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6-K

Woori Financial Group Inc. (WF)

6-K 2020-03-17 For: 2020-03-17
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Added on April 10, 2026

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OFFOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2020

Commission File Number: 001-31811

Woori Financial Group Inc.

(Translation of registrant’s name into English)

51, Sogong-ro, Jung-gu, Seoul, 04632, Korea

(Address of principal executive office)

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

Form 20-F  ☒            Form 40-F  ☐

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

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

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

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

Submission of Audit Reports of Woori Bank

On March 16, 2020, Woori Financial Group Inc. disclosed audit reports of Woori Bank, its wholly-owned subsidiary, for the fiscal year 2019 based on the International Financial Reporting Standards as adopted by the Republic of Korea.

The financial statements accompanying such reports have not been approved by the shareholders of Woori Bank and remain subject to change.

Please refer to the audit reports and Woori Bank’s consolidated and separate financial statements, which have been furnished as Exhibits 99.1 and 99.2 hereto, respectively.

SIGNATURES

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

Woori Financial Group Inc.<br><br><br>(Registrant)
Date: March 17, 2020 By: /s/ Kyong-Hoon Park
(Signature)
Name: Kyong-Hoon Park
Title: Deputy President

EX-99.1

Exhibit 99.1

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED

DECEMBER 31, 2019 AND 2018

ATTACHMENT: INDEPENDENT AUDITORS’ REPORT

WOORI BANK

INDEPENDENT AUDITORS’ REPORT

English Translation of a Report Originally Issued in Korean on March 16, 2020

To the Shareholder and the Board of Directors of Woori Bank

Report on the Audited Consolidated Financial Statements

Audit Opinion

We have audited the accompanying consolidated financial statements of Woori Bank and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as of December 31, 2019 and December 31, 2018, respectively, and the consolidated statement of comprehensive income, consolidated statement of changes in shareholder’s equity and consolidated statement of cash flows, for the years then ended, and a summary of significant accounting policies and other explanatory information.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2019 and December 31, 2018, respectively, and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Audit Opinion

We conducted our audits in accordance with the Korean Standards on Auditing (“KSAs”). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements, including those related to independence, that are relevant to our audit of the consolidated financial statements in the Republic of Korea as required by prevailing audit regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and the Audit Committee for the Financial Statements

Management is responsible for the preparation of the accompanying consolidated financial statements in accordance with K-IFRS, and for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management of the Group is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The audit committee is responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, design and<br>perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one<br>resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are<br>appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
--- ---
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and<br>related disclosures made by management.
--- ---
• Conclude on the appropriateness of the management’s use of the going concern basis of accounting and, based<br>on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we<br>are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained<br>up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
--- ---
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the<br>disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
--- ---
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business<br>activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We are solely responsible for our audit opinion.
--- ---

We communicate with the audit committee of the Group regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

March 16, 2020

Notice to Readers

This report is effective as of March 16, 2020 the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the consolidated financial statements and may result in modifications to the auditors’ report.

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED

DECEMBER 31, 2019 AND 2018

The accompanying consolidated financial statements including all footnote disclosures were prepared by, and are the responsibility of, the management of Woori Bank.

Tae Seung Sohn

President and Chief Executive Officer

Main Office Address: (Address) 51, Sogong-ro, Jung-gu, Seoul

(Phone Number) 02-2002-3000

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2018

December 31,<br>2019 December 31,<br>2018
(Korean Won in millions)
ASSETS
Cash and cash equivalents (Note 6) 6,162,029 6,712,623
Financial assets at fair value through profit or loss (“FVTPL”) (Notes 4, 7, 11, 12 and<br>26) 6,672,557 6,126,183
Financial assets at financial assets at fair value through other comprehensive income<br>(“FVTOCI”) (Notes 4, 8, 11, 12, and 18) 27,628,707 18,063,423
Securities at amortized cost (Notes 4, 9, 11, 12 and 18) 20,320,539 22,932,559
Loans and other financial assets at amortized cost (Notes 4, 10, 11, 12, 18 and 45) 282,201,102 282,448,315
Investments in joint ventures and associates (Note 13) 786,730 361,427
Investment properties (Note 14) 617,589 378,069
Premises and equipment (Notes 15 and 18) 2,939,276 2,441,141
Intangible assets and goodwill (Note 16) 552,030 587,255
Assets held for distribution (sale) (Note 17) 95 93,502
Current tax assets (Note 42) 46,253 20,488
Deferred tax assets (Note 42) — 49,863
Derivative assets (designated for hedging) (Notes 4,11,12 and 26) 111,764 35,503
Other assets (Notes 19 and 45) 142,987 196,832
Total assets 348,181,658 340,447,183
LIABILITIES
Financial liabilities at FVTPL (Notes 4, 11, 12, 20 and 26) 2,956,294 2,282,686
Deposits due to customers (Notes 4,11,21 and 45) 263,643,964 248,690,939
Borrowings (Notes 4, 11, 12 and 22) 18,575,566 16,202,986
Debentures (Notes 4, 11 and 22) 22,834,408 28,725,862
Provisions (Notes 23, 44 and 45) 379,197 389,862
Net defined benefit liability (Note 24) 48,278 138,682
Liabilities related to assets held for sale (Note 17) — 72,660
Current tax liabilities (Note 42) 135,490 156,559
Deferred tax liabilities (Note 42) 179,529 18,156
Derivative liabilities (Designated for hedging) (Notes 4,11,12 and 26) 43 51,408
Other financial liabilities (Notes 4,11,12, 25 and 45) 16,595,398 21,426,064
Other liabilities (Notes 25 and 45) 178,401 338,275
Total liabilities 325,526,568 318,494,139

(Continued)

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2018 (CONTINUED)

December 31,<br>2019 December 31,<br>2018
(Korean Won in millions)
EQUITY
Owners’ equity: 22,555,074 21,739,931
Capital stock (Note 28) 3,381,392 3,381,392
Hybrid securities (Note 29) 3,660,814 3,161,963
Capital surplus (Note 28) 287,480 285,889
Other equity (Note 30) (2,120,597 ) (2,213,970 )
Retained earnings (Notes 31 and 32)
(Regulatory reserve for credit loss as of December 31, 2019 and 2018 is<br>2,356,246 million Won and 2,578,457 million Won, respectively
Regulatory reserve for credit loss to be reversed (reserved) as of December 31, 2019 and 2018<br>is 209,898 million Won and 222,211 million Won, respectively
Planned provision reversed (reserved) of regulatory reserve for credit loss as of<br>December 31, 2019 and 2018 is 209,898 million Won and 222,211 million Won, respectively 17,345,985 17,124,657
Non-controlling interests 100,016 213,113
Total equity 22,655,090 21,953,044
Total liabilities and equity 348,181,658 340,447,183

See accompanying notes

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

2019 2018
(Korean Won in millions,<br>except for per share data)
Interest income 9,812,538 9,014,660
Financial assets at FVTPL 43,318 52,434
Financial assets at FVTOCI 474,132 280,371
Financial assets at amortized cost 9,295,088 8,681,855
Interest expense (4,495,842 ) (3,873,594 )
Net interest income (Notes 34 and 45) 5,316,696 5,141,066
Fees and commissions income 1,144,386 1,079,397
Fees and commissions expense (172,131 ) (168,073 )
Net fees and commissions income (Notes 35 and 45) 972,255 911,324
Dividend income (Notes 36 and 45) 101,091 80,398
Net gain on financial instruments at FVTPL (Notes 11, 37 and 45) 19,255 214,443
Net gain on financial assets at FVTOCI (Notes 11 and 38) 10,901 1,105
Net gain on disposals of financial assets at amortized cost 84,348 44,187
Net gain on disposals of securities at amortized cost — 431
Net gain on disposals of loans and other financial assets at amortized cost 84,348 43,756
Impairment losses due to credit loss (Notes 39 and 45) (118,249 ) (84,813 )
General and administrative expenses (Notes 40 and 45) (3,494,140 ) (3,483,912 )
Other net operating expenses (Notes 40 and 45) (300,540 ) (401,705 )
Operating income 2,591,617 2,422,093
Share of profits of joint ventures and associates (Note 13) 84,242 3,019
Net other non-operating income (expense) (32,099 ) 44,998
Non-operating income from continuing operations (Note 41) 52,143 48,017
Net income before income tax expense from continuing operations 2,643,760 2,470,110
Income tax expense from continuing operations (Note 42) 645,248 717,001

(Continued)

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR YEARS ENDED DECEMBER 31, 2019 AND 2018 (CONTINUED)

2019 2018
(Korean Won in millions,<br>except for per share data)
Net income from continuing operations 1,998,512 1,753,109
Net income from discontinued operations (Note 17) (471,447 ) 298,540
Net income
(Net income after the provision of regulatory reserve for credit loss for the years ended<br>December 31, 2019 and 2018, is 1,736,963 million won and 2,010,774 million won, respectively) (Note 32) 1,527,065 2,051,649
Net loss on valuation of equity securities at FVTOCI (74,146 ) (30,855 )
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit<br>risk — 100
Items out of share of other comprehensive gain of joint ventures and associates that will not be<br>reclassified to profit or loss — (71,432 )
Remeasurement gain (loss) related to defined benefit plan (35,049 ) (13,197 )
Items that will not be reclassified to profit or loss (109,195 ) (115,384 )
Net gain on valuation of debt securities at FVTOCI 44,769 33,360
Changes in equity method capital 373 2,958
Net loss on foreign currency translation of foreign operations 102,085 (4,379 )
Net loss on valuation of cash flow hedge (1,740 ) (4,646 )
Net gain (loss) on valuation of assets held for sale — (4,145 )
Items that may be reclassified to profit or loss 145,487 23,148
Other comprehensive income (loss), net of tax 36,292 (92,236 )
Total comprehensive income 1,563,357 1,959,413
Net income from continuing operations 1,976,994 1,734,642
Net income from discontinued operations (471,447 ) 298,540
Net income attributable to:
Controlling shareholders 1,505,547 2,033,182
Net income from continuing operations 21,518 18,467
Net income from discontinued operations — —
Net income attributable to:
Non-controlling interests 21,518 18,467
Total comprehensive income attributable to:
Interests of controlling shareholders 1,531,793 1,943,885
Non-controlling interests 31,564 15,528
Net income per share (Note 43)
Basic and diluted earnings per share from continuing operations and discontinued operations (In<br>Korea Won) 2,028 2,796
Basic and diluted earnings per share from continuing operations (In Korea Won) 2,725 2,353

See accompanying notes

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR YEARS ENDED DECEMBER 31, 2019 AND 2018

Capital<br>Stock Hybrid<br>securities Capital<br>surplus Other<br>equity Retained<br>earnings and<br>other reserves Owners’<br>equity Non-<br>controlling<br>interests Total<br>equity
(Korean Won in millions)
January 1, 2018 3,381,392 3,017,888 285,880 (1,939,274 ) 15,620,006 20,365,892 199,008 20,564,900
Cumulative effect of change in accounting policy (Note 2) — — — (392,176 ) 177,091 (215,085 ) 723 (214,362 )
Adjusted balance, beginning of the year 3,381,392 3,017,888 285,880 (2,331,450 ) 15,797,097 20,150,807 199,731 20,350,538
Net income — — — — 2,033,182 2,033,182 18,467 2,051,649
Dividends to common stocks — — — — (336,636 ) (336,636 ) (2,128 ) (338,764 )
Capital changes of subsidiaries — — 9 — — 9 (18 ) (9 )
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit<br>risk — — — 100 — 100 — 100
Changes in other comprehensive income due to redemption of financial liabilities designated as at<br>FVTPL — — — (4 ) 4 — — —
Net gain (loss) on valuation of financial assets at FVTOCI — — — 2,733 — 2,733 (228 ) 2,505
Changes in other comprehensive income due to disposal of equity securities at FVTOCI — — — (1,009 ) 1,009 — — —
Share of other comprehensive gain of joint ventures and associates — — — 2,958 (10,647 ) (7,689 ) — (7,689 )
Loss on foreign currency translation of foreign operations — — — (1,929 ) — (1,929 ) (2,450 ) (4,379 )
Loss on valuation of cash flow hedge — — — (4,646 ) — (4,646 ) — (4,646 )
Remeasurement loss related to defined benefit plan — — — (71,171 ) — (71,171 ) (261 ) (71,432 )
Other comprehensive income related to assets held for distribution (sale) — — — (17,342 ) — (17,342 ) — (17,342 )
Dividends to hybrid securities — — — — (151,194 ) (151,194 ) — (151,194 )
Issuance of hybrid securities — 398,707 — — — 398,707 — 398,707
Redemption of hybrid securities — (254,632 ) — (368 ) — (255,000 ) — (255,000 )
Appropriation of retained earnings — — — 208,158 (208,158 ) — — —
December 31, 2018 3,381,392 3,161,963 285,889 (2,213,970 ) 17,124,657 21,739,931 213,113 21,953,044
January 1, 2019 3,381,392 3,161,963 285,889 (2,213,970 ) 17,124,657 21,739,931 213,113 21,953,044
Net income — — — — 1,505,547 1,505,547 21,518 1,527,065
Dividends to common stocks — — — — (437,625 ) (437,625 ) (2,013 ) (439,638 )
Interim Dividends — — — — (676,000 ) (676,000 ) — (676,000 )
Net increase (decrease) of treasury stocks — — — 27,016 — 27,016 — 27,016
Net gain (loss) on valuation of financial assets at FVTOCI — — — (29,553 ) — (29,553 ) 176 (29,377 )
Changes in other comprehensive income due to disposal of equity securities at FVTOCI — — — 46,612 (46,612 ) — — —
Share of other comprehensive gain of joint ventures and associates — — 1,153 373 — 1,526 — 1,526
Loss on foreign currency translation of foreign operations — — — 92,052 — 92,052 10,033 102,085
Loss on valuation of cash flow hedge — — — (1,740 ) — (1,740 ) — (1,740 )
Remeasurement loss related to defined benefit plan — — — (34,886 ) — (34,886 ) (163 ) (35,049 )
Other comprehensive income related to assets held for distribution (sale) — — — 13,197 (13,197 ) — — —
Net capital impact due to disposal of investments in subsidiaries — — — (19,790 ) 24,004 4,214 (142,599 ) (138,385 )
Appropriation of retained earnings — — — 368 (368 ) — — —
Dividends to hybrid securities — — — — (134,421 ) (134,421 ) — (134,421 )
Issuance of hybrid securities — 658,470 — — — 658,470 — 658,470
Redemption of hybrid securities — (159,619 ) — (276 ) — (159,895 ) — (159,895 )
Capital changes of subsidiaries — — 438 — — 438 (49 ) 389
December 31, 2019 3,381,392 3,660,814 287,480 (2,120,597 ) 17,345,985 22,555,074 100,016 22,655,090

See accompanying notes

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

2019 2018
(Korean Won in millions)
Cash flows from operating activities:
Net income 1,527,065 2,051,649
Adjustments to net income:
Income tax expense 672,412 753,223
Interest income (10,293,261 ) (9,684,499 )
Interest expense 4,612,005 4,033,548
Dividend income (106,927 ) (90,552 )
(5,115,771 ) (4,988,280 )
Additions of expenses not involving cash outflows:
Impairment losses due to credit loss 290,801 329,574
Loss on financial assets at FVTOCI 895 1,053
Share of losses of investments in joint ventures and associates 19,474 22,772
Loss on disposal of investments in joint ventures and associates — 2,931
Loss on transaction and valuation of derivatives (Designated for hedging) — 36,483
Loss on hedged items (fair value hedge) 86,214 17,299
Provisions for other liabilities 123,248 28,350
Retirement benefits 150,075 142,712
Depreciation and amortization of premises and equipment, intangible assets and investment<br>properties 483,865 272,550
Loss on disposal of premises and equipment, intangible assets and other assets 2,137 1,160
Loss on disposal of assets held for sale 53,483 —
Impairment loss on premises and equipment, intangible assets and other assets 26,915 87
Loss on disposal of assets from discontinued operations 644,361 —
1,881,468 854,971
Deductions of income not involving cash inflows:
Gain on valuation of financial assets at FVTPL 284,364 215,711
Gain on redemption of debentures — 1,597
Gain on financial assets at FVTOCI 11,796 3,100
Gain on disposal of securities at amortized cost — 431
Share of gains of investments in joint ventures and associates 103,716 25,791
Gain on disposal of investments in joint ventures and associates — 50,511
Gain on transaction and valuation of derivatives (Designated for hedging) 146,913 35,810
Gain on hedged items (fair value hedge) 231 42,797
Reversal of provisions for other liabilities 4,149 2,014
Gain on disposal of premises and equipment, intangible assets and other assets 1,226 30,278
Gain on disposal of assets from discontinued operations 189,154 —
Reversal of impairment loss on premises and equipment, intangible assets and other assets 85 761
741,634 408,801
Changes in assets and liabilities from operating activities:
Financial assets at FVTPL (K-IFRS 1109) 252,810 670,872
Loans and other financial assets at amortized cost (11,426,494 ) (15,754,102 )
Other assets 117,911 32,328
Deposits due to customers 16,692,132 13,995,747
Provisions (57,832 ) (11,920 )
Net defined benefit liability (258,144 ) (135,313 )
Other financial liabilities (4,840,788 ) 7,411,753
Other liabilities 64,634 89,399
544,229 6,298,764
Cash received from operating activities:
Interest income received 10,110,448 9,617,307
Interest expense paid (4,378,059 ) (3,847,411 )
Dividends received 106,923 90,651
Income tax paid (529,179 ) (544,058 )
Net cash provided by (used in) operating activities 3,405,490 9,124,792

(Continued)

WOORI BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 (CONTINUED)

2019 2018
(Korean Won in millions)
Cash flows from investing activities:
Cash in-flows from investing activities:
Disposal of financial assets at FVTPL 11,355,894 11,919,335
Disposal of financial assets at FVTOCI 14,968,160 9,146,307
Redemption of securities at amortized cost 8,709,947 9,426,757
Disposal of investments in joint ventures and associates 29,327 51,435
Disposal of investment properties 193 3,512
Disposal of premises and equipment 7,668 5,545
Disposal of intangible assets 998 9,199
Disposal of assets held for distribution (sale) 996,885 80,347
36,069,072 30,642,437
Cash out-flows from investing activities:
Net cash in-flows of business combination — 134,967
Acquisition of financial assets at FVTPL 11,823,630 12,322,160
Acquisition of financial assets at FVTOCI 23,927,605 13,275,429
Acquisition of securities at amortized cost 6,092,078 15,622,847
Acquisition of investments in joint ventures and associates 369,640 48,272
Acquisition of investment properties 246,319 15,195
Acquisition of premises and equipment 231,451 118,668
Acquisition of intangible assets 106,732 176,067
Decrease in liabilities held for sale 37,708 —
42,835,163 41,713,605
Net cash used in investing activities (6,766,091 ) (11,071,168 )
Cash flows from financing activities:
Cash in-flows from financing activities:
Increase in borrowings 14,156,668 9,606,126
Issuance of debentures 16,448,892 21,505,849
Issuance of hybrid securities 658,470 398,707
31,264,030 31,510,682
Cash out-flows from financing activities:
Decrease in borrowings 11,313,260 8,349,005
Redemption of debentures 15,686,470 20,903,518
Redemption of lease liabilities 213,329 —
Redemption of hybrid securities 160,000 255,000
Dividends paid on common stocks 1,113,626 336,636
Dividends paid on non-controlling interests 2,013 2,128
Capital reduction of Dividends paid on non-controlling interests with refund 50 —
Dividends paid on hybrid securities 156,691 147,625
28,645,439 29,993,912
Net cash provided by financing activities 2,618,591 1,516,770
Net decrease in cash and cash equivalents (742,010 ) (429,606 )
Cash and cash equivalents, beginning of the year 6,712,623 6,908,286
Effects of exchange rate changes on cash and cash equivalents 191,416 233,943
Cash and cash equivalents, end of the year (Note 6) 6,162,029 6,712,623
(*) Profits and losses from discontinued operations have been reflected.
--- ---

See accompanying notes

WOORI BANK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

1. GENERAL
(1) Summary of the parent company
--- ---

Woori Bank (hereinafter referred to the “Bank”), which is a controlling entity in accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1110 – Consolidated Financial Statements, was established in 1899 and is engaged in the commercial banking business under the Banking Act, trust business and foreign exchange business under the Financial Investment Services and Capital Market Act.

As of December 31, 2019, the Bank’s shares are wholly owned by Woori Financial Group Inc. (“Woori Financial Group”) which was established in accordance with the Financial Holding Companies Act on January 11, 2019. The Bank has 676 million shares and common stocks amounting to 3,381,392 million Korean Won.

The headquarters of the Bank is located at 51, Sogong-ro, Jung-gu, Seoul, Korea. The Bank has 874 branches and offices in Korea, and 23 branches and offices overseas as of December 31, 2019.

(2) The consolidated financial statements for Woori Bank and its subsidiaries (the “Group”) include the<br>following subsidiaries:
Percentage of ownership<br>(%) Location Financial<br>statements<br>as<br>of<br>(2019)
--- --- --- --- --- --- --- --- --- ---
Subsidiaries Main business December 31,<br>2019 December 31,<br>2018
Woori Bank:
Woori FIS Co., Ltd.(*1) System software development & maintenance — 100.0 Korea —
Woori Private Equity Asset Management Co., Ltd. (*1) Finance — 100.0 Korea —
Woori Finance Research Institute Co., Ltd. (*1) Other service business — 100.0 Korea —
Woori Card Co., Ltd. (*1) Finance — 100.0 Korea —
Woori Investment Bank Co., Ltd.(*1) Other credit finance business — 59.8 Korea —
Woori Credit Information Co., Ltd. (*1) Credit information — 100.0 Korea —
Woori America Bank Finance 100.0 100.0 U.S.A. December 31
Woori Global Markets Asia Limited Finance 100.0 100.0 Hong Kong December 31
Woori Bank China Limited Finance 100.0 100.0 China December 31
AO Woori Bank Finance 100.0 100.0 Russia December 31
PT Bank Woori Saudara Indonesia 1906 Tbk Finance 79.9 79.9 Indonesia December 31
Banco Woori Bank do Brasil S.A. Finance 100.0 100.0 Brazil December 31
Korea BTL Infrastructure Fund Finance 99.9 99.9 Korea December 31
Woori Fund Service Co., Ltd. (*1) Finance — 100.0 Korea —
Woori Finance Cambodia PLC. Finance 100.0 100.0 Cambodia December 31
Woori Finance Myanmar Co., Ltd. Finance 100.0 100.0 Myanmar December 31
Wealth Development Bank Finance 51.0 51.0 Philippines December 31
Woori Bank Vietnam Limited Finance 100.0 100.0 Vietnam December 31
WB Finance Co., Ltd Finance 100.0 100.0 Cambodia December 31
Woori Bank Europe Finance 100.0 100.0 Germany December 31
Kumho Trust First Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Asiana Saigon Inc. (*2) Asset securitization 0.0 0.0 Korea December 31
Subsidiaries Main business Percentage of ownership<br>(%) Location Financial<br>statements<br>as of<br>(2019)
--- --- --- --- --- --- --- --- --- --- ---
December 31,<br>2019 December 31,<br>2018
KAMCO Value Recreation First Securitization Specialty Co., Ltd.(*2) Asset securitization 15.0 15.0 Korea December 31
Hermes STX Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
BWL First Co., LLC. (*2) Asset securitization 0.0 0.0 Korea December 31
Deogi Dream Fourth Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Jeonju Iwon Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Wonju I one Inc. (*2) Asset securitization 0.0 0.0 Korea December 31
Heitz Third Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woorihansoop 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Electric Cable First Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori International First Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori WEBST 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Wibihansoop 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Uri QS 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Uri Display 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Tiger Eyes 2nd Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori Serveone 1st Co., Ltd.(*2) Asset securitization 0.0 0.0 Korea December 31
Uri Display 2nd Co.,Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori the Colony Unjung Securitization Specialty Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori Dream 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori Dream 2nd Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori H 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori HS 1st Co., Ltd. (*5) Asset securitization — 0.0 Korea December 31
Woori HS 2nd Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori Sinnonhyeon 1st Inc. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori K 1st Co.,Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Uri S 1st Co.,Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Smart Casting Inc. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori Display 3rd Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
TY 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori HJ 2nd Co., Ltd. (*2)<br><br><br>Woori HJ 3rd Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori KJ 2nd Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori KC 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori Lake 1st Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Woori QSell 2nd Co., Ltd. (*2) Asset securitization 0.0 0.0 Korea December 31
Quantum Jump the 1st Co., Ltd. (*2) Asset securitization 0.0 — Korea December 31
Quantum Jump the 2nd Co., Ltd. (*2) Asset securitization 0.0 — Korea December 31
Woori BK the 1st Co., Ltd. (*2) Asset securitization 0.0 — Korea December 31
Woori-HC 1st Co., Ltd. (*2) Asset securitization 0.0 — Korea December 31
Wivi Synergy 1st Co., Ltd. (*2) Asset securitization 0.0 — Korea December 31
ATLANTIC TRANSPORTATION 1 S.A. (*2) Asset securitization 0.0 — Marshall islands December 31
Woori Gongdeok First Co., Ltd. (*2) Asset securitization 0.0 — Korea December 31
HD Project Co., Ltd.(*2) Asset securitization 0.0 — Korea December 31
Woori HW 1st Co., Ltd (*2). Asset securitization 0.0 — Korea December 31
Woori HC 2nd Co., Ltd. (*2). Asset securitization 0.0 — Korea December 31
Woori Dream 3rd Co., Ltd. (*2). Asset securitization 0.0 — Korea December 31
Woori SJS 1st Co., Ltd. (*2). Asset securitization 0.0 — Korea December 31
  • 3 -
Percentage of ownership<br>(%) Location Financial<br>statements<br>as of<br>(2019)
Subsidiaries Main business December 31,<br>2019 December 31,<br>2018
G5 Pro Short-term Bond Investment Fund 13 (*3) Securities investment and others 100.0 100.0 Korea December 31
Heungkuk Global Private Placement Investment Trust No. 1 (*3) Securities investment and others 98.5 98.5 Korea December 31
HeungkukWoori Tech Company Private Placement Investment Trust No. 1 (*3) Securities investment and others 98.0 98.0 Korea December 31
AI Partners Water Supply Private Placement Investment Trust No. 2 (*3) Securities investment and others 97.3 97.3 England December 31
Consus Sakhalin Real Estate Investment Trust 1st (*3) Securities investment and others 75.0 75.0 Korea December 31
Multi Asset Global Real Estate Investment Trust No. 5-2 (*3) Securities investment and others 99.0 — Korea December 31
IGIS Australia Investment Trust No. 209-1 (*3) Securities investment and others 99.4 — Korea December 31
Woori Global Development Infrastructure Synergy Company Private Placement Investment Trust<br>No.1 (*3) Securities investment and others 99.9 — Korea December 31
IGIS Global Private Placement Real Estate Fund No. 316-1 (*3) Securities investment and others 99.3 —
Principle Guaranteed Trust (*4) Trust 0.0 0.0 Korea December 31
Principle and Interest Guaranteed Trust (*4) Trust 0.0 0.0 Korea December 31
Multi Asset Global Real Estate Investment Trust No. 5-2
MAGI No.5 LuxCo S.a.r.l. (*2) Asset securitization 54.6 — Luxembourg December 31
MAGI No.5 LuxCo S.a.r.l
ADP 16 Brussels (*2) Asset securitization 0.0 — Belgium December 31
Woori Investment Bank (*1):
Dongwoo First Securitization Specialty Co., Ltd. Asset securitization — 5.0 Korea —
Seari First Securitization Specialty Co., Ltd. Asset securitization — 5.0 Korea —
Seari Second Securitization Specialty Co., Ltd. Asset securitization — 5.0 Korea —
Namjong 1st Securitization Specialty Co., Ltd. Asset securitization — 5.0 Korea —
Bukgeum First Securitization Specialty Co., Ltd. Asset securitization — 5.0 Korea —
Bukgeum Second Securitization Specialty Co., Ltd. Asset securitization — 5.0 Korea —
Woori Card Co., Ltd. (*1)
TUTU Finance-WCI Myanmar Co., Ltd. Finance — 100.0 Myanmar —
Woori Card one of 2017-1 Securitization Specialty Co., Ltd. Asset securitization — 0.5 Korea —
Woori Card one of 2017-2 Securitization Specialty Co., Ltd. Asset securitization — 0.5 Korea —
Woori Card one of 2018-1 Securitization Specialty Co., Ltd. Asset securitization — 0.5 Korea —
(*1) The entity was transferred as a wholly-owned subsidiary of Woori Financial Group, which was established during<br>the period.
--- ---
(*2) As an asset-backed structured entity, it is determined that the ownership interest rate is controlled by the<br>Group taking into account its power over the activities of the investee, exposure to variable returns, and the ability to use its power to influence the variable returns of the Group, even though its holding interest are less than a majority.<br>
--- ---
(*3) As a structured entity that aims to invest in securities, it is determined that the ownership interest rate is<br>controlled by the Group taking into account its power over the activities of the investee, exposure to variable returns, and the ability to use its power to influence the variable returns of the Group.
--- ---
(*4) As money trusts under the Capital Market Act, it is determined that the ownership interest rate is controlled<br>by the Group taking into account its power over the activities of the investee, exposure to variable returns, and the ability to use its power to influence the variable returns of the Group, even though its holding interest are less than a majority.<br>
--- ---
(*5) They are excluded from consolidated subsidiary as the Group lost power over them during the reporting period.<br>
--- ---
  • 4 -

