall adjust the original cost-based measurement to current measurement by applying the fully retrospective approach, modified retrospective approach or fair value approach, for the group of insurance contracts issued before the transition date (the beginning of the annual reporting period immediately preceding initial application date of January 1, 2022).
In principle, the Group shall identify, recognize and measure each group of insurance contracts as if IFRS No.17 had always applied before the transition date. If this method is impracticable, the Group can apply the modified retrospective approach or the fair value approach. However, the fair value approach can be applied even though it is possible to apply the fully retrospective approach for the group of insurance contracts with direct participation features that meet specific requirements.
Meanwhile, the modified retrospective approach is a way to obtain results very close to the fully retrospective approach by using all reasonable and supportable information available without undue cost or effort. The fair value approach is a way to measure group of insurance contracts using fair value measurements based on IFRS No.13
Fair Value Measurements
. When applying the fair value approach, contractual service margin or loss component of the liability for remaining coverage at the transition date are measured as the difference between the fair value of a group of insurance contracts at that date and the fulfilment cash flows measured at that date.
 
F-18
Key changes in accounting policies expected by adopting IFRS No.17 are as follows:
 
   
IFRS No.4
  
IFRS No.17
Insurance liability measurement
  
Measure at cost using the past information
  
Measure at current value using information at the reporting date
 
Need to choose transition method to adjust the existing group of insurance contracts to current measurement at the transition date (among the fully retrospective approach, modified retrospective approach or fair value approach)
Recognition of insurance revenue
  
Apply cash basis to recognize the received premium as insurance revenue
  
Recognize revenue by reflecting services provided to the policyholder by each annual reporting period (accrual basis)
 
Include investment component, such as refunds due to termination and maturity, to insurance revenue
  
Exclude investment component (refunds due to termination and maturity) from insurance revenue
Net insurance income and net investment income (financial income) are presented separately
Deferred acquisition cost
  
Recognize deferred acquisition cost as a separate asset
  
Do not recognize deferred acquisition cost as a separate asset
 
Estimate insurance liability based on net insurance premium (excluding administration expenses)
  
Estimate insurance liability based on operating insurance premium (including administration expenses)
(b) Status of preparation for IFRS No.17 adoption
In order for the Group to smoothly adopt IFRS No.17, it is necessary to prepare a separate implementation department, implement an accounting system, train executives and employees, and analyze financial impact and etc.
Above all, for the adequacy of insurance liability evaluation, the stability of the accounting system and the conformity of system calculations must be secured, and accounting policies and actuarial assumptions must be established reasonably and applied consistently every period. For this, the Group needs to verify the system continually, and prepare various internal control procedures. In particular, the Group shall implement and comply with an internal control over financial reporting suitable for the changed accounting environment so that reliable accounting information can be prepared and disclosed after the adoption of the new accounting standard.
The adoption of IFRS No.17 will not only change accounting standard, but will also affect insurance product development, sales strategies, and long-term business strategies. Accordingly, it is necessary for the Group to
re-establish
various business strategies after the adoption of the new accounting standard, provide continual training for related executives and employees and report preparations for adoption and future plans to management.
 
F-19
The detailed preparations for adoption and future plans are as follows:
(KB Insurance Co., Ltd.)
 
Key activity
  
Progress (at the reporting date)
  
Future plan
Implementation department
  
(Feb. 2017) Organize the implementation department of IFRS No.17
   —
 
(Apr. 2018) Expand the implementation department of IFRS No.17 (currently, total 14 personnel who are fully in charge of)
Implementation of accounting system
  
(Feb. 2017) Start implementation of the integrated actuarial system
(Jun. 2018) Complete implementation of the system
   —
 
(Sep. 2018) Start implementation of the accounting system
(Nov. 2020) Complete implementation of the system
 
Currently, pilot operation
Training for executives and employees
  
Prepare and implement training for executives/head of departments and employees in related departments
   —
Reporting to management
  
Report implementation of the system, financial effects, etc.
   —
(KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.))
 
Key activity
  
Progress (at the reporting date)
  
Future plan
Implementation department
  
(Apr. 2016) Organize the implementation department of IFRS No.17 (currently, total 10 personnel who are fully in charge of)
  
—
Implementation of accounting system
  
(Nov. 2017) Start implementation of the integrated actuarial system
(Nov. 2018) Complete implementation of the system
  
Advancement of the internal control over financial reporting
 
(Nov. 2020) Start implementation of the accounting system
(Dec. 2021) Complete implementation of the system
Training for executives and employees
  
Implement training for employees
  
—
Reporting to management
  
Report the implementation of the system, financial effect of insurance supervisory accounting for adoption of IFRS No.17
  
—
 
F-20
(KB Life Insurance Co., Ltd)
 
Key activity
  
Progress (at the reporting date)
  
Future plan
Implementation department
  
(Jul. 2018) Organize the responsive team for IFRS No.17
(Mar. 2019) Organize and operate TF for IFRS No.17
  
—
Implementation of accounting system
  
(Mar. 2019) Start implementation of the accounting system
(Dec. 2020) Complete implementation of the system
Currently, pilot operation
  
—
Training for executives and employees
  
Prepare and implement training for executives/head of departments and employees in related departments (total 20 trainings)
(Nov. 2020) Open online training
(Dec. 2021) Implement
non-face-to-face
training
  
Plan to expand training target
Reporting to management
  
Report implementation of the system, financial effects, etc.
  
—
(c) Financial effect evaluation
As the adoption of IFRS No.17 changes the measurement method of insurance liability and insurance revenue recognition, financial volatility is expected to occur in the consolidated financial statements for 2023.
In order to analyze the financial impact of the initial application of IFRS No.17, the Group assessed the impact on the consolidated financial statements based on the information available and the current circumstances as of December 31, 2022.
Therefore, the results of financial impact assessment as of December 31, 2022 are subject to change depending on economic conditions and additional information available to the Group in the future.
(Changes in amounts in the consolidated statement of financial position and the consolidated statement of comprehensive income)
The results of the financial impact assessment of the initial application of IFRS No.17 to the consolidated financial statement using the implemented accounting system as of December 31, 2022, based on information obtained up to the date of
this annual report
are as follows:
Under IFRS No.17, on a consolidated basis, total assets, total liabilities and total equity as of December 31, 2022 are expected to be ￦ 688,608,545 million, ￦ 634,464,297 million and ￦ 54,144,248 million, respectively, and net income and total comprehensive income for the year ended December 31, 2022 are expected to be ￦ 3,900,094 million and ￦ 4,046,755 million, respectively.
Compared to IFRS No.4, on a consolidated basis, the total assets of ￦ 12,562,303 million and total liabilities of ￦ 17,063,637 million decreased, respectively, and the total equity of ￦
4,501,334
 
million increased. Net income of ￦ 273,145 million and profit attributable to shareholders of the Parent company of ￦ 273,145 million decreased, and total comprehensive income of ￦ 3,384,953
 million increased. The results of this analysis
will be opening balances as of January 1, 2023, but it 
may change by economic conditions and additional information available to the Group in the future
.
 
 
F-21
Table of Contents
1) Effects on consolidated statement of financial position
 
 
IFRS No.4
 
 
IFRS No.17
 
  
Net increase

(decrease)
 
(In millions of Korean won)
 
Assets
  
 
Assets
  
  
Financial assets
    ￦ 659,563,977    
Financial assets
    ￦ 660,449,629      ￦ 885,652  
Intangible assets
      3,200,399    
Intangible assets
      1,858,470        (1,341,929 ) 
Deferred income tax assets
      251,085    
Deferred income tax assets
      188,372        (62,713 ) 
Other assets
      28,437,529    
Other assets
      14,815,439        (13,622,090 ) 
            
Insurance contract assets
      83,304        83,304  
            
Reinsurance contract assets
      1,495,966        1,495,966  
Others
      9,717,858    
Others
      9,717,365        (493 ) 
    
 
 
         
 
 
     
 
 
  
Total assets
    ￦ 701,170,848    
Total assets
    ￦ 688,608,545      ￦ (12,562,303 ) 
    
 
 
         
 
 
     
 
 
  
Liabilities
           
Liabilities
                  
Financial liabilities
      551,082,334    
Financial liabilities
      556,125,846        5,043,512  
Insurance contract liabilities
      58,230,303    
Insurance contract liabilities
      45,920,012        (12,310,291 ) 
            
Reinsurance contract liabilities
      31,728        31,728  
Deferred income tax liabilities
      22,693    
Deferred income tax liabilities
      1,574,954        1,552,261  
Other liabilities
      40,140,365    
Other liabilities
      28,793,630        (11,346,735 ) 
Others
      2,052,239    
Others
      2,018,127        (34,112 ) 
    
 
 
         
 
 
     
 
 
  
Total liabilities
    ￦ 651,527,934    
Total liabilities
    ￦ 634,464,297      ￦ (17,063,637 ) 
    
 
 
         
 
 
     
 
 
  
Equity
           
Equity
                  
Share capital and capital adjustments
      22,629,352    
Share capital and capital adjustments
      22,629,352        —  
Accumulated other comprehensive income
      (2,713,053 )   
Accumulated other comprehensive income
      1,312,522        4,025,575  
Retained earnings
      28,446,513    
Retained earnings
      28,922,272        475,759  
Non-controlling
interests
      1,280,102    
Non-controlling
interests
      1,280,102        —  
    
 
 
         
 
 
     
 
 
  
Total equity
    ￦ 49,642,914    
Total equity
    ￦ 54,144,248      ￦ 4,501,334  
    
 
 
         
 
 
     
 
 
  
 
F-22
2) Effects on consolidated statement of comprehensive income
 
 
IFRS No.4
    
IFRS No.17
    
Net increase

(decrease)
  
(In millions of Korean won)
  
Net interest income
   ￦ 13,112,934    
Net interest income
1
   ￦ 11,393,422     ￦ (1,719,512 ) 
Net fee and commission income
     3,321,632    
Net fee and commission income
     3,514,902       193,270  
Net insurance income
     696,513    
Net insurance income
     1,334,090       637,577  
Insurance income
     17,136,842    
Insurance income
     9,544,474       (7,592,368 ) 
Insurance expense
     (16,440,329 )   
Insurance service expense
     (7,961,019 )      8,479,310  
           
Reinsurance income
     522,389       522,389  
           
Reinsurance expense
     (771,754 )      (771,754 ) 
Net gains on financial instruments at fair value through profit or loss
     247,357    
Net gains on financial instruments at fair value
through profit or loss
     (1,133,475 )      (1,380,832 ) 
           
Insurance finance income
     897,441       897,441  
Net other operating
expenses
     (2,365,791 )   
Net other operating expenses
     (2,268,465 )      97,326  
General and administrative expenses
     (7,537,802 )   
General and administrative expenses
     (6,643,654 )      894,148  
Provision for credit losses
     (1,835,988 )   
Provision for credit losses
     (1,847,775 )      (11,787 ) 
Net other
non-operating
income (expenses)
     156,771    
Net other
non-operating
income (expenses)
     160,569       3,798  
Profit before income tax expense
     5,795,626    
Profit before income tax expense
     5,407,055       (388,571 ) 
Income tax expense
     (1,622,387 )   
Income tax expense
     (1,506,961 )      115,426  
Profit for the year
     4,173,239    
Profit for the year
     3,900,094       (273,145 ) 
Non-controlling
interests
     (221,591 )   
Non-controlling
interests
     (221,591 )      —  
Shareholders of the Parent Company
     4,394,830    
Shareholders of the Parent Company
     4,121,685       (273,145 ) 
Other comprehensive income for the year, net
of tax
     (3,511,437 )   
Other comprehensive income for the year, net of tax
     146,661       3,658,098  
   
 
 
        
 
 
    
 
 
  
Total comprehensive income for the year
   ￦ 661,802    
Total comprehensive income for the year
   ￦ 4,046,755     ￦ 3,384,953  
   
 
 
        
 
 
    
 
 
  
 
1
 
Includes insurance interest expense on insurance contract liabilities.
 
F-23
Table of Contents
(Financial impact due to the transition methods to IFRS No.17)
The expected impact of the transition methods on the valuation of insurance contract liabilities as of the transition date of January 1, 2022 is as follows:
1) KB Insurance Co., Ltd.
The Group adjusted the original cost-based measurement to current measurement by applying the fully retrospective approach for the group of insurance contract issued from 2018 to 2021 (within immediately preceding 4 years prior to the transition date of January 1, 2022), and by applying the fair value approach for the group of insurance contracts issued before 2018 (for the periods prior to the year beginning January 1, 2018).
In applying the fair value approach, the fair value of insurance contracts (IFRS No.13 Fair Value Measurements) was calculated by reflecting some of adjustments based on the valuation amount of insurance contract liabilities calculated under the Korean-Insurance Capital Standards. As a result of analyzing the financial impact related to accounting for transition applying IFRS No.17, as of January 1, 2022, the insurance contract assets and insurance contract liabilities are expected to
 
be
￦ 1,644,590 million and ￦ 25,847,176 million, respectively.
The impact of the transition method on the valuation of KB Insurance Co., Ltd.’s insurance contract liabilities included in the Group’s consolidated financial statements is as follows:
 
 
  
 
  
IFRS No.17
 
Transition method
  
Period
  
Insurance contract
assets
1
 
  
Insurance contract
liabilities
1
 
  
Contractual service
margin
2
 
 
  
(In millions of Korean won)
 
Fully retrospective approach
    From 2018 to 2021    ￦       1,358,667      ￦ 4,760,646      ￦ 5,061,116  
Fair value approach
    Before 2018      285,923        21,086,530        2,169,132  
         
 
 
     
 
 
     
 
 
  
     ￦ 1,644,590      ￦     25,847,176      ￦        7,230,248  
    
 
 
     
 
 
     
 
 
  

1
 
Insurance contract assets and insurance contract liabilities are the total amounts, including reinsurance contract assets and reinsurance contract liabilities, respectively.
2
 
The contractual service margin is presented as net amount by offsetting the amounts included in the insurance contract assets and insurance contract liabilities.
2) KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
The Group has control over KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) as it holds the 100% ownership interests on KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) through stock purchases on August 31, 2020, after the approval obtained from the Financial Services Commission for inclusion the company as a subsidiary on August 26, 2020. Accordingly, the Group adjusted the original cost-based measurement to current measurement by applying the fully retrospective approach for the group of insurance contract issued by KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
In applying the fully retrospective approach, the contractual service margin on initial recognition for the group of insurance contract as of the acquisition date, was measured based on applying the fair value of the business combination under measurement on initial recognition of insurance contracts acquired in a business combination of IFRS No.17. As a result of analyzing the financial impact related to accounting for transition applying IFRS No.17, as of January 1, 2022, the insurance contract liabilities are expected to be ￦ 20,140,367 million.
 
F-24
Table of Contents
The impact of the transition method on the valuation of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)’s insurance contract liabilities included in the Group’s consolidated financial statements is as follows:
 
         
IFRS No.17
  
Transition method
   
Period
   
Insurance contract

assets
1
     
Insurance contract

liabilities
1
     
Contractual service

margin
2
  
    
(In millions of Korean won)
  
Fully retrospective approach
    For the entire period    ￦                   —      ￦     20,140,367      ￦        3,606,629  
         
 
 
     
 
 
     
 
 
  
     ￦ —      ￦ 20,140,367      ￦ 3,606,629  
    
 
 
     
 
 
     
 
 
  
 
1
 
Insurance contract assets and insurance contract liabilities are the total amounts, including reinsurance contract assets and reinsurance contract liabilities, respectively.
2
 
The contractual service margin is presented as net amount by offsetting the amounts included in the insurance contract assets and insurance contract liabilities. 
3) KB Life Insurance Co., Ltd.
The Group adjusted the original cost-based measurement to current measurement by applying the fully retrospective approach for the group of insurance contract issued from 2019 to 2021 (within immediately preceding 3 years prior to the transition date of January 1, 2022), and by applying the fair value approach for the group of insurance contracts issued before 2019 (for the periods prior to the year beginning January 1, 2019).
In applying the fair value approach, the fair value of insurance contracts (IFRS No.13 Fair Value Measurements) was calculated by reflecting some of adjustments based on the valuation amount of insurance contract liabilities calculated under the Korean-Insurance Capital Standards. As a result of analyzing the financial impact related to accounting for transition applying IFRS No.17, as of January 1, 2022, the insurance contract assets and insurance contract liabilities are expected to be ￦ 3,854 million and ￦ 8,459,438 million, respectively.
The impact of the transition method on the valuation of KB Life Insurance Co., Ltd.’s insurance contract liabilities included in the Group’s consolidated financial statements is as follows:
 
 
Transition method
  
Period
  
IFRS No.17
 
  
Insurance contract

assets
1
 
  
Insurance contract

liabilities
1
 
  
Contractual service

margin
2
 
 
  
(In millions of Korean won)
 
Fully retrospective approach
    From 2019 to 2021    ￦ 3,369      ￦ 2,038,428      ￦ 359,140  
Fair value approach
    Before 2019      485        6,421,010        57,691  
         
 
 
     
 
 
     
 
 
  
     ￦               3,854      ￦       8,459,438      ￦           416,831  
    
 
 
     
 
 
     
 
 
  
 
1
 
Insurance contract assets and insurance contract liabilities are the total amounts, including reinsurance contract assets and reinsurance contract liabilities, respectively.
2
 
The contractual service margin is presented as net amount by offsetting the amounts included in the insurance contract assets and insurance contract liabilities.
(Financial effect related to insurance liabilities)
If the Group applies IFRS No.17 to insurance liabilities as of December 31, 2022, the insurance (reinsurance) contract assets and insurance (reinsurance) contract liabilities are expected to be ￦ 1,579,270 million and ￦ 45,951,740 million, respectively.
 
F-25
Table of Contents
The estimated composition of applicable assets and liabilities under IFRS No.17 is as follows:
 
(In millions of Korean won)
  
Assets under IFRS No.17
  
Insurance contract assets
    ￦ 83,304  
Contractual service margin
      (316,418 ) 
Reinsurance contract assets
      1,495,966  
Contractual service margin on reinsurance contract
      (93,045 )
    
 
 
  
     ￦ 1,579,270  
    
 
 
  
 
(In millions of Korean won)
  
Liabilities under IFRS No.17
  
Insurance contract liabilities
    ￦ 45,920,012  
Contractual service margin
      12,892,278  
Reinsurance contract liabilities
      31,728  
Contractual service margin on reinsurance contract
      (7,922 ) 
    
 
 
  
     ￦ 45,951,740  
    
 
 
  
(Financial impact of reclassifications of business models)
The Group will
re-evaluate
the business models according to the facts and circumstances as of the initial application date of IFRS No.17 for financial assets held in relation to activities related to contracts within the scope of IFRS No.17. If the business model changes as a result of the
re-evaluation,
it is expected that the measurement categories of financial instruments will be reclassified and the carrying amount will change accordingly.
The expected impact of the measurement categories of financial instruments due to the
re-evaluation
of business models is as follows:
 
Measurement categories
before the
re-evaluation
of
the business models
   
Measurement categories
after the
re-evaluation
of
the business models
   
Carrying amount before
the
re-evaluation
of
the business models
   
Carrying amount after
the
re-evaluation
of
the business models
    
(In millions of Korean won)
     
Financial assets at fair value through profit or loss    Financial assets at fair value through other comprehensive income    ￦            106,412    ￦            106,412
Loans measured at amortized cost    Financial assets at fair value through other comprehensive income    134,811    126,674
Securities measured at amortized cost    Financial assets at fair value through other comprehensive income    22,389,536    18,068,804
 
*
The Group
re-evaluated
business model evaluation units, management performance reporting, compensation, and risk management for financial assets held in relation to activities related to contracts within the scope of IFRS No.17. Following the
re-evaluation
of the business models, the Group will reclassify the financial assets as financial assets at fair value through other comprehensive income if both of the following conditions are met: (a) financial assets are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and (b) where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding.
 
F-26
 
•
 
Amendments to IAS No.1 Presentation of Financial Statements – Accounting Policy Disclosure
The amendments require an entity to define and disclose their material accounting policy information. IFRS Practice Statement 2
 Making Materiality Judgements
was amended to explain and demonstrate how to apply the concept of materiality. The amendments should be applied for annual reporting periods beginning on or after January 1, 2024, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
 
 
•
 
Amendments to IAS No.8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates
The amendments introduce the definition of accounting estimates and clarify how to distinguish changes in accounting estimates from changes in accounting policies. The amendments should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
 
 
•
 
Amendments to IAS No.12 Income Taxes – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction
The amendments narrow the scope of the deferred tax recognition exemption so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendments should be applied for annual reporting periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
 
 
•
 
Amendments to IFRS No.1 Presentation of Financial Statements – Disclosure of gains or losses on valuation of financial liabilities with exercise price adjustment conditions
The amendments require disclosures about gains or losses on valuation occurred for the reporting period (but are limited to those included in profit or loss) for the conversion options or warrants (or financial liabilities with warrants), if all or part of the financial instrument whose exercise price is adjusted due to the issuers’ stock price fluctuations, are classified as financial liabilities according to paragraph 11 of IFRS No.32
Financial Instruments: Presentation
. The amendments should be applied for annual reporting periods beginning on or after January 1, 2024, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.
2.2 Measurement Basis
The consolidated financial statements have been prepared based on the historical cost accounting model unless otherwise specified.
2.3 Functional and Presentation Currency
Items included in the financial statements of each entity of the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency.
2.4 Critical Accounting Estimates
The Group applies accounting policies and uses judgements, accounting estimates, and assumptions that may have a significant impact on the assets (liabilities) and incomes (expenses) in preparing the consolidated financial statements. Management’s estimates of outcomes may differ from actual outcomes if management’s estimates and assumptions based on management’s best judgment are different from the actual environment.
 
F-27
Estimates and underlying assumptions are continually evaluated, and changes in accounting estimates are recognized in the period in which the estimates are changed and in any future periods affected.
Uncertainties in estimates and assumptions with significant risks that may result in material adjustments to the consolidated financial statements are as follows:
2.4.1 Income taxes
As the income taxes on the Group’s taxable income is calculated by applying the tax laws of various countries and the decisions of tax authorities, there is uncertainty in calculating the final tax effect.
If a certain portion of the taxable income is not used for investments, wages, etc. in accordance with the Korean regulation called ‘Special Taxation for Facilitation of Investment and Mutually-beneficial Cooperation’, the Group is liable to pay additional income tax calculated based on the tax laws. Therefore, the effect of recirculation of corporate income should be reflected in current and deferred income tax. As the Group’s income tax is dependent on the actual investments, wages, etc. per each year, there are uncertainties in measuring the final tax effects during the period when the tax law is applied.
2.4.2 Fair value of financial instruments
The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available is determined by using valuation techniques. Financial instruments, which are not actively traded in the market and those with less transparent market prices, will have less objective fair values and require broad judgment on liquidity, concentration, uncertainty in market factors, assumptions in fair value determination, and other risks.
As described in the significant accounting policies in Note 3.3 Recognition and Measurement of Financial Instruments, diverse valuation techniques are used to determine the fair value of financial instruments, from generally accepted market valuation models to internally developed valuation models that incorporate various types of assumptions and variables.
2.4.3 Allowances and provisions for credit losses
The Group recognizes and measures allowances for credit losses of debt instruments measured at amortized cost, debt instruments measured at fair value through other comprehensive income, and lease receivables. Also, the Group recognizes and measures provisions for credit losses of acceptances and guarantees, and unused loan commitments. Accuracy of allowances and provisions for credit losses is dependent upon estimation of expected cash flows of the borrower subject to individual assessment of impairment, and upon assumptions and variables of model used in collective assessment of impairment and estimation of provisions for credit losses of acceptances and guarantees, and unused loan commitments.
2.4.4 Net defined benefit assets(liabilities)
The present value of the net defined benefit assets(liabilities) is affected by changes in the various factors determined by the actuarial method.
2.4.5 Impairment of goodwill
The recoverable amounts of cash-generating units are determined based on
value-in-use
calculations to test whether impairment of goodwill has occurred.
2.4.6 Estimated claims for Incurred But Not Reported (“IBNR”)
An amount of IBNR is the total sum of estimated insurance claims that shall be paid for accidents that occurred but have not been reported to the Group and estimated insurance claims that shall be additionally paid
 
F-28
upon resumption of payment claims. The Group calculates IBNR by applying statistical methods in risk units prescribed in Detailed Regulations on Supervision of Insurance Business, and records IBNR in reserve for outstanding claims of insurance liability. IBNR based on statistical methods requires significant accounting estimates in determining the application methodology for each accident year (PLDM, ILDM, BFM, and others) and determining the loss development factor.
3. Significant Accounting Policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
For the comparative purpose, certain information in the notes for the years ended December 31, 2020 and 2021 have been reclassified to conform to the presentation for the year ended December 31, 2022.
3.1 Consolidation
3.1.1 Subsidiaries
Subsidiaries are companies that are controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Also, the existence and effects of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls the investee. Subsidiaries are fully consolidated from the date when control is transferred to the Group and
de-consolidated
from the date when control is lost.
If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that subsidiary’s financial statements in preparing the consolidated financial statements to ensure conformity with the Group’s accounting policies.
Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the
non-controlling
interests, if any. Total comprehensive income is attributed to the owners of the parent and to the
non-controlling
interests even if this results in the
non-controlling
interests having a deficit balance.
Transactions with
non-controlling
interests that do not result in loss of control are accounted for as equity transactions (i.e., transactions with owners in their capacity as owners). The difference between fair value of any consideration paid and carrying amount of the subsidiary’s net assets attributable to the additional interests acquired, is recorded in equity. Gains or losses on disposals to
non-controlling
interests are also recorded in equity.
When the Group loses control, any investment retained in the former subsidiary is recognized at its fair value at the date when control is lost, with the resulting difference recognized in profit or loss. This fair value will be the fair value on initial recognition of a financial asset in accordance with IFRS No.9 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture. In addition, all amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for on the same basis as would be required if the Group had directly disposed of the related assets or liabilities. Therefore, amounts previously recognized in other comprehensive income are reclassified to profit or loss.
The Group accounts for each business combination by applying the acquisition method. The consideration transferred is measured at fair value, and identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are initially measured at acquisition-date fair values. For each business combination, the Group measures
non-controlling
interests in the acquiree that entitle their holders to a proportionate share of the acquiree’s net assets in the event of liquidation at either (a) fair value or (b) the proportionate share in the recognized amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed in the periods in which the costs are incurred.
 
F-29
In a business combination achieved in stages, the Group shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the Group may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be reclassified as profit or loss, or retained earnings, on the same basis as would be required if the Group had directly disposed of the previously held equity interest.
The Group applies the book-value method to account for business combinations of entities under common control. Identifiable assets acquired and liabilities assumed in a business combination are measured at their book value on the consolidated financial statements of the Group. In addition, the difference between (a) the sum of consolidated net book value of the assets and liabilities transferred and accumulated other comprehensive income and (b) the consideration paid, is recognized as capital surplus.
3.1.2 Associates and joint ventures
Associates are entities over which the Group has significant influence over the financial and operating policy decisions. Generally, if the Group holds 20% or more of the voting power of the investee, it is presumed that the Group has significant influence.
Joint ventures are investments in which the Group has joint control over economic activities pursuant to contractual arrangement. Decisions about strategic financial and operating policies require unanimous consent of the parties sharing control.
Investments in associates and joint ventures are initially recognized at cost and equity method is applied after initial recognition. The carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the investee and changes in the investee’s equity after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment. Unrealized gains and losses resulting from transactions between the Group and associates are eliminated to the extent of the Group’s share in associates. If unrealized losses are an indication of an impairment that requires recognition in the consolidated financial statements, those losses are recognized for the period.
If associates or joint ventures use accounting policies other than those of the Group for like transactions and events in similar circumstances, if necessary, adjustments shall be made to make the associates or joint ventures’ accounting policies conform to those of the Group when the associates or joint ventures’ financial statements are used by the Group in applying the equity method.
If the Group’s share of losses of associates and joint ventures equals or exceeds its interest in the associates (including long-term interests that, in substance, form part of the Group’s net investment in the associates), the Group discontinues recognizing its share of further losses. After the Group’s interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee.
The Group determines at each reporting period whether there is any objective evidence that the investments in the associates are impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associates and its carrying amount and recognizes the amount as
non-operating
expenses in the consolidated statement of comprehensive income.
3.1.3 Structured entity
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. When the Group decides whether it has power over the structured entities in which the Group has interests, it considers factors such as the purpose, the form, the substantive ability to direct the relevant activities of a structured entity, the nature of its relationship with a structured entity, and the amount of exposure to variable returns.
 
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3.1.4 Funds management
The Group manages and operates trust assets, collective investment, and other funds on behalf of investors. These trusts and funds are not consolidated, except for trusts and funds over which the Group has control.
3.1.5 Intragroup transactions
Intragroup balances, income, expenses, and any unrealized gains and losses resulting from intragroup transactions are eliminated in full, in preparing the consolidated financial statements. If unrealized losses are an indication of an impairment that requires recognition in the consolidated financial statements, those losses are recognized for the period.
3.2 Foreign Currency
3.2.1 Foreign currency transactions
A foreign currency transaction is recorded, at initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate which is the spot exchange rate at the end of the reporting period.
Non-monetary
items that are measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was measured and
non-monetary
items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Except for the exchange differences for the net investment in a foreign operation and the financial liability designated as a hedging instrument of net investment, exchange differences arising on the settlement of monetary items or on translating monetary items are recognized in profit or loss. When a gain or loss on a
non-monetary
item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income, conversely, when a gain or loss on a
non-monetary
item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.
3.2.2 Foreign operations
The results and financial position of a foreign operation, whose functional currency differs from the Group’s presentation currency, are translated into the Group’s presentation currency based on the following procedures.
If the functional currency of a foreign operation is not the currency of a hyperinflationary economy, assets and liabilities for each statement of financial position presented (including comparatives) are translated at the closing rate at the end of the reporting period, income and expenses for each statement of comprehensive income presented (including comparatives) are translated using the average exchange rates for the period. All resulting exchange differences are recognized in other comprehensive income.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and are translated into the presentation currency at the closing rate.
On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, is reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognized. On the partial disposal of a subsidiary that includes a foreign operation, the Group
re-attributes
the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income to the
non-controlling
interests in that foreign operation. In any other partial disposal of a foreign operation, the Group reclassifies to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income.
 
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3.2.3 Translation of the net investment in a foreign operation
A monetary item that is receivable from or payable to a foreign operation, for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the Group’s net investment in that foreign operation, then foreign currency difference arising from that monetary item is recognized in the other comprehensive income and shall be reclassified to profit or loss on disposal of the net investment.
3.3 Recognition and Measurement of Financial Instruments
3.3.1 Initial recognition
The Group recognizes a financial asset or a financial liability in its consolidated statement of financial position when the Group becomes party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets (a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned) is recognized and derecognized using trade date accounting.
For financial reporting purpose, the Group classifies (a) financial assets as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, or financial assets at amortized cost and (b) financial liabilities as financial liabilities at fair value through profit or loss, or other financial liabilities. These classifications are based on the business model for managing financial instruments and the contractual cash flow characteristics of the financial instrument at initial recognition.
At initial recognition, a financial asset or financial liability is measured at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value of a financial instrument on initial recognition is normally the transaction price (that is, the fair value of the consideration given or received) in an arm’s length transaction.
3.3.2 Subsequent measurement
After initial recognition, financial instruments are measured at amortized cost or fair value based on classification at initial recognition.
3.3.2.1 Amortized cost
The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.
3.3.2.2 Fair value
The Group uses quoted price in an active market which is based on listed market price or dealer price quotations of financial instruments traded in an active market as best estimate of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
If there is no active market for a financial instrument, fair value is determined either by using a valuation technique or independent third-party valuation service. Valuation techniques include using recent arm’s length market transactions between knowledgeable and willing parties, if available, referencing the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and option pricing models.
 
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The Group uses valuation models that are commonly used by market participants and customized for the Group to determine fair values of common
over-the-counter
(“OTC”) derivatives such as options, interest rate swaps, and currency swaps which are based on the inputs observable in markets. However, for some complex financial instruments that require fair value measurement by valuation techniques based on certain assumptions because some or all inputs used in the model are not observable in the market, the Group uses internal valuation models developed from general valuation models or valuation results from independent external valuation institutions.
In addition, the fair value information recognized in the consolidated statement of financial position is classified into the following fair value hierarchy, reflecting the significance of the input variables used in the fair value measurement.
 
Level 1 :
    Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date
   
Level 2 :    Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
   
Level 3 :    Unobservable inputs for the asset or liability
The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.
If a fair value measurement uses observable inputs that require significant adjustment using unobservable inputs, that measurement is a Level 3 measurement.
If the valuation technique does not reflect all factors which market participants would consider in pricing the asset or liability, the fair value is adjusted to reflect those factors. Those factors include counterparty credit risk,
bid-ask
spread, liquidity risk, and others.
The Group uses valuation technique which maximizes the use of market inputs and minimizes the use of entity-specific inputs. It incorporates all factors that market participants would consider in pricing the asset or liability and is consistent with economic methodologies applied for pricing financial instruments. Periodically, the Group calibrates the valuation technique and tests its validity using prices of observable current market transactions of the same instrument or based on other relevant observable market data.
3.3.3 Derecognition
Derecognition is the removal of a previously recognized financial asset or financial liability from the consolidated statement of financial position. The derecognition criteria for financial assets and financial liabilities are as follows:
3.3.3.1 Derecognition of financial assets
A financial asset is derecognized when the contractual rights to the cash flows from the financial assets expire or the Group transfers substantially all the risks and rewards of ownership of the financial asset, or the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and the Group has not retained control. Therefore, if the Group does not transfer substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.
If the Group transfers the contractual rights to receive the cash flows of the financial asset but retains substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.
 
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The Group writes off a financial asset when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. In general, the Group considers
write-off
when it is determined that the debtor does not have sufficient funds or income to cover the principal and interest. The
write-off
decision is made in accordance with internal regulations. After the
write-off,
the Group can continue to collect the
written-off
loans according to the internal policy. Recovered amounts from financial assets previously
written-off
are recognized in profit or loss.
3.3.3.2 Derecognition of financial liabilities
A financial liability is derecognized from the consolidated statement of financial position when it is extinguished (i.e., the obligation specified in the contract is discharged, canceled or expires).
3.3.4 Offsetting
A financial asset and a financial liability are offset, and the net amount is presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on a future event and must be legally enforceable in the normal course of business, the event of default, and the event of insolvency or bankruptcy of the Group and all of the counterparties.
3.4 Cash and Due from Financial Institutions
Cash and due from financial institutions include cash on hand, foreign currency, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and due from financial institutions. Cash and due from financial institutions are measured at amortized cost.
3.5
Non-derivative
Financial Assets
3.5.1 Financial assets at fair value through profit or loss
Financial assets are classified as financial assets at fair value through profit or loss unless they are classified as financial assets at amortized cost or at fair value through other comprehensive income.
The Group may designate certain financial assets upon initial recognition as at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
After initial recognition, a financial asset at fair value through profit or loss is measured at fair value and gains or losses arising from a change in fair value are recognized in profit or loss. Interest income using the effective interest method and dividend income from financial assets at fair value through profit or loss are also recognized in profit or loss.
3.5.2 Financial assets at fair value through other comprehensive income
The Group classifies below financial assets as financial assets at fair value through other comprehensive income:
 
  •  
Debt instruments that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding and;
 
  •  
Equity instruments that are not held for short-term trading but held for strategic investment, and designated as financial assets at fair value through other comprehensive income
 
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After initial recognition, a financial asset at fair value through other comprehensive income is measured at fair value. Gains or losses arising from a change in fair value, other than dividend income, interest income calculated using the effective interest method and exchange differences arising on monetary items which are recognized directly in profit or loss, are recognized in other comprehensive income in equity.
When the financial assets at fair value through other comprehensive income is disposed of, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. However, cumulative gain or loss of equity instruments designated at fair value through other comprehensive income is reclassified to retained earnings not to profit or loss at disposal.
A financial asset at fair value through other comprehensive income denominated in foreign currency is translated at the closing rate. Exchange differences resulting from changes in amortized cost are recognized in profit or loss, and other changes are recognized in equity.
3.5.3 Financial assets at amortized cost
A financial asset, which is held within the business model whose objective is achieved by collecting contractual cash flows, and where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding, is classified as a financial asset at amortized cost. After initial recognition, a financial asset at amortized cost is measured at amortized cost using the effective interest method and interest income is calculated using the effective interest method.
3.6 Expected Credit Losses of Financial Assets (Debt Instruments)
The Group recognizes loss allowances for expected credit losses at the end of the reporting period for financial assets at amortized cost and fair value through other comprehensive income except for financial assets at fair value through profit or loss.
Expected credit losses are estimated at present value of probability-weighted amount that is determined by evaluating a range of possible outcomes. The Group measures expected credit losses by reflecting all reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions, and forecasts of future economic conditions.
The approaches of measuring expected credit losses in accordance with IFRS are as follows:
 
  •  
General approach: for financial assets and unused loan commitments not subject to the below 2 approaches
 
  •  
Simplified approach: for trade receivables, contract assets, and lease receivables
 
  •  
Credit-impaired approach: for financial assets that are credit-impaired at the time of acquisition
Application of general approach is differentiated depending on whether credit risk has increased significantly after initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures loss allowances for that financial instrument at an amount equal to
12-month
expected credit losses, whereas if the credit risk on a financial instrument has increased significantly since initial recognition, the Group measures loss allowances for a financial instrument at an amount equal to the lifetime expected credit losses. Lifetime is the period until the contractual maturity date of financial instruments and means the expected life.
The Group assesses whether the credit risk has increased significantly using the following criteria, and if one or more of the following criteria are met, it is deemed as significant increase in credit risk. Criterion of more than 30 days past due is applied to all subsidiaries, and other criteria are applied selectively considering specific indicators of each subsidiary or additionally considering specific indicators of each subsidiary. If the contractual cash flows of a financial asset have been renegotiated or modified, the Group assesses whether the credit risk has increased significantly using the same following criteria.
 
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  •  
More than 30 days past due
 
  •  
Decline in credit rating at the end of the reporting period by certain notches or more compared to the time of initial recognition
 
  •  
Subsequent managing ratings below certain level in the early warning system
 
  •  
Debt restructuring (except for impaired financial assets) and
 
  •  
Credit delinquency information of Korea Federation of Banks, etc.
Under simplified approach, the Group always measures loss allowances at an amount equal to lifetime expected credit losses. Under credit-impaired approach, the Group only recognizes the cumulative changes in lifetime expected credit losses since initial recognition as loss allowances at the end of the reporting period. In assessing credit impairment, the Group uses definition of default as in the new Basel Accord which rules calculation of Capital Adequacy Ratio.
The Group generally considers the loan to be credit-impaired if one or more of the following criteria are met:
 
  •  
90 days or more past due
 
  •  
Legal proceedings related to collection
 
  •  
A borrower registered on the credit management list of Korea Federation of Banks
 
  •  
A corporate borrower with the credit rating C and D
 
  •  
Refinancing and
 
  •  
Debt restructuring, etc.
3.6.1 Forward-looking information
The Group uses forward-looking information, when determining whether credit risk has increased significantly and measuring expected credit losses.
The Group assumes that the risk components have a constant correlation with the economic cycle and uses statistical methodologies to estimate the relation between key macroeconomic variables and risk components for the expected credit losses.
The correlation between the major macroeconomic variables and the credit risk are as follows:
 
Key macroeconomic variables
   
Correlation between the major macroeconomic

variables and the credit risk
Domestic GDP growth rate
    (-)
Composite stock index
    (-)
Rate of change of construction investment
    (-)
Rate of change of housing transaction price index
    (-)
Interest rate spread
    (+)
Private consumption growth rate
    (-)
Change of call rate compared to the previous year (%p)
    (+)
Rate of change of household loan
    (-)
Forward-looking information used in calculation of expected credit losses is based on the macroeconomic forecasts utilized by management of the Group for its business plan considering reliable external agency’s forecasts and others. The forward-looking information is generated by KB Research with a comprehensive approach to capture the possibility of various economic forecast scenarios that are derived from the internal and external viewpoints of the macroeconomic situation. The Group determines the macroeconomic variables to be
 
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used in forecasting future conditions of the economy, considering the direction of the forecast scenario and the significant relationship between macroeconomic variables and time series data. And there are some changes compared to the macroeconomic variables used in the previous year.
As of December 31, 2022, the Group measures expected credit losses to the financial assets by applying both the worse scenario and the crisis scenario, etc. taking into consideration the uncertain financial environment internally and externally and the potential credit risk resulting from the rapid economic recession.
3.6.2 Measuring expected credit losses on financial assets at amortized cost
The expected credit losses of financial assets at amortized cost are measured as present value of the difference between the contractual cash flows to be received and the cash flows expected to be received. The Group estimates expected future cash flows for financial assets that are individually significant. The Group selects the individually significant financial assets by comprehensively considering quantitative and qualitative factors (such as debt restructuring or negative net assets, etc.) among financial assets with the credit risk has increased significantly or credit-impaired (individual assessment of impairment).
For financial assets that are not individually significant, the Group collectively estimates expected credit losses by grouping loans with a homogeneous credit risk profile (collective assessment of impairment).
3.6.2.1 Individual assessment of impairment
Individual assessment of impairment losses is performed using management’s best estimate on the present value of expected future cash flows. The Group uses all the available information including financial condition of the borrower such as operating cash flow and net realizable value of any collateral held.
3.6.2.2 Collective assessment of impairment
Collective assessment of impairment losses is performed by using a methodology based on historical loss experience and reflecting forward-looking information. Such a process incorporates factors such as type of collateral, type of product, type of borrower, credit rating, size of portfolio, and recovery period and applies Probability of Default (“PD”) on a group of assets and Loss Given Default (“LGD”) by type of recovery method. Also, the Group applies certain assumptions to model expected credit losses assessment and to determine input based on loss experience and forward-looking information. These models and assumptions are periodically reviewed to reduce the gap between loss estimate and actual loss experience.
The lifetime expected credit losses are measured by applying the PD to the carrying amount calculated by deducting the expected principal repayment amount from the carrying amount as of the reporting date and the LGD adjusted to reflect changes in the carrying amount.
3.6.3 Measuring expected credit losses on financial assets at fair value through other comprehensive income
The Group measures expected credit losses on financial assets at fair value through other comprehensive income in a manner that is consistent with the requirements that are applicable to financial assets at amortized cost. However, loss allowances are recognized in other comprehensive income. Upon disposal or repayment of financial assets at fair value through other comprehensive income, the amount of loss allowances is reclassified from other comprehensive income to profit or loss.
3.7 Derivative Financial Instruments
The Group enters into numerous derivative financial instrument contracts such as currency forwards, interest rate swaps, currency swaps, and others for trading purposes or to manage its interest rate risk, currency risk, and others. The Group’s derivative financial instruments business focuses on addressing the needs of the Group’s corporate clients to hedge their risk exposure and to hedge the Group’s risk exposure that results from
 
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such client contracts. These derivative financial instruments are presented as derivative financial instruments in the consolidated financial statements irrespective of transaction purpose and subsequent measurement requirement.
The Group designates certain derivative financial instruments as hedging instruments to hedge the risk of changes in fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge) and the risk of changes in cash flow (cash flow hedge). The Group designates certain derivative and
non-derivative
financial instruments as hedging instruments to hedge the currency risk of the net investment in a foreign operation (hedge of net investment).
At the inception of the hedging relationship, there is formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge. This documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged, the inception date of hedging relationship and how the Group will assess the hedging instrument’s effectiveness in offsetting the changes in the hedged item’s fair value or cash flows attributable to the hedged risk.
Derivative financial instruments are initially recognized at fair value. After initial recognition, derivative financial instruments are measured at fair value, and changes therein are accounted for as described below.
3.7.1 Derivative financial instruments held for trading
All derivative financial instruments, except for derivatives that are designated and qualify for hedge accounting, are measured at fair value. Gains or losses arising from changes in fair value are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.
3.7.2 Derivative financial instruments for fair value hedges
If derivative financial instruments are designated and qualify for fair value hedges, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in profit or loss as part of other operating income or expenses. If the hedged items are equity instruments for which the Group has elected to present changes in fair value in other comprehensive income, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in other comprehensive income.
Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is amortized to profit or loss by the maturity of the financial instrument using the effective interest method.
3.7.3 Derivative financial instruments for cash flow hedges
The effective portion of changes in fair value of derivative financial instruments that are designated and qualify for cash flow hedges is recognized in other comprehensive income, limited to the cumulative change in fair value (present value) of the hedged item (the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge. The ineffective portion is recognized in profit or loss as other operating income or expenses. The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss (other operating income or expenses) as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affect profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. When the cash flow hedge accounting is discontinued, the cumulative gains or losses on the hedging instrument that have been recognized in other comprehensive income are reclassified to profit or loss over the period in which the forecast
 
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transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses that have been recognized in other comprehensive income are immediately reclassified to profit or loss.
3.7.4 Derivative and
non-derivative
financial instruments designated for net investments hedges
If derivative and
non-derivative
financial instruments are designated and qualify for the net investment hedge, the effective portion of changes in fair value of the hedging instrument is recognized in other comprehensive income and the ineffective portion is recognized in profit or loss as other operating income or expenses. The cumulative gains or losses on the hedging instrument relating to the effective portion of the hedge that have been accumulated in other comprehensive income will be reclassified from other comprehensive income to profit or loss as a reclassification adjustment on the disposal or partial disposal of the foreign operation.
3.7.5 Embedded derivatives
An embedded derivative is separated from the host contract and accounted for as a derivative if, and only if, (a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and (c) the hybrid contract contains a host that is not a financial asset and is not designated as at fair value through profit or loss. Gains or losses arising from a change in fair value of an embedded derivative separated from the host contract are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.
3.7.6 Day one gains or losses
If the Group uses a valuation technique that incorporates unobservable inputs for the fair value of the OTC derivatives at initial recognition, there may be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the difference is not recognized in profit or loss but deferred and amortized using the straight-line method over the life of the financial instrument. If the fair value is subsequently determined using observable inputs, the remaining deferred amount is recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss or other operating income or expenses.
3.8 Property and Equipment
3.8.1 Recognition and measurement
Property and equipment that qualify for recognition as an asset are measured at cost and subsequently carried at its cost less any accumulated depreciation and any accumulated impairment losses.
The cost of property and equipment includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.
Subsequent expenditures are capitalized only when they prolong the useful life or enhance values of the assets but the costs of the
day-to-day
servicing of the assets such as repair and maintenance costs are recognized in profit or loss as incurred. When part of an item of property and equipment has a useful life different from that of the entire asset, it is recognized as a separate asset.
3.8.2 Depreciation
Land is not depreciated, whereas other property and equipment are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value.
 
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Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.
The depreciation method and estimated useful life of property and equipment are as follows:
 
Property and equipment
  
Depreciation method
  
Estimated useful life
Buildings
   Straight-line   20~40 years
Leasehold improvements
   Declining-balance/ Straight-line   4~15 years
Equipment and vehicles
   Declining-balance/ Straight-line   3~15 years
The residual value, the useful life, and the depreciation method applied to an asset are reviewed at each financial
year-end
and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.
3.9 Investment Properties
3.9.1 Recognition and measurement
Properties held to earn rentals or for capital appreciation or both are classified as investment properties. Investment properties are measured initially at their cost and subsequently the cost model is used.
3.9.2 Depreciation
Land is not depreciated, whereas other investment properties are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value.
The depreciation method and estimated useful life of investment properties are as follows:
 
Investment properties
  
Depreciation method
  
Estimated useful life
Buildings   Straight-line   20~40 years
The residual value, the useful life, and the depreciation method applied to an asset are reviewed at each financial
year-end
and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.
3.10 Intangible Assets
Intangible assets are measured initially at cost and subsequently carried at their cost less any accumulated amortization and any accumulated impairment losses.
Intangible assets, except for goodwill and membership rights, are amortized using the straight-line or declining-balance method with no residual value over their estimated useful life since the assets are available for use.
 
Intangible assets
  
Amortization method
  
Estimated useful life
Industrial property rights   Straight-line   3 ~ 19 years
Software   Straight-line   3 ~ 5 years
Value of business acquired   Declining-balance   30, 60 years
Others   Straight-line / Declining-balance   1 ~ 13 years
The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial
year-end.
Where an intangible asset is not being amortized because its useful
 
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life is indefinite, the Group carries out a review in each accounting period to confirm whether events and circumstances still support an indefinite useful life assessment. If they do not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate.
3.10.1 Value of business acquired (“VOBA”)
In the case of acquisition of insurance company, the Group recognizes the difference amount as VOBA in intangible assets, if the fair value of the acquired insurance liability is less than the carrying amount based on the acquiree’s accounting policy. In the opposite case, the difference amount is recognized as negative VOBA and included in premium reserve. VOBA is an estimated present value of profits inherent in the future cash flow of insurance contracts at the acquisition date. VOBA is amortized over the above estimated useful life using declining balance method, and the amortization is recognized as insurance expense.
3.10.2 Goodwill
3.10.2.1 Recognition and measurement
Goodwill related to business combinations before January 1, 2010, is stated at its carrying amount, which was recognized under the Group’s previous accounting policy, prior to the transition to IFRS.
Goodwill acquired from business combinations after January 1, 2010, is initially measured as the excess of the consideration transferred over the fair value of net identifiable assets acquired and liabilities assumed. If the fair value of net identifiable assets acquired and liabilities assumed exceeds the consideration transferred, the difference is recognized in profit or loss.
For each business combination, the Group decides at the acquisition date whether the
non-controlling
interests in the acquiree are initially measured at fair value or at the
non-controlling
interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets.
Acquisition-related costs incurred to effect a business combination are charged to expenses in the periods in which the costs are incurred and the services are received, except for the costs to issue debt or equity securities.
3.10.2.2 Additional acquisitions of
non-controlling
interests
Additional acquisitions of
non-controlling
interests are accounted for as equity transactions. Therefore, no additional goodwill is recognized.
3.10.2.3 Subsequent measurement
Goodwill is not amortized and is stated at cost less accumulated impairment losses. However, goodwill that forms part of the carrying amount of an investment in associates is not separately recognized and an impairment loss recognized is not allocated to any asset, including goodwill, which forms part of the carrying amount of the investment in the associates.
3.10.3 Subsequent expenditures
Subsequent expenditures are capitalized only when they enhance values of the assets. Internally generated intangible assets, such as goodwill and trade name, are not recognized as assets but expensed as incurred.
3.11 Impairment of
Non-financial
Assets
The Group assesses at the end of each reporting period whether there is any indication that a
non-financial
asset, except for (a) deferred income tax assets, (b) assets arising from employee benefits and
(c) non-current
assets (or group of assets to be sold) classified as held for sale, may be impaired. If any such indication exists, the
 
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Group estimates the recoverable amount of the asset. However, irrespective of whether there is any indication of impairment, the Group tests (a) goodwill acquired in a business combination, (b) intangible assets with an indefinite useful life and (c) intangible assets not yet available for use for impairment annually by comparing their carrying amount with their recoverable amount.
The recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit that are discounted by a
pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss and recognized immediately in profit or loss. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units that is expected to benefit from the synergies of the combination. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.
An impairment loss recognized for goodwill is not reversed in a subsequent period. The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset, other than goodwill, may no longer exist or may have decreased, and an impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss cannot exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.
3.12
Non-current
Assets Held for Sale
A
non-current
asset or disposal group is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. A
non-current
asset (or disposal group) classified as held for sale is measured at the lower of (a) its carrying amount measured in accordance with the applicable IFRS, immediately before the initial classification of the asset (or disposal group) as held for sale and (b) fair value less costs to sell.
A
non-current
asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale is not depreciated (or amortized).
Impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. Gain is recognized for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized.
3.13 Financial Liabilities
The Group classifies financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.
 
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3.13.1 Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such at initial recognition. After initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. At initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.
In relation to securities lending or borrowing transactions, when the Group borrows securities from the Korea Securities Depository and others, these transactions are managed as
off-balance
sheet items. The borrowed securities are treated as financial liabilities at fair value through profit or loss when they are sold. Changes in fair value at the end of the reporting period and difference between carrying amount at redemption and purchased amount are recognized in profit or loss.
In addition, the change in fair value of the financial liability designated at fair value through profit or loss that is attributable to change in the credit risk of that liability, the Group presents this change in other comprehensive income, and does not recycle this to profit or loss in accordance with IFRS No.9. However, if this treatment creates or enlarges an accounting mismatch, the Group recognizes this change in profit or loss.
3.13.2 Other financial liabilities
Non-derivative
financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. Other financial liabilities include deposits, borrowings, debentures, and others. At initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. After initial recognition, other financial liabilities are measured at amortized cost, and its interest expense is recognized, using the effective interest method.
When an asset is sold under repurchase agreement, the Group continues to recognize the asset with the amount sold being accounted for as borrowings. The Group derecognizes a financial liability from the consolidated statement of financial position only when it is extinguished (i.e., when the obligation specified in the contract is discharged, canceled or expires).
3.14 Insurance Contracts
KB Insurance Co., Ltd., KB Life Insurance Co., Ltd., and KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) the subsidiaries of the Group, issue insurance contracts.
Insurance contracts are defined as “a contract under which one party (the insurer) accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder”. A contract that qualifies as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. Such a contract that does not contain significant insurance risk is classified as an investment contract and is within the scope of IFRS No.9
Financial Instruments
to the extent that it gives rise to a financial asset or financial liability, except if the investment contract contains a Discretionary Participation Features (DPF). If the contract has a DPF, the contract is subject to IFRS No.4
Insurance Contracts
. The Group recognizes assets and liabilities relating to insurance contracts as other assets and insurance liabilities in the consolidated statement of financial position, and income and expense relating to insurance contracts as insurance income and expenses in the consolidated statement of comprehensive income, respectively.
3.14.1 Insurance premiums
The Group recognizes collected premiums as revenue on the due date of collection of premiums from insurance contracts and the collected premium which is not earned at the end of the reporting period is recognized as unearned premium.
 
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3.14.2 Insurance liabilities
The Group recognizes a liability for future claims, refunds, dividends to policyholders, and related expenses as follows:
3.14.2.1 Premium reserve
The Group accumulates the amount calculated based on the net insurance premium already received for future claim payments for insurance contracts maintained at the end of the reporting period. It is calculated as the greater of the amount using standard interest rate and standard risk ratio defined by director of the Financial Supervisory Services and the amount using the basic ratios that have been used in premium calculation.
3.14.2.2 Reserve for outstanding claims
When the insured event has occurred before the end of the reporting period, but the claim amount is not confirmed, reserve for outstanding claims is calculated based on the estimated amount to be paid.
3.14.2.3 Unearned premium reserve
Unearned premium reserve is the premium which is to be allocated to the following period among the premium which is due before the end of the reporting period.
3.14.2.4 Reserve for dividend to policyholders
Reserve for dividend to policyholders including dividend of interest rate differential, rate of risk differential, and business expenses differential is recognized for the purpose of provisioning for policyholders’ dividends in the future in accordance with statutes or insurance terms and conditions.
3.14.3 Liability adequacy test (“LAT”)
The Group conducts a liability adequacy test for all contracts to which IFRS No.4
Insurance Contracts
apply, in consideration of current estimates of all cash inflows and cash outflows from the insurance contracts at the end of the reporting period including options, guarantees, claims handling costs, and policy loans. If the assessment shows that the carrying amount of its insurance liabilities is inadequate in the light of the estimated future cash flows, the entire deficiency is recognized in profit or loss.
Future cash flows from long-term insurance are discounted at interest rate scenario, which is a risk-free rate scenario adjusted by liquidity premium, whereas future cash flows from general insurance are not discounted to present value. In the case of insurance premium and unearned premium reserve, all future cash flows such as payment of claims, administration expenses, and premium received from policyholders are considered for the liability adequacy test. And in the case of reserve for outstanding claims, the adequacy of individually estimated claims is evaluated by applying models among various statistical methods that are considered appropriate for claim development trend.
3.14.4 Deferred acquisition costs
The Group recognizes acquisition cost incurred by the long-term insurance contract as an asset and amortizes it evenly over the premium payment period. If the premium payment period exceeds seven years, the amortization period shall be seven years. If the insurance contract is surrendered or lapsed due to payment overdue, the remaining balances of deferred acquisition cost are fully amortized in the period in which the contract is surrendered or lapsed.
 
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3.15 Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Inevitable risks and uncertainties surrounding related events and circumstances are considered in measuring the best estimate of the provisions, and where the effect of the time value of money is material, the amount of provisions is the present value of the expenditures expected to be required to settle the obligation.
Provisions for confirmed and unconfirmed acceptances and guarantees, and unused credit lines of consumer and corporate loans are recognized using a valuation model that applies the credit conversion factor, PD, and LGD.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provisions are reversed.
An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it. If the Group has a contract that is onerous, the present obligation under the contract is recognized and measured as provisions.
3.16 Financial Guarantee Contracts
Financial guarantee contracts require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument.
Financial guarantee contracts are initially recognized at fair value and classified as other liabilities and are amortized over the contractual term. After initial recognition, financial guarantee contracts are measured at the higher of:
 
  •  
The amount determined in accordance with IFRS No.9
Financial Instruments
and
 
  •  
The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with IFRS No.15
Revenue from Contracts with Customers.
3.17 Equity Instrument Issued by the Group
An equity instrument is any contract or agreement that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
3.17.1 Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or the exercise of stock option are deducted from the equity, net of any tax effects.
3.17.2 Hybrid securities
The financial instruments can be classified as either financial liabilities or equity in accordance with the terms of the contract. The Group classifies hybrid securities as an equity if the Group has the unconditional right to avoid any contractual obligation to deliver cash or another financial asset in relation to the financial instruments. However, hybrid securities issued by subsidiaries are classified as
non-controlling
interests, dividends are recognized in the consolidated statement of comprehensive income as profit attributable to
non-controlling
interests.
 
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3.17.3 Treasury shares
If the Group acquires its own equity instruments, these are accounted for as treasury shares and are deducted directly from equity. No gains or losses are recognized in profit or loss on the purchase, sale, issue or retirement of own equity instruments. If an entity within the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.
3.17.4 Compound financial instruments
A compound financial instrument is classified as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instrument. The liability component of the compound financial instrument is measured at fair value of the similar liability without conversion option at initial recognition and subsequently measured at amortized cost using effective interest method until it is extinguished by conversion or matured. Equity component is initially measured at fair value of compound financial instrument in its entirety less fair value of liability component net of tax effect, and it is not remeasured subsequently.
3.18 Revenue Recognition
The Group recognizes revenues in accordance with the following steps determined in accordance with IFRS No.15
Revenue from Contracts with Customers
.
 
  •  
Step 1: Identify the contract with a customer.
 
  •  
Step 2: Identify the performance obligations in the contract.
 
  •  
Step 3: Determine the transaction price.
 
  •  
Step 4: Allocate the transaction price to the performance obligations in the contract.
 
  •  
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
3.18.1 Interest income and expense
Interest income and expense on debt securities at fair value through profit or loss (excluding beneficiary certificates, equity investments, and other debt instruments), loans, financial instruments at amortized cost, and debt securities at fair value through other comprehensive income are recognized in the consolidated statement of comprehensive income using the effective interest method in accordance with IFRS No.9
Financial Instruments
. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and allocating the interest income or interest expense over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period, to the gross carrying amount of a financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Group estimates expected cash flows by considering all contractual terms of the financial instrument but does not consider expected credit losses. The calculation includes all fees and points paid (main components of effective interest rate only) or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to reliably estimate the cash flows and the expected life of a financial instrument, the Group uses the contractual cash flows over the full contractual term of the financial instrument.
Interest income on impaired financial assets is recognized using the interest rate used to discount the expected cash flows for the purpose of measuring the impairment loss.
Interest income on debt securities at fair value through profit or loss is also classified as interest income in the consolidated statement of comprehensive income.
 
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3.18.2 Fee and commission income
The Group recognizes financial service fees in accordance with the purpose of charging the fees and the accounting standards of the financial instrument related to the fees earned.
3.18.2.1 Fees that are an integral part of the effective interest of a financial instrument
Such fees are generally treated as adjustments of effective interest rate. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents, and closing the transaction and origination fees received on issuing financial liabilities at amortized cost. However, fees relating to the creation or acquisition of a financial instrument at fair value through profit or loss are recognized as revenue immediately.
3.18.2.2 Fees related to performance obligations satisfied over time
If the control of a good or service is transferred over time, the Group recognizes revenue related to performance obligations over the period of performance obligations. Fees charged in return for the services for a certain period of time, such as asset management fees, consignment business fees, etc. are recognized over the period of performance obligations.
3.18.2.3 Fees related to performance obligations satisfied at a point in time
Fees earned at a point in time are recognized as revenue when a customer obtains controls of a promised good or service and the Group satisfies a performance obligation.
Commission on negotiation or participation in negotiation for the third party such as trading stocks or other securities, arranging merger and acquisition of business, is recognized as revenue when the transaction has been completed.
If the Group arranges a syndicated loan but does not participate in the syndicated loan or participates in the syndicated loan with the same effective profit as other participants, a syndication arrangement fee is recognized as revenue at the completion of the syndication service.
3.18.3 Net gains or losses on financial instruments at fair value through profit or loss
Net gains or losses on financial instruments at fair value through profit or loss (including changes in fair value, dividends, and gains or losses from foreign currency translation) include gains or losses on financial instruments as follows:
 
  •  
Gains or losses relating to financial instruments at fair value through profit or loss (excluding interest income using the effective interest rate method)
 
  •  
Gains or losses relating to derivative financial instruments for trading (including derivative financial instruments for hedging purpose but do not qualify for hedge accounting)
3.18.4 Dividend income
Dividend income is recognized in profit or loss when the right to receive payment is established. Dividend income is recognized as net gains or losses on financial instruments at fair value through profit or loss or other operating income depending on the classification of equity securities.
3.19 Employee Compensation and Benefits
3.19.1 Post-employment benefits
 
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3.19.1.1 Defined contribution plans
When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as post-employment benefits for the period.
3.19.1.2 Defined benefit plans
All post-employment benefits, other than defined contribution plans, are classified as defined benefit plans. The amount recognized as a net defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets at the end of the reporting period.
The present value of the defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The currency and term of the corporate bonds are consistent with the currency and estimated term of the post-employment benefit obligations. Actuarial gains and losses resulted from changes in actuarial assumptions and experience adjustments are recognized in other comprehensive income.
When the present value of the defined benefit obligation minus the fair value of plan assets results in an asset, it is recognized to the extent of the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
Past service cost is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting from the introduction or changes to a defined benefit plan. Such past service cost is immediately recognized as an expense for the period.
3.19.2 Short-term employee benefits
Short-term employee benefits are employee benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as an expense for the period.
The expected cost of profit-sharing and bonus payments is recognized as liabilities when the Group has a present legal or constructive obligation to make payments as a result of past events, such as service rendered by employees, and a reliable estimate of the obligation can be made.
3.19.3 Share-based payment
The Group provides its executives and employees with stock grants, mileage stock, and long-term share-based payments programs. When stock grants are exercised, the Group can either select to distribute newly issued shares or treasury shares or compensate in cash based on the share price. When mileage stock and long-term share-based payments are exercised, the Group pays the amount equivalent to share price of KB Financial Group Inc. in cash.
For a share-based payment transaction in which the terms of the arrangement provide the Group with the choice of whether to settle in cash or by issuing equity instruments, the Group accounts for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions because the Group determines that it has a present obligation to settle in cash based on a past practice and a stated policy of settling in cash. Therefore, the Group measures the liability incurred as consideration for the service received at fair value and recognizes related expense and accrued expense over the vesting periods. For mileage stock and long-term
 
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share-based payments program, the Group accounts for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions, which are recognized as expense and accrued expenses at the time of vesting.
Until the liability is settled, the Group remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss as share-based payments.
3.19.4 Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. The Group recognizes a liability and expense for termination benefits at the earlier of the following dates; when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring that is within the scope of IAS No.37 and involves the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, then the termination benefits are discounted to present value.
3.20 Income Tax Expense
Income tax expense comprises current tax expense and deferred income tax expense. Current and deferred income tax are recognized as income or expense and included in profit or loss for the period, except to the extent that the tax arises from (a) a transaction or event which is recognized, in the same or a different period, outside profit or loss, either in other comprehensive income or directly in equity and (b) a business combination.
3.20.1 Current income tax
Current income tax is the amount of income tax payable (recoverable) in respect of the taxable profit (tax loss) for a period. A difference between the taxable profit and accounting profit may arise when income or expense is included in accounting profit in one period but is included in taxable profit in a different period. Differences may also arise if there is revenue that is exempt from taxation, or expense that is not deductible in determining taxable profit (loss). Current income tax liabilities for the current and prior periods are measured using the tax rates that have been enacted or substantively enacted by the end of the reporting period.
The Group offsets current income tax assets and current income tax liabilities if, and only if, the Group (a) has a legally enforceable right to set off the recognized amounts and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
3.20.2 Deferred income tax
Deferred income tax is recognized, using the asset-liability method, on temporary differences arising between the
tax-based
amount of assets and liabilities and their carrying amount in the financial statements. Deferred income tax liabilities are recognized for all taxable temporary differences and deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. However, deferred income tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax assets and liabilities are not recognized if they arise from the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting nor taxable profit or loss.
The Group recognizes a deferred income tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future.
 
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The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period. The Group reduces the carrying amount of a deferred income tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax liabilities and deferred income tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
The Group offsets deferred income tax assets and deferred income tax liabilities if, and only if the Group has a legally enforceable right to set off current income tax assets against current income tax liabilities and the deferred income tax assets and the deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current income tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred income tax liabilities or assets are expected to be settled or recovered.
3.20.3 Uncertain tax positions
Uncertain tax positions arise from tax treatments applied by the Group which may be challenged by the tax authorities due to the complexity of the transaction or different interpretation of the tax laws, such as a claim for rectification, a claim for a refund related to additional tax or a tax investigation by the tax authorities. The Group recognizes its uncertain tax positions in the consolidated financial statements in accordance with IAS No.12 and IFRIC No.23. The income tax asset is recognized if a tax refund is probable for taxes levied by the tax authority, and the amount to be paid as a result of the tax investigation and others is recognized as the current tax payable. However, penalty tax and additional refund on tax are regarded as penalty or interest and are accounted for in accordance with IAS No.37.
3.21 Earnings per Share
The Group calculates basic earnings per share amounts and diluted earnings per share amounts for profit or loss attributable to ordinary equity holders of the Parent Company and presents them in the consolidated statement of comprehensive income. Basic earnings per share is calculated by dividing profit or loss attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated by adjusting the profit or loss attributable to ordinary equity holders of the Parent Company and weighted average number of shares outstanding, taking into account all potential dilution effects, such as exchangeable bonds and share-based payments given to employees.
3.22 Lease
The Group as a lessor recognizes lease payments from operating leases as income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognized as expense over the lease term on the same basis as lease income. The respective leased assets are included in the consolidated statement of financial position based on their nature.
A lessee is required to recognize a
right-of-use
asset (lease assets) representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Assets and liabilities arising from a lease are initially measured at the present value.
 
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Lease liabilities include the net present value of the following lease payments:
 
  •  
Fixed payments (including
in-substance
fixed payments), less any lease incentives receivable
 
  •  
Variable lease payments that depend on an index or a rate
 
  •  
Amounts expected to be payable by the lessee under residual value guarantees
 
  •  
The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
 
  •  
Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease
The lease payments are discounted using the interest rate implicit in the lease if that rate can be readily determined. If that rate cannot be readily determined, the lessee’s incremental borrowing rate is used, which is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the
right-of-use
asset in a similar economic environment.
Right-of-use
assets are measured at cost comprising the following:
 
  •  
The amount of the initial measurement of the lease liability
 
  •  
Any lease payments made at or before the commencement date, less any lease incentives received
 
  •  
Any initial direct costs incurred by the lessee, and
 
  •  
An estimate of restoration costs
However, the Group can elect not to apply the requirements of IFRS No.16 to short-term lease (lease that, at the commencement date, has a lease term of 12 months or less) and leases for which the underlying asset is of low value (for example, underlying leased asset under USD 5,000).
The
right-of-use
asset is depreciated from the commencement date to the earlier of the end of the useful life of the
right-of-use
asset or the end of the lease term.
For sale and leaseback transactions, the Group applies the requirements of IFRS No.15
Revenue from Contracts with Customers
, to determine whether the transfer of an asset is accounted for as a sale of that asset.
3.23 Operating Segments
The Group identifies its operating segments based on internal reports which are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.
Segment information includes items which are directly attributable and can be allocated to the segment on a reasonable basis.
3.24 Overlay Approach
The Group applies the overlay approach in accordance with IFRS No.4 and a financial asset is eligible for designation for the overlay approach if, and only if, the following criteria are met:
 
  •  
It is measured at fair value through profit or loss applying IFRS No.9 but would not have been measured at fair value through profit or loss in its entirety applying IAS No.39 and
 
  •  
It is not held in respect of an activity that is unconnected with contracts within the scope of IFRS No.4.
 
F-51
The Group reclassifies between profit or loss and other comprehensive income, and the amount reclassified is equal to the difference between:
 
  •  
The amount reported in profit or loss for the designated financial assets applying IFRS No.9 and
 
  •  
The amount that would have been reported in profit or loss for the designated financial assets if the insurer had applied IAS No.39.
The Group is permitted to apply the overlay approach either at initial recognition or it may subsequently designate financial assets that newly meet criterion of not being held in respect of an activity that is unconnected with insurance contract, having previously not met that criterion.
The Group continues to apply the overlay approach to a designated financial asset until that financial asset is derecognized. However, the Group
de-designates
a financial asset when the financial asset no longer meets the criterion. In this case, the Group reclassifies from accumulated other comprehensive income to profit or loss as a reclassification adjustment any balance relating to that financial asset.
At the beginning of any annual period, the Group may stop applying the overlay approach to all designated financial assets, and cannot subsequently apply the overlay approach, if it stops using this approach because it is no longer an insurer.
3.25 United States dollar amounts
The Group operates primarily in Korea and its official accounting records are maintained in Korean won. The U.S. dollar amounts are provided herein as supplementary information solely for the convenience of the reader. Korean won amounts are expressed in U.S. dollars at the rate of ￦ 1,260.2 to U.S. $1.00, the U.S. Federal Reserve Bank of New York buying exchange rate in effect at noon, December 31, 2022. Such convenience translation into US dollars should not be construed as representations that the Korean won amounts have been, could have been, or could in the future be, converted at this or any other rate of exchange.
4. Financial Risk Management
4.1 Summary
4.1.1 Overview of financial risk management policy
The financial risks that the Group is exposed to are credit risk, market risk, liquidity risk, operational risk, and others.
This note regarding financial risk management provides information about the risks that the Group is exposed to and about its objectives, policies, risk assessment and management procedures, and capital management. Additional quantitative information is disclosed throughout the consolidated financial statements.
The Group’s risk management system focuses on efficiently supporting long-term strategy and management decisions of the Group by increasing risk transparency, preventing risk transfer between subsidiaries and preemptive response to rapidly changing financial environments. Credit risk, market risk, operational risk, interest rate risk, insurance risk, liquidity risk, credit concentration risk, strategy risk, and reputation risk are recognized as the Group’s significant risks and measured and managed by quantifying them in the form of internal capital or Value at Risk (“VaR”) using statistical methods.
4.1.2 Risk management organization
4.1.2.1 Risk Management Committee
The Risk Management Committee, as the ultimate decision-making body, deals with risk-related issues, such as establishing risk management strategies in accordance with the strategic direction determined by the
 
F-52
board of directors, determining the affordable level of risk appetite, reviewing the level of risk and the status of risk management activities, approving the application of risk management systems, methodologies, and major improvements, and establishing and approving risk management policies and procedures to timely recognize, measure, monitor, and control risks arising from various transactions by the Group.
4.1.2.2 Risk Management Council
The Risk Management Council is responsible for consulting on matters delegated by the Risk Management Committee and requests for review by the Management Executive Committee, consulting on details of each subsidiary’s risk management policies and procedures, monitoring the Group’s risk management status, and establishing and implementing necessary measures.
4.1.2.3 Risk Management Department
The Risk Management Department performs the Group’s risk management detailed policies, procedures, and business processes, and is responsible for calculating the Group’s risk-weighted assets, monitoring and managing internal capital limits.
4.2 Credit Risk
4.2.1 Overview of credit risk
Credit risk is the risk of loss from the portfolio of assets held due to the counterparty’s default, breach of contract, and deterioration of credit quality. For risk management purposes, the Group manages all factors of credit risk exposure, such as default risk of individual borrowers, country risk, and risk of specific sectors in an integrated way.
4.2.2 Credit risk management
The Group measures the expected loss and internal capital for the assets subject to credit risk management, including
on-balance
and
off-balance
assets, and uses them as management indicators. The Group allocates and manages credit risk internal capital limits.
In addition, to prevent excessive concentration of exposures by borrower and industry, the total exposure limit at the Group level is introduced, applied, and managed to control the credit concentration risk.
All of the Kookmin Bank’s loan customers (individuals and corporates) are assigned a credit rating and managed by a comprehensive internal credit evaluation system. For individuals, the credit rating is evaluated by utilizing personal information, income and job information, asset information, and bank transaction information. For corporates, the credit rating is evaluated by analyzing and utilizing financial and
non-financial
information which measures current and future corporate value and ability to repay the debt. Also, the extent to which corporates have the ability to meet debt obligations is comprehensively considered.
The credit rating, once assigned, serves as the fundamental instrument in Kookmin Bank’s credit risk management, and is applied in a wide range of credit risk management processes, including credit approval, credit limit management, loan pricing, and assessment of allowances for credit losses. For corporates, Kookmin Bank conducts a regular credit evaluation at least once a year, and the review and supervision departments regularly validate the adequacy of credit ratings to manage credit risks.
KB Kookmin Card Co., Ltd.’s credit scoring system is divided into Application Scoring System (“ASS”) and Behavior Scoring System (“BSS”). For applications that meet the eligibility criteria for card issuance, the card will be issued only if the ASS credit rating is above the standard. KB Kookmin Card Co., Ltd.’s internal information, external information from the credit bureau company and others, and personal information on the application are used to calculate the ASS credit rating. The BSS, which is recalculated on a weekly basis, predicts the delinquency probability of cardholders, and utilizes it to monitor cardholders and portfolio risk.
 
F-53
In order to establish a credit risk management system, the Group manages credit risk by forming a separate risk management organization. In particular, independently of the Sales Group, the Credit Management & Analysis Group of Kookmin Bank, a subsidiary, is in charge of loan policy, loan system, credit rating, credit analysis,
follow-up
management, and corporate restructuring. The Risk Management Group of Kookmin Bank is responsible for establishing policies on credit risk management, measuring and limiting internal capital of credit risk, setting credit limits, credit review, and verification of credit rating models.
4.2.3 Maximum exposure to
credit
risk
The Group’s maximum exposures to credit risk without consideration of collateral values in relation to financial instruments other than equity securities as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
(In millions of Korean won)
  
Financial assets
                  
Due from financial institutions measured at amortized cost*
    ￦ 28,362,387      ￦ 29,500,768  
Financial assets at fair value through profit or loss:
                  
Due from financial institutions measured at fair value through profit or loss
      200,742        69,469  
Securities measured at fair value through profit or loss
      63,002,692        61,787,727  
Loans measured at fair value through profit or loss
      269,296        493,562  
Financial instruments indexed to the price of gold
      113,622        90,006  
Derivatives
      3,721,370        9,446,134  
Loans measured at amortized cost*
      417,900,273        436,530,502  
Financial investments:
                  
Securities measured at fair value through other comprehensive income
      56,259,511        55,610,319  
Securities measured at amortized cost*
      44,471,628        58,288,734  
Loans measured at fair value through other comprehensive income
      313,604        363,144  
Other financial assets*
      10,755,350        11,209,350  
    
 
 
     
 
 
  
       625,370,475        663,389,715  
    
 
 
     
 
 
  
Off-balance
sheet items
                  
Acceptances and guarantees contracts
      10,199,689        12,425,753  
Financial guarantee contracts
      6,892,464        8,297,042  
Commitments
      170,218,143        188,168,340  
    
 
 
     
 
 
  
       187,310,296        208,891,135  
    
 
 
     
 
 
  
     ￦     812,680,771      ￦     872,280,850  
    
 
 
     
 
 
  
 
*
After netting of allowance
4.2.4 Credit risk of loans
The Group maintains allowances for loan losses associated with credit risk of loans to manage its credit risk.
The Group assesses expected credit losses and recognizes loss allowances of financial assets at amortized cost and financial assets at fair value through other comprehensive income. Financial assets at fair value through profit or loss are excluded. Expected credit losses are a probability-weighted estimate of possible credit losses occurring in a certain range by reflecting reasonable and supportable information that is reasonably available at the end of the reporting period without undue cost or effort, including information about past events, current conditions, and forecasts of future economic conditions. The Group measures the expected credit losses of loans
 
F-54
classified as financial assets at amortized cost, by deducting allowances for credit losses. The expected credit losses of loans classified as financial assets at fair value through other comprehensive income are presented in other comprehensive income in the consolidated financial statements.
4.2.4.1 Credit risk exposure
Credit qualities of loans as of December 31, 2021 and 2022, are as follows:
 
 
  
 
 
  
 
 
 
  
December 31, 2021
 
 
  
12-month

expected credit
losses
 
  
Lifetime expected credit losses
 
  
Not applying
expected credit
losses
 
  
Total
 
  
Non-impaired
 
  
Impaired
 
 
  
(In millions of Korean won)
 
Loans measured at amortized cost*
 
  
  
  
Corporate
  
  
  
  
  
Grade 1
    ￦ 111,284,284      ￦ 5,345,956      ￦ 3,705      ￦ —      ￦ 116,633,945  
Grade 2
      68,050,042        7,847,126        4,338        —        75,901,506  
Grade 3
      5,323,745        2,850,266        2,949        —        8,176,960  
Grade 4
      586,857        1,037,461        7,570        —        1,631,888  
Grade 5
      12,877        352,046        2,143,708        —        2,508,631  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       185,257,805        17,432,855        2,162,270        —        204,852,930  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Retail
                                             
Grade 1
      170,810,128        4,593,302        11,609        —        175,415,039  
Grade 2
      9,093,868        4,209,451        35,097        —        13,338,416  
Grade 3
      3,410,624        1,414,439        23,467        —        4,848,530  
Grade 4
      235,150        400,029        17,998        —        653,177  
Grade 5
      495,987        445,588        710,341        —        1,651,916  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       184,045,757        11,062,809        798,512        —        195,907,078  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Credit card
                                             
Grade 1
      10,640,412        1,113,400        —        —        11,753,812  
Grade 2
      3,919,053        1,027,546        —        —        4,946,599  
Grade 3
      1,360,908        1,412,951        —        —        2,773,859  
Grade 4
      82,565        608,250        —        —        690,815  
Grade 5
      1,267        130,712        527,256        —        659,235  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       16,004,205        4,292,859        527,256        —        20,824,320  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       385,307,767        32,788,523        3,488,038        —        421,584,328  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Loans measured at fair value through other comprehensive income
 
                  
Corporate
 
                  
Grade 1
      233,868        —        —        —        233,868  
Grade 2
      79,736        —        —        —        79,736  
Grade 3
     
—
        —        —        —        —  
Grade 4
      —        —        —        —        —  
Grade 5
      —        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       313,604        —        —        —        313,604  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       313,604        —        —        —        313,604  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 385,621,371      ￦ 32,788,523      ￦ 3,488,038      ￦ —      ￦ 421,897,932  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
F-55
               
    
December 31, 2022
  
    
12-month

expected credit
losses
     
Lifetime expected credit losses
     
Not applying
expected credit
losses
     
Total
  
  
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Loans measured at amortized cost*
 
                           
Corporate
                                             
Grade 1
    ￦ 134,487,020      ￦ 5,877,660      ￦ 3,372      ￦ —      ￦ 140,368,052  
Grade 2
      65,627,866        8,585,346        4,480        —        74,217,692  
Grade 3
      4,054,715        3,221,267        14,693        —        7,290,675  
Grade 4
      570,670        922,748        34,298        —        1,527,716  
Grade 5
      11,910        419,058        1,959,706        —        2,390,674  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       204,752,181        19,026,079        2,016,549        —        225,794,809  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Retail
                                             
Grade 1
      168,460,089        4,240,281        11,286        —        172,711,656  
Grade 2
      7,697,699        3,846,756        32,877        —        11,577,332  
Grade 3
      4,319,404        1,477,076        25,599        —        5,822,079  
Grade 4
      293,828        313,999        32,330        —        640,157  
Grade 5
      25,672        670,642        837,187        —        1,533,501  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       180,796,692        10,548,754        939,279        —        192,284,725  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Credit card
                                             
Grade 1
      11,547,014        1,316,136        —        —        12,863,150  
Grade 2
      4,390,211        1,214,946        —        —        5,605,157  
Grade 3
      1,142,362        1,925,145        —        —        3,067,507  
Grade 4
      2,227        302,736        —        —        304,963  
Grade 5
      666        173,049        595,101        —        768,816  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       17,082,480        4,932,012        595,101        —        22,609,593  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       402,631,353        34,506,845        3,550,929        —        440,689,127  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Loans measured at fair value through other comprehensive income
 
         
Corporate
                                             
Grade 1
      303,317        —        —        —        303,317  
Grade 2
      59,827        —        —        —        59,827  
Grade 3
      —        —        —        —        —  
Grade 4
      —        —        —        —        —  
Grade 5
      —        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       363,144        —        —        —        363,144  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       363,144        —        —        —        363,144  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 402,994,497      ￦ 34,506,845      ￦ 3,550,929      ￦ —      ￦ 441,052,271  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Before netting of allowance
 
F-56
Credit qualities of loans graded according to internal credit ratings as of December 31, 2021 and 2022, are as follows:
 
    
Range of probability
of default (%)
   
Retail
   
Corporate
Grade 1
    0.0 ~ 1.0    1 ~ 5 grade    AAA ~ BBB+
Grade 2
    1.0 ~ 5.0    6 ~ 8 grade    BBB ~ BB
Grade 3
    5.0 ~ 15.0    9 ~ 10 grade   
BB-
~ B
Grade 4
        15.0 ~ 30.0        11 grade   
B-
~ CCC
Grade 5
    30.0 ~    12 grade or under    CC or under
4.2.4.2 Quantification of the extent to which collateral and other credit enhancements mitigate credit risk of loans as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
12-month

expected credit
losses
     
Lifetime expected credit losses
     
Total
  
    
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Guarantees
    ￦ 90,696,507      ￦ 6,604,758      ￦ 396,097      ￦ 97,697,362  
Deposits and savings
      5,723,090        98,389        79,229        5,900,708  
Property and equipment
      13,205,822        597,251        319,697        14,122,770  
Real estate
      182,139,890        13,736,634        1,990,847        197,867,371  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 291,765,309      ￦ 21,037,032      ￦ 2,785,870      ￦ 315,588,211  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
December 31, 2022
  
    
12-month

expected credit
losses
     
Lifetime expected credit losses
     
Total
  
    
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Guarantees
    ￦ 100,396,614      ￦ 7,060,738      ￦ 301,688      ￦ 107,759,040  
Deposits and savings
      6,206,646        141,016        51,297        6,398,959  
Property and equipment
      14,648,523        1,002,291        180,103        15,830,917  
Real estate
      190,604,649        15,720,019        1,706,308        208,030,976  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 311,856,432      ￦ 23,924,064      ￦ 2,239,396      ￦ 338,019,892  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-57
4.2.5 Credit risk of securities
Credit qualities of securities exposed to credit risk other than equity securities among financial investments as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
12-month

expected credit
losses
     
Lifetime expected credit
losses
     
Not applying
expected credit
losses
     
Total
  
  
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Securities measured at amortized cost*
 
Grade 1
    ￦ 43,427,028      ￦ —      ￦ —      ￦ —      ￦ 43,427,028  
Grade 2
      1,039,757        —        —        —        1,039,757  
Grade 3
      1,371        7,641        —        —        9,012  
Grade 4
      —        —        —        —        —  
Grade 5
      —        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       44,468,156        7,641        —        —        44,475,797  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     
Securities measured at fair value through other comprehensive income
 
                  
Grade 1
      51,490,960        —        —        —        51,490,960  
Grade 2
      4,682,582        —        —        —        4,682,582  
Grade 3
      42,861        3,973        —        —        46,834  
Grade 4
      39,135        —        —        —        39,135  
Grade 5
      —        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       56,255,538        3,973        —        —        56,259,511  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 100,723,694      ￦ 11,614      ￦ —      ￦ —      ￦ 100,735,308  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
   
    
December 31, 2022
  
    
12-month

expected credit
losses
     
Lifetime expected credit
losses
     
Not applying
expected credit
losses
     
Total
  
  
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Securities measured at amortized cost*
 
Grade 1
    ￦ 56,448,267      ￦ —      ￦ —      ￦ —      ￦ 56,448,267  
Grade 2
      1,845,339        —        —        —        1,845,339  
Grade 3
      1,288        —        —        —        1,288  
Grade 4
      —        —        —        —        —  
Grade 5
      —        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       58,294,894        —        —        —        58,294,894  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     
Securities measured at fair value through other comprehensive income
 
                  
Grade 1
      51,281,790        —        —        —        51,281,790  
Grade 2
      4,180,121        53,861        —        —        4,233,982  
Grade 3
      66,797        9,169        —        —        75,966  
Grade 4
      13,941        4,640        —        —        18,581  
Grade 5
      —        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       55,542,649        67,670        —        —        55,610,319  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 113,837,543      ￦ 67,670      ￦ —      ￦ —      ￦ 113,905,213  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Before netting of allowance
 
F-58
Credit qualities of securities other than equity securities, according to the credit ratings by external credit rating agencies as of December 31, 2021 and 2022, are as follows:
 
   
Domestic
    
Foreign
  
Credit quality
  
KIS
    
NICE P&I
    
KAP
    
FnPricing Inc.
    
S&P
    
Fitch-IBCA
    
Moody’s
  
Grade 1
     AA0 to AAA       AA0 to AAA       AA0 to AAA       AA0 to AAA      
A- to AAA
      
A- to AAA
       A3 to Aaa  
Grade 2
    
A
-
to AA-		      
A
-
to AA-		      
A-
to AA-		      
A-
to AA-		      
BBB- to BBB+
      
BBB- to BBB+
       Baa3 to Baa1  
Grade 3
     BBB0 to BBB+       BBB0 to BBB+       BBB0 to BBB+       BBB0 to BBB+       BB to BB+       BB to BB+       Ba2 to Ba1  
Grade 4
     BB0 to BBB-       BB0 to BBB-       BB0 to BBB-       BB0 to BBB-       B+ to BB-      
B
+ to BB-		       B1 to Ba3  
Grade 5
    
BB
-
or under		      
BB-
or under		      
BB-
or under		      
BB-
or under		       B or under       B or under       B2 or under  
Credit qualities of debt securities denominated in Korean won are based on the lowest credit rating by the domestic credit rating agencies above, and those denominated in foreign currencies are based on the lowest credit rating by the foreign credit rating agencies above.
4.2.6 Credit risk of due from financial institutions
Credit qualities of due from financial institutions as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
12-month
expected
credit losses
     
Lifetime expected credit losses
     
Not applying
expected credit
losses
     
Total
  
  
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Due from financial institutions measured at amortized cost*
 
Grade 1
    ￦ 26,548,145      ￦ —      ￦ —      ￦ —      ￦ 26,548,145  
Grade 2
      1,305,539        —        —        —        1,305,539  
Grade 3
      61,177        —        —        —        61,177  
Grade 4
      —        —        —        —        —  
Grade 5
      450,495        —        —        —        450,495  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 28,365,356      ￦ —      ￦ —      ￦ —      ￦ 28,365,356  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
   
    
December 31, 2022
  
    
12-month expected

credit losses
     
Lifetime expected credit losses
     
Not applying

expected credit
losses
     
Total
  
  
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Due from financial institutions measured at amortized cost*
 
Grade 1
    ￦ 27,612,549      ￦ —      ￦ —      ￦ —      ￦ 27,612,549  
Grade 2
      1,428,663        —        —        —        1,428,663  
Grade 3
      —        —        —        —        —  
Grade 4
      —        —        —        —        —  
Grade 5
      462,299        —        —        —        462,299  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 29,503,511      ￦ —      ￦ —      ￦ —      ￦ 29,503,511  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Before netting of allowance
The classification criteria of the credit qualities of due from financial institutions as of December 31, 2021 and 2022, are the same as the criteria for securities other than equity securities.
 
F-59
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4.2.7 Credit risk mitigation of derivative financial instruments
Quantification of the extent to which collateral mitigates credit risk of derivative financial instruments as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 202
1
     
December 31, 202
2
  
    
(In millions of Korean won)
  
Deposits, savings, securities, and others
    ￦ 834,175      ￦ 2,966,923  
4.2.8 Credit risk concentration analysis
4.2.8.1 Classifications of loans by country as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021 *
  
   
Retail
    
Corporate
    
Credit card
    
Total
    
%
    
Allowances
    
Carrying

amount
  
   
(In millions of Korean won)
  
Korea
   ￦ 191,601,232     ￦ 183,222,201     ￦ 20,766,535     ￦ 395,589,968       93.70     ￦ (2,653,256 )    ￦ 392,936,712  
Europe
     —       2,673,817       —       2,673,817       0.63       (29,015 )      2,644,802  
China
     34,982       6,743,756       327       6,779,065       1.61       (34,316 )      6,744,749  
Japan
     86       1,039,453       8       1,039,547       0.25       (2,227 )      1,037,320  
United States
     —       3,555,723       —       3,555,723       0.84       (28,113 )      3,527,610  
Cambodia
     1,985,808       3,115,992       —       5,101,800       1.21       (70,660 )      5,031,140  
Indonesia
     1,666,850       3,710,586       55,520       5,432,956       1.29       (841,145 )      4,591,811  
Others
     618,120       1,374,302       1,930       1,994,352       0.47       (25,323 )      1,969,029  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 195,907,078     ￦ 205,435,830     ￦ 20,824,320     ￦ 422,167,228       100.00     ￦ (3,684,055 )    ￦ 418,483,173  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
   
December 31, 2022 *
  
   
Retail
    
Corporate
    
Credit card
    
Total
    
%
    
Allowances
    
Carrying

amount
  
   
(In millions of Korean won)
  
Korea
   ￦ 186,948,909     ￦ 198,853,096     ￦ 22,562,372     ￦ 408,364,377       92.49     ￦ (3,030,906 )    ￦ 405,333,471  
Europe
     —       4,671,790       —       4,671,790       1.06       (25,689 )      4,646,101  
China
     140,060       6,901,682       363       7,042,105       1.59       (39,025 )      7,003,080  
Japan
     —       1,150,151       46       1,150,197       0.26       (1,755 )      1,148,442  
United States
     —       5,130,629       —       5,130,629       1.16       (18,229 )      5,112,400  
Cambodia
     2,610,472       3,768,170       —       6,378,642       1.44       (73,723 )      6,304,919  
Indonesia
     1,735,571       2,896,037       43,023       4,674,631       1.06       (795,309 )      3,879,322  
Others
     849,713       3,279,960       3,789       4,133,462       0.94       (173,989 )      3,959,473  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 192,284,725     ￦ 226,651,515     ￦ 22,609,593     ￦ 441,545,833       100.00     ￦ (4,158,625 )    ￦ 437,387,208  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
*
Amount includes loans measured at fair value through profit or loss, other comprehensive income, and amortized cost.
 
F-60
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4.2.8.2 Classifications of corporate loans by industry as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Loans
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Financial institutions
    ￦ 22,059,895        10.74      ￦ (32,856 )    ￦ 22,027,039  
Manufacturing
      49,149,918        23.92        (510,762 )      48,639,156  
Service
      86,926,095        42.31        (450,272 )      86,475,823  
Wholesale and retail
      26,862,247        13.08        (257,541 )      26,604,706  
Construction
      5,683,471        2.77        (228,803 )      5,454,668  
Public sector
      2,070,960        1.01        (95,053 )      1,975,907  
Others
      12,683,244        6.17        (311,629 )      12,371,615  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 205,435,830        100.00      ￦ (1,886,916 )    ￦ 203,548,914  
    
 
 
     
 
 
     
 
 
    
 
 
  
 
    
December 31, 2022
  
    
Loans
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Financial institutions
    ￦ 23,603,384        10.41      ￦ (52,108 )    ￦ 23,551,276  
Manufacturing
      53,301,044        23.52        (575,227 )      52,725,817  
Service
      98,306,161        43.37        (479,440 )      97,826,721  
Wholesale and retail
      29,665,900        13.09        (352,211 )      29,313,689  
Construction
      6,909,315        3.06        (228,782 )      6,680,533  
Public sector
      1,903,185        0.84        (84,423 )      1,818,762  
Others
      12,962,526        5.71        (213,204 )      12,749,322  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 226,651,515        100.00      ￦ (1,985,395 )    ￦ 224,666,120  
    
 
 
     
 
 
     
 
 
    
 
 
  
4.2.8.3 Classifications of retail loans and credit card receivables as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Loans
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Housing loan
    ￦ 93,695,479        43.23      ￦ (71,424 )    ￦ 93,624,055  
General loan
      102,211,599        47.16        (933,571 )      101,278,028  
Credit card
      20,824,320        9.61        (792,144 )      20,032,176  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 216,731,398        100.00      ￦ (1,797,139 )    ￦ 214,934,259  
    
 
 
     
 
 
     
 
 
    
 
 
  
 
    
December 31, 2022
  
    
Loans
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Housing loan
    ￦ 94,625,388        44.03      ￦ (162,446 )    ￦ 94,462,942  
General loan
      97,659,337        45.45        (1,172,942 )      96,486,395  
Credit card
      22,609,593        10.52        (837,842 )      21,771,751  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 214,894,318        100.00      ￦ (2,173,230 )    ￦ 212,721,088  
    
 
 
     
 
 
     
 
 
    
 
 
  
 
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4.2.8.4 Classifications of due from financial institutions, securities other than equity securities, and derivative financial assets by industry as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Amount
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Due from financial institutions measured at amortized cost
 
Finance and insurance
    ￦ 28,365,356        100.00      ￦ (2,969 )    ￦ 28,362,387  
    
 
 
     
 
 
     
 
 
    
 
 
  
       28,365,356        100.00        (2,969 )      28,362,387  
    
 
 
     
 
 
     
 
 
    
 
 
  
Due from financial institutions measured at fair value through profit or loss
 
Finance and insurance
      200,742        100.00        —       200,742  
    
 
 
     
 
 
     
 
 
    
 
 
  
       200,742        100.00        —       200,742  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through profit or loss
 
Government and government funded institutions
      16,101,187        25.56        —       16,101,187  
Finance and insurance
      35,025,800        55.59        —       35,025,800  
Others
      11,875,705        18.85        —       11,875,705  
    
 
 
     
 
 
     
 
 
    
 
 
  
       63,002,692        100.00        —       63,002,692  
    
 
 
     
 
 
     
 
 
    
 
 
  
Derivative financial assets
 
Government and government funded institutions
      6,985        0.19        —       6,985  
Finance and insurance
      3,554,783        95.52        —       3,554,783  
Others
      159,602        4.29        —       159,602  
    
 
 
     
 
 
     
 
 
    
 
 
  
       3,721,370        100.00        —       3,721,370  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through other comprehensive income
 
Government and government funded institutions
      24,609,458        43.74        —       24,609,458  
Finance and insurance
      22,669,379        40.29        —       22,669,379  
Others
      8,980,674        15.97        —       8,980,674  
    
 
 
     
 
 
     
 
 
    
 
 
  
       56,259,511        100.00        —       56,259,511  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at amortized cost
 
Government and government funded institutions
      31,996,180        71.94        (34 )      31,996,146  
Finance and insurance
      10,450,497        23.50        (3,337 )      10,447,160  
Others
      2,029,120        4.56        (798 )      2,028,322  
    
 
 
     
 
 
     
 
 
    
 
 
  
       44,475,797        100.00        (4,169 )      44,471,628  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 196,025,468               ￦ (7,138 )    ￦ 196,018,330  
    
 
 
              
 
 
    
 
 
  
 
F-62
    
December 31, 2022
  
    
Amount
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Due from financial institutions measured at amortized cost
 
Finance and insurance
    ￦ 29,503,511        100.00      ￦ (2,743 )    ￦ 29,500,768  
    
 
 
     
 
 
     
 
 
    
 
 
  
       29,503,511        100.00        (2,743 )      29,500,768  
    
 
 
     
 
 
     
 
 
    
 
 
  
Due from financial institutions measured at fair value through profit or loss
 
Finance and insurance
      69,469        100.00        —       69,469  
    
 
 
     
 
 
     
 
 
    
 
 
  
       69,469        100.00        —       69,469  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through profit or loss
 
Government and government funded institutions
      15,523,407        25.12        —       15,523,407  
Finance and insurance
      35,904,941        58.11        —       35,904,941  
Others
      10,359,379        16.77        —       10,359,379  
    
 
 
     
 
 
     
 
 
    
 
 
  
       61,787,727        100.00        —       61,787,727  
    
 
 
     
 
 
     
 
 
    
 
 
  
Derivative financial assets
 
Government and government funded institutions
      58,060        0.61        —       58,060  
Finance and insurance
      8,987,835        95.15        —       8,987,835  
Others
      400,239        4.24        —       400,239  
    
 
 
     
 
 
     
 
 
    
 
 
  
       9,446,134        100.00        —       9,446,134  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through other comprehensive income
 
Government and government funded institutions
      25,001,019        44.96        —       25,001,019  
Finance and insurance
      21,034,862        37.83        —       21,034,862  
Others
      9,574,438        17.21        —       9,574,438  
    
 
 
     
 
 
     
 
 
    
 
 
  
       55,610,319        100.00        —       55,610,319  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at amortized cost
 
Government and government funded institutions
      37,167,849        63.76        (31 )      37,167,818  
Finance and insurance
      18,624,970        31.95        (5,306 )      18,619,664  
Others
      2,502,075        4.29        (823 )      2,501,252  
    
 
 
     
 
 
     
 
 
    
 
 
  
       58,294,894        100.00        (6,160 )      58,288,734  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 214,712,054               ￦ (8,903 )    ￦ 214,703,151  
    
 
 
              
 
 
    
 
 
  
 
F-63
Table of Contents
4.2.8.5 Classifications of due from financial institutions, securities other than equity securities, and derivative financial assets by country as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Amount
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Due from financial institutions measured at amortized cost
 
Korea
    ￦ 21,051,229        74.21      ￦ (574 )    ￦ 21,050,655  
United States
      2,875,884        10.14        (136 )      2,875,748  
Others
      4,438,243        15.65        (2,259 )      4,435,984  
    
 
 
     
 
 
     
 
 
    
 
 
  
       28,365,356        100.00        (2,969 )      28,362,387  
    
 
 
     
 
 
     
 
 
    
 
 
  
Due from financial institutions measured at fair value through profit or loss
 
Korea
      200,742        100.00        —       200,742  
    
 
 
     
 
 
     
 
 
    
 
 
  
       200,742        100.00        —       200,742  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through profit or loss
 
Korea
      56,920,225        90.35        —       56,920,225  
United States
      3,334,888        5.29        —       3,334,888  
Others
      2,747,579        4.36        —       2,747,579  
    
 
 
     
 
 
     
 
 
    
 
 
  
       63,002,692        100.00        —       63,002,692  
    
 
 
     
 
 
     
 
 
    
 
 
  
Derivative financial assets
 
Korea
      1,639,657        44.06        —       1,639,657  
United States
      753,896        20.26        —       753,896  
France
      370,787        9.96        —       370,787  
Singapore
      117,964        3.17        —       117,964  
Japan
      96,438        2.59        —       96,438  
Others
      742,628        19.96        —       742,628  
    
 
 
     
 
 
     
 
 
    
 
 
  
       3,721,370        100.00        —       3,721,370  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through other comprehensive income
 
Korea
      51,484,332        91.51        —       51,484,332  
United States
      1,417,898        2.52        —       1,417,898  
Others
      3,357,281        5.97        —       3,357,281  
    
 
 
     
 
 
     
 
 
    
 
 
  
       56,259,511        100.00        —       56,259,511  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at amortized cost
 
Korea
      41,912,154        94.24        (3,183 )      41,908,971  
United States
      1,188,427        2.67        (466 )      1,187,961  
Others
      1,375,216        3.09        (520 )      1,374,696  
    
 
 
     
 
 
     
 
 
    
 
 
  
       44,475,797        100.00        (4,169 )      44,471,628  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 196,025,468               ￦ (7,138 )    ￦ 196,018,330  
    
 
 
              
 
 
    
 
 
  
 
F-64
    
December 31, 2022
  
    
Amount
     
%
     
Allowances
    
Carrying amount
  
    
(In millions of Korean won)
  
Due from financial institutions measured at amortized cost
 
Korea
    ￦ 21,765,088        73.77      ￦ (484 )    ￦ 21,764,604  
United States
      2,248,004        7.62        (28 )      2,247,976  
Others
      5,490,419        18.61        (2,231 )      5,488,188  
    
 
 
     
 
 
     
 
 
    
 
 
  
       29,503,511        100.00        (2,743 )      29,500,768  
    
 
 
     
 
 
     
 
 
    
 
 
  
Due from financial institutions measured at fair value through profit or loss
 
Korea
      69,469        100.00        —       69,469  
    
 
 
     
 
 
     
 
 
    
 
 
  
       69,469        100.00        —       69,469  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through profit or loss
 
Korea
      56,691,217        91.75        —       56,691,217  
United States
      2,934,339        4.75        —       2,934,339  
Others
      2,162,171        3.50        —       2,162,171  
    
 
 
     
 
 
     
 
 
    
 
 
  
       61,787,727        100.00        —       61,787,727  
    
 
 
     
 
 
     
 
 
    
 
 
  
Derivative financial assets
 
Korea
      4,830,565        51.14        —       4,830,565  
United States
      1,351,969        14.31        —       1,351,969  
France
      1,281,270        13.56        —       1,281,270  
Singapore
      212,710        2.25        —       212,710  
Japan
      435,592        4.61        —       435,592  
Others
      1,334,028        14.13        —       1,334,028  
    
 
 
     
 
 
     
 
 
    
 
 
  
       9,446,134        100.00        —       9,446,134  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at fair value through other comprehensive income
 
Korea
      51,039,864        91.78        —       51,039,864  
United States
      1,459,063        2.63        —       1,459,063  
Others
      3,111,392        5.59        —       3,111,392  
    
 
 
     
 
 
     
 
 
    
 
 
  
       55,610,319        100.00        —       55,610,319  
    
 
 
     
 
 
     
 
 
    
 
 
  
Securities measured at amortized cost
 
Korea
      51,832,992        88.92        (4,046 )      51,828,946  
United States
      3,919,413        6.72        (1,263 )      3,918,150  
Others
      2,542,489        4.36        (851 )      2,541,638  
    
 
 
     
 
 
     
 
 
    
 
 
  
       58,294,894        100.00        (6,160 )      58,288,734  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 214,712,054               ￦ (8,903 )    ￦ 214,703,151  
    
 
 
              
 
 
    
 
 
  
Due from financial institutions, financial instruments at fair value through profit or loss linked to gold price, and derivative financial instruments are mostly related to the finance and insurance industry with high credit ratings.
 
F-65
Table of Contents
4.3 Liquidity Risk
4.3.1 Overview of liquidity risk
Liquidity risk is a risk that the Group becomes insolvent due to the mismatch between the inflow and outflow of funds, unexpected cash outflows, or a risk of loss due to financing funds at a high interest rate or disposing of securities at an unfavorable price due to lack of available funds. The Group manages its liquidity risk through analysis of the contractual maturity of interest-bearing assets and liabilities, assets and liabilities related to the other inflows and outflows of funds, and
off-balance
sheet items related to the inflows and outflows of funds such as currency derivative instruments and others.
4.3.2 Liquidity risk management and indicator
The liquidity risk is managed by risk management policies and liquidity risk management guidelines set forth in these policies that apply to all risk management policies and procedures that may arise throughout the overall business of the Group.
The Group calculates and manages liquidity ratio and others for all transactions and
off-balance
transactions related to liquidity, that affect the cash flows in Korean won and foreign currency funds raised and operated for the management of liquidity risks and periodically reports them to the Risk Management Committee.
4.3.3 Analysis of remaining contractual maturity of financial liabilities
The cash flows disclosed in the maturity analysis are undiscounted contractual amounts including principal and future interest payments; as such, amounts in the table below do not match with those in the consolidated statements of financial position which are based on discounted cash flows. The future interest payments for floating-rate liabilities are calculated on the assumption that the current interest rate is the same until maturity.
 
F-66
4.3.3.1 Remaining contractual maturity of financial liabilities other than derivatives held for cash flow hedge, and
off-balance
sheet items as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
On demand
    
Up to 1 month
    
1-3
months
    
3-12
months
    
1-5
years
    
Over 5 years
    
Total
  
   
(In millions of Korean won)
  
Financial liabilities
                                                        
Financial liabilities at fair value through profit or loss
1
   ￦ 2,939,584     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 2,939,584  
Financial liabilities designated at fair value through profit or loss
1
     9,149,396       —       —       —       —       —       9,149,396  
Derivatives held for trading
1
     3,509,789       —       —       —       —       —       3,509,789  
Derivatives held for hedging
2
     —       11,355       9,993       31,135       31,640       1,423       85,546  
Deposits
3
     204,616,202       16,556,213       31,123,968       111,140,222       10,157,238       1,329,120       374,922,963  
Borrowings
     8,504,084       17,807,785       5,825,350       13,861,238       10,380,171       1,003,369       57,381,997  
Debentures
     14,528       3,438,621       5,318,699       20,496,869       34,863,044       6,509,966       70,641,727  
Lease liabilities
     139       23,387       42,406       157,536       334,359       50,555       608,382  
Other financial liabilities
     217,874       22,953,515       203,897       354,876       934,389       372,745       25,037,296  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 228,951,596     ￦ 60,790,876     ￦ 42,524,313     ￦ 146,041,876     ￦ 56,700,841     ￦ 9,267,178     ￦ 544,276,680  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Off-balance
sheet items
                                                        
Commitments
4
   ￦ 170,218,143     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 170,218,143  
Acceptances and guarantees contracts
     10,199,689       —       —       —       —       —       10,199,689  
Financial guarantee contracts
5
     6,892,464       —       —       —       —       —       6,892,464  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 187,310,296     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 187,310,296  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
   
December 31, 2022
  
   
On demand
    
Up to 1 month
    
1-3
months
    
3-12
months
    
1-5
years
    
Over 5 years
    
Total
  
   
(In millions of Korean won)
  
Financial liabilities
                                                        
Financial liabilities at fair value through profit or loss
1
   ￦ 2,193,210     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 2,193,210  
Financial liabilities designated at fair value through profit or loss
1
     10,078,394       —       —       —       —       —       10,078,394  
Derivatives held for trading
1
     9,209,537       —       —       —       —       —       9,209,537  
Derivatives held for hedging
2
     —       11,106       8,886       39,174       221,551       3,502       284,219  
Deposits
3
     170,489,726       29,911,835       45,245,496       131,765,097       17,979,299       1,129,024       396,520,477  
Borrowings
     7,831,474       23,821,330       7,676,952       19,120,861       12,839,302       1,159,432       72,449,351  
Debentures
     11,117       4,011,679       8,353,663       20,995,587       33,216,320       6,485,136       73,073,502  
Lease liabilities
     164       28,079       45,200       171,449       376,159       2,839       623,890  
Other financial liabilities
     179,241       17,938,781       368,218       447,898       907,643       428,310       20,270,091  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 199,992,863     ￦ 75,722,810     ￦ 61,698,415     ￦ 172,540,066     ￦ 65,540,274     ￦ 9,208,243     ￦ 584,702,671  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Off-balance
sheet items
                                                        
Commitments
4
   ￦ 188,168,340     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 188,168,340  
Acceptances and guarantees contracts
     12,425,753       —       —       —       —       —       12,425,753  
Financial guarantee contracts
5
     8,297,042       —       —       —       —       —       8,297,042  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 208,891,135     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 208,891,135  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
1
 
Financial liabilities measured or designated at fair value through profit or loss and derivatives held for trading are not managed by contractual maturity because they are expected to be traded or redeemed before maturity. Therefore, the carrying amounts of those financial instruments are included in the ‘On demand’ category.
2
Cash flows of derivatives held for hedging are shown at net amount of cash inflows and outflows by remaining contractual maturity.
3
Deposits that are contractually repayable on demand or on short notice are included in the ‘On demand’ category.
4
Commitments are included in the ‘On demand’ category because payments can be requested at any time.
5
Cash flows under financial guarantee contracts are classified based on the earliest period that the contract can be executed.
 
F-67
4.3.3.2 Contractual cash flows of derivatives held for cash flow hedge as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
Up to
1 month
    
1-3
months
    
3-12
months
    
1-5
years
    
Over 5 years
    
Total
  
   
(In millions of Korean won)
  
Cash flow to be received (paid) of
net-settled
derivatives
   ￦ (102 )    ￦ (2,647 )    ￦ (252 )    ￦ 24,812     ￦ (11 )    ￦ 21,800  
Cash flow to be received of gross-settled derivatives
     126,429       325,664       619,100       2,084,618       —       3,155,811  
Cash flow to be paid of gross-settled derivatives
     (130,919 )      (329,546 )      (630,023 )      (1,428,759 )      —       (2,519,247 ) 
   
   
December 31, 2022
  
   
Up to
1 month
    
1-3
months
    
3-12
months
    
1-5
years
    
Over 5 years
    
Total
  
   
(In millions of Korean won)
  
Cash flow to be received (paid) of
net-settled
derivatives
   ￦ 1,534     ￦ 10,994     ￦ 25,749     ￦ 119,179     ￦ 3,526     ￦ 160,982  
Cash flow to be received of gross-settled derivatives
     10,932       30,311       1,003,755       2,894,502       —       3,939,500  
Cash flow to be paid of gross-settled derivatives
     (10,357 )      (54,794 )      (1,007,950 )      (2,255,613 )      —       (3,328,714 ) 
4.4 Market Risk
4.4.1 Concept
Market risk refers to risks that can result in losses due to changes in market factors such as interest rate, stock price, and foreign exchange rate, etc., which arise from securities, derivatives, and others. The most significant risks associated with trading positions are interest rate risk, currency risk, and additional risks include stock price risk. The
non-trading
position is also exposed to interest rate risk. The Group manages the market risks by dividing them into those arising from the trading position and those arising from the
non-trading
position. The above market risks are measured and managed by each subsidiary.
4.4.2 Risk management
The Group sets and monitors internal capital limits for market risk and interest rate risk to manage the risks of trading and
non-trading
positions. In order to manage market risk efficiently, the Group maintains risk management systems and procedures such as trading policies and procedures, market risk management guidelines for trading positions, and interest rate risk management guidelines for
non-trading
positions. The entire process is carried out through consultation with the Risk Management Council and approval by the Risk Management Committee of the Group.
In the case of Kookmin Bank, a major subsidiary, the Risk Management Council establishes and enforces overall market risk management policies for market risk management and decides to establish position limits, loss limits, VaR limits, and approves
non-standard
new products. In addition, the Market Risk Management Subcommittee, chaired by Chief Risk Officer (“CRO”), is a practical decision-making body for market risk management and determines position limits, loss limits, VaR limits, sensitivity limits, and scenario loss limits for each department of the business group.
 
F-68
Kookmin Bank’s Asset-Liability Management Committee (“ALCO”) determines interest rate and commission operating standards and Asset Liability Management (“ALM”) operation policies and enacts and revises relevant guidelines. The Risk Management Committee and the Risk Management Council monitor the establishment and enforcement of ALM risk management policies and enact and revise ALM risk management guidelines. Interest rate risk limits are set based on future asset and liability positions and expected interest rate volatility, which reflect annual business plans. The ALM Department and the Risk Management Department regularly measure and monitor interest rate risk and report the status and limit of interest rate risk including changes in Economic Value of Equity (“ΔEVE”), changes in Net Interest Income (“ΔNII”), and duration gap to the ALCO and the Risk Management Council on a monthly basis, and to the Risk Management Committee on a quarterly basis. To ensure the adequacy of interest rate risk and liquidity risk management, the Risk Management Department assigns the limits, monitors and reviews the procedures and tasks of ALM operations conducted by the ALM department, and reports related matters to the management independently.
Kookmin Bank is closely monitoring the outputs of various industry groups and markets that manage the transition to the new interest rate benchmark, including announcements by LIBOR regulation authority and various consultative bodies related to the transition to alternative interest rate. In response to these announcements, Kookmin Bank has completed most of the transition and replacement plans according to LIBOR transition programs and plans consisting of major business areas such as finance, accounting, tax, legal, IT, and risk. The program is under the control of the CFO and related matters are reported to the board of directors and consultative bodies with senior management as members. Kookmin Bank continues its efforts as a market participant to actively express opinions so that the index interest rate benchmark reform can be carried out in the direction of minimizing the financial and
non-financial
impacts and operational risks and minimizing confusion among stakeholders.
Details of financial instruments that have not been converted to alternative interest rate benchmark as of December 31, 202
2
, are as follows:
 
    
December 31, 2022
  
    
Exposure amount*
  
    
USD LIBOR
  
        
    
(In millions of Korean won)
  
Measured at fair value:
         
Financial assets at fair value through profit or loss
    ￦ —  
Financial liabilities designated at fair value through profit or loss
      —  
Financial investments
      22,800  
Measured at amortized cost:
         
Loans
      1,954,327  
Borrowings and debentures
      531,334  
Others:
         
Derivative financial instruments
      290,423  
 
*
Financial instruments to be expired before transition to alternative interest rate benchmark are excluded.
4.4.3 Trading position
4.4.3.1 Definition of a trading position
The trading position, which is subject to market risk management, is the trading position defined in “Trading Policy and Guidelines” and the basic requirements for the trading position are as follows:
 
  •  
The target position has no restrictions on the sale, and the daily fair value assessment should be made, and the embedded significant risk can be hedged in the market.
 
F-69
  •  
The trading position classification criteria should be clearly defined in the Trading Policy and Guidelines, and the trading position should be managed by a separate trading department.
 
  •  
The target position must be operated according to the documented trading strategy and the management of position limit must be carried out.
 
  •  
The specialized dealer or operating department shall have the authority to execute the transaction without prior approval from the Risk Management Department, etc. within the predetermined limits of the target position.
 
  •  
The target positions should be periodically reported to management for risk management of the Group.
4.4.3.2 Observation method of market risk arising from trading positions
Subsidiaries of the Group measure market risk by calculating VaR through the market risk management system for all trading positions. Generally, the Group manages market risk arising from trading positions at the portfolio level. In addition, the Group controls and manages the risk of derivative financial instrument transactions in accordance with the Financial Supervisory Service regulations and guidelines.
4.4.3.3 VaR
(a) VaR
Kookmin Bank, a major subsidiary, uses the risk-based valuation method (VaR) to measure the market risk of the trading position. Kookmin Bank uses the
10-day
VaR, which represents the maximum amount of possible loss of 10 business days based on the historical simulation model of the full valuation method. The distribution of value changes in the portfolio is estimated based on data from the past 250 business days, and
10-day
VaR is calculated by the difference between the value of the portfolio at a 99% confidence level of distribution of value changes in the portfolio and the current market value.
VaR is a commonly used market risk measurement technique. However, this approach has some limitations. VaR estimates possible losses under a certain confidence level based on historical market change data. However, since past market changes cannot reflect all future conditions and circumstances, the timing and magnitude of actual losses may vary depending on assumptions in the calculation process. If one day or ten days of the holding period which is generally used for the normal period of liquidating the position, is not sufficient or too long, the VaR result may underestimate or overestimate the potential loss.
When a subsidiary with a trading position measures market risk for trading position, it uses an internal model (VaR) for general risk and a standard method for individual risks. Standard method is used if the internal model is not authorized for certain market risk. Therefore, disclosed market risk VaR does not reflect the market risk for individual risks and for some positions. In addition,
non-bank
subsidiaries use the same standard method as the regulatory capital calculation method in order to enhance the effectiveness of market risk VaR management (improving the link with regulatory capital).
(b) Back-Testing
To verify the appropriateness of the VaR model, back-testing is performed by comparing actual and hypothetical gains and losses with the VaR calculation results.
(c) Stress Testing
The Group carries out stress testing of the trading and
available-for-sale
portfolio to reflect changes in individual risk factors such as interest rate, stock price, foreign exchange rate, and implied volatility of derivatives that have a significant impact on portfolio value in a crisis. The Group carries out stress testing through historical and hypothetical scenarios. This stress testing is carried out at least once a year.
 
F-70
Ten-day
VaR at a 99% confidence level of interest rate risk, stock price risk, and currency risk for trading positions of Kookmin Bank for the years ended December 31, 2021 and 2022, are as follows:
Kookmin Bank
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦  20,051      ￦  6,372      ￦  55,670      ￦ 16,534  
Stock price risk
      9,067        4,537        24,824        5,513  
Currency risk
      27,886        17,820        49,264        21,522  
Diversification effect
                                 (13,039 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Total VaR
    ￦   40,915      ￦   15,986      ￦    115,347      ￦      30,530  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦ 34,923      ￦ 16,541      ￦ 64,356      ￦ 47,093  
Stock price risk
      8,606        5,142        11,061        9,407  
Currency risk
      24,054        14,428        41,815        41,189  
Diversification effect
                                 (5,140 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Total VaR
    ￦   49,701      ￦   22,144      ￦      99,436      ￦      92,549  
    
 
 
     
 
 
     
 
 
     
 
 
  
Meanwhile, the positions which are not measured by VaR as of December 31, 2021 and 2022 and required equity capital of
non-bank
subsidiaries using the standard method for the years ended December 31, 2021 and 2022, are as follows:
Kookmin Bank
 
    
December 31,

2021
     
December 31,

2022
  
               
    
(In millions of Korean won)
  
Interest rate risk
    ￦  25,432      ￦ 18,545  
Stock price risk
      6        4,686   
Currency risk
      46,173        70,757  
    
 
 
     
 
 
  
     ￦       71,611      ￦      93,988  
    
 
 
     
 
 
  
KB Securities Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦ 724,482      ￦ 657,094      ￦ 821,864      ￦ 821,864  
Stock price risk
      249,320        207,425        299,221        278,356  
Currency risk
      14,275        6,808        22,543        22,543  
Commodity risk
      88        3        210        19  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 988,165      ￦ 871,330      ￦ 1,143,838      ￦ 1,122,782  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-71
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦ 828,772      ￦ 755,379      ￦ 873,861      ￦ 755,379  
Stock price risk
      212,679        150,149        297,812        171,592  
Currency risk
      24,002        14,938        34,109        34,109  
Commodity risk
      116        41        229        41  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 1,065,569      ￦    920,507      ￦ 1,206,011      ￦ 961,121  
    
 
 
     
 
 
     
 
 
     
 
 
  
KB Insurance Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦ 5,445      ￦ 3,854      ￦ 6,553      ￦ 5,906  
Currency risk
      34,560        28,035        40,853        40,853  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦      40,005      ￦      31,889      ￦      47,406      ￦   46,759  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦ 4,728      ￦ 3,159      ￦ 6,450      ￦ 3,159  
Currency risk
           28,413             14,768             39,701          14,768  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 33,141      ￦ 17,927      ￦ 46,151      ￦ 17,927  
    
 
 
     
 
 
     
 
 
     
 
 
  
KB Kookmin Card Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦      13,029      ￦        7,744      ￦      16,094      ￦   15,637  
 
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦      18,430      ￦      16,483      ￦      21,890      ￦   21,341  
KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦        4,676      ￦        1,337      ￦        7,211      ￦     6,963  
 
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦        4,253      ￦           853      ￦        8,931      ￦     8,931  
 
F-72
KB Asset Management Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦ 2,151      ￦ 1,053      ￦   3,085      ￦   2,405  
   
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦   2,426      ￦   1,607      ￦   2,823      ￦   2,455  
KB Capital Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦   1,121      ￦      867      ￦   1,280      ￦   1,280  
   
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Currency risk
    ￦   1,905      ￦   1,298      ￦   2,128      ￦   2,045  
KB Life Insurance Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦ 2,095      ￦ 1,072      ￦ 2,932      ￦ 1,072  
Currency risk
      4,216        1,725        6,651        6,378  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦   6,311      ￦   2,797      ￦   9,583      ￦   7,450  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Interest rate risk
    ￦ 545      ￦ —      ￦ 1,476      ￦ —  
Currency risk
      4,355        993        6,799        993  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦   4,900      ￦      993      ￦   8,275      ￦      993  
    
 
 
     
 
 
     
 
 
     
 
 
  
KB Investment Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Stock price risk
    ￦ 5,114      ￦ 3,518      ￦ 10,518      ￦ 10,518  
Currency risk
      13,706        11,269        18,452        18,301  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 18,820      ￦ 14,787      ￦ 28,970      ￦ 28,819  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-73
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Stock price risk
    ￦ 9,406      ￦ 8,002      ￦ 10,685      ￦ 8,438  
Currency risk
      21,993        18,883        24,384        21,727  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 31,399      ￦ 26,885      ￦ 35,069      ￦ 30,165  
    
 
 
     
 
 
     
 
 
     
 
 
  
KB Data System Co., Ltd.
 
    
2021
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2021
  
                             
    
(In millions of Korean won)
  
Stock price risk

    ￦      177      ￦      —      ￦      231      ￦      231  
   
    
2022
  
    
Average
     
Minimum
     
Maximum
     
Dec. 31, 2022
  
                             
    
(In millions of Korean won)
  
Stock price risk

    ￦      198      ￦      155      ￦      228      ￦      155  
4.4.3.4 Details of risk factors
(a) Interest rate risk
Interest rate risk for trading positions usually arises from debt securities denominated in Korean won. The Group’s trading strategy is to gain short-term trading gains from interest rate fluctuations. The Group manages interest rate risk associated with trading accounts using VaR and sensitivity analysis (Price Value of a Basis Point: PVBP).
(b) Stock price risk
Stock price risk occurs mainly in trading stocks denominated in Korean won. The portfolio of trading stocks denominated in Korean won consists of stocks listed on the exchange and derivatives linked to stocks and is managed by strict distributed investment limits.
(c) Currency risk
Currency risk arises from holding assets and liabilities which are denominated in foreign currency, and currency-related derivatives. Most of the net foreign currency exposures occur in the US dollars and the Chinese Yuan. The Group also manages net foreign exchange exposures across trading and
non-trading
portfolios by setting a net foreign currency exposure limit at the same time setting a loss limit.
4.4.4
Non-trading
position (Interest Rate Risk of Banking Book (“IRRBB”))
4.4.4.1 Qualitative disclosure
(a) Definition of interest rate risk for risk management and measurement purposes
Interest rate risk is a change in equity and earnings due to the changes in value of interest-sensitive assets and liabilities, etc., and is measured by ΔEVE and ΔNII.
 
F-74
(b) Overall interest rate risk management and mitigation strategy
The interest rate risk management department establishes and sets interest rate risk management policies and limit once a year by a resolution of the Risk Management Council considering the mid to long-term management strategy and macroeconomic status. The interest rate risk management department analyzes interest rate risk crisis situations assuming abnormal interest rate fluctuations and reports the results to the Risk Management Council and observes changes in interest rate risk and compliance with risk limits to devise timely countermeasures and reports the management status regularly and frequently to the Risk Management Council. The interest rate risk model adequacy test is carried out regularly at least once a year by the verification department independent of the management department.
(c) Specific methodologies used to calculate interest rate risk measurement cycles and sensitivity
In order to measure the sensitivity of the economic value and earnings to changes in interest rates, the Group calculates monthly interest rate gap and duration gap for assets and liabilities.
(d) Interest rate shock and stress scenarios used to estimate changes in the economic value and in earnings
The Group calculates ΔEVE by applying following six interest rate shock and stress scenarios, and ΔNII by applying parallel shock up and parallel shock down scenarios.
 
  •  
Scenario 1 : Parallel shock up
 
  •  
Scenario 2 : Parallel shock down
 
  •  
Scenario 3 : Steepener shock (short rates down and long rates up)
 
  •  
Scenario 4 : Flattener shock (short rates up and long rates down)
 
  •  
Scenario 5 : Short rates shock up
 
  •  
Scenario 6 : Short rates shock down
(e) Key modeling assumptions used separately
The Group calculates interest rate risk for internal management purpose, assuming a historical-simulation based on interest rate volatility during the past financial crisis (FY2008-FY2009), distribution of assets/liabilities portfolio, and 27 interest rate gaps considering management strategy direction.
(f) Interest rate risk hedging methodology and related accounting
Subsidiaries which are subject to interest rate risk measurement hedges interest rate risk through
back-to-back
interest rate swap transactions, which are the same as interest payment cash flows and officially document and manage the risk management strategy for hedge accounting, risk management objectives, hedging relationship, and assessment method for hedge effectiveness.
(g) Key modeling and parametric assumptions used in calculating ΔEVE and ΔNII
Subsidiaries which are subject to interest rate risk measurement calculate interest rate risk, including all cash flow of interest-sensitive assets and liabilities, and
off-balance
sheet items. The main assumptions of the IRRBB standard method for calculating ΔEVE, ΔNII are as follows:
 
F-75
(Classification of time buckets of cash flows (19 buckets in total))
 
   
Time bucket intervals (D:Day M:Months Y:Years t
cf
:Repricing date)
Short-term rates
   1D
(0.0028Y)
   1D< t
cf
≤1M
(0.0417Y)
   1M< t
cf
≤3M
(0.1667Y)
   3M< t
cf
≤6M
(0.375Y)
   6M< t
cf
≤9M
(0.625Y)
   9M< t
cf
≤1Y
(0.875Y)
   1Y< t
cf
≤1.5Y
(1.25Y)
   1.5Y< t
cf
≤2Y
(1.75Y)
                 
Medium-term rates
   2Y< t
cf
≤3Y
(2.5Y)
   3Y< t
cf
≤4Y
(3.5Y)
   4Y< t
cf
≤5Y
(4.5Y)
   5Y< t
cf
≤6Y
(5.5Y)
   6Y< t
cf
≤7Y
(6.5Y)
            
                 
Long-term rates
   7Y< t
cf
≤8Y
(7.5Y)
   8Y< t
cf
≤9Y
(8.5Y)
   9Y< t
cf
≤10Y
(9.5Y)
   10Y< t
cf
≤15Y
(12.5Y)
   15Y< t
cf

≤20Y
(17.5Y)
   t
cf
>20Y
(25Y)
        
 
*
The number in brackets is the time bucket’s midpoint.
(Caps on core deposit and average maturity by category for
non-maturity
deposits)
 
    
Cap on proportion of

core deposits (%)
     
Cap on average maturity of

core deposits (years)
  
               
Retail/transactional
      90        5  
Retail/non-transactional
      70        4.5  
Wholesale
      50        4  
4.4.4.2 Quantitative disclosure
The average repricing maturity of
non-maturity
deposits is 2.5 years for core deposits, 1 day for
non-core
deposits, and the longest repricing maturity is five years.
(a) Kookmin Bank
ΔEVE is calculated by applying six interest rate shock and stress scenarios, and ΔNII is calculated by applying parallel shock up and parallel shock down scenarios. Results as of December 31, 2021 and 2022 are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
     Δ
EVE
      Δ
NII
      Δ
EVE
      Δ
NII
  
                             
    
(In millions of Korean won)
  
Scenario 1 (Parallel shock up)
    ￦     936,965      ￦     564,771      ￦     165,634      ￦     162,959  
Scenario 2 (Parallel shock down)
      —        —        290,330        —  
Scenario 3 (Short rates down, long rates up)
      273,951       
       266,737       
 
Scenario 4 (Short rates up, long rates down)
      311,497       
       268,261       
 
Scenario 5 (Short rates shock up)
      568,246       
       288,737       
 
Scenario 6 (Short rates shock down)
      345,987       
       132,998       
 
Maximum out of six scenarios
      936,965        564,771        290,330        162,959  
Basic capital
      30,491,173                 31,176,032           
 
F-76
Table of Contents
(b)
Non-bank
subsidiaries
ΔEVE is maximum out of six interest rate shock and stress scenarios, and ΔNII is maximum of parallel shock up and parallel shock down scenarios. Results as of December 31, 2021 and 2022 are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
     Δ
EVE
      Δ
NII
      Δ
EVE
      Δ
NII
  
                             
    
(In millions of Korean won)
  
KB Securities Co., Ltd.
    ￦      173,199      ￦     272,676      ￦      37,498      ￦     242,200  
KB Insurance Co., Ltd.
      939,720        37,119        182,310        44,405  
KB Kookmin Card Co., Ltd.
      93,232        225,581        96,282        244,602  
KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
      611,930        24,135        354,982        24,609  
KB Capital Co., Ltd.
      105,728        41,112        126,535        50,800  
KB Life Insurance Co., Ltd.
      143,393        33,942        73,277        35,645  
KB Savings Bank Co., Ltd.
      20,077        786        5,320        14,976  
4.4.5 Financial assets and liabilities denominated in foreign currencies
Details of financial instruments denominated in foreign currencies and translated into Korean won as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
USD
    
JPY
    
EUR
    
GBP
    
CNY
    
Others
    
Total
  
                                           
   
(In millions of Korean won)
  
Financial assets
                                                        
Cash and due from financial institutions
   ￦ 6,995,653     ￦ 420,964     ￦ 482,144     ￦ 96,951     ￦ 570,186     ￦ 1,646,253     ￦ 10,212,151  
Financial assets at fair value through profit or loss
     7,217,843       12,047       514,047       11,024       16,113       261,029       8,032,103  
Derivatives held for trading
     222,759       221       44,384       534       5,549       21,762       295,209  
Derivatives held for hedging
     104,091       —       —       —       —       4,541       108,632  
Loans measured at amortized cost
     26,605,737       597,413       1,777,967       234,612       1,774,589       6,518,650       37,508,968  
Financial assets at fair value through other comprehensive income
     6,604,010       5,152       121,573       6,272       536,747       405,391       7,679,145  
Financial assets at amortized cost
     2,267,233       —       300,856       —       48,435       710,950       3,327,474  
Other financial assets
     1,893,691       37,036       100,041       7,082       69,307       252,337       2,359,494  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 51,911,017     ￦ 1,072,833     ￦ 3,341,012     ￦ 356,475     ￦ 3,020,926     ￦ 9,820,913     ￦ 69,523,176  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Financial liabilities
                                                        
Financial liabilities at fair value through profit or loss
   ￦ 1,496,712     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 1,496,712  
Derivatives held for trading
     376,230       6,099       61,941       19,833       18,223       117,217       599,543  
Derivatives held for hedging
     42,470       —       —       —       —       —       42,470  
Deposits
     21,324,104       900,044       1,873,026       106,456       1,943,015       5,402,000       31,548,645  
Borrowings
     15,597,440       456,029       386,023       496,084       —       2,176,532       19,112,108  
Debentures
     6,366,475       —       1,338,391       —       102,443       708,353       8,515,662  
Other financial liabilities
     1,834,429       23,158       140,779       16,543       93,933       211,516       2,320,358  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 47,037,860     ￦ 1,385,330     ￦ 3,800,160     ￦ 638,916     ￦ 2,157,614     ￦ 8,615,618     ￦ 63,635,498  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Off-balance
sheet items
   ￦ 19,149,581     ￦ 353     ￦ 262,116     ￦ 2,991     ￦ 250,239     ￦ 844,384     ￦ 20,509,664  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-77
   
December 31, 2022
  
   
USD
    
JPY
    
EUR
    
GBP
    
CNY
    
Others
    
Total
  
                                           
   
(In millions of Korean won)
  
Financial assets
                                                        
Cash and due from financial institutions
   ￦ 6,334,501     ￦ 461,826     ￦ 456,888     ￦ 97,502     ￦ 645,271     ￦ 2,324,691     ￦ 10,320,679  
Financial assets at fair value through profit or loss
     6,098,956       2,443       601,726       59,263       7,110       330,779       7,100,277  
Derivatives held for trading
     636,456       159       10,412       10       19,053       167,796       833,886  
Derivatives held for hedging
     251,522       —       —       —       —       22,522       274,044  
Loans measured at amortized cost
     32,995,825       683,705       2,813,855       755,912       1,944,500       6,596,283       45,790,080  
Financial assets at fair value through other comprehensive income
     5,326,003       —       9,091       5,677       556,052       972,787       6,869,610  
Financial assets at amortized cost
     5,841,305       —       322,755       37,816       60,013       1,316,707       7,578,596  
Other financial assets
     1,878,542       292,727       360,469       25,289       116,049       368,272       3,041,348  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 59,363,110     ￦ 1,440,860     ￦ 4,575,196     ￦ 981,469     ￦ 3,348,048     ￦ 12,099,837     ￦ 81,808,520  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Financial liabilities
                                                        
Financial liabilities at fair value through profit or loss
   ￦ 1,143,413     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 1,143,413  
Derivatives held for trading
     893,781       9,016       81,119       17,072       6,868       264,833       1,272,689  
Derivatives held for hedging
     130,784       —       —       —       —       —       130,784  
Deposits
     25,706,364       1,339,119       1,429,567       344,824       2,307,068       5,238,485       36,365,427  
Borrowings
     19,700,039       458,856       446,968       588,324       266,727       2,442,313       23,903,227  
Debentures
     7,771,068       —       2,041,517       —       36,288       975,891       10,824,764  
Other financial liabilities
     3,615,838       266,569       190,103       14,521       126,752       435,606       4,649,389  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 58,961,287     ￦ 2,073,560     ￦ 4,189,274     ￦ 964,741     ￦ 2,743,703     ￦ 9,357,128     ￦ 78,289,693  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Off-balance
sheet items
   ￦ 23,777,728     ￦ —     ￦ 243,431     ￦ 102,232     ￦ 220,890     ￦ 774,154     ￦ 25,118,435  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
4.5 Operational Risk
4.5.1 Concept
Operational risk of the Group refers to the risk of loss that may occur due to improper or incorrect internal procedures, personnel, systems or external events. Operational risk management plays a role in enhancing the stability and soundness of financial institutions by managing the appropriate level of capital and supplementing the internal control system.
4.5.2 Risk management
The purpose of operational risk management is not only to comply with supervisory and regulatory requirements, but also to spread risk management culture, strengthen internal control, improve processes, and provide timely feedback to management and all employees. The Parent Company manages the Group’s overall operational risk, and each subsidiary establishes and implements operational risk management policies according to its own risk level and implements and operates related systems. The Group Risk Management Committee establishes and allocates risk capital of operational risk for each subsidiary, and subsidiaries manage operational risks at an appropriate level within the allocated risk capital.
4.6 Capital Management
The Group complies with the capital adequacy standard established by the financial supervisory authority. This capital adequacy standard is based on Basel III revised by Basel Committee on Banking Supervision in Bank for International Settlements (“BIS”) in June 2011 and was implemented in Korea in December 2013. According to this standard, the Group is required to maintain a minimum capital adequacy ratio to risk-weighted assets (Common Equity Tier 1 Capital ratio of 8.0%, Tier 1 Capital ratio of 9.5%, and Total Capital ratio of 11.5%) as of December 31, 2022.
 
F-78
Table of Contents
The Group’s capital is classified into three categories in accordance with the Detailed Regulations on Supervision of Financial Holding Companies as follows:
 
  •  
Common Equity Tier 1 Capital: Common equity Tier 1 Capital is the first to take losses of the Group and is the last to be compensated in liquidation of the Group and not repaid except for liquidation. It includes capital, capital surplus, retained earnings,
non-controlling
interests of the consolidated subsidiaries, accumulated other comprehensive income, and other capital surplus, etc.
 
  •  
Additional Tier 1 Capital: Additional Tier 1 Capital includes capital, capital surplus, etc. related to the issuance of capital securities of a permanent nature that meets the conditional capital securities requirements.
 
  •  
Tier 2 Capital: Tier 2 Capital means capital that can compensate for losses of the Group upon liquidation, including (a) the amount of subordinated bonds with maturity of not less than 5 years that meet the conditional capital securities requirements, and (b) the allowances for credit losses accumulated on the loans which are classified as normal or precautionary in accordance with Regulations on Supervision of Financial Holding Companies, and others.
The risk-weighted assets are the magnitude of the amount of risk inherent in the total asset held by the Group. The Group calculates risk-weighted assets by each risk (credit risk, market risk, and operational risk) based on the Detailed Regulations on Supervision of Financial Holding Companies and uses them to calculate capital adequacy ratio.
The Group evaluates and manages capital adequacy through separate internal policies. The evaluation of capital adequacy compares the size of available capital (the amount of capital actually available) to the size of internal capital (the amount of capital required to cover all the significant risks faced by the Group under its target credit rating), which monitors financial soundness and provides a risk-adjusted performance measurement basis.
Internal capital refers to the capital required to prevent the insolvency from future unexpected losses. The Group operates a system to measure, allocate, and manage internal capital to major subsidiaries by risk type.
4.6 Capital Management
The Risk Management Committee of the Group determines the risk appetite of the Group, allocates internal capital by risk type and major subsidiaries, and major subsidiaries operate capital efficiently within the range of the allocated internal capital. The Risk Management Department of the Group monitors internal capital limit management and reports it to management and the Risk Management Committee. If the limit of internal capital is expected to be exceeded due to new businesses or business expansion, the Group’s capital adequacy management is carried out through review and approval by the Risk Management Committee in advance.
Details of the Group’s capital adequacy ratio in accordance with Basel III requirements as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
               
    
(In millions of Korean won)
  
Total Capital:
    ￦ 45,882,765      ￦ 48,969,952  
Tier 1 Capital
      42,305,442        45,032,020  
Common Equity Tier 1 Capital
      39,144,259        40,103,660  
Additional Tier 1 Capital
      3,161,183        4,928,360  
Tier 2 Capital
      3,577,323        3,937,932  
Risk-Weighted Assets:
      290,913,570        302,967,993  
Total Capital ratio (%):
      15.77        16.16  
Tier 1 Capital ratio (%)
      14.54        14.86  
Common Equity Tier 1 Capital ratio (%)
      13.46        13.24  
 
F-79
5. Segment Information
5.1 Overall Segment Information and Business Segments
The Group classifies reporting segments based on the nature of the products and services provided, the type of customer, and the Group’s management organization.
 
Banking business
   
Corporate banking
  
Loans, deposit products, and other related financial services to large, small and
medium-sized
enterprises and SOHOs
 
    
Retail banking
  
Loans, deposit products, and other related financial services to individuals and households
 
    
Other banking services
 
   Trading activities in securities and derivatives, funding, and other supporting activities
Securities business
  
Investment banking, brokerage services, and other supporting activities
 
Non-life
insurance business
 
  
Non-life
insurance and other supporting activities
 
Credit card business
  
Credit sale, cash advance, card loan, and other supporting activities
 
Life insurance business
   Life insurance and other supporting activities
 
F-80
Financial information by business segment as of and for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Banking business
                                            
   
Corporate
banking
    
Retail
banking
    
Other
banking
services
    
Sub-total
    
Securities
    
Non-life

insurance
    
Credit card
    
Life

insurance
    
Others
    
Consolidation
adjustments
    
Total
  
                                                                   
   
(In millions of Korean won)
  
Net operating revenues
(expenses) from external customers
   ￦ 3,589,404     ￦ 2,958,198     ￦ 1,585,192     ￦ 8,132,794     ￦ 1,675,977     ￦ 1,285,593     ￦ 1,773,989     ￦ 631,065     ￦ 984,185     ￦ —     ￦ 14,483,603  
Intersegment net operating revenues (expenses)
     34,771       —       271,887       306,658       11,002       (53,017 )      (158,545 )      (7,273 )      98,215       (197,040 )      —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      3,624,175       2,958,198       1,857,079       8,439,452       1,686,979       1,232,576       1,615,444       623,792       1,082,400       (197,040 )      14,483,603  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net interest income
     3,802,477       3,541,539       384,460       7,728,476       556,386       625,228       1,390,753       519,609       411,874       (2,754 )      11,229,572  
Interest income
     5,317,800       4,437,930       918,631       10,674,361       824,775       634,816       1,768,215       523,882       816,515       (31,686 )      15,210,878  
Interest expense
     (1,515,323 )      (896,391 )      (534,171 )      (2,945,885 )      (268,389 )      (9,588 )      (377,462 )      (4,273 )      (404,641 )      28,932       (3,981,306 ) 
Net fee and commission income (expenses)
     390,619       392,060       405,202       1,187,881       1,014,801       (173,348 )      546,022       (26,895 )      1,068,648       8,474       3,625,583  
Fee and commission income
     534,749       535,530       516,665       1,586,944       1,201,670       10,418       1,644,806       433       1,187,661       (308,326 )      5,323,606  
Fee and commission expense
     (144,130 )      (143,470 )      (111,463 )      (399,063 )      (186,869 )      (183,766 )      (1,098,784 )      (27,328 )      (119,013 )      316,800       (1,698,023 ) 
Net insurance income
     —       —       —       —       —       493,271       11,589       56,871       —       (5,020 )      556,711  
Insurance income
     —       —       —       —       —       12,722,178       21,711       3,406,145       —       (42,176 )      16,107,858  
Insurance expense
     —       —       —       —       —       (12,228,907 )      (10,122 )      (3,349,274 )      —       37,156       (15,551,147 ) 
Net gains (losess) on financial instruments at fair value through profit or loss
     29,407       —       313,427       342,834       123,183       369,864       3,431       137,343       184,467       (165,818 )      995,304  
Net other operating income (expenses)
     (598,328 )      (975,401 )      753,990       (819,739 )      (7,391 )      (82,439 )      (336,351 )      (63,136 )      (582,589 )      (31,922 )      (1,923,567 ) 
General and administrative expenses
   ￦ (1,831,948 )    ￦ (2,036,855 )    ￦ (533,928 )    ￦ (4,402,731 )    ￦ (855,142 )    ￦ (833,597 )    ￦ (577,734 )    ￦ (203,198 )    ￦ (438,170 )    ￦ 109,719     ￦ (7,200,853 ) 
Operating income (expenses) before provision for credit losses
     1,792,227       921,343       1,323,151       4,036,721       831,837       398,979       1,037,710       420,594       644,230       (87,321 )      7,282,750  
Reversal (provision) of credit losses
     (392,956 )      (125,876 )      (3,896 )      (522,728 )      (18,438 )      (5,476 )      (465,342 )      1,677       (175,568 )      742       (1,185,133 ) 
Net operating income (expenses)
     1,399,271       795,467       1,319,255       3,513,993       813,399       393,503       572,368       422,271       468,662       (86,579 )      6,097,617  
Share of profit (loss) of associates and joint ventures
     —       —       57,156       57,156       14,484       (143 )      785       —       9,411       11,833       93,526  
Net other
non-operating
income (expenses)
     (9,237 )      —       (70,368 )      (79,605 )      (18,307 )      17,446       (7,378 )      (158 )      2,408       (23,943 )      (109,537 ) 
Segment profit (loss) before income tax expense
     1,390,034       795,467       1,306,043       3,491,544       809,576       410,806       565,775       422,113       480,481       (98,689 )      6,081,606  
Income tax benefit (expense)
     (368,577 )      (218,753 )      (366,185 )      (953,515 )      (215,424 )      (108,715 )      (144,611 )      (132,510 )      (148,044 )      5,594       (1,697,225 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Profit
(loss) for the year
   ￦ 1,021,457     ￦ 576,714     ￦ 939,858     ￦ 2,538,029     ￦ 594,152     ￦ 302,091     ￦ 421,164     ￦ 289,603     ￦ 332,437     ￦ (93,095 )    ￦ 4,384,381  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Profit
 
(loss) attributable to shareholders of the Parent Company
     1,022,699       576,714       991,351       2,590,764       594,301       301,836       418,898       289,603       330,563       (116,422 )      4,409,543  
Profit (loss) attributable to
non-controlling
interests
     (1,242 )      —       (51,493 )      (52,735 )      (149 )      255       2,266       —       1,874       23,327       (25,162 ) 
Total assets*
     189,310,448       169,513,344       124,741,106       483,564,898       55,493,984       41,472,227       27,349,561       36,921,678       52,929,567       (33,836,081 )      663,895,834  
Total liabilities*
     197,834,530       180,815,013       72,026,442       450,675,985       50,008,422       37,328,955       22,793,919       34,166,882       23,191,051       (2,563,300 )      615,601,914  
 
* Assets and liabilities of the reporting segments are amounts before intersegment transactions.
 
F-81
 
 
2022
 
 
 
Banking business
 
 
Securities
 
 
Non-life

insurance
 
 
Credit card
 
 
Life
insurance
 
 
Others
 
 
Consolidation
adjustments
 
 
Total
 
 
 
Corporate
banking
 
 
Retail
banking
 
 
Other
banking
services
 
 
Sub-total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions of Korean won)
 
Net operating revenues from external customers
   ￦ 4,981,702     ￦ 4,472,888     ￦ (188,422 )    ￦ 9,266,168     ￦ 1,126,925     ￦ 1,423,684     ￦ 1,781,135     ￦ 501,983     ￦ 912,750     ￦ —     ￦ 15,012,645  
Intersegment net operating revenues (expenses)
     16,366       —       371,576       387,942       (38,909 )      (29,335 )      (150,464 )      (29,827 )      205,463       (344,870 )      —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      4,998,068       4,472,888       183,154       9,654,110       1,088,016       1,394,349       1,630,671       472,156       1,118,213       (344,870 )      15,012,645  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net interest income
     4,720,718       3,936,872       633,431       9,291,021       538,275       693,193       1,474,209       555,188       559,468       1,580       13,112,934  
Interest income
     7,831,383       5,763,852       1,763,466       15,358,701       1,156,586       717,558       1,983,828       566,271       1,064,529       (58,955 )      20,788,518  
Interest expense
     (3,110,665 )      (1,826,980 )      (1,130,035 )      (6,067,680 )      (618,311 )      (24,365 )      (509,619 )      (11,083 )      (505,061 )      60,535       (7,675,584 ) 
Net fee and commission income (expenses)
     385,884       261,350       449,374       1,096,608       784,748       (190,354 )      519,501       (39,059 )      1,145,309       4,879       3,321,632  
Fee and commission
income
     546,634       415,858       567,666       1,530,158       979,215       17,889       1,617,446       508       1,301,765       (325,461 )      5,121,520  
Fee and commission
expense
     (160,750 )      (154,508 )      (118,292 )      (433,550 )      (194,467 )      (208,243 )      (1,097,945 )      (39,567 )      (156,456 )      330,340       (1,799,888 ) 
Net insurance income
     —       —       —       —       —       655,452       10,593       39,160       —       (8,692 )      696,513  
Insurance income
     —       —       —       —       —       13,424,848       19,702       3,736,166       —       (43,874 )      17,136,842  
Insurance expense
     —       —       —       —       —       (12,769,396 )      (9,109 )      (3,697,006 )      —       35,182       (16,440,329 ) 
Net gains on financial
instruments at fair value
through profit or loss
     73,680       —       136,901       210,581       (210,589 )      339,698       1,724       66,865       21,844       (182,766 )      247,357  
Net other operating income (expenses)
     (182,214 )      274,666       (1,036,552 )      (944,100 )      (24,418 )      (103,640 )      (375,356 )      (149,998 )      (608,408 )      (159,871 )      (2,365,791 ) 
General and administrative expenses
   ￦ (1,972,147 )    ￦ (2,092,770 )    ￦ (633,034 )    ￦ (4,697,951 )    ￦ (822,409 )    ￦ (849,452 )    ￦ (597,158 )    ￦ (224,968 )    ￦ (466,510 )    ￦ 120,646     ￦ (7,537,802 ) 
Operating income before provision for credit losses
     3,025,921       2,380,118       (449,880 )      4,956,159       265,607       544,897       1,033,513       247,188       651,703       (224,224 )      7,474,843  
Reversal (provision) of credit losses
     (778,260 )      (281,868 )      (61,042 )      (1,121,170 )      (28,425 )      (6,066 )      (500,453 )      1,264       (178,172 )      (2,966 )      (1,835,988 ) 
Net operating income
    2,247,661       2,098,250       (510,922 )      3,834,989       237,182       538,831       533,060       248,452       473,531       (227,190 )      5,638,855  
Share of profit (loss) of associates and joint ventures
     —       —       12,666       12,666       3,039       1,104       1,583       —       (7,966 )      (39,184 )      (28,758 ) 
Net other
non-operating
income (expenses)
     (13,317 )      —       (24,548 )      (37,865 )      12,994       190,263       (7,197 )      (379 )      (4,717 )      32,430       185,529  
Segment profit before income tax expense
     2,234,344       2,098,250       (522,804 )      3,809,790       253,215       730,198       527,446       248,073       460,848       (233,944 )      5,795,626  
Income tax expense
     (732,211 )      (522,478 )      173,206       (1,081,483 )      (64,300 )      (172,169 )      (144,443 )      (61,810 )      (113,458 )      15,276       (1,622,387 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Profit for the year
   ￦ 1,502,133     ￦ 1,575,772     ￦ (349,598 )    ￦ 2,728,307     ￦ 188,915     ￦ 558,029     ￦ 383,003     ￦ 186,263     ￦ 347,390     ￦ (218,668 )    ￦ 4,173,239  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Profit attributable to shareholders of the Parent Company
     1,505,240       1,575,772       (84,997 )      2,996,015       187,784       557,680       378,592       186,263       343,859       (255,363 )      4,394,830  
Profit (loss) attributable to
non-controlling
interests
     (3,107 )      —       (264,601 )      (267,708 )      1,131       349       4,411       —       3,531       36,695       (221,591 ) 
Total assets*
     211,989,036       165,273,848       140,506,628       517,769,512       53,824,245       42,736,747       29,721,017       34,846,987       60,219,661       (37,947,321 )      701,170,848  
Total liabilities*
     205,382,625       191,786,626       86,877,002       484,046,253       47,946,933       39,397,168       24,998,214       33,097,892       25,973,896       (3,932,422 )      651,527,934  
 
*
Assets and liabilities of the reporting segments are amounts before intersegment transactions.
 
F-82
5.2 Services and Geographical Segments
5.2.1 Services information
Net operating revenues from external customers by service for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
     
2021
     
2022
  
                      
    
(In millions of Korean won)
  
Banking service
    ￦ 7,550,348      ￦ 8,132,794      ￦ 9,266,168  
Securities service
      1,448,409        1,675,977        1,126,925  
Non-life
insurance service
      1,027,269        1,285,593        1,423,684  
Credit card service
      1,538,230        1,773,989        1,781,135  
Life insurance service
      237,416        631,065        501,983  
Others
      690,970        984,185        912,750  
    
 
 
     
 
 
     
 
 
  
     ￦ 12,492,642      ￦ 14,483,603      ￦ 15,012,645  
    
 
 
     
 
 
     
 
 
  
5.2.2 Geographical information
Geographical net operating revenues from external customers for the years ended December 31, 2020 , 2021 and 2022, and major
non-current
assets as of December 31, 2021 and 2022, are as follows:
 
    
Net operating revenues

from external customers
     
Major
non-current
assets
  
    
2020
     
2021
     
2022
     
December 31,

2021
     
December 31,

2022
  
                                    
    
(In millions of Korean won)
  
Domestic
    ￦ 11,891,540      ￦ 13,525,769      ￦ 13,778,598      ￦ 9,853,970      ￦ 9,699,637  
United States
      114,044        112,388        112,743        45,530        53,214  
New Zealand
      3,554        12,857        12,378        1,932        1,382  
China
      84,821        127,939        172,547        21,416        19,715  
Cambodia
      250,426        410,482        546,258        35,668        46,060  
United Kingdom
      28,681        29,764        31,685        86,361        5,808  
Indonesia
      44,392        166,683        234,878        437,088        422,024  
Others
      75,184        97,721        123,558        20,446        536,794  
Consolidation
adjustments
      —        —        —        518,788        555,572  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 12,492,642      ￦ 14,483,603      ￦ 15,012,645      ￦ 11,021,199      ￦ 11,340,206  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
F-83
6. Financial Assets and Financial Liabilities
6.1 Classification and Fair Value of Financial Instruments
6.1.1 Carrying amount and fair value of financial assets and liabilities by category as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Carrying amount
     
Fair value
  
               
    
(In millions of Korean won)
  
Financial assets
                  
Cash and due from financial institutions
    ￦ 31,009,374      ￦ 31,081,231  
Financial assets at fair value through profit or loss:
      66,005,815        66,005,815  
Due from financial institutions
      200,742        200,742  
Debt securities
      63,002,692        63,002,692  
Equity securities
      2,419,463        2,419,463  
Loans
      269,296        269,296  
Others
      113,622        113,622  
Derivatives held for trading
      3,532,542        3,532,542  
Derivatives held for hedging
      188,828        188,828  
Loans measured at amortized cost
      417,900,273        417,775,260  
Securities measured at amortized cost
      44,471,628        44,392,419  
Financial assets at fair value through other comprehensive income:
      60,376,243        60,376,243  
Debt securities
      56,259,511        56,259,511  
Equity securities
      3,803,128        3,803,128  
Loans
      313,604        313,604  
Other financial assets
      10,755,350        10,755,350  
    
 
 
     
 
 
  
     ￦ 634,240,053      ￦ 634,107,688  
    
 
 
     
 
 
  
Financial liabilities
                  
Financial liabilities at fair value through profit or loss
    ￦ 2,939,584      ￦ 2,939,584  
Financial liabilities designated at fair value through profit or loss
      9,149,396        9,149,396  
Derivatives held for trading
      3,509,789        3,509,789  
Derivatives held for hedging
      172,469        172,469  
Deposits
      372,023,918        371,936,631  
Borrowings
      56,912,374        56,805,938  
Debentures
      67,430,188        67,288,409  
Other financial liabilities
      29,494,402        29,494,402  
    
 
 
     
 
 
  
     ￦ 541,632,120      ￦ 541,296,618  
    
 
 
     
 
 
  
 
F-84
    
December 31, 2022
  
    
Carrying amount
     
Fair value
  
               
    
(In millions of Korean won)
  
Financial assets
                  
Cash and due from financial institutions
    ￦ 32,063,421      ￦ 31,992,401  
Financial assets at fair value through profit or loss:
      64,935,344        64,935,344  
Due from financial institutions
      69,469        69,469  
Debt securities
      61,787,727        61,787,727  
Equity securities
      2,494,580        2,494,580  
Loans
      493,562        493,562  
Others
      90,006        90,006  
Derivatives held for trading
      8,984,171        8,984,171  
Derivatives held for hedging
      461,963        461,963  
Loans measured at amortized cost
      436,530,502        433,885,302  
Securities measured at amortized cost
      58,288,734        54,291,992  
Financial assets at fair value through other comprehensive income:
      58,299,841        58,299,841  
Debt securities
      55,610,319        55,610,319  
Equity securities
      2,326,378        2,326,378  
Loans
      363,144        363,144  
Other financial assets
      11,209,350        11,209,350  
    
 
 
     
 
 
  
     ￦ 670,773,326      ￦ 664,060,364  
    
 
 
     
 
 
  
Financial liabilities
                  
Financial liabilities at fair value through profit or loss
    ￦ 2,193,210      ￦ 2,193,210  
Financial liabilities designated at fair value through profit or loss
      10,078,394        10,078,394  
Derivatives held for trading
      9,209,537        9,209,537  
Derivatives held for hedging
      297,172        297,172  
Deposits
      388,888,452        388,417,827  
Borrowings
      71,717,366        71,187,130  
Debentures
      68,698,203        66,432,790  
Other financial liabilities
      26,705,247        26,705,247  
    
 
 
     
 
 
  
     ￦ 577,787,581      ￦ 574,521,307  
    
 
 
     
 
 
  
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Group discloses the fair value of each class of assets and liabilities in a way that permits it to be compared with its carrying amount at the end of each reporting period. The best evidence of fair value of financial instruments is a quoted price in an active market.
 
F-85
Methods of determining fair value of financial instruments are as follows:
 
Cash and due from financial institutions
    Fair value of cash is same as carrying amount. Carrying amount of demand deposit and settlement deposit is a reasonable approximation of fair value because these financial instruments do not have a fixed maturity and are receivable on demand. Fair value of general deposit is measured using Discounted Cash Flow (“DCF”) Model.
   
Securities
    Fair value of securities and others that are traded in an active market is determined using the quoted prices. If there is no quoted price, fair value is determined using external professional valuation institutions. The institutions use one or more valuation techniques that are deemed appropriate considering the characteristics of the financial instruments among DCF Model, Free Cash Flow to Equity Model, Comparable Company Analysis, Dividend Discount Model, Risk Adjusted Discount Rate Method, and Net Asset Value Method.
   
Loans measured at amortized cost
    Fair value of loans is determined using DCF Model discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at an appropriate discount rate.
   
Derivatives and financial instruments at fair value through profit or loss
    Fair value of exchange traded derivatives is determined using quoted price in an active market, and fair value of OTC derivatives is determined using valuation techniques. The Group uses internally developed valuation models that are widely used by market participants to determine fair value of plain vanilla OTC derivatives including options, interest rate swaps, and currency swaps, based on observable market parameters. However, some complex financial instruments are valued using appropriate models developed from generally accepted market valuation models including Finite Difference Method (“FDM”), MonteCarlo Simulation, Black-Scholes Model, Hull and White Model, Closed Form, and Tree Model or valuation results from independent external professional valuation institutions.
   
Deposits
    Carrying amount of demand deposits is a reasonable approximation of fair value because they do not have a fixed maturity and are payable on demand. Fair value of time deposits is determined using DCF Model discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at an appropriate discount rate.
   
Borrowings
    Carrying amount of overdrafts in foreign currency is a reasonable approximation of fair value because they do not have a fixed maturity and are payable on demand. Fair value of other borrowings is determined using DCF Model.
   
Debentures
    Fair value is determined using valuation results of external professional valuation institutions, which are calculated using market inputs.
   
Other financial assets and other financial liabilities
    Carrying amount is a reasonable approximation of fair value because other financial assets and other financial liabilities are temporary accounts used for other various transactions and their maturities are relatively short or not defined.
6.1.2 Fair value hierarchy
The Group believes that valuation techniques used for measuring the fair value of financial instruments are reasonable and that the fair value recognized in the consolidated statement of financial position is appropriate. However, the fair value of the financial instruments recognized in the consolidated statement of financial position may be different if other valuation techniques or assumptions are used. Additionally, as there are a variety of valuation techniques and assumptions used in measuring fair value, it may be difficult to reasonably compare the fair value with that of other financial institutions.
 
F-86
The Group classifies and discloses fair value of the financial instruments into the three fair value levels as follows:
Level 1: The fair values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2: The fair values are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: The fair values are based on unobservable inputs for the asset or liability.
The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. If an observable input requires an adjustment using an unobservable input and that adjustment results in a significantly higher or lower fair value measurement, the resulting measurement would be categorized within Level 3 of the fair value hierarchy.
6.1.2.1 Fair value hierarchy of financial assets and liabilities at fair value in the consolidated statements of financial position
Fair value hierarchy of financial assets and liabilities at fair value in the consolidated statements of financial position as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Fair value hierarchy
     
Total
  
    
Level 1
     
Level 2
     
Level 3
  
                             
    
(In millions of Korean won)
  
Financial assets
                                    
Financial assets at fair value through profit or loss:
    ￦ 13,108,985      ￦ 40,205,783      ￦ 12,691,047      ￦ 66,005,815  
Due from financial institutions
      —        128,726        72,016        200,742  
Debt securities
      12,146,181        39,300,923        11,555,588        63,002,692  
Equity securities
      849,182        600,768        969,513        2,419,463  
Loans
      —        175,366        93,930        269,296  
Others
      113,622        —        —        113,622  
Derivatives held for trading
      81,408        3,241,129        210,005        3,532,542  
Derivatives held for hedging
      —        188,828        —        188,828  
Financial assets at fair value through other comprehensive income:
      20,027,158        38,900,548        1,448,537        60,376,243  
Debt securities
      17,706,456        38,553,055        —        56,259,511  
Equity securities
      2,320,702        47,859        1,434,567        3,803,128  
Loans
      —        299,634        13,970        313,604  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 33,217,551      ￦ 82,536,288      ￦ 14,349,589      ￦ 130,103,428  
    
 
 
     
 
 
     
 
 
     
 
 
  
Financial liabilities
                                    
Financial liabilities at fair value through profit or loss
    ￦ 2,939,584      ￦ —      ￦ —      ￦ 2,939,584  
Financial liabilities designated at fair value through profit or loss
      36,938        1,294,944        7,817,514        9,149,396  
Derivatives held for trading
      211,132        3,124,057        174,600        3,509,789  
Derivatives held for hedging
      —        172,469        —        172,469  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 3,187,654      ￦ 4,591,470      ￦ 7,992,114      ￦ 15,771,238  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-
87
    
December 31, 2022
  
    
Fair value hierarchy
     
Total
  
    
Level 1
     
Level 2
     
Level 3*
  
                             
    
(In millions of Korean won)
  
Financial assets
                                    
Financial assets at fair value through profit or loss:
    ￦ 15,494,273      ￦ 33,958,689      ￦ 15,482,382      ￦ 64,935,344  
Due from financial institutions
      —        24,444        45,025        69,469  
Debt securities
      14,550,359        33,175,465        14,061,903        61,787,727  
Equity securities
      853,908        414,291        1,226,381        2,494,580  
Loans
      —        344,489        149,073        493,562  
Others
      90,006        —        —        90,006  
Derivatives held for trading
      182,019        8,678,896        123,256        8,984,171  
Derivatives held for hedging
      —        461,963        —        461,963  
Financial assets at fair value through other comprehensive income:
      19,540,964        37,281,814        1,477,063        58,299,841  
Debt securities
      18,928,038        36,682,281        —        55,610,319  
Equity securities
      612,926        236,389        1,477,063        2,326,378  
Loans
      —        363,144        —        363,144  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 35,217,256      ￦ 80,381,362      ￦ 17,082,701      ￦ 132,681,319  
    
 
 
     
 
 
     
 
 
     
 
 
  
Financial liabilities
                                    
Financial liabilities at fair value through profit or loss
    ￦ 2,193,210      ￦ —      ￦ —      ￦ 2,193,210  
Financial liabilities designated at fair value through profit or loss
      35,687        1,811,404        8,231,303        10,078,394  
Derivatives held for trading
      442,042        7,984,424        783,071        9,209,537  
Derivatives held for hedging
      —        297,172        —        297,172  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 2,670,939      ￦ 10,093,000      ￦ 9,014,374      ￦ 21,778,313  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Includes KB Securities Co., Ltd.’s OTC derivatives consisting of ￦ 404,334 million of financial assets at fair value through profit or loss (debt instruments), ￦ 8,241,509 million of financial liabilities designated at fair value through profit or loss, ￦ 120,775 million of derivative financial assets, and ￦ 777,542 million of derivative financial liabilities.
 