The Group has not consolidated the following entities as of December 31, 2019 and 2018 despite having more than 50% ownership interest:

As of December 31, 2019
Subsidiaries Location Main<br>Business Percentage of<br>ownership (%)
Golden Bridge NHN Online Private Equity Investment (*) Korea Securities Investment 60.0
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) Korea Securities Investment 59.7
Kiwoom Yonsei Private Equity Investment Trust(*) Korea Securities Investment 88.9
IGIS Europe Private Placement Real Estate Fund No. 163-2 (*) Korea Securities Investment 97.9
IGIS Global Private Placement Real Estate Fund No. 148-1 (*) Korea Securities Investment 69.0
IGIS Global Private Placement Real Estate Fund No. 148-2 (*) Korea Securities Investment 69.0
Mirae Asset Seoul Ring Expressway Private Special Asset Fund No. 1 (*) Korea Securities Investment 66.7
Hangkang Sewage Treatment Plant Fund (*) Korea Securities Investment 55.6
Korea Investment Pocheon Hwado Expressway Professional Investment Fund(*) Korea Securities investment 55.2
Woori Innovative Growth Professional Investment Type Private Investment Trust No.1 (*) Korea Securities investment 55.0
(*) Since the investee is a private equity investment fund, the Group does not have the power over the fund’s<br>activities even though it holds more than 50% of ownership interest.
--- ---
As of December 31, 2018
--- --- --- --- --- --- ---
Subsidiaries Location Main<br>Business Percentage of<br>ownership (%)
Golden Bridge NHN Online Private Equity Investment (*) Korea Securities Investment 60.0
Mirae Asset Seobu Underground Expressway Professional Investment (*) Korea Securities Investment 65.8
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) Korea Securities Investment 59.7
Kiwoom Yonsei Private Equity Investment Trust(*) Korea Securities Investment 88.9
Hana Walmart Real Estate Investment Trust 41-1 (*) Korea Securities Investment 89.6
IGIS Europe Private Placement Real Estate Fund No. 163-2 (*) Korea Securities Investment 97.9
IGIS Global Private Placement Real Estate Fund No. 148-1 (*) Korea Securities Investment 75.0
IGIS Global Private Placement Real Estate Fund No. 148-2 (*) Korea Securities Investment 75.0
KB Nongso Sewage Treatment Equipment Private Special Asset (*) Korea Securities Investment 50.0
Mirae Asset Seoul Ring Expressway Private Special Asset Fund No. 1 (*) Korea Securities Investment 66.2
Hangkang Sewage Treatment Plant Fund (*) Korea Securities Investment 55.6
Consus KyungJu Green Private Placement Real Estate Fund No. 1 (*) Korea Securities Investment 52.4
(*) Since the investee is a private equity investment fund, the Group does not have the power over the fund’s<br>activities even though it holds more than 50% of ownership interest.
--- ---
  • 5 -
(3) The summarized financial information of the major subsidiaries are as follows. The financial information of<br>each subsidiary was prepared based on consolidated financial statements. (Unit: Korean Won in millions):
As of and for the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Assets Liabilities Operating<br>revenue Net income<br>(loss)<br>attributable to<br>owners Comprehensive<br>income (loss)<br>attributable to<br>owners
Woori America Bank 2,399,614 2,063,454 109,385 19,822 31,823
Woori Global Markets Asia Limited 623,296 489,462 30,756 7,242 12,422
Woori Bank China Limited 5,926,157 5,393,918 186,668 4,952 15,125
AO Woori Bank 388,406 321,422 24,980 7,231 17,723
PT Bank Woori Saudara Indonesia 1906 Tbk 3,143,279 2,566,204 231,132 42,252 84,710
Banco Woori Bank do Brasil S.A. 145,535 114,546 12,498 996 1,017
Korea BTL Infrastructure Fund 813,736 310 30,768 28,088 28,088
Woori Finance Cambodia PLC. 139,644 111,525 15,931 5,262 6,012
Woori Finance Myanmar Co., Ltd. 29,970 14,813 6,550 1,614 2,703
Wealth Development Bank 337,704 299,899 22,361 872 4,015
Woori Bank Vietnam Limited 1,538,675 1,281,108 61,551 14,000 23,540
WB Finance Co., Ltd. 442,083 348,940 63,923 13,997 16,524
Woori Bank Europe 212,750 156,667 2,318 (2,964 ) (2,005 )
Money trust under the FISCM Act 1,579,545 1,548,932 48,758 443 443
Structured entity for the securitization of financial assets 2,272,644 2,682,315 69,773 (852 ) 7,362
Structured entity for the investments in securities 168,362 49,090 18,140 5,876 7,142
As of and for the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Assets Liabilities Operating<br>revenue Net income<br>(loss)<br>attributable to<br>owners Comprehensive<br>income (loss)<br>attributable to<br>owners
Woori FIS Co., Ltd. 96,260 63,412 271,651 2,840 269
Woori Private Equity Asset Management Co., Ltd. 38,820 1,439 1,713 (2,794 ) (2,843 )
Woori Finance Research Institute Co., Ltd. 3,891 560 4,708 7 (109 )
Woori Card Co., Ltd. 9,987,057 8,305,093 1,371,301 114,767 106,517
Woori Investment Bank Co., Ltd. 2,682,660 2,367,418 205,446 25,552 25,533
Woori Credit Information Co., Ltd. 34,921 6,386 36,883 1,657 1,411
Woori America Bank 2,182,454 1,878,117 90,975 20,510 32,335
Woori Global Markets Asia Limited 517,627 396,216 18,748 5,144 9,647
Woori Bank China Limited 5,470,927 4,953,813 366,973 21,879 19,194
AO Woori Bank 305,521 256,260 19,433 5,163 (3,234 )
PT Bank Woori Saudara Indonesia 1906 Tbk 2,355,975 1,853,768 192,719 40,385 27,109
Banco Woori Bank do Brasil S.A. 179,130 149,146 13,971 1,262 (2,326 )
Korea BTL Infrastructure Fund 777,437 299 29,760 26,057 26,057
Woori Fund Service Co., Ltd. 14,448 1,440 10,052 1,597 1,597
Woori Finance Cambodia PLC. 93,239 71,133 11,038 2,826 3,676
Woori Finance Myanmar Co., Ltd. 19,340 6,886 4,496 640 (1,256 )
Wealth Development Bank 218,134 184,344 13,668 80 (451 )
Woori Bank Vietnam Limited 954,580 720,554 48,716 10,710 13,618
WB Finance Co., Ltd. 268,794 225,655 24,310 2,421 2,329
Woori Bank Europe 58,399 311 5 (5,959 ) (5,974 )
Money trust under the FISCM Act 1,582,765 1,552,594 54,860 259 259
Structured entity for the securitization of financial assets 1,369,745 1,786,869 53,578 4,990 (5,681 )
Structured entity for the investments in securities 63,676 142 1,826 (1,299 ) (3,009 )
(5) The financial support that the Group provides to consolidated structured entities is as follows:<br>
--- ---
  • 6 -
- Structured entity for asset securitization

The structured entity is established for the purpose of securitization of project financing loans, corporate bonds, and other financial assets. The Group is involved with the structured entity through providing with credit facility over asset-backed commercial papers issued by the entity, originating loans directly to the structured entity, or purchasing 100% of the subordinated debts issued by the structured entity.

- Structured entity for the investments in securities

The structured entity is established for the purpose of investments in securities. The Group acquires beneficiary certificates through its contribution of funds to the structured entity, and it is exposed to the risk that it may not be able to recover its funds depending on the result of investment performance of asset managers of the structured entity.

- Money trust under the Financial Investment Services and Capital Markets Act

The Group provides with financial guarantee of principal and interest or solely principal to some of its trust products. Due to the financial guarantees, the Group may be obliged when the principal and interest or principal of the trust product sold is short of the guaranteed amount depending on the result of investment performance of the trust product.

As of December 31, 2019, the Group provides 2,206,740 million won of credit facilities for the structured entities mentioned above.

(6) The Group has entered into various agreements with structured entities such as asset securitization, structured<br>finance, investment fund, and monetary trust. The characteristics and the nature of risks related to unconsolidated structured entities over which the Group does not have control in accordance with K-IFRS 1110 are as follows:

The ownership interests on unconsolidated structured entities that the Group hold are classified into asset securitization vehicles, structured finance and investment fund, based on the nature and the purpose of the structured entities.

Unconsolidated structured entities classified as ‘asset securitization vehicles’ are entities that issue asset-backed securities, pay the principal and interest or distributes dividends on asset-backed securities through borrowings or profits from the management, operation and sale of securitized assets. The Group transfers related risks from the purchase commitments of asset-backed securities or issuance of asset-backed securities through credit grants, and the structured entities recognize related interest or fee revenue. There are entities that provide additional funds and conditional debt acquisition commitments before the Group’s financial support, but the Group is still exposed to losses arising from the purchase of financial assets issued by the structured entities when it fails to renew the securities.

Unconsolidated structured entities classified as ‘structured financing’ include real estate project financing investment vehicle, social overhead capital companies, and special purpose vehicles for ship (aircraft) financing. Each entity is incorporated as a separate company with a limited purpose in order to efficiently pursue business goals. ‘Structured financing’ is a financing method for large-scale risky business, with investments made based on feasibility of the specific business or project, instead of credit of business owner or physical collaterals. The investors receive profits from the operation of the business. The Group recognizes interest revenue, valuation gain or loss on ownership interest, or dividend income. With regards to uncertainties involving structured financing, there are entities that provide financial support such as additional fund, guarantees and prioritized credit grants prior to the Group’s intervention, but the Group is exposed to possible losses due to loss of principal from reduction in investment value or irrecoverable loans arising from failure to collect scheduled cash flows and cessation of projects.

  • 7 -

Unconsolidated structured entities classified as ‘investment funds’ include investment trusts and private equity funds. An investment trust orders the investment and operation of funds to the trust manager in accordance with trust contract with profits distributed to the investors. Private equity funds finances money required to acquire equity securities to enable direction of management and/or improvement of ownership structure, with profit distributed to the investors. The Group recognizes pro rata amounts of valuation gain or loss on investment and dividend income as an investor, and may be exposed to losses due to reduction in investment value.

Total assets of the unconsolidated structured entities, the carrying value of the related items recorded, the maximum exposure to risks, and the loss recognized in conjunction with the unconsolidated structured entities as of December 31, 2019 and 2018 are as follows. The maximum loss exposure includes the amount of investment recognized in the financial statements and the amount that is likely to be confirmed in the future when certain conditions are satisfied by contracts such as purchase arrangements, credit offerings and etc. (Unit: Korean Won in millions):

December 31, 2019
Asset<br>securitization<br>vehicle Structured<br>finance Investment<br>Funds
Total asset of the unconsolidated structured entities 6,481,401 55,533,559 16,329,990
Assets recognized in the consolidated financial statements related to the unconsolidated<br>structured entities 4,804,202 2,380,297 1,361,579
Financial assets at FVTPL — 28,834 1,068,082
Financial assets at FVTOCI 2,006,230 42,305 —
Financial assets at amortized cost 2,796,695 2,295,700 120,072
Investments in joint ventures and associates — 7,475 173,425
Derivative assets 1,277 5,983 —
Liabilities recognized in the consolidated financial statements related to the unconsolidated<br>structured entities 184 847 —
Derivative liabilities — 15 —
Other liabilities (including provisions) 184 832 —
The maximum exposure to risks 5,184,814 2,826,937 1,407,338
Investments 4,804,202 2,380,297 1,361,579
Credit facilities 380,612 446,640 45,759
Loss recognized on unconsolidated structured entities — 424 33,143
December 31, 2018
--- --- --- --- --- --- ---
Asset<br>securitization<br>vehicle Structured<br>finance Investment<br>Funds
Total asset of the unconsolidated structured entities 6,796,235 58,161,494 11,138,822
Assets recognized in the consolidated financial statements related to the unconsolidated<br>structured entities 2,571,835 2,831,842 1,530,767
Financial assets at FVTPL 285,156 70,219 1,197,844
Financial assets at FVTOCI 281,919 48,961 —
Financial assets at amortized cost 2,003,921 2,511,055 71,150
Investments in joint ventures and associates — 197,393 261,773
Derivative assets 839 4,214 —
Liabilities recognized in the consolidated financial statements related to the unconsolidated<br>structured entities 1,260 905 —
Derivative liabilities 116 248 —
Other liabilities (including provisions) 1,144 657 —
The maximum exposure to risks 3,252,329 3,408,271 1,587,325
Investments 2,571,835 2,831,842 1,530,767
Credit facilities 680,494 576,429 56,558
Loss recognized on unconsolidated structured entities 5,764 11,609 13,868
  • 8 -
(7) As of December 31, 2019 and 2018, the share of non-controlling interests on the net income and equity of<br>subsidiaries in which non-controlling interests are significant are as follows: (Unit: Korean Won in millions):
1) Accumulated non-controlling interests at the end of the reporting period
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Woori Investment Bank — 130,088
PT Bank Woori Saudara Indonesia 1906 Tbk 83,315 68,250
Wealth Development Bank 18,524 16,557
2) Net income or loss attributable to non-controlling interests
--- ---
For the year ended<br>December 31, 2019 For the year ended<br>December 31, 2018
--- --- --- --- ---
Woori Investment Bank 12,547 10,262
PT Bank Woori Saudara Indonesia 1906 Tbk 8,502 8,126
Wealth Development Bank 427 39
3) Dividends to non-controlling interests
--- ---
For the year ended<br>December 31, 2019 For the year ended<br>December 31, 2018
--- --- --- --- ---
PT Bank Woori Saudara Indonesia 1906 Tbk 1,981 2,082
  • 9 -
2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
(1) Basis of presentation
--- ---

Woori Bank and its subsidiaries (the “Group”)’s consolidated financial statements are prepared in accordance with Korean Financial Reporting Standards (“K-IFRS”)

The significant accounting policies applied in the preparation of consolidated financial statements as of and for the year ended December 31, 2019 are stated below, and the accounting policies applied are identical to ones used in the preparation of previous period’s consolidated financial statements, except for the effects of adopting new standards or interpretations as explained below.

The consolidated financial statements are prepared at the end of each reporting period on the historical cost basis, except for certain non-current assets and financial assets that are either revalued or measured in fair value. Historical cost is generally measured at the fair value of consideration given to acquire assets.

The consolidated financial statements of the Group was approved by the Board of Directors on March 3, 2020, and is planned for an approval in the annual shareholder’s meeting on March 24, 2020.

1) The standards and interpretations that are newly adopted by the Group during the current period, and the<br>changes in accounting policies thereof are as follows:
① K-IFRS 1109 ‘Financial Instruments,’ K-IFRS 1107 ‘Financial Instruments: Disclosure’<br>amendments
--- ---

The Group has adopted the amendments of K-IFRS 1109 and 1107 for the first time in the current year. The amendments mainly deal with the addition of temporary exceptions from applying specific hedge accounting requirements while the uncertainty arises from interest rate benchmark reform. The amendment requires that for the purpose of determining whether a forecast transaction (or a component thereof) is highly probable, an entity shall assume that the interest rate benchmark on which the hedged cash flows (contractually or non-contractually specified) are based is not altered as a result of interest rate benchmark reform. When applying the prospective assessment, the amendment further requires that an entity shall assume that the hedged risk or the interest rate benchmark on which the hedged item or the hedging instrument is based is not altered as a result of the reform. Additionally, for a hedge of a non-contractually specified benchmark component of interest rate risk, an entity shall apply the requirement that the risk component shall be separately identifiable only at the inception of the hedging relationship. Meanwhile, an entity shall prospectively cease applying the temporary exceptions to a hedged item at the earlier of:

(a) when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedged item; and (b) when the hedging relationship that the hedged item is part of is discontinued. Note 26 sets out details of the hedge accounting applied by the Group. These amendments will be effective from January 1, 2020 but the Group has applied such amendments in current year as the early adoption is permitted.

  • 10 -
② Leases

The Group initially applied K-IFRS 1116 on January 1, 2019. Other accounting standards enacted from January 1, 2019 are not expected to have material impacts on the Group’s consolidated financial statements.

K-IFRS 1116 introduces an accounting model for the single lessee and as a result, the Group, as a lessee, recognizes right-of-use assets which represent a lessee’s right to use an underlying asset and lease liabilities which represent an obligation to make lease payments. An accounting model for the lessor is similar to the previous accounting policy.

The Group recognized the cumulative effects due to the initial application of K-IFRS 1116 on January 1, 2019, which is the date of initial application. Therefore, the comparative financial information applies K-IFRS 1017 and the related interpretations as reported previously and was not restated. The details of the changes to the accounting policy are described below.

i) Definition of lease

Previously, the Group determined whether an arrangement is, or contains, a lease on the arrangement date by applying K-IFRS 2104 ‘Determining whether an arrangement contains a lease’. The Group currently determines whether the contract is, or contains, a lease, based on the new definition of a lease. According to K-IFRS 1116, a contract is, or contains a lease if the right to control the use of an identified asset is transferred in exchange for the consideration received for a period of time.

On the date of initial application for K-IFRS 1116, the Group elected to apply a practical expedient which does not require the Group to reassess whether the contract is a lease. The Group applied K-IFRS 1116 only to the contracts that were previously identified as a lease and did not reassess the contracts that were not identified as a lease in line with K-IFRS 1017 and K-IFRS 2104. Therefore, the definition of lease under K-IFRS 1116 is only applicable to contracts that are entered into or modified after January 1, 2019.

For a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease and non-lease components.

The Group elected not to recognize right-to-use assets and lease liabilities for certain leases of low-value assets (e.g. IT facilities) and short-term leases (less than one year). The Group will recognize the related lease payments as expenses equally over the lease period.

IFRS Interpretations Committee published its interpretation of ‘Lease Period and Lease Improvement Useful Life’ as of December 16, 2019. The Interpretation Committee discussed the calculation method of renewable lease and cancellable lease etc., and according to the interpretation, the consolidating company shall identify factors to consider a wide range of economic disadvantages and calculate the lease period based on them. However, as the Group is holding a large number of contracts and the conditions of the contract vary, sufficient time is required for analysis of the contract and accounting policy establishment. Therefore, the Group is planning to reflect the effects in the consolidated financial statements after the analysis of the effects changes in accounting policies over the lease term is completed.

  • 11 -
ii) Lessee

The Group leases various assets, including buildings, vehicles and IT equipment.

Previously, the Group classified its leases either as operating leases or as finance leases based on whether the lease substantially transfers the risk and reward of owning the underlying assets. According to K-IFRS 1116, the Group recognizes right-of-use assets and lease liabilities for most of its leases, which means most of its leases are presented in the statement of financial position.

For the right-of-use assets that do not satisfy the definition of an investment property, the Group presents those assets as the same item as the item that the corresponding underlying asset would have been presented for. Right-of-use assets that meet the definition of investment properties would be presented as investment properties.

The Group presents lease liability as other financial liabilities in the consolidated statement of financial position.

A lease classified as operating lease in accordance with K-IFRS 1017

The Group has classified its property lease as operating lease in accordance with K-IFRS 1017. For leases previously classified as operating leases applying K-IFRS 1017, the Group measures lease liabilities at the present value of the remaining lease payments using the Group’s incremental borrowing rates as of January 1, 2019. However, the Group elected not to apply recognition, measurement and presentation requirements for leases of low-value underlying assets. A right-of-use asset is measured using the following methods.

- The same amount as the lease liability (adjusted for any advanced payments or payables). The Group adopts this<br>method for all its leases.

For leases previously classified as operating leases applying K-IFRS 1017, the Group applies the following practical expedient when applying K-IFRS 1116.

- Any initial direct cost is excluded from the measurement of right-of-use assets on the date of initial<br>application.
- As an alternative to impairment review, K-IFRS 1037 ‘Provisions, contingent liabilities and contingent<br>assets’ is applied immediately prior to the date of initial application to determine whether the leases are onerous.
--- ---
- Right-of-use assets and lease liabilities are not recognized for a short-term lease (remaining lease term of 12<br>months or less).
--- ---
- Hindsight is used when determining a lease term for contracts that contain extension option or termination<br>option.
--- ---
iii) Impacts to the financial statements
--- ---
a) Impacts at the point of transition
--- ---

As of the date of transition to K-IFRS 1116, the Group additionally recognized the right-of-use assets and lease liabilities, and the impacts are as follows (Unit: Korean won in millions):

January 1, 2019
Right-of-use assets presented as premises and equipment (*) 441,170
Lease liability (*) 382,439
(*) The differences have occurred due to prepaid, unpaid lease payment, transfer, etc. and there is no effect on<br>retained earnings.
--- ---

When measuring lease liabilities for leases that were previously classified as operating lease, the Group used its incremental borrowing rate as of January 1, 2019 as the discount rate. The applied weighted-average incremental borrowing rate is 2.14%.

  • 12 -
January 1, 2019
Operating leases as of December 31, 2018 403,045
Amount discounted by incremental borrowing rate on January 1, 2019 382,709
- Recognition exemption for leases of low-value assets (253 )
- Recognition exemption for leases with remaining lease period of 12 months or less at the<br>transition date (17 )
Lease liabilities recognized on January 1, 2019 382,439
b) Impacts during the transition
--- ---

The Group recognized depreciation expenses and interest expenses instead of the operating lease expenses for the leases in line with K-IFRS 1116. For the year ended December 31, 2019, the Group recognized depreciation expenses of 221,534 million Won and interest expenses of 8,309 million Won.

③ Share-based payment

For cash-settled share-based payment transactions that provide cash in return for the goods or services received, the Group measures the goods or services received, and the corresponding liability at the fair value and recognizes as employee benefit expenses and liabilities during the vesting period. The fair value of the liability is remeasured at the end of each reporting period and the settlement date until the liability is settled, and changes in fair value are recognized as employee benefits.

④ It is believed that the following issued, revised standards will not have a significant impact on the Group:<br>
- K-IFRS 2123 Uncertainty over Income Tax Treatments (Issued)
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- K-IFRS 1109 Financial Instruments (Revised)
--- ---
- K-IFRS 1028 Investment in Associates and Joint Ventures (Revised)
--- ---
- K-IFRS 1019 Employee Benefits (Revised)
--- ---
- K-IFRS 1115 Revenue from Contracts with Customers (Revised)
--- ---
- Annual Improvements to IFRSs 2015-2017 Cycle
--- ---

These annual improvements include partial amendments of K-IFRS 1012 ‘Income Tax,’ K-IFRS 1023 ‘Borrowing Cost,’ K-IFRS 1103 ‘Business Combination’ and K-IFRS 1111 ‘Joint Arrangements’.

2) The details of K-IFRSs that have been issued and published as of the date of issue approval of financial<br>statements but have not yet reached the effective date, and which the Group has not applied at an earlier date are as follows:
- Revised Conceptual Framework for Financial Reporting
--- ---
- Revised K-IFRS 1103 ‘Business Combinations’
--- ---
- Revised K-IFRS 1001 ‘Financial Statements Presentation’ and K-IFRS 1008 ‘Change and Error of<br>Accounting Policy and Accounting Estimates’
--- ---

It is believed that revised standards listed above, will not have a significant impact on the company.

  • 13 -
(2) Basis of consolidated financial statement presentation

The consolidated financial statements incorporate the financial statements of the Bank and the entities (including structured entities) controlled by the Bank (and its subsidiaries, which is the “Group”). Control is achieved where the Group 1) has the power over the investee, 2) is exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group’s voting rights in an investee are sufficient to give it power, including:

• The relative size of the Group’s holding of voting rights and dispersion of holdings of the other vote<br>holders;
• Potential voting rights held by the Group, other vote holders or other parties;
--- ---
• Rights arising from other contractual arrangements;
--- ---
• Any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to<br>direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
--- ---

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owner of the Group and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owner of the Group and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intra-group transactions and, related assets and liabilities, income and expenses are eliminated in full on consolidation.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owner of the parent company.

When the Group loses control of a subsidiary, a gain or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting under K-IFRS 1109 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

  • 14 -
(3) Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured as the sum of the acquisition-date fair values of the assets transferred by the Group in exchange for control of the acquiree, liabilities assumed by the Group for the former owners of the acquiree and the equity interests issued by the Group. Acquisition-related costs are generally recognized in profit or loss as incurred.

At the acquisition date, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the condition for recognition under K-IFRS 1103 are recognized at their fair value, except that:

• deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are<br>recognized and measured in accordance with K-IFRS 1012 Income Taxes and K-IFRS 1019 Employee Benefits, respectively;
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based<br>payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with K-IFRS 1102 Share-based Payment at the acquisition date; and
--- ---
• non-current assets (or disposal groups) that are classified as held for sale in accordance with K-IFRS 1105<br>Non-current Assets Held for Sale and Discontinued Operations are measured at the lower of their previous carrying amounts and fair value less costs to sell.
--- ---

Any excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets.

  • 15 -

If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognized immediately in net income as a bargain purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration other than the above is remeasured at subsequent reporting dates as appropriate, with the corresponding gain or loss being recognized in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured at fair value at the acquisition date (i.e., the date when the Group obtains control) and the resulting gain or loss, if any, is recognized in net income (or other comprehensive income, if applicable). Amounts arising from changes in value of interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are recognized, identical to the treatment assuming interests are sold directly.

  • 16 -
(4) Investments in joint ventures and associates

An associate is an entity over which the Group has significant influence, and that is not a subsidiary or a joint venture. Significant influence is the power to participate in making decision on the financial and operating policy of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to net assets relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

The net income of the current period and the assets and liabilities of the joint ventures and associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in the joint ventures and associates is initially recognized in the consolidated statements of financial position at cost and adjusted thereafter to recognize the Group’s share of the net assets of the joint ventures and associates and any impairment. When the Group’s share of losses of the joint ventures and associates exceeds the Group’s interest in the associate, the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint ventures and associates.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the joint ventures and associates recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognized immediately in net income.

Upon a loss of significant influence over the joint ventures and associates, the Group discontinues the use of the equity method and measures at fair value of any investment that the Group retains in the former joint ventures and associates from the date when the Group loses significant influence. The fair value of the investment is regarded as its fair value on initial recognition as a financial asset in accordance with K-IFRS 1039 Financial Instruments; Recognition and Measurement. The Group recognized differences between the carrying amount and fair value in net income and it is included in determination of the gain or loss on disposal of joint ventures and associates. The Group accounts for all amounts recognized in other comprehensive income in relation to that joint ventures and associates on the same basis as would be required if the joint ventures and associates had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by an associate would be reclassified to net income on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to net income as a reclassification adjustment.

  • 17 -

When the Group’s ownership of interest in an associate or a joint venture decreases but the Group continues to maintain significant influence over an associate or a joint venture, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that decrease in ownership interest if the gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. Meanwhile, if interest on associate or joint venture meets the definition of non-current asset held for sale, it is accounted for in accordance with K-IFRS 1105.

The requirements of K-IFRS 1028 - Investments in Associates and Joint Ventures to determine whether there has been a loss event are applied to identify whether it is necessary to recognize any impairment loss with respect to the Group’s investment in the joint ventures and associates. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with K-IFRS 1036 - Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized is not allocated to any asset (including goodwill), which forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with K-IFRS 1036 to the extent that the recoverable amount of the investment subsequently increases.

The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests.

When a subsidiary transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognized in the Group’s consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group.

(5) Investment in Joint operation

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

When the Group operates as a joint operator, it recognizes in relation to its interest in a joint operation:

- its assets, including its share of any assets held jointly;
- its liabilities, including its share of any liabilities incurred jointly;
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- its revenue from the sale of its share of the output arising from the joint operation;
--- ---
- its share of the revenue from the sale of the output by the joint operation; and
--- ---
- its expenses, including its share of any expenses incurred jointly.
--- ---

The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the K-IFRSs applicable to the particular assets, liabilities, revenues and expenses.

When the Group enters into a transaction with a joint operation in which it is a joint operator, such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the Group recognizes gains and losses resulting from such a transaction only to the extent of the other parties’ interests in the joint operation.

When the Group enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it does not recognize proportional share of profit or loss until the asset is sold to a third party.

  • 18 -
(6) Revenue recognition

K-IFRS 1115 requires the recognition of revenues based on transaction price allocated to the performance obligation when or as the Group performs that obligation to the customer. Revenues other than those from contracts with customers, such as interest revenue and loan origination fee (cost), are measured through effective interest rate method.

1) Revenues from contracts with customers

The Group recognizes revenue when the Group satisfies a performance obligation by transferring a promised good or service to a customer. When a performance obligation is satisfied, the Group shall recognize as a revenue the amount of the transaction price that is allocated to that performance obligation. The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

The Group is recognizing revenue by major sources as shown below:

① Fees and commission received for brokerage

The fees and commission received for agency are the amount of consideration or fee expected to be entitled to receive in return for providing goods or services to the other parties with the Group acting as an agency, such as in the case of sales of bancassurance and beneficiary certificates. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.

② Fees and commission received related to credit

The fees and commission received related to credit mainly include the lending fees received from the loan activity and the fees received in the L/C transactions. Except for the fees and commission accounted for in calculating the effective interest rate, it is generally recognized when the performance obligation has been performed. The majority of these fees and commission received related to credit are from the business activities relevant to Consumer banking and Corporate banking segment.

③ Fees and commission received for electronic finance

The fees and commission received for electronic finance include fees received in return for providing various kinds of electronic financial services through firm-banking and CMS. These fees are recognized as revenue immediately upon the completion of services. The majority of these fees and commission received for electronic finance are from the business activities relevant to Consumer banking and Corporate banking segment.

④ Fees and commission received on foreign exchange handling

The fees and commission received on foreign exchange handling consist of various fees incurred when transferring foreign currency. The point of processing the customer’s request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange handling are substantially attributable to Corporate banking segment.

⑤ Fees and commission received on foreign exchange

The fees and commission received on foreign exchange consist of fees related to the issuance of various certificates, such as exchange, import and export performance certificates, purchase certificates, etc. The point of processing the customer’s request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange are substantially attributable to Corporate banking segment.

⑥ Fees and commission received for guarantee

The fees and commission received for guarantee include the fees received for the various warranties. The activities related to the warranty consist mainly of performance obligations satisfied over time and fees and commission are recognized over the guarantee period. The business activities relevant to these fees and commission received for guarantee are substantially attributable to Corporate banking segment.

  • 19 -
⑦ Fees and commission received on securities business

The fees and commission received on securities business consist mainly of fees and commission for the sale of beneficiary certificates, and these fees are recognized when the beneficiary certificates are sold to customers. The business activities relevant to these fees and commission received on securities business are substantially attributable to Consumer banking segment.

⑧ Fees and commission from trust management

The fees and commission from trust management consist of fees and commission received in return for the operation and management services for entrusted assets. These operation and management services are performance obligations satisfied over time, and revenue is recognized over the service period. Among the fees and commission from trust management, variable considerations such as profit commission that are affected by the value of entrusted assets and base return of the future periods are recognized as revenue when limitations to the estimates are lifted. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.

⑨ Other fees

Other fees are usually fees related to remittances, but include fees related to various other services provided to customers by the Group. These fees are recognized when transactions occur at the customers’ request and services are provided, at the same time when commission are received. These other fees occur across all operating segments and no single operating segment represents majority of other fees.

2) Revenues from sources other than contracts with customers
① Interest income
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Interest income on financial assets measured at FVTOCI and financial assets at amortized costs is measured using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating the interest income over the expected life of the asset. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instrument’s initial unamortized cost over the expected period, or shorter if appropriate. Future cash flows include commissions and cost of reward points (limited to the primary component of effective interest rate) and other premiums or discounts that are paid or received between the contractual parties when calculating the effective interest rate, but does not include expected credit losses. All contractual terms of a financial instrument are considered when estimating future cash flows.

For purchased or originated credit-impaired financial assets, interest revenue is recognized by applying the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. Even if the financial asset is no longer impaired in the subsequent periods due to credit improvement, the basis of interest revenue calculation is not changed from amortized cost to unamortized cost of the financial assets.

② Loan origination fees and costs

The commission fees earned on loans, which is part of the effective interest of loans, is accounted for as deferred origination fees. Incremental costs related to the origination of loans are accounted for as deferred origination fees and is being added or deducted to/from interest income on loans using effective interest rate method.

  • 20 -
(7) Accounting for foreign currencies

The Group’s consolidated financial statements are presented in Korean Won, which is the functional currency of the Group. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at its prevailing exchange rates at the date. The effective portion of the changes in fair value of a derivative that qualifies as a cash flow hedge and the foreign exchange differences on monetary items that form part of net investment in foreign operations are recognized in equity.

Assets and liabilities of the foreign operations subject to consolidation are translated into Korean Won at foreign exchange rates at the end of the reporting period. Except for situations in which it is required to use exchange rates at the date of transaction due to significant changes in exchange rates during the period, items that belong to profit or loss shall be measured by average exchange rate, with foreign exchange differences recognized as other comprehensive income and added to equity (allocated to non-controlling interests, if appropriate). When foreign operations are disposed, the controlling interest’s share of accumulated foreign exchange differences related to such foreign operations will be reclassified to profit or loss, while non-controlling interest’s corresponding share will not be reclassified.

Adjustments to fair value of identifiable assets and liabilities, and goodwill arising from the acquisition of foreign operations will be treated as assets and liabilities of the corresponding foreign operation and is translated using foreign exchange rates at the end of the period. The foreign exchange differences are recognized in equity.

(8) Cash and cash equivalents

The Group is classifying cash on hand, demand deposits, interest-earning deposits with original maturities of up to three months on acquisition date, and highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value as cash and cash equivalents.

  • 21 -
(9) Financial assets and financial liabilities
1) Financial assets
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A regular way purchase or sale of financial assets is recognized or derecognized on the trade date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

On initial recognition, financial assets are classified into financial assets at FVTPL, financial assets at FVTOCI, and financial assets at amortized cost.

a) Business model

The Group evaluates the way business is being managed, and the purpose of the business model for managing a financial asset best reflects the way information is provided to the management at its portfolio level. Such information considers the following:

- The accounting policies and purpose specified for the portfolio, the actual operation of such policies. This<br>includes strategy of the management focusing on the receipt of contractual interest revenue, maintaining a certain level of interest income, matching the duration of financial assets and the duration of corresponding liabilities to obtain the asset,<br>and outflow or realization of expected cash flows from disposal of assets
- The way the performance of a financial asset held under the business model is evaluated, and the way such<br>evaluation is being reported to the management
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- The risk affecting the performance of the business model (and financial assets held under the business model),<br>and the way such risk is being managed
--- ---
- The compensation plan for the management (e.g. whether the management is being compensated based on the fair<br>value of assets or based on contractual cash flows received)
--- ---
- Frequency, amount, timing and reason for sale of financial assets in the past and forecast of future sale<br>activities.
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  • 22 -
b) Contractual cash flows

The principal is defined to be the fair value of a financial assets at initial recognition. Interest is not only composed of consideration for the time value of money, consideration for the credit risk related to remaining principal at a certain period of time, and consideration for other cost (e.g. liquidity risk and cost of operation) and fundamental risk associated with lending, but also profit.

When evaluating whether contractual cash flows are solely payments of principal and interests, the Group considers the contractual terms of the financial instrument. When a financial asset contains contractual conditions that modify the timing and amount of contractual cash flows, it is required to determine whether contractual cash flows that arise during the remaining life of the financial instrument due to such contractual condition are solely payments of principal and interest. The Group considers the following elements when evaluating the above:

- Conditions that lead to modification of timing or amount of cash flows
- Contractual terms that adjust contractual nominal interest, including floating rate features<br>
--- ---
- Early payment features and maturity extension features
--- ---
- Contractual terms that limit the Group’s claim on cash flows arising from certain assets (e.g.<br>non-recourse feature)
--- ---
  • 23 -
① Financial assets at FVTPL

The Group is classifying those financial assets that are not classified as either financial assets at amortized cost or financial assets at FVTOCI, and those designated to be measured at FVTPL, as financial assets at FVTPL. Financial assets at FVTPL are measured at fair value, and related profit or loss is recognized in net income. Transaction costs related to acquisition at initial recognition is recognized in net income immediately upon its occurrence.

It is possible to designate a financial asset as financial asset at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial asset at FVTPL; (b) the financial asset forms part of the Group’s financial instrument group (a group composed of a combination of financial asset or liability), is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial asset is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial asset at FVTPL is allowed under K-IFRS 1109 ‘Financial Instruments’. However, the designation is irrevocable.

② Financial assets at FVTOCI

When financial assets are held under a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at FVTOCI. Also, for investments in equity instruments that are not held for short-term trade, an irrevocable election is available at initial recognition to present subsequent changes in fair value as other comprehensive income.

At initial recognition, financial assets at FVTOCI is measured at its fair value plus any direct transaction cost and is subsequently measured in fair value. However, for equity instruments that do not have a quotation in an active market and in which fair value cannot be measured reliably, they are measured at cost. The changes in fair value except for profit or loss items such as impairment losses (reversals), interest revenue calculated by using effective interest method, and foreign exchange gain or loss, and related income tax effects are recognized as other comprehensive income until the asset’s disposal. Upon derecognition, the accumulated other comprehensive income is reclassified from equity to net income for FVTOCI (debt instrument) and reclassified within the equity for FVTOCI (equity instruments).

③ Financial assets at amortized cost

When financial assets are held under a business model whose objective is to hold financial assets in order to collect contractual cash flows, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at amortized cost. At initial recognition, financial assets at amortized cost are recognized at fair value plus any direct transaction cost. Financial assets at amortized cost is presented at amortized cost using effective interest method, less any loss allowance.

  • 24 -
2) Financial liabilities

At initial recognition, financial liabilities are classified into either financial liabilities at FVTPL or financial liabilities at amortized cost.

Financial liabilities are usually classified as financial liabilities at FVTPL when they are acquired with a purpose to repurchase them within a short period of time, when they are part of a certain financial instrument portfolio that is actually and recently being managed with a purpose of short-term profit and joint management by the Group at initial recognition, and when they are derivatives that do not qualify as hedging instruments. Financial liabilities at FVTPL are measured at fair value plus direct transaction cost at initial recognition and are subsequently measured at fair value. Profit or loss arising from financial liabilities at FVTPL is recognized in net income when occurred.

It is possible to designate a financial liability as financial liability at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial liability at FVTPL; (b) the financial asset forms part of the Group’s financial instrument group (a group composed of a combination of financial asset or liability) according to the Group’s documented risk management or investment strategy, is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial liability is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial liability at FVTPL is allowed under K-IFRS 1109 ‘Financial Instruments’.

Financial liabilities designated as at FVTPL are initially recognized at fair value, with any direct transaction cost recognized in profit or loss and are subsequently measured at fair value. Any profit or loss from financial liabilities at FVTPL are recognized in profit or loss.

Financial liabilities not classified as financial liabilities at FVTPL are measured at amortized cost. The Group is classifying liabilities such as deposits due to customers, borrowings and debentures as financial liabilities at amortized cost.

3) Reclassification

Financial assets are not reclassified after initial recognition unless the Group modifies the business model used to manage financial assets. When the Group modifies the business model used to manage financial assets, all affected financial assets are reclassified on the first day of the first reporting period after the modification.

  • 25 -
4) Derecognition

Financial assets are derecognized when contractual rights to cash flows from the financial assets are expired, or when substantially all of risk and reward for holding financial assets is transferred to another entity as a result of a sale of financial assets. If the Group does not have and does not transfer substantially all of the risk and reward of holding financial assets with control of the transferred financial assets retained, the Group recognizes financial assets to the extent of its continuing involvement. If the Group holds substantially all the risk and reward of holding a financial asset, it continues to recognize that asset and proceeds are accounted for as collateralized borrowings.

When a financial asset is fully derecognized, the difference between the book value and the sum of proceeds and accumulated other comprehensive income is recognized as profit or loss in case of FVTOCI (debt instruments), and as retained earnings for FVTOCI (equity instruments).

In case when a financial asset is not fully derecognized, the Group allocates the book value into amounts retained in the books and removed from the books, based on the relative fair value of each portion at the date of sale, and based on the degree of continuing involvement. For the derecognized portion of the financial assets, the difference between its book value and the sum of proceeds and the portion of accumulated other comprehensive income attributable to that portion will be recognized in profit or loss in case of debt instruments and recognized in retained earnings in case of equity instruments. The accumulated other comprehensive income is distributed to the portion of book value retained in the books, and to the portion of book value removed from the books.

The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

When the Group exchanges with the existing lender one debt instrument into another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 percent different from the discounted present value of the remaining cash flows of the original financial liability

  • 26 -
5) Fair value of financial instruments

Financial assets at FVTPL and financial assets at FVTOCI are measured and presented in consolidated financial statements at their fair values, and all derivatives are also subject to fair value measurement.

Fair value is defined as the price that would be received to exchange an asset or paid to transfer a liability in a recent transaction between independent parties that are reasonable and willing. Fair value is the transaction price of identical financial assets or financial liabilities generated in an active market. An active market is a market where trade volume is sufficient and objective price information is available due to the fact that bid and ask price differences are small.

When trade volume of a financial instrument is low, when transaction prices within the market show large differences among them, or when it cannot be concluded that a financial instrument is being traded within an active market due to disclosures being extremely shallow, fair value is measured using valuation techniques based on alternative market information or using internal valuation techniques based on general and observable information obtained from objective sources. Market information includes maturity and characteristics, duration, similar yield curve, and variability measurement of financial instruments of similar nature. Fair value amount contains unique assumptions on each entity (the Group concluded that it is using assumptions applied in valuing financial instruments in the market, or risk-adjusted assumptions in case marketability does not exist).

The market approach and income approach, which are valuation techniques used to estimate the fair value of financial instruments, both require significant judgment. Market approach measures fair value using either a recent transaction price that includes the financial instrument, or observable information on comparable firm or assets. Income approach measures fair value through discounting future cash flows with a discount rate reflecting market expectations, and revenue, operating income, depreciation, capital expenditures, income tax, working capital and estimated residual value of financial investments are being considered when deriving future cash flows. Valuation techniques such as the above include estimates based on the financial instruments’ complexity and usefulness of observable information in the market.

The valuation techniques used in the evaluation of financial instruments are explained below.

  • 27 -

a) Financial assets at FVTPL and Financial assets at FVTOCI

The fair value of equity securities included in financial assets at FVTPL and financial assets at FVTOCI category is recognized in the statement of financial position at its available market price. Debt securities traded in the over-the-counter market are generally recognized at an amount computed by an independent appraiser. When the Group uses the fair value determined by independent appraisers, the Group usually obtains three values from three different appraisers for each financial instrument and selects the minimum amount without making additional adjustments. For equity securities without marketability, the Group uses the amount determined by the independent appraiser. The Group verifies the prices obtained from appraisers in various ways, including the evaluation of independent appraisers’ competency, indirect verification through comparison between appraisers’ price and other available market information, and reperformed by employees who have knowledge of valuation models and assumptions that appraisers used.

b) Derivatives

The Group’s transactions involving derivatives such as futures and exchange traded options are measured at market value. For exchange traded derivatives classified as level 2 in the fair value hierarchy, the fair value is estimated using internal valuation techniques. If there are no publicly available market prices because they are traded over-the-counter, fair value is measured through internal valuation techniques. When using internal valuation techniques to derive fair value, the types of derivatives, base interest rate or characteristics of prices, or stock market indices are considered. When variables used in the internal valuation techniques are not observable information in the market, such variables may contain significant estimates.

c) Adjustment of valuation amount

The Group is exposed to credit risk when a counterparty to a derivative contract does not perform its contractual obligation, and the exposure amount is equal to the amount of derivative asset recognized in the statement of financial position. When the Group earns income through valuation of derivatives, such income is recognized as derivative asset in the statement of financial position. Some of the derivatives are traded in the market, but most of the derivatives are measured at estimated fair value derived from internal valuation models that use observable information in the market. As such, in order to estimate the fair value there should be an adjustment made to incorporate counterparty’s credit risk, and credit risk adjustment is being considered when valuing derivative assets such as over-the counter derivatives. The amount of financial liabilities is also adjusted by the Group’s own credit risk when valuing them.

The amount of adjustment is derived from counterparty’s probability of default and loss given default. This adjustment considers contractual matters that are designed to reduce the Group’s exposure to each counterparty’s credit risk. When derivatives are under master netting arrangement, the exposure used in the computation of credit risk adjustment is a net amount after adding/deducting cash collateral received (or paid) from loss (or gain) position derivatives with the same counterparty.

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6) Expected credit losses on financial assets

The Group recognizes loss allowance on expected credit losses for the following assets:

- Financial assets at amortized cost
- Debt instruments measured at FVTOCI
--- ---
- Contract assets as defined by K-IFRS 1115
--- ---

Expected credit losses are weighted-average value of a range of possible results, considering the time value of money, and are measured by incorporating information on current conditions and forecasts of future economic conditions that are available without undue cost or effort.

The methods to measure expected credit losses are classified into following three categories in accordance with K-IFRS:

- General approach: Financial assets that do not belong to below two models and unused loan commitments<br>
- Simplified approach: When financial assets are either trade receivables, contract assets or lease receivables<br>
--- ---
- Credit impairment model: Purchased or originated credit-impaired financial assets
--- ---

The measurement of loss allowance under general approach is differentiated depending on whether the credit risk has increased significantly after initial recognition. That is, loss allowance is measured based on 12-month expected credit loss when the credit risk has not increased significantly after initial recognition, while loss allowance is measured at lifetime expected credit loss when credit risk has increased significantly. Lifetime is the expected remaining life of the financial instrument up to the maturity date of the contract.

The measurement of loss allowance under simplified approach is always based on lifetime expected credit loss, and loss allowance under credit impairment model is measured as the cumulative change in lifetime expected credit loss since initial recognition.

a) Measurement of expected credit losses on financial asset at amortized cost

The expected credit losses on financial assets at amortized cost is measured by the difference between the contractual cash flows during the period and the present value of expected cash flows. Expected cash inflows are computed for individually significant financial assets in order to calculate expected credit losses.

Financial assets that are not individually significant, they are included in a group of financial assets with similar credit risk characteristics and expected credit losses of the group are calculated collectively.

Expected credit losses are deducted through loss allowance account, and when the financial asset is determined to be uncollectible, the loss allowance is written off from the books along with the related financial asset. When loan receivable previously written off is subsequently collected, the related loss allowance is increased and changes in loss allowance are recognized in profit or loss.

b) Measurement of expected credit losses on financial asset at FVTOCI

The measurement method of expected credit loss is identical to financial asset at amortized cost, but changes in the loss allowance is recognized in other comprehensive income. When financial assets at FVTOCI is disposed or repaid, the related loss allowance is reclassified from other comprehensive income to net income.

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(10) Offsetting financial instruments

Financial assets and liabilities are presented as a net amount in the statements of financial position when the Group has an enforceable legal right and an intention to settle on a net basis or to realize an asset and settle the liability simultaneously.

(11) Investment properties

The Group classifies a property held to earn rentals and/or for capital appreciation as an investment property. Investment properties are measured initially at cost, including transaction costs, less subsequent depreciation and impairment.

Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured reliably, and the book value of a portion of an asset that are replaced by a subsequent expenditure is removed from the books. Routine maintenance and repairs are expensed as incurred.

While land is not depreciated, all other investment properties are depreciated based on the depreciation method and useful lives of premises and equipment. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, and when it is deemed appropriate to change them, the effect of any change is accounted for as a change in accounting estimates.

An investment property is derecognized from the consolidated financial statements on disposal or when it is permanently withdrawn from use and no future economic benefits are expected even from its disposal. The gain or loss on derecognition of an investment property is calculated as the difference between the net disposal proceeds and the carrying amount of the property and is recognized in profit or loss in the period of derecognition.

(12) Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of premises and equipment is expenditure directly attributable to their purchase or construction, which includes any cost 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. It also includes the initial estimate of costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of an asset or as a separate asset (if appropriate) if it is probable that future economic benefit associated with the assets will flow into the Group and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.

While land is not depreciated, for all other premises and equipment, depreciation is charged to net income on a straight-line basis by applying the following estimated economic useful lives on the amount of cost or revalued amount less residual value.

Useful life
Buildings used for business purpose 35 to 57 years
Structures in leased office 4 to 5 years
Properties for business purpose 4 to 5 years
Leased assets Useful lives of the same kind or<br><br><br>similar other premises and equipment

The Group reassesses the depreciation method, the estimated useful lives and residual values of premises and equipment at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate. When there is an indicator of impairment and the carrying amount of a premises and equipment item exceeds the estimated recoverable amount, the carrying amount of such asset is reduced to the recoverable amount.

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(13) Intangible assets and goodwill

The Group is recognizing intangible assets measured at the manufacturing cost or acquisition cost plus additional incidental expenses less accumulated amortization and accumulated impairment losses. The Group’s intangible asset are amortized over the following economic lives using the straight-line method. The estimated useful life and amortization method are reviewed at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate.

Useful life
Industrial property rights 10 years
Development costs 5 years
Software and others 4 to 5 years

In addition, when an indicator that intangible assets are impaired is noted, and the carrying amount of the asset exceeds the estimated recoverable amount of the asset, the carrying amount of the asset is reduced to its recoverable amount.

Goodwill acquired in a business combination is included in intangible assets. Goodwill is not amortized, but is subject to an impairment test at the cash-generating unit level every year, and whenever there is an indicator that goodwill is impaired.

Goodwill is allocated to each of the Group’s cash-generating unit (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.

(14) Impairment of non-monetary assets

Intangible assets with indefinite useful lives or intangible assets that are not yet available for use are tested for impairment annually, regardless of whether or not there is any indication of impairment. All other assets are tested for impairment by estimating the recoverable amount when there is an objective indication that the carrying amount may not be recoverable. Recoverable amount is the higher of value in use or net fair value, less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized immediately in net income.

  • 31 -
(15) Leases

As the Group applied K-IFRS 1116 using the revised retrospective method, the comparative financial information has not been prepared. The Group also applied K-IFRS 1017 and 2104. The accounting policies in accordance with K-IFRS 1017 and 2104 are separately disclosed.

Accounting policy applied since January 1, 2019.

The Group determines whether the agreement is a lease or includes a lease at the time of the agreement. In exchange for consideration in the contract, if the control over the use of the identified asset is transferred for a period of time, the contract is a lease or includes a lease. In determining whether a contract transfers control of the use of the identified asset, the Group uses the definition of a lease in K-IFRS 1116.

This accounting policy applies to contracts entered into since January 1, 2019.

1) The Group as a lessor

The Group recognizes the right-of-use asset and the lease liability at the commencement date of the lease. The right-of-use asset is measured at cost, which comprises the amount of the initial measurement of the lease liability, lease payments made at or before the commencement date (less any lease incentives received), initial direct costs, and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located.

The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement of the lease to the end of the lease term. However, if the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee depreciates the right-of-use asset same as a fixed asset from the commencement date to the end of the useful life of the underlying asset. The right-of-use asset may be reduced by an impairment of the underlying asset or adjusted by remeasurement of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the interest rate implicit in the lease, if that cannot be readily determined, the Group uses its incremental borrowing rate. The Group generally uses the incremental borrowing rate.

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The lease payments included in the measurement of the lease liability comprise the following:

- Fixed payments (including in-substance fixed payments)
- Variable lease payments that depend on an index (or a rate), initially measured using the index or rate as at<br>the commencement date
--- ---
- 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, lease<br>payments of the extended period if the lessee is reasonably certain to exercise extension option, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease<br>
--- ---

The lease liability is subsequently increased by the interest expense recognized for the lease liability and decreased by reflecting the payment of the lease payments. The lease liability is remeasured if the future lease payments change depending on changes in the index (or a rate), changes in the expected amount to be paid under the residual value guarantee, and changes in the assessment of whether the purchase or extension option is reasonably certain to be exercised or not to exercise the terminate option.

When remeasuring a lease liability, the related right-of-use asset is adjusted and if the carrying amount of the right-of-use asset decreases to zero, the remeasurement amount is recognized in profit or loss.

The Group applies its judgment when determining the lease term for some lease contracts that include the extension option. The assessment of whether the Group is reasonably certain to exercise the option significantly affects the lease term and therefore has a significant impact on the amount of lease liabilities and the right-of-use asset.

In the statement of financial position, the Group classified the right-of-use assets that do not meet the definition of investment property as ‘premises and equipment’ and the lease liabilities as ‘other financial liabilities.’

The Group has chosen a practical expedient that does not recognize the right-of-use asset and lease liabilities for short-term leases with a lease term less than 12 months and leases for which the underlying asset is of low value. The Group recognizes the lease payments associated with those leases as an expense on a straight-line basis over the lease term.

2) The Group as a lessor

At the date of the agreement or the effective date of the modification containing the lease element, the Group allocates the consideration of the contract to each lease element on the basis of its relative stand-alone price.

As a lessor, the Group classifies its leases as either an operating lease or a finance lease at the commencement date.

The Group subsequently judges whether the lease transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset, otherwise a lease is classified as an operating lease.

If the agreement contains both lease and non-lease elements, the Group applies K-IFRS 1115 to allocate the consideration of the contract.

The Group applies derecognition and impairment provisions of K-IFRS 9 to its net investment in the lease. The Group also carries out regular review of the unguaranteed residual value used to calculate total lease investment.

The Group recognizes lease payments from operating lease as income on a straight-line basis.

The accounting policy that the Group has applied as a lessor is not different from K-IFRS 1116.

  • 33 -
3) Accounting policy applied until January 1, 2019

The Group classifies a lease as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee, and all lease contracts other than finance leases are classified as operating leases.

① The Group as a lessee

In case of finance leases, the lesser amount of the present value of the minimum lease payments at the commencement date of the lease term or the fair value of the leased asset are recognized as financial lease assets and liabilities in the statement of financial position. Lease payments are allocated as interest expense and repayment of the lease liability so that the same period interest rate is calculated for the balance of the liability. Adjustment to the lease payments are accounted for as expenses during the period.

The operating lease payments are recognized as an expense on a straight-line basis if there is no other systematic basis that is more representative of the pattern in which benefit from the use of underlying asset. Adjustment lease payments from the operating leases are accounted for as expenses during the period in which they are incurred.

② The Group as a lessor

The Group recognizes a finance lease receivable equal to the present value of the minimum lease and the non-guaranteed residual value, which is the net investment of the finance lease. The accounting for recognizing interest income by reporting period is carried out on a financial lease receivable after the commencement date of the lease term by applying a method in which a certain interest rate of the Group’s net investment in the lease is calculated.