F-88
Valuation techniques and inputs of financial assets and liabilities classified as Level 2 and measured at fair value in the consolidated statements of financial position as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
    
Fair value
     
Valuation techniques
   
Inputs
                  
    
(In millions of Korean won)
Financial assets
                   
Financial assets at fair value through profit or loss:
    ￦ 40,205,783            
Due from financial institutions
      128,726     
DCF Model, Hull and White Model
   
Projected cash flow, Discount rate, Volatility, Correlation coefficient
Debt securities
      39,300,923     
DCF Model, Hull and White Model,
Closed Form, MonteCarlo Simulation,
Black-Scholes Model, Net Asset Value
Method, Binomial Model, and others
   
Projected cash flow, Fair value of underlying asset,
Dividend yield, Price of underlying asset, Interest
rate, Discount rate, Volatility, Correlation coefficient,
and others
Equity securities
      600,768     
DCF Model
   
Interest rate, Discount rate, and others
Loans
      175,366     
DCF Model
   
Interest rate, Discount rate, and others
Derivatives held for trading
      3,241,129     
DCF Model, Closed Form, FDM,
MonteCarlo Simulation, Black-Scholes
Model, Hull and White Model, Binomial
Model, and others
   
Interest rate, Price of underlying asset, Foreign exchange
rate, Credit spread, Discount rate, Volatility, and
others
Derivatives held for hedging
      188,828     
DCF Model, Closed Form, FDM
   
Projected cash flow, Discount rate, Forward foreign exchange rate, Volatility, Foreign exchange rate, and others
Financial assets at fair value through other comprehensive income:
      38,900,548            
Debt securities
      38,553,055     
DCF Model, Market Value Approach, Option Model
   
Underlying asset index, Interest rate, Discount rate, and others
Equity securities
      47,859     
DCF Model
   
Discount rate
Loans
      299,634     
DCF Model
   
Discount rate
    
 
 
            
     ￦ 82,536,288            
    
 
 
            
       
Financial liabilities
                   
Financial liabilities designated at fair value through profit or loss
   
 
￦
 
1,294,944
 
 





DCF Model, Closed Form, FDM,
MonteCarlo Simulation, Black-Scholes
Model, Hull and White Model, Binomial
Model
   

Price of underlying asset, Interest rate, Dividend yield, Volatility, Discount rate
Derivatives held for trading
      3,124,057     
DCF Model, Closed Form, FDM, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model, Binomial Model, and others
   
Interest rate, Price of underlying asset, Foreign exchange rate, Credit spread, Discount rate, Volatility, and others
Derivatives held for hedging
      172,469     
DCF Model, Closed Form, FDM
   
Projected cash flow, Discount rate, Forward foreign exchange rate, Volatility, Foreign exchange rate, and others
    
 
 
            
     ￦ 4,591,470            
    
 
 
            
 
F-89
    
December 31, 2022
    
Fair value
     
Valuation techniques
   
Inputs
                  
    
(In millions of Korean won)
Financial assets
                   
Financial assets at fair value through profit or loss:
    ￦ 33,958,689            
Due from financial institutions
      24,444     
DCF Model, Hull-white Model
   
Projected cash flow, Discount rate, Volatility, Correlation coefficient
Debt securities
      33,175,465     
DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull-white Model, Net Asset Value Method, Binomial Model, and others
   
Projected cash flow, Fair value of underlying asset, Dividend yield, Price of underlying asset, Interest rate, Discount rate, Volatility, Correlation coefficient, and others
Equity securities
      414,291     
DCF Model
   
Interest rate, Discount rate, and others
Loans
      344,489     
DCF Model
   
Interest rate, Discount rate, and others
Derivatives held for trading
      8,678,896     
DCF Model, Closed Form, FDM, MonteCarlo Simulation, Black-Scholes Model, Hull-white Model, Binomial Model, Option Model, and others
   
Price of underlying asset, Underlying asset index, Interest rate, Dividend yield, Volatility, Foreign exchange rate, Discount rate, and others
Derivatives held for hedging
      461,963     
DCF Model, Closed Form, FDM
   
Projected cash flow, Discount rate, Forward foreign exchange rate, Volatility, Foreign exchange rate, CRS interest rate, and others
Financial assets at fair value through other comprehensive income:
      37,281,814            
Debt securities
      36,682,281     
DCF Model, Option Model
   
Underlying asset index, Discount rate, and others
Equity securities
      236,389     
DCF Model
   
Discount rate
Loans
      363,144     
DCF Model
   
Discount rate
    
 
 
            
     ￦ 80,381,362            
    
 
 
            
       
Financial liabilities
                   
Financial liabilities designated at fair value through profit or loss
    ￦ 1,811,404     
DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull-white Model, Binomial Model, Net Asset Value Method
   
Price of underlying asset, Interest rate, Dividend yield, Volatility, Discount rate, Foreign exchange rate
Derivatives held for trading
      7,984,424     
DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull-white Model, Binomial Model, and others
   
Interest rate, Price of underlying asset, Foreign exchange rate, Credit spread, Discount rate, Volatility, and others
Derivatives held for hedging
      297,172     
DCF Model, Closed Form, FDM
   
Projected cash flow, Discount rate, Forward foreign exchange rate, Volatility, Foreign exchange rate, Risk free interest rate, and others
    
 
 
            
     ￦ 10,093,000            
    
 
 
            
 
F-90
6.1.2.2 Fair value hierarchy of financial assets and liabilities whose fair value is disclosed
Fair value hierarchy of financial assets and liabilities whose fair value is disclosed as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Fair value hierarchy
     
Total
  
    
Level 1
     
Level 2
     
Level 3
  
                             
    
(In millions of Korean won)
  
Financial assets
                                    
Cash and due from financial institutions
1
    ￦ 3,330,920      ￦ 25,791,556      ￦ 1,958,755      ￦ 31,081,231  
Loans measured at amortized cost
      —        260,101        417,515,159        417,775,260  
Securities measured at amortized cost
2
      18,263,895        26,125,391        3,133        44,392,419  
Other financial assets
2
      —        —        10,755,350        10,755,350  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 21,594,815      ￦ 52,177,048      ￦ 430,232,397      ￦ 504,004,260  
    
 
 
     
 
 
     
 
 
     
 
 
  
Financial liabilities
                                    
Deposits
1
    ￦ —      ￦ 204,299,174      ￦ 167,637,457      ￦ 371,936,631  
Borrowings
3
      —        3,137,427        53,668,511        56,805,938  
Debentures
      —        60,824,743        6,463,666        67,288,409  
Other financial liabilities
2
      —        —        29,494,402        29,494,402  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ —      ￦ 268,261,344      ￦ 257,264,036      ￦ 525,525,380  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
    
December 31, 2022
  
    
Fair value hierarchy
     
Total
  
    
Level 1
     
Level 2
     
Level 3
  
                             
    
(In millions of Korean won)
  
Financial assets
                                    
Cash and due from financial institutions
1
    ￦ 2,517,470      ￦ 26,734,157      ￦ 2,740,774      ￦ 31,992,401  
Loans measured at amortized cost
      —        190,458        433,694,844        433,885,302  
Securities measured at amortized cost
2
      20,626,701        33,646,001        19,290        54,291,992  
Other financial assets
2
      —        —        11,209,350        11,209,350  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 23,144,171      ￦ 60,570,616      ￦ 447,664,258      ￦ 531,379,045  
    
 
 
     
 
 
     
 
 
     
 
 
  
Financial liabilities
                                    
Deposits
1
    ￦ —      ￦ 168,864,349      ￦ 219,553,478      ￦ 388,417,827  
Borrowings
3
      —        6,088,123        65,099,007        71,187,130  
Debentures
      —        58,668,855        7,763,935        66,432,790  
Other financial liabilities
2
      —        —        26,705,247        26,705,247  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ —      ￦ 233,621,327      ￦ 319,121,667      ￦ 552,742,994  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
1
The amounts included in Level 2 are the carrying amounts which are reasonable approximations of fair value.
2
The amounts included in Level 3 are the carrying amounts which are reasonable approximations of fair value.
3
Borrowings of ￦ 2,143 million and ￦ 18,266 million included in Level 2 are the carrying amounts which are reasonable approximations of fair value as of December 31, 2021 and 2022, respectively.
 
F-91
For financial assets and liabilities whose carrying amount is a reasonable approximation of fair value, valuation techniques and inputs are not disclosed.
Valuation techniques and inputs of financial assets and liabilities classified as Level 2, and whose fair value is disclosed as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Fair value
     
Valuation techniques
     
Inputs
  
                      
    
(In millions of Korean won)
  
Financial assets
                           
Loans measured at amortized cost
    ￦ 260,101        DCF Model        Discount rate  
Securities measured at amortized cost
      26,125,391        DCF Model, MonteCarlo
Simulation		  
 		      Discount rate,
Interest rate		  
 
    
 
 
                    
     ￦ 26,385,492                    
    
 
 
                    
Financial liabilities
                           
Borrowings
    ￦ 3,135,284        DCF Model        Discount rate  
Debentures
      60,824,743        DCF Model        Discount rate  
    
 
 
                    
     ￦ 63,960,027                    
    
 
 
                    
 
    
December 31, 2022
  
    
Fair value
     
Valuation techniques
     
Inputs
  
                      
    
(In millions of Korean won)
  
Financial assets
                           
Loans measured at amortized cost
    ￦ 190,458        DCF Model        Discount rate  
Securities measured at amortized cost
      33,646,001        DCF Model, MonteCarlo
Simulation		  
 		      Discount rate,
Interest rate		  
 
    
 
 
                    
     ￦ 33,836,459                    
    
 
 
                    
Financial liabilities
                           
Borrowings
    ￦ 6,069,857        DCF Model        Discount rate  
Debentures
      58,668,855        DCF Model        Discount rate  
    
 
 
                    
     ￦ 64,738,712                    
    
 
 
                    
 
F-92
Valuation techniques and inputs of financial assets and liabilities classified as Level 3, and whose fair value is disclosed as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
    
Fair value
     
Valuation
techniques
   
Inputs
                  
    
(In millions of Korean won)
Financial assets
                   
Cash and due from financial institutions
    ￦ 1,958,755      DCF Model   
Credit spread, Other spread, Interest rate
Loans measured at amortized cost
      417,515,159      DCF Model   
Credit spread, Other spread, Prepayment rate, Interest rate
    
 
 
            
     ￦ 419,473,914            
    
 
 
            
Financial liabilities
                   
Deposits
    ￦ 167,637,457      DCF Model   
Other spread, Prepayment rate, Interest rate
Borrowings
      53,668,511      DCF Model   
Other spread, Interest rate
Debentures
      6,463,666      DCF Model   
Other spread, Interest rate
    
 
 
            
     ￦ 227,769,634            
    
 
 
            
 
    
December 31, 2022
    
Fair value
     
Valuation
techniques
   
Inputs
                  
    
(In millions of Korean won)
Financial assets
                   
Cash and due from financial institutions
    ￦ 2,740,774      DCF Model   
Credit spread, Other spread, Interest rate
Loans measured at amortized cost
      433,694,844      DCF Model   
Credit spread, Other spread, Prepayment rate, Interest rate
    
 
 
            
     ￦ 436,435,618            
    
 
 
            
Financial liabilities
                   
Deposits
    ￦ 219,553,478      DCF Model   
Other spread, Prepayment rate, Interest rate
Borrowings
      65,099,007      DCF Model   
Other spread, Interest rate
Debentures
      7,763,935      DCF Model   
Other spread, Interest rate
    
 
 
            
     ￦ 292,416,420            
    
 
 
            
6.2 Disclosure of Fair Value Hierarchy Level 3
6.2.1 Valuation policy and process of Level 3 fair value
The Group uses external, independent and qualified valuation service in addition to internal valuation models to determine the fair value of financial instruments at the end of every reporting period.
If the changes in situation and events which cause transfers between the fair value hierarchy level for a financial asset or liability occur, the Group’s policy is to recognize such transfers as having occurred at the beginning of the reporting period.
 
F-93
6.2.2 Changes in fair value (Level 3) measured using valuation technique based on unobservable inputs in the market
6.2.2.1 Changes in financial instruments classified as Level 3 of the fair value hierarchy for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Financial assets at fair value through profit or loss
    
Financial investments
    
Financial liabilities at
fair value through
profit or loss
    
Net derivative
financial instruments
  
   
Due from financial
institutions measured
at fair value through
profit or loss
    
Securities
measured at fair
value through
profit or loss
    
Loans measured at
fair value through
profit or loss
    
Equity securities
measured at fair
value through other
comprehensive
income
    
Loans measured
at fair value
through other
comprehensive
income
    
Financial liabilities
designated at fair
value through profit
or loss
    
Derivatives held for
trading
  
                                           
   
(In millions of Korean won)
  
Beginning
   ￦ 90,083     ￦ 11,099,923     ￦ 38,756     ￦ 2,419,908     ￦ 27,983     ￦ (9,201,431 )    ￦ 300,420  
Total gains or losses:
                                                        
Profit or loss
     212       346,982       (431 )      —       —       61,756       (66,116 ) 
Other comprehensive income (loss)
     1,720       223,545       —       (101,876 )      87       (5,446 )      —  
Purchases
     —       3,567,937       55,605       74,602       —       —       3,954  
Sales
     (19,999 )      (2,360,801 )      —       (5,618 )      (14,100 )      —       (170,055 ) 
Issues
     —       —       —       —       —       (8,233,128 )      (32,516 ) 
Settlements
     —       —       —       —       —       9,560,735       —  
Transfers into Level 3 *
     —       4,307       —       —       —       —       (282 ) 
Transfers out of Level 3 *
     —       (356,792 )      —       (952,449 )      —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
   ￦ 72,016     ￦ 12,525,101     ￦ 93,930     ￦ 1,434,567     ￦ 13,970     ￦ (7,817,514 )    ￦ 35,405  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
   
2022
  
   
Financial assets at fair value through profit or loss
    
Financial investments
    
Financial liabilities at
fair value through
profit or loss
    
Net derivative
financial instruments
  
   
Due from financial
institutions measured
at fair value through
profit or loss
    
Securities
measured at fair
value through
profit or loss
    
Loans measured at
fair value through
profit or loss
    
Equity securities
measured at fair
value through other
comprehensive
income
    
Loans measured
at fair value
through other
comprehensive
income
    
Financial liabilities
designated at fair
value through profit
or loss
    
Derivatives held for
trading
  
                                           
   
(In millions of Korean won)
  
Beginning
   ￦ 72,016     ￦ 12,525,101     ￦ 93,930     ￦ 1,434,567     ￦ 13,970     ￦ (7,817,514 )    ￦ 35,405  
Total gains or losses:
                                                        
Profit or loss
     (74 )      129,390       20,306       —       —       561,996       (663,229 ) 
Other comprehensive income (loss)
     (6,917 )      (304,847 )      —       (3,004 )      130       60,520       —  
Purchases
     —       4,409,579       45,485       46,041       —       —       23,526  
Sales
     (20,000 )      (1,368,002 )      (10,648 )      (541 )      (14,100 )      —       (59,177 ) 
Issues
     —       —       —       —       —       (5,222,820 )      (14,796 ) 
Settlements
     —       (61,055 )      —       —       —       4,186,515       18,456  
Transfers into Level 3 *
     —       27,120       —       —       —       —       —  
Transfers out of Level 3 *
     —       (69,002 )      —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
   ￦ 45,025     ￦ 15,288,284     ￦ 149,073     ￦ 1,477,063     ￦ —     ￦ (8,231,303 )    ￦ (659,815 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
*
Transfers into or out of Level 3 of the fair value hierarchy occurred due to the change in the availability of observable market data.
 
F-94
6.2.2.2 In relation to changes in financial instruments classified as Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the period, and total gains or losses recognized in profit or loss from financial instruments held at the end of the reporting period for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
   
2020
    
2021
  
   
Net losses on
financial
instruments at
fair value
through profit
or loss
    
Other operating
income
    
Net interest
income
    
Net gains on
financial
instruments at
fair value
through profit
or loss
    
Other operating
expenses
    
Net interest
income
  
                                     
   
(In millions of Korean won)
  
Total gains (losses) recognized in profit or loss for the period
   ￦ 70,251     ￦ (56,329 )    ￦ —     ￦ 256,167     ￦ 86,236     ￦ —  
Total gains (losses) recognized in profit or loss
from financial instruments held at the end of the
reporting period
     129,824       (60,884 )      —       126,516       85,256       —  
 
    
2022
  
    
Net gains on financial
instruments at fair value
through profit or loss
    
Other operating
income
     
Net interest income
  
                     
    
(In millions of Korean won)
  
Total gains
(losses) recognized in profit or loss for the period
    ￦ (75,653 )    ￦ 124,042      ￦ —  
Total gains recognized in profit or loss from financial instruments held at the end of the reporting period
      88,483       73,711        —  
 
F-95
Table of Contents
6.2.3 Sensitivity analysis of changes in unobservable inputs
6.2.3.1 Information about fair value measurements using unobservable inputs as of December 31, 2021 and 2022, are as follows:
 
(In millions of Korean won)
  
December 31, 2021
   
Fair value
    
Valuation techniques
  
Unobservable inputs
  
Range of
unobservable
inputs (%)
    
Relationship of unobservable inputs to
fair value
                         
   
(In millions of
Korean won)
                    
Financial assets
                            
Financial assets at fair value through profit or loss:
                               
Due from financial institutions
   ￦ 72,016     MonteCarlo Simulation, Hull and White Model   Volatility of underlying asset     14.30 ~ 39.66     The higher the volatility of underlying asset, the higher the fair value fluctuation
                Correlation coefficient     -3.36     The higher the correlation coefficient, the higher the fair value fluctuation
Debt securities
     11,555,588     DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull and White Model, Black-Scholes Model, Option Model, Binomial Model, Net Asset Value Method, Milestone Method, Income Approach, Market Value Approach, and others   Growth rate     0.00 ~ 2.00     The higher the growth rate, the higher the fair value
    Volatility     13.87 ~ 58.39     The higher the volatility, the higher the fair value fluctuation
    Discount rate     0.60 ~ 21.37     The lower the discount rate, the higher the fair value
    Stock price     18.87 ~ 19.48     The higher the stock price, the higher the fair value
    Correlation coefficient between underlying assets     -60.35 ~ 100.00     The higher the correlation coefficient, the higher the fair value fluctuation
    Liquidation value     -1.00 ~ 1.00     The higher the liquidation value, the higher the fair value
    Recovery rate     40     The higher the recovery rate, the higher the fair value
    Rate of real estate price fluctuation     -1.00 ~ 1.00     The higher the sale price of real estate, the higher the fair value
Equity securities
     969,513     Income Approach, Market Value Approach, Asset Value Approach, DCF Model, Comparable Company Analysis, Risk Adjusted Discount Rate Method, Dividend Discount Model, Usage of Past Transactions, Binomial Model, and others   Growth rate     0.50 ~ 2.00     The higher the growth rate, the higher the fair value
    Discount rate     8.80 ~ 24.60     The lower the discount rate, the higher the fair value
    Stock price     23.36 ~ 25.49     The higher the stock price, the higher the fair value
Loans
     93,930     DCF Model   Discount rate     8.21     The lower the discount rate, the higher the fair value
 
F-96
Table of Contents
(In millions of Korean won)
  
December 31, 2021
   
Fair value
    
Valuation techniques
  
Unobservable inputs
  
Range of
unobservable
inputs (%)
    
Relationship of unobservable inputs to
fair value
                         
   
(In millions of
Korean won)
                    
Derivatives held for trading:
                            
Stock and index
   ￦ 184,165     DCF Model, Closed Form,
FDM, MonteCarlo
Simulation, Hull and White
Model, Black-Scholes
Model, Binomial Model		   Volatility of underlying asset     15.07 ~ 80.58     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient     -
60.35
 ~ 88.17		     The higher the correlation coefficient, the higher the fair value fluctuation
    Stock price     -10.00 ~ 10.00     The higher the stock price, the higher the fair value
Currency, interest rate, and others
  
 
 
 
25,840
 
 
  
DCF Model, Hull and White
Model, MonteCarlo
Simulation, Closed Form		  
 
Volatility
  
 
 
 
2.67 ~ 81.32
 
 
  
The higher the volatility, the higher the fair value fluctuation
        Correlation coefficient     -48.31 ~ 90.16     The higher the correlation coefficient, the higher the fair value fluctuation
Financial assets at fair value through other comprehensive income:
                
Equity securities
       1,434,567     Risk Adjusted Discount Rate
Method, IMV Model, DCF
Model, Comparable
Company Analysis,
Dividend Discount Model,
Net Asset Value Method,
Market Value Approach,
Hull and White Model, and
others		   Growth rate     0.00 ~ 2.00     The higher the growth rate, the higher the fair value
    Discount rate     8.80 ~ 18.02     The lower the discount rate, the higher the fair value
    Volatility     23.36 ~ 31.65     The higher the volatility, the higher the fair value fluctuation
Loans
     13,970     DCF Model   Discount rate     2.87 ~ 4.87     The lower the discount rate, the higher the fair value
   
 
 
                      
    ￦ 14,349,589                      
   
 
 
                      
 
F-97
Table of Contents
 
 
December 31, 2021
 
 
Fair value
 
 
Valuation techniques
 
Unobservable inputs
 
Range of
unobservable
inputs (%)
 
 
Relationship of unobservable inputs to
fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions of
Korean won)
 
 
 
 
 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
Financial liabilities designated at fair value through profit or loss:
 
 
 
Derivative-linked securities
   ￦ 7,817,514     DCF Model, Closed Form,
FDM, MonteCarlo
Simulation, Hull-white
Model, Black-Scholes Model		   Volatility of underlying asset     1.00 ~ 81.32     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient between underlying assets     -60.35 ~ 90.16     The higher the correlation coefficient, the higher the fair value fluctuation
Derivatives held for trading:
                            
Stock and index
     92,757     DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull-white Model, Black-Scholes Model, Binomial Model   Volatility of underlying asset     15.07 ~ 80.58     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient between underlying assets     -60.35 ~ 88.17     The higher the correlation coefficient, the higher the fair value fluctuation
Others
     81,843     DCF Model, Hull-white Model, MonteCarlo Simulation, Closed Form   Discount rate     1.46 ~ 2.83     The lower the discount rate, the higher the fair value
    Volatility of underlying asset     5.29 ~ 53.57     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient between underlying assets     -48.31 ~ 90.16     The higher the correlation coefficient, the higher the fair value fluctuation
   
 
 
                      
    ￦ 7,992,114                      
   
 
 
                      
 
F-98
Table of Contents
   
December 31, 2022
   
Fair value
    
Valuation techniques
  
Unobservable inputs
  
Range of
unobservable
inputs (%)
    
Relationship of unobservable inputs to
fair value
                         
   
(In millions of
Korean won)
                    
Financial assets
                            
Financial assets at fair value through profit or loss:
                               
Due from financial institutions
   ￦ 45,025     Hull-white Model   Interest rate     0.86     The lower the interest rate, the higher the fair value
Debt securities
     14,061,903     DCF Model, Closed Form, MonteCarlo Simulation, Hull-white Model, Black-Scholes Model, Option Model, Binomial Model, Net Asset Value Method, Milestone Method, Income Approach, Market Value Approach, and others   Growth rate     0.00 ~ 3.00     The higher the growth rate, the higher the fair value
    Volatility     0.24 ~ 37.39     The higher the volatility, the higher the fair value fluctuation
    Discount rate     1.54 ~ 15.75     The lower the discount rate, the higher the fair value
    Correlation coefficient between underlying assets     -60.10 ~ 93.32     The higher the correlation coefficient, the higher the fair value fluctuation
    Liquidation value     -1.00 ~ 1.00     The higher the liquidation value, the higher the fair value
    Recovery rate     40.00     The higher the recovery rate, the higher the fair value
    Rate of real estate price fluctuation     -1.00 ~ 1.00     The higher the sale price of real estate, the higher the fair value
                Volatility of Stock price     18.87 ~ 19.48     The higher the volatility, the higher the fair value fluctuation
Equity securities
     1,226,381     Income Approach, Market Value Approach, Asset Value Approach, DCF Model, Comparable Company Analysis, Risk Adjusted Discount Rate Method, Dividend Discount Model, Usage of Past Transactions, Binomial Model, and others   Growth rate     0.00 ~ 4.00     The higher the growth rate, the higher the fair value
    Discount rate     8.00 ~ 23.00     The lower the discount rate, the higher the fair value
    Volatility     16.80 ~ 25.50     The higher the volatility, the higher the fair value fluctuation
Loans
     149,073     DCF Model   Discount rate     9.91     The lower the discount rate, the higher the fair value
 
F-99
Table of Contents
   
December 31, 2022
   
Fair value
    
Valuation techniques
  
Unobservable inputs
  
Range of
unobservable
inputs (%)
    
Relationship of unobservable inputs to
fair value
                         
   
(In millions of
Korean won)
                    
Derivatives held for trading:
                            
Stock and index
   ￦ 79,297     DCF Model, Closed Form, MonteCarlo Simulation, Hull-white Model, Black-Scholes Model, Binomial Model, Net Asset Value Method   Volatility of underlying asset     10.00 ~ 58.84     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient     -60.10 ~ 79.72     The higher the correlation coefficient, the higher the fair value fluctuation
Currency, interest rate, and others
  
 
 
 
43,959
 
 
   DCF Model, Hull-white Model, MonteCarlo Simulation, Closed Form  
 
Volatility
  
 
 
 
9.77 ~ 32.92
 
 
   The higher the volatility, the higher the fair value fluctuation
        Correlation coefficient     8.42 ~ 93.32     The higher the correlation coefficient, the higher the fair value fluctuation
Financial assets at fair value through other comprehensive income:
                
Equity securities
       1,477,063     DCF Model, Comparable Company Analysis, Risk Adjusted Discount Rate Method, IMV Model, Income Approach, Net Asset Value Method, Market Value Approach, and others   Growth rate     0.00 ~ 2.00     The higher the growth rate, the higher the fair value
    Discount rate     7.96 ~ 19.14     The lower the discount rate, the higher the fair value
    Volatility of Stock price     23.36 ~ 25.49     The higher the volatility, the higher the fair value fluctuation
    Volatility of interest rate     56.32~121.17     The higher the volatility, the higher the fair value fluctuation
   
 
 
                      
    ￦ 17,082,701                      
   
 
 
                      
 
F-100
Table of Contents
   
December 31, 2022
   
Fair value
    
Valuation techniques
  
Unobservable inputs
  
Range of
unobservable
inputs (%)
    
Relationship of unobservable inputs to
fair value
                         
   
(In millions of
Korean won)
                    
Financial liabilities
                            
Financial liabilities designated at fair value through profit or loss:
                
Derivative-linked securities
   ￦ 8,231,303     DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull-white Model, Net Asset Value Method, and others   Volatility of underlying asset     1.00 ~ 119.27     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient     -
60.10
~
93.32
     The higher the correlation coefficient, the higher the fair value fluctuation
Derivatives held for trading:
                            
Stock and index
     370,093     DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull-white Model, Net Asset Value Method, and others   Volatility of underlying asset     0.09 ~ 119.27     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient     -
60.10
~
79.72
     The higher the correlation coefficient, the higher the fair value fluctuation
Others
     412,978     DCF Model, Hull-white Model, MonteCarlo Simulation, Closed Form   Discount rate     4.83 ~ 6.85     The lower the discount rate, the higher the fair value
    Volatility of underlying asset     8.68 ~ 119.27     The higher the volatility, the higher the fair value fluctuation
    Correlation coefficient between underlying assets     -50.43 ~ 93.32     The higher the correlation coefficient, the higher the fair value fluctuation
   
 
 
                      
    ￦ 9,014,374                      
   
 
 
                      
 
F-101
Table of Contents
6.2.3.2 Sensitivity analysis of changes in unobservable inputs
Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable changes in fair value of financial instruments which are affected by unobservable parameters, using a statistical technique. When the fair value is affected by more than one input parameter, the amounts represent the most favorable or most unfavorable outcome. Level 3 financial instruments subject to sensitivity analysis are (a) equity-related derivatives, currency-related derivatives, and interest rate related derivatives whose fair value changes are recognized in profit or loss, (b) financial liabilities designated at fair value through profit or loss, and (c) due from financial institutions, debt securities (including beneficiary certificates), equity securities, and loans whose fair value changes are recognized in profit or loss or other comprehensive income or loss. If the overlay approach is applied in accordance with IFRS No.4, changes in fair value of financial assets at fair value through profit or loss are recognized in other comprehensive income.
Results of the sensitivity analysis of changes in unobservable inputs as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Profit or loss
    
Other comprehensive

income or loss
  
  
Favorable

changes
     
Unfavorable

changes
    
Favorable

changes
     
Unfavorable

changes
  
                            
    
(In millions of Korean won)
  
Financial assets
                                   
Financial assets at fair value through profit or loss:
1
                                   
Due from financial institutions
    ￦ —      ￦ —     ￦ 19      ￦ (18 ) 
Debt securities
4
      13,149        (12,562 )      1,458        (1,402 ) 
Equity securities
3
      11,259        (8,192 )      1,049        (813 ) 
Loans
5
      3,062        (2,742 )      —        —  
Derivatives held for trading
2
      19,328        (20,005 )      —        —  
Financial assets at fair value through other comprehensive income:
                                   
Equity securities
3
      6,495        (5,145 )      95,599        (71,171 ) 
Loans
6
      —        —       133        (131 ) 
    
 
 
     
 
 
    
 
 
     
 
 
  
     ￦ 53,293      ￦ (48,646 )    ￦ 98,258      ￦ (73,535 ) 
    
 
 
     
 
 
    
 
 
     
 
 
  
Financial liabilities
                                   
Financial liabilities designated at fair value through profit or loss
1
    ￦ 78,355      ￦ (82,797 )    ￦ 78,356      ￦ (82,797 ) 
Derivatives held for trading
2
      31,310        (29,309 )      31,114        (29,105 ) 
    
 
 
     
 
 
    
 
 
     
 
 
  
     ￦ 109,665      ￦ (112,106 )    ￦ 109,470      ￦ (111,902 ) 
    
 
 
     
 
 
    
 
 
     
 
 
  
 
F-102
    
December 31, 2022
  
    
Profit or loss
    
Other comprehensive

income or loss
  
  
Favorable

changes
     
Unfavorable

changes
    
Favorable

changes
     
Unfavorable

changes
  
                            
    
(In millions of Korean won)
  
Financial assets
                                   
Financial assets at fair value through profit or loss:
1
                                   
Due from financial institutions
    ￦ —      ￦ —     ￦ 221      ￦ (247 ) 
Debt securities
4
      17,392        (17,896 )      1,642        (1,869 ) 
Equity securities
3
      34,564        (25,586 )      —        —  
Loans
5
      2,276        (2,055 )      —        —  
Derivatives held for trading
2
      18,076        (19,034 )      —        —  
Financial assets at fair value through other comprehensive income:
                                   
Equity securities
3
      —        —       179,307        (82,595 ) 
Loans
6
      —        —       —        —  
    
 
 
     
 
 
    
 
 
     
 
 
  
     ￦ 72,308      ￦ (64,571 )    ￦ 181,170      ￦ (84,711 ) 
    
 
 
     
 
 
    
 
 
     
 
 
  
Financial liabilities
                                   
Financial liabilities designated at fair value through profit or loss
1
    ￦ 94,001      ￦ (97,663 )    ￦ —      ￦ —  
Derivatives held for trading
2
      48,768        (46,427 )      —        —  
    
 
 
     
 
 
    
 
 
     
 
 
  
     ￦ 142,769      ￦ (144,090 )    ￦ —      ￦ —  
    
 
 
     
 
 
    
 
 
     
 
 
  
 
1
 
For financial instruments at fair value through profit or loss, changes in fair value are calculated by shifting principal unobservable input parameters such as discount rate, recovery rate, liquidation value by ±1%p and volatility of underlying asset, growth rate by ±1%p or ±10% and correlation coefficient by ±10%.
2
 
For derivative financial instruments, changes in fair value are calculated by shifting principal unobservable input parameters such as price of underlying asset and volatility by ± 10%.
3
 
For equity securities, 
changes in fair value are calculated by shifting principal unobservable input parameters such as correlation between discount rate (-1%p~1%p) and growth rate (0%p~
1%p).
4
 
For beneficiary certificates, it is practically impossible to analyze sensitivity of changes in unobservable inputs. However, for beneficiary certificates whose underlying assets are real estates, changes in fair value are calculated by shifting rate of real estate price fluctuation by -1%p~1%p, and for beneficiary certificates whose underlying assets are equity investments, changes in fair value are calculated by shifting principal unobservable input parameters such as liquidation value by -1%p~1%p and discount rate by -1%p~1%p. There is no significant correlation among major unobservable inputs.
5
 
For loans, changes in fair value are calculated by shifting principal unobservable input parameters such as discount rate by -1%p~1%p.
6
For loans measured at fair value through other comprehensive income, changes in fair value are calculated by shifting principal unobservable input parameters such as discount rate and growth rate by ±1%p.
6.2.4 Day one gains or losses
When the Group measures the fair value of OTC derivatives using inputs that are not based on observable market data, there could be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the fair value of financial instruments is recognized as the transaction price, and the difference is not recognized in profit or loss but deferred and amortized using the straight-line method over the life of the financial instrument. When the fair value of the financial instruments is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss.
 
F-103
Table of Contents
Changes in deferred day one gains or losses for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
    
2022
  
              
    
(In millions of Korean won)
  
Balance at the beginning of the year
    ￦ 61,393     ￦ 77,208  
New transactions
      166,443       113,504  
Changes during the year
      (150,628 )      (119,208 ) 
    
 
 
    
 
 
  
Balance at the end of the year
    ￦ 77,208     ￦ 71,504  
    
 
 
    
 
 
  
6.3 Carrying Amount of Financial Instruments by Category
Financial assets and liabilities are measured at fair value or amortized cost. Carrying amount of financial assets and liabilities by category as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
Financial
instruments
at fair value
through
profit or loss
    
Financial
instruments at
fair value
through other
comprehensive
income
    
Financial
instruments
designated at
fair value
through other
comprehensive
income
    
Financial
instruments at
amortized cost
    
Derivatives
held for
hedging
    
Total
  
                                     
   
(In millions of Korean won)
  
Financial assets
                                                
Cash and due from financial institutions
   ￦ —     ￦ —     ￦ —     ￦ 31,009,374     ￦ —     ￦ 31,009,374  
Financial assets at fair value through profit or loss
     66,005,815       —       —       —       —       66,005,815  
Derivative financial assets
     3,532,542       —       —       —       188,828       3,721,370  
Loans measured at amortized cost
     —       —       —       417,900,273       —       417,900,273  
Financial investments
     —       56,573,115       3,803,128       44,471,628       —       104,847,871  
Other financial assets
     —       —       —       10,755,350       —       10,755,350  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 69,538,357     ￦ 56,573,115     ￦ 3,803,128     ￦ 504,136,625     ￦ 188,828     ￦ 634,240,053  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
   
December 31, 2021
  
   
Financial
instruments at
fair value
through profit
or loss
    
Financial instruments
designated at fair value
through profit or loss
    
Financial
instruments at
amortized cost
    
Derivatives
held for
hedging
    
Total
  
                               
   
(In milliions of Korean won)
  
Financial liabilities
                                        
Financial liabilities at fair value through profit or loss
   ￦ 2,939,584     ￦ 9,149,396     ￦ —     ￦ —     ￦ 12,088,980  
Derivative financial liabilities
     3,509,789       —       —       172,469       3,682,258  
Deposits
     —       —       372,023,918       —       372,023,918  
Borrowings
     —       —       56,912,374       —       56,912,374  
Debentures
     —       —       67,430,188       —       67,430,188  
Other financial liabilities
     —       —       29,494,402       —       29,494,402  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 6,449,373    
￦
9,149,396
 
  
￦
525,860,882
 
  
￦
172,469
 
  
￦
541,632,120
 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-104
Table of Contents
   
December 31, 2022
  
   
Financial
instruments
at fair value
through
profit or loss
    
Financial
instruments at
fair value
through other
comprehensive
income
    
Financial
instruments
designated at
fair value
through other
comprehensive
income
    
Financial
instruments at
amortized cost
     
Derivatives
held for
hedging
    
Total
  
                                      
   
(In millions of Korean won)
  
Financial assets
                                                 
Cash and due from financial institutions
   ￦ —     ￦ —     ￦ —     ￦ 32,063,421      ￦ —     ￦ 32,063,421  
Financial assets at fair value through profit or loss
     64,935,344       —       —       —        —       64,935,344  
Derivative financial assets
     8,984,171       —       —       —        461,963       9,446,134  
Loans measured at amortized cost
     —       —       —       436,530,502        —       436,530,502  
Financial investments
     —       55,973,463       2,326,378       58,288,734        —       116,588,575  
Other financial assets
     —       —       —       11,209,350        —       11,209,350  
   
 
 
    
 
 
    
 
 
    
 
 
     
 
 
    
 
 
  
    ￦ 73,919,515     ￦ 55,973,463     ￦ 2,326,378     ￦ 538,092,007      ￦ 461,963     ￦ 670,773,326  
   
 
 
    
 
 
    
 
 
    
 
 
     
 
 
    
 
 
  
 
   
December 31, 2022
  
   
Financial
instruments
at fair value
through
profit or loss
    
Financial instruments
designated at fair value
through profit or loss
    
Financial
instruments at
amortized cost
    
Derivatives
held for
hedging
    
Total
  
                               
   
(In millions of Korean won)
  
Financial liabilities
                                        
Financial liabilities at fair value through profit or loss
   ￦ 2,193,210     ￦ 10,078,394     ￦ —     ￦ —     ￦ 12,271,604  
Derivative financial liabilities
     9,209,537       —       —       297,172       9,506,709  
Deposits
     —       —       388,888,452       —       388,888,452  
Borrowings
     —       —       71,717,366       —       71,717,366  
Debentures
     —       —       68,698,203       —       68,698,203  
Other financial liabilities
     —       —       26,705,247       —       26,705,247  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 11,402,747     ￦ 10,078,394     ￦ 556,009,268     ￦ 297,172     ￦ 577,787,581  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
6.4 Transfer of Financial Assets
6.4.1 Transferred financial assets that are derecognized in their entirety
The Group transferred loans and other financial assets to companies specialized in asset-backed securitization and derecognized them from the consolidated financial statement, while the maximum exposure to loss (carrying amount) from its continuing involvement and fair value of its continuing involvement of the derecognized financial assets as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
Type of continuing
involvement
  
Classification of financial
instruments
  
Carrying amount
of continuing
involvement
    
Fair value of
continuing
involvement
  
                     
           
(In millions of Korean won)
  
Discovery 2
nd
Securitization Specialty Co., Ltd.
  
Subordinated bond
  
Financial assets at fair value through profit or loss
   ￦ 5,189     ￦ 5,189  
AP 4D ABS Ltd.
  
Subordinated bond
  
Financial assets at fair value through profit or loss
     5,463       5,463  
           
 
 
    
 
 
  
            ￦ 10,652     ￦ 10,652  
           
 
 
    
 
 
  
 
F-105
   
December 31, 2022
  
   
Type of continuing
involvement
  
Classification of financial
instruments
  
Carrying amount
of continuing
involvement
    
Fair value of
continuing
involvement
  
                     
           
(In millions of Korean won)
  
Discovery 2
nd
Securitization Specialty Co., Ltd.
  
Subordinated bond
  
Financial assets at fair value through profit or loss
   ￦ 564     ￦ 564  
AP 4D ABS Ltd.
  
Subordinated bond
  
Financial assets at fair value through profit or loss
     541       541  
           
 
 
    
 
 
  
            ￦ 1,105     ￦ 1,105  
           
 
 
    
 
 
  
6.4.2 Transferred financial assets that are not derecognized in their entirety
The Group issued securitized debentures using loans as underlying assets. Details of underlying assets and senior debentures in relation to securitization as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
Carrying amount
of underlying
assets
    
Fair value of
underlying
assets
    
Carrying amount
of senior
debentures
    
Fair value of
senior
debentures
  
                         
   
(In millions of Korean won)
  
KB Kookmin Card 5
th
Securitization Co., Ltd.
1
  ￦ 492,108     ￦ 490,113     ￦ 299,881     ￦ 302,564  
KB Kookmin Card 6
th
Securitization Co., Ltd.
1
    726,803       723,835       474,000       474,766  
KB Kookmin Card 7
th
Securitization Co., Ltd.
1
     948,129       943,689       598,180       596,272  
KB Kookmin Card 8
th
Securitization Co., Ltd.
1
    545,750       543,982       299,844       306,264  
KB Auto Second Asset Securitization Specialty Co., Ltd.
2
     129,867       129,385       59,968       59,935  
   
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 2,842,657     ￦   2,831,004     ￦ 1,731,873     ￦   1,739,801  
   
 
 
    
 
 
    
 
 
    
 
 
  
 
   
December 31, 2022
  
   
Carrying amount
of underlying
assets
    
Fair value of
underlying
assets
    
Carrying amount
of senior
debentures
    
Fair value of
senior
debentures
  
                         
   
(In millions of Korean won)
  
KB Kookmin Card 7
th
Securitization Co., Ltd.
1
  ￦ 963,756     ￦ 958,207     ￦ 641,780     ￦ 628,274  
KB Kookmin Card 8
th
Securitization Co., Ltd.
1
    556,487       553,729       299,878       285,111  
KB Kookmin Card 9
th
Securitization Co., Ltd.
1
     615,565       612,543       349,829       372,724  
KB Kookmin Card 10
th
Securitization Co., Ltd.
1
    1,138,578       1,132,170       503,392       503,644  
KB Auto Fifth Asset Securitization Specialty Co., Ltd.
2
     441,080       429,626       299,705       299,705  
   
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 3,715,466     ￦   3,686,275     ￦ 2,094,584     ￦   2,089,458  
   
 
 
    
 
 
    
 
 
    
 
 
  
 
1
 
The Group has an obligation to early redeem the securitized debentures in the event of situations prescribed by the asset securitization contract, such as the remaining balance of the eligible underlying assets in trust-type asset securitization is below the solvency ratio (minimum ratio: 104.5%) of the beneficiary interest in the trust. To avoid such early redemption, the Group entrusts credit card accounts and deposits in addition to the previously entrusted credit card accounts.
2
 
The Group has an obligation to early redeem the securitized debentures in the event of situations prescribed by the asset securitization contract, such as when the trusted assets do not meet the eligibility requirements.
 
F-106
6.4.3 Bonds sold under repurchase agreements and loaned securities
The Group continues to recognize the financial assets related to bonds sold under repurchase agreements and securities lending transactions in the consolidated statement of financial position since those transactions are not qualified for derecognition even though the Group transfers the financial assets. Bonds sold under repurchase agreements are sold on the condition that they will be repurchased at a fixed price and loaned securities will be returned at the expiration of the loan period. Thus, the Group retains substantially all the risks and rewards of ownership of the financial assets.
The carrying amount of transferred assets and related liabilities as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Carrying amount of
transferred assets
     
Carrying amount of
related liabilities
  
               
    
(In millions of Korean won)
  
Bonds sold under repurchase agreements *
    ￦ 11,273,036      ￦ 10,978,971  
Loaned securities:
                  
Government and public bonds
      1,035,736        —  
Stock
      253        —  
    
 
 
     
 
 
  
     ￦ 12,309,025      ￦ 10,978,971  
    
 
 
     
 
 
  
   
    
December 31, 2022
  
    
Carrying amount of
transferred assets
     
Carrying amount of
related liabilities
  
               
    
(In millions of Korean won)
  
Bonds sold under repurchase agreements *
    ￦ 11,418,820      ￦ 10,610,882  
Loaned securities:
                  
Government and public bonds
      1,661,550        —  
Stock
      52,098        —  
Others
      94,766        —  
    
 
 
     
 
 
  
     ￦ 13,227,234      ￦ 10,610,882  
    
 
 
     
 
 
  
 
*
Bonds sold under repurchase agreements using borrowed securities as collateral amount to ￦ 2,050,635 million and ￦ 100,768 million as of December 31, 2021 and 2022, respectively.
6.4.4 Purchase commitments of securitized debentures
The Group provided additional credit enhancement, such as purchase commitments, for the underlying assets of subsidiaries established for asset-backed securitization. Details of carrying amounts of the underlying assets and the associated liabilities as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
Underlying assets
  
Financial assets at fair value through profit or loss
    ￦ 289,188      ￦ 324,456  
    Loans measured at amortized cost *      3,724,204        3,050,471  
        
 
 
     
 
 
  
         ￦ 4,013,392      ￦ 3,374,927  
        
 
 
     
 
 
  
Associated liabilities
   Debentures    ￦ 4,010,436      ￦ 3,222,237  
 
*
Before netting of allowance
 
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Table of Contents
6.5 Offsetting Financial Assets and Financial Liabilities
The Group enters into International Swaps and Derivatives Association (“ISDA”) master netting agreements and other similar arrangements with the Group’s OTC derivative and spot exchange counterparties. Similar netting agreements are also entered into with the Group’s (a) sales or purchases of bonds under repurchase agreements and (b) securities lending and borrowing transactions, etc. Pursuant to these agreements, in the event of default by one party, contracts are to be terminated and receivables and payables are to be offset. Domestic exchange settlement debits and domestic exchange settlement credits are recognized in its net settlement balance in the consolidated statement of financial position because the Group has the legal right of offset and settles in net amount.
6.5.1 Details of financial assets subject to enforceable master netting agreements or similar arrangements as of December 31, 2021 and 2022, are as follows:
 
 
 
December 31, 2021
 
 
 
Gross assets
 
 
Gross liabilities
offset
 
 
Net amount in
the statement
of financial
position
 
 
Non-offsetting
amount
 
 
Net amount
 
 
Financial
instruments
 
 
Cash
collateral
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions of Korean won)
 
Derivatives held for trading and derivative-linked securities
 
￦
3,673,348
 
 
￦
—
 
 
￦
3,673,348
 
 
 
 
Derivatives held for hedging
 
 
188,828
 
 
 
—
 
 
 
188,828
 
 
￦
(2,352,365
) 
 
￦
(235,749
) 
 
￦
1,274,062
 
Unsettled spot exchange receivable
 
 
2,384,503
 
 
 
—
 
 
 
2,384,503
 
 
 
(2,380,556
) 
 
 
—
 
 
 
3,947
 
Bonds purchased under repurchase agreements
 
 
5,955,194
 
 
 
—
 
 
 
5,955,194
 
 
 
(5,955,194
) 
 
 
—
 
 
 
—
 
Domestic exchange settlement debits
 
 
43,497,849
 
 
 
(42,482,911
) 
 
 
1,014,938
 
 
 
—
 
 
 
—
 
 
 
1,014,938
 
Other financial instruments
 
 
2,341,992
 
 
 
(2,327,904
) 
 
 
14,088
 
 
 
(3,209
) 
 
 
—
 
 
 
10,879
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
￦
58,041,714
 
 
￦
(44,810,815
) 
 
￦
13,230,899
 
 
￦
(10,691,324
) 
 
￦
(235,749
) 
 
￦
2,303,826
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
 
 
 
Gross assets
 
 
Gross liabilities
offset
 
 
Net amount in
the statement
of financial
position
 
 
Non-offsetting
amount
 
 
Net amount
 
 
 
Financial
instruments
 
 
Cash
collateral
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions of Korean won)
 
Derivatives held for trading and derivative-linked securities
 
￦
9,380,420
 
 
￦
—
 
 
￦
9,380,420
 
 
 
 
Derivatives held for hedging
 
 
461,964
 
 
 
—
 
 
 
461,964
 
 
￦
(7,710,408
) 
 
￦
(195,224
) 
 
￦
1,936,752
 
Unsettled spot exchange receivable
 
 
3,374,369
 
 
 
—
 
 
 
3,374,369
 
 
 
(3,360,673
) 
 
 
—
 
 
 
13,696
 
Bonds purchased under repurchase agreements
 
 
3,328,657
 
 
 
—
 
 
 
3,328,657
 
 
 
(3,328,657
) 
 
 
—
 
 
 
—
 
Domestic exchange settlement debits
 
 
55,491,085
 
 
 
(54,611,238
) 
 
 
879,847
 
 
 
—
 
 
 
—
 
 
 
879,847
 
Other financial instruments
 
 
2,010,671
 
 
 
(1,912,964
) 
 
 
97,707
 
 
 
(3,169
) 
 
 
—
 
 
 
94,538
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
￦
74,047,166
 
 
￦
(56,524,202
) 
 
￦
17,522,964
 
 
￦
(14,402,907
) 
 
￦
(195,224
) 
 
￦
2,924,833
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-108
Table of Contents
6.5.2 Details of financial liabilities subject to enforceable master netting agreements or similar arrangements as of December 31, 2021 and 2022, are as follows:
 
 
 
December 31, 2021
 
 
Gross liabilities
 
 
Gross assets
offset
 
 
Net amount in
the statement of
financial
position
 
 
Non-offsetting
amount
 
 
Net amount
 
 
 
Financial
instruments
 
 
Cash
collateral
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions of Korean won)
 
Derivatives held for trading and derivative-linked securities
 
￦
4,132,915
 
 
￦
—
 
 
￦
4,132,915
 
 
 
 
Derivatives held for hedging
 
 
172,470
 
 
 
—
 
 
 
172,470
 
 
￦
(3,069,591
) 
 
￦
(75,253
) 
 
￦
1,160,541
 
Unsettled spot exchange payable
 
 
2,383,399
 
 
 
—
 
 
 
2,383,399
 
 
 
(2,380,556
) 
 
 
          —
 
 
 
2,843
 
Bonds sold under repurchase agreements *
 
 
14,372,761
 
 
 
—
 
 
 
14,372,761
 
 
 
(14,372,761
) 
 
 
—
 
 
 
—
 
Securities borrowing agreements
 
 
2,826,885
 
 
 
—
 
 
 
2,826,885
 
 
 
(2,826,885
) 
 
 
—
 
 
 
—
 
Domestic exchange settlement credits
 
 
47,608,341
 
 
 
(42,482,911
) 
 
 
5,125,430
 
 
 
(5,125,430
) 
 
 
—
 
 
 
—
 
Other financial instruments
 
 
2,738,984
 
 
 
(2,327,904
) 
 
 
411,080
 
 
 
(3,209
) 
 
 
—
 
 
 
407,871
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
￦
74,235,755
 
 
￦
(44,810,815
) 
 
￦
29,424,940
 
 
￦
(27,778,432
) 
 
￦
(75,253
) 
 
￦
1,571,255
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2022
 
 
Gross liabilities
 
 
Gross assets
offset
 
 
Net amount in
the statement of
financial
position
 
 
Non-offsetting
amount
 
 
Net amount
 
 
 
Financial
instruments
 
 
Cash
collateral
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions of Korean won)
 
Derivatives held for trading and derivative-linked securities
 
￦
10,500,353
 
 
￦
—
 
 
￦
10,500,353
 
 
 
 
Derivatives held for hedging
 
 
297,173
 
 
 
—
 
 
 
297,173
 
 
￦
(2,302,059
) 
 
￦
(83,837
) 
 
￦
8,411,630
 
Unsettled spot exchange payable
 
 
3,374,230
 
 
 
—
 
 
 
3,374,230
 
 
 
(3,360,673
) 
 
 
          —
 
 
 
13,557
 
Bonds sold under repurchase agreements *
 
 
11,769,694
 
 
 
—
 
 
 
11,769,694
 
 
 
(11,769,694
) 
 
 
—
 
 
 
—
 
Securities borrowing agreements
 
 
2,102,537
 
 
 
—
 
 
 
2,102,537
 
 
 
(2,102,537
) 
 
 
—
 
 
 
—
 
Domestic exchange settlement credits
 
 
56,349,727
 
 
 
(54,611,238
) 
 
 
1,738,489
 
 
 
(1,738,489
) 
 
 
—
 
 
 
—
 
Other financial instruments
 
 
1,973,123
 
 
 
(1,912,964
) 
 
 
60,159
 
 
 
(3,169
) 
 
 
—
 
 
 
56,990
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
￦
86,366,837
 
 
￦
(56,524,202
) 
 
￦
29,842,635
 
 
￦
(21,276,621
) 
 
￦
(83,837
) 
 
￦
8,482,177
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*
Includes bonds sold under repurchase agreements to customers.
 
F-109
7. Due from Financial Institutions Measured at Amortized Cost
7.1 Details of due from financial institutions as of December 31, 2021 and 2022, are as follows:
 
   
Financial institutions
   
Interest rate
(%) as of

December 31,
2022
     
December 31,

2021
     
December 31,

2022
  
                   
(In millions of Korean won)
  
Due from financial institutions in Korean won
  
Due from the Bank of Korea
   The Bank of Korea      —      ￦ 15,317,033      ￦ 15,169,704  
 
Due from banks
  
Hana Bank and others
     
0.00
 ~
 
6.00
        3,390,521        3,606,033  
 
Due from others
  
NH Investment & Securities Co., Ltd. and others
     
0.00
~ 3.48		        686,236        1,298,879  
                     
 
 
     
 
 
  
                        19,393,790        20,074,616  
                     
 
 
     
 
 
  
Due from financial institutions in foreign currencies
  
Due from banks in foreign currencies
   The Bank of Korea and others      0.00 ~ 4.00        6,329,310        5,669,702  
 
Time deposits in foreign currencies
  
Industrial and Commercial Bank of China and others
      0.00 ~ 6.80        587,782        587,218  
 
Due from others
  
Societe Generale (Paris) and others
      0.00 ~ 8.00        2,054,474        3,171,975  
                     
 
 
     
 
 
  
                        8,971,566        9,428,895  
                     
 
 
     
 
 
  
                      ￦ 28,365,356      ￦ 29,503,511  
                     
 
 
     
 
 
  
 
*
Before netting of allowance
7.2 Details of restricted due from financial institutions as of December 31, 2021 and 2022, are as follows:
 
   
Financial institutions
   
December 31,

2021
     
December 31,

2022
     
Reasons of restriction
            
(In millions of Korean won)
       
Due from financial institutions in Korean won
  
Due from the Bank of Korea
   The Bank of Korea    ￦ 15,317,033      ￦ 15,169,704      Bank of Korea Act
 
Due from banks
  
Shinhan Bank and others
      803,445        522,306      Net settlement and others
 
Due from others
  
NH Investment & Securities Co., Ltd. and others
      528,642        1,029,631      Derivatives margin account and others
          
 
 
     
 
 
       
               16,649,120        16,721,641       
            
 
 
     
 
 
       
Due from financial institutions in foreign currencies
  
Due from banks in foreign currencies
   Bank of Indonesia and others      2,262,610        2,350,933      Indonesian law and others
 
Time deposits in foreign currencies
  
Agricultural Bank of China and others
      68,588        72,437      Bank Act of the State of New York and others
 
Due from others
  
Societe Generale (Paris) and others
      1,774,388        2,092,656      Derivatives margin account and others
            
 
 
     
 
 
       
               4,105,586        4,516,026       
            
 
 
     
 
 
       
             ￦ 20,754,706      ￦ 21,237,667       
            
 
 
     
 
 
       
 
*
Before netting of allowance
 
F-110
7.3 Changes in allowances for credit losses of due from financial institutions for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
12-month expected

credit losses
    
Lifetime expected credit losses
  
 
Non-impaired
    
Impaired
  
                    
    
(In millions of Korean won)
  
Beginning
    ￦ 2,947     ￦ 34     ￦ 282  
Transfer between stages:
                         
Transfer to
12-month
expected credit losses
      —       —       —  
Transfer to lifetime expected credit losses
      —       —       —  
Impairment
      —       —       —  
Reversal of credit losses
      (51 )      (35 )      (282 ) 
Others
      73       1       —  
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 2,969     ￦ —     ￦ —  
    
 
 
    
 
 
    
 
 
  
   
    
202
2
  
    
12-month
expected
credit losses
    
Lifetime expected credit losses
  
 
Non-impaired
    
Impaired
  
                    
    
(In millions of Korean won)
  
Beginning
    ￦ 2,969     ￦ —     ￦ —  
Transfer between stages:
                         
Transfer to
12-month
expected credit losses
      —       —       —  
Transfer to lifetime expected credit losses
      —       —       —  
Impairment
      —       —       —  
Reversal of credit losses
      (392 )      —       —  
Others
      166       —       —  
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 2,743     ￦ —     ￦ —  
    
 
 
    
 
 
    
 
 
  
 
F-111
8. Assets Pledged as Collateral
8.1 Details of assets pledged as collateral as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
Assets pledged
  
Pledgee
  
Carrying amount
    
Reasons of pledge
       
(In millions of
Korean won)
      
Due from financial institutions
  
Shinhan Banks and others
   ￦ 1,163,138     Borrowings from bank and others
Financial assets at fair value through profit or loss
  
The Korea Securities Depository and others
     8,689,639     Repurchase agreements
   
The Korea Securities Depository and others
     9,294,924     Securities borrowing transactions
   
Samsung Futures Inc. and others
     1,039,656     Derivatives transactions
       
 
 
      
          19,024,219      
       
 
 
      
Financial assets at fair value through other comprehensive income
  
The Korea Securities Depository and others
     2,048,029     Repurchase agreements
   
The Korea Securities Depository and others
     1,523,593     Securities borrowing transactions
   
The Bank of Korea
     2,843,426    
Borrowings from the Bank of Korea
   
The Bank of Korea
     1,249,049    
Settlement risk of the Bank of Korea
   
Samsung Futures Inc. and others
     709,390    
Derivatives transactions
       
 
 
      
          8,373,487      
       
 
 
      
Securities measured at amortized cost
  
The Korea Securities Depository and others
     494,973    
Repurchase agreements
   
The Bank of Korea
     4,847,855    
Borrowings from the Bank of Korea
   
The Bank of Korea
     3,948,622    
Settlement risk of the Bank of Korea
   
Samsung Futures Inc. and others
     144,014     Derivatives transactions
    Others     268,767     Others
       
 
 
      
          9,704,231      
       
 
 
      
Loans
  
Others
     9,659,575    
Covered bond and others
       
 
 
      
Real estate
  
LGIM COMMERCIAL LENDING Ltd. and others
     1,598,553     Borrowings from bank and others
       
 
 
      
        ￦ 49,523,203      
       
 
 
      
 
F-112
   
December 31, 2022
Assets pledged
  
Pledgee
  
Carrying amount
    
Reasons of pledge
       
(In millions of
Korean won)
      
Due from financial institutions
  
KEB Hana Bank and others
   ￦ 1,263,167     Borrowings from bank and others
Financial assets at fair value through profit or loss
  
The Korea Securities Depository and others
     3,841,536     Repurchase agreements
   
The Korea Securities Depository and others
     7,063,541     Securities borrowing transactions
   
The Bank of Korea
     34,071    
Borrowings from the Bank of Korea
   
The Bank of Korea
     236,832    
Settlement risk of the Bank of Korea
   
Samsung Futures Inc. and others
     1,131,217     Derivatives transactions
       
 
 
      
          12,307,197      
       
 
 
      
Financial assets at fair value through other comprehensive income
  
MERITZ Securities Co., LTD and others
     5,625,270     Repurchase agreements
   
The Korea Securities Depository and others
     1,592,460     Securities borrowing transactions
   
The Bank of Korea
     5,495,686    
Borrowings from the Bank of Korea
   
The Bank of Korea
     1,782,507    
Settlement risk of the Bank of Korea
   
Samsung Futures Inc. and others
     1,121,999    
Derivatives transactions
       
 
 
      
          15,617,922      
       
 
 
      
Securities measured at amortized cost
  
The Korea Securities Depository and others
     2,307,499    
Repurchase agreements
   
The Bank of Korea
     4,020,539    
Borrowings from the Bank of Korea
   
The Bank of Korea
     5,047,277    
Settlement risk of the Bank of Korea
   
Samsung Futures Inc. and others
     327,684     Derivatives transactions
    Korea Exchange and others     896,896     Others
       
 
 
      
          12,599,895      
       
 
 
      
Loans
   Others     12,863,079     Covered bond and others
       
 
 
      
Real estate
  
LGIM COMMERCIAL LENDING Ltd. and others
     834,003     Borrowings from bank and others
       
 
 
      
        ￦ 55,485,263      
       
 
 
      
In addition, the Group provided ￦ 6,165,555 million and ￦ 4,986,339 million of debt securities among its borrowed securities and other assets held as collateral to Korea Securities Finance Corporation and others as collateral as of December 31, 2021 and 2022, respectively.
 
F-113
8.2 Fair value of collateral available to sell or repledge, and collateral sold or repledged, regardless of debtor’s default as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Fair value of collateral
held
     
Fair value of collateral
sold or repledged
     
Total
  
    
(In millions of Korean won)
  
Securities
    ￦ 6,451,850      ￦ —      ￦ 6,451,850  
 
    
December 31, 2022
  
    
Fair value of collateral
held
     
Fair value of collateral
sold or repledged
     
Total
  
    
(In millions of Korean won)
  
Securities
    ￦ 3,344,424      ￦ —      ￦ 3,344,424  
9. Derivative Financial Instruments and Hedge Accounting
The Group’s derivative operations focus on addressing the needs of the Group’s corporate clients to hedge their risk exposure and hedging the Group’s risk exposure that results from such client contracts. The Group also engages in derivative trading activities to hedge the interest rate risk and currency risk arising from the Group’s own assets and liabilities. In addition, the Group engages in proprietary trading of derivatives within the predetermined transaction limit.
The Group provides and trades a range of derivative financial instruments, including:
 
  •  
Interest rate swaps relating to interest rate risk in Korean won
 
  •  
Cross-currency swaps, forwards, and options relating to currency risk
 
  •  
Stock index options linked with the Korea Composite Stock Price Index (“KOSPI”)
In particular, the Group applies fair value hedge accounting using interest rate swaps, currency forwards, and others to hedge the risk of changes in fair value due to the changes in interest rate and foreign exchange rate of structured debentures in Korean won, debentures in foreign currencies, structured deposits in foreign currencies, and others. The Group applies cash flow hedge accounting using interest rate swaps, currency swaps, and others to hedge the risk of changes in cash flows of floating rate debt securities in Korean won, borrowings in foreign currencies, group of loans measured at amortized cost, and others. In addition, the Group applies net investments in foreign operations hedge accounting by designating debentures in foreign currencies and cross currency forwards as hedging instruments to hedge the currency risk of net investments in foreign operations.
 
F-114
9.1 Details of derivative financial instruments held for trading as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
Notional amount
     
Assets
     
Liabilities
     
Notional amount
     
Assets
     
Liabilities
  
    
(In millions of Korean won)
  
Interest rate
                                                      
Forwards
    ￦ 4,037,717      ￦ 140,126      ￦ 126,610      ￦ 8,261,663      ￦ 821,603      ￦ 431,002  
Futures*
      6,479,692        1,903        2,464        4,450,505        765        256  
Swaps
      334,721,395        354,686        397,046        359,581,194        859,670        694,713  
Options
      12,547,000        176,274        199,567        10,508,000        274,596        272,284  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       357,785,804        672,989        725,687        382,801,362        1,956,634        1,398,255  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Currency
                                                      
Forwards
      105,509,405        1,296,083        934,944        115,682,577        2,813,603        2,472,119  
Futures*
      361,791        464        877        413,960        36        2,364  
Swaps
      65,028,025        1,082,873        1,331,597        91,646,725        3,525,458        4,049,390  
Options
      1,885,064        7,643        11,044        1,852,065        27,258        13,025  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       172,784,285        2,387,063        2,278,462        209,595,327        6,366,355        6,536,898  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Stock and index
                                                      
Futures*
      1,612,965        14,338        6,530        1,828,302        37,455        89,624  
Swaps
      5,207,198        322,888        132,619        6,649,735        377,840        492,275  
Options
      7,617,703        95,338        241,371        7,257,715        168,311        359,274  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       14,437,866        432,564        380,520        15,735,752        583,606        941,173  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Credit
                                                      
Swaps
      2,602,382        18,979        7,409        3,006,114        32,860        17,468  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       2,602,382        18,979        7,409        3,006,114        32,860        17,468  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Commodity
                                                      
Futures*
      6,370        43        82        28,577        1,970        941  
Swaps
      —        —        —        131,500        887        885  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       6,370        43        82        160,077        2,857        1,826  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Others
      1,695,540        20,904        117,629        1,003,301        41,859        313,917  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 549,312,247      ￦ 3,532,542      ￦ 3,509,789      ￦ 612,301,933      ￦ 8,984,171      ￦ 9,209,537  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Gains or losses arising from some daily
mark-to-market
futures are reflected in the margin accounts.
 
F-115
9.2 Average price conditions of future nominal cash flows by type of hedge accounting as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
1 year
    
2 years
    
3 years
    
4 years
    
5 years
    
Over

5 years
    
Total
  
   
(In millions of Korean won)
  
Fair value hedge
                                                        
Nominal amount of the hedging instrument
   ￦ 2,223,113     ￦ 1,423,760     ￦ 967,376     ￦ 2,153,200     ￦ 1,428,673     ￦ 2,419,230     ￦ 10,615,352  
Average price condition (%)
     0.94       1.23       1.04       1.16       1.06       1.39       1.18  
Average price condition (USD/KRW)
     1,144.74       1,154.78       1,169.72       —       —       —       1,150.30  
Average price condition (EUR/KRW)
     1,359.59       1,363.95       1,394.84       —       1,458.92       —       1,409.23  
Average price condition (AUD/KRW)
     859.41       —       —       —       —       —       859.41  
Average price condition (GBP/KRW)
     1,554.65       —       —       1,620.05       —       —       1,557.47  
Cash flow hedge
                                                        
Nominal amount of the hedging instrument
   ￦ 4,150,546     ￦ 1,763,372     ￦ 322,735     ￦ 641,733     ￦ 580,128     ￦ 150,000     ￦ 7,608,514  
Average price condition (%)
     1.01       1.51       2.06       1.87       1.84       2.12       1.21  
Average price condition (USD/KRW)
     1,159.92       1,178.13       1,145.05       1,139.40       1,123.13       —       1,152.89  
Average price condition (EUR/KRW)
     1,312.75       1,321.00       1,364.00       1,374.73       —       —       1,351.76  
Average price condition (AUD/KRW)
     —       —       856.40       851.50       —       —       853.40  
Average price condition (SGD/KRW)
     —       866.14       —       —       —       —       866.14  
Hedge of net investments in foreign operations
                                                        
Nominal amount of the hedging instrument
   ￦ 91,636     ￦ —     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 91,636  
Average price condition (USD/KRW)
     1,071.00       —       —       —       —       —       1,071.00  
Average price condition (GBP/KRW)
     1,465.26       —       —       —       —       —       1,465.26  
 
F-116
   
December 31, 2022
  
   
1 year
    
2 years
    
3 years
    
4 years
    
5 years
    
Over

5 years
    
Total
  
   
(In millions of Korean won)
  
Fair value hedge
                                                        
Nominal amount of the hedging instrument
   ￦ 5,612,378     ￦ 1,921,072     ￦ 2,701,675     ￦ 1,883,332     ￦ 426,551     ￦ 2,147,846     ￦ 14,692,854  
Average price condition (%)
     4.17       4.52       4.64       4.56       4.36       4.64       4.43  
Average price condition (USD/KRW)
     1,197.01       1,262.56       1,276.70       —       —       —       1,240.59  
Average price condition (EUR/KRW)
     1,363.42       1,373.32       —       1,436.86       —       —       1,387.71  
Average price condition (AUD/KRW)
     886.23       895.76       —       —       —       —       890.17  
Average price condition (GBP/KRW)
     1,617.02       —       1,535.25       —       —       —       1,537.85  
Cash flow hedge
                                                        
Nominal amount of the hedging instrument
   ￦ 3,033,420     ￦ 892,720     ￦ 1,846,139     ￦ 771,585     ￦ 1,078,676     ￦ 210,000     ￦ 7,832,540  
Average price condition (%)
     2.90       2.60       4.42       4.62       4.95       3.99       3.54  
Average price condition (USD/KRW)
     1,178.13       1,196.80       1,166.24       1,225.35       1,252.61       —       1,202.02  
Average price condition (EUR/KRW)
     1,321.00       1,364.00       1,374.73       —       —       —       1,362.51  
Average price condition (AUD/KRW)
     —       856.40       851.50       —       —       —       853.40  
Average price condition (SGD/KRW)
     866.14       —       —       —       —       —       866.14  
Hedge of net investments in foreign operations
                                                        
Nominal amount of the hedging instrument
   ￦ 65,012     ￦ 27,499     ￦ —     ￦ —     ￦ —     ￦ —     ￦ 92,511  
Average price condition (USD/KRW)
     1,071.00       —       —       —       —       —       1,071.00  
Average price condition (GBP/KRW)
     —       1,465.26       —       —       —       —       1,465.26  
 
F-117
9.3 Fair Value Hedge
9.3.1 Details of fair value hedged items as of December 31, 2021 and 2022 and changes in fair value for the years ended December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
    
2021
  
       
Carrying amount
    
Accumulated amount of
hedge adjustments
    
Changes in

fair value
  
       
Assets
    
Liabilities
    
Assets
    
Liabilities
  
       
(In millions of Korean won)
  
Hedge accounting
 
Interest rate
  
Debt securities in Korean won
   ￦ 1,627,228     ￦ —     ￦ (20,272 )    ￦ —     ￦ (26,247 ) 
 
Debt securities in foreign currencies
     3,567,662       —       (22,384 )      —       (71,246 ) 
 
Deposits in foreign currencies
     —       93,521       —       (1,319 )      3,222  
 
Debentures in Korean won
     —       2,470,123       —       (79,877 )      70,308  
 
Debentures in foreign currencies
     —       1,154,178       —       27,953       45,132  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
          5,194,890       3,717,822       (42,656 )      (53,243 )      21,169  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Currency
  
Debt securities in foreign currencies
     2,443,893       —       133,268       —       180,676  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
          2,443,893       —       133,268       —       180,676  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
        ￦ 7,638,783     ￦ 3,717,822     ￦ 90,612     ￦ (53,243)     ￦ 201,845  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     
   
December 31, 2022
    
2022
  
       
Carrying amount
    
Accumulated amount of
hedge adjustments
    
Changes in

fair value
  
       
Assets
    
Liabilities
    
Assets
    
Liabilities
  
       
(In millions of Korean won)
  
Hedge accounting
 
Interest rate
  
Debt securities in Korean won
   ￦ 2,467,171     ￦ —     ￦ (107,444 )    ￦ —     ￦ (86,757 ) 
 
Debt securities in foreign currencies
     3,142,973       —       (232,085 )      —       (215,183 ) 
 
Deposits in foreign currencies
     —       29,429       —       (8,591 )      6,976  
 
Debentures in Korean won
     —       5,690,371       —       (249,629 )      171,841  
 
Debentures in foreign currencies
     —       1,196,781       —       (95,865 )      123,817  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
          5,610,144       6,916,581       (339,529 )      (354,085 )      694  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Currency
  
Debt securities in foreign currencies
     1,596,049       —       82,284       —       151,303  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
          1,596,049       —       82,284       —       151,303  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
        ￦  7,206,193     ￦  6,916,581     ￦ (257,245 )    ￦ (354,085)     ￦ 151,997  
       
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-118
9.3.2 Details of derivative instruments designated as fair value hedge as of December 31, 2021 and 2022 and changes in fair value for the years ended December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
2021
  
    
Notional amount
     
Assets
     
Liabilities
     
Changes in

fair value
  
    
(In millions of Korean won)
  
Interest rate
                                    
Swaps
    ￦ 8,910,139      ￦ 127,290      ￦ 38,253      ￦ (33,227 ) 
Currency
                                    
Forwards
      1,705,213        2,436        54,855        (174,707 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 10,615,352      ￦ 129,726      ￦   93,108      ￦ (207,934 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
    
December 31, 2022
     
2022
  
    
Notional amount
     
Assets
     
Liabilities
     
Changes in

fair value
  
    
(In millions of Korean won)
  
Interest rate
                                    
Swaps
    ￦ 13,290,183      ￦ 186,258      ￦ 104,856      ￦ (1,244 ) 
Currency
                                    
Forwards
      1,402,671        36,567        26,008        (129,451 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 14,692,854      ￦ 222,825      ￦ 130,864      ￦ (130,695 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
9.3.3 Details of hedge ineffectiveness recognized in profit or loss on derivative instruments designated as fair value hedge for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
   
2020
    
2021
    
2022
  
   
(In millions of Korean won)
  
Hedge accounting
                
Interest rate
   ￦ 5,742     ￦ (12,058 )    ￦ (550 ) 
Currency
     56,684       5,969       21,852  
   
 
 
    
 
 
    
 
 
  
    ￦ 62,426     ￦ (6,089 )    ￦ 21,302  
   
 
 
    
 
 
    
 
 
  
9.3.4 Gains or losses on fair value hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
   
2020
    
2021
    
2022
  
   
(In millions of Korean won)
  
Gains (losses) on hedging instruments
   ￦ 89,179     ￦ (187,364 )    ￦ (101,281 ) 
Gains (losses) on hedged items attributable to the hedged risk
     (26,899 )      188,556       122,552  
   
 
 
    
 
 
    
 
 
  
    ￦ 62,280     ￦ 1,192     ￦ 21,271  
   
 
 
    
 
 
    
 
 
  
 
F-119
9.4 Cash Flow Hedge
9.4.1 Details of cash flow hedged items as of December 31, 2021 and 2022 and changes in fair value for the years ended December 31, 2021 and 2022, are as follows:
 
    
Cash flow hedge reserve
    
Changes in fair value
  
    
December 31,

2021
    
December 31,

2022
    
2021
    
2022
  
    
(In millions of Korean won)
  
Hedge accounting
                                 
Interest rate risk
    ￦ 4,864     ￦ 46,229     ￦ (36,428 )    ￦ (107,134 ) 
Currency risk
      (12,597 )      (22,488 )         12,605       14,289  
    
 
 
    
 
 
    
 
 
    
 
 
  
     ￦ (7,733 )    ￦ 23,741     ￦ (23,823 )    ￦ (92,845 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
9.4.2 Details of derivative instruments designated as cash flow hedge as of December 31, 2021 and 2022 and changes in fair value for the years ended December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
    
2021
  
    
Notional
amount
    
Assets
    
Liabilities
    
Changes in

fair value
  
    
(In millions of Korean won)
  
Interest rate
                                 
Swaps
    ￦ 4,553,250     ￦ 12,575     ￦ 9,532     ￦ 36,164  
Currency
                                 
Swaps
      3,055,264         46,527           61,331        60,327  
    
 
 
    
 
 
    
 
 
    
 
 
  
     ￦  7,608,514     ￦  59,102     ￦  70,863     ￦   96,491  
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
December 31, 2022
    
2022
  
    
Notional
amount
    
Assets
    
Liabilities
    
Changes in

fair value
  
    
(In millions of Korean won)
  
Interest rate
                                 
Forwards
    ￦ 1,079,652     ￦ 20,202     ￦ 56,753     ￦ (36,372 ) 
Swaps
      3,231,288          101,975          124        111,902  
Currency
                                 
Swaps
      3,521,600       116,961       98,237       (6,379 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
     ￦  7,832,540     ￦  239,138     ￦  155,114     ￦  69,151  
    
 
 
    
 
 
    
 
 
    
 
 
  
9.4.3 Gains or losses on cash flow hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
     
2022
  
    
(In millions of Korean won)
  
Gains (losses) on hedging instruments:
    ￦ (55,240 )    ￦ 96,491      ￦ 69,151  
Effective portion of gains (losses) on cash flow hedging instruments (recognized in other comprehensive income or loss)
      (48,034 )      95,478        71,692  
Ineffective portion of gains (losses) on cash flow hedging instruments (recognized in profit or loss)
      (7,206 )      1,013        (2,541 ) 
 
F-120
9.4.4 Amounts recognized in other comprehensive income (loss) and reclassified from equity to profit or loss related to derivative instruments designated as cash allow hedge for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Other comprehensive income (loss)
    ￦ (48,034 )    ￦ 95,478     ￦ 71,692  
Reclassification to profit or loss
      39,190       (53,080 )      (13,288 ) 
Income tax effect
      7,580       (21,534 )      (26,930 ) 
    
 
 
    
 
 
    
 
 
  
     ￦ (1,264 )    ￦ 20,864     ￦ 31,474  
    
 
 
    
 
 
    
 
 
  
9.5 Hedge of Net Investments in Foreign Operations
9.5.1 Details of net investments in foreign operations hedged items as of December 31, 2021 and 2022 and changes in fair value for the years ended December 31, 2021 and 2022, are as follows:
 
    
Foreign currency

translation reserve
    
Changes in fair value
  
    
December 31,

2021
    
December 31,

2022
    
2021
     
2022
  
    
(In millions of Korean won)
  
Hedge accounting
                                  
Currency risk
    ￦ (35,658 )    ￦ (114,743 )    ￦ 88,729      ￦ 104,021  
9.5.2 Details of financial instruments designated as hedge of net investments in foreign operations as of December 31, 2021 and 2022 and changes in fair value for the years ended December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
2021
  
    
Notional

amount
     
Assets
     
Liabilities
     
Changes in

fair value
  
    
(In millions of Korean won)
  
Currency
                                    
Forwards
    ￦ 91,636      ￦ —      ￦ 8,498      ￦ (8,494 ) 
Debentures in foreign currencies
      1,273,227        —        1,273,227        (80,235 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 1,364,863      ￦      —      ￦ 1,281,725      ￦   (88,729 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
    
December 31, 2022
     
2022
  
    
Notional

amount
     
Assets
     
Liabilities
     
Changes in

fair value
  
    
(In millions of Korean won)
  
Currency
                                    
Forwards
    ￦ 92,511      ￦      —      ￦ 11,194      ￦ (16,168 ) 
Debentures in foreign currencies
      1,361,080        —        1,361,080        (87,853 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 1,453,591      ￦ —      ￦ 1,372,274      ￦ (104,021 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-121
9.5.3 Fair value of
non-derivative
financial instruments designated as hedge of net investments in foreign operations as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
(In millions of Korean won)
  
Debentures in foreign currencies
    ￦ 1,275,291      ￦ 1,211,215  
9.5.4 Gains or losses on net investments in foreign operations hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Gains (losses) on hedging instruments:
    ￦  88,769      ￦ (88,729 )    ￦ (104,021 ) 
Effective portion of gains (losses) on hedge of net investments in foreign operations (recognized in other comprehensive income or loss)
      88,769       (88,729 )      (104,021 ) 
Ineffective portion of gains (losses) on hedge of net investments in foreign operations (recognized in profit or loss)
      —       —       —  
9.5.5 Effective portion of gains or losses on net investments in foreign operations hedging instruments recognized in other comprehensive income (loss) for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Other comprehensive income (loss)
    ￦ 88,769     ￦ (88,729 )    ￦ (104,021 ) 
Reclassification to profit or loss
      —       5,195       —  
Income tax effect
      (24,500 )      25,599       24,936  
    
 
 
    
 
 
    
 
 
  
     ￦ 64,269     ￦ (57,935 )    ￦ (79,085 ) 
    
 
 
    
 
 
    
 
 
  
9.6 Interest Rate Benchmark Reform
The USD LIBOR interest rate will be replaced by the Secured Overnight Financing Rate (“SOFR”) based on actual transactions. In the case of KRW, the Korean government bond/monetary stabilization bond RP rate has been finally decided as the Risk-Free Reference Rate (“RFR”) and will replace the Certificate of Deposit (“CD”) rate in the mid to long-term. Within the corresponding hedging relationship of related significant interest rate benchmark, the Group assumed that the spread to be changed on the RFR basis including SOFR would be similar to that included in the interest rate swap used as a hedging instrument, and no other changes were assumed.
Details of the Group’s exposure to hedging relationships related to the interest rate benchmark reform as of December 31, 2022, are as follows:
 
           
December 31, 2022
  
Interest rate benchmark
   
Currency
     
Carrying amount of
non-derivative assets
     
Carrying amount of
non-derivative liabilities
     
Notional amount of
hedging instruments
  
    
(In millions of Korean won and millions of US dollars)
  
CD#3M
      KRW        2,760,791        5,690,371        6,440,000  
USD#LIBOR#3M
      USD        1,895        1,385        3,753  
USD#LIBOR#6M
      USD        167        —        182  
 
F-122
10. Loans Measured at Amortized Cost
10.1 Details of loans as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
    
December 31, 2022
  
    
(In millions of Korean won)
  
Loans measured at amortized cost
    ￦ 420,910,259     ￦ 440,137,603  
Deferred loan origination fees and costs
      674,069       551,524  
Less: Allowances for credit losses
      (3,684,055 )      (4,158,625 ) 
    
 
 
    
 
 
  
     ￦ 417,900,273     ￦ 436,530,502  
    
 
 
    
 
 
  
10.2 Details of loans to banks as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
    
December 31, 2022
  
    
(In millions of Korean won)
  
Loans measured at amortized cost
    ￦     8,325,177     ￦     9,751,737  
Less: Allowances for credit losses
      (443 )      (1,951 ) 
    
 
 
    
 
 
  
     ￦ 8,324,734     ￦ 9,749,786  
    
 
 
    
 
 
  
10.3 Details of loan types and customer types of loans to customers other than banks as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Retail
    
Corporate
    
Credit card
    
Total
  
    
(In millions of Korean won)
  
Loans in Korean won
    ￦ 184,872,384     ￦ 162,081,901     ￦ —     ￦ 346,954,285  
Loans in foreign currencies
      3,990,253       20,865,495       —       24,855,748  
Domestic import usance bills
      —       3,311,142       —       3,311,142  
Off-shore
funding loans
      —       1,064,623       —       1,064,623  
Call loans
      —       902,301       —       902,301  
Bills bought in Korean won
      —       2,209       —       2,209  
Bills bought in foreign currencies
      —       2,001,046       —       2,001,046  
Guarantee payments under acceptances and guarantees
      7       20,773       —       20,780  
Credit card receivables in Korean won
      —       —       20,766,340       20,766,340  
Credit card receivables in foreign currencies
      —       —       57,980       57,980  
Bonds purchased under repurchase agreements
      —       4,855,194       —       4,855,194  
Privately placed bonds
      —       758,557       —       758,557  
Factored receivables
      113       458       —       571  
Lease receivables
      778,425       513,714       —       1,292,139  
Loans for installment credit
      6,265,896       150,340       —       6,416,236  
    
 
 
    
 
 
    
 
 
    
 
 
  
       195,907,078       196,527,753       20,824,320       413,259,151  
    
 
 
    
 
 
    
 
 
    
 
 
  
Proportion (%)
      47.40       47.56       5.04       100.00  
Less: Allowances for credit losses
      (1,004,995 )      (1,886,473 )      (792,144 )      (3,683,612 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
     ￦ 194,902,083     ￦ 194,641,280     ￦ 20,032,176     ￦ 409,575,539  
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-123
    
December 31, 2022
  
    
Retail
    
Corporate
    
Credit card
    
Total
  
    
(In millions of Korean won)
  
Loans in Korean won
    ￦ 181,125,018     ￦ 177,396,151     ￦ —     ￦ 358,521,169  
Loans in foreign currencies
      4,668,207       26,052,080       —       30,720,287  
Domestic import usance bills
      —       4,499,072       —       4,499,072  
Off-shore
funding loans
      —       908,266       —       908,266  
Call loans
      —       119,066       —       119,066  
Bills bought in Korean won
      —       285,727       —       285,727  
Bills bought in foreign currencies
      —       1,780,873       —       1,780,873  
Guarantee payments under acceptances and guarantees
      1       18,459       —       18,460  
Credit card receivables in Korean won
      —       —       22,562,217       22,562,217  
Credit card receivables in foreign currencies
      —       —       47,376       47,376  
Bonds purchased under repurchase agreements
      —       3,028,657       —       3,028,657  
Privately placed bonds
      —       853,986       —       853,986  
Factored receivables
      111       4       —       115  
Lease receivables
      576,165       558,318       —       1,134,483  
Loans for installment credit
      5,915,223       542,413       —       6,457,636  
    
 
 
    
 
 
    
 
 
    
 
 
  
       192,284,725       216,043,072       22,609,593       430,937,390  
    
 
 
    
 
 
    
 
 
    
 
 
  
Proportion (%)
      44.62       50.13       5.25       100.00  
Less: Allowances for credit losses
      (1,335,388 )      (1,983,444 )      (837,842 )      (4,156,674 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
     ￦ 190,949,337     ￦ 214,059,628     ￦ 21,771,751     ￦ 426,780,716  
    
 
 
    
 
 
    
 
 
    
 
 
  
10.4 Changes in deferred loan origination fees and costs for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
     
Increase
     
Decrease
    
Others
    
Ending
  
    
(In millions of Korean won)
  
Deferred loan origination costs
                                           
Loans in Korean won
    ￦ 673,957      ￦ 418,732      ￦ (424,785 )    ￦ —     ￦ 667,904  
Others
1
      95,590        44,728        (63,619 )      (4 )      76,695  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
       769,547        463,460        (488,404 )      (4 )      744,599  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Deferred loan origination fees
                                           
Loans in Korean won
      9,148        11,909        (3,556 )      —       17,501  
Others
2
      44,072        32,667        (27,332 )      3,622       53,029  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
       53,220        44,576        (30,888 )      3,622       70,530  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 716,327      ￦ 418,884      ￦ (457,516 )    ￦ (3,626 )    ￦ 674,069  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
 
 
F-124
    
2022
  
    
Beginning
     
Increase
     
Decrease
    
Others
    
Ending
  
    
(In millions of Korean won)
  
Deferred loan origination costs
                                           
Loans in Korean won
    ￦ 667,904      ￦ 291,342      ￦ (380,718 )    ￦ —     ￦ 578,528  
Others
1
      76,695        38,913        (47,445 )      4       68,167  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
       744,599        330,255        (428,163 )      4       646,695  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
Deferred loan origination fees
                                           
Loans in Korean won
      17,501        23,780        (13,117 )      —       28,164  
Others
2
      53,029        49,245        (37,730 )      2,463       67,007  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
       70,530        73,025        (50,847 )      2,463       95,171  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 674,069      ￦ 257,230      ￦ (377,316 )    ￦ (2,459 )    ￦ 551,524  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
  
 
1
 
Includes deferred loan origination costs related to credit card receivables, loans for installment credit, and finance lease receivables.
2
 
Includes deferred loan origination fees related to loans in foreign currencies executed by PT Bank KB Bukopin Tbk and PRASAC Microfinance Institution Plc.
 
F-125
11. Allowances for Credit Losses
11.1 Changes in allowances for credit losses of loans measured at amortized cost for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Retail
    
Corporate
    
Credit card
  
   
12-month

expected

credit losses
    
Lifetime expected credit
losses
    
12-month

expected

credit losses
    
Lifetime expected credit
losses
    
12-month

expected
credit losses
    
Lifetime expected credit
losses
  
   
Non-impaired
    
Impaired
    
Non-impaired
    
Impaired
    
Non-impaired
    
Impaired
  
   
(In millions of Korean won)
  
Beginning
   ￦ 403,805     ￦ 240,578     ￦ 265,705     ￦ 368,782     ￦ 410,937     ￦ 892,061     ￦ 205,157     ￦ 234,219     ￦ 262,119  
Transfer between stages:
                                                                        
Transfer to
12-month
expected credit losses
     125,634       (120,132 )      (5,502 )      133,798       (71,772 )      (62,026 )      45,938       (44,858 )      (1,080 ) 
Transfer to lifetime expected credit losses
     (97,040 )      115,427       (18,387 )      (71,902 )      92,245       (20,343 )      (34,208 )      35,846       (1,638 ) 
Impairment
     (6,312 )      (49,244 )      55,556       (2,942 )      (42,158 )      45,100       (2,228 )      (12,580 )      14,808  
Write-offs
     —       12       (411,083 )      —       (3 )      (239,815 )      —       —       (440,721 ) 
Sales
     (1,112 )      (53 )      (3,592 )      (179 )      —       (16,257 )      —       —       —  
Provision (reversal) for credit losses
1,2
     40,616       52,528       397,492       14,299       88,230       338,746       (39,533 )      110,022       474,041  
Business combination
     8,315       2,223       7,194       —       —       1,654       —       —       —  
Others (exchange differences, etc.)
     77       532       1,758       5,942       675       21,844       42       —       (13,202 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
3
   ￦ 473,983     ￦ 241,871     ￦ 289,141     ￦ 447,798     ￦ 478,154     ￦ 960,964     ￦ 175,168     ￦ 322,649     ￦ 294,327  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-126
   
2022
  
   
Retail
    
Corporate
    
Credit card
  
   
12-month

expected

credit losses
    
Lifetime expected credit
losses
    
12-month

expected

credit losses
    
Lifetime expected credit
losses
    
12-month

expected
credit losses
    
Lifetime expected credit
losses
  
   
Non-impaired
    
Impaired
    
Non-impaired
    
Impaired
    
Non-impaired
    
Impaired
  
   
(In millions of Korean won)
  
Beginning
   ￦ 473,983     ￦ 241,871     ￦ 289,141     ￦ 447,798     ￦ 478,154     ￦ 960,964     ￦ 175,168     ￦ 322,649     ￦ 294,327  
Transfer between stages:
                                                                        
Transfer to
12-month
expected credit losses
     129,975       (122,881 )      (7,094 )      127,679       (120,619 )      (7,060 )      57,128       (50,836 )      (6,292 ) 
Transfer to lifetime expected credit losses
     (102,988 )      122,804       (19,816 )      (93,169 )      125,031       (31,862 )      (23,042 )      24,324       (1,282 ) 
Impairment
     (6,042 )      (52,137 )      58,179       (13,524 )      (48,220 )      61,744       (2,129 )      (19,219 )      21,348  
Write-offs
     —       (1 )      (448,376 )      —       (3 )      (617,332 )      —       —       (450,389 ) 
Sales
     (810 )      (163 )      (5,689 )      (103 )      (145 )      (70,603 )      —       —       —  
Provision (reversal) for credit losses
1,2
     108,300       94,535       595,991       49,789       126,627       690,534       (43,497 )      77,418       480,849  
Others (exchange differences, etc.)
     (1,332 )      (647 )      (11,415 )      3,701       1,111       (85,097 )      (443 )      (21 )      (18,219 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
3
   ￦ 601,086       283,381       450,921       522,171       561,936       901,288       163,185       354,315       320,342  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
1
 
Provision for credit losses in the consolidated statements of comprehensive income also includes provision (reversal) for credit losses of due from financial institutions (Note 7.3), provision (reversal) for credit losses of financial investments (Note 12.5), provision (reversal) for credit losses of unused commitments, acceptances and guarantees (Note 24.2), provision (reversal) for credit losses of financial guarantee contracts (Note 24.3), and provision (reversal) for credit losses of other financial assets (Note 19.2).
2
 
Includes ￦ 387,860 million and ￦ 415,998 million of collections from
written-off
loans for the years ended December 31, 2021 and 2022, respectively.
The Group manages the
written-off
loans that their legal extinctive prescriptions have not been completed, and that have not been collected. The balances of those loans are ￦ 9,945,130 million and ￦ 9,830,171 million as of December 31, 2021 and 2022, respectively.
 
F-127
11.2 Changes in gross carrying amount of loans for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
12-month

expected

credit losses
    
Lifetime expected credit losses
  
   
Non-impaired
    
Impaired
  
    
(In millions of Korean won)
  
Beginning
    ￦ 348,518,780     ￦ 28,504,202     ￦ 3,427,365  
Transfer between stages:
                         
Transfer to
12-month
expected credit losses
      31,046,440       (30,615,747 )      (430,693 ) 
Transfer to lifetime expected credit losses
(non-impaired)
      (36,815,970 )      37,276,737       (460,767 ) 
Transfer to lifetime expected credit losses (impaired)
      (668,120 )      (1,486,835 )      2,154,955  
Write-offs
      —       9       (1,091,619 ) 
Sales
      (2,892,774 )      (8,541 )      (151,714 ) 
Business combination
      116,067       3,924       12,808  
Net increase (decrease) (execution, repayment, and others)
      46,013,068       (895,012 )      27,765  
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 385,317,491     ￦ 32,778,737     ￦ 3,488,100  
    
 
 
    
 
 
    
 
 
  
 
    
2022
  
    
12-month

expected

credit losses
    
Lifetime expected credit losses
  
   
Non-impaired
    
Impaired
  
    
(In millions of Korean won)
  
Beginning
    ￦ 385,317,491     ￦ 32,778,737     ￦ 3,488,100  
Transfer between stages:
                         
Transfer to
12-month
expected credit losses
      34,445,894       (34,282,273 )      (163,621 ) 
Transfer to lifetime expected credit losses
(non-impaired)
      (38,397,090 )      38,818,713       (421,623 ) 
Transfer to lifetime expected credit losses (impaired)
      (1,127,437 )      (1,478,968 )      2,606,405  
Write-offs
      —       (4 )      (1,516,097 ) 
Sales
      (3,182,398 )      (15,961 )      (270,541 ) 
Net increase (decrease) (execution, repayment, and others)
      25,587,528       (1,325,731 )      (171,997 ) 
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 402,643,988     ￦ 34,494,513     ￦ 3,550,626  
    
 
 
    
 
 
    
 
 
  
 
F-128
12. Financial Assets at Fair Value through Profit or Loss and Financial Investments
12.1 Details of financial assets at fair value through profit or loss and financial investments as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
    
December 31,

2022
  
    
(In millions of Korean won)
  
Financial assets at fair value through profit or loss
                 
Debt securities:
                 
Government and public bonds
    ￦ 8,294,084     ￦ 8,405,662  
Financial bonds
      16,887,594       12,121,116  
Corporate bonds
      5,433,010       4,289,284  
Asset-backed securities
      197,865       164,543  
Beneficiary certificates
      15,849,129       18,320,226  
Derivative-linked securities
      1,543,188       1,713,779  
Other debt securities
      14,797,822       16,773,117  
Equity securities:
                 
Stocks
      1,804,507       1,880,611  
Other equity securities
      614,956       613,969  
Loans:
                 
Privately placed bonds
      230,006       158,731  
Other loans
      39,290       334,831  
Due from financial institutions:
                 
Other due from financial institutions
      200,742       69,469  
Others
      113,622       90,006  
    
 
 
    
 
 
  
     ￦ 66,005,815     ￦ 64,935,344  
    
 
 
    
 
 
  
Financial investments
 
Financial assets at fair value through other comprehensive income
 
Debt securities:
                 
Government and public bonds
    ￦ 14,317,477     ￦ 15,974,281  
Financial bonds
      21,928,735       20,632,077  
Corporate bonds
      18,986,005       18,282,144  
Asset-backed securities
      996,428       436,840  
Other debt securities
      30,866       284,977  
Equity securities:
                 
Stocks
      3,588,415       1,907,737  
Equity investments
      27,211       17,096  
Other equity securities
      187,502       401,545  
Loans:
                 
Privately placed bonds
      299,634       363,144  
Other loans
      13,970       —  
    
 
 
    
 
 
  
       60,376,243       58,299,841  
    
 
 
    
 
 
  
Financial assets at amortized cost
                 
Debt securities:
                 
Government and public bonds
      21,447,622       23,180,348  
Financial bonds
      3,850,954       11,325,479  
Corporate bonds
      12,246,441       15,770,225  
Asset-backed securities
      6,899,675       7,654,857  
Other debt securities
      31,105       363,985  
Less: Allowances for credit losses
      (4,169 )      (6,160 ) 
    
 
 
    
 
 
  
       44,471,628       58,288,734  
    
 
 
    
 
 
  
     ￦ 104,847,871     ￦ 116,588,575  
    
 
 
    
 
 
  
 
F-129
12.2 Dividend income from equity securities designated at fair value through other comprehensive income for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
     
2022
  
    
From the

equity securities
derecognized
     
From the

equity securities

held
     
From the

equity securities
derecognized
     
From the

equity securities

held
  
         
(In millions of Korean won)
  
Equity securities measured at fair value through other comprehensive income:
                                    
Stocks
    Listed    ￦ 7,106      ￦ 300      ￦ —      ￦ 976  
   Unlisted      372        19,035        —        20,658  
Equity investments
      —        114        —        —  
Other equity securities
      —        6,877        —        15,041  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦     7,478      ￦     26,326      ￦             —      ￦   36,675  
    
 
 
     
 
 
     
 
 
     
 
 
  
12.3 Derecognized equity securities measured at fair value through other comprehensive income for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
    
2022
  
    
Disposal

price
    
Accumulated
other
comprehensive
income (loss)
as of

disposal date
    
Disposal

price
     
Accumulated
other
comprehensive
income (loss)
as of

disposal date
  
         
(In millions of Korean won)
  
Equity securities measured at fair value through other comprehensive income:
                                  
Stocks
    Listed    ￦ 575,288     ￦ (313,427 )    ￦       425,736      ￦ 335,203  
   Unlisted      5,577                  4,559         —        —  
    
 
 
    
 
 
    
 
 
     
 
 
  
     ￦      580,865     ￦ (308,868 )    ￦ 425,736      ￦ 335,203  
    
 
 
    
 
 
    
 
 
     
 
 
  
12.4 Provision (reversal) for credit losses of financial investments for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
  
    
Provision
     
Reversal
    
Total
  
    
(In millions of Korean won)
  
Securities measured at fair value through other comprehensive income
    ￦ 4,297      ￦ (229 )    ￦ 4,068  
Loans measured at fair value through other comprehensive income
      202        (316 )      (114 ) 
Securities measured at amortized cost
      1,916        (636 )      1,280  
    
 
 
     
 
 
    
 
 
  
     ￦ 6,415      ￦ (1,181 )    ￦  5,234   
    
 
 
     
 
 
    
 
 
  
 
F-130
    
2021
  
    
Provision
     
Reversal
    
Total
  
    
(In millions of Korean won)
  
Securities measured at fair value through other comprehensive income
    ￦ 7,466      ￦ (385 )    ￦ 7,081  
Loans measured at fair value through other comprehensive income
      237        (15 )      222  
Securities measured at amortized cost
      1,892        (691 )      1,201  
    
 
 
     
 
 
    
 
 
  
     ￦ 9,595      ￦ (1,091 )    ￦  8,504   
    
 
 
     
 
 
    
 
 
  
 
    
2022
  
    
Provision
     
Reversal
    
Total
  
    
(In millions of Korean won)
  
Securities measured at fair value through other comprehensive income
    ￦ 2,009      ￦ (4,896 )    ￦ (2,887 ) 
Loans measured at fair value through other comprehensive income
      72        (260 )      (188 ) 
Securities measured at amortized cost
      2,808        (828 )      1,980  
    
 
 
     
 
 
    
 
 
  
     ￦ 4,889      ￦ (5,984 )    ￦ (1,095 ) 
    
 
 
     
 
 
    
 
 
  
12.5 Changes in allowances for credit losses of financial investments for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
12-month expected

credit losses
    
Lifetime expected credit losses
  
   
Non-impaired
    
Impaired
  
    
(In millions of Korean won)
  
Beginning
    ￦ 9,908     ￦ 39     ￦ 73  
Transfer between stages:
                         
Transfer to
12-month
expected credit losses
      —       —       —  
Transfer to lifetime expected credit losses
      —       —       —  
Sales
      (1,568 )      (4 )      —  
Provision (reversal) for credit losses
      8,512       (11 )      3  
Others
      (32 )      4       —  
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 16,820     ￦ 28     ￦ 76  
    
 
 
    
 
 
    
 
 
  
 
    
2022
  
    
12-month expected

credit losses
    
Lifetime expected credit losses
  
   
Non-impaired
    
Impaired
  
    
(In millions of Korean won)
  
Beginning
    ￦ 16,820     ￦ 28     ￦ 76  
Transfer between stages:
                         
Transfer to
12-month
expected credit losses
      —       —       —  
Transfer to lifetime expected credit losses
      —       —       —  
Sales
      (533 )      (20 )      —  
Provision (reversal) for credit losses
      (1,358 )      263       —  
Others
      255       —       —  
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 15,184     ￦ 271     ￦ 76  
    
 
 
    
 
 
    
 
 
  
 
F-131
13. Investments in Associates and Joint Ventures
13.1 Details of investments in associates and joint ventures as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
   
Ownership
(%)
    
Acquisition
cost
    
Share of net
asset amount
    
Carrying
amount
    
Industry
  
Location
                                 
   
(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1
1
     15.19     ￦ 259     ￦ 1,622     ￦ 1,622     Investment finance   Korea
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
2
     66.66       8,801       11,789       11,789     Investment finance   Korea
KB Star Office Private Real Estate Master Fund No.1
     21.05       20,000       26,240       26,240     Investment finance   Korea
Balhae Infrastructure Company
1
     12.61       105,924       99,785       99,785     Investment finance   Korea
Aju Good Technology Venture Fund
     38.46       12,343       22,921       22,921     Investment finance   Korea
SY Auto Capital Co., Ltd.
     49.00       9,800       19,835       18,222     Auto loans   Korea
Incheon Bridge Co., Ltd.
1
     14.99       9,158       (19,481 )      —     Operation of highways and related facilities   Korea
Big Dipper Co., Ltd.
1
     25.14       440       (147 )      —     Research, consulting, and big data   Korea
Paycoms Co., Ltd.
3
     11.05       800       181       525     System software publishing   Korea
Food Factory Co., Ltd.
4
     22.22       1,000       633       1,320     Farm product distribution   Korea
KBSP Private Equity Fund No.4
1
     14.95       6,100       5,628       5,628     Investment finance   Korea
Korea Credit Bureau Co., Ltd.
1
     9.00       4,500       4,497       4,497     Credit information   Korea
KB Social Impact Investment Fund
     30.00       4,500       4,282       4,282     Investment finance   Korea
KB-Solidus
Global Healthcare Fund
2
     43.33       45,557       48,201       48,898     Investment finance   Korea
POSCO-KB
Shipbuilding Fund
     31.25       2,776       5,413       5,413     Investment finance   Korea
KB-TS
Technology Venture Private Equity Fund
2
     56.00       14,280       16,828       16,828     Investment finance   Korea
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
2
     42.55       25,250       29,669       28,919     Investment finance   Korea
KB-SJ
Tourism Venture Fund
1
     18.52       4,999       4,146       4,146     Investment finance   Korea
UNION Media Commerce Fund
     28.99       1,000       959       959     Investment finance   Korea
KB-Stonebridge
Secondary Private Equity Fund
1
     14.56       21,641       21,948       21,948     Investment finance   Korea
KB SPROTT Renewable Private Equity Fund No.1
2
     37.69       5,795       4,680       4,680     Investment finance   Korea
KB-UTC
Inno-Tech Venture Fund
2
     44.29       21,375       20,972       20,972     Investment finance   Korea
WJ Private Equity Fund No.1
     26.95       10,000       9,604       9,604     Investment finance   Korea
All Together Korea Fund No.2
5
     99.99       10,000       10,070       10,070     Asset management   Korea
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
1
     12.00       13,392       15,254       15,254     Asset management   Korea
Project Vanilla Co., Ltd.
     49.00       2,450       525       525     Investment finance   Korea
December & Company Inc.
1
     16.78       25,330       9,054       21,388     Investment finance   Korea
2020 KB Fintech Renaissance Fund
1
     5.05       550       618       618     Investment finance   Korea
KB Material and Parts No.1 PEF
1
     14.47       3,400       3,343       3,343     Investment finance   Korea
FineKB Private Equity Fund No.1
     25.00       8,375       8,067       8,067     Investment finance   Korea
KB Bio Private Equity No.3 Ltd.
1
     12.20       10,000       9,950       9,950     Investment finance   Korea
G payment Joint Stock Company
     43.84       9,029       3,175       9,350     Investment advisory and securities trading   Vietnam
498 Seventh Owners LLC
6
     49.90       166,851       —       —     Real estate investment   United States
Smart Korea KB Future9-Sejong Venture Fund
     38.46       1,000       962       962     Investment finance   Korea
KB-KTB
Technology Venture Fund
2
     50.50       5,600       5,503       5,554     Investment finance   Korea
KB-SOLIDUS
Healthcare Investment Fund
2
     88.23       1,800       1,800       1,800     Investment finance   Korea
Paramark KB Fund No.1
     20.69       2,040       1,850       1,850     Investment finance   Korea
Others
             2,475       81       789          
           
 
 
    
 
 
    
 
 
          
            ￦ 598,590     ￦ 410,457     ￦ 448,718          
           
 
 
    
 
 
    
 
 
          
 
F-132
   
December 31, 2022
   
Ownership
(%)
    
Acquisition
cost
    
Share of net
asset amount
    
Carrying
amount
    
Industry
  
Location
                                 
   
(In millions of Korean won)
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
2
     66.66     ￦ 3,601     ￦ 5,978     ￦ 5,978     Investment finance   Korea
Balhae Infrastructure Company
1
     12.61       96,516       90,653       90,617     Investment finance   Korea
Aju Good Technology Venture Fund
     38.47       8,143       19,840       19,836     Investment finance   Korea
SY Auto Capital Co., Ltd.
     49.00       9,800       20,250       19,162     Auto loans   Korea
Incheon Bridge Co., Ltd.
1
     14.99       9,158       (15,963 )      —     Operation of highways and related facilities   Korea
Big Dipper Co., Ltd.
1
     17.86       440       60       60     Research, consulting, and big data   Korea
Paycoms Co., Ltd.
3
     12.24       800       201       213     System software publishing   Korea
Food Factory Co., Ltd.
4
     22.22       1,000       696       1,399     Farm product distribution   Korea
KBSP Private Equity Fund No.4
1
     14.95       6,100       1,892       1,892     Investment finance   Korea
Korea Credit Bureau Co., Ltd.
1
     9.00       4,500       4,959       4,959     Credit information   Korea
KB Social Impact Investment Fund
     30.00       4,500       4,266       4,266     Investment finance   Korea
KB-Solidus
Global Healthcare Fund
2
     43.33       25,927       21,735       22,432     Investment finance   Korea
POSCO-KB
Shipbuilding Fund
     31.25       1,826       4,798       4,798     Investment finance   Korea
KB-TS
Technology Venture Private Equity Fund
2
     56.00       9,744       13,794       13,794     Investment finance   Korea
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
2
     42.55       12,450       17,801       17,051     Investment finance   Korea
KB-SJ
Tourism Venture Fund
1
     18.52       4,599       3,773       3,773     Investment finance   Korea
UNION Media Commerce Fund
     28.99       1,000       957       957     Investment finance   Korea
KB-Stonebridge
Secondary Private Equity Fund
1
     14.56       23,801       25,144       25,144     Investment finance   Korea
KB SPROTT Renewable Private Equity Fund No.1
2
     37.69       18,041       16,539       16,539     Investment finance   Korea
KB-UTC
Inno-Tech Venture Fund
2
     44.29       21,375       19,180       19,180     Investment finance   Korea
WJ Private Equity Fund No.1
     26.95       10,000       9,542       9,542     Investment finance   Korea
All Together Korea Fund No.2
5
     99.99       10,000       10,244       10,244     Asset management   Korea
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
1
     12.00       10,006       12,554       12,554     Asset management   Korea
December & Company Inc.
1
     16.78       29,951       3,735       16,029     Investment finance   Korea
2020 KB Fintech Renaissance Fund
1
     5.05       550       630       630     Investment finance   Korea
KB Material and Parts No.1 PEF
1
     14.47       3,400       3,321       3,321     Investment finance   Korea
FineKB Private Equity Fund No.1
     25.00       12,775       10,483       10,483     Investment finance   Korea
G payment Joint Stock Company
     43.84       9,029       2,917       9,281     Investment advisory and securities trading   Vietnam
KB-GeneN
Medical Venture Fund No.1
     22.52       2,000       1,965       1,965     Investment finance   Korea
KB-BridgePole
Venture Investment Fund
1
     6.30       850       835       835     Investment finance   Korea
KB-Kyobo
New Mobility Power Fund
     28.57       3,000       2,826       2,826     Investment finance   Korea
DA-Friend
New Technology Investment Fund No.2
     27.06       988       949       949     Investment finance   Korea
Cornerstone Pentastone Fund No.4
     21.52       818       792       792     Investment finance   Korea
SKS-VLP
New Technology Investment Fund No.2
     23.11       1,156       1,121       1,121     Investment finance   Korea
Star-Lord General Investors Private Real Estate Investment Company No.10
     26.24       46,700       45,157       —     Real estate investment   Korea
KB-Badgers
Future Mobility ESG Fund No.1
     40.91       2,137       1,475       1,475     Investment finance   Korea
JS Private Equity Fund No.3
     20.48       1,700       1,664       1,664     Investment finance   Korea
Mirae Asset Mobility Investment Fund No.1
     22.99       2,000       1,979       1,979     Investment finance   Korea
KB-FT
1st Green Growth Investment Fund
1
     10.34       2,000       1,970       1,970     Investment finance   Korea
 
F-133
   
December 31, 2022
   
Ownership
(%)
    
Acquisition
cost
    
Share of net
asset amount
    
Carrying
amount
    
Industry
  
Location
                                 
   
(In millions of Korean won)
Glenwood Credit Private Equity Fund No.2
     29.89       42,000       43,468       43,468     Investment finance   Korea
THE CHAEUL FUND NO.1
     31.25       1,000       989       989     Investment finance   Korea
Smart Korea KB Future9-Sejong Venture Fund
     38.46       2,000       1,870       1,870     Investment finance   Korea
KB-KTB
Technology Venture Fund
2
     50.90       16,800       16,256       16,256     Investment finance   Korea
KB-SOLIDUS
Healthcare Investment Fund
2
     88.23       19,800       18,651       18,651     Investment finance   Korea
Paramark KB Fund No.1
     17.34       12,199       10,966       10,966     Investment finance   Korea
KB
Co-Investment
Private Equity Fund No.1
1
     7.12       7,268       7,269       7,233     Investment finance   Korea
POSITIVE Sobujang Venture Fund No.1
     43.96       2,000       1,977       1,977     Investment finance   Korea
History 2022 Fintech Fund
     34.78       2,000       1,981       1,981     Investment finance   Korea
PEBBLES-MW
M.C.E New Technology Investment Fund 1
st
     23.26       2,000       1,982       1,982     Investment finance   Korea
KB-NP
Green ESG New Technology Venture Capital Fund
     29.85       9,350       9,043       9,043     Investment finance   Korea
TMAP Mobility Co., Ltd.
1
     8.25       200,000       61,518       194,455     Application software development and supply   Korea
Nextrade Co., Ltd.
1
     6.64       9,700       9,700       9,700     Investment finance   Korea
Shinhan Global Mobility Fund1
     24.56       1,345       1,345       1,345     Investment finance   Korea
SKB Next Unicorn
K-Battery
Fund No.1
     24.84       1,995       1,995       1,995     Investment finance   Korea
Others
             2,029       (741 )      1,049          
           
 
 
    
 
 
    
 
 
          
            ￦ 743,867     ￦ 558,981     ￦ 682,670          
           
 
 
    
 
 
    
 
 
          
 
1
As of December 31, 2021 and 2022, the Group can exercise significant influence on the decision-making processes of the associate’s financial and business policies through participation in governing bodies.
2
 
In order to direct relevant activities, it is necessary to obtain the consent of the two
co-operative
members; the Group has applied the equity method as the Group cannot control the investee by itself.
3
The ownership of Paycoms Co., Ltd. would be 21.84% and 21.68% as of December 31, 2021 and 2022, respectively, considering the potential voting rights of convertible bonds.
4
The ownership of Food Factory Co., Ltd. would be 30.00% and 30.00% as of December 31, 2021 and 2022, respectively, considering the potential voting rights of convertible bonds.
5
 
As of December 31, 2021 and 2022, the Group participates in the investment management committee but cannot exercise control.
6
 
The investment was classified as assets of a disposal group held for sale as of December 31, 2021.
In accordance with IAS No.28
Investments in Associates and Joint Ventures
, the Group elected an exemption from applying the equity method for 4
6
companies including Banksalad Co., Ltd., and classified them as financial assets at fair value through profit or loss.
Although the Group holds 20% or more of the ownership, investment trusts with limited influence on related activities according to trust contracts, and companies with limited influence on related activities due to bankruptcy and corporate rehabilitation proceedings are excluded from associates.
 
F-134
13.2 Condensed financial information, adjustments to the carrying amount, and dividend from major investments in associates and joint ventures as of and for the years ended December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021 *
  
   
Total

assets
    
Total
liabilities
    
Paid-in

capital
    
Equity
    
Share of net
asset
amount
    
Unrealized

gains
(losses)

and others
    
Consolidated
carrying

amount
  
                                           
   
(In millions of Korean won)
  
KB Pre IPO Secondary Venture Fund No.1
   ￦ 10,678     ￦ 3     ￦ 4,015     ￦ 10,675     ￦ 1,622     ￦ —     ￦ 1,622  
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
     18,069       385       13,200       17,684       11,789       —       11,789  
KB Star Office Private Real Estate Master Fund No.1
     247,259       122,620       95,000       124,639       26,240       —       26,240  
Balhae Infrastructure Company
     853,961       62,336       840,323       791,625       99,785       —       99,785  
Aju Good Technology Venture Fund
     64,303       4,703       32,100       59,600       22,921       —       22,921  
SY Auto Capital Co., Ltd.
     88,144       47,665       20,000       40,479       19,835       (1,613 )      18,222  
Incheon Bridge Co., Ltd.
     560,570       690,530       61,096       (129,960 )      (19,481 )      19,481       —  
Big Dipper Co., Ltd.
     143       748       1,750       (605 )      (147 )      147       —  
Paycoms Co., Ltd.
     3,597       1,960       855       1,637       181       344       525  
Food Factory Co., Ltd.
     8,332       5,482       450       2,850       633       687       1,320  
KBSP Private Equity Fund No.4
     37,646       5       40,800       37,641       5,628       —       5,628  
Korea Credit Bureau Co., Ltd.
     128,297       78,328       10,000       49,969       4,497       —       4,497  
KB Social Impact Investment Fund
     14,431       157       15,000       14,274       4,282       —       4,282  
KB-Solidus
Global Healthcare Fund
     112,358       1,126       68,400       111,232       48,201       697       48,898  
POSCO-KB
Shipbuilding Fund
     17,754       432       8,880       17,322       5,413       —       5,413  
KB-TS
Technology Venture Private Equity Fund
     35,279       5,228       25,500       30,051       16,828       —       16,828  
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
     69,943       221       61,100       69,722       29,669       (750 )      28,919  
KB-SJ
Tourism Venture Fund
     22,947       557       27,000       22,390       4,146       —       4,146  
UNION Media Commerce Fund
     3,318       10       3,450       3,308       959       —       959  
KB-Stonebridge
Secondary Private Equity Fund
     151,004       316       148,587       150,688       21,948       —       21,948  
KB SPROTT Renewable Private Equity Fund No.1
     13,886       1,467       15,376       12,419       4,680       —       4,680  
KB-UTC
Inno-Tech Venture Fund
     47,848       497       48,260       47,351       20,972       —       20,972  
WJ Private Equity Fund No.1
     35,799       170       37,100       35,629       9,604       —       9,604  
All Together Korea Fund No.2
     10,073       1       10,002       10,072       10,070       —       10,070  
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
     127,960       844       111,600       127,116       15,254       —       15,254  
Project Vanilla Co., Ltd.
     1,283       211       5,000       1,072       525       —       525  
December & Company Inc.
     71,219       17,276       37,241       53,943       9,054       12,334       21,388  
2020 KB Fintech Renaissance Fund
     12,252       5       10,900       12,247       618       —       618  
KB Material and Parts No.1 PEF
     23,104       —       23,500       23,104       3,343       —       3,343  
FineKB Private Equity Fund No.1
     32,583       315       33,500       32,268       8,067       —       8,067  
KB Bio Private Equity No.3 Ltd.
     81,691       101       82,000       81,590       9,950       —       9,950  
G payment Joint Stock Company
     7,797       557       2,950       7,240       3,175       6,175       9,350  
Smart Korea KB Future9-Sejong Venture Fund
     2,581       81       2,600       2,500       962       —       962  
KB-KTB
Technology Venture Fund
     11,008       101       11,000       10,907       5,503       51       5,554  
KB-SOLIDUS
Healthcare Investment Fund
     2,040       —       2,040       2,040       1,800       —       1,800  
Paramark KB Fund No.1
     8,943       3       9,860       8,940       1,850       —       1,850  
 
F-135
    
2021*
  
    
Operating

revenue
    
Net
profit

(loss)
    
Other

comprehensive

income (loss)
     
Total

comprehensive

income (loss)
    
Dividends
  
                                 
    
(In millions of Korean won)
  
KB Pre IPO Secondary Venture Fund No.1
    ￦ 4,594     ￦ 4,180     ￦ —      ￦ 4,180     ￦ —  
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
      530       120       —        120       —  
KB Star Office Private Real Estate Master Fund No.1
      18       (127 )      —        (127 )      963  
Balhae Infrastructure Company
      97,833       19,559       —        19,559       9,121  
Aju Good Technology Venture Fund
      22,486       15,407       —        15,407       —  
SY Auto Capital Co., Ltd.
      14,316       2,193       104        2,297       —  
Incheon Bridge Co., Ltd.
      84,068       (16,219 )      —        (16,219 )      —  
Big Dipper Co., Ltd.
      939       (583 )      —        (583 )      —  
Paycoms Co., Ltd.
      1,515       857       —        857       —  
Food Factory Co., Ltd.
      8,853       354       —        354       —  
KBSP Private Equity Fund No.4
      (1,358 )      (2,154 )      —        (2,154 )      —  
Korea Credit Bureau Co., Ltd.
      128,150       (27,327 )      —        (27,327 )      90  
KB Social Impact Investment Fund
      7       (306 )      —        (306 )      —  
KB-Solidus
Global Healthcare Fund
      18,782       13,396       —        13,396       —  
POSCO-KB
Shipbuilding Fund
      1,880       376       —        376       —  
KB-TS
Technology Venture Private Equity Fund
      2,094       (1,151 )      —        (1,151 )      —  
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
      14,244       8,495       —        8,495       —  
KB-SJ
Tourism Venture Fund
      170       (2,631 )      —        (2,631 )      —  
UNION Media Commerce Fund
      —       (3 )      —        (3 )      —  
KB-Stonebridge
Secondary Private Equity Fund
      55,572       54,053       —        54,053       9,895  
KB SPROTT Renewable Private Equity Fund No.1
      —       (983 )      —        (983 )      —  
KB-UTC
Inno-Tech Venture Fund
      1,080       32       —        32       —  
WJ Private Equity Fund No.1
      291       (398 )      —        (398 )      —  
All Together Korea Fund No.2
      53       47       —        47       —  
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
      20,594       16,252       —        16,252       —  
Project Vanilla Co., Ltd.
      —       (3,231 )      —        (3,231 )      —  
December & Company Inc.
      3,982       (20,767 )      —        (20,767 )      —  
2020 KB Fintech Renaissance Fund
      1,566       1,411       —        1,411       —  
KB Material and Parts No.1 PEF
      451       42       —        42       34  
FineKB Private Equity Fund No.1
      2       (1,155 )      —        (1,155 )      —  
KB Bio Private Equity No.3 Ltd.
      4       (410 )      —        (410 )      —  
G payment Joint Stock Company
      819       (762 )      —        (762 )      —  
Smart Korea KB Future9-Sejong Venture Fund
      2       (100 )      —        (100 )      —  
KB-KTB
Technology Venture Fund
      8       (93 )      —        (93 )      —  
KB-SOLIDUS
Healthcare Investment Fund
      —       —       —        —       —  
Paramark KB Fund No.1
      —       (920 )      —        (920 )      —  
 
   
December 31, 2022*
  
   
Total

assets
    
Total
liabilities
    
Paid-in

capital
    
Equity
    
Share of net
asset
amount
    
Unrealized

gains
(losses)

and others
    
Consolidated
carrying

amount
  
                                           
   
(In millions of Korean won)
  
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
   ￦        9,226     ￦           260     ￦ 5,400     ￦ 8,966     ￦ 5,978     ￦ —     ￦ 5,978  
Balhae Infrastructure Company
     781,317       62,422       765,686       718,895       90,653       (36 )      90,617  
Aju Good Technology Venture Fund
     58,749       7,171       21,180       51,578       19,840       (4 )      19,836  
SY Auto Capital Co., Ltd.
     85,077       43,749       20,000       41,328       20,250       (1,088 )      19,162  
Incheon Bridge Co., Ltd.
     554,738       661,227       61,096       (106,489 )      (15,963 )      15,963       —  
Big Dipper Co., Ltd.
     642       308       493       334       60       —       60  
Paycoms Co., Ltd.
     3,781       2,032       926       1,749       201       12       213  
Food Factory Co., Ltd.
     8,599       5,468       450       3,131       696       703       1,399  
KBSP Private Equity Fund No.4
     13,432       776       40,800       12,656       1,892       —       1,892  
Korea Credit Bureau Co., Ltd.
        155,165          100,065       10,000       55,100       4,959       —       4,959  
 
F-136
   
December 31, 2022*
  
   
Total

assets
    
Total
liabilities
    
Paid-in

capital
    
Equity
    
Share of net
asset
amount
    
Unrealized

gains
(losses)

and others
    
Consolidated
carrying

amount
  
                                           
   
(In millions of Korean won)
  
KB Social Impact Investment Fund
     14,658       439       15,000       14,219       4,266       —       4,266  
KB-Solidus
Global Healthcare Fund
     50,796       639       23,100       50,157       21,735       697       22,432  
POSCO-KB
Shipbuilding Fund
     15,675       321       5,840       15,354       4,798       —       4,798  
KB-TS
Technology Venture Private Equity Fund
     30,346       5,714       17,400       24,632       13,794       —       13,794  
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
     42,538       705       31,020       41,833       17,801       (750 )      17,051  
KB-SJ
Tourism Venture Fund
     20,926       551       24,840       20,375       3,773       —       3,773  
UNION Media Commerce Fund
     3,319       18       3,450       3,301       957       —       957  
KB-Stonebridge
Secondary Private Equity Fund
     172,979       349       163,413       172,630       25,144       —       25,144  
KB SPROTT Renewable Private Equity Fund No.1
     44,880       996       47,868       43,884       16,539       —       16,539  
KB-UTC
Inno-Tech Venture Fund
     44,111       809       48,260       43,302       19,180       —       19,180  
WJ Private Equity Fund No.1
     35,561       161       37,100       35,400       9,542       —       9,542  
All Together Korea Fund No.2
     10,246       1       10,001       10,245       10,244       —       10,244  
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
     102,827       498       81,100       102,329       12,554       —       12,554  
December & Company Inc.
     35,602       13,271       37,367       22,331       3,735       12,294       16,029  
2020 KB Fintech Renaissance Fund
     12,529       38       10,900       12,491       630       —       630  
KB Material and Parts No.1 PEF
     22,953       2       23,500       22,951       3,321       —       3,321  
FineKB Private Equity Fund No.1
     43,759       1,828       51,100       41,931       10,483       —       10,483  
G payment Joint Stock Company
     10,177       3,523       2,950       6,654       2,917       6,364       9,281  
KB-GeneN
Medical Venture Fund No.1
     8,770       48       8,880       8,722       1,965       —       1,965  
KB-BridgePole
Venture Investment Fund
     13,331       73       13,500       13,258       835       —       835  
KB-Kyobo
New Mobility Power Fund
     9,932       40       10,500       9,892       2,826       —       2,826  
DA-Friend
New Technology Investment Fund No.2
     3,527       21       3,650       3,506       949       —       949  
Cornerstone Pentastone Fund No.4
     3,704       23       3,800       3,681       792       —       792  
SKS-VLP
New Technology Investment Fund No.2
     4,855       2       5,001       4,853       1,121       —       1,121  
Star-Lord General Investors Private Real Estate Investment Company No.10
     585,401       413,283       178,000       172,118       45,157       (45,157 )      —  
KB-Badgers
Future Mobility ESG Fund No.1
     3,607       —       5,225       3,607       1,475       —       1,475  
JS Private Equity Fund No.3
     8,126       1       8,300       8,125       1,664       —       1,664  
Mirae Asset Mobility Investment Fund No.1
     8,683       73       8,700       8,610       1,979       —       1,979  
KB-FT
1st Green Growth Investment Fund 1
     19,051       —       19,345       19,051       1,970       —       1,970  
Glenwood Credit Private Equity Fund No.2
     145,787       376       140,500       145,411       43,468       —       43,468  
THE CHAEUL FUND NO.1
     3,166       —       3,200       3,166       989       —       989  
Smart Korea KB Future9-Sejong Venture Fund
     4,862       —       5,200       4,862       1,870       —       1,870  
KB-KTB
Technology Venture Fund
     32,214       280       33,000       31,934       16,256       —       16,256  
KB-SOLIDUS
Healthcare Investment Fund
     21,483       345       22,440       21,138       18,651       —       18,651  
Paramark KB Fund No.1
     63,260       22       70,169       63,238       10,966       —       10,966  
KB
Co-Investment
Private Equity Fund No.1
     101,771       198       102,067       101,573       7,269       (36 )      7,233  
 
F-137
   
December 31, 2022*
  
   
Total

assets
    
Total
liabilities
    
Paid-in

capital
    
Equity
    
Share of net
asset
amount
    
Unrealized

gains
(losses)

and others
    
Consolidated
carrying

amount
  
                                           
   
(In millions of Korean won)
  
POSITIVE Sobujang Venture Fund No.1
     4,521       23       4,550       4,498       1,977       —       1,977  
History 2022 Fintech Fund
     5,695       —       5,750       5,695       1,981       —       1,981  
PEBBLES-MW
M.C.E New Technology Investment Fund 1
st
     8,562       40       8,600       8,522       1,982       —       1,982  
KB-NP
Green ESG New Technology Venture Capital Fund
     31,838       638       32,260       31,200       9,043       —       9,043  
TMAP Mobility Co., Ltd.
     920,597       174,696       8,677       745,901       61,518       132,937       194,455  
Nextrade Co., Ltd.
     146,100       —       146,100       146,100       9,700       —       9,700  
Shinhan Global Mobility Fund1
     5,474       —       5,700       5,474       1,345       —       1,345  
SKB Next Unicorn
K-Battery
Fund No.1
     5,705       14       5,691       5,691       1,995       —       1,995  
 
    
2022*
  
    
Operating

revenue
     
Net profit

(loss)
    
Other

comprehensive

income (loss)
    
Total

comprehensive

income (loss)
    
Dividends
  
                                 
    
(In millions of Korean won)
  
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
    ￦ 1,699      ￦ (917 )    ￦ —     ￦ (917 )    ￦ —  
Balhae Infrastructure Company
      100,720        133,964       —       133,964       16,646  
Aju Good Technology Venture Fund
      22,381         6,018        —       6,018       1,200  
SY Auto Capital Co., Ltd.
      11,569        474       374       848       —  
Incheon Bridge Co., Ltd.
      130,456        23,754       —       23,754       —  
Big Dipper Co., Ltd.
      834        (672 )      —       (672 )      —  
Paycoms Co., Ltd.
      1,266        399       —       399       —  
Food Factory Co., Ltd.
      9,059        605       —       605       —  
KBSP Private Equity Fund No.4
      6        (24,985 )      —       (24,985 )      —  
Korea Credit Bureau Co., Ltd.
      144,906        13,809       —       13,809       —  
KB Social Impact Investment Fund
      240        (55 )      —       (55 )      —  
KB-Solidus
Global Healthcare Fund
      2,952        (15,775 )      —       (15,775 )      —  
POSCO-KB
Shipbuilding Fund
      1,721        1,072       —       1,072       —  
KB-TS
Technology Venture Private Equity Fund
      1,043        2,682       —       2,682       —  
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
      11,851        1,541       —       1,541       —  
KB-SJ
Tourism Venture Fund
      719        145       —       145       —  
UNION Media Commerce Fund
      —        (8 )      —       (8 )      —  
KB-Stonebridge
Secondary Private Equity Fund
      22,445        20,887       —       20,887       2,006  
KB SPROTT Renewable Private Equity Fund No.1
      —        (1,020 )      —       (1,020 )      —  
KB-UTC
Inno-Tech Venture Fund
      —        (905 )      (1,647 )      (2,552 )      —  
WJ Private Equity Fund No.1
      430        (229 )      —       (229 )      —  
All Together Korea Fund No.2
      179        173       —       173       —  
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
      21,470        5,713       —       5,713       —  
December & Company Inc.
      868        (32,002 )      —       (32,002 )      —  
2020 KB Fintech Renaissance Fund
      395        243       —       243       —  
KB Material and Parts No.1 PEF
      451        83       —       83       34  
 
F-138
    
2022*
  
    
Operating

revenue
     
Net profit

(loss)
    
Other

comprehensive

income (loss)
     
Total

comprehensive

income (loss)
    
Dividends
  
                                  
    
(In millions of Korean won)
  
FineKB Private Equity Fund No.1
      14,244        (7,938 )      —        (7,938 )      —  
G payment Joint Stock Company
      3,401        (831 )      —        (831 )      —  
KB-GeneN
Medical Venture Fund No.1
      1        (158 )      —        (158 )      —  
KB-BridgePole
Venture Investment Fund
      4        (242 )      —        (242 )      —  
KB-Kyobo
New Mobility Power Fund
      2        (608 )      —        (608 )      —  
DA-Friend
New Technology Investment Fund No.2
      —        (144 )      —        (144 )      —  
Cornerstone Pentastone Fund No.4
      —        (119 )      —        (119 )      —  
SKS-VLP
New Technology Investment Fund No.2
      1        (148 )      —        (148 )      —  
Star-Lord General Investors Private Real Estate Investment Company No.10
      16,792        (4,254 )      —        (4,254 )      —  
KB-Badgers
Future Mobility ESG Fund No.1
      —        (1,618 )      —        (1,618 )      —  
JS Private Equity Fund No.3
      —        (175 )      —        (175 )      —  
Mirae Asset Mobility Investment Fund No.1
      9        (90 )      —        (90 )      —  
KB-FT
1st Green Growth Investment Fund 1
      5        (294 )      —        (294 )      —  
Glenwood Credit Private Equity Fund No.2
      5,286        4,911       —        4,911       —  
THE CHAEUL FUND NO.1
      —        (34 )      —        (34 )      —  
Smart Korea KB Future9-Sejong Venture Fund
      13        (236 )      —        (236 )      —  
KB-KTB
Technology Venture Fund
      134        (973 )      —        (973 )      —  
KB-SOLIDUS
Healthcare Investment Fund
      14        (1,302 )      —        (1,302 )      —  
Paramark KB Fund No.1
      581        (6,010 )      —        (6,010 )      —  
KB
Co-Investment
Private Equity Fund No.1
      14        (494 )      —        (494 )      —  
POSITIVE Sobujang Venture Fund No.1
      1        (52 )      —        (52 )      —  
History 2022 Fintech Fund
      —        (55 )      —        (55 )      —  
PEBBLES-MW
M.C.E New Technology Investment Fund 1
st
      —        (78 )      —        (78 )      —  
KB-NP
Green ESG New Technology Venture Capital Fund
      19        (1,059 )      —        (1,059 )      —  
TMAP Mobility Co., Ltd.
      139,792        (132,476 )      —        (132,476 )      —  
Nextrade Co., Ltd.
      —        —       —        —       —  
Shinhan Global Mobility Fund1
      —        (226 )      —        (226 )      —  
SKB Next Unicorn
K-Battery
Fund No.1
      1        —       —        —       —  
 
*
The condensed financial information of the associates and joint ventures is adjusted to reflect adjustments, such as fair value adjustments recognized at the time of acquisition and adjustments for differences in accounting policies.
 
F-139
13.3 Changes in carrying amount of investments in associates and joint ventures for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
1
 
   
Beginning
    
Acquisition

and others
    
Disposal

and others
    
Dividends
    
Gains

(losses) on
equity-

method

accounting
    
Other
compre-

hensive

income

(loss)
    
Ending
  
                                           
   
(In millions of Korean won)
  
KB Pre IPO Secondary Venture Fund No.1
   ￦ 1,279     ￦ —     ￦ (292 )    ￦ —     ￦ 635     ￦ —     ￦ 1,622  
KB GwS Private Securities Investment Trust
     141,359       —       (141,359 )      —       —       —       —  
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
     16,042       —       (4,800 )      —       547       —       11,789  
KB Star Office Private Real Estate Master Fund No.1
     20,066       —       —       (963 )      7,137       —       26,240  
Balhae Infrastructure Company
     106,624       280       (463 )      (9,121 )      2,465       —       99,785  
Aju Good Technology Venture Fund
     21,348       —       (4,770 )      —       6,343       —       22,921  
SY Auto Capital Co., Ltd.
     16,144       —       —       —       2,027       51       18,222  
Incheon Bridge Co., Ltd.
     —       —       —       —       —       —       —  
Big Dipper Co., Ltd.
     —       —       —       —       —       —       —  
Paycoms Co., Ltd.
     198       —       —       —       327       —       525  
Food Factory Co., Ltd.
     1,281       —       —       —       7       32       1,320  
KBSP Private Equity Fund No.4
     5,950       —       —       —       (322 )      —       5,628  
KB Private Equity Fund No.3
     94       —       (13 )      (81 )      —       —       —  
Korea Credit Bureau Co., Ltd.
     7,153       —       —       (90 )      (2,566 )      —       4,497  
KoFC POSCO Hanwha KB Shared Growth Private Equity Fund No.2
     9,845       —       (9,725 )      (2,120 )      2,000       —       —  
Keystone-Hyundai Securities No.1 Private Equity Fund
     1,556       —       (1,044 )      (512 )      —       —       —  
KB Social Impact Investment Fund
     2,874       1,500       —       —       (92 )      —       4,282  
KB-Solidus
Global Healthcare Fund
     46,213       —       (3,120 )      —       5,805       —       48,898  
POSCO-KB
Shipbuilding Fund
     12,895       —       (7,599 )      —       117       —       5,413  
KB-TS
Technology Venture Private Equity Fund
     17,630       3,080       (5,376 )      —       1,494       —       16,828  
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
     26,763       10,000       (10,800 )      —       2,956       —       28,919  
KB-SJ
Tourism Venture Fund
     4,133       499       —       —       (486 )      —       4,146  
UNION Media Commerce Fund
     960       —       —       —       (1 )      —       959  
KB-Stonebridge
Secondary Private Equity Fund
     16,636       13,257       (5,924 )      (9,895 )      7,874       —       21,948  
KB SPROTT Renewable Private Equity Fund No.1
     5,049       —       —       —       (369 )      —       4,680  
KB-UTC
Inno-Tech Venture Fund
     16,999       5,085       (1,126 )      —       14       —       20,972  
WJ Private Equity Fund No.1
     9,711       —       —       —       (107 )      —       9,604  
All Together Korea Fund No.2
     10,023       —       —       —       47       —       10,070  
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
     5,611       7,692       —       —       1,951       —       15,254  
JR Global REIT
     215,854       —       (209,250 )      (6,604 )      —       —       —  
Project Vanilla Co., Ltd.
     2,151       —       —       —       (1,626 )      —       525  
December & Company Inc.
     24,402       481       —       —       (3,507 )      12       21,388  
2020 KB Fintech Renaissance Fund
     547       —       —       —       71       —       618  
KB Material and Parts No.1 PEF
     3,371       —       —       (34 )      6       —       3,343  
FineKB Private Equity Fund No.1
     —       8,375       —       —       (308 )      —       8,067  
KB Bio Private Equity No.3 Ltd.
     —       10,000       —       —       (50 )      —       9,950  
K The 15th REIT Co., Ltd.
     —       8,600       (8,600 )      —       —       —       —  
G payment Joint Stock Company
     —       9,684       —       —       (334 )      —       9,350  
498 Seventh Owners LLC
2
     —       172,907       (169,424 )      (3,483 )      —       —       —  
Smart Korea KB Future9-Sejong Venture Fund
     —       1,000       —       —       (38 )      —       962  
KB-KTB
Technology Venture Fund
     —       5,601       —       —       (47 )      —       5,554  
KB-SOLIDUS
Healthcare Investment Fund
     —       1,800       —       —       —       —       1,800  
Paramark KB Fund No.1
     —       2,040       —       —       (190 )      —       1,850  
Others
     674       —       —       —       (303 )      418       789  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 771,435     ￦ 261,881     ￦ (583,685 )    ￦ (32,903 )    ￦ 31,477     ￦ 513     ￦ 448,718  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-140
   
2022
1
 
   
Beginning
    
Acquisition

and others
    
Disposal

and others
    
Dividends
    
Gains

(losses) on
equity-

method

accounting
    
Other
compre-

hensive

income

(loss)
    
Ending
  
                                           
   
(In millions of Korean won)
  
KB Pre IPO Secondary Venture Fund No.1
   ￦ 1,622     ￦ —     ￦ (1,429 )    ￦ —     ￦ (193 )    ￦ —     ￦ —  
KB-KDBC
Pre-IPO
New Technology Business Investment Fund
     11,789       —       (5,200 )      —       (611 )      —       5,978  
KB Star Office Private Real Estate Master Fund No.1
     26,240       —       (5,960 )      (20,280 )      —       —       —  
Balhae Infrastructure Company
     99,785       —       (9,408 )      (16,646 )      16,886       —       90,617  
Incheon Bridge Co., Ltd.
     —       —       —       —       —       —       —  
Aju Good Technology Venture Fund
     22,921       —       (4,200 )      (1,200 )      2,315       —       19,836  
SY Auto Capital Co., Ltd.
     18,222       —       —       —       757       183       19,162  
Big Dipper Co., Ltd.
     —       291       —       —       (231 )      —       60  
Paycoms Co., Ltd.
     525       —       —       —       (312 )      —       213  
Food Factory Co., Ltd.
     1,320       —       —       —       132       (53 )      1,399  
KBSP Private Equity Fund No.4
     5,628       —       —       —       (3,736 )      —       1,892  
Korea Credit Bureau Co., Ltd.
     4,497       —       —       —       462       —       4,959  
KB Social Impact Investment Fund
     4,282       —       —       —       (16 )      —       4,266  
KB-Solidus
Global Healthcare Fund
     48,898       —       (19,630 )      —       (6,836 )      —       22,432  
POSCO-KB
Shipbuilding Fund
     5,413       —       (950 )      —       335       —       4,798  
KB-TS
Technology Venture Private Equity Fund
     16,828       —       (4,536 )      —       1,502       —       13,794  
KB-Brain
KOSDAQ
Scale-up
New Technology Business Investment Fund
     28,919       —       (12,800 )      —       932       —       17,051  
KB-SJ
Tourism Venture Fund
     4,146       —       (400 )      —       27       —       3,773  
UNION Media Commerce Fund
     959       —       —       —       (2 )      —       957  
KB-Stonebridge
Secondary Private Equity Fund
     21,948       4,370       (2,210 )      (2,006 )      3,042       —       25,144  
KB SPROTT Renewable Private Equity Fund No.1
     4,680       12,246       —       —       (387 )      —       16,539  
KB-UTC
Inno-Tech Venture Fund
     20,972       —       —       —       (1,306 )      (486 )      19,180  
WJ Private Equity Fund No.1
     9,604       —       —       —       (62 )      —       9,542  
All Together Korea Fund No.2
     10,070       —       —       —       174       —       10,244  
KB-NAU
Special Situation Corporate Restructuring Private Equity Fund
     15,254       1,320       (4,706 )      —       686       —       12,554  
Project Vanilla Co., Ltd.
     525       —       (525 )      —       —       —       —  
December & Company Inc.
     21,388       —       (49 )      —       (5,353 )      43       16,029  
2020 KB Fintech Renaissance Fund
     618       —       —       —       12       —       630  
KB Material and Parts No.1 PEF
     3,343       —       —       (34 )      12       —       3,321  
FineKB Private Equity Fund No.1
     8,067       7,500       (3,100 )      —       (1,984 )      —       10,483  
KB Bio Private Equity No.3 Ltd.
     9,950       —       (3,922 )      (6,028 )      —       —       —  
G payment Joint Stock Company
     9,350       295       —       —       (364 )      —       9,281  
Apollo REIT PropCo LLC
     —       19,968       (19,968 )      —       —       —       —  
KB-GeneN
Medical Venture Fund No.1
     —       2,000       —       —       (35 )      —       1,965  
KB-BridgePole
Venture Investment Fund
     —       850       —       —       (15 )      —       835  
KB-Kyobo
New Mobility Power Fund
     —       3,000       —       —       (174 )      —       2,826  
DA-Friend
New Technology Investment Fund No.2
     —       988       —       —       (39 )      —       949  
Cornerstone Pentastone Fund No.4
     —       818       —       —       (26 )      —       792  
SKS-VLP
New Technology Investment Fund No.2
     —       1,156       —       —       (35 )      —       1,121  
Star-Lord General Investors Private Real Estate Investment Company No.10
     —       46,700       —       —       (46,700 )      —       —  
KB-Badgers
Future Mobility ESG Fund No.1
     —       2,137       —       —       (662 )      —       1,475  
JS Private Equity Fund No.3
     —       1,700       —       —       (36 )      —       1,664  
Mirae Asset Mobility Investment Fund No.1
     —       2,000       —       —       (21 )      —       1,979  
KB-FT
1st Green Growth Investment Fund 1
     —       2,000       —       —       (30 )      —       1,970  
Glenwood Credit Private Equity Fund No.2
     —       42,000       —       —       1,468       —       43,468  
THE CHAEUL FUND NO.1
     —       1,000       —       —       (11 )      —       989  
Smart Korea KB Future9-Sejong Venture Fund
     962       1,000       —       —       (92 )      —       1,870  
KB-KTB
Technology Venture Fund
     5,554       11,200       —       —       (498 )      —       16,256  
KB-SOLIDUS
Healthcare Investment Fund
     1,800       18,000       —       —       (1,149 )      —       18,651  
Paramark KB Fund No.1
     1,850       12,444       (2,285 )      —       (1,043 )      —       10,966  
KB
Co-Investment
Private Equity Fund No.1
     —       7,268       —       —       (35 )      —       7,233  
POSITIVE Sobujang Venture Fund No.1
     —       2,000       —       —       (23 )      —       1,977  
History 2022 Fintech Fund
     —       2,000       —       —       (19 )      —       1,981  
PEBBLES-MW
M.C.E New Technology Investment Fund 1
st
     —       2,000       —       —       (18 )      —       1,982  
KB-NP
Green ESG New Technology Venture Capital Fund
     —       9,350       —       —       (307 )      —       9,043  
TMAP Mobility Co., Ltd.
     —       200,000       —       —       (5,797 )      252       194,455  
Nextrade Co., Ltd.
     —       9,700       —       —       —       —       9,700  
Shinhan Global Mobility Fund1
     —       1,345       —       —       —       —       1,345  
SKB Next Unicorn
K-Battery
Fund No.1
     —       1,995       —       —       —       —       1,995  
Others
     789       50       (43 )      —       75       178       1,049  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 448,718     ￦ 430,691     ￦ (101,321 )    ￦ (46,194 )    ￦ (49,341 )    ￦ 117     ￦ 682,670  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
1
 
Gains on disposal of investments in associates and joint ventures amount to ￦ 62,048 million ￦ 20,585 million for the years ended December 31, 2021 and 2022, respectively.
2
 
The investment was classified as assets of a disposal group held for sale as of December 31, 2021.
 
F-141
13.4 Unrecognized share of losses of investments in associates and joint ventures due to the discontinuation of recognizing share of losses, for the years ended December 31, 2021 and 2022, and accumulated amount of unrecognized losses as of December 31, 2021 and 2022, are as follows:
 
    
Unrecognized losses

for the period
    
Accumulated

unrecognized losses
  
    
2021
    
2022
    
December 31,

2021
     
December 31,

2022
  
                           
    
(In millions of Korean won)
  
DSMETAL Co., Ltd.
    ￦ 38     ￦ —     ￦ 103      ￦ 103  
Incheon Bridge Co., Ltd.
      1,381       (3,518 )      19,481        15,963  
Jungdong Steel Co., Ltd.
      —       —       489        489  
Shinla Construction Co., Ltd.
      —       —       183        183  
Jaeyang Industry Co., Ltd.
      —       —       30        30  
Terra Corporation
      —       —       14        14  
Jungdo Co., Ltd.
      239       (8 )      551        543  
Jinseung Tech Co., Ltd.
      12       (15 )      33        18  
Korea NM Tech Co., Ltd.
      —       3       28        31  
Chongil Machine & Tools Co., Ltd.
      49       7       68        75  
Skydigital Inc.
      68       3       174        177  
Imt Technology Co., Ltd.
      (3 )      —       —        —  
Jo Yang Industrial Co., Ltd.
      9       8       105        113  
IDTECK Co., Ltd.
      (72 )      (144 )      144        —  
MJT&I Corp.
      152       1       152        153  
Dae-A
Leisure Co., Ltd.
      202       310       202        512  
Il-Kwang
Electronic Materials Co., Ltd.
      160       (2 )      160        158  
Inter Shipping Co., Ltd.
      117       1,022       117        1,139  
Dongjo Co., Ltd
      —       696       —        696  
Iwon Alloy Co., Ltd.
      —       19       —        19  
Chunsung-meat co., ltd.
      —       24       —        24  
ALTSCS CO., LTD.
      —       1       —        1  
RAND Bio Science Co., Ltd.
      309       231       309        540  
Star-Lord General Investors Private Real Estate Investment Company No.10
      —       9,741       —        9,741  
    
 
 
    
 
 
    
 
 
     
 
 
  
     ￦ 2,661     ￦ 8,379     ￦ 22,343      ￦ 30,722  
    
 
 
    
 
 
    
 
 
     
 
 
  
14. Property and Equipment, and Investment Properties
14.1 Property and Equipment
14.1.1 Details of property and equipment as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Acquisition

cost
     
Accumulated
depreciation
    
Accumulated
impairment
losses
    
Carrying
amount
  
    
(In millions of Korean won)
  
Land
    ￦ 2,548,185      ￦ —     ￦ (4 )    ￦ 2,548,181  
Buildings
      2,534,134        (851,730 )      (5,747 )      1,676,657  
Leasehold improvements
      977,853        (889,602 )      —       88,251  
Equipment and vehicles
      2,093,461        (1,782,278 )      —       311,183  
Construction
in-progress
      39,579        —       —       39,579  
Right-of-use
assets
      1,301,864        (725,817 )      —       576,047  
    
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 9,495,076      ￦ (4,249,427 )    ￦ (5,751 )    ￦ 5,239,898  
    
 
 
     
 
 
    
 
 
    
 
 
  
 
F-142
    
December 31, 2022
  
    
Acquisition

cost
     
Accumulated
depreciation
    
Accumulated
impairment
losses
    
Carrying
amount
  
    
(In millions of Korean won)
  
Land
    ￦ 2,416,730      ￦ —     ￦ (4 )    ￦ 2,416,726  
Buildings
      2,426,317        (839,137 )      (5,747 )      1,581,433  
Leasehold improvements
      1,020,095        (943,711 )      —       76,384  
Equipment and vehicles
      2,070,374        (1,766,036 )      —       304,338  
Construction
in-progress
      28,045        —       —       28,045  
Right-of-use
assets
      1,440,686        (856,145 )      —       584,541  
    
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 9,402,247      ￦ (4,405,029 )    ￦ (5,751 )    ￦ 4,991,467  
    
 
 
     
 
 
    
 
 
    
 
 
  
14.1.2 Changes in property and equipment for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Beginning
    
Acquisition
    
Transfer
1
   
Disposal
    
Depreciation
2
    
Business

combination
    
Others
3
    
Ending
  
                                                 
   
(In millions of Korean won)
  
Land
   ￦ 2,610,586     ￦ 1,106     ￦ (81,690 )    ￦ (11,399 )    ￦ —     ￦ —     ￦ 29,578     ￦ 2,548,181  
Buildings
     1,771,582       2,412       (79,802 )      6,213       (69,118 )      —       45,370       1,676,657  
Leasehold improvements
     95,827       13,079       40,148       (891 )      (61,294 )      —       1,382       88,251  
Equipment and vehicles
     340,658       153,459       2,488       (1,819 )      (187,918 )      537       3,778       311,183  
Construction in-progress
     44,190       129,682       (99,763 )      (8,435 )      —       —       (26,095 )      39,579  
Right-of-use assets
     570,711       614,069       (9 )      (324,104 )      (288,980 )      20       4,340       576,047  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 5,433,554     ￦ 913,807     ￦ (218,628 )    ￦ (340,435 )    ￦ (607,310 )    ￦ 557     ￦ 58,353     ￦ 5,239,898  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
   
   
2022
  
   
Beginning
    
Acquisition
    
Transfer
1
   
Disposal
    
Depreciation
2
    
Business

combination
    
Others
3
    
Ending
  
   
(In millions of Korean won)
  
Land
   ￦ 2,548,181     ￦ 678     ￦ (117,290 )    ￦ (7,223 )    ￦ —     ￦ —     ￦ (7,620 )    ￦ 2,416,726  
Buildings
     1,676,657       12,867       (39,460 )      (7,860 )      (66,044 )      —       5,273       1,581,433  
Leasehold improvements
     88,251       12,533       36,379       (455 )      (60,129 )      8       (203 )      76,384  
Equipment and vehicles
     311,183       159,109       1,899       (1,795 )      (170,529 )      30       4,441       304,338  
Construction in-progress
     39,579       110,378       (121,306 )      (397 )      —       —       (209 )      28,045  
Right-of-use assets
     576,047       682,393       (2,640 )      (416,712 )      (296,509 )      —       41,962       584,541  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 5,239,898     ￦ 977,958     ￦ (242,418 )    ￦ (434,442 )    ￦ (593,211 )    ￦ 38     ￦ 43,644     ￦ 4,991,467  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
1
 
Includes transfers with investment properties and assets held for sale.
2
Includes depreciation expenses amounting to ￦ 196 million and ￦ 255 million recorded as other operating expenses and others for the years ended December 31, 2021 and 2022, respectively.
3
 
Includes net exchange difference. 
 
F-143
14.1.3 Changes in accumulated impairment losses of property and equipment for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
    
Impairment
     
Reversal
     
Disposal and
others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of property and equipment
    ￦ (6,877 )    ￦ —      ￦ —      ￦ 1,126      ￦ (5,751 ) 
   
    
2022
  
  
Beginning
    
Impairment
     
Reversal
     
Disposal and
others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of property and equipment
    ￦ (5,751 )    ￦ —      ￦ —      ￦ —      ￦ (5,751 ) 
14.2 Investment Properties
14.2.1 Details of investment properties as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Acquisition

cost
     
Accumulated
depreciation
    
Accumulated
impairment
losses
    
Carrying
amount
  
    
(In millions of Korean won)
  
Land
    ￦ 1,577,800      ￦ —     ￦ (447 )    ￦ 1,577,353  
Buildings
      1,089,761        (147,307 )      (4,863 )      937,591  
    
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 2,667,561      ￦ (147,307 )    ￦ (5,310 )    ￦ 2,514,944  
    
 
 
     
 
 
    
 
 
    
 
 
  
   
    
December 31, 2022
  
    
Acquisition

cost
     
Accumulated
depreciation
    
Accumulated
impairment
losses
    
Carrying
amount
  
    
(In millions of Korean won)
  
Land
    ￦ 1,496,007      ￦ —     ￦ (478 )    ￦ 1,495,529  
Buildings
      1,783,438        (125,428 )      (5,199 )      1,652,811  
    
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 3,279,445      ￦ (125,428 )    ￦ (5,677 )    ￦ 3,148,340  
    
 
 
     
 
 
    
 
 
    
 
 
  
14.2.2 Valuation techniques and inputs used to measure the fair value of investment properties as of December 31, 2022, are as follows:
 
    
December 31, 2022
    
Fair value
     
Valuation techniques
   
Inputs
    
(In millions of Korean won)
Land and buildings
    ￦ 194,157      Cost approach method   
-  Price per square meter
-  Replacement cost
       1,514,800      Market comparison method   
-  Price per square meter
       1,527,096      Discounted cash flow
method		   
-  Prospective rental market growth rate
-  Period of vacancy
-  Rental ratio
-  Discount rate and others
       233,850      Income approach method   
-  Discount rate
-  Capitalization rate
-  Vacancy rate
 
F-144
Fair value of investment properties amounts to ￦ 2,712,402 million and ￦ 3,469,903 million as of December 31, 2021 and 2022, respectively. Investment properties are measured by qualified independent appraisers with recent experience in valuing similar properties in the same area. In addition, all investment properties are classified as Level 3 in accordance with fair value hierarchy in Note 6.1.2.
Rental income from above investment properties amounts to ￦ 123,313 million and ￦ 136,493 million for the years ended December 31, 2021 and 2022, respectively.
14.2.3 Changes in investment properties for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Beginning
    
Acquisition
    
Transfer*
    
Disposal
    
Depreciation
    
Others
    
Ending
  
   
(In millions of Korean won)
  
Land
   ￦ 1,568,098     ￦ 28,568     ￦ 22,410     ￦ (63,546 )    ￦ —     ￦ 21,823     ￦ 1,577,353  
Buildings
     965,441       90,393       1,802       (112,159 )      (28,933 )      21,047       937,591  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 2,533,539     ￦ 118,961     ￦ 24,212     ￦ (175,705 )    ￦ (28,933 )    ￦ 42,870     ￦ 2,514,944  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
   
   
2022
  
   
Beginning
    
Acquisition
    
Transfer*
    
Disposal
    
Depreciation
    
Others
    
Ending
  
   
(In millions of Korean won)
  
Land
   ￦ 1,577,353     ￦ 387,282     ￦ (64,630 )    ￦ (414,335 )    ￦ —     ￦ 9,859     ￦ 1,495,529  
Buildings
     937,591       880,545       (62,186 )      (153,562 )      (38,156 )      88,579       1,652,811  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 2,514,944     ￦ 1,267,827     ￦ (126,816 )    ￦ (567,897 )    ￦ (38,156 )    ￦ 98,438     ￦ 3,148,340  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
*
Includes transfers with property and equipment and assets held for sale.
15. Intangible Assets
15.1 Details of intangible assets as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
  
Acquisition

cost
     
Accumulated
amortization
    
Accumulated
impairment
losses
    
Others
    
Carrying

amount
  
    
(In millions of Korean won)
  
Goodwill
    ￦ 887,259      ￦ —     ￦ (70,517 )    ￦ (10,335 )    ￦ 806,407  
Other intangible assets
      5,227,231        (2,732,394 )      (34,887 )      —       2,459,950  
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
     ￦ 6,114,490      ￦ (2,732,394 )    ￦ (105,404 )    ￦ (10,335 )    ￦ 3,266,357  
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
   
    
December 31, 2022
  
    
Acquisition

cost
     
Accumulated
amortization
    
Accumulated
impairment
losses
    
Others
    
Carrying

amount
  
    
(In millions of Korean won)
  
Goodwill
    ￦ 903,003      ￦ —     ￦ (70,517 )    ￦ 12,669     ￦ 845,155  
Other intangible assets
      5,537,835        (3,149,825 )      (32,766 )      —       2,355,244  
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
     ￦ 6,440,838      ￦ (3,149,825 )    ￦ (103,283 )    ￦ 12,669     ￦ 3,200,399  
    
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
 
F-145
15.2 Details of goodwill as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
Acquisition
cost
     
Carrying
amount *
     
Acquisition
cost
     
Carrying
amount *
  
    
(In millions of Korean won)
  
Housing & Commercial Bank
    ￦ 65,288      ￦ 65,288      ￦ 65,288      ￦ 65,288  
Kookmin Bank Cambodia Plc.
      1,202        —        1,202        —  
KB Securities Co., Ltd.
      70,265        58,889        70,265        58,889  
KB Capital Co., Ltd.
      79,609        79,609        79,609        79,609  
KB Savings Bank Co., Ltd.
      115,343        57,404        115,343        57,404  
KB Securities Vietnam Joint Stock Company
      13,092        13,533        13,092        13,947  
KB Daehan Specialized Bank Plc.
      1,515        1,601        1,515        1,712  
PRASAC Microfinance Institution Plc.
      396,942        388,524        396,942        415,332  
PT Sunindo Kookmin Best Finance
      2,963        2,894        2,963        2,817  
PT Bank KB Bukopin Tbk
      89,220        85,893        89,220        83,619  
PT. KB Finansia Multi Finance
      51,820        52,772        51,820        51,376  
PT. KB Valbury Sekurita
      —        —        11,070        10,713  
I-Finance
Leasing
      —        —        4,674        4,449  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 887,259      ￦ 806,407      ￦ 903,003      ￦ 845,155  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Includes the effect of exchange differences and others.
15.3 Changes in accumulated impairment losses of goodwill for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
    
Impairment
     
Others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of goodwill
    ￦ (70,517 )    ￦ —      ￦ —      ￦ (70,517 ) 
 
    
2022
  
    
Beginning
    
Impairment
     
Others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of goodwill
    ￦ (70,517 )    ￦ —      ￦ —      ￦ (70,517 ) 
 
F-146
15.4 Details of goodwill allocation to cash-generating units and related information for impairment testing as of December 31, 2022 are as follows:
 
      
December 31, 2022
  
           
Carrying
amount of
goodwill
     
Recoverable amount
exceeding carrying
amount*
     
Discount rate
(%)
     
Permanent
growth rate
(%)
  
           
(In millions of Korean won)
  
Housing & Commercial Bank
      Retail banking      ￦ 49,315      ￦ 5,778,171        16.60        1.00  
       Corporate banking        15,973        2,905,282        17.01        1.00  
KB Securities Co., Ltd.
 
      58,889        29,096        17.86        1.00  
KB Capital Co., Ltd.
 
      79,609        1,019,677        16.74        1.00  
KB Savings Bank Co., Ltd. and Yehansoul Savings Bank Co., Ltd.
 
      57,404        730,113        12.16        1.00  
KB Securities Vietnam Joint Stock Company
 
      13,947        69,658        19.66        1.00  
KB Daehan Specialized Bank Plc.
 
      1,712        23,981        21.84        1.00  
PT Bank KB Bukopin Tbk
 
      83,619        582,823        20.16        3.00  
PRASAC Microfinance Institution Plc.
 
      415,332        122,207        30.40        3.00  
PT Sunindo Kookmin Best Finance
 
      2,817        10,699        18.55        —  
PT. KB Finansia Multi Finance
 
      51,376        128,087        16.35        1.00  
PT. KB Valbury Sekurita
 
      10,713        67,989        13.95        1.00  
      
 
 
     
 
 
                    
       ￦ 840,706      ￦ 11,467,783                    
      
 
 
     
 
 
                    
 
*
The recoverable amount exceeding carrying amount is the amount at the time of impairment testing.
For impairment testing, goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the business combination, and cash-generating units consist of an operating segment or units which are not larger than an operating segment.
Cash-generating units to which goodwill has been allocated is tested for impairment annually and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit including the goodwill with the recoverable amount of the unit.
The recoverable amount of a cash-generating unit is measured at the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal is the amount obtainable from the disposal in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal. If it is difficult to measure the amount obtainable from the disposal of the cash-generating unit, the disposal amount of a similar cash-generating unit in the past transaction is used by reflecting the characteristics of the cash-generating unit to be measured. If it is not possible to obtain reliable information to measure the fair value less costs of disposal, the Group uses the asset’s value in use as its recoverable amount. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. The estimated future cash flows are based on the most recent financial budget approved by management with maximum period of 5 years. In relation to subsequent cash flows, it is assumed that cash flows will grow at a certain permanent growth rate. The key assumptions used for the estimation of the future cash flows are based on the market size and the Group’s market share. The discount rate is a
pre-tax
rate that reflects assumptions regarding risk-free interest rate, market risk premium, and the risks specific to the cash-generating unit.
The Group acquired a 100% stake in
I-Finance
Leasing on December 26, 2022 as the business combination date, and goodwill acquired from this business combination was ￦ 4,449 million as of December 31, 2022. The Group conducts an impairment test annually and whenever there is an indication of impairment, and No indication of impairment of goodwill has been observed as of December 31, 2022.
 