The Group recognizes income from lease payments of operating lease on a straight-line basis over the lease term, and the direct costs of the lease incurred during the negotiation and contract phase of the operating lease is added to the carrying value of the lease asset and recognized as an expense over the lease term on a straight-line basis. Operating lease assets are included in other assets and are depreciated over their economic useful life.

  • 34 -
(16) Derivative instruments

Derivative instruments are classified as forwards, futures, options and swaps, depending on the types of transactions and are classified at the point of transaction as either trading or hedging based on its purpose.

Derivatives are initially recognized at fair value at the date of contract and are subsequently measured at fair value at the end of each reporting period. The resulting gain or loss is recognized in net income immediately unless the derivative is designated and effective as a hedging instrument. If derivatives have been designated as hedging instruments and if it is effective, the point of recognition of gain or loss depends on the characteristics of hedging relationship.

1) Embedded derivatives

Embedded derivatives are components of a hybrid financial instrument that includes a non-derivative host contract. It has an effect of modifying part of cash flows of the hybrid financial instrument similar to an independent derivative.

Embedded derivatives that are part of a hybrid contract of which the host contract is a financial asset within the scope of K-IFRS 1109 is not separated. The classification is done by considering the hybrid contract as a whole, and subsequent measurement is either at amortized cost or fair value.

If embedded derivatives are part of a hybrid contract of which the host contract is not a financial asset within the scope of K-IFRS 1109 (e.g. financial liability), then these are treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics & risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL.

In the previous year, all embedded derivatives which were part of a hybrid contract were treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics & risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL

2) Hedge accounting

The Group is applying K-IFRS 1109 in regards to hedge accounting. The Group is designating certain derivatives as hedging instrument against fair value changes in relation to the interest rate risk, foreign currency translation and interest rate risk, and foreign currency translation risk.

The Group is documenting the relationship between hedging instruments and hedged items at the commencement of hedging in accordance with their purpose and strategy. Also, the Group documents at the commencement and subsequent dates whether the hedging instrument effectively counters the changes in fair value of hedged items. A hedging instrument is effective only when it meets all the following criteria:

- When there is an economic relationship between the hedged items and hedging instruments.
- When the effect of credit risk is not stronger than the change in value due to the economic relationship<br>between the hedged items and hedging instruments.
--- ---
- When the hedge ratio of hedging relationship is equal to the proportion of the number of items that the group<br>actually hedges and the number of hedging instruments that the Group actually uses to hedge the number of hedged items
--- ---

When a hedging relationship no longer meets the hedging effectiveness requirements related to hedge ratio, but when the purpose of risk management on designated hedging relationship is still maintained, the hedge ratio of the hedging relationship is adjusted so that hedging relationship may meet the requirements again (Hedge ratio readjustment).

The Group has designated derivatives as hedging instrument except for the portion on foreign currency basis spread. The fair value change due to foreign currency basis spread is recognized in other comprehensive income and is accumulated in equity. If the hedged item is related to transactions, the accumulated other comprehensive income is reclassified to profit or loss when the hedged item affects the profit or loss. However, when non-monetary items are subsequently recognized due to hedged items, the accumulated equity is removed from the equity directly, and is included in the initial book value of the recognized non-monetary items. Such transfers does not affect other comprehensive income. But if part or all of accumulated equity is not expected to be recovered in the future periods, the amount not expected to be recovered is immediately reclassified to profit or loss. If the hedged item is time-related, then the foreign currency basis spread on the day the derivative is designated as a hedging instrument that is related to the hedged item is reclassified to profit or loss over the term of the hedge.

  • 35 -
3) Fair value hedge

Gain or loss arising from valid hedging instrument is recognized in profit or loss. However, when the hedging instrument mitigates risks on equity instruments designated as financial assets at FVTOCI, related gain or loss is recognized in other comprehensive income.

The book value of hedged items that are not measured in fair value is adjusted by the changes in fair value arising from the hedged risk, with resulting gain or loss reflected in net income. In case of debt instruments measured at FVTOCI, book value is an amount that is already adjusted to fair value and thus gain or loss arising from the hedged risk is recognized in profit or loss instead of other comprehensive income without adjustments in book value. When the hedged item is equity instruments measured at FVTOCI, the gain or loss arising from hedged risk is retained at other comprehensive income in order to match the gain or loss with hedging instruments.

Hedge accounting ceases to apply only when hedging relationship (or part of it) does not meet the requirements of hedge accounting (even after hedging relationship readjustment, if applicable). This treatment holds in case of lapse, disposal, expiry and exercise of hedging instruments, and this cease of treatment applies prospectively. The fair value adjustments made to book value of hedged item due to hedged risk is amortized from the date of discontinuance of hedge accounting and is recognized in profit or loss.

4) Cash flow hedge

The Group recognizes the effective portion of changes in the fair value of derivatives and other valid hedging instruments that are designated and qualified as cash flow hedges in other comprehensive income, to the extent of cumulative fair value changes of the hedged item from the date of hedge accounting. The gain or loss relating to the ineffective portion is recognized immediately in net income.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to net income when the hedged item affects net income. However, when non-monetary assets or liabilities are subsequently recognized due to expected transactions involving hedged items, the valuation gain or loss accumulated in the equity as other comprehensive income is removed from the equity and included in the initial book value of the recognized non-monetary assets or liabilities. Such transfers do not affect other comprehensive income. Also, if accumulated other comprehensive income is a loss and part or all of the losses are not expected to be recovered in the future periods, the said amount is immediately reclassified to profit or loss.

Hedge accounting ceases to apply only when hedging relationship (or part of it) does not meet the requirements of hedge accounting (even after hedging relationship readjustment, if applicable). This treatment holds in case of lapse, disposal, expiry and exercise of hedging instruments, and this cease of treatment applies prospectively. At the point of cessation of cash flow hedge, the valuation gain or loss recognized as accumulated other comprehensive income continues to be recognized as equity, and is reclassified to profit or loss when the expected transaction is ultimately recognized as profit or loss. However, when transactions are no longer expected to occur, the valuation gain or loss of hedging instrument recognized as accumulated other comprehensive income is immediately reclassified to profit or loss.

  • 36 -
(17) Assets (or disposal group) held for sale

The Group classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

(18) Provisions

Provisions are recognized if it has present or contractual obligations as a result of the past event, it is probable that an outflow of resources will be required to settle the obligation and the amount of the obligation is reliably estimated. Provisions are not recognized for the future operating losses.

The Group recognizes provision related to the payment guarantees, loan commitment and litigations. Under the terms of lease agreement, the cost incurred by the Group to recover the leased asset to its original state are recognized as provisions at the commencement of the lease or during a specific period in which the obligation is incurred as a result of the using the asset. The provisions are measured as the best estimate of the expenditure required to recover the asset, which is regularly reviewed and sated to the new situation.

Where there are a number of similar obligations, the probability that an outflow will be required in settlement is determined by considering the obligations as a whole. Although the likelihood of outflow for any one item may be small, if it is probable that some outflow of resources will be needed to settle the obligations as a whole, a provision is recognized.

(19) Capital and compound financial instruments

The Group classifies a financial instrument that it issues as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. A financial liability is a contractual obligation to deliver cash or another financial asset to another entity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The compound financial instruments are financial instruments where it is neither a financial liability nor an equity instrument because it was designed to contain both equity and debt elements.

If the Group reacquires its own equity instruments, the consideration paid including the direct transaction costs (net of tax expense) are presented as a deduction from total equity until such instruments are retired or reissued. When these instruments are reissued, the consideration received (net of direct transaction costs) is included in the shareholder’s equity.

(20) Financial guarantee contracts

A financial guarantee contract is a contract where the issuer must pay a certain amount of money in order to compensate losses suffered by the creditor when debtor defaults on a debt instrument in accordance with original or modified contractual terms.

A financial guarantee is initially measured at fair value and is subsequently measured at the higher of the amounts below unless it is designated to be measured at FVTPL or when it arises from disposal of an asset.

- Loss allowance in accordance with K-IFRS 1109
- Initial book value less accumulated profit measured in accordance with K-IFRS 1115
--- ---
  • 37 -
(21) Employee benefits and pensions

The Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by the employees. Also, the Group recognizes expenses and liabilities in the case of accumulating compensated absences when the employees render services that entitle their right to future compensated absences. Similarly, the Group recognizes expenses and liabilities for customary profit distribution or bonuses when the employees render services, even though the Group does not have legal obligation to do so because it can be construed as constructive obligation.

The Group is operating defined contribution plans and defined benefit plans. Contributions to defined contribution plans are recognized as an expense when employees have rendered services entitling them to receive the benefits. For defined benefit plans, the defined benefit liability is calculated through an actuarial assessment using the projected unit credit method every end of the reporting period, conducted by professional actuaries. Remeasurement, comprising actuarial gains and losses, the return on plan assets (excluding interest), and the effect of the changes to the asset ceiling (if applicable) is reflected immediately in the separate statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur.

Remeasurement recognized in the consolidated statement of comprehensive income is not reclassified to profit or loss in the subsequent periods. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are composed of service cost (including current service cost and past service cost, as well as gains and losses on curtailments and settlements), net interest expense (income) and remeasurement.

The Group presents the service cost and net interest expense (income) components in profit or loss, and the remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past service costs.

The retirement benefit obligation recognized in the consolidated statement of financial position represents the actual deficit or surplus in the Group’s defined benefit plans. Any surplus resulting from this calculation is recognized as an asset limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.

Liabilities for termination benefits are recognized at the earlier of either the date when the Group is no longer able to cancel its proposal for termination benefits or the date when the Group has recognized the cost of restructuring that accompanies the payment of termination benefits.

  • 38 -
(22) Income taxes

Income tax expense is composed of current tax and deferred tax. That is, income tax expense is composed of taxes payable or refundable during the period and deferred taxes calculated by applying asset-liability method to taxable and deductible temporary differences arising from operating loss and tax credit carryforwards. Temporary differences are the differences between the carrying values of assets and liabilities for financial reporting purposes and their tax bases. Deferred income tax benefit or expense is recognized for the change in deferred tax assets or liabilities. Deferred tax assets and liabilities are measured as of the reporting date using the enacted or substantively enacted tax rates expected to apply in the period in which the liability is settled or asset realized. Deferred tax assets, including the carryforwards of unused tax losses, are recognized to the extent it is probable that the deferred tax assets will be realized.

Deferred income tax assets and liabilities are offset if, and only if, the Group has a legally enforceable right to offset current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority or when the entity intends to settle current tax liabilities and assets on a net basis with different taxable entities.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill. Deferred tax assets or liabilities are not recognized if they arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity or when it arises from business combination.

The tax uncertainty arises from the compensation claim filed by the Group, and the refund litigation for the amount of tax levied by the tax authority due to differences in tax law analysis

In response, the Group paid taxes in accordance with K-IFRS 2123 due to the tax authority’s claim but recognized as a corporate tax asset if it is highly probable of a refund in the future.

(23) Criteria of calculating earnings per share (“EPS”)

Basic EPS is a calculation of net income per each common stock. It is calculated by dividing net income attributable to ordinary shareholders by the weighted-average number of common shares outstanding. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential common shares.

  • 39 -
3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

The significant accounting estimates and assumptions are continuously being evaluated based on numerous factors including historical experiences and expectations of future events considered to be reasonably possible. Actual results can differ from those estimates based on such definitions. The accounting estimates and assumptions that contain significant risk of materially changing current book values of assets and liabilities in the next accounting periods are as follows:

(1) Income taxes

The Group has recognized current and deferred taxes based on best estimates of expected future income tax effect arising from the Group’s operations until the end of the current reporting period. However, actual tax payment may not be identical to the related assets and/or liabilities already recognized, and these differences may affect current taxes and deferred tax assets/liabilities at the time when income tax effects are finalized. Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. In this case the Group’s evaluation considers various factors such as estimated future taxable profit based on forecasted operating results, which are based on historical financial performance. The Group is reviewing the book value of deferred tax assets every end of the reporting period and in the event that the possibility of earning future taxable income changes, the deferred tax assets are adjusted up to taxable income sufficient to use deductible temporary differences.

(2) Valuation of financial instruments

Financial assets at FVTPL and FVTOCI are recognized in the consolidated financial statements at fair value. All derivatives are measured at fair value. Valuation techniques are required in order to determine fair values of financial instruments where observable market prices do not exist. Financial instruments that are not actively traded and have low price transparency will have less objective fair value and require broad judgment in liquidity, concentration, uncertainty in market factors and assumption in price determination and other risks.

As described in Note 2-(9)-5), ‘Fair value of financial assets and liabilities’, when valuation techniques are used to determine the fair value of a financial instrument, various general and internally developed techniques are used, and various types of assumptions and variables are incorporated during the process.

(3) Impairment of financial instruments

K-IFRS 1109 requires entities to measure loss allowance equal to 12-month expected credit losses or lifetime expected credit losses after classifying financial assets into one of the three stages, which depends on the degree of increase in credit risk after their initial recognition.

Stage 1 Stage 2 Stage 3
Credit risk has not significantly increased<br>since initial recognition (*) Credit risk has significantly increased<br>since initial<br>recognition Credit has<br>been impaired
Allowance for expected credit losses Expected 12-month credit losses:<br> <br>Expected<br>credit losses due to possible defaults on financial instruments within a 12-month period from the year-end. Expected lifetime credit losses:<br><br><br>Expected credit losses from all possible defaults during the expected lifetime of the financial instruments.
(*) Credit risk may be considered to not have been significantly increased when credit risk is low at year-end.<br>
--- ---

The Group has estimated the allowance for credit losses based on reasonable and supportable information that was available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

  • 40 -

Probability of default (PD) and Loss given default (LGD) for each category of financial asset is being calculated by considering factors such as debtor type, credit rating and portfolio. The estimates are regularly reviewed in order to reduce discrepancies with actual losses.

In measuring the expected credit losses, the Group is also using reasonable and supportable macroeconomic indicators such as economic growth rates, interest rates, market index rates, etc., in order to forecast future economic conditions.

The Group is conducting the following procedures to estimate and apply future economic forecast information.

- Development of prediction models by analyzing the correlation between default rates of corporate and retail<br>exposures per year and macroeconomic indicators
- Calculation of predicted default rate incorporating future economic forecasts by applying estimated<br>macroeconomic indicators provided by verified institutions such as Bank of Korea and National Assembly Budget Office to the prediction model developed.
--- ---

At the end of every reporting period, the Group evaluates whether credit risk reflected forward-looking information has significantly been increased since the date of initial recognition. When evaluating whether credit risk has significantly been increased, the changes in the probability of default over the financial instrument’s remaining life is used instead of changes in the amount of expected credit losses. The Group performs the above evaluation with distinctions made to corporate and retail exposures, and indicators of significant increase in credit risk are as follows:

Corporate Exposures Retail Exposures
Asset quality level ‘Precautionary’ or lower Asset quality level ‘Precautionary’ or lower
More than 30 days past due More than 30 days past due
‘Warning’ level in early warning system Significant decrease in credit rating (*)
Debtor experiencing financial difficulties (Capital impairment, Adverse opinion<br>or Disclaimer of opinion by external auditors)
Significant decrease in credit rating (*)
(*) Determining whether there has been a significant decrease in the credit rating of corporate and retail<br>exposures applies only to credit ratings that are measured through 12-month expected credit loss. The Bank has applied the above indicators of significant decrease in credit rating since initial recognition as follows, and the estimation method is<br>regularly being monitored.
--- ---
Credit rating Significant increased indicator of the credit rating
--- --- ---
Corporate AAA ~ A+ More than 4 steps
A- ~ BBB More than 3 steps
BBB- ~ BB+ More than 2 steps
BB ~ BB- More than 1 step
Retail 1 ~ 3 More than 3 steps
4 ~ 5 More than 2 steps
6 ~ 10 More than 1 step

The Group sees no significant increase in credit risk after initial recognition for debt securities, etc. with a credit rating of A + or higher, which are deemed to have low credit risk at the end of the reporting period

  • 41 -

The Group concludes that credit is impaired when financial assets are under conditions stated below:

- When principal of loan is overdue for 90 days or longer due to significant deterioration in credit<br>
- For loans overdue for less than 90 days, when it is determined that not even a portion of the loan will be<br>recovered unless claim actions such as disposal of collaterals are taken
--- ---
- When other objective indicators of impairment have been noted for the financial asset.
--- ---

The Group determines which loan is subject to write-off in accordance with internal guidelines and writes off loan receivables when it is determined that the loans are practically irrecoverable. For example, loans are practically irrecoverable when application is made for rehabilitation under the Debtor Rehabilitation and Bankruptcy Act and loans are confirmed as irrecoverable by the court’s decision to waive debtor’s obligation, or when it is impossible to recover the loan amount through legal means such as auctioning of debtor’s assets or through any other means of recovery available. Notwithstanding the write-off, the Group may still exercise its right of collection after the asset has been written off in accordance with its collection policies.

(4) Defined benefit plan

The Group operates a defined benefit pension plan. Defined benefit obligation is calculated at every end of the reporting period by performing actuarial valuation, and estimation of assumptions such as discount rate, expected wage growth rate and mortality rate is required to perform such actuarial valuation. The defined benefit plan, due to its long-term nature, contains significant uncertainties in its estimates.

  • 42 -
4. RISK MANAGEMENT

The Group’s operating activity is exposed to various financial risks. The Group is required to analyze and assess the level of complex risks and determine the permissible level of risks and manage such risks. The Group’s risk management procedures have been established to improve the quality of assets for holding or investment purposes by making decisions as how to avoid or mitigate risks through the identification of the source of the potential risks and their impact.

The Group has established an approach to manage the acceptable level of risks and reduce the excessive risks in financial instruments in order to maximize the profit given risks present, for which the Group has implemented processes for risk identification, assessment, control, and monitoring and reporting.

The risk is managed by the risk management department in accordance with the Group’s risk management policy. The Risk Management Committee makes decisions on the risk strategies such as the allocation of risk capital and the establishment of acceptable level of risk.

(1) Credit risk

Credit risk represents the possibility of financial losses incurred when the counterparty fails to fulfill its contractual obligations. The goal of credit risk management is to maintain the Group’s credit risk exposure to a permissible degree and to optimize its rate of return considering such credit risk.

1) Credit risk management

The Group considers the probability of failure in performing the obligation of its counterparties, credit exposure to the counterparty, the related default risk and the rate of default loss. The Group uses the credit rating model to assess the possibility of counterparty’s default risk; and when assessing the obligor’s credit grade, the Group utilizes credit grades derived using statistical methods.

In order to manage credit risk limit, the Group establishes the appropriate credit line per obligor, company or industry. It monitors obligor’s credit line, total exposures and loan portfolios when approving the loan.

The Group mitigates credit risk resulting from the obligor’s credit condition by using financial and physical collateral, guarantees, netting agreements and credit derivatives. The Group has adopted the entrapment method to mitigate its credit risk. Credit risk mitigation is reflected in qualifying financial collateral, trade receivables, guarantees, residential and commercial real estate and other collaterals. The Group regularly performs a revaluation of collateral reflecting such credit risk mitigation.

  • 43 -
2) Maximum exposure to credit risk

The Group’s maximum exposure to credit risk refers to net book value of financial assets net of allowances, which shows the uncertainties of maximum changes of net value of financial assets attributable to a particular risk without considering collateral and other credit enhancements obtained. However, the maximum exposure is the fair value amount (recorded on the books) for derivatives, maximum contractual obligation for payment guarantees and unused loan commitment.

The maximum exposure to credit risk is as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Loans and other financial assets at amortized cost Korean treasury and government agencies 14,776,596 13,547,154
Banks 17,147,119 22,282,857
Corporates 99,503,081 96,619,393
Consumers 150,774,306 149,998,911
Sub-total 282,201,102 282,448,315
Financial assets at FVTPL (*) Deposit 27,901 26,935
Debt securities 1,298,105 1,824,155
Loans 9,037 385,450
Derivative assets 2,921,221 2,026,079
Sub-total 4,256,264 4,262,619
Financial assets at FVTOCI Debt securities 26,779,977 17,112,249
Securities at amortized cost Debt securities 20,320,539 22,932,559
Derivative assets Derivative assets (Designated for hedging) 111,764 35,503
Off-balance accounts Guarantees 12,618,918 12,666,417
Unused loan commitments 70,303,900 97,796,704
Sub-total 82,922,818 110,463,121
Total 416,592,464 437,254,366
(*) Puttable financial instruments are not included.
--- ---
  • 44 -
a) Credit risk exposure by geographical areas

The following tables analyze credit risk exposure by geographical areas (Unit: Korean Won in millions):

December 31, 2019
Korea China USA UK Japan Others (*) Total
Loans and other financial assets at amortized cost 256,824,697 5,107,935 5,077,666 1,844,374 1,172,209 12,174,221 282,201,102
Securities at amortized cost 20,104,604 — 66,747 — — 149,188 20,320,539
Financial assets at FVTPL 4,255,159 381 — — 724 — 4,256,264
Financial assets at FVTOCI 24,543,608 332,319 144,601 102,311 2 1,657,136 26,779,977
Derivative assets (Designated for hedging) 111,764 — — — — — 111,764
Off-balance accounts 79,254,829 1,211,857 387,795 78,850 46,662 1,942,825 82,922,818
Total 385,094,661 6,652,492 5,676,809 2,025,535 1,219,597 15,923,370 416,592,464
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Korea China USA UK Japan Others (*) Total
Loans and other financial assets at amortized cost 261,538,144 4,592,153 4,597,119 1,526,532 893,354 9,301,013 282,448,315
Securities at amortized cost 22,757,048 — 70,578 — — 104,933 22,932,559
Financial assets at FVTPL 4,261,110 1,243 — — 266 — 4,262,619
Financial assets at FVTOCI 15,697,518 261,085 103,755 24,960 2,247 1,022,684 17,112,249
Derivative assets (Designated for hedging) 35,503 — — — — — 35,503
Off-balance accounts 107,632,858 801,978 343,323 136,727 35,000 1,513,235 110,463,121
Total 411,922,181 5,656,459 5,114,775 1,688,219 930,867 11,941,865 437,254,366
(*) Others consist of financial assets in Indonesia, Hong Kong, Singapore, and other countries.<br>
--- ---
  • 45 -
b) Credit risk exposure by industries

The following tables analyze credit risk exposure by industries, which are service, manufacturing, finance and insurance, construction, individuals and others in accordance with the Korea Standard Industrial Classification Code. (Unit: Korean Won in millions):

December 31, 2019
Service Manufacturing Finance and<br>insurance Construction Individuals Others Total
Loans and other financial assets at amortized cost 50,039,309 32,446,042 35,252,933 2,999,644 146,868,586 14,594,588 282,201,102
Securities at amortized cost 8,545,838 — 10,979,001 364,591 — 431,109 20,320,539
Financial assets at FVTPL 122,809 120,181 3,065,124 9,057 15,430 923,663 4,256,264
Financial assets at FVTOCI 85,609 139,098 18,968,457 — 9,241 7,577,572 26,779,977
Derivative assets (Designated for hedging) — — 111,764 — — — 111,764
Off-balance accounts 15,679,156 22,883,535 10,105,862 3,678,937 23,774,589 6,800,739 82,922,818
Total 74,472,721 55,588,856 78,483,141 7,052,229 170,667,846 30,327,671 416,592,464
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Service Manufacturing Finance and<br>insurance Construction Individuals Others Total
Loans and other financial assets at amortized cost 48,316,081 34,967,700 40,337,838 3,295,967 145,715,074 9,815,655 282,448,315
Securities at amortized cost 1,157,512 — 13,414,743 527,847 — 7,832,457 22,932,559
Financial assets at FVTPL 120,659 153,159 3,117,845 16,118 7,614 847,224 4,262,619
Financial assets at FVTOCI 382,409 109,749 13,017,646 224,665 5,535 3,372,245 17,112,249
Derivative assets (Designated for hedging) — — 35,503 — — — 35,503
Off-balance accounts 17,645,104 22,300,388 9,654,685 4,146,708 49,948,865 6,767,371 110,463,121
Total 67,621,765 57,530,996 79,578,260 8,211,305 195,677,088 28,634,952 437,254,366
  • 46 -
3) Credit risk exposure
a) Financial assets
--- ---

The maximum exposure to credit risk by asset quality, except for financial assets at FVTPL and derivative asset (Designated for hedging) is as follows (Unit: Korean Won in millions):

December 31, 2019
Stage 1 Stage 2 Stage 3 Total Loss<br>allowance Total, net
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited<br>credit rating<br>(*3) Above<br>appropriate<br>credit rating<br>(*2) Less than a<br>limited<br>credit rating<br>(*3)
Loans and other financial assets at amortized cost 245,680,458 19,326,404 8,133,469 9,134,828 1,249,380 283,524,539 (1,323,437 ) 282,201,102
Korean treasury and government agencies 14,769,487 10,390 — — 1 14,779,878 (3,282 ) 14,776,596
Banks 16,885,709 109,667 150,318 — 21,907 17,167,601 (20,482 ) 17,147,119
Corporates 81,111,077 15,049,095 446,679 3,068,152 771,893 100,446,896 (943,815 ) 99,503,081
General business 45,740,212 6,039,033 402,467 1,421,602 533,016 54,136,330 (643,530 ) 53,492,800
Small- and medium-sized enterprise 31,378,069 8,507,800 44,212 1,586,865 225,544 41,742,490 (276,815 ) 41,465,675
Project financing and others 3,992,796 502,262 — 59,685 13,333 4,568,076 (23,470 ) 4,544,606
Consumers 132,914,185 4,157,252 7,536,472 6,066,676 455,579 151,130,164 (355,858 ) 150,774,306
Securities at amortized cost 20,326,050 — — — — 20,326,050 (5,511 ) 20,320,539
Financial assets at FVTOCI (*4) 26,669,417 110,560 — — — 26,779,977 (8,558 ) 26,779,977
Total 292,675,925 19,436,964 8,133,469 9,134,828 1,249,380 330,630,566 (1,337,506 ) 329,301,618
December 31, 2019
--- --- --- --- --- --- --- --- ---
Collateral value
Stage 1 Stage 2 Stage 3 Total
Loans and other financial assets at amortized cost 169,438,540 14,451,806 681,699 184,572,045
Korean treasury and government agencies — — — —
Banks 612,200 2,028 — 614,228
Corporates 55,602,819 2,335,496 384,420 58,322,735
General business 22,291,349 1,023,766 240,771 23,555,886
Small- and medium-sized enterprise 31,517,538 1,311,730 143,649 32,972,917
Project financing and others 1,793,932 — — 1,793,932
Consumers 113,223,521 12,114,282 297,279 125,635,082
Securities at amortized cost — — — —
Financial assets at FVTOCI (*4) — — — —
Total 169,438,540 14,451,806 681,699 184,572,045
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*3) Credit grade of corporates are BBB- ~ C, and consumers are grades 7 ~ 10.
--- ---
(*4) Financial assets at FVTOCI has been disclosed as the amount before deducting loss allowance because loss<br>allowance does not reduce the carrying amount
--- ---
  • 47 -
December 31, 2018
Stage 1 Stage 2 Stage 3 Total Loss<br>allowance Total, net
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited<br>credit rating<br>(*3) Above<br>appropriate<br>credit rating<br>(*2) Less than a<br>limited<br>credit rating<br>(*3)
Loans and other financial assets at amortized cost 252,911,704 17,624,416 6,330,382 5,739,850 1,693,148 284,299,500 (1,851,185 ) 282,448,315
Korean treasury and government agencies 13,549,305 1,009 1 — — 13,550,315 (3,161 ) 13,547,154
Banks 22,162,966 105,583 27,777 — 14,307 22,310,633 (27,776 ) 22,282,857
Corporates 77,152,005 15,550,301 655,907 3,424,215 1,034,030 97,816,458 (1,197,065 ) 96,619,393
General business 43,165,455 6,474,057 526,303 1,723,704 716,722 52,606,241 (816,783 ) 51,789,458
Small- and medium-sized enterprise 29,510,917 8,527,542 107,998 1,547,761 277,825 39,972,043 (335,469 ) 39,636,574
Project financing and others 4,475,633 548,702 21,606 152,750 39,483 5,238,174 (44,813 ) 5,193,361
Consumers 140,047,428 1,967,523 5,646,697 2,315,635 644,811 150,622,094 (623,183 ) 149,998,911
Securities at amortized cost 22,939,039 — 195 — 250 22,939,484 (6,925 ) 22,932,559
Financial assets at FVTOCI (*4) 16,940,654 146,443 25,153 — — 17,112,250 (6,177 ) 17,112,250
Total 292,791,397 17,770,859 6,355,730 5,739,850 1,693,398 324,351,234 (1,864,287 ) 322,493,124
December 31, 2018
--- --- --- --- --- --- --- --- ---
Collateral value
Stage 1 Stage 2 Stage 3 Total
Loans and other financial assets at amortized cost 163,329,105 8,836,440 698,593 172,864,138
Korean treasury and government agencies 11,600 — — 11,600
Banks 361,024 3,334 — 364,358
Corporates 51,595,949 2,509,620 426,325 54,531,894
General business 19,907,948 1,167,993 241,651 21,317,592
Small- and medium-sized enterprise 29,780,716 1,291,222 184,674 31,256,612
Project financing and others 1,907,285 50,405 — 1,957,690
Consumers 111,360,532 6,323,486 272,268 117,956,286
Securities at amortized cost — — — —
Financial assets at FVTOCI (*4) — — — —
Total 163,329,105 8,836,440 698,593 172,864,138
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*3) Credit grade of corporates are BBB- ~ C, and consumers are grades 7 ~ 10.
--- ---
(*4) Financial assets at FVTOCI has been disclosed as the amount before deducting loss allowance because loss<br>allowance does not reduce the carrying amount
--- ---
  • 48 -
b) Guarantees and loan commitments

The credit quality of the guarantees and loan commitments as of December 31, 2019 and 2018 are as follows (Unit: Korean Won in millions):

December 31, 2019
Financial assets Stage 1 Stage 2 Stage 3 Total
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited<br>credit rating<br>(*3) Above<br>appropriate<br>credit rating<br>(*2) Less than a<br>limited<br>credit rating<br>(*3)
Off-balance accounts
Guarantees 10,952,919 1,333,561 355 223,657 108,426 12,618,918
Loan Commitments 65,582,464 2,865,739 1,270,212 566,983 18,502 70,303,900
Total 76,535,383 4,199,300 1,270,567 790,640 126,928 82,922,818
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*3) Credit grade of corporate are BBB- ~ C, and consumers are grades 7 ~ 10.
--- ---
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Financial assets Stage 1 Stage 2 Stage 3 Total
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited<br>credit rating<br>(*3) Above<br>appropriate<br>credit rating<br>(*2) Less than a<br>limited<br>credit rating<br>(*3)
Off-balance accounts
Guarantees 11,212,772 1,063,551 7,147 261,599 121,348 12,666,417
Loan commitments 91,734,567 3,632,586 1,529,330 880,518 19,703 97,796,704
Total 102,947,339 4,696,137 1,536,477 1,142,117 141,051 110,463,121
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*3) Credit grade of corporate are BBB- ~ C, and consumers are grades 7 ~ 10.
--- ---
4) Collateral and other credit enhancements
--- ---

There have been no significant decreases in the value of collateral or other credit enhancements held by the Group during the current year or significant changes in collateral or other credit enhancements due to changes in the collateral policy of the Group. As of December 31, 2019, there are no financial assets that do not recognize the allowance for losses due to collateral.