F-147
15.5 Details of intangible assets other than goodwill as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Acquisition

cost
     
Accumulated
amortization
    
Accumulated
impairment
losses
    
Carrying
amount
  
    
(In millions of Korean won)
  
Industrial property rights
    ￦ 3,056      ￦ (1,953 )    ￦ —     ￦ 1,103  
Software
      1,996,646        (1,417,705 )      —       578,941  
Other intangible assets
      797,107        (365,473 )      (34,887 )      396,747  
VOBA
      2,395,291        (915,746 )      —       1,479,545  
Right-of-use
assets
      35,131        (31,517 )      —       3,614  
    
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 5,227,231      ￦ (2,732,394 )    ￦ (34,887 )    ￦ 2,459,950  
    
 
 
     
 
 
    
 
 
    
 
 
  
   
    
December 31, 2022
  
    
Acquisition

cost
     
Accumulated
amortization
    
Accumulated
impairment
losses
    
Carrying
amount
  
    
(In millions of Korean won)
  
Industrial property rights
    ￦ 4,740      ￦ (2,913 )    ￦ (716 )    ￦ 1,111  
Software
      2,260,879        (1,640,631 )      —       620,248  
Other intangible assets
      841,785        (420,381 )      (32,050 )      389,354  
VOBA
      2,395,291        (1,053,362 )      —       1,341,929  
Right-of-use
assets
      35,140        (32,538 )      —       2,602  
    
 
 
     
 
 
    
 
 
    
 
 
  
     ￦ 5,537,835      ￦ (3,149,825 )    ￦ (32,766 )    ￦ 2,355,244  
    
 
 
     
 
 
    
 
 
    
 
 
  
15.6 Changes in intangible assets other than goodwill for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Beginning
    
Acquisition &
transfer
    
Disposal
    
Amortization
1
    
Business

combination
    
Others
    
Ending
  
   
(In millions of Korean won)
  
Industrial property rights
   ￦ 2,347     ￦ 207     ￦ (1,080 )    ￦ (371 )    ￦ —     ￦ —     ￦ 1,103  
Software
     573,186       219,128       (838 )      (216,073 )      8,742       (5,204 )      578,941  
Other intangible assets
2
     371,773       100,460       (16,907 )      (59,761 )      —       1,182       396,747  
VOBA
     1,635,619       —       —       (156,074 )      —       —       1,479,545  
Right-of-use
assets
     4,626       —       —       (1,012 )      —       —       3,614  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 2,587,551     ￦ 319,795     ￦ (18,825 )    ￦ (433,291 )    ￦ 8,742     ￦ (4,022 )    ￦ 2,459,950  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-148
    
2022
  
    
Beginning
     
Acquisition &
transfer
     
Disposal
    
Amortization
1
    
Others
    
Ending
  
    
(In millions of Korean won)
  
Industrial property rights
    ￦ 1,103      ￦ 254      ￦ —     ￦ (246 )    ￦ —     ￦ 1,111  
Software
      578,941        290,229        (332 )      (249,050 )      460       620,248  
Other intangible assets
2
      396,747        69,596        (10,192 )      (62,270 )      (4,527 )      389,354  
VOBA
      1,479,545        —        —       (137,616 )      —       1,341,929  
Right-of-use
assets
      3,614        —        —       (1,012 )      —       2,602  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
     ￦ 2,459,950      ￦ 360,079      ￦ (10,524 )    ￦ (450,194 )    ￦ (4,067 )    ￦ 2,355,244  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
    
 
 
  
 
1
Includes ￦ 189,791 million and ￦ 164,308 million recorded as insurance expenses and other operating expenses for the years ended December 31, 2021 and 2022, respectively.
2
 
Impairment losses for membership right with indefinite useful life among other intangible assets are recognized when its recoverable amount is lower than its carrying amount, and reversal of impairment losses are recognized when its recoverable amount is higher than its carrying amount.
15.7 Changes in accumulated impairment losses of other intangible assets for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
    
Impairment
    
Reversal
     
Disposal and
others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of other intangible assets
    ￦ (36,264 )    ￦ (5,306 )    ￦ 2,939      ￦ 3,744      ￦ (34,887 ) 
   
    
2022
  
    
Beginning
    
Impairment
    
Reversal
     
Disposal and
others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of other intangible assets
    ￦ (34,887 )    ￦ (1,301 )    ￦ 425      ￦ 2,997      ￦ (32,766 ) 
16. Lease
16.1 The Group as a Lessee
16.1.1 Amounts recognized in the consolidated statements of financial position related to lease as of December 31, 2021 and 2022, are as follows:
 
    
December 31,
2021
     
December 31,
2022
  
    
(In millions of Korean won)
  
Right-of-use
property and equipment:*
                  
Real estate
    ￦ 544,075      ￦ 557,122  
Vehicles
      18,416        20,281  
Others
      13,556        7,138  
    
 
 
     
 
 
  
       576,047        584,541  
    
 
 
     
 
 
  
Right-of-use
intangible assets*
      3,614        2,602  
    
 
 
     
 
 
  
     ￦ 579,661      ￦ 587,143  
    
 
 
     
 
 
  
Lease liabilities *
    ￦ 578,808      ￦ 592,697  
 
*
Included in property and equipment, intangible assets, and other liabilities.
 
F-149
16.1.2 Amounts recognized in the consolidated statements of comprehensive income related to lease for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
     
2022
  
    
(In millions of Korean won)
  
Depreciation and amortization of
right-of-use
assets:
                  
Real estate
    ￦ 262,240      ￦ 271,703  
Vehicles
      17,796        17,661  
Others
      8,944        7,145  
Intangible assets
      1,012        1,012  
    
 
 
     
 
 
  
     ￦ 289,992      ￦ 297,521  
    
 
 
     
 
 
  
Interest expenses on the lease liabilities
    ￦ 14,678      ￦ 17,849  
Expense relating to short-term lease
      5,920        4,388  
Expense relating to lease of
low-value
assets that are not short-term lease
      8,434        10,089  
Expense relating to variable lease payments not included in lease liabilities (included in administrative expenses)
      262        3  
Total cash outflows for lease for the years ended December 31, 2021 and 2022 are ￦ 267,864 million and ￦ 272,050 million, respectively.
16.2 The Group as a Lessor
16.2.1 The Group as a finance lessor
16.2.1.1 Gross investment in the lease and present value of minimum lease payments as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
Gross
investment in
the lease
     
Present
value of
minimum
lease
payments
     
Gross
investment in
the lease
     
Present
value of
minimum
lease
payments
  
    
(In millions of Korean won)
  
Up to 1 year
    ￦ 559,569      ￦ 379,439      ￦ 509,316      ￦ 363,085  
1-5
years
      808,256        540,219        679,773        516,701  
Over 5 years
      —        —        10,166        10,167  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 1,367,825      ￦ 919,658      ￦ 1,199,255      ￦ 889,953  
    
 
 
     
 
 
     
 
 
     
 
 
  
16.2.1.2 Unearned finance income on finance lease as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Gross investment in the lease
    ￦ 1,367,825      ￦ 1,199,255  
Net investment in the lease:
                  
Present value of minimum lease payments
      919,658        889,953  
Present value of unguaranteed residual value
      349,478        232,047  
    
 
 
     
 
 
  
       1,269,136        1,122,000  
    
 
 
     
 
 
  
Unearned finance income
    ￦ 98,689      ￦ 77,255  
    
 
 
     
 
 
  
 
F-150
16.2.2 The Group as an operating lessor
Future minimum lease payments to be received from the
non-cancellable
lease contracts as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Minimum lease payments to be received:
                  
Up to 1 year
    ￦ 918,640      ￦ 919,299  
1-5
years
      1,797,551        1,576,352  
Over 5 years
      299,984        227,946  
    
 
 
     
 
 
  
     ￦ 3,016,175      ￦ 2,723,597  
    
 
 
     
 
 
  
17. Deferred Income Tax Assets and Liabilities
17.1 Details of deferred income tax assets and liabilities as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Assets
    
Liabilities
    
Net amount
  
    
(In millions of Korean won)
  
Other provisions
    ￦ 178,027     ￦ —     ￦ 178,027  
Allowances for credit losses
      28,770       (3,008 )      25,762  
Impairment losses of property and equipment
      9,198       (1,833 )      7,365  
Share-based payments
      24,249       —       24,249  
Provisions for acceptances and guarantees
      33,091       —       33,091  
Gains or losses on valuation of derivatives
      41,289       (139,281 )      (97,992 ) 
Present value discount
      14,254       (5,929 )      8,325  
Gains or losses on fair value hedge
      —       (14,642 )      (14,642 ) 
Accrued interest
      —       (140,852 )      (140,852 ) 
Deferred loan origination fees and costs
      10,473       (223,170 )      (212,697 ) 
Advanced depreciation provision
      —       (1,703 )      (1,703 ) 
Gains or losses on revaluation
      —       (318,539 )      (318,539 ) 
Investments in subsidiaries and others
      42,547       (159,411 )      (116,864 ) 
Gains or losses on valuation of security investment
      104,168       (1,192,004 )      (1,087,836 ) 
Defined benefit liabilities
      608,471       —       608,471  
Accrued expenses
      281,983       —       281,983  
Retirement insurance expense
      —       (573,895 )      (573,895 ) 
Adjustments to the prepaid contributions
      —       (29,273 )      (29,273 ) 
Derivative-linked securities
      2,241       (46,895 )      (44,654 ) 
Others*
      1,031,411       (871,625 )      159,786  
    
 
 
    
 
 
    
 
 
  
       2,410,172       (3,722,060 )      (1,311,888 ) 
    
 
 
    
 
 
    
 
 
  
Offsetting of deferred income tax assets and liabilities
      (2,251,079 )      2,251,079       —  
    
 
 
    
 
 
    
 
 
  
     ￦ 159,093     ￦ (1,470,981 )    ￦ (1,311,888 ) 
    
 
 
    
 
 
    
 
 
  
 
F-151
    
December 31, 2022
  
    
Assets
    
Liabilities
    
Net amount
  
    
(In millions of Korean won)
  
Other provisions
    ￦ 195,191     ￦ —     ￦ 195,191  
Allowances for credit losses
      2,151       (12,259 )      (10,108 ) 
Impairment losses of property and equipment
      6,088       (1,476 )      4,612  
Share-based payments
      21,406       —       21,406  
Provisions for acceptances and guarantees
      39,787       —       39,787  
Gains or losses on valuation of derivatives
      135,985       (207,778 )      (71,793 ) 
Present value discount
      20,247       (2,571 )      17,676  
Gains or losses on fair value hedge
      —       (93,833 )      (93,833 ) 
Accrued interest
      —       (168,068 )      (168,068 ) 
Deferred loan origination fees and costs
      13,675       (185,723 )      (172,048 ) 
Advanced depreciation provision
      —       (4,018 )      (4,018 ) 
Gains or losses on revaluation
      315       (292,373 )      (292,058 ) 
Investments in subsidiaries and others
      48,693       (203,130 )      (154,437 ) 
Gains or losses on valuation of security investment
      1,040,989       (278,334 )      762,655  
Defined benefit liabilities
      497,982       (799 )      497,183  
Accrued expenses
      268,529       —       268,529  
Retirement insurance expense
      —       (583,156 )      (583,156 ) 
Adjustments to the prepaid contributions
      —       (27,986 )      (27,986 ) 
Derivative-linked securities
      10,102       (283,840 )      (273,738 ) 
Others*
      1,224,029       (951,433 )      272,596  
    
 
 
    
 
 
    
 
 
  
       3,525,169       (3,296,777 )      228,392  
    
 
 
    
 
 
    
 
 
  
Offsetting of deferred income tax assets and liabilities
      (3,274,084 )      3,274,084       —  
    
 
 
    
 
 
    
 
 
  
     ￦ 251,085     ￦ (22,693 )    ￦ 228,392  
    
 
 
    
 
 
    
 
 
  
 
*
Includes Purchase Price Allocation (“PPA”) amount arising from the acquisition of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.), KB Insurance Co., Ltd. and others.
17.2 Unrecognized Deferred Income Tax Assets
17.2.1 No deferred income tax assets have been recognized for the deductible temporary differences of ￦ 1,148,089 million associated with investments in subsidiaries and others as of December 31, 2022, because it is not probable that these temporary differences will reverse in the foreseeable future.
17.2.2 No deferred income tax assets have been recognized for the deductible temporary differences of ￦ 96,750 million associated with others as of December 31, 2022, due to the uncertainty that these temporary differences will be realized in the future.
17.3 Unrecognized Deferred Income Tax Liabilities
17.3.1 No deferred income tax liabilities have been recognized for the taxable temporary differences of ￦ 565,035 million associated with investments in subsidiaries and others as of December 31, 2022, due to the following reasons:
 
  •  
The Group is able to control the timing of the reversal of the temporary differences.
 
  •  
It is probable that these temporary differences will not reverse in the foreseeable future.
17.3.2 No deferred income tax liabilities have been recognized as of December 31, 2022, for the taxable temporary differences of ￦ 65,288 million related to the initial recognition of goodwill arising from the merger of Housing and Commercial Bank in 2001.
 
F-152
17.4 Changes in cumulative temporary differences for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Beginning
    
Decrease
    
Increase
    
Ending
  
   
(In millions of Korean won)
  
Deductible temporary differences
                                
Gains or losses on fair value hedge
   ￦ 76,583     ￦ 76,583     ￦ —     ￦ —  
Other provisions
     544,705       527,058       631,800       649,447  
Allowances for credit losses
     93,749       69,023       75,452       100,178  
Impairment losses of property and equipment
     14,516       4,361       23,290       33,445  
Deferred loan origination fees and costs
     26,269       13,719       25,536       38,086  
Share-based payments
     62,085       55,002       78,225       85,308  
Provisions for acceptances and guarantees
     61,984       61,984       120,332       120,332  
Gains or losses on valuation of derivatives
     76,238       76,238       149,817       149,817  
Present value discount
     62,029       61,783       51,586       51,832  
Investments in subsidiaries and others
     371,001       203,470       346,809       514,340  
Gains or losses on valuation of security investment
     251,690       252,497       368,886       368,079  
Defined benefit liabilities
     2,299,159       315,719       393,189       2,376,629  
Accrued expenses
     1,220,283       1,220,283       1,026,651       1,026,651  
Derivative-linked securities
     284,370       284,370       8,147       8,147  
Others*
     3,648,764       554,628       100,539       3,194,675  
   
 
 
    
 
 
    
 
 
    
 
 
  
      9,093,425       3,776,718       3,400,259       8,716,966  
   
 
 
    
 
 
    
 
 
    
 
 
  
Unrecognized deferred income tax assets
                                
Other provisions
     3,054                       404  
Investments in subsidiaries and others
     242,875                       372,410  
Others
     75,831                       107,067  
   
 
 
                    
 
 
  
      8,771,665                       8,237,085  
Tax rate (%)
     27.5                       27.5  
   
 
 
                    
 
 
  
Total deferred income tax assets
   ￦ 2,478,283                     ￦ 2,410,172  
   
 
 
                    
 
 
  
Taxable temporary differences
                                
Gains or losses on fair value hedge
   ￦ —     ￦ —     ￦ (53,243 )    ￦ (53,243 ) 
Accrued interest
     (457,626 )      (442,101 )      (496,663 )      (512,188 ) 
Allowances for credit losses
     (12,203 )      (12,203 )      (10,939 )      (10,939 ) 
Impairment losses of property and equipment
     (3,935 )      (204 )      —       (3,731 ) 
Deferred loan origination fees and costs
     (820,223 )      (820,223 )      (802,237 )      (802,237 ) 
Advanced depreciation provision
     (6,192 )      —       —       (6,192 ) 
Gains or losses on valuation of derivatives
     (812,662 )      (804,383 )      (498,197 )      (506,476 ) 
Present value discount
     (10,916 )      (10,916 )      (21,469 )      (21,469 ) 
Goodwill arising from the merger
     (65,288 )      —       —       (65,288 ) 
Gains or losses on revaluation
     (1,162,538 )      (48,981 )      (44,765 )      (1,158,322 ) 
Investments in subsidiaries and others
     (646,676 )      (150,480 )      (468,334 )      (964,530 ) 
Gains or losses on valuation of security investment
     (4,425,922 )      (2,552,447 )      (2,394,100 )      (4,267,575 ) 
Retirement insurance expense
     (1,963,061 )      (228,784 )      (346,368 )      (2,080,645 ) 
Adjustments to the prepaid contributions
     (102,768 )      (102,768 )      (106,446 )      (106,446 ) 
Derivative-linked securities
     (112,293 )      (112,293 )      (170,526 )      (170,526 ) 
Others*
     (2,706,386 )      (1,819,652 )      (2,208,579 )      (3,095,313 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
      (13,308,689 )      (7,105,435 )      (7,621,866 )      (13,825,120 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Unrecognized deferred income tax liabilities
                                
Goodwill arising from the merger
     (65,288 )                      (65,288 ) 
Investments in subsidiaries and others
     (260,739 )                      (404,147 ) 
Others
     (1,042 )                      (446 ) 
   
 
 
                    
 
 
  
      (12,981,620 )                      (13,355,239 ) 
Tax rate (%)
     27.5                       27.5  
   
 
 
                    
 
 
  
Total deferred income tax liabilities
   ￦ (3,591,024 )                    ￦ (3,722,060 ) 
   
 
 
                    
 
 
  
 
F-153
   
2022
  
   
Beginning
    
Decrease
    
Increase
    
Ending
  
   
(In millions of Korean won)
  
Deductible temporary differences
                                
Other provisions
   ￦ 649,447     ￦ 625,770     ￦ 715,694     ￦ 739,371  
Allowances for credit losses
     100,178       99,713       326       791  
Impairment losses of property and equipment
     33,445       22,725       12,255       22,975  
Deferred loan origination fees and costs
     38,086       19,556       33,075       51,605  
Share-based payments
     85,308       74,120       69,589       80,777  
Provisions for acceptances and guarantees
     120,332       120,332       150,140       150,140  
Gains or losses on valuation of derivatives
     149,817       149,817       513,151       513,151  
Present value discount
     51,832       51,586       76,153       76,399  
Investments in subsidiaries and others
     514,340       59,444       863,317       1,318,213  
Gains or losses on valuation of security investment
     368,079       368,079       3,872,016       3,872,016  
Defined benefit liabilities
     2,376,629       467,454       118,171       2,027,346  
Accrued expenses
     1,026,651       1,026,591       1,013,263       1,013,323  
Derivative-linked securities
     8,147       8,147       38,123       38,123  
Others
1
     3,194,675       2,306,121       2,950,445       3,838,999  
   
 
 
    
 
 
    
 
 
    
 
 
  
      8,716,966       5,399,455       10,425,718       13,743,229  
   
 
 
    
 
 
    
 
 
    
 
 
  
Unrecognized deferred income tax assets
                                
Other provisions
     404                       3,880  
Investments in subsidiaries and others
     372,410                       1,148,089  
Others
     107,067                       96,750  
   
 
 
                    
 
 
  
      8,237,085                       12,494,510  
Tax rate (%)
     27.5                       26.5  
   
 
 
                    
 
 
  
Total deferred income tax assets
   ￦ 2,410,172                     ￦ 3,525,169  
   
 
 
                    
 
 
  
Taxable temporary differences
                                
Gains or losses on fair value hedge
   ￦ (53,243 )    ￦ (53,243 )    ￦ (354,085 )    ￦ (354,085 ) 
Accrued interest
     (512,188 )      (475,840 )      (597,870 )      (634,218 ) 
Allowances for credit losses
     (10,939 )      (10,939 )      (46,262 )      (46,262 ) 
Impairment losses of property and equipment
     (3,731 )      (283 )      —       (3,448 ) 
Deferred loan origination fees and costs
     (802,237 )      (802,237 )      (690,979 )      (690,979 ) 
Advanced depreciation provision
     (6,192 )      (126 )      (9,097 )      (15,163 ) 
Gains or losses on valuation of derivatives
     (506,476 )      (498,609 )      (747,674 )      (755,541 ) 
Present value discount
     (21,469 )      (21,469 )      (9,703 )      (9,703 ) 
Goodwill arising from the merger
     (65,288 )      —       —       (65,288 ) 
Gains or losses on revaluation
     (1,158,322 )      (92,944 )      (37,914 )      (1,103,292 ) 
Investments in subsidiaries and others
     (964,530 )      (87,129 )      (434,311 )      (1,311,712 ) 
Gains or losses on valuation of security investment
     (4,267,575 )      (4,263,845 )      (988,618 )      (992,348 ) 
Defined benefit liabilities
     —       —       (3,014 )      (3,014 ) 
Retirement insurance expense
     (2,080,645 )      (324,513 )      (437,492 )      (2,193,624 ) 
Adjustments to the prepaid contributions
     (106,446 )      (106,446 )      (105,608 )      (105,608 ) 
Derivative-linked securities
     (170,526 )      (170,526 )      (1,071,093 )      (1,071,093 ) 
Others
1
     (3,095,313 )      (1,832,328 )      (2,218,485 )      (3,481,470 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
      (13,825,120 )      (8,740,477 )      (7,752,205 )      (12,836,848 ) 
   
 
 
    
 
 
    
 
 
    
 
 
  
Unrecognized deferred income tax liabilities
                                
Goodwill arising from the merger
     (65,288 )                      (65,288 ) 
Investments in subsidiaries and others
     (404,147 )                      (565,035 ) 
Others
     (446 )                      (446 ) 
   
 
 
                    
 
 
  
      (13,355,239 )                      (12,206,079 ) 
Tax rate (%)
2
     27.5                       26.5  
   
 
 
                    
 
 
  
Total deferred income tax liabilities
   ￦ (3,722,060 )                    ￦ (3,296,777 ) 
   
 
 
                    
 
 
  
 
*
Includes PPA amount arising from the acquisition of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.), KB Insurance Co., Ltd. and others.
1
 
Includes PPA amount arising from the acquisition of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.), KB Insurance Co., Ltd. and others.
2
 
The corporate tax rate was changed due to the amendment of corporate tax law in 2022. Accordingly, the rate of 26.5% has been applied for the deferred tax assets and liabilities expected to be utilized in periods after December 31, 2022.
 
F-154
18. Assets Held for Sale and Assets of a Disposal Group Held for Sale
18.1 Assets Held for Sale
18.1.1 Details of assets held for sale as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Acquisition
cost*
     
Accumulated
impairment losses
    
Carrying
amount
     
Fair value less
costs to sell
  
    
(In millions of Korean won)
  
Land held for sale
    ￦ 115,099      ￦ (16,528 )    ￦ 98,571      ￦ 135,192  
Buildings held for sale
      170,892        (36,923 )      133,969        149,569  
Other assets held for sale
      10,142        (5,364 )      4,778        4,778  
    
 
 
     
 
 
    
 
 
     
 
 
  
     ￦ 296,133      ￦ (58,815 )    ￦ 237,318      ￦ 289,539  
    
 
 
     
 
 
    
 
 
     
 
 
  
 
    
December 31, 2022
  
    
Acquisition
cost*
     
Accumulated
impairment losses
    
Carrying
amount
     
Fair value less
costs to sell
  
    
(In millions of Korean won)
  
Land held for sale
    ￦ 106,349      ￦ (20,395 )    ￦ 85,954      ￦ 104,990  
Buildings held for sale
      162,973        (38,869 )      124,104        137,706  
Other assets held for sale
      4,547        (2,847 )      1,700        1,699  
    
 
 
     
 
 
    
 
 
     
 
 
  
     ￦ 273,869      ￦ (62,111 )    ￦ 211,758      ￦ 244,395  
    
 
 
     
 
 
    
 
 
     
 
 
  
 
*
Acquisition cost of buildings held for sale is net of accumulated depreciation amount immediately before the initial classification of the assets as held for sale.
18.1.2 Valuation techniques and inputs used to measure the fair value of assets held for sale as of December 31, 2022 are as follows:
 
    
December 31, 2022
    
Fair value
     
Valuation
techniques
1
  
Unobservable
inputs
2
  
Estimated range of
unobservable
inputs (%)
   
Effect of
unobservable
inputs to fair value
    
(In millions of Korean won)
Land and buildings
    ￦ 244,395      Sales comparison
approach model
and others		    Adjustment index    0.68 ~ 1.95    Fair value increases
as the adjustment
index rises
 
1
 
The appraisal value is adjusted by the adjustment ratio in the event the public sale is unsuccessful.
2
 
Adjustment index is calculated using the time factor correction or local factors or individual factors.
Among assets held for sale, real estate was measured by independent appraisers with professional qualifications and recent experience in evaluating similar properties in the area of the property to be assessed. All assets held for sale are classified as Level 3 in accordance with fair value hierarchy in Note 6.1.2.
 
F-155
18.1.3 Changes in accumulated impairment losses of assets held for sale for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
    
Provision
    
Reversal
     
Others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of assets held for sale
    ￦ (46,115 )    ￦ (15,490 )    ￦ —      ￦ 2,790      ￦ (58,815 ) 
 
    
2022
  
    
Beginning
    
Provision
    
Reversal
     
Others
     
Ending
  
    
(In millions of Korean won)
  
Accumulated impairment losses of assets held for sale
    ￦ (58,815 )    ￦ (7,587 )    ￦ 242      ￦ 4,049      ￦ (62,111 ) 
18.1.4 As of December 31, 2022, assets held for sale consist of 11 real estates of closed offices and 438 foreclosure assets on loans of PT Bank KB Bukopin Tbk, which were determined to sell by management, but not yet sold as of December 31, 2022. Negotiation with buyers is in process for the one closed office and the remaining 438 assets are also being actively marketed.
18.2 Assets of a Disposal Group Held for Sale
The Group decided to sell all of its shares in 498 Seventh KOR Holdco LP held by Hanwha US Equity Strategy Private Real Estate Fund No.3, which is a subsidiary and 498 Seventh KOR LLC held by 498 Seventh KOR Holdco LP. The Group classified assets of 498 Seventh KOR Holdco LP and 498 Seventh KOR LLC as assets of a disposal group held for sale, and classified currency translation differences as accumulated other comprehensive income relating to assets of a disposal group held for sale and has entered into a share transfer contract with JR REIT No.28 in 2021, and completed the sale process in January 2022. Accordingly, there are no assets, liabilities, and accumulated other comprehensive income relating to a disposal group held for sale as of December 31, 2022
18.2.1 There is no liabilities of a disposal group held for sale and details of assets of a disposal group held for sale as of December 31, 2021 are as follows:
 
    
December 31, 2021
  
    
498 seventh Holdco LP
     
498 seventh KOR LLC
     
Total
  
    
(In millions of Korean won)
  
Cash
    ￦ 556      ￦ 512      ￦ 1,068  
Investments in associates
      —        169,424        169,424  
Other assets
      —        1,257        1,257  
    
 
 
     
 
 
     
 
 
  
     ￦ 556      ￦ 171,193      ￦ 171,749  
    
 
 
     
 
 
     
 
 
  
There is no impairment loss recognized as for the assets of a disposal group held for sale as of December 31, 2021.
18.2.2 Details of accumulated other comprehensive income relating to assets of a disposal group held for sale as of December 31, 2021 are as follows:
 
    
December 31, 2021
  
    
(In millions of Korean won)
  
Currency translation differences
    ￦ 7,671  
 
F-156
Table of Contents
19. Other Assets
19.1 Details of other assets as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
    
December 31, 2022
  
    
(In millions of Korean won)
  
Other financial assets
                 
Other receivables
    ￦ 6,732,917     ￦ 6,648,187  
Accrued income
      1,916,667       2,507,324  
Guarantee deposits
      1,035,522       984,176  
Domestic exchange settlement debits
      1,014,938       879,847  
Others
      204,940       352,955  
Less: Allowances for credit losses
      (143,205 )      (155,404 ) 
Less: Present value discount
      (6,429 )      (7,735 ) 
    
 
 
    
 
 
  
       10,755,350       11,209,350  
    
 
 
    
 
 
  
Other
non-financial
assets
                 
Other receivables
      1,764       5,653  
Prepaid expenses
      254,990       471,258  
Guarantee deposits
      7,268       3,157  
Insurance assets
      2,924,698       3,248,548  
Separate account assets
      10,556,935       9,820,673  
Others
      3,689,340       3,697,420  
Less: Allowances for credit losses
      (16,172 )      (18,530 ) 
    
 
 
    
 
 
  
       17,418,823       17,228,179  
    
 
 
    
 
 
  
     ￦ 28,174,173     ￦ 28,437,529  
    
 
 
    
 
 
  
19.2 Changes in allowances for credit losses of other assets for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Other financial
assets
    
Other non-financial

assets
    
Total
  
    
(In millions of Korean won)
  
Beginning
    ￦ 119,762     ￦ 17,520     ￦ 137,282  
Write-offs
      (3,504 )      (380 )      (3,884 ) 
Provision
      25,387       (447 )      24,940  
Business combination
      227       —       227  
Others
      1,333       (521 )      812  
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 143,205     ￦ 16,172     ￦ 159,377  
    
 
 
    
 
 
    
 
 
  
   
    
2022
  
    
Other financial
assets
    
Other non-financial

assets
    
Total
  
    
(In millions of Korean won)
  
Beginning
    ￦ 143,205     ￦ 16,172     ￦ 159,377  
Write-offs
      (10,028 )      (70 )      (10,098 ) 
Provision (reversal)
      15,224       2,182       17,406  
Business combination
      267       —       267  
Others
      6,736       246       6,982  
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 155,404     ￦ 18,530     ￦ 173,934  
    
 
 
    
 
 
    
 
 
  
 
F-157
20. Financial Liabilities at Fair Value through Profit or Loss
20.1 Details of financial liabilities at fair value through profit or loss and financial liabilities designated at fair value through profit or loss as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Financial liabilities at fair value through profit or loss
                  
Borrowed securities sold
    ￦ 2,826,885      ￦ 2,102,537  
Others
      112,699        90,673  
    
 
 
     
 
 
  
       2,939,584        2,193,210  
    
 
 
     
 
 
  
Financial liabilities designated at fair value through profit or loss
                  
Derivative-linked securities
      9,149,396        10,078,394  
    
 
 
     
 
 
  
       9,149,396           10,078,394  
    
 
 
     
 
 
  
     ￦ 12,088,980      ￦ 12,271,604  
    
 
 
     
 
 
  
20.2 Difference between the amount contractually required to pay at maturity and carrying amount of financial liabilities designated at fair value through profit or loss as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
    
December 31,

2022
  
    
(In millions of Korean won)
  
Amount contractually required to pay at maturity
    ￦ 8,957,602     ￦ 9,973,340  
Carrying amount
          9,149,396           10,078,394  
    
 
 
    
 
 
  
Difference
    ￦ (191,794 )    ￦ (105,054 ) 
    
 
 
    
 
 
  
21. Deposits
Details of deposits as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
    
December 31,

2022
  
    
(In millions of Korean won)
  
Demand deposits
                 
Demand deposits in Korean won
    ￦ 180,560,022     ￦ 152,079,457  
Demand deposits in foreign currencies
      15,955,246       12,844,385  
    
 
 
    
 
 
  
       196,515,268       164,923,842  
    
 
 
    
 
 
  
Time deposits
                 
Time deposits in Korean won
      155,799,563       194,117,692  
    
 
 
    
 
 
  
       155,799,563       194,117,692  
    
 
 
    
 
 
  
Time deposits in foreign currencies
      15,594,718       23,529,633  
Fair value adjustments of fair value hedged time deposits in foreign currencies
      (1,319 )      (8,591 ) 
    
 
 
    
 
 
  
       15,593,399       23,521,042  
    
 
 
    
 
 
  
       171,392,962       217,638,734  
    
 
 
    
 
 
  
Certificates of deposits
      4,115,688       6,325,876  
    
 
 
    
 
 
  
     ￦ 372,023,918     ￦ 388,888,452  
    
 
 
    
 
 
  
 
F-158
22. Borrowings
22.1 Details of borrowings as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
General borrowings
    ￦ 40,859,845      ￦ 55,789,869  
Bonds sold under repurchase agreements and others
      14,374,863        11,773,494  
Call money
      1,677,666        4,154,003  
    
 
 
     
 
 
  
     ￦ 56,912,374      ￦ 71,717,366  
    
 
 
     
 
 
  
22.2 Details of general borrowings as of December 31, 2021 and 2022, are as follows:
 
   
Lenders
  
Interest rate
(%) as of
December 31,
2022
  
December 31,

2021
    
December 31,

2022
  
               
(In millions of Korean won)
  
Borrowings in Korean won
  
Borrowings from the Bank of Korea
   The Bank of Korea   0.25 ~ 1.75   ￦ 7,131,019     ￦ 8,282,289  
   
Borrowings from the government
   SEMAS and others   0.00 ~ 3.23     2,683,056       2,670,867  
   
Borrowings from banks
   Shinhan Bank and others   2.49 ~ 6.53     171,482       914,360  
   
Borrowings from
non-banking
financial institutions
  
Korea Securities Finance Corporation and others
   1.39 ~ 6.96     1,935,906       2,189,510  
   
Other borrowings
  
The Korea Development Bank and others
   0.00 ~ 8.79     13,292,759       19,806,869  
               
 
 
    
 
 
  
                  25,214,222       33,863,895  
               
 
 
    
 
 
  
Borrowings in foreign currencies
   Due to banks  
Bank of China Seoul Branch and others
   —     2,143       18,266  
   
Borrowings from banks
  
Central Bank of Uzbekistan and others
   0.00 ~ 14.00     13,396,379       16,296,725  
   
Borrowings from other financial institutions
  
The Export-Import Bank of Korea and others
   5.07 ~ 5.89     24,867       38,249  
   
Other borrowings
  
Standard Chartered Bank and others
   0.00 ~ 8.00     2,222,234       5,572,734  
               
 
 
    
 
 
  
                  15,645,623       21,925,974  
               
 
 
    
 
 
  
                ￦ 40,859,845     ￦ 55,789,869  
               
 
 
    
 
 
  
22.3 Details of bonds sold under repurchase agreements and others as of December 31, 2021 and 2022, are as follows:
 
    
Lenders
   
Interest rate
(%) as of

December 31,
2022
    
December 31,

2021
    
December 31,

2022
  
               
(In millions of Korean won)
  
Bonds sold under repurchase agreements
   
Individuals, groups, and corporations
      0.00~9.75     ￦ 14,372,761     ￦ 11,769,694  
Bills sold
   
Counter sale
      1.55~2.00       2,102       3,800  
                 
 
 
    
 
 
  
                  ￦ 14,374,863     ￦ 11,773,494  
                 
 
 
    
 
 
  
 
F-159
22.4 Details of call money as of December 31, 2021 and 2022, are as follows:
 
    
Lenders
   
Interest rate
(%) as of

December 31,
2022
     
December 31,

202
1
     
December 31,

202
2
  
                
(In millions of Korean won)
  
Call money in Korean won
   
Samsung Asset Management and others
      2.90~5.05      ￦ 40,000      ￦ 2,943,500  
Call money in foreign currencies
   
BANK CIMB NIAGA and others
      0.00~7.80        1,637,666        1,210,503  
                  
 
 
     
 
 
  
                   ￦ 1,677,666      ￦ 4,154,003  
                  
 
 
     
 
 
  
23. Debentures
23.1 Details of debentures as of December 31, 2021 and 2022, are as follows:
 
    
Interest rate
(%) as of

December 31,
2022
     
December 31,

2021
    
December 31,

2022
  
           
(In millions of Korean won)
  
Debentures in Korean won
                          
Structured debentures
      5.65 ~ 8.62      ￦ 910     ￦ 710  
Exchangeable bonds*
      0.00        240,000       240,000  
Subordinated fixed rate debentures
      2.02 ~ 7.86        6,241,957       5,354,890  
Fixed rate debentures
      0.99 ~ 13.70        44,124,235       45,424,094  
Floating rate debentures
      1.54 ~ 6.36        6,893,782       5,455,000  
             
 
 
    
 
 
  
                57,500,884       56,474,694  
             
 
 
    
 
 
  
Fair value adjustments of fair value hedged debentures in Korean won
               (79,877 )      (249,629 ) 
Less: Discount on debentures in Korean won
               (38,976 )      (29,166 ) 
Less: Adjustment for exchange right of exchangeable bonds in Korean won
               (11,719 )      (8,435 ) 
             
 
 
    
 
 
  
                57,370,312       56,187,464  
             
 
 
    
 
 
  
Debentures in foreign currencies
                          
Floating rate debentures
      2.42 ~ 5.98        2,749,174       2,168,341  
Fixed rate debentures
      0.05 ~ 12.00        7,312,966       10,482,244  
             
 
 
    
 
 
  
                10,062,140       12,650,585  
             
 
 
    
 
 
  
Fair value adjustments of fair value hedged debentures in foreign currencies
               27,953       (95,865 ) 
Less: Discount on debentures in foreign currencies
               (30,217 )      (43,981 ) 
             
 
 
    
 
 
  
                10,059,876       12,510,739  
             
 
 
    
 
 
  
              ￦ 67,430,188     ￦ 68,698,203  
             
 
 
    
 
 
  
 
*
Fair value of the liability component of exchangeable bonds is calculated by using market interest rate of bonds under the same conditions without the exchange right. The residual amount after deducting the liability component from the issuance amount, represents the value of the exchange right and is recorded in equity. Shares to be exchanged are 5 million treasury shares of KB Financial Group Inc. with the exchange price of ￦ 48,000. Exercise period for exchange right is from the 60th day of the issuance date to 10 days before the maturity date.
 
F-160
23.2 Changes in debentures based on par value for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Beginning
    
Issue
    
Repayment
    
Others
    
Ending
  
   
(In millions of Korean won)
  
Debentures in Korean won
                                        
Structured debentures
   ￦ 1,960     ￦ —     ￦ (1,050 )    ￦ —     ￦ 910  
Exchangeable bonds
     240,000       —       —       —       240,000  
Subordinated fixed rate debentures
     4,834,407       1,409,000       (1,450 )      —       6,241,957  
Fixed rate debentures
     47,229,619       110,295,448       (113,400,832 )      —       44,124,235  
Floating rate debentures
     3,190,000       6,085,064       (2,381,282 )      —       6,893,782  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      55,495,986       117,789,512       (115,784,614 )      —       57,500,884  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Debentures in foreign currencies
                                        
Floating rate debentures
     2,232,938       810,920       (500,901 )      206,217       2,749,174  
Fixed rate debentures
     5,030,580       3,195,539       (1,224,070 )      310,917       7,312,966  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      7,263,518       4,006,459       (1,724,971 )      517,134       10,062,140  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 62,759,504     ￦ 121,795,971     ￦ (117,509,585 )    ￦ 517,134     ￦ 67,563,024  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
2022
  
    
Beginning
     
Issue
     
Repayment
    
Others
     
Ending
  
    
(In millions of Korean won)
  
Debentures in Korean won
                                            
Structured debentures
    ￦ 910      ￦ —      ￦ (200 )    ￦ —      ￦ 710  
Exchangeable bonds
      240,000        —        —       —        240,000  
Subordinated fixed rate debentures
      6,241,957        286,000        (1,173,067 )      —        5,354,890  
Fixed rate debentures
      44,124,235        96,782,415        (95,482,556 )      —        45,424,094  
Floating rate debentures
      6,893,782        5,350,000        (6,788,782 )      —        5,455,000  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
       57,500,884        102,418,415        (103,444,605 )      —        56,474,694  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
Debentures in foreign currencies
                                            
Floating rate debentures
      2,749,174        1,286,016        (2,072,615 )      205,766        2,168,341  
Fixed rate debentures
      7,312,966        3,940,693        (1,113,993 )      342,578        10,482,244  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
       10,062,140        5,226,709        (3,186,608 )      548,344        12,650,585  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
     ￦ 67,563,024      ￦ 107,645,124      ￦ (106,631,213 )    ￦ 548,344      ￦ 69,125,279  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
 
F-161
24. Provisions
24.1 Details of provisions as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Provisions for credit losses of unused loan commitments
    ￦ 308,640      ￦ 342,182  
Provisions for credit losses of acceptances and guarantees
      121,104        153,529  
Provisions for credit losses of financial guarantee contracts
      5,351        2,955  
Provisions for restoration costs
      152,186        159,033  
Others*
      221,323        311,120  
    
 
 
     
 
 
  
     ￦ 808,604      ￦ 968,819  
    
 
 
     
 
 
  
 
*
Includes provisions for redemption-suspended funds.
24.2 Changes in provisions for credit losses of unused loan commitments, and acceptances and guarantees for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
  
Provisions for credit losses of

unused loan commitments
    
Provisions for credit losses of

acceptances and guarantees
  
    
12-month

expected
credit losses
    
Lifetime expected
credit losses
    
12-month

expected
credit losses
    
Lifetime expected
credit losses
  
   
Non-

impaired
    
Impaired
    
Non-

impaired
    
Impaired
  
    
(In millions of Korean won)
  
Beginning
    ￦ 162,721     ￦ 127,463     ￦ 8,569     ￦ 33,088     ￦ 14,838     ￦ 14,328  
Transfer between stages:
                                                 
Transfer to
12-month
expected credit losses
      38,831       (37,595 )      (1,236 )      3,958       (203 )      (3,755 ) 
Transfer to lifetime expected credit losses
      (27,308 )      28,203       (895 )      (3,973 )      3,982       (9 ) 
Impairment
      (457 )      (1,002 )      1,459       (10 )      (85 )      95  
Provision (reversal) for credit losses
      (22,543 )      29,145       127       (7,425 )      64,178       711  
Business combination
      813       —       —       —       —       —  
Others (exchange differences, etc.)
      1,940       405       —       1,759       (540 )      167  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 153,997     ￦ 146,619     ￦ 8,024     ￦ 27,397     ￦ 82,170     ￦ 11,537  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-162
    
2022
  
    
Provisions for credit losses of

unused loan commitments
    
Provisions for credit losses of

acceptances and guarantees
  
    
12-month

expected
credit losses
    
Lifetime expected
credit losses
    
12-month

expected
credit losses
    
Lifetime expected
credit losses
  
   
Non-

impaired
    
Impaired
    
Non-

impaired
    
Impaired
  
    
(In millions of Korean won)
  
Beginning
    ￦ 153,997     ￦ 146,619     ￦ 8,024     ￦ 27,397     ￦ 82,170     ￦ 11,537  
Transfer between stages:
                                                 
Transfer to
12-month
expected credit losses
      41,314       (40,375 )      (939 )      1,144       (1,144 )      —  
Transfer to lifetime expected credit losses
      (19,232 )      19,848       (616 )      (355 )      1,016       (661 ) 
Impairment
      (338 )      (1,705 )      2,043       (9 )      (142 )      151  
Provision (reversal) for credit losses
      2,587       25,743       2,738       (1,689 )      33,983       (3,262 ) 
Others (exchange differences, etc.)
      1,557       937       (20 )     418       2,841       134  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 179,885     ￦ 151,067     ￦ 11,230     ￦ 26,906     ￦ 118,724     ￦ 7,899  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
24.3 Changes in provisions for credit losses of financial guarantee contracts for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
    
2022
  
    
(In millions of Korean won)
  
Beginning
    ￦ 6,348      ￦ 5,351  
Provision (reversal)
      (830 )      (2,396 ) 
Others
      (167 )      —  
    
 
 
    
 
 
  
Ending
    ￦     5,351     ￦     2,955  
    
 
 
    
 
 
  
24.4 Changes in provisions for restoration costs for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
    
2022
  
    
(In millions of Korean won)
  
Beginning
    ￦ 151,696     ￦ 152,186  
Provision
      11,350       17,270  
Reversal
      (2,075 )      210  
Used
      (15,739 )      (23,916 ) 
Unwinding of discount
      1,589       2,725  
Effect of changes in discount rate
      5,365       10,558  
    
 
 
    
 
 
  
Ending
    ￦ 152,186     ￦ 159,033  
    
 
 
    
 
 
  
Provisions for restoration costs are the present value of estimated costs to be incurred for the restoration of the leased properties. The expenditure of the restoration cost will be incurred at the end of each lease contract, and the lease period is used to reasonably estimate the time of expenditure. Also, the average restoration expense based on actual three-year historical data and three-year historical average inflation rate are used to estimate the present value of estimated costs.
 
F-163
24.5 Changes in other provisions for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
  
Membership
rewards
program
    
Dormant
accounts
    
Litigations
    
Others
    
Total
  
    
(In millions of Korean won)
  
Beginning
    ￦ 19,501     ￦ 3,007     ￦ 40,517     ￦ 132,827     ￦ 195,852  
Increase
      77,384       3,429       18,670       71,972       171,455  
Decrease
      (73,983 )      (3,374 )      (4,190 )      (64,614 )      (146,161 ) 
Others
      —       —       171       6       177  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 22,902     ￦ 3,062     ￦ 55,168     ￦ 140,191     ￦ 221,323  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
    
2022
  
  
Membership
rewards
program
    
Dormant
accounts
    
Litigations
    
Others
    
Total
  
    
(In millions of Korean won)
  
Beginning
    ￦ 22,902     ￦ 3,062     ￦ 55,168     ￦ 140,191     ￦ 221,323  
Increase
      84       2,666       62,611       89,179       154,540  
Decrease
      (22,940 )      (2,934 )      (4,252 )      (34,617 )      (64,743 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Ending
    ￦ 46     ￦ 2,794     ￦ 113,527     ￦ 194,753     ￦ 311,120  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
25. Net Defined Benefit Liabilities
25.1 Defined Benefit Plan
The Group operates defined benefit plans which have the following characteristics:
 
  •  
The Group has the obligation to pay the agreed benefits to all its current and former employees.
 
  •  
The Group assumes actuarial risk (that benefits will cost more than expected) and investment risk.
The net defined benefit liabilities recognized in the consolidated statement of financial position are calculated by the independent actuary in accordance with actuarial valuation method. The defined benefit obligation is calculated using the projected unit credit method. Assumptions based on market data and historical data such as discount rate, future salary increase rate, mortality, and consumer price index are used which are updated annually.
Actuarial assumptions may differ from actual results, due to changes in the market conditions, economic trends, and mortality trends which may affect net defined benefit liabilities and future payments. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in the period incurred through other comprehensive income.
 
F-164
25.2 Changes in net defined benefit liabilities for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Present value of
defined benefit
obligation
    
Fair value of plan
assets
    
Net defined benefit
liabilities(assets)
  
    
(In millions of Korean won)
  
Beginning
    ￦ 2,491,923     ￦ (2,302,953 )    ￦ 188,970  
Current service cost
      241,448       —       241,448  
Past service cost
      451       —       451  
Gains on settlement
      (4,311 )      —       (4,311 ) 
Interest expense (income)
      47,481       (44,560 )      2,921  
Remeasurements:
                         
Actuarial gains and losses by changes in demographic assumptions
      27,611       —       27,611  
Actuarial gains and losses by changes in financial assumptions
      52,684       —       52,684  
Actuarial gains and losses by experience adjustments
      (24,592 )      —       (24,592 ) 
Return on plan assets (excluding amounts included in interest income)
      —       9,438       9,438  
Contributions by the Group
      —       (319,601 )      (319,601 ) 
Contributions by the employees
      —       (17,574 )      (17,574 ) 
Payments from plans (settlement)
      (6,961 )      6,944       (17 ) 
Payments from plans (benefit payments)
      (221,276 )      221,274       (2 ) 
Payments from the Group
      (34,242 )      —       (34,242 ) 
Transfer in
      9,854       (9,292 )      562  
Transfer out
      (9,292 )      9,292       —  
Effect of exchange differences
      1,670       (47 )      1,623  
Effect of business acquisition and disposal
      21       —       21  
Others
      48       —       48  
    
 
 
    
 
 
    
 
 
  
Ending*
    ￦ 2,572,517     ￦ (2,447,079 )    ￦ 125,438  
    
 
 
    
 
 
    
 
 
  
 
F-165
    
2022
  
    
Present value of
defined benefit
obligation
    
Fair value of plan
assets
    
Net defined benefit
liabilities(assets)
  
    
(In millions of Korean won)
  
Beginning
    ￦ 2,572,517     ￦ (2,447,079 )    ￦ 125,438  
Current service cost
      249,099       —       249,099  
Past service cost
      3,669       —       3,669  
Gains on settlement
      (1,859 )      —       (1,859 ) 
Interest expense (income)
      65,357       (62,872 )      2,485  
Remeasurements:
                         
Actuarial gains and losses by changes in demographic assumptions
      33,078       —       33,078  
Actuarial gains and losses by changes in financial assumptions
      (479,797 )      —       (479,797 ) 
Actuarial gains and losses by experience adjustments
      47,086       —       47,086  
Return on plan assets (excluding amounts included in interest income)
      —       68,550       68,550  
Contributions by the Group
      —       (400,689 )      (400,689 ) 
Contributions by the employees
      —       —       —  
Payments from plans (settlement)
      (78 )      —       (78 ) 
Payments from plans (benefit payments)
      (234,192 )      232,994       (1,198 ) 
Payments from the Group
      (43,763 )      494       (43,269 ) 
Transfer in
      13,982       (13,285 )      697  
Transfer out
      (13,340 )      13,299       (41 ) 
Effect of exchange differences
      1,218       69       1,287  
Effect of business acquisition and disposal
      2,635       —       2,635  
Others
      (282 )      —       (282 ) 
    
 
 
    
 
 
    
 
 
  
Ending*
    ￦ 2,215,330     ￦ (2,608,519 )    ￦ (393,189 ) 
    
 
 
    
 
 
    
 
 
  
 
*
The net defined benefit liabilities of ￦ 125,438 million is calculated by subtracting ￦ 100,083
 million of net defined benefit assets from
￦ 225,521 
million of net defined benefit liabilities as of December 31, 2021. The net defined benefit assets of
 
￦ 393,189 
million is calculated by subtracting
￦ 85,745 
million of net defined benefit liabilities from 
￦ 478,934 
million of net defined benefit assets as of December 31, 2022. 
25.3 Details of net defined benefit liabilities as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
    
December 31,

2022
  
    
(In millions of Korean won)
  
Present value of defined benefit obligation
    ￦ 2,572,517     ￦ 2,215,330  
Fair value of plan assets
      (2,447,079 )      (2,608,519 ) 
    
 
 
    
 
 
  
Net defined benefit liabilities
    ￦ 125,438     ￦ (393,189 ) 
    
 
 
    
 
 
  
 
F-166
25.4 Details of post-employment benefits recognized in profit or loss for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Current service cost
    ￦ 233,273     ￦ 241,448     ￦ 249,099  
Past service cost
      (16,197 )      451       3,669  
Net interest expense on net defined benefit liabilities
      4,743       2,921       2,485  
Gains on settlement
      (1,912 )      (4,311 )      (1,859 ) 
    
 
 
    
 
 
    
 
 
  
Post-employment benefits *
    ￦ 219,907     ￦ 240,509     ￦ 253,394  
    
 
 
    
 
 
    
 
 
  
 
*
Includes post-employment benefits amounting to ￦ 2,840 
million, ￦ 3,194 million and ￦ 3,383 million recognized as other operating expenses for the years ended December 31, 2020, 2021, 2022 and ￦ 176 million and
￦ 137 
million recognized as prepayment for the years ended December 31, 2020 and 2022. 
25.5 Details of remeasurements of net defined benefit liabilities recognized in other comprehensive income (loss) for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Remeasurements:
                         
Return on plan assets (excluding amounts included in interest income)
    ￦ (6,308 )    ￦ (9,438 )    ￦ (68,550 ) 
Actuarial gains and losses
      (11,676 )      (55,703 )      399,633  
Income tax effect
      4,949       18,638       (91,150 ) 
Effect of exchange differences
      (399 )      993       (231 ) 
    
 
 
    
 
 
    
 
 
  
Remeasurements after income tax expense
    ￦ (13,434 )    ￦ (45,510 )    ￦ 239,702  
    
 
 
    
 
 
    
 
 
  
25.6 Details of fair value of plan assets as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Assets quoted
in an active
market
     
Assets not
quoted in
an active
market
     
Total
  
    
(In millions of Korean won)
  
Cash and due from financial institutions
    ￦ —      ￦ 2,441,324      ￦ 2,441,324  
Derivative instruments
      —        3,427        3,427  
Investment fund
      —        2,328        2,328  
    
 
 
     
 
 
     
 
 
  
     ￦ —      ￦ 2,447,079      ￦ 2,447,079  
    
 
 
     
 
 
     
 
 
  
 
    
December 31, 2022
  
    
Assets quoted
in an active
market
     
Assets not
quoted in
an active
market
     
Total
  
    
(In millions of Korean won)
  
Cash and due from financial institutions
    ￦ —      ￦ 2,571,508      ￦ 2,571,508  
Derivative instruments
      —        33,434        33,434  
Investment fund
      —        3,577        3,577  
    
 
 
     
 
 
     
 
 
  
     ￦ —      ￦ 2,608,519      ￦ 2,608,519  
    
 
 
     
 
 
     
 
 
  
 
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25.7 Details of significant actuarial assumptions used as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
Discount rate (%)
      1.80~2.70        4.90~5.20  
Salary increase rate (%)
      0.00~7.50        0.00~7.00  
Turnover rate (%)
      0.00~50.00        0.00~38.60  
Mortality assumptions are based on the experience-based mortality table issued by Korea Insurance Development Institute in 2019.
25.8 Results of sensitivity analysis of significant actuarial assumptions as of December 31, 2022, are as follows:
 
    
Changes in
assumptions
    
Effect on defined benefit obligation
  
 
Increase in assumptions
     
Decrease in assumptions
  
Discount rate
      0.5 %p      3.12% decrease        3.31% increase  
Salary increase rate
     
0
.5		 %p      3.27% increase        3.10% decrease  
Turnover rate
      0.5 %p      0.14% increase        0.15% decrease  
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in significant actuarial assumptions is calculated using the same projected unit credit method used in calculating the defined benefit obligation recognized in the consolidated statement of financial position.
25.9 Expected maturity analysis of undiscounted pension benefit payments (including expected future benefit) as of December 31, 2022, are as follows:
 
    
Up to 1 year
     
1~2 years
     
2~5 years
     
5~10 years
     
Over 10 years
     
Total
  
    
(In millions of Korean won)
  
Pension benefits *
      ￦211,591        ￦279,808        ￦849,878        ￦1,557,212        ￦7,553,530        ￦10,452,019  
 
*
Amount determined under the promotion compensation type defined contribution plan is excluded.
The weighted average duration of the defined benefit obligation is 1 ~ 11 years
.
25.10 Reasonable estimation of expected contribution to plan assets for the next annual reporting period after December 31, 2022 is
￦
 409,391 million.
 
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26. Other Liabilities
Details of other liabilities as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Other financial liabilities
                  
Other payables
    ￦ 11,175,682      ￦ 11,730,583  
Prepaid card and debit card payables
      33,972        35,259  
Accrued expenses
      2,620,819        3,950,605  
Financial guarantee contracts liabilities
      52,603        46,467  
Deposits for letter of guarantees and others
      1,093,680        1,762,482  
Domestic exchange settlement credits
      5,125,430        1,738,489  
Foreign exchange settlement credits
      169,264        250,138  
Due to trust accounts
      7,033,849        5,808,446  
Liabilities incurred from agency relationships
      739,276        513,621  
Account for agency business
      423,798        241,910  
Dividend payables
      474        3,425  
Lease liabilities
      578,808        592,697  
Others
      446,747        31,124  
    
 
 
     
 
 
  
       29,494,402        26,705,246  
    
 
 
     
 
 
  
Other
non-financial
liabilities
                  
Other payables
      348,003        400,407  
Unearned revenue
      656,375        759,308  
Accrued expenses
      956,461        900,141  
Deferred revenue on credit card points
      214,053        243,131  
Withholding taxes
      164,333        228,119  
Separate account liabilities
      11,071,159        10,513,553  
Others
      225,696        390,460  
    
 
 
     
 
 
  
       13,636,080        13,435,119  
    
 
 
     
 
 
  
     ￦ 43,130,482      ￦ 40,140,365  
    
 
 
     
 
 
  
27. Equity
27.1 Share Capital
27.1.1 Details of share capital as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
Type of share
   
Ordinary share
     
Ordinary share
  
    
(In millions of Korean won
and in number of shares)
  
Number of authorized shares
      1,000,000,000        1,000,000,000  
Par value per share
(In Korean won)
    ￦ 5,000      ￦ 5,000  
Number of issued shares
      415,807,920        408,897,068  
Share capital
*
    ￦ 2,090,558      ￦ 2,090,558  
 
*
Due to the retirement of shares deducted through retained earnings, it is different from the total par value of the shares issued.
 
F-169
27.1.2 Changes in outstanding shares for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
     
2022
  
    
(In number of shares)
  
Beginning
      389,634,335        389,634,335  
Increase
      —        —  
Decrease
      —        —  
    
 
 
     
 
 
  
Ending
      389,634,335        389,634,335  
    
 
 
     
 
 
  
27.2 Hybrid Securities
Details of hybrid securities classified as equity as of December 31, 2021 and 2022, are as follows:

 
Hybrid securities
  
Issuance date
 
  
Maturity
 
  
Interest rate (%)

as of

December 31, 2022
 
  
December 31,

2021
 
  
December 31,

2022
 
 
  
 
 
  
 
 
  
 
 
  
(In millions of Korean won)
 
The
1-1
st
     May 2, 2019        Perpetual bond        3.23      ￦ 349,309      ￦ 349,309  
The
1-2
nd
     May 2, 2019        Perpetual bond        3.44        49,896        49,896  
The
2-1
st
     May 8, 2020        Perpetual bond        3.30        324,099        324,099  
The
2-2
nd
     May 8, 2020        Perpetual bond        3.43        74,812        74,812  
The
3-1
st
     Jul. 14, 2020        Perpetual bond        3.17        369,099        369,099  
The
3-2
nd
     Jul. 14, 2020        Perpetual bond        3.38        29,922        29,922  
The
4-1
st
     Oct. 20, 2020        Perpetual bond        3.00        433,996        433,996  
The
4-2
nd
     Oct. 20, 2020        Perpetual bond        3.28        64,855        64,855  
The
5-1
st
     Feb. 19, 2021        Perpetual bond        2.67        419,071        419,071  
The
5-2
nd
     Feb. 19, 2021        Perpetual bond        2.87        59,862        59,862  
The
5-3
rd
     Feb. 19, 2021        Perpetual bond        3.28        119,727        119,727  
The
6-1
st
     May 28, 2021        Perpetual bond        3.20        165,563        165,563  
The
6-2
nd
     May 28, 2021        Perpetual bond        3.60        109,708        109,708  
The
7-1
st
     Oct. 8, 2021        Perpetual bond        3.57        208,468        208,468  
The
7-2
nd
     Oct. 8, 2021        Perpetual bond        3.80        59,834        59,834  
The
8-1
st
     Feb. 16, 2022        Perpetual bond        4.00        —        442,970  
The
8-2
nd
     Feb. 16, 2022        Perpetual bond        4.30        —        155,626  
The
9-1
st
     May 12, 2022        Perpetual bond        4.68        —        478,829  
The
9-2
nd
     May 12, 2022        Perpetual bond        4.97        —        19,906  
The
10-1
st
     Aug. 26, 2022        Perpetual bond        4.90        —        407,936  
The
10-2
nd
     Aug. 26, 2022        Perpetual bond        5.15        —        70,819  
The
10-3
rd
     Aug. 26, 2022        Perpetual bond        5.30        —        19,944  
                               
 
 
     
 
 
  
                                ￦ 2,838,221      ￦ 4,434,251  
                               
 
 
     
 
 
  
The above hybrid securities are early redeemable by the Group after 5 or 7 or 10 years from the issuance date. On the other hand, hybrid securities of ￦ 873,908 million issued by Kookmin Bank, hybrid securities of ￦ 82,679 million issued by KB Securities Co., Ltd. and hybrid securities of ￦ 49,800 million issued by KB Life Insurance Co., Ltd. are recognized as
non-controlling
interests and are early redeemable after 5 years from the issuance date and each interest payment date thereafter.
 
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27.3 Capital Surplus
Details of capital surplus as of December 31, 2021 and 2022, are as follows
 
    
December 31,

2021
    
December 31,

2022
  
    
(In millions of Korean won)
  
Paid-in
capital in excess of par value
    ￦ 13,190,274     ￦ 13,190,274  
Losses on sales of treasury shares
      (481,332 )      (481,332 ) 
Other capital surplus
      4,219,356       4,219,856  
Consideration for exchange right of exchangeable bonds
      11,933       11,933  
    
 
 
    
 
 
  
     ￦ 16,940,231     ￦ 16,940,731  
    
 
 
    
 
 
  
27.4 Accumulated Other Comprehensive Income
Details of accumulated other comprehensive income as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
    
December 31,

2022
  
    
(In millions of Korean won)
  
Remeasurements of net defined benefit liabilities
    ￦ (328,392 )    ￦ (88,768 ) 
Currency translation differences
      96,534            253,815  
Gains(losses) on financial instruments at fair value through other comprehensive income
      918,927       (2,629,451 ) 
Share of other comprehensive loss of associates and joint ventures
      (2,980 )      (3,342 ) 
Gains(Losses) on cash flow hedging instruments
      (7,733 )      23,741  
Losses on hedging instruments of net investments in foreign operations
      (35,658 )      (114,743 ) 
Other comprehensive loss arising from separate account
      (55,116 )      (214,735 ) 
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
      2,208       41,075  
Gains on overlay adjustment
      459,484       19,355  
Assets of a disposal group held for sale
      7,671       —  
    
 
 
    
 
 
  
     ￦   1,054,945     ￦ (2,713,053 ) 
    
 
 
    
 
 
  
27.5 Retained Earnings
Details of retained earnings as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Legal reserves
1
    ￦ 695,347      ￦ 839,235  
Voluntary reserves
      982,000        982,000  
Unappropriated retained earnings
2
      23,995,468        26,625,278  
    
 
 
     
 
 
  
     ￦ 25,672,815      ￦ 28,446,513  
    
 
 
     
 
 
  
 
1
 
With respect to the allocation of net profit earned in a fiscal term, the Parent Company must set aside in its legal reserve an amount equal to at least 10% of its profit after tax as reported in the financial statements, each time it pays dividends on its net profits earned until its legal reserve reaches the aggregate amount of its
paid-in
capital in accordance with Article 53 of the Financial Holding Company Act. This reserve is not available for the payment of cash dividends, but may be transferred to share capital, or used to reduce accumulated deficit.
2
 
The regulatory reserve for credit losses the Group appropriated in retained earnings is ￦ 4,116,579 million and ￦ 4,355,734 million for the years ended December 31, 2021 and 2022, respectively.
 
F-171
27.6 Treasury Shares
Changes in treasury shares for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
     
Acquisition
     
Disposal
    
Ending
  
    
(In millions of Korean won and in number of shares)
  
Number of treasury shares*
      26,173,585        —        —       26,173,585  
Carrying amount
    ￦ 1,136,188      ￦ —      ￦ —     ￦ 1,136,188  
   
    
2022
  
    
Beginning
     
Acquisition
     
Disposal
    
Ending
  
    
(In millions of Korean won and in number of shares)
  
Number of treasury shares*
      26,173,585        —        (6,910,852 )      19,262,733  
Carrying amount
    ￦ 1,136,188      ￦ —      ￦ (300,000 )    ￦ 836,188  
 
*
5 million treasury shares are deposited at the Korea Securities Depository for the exchange of exchangeable bonds.
28. Net Interest Income
Details of interest income, interest expense, and net interest income for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
     
2021
     
2022
  
    
(In millions of Korean won)
  
Interest income
                           
Due from financial institutions measured at fair value through profit or loss
    ￦ 649      ￦ 1,723      ￦ 3,186  
Securities measured at fair value through profit or loss
      647,840        579,128        860,271  
Loans measured at fair value through profit or loss
      10,876        9,537        12,933  
Securities measured at fair value through other comprehensive income
      719,434        784,980        1,079,548  
Loans measured at fair value through other comprehensive income
      7,899        4,618        10,612  
Due from financial institutions measured at amortized cost
      92,155        66,375        157,913  
Securities measured at amortized cost
      627,201        765,656        1,120,608  
Loans measured at amortized cost
      12,177,822        12,745,780        17,191,116  
Others
      201,871        253,081        352,331  
    
 
 
     
 
 
     
 
 
  
       14,485,747        15,210,878        20,788,518  
    
 
 
     
 
 
     
 
 
  
Interest expense
                           
Deposits
      2,916,794        2,218,556        4,536,373  
Borrowings
      572,946        510,385        1,291,380  
Debentures
      1,186,310        1,169,708        1,640,773  
Others
      87,423        82,657        207,058  
    
 
 
     
 
 
     
 
 
  
       4,763,473        3,981,306        7,675,584  
    
 
 
     
 
 
     
 
 
  
Net interest income
    ￦ 9,722,274      ￦ 11,229,572      ￦ 13,112,934  
    
 
 
     
 
 
     
 
 
  
Interest income recognized on
impaired
loans is ￦ 56,606 million, ￦ 52,638 million and ￦ 53,215 million for the years ended December 31, 2020, 2021 and 2022, respectively.
 
F-172
29. Net Fee and Commission Income
Details of fee and commission income, fee and commission expense, and net fee and commission income for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
     
2021
     
2022
  
    
(In millions of Korean won)
  
Fee and commission income
                           
Banking activity fees
    ￦ 189,100      ￦ 178,412      ￦ 180,749  
Lending activity fees
      91,663        82,184        80,700  
Credit card and debit card related fees
      1,378,450        1,526,911        1,491,666  
Agent activity fees
      196,518        205,206        243,740  
Trust and other fiduciary fees
      331,827        408,834        337,171  
Fund management related fees
      154,612        178,090        130,629  
Acceptances and guarantees fees
      54,108        49,782        66,827  
Foreign currency related fees
      173,313        245,299        285,380  
Securities agency fees
      172,097        174,709        124,771  
Other business account commission on consignment
      40,461        39,178        36,211  
Commissions received on securities business
      793,278        881,407        628,449  
Lease fees
      636,301        897,983        1,004,670  
Others
      315,296        455,611        510,557  
    
 
 
     
 
 
     
 
 
  
       4,527,024        5,323,606        5,121,520  
    
 
 
     
 
 
     
 
 
  
Fee and commission expense
                           
Trading activity related fees *
      38,497        54,857        44,200  
Lending activity fees
      33,444        42,981        42,086  
Credit card and debit card related fees
      848,823        831,724        815,252  
Outsourcing related fees
      216,962        210,480        255,899  
Foreign currency related fees
      49,435        51,931        75,078  
Others
      380,924        506,050        567,373  
    
 
 
     
 
 
     
 
 
  
       1,568,085        1,698,023        1,799,888  
    
 
 
     
 
 
     
 
 
  
Net fee and commission income
    ￦ 2,958,939      ￦ 3,625,583      ￦ 3,321,632  
    
 
 
     
 
 
     
 
 
  
 
*
Fees from financial instruments at fair value through profit or loss
 
F-173
30. Net Gains or Losses on Financial Instruments at Fair Value through Profit or Loss
30.1 Net Gains or Losses on Financial Instruments at Fair Value through Profit or Loss
Net gains or losses on financial instruments at fair value through profit or loss include dividend income, gains or losses arising from changes in fair value, and gains or losses arising from sales and redemptions. Details of net gains or losses on financial instruments at fair value through profit or loss for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
     
2021
     
2022
  
    
(In millions of Korean won)
  
Gains on financial instruments at fair value through profit or loss
                           
Financial assets at fair value through profit or loss:
                           
Debt securities
    ￦ 2,061,505      ￦ 1,804,112      ￦ 2,045,436  
Equity securities
      725,072        733,823        494,723  
    
 
 
     
 
 
     
 
 
  
       2,786,577        2,537,935        2,540,159  
    
 
 
     
 
 
     
 
 
  
Derivatives held for trading:
                           
Interest rate
      2,632,246        4,820,712        11,772,927  
Currency
      8,335,594        7,492,806        15,020,553  
Stock or stock index
      2,808,284        1,603,501        1,983,900  
Credit
      28,434        20,147        78,638  
Commodity
      18,097        21,864        33,576  
Others
      231,901        145,879        101,097  
    
 
 
     
 
 
     
 
 
  
       14,054,556        14,104,909        28,990,691  
    
 
 
     
 
 
     
 
 
  
Financial liabilities at fair value through profit or loss
      28,160        72,585        114,525  
Other financial instruments
      689        6,753        252  
    
 
 
     
 
 
     
 
 
  
       16,869,982        16,722,182        31,645,627  
    
 
 
     
 
 
     
 
 
  
Losses on financial instruments at fair value through profit or loss
                           
Financial assets at fair value through profit or loss:
                           
Debt securities
      1,040,285        1,280,960        2,733,891  
Equity securities
      444,554        426,431        546,036  
    
 
 
     
 
 
     
 
 
  
       1,484,839        1,707,391        3,279,927  
    
 
 
     
 
 
     
 
 
  
Derivatives held for trading:
                           
Interest rate
      2,687,114        4,669,893        10,747,221  
Currency
      8,191,456        7,422,604        15,160,772  
Stock or stock index
      2,558,205        1,604,027        2,482,044  
Credit
      19,213        14,051        68,324  
Commodity
      21,797        14,815        30,167  
Others
      253,406        175,411        323,704  
    
 
 
     
 
 
     
 
 
  
       13,731,191        13,900,801        28,812,232  
    
 
 
     
 
 
     
 
 
  
Financial liabilities at fair value through profit or loss
      153,227        80,790        63,571  
Other financial instruments
      116        6,839        205  
    
 
 
     
 
 
     
 
 
  
       15,369,373        15,695,821        32,155,935  
    
 
 
     
 
 
     
 
 
  
Net gains(loss) on financial instruments at fair value through profit or loss
    ￦ 1,500,609      ￦ 1,026,361      ￦ (510,308 ) 
    
 
 
     
 
 
     
 
 
  
 
F-174
30.2 Net Gains or Losses on Financial Instruments Designated at Fair Value through Profit or Loss
Net gains or losses on financial instruments designated at fair value through profit or loss include gains or losses arising from changes in fair value, and gains or losses arising from sales and redemptions. Details of net gains or losses on financial instruments designated at fair value through profit or loss for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Gains on financial instruments designated at fair value through profit or loss
                         
Financial liabilities designated at fair value through profit or loss
    ￦ 654,045     ￦ 623,929     ￦ 1,186,908  
    
 
 
    
 
 
    
 
 
  
       654,045       623,929       1,186,908  
    
 
 
    
 
 
    
 
 
  
Losses on financial instruments designated at fair value through profit or loss
                         
Financial liabilities designated at fair value through profit or loss
      1,143,288       654,986       429,243  
    
 
 
    
 
 
    
 
 
  
       1,143,288       654,986       429,243  
    
 
 
    
 
 
    
 
 
  
Net gains(losses) on financial instruments designated at fair value through profit or loss
    ￦ (489,243 )    ￦ (31,057 )    ￦ 757,665  
    
 
 
    
 
 
    
 
 
  
 
F-175
31. Net Other Operating Income and Expenses
Details of other operating income and expenses for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Other operating income
                         
Gains on financial instruments at fair value through other comprehensive income:
                         
Gains on redemption of financial instruments at fair value through other comprehensive income
    ￦ 351     ￦ 2     ￦ 24  
Gains on disposal of financial instruments at fair value through other comprehensive income
      304,217       126,710       24,735  
    
 
 
    
 
 
    
 
 
  
       304,568       126,712       24,759  
    
 
 
    
 
 
    
 
 
  
Gains on financial assets at amortized cost:
                         
Gains on sale of loans measured at amortized cost
      180,038       136,620       83,552  
Gains on redemption of securities measured at amortized cost
      —       126       —  
Gains on disposal of securities measured at amortized cost
      229       41       110  
    
 
 
    
 
 
    
 
 
  
       180,267       136,787       83,662  
    
 
 
    
 
 
    
 
 
  
Gains on loans measured at fair value through other comprehensive income:
                         
Gains on sale of loans measured at fair value through other comprehensive income
      —       226       —  
    
 
 
    
 
 
    
 
 
  
       —       226       —  
    
 
 
    
 
 
    
 
 
  
Gains on hedge accounting
      —       386,398       858,305  
Gains on foreign exchange transactions
      3,634,987       3,878,089       11,514,706  
Dividend income
      45,125       33,805       36,675  
Others
      591,798       367,177       498,412  
    
 
 
    
 
 
    
 
 
  
       4,756,745       4,929,194       13,016,519  
    
 
 
    
 
 
    
 
 
  
Other operating expenses
                         
Losses on financial instruments at fair value through other comprehensive income:
                         
Losses on redemption of financial instruments at fair value through other comprehensive income
      320       2,172       3,049  
Losses on disposal of financial instruments at fair value through other comprehensive income
      19,159       222,512       258,505  
    
 
 
    
 
 
    
 
 
  
       19,479       224,684       261,554  
    
 
 
    
 
 
    
 
 
  
Losses on financial assets at amortized cost:
                         
Losses on sale of loans measured at amortized cost
      16,061       14,669       78,089  
Losses on redemption of securities measured at amortized cost
      —       6       —  
Losses on disposal of securities measured at amortized cost
      6,513       2       —  
    
 
 
    
 
 
    
 
 
  
       22,574       14,677       78,089  
    
 
 
    
 
 
    
 
 
  
Losses on hedge accounting
      —       473,091       877,512  
Losses on foreign exchange transactions
      3,530,618       3,570,783       11,173,168  
Deposit insurance fee
      507,621       550,677       598,548  
Credit guarantee fund fee
      242,216       263,297       283,912  
Depreciation expenses of operating lease assets
      423,684       602,908       682,783  
Others
      1,510,483       1,152,644       1,426,744  
    
 
 
    
 
 
    
 
 
  
       6,256,675       6,852,761       15,382,310  
    
 
 
    
 
 
    
 
 
  
Net other operating expenses
    ￦ (1,499,930 )    ￦ (1,923,567 )    ￦ (2,365,791 ) 
    
 
 
    
 
 
    
 
 
  
 
F-176
32. General and Administrative Expenses
32.1 Details of general and administrative expenses for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
     
2021
     
2022
  
    
(In millions of Korean won)
  
Expenses related to employee
                           
Employee benefits—salaries
    ￦ 2,789,201      ￦ 3,007,439      ￦ 3,070,840  
Employee benefits—others
      871,014        927,665        988,778  
Post-employment benefits—defined benefit plans
      216,891        237,315        249,874  
Post-employment benefits—defined contribution plans
      37,328        37,731        45,655  
Termination benefits
      361,098        322,970        319,794  
Share-based payments
      49,364        101,935        58,275  
    
 
 
     
 
 
     
 
 
  
       4,324,896        4,635,055        4,733,216  
    
 
 
     
 
 
     
 
 
  
Depreciation and amortization
      874,911        850,614        878,841  
    
 
 
     
 
 
     
 
 
  
Other general and administrative expenses
                           
Rental expense
      116,325        112,902        121,577  
Tax and dues
      260,071        268,383        310,853  
Communication
      53,596        60,221        63,871  
Electricity and utilities
      32,298        36,565        35,987  
Publication
      13,988        13,417        11,991  
Repairs and maintenance
      32,448        53,218        56,221  
Vehicle
      14,314        16,901        19,815  
Travel
      12,251        13,271        23,585  
Training
      27,610        34,056        36,890  
Service fees
      238,787        260,298        264,854  
Electronic data processing expenses
      280,773        314,511        397,315  
Advertising
      236,618        210,187        227,991  
Others
      295,926        321,254        354,795  
    
 
 
     
 
 
     
 
 
  
       1,615,005        1,715,184        1,925,745  
    
 
 
     
 
 
     
 
 
  
     ￦ 6,814,812      ￦ 7,200,853      ￦ 7,537,802  
    
 
 
     
 
 
     
 
 
  
 
F-177
Table of Contents
32.2 Share-based Payments
32.2.1 Stock grants
The Group changed the scheme of share-based payments awarded to executives and employees from stock options to stock grants in November 2007. The stock grants award program is an incentive plan that sets, on grant date, the maximum number of shares that can be awarded. Actual shares to be granted is determined in accordance with achievement of
pre-set
performance targets over the vesting period.
32.2.1.1 Details of stock grants linked to long-term performance as of December 31, 2022, are as follows:
 
    
Grant date
   
Number of
granted shares
1
     
Vesting conditions
2
         
(In number of shares)
       
KB Financial Group Inc.
                   
Series 27
    Jun. 16, 2020      184      Services fulfillment, market performance
3
30%, and
non-market
performance
4
70%
Series 28
    Nov. 21, 2020      68,135      Services fulfillment, market performance
3
35%, and
non-market
performance
5
65%
Series 29
    Jan. 1, 2021      79,840      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 30
    Apr. 1, 2021      3,069      Services fulfillment, market performance
3
30%, and
non-market
performance
4
70%
Series 33
    Jan. 1, 2022      62,991      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 34
    Feb. 1, 2022      654      Services fulfillment, market performance
3
30%, and
non-market
performance
4
70%
Series 35
    May. 27, 2022      6,126      Services fulfillment, market performance
3
30%, and
non-market
performance
4
70%
Deferred grant in 2015
           4,243      Satisfied
Deferred grant in 2016
           3,533      Satisfied
Deferred grant in 2017
           1,127      Satisfied
Deferred grant in 2018
           1,766      Satisfied
Deferred grant in 2019
           7,598      Satisfied
Deferred grant in 2020
           27,956      Satisfied
Deferred grant in 2021
           27,204      Satisfied
         
 
 
       
            294,426       
         
 
 
       
Kookmin Bank
                   
Series 80
    Mar. 1, 2020      7,982      Services fulfillment, market performance
3
30~50%, and
non-market
performance
4
50~70%
Series 81
    Jan. 1, 2021      139,783      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 83
    Apr. 1, 2021      15,278      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 85
    Jan. 1, 2022      292,777      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
                   Services fulfillment, market performance
3
30%, and EPS & Asset Quality
6
70%
Series 86
    Feb. 1, 2022      1,525      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 87
    Mar. 1, 2022      2,599      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
 
F-178
    
Grant date
   
Number of

granted shares
1
    
Vesting conditions
2
         
(In number of shares)
       
       
Series 88
    Mar. 14, 2022      5,884      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 89
    May 26, 2022      2,363      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 90
    Jul. 18, 2022      4,131      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Series 91
    Aug. 24, 2022      7,277      Services fulfillment, market performance
3
0~30%, and
non-market
performance
4
70~100%
Deferred grant in 2016
           2,426      Satisfied
Deferred grant in 2017
           4,582      Satisfied
Deferred grant in 2018
           2,287      Satisfied
Deferred grant in 2019
           32,756      Satisfied
Deferred grant in 2020
           53,502      Satisfied
Deferred grant in 2021
           156,939      Satisfied
         
 
 
       
            732,091       
         
 
 
       
Other subsidiaries
                   
Stock granted in 2010
           106      Services fulfillment, market performance
3
0~50%, and
non-market
performance
4
50~100%
Stock granted in 2011
           146       
Stock granted in 2012
           420       
Stock granted in 2013
           544       
Stock granted in 2014
           1,028       
Stock granted in 2015
           2,374       
Stock granted in 2016
           3,749       
Stock granted in 2017
           14,006       
Stock granted in 2018
           26,572       
Stock granted in 2019
           42,273       
Stock granted in 2020
           165,810       
Stock granted in 2021
           501,365       
Stock granted in 2022
           249,267       
         
 
 
       
            1,007,660       
         
 
 
       
            2,034,177       
         
 
 
       
 
1
Granted shares represent the total number of shares initially granted to executives and employees who have residual shares as of December 31, 2022 (Deferred grants are residual shares vested as of December 31, 2022).
2
Executives and employees were given the right of choice about the timing of the deferred payment (after the date of retirement), payment ratio, and payment period. Accordingly, a certain percentage of the granted shares is deferred for up to five years after the date of retirement after the deferred grant has been confirmed.
3
Relative TSR (Total Shareholder Return): [(Fair value at the end of the contract—Fair value at the beginning of the contract) + (Total amount of dividend per share paid during the contract period)] / Fair value at the beginning of the contract
4
Performance results of company and employee
5
EPS (Earnings Per Share), Asset Quality, HCROI (Human Capital Return on Investment), Profit from
non-banking
segments
6
 
EPS, Asset Quality
 
F-179
32.2.1.2 Details of stock grants linked to short-term performance as of December 31, 2022, are as follows:
 
    
Estimated number of

vested shares
*
     
Vesting conditions
    
(In number of shares)
       
KB Financial Group Inc.
              
Stock granted in 2015
      3,725      Satisfied
Stock granted in 2016
      4,223      Satisfied
Stock granted in 2017
      1,401      Satisfied
Stock granted in 2018
      760      Satisfied
Stock granted in 2019
      9,354      Satisfied
Stock granted in 2020
      22,586      Satisfied
Stock granted in 2021
      35,497      Satisfied
Stock granted in 2022
      46,898      Proportional to service period
Kookmin Bank
              
Stock granted in 2015
      1,292      Satisfied
Stock granted in 2016
      4,875      Satisfied
Stock granted in 2017
      1,998      Satisfied
Stock granted in 2018
      2,109      Satisfied
Stock granted in 2019
      41,737      Satisfied
Stock granted in 2020
      89,888      Satisfied
Stock granted in 2021
      130,331      Satisfied
Stock granted in 2022
      134,402      Proportional to service period
Other subsidiaries
              
Stock granted in 2015
      5,762      Satisfied
Stock granted in 2016
      25,831      Satisfied
Stock granted in 2017
      46,223      Satisfied
Stock granted in 2018
      99,594      Satisfied
Stock granted in 2019
      243,130      Satisfied
Stock granted in 2020
      433,210      Satisfied
Stock granted in 2021
      610,167      Satisfied
Stock granted in 2022
      324,412      Proportional to service period
    
 
 
       
       2,319,405       
    
 
 
       
 
*
Executives and employees were given the right of choice about the timing of the deferred payment (after the date of retirement), payment ratio, and payment period. Accordingly, a certain percentage of the granted shares is deferred for up to five years after the date of retirement after the deferred grant has been confirmed.
 
F-180
Table of Contents
32.2.1.3 Stock grants are measured at fair value using the MonteCarlo simulation model and assumptions used in measuring the fair value as of December 31, 2022, are as follows:
 
    
Risk-free

rate (%)
     
Fair value
(market
performance
condition)
     
Fair value
(non-market

performance
condition)
  
    
(In Korean won)
  
Linked to long-term performance
 
                  
(KB Financial Group Inc.)
                           
Series 27
      3.78        —        43,157~46,663  
Series 28
      3.78        35,289~39,662        41,704~46,873  
Series 29
      3.78        40,757~48,322        43,157~50,973  
Series 30
      3.78        38,805~43,583        41,548~46,663  
Series 33
      3.78        37,409~45,666        41,548~50,973  
Series 34
      3.78        35,486~39,839        39,958~44,859  
Series 35
      3.78        38,247~42,939        39,958~44,859  
Deferred grant in 2015
      3.78        —        43,157~50,973  
Deferred grant in 2016
      3.78        —        46,663~50,973  
Deferred grant in 2017
      3.78        —        50,973  
Deferred grant in 2018
      3.78        —        46,663~50,973  
Deferred grant in 2019
      3.78        —        50,973  
Deferred grant in 2020
      3.78        —        43,157~50,973  
Deferred grant in 2021
      3.78        —        44,859~50,973  
(Kookmin Bank)
                           
Series 80
      3.78        43,157~50,973        43,157~50,973  
Series 81
      3.78        35,905~41,289        43,157~50,973  
Series 83
      3.78        38,660~43,583        41,548~46,663  
Series 85
      3.78        33,668~37,813        41,548~46,663  
Series 86
      3.78        35,486~39,839        39,958~44,859  
Series 87
      3.78        38,957~46,013        43,157~50,973  
Series 88
      3.78        37,288~41,862        39,958~44,859  
Series 89
      3.78        40,943~48,358        43,157~50,973  
Series 90
      3.78        39,554~44,405        39,958~44,859  
Series 91
      3.78        37,840~42,481        39,958~44,859  
Grant deferred in 2016
      3.78        —        46,663~50,973  
Grant deferred in 2017
      3.78        —        46,663~50,973  
Grant deferred in 2018
      3.78        —        46,663~50,973  
Grant deferred in 2019
      3.78        —        50,973  
Grant deferred in 2020
      3.78        —        46,663~50,973  
Grant deferred in 2021
      3.78        —        44,859~50,973  
(Other subsidiaries)
 
                  
Stock granted in 2010
      3.78        —        44,859  
Stock granted in 2011
      3.78        —        44,859  
Stock granted in 2012
      3.78        —        44,859~46,663  
Stock granted in 2013
      3.78        —        44,859~46,663  
Stock granted in 2014
      3.78        —        46,663  
Stock granted in 2015
      3.78        —        41,548~50,973  
Stock granted in 2016
      3.78        —        44,859~56,379  
Stock granted in 2017
      3.78        —        41,548~61,294  
Stock granted in 2018
      3.78        —        39,958~56,379  
Stock granted in 2019
      3.78        —        38,393~56,379  
 
F-181
    
Risk-free

rate (%)
     
Fair value
(market
performance
condition)
     
Fair value
(non-market

performance
condition)
  
    
(In Korean won)
  
Linked to long-term performance
 
                  
Stock granted in 2020
      3.78        43,157~50,973        39,958~56,379  
Stock granted in 2021
      3.78        39,042~50,651        41,548~56,379  
Stock granted in 2022
      3.78        35,286~49,647        39,958~62,269  
Linked to short-term performance
 
                  
(KB Financial Group Inc.)
 
                  
Stock granted in 2015
      3.78        —        43,157~50,973  
Stock granted in 2016
      3.78        —        38,393~50,973  
Stock granted in 2017
      3.78        —        46,663~50,973  
Stock granted in 2018
      3.78        —        46,663~50,973  
Stock granted in 2019
      3.78        —        50,973  
Stock granted in 2020
      3.78        —        43,157~50,973  
Stock granted in 2021
      3.78        —        44,859~50,973  
Stock granted in 2022
      3.78        —        43,157~50,973  
(Kookmin Bank)
                           
Stock granted in 2015
      3.78        —        46,663~50,973  
Stock granted in 2016
      3.78        —        44,859~50,973  
Stock granted in 2017
      3.78        —        46,663~50,973  
Stock granted in 2018
      3.78        —        0~56,379  
Stock granted in 2019
      3.78        —        45,096~56,379  
Stock granted in 2020
      3.78        —        46,663~56,379  
Stock granted in 2021
      3.78        —        44,859~50,973  
Stock granted in 2022
      3.78        —        39,958~46,663  
(Other subsidiaries)
                           
Stock granted in 2015
      3.78        —        41,548~50,973  
Stock granted in 2016
      3.78        —        41,548~50,973  
Stock granted in 2017
      3.78        —        39,958~50,973  
Stock granted in 2018
      3.78        —        38,393~56,379  
Stock granted in 2019
      3.78        —        38,393~56,379  
Stock granted in 2020
      3.78        —        41,548~56,379  
Stock granted in 2021
      3.78        —        41,548~50,973  
Stock granted in 2022
      3.78        —        39,958~56,379  
The Group uses the volatility of the stock price over the previous year as the expected volatility, and uses the arithmetic mean of the price-dividend ratio of one year before, two years before, and three years before the base year as the dividend yield and uses
one-year
risk-free rate of Korea Treasury Bond in order to measure the fair value.
32.2.1.4 The accrued expenses for share-based payments related to stock grants are ￦ 193,023 million and ￦ 186,908 million as of December 31, 2021 and 2022, respectively, and the compensation costs amounting to ￦ 101,897 million and ￦ 58,340 million were recognized for the years ended December 31, 2021 and 2022, respectively.
 
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32.2.2 Mileage stock
32.2.2.1 Details of mileage stock as of December 31, 2022, are as follows:
 
Grant date
       
Number of

granted shares
1
     
Expected exercise
period (years)
2
  
Remaining
shares
  
        
(In number of shares)
  
Stock granted in 2019
   Nov. 1, 2019      119      0.00      48  
    Nov. 8, 2019      14      0.00      6  
    Dec. 6, 2019      84      0.00      50  
    Dec. 5, 2019      56      0.00      41  
    Dec. 31, 2019      87      0.00      43  
Stock granted in 2020
   Jan. 18, 2020      28,645      0.00~0.05      15,541  
    May 12, 2020      46      0.00~0.36      43  
    Jun. 30, 2020      206      0.00~0.50      147  
    Aug. 26, 2020      40      0.00~0.65      27  
    Oct. 29, 2020      160      0.00~0.83      107  
    Nov. 6, 2020      45      0.00~0.85      37  
    Nov. 30, 2020      35      0.00~0.92      34  
    Dec. 2, 2020      57      0.00~0.92      44  
    Dec. 4, 2020      154      0.00~0.93      110  
    Dec. 30, 2020      88      0.00~1.00      64  
Stock granted in 2021
   Jan. 15, 2021      28,156      0.00~1.04      18,712  
    Apr. 5, 2021      89      0.00~1.26      53  
    Jul. 1, 2021      54      0.00~1.50      54  
    Jul. 2, 2021      11      0.00~1.50      11  
    Jul. 27, 2021      70      0.00~1.57      63  
    Nov. 1, 2021      71      0.00~1.84      71  
    Nov. 16, 2021      53      0.00~1.88      48  
    Dec. 6, 2021      87      0.00~1.93      87  
    Dec. 3, 2021      91      0.00~1.92      89  
    Dec. 30, 2021      76      0.00~2.00      76  
Stock granted in 2022
   Jan. 14, 2022      20,909      0.00~2.04      19,864  
    Apr. 4, 2022      65      0.00~2.26      65  
    Apr. 19, 2022      33      0.00~2.30      33  
    Jul. 1, 2022      62      0.00~2.50      62  
    Aug. 3, 2022      62      0.00~2.59      62  
    Aug. 9, 2022      80      0.00~2.61      76  
    Oct. 19, 2022      55      0.00~2.80      55  
    Nov. 1, 2022      177      0.00~2.84      177  
    Dec. 1, 2022      49      0.00~2.92      49  
    Dec. 12, 2022      114      0.00~2.95      114  
    Dec. 6, 2022      88      0.00~2.93      88  
    Dec. 2, 2022      42      0.00~2.92      42  
    Dec. 15, 2022      42      0.00~2.96      42  
    Dec. 30, 2022      114      0.00~3.00      114  
        
 
 
          
 
 
  
        
80,486
          
56,449
  
        
 
 
          
 
 
  
 
1
Mileage stock is exercisable for two years after one year from the grant date at the closing price of the end of the previous month. However, mileage stock can be exercised at the closing price of the end of the previous month on the date of occurrence of retirement or transfer despite a
one-year
grace period.
2
Assessed based on the stock price as of December 31, 2022. These shares are vested immediately at grant date.
 
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32.2.2.2 The accrued expenses for share-based payments related to mileage stock are ￦ 3,465 million and ￦ 2,738 million as of December 31, 2021 and 2022, respectively. The compensation costs amounting to ￦ 2,116 million and ￦ 870 million were recognized as expenses for the years ended December 31, 2021 and 2022, respectively.
32.2.3 Long-term share-based payments
The Group calculates the short-term performance bonus of executives of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) based on the result of performance evaluation as of the grant date and defers the bonus for three years and pays it in cash reflecting the stock price of KB Financial Group Inc. at that time.
32.2.3.1 Details of long-term share-based payments as of December 31, 2022, are as follows:
 
    
Grant date
     
Vested shares
     
Expected exercise period (years)
     
Vesting condition
  
    
(In number of shares)
  
Granted in 2020
      2020        13,402        1.00        Services fulfillment  
32.2.3.2 Long-term share-based payments are measured at fair value using the MonteCarlo simulation model and assumptions used in measuring the fair value as of December 31, 2022, are as follows:
 
    
Risk-free

rate (%)
     
Fair value

(market performance condition)
     
Fair value

(non-market performance

condition)
  
    
(In Korean won)
  
Granted in 2020
      3.78        —        46,663  
The Group uses the volatility of the stock price over the previous year as the expected volatility, and uses the arithmetic mean of the price-dividend ratio of one year before, two years before, and three years before the base year as the dividend yield and uses
one-year
risk-free rate of Korea Treasury Bond in order to measure the fair value.
32.2.3.3 The accrued expenses for long-term share-based payments are ￦ 690 million and ￦ 625 million as of December 31, 2021 and 2022, respectively. The compensation costs amounting to ￦ 38 million and ￦ 65 million were recognized as expenses for the years ended December 31, 2021 and 2022, respectively.
33. Net Other
Non-Operating
Income and Expenses
Details of other
non-operating
income and expenses for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
     
2021
    
2022
  
    
(In millions of Korean won)
  
Other
non-operating
income
                          
Gains on disposal of property and equipment
    ￦ 111,132      ￦ 9,045     ￦ 155,177  
Rental income
      113,075        34,791       26,176  
Gains on a bargain purchase
      145,067        288       —  
Others
      96,931        81,210       284,060  
    
 
 
     
 
 
    
 
 
  
       466,205        125,334       465,413  
    
 
 
     
 
 
    
 
 
  
Other
non-operating
expenses
                          
Losses on disposal of property and equipment
      11,945        6,552       2,164  
Donation
      113,083        103,647       94,771  
Restoration costs
      5,043        3,436       2,750  
Management cost for
written-off
loans
      3,018        4,054       4,296  
Others
      143,726        117,182       175,903  
    
 
 
     
 
 
    
 
 
  
       276,815        234,871       279,884  
    
 
 
     
 
 
    
 
 
  
Net other
non-operating
income (expenses)
    ￦ 189,390      ￦ (109,537 )    ￦ 185,529  
    
 
 
     
 
 
    
 
 
  
 
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34. Income Tax Expense
34.1 Details of income tax expense for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Income tax payable
                         
Current income tax expense
    ￦ 1,099,171     ￦ 1,571,947     ￦ 1,972,104  
Adjustments of income tax of prior years recognized in current tax
      (13,434 )      7,952       (122,385 ) 
    
 
 
    
 
 
    
 
 
  
       1,085,737       1,579,899       1,849,719  
    
 
 
    
 
 
    
 
 
  
Changes in deferred income tax assets and liabilities*
      326,918       214,660       (1,540,280 ) 
    
 
 
    
 
 
    
 
 
  
Income tax recognized directly in equity and others
                         
Remeasurements of net defined benefit liabilities
      4,949       18,638       (91,150 ) 
Currency translation differences
      14,988       (15,675 )      (15,059 ) 
Net gains or losses on financial assets at fair value through other comprehensive income
      (88,907 )      (71,421 )      1,291,023  
Share of other comprehensive income or loss of associates and joint ventures
      2,976       (7 )      44  
Gains or losses on cash flow hedging instruments
      7,580       (21,534 )      (26,930 ) 
Gains or losses on hedging instruments of net investments in foreign operations
      (24,500 )      25,599       24,936  
Other comprehensive income or loss arising from separate account
      3,671       24,206       56,765  
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
      (3,350 )      (5,202 )      (14,009 ) 
Net gains or losses on overlay adjustment
      (61,637 )      (46,834 )      167,741  
Consideration for exchange right of exchangeable bonds
      (4,526 )      —       —  
    
 
 
    
 
 
    
 
 
  
       (148,756 )      (92,230 )      1,393,361  
    
 
 
    
 
 
    
 
 
  
Others
      495       (5,104 )      (80,413 ) 
    
 
 
    
 
 
    
 
 
  
Income tax expense
    ￦ 1,264,394     ￦ 1,697,225     ￦ 1,622,387  
    
 
 
    
 
 
    
 
 
  
 
*
Due to amendments of tax laws at the end of 2022, the effect of corporate tax rate change is reflected in deferred income tax assets and liabilities that are expected to be realized after
December 31, 2022.
(Corporate tax rates after the amendments: 10% for tax base ￦ 200 million or less, 21% for tax base over ￦ 200 million to ￦ 20,000 million, 23.2% for tax base over ￦ 20,000 million to ￦ 300,000 million, 26.5% for tax base over ￦ 300,000 million)
 
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34.2 Analysis of the relationship between net profit before income tax expense and income tax expense for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
    
2022
  
    
Tax rate
(%)
    
Amount
    
Tax rate
(%)
    
Amount
    
Tax rate
(%)
    
Amount
  
    
(In millions of Korean won)
  
Profit before income tax expense
            ￦ 4,779,972             ￦ 6,081,606             ￦ 5,795,626  
Income tax at the applicable tax rate*
      27.28       1,304,130       27.33       1,662,080       27.32       1,583,435  
Non-taxable
income
      (1.55 )      (73,855 )      (0.67 )      (40,708 )      (1.21 )      (70,105 ) 
Non-deductible
expenses
      0.35       16,541       0.42       25,739       0.39       22,661  
Tax credit and tax exemption
      (0.08 )      (4,016 )      (0.01 )      (361 )      (0.04 )      (2,380 ) 
Temporary difference for which no deferred tax is recognized
      0.47       22,189       0.08       5,065       2.34       135,694  
Changes in recognition and measurement of deferred tax
      0.24       11,616       0.10       5,997       0.85       49,262  
Income tax refund for tax of prior years
      (0.46 )      (22,139 )      (0.23 )      (13,953 )      (2.39 )      (138,314 ) 
Income tax expense of overseas branches
      0.23       10,739       0.31       18,571       0.54       31,270  
Tax rate change effect
                      —       —       0.19       10,726  
Others
      (0.02 )      (811 )      0.57       34,795       0.00       138  
            
 
 
            
 
 
            
 
 
  
Average effective tax rate and income tax expense
      26.45     ￦ 1,264,394       27.91     ￦ 1,697,225       27.99     ￦ 1,622,387  
            
 
 
            
 
 
            
 
 
  
 
*
Applicable income tax rate for ￦ 200 million and below is 11%, for over ￦ 200 million to ￦ 20 billion is 22%, for over ￦ 20 billion to ￦ 300 billion is 24.2% and for over ￦ 300 billion is 27.5% for the years ended December 31, 2020, 2021 and 2022.
35. Dividends
The annual dividends to the shareholders of the Parent Company for the year ended December 31, 2021, amounting to ￦ 853,299 million (￦ 2,190 per share) were declared at the annual general shareholders’ meeting on March 25, 2022 and paid in April 11, 2022. According to the resolution of the board of directors on April 22, 2022, the quarterly dividend amounting to ￦ 194,817 million (￦ 500 per share) with dividend record date of March 31, 2022 were paid on May 9, 2022; according to the resolution of the board of directors on July 21, 2022, the quarterly dividend amounting to ￦ 194,817 million (￦ 500 per share) with dividend record date of June 30, 2022 were paid on August 9, 2022; and according to the resolution of the board of directors on October 25, 2022, the quarterly dividend amounting to ￦ 194,817 million (￦ 500 per share) with dividend record date of September 30, 2022 were paid on November 10, 2022. The annual dividends to the shareholders of the Parent Company for the year ended December 31, 2022, amounting to ￦ 564,970 million (￦ 1,450 per share)
was
 proposed
 and approved
at the general shareholders’ meeting scheduled for March 24, 2023. The Group’s consolidated financial statements as of and for the year ended December 31, 2022, do not reflect this dividend payable.
Meanwhile, the annual dividends and quarterly dividends paid in 2021 were ￦ 689,653 million (￦ 1,770 per share) and ￦ 292,226 million (￦ 750 per share), respectively.
 
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36. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
    
Changes
except for
reclassification
    
Reclassification
to profit or loss
    
Transfer

within
equity
    
Tax effect
    
Ending
  
    
(In millions of Korean won)
  
Remeasurements of net defined benefit liabilities
    ￦ (282,650 )    ￦ (64,380 )    ￦ —     ￦ —     ￦ 18,638     ￦ (328,392 ) 
Currency translation differences
      (131,113 )      248,998       1,995       (7,671 )      (15,675 )      96,534  
Gains on financial instruments at fair value through other comprehensive income
      717,230       (62,043 )      20,537       314,624       (71,421 )      918,927  
Share of other comprehensive income (loss) of associates and joint ventures
      (3,529 )      3,276       (2,720 )      —       (7 )      (2,980 ) 
Losses on cash flow hedging instruments
      (28,597 )      95,478       (53,080 )      —       (21,534 )      (7,733 ) 
Gains (losses) on hedging instruments of net investments in foreign operations
      22,277       (88,729 )      5,195       —       25,599       (35,658 ) 
Other comprehensive income (loss) arising from separate account
      8,698       (81,601 )      (6,419 )      —       24,206       (55,116 ) 
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
      (11,507 )      18,917       —       —       (5,202 )      2,208  
Gains on overlay adjustment
      339,202       257,574       (90,458 )      —       (46,834 )      459,484  
Assets of a disposal group held for sale
      —       —       —       7,671       —       7,671  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     ￦ 630,011     ￦ 327,490     ￦ (124,950 )    ￦ 314,624     ￦ (92,230 )    ￦ 1,054,945  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-187
   
2022
  
   
Beginning
    
Changes
except for
reclassification
    
Reclassification
to profit or loss
    
Transfer

within

equity
    
Tax effect
    
Ending
  
   
(In millions of Korean won)
  
Remeasurements of net defined benefit liabilities
   ￦ (328,392 )    ￦ 330,774     ￦ —     ￦ —     ￦ (91,150 )    ￦ (88,768 ) 
Currency translation differences
     96,534       172,340       —       —       (15,059 )      253,815  
Gains (losses) on financial instruments at fair value through other comprehensive income
     918,927       (4,830,635 )      326,437       (335,203 )      1,291,023       (2,629,451 ) 
Share of other comprehensive income (loss) of associates and joint ventures
     (2,980 )      (406 )      —       —       44       (3,342 ) 
Gains (losses) on cash flow hedging instruments
     (7,733 )      71,692       (13,288 )      —       (26,930 )      23,741  
Gains (losses) on hedging instruments of net investments in foreign operations
     (35,658 )      (104,021 )      —       —       24,936       (114,743 ) 
Other comprehensive income (loss) arising from separate account
     (55,116 )      (225,426 )      9,042       —       56,765       (214,735 ) 
Fair value changes of financial liabilities designated at fair value through profit or loss due to own credit risk
     2,208       52,876       —       —       (14,009 )      41,075  
Gains (losses) on overlay adjustment
     459,484       (526,085 )      (81,785 )      —       167,741       19,355  
Assets of a disposal group held for sale
     7,671       (7,671 )      —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 1,054,945     ￦ (5,066,562 )    ￦ 240,406     ￦ (335,203 )    ￦ 1,393,361     ￦ (2,713,053 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
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37. Earnings per Share
37.1 Basic Earnings per Share
Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding.
37.1.1 Weighted average number of ordinary shares outstanding
 
    
2020
    
2021
    
2022
  
    
Number of

shares
    
Accumulated
number of shares
    
Number of

shares
    
Accumulated
number of shares
    
Number of

shares
    
Accumulated
number of shares
  
    
(In number of shares)
  
Number of issued ordinary shares
      415,807,920       152,185,698,720       415,807,920       151,769,890,800       408,897,068       150,138,929,728  
Number of treasury shares*
      (26,173,585 )      (9,579,532,110 )      (26,173,585 )      (9,553,358,525 )      (19,262,733 )      (7,922,397,453 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Average number of ordinary shares outstanding
      389,634,335       142,606,166,610       389,634,335       142,216,532,275       389,634,335       142,216,532,275  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Number of days
              366               365               365  
Weighted average number of ordinary shares outstanding
              389,634,335               389,634,335               389,634,335  
 
*
The number of treasury shares have excluded the initial redemption of treasury shares from February 14, 2022, and the 2nd redemption from August 1, 2022.
37.1.2 Basic earnings per share
 
    
2020
    
2021
    
2022
  
    
(In Korean won and in number of shares)
  
Profit attributable to shareholders of the Parent Company
    ￦ 3,468,447,701,501     ￦ 4,409,543,288,213     ￦ 4,394,828,402,454  
Deduction: Dividends on hybrid securities
      (22,859,500,000 )      (71,537,500,000 )      (126,402,175,000 ) 
    
 
 
    
 
 
    
 
 
  
Profit attributable to ordinary equity holders of the Parent Company (A)
      3,445,588,201,501       4,338,005,788,213       4,268,426,227,454  
Weighted average number of ordinary shares outstanding (B)
      389,634,335       389,634,335       389,634,335  
Basic earnings per share (A/B)
    ￦ 8,843     ￦ 11,134     ￦ 10,955  
37.2 Diluted Earnings per Share
Diluted earnings per share is calculated through increasing the weighted average number of ordinary shares outstanding by the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. The Group has dilutive potential ordinary shares such as stock grants and ordinary share exchange right of exchangeable bonds.
A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price for the year) based on the monetary value of stock grants. The number of shares calculated above is compared with the number of shares that would have been issued assuming the settlement of stock grants.
 
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Exchangeable bonds are included in potential ordinary shares from the exercisable date of the exchange right, and interest expense after tax for the period is added to profit for diluted earnings per share.
37.2.1 Adjusted profit for diluted earnings per share
 
    
2020
    
2021
    
2022
  
    
(In Korean won)
  
Profit attributable to shareholders of the Parent Company
    ￦ 3,468,447,701,501     ￦ 4,409,543,288,213     ￦ 4,394,828,402,454  
Deduction: Dividends on hybrid securities
      (22,859,500,000 )      (71,537,500,000 )      (126,402,175,000 ) 
    
 
 
    
 
 
    
 
 
  
Profit attributable to ordinary equity holders of the Parent Company
      3,445,588,201,501       4,338,005,788,213       4,268,426,227,454  
Adjustments: Interest expense on exchangeable bonds
      798,012,332       2,347,186,871       2,380,953,816  
    
 
 
    
 
 
    
 
 
  
Adjusted profit for diluted earnings per share
    ￦ 3,446,386,213,833     ￦ 4,340,352,975,084     ￦ 4,270,807,181,270  
    
 
 
    
 
 
    
 
 
  
37.2.2 Weighted average number of ordinary shares outstanding for diluted earnings per share
 
    
2020
     
2021
     
2022
  
    
(In number of shares)
  
Weighted average number of ordinary shares outstanding
      389,634,335        389,634,335        389,634,335  
Adjustment:
                           
Stock grants
      3,416,737        3,945,208        4,306,711  
Exchangeable bonds
      1,707,650        5,000,000        5,000,000  
    
 
 
     
 
 
     
 
 
  
Adjusted weighted average number of ordinary shares outstanding for diluted earnings per share
      394,758,722        398,579,543        398,941,046  
    
 
 
     
 
 
     
 
 
  
37.2.3 Diluted earnings per share
 
    
2020
     
2021
     
2022
  
    
(In Korean won and in number of shares)
  
Adjusted profit for diluted earnings per share
    ￦ 3,446,386,213,833      ￦ 4,340,352,975,084      ￦ 4,270,807,181,270  
Adjusted weighted average number of ordinary shares outstanding for diluted earnings per share
      394,758,722        398,579,543        398,941,046  
    
 
 
     
 
 
     
 
 
  
Diluted earnings per share
    ￦ 8,730      ￦ 10,890      ￦ 10,705  
    
 
 
     
 
 
     
 
 
  
 
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38. Insurance Contracts
38.1 Insurance Assets
38.1.1 Details of deferred acquisition costs included in other assets as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Non-life
insurance
    ￦ 1,230,375      ￦ 1,430,461  
Life insurance
      345,831        479,700  
    
 
 
     
 
 
  
     ￦ 1,576,206      ￦ 1,910,161  
    
 
 
     
 
 
  
38.1.2 Changes in deferred acquisition costs included in other assets for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
     
Increase
     
Amortization
    
Ending
  
    
(In millions of Korean won)
  
Non-life
insurance
    ￦ 965,683      ￦ 965,735      ￦ (701,043 )    ￦ 1,230,375  
Life insurance
      205,289        258,653        (118,111 )      345,831  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 1,170,972      ￦ 1,224,388      ￦ (819,154 )    ￦ 1,576,206  
    
 
 
     
 
 
     
 
 
    
 
 
  
 
    
2022
  
    
Beginning
     
Increase
     
Amortization
    
Ending
  
    
(In millions of Korean won)
  
Non-life
insurance
    ￦ 1,230,375      ￦ 1,060,160      ￦ (860,074 )    ￦ 1,430,461  
Life insurance
      345,831        292,579        (158,710 )      479,700  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 1,576,206      ￦ 1,352,739      ￦ (1,018,784 )    ￦ 1,910,161  
    
 
 
     
 
 
     
 
 
    
 
 
  
 
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38.1.3 Details of reinsurance assets included in other assets as of December 31, 2021 and 2022, are as follows:
 
         
December 31,

2021
    
December 31,

2022
  
         
(In millions of Korean won)
  
Non-life
insurance
    Reserve for outstanding claims:                 
  
General insurance
    ￦ 879,936     ￦ 869,492  
  
Automobile insurance
      16,989       15,136  
  
Long-term insurance
      178,531       187,619  
   Unearned premium reserve:                 
  
General insurance
      262,020       262,817  
  
Automobile insurance
      5,575       1,078  
       
 
 
    
 
 
  
            1,343,051       1,336,142  
         
 
 
    
 
 
  
Life insurance
    Reserve for outstanding claims      2,169       2,300  
     Unearned premium reserve      985       950  
         
 
 
    
 
 
  
            3,154       3,250  
         
 
 
    
 
 
  
Others
    Reserve for outstanding claims      2,103       2,462  
   Unearned premium reserve      620       587  
         
 
 
    
 
 
  
            2,723       3,049  
         
 
 
    
 
 
  
Total reinsurance assets
      1,348,928       1,342,441  
Less: Allowances for impairment losses
      (436 )      (4,054 ) 
    
 
 
    
 
 
  
     ￦ 1,348,492     ￦ 1,338,387  
    
 
 
    
 
 
  
 
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38.1.4 Changes in reinsurance assets included in other assets for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
         
Beginning
    
Net increase
(decrease)
    
Ending
  
         
(In millions of Korean won)
  
Non-life
insurance
    Reserve for outstanding claims:
 
  
General insurance
    ￦ 732,579     ￦ 147,357     ￦ 879,936  
  
Automobile insurance
      14,916       2,073       16,989  
  
Long-term insurance
      156,234       22,297       178,531  
  
Unearned premium reserve:
 
  
General insurance
      285,634       (23,614 )      262,020  
  
Automobile insurance
      10,870       (5,295 )      5,575  
         
 
 
    
 
 
    
 
 
  
            1,200,233       142,818       1,343,051  
         
 
 
    
 
 
    
 
 
  
Life insurance
   
Reserve for outstanding claims
      2,081       88       2,169  
  
Unearned premium reserve
      951       34       985  
         
 
 
    
 
 
    
 
 
  
            3,032       122       3,154  
         
 
 
    
 
 
    
 
 
  
Others
   
Reserve for outstanding claims
      2,427       (324 )      2,103  
  
Unearned premium reserve
      895       (275 )      620  
         
 
 
    
 
 
    
 
 
  
            3,322       (599 )      2,723  
         
 
 
    
 
 
    
 
 
  
Total reinsurance assets
      1,206,587       142,341       1,348,928  
Less: Allowances for impairment losses
      (879 )      443       (436 ) 
    
 
 
    
 
 
    
 
 
  
     ￦ 1,205,708     ￦ 142,784     ￦ 1,348,492  
    
 
 
    
 
 
    
 
 
  
 
    
2022
  
         
Beginning
    
Net increase
(decrease)
    
Ending
  
         
(In millions of Korean won)
  
Non-life
insurance
    Reserve for outstanding claims:
 
  
General insurance
    ￦ 879,936     ￦ (10,444 )    ￦ 869,492  
  
Automobile insurance
      16,989       (1,853 )      15,136  
  
Long-term insurance
      178,531       9,088       187,619  
  
Unearned premium reserve:
 
  
General insurance
      262,020       797       262,817  
  
Automobile insurance
      5,575       (4,497 )      1,078  
         
 
 
    
 
 
    
 
 
  
            1,343,051       (6,909 )      1,336,142  
         
 
 
    
 
 
    
 
 
  
Life insurance
   
Reserve for outstanding claims
      2,169       131       2,300  
  
Unearned premium reserve
      985       (35 )      950  
         
 
 
    
 
 
    
 
 
  
            3,154       96       3,250  
         
 
 
    
 
 
    
 
 
  
Others
   
Reserve for outstanding claims
      2,103       359       2,462  
  
Unearned premium reserve
      620       (33 )      587  
         
 
 
    
 
 
    
 
 
  
            2,723       326       3,049  
         
 
 
    
 
 
    
 
 
  
Total reinsurance assets
      1,348,928       (6,487 )      1,342,441  
Less: Allowances for impairment losses
      (436 )      (3,618 )      (4,054 ) 
    
 
 
    
 
 
    
 
 
  
     ￦ 1,348,492     ￦ (10,105 )    ￦ 1,338,387  
    
 
 
    
 
 
    
 
 
  
 
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38.2 Insurance Liabilities
38.2.1 Details of insurance liabilities by insurance type as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Non-life

insurance
     
Life

insurance
     
Others
     
Total
  
    
(In millions of Korean won)
  
Premium reserve*
    ￦ 26,086,004      ￦ 24,363,509      ￦ —      ￦ 50,449,513  
Reserve for outstanding claims
      3,378,427        259,848        2,102        3,640,377  
Unearned premium reserve
      1,909,327        9,358        622        1,919,307  
Reserve for dividend to policyholders
      122,025        40,960        —        162,985  
Reserve for distribution of earnings to policyholders
      63,093        4,857        —        67,950  
Reserve for loss compensation on participating insurance
      24,790        6,108        —        30,898  
Guarantee reserve
      —        894,906        —        894,906  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 31,583,666      ￦ 25,579,546      ￦ 2,724      ￦ 57,165,936  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
    
December 31, 2022
  
    
Non-life

insurance
     
Life

insurance
     
Others
     
Total
  
    
(In millions of Korean won)
  
Premium reserve*
    ￦ 26,765,973      ￦ 24,613,169      ￦ —      ￦ 51,379,142  
Reserve for outstanding claims
      3,531,159        225,226        2,460        3,758,845  
Unearned premium reserve
      2,038,077        7,112        588        2,045,777  
Reserve for dividend to policyholders
      132,076        39,233        —        171,309  
Reserve for distribution of earnings to policyholders
      63,821        3,866        —        67,687  
Reserve for loss compensation on participating insurance
      24,070        5,392        —        29,462  
Guarantee reserve
      —        778,081        —        778,081  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 32,555,176      ￦ 25,672,079      ￦ 3,048      ￦ 58,230,303  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Includes negative VOBA amounting to ￦ 2,390,985 million and ￦ 2,111,541 million as of December 31, 2021 and 2022, respectively.
38.2.2 Changes in insurance liabilities for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
   
Beginning
    
Net increase
(decrease)
1
    
Ending
  
        
(In millions of Korean won)
  
Non-life
insurance
    General insurance   ￦ 1,568,741     ￦ 222,543     ￦ 1,791,284  
   Automobile insurance     1,897,872       127,693       2,025,565  
   Long-term insurance     26,362,479       1,373,257       27,735,736  
   Long-term investment contract     106,853       (75,772 )      31,081  
Life insurance
    Pure endowment insurance     7,570,349       436,999       8,007,348  
   Death insurance     15,706,051       810,366       16,516,417  
   Endowment insurance     1,188,299       (142,962 )      1,045,337  
   Group insurance and others
2
     11,330       (885 )      10,445  
Others
     3,322       (599 )      2,723  
        
 
 
    
 
 
    
 
 
  
    ￦ 54,415,296     ￦ 2,750,640     ￦ 57,165,936  
        
 
 
    
 
 
    
 
 
  
 
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Table of Contents
   
2022
  
   
Beginning
    
Net increase
(decrease)
1
    
Ending
  
        
(In millions of Korean won)
  
Non-life
insurance
    General insurance   ￦ 1,791,284     ￦ 68,690     ￦ 1,859,974  
   Automobile insurance     2,025,565       145,331       2,170,896  
   Long-term insurance     27,735,736       778,634       28,514,370  
   Long-term investment contract     31,081       (21,147 )      9,934  
Life insurance
    Pure endowment insurance     8,007,348       (840,495 )      7,166,853  
   Death insurance     16,516,417       816,485       17,332,902  
   Endowment insurance     1,045,337       118,328       1,163,665  
   Group insurance and others
2
     10,445       (1,785 )      8,660  
Others
     2,723       326       3,049  
        
 
 
    
 
 
    
 
 
  
    ￦ 57,165,936     ￦ 1,064,367     ￦ 58,230,303  
        
 
 
    
 
 
    
 
 
  
 
1
 
Includes exchange differences effect and decrease in liabilities related to investment contracts.
2
 
Includes reserve for distribution of earnings to policyholders and reserve for loss compensation on participating insurance.
38.3 Liability Adequacy Test
According to the revision of the Detailed Regulations on Supervision of Insurance Business, the criteria for the insurance liability adequacy test were changed, and the Group accounted for the change as a change in accounting policy because it provided reliable and more relevant information about current estimates of future cash flows. This change in accounting policy has no effect on the consolidated financial statements, but comparative notes have been restated.
38.3.1 KB Insurance Co., Ltd.
Assumptions and calculation basis for the insurance liability adequacy test of KB Insurance Co., Ltd. as of December 31, 2021 and 2022, are as follows:
 
    
Assumptions (%)
   
Calculation
basis
    
December 31,
2021
   
December 31,
2022
Long-term insurance
               
Discount rate
    -3.39 ~ 19.54    -2.84 ~ 21.14    Calculated by applying an interest rate scenario which is a risk-free rate scenario adjusted by liquidity premium presented by director of the Financial Supervisory Service
Expense ratio
    6.25    5.93    Calculated using future expense plan based on the recent
one-year
experience statistics
Lapse ratio
    1.49 ~ 35.98    1.37 ~ 32.92    Calculated based on the recent five-year experience statistics
Risk ratio
    7.4 ~ 1,143.8    8.2 ~ 1,214.3    Calculated by ratio of insurance claim payments to risk premiums based on the recent seven-year experience statistics
General insurance
               
Lapse ratio
    0.9    0.86    Ratio of surrender value to direct insurance premiums by type of contracts for the preceding five years
 
F-195
    
Assumptions (%)
   
Calculation
basis
    
December 31,
2021
   
December 31,
2022
Sales cost ratio
    6.3    6.31    Ratio of sales cost to direct insurance premiums by type of contracts for the preceding year (applicable only to unpaid premiums)
Maintenance cost ratio
    10.5    9.12    Ratio of maintenance cost to earned premiums by type of contracts for the preceding year
Claim survey cost ratio
    4.7    4.54    Ratio of claim survey cost to insurance claim payments by type of contracts for the preceding three years
Loss ratio
    78.5    82.27    Ratio of final loss incurred to earned premiums by type of contracts for the preceding five years
Automobile insurance
               
Lapse ratio
    4.7    4.7    Ratio of surrender value to direct insurance premiums by type of contracts for the preceding five years
Sales cost ratio
    7.6    7.5    Ratio of sales cost to direct insurance premiums by type of contracts for the preceding year (applicable only to unpaid premiums)
Maintenance cost ratio
    8.8    8.5    Ratio of maintenance cost to earned premiums by type of collaterals for the preceding year
Claim survey cost ratio
    8.1    8.1    Ratio of claim survey cost to insurance claim payments by type of collaterals for the preceding three years
Loss ratio
    78.2    77.6    Ratio of final loss incurred to earned premiums by type of collaterals for the preceding five years
Results of the insurance liability adequacy test of KB Insurance Co., Ltd. as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
  
Recognized
liabilities*
     
Estimated adequate
liabilities
     
Surplus

(shortfall)
  
    
(In millions of Korean won)
  
General insurance
    ￦ 465,812      ￦ 437,555      ￦ 28,257  
Automobile insurance
      1,401,462        1,322,026        79,436  
Long-term insurance
      21,812,939        14,277,162        7,535,777  
    
 
 
     
 
 
     
 
 
  
     ￦ 23,680,213      ￦ 16,036,743      ￦ 7,643,470  
    
 
 
     
 
 
     
 
 
  
 
    
December 31, 2022
  
  
Recognized
liabilities*
     
Estimated adequate
liabilities
     
Surplus

(shortfall)
  
    
(In millions of Korean won)
  
General insurance
    ￦ 570,608      ￦ 537,204      ￦ 33,404  
Automobile insurance
      1,491,245        1,395,407        95,838  
Long-term insurance
      22,309,067        8,538,565        13,770,502  
    
 
 
     
 
 
     
 
 
  
       ￦24,370,920      ￦ 10,471,176      ￦ 13,899,744  
    
 
 
     
 
 
     
 
 
  
 
*
In the case of
long-term
insurance, premium reserve and unearned premium reserve are recognized; the premium reserve is the amount of subtracting deferred acquisition costs and insurance contract loans from the net insurance premium reserve in accordance with Article
6-3
of the Regulations on Supervision of Insurance Business.
 
F-196
As a result of the liability adequacy test, the Group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of the liability adequacy test as of December 31, 2022.
38.3.2 KB Life Insurance Co., Ltd.
Assumptions and calculation basis for the insurance liability adequacy test of KB Life Insurance Co., Ltd. as of December 31, 2021 and 2022, are as f
ollows:
 
 
  
Assumptions (%)
  
 
 
  
December 31,

2021
  
December 31,

2022
  
Calculation
basis
Lapse ratio
    0 ~ 65.57    0
 
~
 
78.60		    Ratio of canceled premiums to premiums by product group, method of payment, channel, and elapsed period, based on the recent five-year experience statistics
       
Loss ratio
    22 ~ 162    20
 
~
 
162		    Ratio of number of accidents to the number of holding contracts, by collateral, gender, and elapsed period, based on the recent seven-year experience statistics
       
Discount rate
    -3.39 ~ 19.54    -2.84
 
~
 
21.14		    Estimated investment yield based on the interest rate scenario provided by the Financial Supervisory Service adjusted by risk spread
Indirect costs included in administration expenses were calculated by applying the unit cost based on the experience statistics of the actual executed costs over the past year according to the expense allocations standard set by the Detailed Regulations on Supervision of Insurance Business. Direct costs such as acquisition cost were calculated based on estimates of future expense according to the Group’s internal policies such as solicitation commission policy.
The insurance liability adequacy test of KB Life Insurance Co., Ltd. is performed by contract type such as interest rate type and dividend type. Results of the insurance liability adequacy test as of December 31, 2021 and 2022, are as follows:
 
         
December 31, 2021
  
         
Recognized
liabilities
    
Estimated adequate
liabilities
    
Surplus

(shortfall)
  
         
(In millions of Korean won)
  
Fixed interest type
    Participating    ￦ 30,828     ￦ 51,443     ￦ (20,615 ) 
  
Non-participating
      664,569       5,876       658,693  
Variable interest type
    Participating      896,754       913,067       (16,313 ) 
  
Non-participating
      5,754,214       5,263,775       490,439  
Variable type
      (7,822 )      (101,418 )      93,596  
         
 
 
    
 
 
    
 
 
  
     ￦ 7,338,543     ￦ 6,132,743     ￦ 1,205,800  
         
 
 
    
 
 
    
 
 
  
 
         
December 31, 2022
  
         
Recognized
liabilities
    
Estimated adequate
liabilities
    
Surplus

(shortfall)
  
         
(In millions of Korean won)
  
Fixed interest type
    Participating    ￦ 30,720     ￦ 43,889     ￦ (13,169 ) 
  
Non-participating
      1,238,004       (6,488 )      1,244,492  
Variable interest type
    Participating      814,350       817,087       (2,737 ) 
  
Non-participating
      4,826,517       4,219,110       607,407  
Variable type
      (45,907 )      (103,354 )      57,447  
         
 
 
    
 
 
    
 
 
  
     ￦ 6,863,684     ￦ 4,970,244     ￦ 1,893,440  
         
 
 
    
 
 
    
 
 
  
 
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As a result of the liability adequacy test, the Group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of the liability adequacy test as of December 31, 2022.
38.3.3 KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
Assumptions and calculation basis for the insurance liability adequacy test of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) as of December 31, 2021 and 2022, are as follows:
 
    
Assumptions (%)
     
    
December 31,

2021
   
December 31,

2022
   
Calculation
basis
Discount rate
    -3.39 ~ 19.54    -2.84 ~ 21.14    Calculated by applying an interest rate scenario which is a risk-free rate scenario adjusted by liquidity premium presented by the Financial Supervisory Service
       
Lapse ratio
    1 ~ 26    1.3 ~ 25    Calculated based on the amount of insurance coverage by elapsed period based on the recent five-year experience statistics
       
Risk ratio
    28 ~ 545    21 ~ 982    Calculated by ratio of insurance claim payments to risk premiums by elapsed period based on the recent five-year experience statistics
The insurance liability adequacy test of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) is performed by contract type such as interest rate type and dividend type. Results of the insurance liability adequacy test as of December 31, 2021 and 2022, are as follows:
 
         
Surplus (shortfall)
  
         
December 31, 2021
    
December 31, 2022
  
         
(In millions of Korean won)
  
Fixed interest type
    Participating    ￦ (7,687 )    ￦ 1,177  
    
Non-participating
      787,200       4,484,049  
Variable interest type
   
Non-participating
      128,963       185,675  
Variable type
      1,278,620       1,265,066  
         
 
 
    
 
 
  
          ￦ 2,187,096     ￦ 5,935,967  
         
 
 
    
 
 
  
As a result of the liability adequacy test, the Group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of the liability adequacy test as of December 31, 2022.
 
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38.4 Net Insurance Income
Details of insurance income and insurance expenses for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
     
2021
     
2022
  
    
(In millions of Korean won)
  
Insurance income
    Premium income    ￦ 12,872,727      ￦ 14,684,383      ￦ 15,765,939  
   Reinsurance income      823,500        990,437        1,029,943  
   Reversal of policy reserve      85        599        —  
   Separate account income      216,485        286,967        331,281  
  
Income from changes in reinsurance assets
      467,729        135,159        —  
   Other insurance income      6,114        10,313        9,679  
         
 
 
     
 
 
     
 
 
  
            14,386,640        16,107,858        17,136,842  
         
 
 
     
 
 
     
 
 
  
Insurance expenses
    Insurance claims paid      5,264,829        5,777,899        6,325,021  
   Dividend expenses      11,661        14,038        15,370  
   Refunds of surrender value      3,286,150        4,032,209        5,556,410  
   Reinsurance expenses      1,127,304        1,163,056        1,268,711  
   Provision for policy reserve      2,709,903        2,761,735        1,046,300  
   Separate account expenses      113,703        112,180        264,517  
   Administration expenses      563,085        644,947        715,317  
  
Amortization of deferred acquisition costs
      767,633        819,154        1,018,784  
  
Expenses from changes in reinsurance assets
      163        —        —  
   Claim survey expenses paid      58,873        60,234        73,803  
   Other insurance expenses      183,343        165,695        156,096  
         
 
 
     
 
 
     
 
 
  
            14,086,647        15,551,147        16,440,329  
         
 
 
     
 
 
     
 
 
  
Net insurance income
    ￦ 299,993      ￦ 556,711      ￦ 696,513  
         
 
 
     
 
 
     
 
 
  
38.5 Risk Management of KB Insurance Co., Ltd.
38.5.1 Overview of insurance risk
Insurance risk is the risk that arises from a primary operation of insurance companies that is associated with underwriting of insurance contracts and payment of claims and is classified as insurance price risk and reserves risk. Insurance price risk is the risk of loss that might occur when the actual risk exceeds the expected risk ratio or expected expense ratio set at the time of calculating insurance premium, that is, the possibility of loss due to the differences between actual payment of claims and premiums received from policyholders. Reserve risk means the risk of not being able to cover actual claim payments in the future due to a lack of reserve accumulated at the time of assessment.
38.5.2 Purposes, policies, and procedures to manage risk arising from insurance contracts
The risks associated with insurance contracts that the Group faces are insurance actuarial risk and underwriting risk. Each risk occurs due to insurance contract’s pricing and conditions of underwriting. In order to minimize the possibility of acquiring a bad contract, the Group has established and operated detailed underwriting guidelines and underwriting procedures by insurance type that specify detailed underwriting conditions according to the type of risk covered through pre-analysis of insured property. In addition, the Group is making efforts to reduce insurance actuarial risk by follow-up measures such as adjustments of premium rate, changes of sales conditions, termination of selling specific product, development of new product, and others
 
F-199
through comparing and analyzing the expected risk level at the date of pricing and actual risk level after the acceptance. The Group has prepared a process to minimize management risk other than insurance actuarial risk and underwriting risk by operating a committee that shares opinions on underwriting policies and premium rate policies and decides important matters.
In addition, by establishing a reinsurance operating strategy according to the reinsurance operating standards, the Group is preparing for the possibility of incurring high claim expenses at once due to unexpected catastrophic accidents while maintaining an appropriate holding level considering the solvency of the Group. The Group supports the protection and stable interests of policyholders, and comprehensively manages risks to maximize corporate value in the mid to long term.
38.5.3 Exposure to insurance price risk
According to Risk Based Capital (“RBC”) standard, exposure to insurance price risk is measured as the risk retained premium for all insurance contracts based on the track record for one year up to reference date of calculation. The risk retained premium is measured by adding assumed risk reinsurance premium to direct risk premium and deducting ceded risk reinsurance premium.
The Group’s exposure to insurance price risk as of December 31, 2021 and 2022, as follows:
 
    
December 31, 2021
  
    
Direct

risk premium
     
Assumed risk
reinsurance
premium
     
Ceded risk
reinsurance
premium
    
Total
  
    
(In millions of Korean won)
  
General
    ￦ 1,161,427      ￦ 93,191      ￦ (630,231 )    ￦ 624,387  
Automobile
      2,538,277        —        (13,683 )      2,524,594  
Long-term
      3,128,821        —        (462,261 )      2,666,560  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 6,828,525      ￦ 93,191      ￦ (1,106,175 )    ￦ 5,815,541  
    
 
 
     
 
 
     
 
 
    
 
 
  
 
    
December 31, 2022
  
    
Direct

risk premium
     
Assumed risk
reinsurance
premium
     
Ceded risk
reinsurance
premium
    
Total
  
    
(In millions of Korean won)
  
General
    ￦ 1,287,819      ￦ 121,296      ￦ (698,981 )    ￦ 710,134  
Automobile
      2,684,544        —        (4,788 )      2,679,756  
Long-term
      3,495,031        —        (494,563 )      3,000,468  
    
 
 
     
 
 
     
 
 
    
 
 
  
     ￦ 7,467,394      ￦ 121,296      ￦ (1,198,332)     ￦ 6,390,358  
    
 
 
     
 
 
     
 
 
    
 
 
  
38.5.4 Concentration of insurance risk
The Group is selling various insurance contracts such as general non-life insurances (fire, maritime, injury, technology, liability, package, title, guarantee, and other special type insurances), automobile insurances (for private use, for business use, for commercial use, bicycle, and others), long-term insurances (long-term non-life, property damage, injury, driver, savings, illness, nursing, and pension), and others. The Group’s risk is distributed through reinsurance, joint acceptance, and sales of diversified insurance products. In addition, insurances such as storm and flood insurance, which have a very low probability of occurrence but cover severe levels of risk, are controlled through acceptance limit and joint acquisition.
38.5.5 Claims development tables
The Group verifies and evaluates the adequacy of reserve for outstanding claims for general, automobile, and long-term insurance with two or more methods, including paid loss development trend and incurred loss
 
F-200
development trend. If the individually estimated claims are insufficient, the Group recognizes additional reserves. Claims development tables as of December 31, 2021 and 2022, are as follows:
<2021>
General Insurance
 
    
Development year
  
Accident year   
After 1 year
     
After 2 years
     
After 3 years
     
After 4 years
     
After 5 years
  
    
(In millions of Korean won)
  
Estimate of gross ultimate claims (A)
                                             
2017.1.1 ~ 2017.12.31
    ￦ 169,234      ￦ 201,406      ￦ 205,075      ￦ 206,856      ￦ 207,252  
2018.1.1 ~ 2018.12.31
      200,968        241,471        246,499        250,083        —  
2019.1.1 ~ 2019.12.31
      219,419        263,105        267,687        —        —  
2020.1.1 ~ 2020.12.31
      232,622        273,531        —        —        —  
2021.1.1 ~ 2021.12.31
      290,480        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       1,112,723        979,513        719,261        456,939        207,252  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Gross cumulative claim payments (B)
                                             
2017.1.1 ~ 2017.12.31
      133,254        185,107        194,511        199,926        202,548  
2018.1.1 ~ 2018.12.31
      153,770        217,955        235,900        240,171        —  
2019.1.1 ~ 2019.12.31
      185,645        246,397        258,465        —        —  
2020.1.1 ~ 2020.12.31
      167,129        244,074        —        —        —  
2021.1.1 ~ 2021.12.31
      236,265        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       876,063        893,533        688,876        440,097        202,548  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Difference (A-B)
    ￦ 236,660      ￦ 85,980      ￦ 30,385      ￦ 16,842      ￦ 4,704  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Automobile Insurance
 
   
Development year
  
Accident year  
After 1
year
    
After 2
years
    
After 3
years
    
After 4
years
    
After 5
years
    
After 6
years
    
After 7
years
  
   
(In millions of Korean won)
  
Estimate of gross ultimate claims (A)
                                                        
2015.1.1 ~ 2015.12.31
   ￦ 1,227,107     ￦ 1,245,781     ￦ 1,256,059     ￦ 1,263,044     ￦ 1,267,142     ￦ 1,271,000     ￦ 1,282,673  
2016.1.1 ~ 2016.12.31
     1,276,939       1,281,381       1,287,728       1,294,735       1,299,964       1,309,221       —  
2017.1.1 ~ 2017.12.31
     1,342,998       1,348,828       1,358,867       1,368,016       1,371,619       —       —  
2018.1.1 ~ 2018.12.31
     1,468,784       1,471,807       1,481,509       1,488,890       —       —       —  
2019.1.1 ~ 2019.12.31
     1,591,793       1,620,609       1,635,704       —       —       —       —  
2020.1.1 ~ 2020.12.31
     1,624,341       1,632,626       —       —       —       —       —  
2021.1.1 ~ 2021.12.31
     1,750,508       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      10,282,470       8,601,032       7,019,867       5,414,685       3,938,725       2,580,221       1,282,673  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Gross cumulative claim payments (B)
                                                        
2015.1.1 ~ 2015.12.31
     1,020,975       1,198,240       1,228,357       1,245,780       1,254,186       1,261,995       1,264,247  
2016.1.1 ~ 2016.12.31
     1,052,830       1,235,656       1,264,651       1,282,346       1,288,754       1,291,380       —  
2017.1.1 ~ 2017.12.31
     1,104,158       1,306,235       1,335,962       1,350,174       1,357,903       —       —  
2018.1.1 ~ 2018.12.31
     1,224,820       1,428,973       1,456,532       1,471,379       —       —       —  
2019.1.1 ~ 2019.12.31
     1,332,849       1,570,194       1,598,956       —       —       —       —  
2020.1.1 ~ 2020.12.31
     1,353,799       1,570,730       —       —       —       —       —  
2021.1.1 ~ 2021.12.31
     1,445,877       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      8,535,308       8,310,028       6,884,458       5,349,679       3,900,843       2,553,375       1,264,247  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Difference (A-B)
   ￦ 1,747,162     ￦ 291,004     ￦ 135,409     ￦ 65,006     ￦ 37,882     ￦ 26,846     ￦ 18,426  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-201
Long-term Insurance
 
   
Development year
  
Accident year  
After 1
year
    
After 2
years
    
After 3
years
    
After 4
years
    
After 5
years
    
After 6
years
    
After 7
years
  
   
(In millions of Korean won)
  
Estimate of gross ultimate claims (A)
                                                        
2015.1.1 ~ 2015.12.31
   ￦ 885,476     ￦ 1,219,394     ￦ 1,256,051     ￦ 1,266,881     ￦ 1,270,967     ￦ 1,273,615     ￦ 1,275,520  
2016.1.1 ~ 2016.12.31
     1,064,744       1,437,574       1,485,839       1,500,403       1,506,889       1,510,197       —  
2017.1.1 ~ 2017.12.31
     1,184,224       1,614,903       1,670,929       1,689,768       1,695,477       —       —  
2018.1.1 ~ 2018.12.31
     1,372,706       1,881,046       1,941,497       1,965,983       —       —       —  
2019.1.1 ~ 2019.12.31
     1,626,481       2,229,830       2,297,861       —       —       —       —  
2020.1.1 ~ 2020.12.31
     1,818,316       2,442,633       —       —       —       —       —  
2021.1.1 ~ 2021.12.31
     2,124,582       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      10,076,529       10,825,380       8,652,177       6,423,035       4,473,333       2,783,812       1,275,520  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Gross cumulative claim payments (B)
                                                        
2015.1.1 ~ 2015.12.31
     836,472       1,205,130       1,248,475       1,262,528       1,269,557       1,272,648       1,274,908  
2016.1.1 ~ 2016.12.31
     1,017,243       1,424,948       1,477,415       1,496,556       1,503,841       1,507,284       —  
2017.1.1 ~ 2017.12.31
     1,130,868       1,599,227       1,662,978       1,683,997       1,692,323       —       —  
2018.1.1 ~ 2018.12.31
     1,319,613       1,868,434       1,933,543       1,958,256       —       —       —  
2019.1.1 ~ 2019.12.31
     1,574,696       2,211,717       2,288,023       —       —       —       —  
2020.1.1 ~ 2020.12.31
     1,749,647       2,426,351       —       —       —       —       —  
2021.1.1 ~ 2021.12.31
     2,057,154       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      9,685,693       10,735,807       8,610,434       6,401,337       4,465,721       2,779,932       1,274,908  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Difference (A-B)
   ￦ 390,836     ￦ 89,573     ￦ 41,743     ￦ 21,698     ￦ 7,612     ￦ 3,880     ￦ 612  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
<2022>
General Insurance
 
    
Development year
  
Accident year   
After 1 year
     
After 2 years
     
After 3 years
     
After 4 years
     
After 5 years
  
    
(In millions of Korean won)
  
Estimate of gross ultimate claims (A)
                                             
2018.1.1 ~ 2018.12.31
    ￦ 200,968      ￦ 241,474      ￦ 246,871      ￦ 250,935      ￦ 251,815  
2019.1.1 ~ 2019.12.31
      220,043        266,489        270,815        271,047        —  
2020.1.1 ~ 2020.12.31
      235,365        274,260        277,957        —        —  
2021.1.1 ~ 2021.12.31
      296,348        347,715        —        —        —  
2022.1.1 ~ 2022.12.31
      336,344        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       1,289,068        1,129,938        795,643        521,982        251,815  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Gross cumulative claim payments (B)
                                             
2018.1.1 ~ 2018.12.31
      153,770        217,955        235,900        240,518        245,732  
2019.1.1 ~ 2019.12.31
      185,645        247,945        260,774        264,952        —  
2020.1.1 ~ 2020.12.31
      169,859        246,805        257,784        —        —  
2021.1.1 ~ 2021.12.31
      237,065        317,089        —        —        —  
2022.1.1 ~ 2022.12.31
      240,982        —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
       987,321        1,029,794        754,458        505,470        245,732  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Difference (A-B)
    ￦ 301,747      ￦ 100,144      ￦ 41,185      ￦ 16,512      ￦ 6,083  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
F-202
Automobile Insurance
 
   
Development year
  
Accident year  
After 1
year
    
After 2
years
    
After 3
years
    
After 4
years
    
After 5
years
    
After 6
years
    
After 7
years
  
   
(In millions of Korean won)
  
Estimate of gross ultimate claims (A)
                                                        
2016.1.1 ~ 2016.12.31
   ￦ 1,276,939     ￦ 1,281,381     ￦ 1,287,728     ￦ 1,294,735     ￦ 1,299,964     ￦ 1,309,221     ￦ 1,316,456  
2017.1.1 ~ 2017.12.31
     1,342,998       1,348,828       1,358,867       1,368,016       1,371,619       1,377,499       —  
2018.1.1 ~ 2018.12.31
     1,468,784       1,471,807       1,481,509       1,488,890       1,498,384       —       —  
2019.1.1 ~ 2019.12.31
     1,591,793       1,620,609       1,635,704       1,649,928       —       —       —  
2020.1.1 ~ 2020.12.31
     1,624,341       1,632,626       1,639,325       —       —       —       —  
2021.1.1 ~ 2021.12.31
     1,750,508       1,757,801       —       —       —       —       —  
2022.1.1 ~ 2022.12.31
     1,858,395       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      10,913,758       9,113,052       7,403,133       5,801,569       4,169,967       2,686,720       1,316,456  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Gross cumulative claim payments (B)
                                                        
2016.1.1 ~ 2016.12.31
     1,052,830       1,235,655       1,264,651       1,282,346       1,288,754       1,291,380       1,293,473  
2017.1.1 ~ 2017.12.31
     1,104,158       1,306,235       1,335,962       1,350,174       1,357,903       1,361,232       —  
2018.1.1 ~ 2018.12.31
     1,224,820       1,428,973       1,456,532       1,471,379       1,476,781       —       —  
2019.1.1 ~ 2019.12.31
     1,332,849       1,570,194       1,598,956       1,614,015       —       —       —  
2020.1.1 ~ 2020.12.31
     1,353,799       1,570,730       1,595,586       —       —       —       —  
2021.1.1 ~ 2021.12.31
     1,445,877       1,684,092       —       —       —       —       —  
2022.1.1 ~ 2022.12.31
     1,516,007       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      9,030,340       8,795,879       7,251,687       5,717,914       4,123,438       2,652,612       1,293,473  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Difference (A-B)
   ￦ 1,883,418     ￦ 317,173     ￦ 151,446     ￦ 83,655     ￦ 46,529     ￦ 34,108     ￦ 22,983  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Long-term Insurance
 
   
Development year
  
Accident year  
After 1
year
    
After 2
years
    
After 3
years
    
After 4
years
    
After 5
years
    
After 6
years
    
After 7
years
  
   
(In millions of Korean won)
  
Estimate of gross ultimate claims (A)
                                                        
2016.1.1 ~ 2016.12.31
   ￦ 1,064,743     ￦ 1,437,574     ￦ 1,485,839     ￦ 1,500,403     ￦ 1,506,889     ￦ 1,510,197     ￦ 1,511,728  
2017.1.1 ~ 2017.12.31
     1,184,224       1,614,904       1,670,929       1,689,768       1,695,477       1,698,804       —  
2018.1.1 ~ 2018.12.31
     1,372,706       1,881,046       1,941,497       1,965,983       1,972,727       —       —  
2019.1.1 ~ 2019.12.31
     1,626,481       2,229,830       2,297,861       2,324,246       —       —       —  
2020.1.1 ~ 2020.12.31
     1,818,316       2,442,633       2,514,577       —       —       —       —  
2021.1.1 ~ 2021.12.31
     2,124,582       2,841,110       —       —       —       —       —  
2022.1.1 ~ 2022.12.31
     2,277,455       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      11,468,507       12,447,097       9,910,703       7,480,400       5,175,093       3,209,001       1,511,728  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Gross cumulative claim payments (B)
                                                        
2016.1.1 ~ 2016.12.31
     1,017,244       1,424,948       1,477,414       1,496,556       1,503,841       1,507,284       1,509,334  
2017.1.1 ~ 2017.12.31
     1,130,868       1,599,227       1,662,978       1,683,997       1,692,323       1,696,284       —  
2018.1.1 ~ 2018.12.31
     1,319,613       1,868,434       1,933,543       1,958,256       1,967,097       —       —  
2019.1.1 ~ 2019.12.31
     1,574,696       2,211,717       2,288,023       2,316,190       —       —       —  
2020.1.1 ~ 2020.12.31
     1,749,647       2,426,351       2,503,496       —       —       —       —  
2021.1.1 ~ 2021.12.31
     2,057,154       2,818,484       —       —       —       —       —  
2022.1.1 ~ 2022.12.31
     2,168,671       —       —       —       —       —       —  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      11,017,893       12,349,161       9,865,454       7,454,999       5,163,261       3,203,568       1,509,334  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Difference (A-B)
   ￦ 450,614     ￦ 97,936     ￦ 45,249     ￦ 25,401     ￦ 11,832     ￦ 5,433     ￦ 2,394  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-203
38.5.6 Sensitivity analysis of insurance risk
The Group manages insurance risk by performing sensitivity analysis based on lapse ratio, loss ratio, expense ratio, discount rate, and others which are considered to have significant influence on future cash flow, timing, and uncertainty. Sensitivity analysis of insurance liabilities was conducted only in the unfavorable direction where additional insurance liabilities could be reserved as the surplus was sufficient as a result of the insurance liability adequacy test.
 
    
December 31, 2021
  
  
Assumption

change
    
Effect on
  
   
Base amount

of LAT
     
Insurance

liabilities
     
Profit

before tax
     
Equity
  
    
(In millions of Korean won)
  
Lapse ratio
      +10 %    ￦ 337,969      ￦ —      ￦ —      ￦ —  
Loss ratio
      +10 %      6,065,429        —        —        —  
Expense ratio
      +10 %      503,132        —        —        —  
Discount rate
      -0.5 %p      1,985,421        —        —        —  
 
    
December 31, 2022
  
  
Assumption

change
    
Effect on
  
   
Base amount

of LAT
     
Insurance

liabilities
     
Profit

before tax
     
Equity
  
    
(In millions of Korean won)
  
Lapse ratio
      +10 %    ￦ 495,870      ￦ —      ￦ —      ￦ —  
Loss ratio
      +10 %      5,745,896        —        —        —  
Expense ratio
      +10 %      413,073        —        —        —  
Discount rate
      -0.5 %p      1,084,314        —        —        —  
38.5.7 Liquidity risk of insurance contracts
Liquidity risk arising from insurance contracts arises from the increase in refunds at maturity caused by concentrations of maturity, the excessive increase in surrender values caused by unexpected mass cancelation, and the increase in payments of claims caused by major accidents. The Group manages payment of refunds at maturity by analyzing remaining maturity of insurance contracts.
Maturity structure of premium reserve as of December 31, 2021 and 2022, as follows:
 
   
December 31, 2021 *
  
   
Up to
1 year
    
1~5

years
    
5~10

years
    
10~20

years
    
Over 20

years
    
Total
  
   
(In millions of Korean won)
  
Long-term insurance non-participating:
                                                
Fixed interest type
   ￦ 121,988     ￦ 64,730     ￦ 77,880     ￦ 59,042     ￦ 324,259     ￦ 647,899  
Variable interest type
     959,348       1,958,267       1,536,690       919,726       16,123,312       21,497,343  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      1,081,336       2,022,997       1,614,570       978,768       16,447,571       22,145,242  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Annuity:
                                                
Fixed interest type
     —       820       2,134       3,813       532       7,299  
Variable interest type
     252       103,419       407,556       1,324,916       2,121,076       3,957,219  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      252       104,239       409,690       1,328,729       2,121,608       3,964,518  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total:
                                                
Fixed interest type
     121,988       65,550       80,014       62,855       324,791       655,198  
Variable interest type
     959,600       2,061,686       1,944,246       2,244,642       18,244,388       25,454,562  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 1,081,588     ￦ 2,127,236     ￦ 2,024,260     ￦ 2,307,497     ￦ 18,569,179     ￦ 26,109,760  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
F-204
   
December 31, 2022 *
  
   
Up to
1 year
    
1~5

years
    
5~10

years
    
10~20

years
    
Over 20

years
    
Total
  
   
(In millions of Korean won)
  
Long-term insurance non-participating:
                                                
Fixed interest type
   ￦ 22,436     ￦ 90,447     ￦ 26,234     ￦ 65,721     ￦ 575,938     ￦ 780,776  
Variable interest type
     480,248       2,178,620       924,254       991,874       17,517,632       22,092,628  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      502,684       2,269,067       950,488       1,057,595       18,093,570       22,873,404  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Annuity:
                                                
Fixed interest type
     39       992       1,935       3,700       398       7,064  
Variable interest type
     296       114,980       416,820       1,325,911       2,050,230       3,908,237  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
      335       115,972       418,755       1,329,611       2,050,628       3,915,301  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total:
                                                
Fixed interest type
     22,475       91,439       28,169       69,421       576,336       787,840  
Variable interest type
     480,544       2,293,600       1,341,074       2,317,785       19,567,862       26,000,865  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 503,019     ￦ 2,385,039     ￦ 1,369,243     ￦ 2,387,206     ￦ 20,144,198     ￦ 26,788,705  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
*
Includes long-term investment contracts liabilities classified as investment contracts amounting to ￦31,081 million and ￦9,934 million, as of December 31, 2021 and 2022, respectively.
38.5.8 Credit risk of insurance contract
Credit risk of an insurance contract refers to economic losses in which the reinsurer, the counterparty, is unable to fulfil its contract obligations due to a decline in credit ratings or default or others. Through an internal review, only the insurers rated BBB- or higher of S&P rating or corresponding rating are selected as reinsurance companies.
Concentration and credit ratings for top three reinsurance companies as of December 31, 2022, are as follows:
 
Reinsurance company
   
Ratio
    
Credit rating
  
KOREAN RE
      29.82 %      AA  
MUNICH RE
      8.53 %      AAA  
HISCOX
      5.44 %      AA+  
Exposures to credit risk related to reinsurance as of December 31, 2021 and 2022 as follows:
 
    
December 31,
2021
     
December 31,
2022
  
    
(In millions of Korean won)
  
Reinsurance assets
1
    ￦ 1,342,615      ￦ 1,332,088  
Receivables from reinsurers
2
      377,619        396,292  
    
 
 
     
 
 
  
     ￦ 1,720,234      ￦ 1,728,380  
    
 
 
     
 
 
  
 
1
 
Net carrying amount after impairment losses
2
 
Net carrying amount after allowances for credit losses
38.5.9 Interest rate risk of insurance contract
Interest rate risk exposure from the Group’s insurance contracts is the risk of unexpected losses due to the fluctuations of net interest income or net assets arising from changes in interest rate and it is managed to minimize unexpected losses. The Group calculates exposure to interest-bearing assets and interest-bearing
 
F-205
liabilities for long-term, non-life insurance contracts. Liabilities exposure is premium reserve less surrender charge plus unearned premium reserve. Assets exposure is interest-bearing assets and assets that generate only fees without interest income are excluded from interest-bearing assets. Exposures to interest rate risk as of December 31, 2021 and 2022, are as follows:
38.5.9.1 Exposure to interest rate risk
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Interest-bearing liabilities
                  
Fixed interest rate type
    ￦ 489,399      ￦ 520,250  
Variable interest rate type
      24,246,760        24,802,062  
    
 
 
     
 
 
  
     ￦ 24,736,159      ￦ 25,322,312  
    
 
 
     
 
 
  
Interest-bearing assets
                  
Due from financial institutions measured at amortized cost and cash equivalents
    ￦ 81,806      ￦ 113,043  
Financial assets at fair value through profit or loss
      3,863,978        5,076,615  
Financial assets at fair value through other comprehensive income
      4,488,443        5,000,002  
Securities measured at amortized cost
      8,514,272        8,373,125  
Loans measured at amortized cost
      6,433,839        6,506,787  
    
 
 
     
 
 
  
     ￦ 23,382,338      ￦ 25,069,572  
    
 
 
     
 
 
  
38.5.9.2 Measurement and recognition method
Duration is used to measure interest rate risk within a risk-based solvency test. The internal model system is utilized to manage interest rate risk internally. In addition, the Risk Management Committee sets asset allocation strategies every year to manage interest rate risk.
38.5.9.3 Sensitivity to changes in interest rate
Interest rate sensitivity is measured and managed by duration. Generally, when interest rate rises, the value and duration of assets and liabilities decrease, and when interest rate falls, the value and duration of assets and liabilities increase. If the duration of assets is shorter than that of liabilities, interest rate risk increases since the incremental portion of liabilities exceeds that of assets when interest rate falls.
38.5.9.4 Negative margin risk control
In order to manage negative margin risk between interest expenses on liabilities and investment income on invested assets, the Group determines the applied interest rate for premium calculation, the minimum guaranteed interest rate, and the disclosed interest rate by fully considering the market interest rate and the Group’s investment yield. It is set in accordance with the interest rate guideline set by the risk management department every year, and the set applicable interest rate and minimum guaranteed interest rate are determined with the approval of the Risk Management Committee.
38.6 Risk Management of KB Life Insurance Co., Ltd.
38.6.1 Overview of insurance risk
Insurance risk is the risk that arises from a primary operation of insurance companies that is associated with underwriting of insurance contracts and payment of claims and refers to the possibility of losses that may occur because the risk at the time of claim payment is greater than the risk expected at the time of underwriting. Insurance risk can be divided into insurance price risk and policy reserve risk.
 
F-206
Insurance price risk is the possibility of loss due to the differences between actual payment of claims and premiums received from policyholders. Policy reserve risk is possibility of loss due to the differences between policy reserve and actual claims to be paid in the future. Therefore, losses are recognized if actual claims are more than policy reserve.
Life insurance company measures only insurance price risk under RBC requirement because life insurance claim payments are mainly in a fixed amount with less volatility and the period from insured event to claim payments is not long, therefore benefit of measurement of policy reserve risk is low.
38.6.2 Concentration of insurance risk and reinsurance policy
The Group is using reinsurance to mitigate the concentration of insurance risk and increase capital management efficiency using advanced techniques. The reinsurance guidelines are operated separately into individual contracts and group contracts, and reinsurance is ceded through the following process:
 
  (a)
In the decision-making process of launching a new product, the Group decides on ceding reinsurance. Subsequently, the Group selects the reinsurer through bidding, and decides whether to reinsure or not through agreements with the relevant departments, and final approval by executive of department in charge.
 
  (b)
The reinsurance department analyzes the object of reinsurance, the maximum limit of reinsurance, and the loss ratio through consultation with the relevant departments.
38.6.3 Characteristic and exposure to insurance price risk
The exposure to insurance price risk is measured as the risk retained premium for all insurance contracts based on the track record for one year up to reference date of calculation. The risk retained premium is measured by adding assumed risk reinsurance premium to direct risk premium and deducting ceded risk reinsurance premium. If the risk retained premium is less than zero, the exposure to insurance price risk is measured as zero.
Insurance risk of a life insurance company is mainly measured by insurance price risk. Policy reserve risk is managed by liability adequacy test because the life insurance claim payments are mainly in a fixed amount with less volatility and the period from insured event to claim payments is not long. Insurance price risk is managed through insurance risk management regulation established by the Risk Management Committee.
Maximum exposures to insurance price risk as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
Before reinsurance
mitigation
     
After reinsurance
mitigation
     
Before reinsurance
mitigation
     
After reinsurance
mitigation
  
    
(In millions of Korean won)
  
Death
    ￦ 14,977      ￦ 11,976      ￦ 16,025      ￦ 4,462  
Disability
      586        296        526        412  
Hospitalization
      1,124        730        1,040        399  
Operation and diagnosis
      5,088        1,110        5,927        4,929  
Actual medical expense
      1,194        262        1,310        1,200  
Others
      972        316        943        765  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 23,941      ￦ 14,690      ￦ 25,771      ￦ 12,167  
    
 
 
     
 
 
     
 
 
     
 
 
  
Average ratios of claims paid to risk premium received for the preceding three years based on exposure before risk mitigation as of December 31, 2021 and 2022, are 63.0%, and 63.1%, respectively.
 
F-207
Exposures to market risk arising from embedded derivatives included in host insurance contracts as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
Policyholders’
reserve *
     
Guarantee

reserve
     
Policyholders’

reserve *
     
Guarantee

reserve
  
    
(In millions of Korean won)
  
Variable annuity
    ￦ 611,283      ￦ 3,014      ￦ 626,542      ￦ 3,532  
Variable universal
      78,689        2,768        66,057        2,627  
Variable saving
      556,196        393        519,893        365  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 1,246,168      ￦ 6,175      ￦ 1,212,492      ￦ 6,524  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
*
Excludes the amount of the lapsed insurance reserve.
38.6.4 Assumptions used in measuring insurance liabilities
The Group continues to apply estimated ratio defined in the premium and policy reserve calculation manual, as prescribed by the Insurance Business Act and the Regulations on Supervision of Insurance Business when measuring insurance liabilities at every reporting period. However, in the case of variable interest type insurance, adjusted interest rate reflecting the external index interest rate according to Article 6-12 of the Regulations on Supervision of Insurance Business and disclosed interest rate reflecting the rate of return on managed assets stated in the premium and policy reserve calculation manual are used.
Reserve amount should be equal to or more than the standard reserve which is calculated using the standard interest rate and standard risk ratio as prescribed by the Enforcement Rules of the Insurance Business Act and the Regulations on Supervision of Insurance Business.
38.6.5 Maturity structure of premium reserve and unearned premium reserve as of December 31, 2021 and 2022, as follows:
 
   
December 31, 2021
  
   
Up to

3 years
    
3-5 years
     
5-10 years
     
10-15

years
     
15-20 years
     
Over

20 years
     
Total
  
   
(In millions of Korean won)
  
Premium reserve
   ￦ 651,638     ￦ 285,623      ￦ 578,102      ￦ 386,515      ￦ 545,270      ￦ 5,403,252      ￦ 7,850,400  
Unearned premium reserve
     156       —        24        —        —        5,763        5,943  
 
   
December 31, 2022
  
   
Up to

3 years
    
3-5 years
     
5-10 years
     
10-15

years
     
15-20 years
     
Over

20 years
     
Total
  
   
(In millions of Korean won)
  
Premium reserve
   ￦ 411,197     ￦ 243,863      ￦ 749,678      ￦ 336,597      ￦ 492,547      ￦ 5,200,432      ￦ 7,434,314  
Unearned premium reserve
     168       1        21        —        2        4,048        4,240  
38.6.6 Sensitivity analysis of insurance risk
The Group manages insurance risk by performing sensitivity analysis based on lapse ratio, claim ratio, expense ratio, discount rate, and others which are considered to have significant influence on future cash flow, timing, and uncertainty. Sensitivity analysis of insurance liabilities was conducted only in the unfavorable direction where additional insurance liabilities could be reserved as the surplus was sufficient as a result of the insurance liability adequacy test.
 
F-208
    
December 31, 2021
  
  
Assumption

change
    
Effect on
  
   
Base amount

of LAT
     
Insurance

liabilities
     
Profit

before tax
     
Equity
  
          
(In millions of Korean won)
  
Lapse ratio
      +10 %    ￦ 82,811      ￦ —      ￦ —      ￦ —  
Claim ratio
      +10 %      50,899        —        —        —  
Expense ratio
      +10 %      53,511        —        —        —  
Discount rate
      -0.5 %p      482,638        —        —        —  
 
    
December 31, 2022
  
  
Assumption

change
    
Effect on
  
   
Base amount

of LAT
     
Insurance

liabilities
     
Profit

before tax
     
Equity
  
          
(In millions of Korean won)
  
Lapse ratio
      +10 %    ￦ 121,800      ￦ —      ￦ —      ￦ —  
Claim ratio
      +10 %      60,023        —        —        —  
Expense ratio
      +10 %      49,380        —        —        —  
Discount rate
      -0.5 %p      417,625        —        —        —  
38.7 Risk Management of KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
38.7.1 Overview of insurance risk
Insurance risk is the risk that arises from a primary operation of insurance companies that is associated with underwriting of insurance contracts and payment of claims and refers to the possibility of losses that may occur because the risk at the time of claim payment is greater than the risk expected at the time of underwriting. Insurance risk can be divided into insurance price risk and policy reserve risk.
Insurance price risk is the possibility of loss due to the differences between actual payment of claims and premiums received from policyholders.
Policy reserve risk is possibility of loss due to the differences between policy reserve and actual claims to be paid in the future. Therefore, losses are recognized if actual claims are more than policy reserve.
Life insurance company measures mainly insurance price risk and manages policy reserve risk using liability adequacy test because life insurance claim payments are mainly in a fixed amount with less volatility and the period from insured event to claim payments is not long.
38.7.2 Insurance risk management
The Group considers insurance risk inherent in products from the time of product development and continues to measure and mitigate insurance risk in various ways after launch. Insurance risk related to death and illness are mitigated through reinsurance, and the Group selects an appropriate reinsurer based on credit risk and determines the appropriate level of insurance risk exposure for each reinsurer prior to entering into a contract with the reinsurer. The Group manages insurance risk through voluntary reinsurance for the amount in excess of the predetermined insurance risk retention limit.
In addition, the Group monitors the loss ratio, effect of selection, and others every quarter, measures risks through an internal model, and reports the results to the Risk Management Committee.
 
F-209
38.7.3 Exposure to insurance price risk
The exposure to insurance price risk is measured as the risk retained premium for all insurance contracts based on the track record for one year up to reference date of calculation. The risk retained premium is measured by adding assumed risk reinsurance premium to direct risk premium and deducting ceded risk reinsurance premium. If the risk retained premium is less than zero, the exposure to insurance price risk is measured as zero.
Maximum exposures to insurance price risk as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
     
December 31, 2022
  
    
Before reinsurance
mitigation
     
After reinsurance
mitigation
     
Before reinsurance
mitigation
     
After reinsurance
mitigation
  
    
(In millions of Korean won)
  
Death
    ￦ 253,325      ￦ 250,045      ￦ 273,801      ￦ 270,623  
Disability
      10,331        10,230        10,220        10,199  
Hospitalization
      34,194        34,194        35,067        35,067  
Operation and diagnosis
      81,429        79,850        84,937        83,261  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 379,279      ￦ 374,319      ￦ 404,025      ￦ 399,150  
    
 
 
     
 
 
     
 
 
     
 
 
  
38.7.4 Details of the ceded reinsurance premiums by credit rating of reinsurer for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
     
2022
  
    
Ceded reinsurance

premium
     
Proportion

(%)
     
Ceded reinsurance

premium
     
Proportion

(%)
  
    
(In millions of Korean won)
  
AA- or higher
    ￦ 5,223        100.00      ￦ 4,535        100.00  
A+ ~ A-
      —        —        —        —  
BBB+ or lower
      —        —        —        —  
Others
      —        —        —        —  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 5,223        100.00      ￦ 4,535        100.00  
    
 
 
     
 
 
     
 
 
     
 
 
  
38.7.5 Assumptions used in measuring insurance liabilities
The Group continues to apply estimated ratio defined in the premium and policy reserve calculation manual, as prescribed by the Insurance Business Act and the Regulations on Supervision of Insurance Business when measuring insurance liabilities at every reporting period. However, in the case of variable interest type insurance, adjusted interest rate reflecting the external index interest rate according to Article 6-12 of the Regulations on Supervision of Insurance Business and disclosed interest rate reflecting the rate of return on managed assets stated in the premium and policy reserve calculation manual are used.
Reserve amount should be equal to or more than the standard reserve which is calculated using the standard interest rate and standard risk ratio as prescribed by the Enforcement Rules of the Insurance Business Act and the Regulations on Supervision of Insurance Business.
38.7.6 Liquidity risk of insurance contracts
Liquidity risk arising from insurance contracts arises from the increase in refunds at maturity caused by concentrations of maturity, the excessive increase in surrender values caused by unexpected mass cancelation, and the increase in payments of claims caused by major accidents. The Group manages payment of refunds at maturity by analyzing remaining maturity of insurance contracts.
 
F-210
Maturity structure of premium reserve and unearned premium reserve as of December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
  
   
Up to

3 years
    
3-5 years
     
5-10 years
     
10-15 years
     
15-20 years
     
Over

20 years
     
Total
  
   
(In millions of Korean won)
  
Premium reserve
   ￦ 39,578     ￦ 40,894      ￦ 154,062      ￦ 237,021      ￦ 528,373      ￦ 13,122,197      ￦ 14,122,125  
Unearned premium
reserve
     31       15        50        51        65        4,092        4,304  
 
    
December 31, 2022
  
    
Up to

3 years
     
3-5 years
     
5-10 years
     
10-15 years
     
15-20 years
     
Over

20 years
     
Total
  
    
(In millions of Korean won)
  
Premium reserve
    ￦ 42,775      ￦ 40,755      ￦ 168,133      ￦ 265,998      ￦ 639,920      ￦ 13,909,732      ￦ 15,067,313  
Unearned premium
reserve
      30        13        46        41        56        3,636        3,822  
38.7.7 Sensitivity analysis of insurance risk
The Group manages insurance risk by performing sensitivity analysis based on lapse ratio, claim ratio, expense ratio, discount rate, and others which are considered to have significant influence on future cash flow, timing, and uncertainty. Sensitivity analysis of insurance liabilities was conducted only in the unfavorable direction where additional insurance liabilities could be reserved as the surplus was sufficient as a result of the insurance liability adequacy test.
 