5) For the financial assets that record loss allowance as total expected credit loss, the amortized cost before<br>the change in contractual cash flows is 18,735 million won, and the net loss due to the change is 82 million won.
6) As the Group manages receivables that have not lost the right of claim to the debtor for the grounds of<br>incomplete statute limitation and uncollected receivables under the related laws as receivable charge-offs, the balance as of December 31, 2019 and 2018 are 8,362,692 million won and 9,578,796 million won, respectively.<br>
--- ---
  • 49 -
(2) Market risk

Market risk is the possible risk of loss arising from trading activities and non-trading activities in the volatility of market factors such as interest rates, stock prices and foreign exchange rates. Market risk occurs as a result of changes in the interest rates and foreign exchange rates for financial instruments that are not yet settled, and all contracts are exposed to a certain level of volatility according to changes in the interest rates, credit spreads, foreign exchange rates and the price of equity securities.

For trading activities and non-trading activities, the Group avoids, bears or mitigates risks by identifying the underlying source of risks, measuring parameters and evaluating their appropriateness. The process is called market risk management.

1) Market risk management for trading activities

The Group uses both a standard-based and an internal model-based approach to measure market risk. The standard-based approach is used to calculate individual market risk of owned capital while the internal model-based approach is used to calculate general capital market risk and it is used to measure internal risk management measure.

The Group measures Value at Risk (“VaR,” maximum losses) with Historical Simulation Method based on 99% confidence level and 10-day holding period of positions, and calculates the required market risk capital using the internal model, which has been approved by Financial Supervisory Service in Korea. For the internal management purpose, VaR is measured based on 99% confidence level and one-day holding period of positions and the limit management is performed on a daily basis. The validation of the model is assessed through the performance of back testing, which is to compare the actual gain or loss to the VaR measurements on a daily basis.

In addition, for crisis management, the Group performs stress testing on a monthly basis, which is to measure the expected loss amount in case of extreme situation, such as IMF bailout in 1997 or global financial crisis in 2008.

Each year, the Risk Management Committee establishes the VaR limit, loss limit and risk capital limit discriminated by managerial unit (group, department, team, risk element, etc.), and as for minor operating units, the limits are decided by position operating department up to given limit. Limit compliance is independently monitored by risk general department and periodically reported to risk management committee and risk management council.

2) Market risk management for non-trading activities

For non-trading sectors of the Group, the risk is managed and measured by DNII (change in Net Interest Income) and DEVE (change in Economic Value of Equity) through NII (Net Interest Income) and NPV (Net Present Value) simulation, and for the remaining subsidiaries, the risk is managed and measured with interest rate EaR (Earning at Risk, maximum of the expected change for profit or loss) and interest rate VaR that are in accordance with BIS Framework.

NII is a profit-based indicator for displaying the profit changes in the short term due to the short-term interest changes. It will be estimated as subtracting interest expenses of liabilities from the interest income of assets. NPV is an indicator for displaying risks in an economic view according to unfavorable changes related to interest rate. It will be estimated as subtracting the present value of liabilities from the present value of assets. Meanwhile, DNII means possible variation of net interest income induced by changes of interest rate during the certain future period of time (e.g. 1year), and DEVE is possible variation of present value of assets, liabilities, off-balance accounts and ultimately, economic value of shareholder’s equity which is incurred by the same reason as DNII.

  • 50 -
a) Trading activities

The minimum, maximum and average VaR for the year ended December 31, 2019 and 2018, respectively, and the VaR as of December 31, 2019 and 2018, respectively, are as follows (Unit: Korean Won in millions):

December 31,<br>2019 For the year ended<br>December 31, 2019 December 31,<br>2018 For the year ended<br>December 31, 2018
Risk factor Average Maximum Minimum Average Maximum Minimum
Interest rate 5,052 3,406 5,725 1,176 3,107 3,702 5,528 1,730
Stock price 3,730 3,203 5,935 1,146 2,353 2,669 5,081 1,138
Foreign currencies 5,028 5,033 6,469 4,395 4,972 4,678 6,136 3,439
Commodity price — 1 32 — — 3 24 —
Diversification (6,233 ) (5,127 ) (9,229 ) (2,339 ) (4,445 ) (4,869 ) (8,155 ) (1,815 )
Total VaR(*) 7,577 6,516 8,932 4,378 5,987 6,183 8,614 4,492
(*) VaR (Value at Risk): Maximum expected daily losses at 99% confidence level
--- ---
b) Non-trading activities
--- ---

For assets and liabilities as of December 31, 2019 that include Bank and consolidated trusts and subsidiaries of the Bank, details of DEVE and DNII calculated based on interest rate risk in banking book (IRRBB) are as follows (Unit: Korean Won in millions):

December 31,<br>2019
DEVE(*1) DNII(*2)
490,981 162,023
(*1) DEVE: change in Economic Value of Equity
--- ---
(*2) DNII: change in Net Interest Income
--- ---
  • 51 -

NII and NPV according to interest rate change scenario for assets and liabilities held by the Bank and connected trusts as of December 31, 2018 are as follows (Unit: Korean Won in millions):

December 31, 2018
NII(*1) NPV(*2)
Base case 4,895,332 24,636,678
Base case (Prepay) 4,887,799 24,225,946
IR 100bp up 5,575,470 24,415,761
IR 100bp down 4,329,543 24,907,344
IR 200bp up 6,603,132 24,232,738
IR 200bp down 3,508,859 25,245,667
IR 300bp up 7,560,155 24,079,415
IR 300bp down 3,352,267 25,680,084
(*1) NII: Net Interest Income
--- ---
(*2) NPV: Net Portfolio Value
--- ---

Interest EaR shows the maximum profit-loss amount, which indicates the maximum deduction amount caused by the unfavorable changes related to the interest rate of a certain period (i.e. 1 year). Interest rate VaR shows the potential maximum loss generated by the unfavorable changes during a certain period of time in the present or future.

As of December 31, 2018, the interest EaR and VaR calculated based on the BIS Framework of subsidiaries other than the Bank, consolidated trusts are as follows (Unit: Korean Won in millions):

December 31, 2018
EaR (*1) VaR (*2)
248,364 141,484
(*1) EaR (Earning at Risk): Change of Maximum expected income and expense
--- ---
(*2) VaR (Value at Risk): Maximum expected losses
--- ---
  • 52 -

The Group estimates and manages risks related to changes in interest rate due to the difference in the maturities of interest-bearing assets and liabilities and discrepancies in the terms of interest rates. Cash flows (both principal and interest), interest bearing assets and liabilities, presented by each re-pricing date, are as follows (Unit: Korean Won in millions):

December 31, 2019
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over 5 years Total
Asset:
Loans and other financial assets at amortized cost 146,193,133 48,300,144 11,816,952 9,862,931 55,239,556 4,920,615 276,333,331
Financial assets at FVTPL 23,808 1,352 37 36 1,161 13,347 39,741
Financial assets at FVTOCI 5,404,435 5,486,008 3,450,669 3,174,789 9,366,714 309,364 27,191,979
Securities at amortized cost 1,844,868 1,696,004 738,383 1,409,549 14,869,227 858,142 21,416,173
Total 153,466,244 55,483,508 16,006,041 14,447,305 79,476,658 6,101,468 324,981,224
Liability:
Deposits due to customers 115,999,212 46,176,835 32,506,154 26,207,212 42,787,093 59,305 263,735,811
Borrowings 11,716,603 1,910,759 1,048,991 706,952 3,230,108 509,359 19,122,772
Debentures 1,775,711 2,326,926 2,770,855 2,002,444 13,872,930 1,487,529 24,236,395
Total 129,491,526 50,414,520 36,326,000 28,916,608 59,890,131 2,056,193 307,094,978
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over 5 years Total
Asset:
Loans and other financial assets at amortized cost 159,893,080 45,387,214 8,878,060 9,903,959 46,459,450 4,201,379 274,723,142
Financial assets at FVTPL 371,984 32,278 24,951 64,838 145,121 27,536 666,708
Financial assets at FVTOCI 2,579,442 1,775,435 1,486,953 2,223,494 9,289,742 185,320 17,540,386
Securities at amortized cost 2,449,416 2,251,180 1,735,698 1,946,948 15,177,608 402,671 23,963,521
Total 165,293,922 49,446,107 12,125,662 14,139,239 71,071,921 4,816,906 316,893,757
Liability:
Deposits due to customers 100,232,916 44,207,416 29,419,951 35,427,657 40,130,055 72,276 249,490,271
Borrowings 9,971,680 1,924,390 670,404 518,167 2,723,156 626,364 16,434,161
Debentures 2,143,916 2,416,483 2,201,070 2,584,230 18,955,400 2,403,077 30,704,176
Total 112,348,512 48,548,289 32,291,425 38,530,054 61,808,611 3,101,717 296,628,608
  • 53 -
3) Currency risk

Currency risk arises from the financial instruments denominated in foreign currencies other than the functional currency. Therefore, no currency risk arises from non-monetary items or financial instruments denominated in the functional currency.

Financial instruments in foreign currencies exposed to currency risk are as follows (Unit: USD in millions, JPY in millions, CNY in millions, EUR in millions, and Korean Won in millions):

December 31, 2019
CNY Others Total
Foreigncurrency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Foreign<br>currency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Korean<br>Won<br>equivalent Korean Won<br>equivalent
Asset Loans and other financial assets at amortized cost 26,477,960 1,600,140 31,392 5,202,952 2,929,311 5,243,487 41,453,850
Financial assets at FVTPL 181,600 56,602 — — 135,827 62,813 436,842
Financial assets at FVTOCI 3,097,614 — 2,005 332,319 33,017 406,753 3,869,703
Securities at amortized cost 369,677 — — — 52,139 97,092 518,908
Total 30,126,851 1,656,742 33,397 5,535,271 3,150,294 5,810,145 46,279,303
Liability Financial liabilities at FVTPL 291,102 46,957 — — 87,776 83,790 509,625
Deposits due to customers 15,291,671 1,766,526 27,739 4,597,467 2,240,884 3,245,229 27,141,777
Borrowings 7,627,665 117,634 17 2,743 668,060 499,046 8,915,148
Debentures 4,074,200 — — — 136,230 96,646 4,307,076
Other financial liabilities 3,434,559 119,529 3,079 510,281 466,240 6,473 4,537,082
Total 30,719,197 2,050,646 30,835 5,110,491 3,599,190 3,931,184 45,410,708
Off-balance accounts 7,583,651 364,946 4,525 749,973 726,323 459,726 9,884,619

All values are in US Dollars.

December 31, 2018
CNY Others Total
Foreigncurrency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Foreign<br>currency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Korean<br>Won<br>equivalent Korean Won<br>equivalent
Asset Loans and other financial assets at amortized cost 22,816,027 1,696,255 29,880 4,863,230 2,550,147 4,742,340 36,667,999
Financial assets at FVTPL 82,197 14,434 — — 75,169 79,584 251,384
Financial assets at FVTOCI 1,645,595 — 1,604 261,085 — 729,581 2,636,261
Securities at amortized cost 58,489 — — — — 175,552 234,041
Total 24,602,308 1,710,689 31,484 5,124,315 2,625,316 5,727,057 39,789,685
Liability Financial liabilities at FVTPL 131,927 19,815 — — 70,250 121,658 343,650
Deposits due to customers 12,477,154 1,720,072 23,967 3,900,923 1,135,149 4,392,936 23,626,234
Borrowings 7,386,616 38,847 381 61,947 365,585 505,541 8,358,536
Debentures 4,075,084 — — — — 285,339 4,360,423
Other financial liabilities 2,820,290 293,362 1,818 295,919 246,584 18,527 3,674,682
Total 26,891,071 2,072,096 26,166 4,258,789 1,817,568 5,324,001 40,363,525
Off-balance accounts 8,333,153 337,868 1,557 253,366 606,714 823,655 10,354,756

All values are in US Dollars.

  • 54 -
(3) Liquidity risk

Liquidity risk refers to the risk that the Group may encounter difficulties in meeting obligations from its financial liabilities.

1) Liquidity risk management

Liquidity risk management is to prevent potential cash shortages as a result of mismatching the use of funds (assets) and sources of funds (liabilities) or unexpected cash outflows. The financial liabilities that are relevant to liquidity risk are incorporated within the scope of risk management. Derivatives instruments are excluded from those financial liabilities as they reflect expected cash flows for a pre-determined period.

Assets and liabilities are grouped by account under Asset Liability Management (“ALM”) in accordance with the characteristics of the account. The Group manages liquidity risk by identifying the maturity gap and such gap ratio through various cash flows analysis (i.e. based on remaining maturity and contract period, etc.), while maintaining the gap ratio at or below the target limit.

2) Maturity analysis of non-derivative financial liabilities
a) Cash flows of principals and interests by remaining contractual maturities of non-derivative financial<br>liabilities are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over<br>5 years Total
Financial liabilities at FVTPL 115,156 — — — — — 115,156
Deposits due to customers 165,400,761 37,167,838 24,506,399 30,749,525 6,590,119 1,877,594 266,292,236
Borrowings 8,207,571 2,948,384 2,162,846 1,880,424 3,647,461 520,937 19,367,623
Debentures 1,775,711 2,326,926 2,770,855 2,002,444 13,872,930 1,487,529 24,236,395
Lease liabilities 43,226 40,097 34,940 31,939 212,858 40,698 403,758
Other financial liabilities 10,237,132 50,758 116,798 8,198 7,288 2,660,368 13,080,542
Total 185,779,557 42,534,003 29,591,838 34,672,530 24,330,656 6,587,126 323,495,710
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over<br>5 years Total
Financial liabilities at FVTPL 191,825 — — — — — 191,825
Deposits due to customers 145,187,689 33,825,662 22,186,833 42,046,740 7,098,907 1,870,334 252,216,165
Borrowings 6,373,835 2,846,294 1,874,069 1,607,985 3,156,128 642,017 16,500,328
Debentures 2,143,916 2,416,483 2,201,070 2,584,230 18,955,400 2,403,077 30,704,176
Other financial liabilities 14,240,022 44,572 169,996 1,201 90,615 2,288,560 16,834,966
Total 168,137,287 39,133,011 26,431,968 46,240,156 29,301,050 7,203,988 316,447,460
  • 55 -
b) Cash flows of principals and interests by expected maturities of non-derivative financial liabilities are as<br>follows (Unit: Korean Won in millions):
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over 5<br>years Total
Financial liabilities at FVTPL 115,156 — — — — — 115,156
Deposits due to customers 174,235,496 38,690,463 23,520,964 23,618,431 5,547,232 150,234 265,762,820
Borrowings 8,207,571 2,948,384 2,162,846 1,880,424 3,647,461 520,937 19,367,623
Debentures 1,775,711 2,326,926 2,770,855 2,002,444 13,872,930 1,487,529 24,236,395
Lease liabilities 43,226 40,097 34,940 31,939 212,858 40,698 403,758
Other financial liabilities 10,237,132 50,758 116,798 8,198 7,288 2,660,368 13,080,542
Total 194,614,292 44,056,628 28,606,403 27,541,436 23,287,769 4,859,766 322,966,294
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over 5<br>years Total
Financial liabilities at FVTPL 191,825 — — — — — 191,825
Deposits due to customers 163,787,990 38,126,886 20,993,436 23,262,092 5,230,533 17,649 251,418,586
Borrowings 6,373,835 2,846,294 1,874,069 1,607,985 3,156,128 642,017 16,500,328
Debentures 2,143,916 2,416,483 2,201,070 2,584,230 18,955,400 2,403,077 30,704,176
Other financial liabilities 14,240,022 44,572 169,996 1,201 90,615 2,288,560 16,834,966
Total 186,737,588 43,434,235 25,238,571 27,455,508 27,432,676 5,351,303 315,649,881
3) Maturity analysis of derivative financial liabilities
--- ---

Derivatives held for trading purpose are not managed in accordance with their contractual maturity, since the Group holds such financial instruments with the purpose of disposing or redemption before their maturity. As such, those derivatives are incorporated as “within 3 months” in the table below. Derivatives designated for hedging purpose are estimated by offsetting cash inflows and cash outflows.

The cash flow by the maturity of derivative financial liabilities as of December 31, 2018 and 2017 is as follows (Unit: Korean Won in millions):

Remaining maturity
Within 3<br>months 4 to 6<br><br><br>months 7 to 9<br><br><br>months 10 to 12<br>months 1 to 5<br><br><br>years Over 5<br>years Total
December 31, 2019 Cash flow hedge 3 3 3 3 31 — 43
Trading 2,841,138 — — — — — 2,841,138
December 31, 2018 Cash flow hedge (1,880 ) (683 ) 8,080 14,133 14,104 — 33,754
Fair value hedge (3,835 ) 9,448 (3,541 ) 9,133 6,991 — 18,196
Trading 2,090,861 — — — — — 2,090,861
  • 56 -
4) Maturity analysis of off-balance accounts (Guarantees and loan commitments)

The Group provides guarantees on behalf of customers. A financial guarantee represents an irrevocable undertaking that the Group should meet a customer’s obligations to third parties if the customer fails to do so. Under a loan commitment, the Group agrees to make funds available to a customer in the future. Commitments to lend include commercial standby facilities and credit lines, liquidity facilities to commercial paper conduits and utilized overdraft facilities. The maximum limit to be paid by the Group in accordance with guarantees and loan commitment only applies to principal amounts. There are contractual maturities for financial guarantees, such as guarantees for debentures issued or loans, unused loan commitments, and other guarantees, however, under the terms of the guarantees and unused loan commitments, funds should be paid upon demand from the counterparty. Details of off-balance accounts are as follows (Unit: Korean Won in millions):

December 31,<br>2019 December 31,<br>2018
Guarantees 12,618,918 12,666,417
Loan commitments 70,303,900 97,796,704
(4) Operational risk
--- ---

The Group defines the operational risk that could cause a negative effect on capital resulting from inadequate internal process, labor work and systematic problem or external factors.

1) Operational risk management

The Group has been running the operational risk management system under Basel II. The Group developed Advanced Measurement Approaches (“AMA”) to quantify required capital for operational risk. This system is used for reinforcement in foreign competitions, reducing the amount of risk capitals, managing the risk, and precaution for any unexpected occasions. This system has been tested by an independent third party, and this system approved by the Financial Supervisory Service.

2) Operational risk measurement

To quantify required capital for operational risk, the Group applies AMA using internal and external loss data, business environment and internal control factors, and scenario analysis. For the operational risk management for its subsidiaries, the Group adopted the Basic Indicator Approach.

  • 57 -
(5) Capital management

The Group complies with the standard of capital adequacy provided by financial regulatory authorities. The capital adequacy standard is based on Basel published by Basel III Committee on Banking Supervision in Bank for International Settlement in 2010 and was implemented in Korea in December 2013. The capital adequacy ratio is calculated by dividing own capital by asset (weighted with a risk premium – risk weighted assets) based on the consolidated financial statements of the Group.

According to the above regulations, the Group is required to meet the following new minimum requirements: Common Equity Tier 1 capital ratio of 8.00% and 7.13%, a Tier 1 capital ratio of 9.50% and 8.63% and a minimum total capital ratio of 11.5% and 10.63% as of December 31, 2019 and December 31, 2018, respectively.

Details of the Group’s capital adequacy ratio as of December 31, 2019 and 2018 are as follows (Unit: Korean Won in millions):

December 31,<br>2019 December 31,<br>2018
Tier 1 capital 17,321,301 17,275,539
Other Tier 1 capital 3,466,009 3,147,680
Tier 2 capital 3,526,902 3,827,573
Total risk-adjusted capital 24,314,212 24,250,792
Risk-weighted assets for credit risk 139,043,544 142,626,069
Risk-weighted assets for market risk 2,706,955 2,372,451
Risk-weighted assets for operational risk 9,197,928 9,972,430
Additional capital under capital floor 6,941,108 —
Total risk-weighted assets 157,889,535 154,970,950
Common Equity Tier 1 ratio 10.97 % 11.15 %
Tier 1 capital ratio 13.17 % 13.18 %
Total capital ratio 15.40 % 15.65 %
5. OPERATING SEGMENTS
--- ---

In evaluating the results of the Group and allocating resources, the Group’s Chief Operation Decision Maker (“CODM”) utilizes the information per type of customers. This financial information of the segments is regularly reviewed by the CODM to make decisions about resources to be allocated to each segment and evaluate its performance.

(1) Segment by type of customers

The Group’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market, credit card market and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided.

• Consumer banking: Loans/deposits and financial services for retail and individual consumers, etc.<br>
• Corporate banking: Loans/deposits and export/import, financial services for corporations, etc.<br>
--- ---
• Investment banking: Domestic/foreign investment, structured finance, M&A, equity & fund investment<br>related business, venture advisory related tasks, real estate SOC development practices, etc.
--- ---
• Capital market: Fund management, investment in securities and derivatives, etc.
--- ---
• Credit card: Credit card, cash service and card loan, etc.
--- ---
• Headquarter and others: Segments that do not belong to above operating segments
--- ---
  • 58 -

The details of operating income by each segment are as follows (Unit: Korean Won in millions):

For the year ended December 31, 2019
Consumer<br>banking Corporate<br>banking Investment<br>banking Capital<br>market Credit<br>cards Headquarters<br>and others
Net Interest income (expense)
Interest income 3,782,031 3,648,980 152,368 6,635 481,074 1,845,680
Interest expense (1,158,128 ) (2,549,507 ) — — (116,555 ) (1,094,078 )
Inter-segment (868,580 ) 885,816 (174,188 ) 63,738 — 93,214
1,755,323 1,985,289 (21,820 ) 70,373 364,519 844,816
Net non-interest Income (expense)
Non-interest income 541,013 662,186 283,304 9,963,528 470,233 (23,976 )
Non-interest expense (34,268 ) (119,374 ) (80,681 ) (9,877,111 ) (443,950 ) 224,877
Inter-segment 126,756 72,052 — — — (198,808 )
633,501 614,864 202,623 86,417 26,283 2,093
Other income (expense)
General and administrative expense (1,872,196 ) (913,239 ) (20,586 ) (22,902 ) (120,774 ) (626,447 )
Reversal of allowance for credit loss and impairment losses due to credit loss (80,181 ) (12,617 ) 9,343 (178 ) (172,552 ) 51,728
(1,952,377 ) (925,856 ) (11,243 ) (23,080 ) (293,326 ) (574,719 )
Operating income (expenses) 436,447 1,674,297 169,560 133,710 97,476 272,190
Non-operating income (expenses) (99,015 ) (23,843 ) 41,754 (9,453 ) 15,725 (14,826 )
Net income (expense) before income tax expense 337,432 1,650,454 211,314 124,257 113,201 257,364
Income tax expense (92,794 ) (447,731 ) (58,111 ) (34,171 ) (27,164 ) 16,555
Net income (expense) 244,638 1,202,723 153,203 90,086 86,037 273,919
For the year ended December 31, 2019
Sub-total Adjustments(*) Dis-continued<br>operations Continuing<br>operations
Net Interest income (expense)
Interest income 9,916,768 376,493 480,723 9,812,538
Interest expense (4,918,268 ) 306,264 (116,162 ) (4,495,842 )
Inter-segment — — — —
4,998,500 682,757 364,561 5,316,696
Net non-interest Income (expense)
Non-interest income 11,896,288 (10,138,668 ) 397,639 1,359,981
Non-interest expense (10,330,507 ) 9,573,064 (284,772 ) (472,671 )
Inter-segment — — — —
1,565,781 (565,604 ) 112,867 887,310
Other income (expense)
General and administrative expense (3,576,144 ) (38,520 ) (120,524 ) (3,494,140 )
Reversal of allowance for credit loss and impairment losses due to credit loss (204,457 ) (86,344 ) (172,552 ) (118,249 )
(3,780,601 ) (124,864 ) (293,076 ) (3,612,389 )
Operating income (expenses) 2,783,680 (7,711 ) 184,352 2,591,617
Non-operating income (expenses) (89,658 ) (486,834 ) (628,635 ) 52,143
Net income (expense) before income tax expense 2,694,022 (494,545 ) (444,283 ) 2,643,760
Income tax expense (643,416 ) (28,996 ) (27,164 ) (645,248 )
Net income (expense) 2,050,606 (523,541 ) (471,447 ) 1,998,512
  • 59 -
For the year ended December 31, 2018
Consumer<br>banking Corporate<br>banking Investment<br>banking Capital<br>market Credit<br>cards Headquarters<br>and others
Net Interest income (expense)
Interest income 3,529,645 3,409,835 152,273 8,945 670,240 1,605,696
Interest expense (1,021,639 ) (2,168,000 ) (150 ) — (160,642 ) (983,547 )
Inter-segment (634,110 ) 833,224 (163,962 ) 25,963 — (61,115 )
1,873,896 2,075,059 (11,839 ) 34,908 509,598 561,034
Net non-interest Income (expense)
Non-interest income 678,360 721,096 230,357 7,020,740 665,534 1,214,380
Non-interest expense (143,704 ) (290,347 ) (53,671 ) (6,964,671 ) (620,687 ) (550,919 )
Inter-segment 132,690 70,016 — — — (202,706 )
667,346 500,765 176,686 56,069 44,847 460,755
Other income (expense)
General and administrative expense (1,865,933 ) (868,608 ) (14,318 ) (18,452 ) (170,765 ) (967,923 )
Reversal of allowance for credit loss and impairment losses due to credit loss (127,220 ) (61,064 ) 62,454 (16,861 ) (227,144 ) 102,574
(1,993,153 ) (929,672 ) 48,136 (35,313 ) (397,909 ) (865,349 )
Operating income (expenses) 548,089 1,646,152 212,983 55,664 156,536 156,440
Non-operating income (expenses) (20,208 ) 899 32,738 — (5,547 ) 56,829
Net income (expense) before income tax expense 527,881 1,647,051 245,721 55,664 150,989 213,269
Income tax expense (145,167 ) (445,619 ) (67,573 ) (15,308 ) (36,222 ) (41,088 )
Net income (expense) 382,714 1,201,432 178,148 40,356 114,767 172,181
For the year ended December 31, 2018
Sub-total Adjustments(*) Dis-continued<br>operations Continuing<br>operations
Net Interest income (expense)
Interest income 9,376,634 307,865 669,839 9,014,660
Interest expense (4,333,978 ) 300,431 (159,953 ) (3,873,594 )
Inter-segment — — — —
5,042,656 608,296 509,886 5,141,066
Net non-interest Income (expense)
Non-interest income 10,530,467 (8,456,014 ) 654,923 1,419,530
Non-interest expense (8,623,999 ) 7,611,504 (442,717 ) (569,778 )
Inter-segment — — — —
1,906,468 (844,510 ) 212,206 849,752
Other income (expense)
General and administrative expense (3,905,999 ) 281,966 (140,121 ) (3,483,912 )
Reversal of allowance for credit loss and impairment losses due to credit loss (267,261 ) (62,314 ) (244,762 ) (84,813 )
(4,173,260 ) 219,652 (384,883 ) (3,568,725 )
Operating income (expenses) 2,775,864 (16,562 ) 337,209 2,422,093
Non-operating income (expenses) 64,711 (19,141 ) (2,447 ) 48,017
Net income (expense) before income tax expense 2,840,575 (35,703 ) 334,762 2,470,110
Income tax expense (750,977 ) (2,246 ) (36,222 ) (717,001 )
Net income (expense) 2,089,598 (37,949 ) 298,540 1,753,109
(*) These adjustments are performed in order to present intersegment profit or loss adjustments based on managerial<br>accounting as profit or loss in accordance with K-IFRS.
--- ---
  • 60 -
(2) Information on products and services

The products of the Group are classified as interest-bearing products such as loans, deposits and debt securities and non-interest bearing products such as loan commitment, credit commitment, equity securities, and credit card service. This classification of products has been reflected in the segment information presenting interest income and non-interest income.