    
December 31, 2021
  
  
Assumption

change
    
Effect on
  
   
Base amount

of LAT
     
Insurance

liabilities
     
Profit

before tax
     
Equity
  
          
(In millions of Korean won)
  
Lapse ratio
      +10 %    ￦ 114,427      ￦ —      ￦ —      ￦ —  
Claim ratio
      +10 %      571,446        —        —        —  
Expense ratio
      +10 %      157,924        —        —        —  
Discount rate
      -0.5 %p      1,563,571        —        —        —  
 
    
December 31, 2022
  
  
Assumption

change
    
Effect on
  
   
Base amount

of LAT
     
Insurance

liabilities
     
Profit

before tax
     
Equity
  
          
(In millions of Korean won)
  
Lapse ratio
      +10 %    ￦ 212,126      ￦ —      ￦ —      ￦ —  
Claim ratio
      +10 %      468,779        —        —        —  
Expense ratio
      +10 %      125,063        —        —        —  
Discount rate
      -0.5 %p      1,106,606        —        —        —  
38.8 Application of the Overlay Approach
Upon initial application of IFRS No.9, the Group applied the overlay approach in accordance with IFRS No.4.
 
F-211
Table of Contents
38.8.1 Details of financial assets subject to the overlay approach as of December 31, 2021 and 2022, are as follows:
 
    
December 31,


2021
     
December 31,


2022
  
    
(In millions of Korean won)
  
Financial assets at fair value through profit or loss:
                  
Due from financial institutions
    ￦ 80,179      ￦ 69,469  
Debt securities
      8,023,999        8,806,018  
Equity securities
      239,426        60,611  
    
 
 
     
 
 
  
     ￦ 8,343,604      ￦ 8,936,098  
    
 
 
     
 
 
  
38.8.2 Changes in net gains on overlay adjustment for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
    
2022
  
    
(In millions of Korean won)
  
Beginning
    ￦ 339,202     ￦ 459,484  
Recognition of other comprehensive income due to acquisition and valuation
      185,906       (381,037 ) 
Reclassification to profit or loss due to disposal
      (65,624 )      (59,092 ) 
    
 
 
    
 
 
  
Ending
    ￦ 459,484     ￦ 19,355  
    
 
 
    
 
 
  
39. Statement of Cash Flows
39.1 Details of cash and cash equivalents as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
    
December 31,

2022
  
    
(In millions of Korean won)
  
Cash
    ￦ 2,496,941     ￦ 2,439,490  
Checks issued by other banks
      150,047       123,163  
Due from the Bank of Korea
      17,579,643       17,520,636  
Due from other financial institutions
      10,782,743       11,980,132  
    
 
 
    
 
 
  
       31,009,374       32,063,421  
    
 
 
    
 
 
  
Due from financial institutions measured at fair value through profit or loss
      200,743       69,469  
    
 
 
    
 
 
  
       31,210,117       32,132,890  
    
 
 
    
 
 
  
Deduction:
                 
Restricted due from financial institutions*
      (4,589,893 )      (4,809,759 ) 
Due from financial institutions with original maturities over three months
      (1,346,951 )      (1,160,607 ) 
    
 
 
    
 
 
  
       (5,936,844 )      (5,970,366 ) 
    
 
 
    
 
 
  
     ￦ 25,273,273     ￦ 26,162,524  
    
 
 
    
 
 
  
 
 
*
Items meeting the definition of cash are excluded in accordance with IAS No.7 Statement of Cash Flows. Detailed information on the effects of this change in accounting policy is described in Note 2.1 Application of IFRS.
 
F-212
Table of Contents
Items meeting the definition of cash among due from financial institutions with restriction to use as of December 31, 2021 and 2022, are as follows:
 
   
Financial institutions
   
December 31,

2021
     
December 31,

2022
  
            
(In millions of Korean won)
  
Due from financial institutions in Korean won
  
Due from the Bank of Korea
   The Bank of Korea    ￦ 15,117,033      ￦ 15,169,703  
 
Due from others
  
Korea Development Bank and others
      37,914        39,358  
Due from financial institutions in foreign currencies
  
Due from banks in foreign currencies
  
Bank Indonesia and others
      1,009,866        1,218,847  
            
 
 
     
 
 
  
             ￦ 16,164,813      ￦ 16,427,908  
            
 
 
     
 
 
  
39.2 Significant non-cash transactions for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
    
2021
     
2022
  
    
(In millions of Korean won)
  
Write-offs of loans
    ￦ 1,283,071     ￦ 1,086,296      ￦ 1,486,357  
Changes in financial investments due to debt-for-equity swap
      13,820       327        —  
Changes in accumulated other comprehensive income from valuation of financial instruments at fair value through other comprehensive income
      496,159       507,175        (2,522,854 ) 
Changes in accumulated other comprehensive income from valuation of investments in associates
      (6,978 )      165        (64 ) 
Reclassification to assets of a disposal group held for sale
      —       171,749        —  
39.3 Cash inflows and outflows from income tax, interest, and dividends for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
Activities
     
2020
     
2021
     
2022
  
    
(In millions of Korean won)
  
Income tax paid
      Operating      ￦ 1,119,252      ￦ 1,586,750      ￦ 1,524,025  
Interest received
      Operating        14,986,532        15,152,796        20,509,411  
Interest paid
      Operating        5,266,158        4,062,469        6,356,211  
Dividends received
      Operating        187,699        290,089        388,030  
Dividends paid
      Financing        883,952        1,053,416        1,564,153  
 
F-213
39.4 Changes in liabilities arising from financing activities for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
  
               
Non-cash changes
        
   
Beginning
    
Net cash

flows
    
Acquisition
(disposal)
    
Exchange
differences
    
Changes in

fair value
    
Subsidiaries
    
Others
    
Ending
  
   
(In millions of Korean won)
  
Derivatives held for hedging *
   ￦ (57,196 )    ￦ 5,870     ￦ —     ￦ 246,352     ￦ (70,225 )    ￦ —     ￦ (150,084 )    ￦ (25,283 ) 
Borrowings and debentures
     112,587,843       11,579,036       —       630,913       (115,440 )      (329,512 )      (10,278 )      124,342,562  
Due to trust accounts
     7,542,955       (509,106 )      —       —       —       —       —       7,033,849  
Non-controlling interests
     857,783       (24,145 )      —       —       —       1,994       (2,294 )      833,338  
Others
     1,019,075       (319,074 )      166,336       119       —       —       119,398       985,854  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 121,950,460     ￦ 10,732,581     ￦ 166,336     ￦ 877,384     ￦ (185,665 )    ￦ (327,518 )    ￦ (43,258 )    ￦ 133,170,320  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
   
   
2022
  
               
Non-cash changes
        
   
Beginning
    
Net cash

flows
    
Acquisition
(disposal)
    
Exchange
differences
    
Changes in

fair value
    
Subsidiaries
    
Others
    
Ending
  
   
(In millions of Korean won)
  
Derivatives held for hedging *
   ￦ (25,283 )    ￦ 33,402     ￦ —     ￦ 153,646     ￦ 8,730     ￦ —     ￦ (180,415 )    ￦ (9,920 ) 
Borrowings and debentures
     124,342,562       15,645,750       —       895,758       (297,468 )      81,268       (252,302 )      140,415,568  
Due to trust accounts
     7,033,849       (1,225,402 )      —       —       —       —       —       5,808,447  
Non-controlling interests
     833,338       395,713       —       —       —       752       50,300       1,280,103  
Others
     985,854       436,903       154,004       199       —       —       118,863       1,695,823  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
    ￦ 133,170,320     ￦ 15,286,366     ￦ 154,004     ￦ 1,049,603     ￦ (288,738 )    ￦ 82,020     ￦ (263,554 )    ￦ 149,190,021  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
*
Derivatives held for hedging purposes are the net amount after offsetting liabilities and assets.
39.5 The net cash flow associated with the changes in the subsidiaries for the years ended December 31, 2021 and 2022 are
￦
 374,992 million of cash outflow and
￦
 932,428 million of cash inflow, respectively.
 
F-214
40. Contingent Liabilities and Commitments
40.1 Details of acceptances and guarantees as of December 31, 2021 and 2022, are as follows:
 
    
December 31,
2021
     
December 31,
2022
  
    
(In millions of Korean won)
  
Confirmed acceptances and guarantees
                  
Confirmed acceptances and guarantees in Korean won:
                  
Acceptances and guarantees for KB purchasing loan
    ￦ 136,914      ￦ 167,538  
Others
      817,470        918,670  
    
 
 
     
 
 
  
       954,384        1,086,208  
    
 
 
     
 
 
  
Confirmed acceptances and guarantees in foreign currencies:
                  
Acceptances of letter of credit
      523,037        502,217  
Letter of guarantees
      83,089        78,414  
Bid bond
      18,874        19,998  
Performance bond
      855,247        976,008  
Refund guarantees
      874,173        1,705,796  
Others
      2,505,353        3,485,842  
    
 
 
     
 
 
  
       4,859,773        6,768,275  
    
 
 
     
 
 
  
Financial guarantee contracts:
                  
Acceptances and guarantees for issuance of debentures
      5,040        5,040  
Acceptances and guarantees for mortgage
      51,053        94,861  
Overseas debt guarantees
      428,109        509,157  
International financing guarantees in foreign currencies
      132,114        181,241  
Others
      50,950        —    
    
 
 
     
 
 
  
       667,266        790,299  
    
 
 
     
 
 
  
       6,481,423        8,644,782  
    
 
 
     
 
 
  
Unconfirmed acceptances and guarantees
                  
Guarantees of letter of credit
      3,551,767        3,042,911  
Refund guarantees
      833,765        1,528,359  
    
 
 
     
 
 
  
       4,385,532        4,571,270  
    
 
 
     
 
 
  
     ￦ 10,866,955      ￦ 13,216,052  
    
 
 
     
 
 
  
 
F-215
40.2 Credit qualities of acceptances and guarantees as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
12-month
expected credit
losses
     
Lifetime expected credit
losses
     
Total
  
    
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Confirmed acceptances and guarantees
 
         
Grade 1
    ￦ 4,532,747      ￦ 838      ￦ —      ￦ 4,533,585  
Grade 2
      1,594,714        32,567        —        1,627,281  
Grade 3
      105,691        46,174        —        151,865  
Grade 4
      7,722        149,785        214        157,721  
Grade 5
      —        774        10,197        10,971  
    
 
 
     
 
 
     
 
 
     
 
 
  
       6,240,874        230,138        10,411        6,481,423  
    
 
 
     
 
 
     
 
 
     
 
 
  
Unconfirmed acceptances and guarantees
 
         
Grade 1
      3,083,636        3,391        —        3,087,027  
Grade 2
      998,204        39,224        —        1,037,428  
Grade 3
      12,039        34,797        —        46,836  
Grade 4
      11,925        195,794        —        207,719  
Grade 5
      —        138        6,384        6,522  
    
 
 
     
 
 
     
 
 
     
 
 
  
       4,105,804        273,344        6,384        4,385,532  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 10,346,678      ￦ 503,482      ￦ 16,795      ￦ 10,866,955  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
December 31, 2022
  
    
12-month
expected credit
losses
     
Lifetime expected credit
losses
     
Total
  
    
Non-impaired
     
Impaired
  
    
(In millions of Korean won)
  
Confirmed acceptances and guarantees
 
         
Grade 1
    ￦ 5,939,025      ￦ 1,140      ￦ —      ￦ 5,940,165  
Grade 2
      1,882,080        10,474        —        1,892,554  
Grade 3
      494,924        18,649        —        513,573  
Grade 4
      63,689        215,382        442        279,513  
Grade 5
      —        4,130        14,847        18,977  
    
 
 
     
 
 
     
 
 
     
 
 
  
       8,379,718        249,775        15,289        8,644,782  
    
 
 
     
 
 
     
 
 
     
 
 
  
Unconfirmed acceptances and guarantees
 
         
Grade 1
      3,232,325        844        —        3,233,169  
Grade 2
      1,040,908        36,879        —        1,077,787  
Grade 3
      4,685        13,308        —        17,993  
Grade 4
      1,265        236,687        5        237,957  
Grade 5
      —        199        4,165        4,364  
    
 
 
     
 
 
     
 
 
     
 
 
  
       4,279,183        287,917        4,170        4,571,270  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 12,658,901      ￦ 537,692      ￦ 19,459      ￦ 13,216,052  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-216
40.3 Classifications of acceptances and guarantees by counterparty as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Confirmed
guarantees
     
Unconfirmed
guarantees
     
Total
     
Proportion
(%)
  
    
(In millions of Korean won)
  
Large companies
    ￦ 5,431,921      ￦ 3,377,150      ￦ 8,809,071        81.06  
Small and medium-sized companies
      820,327        657,073        1,477,400        13.60  
Public sector and others
      229,175        351,309        580,484        5.34  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 6,481,423      ￦ 4,385,532      ￦ 10,866,955        100.00  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
December 31, 2022
  
    
Confirmed
guarantees
     
Unconfirmed
guarantees
     
Total
     
Proportion
(%)
  
    
 
(In millions of Korean won)
 
Large companies
    ￦ 7,530,546      ￦ 3,810,565      ￦ 11,341,111        85.81  
Small and medium-sized companies
      718,722        496,709        1,215,431        9.20  
Public sector and others
      395,514        263,996        659,510        4.99  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 8,644,782      ￦ 4,571,270      ￦ 13,216,052        100.00  
    
 
 
     
 
 
     
 
 
     
 
 
  
40.4 Classifications of acceptances and guarantees by industry as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Confirmed
guarantees
     
Unconfirmed
guarantees
     
Total
     
Proportion
(%)
  
    
(In millions of Korean won)
  
Financial institutions
    ￦ 385,761      ￦ 10,114      ￦ 395,875        3.64  
Manufacturing
      2,742,224        2,979,232        5,721,456        52.65  
Service
      676,440        38,920        715,360        6.58  
Wholesale and retail
      1,603,085        999,416        2,602,501        23.95  
Construction
      317,946        38,260        356,206        3.28  
Public sector
      28,257        99,841        128,098        1.18  
Others
      727,710        219,749        947,459        8.72  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 6,481,423      ￦ 4,385,532      ￦ 10,866,955        100.00  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
December 31, 2022
  
    
Confirmed
guarantees
     
Unconfirmed
guarantees
     
Total
     
Proportion
(%)
  
    
(In millions of Korean won)
  
Financial institutions
    ￦ 462,657      ￦ 2,012      ￦ 464,669        3.52  
Manufacturing
      3,851,832        3,589,948        7,441,780        56.31  
Service
      751,846        31,465        783,311        5.93  
Wholesale and retail
      2,181,469        658,875        2,840,344        21.49  
Construction
      420,937        47,465        468,402        3.54  
Public sector
      32,635        81,607        114,242        0.86  
Others
      943,406        159,898        1,103,304        8.35  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 8,644,782      ￦ 4,571,270      ￦ 13,216,052        100.00  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-217
40.5 Details of commitments as of December 31, 2021 and 2022, are as follows:
 
    
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Commitments
                  
Corporate loan commitments
    ￦ 45,767,502      ￦ 51,743,718  
Retail loan commitments
      47,080,416        51,241,471  
Credit line of credit cards
      70,534,719        77,825,953  
Purchase of other securities
      6,835,506        7,357,198  
    
 
 
     
 
 
  
       170,218,143        188,168,340  
    
 
 
     
 
 
  
Financial guarantee contracts
                  
Credit line
      5,729,798        7,135,542  
Purchase of securities
      495,400        371,201  
    
 
 
     
 
 
  
       6,225,198        7,506,743  
    
 
 
     
 
 
  
     ￦ 176,443,341      ￦ 195,675,083  
    
 
 
     
 
 
  
40.6 Other Matters (including litigation)
a) The Group has 292 pending lawsuits as a plaintiff (excluding simple lawsuits related to the collection or management of loans), with aggregate claims amount of ￦1,442,572 million, and 280 pending lawsuits as a defendant (excluding simple lawsuits related to the collection or management of loans) with aggregate claims amount of ￦977,848 million, which arose in the normal course of the business, as of December 31, 2022. Details of major pending lawsuits in which the Group is a defendant are as follows:
(In number of cases, in millions of Korean won)
 
Company
  
Lawsuits
  
No. of
cases
    
Amount
     
Description of the lawsuits
  
Status of the lawsuits
Kookmin Bank   Request for a return of redemption amount     1     ￦ 53,239     
Kookmin Bank invested the assets entrusted by OO Asset Management and OO Investment Trust Management in the Fairfield Sentry Limited, and Fairfield Sentry Limited reinvested the assets in Bernard L. Madoff Investment Securities LLC managed by Bernard Madoff (Bernard L. Madoff Investment Securities LLC is in the liquidation process due to Ponzi scheme fraud-related losses).
Bankruptcy trustee of Bernard L. Madoff Investment Securities LLC filed a lawsuit against Kookmin Bank seeking to return the amount of redemptions received by Kookmin Bank through Fairfield Sentry Limited.
   Application for dismissal by the defendant has been denied, and further proceedings are scheduled. [Related litigation is in progress at the New York Southern District Federal Bankruptcy Court (10-3777) at the written complaint review stage]
 
F-218
Company
  
Lawsuits
  
No. of
cases
    
Amount
     
Description of the lawsuits
  
Status of the lawsuits
    Confirm the absence of debt     1       96,200      Galamat-Art LLP is a joint guarantor of the PF loan for the ‘Kazakhstan Almaty City Complex Development Project’ in which Kookmin Bank Co., Ltd. participated as a lender. OO Bank, the agent bank of the lending group, filed a provisional seizure and a lawsuit on the merits of the guarantee debt to the local court against Galamat-Art LLP. And Galamat-Art LLP filed a counterclaim against the lenders, including Kookmin Bank, to confirm the absence of debt denying the joint guarantee obligation.   Kookmin Bank won the case in the first and second trials, but the second trial is scheduled to be re-run as the registered shareholders of the Plaintiff filed an objection.
    Expropriation of long-term leasehold rights     1       316,825     
Kookmin Bank invested assets entrusted by DAOL Asset Management Co., Ltd. in loans that are directly or indirectly collateralized by the building and land leasehold rights (hereinafter referred to as “the real estate in this case”) of Union Station in Washington, D.C., the United States.
The Plaintiff, who is the operator of the railway facility, filed this lawsuit against those concerned with the real estate in this case, including Kookmin Bank, to expropriate the real estate in this case and determine indemnity.
 		  Kookmin Bank submitted the response letter and will proceed with the process in the future.
KB Securities Co., Ltd.   Request for a return of transaction amount (Australian fund)     1       37,468     
The plaintiffs OOOO Securities and OOOO Life Insurance filed lawsuits, claiming that the KB Securities Co., Ltd. provided false information on major matters in the product description while selling JB Australia NDIS Private Fund No.1 (on April 25, 2019, plaintiffs invested ￦50 billion each) (a) (Primary claim) requesting KB Securities Co., Ltd. to return unjust enrichment of ￦100 billion for cancelation of sales contracts of beneficiary certificates due to an error or termination of the contract due to default, (b) (Secondary claim) requesting for compensation for damages in investments amounting to ￦100 billion due to violation of the investor protection obligation and fraudulent transactions of KB Securities Co., Ltd. and OOO Asset Management.
The Plaintiff’s complaint price was changed to ￦37.47 billion due to the Plaintiff’s request to change the purpose and cause of the claim on October 11, 2022.
 		  First trial is in progress (the pleading resumption has been decided on February 6, 2023, and the 9th pleading is scheduled on April 11, 2023.).
 
F-219
b)
 
In June 2013, KB Kookmin Card Co., Ltd. had an accident in which cardholders’ personal information was stolen (hereinafter referred to as “accident”) due to illegal activities by employees of personal credit information company in charge of development of the system upgrading to prevent fraudulent use of credit card. As a result, KB Kookmin Card Co., Ltd. was notified by the Financial Services Commission of the suspension of some new business for 3 months as of February 16, 2014. In respect of the accident, the Group faces 1 and 2 legal claims filed as a defendant, with an aggregate claim amount of ￦108 million and ￦51 million as of December 31, 2021 and December 31, 2022, respectively. The Group takes out the personal information protection liability insurance as of December 31, 2022.
c) As of December 31, 2022, KB KOLAO Leasing Co., Ltd. is selling LVMC Holdings (formerly Kolao Holdings) allied receivables that are overdue by three months or more to Lanexang Leasing Co., Ltd. in accordance with the agreement.
d) As of December 31, 2022, KB Capital Co., Ltd. and PT Sunindo Primasura are required to hold the shares of PT Sunindo Kookmin Best Finance for five years after May 18, 2020, when the purchase of shares was completed. If one party is going to sell all or part of the shares, provide them as collateral, trade or dispose of them, it should give the opportunity to exercise preemption to the other party by providing written proposal including transfer price, payment method, and others.
e) KB Securities Co., Ltd., as an investment broker, managed the sale of private equity funds and trusts amounting to ￦326,500 million, which lends to corporations (borrowers) that invest in apartment rental businesses for the disabled in Australia, to individuals and institutional investors. However, management of the fund has been suspended due to the breach of contract by local borrowers in Australia; therefore there is a possibility of losses of principal to these funds subscribers. In this regard, there are three lawsuits in which the Group is a defendant as of December 31, 2022. One of the cases was ruled, on February 7, 2023, ordering the payment of ￦29.8 billion in principal and delayed interest on it; however, the judgment may be changed at the higher court. And the other two cases are still in the first trial. KB Securities Co., Ltd. determined the results of the first trial on February 7, 2023 as an event after the reporting period requiring adjustment, and additionally reflected to the litigation provision in the financial statements as of December 31, 2022. Meanwhile, KB Securities Co., Ltd. filed a requisite for reimbursement lawsuit against JB Asset Management, a fund management company, in this regard, and is currently in the first trial.
f) In relation to Lime Asset Management, KB Securities Co., Ltd. has a PIS (Portfolio Index Swap) contract, as of December 31, 2022, associated with ‘Lime Thetis Qualified Investor Private Investment Trust No.2’ and ‘Lime Pluto FI Qualified Investor Private Investment Trust No.D-1’ whose redemption were suspended during the fourth quarter of 2019. The notional amount of the underlying assets of the PIS contract is ￦163,100 million. Meanwhile, the Group sold ￦68,100 million of feeder funds of aforementioned redemption-suspended funds. On October 20, 2020, Lime Asset Management’s license as a fund manager was revoked by the Financial Supervisory Service’s sanctions review committee, and most of its redemption-suspended funds and normal funds have been transferred to Wellbridge Asset Management (the bridge management company) to continue to collect and distribute investments. It is difficult to predict whether and when the aforementioned redemption-suspended funds will be redeemed. In this regard, KB Securities Co., Ltd. faces four claims filed as a defendant as of December 31, 2022. The Group has accounted for the estimated loss due to the possibility of additional lawsuits in the future as a provision for litigations.
 
F-220
Table of Contents
41. Subsidiaries
41.1 Details of major consolidated subsidiaries as of December 31, 2022, are as follows:
 
Investor
  
Investee
  
Ownership
(%)
    
Location
  
Date of
financial
statements
  
Industry
KB Financial Group Inc.   Kookmin Bank     100.00     Korea  
Dec. 31
   Banking and foreign exchange transaction
  KB Securities Co., Ltd.     100.00     Korea  
Dec. 31
   Financial investment
  KB Insurance Co., Ltd.     100.00     Korea  
Dec. 31
   Non-life insurance
  KB Kookmin Card Co., Ltd.     100.00     Korea  
Dec. 31
   Credit card and installment financing
  KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)     100.00     Korea  
Dec. 31
   Life insurance
  KB Asset Management Co., Ltd.     100.00     Korea  
Dec. 31
   Collective investment and advisory
  KB Capital Co., Ltd.     100.00     Korea  
Dec. 31
   Financial Leasing
  KB Life Insurance Co., Ltd.     100.00     Korea  
Dec. 31
   Life insurance
  KB Real Estate Trust Co., Ltd.     100.00     Korea  
Dec. 31
   Real estate trust management
  KB Savings Bank Co., Ltd.     100.00     Korea  
Dec. 31
   Savings banking
  KB Investment Co., Ltd.     100.00     Korea  
Dec. 31
   Capital investment
  KB Data System Co., Ltd.     100.00     Korea  
Dec. 31
   Software advisory, development, and supply
  KB Credit Information Co., Ltd.     100.00     Korea  
Dec. 31
   Collection of receivables or credit investigation
Kookmin Bank   Kookmin Bank Cambodia Plc.     100.00     Cambodia  
Dec. 31
   Banking and foreign exchange transaction
  Kookmin Bank (China) Ltd.     100.00     China  
Dec. 31
   Banking and foreign exchange transaction
  KB Microfinance Myanmar Co., Ltd.     100.00     Myanmar  
Dec. 31
   Microfinance services
  PRASAC Microfinance Institution Plc.     100.00     Cambodia  
Dec. 31
   Microfinance services
  PT Bank KB Bukopin Tbk     67.00     Indonesia  
Dec. 31
   Banking and foreign exchange transaction
Kookmin Bank   PT Bank Syariah Bukopin     92.78     Indonesia  
Dec. 31
   Banking
  PT Bukopin Finance     97.03     Indonesia  
Dec. 31
   Installment financing
  KB Bank Myanmar Co., Ltd.     100.00     Myanmar  
Dec. 31
   Banking and foreign exchange transaction
KB Securities Co., Ltd.   KBFG Securities America Inc.     100.00     United States  
Dec. 31
   Investment advisory and securities trading
  KB Securities Hong Kong Ltd.     100.00     China  
Dec. 31
   Investment advisory and securities trading
  KB Securities Vietnam Joint Stock Company     99.81     Vietnam  
Dec. 31
   Investment advisory and securities trading
  KB FINA Joint Stock Company     77.82     Vietnam  
Dec. 31
   Investment advisory and securities trading
  PT KB VALBURY SEKURITAS     65.00     Indonesia  
Dec. 31
   Investment advisory and securities trading
  PT.KB Valbury Capital Management     79.00     Indonesia  
Dec. 31
   Financial investment
KB Insurance Co., Ltd.   Leading Insurance Services, Inc.     100.00     United States  
Dec. 31
   Management service
  KBFG Insurance (China) Co., Ltd.     100.00     China  
Dec. 31
   Non-life insurance
  PT. KB Insurance Indonesia     70.00     Indonesia  
Dec. 31
   Non-life insurance
  KB Claims Survey & Adjusting     100.00     Korea  
Dec. 31
   Claim service
  KB Sonbo CNS     100.00     Korea  
Dec. 31
   Management service
  KB Golden Life Care Co., Ltd.     100.00     Korea  
Dec. 31
   Service
  KB Healthcare Co., Ltd.     100.00     Korea  
Dec. 31
   Information and communication
 
F-221
Investor
 
Investee
 
Ownership
(%)
 
 
Location
 
Date of
financial
statements
 
Industry
KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
   KB Life Partners Co., Ltd.     100.00     Korea  
Dec. 31
   Insurance agent
KB Kookmin Card Co., Ltd.
   KB Daehan Specialized Bank Plc.     95.71     Cambodia  
Dec. 31
   Auto Installment finance
  PT. KB Finansia Multi Finance     80.00     Indonesia  
Dec. 31
   Auto Installment finance
  KB J Capital Co., Ltd.     50.99     Thailand  
Dec. 31
   Service
  i-Finance Leasing Plc.     100.00     Cambodia  
Dec. 31
   Leasing
KB Capital Co., Ltd.
   PT Sunindo Kookmin Best Finance     85.00     Indonesia  
Dec. 31
   Auto Installment finance
KB Kookmin Card Co., Ltd. KB Capital Co., Ltd.
   KB KOLAO Leasing Co., Ltd.     80.00     Laos  
Dec. 31
   Auto Installment finance
Kookmin Bank, KB Data System Co., Ltd.
   PT KB Data Systems Indonesia     100.00     Indonesia  
Dec. 31
   Service
KB Asset Management Co., Ltd.
   KBAM Shanghai Advisory Services Co., Ltd.     100.00     China  
Dec. 31
   General advisory
  KB Asset Management Singapore PTE. LTD.     100.00     Singapore  
Dec. 31
   Collective investment
41.2 Details of consolidated structured entities as of December 31, 2022, are as follows:
 
    
Consolidated structured entities
   
Reasons for consolidation
Trusts
    Kookmin Bank (development trust) and 10 others    The Group controls the trust because it has power to determine management performance of the trust and is significantly exposed to variable returns that absorb losses through the guarantees of payment of principal, or payment of principal and fixed rate of return.
Asset-backed securitization
    Taejon Samho The First Co., Ltd. and 119 others    The Group controls these investees because it has power over relevant activities in the event of default, is significantly exposed to variable returns by providing lines of credit, ABCP purchase commitments or acquisition of subordinated debt and has ability to affect those returns through its power.
 
F-222
    
Consolidated structured entities
   
Reasons for consolidation
Investment funds and others
    KB Global Platform Fund and 204 others    Funds are consolidated if the Group, as a collective investor or operating manager (member), etc., can manage fund assets on behalf of other investors, or dismiss the collective investor and operating manager, and is substantially exposed to significant variable returns or has such rights.
If the Group holds more than half of the ownership interests but does not have the power over relevant activities of structured entities in accordance with agreements with trust and other related parties, those structured entities are excluded from the consolidation.
41.3 Condensed financial information of major subsidiaries as of and for the years ended December 31, 2021 and 2022, are as follows:
 
   
December 31, 2021
    
2021
  
   
Assets
    
Liabilities
    
Equity
    
Operating
revenue
3
    
Profit (loss)
attributable to
shareholders
of the Parent
Company
    
Total
compre-hensive

income (loss)
attributable to
shareholders of
the Parent
Company
  
   
(In millions of Korean won)
  
Kookmin Bank
1
   ￦ 483,564,898     ￦ 450,675,985     ￦ 32,888,913     ￦ 26,536,995     ￦ 2,590,764     ￦ 3,265,921  
KB Securities Co., Ltd.
1,2
     55,493,985       50,008,422       5,485,563       8,543,590       594,301       628,112  
KB Insurance Co., Ltd.
1,2
     41,472,227       37,328,954       4,143,273       14,131,278       301,836       107,240  
KB Kookmin Card Co., Ltd.
1
     27,349,561       22,793,920       4,555,641       3,527,354       418,898       442,873  
KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
2
     26,287,116       23,992,601       2,294,515       1,976,122       336,198       54,587  
KB Asset Management Co.,
Ltd.
1
     375,739       128,589       247,150       254,162       79,899       79,071  
KB Capital Co., Ltd.
1,2
     14,529,427       12,707,210       1,822,217       1,634,759       209,899       209,719  
KB Life Insurance Co., Ltd.
     10,634,562       10,174,282       460,280       2,259,301       (46,595 )      (121,847 ) 
KB Real Estate Trust Co., Ltd.
     496,522       119,700       376,822       168,373       81,480       82,299  
KB Savings Bank Co., Ltd.
     2,601,134       2,339,037       262,097       150,028       18,932       22,526  
KB Investment Co., Ltd.
1
     1,197,720       922,239       275,481       207,367       55,338       55,340  
KB Data System Co., Ltd.
1
     44,486       25,911       18,575       174,819       467       1,105  
KB Credit Information Co., Ltd.
     28,674       12,303       16,371       39,909       388       434  
 
F-223
   
December 31, 2022
    
2022
  
   
Assets
    
Liabilities
    
Equity
    
Operating
revenue
3
    
Profit (loss)
attributable to
shareholders
of the Parent
Company
    
Total
compre-hensive

income (loss)
attributable to
shareholders of
the Parent
Company
  
   
(In millions of Korean won)
  
Kookmin Bank
1
   ￦ 517,769,512     ￦ 484,046,253     ￦ 33,723,259     ￦ 49,436,046     ￦ 2,996,015     ￦ 1,856,632  
KB Securities Co., Ltd.
1,2
     53,824,246       47,946,933       5,877,313       14,264,399       187,784       263,605  
KB Insurance Co., Ltd.
1,2
     42,736,747       39,397,167       3,339,580       14,959,264       557,680       (820,382 ) 
KB Kookmin Card Co., Ltd.
1
     29,721,017       24,998,215       4,722,802       3,694,352       378,592       412,208  
KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.)
1,2
     24,710,078       23,047,601       1,662,477       2,255,418       250,308       (532,038 ) 
KB Asset Management Co.,
Ltd.
1
     369,488       102,970       266,518       233,293       59,345       59,367  
KB Capital Co., Ltd.
1,2
     16,053,026       13,946,800       2,106,226       1,906,694       217,139       209,808  
KB Life Insurance Co., Ltd.
     10,136,909       10,050,292       86,617       2,907,001       (64,045 )      (422,048 ) 
KB Real Estate Trust Co., Ltd.
     518,980       113,444       405,536       152,686       67,723       68,714  
KB Savings Bank Co., Ltd.
     3,138,543       2,854,549       283,994       191,337       21,814       21,897  
KB Investment Co., Ltd.
1
     1,378,550       1,108,264       270,286       161,210       4,807       4,805  
KB Data System Co., Ltd.
1
     63,645       40,570       23,075       233,320       3,162       4,546  
KB Credit Information Co., Ltd.
     42,219       24,923       17,296       36,469       484       924  
 
1
Financial information is based on its consolidated financial statements.
2
Includes fair value adjustments arising from the acquisition.
3
 
Operating revenue consists of interest income, fee and commission income, insurance income and others.
41.4 The Characteristics of Risks Associated with Consolidated Structured Entities
The terms of contractual arrangements to provide financial support to consolidated structured entities are as follows:
41.4.1 The Group has provided payment guarantees of ￦4,458,840 million to K plus 1st L.L.C and other consolidated structured entities.
41.4.2 The Group has provided capital commitment to 51 consolidated structured entities including KB Sinansan Line Private Special Asset Fund (SOC). The unexecuted amount of the capital commitment is ￦1,822,517 million. Based on the capital commitment, the Group is subject to increase its investment upon the request of the asset management company or the additional agreement among investors.
41.4.3 The Group has provided the guarantees of payment of principal, or principal and fixed rate of return in case the operating results of the trusts are less than the guaranteed principal, or principal and fixed rate of return.
 
F-224
41.5 Changes in Subsidiaries
41.5.1 Subsidiaries newly included in consolidation for the year ended December 31, 2022, are as follows:
 
Company
        
Reasons of obtaining control
PT.KB VALBURY SEKURITAS and 30 others
        
Holds more than half of the ownership interests
New star Gimpo 4th Co., Ltd. and 55 others
        
Holds the power in the event of default and is exposed to significant variable returns by providing lines of credit, ABCP purchase commitments or acquisition of subordinated debt
KB Korea Short Term Premium Private Securities Fund No.25(USD)(Bond) and 34 others
        
Holds the power to determine the operation of the funds and is exposed to variable returns by holding significant amount of ownership interests
KB Tail End Fund and 11 others
        
Holds the power as a general partner and is exposed to variable returns by holding significant amount of ownership interests
41.5.2 Subsidiaries excluded from consolidation for the year ended December 31, 2022, are as follows:
 
Company
        
Reasons of losing control
Able Pocheon 1st Co., Ltd. and 60 others
        
Termination of the commitments
KB Pre IPO Secondary Venture Fund No.2 and 21 others
        
Liquidation
498 Seventh KOR Holdco LP and 3 other
        
Disposal
KB Global Digital-Chain Economy Securities Fund(Equity) and 9 others
        
Decrease in ownership interests to less than majority
 
F-225
Table of Contents
42. Unconsolidated Structured Entities
42.1 Nature, purpose, and activities of the unconsolidated structured entities and how the structured entities are financed, are as follows:
 
Nature
  
Purpose
  
Activity
  
Method of financing
Structured financing
  
Granting PF loans to SOC and real estate
Granting loans to ships/aircrafts SPC
  
Construction of SOC and real estate
Building ships, construction and purchase of aircrafts
  
 Loan commitments through credit line, providing credit line, and investment agreements
Investment funds
  
Investment in beneficiary certificates
Investment in PEF and partnerships
  
Management of fund assets
Payment of fund fees and allocation of fund profits
  
Sales of beneficiary certificate instruments
Investment from general partners and limited partners
Trusts
  
Management of financial trusts;
—Development trust
—General unspecified money trust
— Trust whose principal is not guaranteed
—Other trusts
  
Management of trusted financial assets
Payment of trust fees and allocation of trust profits.
  
 Sales of trusted financial assets
Asset-backed securitization
  
Early cash generation through transfer of securitized assets
Fees earned through services to SPC, such as providing lines of credit and ABCP purchase commitments
  
Fulfillment of asset-backed securitization plan
Purchase and collection of securitized assets
Issuance and repayment of ABS and ABCP
  
 Issuance of ABS and ABCP based on securitized assets
 
F-226
42.2 Details of scale of unconsolidated structured entities and nature of the risks associated with the Group’s interests in unconsolidated structured entities as of December 31, 2021 and 2022, are as follows:
 
    
December 31, 2021
  
    
Structured
financing
     
Investment
funds
     
Trusts
     
Asset-backed
securitization

and others
     
Total
  
    
(In millions of Korean won)
  
Total assets of unconsolidated structured entities
    ￦ 89,647,771      ￦ 416,401,893      ￦ 3,005,720      ￦ 144,897,727      ￦ 653,953,111  
Carrying amount in the financial statements
                                             
Assets:
                                             
Financial assets at fair value through profit or loss
    ￦ 126,086      ￦ 13,340,292      ￦ 90,348      ￦ 3,602,631      ￦ 17,159,357  
Derivative financial assets
      —        —        —        181        181  
Loans measured at amortized cost
      8,290,514        479,452        265,173        1,194,705        10,229,844  
Financial investments
      —        —        —        8,084,101        8,084,101  
Investments in associates
      —        292,315        —        —        292,315  
Other assets
      2,496        3,111        119,630        15,638        140,875  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 8,419,096      ￦ 14,115,170      ￦ 475,151      ￦ 12,897,256      ￦ 35,906,673  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities:
                                             
Deposits
    ￦ 650,834      ￦ 58,348      ￦ —      ￦ 330,592      ￦ 1,039,774  
Derivative financial liabilities
      —        —        —        437        437  
Other liabilities
      8,196        289        —        32,179        40,664  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 659,030      ￦ 58,637      ￦ —      ￦ 363,208      ￦ 1,080,875  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Maximum exposure *
                                             
Assets held
    ￦ 8,419,096      ￦ 14,115,170      ￦ 475,151      ￦ 12,897,256      ￦ 35,906,673  
Purchase and investment commitments
      —        6,131,739        131,102        499,682        6,762,523  
Unused credit
      855,322        —        —        4,990,797        5,846,119  
Acceptances and guarantees and loan commitments
      1,544,394        —        15,890        496,284        2,056,568  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 10,818,812      ￦ 20,246,909      ￦ 622,143      ￦ 18,884,019      ￦ 50,571,883  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Methods of determining the maximum exposure
     






 		 Loan
commitments /
investment
agreements /
purchase
commitments
and
acceptances
and guarantees		  

 
 
 
 
 
 
 		     

 		 Investments /
loans and
Investment
agreements
 
 
 		     





 		 Trust
paying
dividends
by results:
Total
amount of
trust
exposure		  
 
 
 
 
 
 
 		     






 		 Providing
credit lines/
purchase
commitments/
loan
commitments
and
acceptances
and guarantees		  
 
 
 
 
 
 
 
 		         
 
F-227
    
December 31, 2022
  
    
Structured
financing
     
Investment
funds
     
Trusts
     
Asset-backed
securitization

and others
     
Total
  
    
 
(In millions of Korean won)
 
Total assets of unconsolidated structured entities
    ￦ 110,862,054      ￦ 435,585,129      ￦ 5,516,039      ￦ 144,018,286      ￦ 695,981,508  
Carrying amount in the financial statements
                                       

 
Assets:
                                             
Financial assets at fair value through profit or loss
    ￦ 105,637      ￦ 12,963,303      ￦ 298,169      ￦ 3,566,948      ￦ 16,934,057  
Loans measured at amortized cost
      8,829,758        469,777        163,220        3,037,021        12,499,776  
Financial investments
      1,012        —        —        7,893,604        7,894,616  
Investments in associates
      —        335,746        —        —        335,746  
Other assets
      6,663        1,504        242,853        5,950        256,970  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 8,943,070      ￦ 13,770,330      ￦ 704,242      ￦ 14,503,523      ￦ 37,921,165  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities:
                                             
Deposits
    ￦ 1,596,011      ￦ 41,288      ￦ —      ￦ 219,641      ￦ 1,856,940  
Derivative financial liabilities
      437        2,102        —        698        3,237  
Other liabilities
      3,044        11        —        54,425        57,480  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 1,599,492      ￦ 43,401      ￦ —      ￦ 274,764      ￦ 1,917,657  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Maximum exposure *
                                             
Assets held
    ￦ 8,943,070      ￦ 13,770,330      ￦ 704,242      ￦ 14,503,523      ￦ 37,921,165  
Purchase and investment commitments
      227,098        6,301,588        144,269        678,564        7,351,519  
Unused credit
      1,380,348        —        8,547        6,161,171        7,550,066  
Acceptances and guarantees and loan commitments
      1,015,619        —        —        20,000        1,035,619  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 11,566,135      ￦ 20,071,918      ￦ 857,058      ￦ 21,363,258      ￦ 53,858,369  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Methods of determining the maximum exposure
     






 		 Loan
commitments /
investment
agreements /
purchase
commitments
and
acceptances
and guarantees		  

 
 
 
 
 
 
 		     

 		 Investments /
loans and
Investment
agreements
 
 
 		     





 		 Trust
paying
dividends
by results:
Total
amount of
trust
exposure		  
 
 
 
 
 
 
 		     






 		 Providing
credit lines/
purchase
commitments/
loan
commitments
and
acceptances
and guarantees		  
 
 
 
 
 
 
 
 		         
 
*
Maximum exposure includes the asset amounts, after deducting loss (provisions for credit losses, impairment losses, and others), recognized in the consolidated financial statements of the Group.
 
F-228
Table of Contents
43. Related Party Transactions
According to IAS No.24, the Group includes investments in associates, key management personnel (including family members), and post-employment benefit plans of the Group and its related party companies in the scope of related parties. The Group discloses balances (receivables and payables) and other amounts arising from transactions with related parties in the notes to the consolidated financial statements. Refer to Note 13 for details of investments in associates and joint ventures.
43.1 Details of significant profit or loss arising from transactions with related parties for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
        
2020
     
2021
     
2022
  
        
(In millions of Korean won)
  
Associates and joint ventures
                               
Balhae Infrastructure Company
   Fee and commission income    ￦ 6,817      ￦ 5,689      ￦ 5,194  
Korea Credit Bureau Co., Ltd.
   Interest expense      7        6        1  
  Fee and commission income      957        910        649  
  Insurance income      5        4        4  
  Fee and commission expense      3,280        4,256        3,973  
 
Other operating expenses
      1        11        15  
KB GwS Private Securities Investment Trust *
   Fee and commission income      853        146        —  
Incheon Bridge Co., Ltd.
  
Interest income
      4,345        4,069        7,516  
 
Interest expense
      334        158        517  
 
Fee and commission income
      23        22        23  
 
Fee and commission expense
      6        6        6  
 
Insurance income
      279        230        212  
 
Gains on financial instruments at fair value through profit or loss
      899        —        —  
 
Losses on financial instruments at fair value through profit or loss
      —        1,374        4,434  
  Reversal of credit losses      —        444        28  
  Provision for credit losses      472        1        9  
Kendai Co.,Ltd.
   Other non-operating expenses      —        —        3  
KoFC POSCO Hanwha KB Shared Growth Private Equity Fund No.2
   Fee and commission income      12        —        —  
Aju Good Technology Venture Fund
   Interest expense      18        27        108  
KB Star Office Private Real Estate Master Fund No.1 *
   Interest income      371        370        —  
  Interest expense      61        5        2  
  Fee and commission income      436        435        276  
RAND Bio Science Co., Ltd.
   Interest expense      11        —        —  
Star-Lord General Investors Private Real Estate Investment Company No.10
   Insurance income      —        —        97  
  Interest income      —        —        3,098  
  Interest expense      —        —        413  
  Provision for credit losses      —        —        1  
  General and administrative expenses      —        —        5,562  
SY Auto Capital Co., Ltd.
   Interest income      1,097        941        889  
  Interest expense      2        —        —  
  Fee and commission income      39        88        47  
  Fee and commission expense      132        15        10  
  Insurance income      40        42        43  
  Other operating income      1,709        710        487  
  Other operating expenses      121        64        32  
  Reversal of credit losses      17        11        —  
    Provision for credit losses      —        —        9  
 
F-229
        
2020
     
2021
     
2022
  
        
(In millions of Korean won)
  
Food Factory Co., Ltd.
   Interest income      52        70        80  
    Interest expense      12        5        6  
    Insurance income      5        9        10  
    Fee and commission income      —        —        1  
    Fee and commission expense      4        2        —  
   
Gains on financial instruments at fair value through profit or loss
      72        —        33  
   
Losses on financial instruments at fair value through profit or loss
      —        1        —  
    Reversal of credit losses      —        6        1  
    Provision for credit losses      8        —        —  
KB Pre IPO Secondary Venture Fund No.1 *
   Interest expense      3        1        —  
  Fee and commission income      110        110        1,204  
KB Private Equity Fund No.3 *
   Fee and commission income      463        —        —  
Acts Co., Ltd.
   Interest income      1        —        —  
    Insurance income      —        1        2  
Dongjo Co., Ltd.
   Insurance income      1        1        —  
    Interest income      —        —        9  
A-PRO Co., Ltd. *
   Interest income      7        —        —  
    Interest expense      1        —        —  
    Insurance income      1        —        —  
    Provision for credit losses      1        —        —  
POSCO-KB Shipbuilding Fund
   Fee and commission income      387        213        177  
Dae-A Leisure Co., Ltd.
   Interest expense      7        2        —  
Paycoms Co., Ltd.
   Interest income      10        10        7  
   
Gains on financial instruments at fair value through profit or loss
      69        42        39  
Big Dipper Co., Ltd.
   Interest expense      —        —        1  
    Fee and commission expense      768        655        393  
KB-KDBC Pre-IPO New Technology Business Investment Fund
   Interest expense      23        1        1  
    Fee and commission income      300        190        129  
KB-TS Technology Venture Private Equity Fund
   Fee and commission income      126        285        185  
KB-SJ Tourism Venture Fund
   Fee and commission income      338        279        209  
Banksalad Co., Ltd.
  
Gains on financial instruments at fair value through profit or loss
      1,636        613        —  
   
Losses on financial instruments at fair value through profit or loss
      —        663        —  
    Fee and commission income      36        36        36  
    Fee and commission expense      5        48        17  
Iwon Alloy Co., Ltd.
   Insurance income      1        —        1  
Bioprotect Ltd.
  
Gains on financial instruments at fair value through profit or loss
      —        293        —  
   
Losses on financial instruments at fair value through profit or loss
      216        —        —  
 
F-230
        
2020
     
2021
     
2022
  
        
(In millions of Korean won)
  
RMGP Bio-Pharma Investment Fund, L.P.
   Fee and commission income      27        38        43  
   
Gains on financial instruments at fair value through profit or loss
      —        531        —  
   
Losses on financial instruments at fair value through profit or loss
      489        2,373        —  
RMGP Bio-Pharma Investment, L.P.
  
Losses on financial instruments at fair value through profit or loss
      1        —        —  
KB-MDI Centauri Fund LP
   Fee and commission income      308        401        487  
   
Gains on financial instruments at fair value through profit or loss
      —        551        —  
   
Losses on financial instruments at fair value through profit or loss
      322        284        —  
Hibiscus Fund LP
   Fee and commission income      —        372        524  
   
Gains on financial instruments at fair value through profit or loss
      —        113        —  
RMG-KB BioAccess Fund L.P.
   Fee and commission income      —        57        325  
   
Gains on financial instruments at fair value through profit or loss
      —        5        —  
S&E Bio Co., Ltd.
   Interest expense      1        1        2  
Contents First Inc.
   Interest income      —        —        128  
    Interest expense      14        83        34  
    Fee and commission income      —        —        1  
    Provision for credit losses      —        —        1  
December & Company Inc.
   Interest expense      1        —        —  
    Insurance income      —        109        174  
GENINUS Inc. *
   Interest expense      70        29        12  
   
Gains on financial instruments at fair value through profit or loss
      —        4,009        —  
    Provision for credit losses      —        6        —  
Pin Therapeutics Inc.
   Interest expense      —        —        110  
Wyatt Corp.
   Insurance income      63        87        142  
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund
   Interest expense      40        17        6  
    Fee and commission income      734        514        423  
Spark Biopharma Inc.
   Interest expense      —        7        272  
Skydigital Inc.
   Fee and commission income      4        3        3  
Il-Kwang Electronic Materials Co., Ltd.
   Other non-operating expenses      —        —        1  
SO-MYUNG Recycling Co., Ltd.
   Other non-operating expenses      —        —        2  
KB No.17 Special Purpose Acquisition Company *
  
Gains on financial instruments at fair value through profit or loss
      4        —        —  
   
Losses on financial instruments at fair value through profit or loss
      —        1,388        —  
    Interest expense      25        14        1  
KB No.18 Special Purpose Acquisition Company *
  
Gains on financial instruments at fair value through profit or loss
      84        8        —  
    Interest expense      31        20        5  
 
F-231
        
2020
     
2021
     
2022
  
        
(In millions of Korean won)
  
KB No.19 Special Purpose Acquisition Company *
  
Gains on financial instruments at fair value through profit or loss
      11        36        —  
    Interest expense      13        9        5  
KB No.20 Special Purpose Acquisition Company *
   Fee and commission income      210        —        —  
   
Gains on financial instruments at fair value through profit or loss
      1,568        68        —  
    Interest expense      25        15        22  
KB No.21 Special Purpose Acquisition Company *
   Fee and commission income      —        —        263  
   
Gains on financial instruments at fair value through profit or loss
      —        —        1,469  
    Interest expense      —        —        30  
KB No.22 Special Purpose Acquisition Company
   Fee and commission income      —        —        175  
   
Gains on financial instruments at fair value through profit or loss
      —        —        982  
    Interest expense      —        —        1  
KB No.23 Special Purpose Acquisition Company
  
Gains on financial instruments at fair value through profit or loss
      —        —        1,476  
    Interest expense      —        —        23  
KB No.24 Special Purpose Acquisition Company
   Interest expense      —        —        1  
KB SPROTT Renewable Private Equity Fund No.1
   Fee and commission income      488        487        345  
KB-Stonebridge Secondary Private Equity Fund
   Fee and commission income      1,442        550        706  
COSES GT Co., Ltd.
   Interest income      6        18        23  
    Interest expense      —        1        1  
    Provision for credit losses      4        —        3  
    Reversal of credit losses      —        3        —  
IDTECK Co., Ltd.
   Insurance income      —        1        —  
Mantisco Co., Ltd.
   Interest expense      —        1        1  
SuperNGine Co., Ltd.
   Interest expense      —        1        —  
Desilo Inc.
   Interest income      —        1        9  
    Provision for credit losses      —        2        —  
Turing Co., Ltd.
   Interest expense      —        1        1  
IGGYMOB Co., Ltd.
   Interest expense      —        1        1  
Kukka Co., Ltd.
   Interest expense      —        —        2  
ZIPDOC Inc.
   Interest expense      —        —        1  
    Reversal of credit losses      —        —        3  
TeamSparta Inc.
   Interest expense      —        —        19  
Chabot Mobility Co., Ltd.
   Interest expense      —        —        1  
    Fee and commission expense      —        —        824  
Wemade Connect Co., Ltd.
   Insurance income      —        —        3  
    Interest expense      —        —        81  
    Reversal of credit losses      —        —        1  
TMAP Mobility Co., Ltd.
   Interest expense      —        —        226  
    Fee and commission expense      —        —        78  
Nextrade Co., Ltd.
   Interest expense      —        —        263  
WJ Private Equity Fund No.1
   Fee and commission income      5        7        7  
 
F-232
        
2020
     
2021
     
2022
  
        
(In millions of Korean won)
  
UPRISE, Inc.
   Interest income      2        5        —  
    Interest expense      —        1        3  
    Provision for credit losses      1        —        —  
    Reversal of credit losses      —        1        —  
Channel Corporation
   Interest expense      —        —        43  
CWhy Inc.
  
Losses on financial instruments at fair value through profit or loss
      2,000        —        —  
    Insurance income      —        —        2  
CellinCells Co., Ltd.
   Interest expense      4        —        —  
Bomapp Inc.
   Fee and commission expense      9        5        —  
    Insurance income      8        —        —  
   
Losses on financial instruments at fair value through profit or loss
      —        1,980        —  
KB Social Impact Investment Fund
   Fee and commission income      300        300        286  
KB-UTC Inno-Tech Venture Fund
   Fee and commission income      371        471        449  
KBSP Private Equity Fund No.4
   Fee and commission income      480        389        211  
KB-NAU Special Situation Corporate Restructuring Private Equity Fund
   Fee and commission income      237        1,198        561  
JR Global REIT *
   Fee and commission income      6,210        —        —  
IGIS No.371 Professional Investors’ Real Estate Investment Company *
   Fee and commission income      200        —        —  
Koreit Tower Real Estate Investment Trust Company *
   Fee and commission income      2,852        —        —  
2020 KB Fintech Renaissance Fund
   Fee and commission income      60        147        147  
KB Material and Parts No.1 PEF
   Fee and commission income      63        353        353  
FineKB Private Equity Fund No.1
   Fee and commission income      38        540        641  
Paramark KB Fund No.1
   Fee and commission income      —        100        356  
KB-Badgers Future Mobility ESG Fund No.1
   Fee and commission income      —        —        905  
KB Bio Private Equity No.3 Ltd.*
   Fee and commission income      —        324        4,035  
K The 15th REIT Co., Ltd. *
   Fee and commission income      —        500        —  
    Insurance income      —        1        —  
KB-KTB Technology Venture Fund
   Fee and commission income      —        —        600  
THE CHAEUL FUND NO.1
   Fee and commission income      —        —        82  
Bluepointpartners Inc.
  
Gains on financial instruments at fair value through profit or loss
      —        846        —  
   
Losses on financial instruments at fair value through profit or loss
      68        —        —  
KB-Solidus Global Healthcare Fund
   Fee and commission income      777        167        350  
SwatchOn Inc.*
   Fee and commission income      9        8        5  
    Interest expense      47        10        5  
Gomi corporation Inc.
   Interest income      —        19        61  
    Interest expense      —        1        2  
    Fee and commission income      —        —        1  
    Provision for credit losses      —        13        3  
BNF Corporation Ltd. *
   Interest income      401        —        —  
    Fee and commission income      2        —        —  
    Provision for credit losses      8        —        —  
KB Cape No.1 Private Equity Fund
   Fee and commission income      144        144        72  
   
Losses on financial instruments at fair value through profit or loss
      —        69        —  
 
F-233
        
2020
     
2021
     
2022
  
        
(In millions of Korean won)
  
Keystone-Hyundai Securities No.1 Private Equity Fund *
   Fee and commission income      115        43        —  
KB-GeneN Medical Venture Fund No.1
   Fee and commission income      —        —        76  
KB-BridgePole Venture Investment Fund
   Fee and commission income      —        —        118  
KB-Kyobo New Mobility Power Fund
   Fee and commission income      —        —        69  
KB Co-Investment Private Equity Fund No.1
   Fee and commission income      —        —        483  
KB-NP Green ESG New Technology Venture Capital Fund
   Fee and commission income      —        —        435  
Others
                               
Retirement pension
   Fee and commission income      1,077        1,338        1,352  
    Interest expense      3        9        39  
 
 
*
Excluded from the Group’s related party as of December 31, 2022.
Meanwhile, the Group purchased installment financial assets, etc. from SY Auto Capital Co., Ltd. amounting to ￦878,690 million and ￦486,586 million for the years ended December 31, 2021 and 2022, respectively.
43.2 Details of significant outstanding balances of receivables and payables arising from transactions with related parties as of December 31, 2021 and 2022, are as follows:
 
        
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
Associates and joint ventures
                      
Balhae Infrastructure Company
   Other assets    ￦ 1,427      ￦ 1,306  
Korea Credit Bureau Co., Ltd.
   Loans measured at amortized cost (gross amount)      36        38  
   
Deposits
      10,200        27,889  
   
Provisions
      —        2  
   
Insurance liabilities
      1        1  
Incheon Bridge Co., Ltd.
   Financial assets at fair value through profit or loss      37,382        32,948  
    Loans measured at amortized cost (gross amount)      114,107        95,211  
   
Allowances for credit losses
      26        12  
   
Other assets
      423        615  
   
Deposits
      35,487        48,639  
   
Provisions
      24        18  
   
Insurance liabilities
      79        89  
   
Other liabilities
      99        446  
Jungdo Co., Ltd.
   Deposits      4        4  
Dae-A Leisure Co., Ltd.
   Deposits      17        154  
Aju Good Technology Venture Fund
   Deposits      6,286        7,222  
   
Other liabilities
      10        73  
KB Star Office Private Real Estate Master Fund No.1 *
   Loans measured at amortized cost (gross amount)      10,000        —  
   
Allowances for credit losses
      5        —  
   
Other assets
      138        —  
   
Deposits
      2,578        —  
 
F-234
        
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
Star-Lord General Investors Private Real Estate Investment Company No.10
   Loans measured at amortized cost (gross amount)      —        149,294  
    Allowances for credit losses      —        1  
    Property and equipment      —        9,915  
    Other assets      —        8,591  
    Insurance liabilities      —        46  
    Other liabilities      —        14,227  
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund
   Deposits      1,524        1,526  
   
Other liabilities
      —        1  
WJ Private Equity Fund No.1
   Other assets      2        2  
   
Deposits
      260        221  
KB Cape No.1 Private Equity Fund
   Financial assets at fair value through profit or loss      1,591        2,017  
   
Other assets
      73        —  
RAND Bio Science Co., Ltd.
   Deposits      443        3  
    Loans measured at amortized cost (gross amount)      1        —  
SY Auto Capital Co., Ltd.
   Loans measured at amortized cost (gross amount)      40,074        40,040  
    Allowances for credit losses      68        55  
    Other assets      630        63  
    Deposits      17        10  
    Insurance liabilities      14        14  
    Other liabilities      36        5  
Food Factory Co., Ltd.
   Financial assets at fair value through profit or loss      663        696  
    Loans measured at amortized cost (gross amount)      3,553        3,345  
    Allowances for credit losses      4        4  
    Other assets      2        4  
    Deposits      839        664  
    Insurance liabilities      8        8  
    Other liabilities      6        1  
KB Pre IPO Secondary Venture Fund No.1 *
   Deposits      103        —  
Acts Co., Ltd *.
   Deposits      154        —  
    Insurance liabilities      2        —  
    Other liabilities      100        —  
POSCO-KB Shipbuilding Fund
   Other assets      213        177  
Paycoms Co., Ltd.
   Other assets      1        —  
    Financial assets at fair value through profit or loss      1,269        1,172  
    Deposits      1        1  
Big Dipper Co., Ltd.
   Loans measured at amortized cost (gross amount)      17        18  
    Deposits      —        19  
 
F-235
        
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
KB-KDBC Pre-IPO New Technology Business Investment Fund
   Deposits      904        317  
Iwon Alloy Co., Ltd.
   Deposits      —        1  
    Insurance liabilities      1        1  
Computerlife Co., Ltd.
   Deposits      —        3  
RMGP Bio-Pharma Investment Fund, L.P.
   Financial assets at fair value through profit or loss      5,423        6,384  
    Other liabilities      79        36  
RMGP Bio-Pharma Investment, L.P.
   Financial assets at fair value through profit or loss      14        17  
Wyatt Corp.
   Financial assets at fair value through profit or loss      6,000        6,000  
    Deposits      1        1  
    Insurance liabilities      94        75  
Skydigital Inc.
   Deposits      85        10  
Banksalad Co., Ltd.
   Financial assets at fair value through profit or loss      9,090        10,470  
Spark Biopharma Inc.
   Financial assets at fair value through profit or loss      4,950        7,450  
    Loans measured at amortized cost (gross amount)      17        17  
    Deposits      6,015        17,534  
    Other liabilities      3        91  
UPRISE, Inc.
   Financial assets at fair value through profit or loss      1,250        5,248  
    Deposits      4,001        27  
Stratio, Inc.
   Financial assets at fair value through profit or loss      1,000        1,000  
Honest Fund, Inc.
   Financial assets at fair value through profit or loss      3,999        3,999  
CellinCells Co., Ltd.
   Financial assets at fair value through profit or loss      2,000        2,000  
    Loans measured at amortized cost (gross amount)      6        7  
    Deposits      38        37  
Channel Corporation
   Financial assets at fair value through profit or loss      14,551        18,099  
    Deposits      —        3,000  
    Other liabilities      —        21  
Jo Yang Industrial Co., Ltd.
   Deposits      1        —  
KB No.17 Special Purpose Acquisition Company *
   Financial assets at fair value through profit or loss      1,301        —  
    Deposits      1,687        —  
    Other liabilities      12        —  
KB No.18 Special Purpose Acquisition Company *
   Financial assets at fair value through profit or loss      3,881        —  
    Deposits      2,077        —  
    Other liabilities      12        —  
 
F-236
        
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
KB No.19 Special Purpose Acquisition Company *
   Financial assets at fair value through profit or loss      2,091        —  
    Deposits      1,013        —  
    Other liabilities      5        —  
KB No.20 Special Purpose Acquisition Company*
   Financial assets at fair value through profit or loss      3,135        —  
    Deposits      1,681        —  
    Other liabilities      3        —  
KB No.21 Special Purpose Acquisition Company
   Financial assets at fair value through profit or loss      —        2,959  
    Deposits      —        2,263  
    Other liabilities      —        29  
KB No.22 Special Purpose Acquisition Company
   Financial assets at fair value through profit or loss      —        1,972  
    Deposits      —        1,948  
KB No.23 Special Purpose Acquisition Company
   Financial assets at fair value through profit or loss      —        2,971  
    Deposits      —        2,205  
    Other liabilities      —        22  
KB No.24 Special Purpose Acquisition Company
   Financial assets at fair value through profit or loss      —        6,975  
    Deposits      —        9,983  
    Other liabilities      —        1  
COSES GT Co., Ltd.
   Financial assets at fair value through profit or loss      4,930        4,930  
    Loans measured at amortized cost (gross amount)      515        506  
    Allowances for credit losses      2        4  
    Other assets      1        2  
    Deposits      1,939        1,213  
IDTECK Co., Ltd.
   Insurance liabilities      1        —  
Bomapp Inc. *
   Financial assets at fair value through profit or loss      19        —  
    Deposits      —        1  
MitoImmune Therapeutics
   Financial assets at fair value through profit or loss      7,000        7,000  
KB-Solidus Global Healthcare Fund
   Other assets      620        350  
Bioprotect Ltd.
   Financial assets at fair value through profit or loss      3,557        3,802  
Gomi corporation Inc.
   Financial assets at fair value through profit or loss      2,500        4,000  
    Loans measured at amortized cost (gross amount)      2,233        2,234  
    Allowances for credit losses      12        17  
    Other assets      4        5  
    Deposits      3,188        915  
    Other liabilities      1        1  
Copin Communications, Inc. *
   Financial assets at fair value through profit or loss      4,801        —  
 
F-237
        
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
Go2joy Co., Ltd.
   Financial assets at fair value through profit or loss      1,200        1,200  
ClavisTherapeutics, Inc.
   Financial assets at fair value through profit or loss      2,000        2,000  
S&E Bio Co., Ltd.
   Financial assets at fair value through profit or loss      2,000        4,000  
    Loans measured at amortized cost (gross amount)      —        10  
    Deposits      263        6,419  
Bluepointpartners Inc.
   Financial assets at fair value through profit or loss      2,278        2,133  
4N Inc.
   Financial assets at fair value through profit or loss      200        200  
    Deposits      39        5  
Xenohelix Co., Ltd.
   Financial assets at fair value through profit or loss      2,100        2,100  
Contents First Inc.
   Financial assets at fair value through profit or loss      7,277        7,277  
    Loans measured at amortized cost (gross amount)      —        10,017  
    Allowances for credit losses      —        1  
    Other assets      —        2  
    Deposits      12,650        5,010  
    Other liabilities      57        21  
KB-MDI Centauri Fund LP
   Financial assets at fair value through profit or loss      9,633        17,471  
    Other assets      104        470  
2020 KB Fintech Renaissance Fund
   Other assets      —        37  
OKXE Inc.
   Financial assets at fair value through profit or loss      800        800  
GENINUS Inc. *
   Financial assets at fair value through profit or loss      5,855        —  
    Loans measured at amortized cost (gross amount)      17        —  
    Allowances for credit losses      6        —  
    Deposits      34,415        —  
    Other liabilities      2        —  
Mantisco Co., Ltd.
   Loans measured at amortized cost (gross amount)      1        15  
    Financial assets at fair value through profit or loss      3,000        3,000  
    Deposits      386        623  
Pin Therapeutics Inc.
   Loans measured at amortized cost (gross amount)      —        13  
    Financial assets at fair value through profit or loss      3,000        5,000  
    Deposits      —        6,033  
    Other liabilities      —        18  
 
F-238
        
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
IMBiologics Corp.
   Loans measured at amortized cost (gross amount)      4        4  
    Financial assets at fair value through profit or loss      5,000        5,000  
SuperNGine Co., Ltd.
   Loans measured at amortized cost (gross amount)      2        6  
    Deposits      944        17  
    Financial assets at fair value through profit or loss      1,996        1,996  
Desilo Inc.
   Financial assets at fair value through profit or loss      3,168        3,168  
    Loans measured at amortized cost (gross amount)      301        300  
    Allowances for credit losses      2        2  
    Deposits      168        1  
Turing Co., Ltd.
   Financial assets at fair value through profit or loss      3,000        3,000  
    Deposits      1,054        2,788  
IGGYMOB Co., Ltd.
   Financial assets at fair value through profit or loss      5,000        5,000  
    Loans measured at amortized cost (gross amount)      6        15  
    Deposits      2,938        254  
Kukka Co., Ltd.
   Financial assets at fair value through profit or loss      —        2,490  
ZIPDOC Inc.
   Financial assets at fair value through profit or loss      —        2,000  
    Deposits      —        915  
TeamSparta Inc.
   Financial assets at fair value through profit or loss      —        4,001  
    Deposits      —        12,502  
    Other liabilities      —        6  
Chabot Mobility Co., Ltd.
   Financial assets at fair value through profit or loss      —        2,000  
    Deposits      —        86  
Wemade Connect Co., Ltd.
   Financial assets at fair value through profit or loss      —        12,000  
    Loans measured at amortized cost (gross amount)      —        52  
    Provisions      —        2  
    Deposits      —        10,370  
    Insurance liabilities      —        2  
    Other liabilities      —        28  
Nextrade Co., Ltd.
   Deposits      —        56,202  
    Other liabilities      —        263  
TMAP Mobility Co., Ltd.
   Deposits      —        30,000  
    Other liabilities      —        76  
FutureConnect Co., Ltd.
   Financial assets at fair value through profit or loss      —        1,499  
Gushcloud Talent Agency
   Financial assets at fair value through profit or loss      —        4,165  
 
F-239
        
December 31,

2021
     
December 31,

2022
  
        
(In millions of Korean won)
  
Grinergy
   Financial assets at fair value through profit or loss      —        2,500  
NexThera Co., Ltd.
   Financial assets at fair value through profit or loss      —        2,000  
FineKB Private Equity Fund No.1
   Other assets      153        160  
Paramark KB Fund No.1
   Other liabilities      200        34  
December & Company Inc.
   Deposits      1        1  
    Insurance liabilities      10        9  
KB Social Impact Investment Fund
   Other assets      150        436  
Checkmate Therapeutics Inc.
   Financial assets at fair value through profit or loss      2,200        3,200  
    Insurance liabilities      —        3  
G1 Playground Co., Ltd.
   Financial assets at fair value through profit or loss      1,000        1,000  
    Deposits      354        —  
Hibiscus Fund LP
   Financial assets at fair value through profit or loss      4,731        10,221  
    Other assets      251        —  
    Other liabilities      —        257  
RMG-KB BioAccess Fund L.P.
   Financial assets at fair value through profit or loss      353        2,753  
RMG-KB BP Management Ltd.
   Financial assets at fair value through profit or loss      7        77  
SwatchOn Inc.*
   Financial assets at fair value through profit or loss      3,345        —  
    Loans measured at amortized cost (gross amount)      73        —  
    Deposits      686        —  
KB Co-Investment Private Equity Fund No.1
   Other assets      —        191  
Key management personnel
   Loans measured at amortized cost (gross amount)      4,591        6,299  
    Allowances for credit losses      2        3  
    Other assets      4        7  
    Deposits      16,996        17,618  
    Provisions      1        1  
    Insurance liabilities      2,471        2,374  
    Other liabilities      345        387  
Others
                      
Retirement pension
   Other assets      369        778  
    Other liabilities      5,014        10,141  
 
*
Excluded from the Group’s related party as of December 31, 2022, therefore, the remaining outstanding balances with those entities are not disclosed.
 
F-240
Table of Contents
43.3 Details of significant lending transactions with related parties for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
     
Loan
     
Collection
    
Ending
  
    
(In millions of Korean won)
  
Associates and joint ventures
                                   
Korea Credit Bureau Co., Ltd.
    ￦ 36      ￦ 36      ￦ (36 )    ￦ 36  
Incheon Bridge Co., Ltd.
      171,758        7        (20,276 )      151,489  
KB Star Office Private Real Estate Master Fund No.1*
      10,000        —        —       10,000  
KB Cape No.1 Private Equity Fund
      2,000        —        (409 )      1,591  
RAND Bio Science Co., Ltd.
      1        1        (1 )      1  
SY Auto Capital Co., Ltd.
      40,060        74        (60 )      40,074  
Food Factory Co., Ltd.
      3,872        397        (53 )      4,216  
Paycoms Co., Ltd.
      1,226        43        —       1,269  
Big Dipper Co., Ltd.
      4        17        (4 )      17  
RMGP Bio-Pharma Investment Fund, L.P.
      4,250        1,173        —       5,423  
RMGP Bio-Pharma Investment, L.P.
      9        5        —       14  
Wyatt Corp.
      6,000        —        —       6,000  
Banksalad Co., Ltd.
      9,141        —        (51 )      9,090  
UPRISE, Inc.
      750        1,000        (500 )      1,250  
Stratio, Inc.
      1,000        —        —       1,000  
Honest Fund, Inc.
      3,999        —        —       3,999  
CellinCells Co., Ltd.
      2,024        6        (24 )      2,006  
KB No.17 Special Purpose Acquisition Company*
      2,687        —        (1,386 )      1,301  
KB No.18 Special Purpose Acquisition Company*
      3,873        8        —       3,881  
KB No.19 Special Purpose Acquisition Company*
      2,055        36        —       2,091  
KB No.20 Special Purpose Acquisition Company*
      3,067        68        —       3,135  
COSES GT Co., Ltd.
      5,430        15        —       5,445  
Bomapp Inc.*
      1,999        —        (1,980 )      19  
Channel Corporation
      4,551        10,000        —       14,551  
MitoImmune Therapeutics
      5,000        2,000        —       7,000  
Bioprotect Ltd.
      3,264        293        —       3,557  
Gomi corporation Inc.
      509        4,233        (9 )      4,733  
Copin Communications, Inc.*
      1,500        3,301        —       4,801  
Go2joy Co., Ltd.
      1,200        —        —       1,200  
ClavisTherapeutics, Inc.
      2,000        —        —       2,000  
S&E Bio Co., Ltd.
      2,000        —        —       2,000  
Bluepointpartners Inc.
      1,432        846        —       2,278  
4N Inc.
      200        —        —       200  
Xenohelix Co., Ltd.
      2,100        —        —       2,100  
Contents First Inc.
      6,146        1,131        —       7,277  
KB-MDI Centauri Fund LP
      4,280        5,353        —       9,633  
SwatchOn Inc.*
      3,404        73        (59 )      3,418  
OKXE Inc.
      800        —        —       800  
GENINUS Inc.*
      5,599        273        —       5,872  
Checkmate Therapeutics Inc.
      —        2,200        —       2,200  
Mantisco Co., Ltd.
      —        3,001        —       3,001  
IMBiologics Corp.
      —        5,004        —       5,004  
Spark Biopharma Inc.
      —        4,967        —       4,967  
G1 Playground Co., Ltd.
      —        1,000        —       1,000  
Pin Therapeutics Inc.
      —        3,000        —       3,000  
Hibiscus Fund LP
      —        4,731        —       4,731  
SuperNGine Co., Ltd.
      —        1,998        —       1,998  
Desilo Inc.
      —        3,469        —       3,469  
 
F-241
 
  
2021
 
 
  
Beginning
 
  
Loan
 
  
Collection
 
 
Ending
 
 
  
(In millions of Korean won)
 
RMG-KB BioAccess Fund L.P.
      —        353        —       353  
RMG-KB BP Management Ltd.
      —        7        —       7  
IGGYMOB Co., Ltd.
      —        5,006        —       5,006  
Turing Co., Ltd.
      —        3,000        —       3,000  
Key management personnel
      5,153        3,421        (3,983 )      4,591  
 
*
Excluded from the Group’s related party as of December 31, 2021.
 