(3) Information on geographical areas

Of the Group’s revenue (interest income and non-interest income) from services, revenue from the domestic customers for the years ended December 31, 2019 and 2018 amounted to 10,702,487 million Won and 10,447,783 million Won, respectively, and revenue from the foreign customers amounted to 1,348,394 million Won and 1,311,169 million Won, respectively. Of the Group’s non-current assets (investments in joint ventures and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of December 31, 2019 and 2018 are 4,509,131 million Won and 3,531,842 million Won, respectively, and foreign subsidiaries are 386,495 million Won and 236,050 million Won, respectively.

(4) Information about major customers

The Group does not have any single customer that generates 10% or more of the Group’s total revenue.

  • 61 -
6. CASH AND CASH EQUIVALENTS
(1) Details of cash and cash equivalents are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Cash 1,957,984 2,107,850
Foreign currencies 625,986 725,083
Demand deposits 3,518,505 3,512,216
Fixed deposits 59,554 367,474
Total 6,162,029 6,712,623
(2) Significant transactions of investing activities and financing activities not involving cash inflows and<br>outflows are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Changes in other comprehensive income related to valuation of financial assets at FVTOCI (29,376 ) 2,505
Changes in other comprehensive income related to valuation of equity method investments 373 2,958
Changes in other comprehensive income related to valuation gain or loss on cash flow<br>hedge (1,740 ) (4,646 )
Changes in financial assets at FVTOCI as a result of debt-equity swap 96,527 14,378
Changes in investments in associates due to accounts transfer — (89,151 )
Changes in unpaid dividends on hybrid equity securities (22,269 ) 3,569
Changes in equity related to assets held for distribution (sale) — (17,342 )
Classified to assets held for distribution (sale) from premises and equipment 95 15,594
Classified to assets held for distribution (sale) from deferred tax assets — 9,778
Increase in right-of-use assets and lease liabilities 624,306 —
  • 62 -
(3) Adjustments of liabilities from financing activities in current year are as follows (Unit: Korean Won in<br>millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Not involving cash inflows and outflows
January 1, 2019 Cash flow Foreign<br>Exchange Variation<br>of gains on<br>valuation<br>of hedged<br>items Others December 31, 2019
Borrowings 16,202,986 2,843,408 (281,312 ) — (189,516 ) 18,575,566
Debentures 28,725,862 762,422 124,472 85,983 (6,864,331 ) 22,834,408
Lease liabilities (*) 382,439 (213,329 ) 375 — 219,124 388,609
Total 45,311,287 3,392,501 (156,465 ) 85,983 (6,834,723 ) 41,798,583
(*) The amount of lease liability at the beginning of the current in applying K-IFRS 1116 is reflected.<br>
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
Not involving cash inflows and outflows
January 1, 2018 Cash flow Foreign<br>Exchange Variation<br>of gains on<br>valuation<br>of hedged<br>items Others December 31, 2018
Borrowings 14,784,706 1,257,121 161,078 — 81 16,202,986
Debentures 27,869,651 602,331 267,339 (25,498 ) 12,039 28,725,862
Total 42,654,357 1,859,452 428,417 (25,498 ) 12,120 44,928,848
  • 63 -
7. FINANCIAL ASSETS AT FVTPL ****
(1) Financial assets at FVTPL are as follows (Unit: Korean Won in millions):
--- ---
December 31,<br>2019 December 31,<br>2018
--- --- --- --- ---
Financial assets at fair value through profit or loss mandatorily measured at fair value 6,672,557 6,126,183
Total 6,672,557 6,126,183
(2) Financial assets at fair value through profit or loss mandatorily measured at fair value and financial assets<br>held for trading are as follows (Unit: Korean Won in millions):
--- ---
December 31,<br>2019 December 31,<br>2018
--- --- --- --- ---
Deposits:
Gold banking asset 27,901 26,935
Securities:
Debt securities
Korean treasury and government agencies 521,600 516,173
Financial institutions 390,340 533,393
Corporates 306,165 774,589
Others 80,000 —
Equity securities 634,052 455,666
Capital contributions 483,199 422,481
Beneficiary certificates 1,299,042 985,417
Sub-total 3,714,398 3,687,719
Loans 9,037 385,450
Derivatives assets 2,921,221 2,026,079
Total 6,672,557 6,126,183
(3) Financial assets at fair value through profit or loss designated as upon initial recognition is nil as of<br>December 31, 2018 and 2019
--- ---
  • 64 -
8. FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS
(1) Details of financial assets at FVTOCI as of December 31, 2019 and 2018 are as follows (Unit: Korean Won in<br>millions):
--- ---
December 31,<br>2019 December 31,<br>2018
--- --- --- --- ---
Debt securities:
Korean treasury and government agencies 1,152,711 1,358,378
Financial institutions 17,769,924 11,252,790
Corporates 3,906,957 1,824,843
Bond denominated in foreign currencies 3,869,648 2,636,209
Sub-total 26,699,240 17,072,220
Equity securities 848,730 951,174
Securities loaned 80,737 40,029
Total 27,628,707 18,063,423
(2) Details of equity securities designated as financial assets at FVTOCI are as follows (Unit: Korean Won in<br>millions):
--- ---
Purpose of acquisition December 31,<br>2019 December 31,<br>2018 Remarks
--- --- --- --- --- --- ---
Investment for strategic business partnership purpose 593,242 662,934
Debt-equity swap 255,444 287,990
Others 44 250 Cooperative insurance, etc.
Total 848,730 951,174
  • 65 -
(3) Changes in the loss allowance and gross carrying amount of financial assets at FVTOCI are as follows (Unit:<br>Korean Won in millions):
1) Allowance for credit losses
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (5,939 ) (238 ) — (6,177 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses 62 (62 ) — —
Transfer to credit-impaired financial assets — — — —
Net reversal of (allowance for) credit losses (*1) (3,276 ) 235 — (3,041 )
Disposal 476 — — 476
Changes in consolidated scope 157 65 — 222
Others (*2) (38 ) — — (38 )
Ending balance (8,558 ) — — (8,558 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (4,107 ) (129 ) — (4,236 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net allowance for credit losses (*1) (1,918 ) (109 ) — (2,027 )
Others (*2) 86 — — 86
Ending balance (5,939 ) (238 ) — (6,177 )
(*1) Profit or loss from discontinued operations are included.
--- ---
(*2) Others consists of foreign currencies translation, etc.
--- ---
2) Gross carrying amount
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 17,087,096 25,153 — 17,112,249
Transfer to 12-month expected credit losses 10,043 (10,043 ) — —
Transfer to lifetime expected credit losses (5,116 ) 5,116 — —
Transfer to credit-impaired financial assets — — — —
Acquisition 23,722,665 — — 23,722,665
Disposal / Redemption (14,132,724 ) (10,088 ) — (14,142,812 )
Gain (loss) on valuation 49,440 (113 ) — 49,327
Amortization based on effective interest method 14,641 — — 14,641
Changes in consolidated scope (35,636 ) (10,025 ) — (45,661 )
Others (*) 69,568 — — 69,568
Ending balance 26,779,977 — — 26,779,977
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 12,843,997 30,212 — 12,874,209
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Acquisition 13,275,429 10,000 — 13,285,429
Disposal / Redemption (9,146,307 ) (15,047 ) — (9,161,354 )
Gain (loss) on valuation 70,017 (59 ) — 69,958
Amortization based on effective interest method 10,195 47 — 10,242
Others (*) 33,765 — — 33,765
Ending balance 17,087,096 25,153 — 17,112,249
(*) Others consists of foreign currencies translation, etc.
--- ---
  • 66 -

(4) During the term, the Group sold its equity securities of Woori Finance Holdings Co., designated as financial assets at FVTOCI in order to comply with the requirement to limit the acquisition of parent company shares by its subsidiaries under the business law. The fair value at disposal is 767,727 million Won and the cumulative loss at disposal is 23,782 million Won. In addition, the equity securities designated as FVTOCI were sold in accordance with the sale settlements of the creditors, and the fair value at disposal is 34,841 million Won and the cumulative loss at disposal is 38,995 million Won.

9. SECURITIES AT AMORTIZED COST AND HTM FINANCIAL ASSETS
(1) Details of securities at amortized cost as of December 31, 2019 and December 31, 2018 are as follows<br>(Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Korean treasury and government agencies 8,044,040 7,523,458
Financial institutions 6,694,614 9,474,922
Corporates 5,068,489 5,707,063
Foreign currency-denominated bonds 518,907 234,041
Allowance for credit losses (5,511 ) (6,925 )
Total 20,320,539 22,932,559
(2) Changes in the loss allowance and gross carrying amount of securities at amortized cost are as follows (Unit:<br>Korean Won in millions):
--- ---
1) Loss allowance
--- ---
For the years ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (6,924 ) — — (6,924 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net reversal of credit losses 1,415 — — 1,415
Others (*) (2 ) — — (2 )
Ending balance (5,511 ) — — (5,511 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (5,078 ) — — (5,078 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net allowance for credit losses (1,922 ) — — (1,922 )
Disposal 22 — — 22
Others (*) 54 — — 54
Ending balance (6,924 ) — — (6,924 )
(*) Others consists of foreign currencies translation, etc.
--- ---
  • 67 -
2) Gross carrying amount
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 22,939,484 — — 22,939,484
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Acquisition 6,092,078 — — 6,092,078
Disposal/Redemption (8,709,947 ) — — (8,709,947 )
Amortization based on effective interest method (3,286 ) — — (3,286 )
Others (*) 7,721 — — 7,721
Ending balance 20,326,050 — — 20,326,050
For the year ended December 31, 2018
Stage 1 Stage 2 Stage 3 Total
Beginning balance 16,749,296 — — 16,749,296
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Acquisition 15,622,847 — — 15,622,847
Disposal/Redemption (9,426,757 ) — — (9,426,757 )
Amortization based on effective interest method (7,970 ) — — (7,970 )
Others (*) 2,068 — — 2,068
Ending balance 22,939,484 — — 22,939,484
(*) Others consist of foreign currencies translation, etc.
--- ---
  • 68 -
10. LOANS AND OTHER FINANCIAL ASSETS AT AMORTIZED COST, AND LOANS AND RECEIVABLES
(1) Details of loans and other financial assets at amortized cost as of December 31, 2019 and loans and<br>receivables as of December 31, 2018 are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Due from banks 14,395,746 14,150,027
Loans 260,175,673 260,819,917
Other financial assets (other receivables) 7,629,683 7,478,371
Total 282,201,102 282,448,315
(2) Details of due from banks are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Due from banks in local currency:
Due from The Bank of Korea (“BOK”) 11,028,850 11,034,602
Due from depository banks 40,000 90,003
Due from non-depository institutions 378 76
Due from the Korea Exchange — 30,000
Others 39,139 85,915
Loss allowance (2,591 ) (3,069 )
Sub-total 11,105,776 11,237,527
Due from banks in foreign currencies:
Due from banks on demand 1,122,521 828,022
Due from banks on time 1,296,842 1,288,303
Others 872,603 798,493
Loss allowance (1,996 ) (2,318 )
Sub-total 3,289,970 2,912,500
Total 14,395,746 14,150,027
  • 69 -
(3) Details of restricted due from banks are as follows (Unit: Korean Won in millions):
Counterparty December 31, 2019 Reason of restriction
--- --- --- --- ---
Due from banks in local currency:
Due from BOK The BOK 11,028,850 Reserve deposits under the BOK Act
Others The Korea Exchange and others 39,136 Central counterparty KRW margin and others
Sub-total 11,067,986
Due from banks in foreign currencies:
Due from banks on demand The BOK and others 1,103,917 Reserve deposits under the BOK Act and others
Due from banks on time National bank Cambodia 58 Reserve deposits and others
Others Korea Investment & Securities and others 872,603 Overseas futures and options trade deposits and others
Sub-total 1,976,578
Total 13,044,564
Counterparty December 31, 2018 Reason of restriction
--- --- --- --- ---
Due from banks in local currency:
Due from BOK The BOK 11,034,602 Reserve deposits under the BOK Act
Others The Korea Exchange and others 81,889 Central counterparty KRW margin and others
Sub-total 11,116,491
Due from banks in foreign currencies:
Due from banks on demand The BOK and others 780,576 Reserve deposits under the BOK Act and others
Others Korea Investment & Securities and others 798,493 Reserve deposits and others
Sub-total 1,579,069
Total 12,695,560
  • 70 -
(4) Changes in the loss allowance and gross carrying amount of due from banks are as follows (Unit: Korean won in<br>millions):
1) Allowance for credit losses
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (5,387 ) — — (5,387 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net reversal of credit losses (*1) 714 — — 714
Others (*2) (18 ) — — (18 )
Changes in consolidated scope 104 — — 104
Ending balance (4,587 ) — — (4,587 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (3,092 ) — — (3,092 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net allowance for credit losses (*1) (2,219 ) — — (2,219 )
Others (*2) (76 ) — — (76 )
Ending balance (5,387 ) — — (5,387 )
(*1) Profit or loss from discontinued operations are included.
--- ---
(*2) Others consists of foreign currencies translation, etc.
--- ---
  • 71 -
2) Gross carrying amount
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 14,155,414 — — 14,155,414
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net increase (decrease) 279,225 — — 279,225
Others(*) (9,217 ) — — (9,217 )
Changes in consolidated scope (25,089 ) — — (25,089 )
Ending balance 14,400,333 — — 14,400,333
(*) Others consist of foreign currencies translation, etc.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 8,870,835 — — 8,870,835
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net increase (decrease) 5,301,259 — — 5,301,259
Others(*) (16,680 ) (16,680 )
Ending balance 14,155,414 — — 14,155,414
(*) Others consist of foreign currencies translation, etc.
--- ---
(5) Details of loans are as follows (Unit: Korean won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Loans in local currency 219,910,121 210,701,421
Loans in foreign currencies 18,514,913 15,239,032
Domestic banker’s letter of credit 2,899,651 2,934,366
Credit card accounts 7,275 8,051,384
Bills bought in foreign currencies 4,772,093 7,874,457
Bills bought in local currency 16,012 22,885
Factoring receivables 20,737 45,851
Advances for customers on guarantees 12,616 13,810
Private placement bonds 152,489 365,531
Securitized loans 2,250,042 1,377,072
Call loans 3,290,167 2,669,080
Bonds purchased under resale agreements 8,981,752 11,701,951
Others 471 1,037,283
Loan origination costs and fees 600,560 574,178
Discounted present value (886 ) (10,308 )
Allowance for credit losses (1,252,340 ) (1,778,076 )
Total 260,175,673 260,819,917
  • 72 -
(6) Changes in the loss allowance of loans are as follows (Unit: Korean won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance (114,509 ) (48,368 ) (129,906 ) (348,311 ) (349,619 ) (527,673 )
Transfer to 12-month expected credit losses (14,677 ) 13,904 773 (58,236 ) 49,585 8,651
Transfer to lifetime expected credit losses 14,057 (15,359 ) 1,302 12,019 (28,871 ) 16,852
Transfer to credit-impaired financial assets 1,946 7,957 (9,903 ) 3,128 17,760 (20,888 )
Net reversal of (allowance for) credit losses (*1) 26,884 (37,570 ) (146,733 ) 82,630 13,800 (77,389 )
Recovery — — (59,967 ) — — (63,944 )
Charge-off — — 206,004 — — 222,113
Disposal of financial assets — — 2,763 — 1 42,095
Unwinding effect — — 9,647 — — 17,903
Others (*2) 1,351 1,461 (3,604 ) (16,572 ) 560 (322 )
Changes in consolidated scope 9,286 5,688 12,231 11,840 4,683 1,389
Ending balance (75,662 ) (72,287 ) (117,393 ) (313,502 ) (292,101 ) (381,213 )
For the year ended December 31, 2019
Credit card accounts Total
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance (64,787 ) (78,131 ) (116,772 ) (527,607 ) (476,118 ) (774,351 )
Transfer to 12-month expected credit losses (15,295 ) 15,262 33 (88,208 ) 78,751 9,457
Transfer to lifetime expected credit losses 7,269 (7,557 ) 288 33,345 (51,787 ) 18,442
Transfer to credit-impaired financial assets 15,055 59,063 (74,118 ) 20,129 84,780 (104,909 )
Net reversal of (allowance for) credit losses (*1) (33,967 ) (92,562 ) (31,436 ) 75,547 (116,332 ) (255,558 )
Recovery — — (29,035 ) — — (152,946 )
Charge-off — — 138,944 — — 567,061
Disposal of financial assets — — — — 1 44,858
Unwinding effect — — — — — 27,550
Others (*2) 22,730 30,379 (49,707 ) 7,509 32,400 (53,633 )
Changes in consolidated scope 68,813 73,546 161,803 89,939 83,917 175,423
Ending balance (182 ) — — (389,346 ) (364,388 ) (498,606 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance (101,479 ) (41,358 ) (117,168 ) (365,251 ) (255,922 ) (905,243 )
Transfer to 12-month expected credit losses (9,848 ) 8,966 882 (24,324 ) 22,658 1,666
Transfer to lifetime expected credit losses 5,905 (7,183 ) 1,278 15,074 (407,780 ) 392,706
Transfer to credit-impaired financial assets 79,078 47,343 (126,421 ) 62,731 97,750 (160,481 )
Net reversal of (allowance for) credit losses (*1) (86,224 ) (56,164 ) (49,637 ) (68,381 ) 193,392 (94,004 )
Recovery — — (51,855 ) — — (127,630 )
Charge-off — — 204,552 — — 290,109
Disposal of loans — 33 1,633 — 237 49,902
Unwinding effect — — 7,945 — — 23,381
Others (*2) (1,941 ) (5 ) (1,115 ) 31,840 46 1,921
Ending balance (114,509 ) (48,368 ) (129,906 ) (348,311 ) (349,619 ) (527,673 )
For the year ended December 31, 2018
Credit card accounts Total
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance (57,134 ) (71,463 ) (102,858 ) (523,864 ) (368,743 ) (1,125,269 )
Transfer to 12-month expected credit losses (13,846 ) 13,738 108 (48,018 ) 45,362 2,656
Transfer to lifetime expected credit losses 5,871 (6,194 ) 323 26,850 (421,157 ) 394,307
Transfer to credit-impaired financial assets 82,406 84,048 (166,454 ) 224,215 229,141 (453,356 )
Net reversal of (allowance for) credit losses (*1) (82,083 ) (98,260 ) (33,205 ) (236,688 ) 38,968 (176,846 )
Recovery — — (57,565 ) — — (237,050 )
Charge-off — — 242,879 — — 737,540
Disposal of loans — — — — 270 51,535
Unwinding effect — — — — — 31,326
Others (*2) (1 ) — — 29,898 41 806
Ending balance (64,787 ) (78,131 ) (116,772 ) (527,607 ) (476,118 ) (774,351 )
(*1) Profit or loss from discontinued operations are included.
--- ---
(*2) Others consists of debt-equity swap, foreign currencies translation, etc.
--- ---
  • 73 -
(7) Changes in the gross carrying amount of loans are as follows (Unit: Korean won in millions):<br>
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance 110,619,242 6,028,009 391,494 131,453,727 5,031,258 1,020,658
Transfer to 12-month expected credit losses 2,629,127 (2,616,892 ) (12,235 ) 1,558,518 (1,547,948 ) (10,570 )
Transfer to lifetime expected credit losses (8,234,138 ) 8,252,223 (18,085 ) (2,291,629 ) 2,327,324 (35,695 )
Transfer to credit-impaired financial assets (147,287 ) (103,303 ) 250,590 (252,066 ) (142,763 ) 394,829
Charge-off — — (206,004 ) — — (222,113 )
Disposal — (55 ) (67,924 ) — (70 ) (161,318 )
Net increase (decrease) 6,309,192 889,302 84,361 3,995,547 (777,088 ) (270,008 )
Changes in consolidated scope (946,904 ) (28,132 ) (14,523 ) (1,604,250 ) (96,864 ) (6,799 )
Ending balance 110,229,232 12,421,152 407,674 132,859,847 4,793,849 708,984
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Credit card accounts Total
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance 6,861,844 982,772 208,989 248,934,813 12,042,039 1,621,141
Transfer to 12-month expected credit losses 286,975 (286,924 ) (51 ) 4,474,620 (4,451,764 ) (22,856 )
Transfer to lifetime expected credit losses (336,040 ) 336,410 (370 ) (10,861,807 ) 10,915,957 (54,150 )
Transfer to credit-impaired financial assets (48,082 ) (80,178 ) 128,260 (447,435 ) (326,244 ) 773,679
Charge-off — — (138,944 ) — — (567,061 )
Disposal — — — — (125 ) (229,242 )
Net increase (decrease) 247,532 (19,692 ) 62,345 10,552,271 92,522 (123,302 )
Changes in consolidated scope (7,004,954 ) (932,388 ) (260,229 ) (9,556,108 ) (1,057,384 ) (281,551 )
Ending balance 7,275 — — 243,096,354 17,215,001 1,116,658
For the year ended December 31, 2018
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance 103,502,347 5,487,758 326,739 131,096,396 4,466,354 1,622,409
Transfer to 12-month expected credit losses 1,921,485 (1,912,046 ) (9,439 ) 1,081,702 (1,077,895 ) (3,807 )
Transfer to lifetime expected credit losses (3,186,506 ) 3,199,993 (13,487 ) (2,275,984 ) 2,733,860 (457,876 )
Transfer to credit-impaired financial assets (218,943 ) (127,447 ) 346,390 (348,503 ) (275,189 ) 623,692
Charge-off — — (204,552 ) — — (290,109 )
Disposal — (478 ) (31,910 ) — (2,781 ) (166,347 )
Net increase (decrease) 8,600,859 (619,771 ) (22,247 ) 1,900,116 (813,091 ) (307,304 )
Ending balance 110,619,242 6,028,009 391,494 131,453,727 5,031,258 1,020,658
For the year ended December 31, 2018
Credit card accounts Total
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance 5,721,743 935,266 177,983 240,320,486 10,889,378 2,127,131
Transfer to 12-month expected credit losses 221,984 (221,841 ) (143 ) 3,225,171 (3,211,782 ) (13,389 )
Transfer to lifetime expected credit losses (287,623 ) 288,027 (404 ) (5,750,113 ) 6,221,880 (471,767 )
Transfer to credit-impaired financial assets (104,459 ) (95,758 ) 200,217 (671,905 ) (498,394 ) 1,170,299
Charge-off — — (242,879 ) — — (737,540 )
Disposal — — — — (3,259 ) (198,257 )
Net increase (decrease) 1,310,199 77,078 74,215 11,811,174 (1,355,784 ) (255,336 )
Ending balance 6,861,844 982,772 208,989 248,934,813 12,042,039 1,621,141
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(8) Details of other financial assets are as follows (Unit: Korean won in millions):
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
CMA accounts — 185,999
Receivables 5,382,069 4,864,403
Accrued income 944,427 1,000,427
Telex and telephone subscription rights and refundable deposits 969,046 982,925
Other receivables 400,651 512,339
Allowance for credit losses (66,510 ) (67,722 )
Total 7,629,683 7,478,371
(9) Changes in the allowances for credit losses on other financial assets are as follows (Unit: Korean won in<br>millions):
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (3,250 ) (1,971 ) (62,501 ) (67,722 )
Transfer to 12-month expected credit losses (216 ) 207 9 —
Transfer to lifetime expected credit losses 123 (157 ) 34 —
Transfer to credit-impaired financial assets 22 178 (200 ) —
Net reversal of (allowance for) credit losses (*) 619 12 (6,446 ) (5,815 )
Charge-off — — 2,457 2,457
Disposal — — 1,685 1,685
Others (50 ) (45 ) (17 ) (112 )
Changes in consolidated scope 1,609 1,048 340 2,997
Ending balance (1,143 ) (728 ) (64,639 ) (66,510 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (2,955 ) (1,832 ) (54,211 ) (58,998 )
Transfer to 12-month expected credit losses (150 ) 139 11 —
Transfer to lifetime expected credit losses 105 (416 ) 311 —
Transfer to credit-impaired financial assets 6,509 304 (6,813 ) —
Net allowance for credit losses (*) (6,583 ) (166 ) (31,550 ) (38,299 )
Charge-off — — 28,200 28,200
Disposal — 1 1,264 1,265
Others (176 ) (1 ) 287 110
Ending balance (3,250 ) (1,971 ) (62,501 ) (67,722 )
(*) Profit or loss from discontinued operations are included.
--- ---
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(10) Changes in the gross carrying amount of other financial assets are as follows (Unit: Korean won in millions):<br>
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 7,445,893 28,193 72,007 7,546,093
Transfer to 12-month expected credit losses 8,333 (8,317 ) (16 ) —
Transfer to lifetime expected credit losses (18,019 ) 18,082 (63 ) —
Transfer to credit-impaired financial assets (1,031 ) (1,046 ) 2,077 —
Charge-off — — (2,457 ) (2,457 )
Disposal — — (2,212 ) (2,212 )
Net increase (decrease) 597,769 24,355 63,804 685,928
Changes in consolidated scope (522,770 ) (7,971 ) (418 ) (531,159 )
Ending balance 7,510,175 53,296 132,722 7,696,193
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 6,662,335 29,124 79,912 6,771,371
Transfer to 12-month expected credit losses 7,573 (7,556 ) (17 ) —
Transfer to lifetime expected credit losses (11,418 ) 11,734 (316 ) —
Transfer to credit-impaired financial assets (7,580 ) (1,110 ) 8,690 —
Charge-off — — (28,201 ) (28,201 )
Disposal — (5 ) (1,640 ) (1,645 )
Net increase (decrease) 794,983 (3,994 ) 13,579 804,568
Ending balance 7,445,893 28,193 72,007 7,546,093
(*) Others consist of foreign currencies translation, etc.
--- ---
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11. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
(1) The fair value hierarchy
--- ---

The fair value hierarchy is determined by the levels of judgment involved in estimating fair values of financial assets and liabilities. The specific financial instruments characteristics and market condition such as volume of transactions and transparency are reflected to the market observable inputs. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities. The Group maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value of its financial assets and financial liabilities. Fair value is measured based on the perspective of a market participant. As such, even when market assumptions are not readily available, the Group’s own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.

The fair value measurement is described in the one of the following three levels used to classify fair value measurements:

• Level 1—fair value measurements are those derived from quoted prices (unadjusted) in active markets for<br>identical assets or liabilities. The types of financial assets or liabilities generally included in Level 1 are publicly traded equity securities, derivatives, and debt securities issued by governmental bodies.
• Level 2— fair value measurements are those derived from inputs other than quoted prices included within<br>Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices). The types of financial assets or liabilities generally included in Level 2 are debt securities not traded in active<br>markets and derivatives traded in OTC but not required significant judgment.
--- ---
• Level 3— fair value measurements are those derived from valuation technique that include inputs for the<br>assets or liabilities that are not based on observable market data (unobservable inputs). The types of financial assets or liabilities generally included in Level 3 are non-public securities and derivatives and debt securities of which valuation<br>techniques require significant judgments and subjectivity.
--- ---

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Group’s assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.

  • 77 -
(2) Fair value hierarchy of financial assets and liabilities measured at fair value are as follows (Unit: Korean<br>Won in millions):
December 31, 2019
--- --- --- --- --- --- --- --- ---
Level 1 (*) Level 2 (*) Level 3 Total
Financial assets:
Financial assets at fair value through profit or loss
Due from banks 27,901 — — 27,901
Debt securities 400,611 897,494 — 1,298,105
Equity securities 157,246 — 476,806 634,052
Capital contributions — — 483,199 483,199
Beneficiary certificates 1 31,841 1,267,200 1,299,042
Loans — — 9,037 9,037
Derivative assets 3,057 2,893,116 25,048 2,921,221
Sub-total 588,816 3,822,451 2,261,290 6,672,557
Financial assets at FVTOCI
Debt securities 2,146,163 24,553,077 — 26,699,240
Equity securities 441,672 — 407,058 848,730
Securities loaned — 80,737 — 80,737
Sub-total 2,587,835 24,633,814 407,058 27,628,707
Derivative assets 111,764 111,764
Total 3,176,651 28,568,029 2,668,348 34,413,028
Financial liabilities:
Financial liabilities at fair value through profit or loss
Deposits due to customers 27,530 — — 27,530
Derivative liabilities 4,336 2,764,763 72,039 2,841,138
Sub-total 31,866 2,764,763 72,039 2,868,668
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition
Equity-linked securities — — 87,626 87,626
Derivative liabilities — 43 — 43
Total 31,866 2,764,806 159,665 2,956,337
  • 78 -
December 31, 2018
Level 1 (*1) Level 2 (*1) Level 3 Total
Financial assets:
Financial assets at fair value through profit or loss mandatorily measured at fair value
Due from banks 26,935 — — 26,935
Debt securities 239,794 1,575,972 8,389 1,824,155
Equity securities 53,806 — 401,860 455,666
Capital contributions — — 422,481 422,481
Beneficiary certificates 2,130 128,988 854,299 985,417
Loans — 205,000 180,450 385,450
Derivative assets 13,216 1,964,065 48,798 2,026,079
Sub-total 335,881 3,874,025 1,916,277 6,126,183
Financial assets at FVTOCI
Debt securities 1,838,409 15,233,811 — 17,072,220
Equity securities 482,327 — 468,847 951,174
Securities loaned — 40,029 — 40,029
Sub-total 2,320,736 15,273,840 468,847 18,063,423
Derivative assets (Designated for hedging) — 35,503 — 35,503
Total 2,656,617 19,183,368 2,385,124 24,225,109
Financial liabilities:
Financial liabilities at fair value through profit or loss mandatorily measured at fair<br>value
Deposits due to customers 27,058 — — 27,058
Derivative liabilities 2,245 2,071,925 16,691 2,090,861
Sub-total 29,303 2,071,925 16,691 2,117,919
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition
Equity-linked securities — — 164,767 164,767
Derivative liabilities (Designated for hedging) — 51,408 — 51,408
Total 29,303 2,123,333 181,458 2,334,094
(*) There were no transfers between Level 1 and Level 2 of financial assets and liabilities measured at fair value.<br>The Group recognizes transfers among levels at the end of reporting period in which events have occurred or conditions have changed.
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Financial assets and liabilities at fair value through profit or loss, financial assets at FVTOCI, and derivative assets (Designated for hedging) and liabilities (Designated for hedging) are recognized at fair value. Fair value is the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

  • 79 -

Financial instruments are measured at fair value using a quoted market price in active markets. If there is no active market for a financial instrument, the Group determines the fair value using valuation methods. Valuation methods and input variables for each type of financial instruments are as follows:

① Valuation methods and input variables for each type of financial instrument classified into level 2 in<br>December 31, 2019 and 2018 are as follows:
Valuation methods Input variables
--- --- ---
Debt securities Fair value is measured by discounting the future cash flows of debt securities applying the risk-free market rate. Risk-free market rate
Beneficiary certificates The beneficiary certificates classified as Level 2 are MMF and are measured at base price. Base price
Derivatives The fair value is measured through option model (Closed Form), DCF Model, FDM, Monte Carlo Simulation and etc. Discount rate, foreign exchange rate, stock prices and price of underlying assets, volatility, and etc.
② Valuation methods and input variables for each type of financial instrument classified into level 3 in<br>December 31, 2019 and 2018 are as follows:
--- ---
Valuation methods Input variables
--- --- ---
Loans The fair value of Loans is measured by the Binomial tree given the values of underlying assets and volatility. Values of underlying assets, Volatility
Debt securities The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the<br>securities. Risk-free market rate, credit spread
Equity securities, capital contributions and Beneficiary certificates Among DCF (Discounted Cash Flow) Model, FCFE (Free Cash Flow to Equity) Model, Comparable Company Analysis, Dividend Discount Model, Risk-adjusted Rate of Return Method, and Net Asset Value Method, more than one method is used given<br>the characteristic of the subject of fair value measurement. Risk-free market rate, market risk premium, corporate Beta, etc.
Derivatives Fair value is measured by models such as option model (Closed form), DCF model, FDM and Monte Carlo Simulation. Discount rate, values of underlying assets such as foreign exchange rate and stock prices, volatility, etc.
Equity-linked securities Fair value is measured by models such as option model (Closed form), DCF model, FDM and Monte Carlo Simulation. Values of underlying assets, market rate, dividend, volatility, correlation coefficient and foreign exchange rate, etc.
  • 80 -

Valuation methods of financial assets and liabilities measured at fair value and classified into Level 3 and significant but unobservable inputs are as follows:

Fair value<br>measurement<br>technique Type Significant but<br>unobservable<br>input variable Range Impact of changes in significant<br>unobservable inputs on fair value<br>measurement
Loans Binomial tree Stock price, Volatility of underlying asset 14.51%~46.06% Fair value increases as volatility of underlying asset increases.
Derivative assets Option valuation model and others Interest rate related Correlation coefficient 0.90~0.98 Variation of fair value increases as correlation coefficient increases.
Volatility of underlying asset 16.3%~41.2% Variation of fair value increases as volatility increases.
Option valuation model and others Equity related Correlation coefficient 0.237~0.675 Variation of fair value increases as correlation coefficient increases.
DCF model Currency related Credit risk adjustment ratio 7.7%~100.0% Variation of fair value decreases as credit risk adjustment ratio increases.
Derivative liabilities Option valuation model and others Interest rate related Correlation coefficient 0.90~0.98 Variation of fair value increases as correlation coefficient increases.
Volatility of underlying asset 16.3%~41.2% Variation of fair value increases as volatility increases.
Equity related Correlation coefficient 0.237~0.675 Variation of fair value increases as correlation coefficient increases.
Volatility of underlying asset 21.4%~22.4% Variation of fair value increases as volatility increases.
Equity-linked securities Monte Carlo Simulation and others Correlation coefficient<br><br><br>Volatility of underlying asset 0.294~0.675<br><br><br><br><br><br>19.1%~25.3% Equity-linked securities’ variation of fair value increases if both volatility and correlation coefficient increase. However, when correlation coefficient decreases despite the increase in volatility, the variation of fair<br>value of a compound financial instrument may decrease.
Equity securities, capital contributions and Beneficiary certificates External appraisal value and others Terminal growth rate 0 Fair value increases as terminal growth rate increases.
Discount rate 0.35%~19.21% Fair value increases as discount rate decreases.
Volatility of real estate sale price 0 Fair value increases as volatility of real estate sale price increases.
Volatility of underlying assets 13.21%~34.72% Change of fair value increases as volatility of underlying assets increases

Fair value of financial assets and liabilities classified into Level 3 is measured by the Group using its own valuation methods or using external specialists. Unobservable inputs used in the fair value measurements are produced by the internal system of the Group and the appropriateness of inputs is reviewed regularly.

  • 81 -
(3) Changes in financial assets and liabilities measured at fair value classified into Level 3 are as follows<br>(Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
January 1,<br>2019 Net<br>Income<br>(loss)<br>(*1) Other<br>comprehensive<br>income Purchases/<br>issuances Disposals/<br>settlements Transfer to<br>or out of<br>Level 3 (*2) Changes in<br>consolidated<br>scope December 31,<br>2019
Financial assets:
Financial assets at fair value through profit or loss
Debt securities 8,389 8 — 2,000 (302 ) — (10,095 ) —
Equity securities 401,860 58,309 — 73,851 (28,253 ) — (28,961 ) 476,806
Capital contributions 422,481 (13,364 ) — 163,364 (65,947 ) — (23,335 ) 483,199
Beneficiary certificates 854,299 15,805 — 568,026 (140,966 ) 8,441 (38,405 ) 1,267,200
Loans 180,450 (696 ) — 500 (46,269 ) — (124,948 ) 9,037
Derivative assets 48,798 16,935 — 1,115 (40,343 ) (1,457 ) — 25,048
Sub-total 1,916,277 76,997 — 808,856 (322,080 ) 6,984 (225,744 ) 2,261,290
Financial assets at FVTOCI
Equity securities 468,847 — 24,741 494 (307 ) — (86,717 ) 407,058
Total 2,385,124 76,997 24,741 809,350 (322,387 ) 6,984 (312,461 ) 2,668,348
Financial liabilities:
Financial liabilities at fair value through profit or loss
Derivative liabilities 16,691 84,033 — (11,140 ) (14,817 ) (2,728 ) — 72,039
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition
Equity-linked securities 164,767 33,237 — 1,810 (112,188 ) — — 87,626
Total 181,458 117,270 — (9,330 ) (127,005 ) (2,728 ) — 159,665
(*1) The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease<br>financial liabilities are presented as negative amounts. The loss amounting to 28,749 million Won for the years ended December 31, 2019, which is from financial assets and liabilities that the Group holds as at the end of the periods, has<br>been recognized in net gain (loss) on financial assets at FVTPL and net gain (loss) on financial assets at FVTOCI in the consolidated statement of comprehensive income.
--- ---
(*2) The Group recognizes transfers between levels at the end of reporting period within which events have occurred<br>or conditions have changed.
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For the year ended December 31, 2018
January 1,<br>2018 Net<br>Income<br>(loss)<br>(*1) Other<br>comprehensive<br>income Purchases/<br>issuances Disposals/<br>settlements Transfer to or<br>out of Level 3<br>(*2) December 31,<br>2018
Financial assets:
Financial assets at fair value through profit or loss
Debt securities 9,694 (28 ) — 3,000 (4,277 ) — 8,389
Equity securities 280,171 56,271 — 67,953 (2,535 ) — 401,860
Capital contributions 294,121 16,119 — 144,207 (31,966 ) — 422,481
Beneficiary certificates 654,066 16,391 — 5,151,535 (4,971,003 ) 3,310 854,299
Loans 165,001 3,378 — 150,103 (138,032 ) — 180,450
Derivative assets 19,346 75,696 — 4,722 (50,966 ) — 48,798
Sub-total 1,422,399 167,827 — 5,521,520 (5,198,779 ) 3,310 1,916,277
Financial assets at FVTOCI
Equity securities 451,287 — 19,688 432 (2,560 ) — 468,847
Total 1,873,686 167,827 19,688 5,521,952 (5,201,339 ) 3,310 2,385,124
Financial liabilities:
Financial liabilities at fair value through profit or loss
Derivative liabilities 20,951 46,409 — 255 (50,921 ) (3 ) 16,691
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition
Equity-linked securities 160,057 (16,243 ) — 183,039 (162,086 ) — 164,767
Total 181,008 30,166 — 183,294 (213,007 ) (3 ) 181,458
(*1) The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease<br>financial liabilities are presented as negative amounts. The gain amounting to 137,777 million Won for the years ended December 31, 2019, which is from financial assets and liabilities that the Group holds as at the end of the periods, has<br>been recognized in net gain (loss) on financial assets at FVTPL and net gain (loss) on financial assets at FVTOCI in the consolidated statement of comprehensive income.
--- ---
(*2) The Group recognizes transfers between levels at the end of reporting period within which events have occurred<br>or conditions have changed.
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  • 83 -
(4) Sensitivity analysis on the unobservable inputs used for measuring Level 3 financial instruments<br>

The sensitivity analysis of the financial instruments has been performed by classifying with favorable and unfavorable changes based on how changes in unobservable assumptions would have effects on the fluctuations of financial instruments’ value. When the fair value of a financial instrument is affected by more than one unobservable assumption, the below table reflects the most favorable or the most unfavorable changes which resulted from varying the assumptions individually. The sensitivity analysis was performed for two types of level 3 financial instruments: (1) interest rate related derivatives, currency related derivatives, equity related derivatives, equity-linked securities beneficiary certificates and loans of which fair value changes are recognized as net income; (2) equity securities of which fair value changes are recognized as other comprehensive income.

Among the financial instruments that are classified as Level 3 amounting to 2,828,015 million Won and 2,566,582 million Won as of December 31, 2019 and 2018 respectively, equity investments of 2,040,780 million Won and 1,641,875 million Won that are considered to provide the best estimate of fair value are excluded from the sensitivity analysis.

The following table presents the sensitivity analysis to disclose the effect of reasonably possible volatility on the fair value of a Level 3 financial instruments (Unit: Korean Won in millions):

December 31, 2019
Net income (loss) Other comprehensive income (loss)
Favorable Unfavorable Favorable Unfavorable
Financial assets:
Financial assets at FVTPL
Derivative assets (*1) 640 (935 ) — —
Loans 152 (128 ) — —
Debt securities 15,317 (10,361 ) — —
Equity securities (*2) (*3) 1,125 (1,125 ) — —
Beneficiary certificates (*3)
Financial assets at FVTOCI
Equity securities (*2) (*3) — — 19,547 (9,399 )
Total 17,234 (12,549 ) 19,547 (9,399 )
Financial liabilities:
Financial liabilities at fair value through profit or loss
Derivative liabilities (*1) 1,054 (816 ) — —
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition
Equity-linked securities (*1) 136 (142 ) — —
Total 1,190 (958 ) — —
  • 84 -
December 31, 2018
Net income (loss) Other comprehensive income (loss)
Favorable Unfavorable Favorable Unfavorable
Financial assets:
Financial assets at FVTPL
Derivative assets (*1) 4,578 (4,352 ) — —
Loans (*2) 146 (127 ) — —
Debt securities 68 (35 ) — —
Equity securities (*3)(*4) 12,700 (9,165 ) — —
Beneficiary certificates (*4) 1,582 (1,582 ) — —
Financial assets at FVTOCI
Equity securities (*3)(*4) — — 23,798 (10,078 )
Total 19,074 (15,261 ) 23,798 (10,078 )
Financial liabilities:
Financial liabilities at fair value through profit or loss
Derivative liabilities (*1) 2,433 (2,751 ) — —
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition
Equity-linked securities (*1) 1,561 (1,669 ) — —
Total 3,994 (4,420 ) — —
(*1) Fair value changes of equity related derivatives assets and liabilities and equity-linked securities are<br>calculated by increasing or decreasing historical volatility of the stock price and correlation, which are major unobservable variables, by 10%, respectively. In the case of interest rate related derivative assets and liabilities, fair value changes<br>are calculated by increasing or decreasing the volatility of interest rate, which are major unobservable variables, by 10%.
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(*2) Fair value changes of equity securities are calculated by increasing or decreasing stock price (-10~10%) and<br>fluctuation rate (-10~10%) and discount rate. The growth rate, discount rate, and liquidation value are major unobservable variables.
--- ---
(*3) Fair value changes of equity securities are calculated by increasing or decreasing growth rate (0~1%) and<br>discount rate or liquidation value (-1~1%). The growth rate, discount rate, and liquidation value are major unobservable variables.
--- ---
(*4) Even if the sensitivity analysis of the capital contributions and beneficiary certificates is not possible in<br>practice, fair value changes of beneficiary certificates and other securities whose major unobservable variables are composed of the real estate are calculated by increasing or decreasing price fluctuation of real estate which is underlying assets<br>and discount rate by 1%.
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(5) Fair value and carrying amount of financial assets and liabilities that are recorded at amortized cost are as<br>follows (Unit: Korean Won in millions):
December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Fair value Book<br>value
Level 1 Level 2 Level 3 Total
Financial assets:
Securities at amortized cost 3,123,898 17,378,920 — 20,502,818 20,320,539
Loans and other financial assets at amortized cost — — 271,309,351 271,309,351 282,201,102
Financial liabilities:
Deposits due to customers — 263,876,489 — 263,876,489 263,643,964
Borrowings — 18,495,665 — 18,495,665 18,575,566
Debentures — 23,062,891 — 23,062,891 22,834,408
Other financial liabilities — 16,594,482 — 16,594,482 16,595,398
December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Fair value Book<br>value
Level 1 Level 2 Level 3 Total
Financial assets:
Securities at amortized cost 3,618,213 19,417,130 — 23,035,343 22,932,559
Loans and other financial assets at amortized cost — — 282,333,497 282,333,497 282,448,315
Financial liabilities:
Deposits due to customers — 248,763,952 — 248,763,952 248,690,939
Borrowings — 16,203,070 — 16,203,070 16,202,986
Debentures — 28,755,251 — 28,755,251 28,725,862
Other financial liabilities — 21,444,937 — 21,444,937 21,426,064

The fair values of financial instruments are measured using quoted market price in active markets. In case there is no active market for financial instruments, the Group determines the fair value using valuation methods. Valuation methods and input variables for financial assets and liabilities that are measured at amortized costs are given as follows:

Valuation methods Input variables
Securities at amortized cost The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the<br>securities. Risk-free market rate and credit spread
Loans and other financial assets at amortized cost The fair value is measured by discounting the projected cash flows of loan products by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the debtor. Risk-free market rate, credit spread and prepayment-rate
Deposits due to customers, borrowings, debentures and other financial liabilities The fair value is measured by discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Group. Risk-free market rate and forward rate
  • 86 -
(6) Financial instruments by category

Carrying amounts of financial assets and liabilities by each category are as follows (Unit: Korean Won in millions):

December 31, 2019
Financial assets Financial asset at<br>FVTPL Financial assets at<br>FVTOCI Financial assets at<br>amortized cost Derivatives<br>assets<br>(Designated for<br>hedging) Total
Due from banks 27,901 — 14,395,746 — 14,423,647
Securities 3,714,398 27,628,707 20,320,539 — 51,663,644
Loans 9,037 — 260,175,673 — 260,184,710
Derivative assets 2,921,221 — — 111,764 3,032,985
Other financial assets — — 7,629,683 — 7,629,683
Total 6,672,557 27,628,707 302,521,641 111,764 336,934,669
December 31, 2019
--- --- --- --- --- --- --- --- ---
Financial liabilities Financial liabilities at<br>FVTPL Financial liabilities<br>at amortized cost Derivatives<br>liabilities<br>(Designated for<br>hedging) Total
Deposits due to customers 27,530 263,643,964 — 263,671,494
Borrowings 87,626 18,575,566 — 18,663,192
Debentures — 22,834,408 — 22,834,408
Derivative liabilities 2,841,138 — 43 2,841,181
Other financial liabilities(*) — 16,658,162 — 16,658,162
Total 2,956,294 321,712,100 43 324,668,437
(*) Other financial liabilities include 62,764 million Won of financial guarantee liabilities measured<br>at amortized cost included in provisions.
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December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Financial assets Financial asset at<br>FVTPL Financial assets<br>at FVTOCI Financial assets at<br>amortized cost Derivatives<br>assets<br>(Designated for<br>hedging) Total
Deposits 26,935 — 14,150,027 — 14,176,962
Securities 3,687,719 18,063,423 22,932,559 — 44,683,701
Loans 385,450 — 260,819,917 — 261,205,367
Derivative assets 2,026,079 — — 35,503 2,061,582
Other financial assets — — 7,478,371 — 7,478,371
Total 6,126,183 18,063,423 305,380,874 35,503 329,605,983
December 31, 2018
--- --- --- --- --- --- --- --- ---
Financial liabilities Financial liabilities at<br>FVTPL Financial liabilities at<br>amortized cost Derivatives<br>liabilities<br>(Designated for<br>hedging) Total
Deposits due to customers 27,058 248,690,939 — 248,717,997
Borrowings 164,767 16,202,986 — 16,367,753
Debentures — 28,725,862 — 28,725,862
Derivative liabilities 2,090,861 — 51,408 2,142,269
Other financial liabilities (*) — 21,473,881 — 21,473,881
Total 2,282,686 315,093,668 51,408 317,427,762
(*) Other financial liabilities include 47,817 million Won of financial guarantee liabilities measured at<br>amortized cost included in provisions.
--- ---
  • 87 -
(7) Income or expense from financial instruments by category

Income or expense from financial assets and liabilities by each category during the years ended December 31, 2019 and 2018 are as follows (Unit: Korean Won in millions):

December 31, 2019
Interest<br>Income (expense) Fees and<br>Commissions<br>Income (expense) Provision (reversal)<br>of credit loss Others Total
Financial assets at FVTPL 43,318 89,777 — 105,067 238,162
Financial assets at FVTOCI 474,132 — (3,297 ) 26,045 496,880
Securities at amortized cost 436,340 — 1,415 — 437,755
Loans and other financial assets at amortized cost 8,858,748 160,743 (131,942 ) 84,348 8,971,897
Financial liabilities at FVTPL (719 ) — — 135 (584 )
Financial liabilities at amortized cost (4,495,123 ) — — — (4,495,123 )
Derivatives assets (liabilities) (Designated for hedging) — — — 4,261 4,261
Off-balance provisions — 39,975 15,575 — 55,550
Total 5,316,696 290,495 (118,249 ) 219,856 5,708,798
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Interest<br>Income (expense) Fees and<br>Commissions<br>Income (expense) Provision (reversal)<br>of credit loss Others Total
Financial assets at FVTPL 54,243 86,845 — 264,850 405,938
Financial assets at FVTOCI 280,371 66 (2,027 ) 24,707 303,117
Securities at amortized cost 376,788 — (1,922 ) 431 375,297
Loans and other financial assets at amortized cost 8,973,097 317,316 (415,084 ) 79,101 8,954,430
Financial liabilities at FVTPL (3,164 ) — — 17,485 14,321
Financial liabilities at amortized cost (4,030,384 ) 27,742 — 25,498 (3,977,144 )
Derivatives assets (liabilities) (Designated for hedging) — — — (672 ) (672 )
Off-balance provisions — — 89,459 — 89,459
Total 5,650,951 431,969 (329,574 ) 411,400 6,164,746
  • 88 -
12. DERECOGNITION AND OFFSET OF FINANCIAL INSTRUMENTS
(1) Derecognition of financial instruments
--- ---

Transferred financial assets that do not meet the condition of derecognition in their entirety.

a) Bonds sold under repurchase agreements

The financial instruments that were disposed but the Group agreed to repurchase at the fixed amounts at the same time, so that they did not meet the conditions of derecognition, are as follows (Unit: Korean Won in millions):

December 31,<br>2019 December 31,<br>2018
Assets transferred Financial assets at FVTOCI 56,975 33,588
Securities at amortized cost 42,841 5,552
Loans at amortized cost 82,594 —
Total 182,410 39,140
Related liabilities Bonds sold under repurchase agreements 180,402 42,907
b) Securities loaned
--- ---

When the Group loans its securities to outside parties, the legal ownerships of the securities are transferred; however, they should be returned at the end of lending period. Therefore, the Group does not derecognize them from the financial statements as it owns majority of risks and benefits from the securities continuously, regardless of the transfer of legal ownership. The carrying amounts of the securities loaned are as follows (Unit: Korean Won in millions):

December 31,<br>2019 December 31,<br>2018 Loaned to
Financial assets at FVTOCI Korean financial institution’s debt<br>securities and others 80,737 40,029 Korea Securities Finance<br>Corporation
Total 80,737 40,029

The details of the transferred financial assets that are not meet the condition of derecognition in their entirety, such as disposal of securities under repurchase agreement or securities loaned, are explained in Note 18. The group does not possess financial assets that the group involves continuously.

(2) The offset of financial assets and liabilities

The Group possesses both the uncollected domestic exchange receivables and the unpaid domestic exchange payable, which satisfy offsetting criteria of K-IFRS 1032. Therefore, the total number of uncollected domestic exchange receivables or unpaid domestic exchange payable has been offset with part of unpaid domestic exchange payable or uncollected domestic exchange receivables and has been disclosed in loans at amortized cost and other financial assets (loans and receivables in previous year) or other financial liabilities of the Group’s statements of financial position.

The Group possesses the derivative assets, derivative liabilities, receivable spot exchange and payable spot exchange that do not satisfy the offsetting criteria of K-IFRS 1032, but provide the Group under the circumstances of the trading party’s defaults, insolvency or bankruptcy, the right of offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading party’s default, insolvency or bankruptcy, the net amount of derivative assets and derivative liabilities, receivable spot exchange and payable spot exchange can be offset.

  • 89 -

The Group has entered into a resale and repurchase agreement and accounted it as a collateralized borrowing. The Group has also entered into a resale and purchase agreement and accounted it as a secured loans. The resale and repurchase agreements can have the offsetting right only under the trading party’s default, insolvency or bankruptcy, which do not satisfy the offsetting criteria of K-IFRS 1032. The Group recorded the collateralized borrowing in borrowings and the secured loans in loans and receivables. The Group under the repurchase agreements has offsetting right only upon the counterparty’s default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of K-IFRS 1032. The Group disclosed bonds purchased under resale agreements as loan at amortized cost and other financial assets (loans and receivables in previous year) and bonds sold under repurchase agreements as borrowings.