    
2022
  
    
Beginning
     
Loan
     
Collection
    
Ending
  
    
(In millions of Korean won)
  
Associates and joint ventures
                                   
Korea Credit Bureau Co., Ltd.
    ￦ 36      ￦ 38      ￦ (36 )    ￦ 38  
Incheon Bridge Co., Ltd.
      151,489        11        (23,341 )      128,159  
Star-Lord General Investors Private Real Estate Investment Company No.10
      —        150,000        (706 )      149,294  
KB Star Office Private Real Estate Master Fund No.1*
      10,000        —        (10,000 )      —  
KB Cape No.1 Private Equity Fund
      1,591        426        —       2,017  
RAND Bio Science Co., Ltd.
      1        —        (1 )      —  
SY Auto Capital Co., Ltd.
      40,074        40        (74 )      40,040  
Food Factory Co., Ltd.
      4,216        1,541        (1,716 )      4,041  
Paycoms Co., Ltd.
      1,269        —        (97 )      1,172  
Big Dipper Co., Ltd.
      17        18        (17 )      18  
RMGP Bio-Pharma Investment Fund, L.P.
      5,423        961        —       6,384  
RMGP Bio-Pharma Investment, L.P.
      14        3        —       17  
Wyatt Corp.
      6,000        —        —       6,000  
Banksalad Co., Ltd.
      9,090        1,380        —       10,470  
UPRISE, Inc.
      1,250        3,998        —       5,248  
Stratio, Inc.
      1,000        —        —       1,000  
Honest Fund, Inc.
      3,999        —        —       3,999  
CellinCells Co., Ltd.
      2,006        7        (6 )      2,007  
KB No.17 Special Purpose Acquisition Company*
      1,301        —        (1,301 )      —  
KB No.18 Special Purpose Acquisition Company*
      3,881        —        (3,881 )      —  
KB No.19 Special Purpose Acquisition Company*
      2,091        —        (2,091 )      —  
KB No.20 Special Purpose Acquisition Company*
      3,135        —        (3,135 )      —  
KB No.21 Special Purpose Acquisition Company
      —        2,959        —       2,959  
KB No.22 Special Purpose Acquisition Company
      —        1,972        —       1,972  
KB No.23 Special Purpose Acquisition Company
      —        2,971        —       2,971  
KB No.24 Special Purpose Acquisition Company
      —        6,975        —       6,975  
COSES GT Co., Ltd.
      5,445        6        (15 )      5,436  
Bomapp Inc.*
      19        —        (19 )      —  
Channel Corporation
      14,551        3,548        —       18,099  
MitoImmune Therapeutics
      7,000        —        —       7,000  
Bioprotect Ltd.
      3,557        245        —       3,802  
Gomi corporation Inc.
      4,733        1,534        (33 )      6,234  
Copin Communications, Inc.*
      4,801        —        (4,801 )      —  
Go2joy Co., Ltd.
      1,200        —        —       1,200  
ClavisTherapeutics, Inc.
      2,000        —        —       2,000  
S&E Bio Co., Ltd.
      2,000        2,010        —       4,010  
Bluepointpartners Inc.
      2,278        —        (145 )      2,133  
4N Inc.
      200        —        —       200  
 
F-242
    
2022
  
    
Beginning
     
Loan
     
Collection
    
Ending
  
    
(In millions of Korean won)
  
Xenohelix Co., Ltd.
      2,100        —        —       2,100  
Contents First Inc.
      7,277        10,017        —       17,294  
KB-MDI Centauri Fund LP
      9,633        7,838        —       17,471  
SwatchOn Inc.*
      3,418        —        (3,418 )      —  
OKXE Inc.
      800        —        —       800  
GENINUS Inc.*
      5,872        —        (5,872 )      —  
Checkmate Therapeutics Inc.
      2,200        1,000        —       3,200  
Mantisco Co., Ltd.
      3,001        15        (1 )      3,015  
IMBiologics Corp.
      5,004        4        (4 )      5,004  
Spark Biopharma Inc.
      4,967        2,517        (17 )      7,467  
G1 Playground Co., Ltd.
      1,000        —        —       1,000  
Pin Therapeutics Inc.
      3,000        2,013        —       5,013  
Hibiscus Fund LP
      4,731        5,490        —       10,221  
SuperNGine Co., Ltd.
      1,998        6        (2 )      2,002  
Desilo Inc.
      3,469        —        (1 )      3,468  
RMG-KB BioAccess Fund L.P.
      353        2,400        —       2,753  
RMG-KB BP Management Ltd.
      7        70        —       77  
IGGYMOB Co., Ltd.
      5,006        15        (6 )      5,015  
Turing Co., Ltd.
      3,000        —        —       3,000  
Kukka Co., Ltd.
      —        2,490        —       2,490  
ZIPDOC Inc.
      —        2,000        —       2,000  
Gushcloud Talent Agency
      —        4,165        —       4,165  
Grinergy
      —        2,500        —       2,500  
NexThera Co., Ltd.
      —        2,000        —       2,000  
Chabot Mobility Co., Ltd.
      —        2,000        —       2,000  
TeamSparta Inc.
      —        4,001        —       4,001  
FutureConnect Co., Ltd.
      —        1,499        —       1,499  
Wemade Connect Co., Ltd.
      —        12,052        —       12,052  
Key management personnel
      4,591        4,527        (2,819 )      6,299  
 
*
Excluded from the Group’s related party as of December 31, 2022.
43.4 Details of significant borrowing transactions with related parties for the years ended December 31, 2021 and 2022, are as follows:
 
    
2021
  
    
Beginning
     
Borrowing
     
Repayment
    
Others
1
    
Ending
  
    
(In millions of Korean won)
  
Associates and joint ventures
                                           
Korea Credit Bureau Co., Ltd.
    ￦  19,982      ￦ —      ￦ (1,000 )    ￦ (8,782 )    ￦ 10,200  
Incheon Bridge Co., Ltd.
      39,520         15,000        (20,000 )      967       35,487  
Jungdo Co., Ltd.
      4        —        —       —       4  
Dae-A Leisure Co., Ltd.
      636        —        (479 )      (140 )      17  
Skydigital Inc.
      15        —        —       70       85  
Jo Yang Industrial Co., Ltd.
      2        —        —       (1 )      1  
Aju Good Technology Venture Fund
      3,093        3,840        (1,442 )      795       6,286  
KB-KDBC Pre-IPO New Technology Business Investment Fund
      923        —        —       (19 )      904  
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund
      8,097        —        —       (6,573 )      1,524  
Neomio Corp.
2
      535        —        —       (535 )      —  
 
F-243
    
2021
  
    
Beginning
     
Borrowing
     
Repayment
    
Others 
1
    
Ending
  
    
(In millions of Korean won)
  
WJ Private Equity Fund No.1
      349        —        —       (89 )      260  
KB Star Office Private Real Estate Master Fund
No.1
2
      4,255        —        (1,770 )      93       2,578  
SY Auto Capital Co., Ltd.
      6        —        —       11       17  
KB No.17 Special Purpose Acquisition Company
2
      1,711        1,546        (1,525 )      (45 )      1,687  
KB No.18 Special Purpose Acquisition Company
2
      2,101        2,016        (2,063 )      23       2,077  
KB No.19 Special Purpose Acquisition Company
2
      1,053        1,000        (1,000 )      (40 )      1,013  
KB No.20 Special Purpose Acquisition Company
2
      1,716        1,534        (1,522 )      (47 )      1,681  
RAND Bio Science Co., Ltd.
      693        —        (400 )      150       443  
Food Factory Co., Ltd.
      1,555        507        (500 )      (723 )      839  
Acts Co., Ltd.
2
      18        —        —       136       154  
Paycoms Co., Ltd.
      1        —        —       —       1  
Big Dipper Co., Ltd.
      1        —        —       (1 )      —  
Wyatt Corp.
      1        —        —       —       1  
Stratio, Inc.
      13        —        —       (13 )      —  
UPRISE, Inc.
      11        —        —       3,990       4,001  
CellinCells Co., Ltd.
      260        —        —       (222 )      38  
COSES GT Co., Ltd.
      292        —        —       1,647       1,939  
SwatchOn Inc.
2
      3,947        200        (3,501 )      40       686  
Gomi corporation Inc.
      37        —        —       3,151       3,188  
S&E Bio Co., Ltd.
      1,142        —        —       (879 )      263  
KB Pre IPO Secondary Venture Fund No.1
2
      629        —        —       (526 )      103  
4N Inc.
      76        —        —       (37 )      39  
Contents First Inc.
      1,823        20,000        (11,000 )      1,827       12,650  
December & Company Inc.
      1        —        —       —       1  
GENINUS Inc.
2
      13,630        —        (5,000 )      25,785       34,415  
Mantisco Co., Ltd.
      —        —        —       386       386  
Spark Biopharma Inc.
      —        1,000        (3,000 )      8,015       6,015  
G1 Playground Co., Ltd.
      —        —        —       354       354  
SuperNGine Co., Ltd.
      —        —        —       944       944  
Desilo Inc.
      —        —        —       168       168  
Turing Co., Ltd.
      —        —        —       1,054       1,054  
IGGYMOB Co., Ltd.
      —        —        —       2,938       2,938  
Key management personnel
      17,167        16,574        (16,994 )      249       16,996  
 
    
2022
  
    
Beginning
     
Borrowing
     
Repayment
    
Others
1
    
Ending
  
    
(In millions of Korean won)
  
Associates and joint ventures
                                           
Korea Credit Bureau Co., Ltd.
    ￦ 10,200      ￦ —      ￦ —     ￦ 17,689     ￦ 27,889  
Incheon Bridge Co., Ltd.
      35,487        29,217        (15,000 )      (1,065 )      48,639  
Jungdo Co., Ltd.
      4        —        —       —       4  
Dae-A Leisure Co., Ltd.
      17        —        —       137       154  
Iwon Alloy Co., Ltd.
      —        —        —       1       1  
Computerlife Co., Ltd.
      —        —        —       3       3  
Skydigital Inc.
      85        —        —       (75 )      10  
Jo Yang Industrial Co., Ltd.
      1        —        —       (1 )      —  
Aju Good Technology Venture Fund
      6,286        6,577        (3,840 )      (1,801 )      7,222  
 
F-244
    
2022
  
    
Beginning
     
Borrowing
     
Repayment
    
Others
1
    
Ending
  
    
(In millions of Korean won)
  
KB-KDBC Pre-IPO New Technology Business Investment Fund
      904        —        —       (587 )      317  
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund
      1,524        —        —       2       1,526  
WJ Private Equity Fund No.1
      260        —        —       (39 )      221  
KB Star Office Private Real Estate Master Fund
No.1
2
      2,578        —        (2,578 )      —       —  
SY Auto Capital Co., Ltd.
      17        —        —       (7 )      10  
KB No.17 Special Purpose Acquisition Company
2
      1,687        —        (1,546 )      (141 )      —  
KB No.18 Special Purpose Acquisition Company
2
      2,077        —        (2,016 )      (61 )      —  
KB No.19 Special Purpose Acquisition Company
2
      1,013        —        (1,000 )      (13 )      —  
KB No.20 Special Purpose Acquisition Company
2
      1,681        —        (1,534 )      (147 )      —  
KB No.21 Special Purpose Acquisition Company
      —        2,000        —       263       2,263  
KB No.22 Special Purpose Acquisition Company
      —        —        —       1,948       1,948  
KB No.23 Special Purpose Acquisition Company
      —        2,133        —       72       2,205  
KB No.24 Special Purpose Acquisition Company
      —        —        —       9,983       9,983  
RAND Bio Science Co., Ltd.
      443        —        —       (440 )      3  
Food Factory Co., Ltd.
      839        511        (1,018 )      332       664  
Acts Co., Ltd.
2
      154        —        —       (154 )      —  
Paycoms Co., Ltd.
      1        —        —       —       1  
Big Dipper Co., Ltd.
      —        300        (300 )      19       19  
Wyatt Corp.
      1        —        —       —       1  
UPRISE, Inc.
      4,001        —        —       (3,974 )      27  
CellinCells Co., Ltd.
      38        —        —       (1 )      37  
COSES GT Co., Ltd.
      1,939        —        —       (726 )      1,213  
SwatchOn Inc.
2
      686        —        —       (686 )      —  
Gomi corporation Inc.
      3,188        —        —       (2,273 )      915  
S&E Bio Co., Ltd.
      263        50        —       6,106       6,419  
KB Pre IPO Secondary Venture Fund No.1
2
      103        —        —       (103 )      —  
4N Inc.
      39        —        —       (34 )      5  
Contents First Inc.
      12,650        10,000        (16,000 )      (1,640 )      5,010  
December & Company Inc.
      1        —        —       —       1  
GENINUS Inc.
2
      34,415        —        —       (34,415 )      —  
Mantisco Co., Ltd.
      386        —        —       237       623  
Pin Therapeutics Inc.
      —        21,000        (16,200 )      1,233       6,033  
Spark Biopharma Inc.
      6,015        41,165        (27,539 )      (2,107 )      17,534  
G1 Playground Co., Ltd.
      354        —        —       (354 )      —  
SuperNGine Co., Ltd.
      944        —        —       (927 )      17  
Desilo Inc.
      168        —        —       (167 )      1  
Turing Co., Ltd.
      1,054        —        —       1,734       2,788  
IGGYMOB Co., Ltd.
      2,938        —        —       (2,684 )      254  
TMAP Mobility Co., Ltd.
      —        80,000        (50,000 )      —       30,000  
Nextrade Co., Ltd.
      —        56,200        —       2       56,202  
Kukka Co., Ltd.
      —        —        —       —       —  
ZIPDOC Inc.
      —        —        —       915       915  
TeamSparta Inc.
      —        9,000        (4,000 )      7,502       12,502  
Chabot Mobility Co., Ltd.
      —        —        —       86       86  
Wemade Connect Co., Ltd.
      —        11,010        (3,267 )      2,627       10,370  
 
F-245
    
2022
  
    
Beginning
     
Borrowing
     
Repayment
    
Others 
1
    
Ending
  
    
(In millions of Korean won)
  
Wise Asset Management Co., Ltd.
      —        6        (6 )      —       —  
Channel Corporation
      —        6,000        (3,000 )      —       3,000  
Key management personnel
      16,996        20,855        (17,189 )      (3,043 )      17,619  
 
1
 
Transactions between related parties, such as settlements arising from operating activities and deposits, are expressed in net amount.
2
 
Excluded from the Group’s related party as of December 31, 2022.
43.5 Details of significant investment and withdrawal transactions with related parties for the years ended December 31, 2021 and 2022, are as follows:
 
   
2021
    
2022
  
   
Equity
investment
and others
    
Withdrawal
and others
    
Equity
investment
and others
    
Withdrawal
and others
  
   
(In millions of Korean won)
  
Balhae Infrastructure Company
   ￦ 279     ￦ 3,620     ￦ —     ￦ 26,054  
KB GwS Private Securities Investment Trust *
     —       188,836       —       —  
KoFC POSCO Hanwha KB Shared Growth Private Equity Fund No.2 *
     —       1,950       —       5  
POSCO-KB Shipbuilding Fund
     —       5,925       —       950  
KB Pre IPO Secondary Venture Fund No.1 *
     —       292       —       1,429  
KB-KDBC Pre-IPO New Technology Business Investment Fund
     —       3,000       —       5,200  
KB-SJ Tourism Venture Fund
     500       —       —       400  
Korea Credit Bureau Co., Ltd.
     —       90       —       —  
KB-UTC Inno-Tech Venture Fund
     5,085       —       —       —  
KB-Solidus Global Healthcare Fund
     —       —       —       19,630  
KB-Stonebridge Secondary Private Equity Fund
     10,734       10,992       4,369       4,216  
KB Star Office Private Real Estate Master Fund No.1 *
     —       601       —       26,240  
KB SPROTT Renewable Private Equity Fund No.1
     —       —       12,247       —  
KB-NAU Special Situation Corporate Restructuring Private Equity Fund
     6,968       —       1,320       4,706  
JR Global REIT *
     —       65,025       —       —  
KB Bio Private Equity No.3 Ltd. *
     10,000       —       —       10,000  
K The 15th REIT Co., Ltd. *
     8,600       8,600       —       —  
Project Vanilla Co., Ltd. *
     —       —       —       525  
KB Social Impact Investment Fund
     1,500       —       —       —  
KB-TS Technology Venture Private Equity Fund
     1,510       2,976       —       4,536  
Keystone-Hyundai Securities No.1 Private Equity Fund *
     —       1,925       —       —  
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund
     8,000       8,200       —       12,800  
Aju Good Technology Venture Fund
     —       769       —       5,400  
G payment Joint Stock Company
     9,029       —       —       —  
498/7 Owners LLC *
     —       —       —       166,851  
KB-KTB Technology Venture Fund
     —       —       11,200       —  
KB-SOLIDUS Healthcare Investment Fund
     —       —       18,000       —  
Paramark KB Fund No.1
     —       —       12,444       2,285  
FineKB Private Equity Fund No.1
     8,375       —       7,500       3,100  
KB-GeneN Medical Venture Fund No.1
     —       —       2,000       —  
 
F-246
   
2021
    
2022
  
   
Equity
investment
and others
    
Withdrawal
and others
    
Equity
investment
and others
    
Withdrawal
and others
  
   
(In millions of Korean won)
  
KB-BridgePole Venture Investment Fund
     —       —       850       —  
KB-Kyobo New Mobility Power Fund
     —       —       3,000       —  
DA-Friend New Technology Investment Fund No.2
     —       —       988       —  
Cornerstone Pentastone Fund No.4
     —       —       818       —  
SKS-VLP New Technology Investment Fund No.2
     —       —       1,156       —  
JS Private Equity Fund No.3
     —       —       1,700       —  
Mirae Asset Mobility Investment Fund No.1
     —       —       2,000       —  
KB-FT 1st Green Growth Investment Fund
     —       —       2,000       —  
THE CHAEUL FUND NO.1
     —       —       1,000       —  
Star-Lord General Investors Private Real Estate Investment Company No.10
     —       —       46,700       10  
KB Co-Investment Private Equity Fund No.1
     —       —       7,268       —  
Glenwood Credit Private Equity Fund No.2
     —       —       42,000       —  
Apollo REIT PropCo LLC *
     —       —       19,968       19,968  
TMAP Mobility Co., Ltd.
     —       —       200,000       —  
POSITIVE Sobujang Venture Fund No.1
     —       —       2,000       —  
History 2022 Fintech Fund
     —       —       2,000       —  
PEBBLES-MW M.C.E New Technology Investment Fund 1
st
     —       —       2,000       —  
KB-NP Green ESG New Technology Venture Capital Fund
     —       —       9,350       —  
Nextrade Co., Ltd.
     —       —       9,700       —  
KB-Badgers Future Mobility ESG Fund No.1
     —       —       2,137       —  
Shinhan Global Mobility Fund1
     —       —       1,345       —  
SKB Next Unicorn K-Battery Fund No.1
     —       —       1,995       —  
 
*
Excluded from the Group’s related party as of December 31, 2022.
 
F-247
Table of Contents
43.6 Unused commitments provided to related parties as of December 31, 2021 and 2022, are as follows:
 
       
December 31,

2021
     
December 31,

2022
  
       
(In millions of Korean won
or in a US Dollar or
Malaysian ringgit)
  
Associates and joint ventures
                 
Balhae Infrastructure Company
  
Purchase of securities
   ￦ 6,154      ￦ 6,154  
Korea Credit Bureau Co., Ltd.
  
Unused lines of credit for credit card
     565        562  
Incheon Bridge Co., Ltd.
  
Loan commitments in Korean won
     20,000        20,000  
   
Unused lines of credit for credit card
     93        89  
KoFC POSCO Hanwha KB Shared Growth Private Equity Fund No.2 *
  
Commitments on loss absorption priority
     10,000        —  
SY Auto Capital Co., Ltd.
  
Unused lines of credit for credit card
     98        110  
Food Factory Co., Ltd.
  
Unused lines of credit for credit card
     82        52  
KB No.18 Special Purpose Acquisition Company *
  
Unused lines of credit for credit card
     15        —  
KB No.19 Special Purpose Acquisition Company *
  
Unused lines of credit for credit card
     1        —  
KB No.23 Special Purpose Acquisition Company
  
Unused lines of credit for credit card
     —        12  
CellinCells Co., Ltd.
  
Unused lines of credit for credit card
     18        17  
RAND Bio Science Co., Ltd.
  
Unused lines of credit for credit card
     24        25  
Big Dipper Co., Ltd.
  
Unused lines of credit for credit card
     43        27  
SwatchOn Inc. *
  
Unused lines of credit for credit card
     127        —  
Gomi corporation Inc.
  
Unused lines of credit for credit card
     2        16  
COSES GT Co., Ltd.
  
Unused lines of credit for credit card
     15        24  
GENINUS Inc. *
  
Unused lines of credit for credit card
     43        —  
Spark Biopharma Inc.
  
Unused lines of credit for credit card
     33        33  
Mantisco Co., Ltd.
  
Unused lines of credit for credit card
     29        15  
IMBiologics Corp.
  
Unused lines of credit for credit card
     18        18  
SuperNGine Co., Ltd.
  
Unused lines of credit for credit card
     18        14  
IGGYMOB Co., Ltd.
  
Unused lines of credit for credit card
     14        35  
Pin Therapeutics Inc.
  
Unused lines of credit for credit card
     —        37  
Grinergy
  
Unused lines of credit for credit card
     —        10  
S&E Bio Co., Ltd.
  
Unused lines of credit for credit card
     —        40  
Desilo Inc.
  
Unused lines of credit for credit card
     —        —  
ZIPDOC Inc.
  
Unused lines of credit for credit card
     —        —  
Wemade Connect Co., Ltd.
  
Unused lines of credit for credit card
     —        148  
KB Pre IPO Secondary Venture Fund
No.1 *
  
Commitments on loss absorption priority
     1,671        —  
KB-TS Technology Venture Private Equity Fund
  
Purchase of securities
     616        110  
KB SPROTT Renewable Private Equity Fund No.1
  
Purchase of securities
     18,704        5,140  
KB-Stonebridge Secondary Private Equity Fund
  
Purchase of securities
     5,579        864  
KB-NAU Special Situation Corporate Restructuring Private Equity Fund
  
Purchase of securities
     16,608        15,288  
All Together Korea Fund No.2
  
Purchase of securities
     —        990,000  
KB-KTB Technology Venture Fund
  
Purchase of securities
     22,400        11,200  
KB-SOLIDUS Healthcare Investment Fund
  
Purchase of securities
     88,200        70,200  
KB Co-Investment Private Equity Fund No.1
  
Purchase of securities
     20,000        15,732  
KB-Badgers Future Mobility ESG Fund No.1
  
Purchase of securities
     —        42,863  
KB-NP Green ESG New Technology Venture Capital Fund
  
Purchase of securities
     —        40,650  
 
F-248
       
December 31,

2021
     
December 31,

2022
  
       
(In millions of Korean won
or in a US Dollar or
Malaysian ringgit)
  
FineKB Private Equity Fund No.1
  
Purchase of securities
     16,625        9,125  
KB-Solidus Global Healthcare Fund
  
Purchase of securities
     2,120        2,120  
   
Commitments on loss
 
absorption priority
     4,500        4,500  
Paramark KB Fund No.1
  
Purchase of securities
     27,960        17,832  
RMGP Bio-Pharma Investment Fund, L.P.
  
Purchase of securities
   USD 5,169,932      USD 4,094,487  
RMGP Bio-Pharma Investment, L.P.
  
Purchase of securities
   USD 12,615      USD 10,731  
KB-MDI Centauri Fund LP
  
Purchase of securities
   USD 6,622,923      USD 1,744,518  
Hibiscus Fund LP
  
Purchase of securities
   MYR 33,333,333      MYR 16,666,667  
RMG-KB BP Management Ltd.
  
Purchase of securities
   USD 616,170      USD 699,733  
RMG-KB BioAccess Fund L.P.
  
Purchase of securities
   USD 29,702,324      USD 27,428,899  
Key management personnel
  
Loan commitments in Korean won
     2,018        2,354  
 
*
Excluded from the Group’s related party as of December 31, 2022.
43.7 Details of compensation to key management personnel for the years ended December 31, 2020, 2021 and 2022, are as follows:
 
    
2020
  
    
Short-term
employee benefits
     
Post-employment
benefits
     
Share-based
payments
     
Total
  
    
(In millions of Korean won)
  
Registered directors (executive)
    ￦ 8,111      ￦ 672      ￦ 6,369      ￦ 15,152  
Registered directors (non-executive)
      1,133        —        —        1,133  
Non-registered directors
      10,782        396        6,934        18,112  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 20,026      ￦ 1,068      ￦ 13,303      ￦ 34,397  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
2021
  
    
Short-term

employee benefits
     
Post-employment

benefits
     
Share-based

payments
     
Total
  
    
(In millions of Korean won)
  
Registered directors (executive)
    ￦ 8,152      ￦ 966      ￦ 11,655      ￦ 20,773  
Registered directors (non-executive)
      1,061        —        —        1,061  
Non-registered directors
      12,820        466        14,424        27,710  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 22,033      ￦ 1,432      ￦ 26,079      ￦ 49,544  
    
 
 
     
 
 
     
 
 
     
 
 
  
   
    
2022
  
    
Short-term
employee benefits
     
Post-employment
benefits
     
Share-based
payments
     
Total
  
    
(In millions of Korean won)
  
Registered directors (executive)
    ￦ 8,725      ￦ 863      ￦ 7,487      ￦ 17,075  
Registered directors (non-executive)
      1,058        —        —        1,058  
Non-registered directors
      16,756        484        12,432        29,672  
    
 
 
     
 
 
     
 
 
     
 
 
  
     ￦ 26,539      ￦ 1,347      ￦ 19,919      ￦ 47,805  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
F-249
Table of Contents
43.8 Details of collateral provided by related parties as of December 31, 2021 and 2022, are as follows:
 
    
Assets held as collateral
   
December 31,

2021
     
December 31,

2022
  
    
(In millions of Korean won)
  
Associates
                       
KB Star Office Private Real Estate Master Fund No.1
    Real estate    ￦ 13,000      ￦ —  
Key management personnel
    Time deposits and others      745        457  
  
Real estate
      5,176        7,483  
As of December 31, 2022, Incheon Bridge Co., Ltd., a related party, provides fund management account, civil engineering works insurance, and management and operations rights as senior collateral amounting to ￦611,000 million to the project financing group consisting of the Group and 5 other institutions, and as subordinated collateral amounting to ￦384,800 million to subordinated debt holders consisting of the Group and 2 other institutions. Also, it provides certificate of credit guarantee amounting to ￦400,000 million as collateral to the project financing group consisting of the Group and 5 other institutions.
44. Events after the reporting period
44.1 Merger of subsidiaries
At the board of directors meeting and shareholder’s meeting on August 9, 2022, it is determined to merge the Group’s subsidiaries, KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) and KB Life Insurance Co., Ltd.. Accordingly, the merger was completed with KB Life Insurance Co., Ltd.(former Prudential Life Insurance Company of Korea Ltd.) as a surviving corporation on January 1, 2023, and KB Life Insurance Co., Ltd. was dissolved after the merger.
44.2 Retirement of treasury shares
The Group plans to acquire 5,385,996 shares(￦300,000 million) of its own shares and retire the treasury shares by May 7, 2023 pursuant to board resolutions dated February 7, 2023.
However, the treasury shares were calculated based on the closing price (￦55,700) on the day before the board meeting, on February 6, 2023, and the final number of shares to be retired may vary depending on the stock price.
45. Approval of Issuance of the Consolidated Financial Statements
The Group’s consolidated financial statements as of and for the year ended December 31, 2022, was certified by management o
n April 26, 2023.
 
F-250
Table of Contents
46. Parent Company Information
The following tables present the Parent Company Only financial information:
Condensed Statements of Financial Position
 
    
December 31,
2021
     
December 31,
2022
  
    
(In millions of Korean won)
  
Assets
                  
Cash and due from financial institutions
    ￦ 608,076      ￦ 351,056  
Financial assets at fair value through profit or loss
      440,760        1,522,314  
Loans at amortized cost
      249,128        522,326  
Investments in subsidiaries *
                  
Banking subsidiaries
      14,821,721        14,821,721  
Nonbanking subsidiaries.
      11,919,717        11,919,717  
Other assets
      831,977        1,316,693  
    
 
 
     
 
 
  
Total assets
    ￦ 28,871,379      ￦ 30,453,827  
    
 
 
     
 
 
  
Liabilities and shareholders’ equity
                  
Debentures
    ￦ 5,552,791      ￦ 4,956,949  
Other liabilities
      805,614        1,265,062  
Shareholders’ equity
      22,512,974        24,231,816  
    
 
 
     
 
 
  
Total liabilities and shareholders’ equity
    ￦ 28,871,379      ￦ 30,453,827  
    
 
 
     
 
 
  
 
*
Investments in subsidiaries were accounted at cost method in accordance with IAS No.27.
46. Parent Company Information (cont’d)
Condensed Statements of Comprehensive Income
 
    
2020
    
2021
    
2022
  
    
(In millions of Korean won)
  
Income
                 
Dividends from subsidiaries
    ￦ 1,573,411     ￦ 1,617,949     ￦ 1,871,223  
Interest from subsidiaries
      3,519       7,897       17,310  
Other income
      22,749       30,953       52,777  
    
 
 
    
 
 
    
 
 
  
Total income
      1,599,679       1,656,799       1,941,310  
    
 
 
    
 
 
    
 
 
  
Expense
                         
Interest expense
      132,437       120,469       112,353  
Non-interest expense
      87,876       99,745       159,708  
    
 
 
    
 
 
    
 
 
  
Total expense
      220,313       220,214       272,061  
    
 
 
    
 
 
    
 
 
  
Profit before income tax expense
      1,379,366       1,436,585       1,669,249  
    
 
 
    
 
 
    
 
 
  
Income tax benefit
      49       2,281       15,263  
    
 
 
    
 
 
    
 
 
  
Profit for the year
      1,379,415       1,438,866       1,684,512  
    
 
 
    
 
 
    
 
 
  
Other comprehensive gain(loss) for the year, net of tax
      (368 )      (298 )      2,483  
    
 
 
    
 
 
    
 
 
  
Total comprehensive income for the year
    ￦ 1,379,047     ￦ 1,438,568     ￦ 1,686,995  
    
 
 
    
 
 
    
 
 
  
 
F-251
Table of Contents
Condensed Statements of Cash Flows
 
   
2020
    
2021
    
2022
  
   
(In millions of Korean won)
  
Operating activities
                        
Net income
   ￦ 1,379,415     ￦ 1,438,866     ￦ 1,684,512  
Reconciliation of net income to net cash provided by operating activities:
                        
Other operating activities, net
     9,930       (92,785 )      7,807  
   
 
 
    
 
 
    
 
 
  
Net cash inflow from operating activities
     1,389,345       1,346,081       1,692,319  
   
 
 
    
 
 
    
 
 
  
Investing activities
                        
Net payments to subsidiaries
     (2,347,543 )      (219,268 )      —  
Other investing activities, net
     (146,477 )      (39,477 )      (1,409,500 ) 
   
 
 
    
 
 
    
 
 
  
Net cash outflow from investing activities
     (2,494,020 )      (258,745 )      (1,409,500 ) 
   
 
 
    
 
 
    
 
 
  
Financing activities
                        
Net increase (decrease) in borrowings
     100,000       (100,000 )      —  
Increases in debentures
     1,537,091       389,405       498,898  
Repayments of debentures and lease liabilities
     (940,610 )      (970,535 )      (1,100,584 ) 
Issuance of hybrid securities
     1,296,693       1,142,203       1,596,000  
Cash dividends paid
     (883,952 )      (1,053,417 )      (1,564,153 ) 
   
 
 
    
 
 
    
 
 
  
Net cash inflow (outflow) from financing activities
     1,109,222       (592,344 )      (569,839 ) 
   
 
 
    
 
 
    
 
 
  
Net increase (decrease) in cash and cash equivalents
     4,547       494,992       (287,020 ) 
Cash and cash equivalents as of January 1
     18,534       23,081       518,073  
   
 
 
    
 
 
    
 
 
  
Cash and cash equivalents as of December 31
   ￦ 23,081     ￦ 518,073     ￦ 231,053  
   
 
 
    
 
 
    
 
 
  
 
F-252

Exhibit 1.1

ARTICLES OF INCORPORATION OF KB FINANCIAL GROUP INC.

CHAPTER I

GENERAL PROVISIONS

Article 1    (Corporate Name)

The name of this company shall be “KB Geumyung Jijoo”, which shall be expressed in English as “KB Financial Group Inc.” (the “Company”).

Article 2    (Objective)

The objective of the Company shall be to engage in the following business activities:

 

  1.

Control over or management of companies engaged in financial businesses or other companies related closely to the operations of financial businesses;

 

  2.

Financial support (including lending of properties with economic value such as money and securities, guarantee of performance of obligations, and other direct or indirect transactions involving transactional credit risks, hereinafter the same) for subsidiaries, etc. (as defined in Article 4, Paragraph 1, Sub-paragraph 2 of the Financial Holding Company Act, including subsidiaries, subsidiaries of such subsidiaries (a “Sub-subsidiary”) and other companies controlled by a Sub-Subsidiary, hereinafter the same).;

 

  3.

Financing for investment in subsidiaries or providing financial support to subsidiaries, etc.;

 

  4.

Provision of resources necessary for the business operations of subsidiaries, etc. , including support for the development and sales of financial products of subsidiaries, etc.;

 

  5.

Functions entrusted by subsidiaries, etc. to support the business operations of subsidiaries, etc. including IT, legal and accounting functions;

 

  6.

Provision of intellectual property rights, including trademarks, patents, etc. to subsidiaries, etc.;

 

  7.

Other businesses permitted by laws and regulations; and

 

  8.

Any other businesses incidental or related to those in Items 1 through 7 of this Paragraph.

Article 3    (Location of Head Office and Establishment of Branches)

 

(1)

The Company shall have its head office in Seoul.

 

(2)

The Company may establish branches, liaison offices, representative offices or subsidiaries within or outside Korea, as it deems necessary, by the resolution of the Board of Directors.

Article 4    (Method of Public Notices)

Public notices of the Company shall be posted on the website of the Company (www.kbfg.com); provided, however, that in case the notices cannot be posted on the website of the Company due to technical difficulties or any other unavoidable circumstances, they shall be published in the Seoul Shinmun and Dong-a Ilbo, daily newspapers published in Seoul.

CHAPTER II

SHARES

Article 5    (Total Number of Authorized Shares)

The total number of shares to be issued by the Company shall be one billion (1,000,000,000) shares.

Article 6    (Par Value per Share)

The par value per share to be issued by the Company shall be five thousand (5,000) Won.

Article 7    (Number of Shares Issued at the Time of Incorporation)

The total number of shares issued at the time of incorporation of the Company shall be three hundred and fifty six million, three hundred and fifty one thousand, six hundred and ninety three (356,351,693) shares of common stock.

Article 8    (Types of Shares)

 

(1)

The shares to be issued by the Company shall be shares in registered form. The shares shall be issued by a resolution of the Board of Directors.

 

(2)

The Company may issue common shares, shares with preferred dividend, non-voting shares, class shares with conversion rights (“convertible shares”), class shares with redemption rights (“redeemable shares”) and shares with combination of all or any of the above classes (the foregoing shares, except common shares, shall be referred to as “class shares”) in accordance with the terms of the Articles of Incorporation.

Article 9    (Share Certificates)

 

(1)

The Company shall electronically register shares and rights to be indicated on stock warrant certificates in the electronic registration account book of electronic registries, in lieu of issuing share certificates and stock warrant certificates.

 

(2)

< Deleted>

 

(3)

< Deleted>

Article 10    (Non-Voting Shares with Preferred Dividend)

 

(1)

The Company may issue non-voting shares with preferred dividend, and the number thereof shall not exceed one half (1/2) of the total number of issued and outstanding shares.

 

(2)

The dividends on non-voting shares with preferred dividend shall be no less than one percent (1%) per annum of the par value and the rate thereof shall be determined by the Board of Directors at the time of issuance, together with the type of the distributed properties and method of determination of the value of distributed properties and conditions on payment of dividends to the extent permitted under Articles 59 and 60 hereof; provided, that in the case of issuance of non-voting shares with preferred dividend whereby the rate of preferred dividends is adjustable, the Board of Directors shall determine the fact that the rate of preferred dividends are adjustable, the reasons for the adjustability, the base date for the adjustment and the method of adjustment at the time of issuance of such shares.

 

(3)

Non-voting shares with preferred dividend to be issued by the Company may be participating or non- participating, and accumulating or non- accumulating by the resolution of the Board of Directors.

 

(4)

Non-voting shares with preferred dividend have no voting rights. However, if a resolution not to distribute dividends on such shares is adopted, then the such shares shall be deemed to have voting rights from the next General Meeting of Shareholders immediately following the General Meeting of Shareholders at which such resolution not to distribute dividends on such shares is adopted, to the end of the General Meeting of the Shareholders at which a resolution to distribute dividends on such shares is adopted.

 

(5)

If the Company increases its capital by a shares offering or a bonus issue, the new shares to be assigned to non-voting shares with preferred dividend shall be common shares in the case of a shares offering and shall be the shares of same type in the case of a bonus issue.

 

(6)

Whether or not to specify the duration of non-voting shares with preferred dividend shall be determined by the resolution of the Board of Directors. If there is any duration of non-voting shares with preferred

  dividend, such duration shall be no less than one (1) year and no more than ten (10) years from the date of issuance, and such period of duration shall be determined by the Board of Directors at the time of issuance. If there is any duration of non-voting shares with preferred dividend, such shares shall be converted into common shares upon the expiration of the duration period. However, if the holders of such shares do not receive dividends entitled to them during the duration period, then the duration period shall be extended until such holders receive in full the dividends to which they are entitled. < Delete >

Article 11    (Convertible Shares)

 

(1)

The Company may, pursuant to a resolution of the Board of Directors, issue shares that are convertible into common shares or class shares at the request of shareholders, in an amount not exceeding 20% of the total number of issued and outstanding shares of the Company.

 

(2)

The issue price of the new shares issued upon conversion shall be equal to the issue price of shares prior to conversion, and the number of shares to be issued upon conversion shall be equal to the number of shares prior to conversion.

 

(3)

The period during which a shareholder may request for conversion shall be determined by a resolution of the Board of Directors and shall be a period that commences not earlier than one (1) year, and ends no later than ten (10) years, from the issue date.

 

(4)

< Delete >

Article 12    (Redeemable Shares)

 

(1)

In case of issuance of non-voting shares with preferred dividend, the Company may, pursuant to a resolution of the Board of Directors, issue such non-voting shares with preferred dividend as redeemable shares that may be redeemed with profits at the discretion of the Company or such shareholder, in an amount not exceeding one half (1/2) of the total number of issued and outstanding shares of the Company.

 

(2)

The redemption price shall be the “issue price + additional amount”, where the additional amount shall be determined by a resolution of the Board of Directors at the time of issuance of such redeemable shares, considering various factors such as the dividend rate, market condition and general circumstances related to the issuance of such redeemable shares.

 

(3)

The redemption period for the redeemable shares shall be a period falling between (x) the day immediately following the close of the Ordinary General Meeting of Shareholders for the fiscal year in which the redeemable shares were issued and (y) one month after the close of the Ordinary General Meeting of Shareholders for the fiscal year in which the 20th anniversary of the issue date falls, as determined by a resolution of the Board of Directors; provided, however, that in the case of redeemable shares which are required to be redeemed by the Company upon the expiration of the redemption period, to the extent that any of the conditions listed below have occurred and remain outstanding, the redemption period shall be extended until such conditions have been resolved:

 

  1.

The holders of the redeemable shares did not receive the preferred dividends to which they are entitled; or

 

  2.

The Company is unable to redeem the redeemable shares during the redemption period due to a lack of sufficient profits.

 

(4)

The Company may redeem the redeemable shares in whole at once or in part; provided that, in the case of partial redemption, the Company may select the shares to be redeemed by lottery, or proportionally among each holder. Fractional shares resulting from proportional redemption shall not be redeemed.

 

(5)

In case of redeemable shares which the Company may redeem at its discretion, if the Company wishes to redeem the redeemable shares, the Company shall provide public notice specifying its intention to redeem, the redeemable shares to be redeemed and the fact that the share certificates must be presented to the Company within a period of no less than one (1) month. The Company must separately provide notice to the

  shareholders registered in the Company’s registry of shareholders and the registered pledgees. Upon the expiration of the period mentioned above, the Company shall mandatorily redeem the redeemable shares. In case of redeemable shares which the Company may redeem at the request of shareholders, the shareholder requesting for redemption shall provide to the Company a notice specifying its intention to redeem and the redeemable shares to be redeemed within a period of no less than one (1) month.

 

(6)

At the time of issuance of redeemable shares, the Company may, pursuant to a resolution of the Board of Directors and to the extent permitted by the relevant laws and regulations, issue the redeemable shares as convertible shares as provided for in Article 11 hereof.

Article 13    (Preemptive Rights)

 

(1)

The shareholders of the Company shall have pre-emptive rights to subscribe for new shares to be issued by the Company in proportion to their respective shareholdings.

 

(2)

Notwithstanding the provision of Paragraph (1) above, the Company may allocate new shares to persons other than existing shareholders of the Company by the resolution of the Board of Directors, in any of the following instances:

 

  1.

If the Company issues new shares for its capital increase by way of a general public offering, to the extent not exceeding 50/100 of the total number of issued and outstanding shares of the Company in accordance with the provisions of the Financial Investment Services and Capital Market Act (the “FSCMA”);

 

  2.

If the Company preferentially allocates new shares to members of the Employee Stock Ownership Association in accordance with the provisions of the FSCMA;

 

  3.

If the Company issues new shares upon the exercise of stock options in accordance with the provisions of the Commercial Code, etc.;

 

  4.

If the Company issues new shares for the issuance of depositary receipts (“DR”), to the extent not exceeding 50/100 of the total number of issued and outstanding shares of the Company in accordance with the relevant provisions of the FSCMA, etc.;

 

  5.

If the Company issues new shares to foreign or domestic financial institutions or institutional investors, to the extent not exceeding 50/100 of the total number of issued and outstanding shares of the Company, where such investment is deemed to be necessary for the management or operations of the Company; or

 

  6.

If the Company issues new shares to a third party who has provided money, loan, advanced financial technology or know-how to the Company, has close, cooperative business relations with the Company, or has contributed to the management of the Company, to the extent not exceeding 50/100 of the total number of issued and outstanding shares of the Company.

 

(3)

If the Company allocates new shares to persons other than existing shareholders of the Company pursuant to Paragraph (2) above, it shall give the notice to the shareholders or provide the public with respect to the matters set forth in Article 416, Items 1, 2, 2-2, 3 and 4 of the Korean Commercial Code no later than two (2) weeks before the payment date of such shares.

 

(4)

In the case of issuance of new shares pursuant to each item under Paragraph (2) above, the type and total number of shares to be issued and the issue price, etc. shall be determined by a resolution of the Board of Directors.

 

(5)

In the case a shareholder waives or loses the pre-emptive right to subscribe new shares, those shares not subscribed due to such waiver or loss of the pre-emptive right shall be disposed by a resolution of the Board of Directors. If fractional shares result from the allocation of new shares, such shares shall also be disposed of by a resolution of the Board of Directors.

Article 14    (Stock Options)

 

(1)

The Company may grant stock options to the officers and employees (including officers and employees of related companies as prescribed under Article 9 of the Enforcement Decree of the Commercial Code, hereinafter, the same) pursuant to the provisions of the Commercial Code and other relevant laws, by a special resolution of the General Meeting of Shareholders, to the extent not exceeding 15/100 of the total number of issued and outstanding shares of the Company; provided, however, that the Company may grant stock options to the officers and employees other than directors, by a resolution of the Board of Directors, to the extent not exceeding one percent (1%) of the total number of issued and outstanding shares, in case of such the Company must obtain the approval of shareholders at the nearest forthcoming General Meeting of Shareholders.

 

(2)

The persons who are entitled to receive such stock options shall be officers and employees of the Company prescribed under Paragraph (1) above who have contributed, or are capable of contributing, to the management or technical innovation of the Company, except for officers or employees in any of the following cases:

 

  1.

The Largest Shareholder of the Company (as defined in Article 542-8, Paragraph 2 (5) of the Commercial Code, hereinafter, the same) and Specially Related Persons thereof (as defined in Article 13, Paragraph 4 of the Enforcement Decree of the Commercial Code, hereinafter, the same), except for such persons who are deemed Specially Related Persons upon becoming officers (including an officer who is a non-standing officer of any affiliate company) of the Company;

 

  2.

Major Shareholders (as defined in Article 542-8, Paragraph 2 (6) of the Commercial Code, hereinafter, the same) of the Company, and Specially Related Persons thereof, except for such persons who are deemed Specially Related Persons upon becoming officers (including an officer who is a non-standing officer of any affiliate company) of the Company; and

 

  3.

Persons who become Major Shareholders of the Company through exercise of their stock options.

 

(3)

The shares to be issued upon the exercise of stock options shall be common shares or class shares.

 

(4)

The total number of shares to be given to one (1) officer or employee pursuant to the stock option shall not exceed 1/100 of the total number of shares issued and outstanding.

 

(5)

The exercise price per share for the stock option shall be determined in accordance with the relevant laws, such as the Commercial Code, etc. Adjustment of exercise price shall be determined likewise.

 

(6)

Stock options may be exercised during the period as decided by a resolution of the General Meeting of Shareholders or Board of Directors, at the time that the stock options are granted. Such exercise period shall fall between the date commencing from the 2nd anniversary of the date that a resolution was made to grant such stock options (as provided in Paragraph (1) above) until a date not later than the 7th anniversary of such resolution date.

 

(7)

A stock option is exercisable by a person who has served the Company for two (2) years or more from the date specified in Paragraph (1) above at which a resolution to grant such stock option was adopted. If the grantee’s continuous service terminates by reason of the grantee’s death, attainment of mandatory retirement age or for reasons other than by the fault of the grantee within two (2) years from the said date of resolution, the option may be exercisable within the exercise period.

 

(8)

In the case of granting the stock options, the Company may condition the exercise of the stock options upon achieving a detailed set of performance goals, and may cancel all or a portion of the stock options or postpone the exercise of stock options if such condition is not satisfied.

 

(9)

In the following instances, the Company may, by a resolution of the Board of Directors, cancel the stock options:

 

  1.

When the relevant officer or employee voluntarily resigns or retires from his or her position at the Company after receiving the stock option;

 

  2.

When the relevant officer or employee inflicts material damage or losses on the Company due to his or her willful misconduct or negligence;

  3.

When the Company cannot respond to the exercise of stock options due to its bankruptcy, dissolution, etc.; or

 

  4.

When there occurs any other event for cancellation of the stock option pursuant to the stock option agreement.

Article 15    (Equal Dividends)

The Company shall pay an equal amount of dividend with respect to shares in the same class issued (including such shares issued upon conversion) as of the record date for such dividend payment, irrespective of the issuance date of such shares.

Article 16    (Transfer Agent)

 

(1)

The Company shall designate a transfer agent for shares.

 

(2)

The transfer agent, its place of business and the scope of its agency business shall be determined by a resolution of the Board of Directors.

 

(3)

The shareholders registry or duplicates thereof shall be kept at the business place of the transfer agent and electronic registration of shares, management of the shareholders registry and other related activities shall be conducted by the transfer agent.

 

(4)

The procedure provided for in Paragraph (3) above shall be regulated by the regulations applicable to Transfer Agent, etc.

Article 17    (Request For Preparation of the Register of Holders)

The Company may request the electronic registry to prepare a register of holders when it is necessary, including in the case when there is a change in the status of a shareholder (including such shareholder’s specially related parties) who owns 5% or more equities of the Company.

Article 18    (Record Date)

 

(1)

< Delete >

 

(2)

The shareholders registered in the shareholders’ registry as of December 31 of each fiscal year shall be entitled to exercise the rights as shareholders at the Ordinary General Meeting of Shareholders convened for such fiscal year.

 

(3)

The Company may, if necessary for convening of an Extraordinary General Meeting of Shareholders or any other necessary cases, cause the shareholders whose names appear in the shareholders’ registry on a record date set by a resolution of the Board of Directors to exercise their rights as shareholders. The Company shall give at least two (2) weeks prior notice to the public.

 

(4)

Notwithstanding the provision of the last sentence of Paragraph (3) above, if prescribed otherwise by the Financial Holding Companies Act and other relevant laws and regulations, such laws may prevail.

CHAPTER III

BONDS

Article 19    (Issuance of Bonds)

 

(1)

The Company may, pursuant to a resolution of the Board of Directors, issue bonds.

 

(2)

The Board of Directors may delegate the Representative Director to issue bonds in such amount and type as determined by the Board of Directors no later than one (1) year from the date of delegation.

(3)

The Company shall electronically register bond (which shall include the bonds and contingent convertible bonds set forth from Articles 19-2 to 21) and rights to be indicated on warrant certificates in the electronic registration account book of electronic registries, in lieu of issuing bond certificates and warrant certificates; provided, however, that in the case of bonds, the Company may choose not to electronically register bonds other than bonds that are required to be electronically registered, including listed bonds.

Article 19-2    (Issuance of Convertible Bonds)

 

(1)

The Company may issue to persons other than existing shareholders of the Company convertible bonds, by the resolution of the Board of Directors, to the extent that the total face value of the bonds shall not exceed two trillion five hundred billion (2,500,000,000,000) Won, in the following cases:

 

  1.

If the Company issues convertible bonds through a general public offering;

 

  2.

If the Company issues convertible bonds to domestic or foreign financial institutions or institutional investors in order to raise the fund to meet urgent need; or

 

  3.

If the Company issues convertible bonds to a third party who has provided money, loan, advanced financial technology or know-how to the Company, has close, cooperative business relations with the Company, or has contributed to the management of the Company.

 

(2)

The Board of Directors may determine that the convertible bonds referred to in Paragraph (1) may be issued on the condition that conversion rights will be attached to only a portion of the convertible bonds.

 

(3)

The shares to be issued upon conversion shall be common shares or class shares. The conversion price, which shall be equal to or more than the face value of the shares, shall be determined by the Board of Directors at the time of issuance of convertible bonds.

 

(4)

The conversion period shall commence on the date following three (3) months from the issue date of the convertible bonds and end on the date immediately preceding the redemption date thereof. However, the conversion period may be adjusted within the above period by a resolution of the Board of Directors.

 

(5)

< Delete >

Article 20    (Bonds with Warrants)

 

(1)

The Company may issue to persons other than existing shareholders of the Company bonds with warrants, by the resolution of the Board of Directors, to the extent that the total face value of the bonds shall not exceed two trillion five hundred billion (2,500,000,000,000) Won, in the following cases:

 

  1.

If the Company issues bonds with warrants through a general public offering;

 

  2.

If the Company issues bonds with warrants to domestic or foreign Financial institutions or institutional investors in order to raise the fund to meet urgent need; or

 

  3.

If the Company issues bonds with warrants to a third party who has provided money, loan, advanced financial technology or know-how to the Company, has close, cooperative business relations with the Company, or has contributed to the management of the Company.

 

(2)

The amount of new shares which can be subscribed for by the holders of the bonds with warrants shall be determined by the Board of Directors to the extent that the maximum amount of such new shares shall not exceed the face value of the bonds with warrants.

 

(3)

The shares to be issued upon exercise of warrants shall be common shares or class shares. The issue price, which shall be equal to or more than the face value of the shares, shall be determined by the Board of Directors at the time of issuance of bonds with warrants.

 

(4)

The warrant exercise period shall commence on the date following three (3) months from the issue date of the relevant bonds and end on the date immediately preceding the redemption date thereof. However, the warrant period may be adjusted within the above period by resolution of the Board of Directors.

 

(5)

< Delete >

Article 20-2    (Issuance of Write-down Contingent Convertible Bonds)

 

(1)

The Company may issue bonds by a resolution of the Board of Directors, which are a different type of bonds from those under Article 469, Paragraph (2), Article 513 and Article 516-2 of the Korean Commercial Code and are exempted from the obligation to repay the bonds and pay interest thereon if an event predetermined in accordance with objective and reasonable standards at the time of the issuance of the bonds occurs (the “Write-down Contingent Convertible Bonds”).

 

(2)

The Company may issue the Write-down Contingent Convertible Bonds in the preceding Paragraph to the extent the aggregate par value thereof does not exceed twenty trillion (20,000,000,000,000) Won by a resolution of the Board of Directors.

 

(3)

The Company may issue the Write-down Contingent Convertible Bonds on the condition that if either one of the following conditions are satisfied, the obligations to repay the Write-down Contingent Convertible Bonds issued by the Company and to pay interest thereon shall be reduced or exempted (the “Debt Restructuring”):

 

  1.

The Company received a measure of managerial improvement order from the Financial Services Commission pursuant to the Act on the Structural Improvement of the Financial Industry; or

 

  2.

The Company is designated as a non-performing financial institution pursuant to the Act on the Structural Improvement of the Financial Industry.

 

(4)

The Board of Directors of the Company may determine such terms and conditions to be amended following the Debt Restructuring, to the extent permitted under the relevant laws and regulations, at the time of the issuance of the Write-down Contingent Convertible Bonds.

Article 21    (Issuance of Participating Bonds)

 

(1)

The Company may issue participating bonds to persons other than existing shareholders by the resolution of Board of Directors; to the extent that the total face value of the bonds shall not exceed one trillion (1,000,000,000,000) Won, in the following cases:

 

  1.

If the Company issues participating bonds through a general public offering;

 

  2.

If the Company issues participating bonds to domestic or foreign financial institutions or institutional investors in order to raise the fund to meet urgent need; or

 

  3.

If the Company issues participating bonds to a third party who has provided money, loan, advanced financial technology or know-how to the Company, has close, cooperative business relations with the Company, or has contributed to the management of the Company.

 

(2)

The matters about participation in any distribution of dividends on bonds issued pursuant to Article (1) above shall be determined by the resolution of the Board of Directors on the basis of the distribution of dividends on common shares at the time of issuance.

Article 22    (Applicable Provisions for the Issuance of Bonds)

The provisions of Articles 16 hereof shall be applicable to the issuance of bonds.

CHAPTER IV

GENERAL MEETINGS OF SHAREHOLDERS

Article 23    (Convening of General Meetings of Shareholders)

 

(1)

General Meetings of Shareholders of the Company shall be of two types: (i) Ordinary and (ii) Extraordinary.

 

(2)

The Ordinary General Meeting of Shareholders shall be held within three (3) months after the end of each fiscal year and the Extraordinary General Meeting of Shareholders may be convened whenever deemed necessary.

Article 24    (Authority to Convene)

 

(1)

The Representative Director shall convene the General Meeting of Shareholders in accordance with a resolution by the Board of Directors, unless otherwise prescribed by other laws and ordinances.

 

(2)

If the Representative Director is unable to perform his/her duties, Article 41, Paragraph (2) shall apply mutatis mutandis.

Article 25    (Personal or Public Notices for Convening)

 

(1)

Written or electronic notice of the General Meeting of Shareholders of the Company shall state the date, time, place of the Meeting, the purposes for which the Meeting has been called. The written or (with the consent of each shareholder) electronic notice shall be sent to all shareholders at least two (2) weeks prior to the date set for such Meeting.

 

(2)

The written or electronic notice of a General Meeting of Shareholders under Paragraph (1) above to be given to shareholders holding one-hundredth (1/100) or less of the total issued and outstanding voting shares may be substituted by either giving public notice of the convening of the General Meeting of Shareholders in the Seoul Shinmun and the Dong-a Ilbo, which are published in the city of Seoul and at least two (2) notices are made in the said publications two (2) weeks prior to the date set for such Meeting or by giving such public notice through the electronic disclosure system operated by the Financial Supervisory Commission or the Korea Exchange; provided that, if the Seoul Shinmun and the Dong-a Ilbo are not available due to circumstances beyond the Company’s control, the public notices may be given in the Chosun Ilbo and the Joongang Ilbo, in such order.

Article 26    (Place of Meeting)

The General Meeting of Shareholders shall be held in the city where the head office is located or any other places adjacent thereto as required.

Article 27    (Chairman of the General Meeting of Shareholders)

The person who has the authority to convene the General Meeting of Shareholders under Article 24 above shall be the Chairman of the General Meeting of Shareholders.

Article 28    (Chairman’s Authority to Maintain Order)

 

(1)

The Chairman of the General Meeting of Shareholders may order persons who purposely speak or act in a manner that disrupts or inhibits the deliberations of the General Meeting of Shareholders or who otherwise disturb the public order of the General Meeting of Shareholders to desist, retract his/her remarks, or to leave the place of meeting.

 

(2)

The Chairman of the General Meeting of Shareholders may restrict the length and frequency of the speech of shareholders if it is necessary for the orderly conduct of the General Meeting of Shareholders.

Article 29    (Voting Rights)

 

(1)

Each shareholder shall have one (1) vote for each share he/she owns.

 

(2)

If the Company, any of its parent company and subsidiary or subsidiaries hold shares exceeding one tenth (1/10) of the total number of issued and outstanding shares of another company, the shares of the Company held by such other company shall not have voting rights.

Article 30    (Split Voting)

 

(1)

If any shareholder who holds two (2) or more votes wishes to split his/her votes, he/she shall give written or electronic notice to the Company of such intent and the reasons therefor no later than three (3) days before the date set for the General Meeting of Shareholders.

(2)

The Company may refuse to allow the shareholder to split his/her votes unless the shareholder acquired the shares in trust or otherwise holds the shares for and on behalf of some other person.

Article 31    (Voting by Proxy)

 

(1)

A shareholder may exercise his/her voting rights by proxy.

 

(2)

In the case of Paragraph (1) above, the proxy holder shall file with the Company the documents (power of attorney) evidencing the authority to act as a proxy before the General Meeting of Shareholders.

Article 32    (Method of Resolution of the General Meeting of Shareholders)

Except as otherwise provided in the applicable laws and regulations, all resolutions of the General Meeting of Shareholders shall be adopted by the affirmative vote of a majority of

the shareholders present; provided that such votes shall, in any event, represent not less than 1/4 of the total number of issued and outstanding shares.

Article 33    (Exercise of Voting Rights in Writing)

 

(1)

If the method of written resolutions at the General Meeting of Shareholders is adopted by the resolution of the Board of Directors, at which the convening of the General Meeting of Shareholders is determined, the shareholders may exercise their voting rights in writing without attending the meeting.

 

(2)

In the case of Paragraph (1), the Company shall send the documents and references necessary for the exercise of the voting rights, together with the convening notice of the General Meeting of Shareholders.

 

(3)

If a shareholder intends to exercise his/her voting rights in writing, the shareholder shall fill in and submit to the Company the documents referred to in Paragraph (2) one day before the date set for the General Meeting of Shareholders.

Article 34    (Minutes of the General Meetings of Shareholders)

The substance of the course of the proceedings of the General Meeting of Shareholders and the results thereof shall be recorded in the minutes and shall be preserved at the head office and branches of the Company, after being affixed with the names and seal impressions or signatures of the Chairman and the Directors present.

CHAPTER V

DIRECTORS AND BOARD OF DIRECTORS

Article 35    (The Number of Directors)

 

(1)

The Company shall have not more than thirty (30) Directors.

 

(2)

The number of Non-executive Directors shall be more than one half (1/2) of the total number of Directors and five (5) or more.

Article 36    (Election of Director)

 

(1)

The Directors shall be elected at the General Meeting of Shareholders.

 

(2)

Non-executive Directors shall be recommended by the Non-executive Directors Candidate Nomination Committee pursuant to Article 48 and elected at the General Meeting of Shareholders.

Article 37    (Qualifications of Non-executive Directors)

 

(1)

Any person falling within the scope of any of the following cannot become a non-executive director of this Company and such person shall, if found to fall within the scope of any of the following after becoming a non-executive director, lose his/her office as non-executive director:

 

  1.

Any person to whom any sub-paragraph of Article 6, Paragraph 1 of the Act on Corporate Governance of Financial Companies applies.; or

  2.

Any person serving as a non-executive director of any other company that is not a Subsidiary, etc. of the Company.

 

(2)

The Company shall appoint a non-executive director who has expertise and knowledge by considering the following; provided, however, that this Paragraph is not applicable to a person who is appointed as non-executive director after being nominated as a candidate therefor pursuant to Article 542-8, Paragraph (5) of the Korean Commercial Code or Article 17, Paragraph 4 of the Act on Corporate Governance of Financial Companies.

 

  1.

Whether he or she is sufficiently well-informed or experienced in a related field, including finance, economics, management, accounting and law, as required for his or her performance of duty as a non-executive director;

 

  2.

Whether he or she may fairly perform his or her duty for the benefit of the entire shareholders and financial consumers without being bound by certain interests;

 

  3.

Whether he or she has reasonable sense of morals and responsibility to perform his or her duty as a non-executive director; or

 

  4.

Whether he or she is able to dedicate sufficient time and effort to fully perform his or her duty as a non-executive director of a financial company.

Article 38    (Term of Director)

 

(1)

A Director shall be appointed to a term of office of three (3) years, and may be re-appointed; provided, that such term may be otherwise determined at the General Meeting of Shareholders to the extent it does not exceed three (3) years.

 

(2)

If the term of office as set forth in Paragraphs (1) and (4) expires after the end of a fiscal year but before the Ordinary General Meeting of Shareholders convened in respect of such fiscal year, the term of office shall be extended up to the close of such General Meeting of Shareholders.

 

(3)

Unless otherwise prescribed by General Meeting of Shareholders, the term of office of the Director shall commence from the date of appointment.

 

(4)

Notwithstanding Paragraph (1), the term of office of a non-executive director shall be two (2) years and shall be one (1) year if the non-executive director is being re-appointed; provided, however, that the length of such term may be otherwise determined at the General Meeting of Shareholders so long as such term does not exceed two (2) years (or one (1) year in the case of re-appointment).

 

(5)

A non-executive director cannot serve a term of office for more than five (5) years on a consecutive basis except in the case where the term of office is extended pursuant to Paragraph (2) above.

 

(6)

If a non-executive director is re-appointed within two (2) years from the expiry of the term of office, the non-executive director shall be deemed to serve the position on a consecutive basis.

 

(7)

The term of office set forth in above Paragraph (5) shall be calculated by taking into consideration the term of office served as a non-executive director for Subsidiaries, etc. of this Company (but only with respect to such non-executive director of a Subsidiary, etc. who is appointed as a non-executive director of this Company within two (2) years from the expiry of the term of office), except for the term of office served as a non-executive director for a company that is not an affiliate of this Company. However, the terms of office of non-executive directors of companies that became subsidiaries, etc. of the Company at the time the Company was approved to become a financial holding company pursuant to Article 3 of the Financial Holding Company Act shall be counted for the calculation of the terms of office hereunder.

Article 39    (By-election of Directors)

 

(1)

In the event of any interim vacancy in the office of the Director, a substitute Director shall be elected at the General Meeting of Shareholders; provided, however, that the foregoing shall not apply if the number of remaining Directors satisfies the requirement Article 35 hereof and such vacancy does not cause any difficulties in business operation of the Company.

(2)

If the number of Non-executive Directors does not satisfy the requirement referred to in Article 35 due to the death or resignation of Non-executive Directors, etc., Non-executive Directors shall be elected to fill the vacancy at the first General Meeting of Shareholders to be held after such occurrence so as to cause the number of Non-executive Directors to be such prescribed number.

Article 40    (Appointment of Representative Director, et al.)

The Company may appoint several Representative Directors, including one appointed as the Chairman, by the resolution of the Board of Directors.

Article 41    (Duties of Directors)

 

(1)

The Representative Director shall represent the Company and shall perform the matters resolved by the Board of Directors and oversee the business of the Company as determined by the Board of Directors.

 

(2)

Directors who are not Non-executive Directors shall assist the Representative Director, and divide and perform their respective duties as may be determined by the Representative Director. In the case of an absence of, or an accident caused to, the Representative Director, the Directors shall take his/her place as the Representative Director in accordance with their order of priority as determined by the Board of Directors.

Article 42     (Director’s Obligation)

 

(1)

Directors shall attend the meeting of the Board of Directors and shall perform their respective duties faithfully. During his/her service period and after his/her retirement, Directors shall not disclose trade secrets of the Company obtained in the course of his/her performance of duties.

 

(2)

If any Director finds any facts which may cause substantial losses to the Company, such Director shall promptly report to the Audit Committee thereof.

Article 43    (Composition and Convening of the Meeting of Board of Directors)

 

(1)

The Board of Directors shall consist of Directors, and shall resolve important matters regarding the business affairs of the Company.

 

(2)

The Chairman of the Board of Directors shall be elected from among the non-executive directors in accordance with the resolution of the Board of Directors on an annual basis.

 

(3)

The Meeting of the Board of Directors shall be convened at least once per fiscal quarter.

 

(4)

The Meeting of the Board of Directors shall be convened by giving notice to each Director at least three (3) days prior to the scheduled date of such Meeting. In the absence of or if accidents are caused to the Chairman of the Board of Directors, the Director(s) as determined by the Board of Directors shall take his/her place as the Representative Director. However, the said notice period may be shortened in urgent cases and the said procedures may be omitted with the consent thereon of all Directors.

 

(5)

The Company shall organize the Board of Directors so that persons from various fields with appropriate experience and knowledge required for the performance of duties as directors of a financial company may be included therein, and shall put its effort so that the Board of Directors may not be comprised of directors with certain common background in their expertise nor be weighted towards certain occupations or some groups by representing the interest thereof, etc.

 

(6)

Other matters regarding the operation of the Board of Directors shall be determined in accordance with the resolution of the Board of Directors.

Article 44    (Review/Resolution of the Board of Directors)

The Board of Directors shall review and resolve each of the following matters:

 

  1.

Matters concerning business objectives and performance evaluations;

  2.

Matters concerning amendments to the Articles of Incorporation;

 

  3.

Matters concerning budgets and settlement of accounts;

 

  4.

Matters concerning major organizational changes such as dissolutions, business transfers and mergers;

 

  5.

Matters concerning establishment, amendment or repeal of internal control standards and risk management standards as prescribed by the relevant laws and regulations;

 

  6.

Matters concerning establishment of corporate governance policies such as management succession of the chief executive officer;

 

  7.

Matters concerning supervision of conflicts of interests between principal shareholders, officers, etc. and the Company;

 

  8.

Matters concerning the general shareholders’ meeting, general business, management of subsidiaries, material contracts, organization and officers, fund-raising and capital, and other matters as separately determined by the bylaws of the Board of Directors.

Article 45     (Method of Resolution)

 

(1)

The quorum for the Board of Directors shall be the presence of at least more than one half (1/2) of the Directors, and all resolutions of the Board of Directors shall require the affirmative votes of a majority of the Directors present at the meeting of the Board of Directors; provided that amendment of the Articles of Incorporation, appointment of the Representative Director and other matters requiring the resolution of General Meeting of Shareholders shall be adopted by the affirmative vote of a majority of the Directors in office; provided, further, that any matter falling under Articles 397-2 (Prohibition on Usurpation of Corporate Opportunity) and 398 (Prohibition on Transaction between Director and Company) of the Korean Commercial Code shall be adopted by the affirmative vote of equal to or more than two-thirds(2/3) of the Directors in office.

 

(2)

The Board meetings may be held by means of an audio conference that can simultaneously transmit and receive sound, whereby all or part of the Directors may participate in the meeting and vote on matters at the same time. In such case, a Director participating in the meeting by such arrangement shall be considered present at the meeting.

 

(3)

Any Director who has an interest in the matters to be resolved at the Meeting of the Board of Directors shall not be entitled to vote at such Meeting.

Article 46    (Minutes of the Meeting of Board of Directors)

 

(1)

The proceedings of a Board meeting shall be recorded in the minutes.

 

(2)

The agenda, proceedings, resolutions, dissenting director (if any) and his/her reasons for dissenting of a Board meeting shall be recorded in the minutes on which the names and seals of the Directors present at the meeting shall be affixed or signed by them.

Article 47 (Power and Obligation of the Board of Directors to the Wholly-Owned Subsidiary, etc.)

 

(1)

The Board of Directors shall retain the power to give advice, corrective recommendation and request for submission of materials with respect to the matters of management of the subsidiary of which the total issued and outstanding shares are owned by the Company (“Wholly-Owned Subsidiary”), and the Sub-subsidiary company of which the total issued and outstanding shares are owned by the Wholly-Owned Subsidiary(“Wholly-Owned Sub-subsidiary”, and “Wholly-Owned Subsidiary, etc.” together with Wholly-Owned Subsidiary).

(2)

When exercising the power under Paragraph (1) above, the Board of Directors shall be liable for the followings:

 

  1.

The Board of Directors shall not hinder the soundness of management, consumer’s right and the sound order of financial transactions;

  2.

During his/her service period and after his/her retirement, Directors shall not disclose trade secrets of the Wholly-Owned Subsidiary, etc. obtained in the course of his/her performance of duties; and

 

  3.

The Board of Directors shall not violate the relevant laws and regulations.

 

(3)

The Board of Directors shall set up the standards of internal compliance in accordance with the relevant laws and regulations such as the Act on Corporate Governance of Financial Companies in order to supervise direct and indirect subsidiaries of the Company, and may appoint the compliance officer to inspect compliance of such standards.

Article 48    (Committees)

 

(1)

The Company may establish various committees including following committees within the Board of Directors as determined by the resolution of the Board of Directors for the purposes of smooth operation of the Board of Directors and effective management of the Company:

 

  1.

Risk Management Committee;

 

  2.

Evaluation and Compensation Committee;

 

  3.

Non-executive Director Nominating Committee;

 

  4.

Audit Committee Member Nominating Committee;

 

  5.

CEO Nominating Committee;

 

  6.

Audit Committee;

 

  7.

Subsidiaries’ CEO Director Nominating Committee; and

 

  8.

ESG Committee.

 

(2)

Matters regarding the composition, power, operation, etc. of each committee shall be determined by the resolution of the Board of Directors.

 

(3)

Article 43, Paragraph (4), Article 44 and Article 45 shall apply mutatis mutandis with respect to the committees.

Article 49 (Remuneration for Directors, etc.)

 

(1)

The maximum remuneration of a Director shall be determined by a shareholder resolution at a General Meeting of Shareholders.

 

(2)

The severance pay of a Director shall be made in accordance with the “Regulations on Severance Pay for Directors” approved at a General Meeting of Shareholders.

Article 50    (Group Management Control Committee, Etc.)

 

(3)

The Company shall establish the Group Management Control Committee in order to effectuate strategic managerial decision-making for the Company, its Subsidiaries, etc., and the matters regarding the operation of the Group Management Control Committee shall be determined by the Board of Directors.

 

(4)

The Company may retain consultants, honorary directors, advisors, etc. by a resolution of the Board of Directors.

CHAPTER VI

AUDIT COMMITTEE

Article 51    (Constitution of Audit Committee)

 

(1)

The Company shall establish an Audit Committee, as prescribed by the Act on Corporate Governance of Financial Companies and other applicable laws and regulations.

(2)

The Audit Committee of the Company under the Act on Corporate Governance of Financial Companies shall consist of three (3) or more Directors, who are recommended by the Audit Committee Member Nominating Committee, which is composed of all Non-executive Directors.

 

(3)

Two-thirds (2/3) of the members of the Audit Committee shall be elected from the Non-executive Directors. The members of the Audit Committee who are not Non-executive Directors shall satisfy the requirements of the Act on Corporate Governance of Financial Companies.

(4)

The Members of the Audit Committee shall have any of the following qualifications and not less than one of the members of the Audit Committee shall be a professional in financial affairs pursuant to the relevant laws:

 

  1.

A licensed person such as lawyer, CPA with at least 5-year work experience in the licensed business;

 

  2.

A person who has been a researcher in the institutions or an assistant professor in colleges, having a master’s degree in law or economics -business with at least 5-year work experience;

 

  3.

A person who has been served as a professional in accounting, internal compliance, audit, Information Technology (IT) and so on with at least 10-year work experience in finance related organizations;

 

  4.

A person who has served as an executive official for at least 5-year, or as an employee who has a specific and practical knowledge in economics, business, law, accounts and the like for at least 10-year in Stock listed corporations; or

 

  5.

A person who is recognized as being equivalently qualified as those listed in items 1 through 4 by the Board of Directors or General Meeting of the Shareholders.

 

(5)

The Chairman of the Audit Committee shall be elected among the members who are Non-executive Directors by a resolution of the Audit Committee.

 

(6)

If the number of members of the Audit Committee does not satisfy the requirement referred to Paragraph (3) due to the death or resignation of members or any other reason, the members shall be elected to fill the vacancy at the first General Meeting of Shareholders to be held after such occurrence so as to cause the number of members to be such prescribed number.

Article 52    (Duties of Audit Committee)

 

(1)

The Audit Committee shall audit Directors’ performance of their duties and may request business reports from any Director, or investigate the business and status of property of the Company.

 

(2)

The Audit Committee may, if necessary, request to call the Board meeting by submitting, in writing, a purpose and reason for such meeting to a person authorized to convene the Meeting of the Board of Directors.

(3)

The Audit Committee may convene the Meeting of the Board of Directors in the event a person authorized to convene the Meeting of the Board of Directors fails to convene such meeting without delay according to Paragraph (2) above.

 

(4)

The Audit Committee shall inspect the matters listed in the agenda of, and documents submitted to, a General Meeting of Shareholders to investigate whether there is any event violating the laws or these Articles of Incorporation and the Chairman of the Audit Committee shall express his/her opinion to the General Meeting of Shareholders.

 

(5)

The Audit Committee may request the Board of Directors to convene the Extraordinary General Meeting of Shareholders by submitting documents stating the agenda and reasons for convening such meeting.

 

(6)

The Audit Committee may request business reports from any subsidiary of the Company when it is necessary to perform its duties. In this case, if such subsidiary does not report to the Audit Committee immediately or the Audit Committee needs to verify the contents of the reports, it may investigate the status of business and the financial condition of the subsidiary.

 

(7)

The Audit Committee shall retain the power to audit the status of the operation and property and to request the submission of materials in relation to the managerial matters of the Wholly-Owned Subsidiary, etc. and

  with respect to the exercise of such power Article 46 Paragraph (2) shall apply mutatis mutandis to the liability of the Audit Committee.

 

(8)

The Audit Committee shall select an external auditor.

 

(9)

In addition to the matters referred to in Paragraphs (1) through (8), the Audit Committee shall carry out the matters delegated by the Board of Directors.

 

(10)

The Board of Directors shall not overrule the decisions of the Audit Committee.

 

(11)

The Audit Committee may request professional support at the Company’s expenses.

Article 53    (Audit Committee’s Record)

The Audit Committee shall record the substance and results of its audit in the Audit Committee’s record, on which the name and seal of the Audit Committee Member who has performed such audit shall be affixed or shall be signed by such Audit Committee Member.

CHAPTER VII

ACCOUNTING

Article 54    (Fiscal Year)

The fiscal year of the Company shall begin on January 1 and end on December 31 of each year.

Article 55 (Preparation and Maintenance of Financial Statements and Business Report, etc.)

 

(1)

The Representative Director of the Company shall prepare the following documents to be submitted to the Ordinary General Meeting of Shareholders, together with supplementary data for items 1 through 3 and business reports, and have such documents audited by the Audit Committee no later than six (6) weeks before the date of the Ordinary General Meeting of Shareholders:

 

  1.

balance sheet(statements of financial position referred to in Article 2 of the Act on the External Audit of Stock Companies, Etc.);

 

  2.

statements of profit and loss; and

 

  3.

other documents which record the Company’s financial condition and business performance as set forth by the Enforcement Decree of the Korean Commercial Code; and

 

  4.

consolidated financial statements for items 1 through 3 as set forth by the Enforcement Decree of the Korean Commercial Code.

 

(2)

The Audit Committee shall submit an audit report to the Representative Director no later than one (1) week before the date of the Ordinary General Meeting of Shareholders.

 

(3)

The Representative Director shall keep on file copies of the documents described in Paragraph (1) above, together with the business report and Audit Committee’s audit report thereon, at the head office of the Company for five (5) years, and certified copies of all of such documents at the branches of the Company for three (3) years, beginning from one (1) week before the date of the Ordinary General Meeting of Shareholders.

 

(4)

Upon obtaining approval for the documents mentioned in Paragraph (1) above from the General Meeting of Shareholders, within three (3) months from the end of the relevant fiscal year, the Representative Director shall make a public notice of the balance sheet(statements of financial position referred to in Article 2 of the Act on the External Audit of Stock Companies, Etc.), income statement, consolidated financial statements pursuant to the Act on External Audit of Stock Companies, Etc. which are designated by the FSC and the opinion of an external auditor.

Article 56 (Appointment of External Auditor)

The Company shall appoint a person selected by the Audit Committee as the external auditor, and shall report such appointment to the Ordinary General Meeting of Shareholders to be held after he/she is appointed or to the shareholders as of the latest closing date of the shareholders’ registry in writing or in electronic form, or shall give a public notice regarding such appointment via the Company’s website and make such notice available until the end of the relevant fiscal year with respect to which the audit is conducted.

Article 57    (Disposal of Profits)

The Company shall dispose of the unappropriated retained earnings as of the end of each fiscal year as follows:

 

  1.

earned surplus reserves;

 

  2.

other statutory reserves;

 

 

  3.

dividends;

 

  4.

emporary reserves; and

 

  5.

other appropriations of earned surplus.

Article 58    (Retirement of Shares)

 

(1)

The Company may retire the shares within the scope of profits attributable to the shareholders by the resolution of the Board of Directors.

 

(2)

In order to retire the shares pursuant to Paragraph (1), the Board of Directors shall adopt the following resolutions:

 

  1.

Types and the total number of shares to be retired;

 

  2.

The total amount of shares to be acquired for retirement; and

 

  3.

Acquisition period or retirement date (the acquisition period or retirement date shall be before the Ordinary General Meeting of Shareholders to be held first after the resolution of such retirement).

 

(3)

In case of acquisition of shares for the purpose of retirement pursuant to Paragraph (1), the following criteria shall be followed:

 

  1.

In the case of acquisition of shares for the purpose of retirement, such acquisition shall be made in accordance with the method and criteria as prescribed in the relevant laws, such as the FSCMA, etc.

 

  2.

Total price of the shares to be acquired for the purpose of retirement shall not be more than the amount as prescribed in the relevant laws, such as the FSCMA, etc. within the scope available for dividend as at the end of such fiscal year pursuant to Article 462, Paragraph (1) of the Commercial Code.

 

(4)

When the shares are retired pursuant to Paragraph (1), the matters referred to in each Subparagraph of Paragraph (2) and the results of retirement shall be reported to the Ordinary General Meeting of Shareholders to be held first after the resolution of such retirement.

Article 59    (Dividends)

 

(1)

Dividends may be distributed in cash or stock.

 

(2)

In case the dividends are to be distributed in stock and the Company has class shares, the stock dividend distribution may be made in shares of different types by a resolution of the General Meeting of Shareholders.

 

(3)

The Company may set the record date to determine the shareholders who will receive the Dividends set forth in Paragraph (1) by a resolution of the Board of Directors. The Company shall give at least two (2) weeks prior notice to the public.

Article 60 (Quarterly Dividends)

 

(1)

The Company may distribute cash dividends to the shareholders as of the end of March, June or September by resolution of the Board of Directors.

 

(2)

Quarterly Dividends provided under Paragraph (1) shall be decided by a resolution of the Board of Directors, provided that the specific method and limit, etc. of quarterly dividends shall satisfy the relevant laws and regulations including including the FSCMA, etc.

 

(3)

< Delete >

 

(4)

In case of distributing quarterly dividends, the same dividend rate as that of common shares of the Company shall be applied to non-voting shares with preferred dividend under Article 10 unless otherwise determined at the time of issuance.

Article 61    (Expiration of Right to Payment of Dividends)

 

(1)

The right to demand payment of dividends shall extinguish by prescription if not exercised within five (5) years.

 

(2)

The dividends, for which the right has been extinguished under Paragraph (1) above, shall be kept by the Company.

Article 62    (Supplementary Provision)

Matters not specified in these Articles of Incorporation shall be determined by the resolution of the Board of Directors or the General Meeting of Shareholders, or in accordance with the Commercial Code or other laws.

ADDENDUM(2008. 9. 29.)

Article 1    (Effective Date)

These Articles of Incorporation shall become effective from the date of registration of incorporation.

Article 2    (Initial Fiscal Year after Incorporation)

Notwithstanding the provision of Article 53, the initial fiscal year of the Company after incorporation shall be from the date of incorporation to December 31, 2008.

Article 3    (Initial Transfer Agent after Incorporation)

The initial transfer agent of the Company after incorporation shall be Korea Securities Depository.

Article 4    (Appointment of Initial Director, Representative Director, et al. after Incorporation)

Notwithstanding the provisions of Articles 36 and 39, the initial Director and the initial Representative Director after incorporation shall be appointed at the General Meetings of Shareholders of the Stock Transfer Companies, at which the resolution to approve the stock transfer is adopted.

Article 5    (Term of Office of Initial Director after Incorporation)

Notwithstanding the provisions of Articles 38, the term of office of the initial Director after incorporation shall be determined, to the extent it does not exceed three (3) years, at the General Meetings of Shareholders of the Stock Transfer Companies at which the stock transfer plan is approved.

Article 6    (Appointment of Initial Non-executive Director after Incorporation)

Notwithstanding the provision of Article 36, Paragraph (2), the initial Non-executive Director of the Company after incorporation shall be appointed at the General Meetings of Shareholders of the Stock Transfer Companies, at which the resolution to approve the stock transfer is adopted, without recommendation of the Non-executive Director Candidate Nomination Committee.

Article 7    (Appointment of Initial Members of Audit Committee after Incorporation)

Notwithstanding the provision of Article 50, Paragraph (2), the initial members of Audit Committee shall be appointed at the General Meetings of Shareholders of the Stock Transfer Companies, at which the resolution to approve the stock transfer is adopted, without recommendation of the Audit Committee Member Nominating Committee.

Article 8    (Remuneration of Directors in Initial Fiscal Year after Incorporation)

Notwithstanding the provision of Article 48, the remuneration of Directors in initial fiscal year after incorporation shall be determined at the first meeting of the Board of Directors after incorporation, to the extent not exceeding two (2) billion Won.

Article 9    (Stock Transfer Companies)

In order to incorporate the Company, the following Stock Transfer Companies hereby prepare these Articles of Incorporation and affix their respective names and seals hereon on August 25, 2008.

Kookmin Bank

9-1, 2ga, Namdaemun-ro, Jung-gu, Seoul

Representative Director President, Chung Won Kang (Seal)

KB Real Estate Trust Co., Ltd.

15~16th Floor, Poonglim Building, 823 Yeoksam-dong, Gangnum-gu, Seoul

Representative Director CEO, Jeong Min Kim (Seal)

KB Business Investment Co., Ltd.

9th Floor, Shinyoung Building, 68-5 Cheongdam-dong, Gangnam-gu, Seoul

Representative Director CEO, Nam Sik Yang (Seal)

KB Credit Information Co., Ltd.

12th Floor Korea Exchange Building, 33 Yeoido-dong, Yongdeungpo-gu, Seoul

Representative Director CEO, Sung Bok Park (Seal)

KB Data Systems Co., Ltd.

5,6th Floor, Korea Exchange Building, 33 Yeoido-dong, Yongdeungpo-gu, Seoul

Representative Director CEO, Yeon Geun Jung (Seal)

KB Asset Management Co., Ltd.

25th Floor, Good Morning Tower 23-2, Yeoido-dong, Yongdeungpo-gu, Seoul

Representative Director CEO, Won Ki Lee (Seal)

KB Futures Co., Ltd.

9th Floor, HP Building 23-6, Yoido-dong Youngdeungpo-gu, Seoul, Korea

Representative Director CEO, Kyu Hyung Jung (Seal)

KB Investment Securities Co., Ltd.

21, 22nd Floor, Good Morning Tower 23-2, Yeoido-dong, Yongdeungpo-gu, Seoul

Representative Director CEO, Myung Han Kim (Seal)

ADDENDUM(2009. 3. 27.)

Article 1     (Effective Date)

The above amendments to the Articles of Incorporation shall take effect from March 27, 2009.

ADDENDUM(2010. 3. 26.)

Article 1     (Effective Date)

These Articles of Incorporation become effective as of March 26, 2010. However, Article 30, Paragraph (1) becomes effective as of May 29, 2010.

Article 2    (Transitional Measures)

With respect to the non-executive directors appointed after these Articles of Incorporation become effective and the calculation of their terms of office under Article 38, Paragraph (5) hereof, Article 38, Paragraphs (6) and (7) will be applicable to the terms of office served before this Article of Incorporation becomes effective.

ADDENDUM(2012. 3. 23.)

Article 1    (Effective Date)

The amendments to Article 40 of the Articles of Incorporation shall become effective from the date of approval by the General Meeting of Shareholders, March 23, 2012 and the other amendments shall become effective from April 15, 2012. Therefore, the amendments to the Articles of Incorporation shall not apply to any shares and bonds issued before the effective date of the Articles of Incorporation.

ADDENDUM(2015. 3. 27.)

Article 1    (Effective Date)

The Articles of Incorporation shall become effective as of March 27, 2015; provided, that Article 37 shall apply to the Non-Executive Directors only who are appointed, reappointed or serve consecutive terms after the effective date hereof.

ADDENDUM(2016. 3. 25.)

Article 1    (Effective Date)

The Articles of Incorporation shall become effective as of March 25, 2016; provided, that Article 43, Paragraph (6) and Article 44 shall become effective as of August 1, 2016.

ADDENDUM(2017. 3. 24.)

Article 1     (Effective Date)

The Articles of Incorporation shall become effective as of March 24, 2017.

ADDENDUM(2018. 3. 23.)

Article 1    (Effective Date)

The Articles of Incorporation shall become effective as of March 23, 2018; provided that Article 52 Paragraph (8), Article 55 Paragraph (1) Sub-paragraph 1, Article 55 Paragraph (4) and Article 56 shall become effective as of November 1. 2018.

ADDENDUM(2019. 3. 27.)

Article 1    (Effective Date)

The above amendments to Article 9; Article 16, Paragraph (3); Article 17; Article 19, Paragraph (3); and Article 22 of the Articles of Incorporation shall enter into force on September 16, 2019, the expected date of enforcement of the Act on Electronic Registration of Stocks, Bonds, Etc., except that, if the enforcement date of such Act changes, these amendments shall enter into force of the new enforcement date instead.

ADDENDUM(2020. 3. 20.)

Article 1    (Effective Date)

The Articles of Incorporation shall become effective as of March 20, 2020.

ADDENDUM(2023. 3. 24.)

Article 1    (Effective Date)

The Articles of Incorporation shall become effective as of March 24, 2023.

Exhibit 12.1(a)

I, Jong Kyoo Yoon, certify that:

 

  1.

I have reviewed this annual report on Form 20-F of KB Financial Group Inc.;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

  4.

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

  5.

The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 26, 2023

 

/s/ Jong Kyoo Yoon

Jong Kyoo Yoon
Chairman and
Chief Executive Officer

Exhibit 12.1(b)

I, Scott Y. H. Seo, certify that:

 

  1.

I have reviewed this annual report on Form 20-F of KB Financial Group Inc.;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

  4.

The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 

  5.

The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: April 26, 2023

 

/s/ Scott Y. H. Seo

Scott Y. H. Seo
Senior Executive Vice President and
Chief Finance Officer

Exhibit 13.1(a)

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of KB Financial Group Inc., a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The annual report on Form 20-F for the year ended December 31, 2022 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.

 

Dated: April 26, 2023      

/s/ Jong Kyoo Yoon

      Jong Kyoo Yoon
      Chairman and
      Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to KB Financial Group Inc. and will be retained by KB Financial Group Inc. and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

Exhibit 13.1(b)

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of KB Financial Group Inc., a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:

The annual report on Form 20-F for the year ended December 31, 2022 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.

 

Dated: April 26, 2023      

/s/ Scott Y. H. Seo

      Scott Y. H. Seo
      Senior Executive Vice President and
      Chief Finance Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to KB Financial Group Inc. and will be retained by KB Financial Group Inc. and furnished to the U.S. Securities and Exchange Commission or its staff upon request.

Exhibit 15.1

 

  

KPMG Samjong Accounting Corp.

27th Floor, Gangnam Finance Center,

152 Teheran-ro, Gangnam-gu, Seoul 06236

Republic of Korea

    Tel  +82 2 2112 0100

Fax +82 2 2112 0101

www.kpmg.com/kr

April 26, 2023

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Ladies and Gentlemen:

We were previously principal accountants for KB Financial Group Inc. and, under the date of April 26, 2023, we reported on the consolidated financial statements of KB Financial Group Inc. as of and for the years ended December 31, 2022 and 2021, and the effectiveness of internal control over financial reporting as of December 31, 2022. On April 26, 2023, the auditor-client relationship ceased. We have read KB Financial Group Inc.’s statements included under Item 16F of its Form 20-F dated April 26, 2023, and we agree with such statements, except that we are not in a position to agree or disagree with KB Financial Group Inc.’s statement in the first paragraph that the change of newly engaged accountants was approved by the Audit Committee, or any of the KB Financial Group Inc.’s statements in the second paragraph that relates to the stated reason for changing principal auditors.

Very truly yours,

/s/ KPMG Samjong Accounting Corp.