As of December 31, 2019 and 2018, the financial instruments to be offset and covered by master netting agreements and similar agreements are as follows (Unit: Korean Won in millions):

December 31, 2019
Gross<br>amounts of<br>recognized<br>financial<br>assets Gross<br>amounts of<br>recognized<br>financial<br>assets setoff Net<br>amounts of<br>financial<br>assets<br>presented Related amounts not setoff in<br>the consolidated statement of<br>financial position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>received
Financial assets:
Derivative assets (*1) 3,032,730 — 3,032,730 6,973,061 111,122 946,141
Receivable spot exchange (*2) 4,997,594 — 4,997,594
Bonds purchased under resale agreements (*2) 8,981,752 — 8,981,752 8,981,752 — —
Domestic exchange settlement credits (*2)(*6) 31,639,302 31,269,258 370,044 — — 370,044
Total 48,651,378 31,269,258 17,382,120 15,954,813 111,122 1,316,185
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- ---
Gross<br>amounts of<br>recognized<br>financial<br>liabilities Gross<br>amounts of<br>recognized<br>financial<br>liabilities<br>setoff Net<br>amounts of<br>financial<br>liabilities<br>presented Related amounts not setoff in<br>the consolidated statement of<br>financial position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>pledged
Financial liabilities:
Derivative liabilities (*1) 2,822,403 — 2,822,403 6,985,725 172,488 748,551
Equity-linked securities index in short position (*3) 87,626 — 87,626
Payable spot exchange (*4) 4,996,735 — 4,996,735
Bonds sold under repurchase agreements (*5) 180,402 — 180,402 180,402 — —
Domestic exchange settlement debits (*4)(*6) 32,526,538 31,269,258 1,257,280 1,257,280 — —
Total 40,613,704 31,269,258 9,344,446 8,423,407 172,488 748,551
(*1) The items include derivatives held for trading, derivatives designated for hedging.
--- ---
(*2) The items are included in loan at amortized cost and other financial assets.
--- ---
(*3) The items are equity linked securities related to derivatives and are included in financial liabilities at<br>FVTPL.
--- ---
(*4) The items are included in other financial liabilities.
--- ---
(*5) The items are included in borrowings.
--- ---
(*6) Certain financial assets and liabilities are presented as net amounts.
--- ---
  • 90 -
December 31, 2018
Gross<br>amounts of<br>recognized<br>financial<br>assets Gross<br>amounts of<br>recognized<br>financial<br>assets setoff Net<br>amounts of<br>financial<br>assets<br>presented Related amounts not setoff in<br>the consolidated statement of<br>financial position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>received
Financial assets:
Derivative assets (*1) 1,908,542 — 1,908,542 5,527,117 66,857 515,100
Receivable spot exchange (*2) 4,200,532 — 4,200,532
Bonds purchased under resale agreements (*2) 11,701,951 — 11,701,951 11,701,951 — —
Domestic exchange settlement credits (*2)(*6) 30,090,598 29,699,412 391,186 — — 391,186
Total 47,901,623 29,699,412 18,202,211 17,229,068 66,857 906,286
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- ---
Gross<br>amounts of<br>recognized<br>financial<br>liabilities Gross<br>amounts of<br>recognized<br>financial<br>liabilities<br>setoff Net<br>amounts of<br>financial<br>liabilities<br>presented Related amounts not setoff in<br>the consolidated statement of<br>financial position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>pledged
Financial liabilities:
Derivative liabilities (*1) 1,862,681 — 1,862,681 5,540,147 115,615 577,713
Equity-linked securities index in short position (*3) 164,767 — 164,767
Payable spot exchange (*4) 4,206,027 — 4,206,027
Bonds sold under repurchase agreements (*5) 42,907 — 42,907 42,907 — —
Domestic exchange settlement debits (*4)(*6) 36,832,774 29,699,412 7,133,362 6,231,538 — 901,824
Total 43,109,156 29,699,412 13,409,744 11,814,592 115,615 1,479,537
(*1) The items include derivatives held for trading, derivatives designated for hedging.
--- ---
(*2) The items are included in loan at amortized cost and other financial assets.
--- ---
(*3) The items are equity linked securities related to derivatives and are included in financial liabilities at<br>FVTPL.
--- ---
(*4) The items are included in other financial liabilities.
--- ---
(*5) The items are included in borrowings.
--- ---
(*6) Certain financial assets and liabilities are presented as net amounts.
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  • 91 -
13. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
(1) Investments in joint ventures and associates accounted for using the equity method of accounting are as<br>follows:
--- ---
Percentage of ownership (%)
--- --- --- --- --- --- --- --- --- ---
Joint ventures and Associates Main business December 31,<br>2019 December 31,<br>2018 Location Financial<br>statements as of
Woori Bank:
Woori Service Networks Co., Ltd. (*1) Freight & staffing services 4.9 4.9 Korea November 30, 2019 (*5)
Korea Credit Bureau Co., Ltd. (*2) Credit information 9.9 9.9 Korea December 31, 2019
Korea Finance Security Co., Ltd. (*1) Security service 15.0 15.0 Korea November 30, 2019(*5)
Chin Hung International Inc. (*3) Construction 25.3 25.3 Korea November 30, 2019(*5)
Saman Corporation (*2) General construction Technology service 9.2 9.2 Korea September 30, 2019 (*3)
Dongwoo C & C Co., Ltd. (*4)(*10) Construction 23.2 24.5 Korea —
SJCO Co., Ltd. (*4) Aggregate transportation and wholesale 26.5 26.5 Korea —
G2 Collection Co., Ltd. (*4) Wholesale and retail sales 28.9 28.9 Korea —
The Base Enterprise Co., Ltd. (*4) Manufacturing 48.4 48.4 Korea —
Kyesan Engineering Co., Ltd. (*4) (*10) Construction 23.2 23.3 Korea —
Good Software Lap Co., Ltd. (*4) (*10) Service 28.9 29.4 Korea —
Wongwang Co., Ltd. (*4) Wholesale and real estate 29.0 29.0 Korea —
Sejin Construction Co., Ltd. (*4) Construction 29.6 29.6 Korea —
QTS Shipping Co., Ltd. (*4) Complex transportation brokerage 49.4 49.4 Korea —
DAEA SNC Co., Ltd. (*4) Wholesale and retail sales 24.0 24.0 Korea —
ARES-TECH Co., Ltd. (*4) Electronic component manufacturing 23.4 23.4 Korea —
Force TEC Co., Ltd. (*4) Manufacturing 25.8 25.8 Korea —
Sinseong Trading Co., Ltd. (*4) Manufacturing 27.2 27.2 Korea —
Reading Doctors Co., Ltd. (*4) Other services 35.4 35.4 Korea —
PREXCO Co., Ltd. (*4) Manufacturing 28.1 28.1 Korea —
Jiwon Plating Co., Ltd. (*4)(*10) Plating 20.5 20.8 Korea —
Cultizm Korea LTD Co., Ltd. (*4) Wholesale and retail sales 31.3 31.3 Korea —
Gil Co., Ltd. (*6) Manufacturing — 26.1 Korea —
NK Eng Co., Ltd. (*4) Manufacturing 23.1 23.1 Korea —
Youngdong Sea Food Co., Ltd. (*4) Processed sea food manufacturing 24.0 24.0 Korea —
Woori Growth Partnerships New Technology Private Equity Fund Other financial services 23.1 23.1 Korea December 31,2019
  • 92 -
Percentage of ownership (%)
Joint ventures and Associates Main business December 31,<br>2019 December 31,<br>2018 Location Financial<br>statements as of
2016KIF-IMM Woori Bank Technology Venture Fund Other financial services 20.0 20.0 Korea December 31, 2019
K BANK Co., Ltd. (*2) Finance 14.5 14.1 Korea November 30(*5)
Smart Private Equity Fund No.2 Other financial services 20.0 20.0 Korea December 31, 2019
Woori Bank-Company K Korea Movie Asset Fund Other financial services 25.0 25.0 Korea December 31, 2019
Well to Sea No. 3 Private Equity Fund (*7) Finance 50.0 50.0 Korea September 30(*5)
Partner One Value Up I Private Equity Fund Other financial services 23.3 23.3 Korea December 31, 2019
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership Other financial services 20.0 20.0 Korea December 31, 2019
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund Other financial services 25.0 25.0 Korea December 31, 2019
Woori-Shinyoung Growth-Cap Private Equity Fund I (*8) Other financial services 24.5 — Korea December 31, 2019
LOTTE CARD Co.,ltd.(*8) Credit card and installment financing 20.0 — Korea September 30, 2019 (*5)
Woori-Q Corporate Restructuring Private Equity Fund (*8) Trust and collective investment 28.4 — Korea December 31, 2019
PCC-Woori LP Secondary Fund (*8) Other financial services 26.9 — Korea December 31, 2019
Woori Investment Bank Co., Ltd.:
Nomura-Rifa Private Real Estate Investment Trust No.17 (*9) Other financial services — 19.4 —
(*1) Most of the significant business transactions of associates are with the Group as of December 31, 2019 and<br>2018.
--- ---
(*2) The Group can participate in decision-making body and exercise significant influence over financial policies<br>and operational policies decision making of the associates
--- ---
(*3) Equity securities that have published market price among investment assets of associates are common shares of<br>Chin Hung International Inc.
--- ---
(*4) There is no investment balance as of December 31, 2019 and 2018.
--- ---
(*5) The equity method was applied using the most recent financial statements available from the settlement date<br>because no financial statements were available at the end of December and the significant transactions or events that occurred between the end of the reporting period of the associate and the end of the reporting period of the subsidiary were duly<br>reflected.
--- ---
(*6) The entity was excluded from the associate as the group sold its entire stake during the year ended<br>December 31, 2019.
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(*7) The Group has signed a contract that the Group (or the third party designated by the Bank) has the priority to<br>purchase the underlying assets (Aju Capital Co. Ltd ) when it is disposed by Well to Sea No. 3 Private Equity Fund .
--- ---
(*8) Due to capital contribution by the Group for the year ended December 31, 2018, the entities has been<br>included in the investment in associates.
--- ---
(*9) Woori Investment Bank Co., Ltd. has been excluded from consolidation scope as it became a wholly owned<br>subsidiary of Woori Financial Group Inc., the group during the year ended December 31, 2019
--- ---
(*10) Woori Card Co., Ltd. has been transferred in to Woori Financial Group Inc.’s subsidiary and therefore the<br>Group’s stake decreased.
--- ---
  • 93 -
(2) Changes in the carrying value of investments in joint ventures and associates accounted for using the equity<br>method of accounting are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Acquisition<br>cost January 1,<br>2019 Share of<br>profits<br>(losses) Acquisition Disposal<br>and others<br>(*) Dividends Change in<br>capital Impairment Others December 31,<br>2019
Woori Service Networks Co., Ltd. 108 157 31 — — (2 ) — — — 186
Korea Credit Bureau Co., Ltd. 3,313 6,790 190 — — (135 ) — — — 6,845
Korea Finance Security Co., Ltd. 3,267 3,456 (169 ) — — — — — — 3,287
Chin Hung International Inc. 130,779 44,741 6,426 — — — 9 — — 51,176
Saman Corporation 8,521 1,014 (198 ) — — — 33 — — 849
Woori Growth Partnerships New Technology Private Equity Fund 18,666 25,091 1,466 309 (7,490 ) (164 ) — — — 19,212
2016KIF-IMM Woori Bank Technology Venture Fund 12,385 15,300 1,193 — (2,615 ) — 1,263 — — 15,141
K BANK Co., Ltd. 73,150 43,709 (18,233 ) 5,807 — — (29 ) — — 31,254
Smart Private Equity Fund No.2 2,915 2,890 (41 ) — (85 ) — — — — 2,764
Woori Bank-Company K Korea Movie Asset Fund 3,000 2,700 623 — — — — — — 3,323
Well to Sea No.3 Private Equity Fund 101,483 197,393 30,343 — — (18,836 ) 123 — — 209,023
Partner One Value Up I Private Equity Fund 10,000 9,948 (40 ) — — — — — — 9,908
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership 4,576 4,426 — 150 — — — — — 4,576
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund 4,375 3,025 — 1,350 — — — — — 4,375
Woori-Shinyoung Growth-Cap Private Equity Fund I 9,742 — (657 ) 9,742 — — — — — 9,085
LOTTE CARD Co., ltd 346,000 — 63,444 346,000 — — — — — 409,444
Woori-Q Corporate Restructuring Private Equity Fund 4,532 — — 4,532 — — — — — 4,532
PCC-Woori LP Secondary Fund 1,750 — — 1,750 — — — — — 1,750
Nomura-Rifa Private Real Estate Investment Trust No.17 1,000 787 (114 ) — (673 ) — — — — —
739,562 361,427 84,264 369,640 (10,863 ) (19,137 ) 1,399 — — 786,730
  • 94 -
For the year ended December 31, 2018
Acquisition<br>cost January 1,<br>2018 Share of<br>profits<br>(losses) Acquisition Disposal<br>and others<br>(*) Dividends Change in<br>capital Impairment Others December 31,<br>2018
Kumho Tire Co., Inc. 175,652 98,933 (10,451 ) — (83,286 ) — (5,196 ) — — —
Woori Service Networks Co., Ltd. 108 158 1 — — (2 ) — — — 157
Korea Credit Bureau Co., Ltd. 3,313 5,816 1,087 — — (113 ) — — — 6,790
Korea Finance Security Co., Ltd. 3,267 3,519 (10 ) — — (54 ) 1 — — 3,456
Chin Hung International Inc. 130,779 45,101 1,206 — — — (1,725 ) — 159 44,741
Poonglim Industrial Co., Ltd. 13,916 — — — — — — — — —
STX Corporation 50,760 6,947 (816 ) — (5,865 ) — (266 ) — — —
Saman Corporation 8,521 1,254 (98 ) — — — 35 (177 ) — 1,014
Woori Growth Partnerships New Technology Private Equity Fund 25,847 27,611 950 360 (3,346 ) (484 ) — — — 25,091
2016KIF-IMM Woori Bank Technology Venture Fund 15,000 6,840 — 8,160 — — 300 — — 15,300
K BANK Co., Ltd. 67,343 31,735 (10,705 ) 21,951 — — 144 — 584 43,709
Smart Private Equity Fund No.2 3,000 2,932 (42 ) — — — — — — 2,890
Woori Bank-Company K Korea Movie Asset Fund 3,000 2,957 (257 ) — — — — — — 2,700
Well to Sea No.3 Private Equity Fund 101,992 182,309 22,546 — (508 ) (517 ) (6,437 ) — — 197,393
Partner One Value Up Ist Private Equity Fund 10,000 — (52 ) 10,000 — — — — — 9,948
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership 4,426 — — 4,426 — — — — — 4,426
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund 3,025 — — 3,025 — — — — — 3,025
Nomura-Rifa Private Real Estate Investment Trust No.17 1,000 939 (152 ) — — — — — — 787
Uri Hanhwa Eureka Private Equity Fund 350 — (11 ) 350 — — — — (339 ) —
621,299 417,051 3,196 48,272 (93,005 ) (1,170 ) (13,144 ) (177 ) 404 361,427
(*) Investments in joint ventures and associates decreased by 83,286 million Won through transfers to<br>financial assets at FVTOCI which occurred during the year ended December 31, 2018.
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  • 95 -
(3) Summary financial information relating to investments in joint ventures and associates accounted for using the<br>equity method of accounting is as follows (Unit: Korean Won in millions):
December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Assets Liabilities Operating<br>revenue Net income<br>(loss)
Woori Service Networks Co., Ltd. 5,742 1,969 17,572 1,322
Korea Credit Bureau Co., Ltd. 96,855 30,289 91,200 1,480
Korea Finance Security Co., Ltd. 32,574 10,660 61,939 (1,265 )
Chin Hung International Inc. 335,147 229,764 499,152 26,617
Saman Corporation 92,206 66,184 91,088 (485 )
Woori Growth Partnerships New Technology Private Equity Fund 83,583 330 7,866 6,355
2016KIF-IMM Woori Bank Technology Venture Fund 72,768 343 8,939 7,462
K BANK Co., Ltd. 2,679,968 2,464,168 84,928 (89,779 )
Smart Private Equity Fund No.2 13,872 51 2 (204 )
Woori Bank-Company K Korea Movie Asset Fund 13,294 2 4,532 2,492
Well to Sea No. 3 Private Equity Fund 7,073,363 6,470,540 524,319 48,357
Partner One Value Up I Private Equity Fund 42,602 — 457 (175 )
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership 21,208 691 766 (676 )
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund 16,939 124 10 (494 )
Woori-Shinyoung Growth-Cap Private Equity Fund I 37,642 620 2 (2,679 )
LOTTE CARD Co., ltd. (*) 12,936,977 10,659,889 1,366,512 42,538
Woori-Q Corporate Restructuring Private Equity Fund 15,975 823 — (823 )
PCC-Woori LP Secondary Fund 6,498 — — (2 )
(*) Adjustments of fair value which occurred during acquisition and of difference between the Group’s<br>financial reporting standard and the firm’s have been reflected.
--- ---
December 31, 2018
--- --- --- --- --- --- --- --- --- ---
Assets Liabilities Operating<br>revenue Net income<br>(loss)
Woori Service Networks Co., Ltd. 5,066 1,886 15,803 819
Korea Credit Bureau Co., Ltd. 88,797 22,788 78,018 9,901
Korea Finance Security Co., Ltd. 35,155 12,114 60,706 17
Chin Hung International Inc. 412,205 332,268 606,192 6,402
Saman Corporation 97,720 69,915 75,825 (869 )
Woori Growth Partnerships New Technology Private Equity Fund 109,167 440 5,943 4,117
2016KIF-IMM Woori Bank Technology Venture Fund 73,231 12 16 (1,510 )
K BANK Co., Ltd. 2,024,856 1,807,502 60,039 (69,256 )
Smart Private Equity Fund No.2 14,502 51 1 (209 )
Woori Bank-Company K Korea Movie Asset Fund 10,805 5 1,663 (299 )
Well to Sea No.3 Private Equity Fund 5,968,591 5,395,307 429,742 39,711
Partner One Value Up Ist Private Equity Fund 42,776 — 326 (224 )
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership 21,200 757 390 (1,268 )
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund 12,014 105 3 (191 )
Nomura-Rifa Private Real Estate Investment Trust No.17 20,197 16,178 10 (228 )
Uri Hanhwa Eureka Private Equity Fund 42,332 181 1 (1,349 )
  • 96 -
(4) The entities that the Group has not applied equity method of accounting although the Group’s ownership<br>interest is more than 20% as of December 31, 2019 and 2018, are as follows:
December 31, 2019
--- --- --- --- ---
Associate (*) Number of shares owned Ownership (%)
Orient Shipyard Co., Ltd. 464,812 21.4
Saenuel Co., Ltd. 3,531 37.4
E Mirae Tech Co., Ltd. 7,696 41.0
Jehin Trading Co., Ltd. 81,610 27.3
The Season Company Co., Ltd. 18,187 30.1
Yuil PESC Co., Ltd. 8,642 24.0
CL Tech Co., Ltd. 13,759 38.6
December 31, 2018
--- --- --- --- ---
Associate (*) Number of shares owned Ownership (%)
Orient Shipyard Co., Ltd. 464,812 21.4
Saenuel Co., Ltd. 3,531 37.4
E Mirae Tech Co., Ltd. 7,696 41.0
Jehin Trading Co., Ltd. 81,610 27.3
The Season Company Co., Ltd. 18,187 30.1
Yuil PESC Co., Ltd. 8,642 24.0
CL Tech Co., Ltd. 13,759 38.6
(*) Even though the Group’s ownership interest of the entity is more than 20%, the Group does not have<br>significant influence over the entity since it is going through work-out process under receivership, thus it is excluded from the investment in associates.
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  • 97 -
(5) As of December 31, 2019 and 2018, the reconciliations from the net assets of associates based on the<br>ownership ratio of the Group to its corresponding book value of investment in joint ventures and associates are as follows (Unit: Korean Won in millions except for ownership):
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Total net<br>asset Ownership<br>(%) Ownership<br>portion of net<br>assets Basis<br>difference Impairment Intercompany<br>transaction Book<br>value
Woori Service Networks Co., Ltd. 3,774 4.9 186 — — — 186
Korea Credit Bureau Co., Ltd. 66,566 9.9 6,597 246 — 2 6,845
Korea Finance Security Co., Ltd. 21,914 15.0 3,287 — — — 3,287
Chin Hung International Inc.(*1) 105,382 25.3 26,646 24,565 — (35 ) 51,176
Saman Corporation 26,023 9.2 2,391 5,373 (6,915 ) 849
Woori Growth Partnerships New Technology Private Equity Fund 83,253 23.1 19,215 — — (3 ) 19,212
2016KIF-IMM Woori Bank Technology Venture Fund 72,425 20.0 14,485 — — 656 15,141
K BANK Co., Ltd. (*1)(*2) 215,800 14.5 31,248 3,634 (3,634 ) 6 31,254
Smart Private Equity Fund No.2 13,820 20.0 2,764 — — — 2,764
Woori Bank-Company K Korea Movie Asset Fund 13,293 25.0 3,323 — — — 3,323
Well to Sea No. 3 Private Equity Fund 418,250 50.0 209,041 — — (18 ) 209,023
Partner One Value Up I Private Equity Fund 42,602 23.3 9,909 — — (1 ) 9,908
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership 20,517 20.0 4,103 — — 473 4,576
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund 16,815 25.0 4,204 — — 171 4,375
Woori-Shinyoung Growth-Cap Private Equity Fund I 37,021 24.5 9,085 — — — 9,085
LOTTE CARD Co., ltd.(*1) 2,047,220 20.0 409,444 — — — 409,444
Woori-Q Corporate Restructuring Private Equity Fund 15,152 28.4 4,299 — — 233 4,532
PCC-Woori LP Secondary Fund 6,498 26.9 1,749 — — 1 1,750
(*1) The net asset equity amount is after the debt-for-equity swap.
--- ---
(*2) As a result of conducting an impairment test on the investment stocks of the related companies, the recoverable<br>value was less than the carrying amount and thus the impairment loss was recognized
--- ---
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Total net<br>asset Ownership<br>(%) Ownership<br>portion of net<br>assets Basis<br>difference Impairment Intercompany<br>transaction Book<br>value
Woori Service Networks Co., Ltd. 3,180 4.9 157 — — — 157
Korea Credit Bureau Co., Ltd. 66,009 9.9 6,544 246 — — 6,790
Korea Finance Security Co., Ltd. 23,041 15.0 3,456 — — — 3,456
Chin Hung International Inc. (*) 79,793 25.3 20,192 24,565 — (16 ) 44,741
Saman Corporation 27,805 9.2 2,556 5,373 (6,915 ) — 1,014
Woori Growth Partnerships New Technology Private Equity Fund 108,727 23.1 25,091 — — — 25,091
2016KIF-IMM Woori Bank Technology Venture Fund 73,219 20.0 14,644 — — 656 15,300
K BANK Co., Ltd.(*) 290,597 14.1 40,984 2,725 — — 43,709
Smart Private Equity Fund No.2 14,451 20.0 2,890 — — — 2,890
Woori Bank-Company K Korea Movie Asset Fund 10,800 25.0 2,700 — — — 2,700
Well to Sea No.3 Private Equity Fund (*) 396,248 50.0 198,027 — — (634 ) 197,393
Partner One Value Up Ist Private Equity Fund 42,776 23.3 9,948 — — — 9,948
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership 20,443 20.0 4,089 — — 337 4,426
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund 11,909 25.0 2,977 — — 48 3,025
Nomura-Rifa Private Real Estate Investment Trust No.17 4,019 19.4 780 — — 7 787
  • 98 -
December 31, 2018
Total<br>net asset Ownership<br>(%) Ownership<br>portion of net<br>assets Basis<br>difference Impairment Intercompany<br>transaction Book<br>value
Uri Hanhwa Eureka Private Equity Fund 42,151 0.8 339 — — (339 ) —
(*) The net asset equity amount is after the debt-for-equity swap
--- ---
14. INVESTMENT PROPERTIES
--- ---
(1) Details of investment properties are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Acquisition cost 655,556 416,649
Accumulated depreciation (37,967 ) (38,580 )
Net carrying amount 617,589 378,069
(2) Changes in investment properties are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Beginning balance 378,069 371,301
Acquisition 246,319 15,195
Disposal (193 ) (3,045 )
Depreciation (4,978 ) (4,045 )
Transfers from (to) premises and equipment 3,273 7,623
Classified to assets held for distribution (sale) — (10,056 )
Changes in consolidated scope (5,816 ) —
Foreign currencies translation adjustments 402 (5 )
Others 513 1,101
Ending balance 617,589 378,069
(3) Fair value of investment properties amounted to 714,803 million Won and 438,407 million Won as of<br>December 31, 2019 and 2018, respectively. The fair value of investment properties has been assessed on the basis of recent similar real estate market price and officially assessed land price in the area of the investment properties, is<br>classified as level 3 on the fair value hierarchy.
--- ---
(4) Rental fee earned from investment properties amounted to 19,881 million Won and 5,080 million Won for<br>the years ended December 31, 2019 and 2018, respectively. Operating expenses directly related to the investment properties where rental fee was earned amounted to 5,816 million Won and 4,120 million Won.
--- ---
(5) The minimum lease payments expected to be received in the future under the non-refundable lease agreement as of<br>the end of the current term and the prior term is as follows:
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Lease payments:
Within a year 12,863 5,844
More than 1 year and within 2 years 6,722 3,707
More than 2 years and within 3 years 4,379 3,009
More than 3 years and within 4 years 3,640 2,619
More than 4 years and within 5 years 3,126 2,222
More than 5 years 241 —
Total 30,971 17,401
  • 99 -
15. PREMISES AND EQUIPMENT
(1) Details of premises and equipment are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Equipment<br>and vehicles Leasehold<br>improvement Construction<br>in progress Structures Total
Premises and equipment 1,528,172 685,408 237,786 51,240 1,286 — 2,503,892
Right of use assets — 421,704 13,680 — — — 435,384
Carrying value 1,528,172 1,107,112 251,466 51,240 1,286 — 2,939,276
(2) Details of premises and equipment (owned) as of December 31, 2019 and 2018 are as follows (Unit: Korean<br>Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Equipment<br>and vehicles Leasehold<br>improvement Construction<br>in progress Structures Total
Acquisition cost 1,528,172 920,196 766,222 449,193 1,286 — 3,665,069
Accumulated depreciation — (234,788 ) (528,436 ) (397,953 ) — — (1,161,177 )
Net carrying value 1,528,172 685,408 237,786 51,240 1,286 — 2,503,892
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Equipment<br>and vehicles Leasehold<br>improvement Construction<br>in progress Structures Total
Acquisition cost 1,481,776 872,063 717,141 445,157 8,381 20 3,524,538
Accumulated depreciation — (210,301 ) (485,119 ) (387,960 ) — (17 ) (1,083,397 )
Net carrying value 1,481,776 661,762 232,022 57,197 8,381 3 2,441,141
  • 100 -
(3) Details of changes in premises and equipment are as follows (Unit: Korean Won in millions):<br>
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Equipment<br>and vehicles Leasehold<br>improvement Construction<br>in progress Structures Total
Beginning balance 1,481,776 661,762 232,022 57,197 8,381 3 2,441,141
Acquisitions 51,855 46,141 102,051 25,864 5,540 — 231,451
Disposals (3,284 ) (2,245 ) (558 ) (2,526 ) — — (8,613 )
Depreciation (*) — (27,871 ) (78,289 ) (25,996 ) — — (132,156 )
Changes in consolidated scope (4,295 ) (816 ) (20,729 ) (997 ) — (3 ) (26,840 )
Classified to assets held for distribution (sale) (21 ) (74 ) — — — — (95 )
Transfer 991 6,040 1,101 988 (12,393 ) — (3,273 )
Foreign currencies translation adjustments 880 801 1,459 609 36 — 3,785
Others 270 1,670 729 (3,899 ) (278 ) — (1,508 )
Ending balance 1,528,172 685,408 237,786 51,240 1,286 — 2,503,892
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Equipment<br>and vehicles Leasehold<br>improvement Construction<br>in progress Structures Total
Beginning balance 1,487,278 680,846 180,072 64,787 64,559 3 2,477,545
Acquisitions 1,372 14,701 76,783 17,527 8,285 — 118,668
Disposals (29 ) — (5,192 ) (737 ) (187 ) — (6,145 )
Depreciation — (26,014 ) (76,171 ) (32,162 ) — — (134,347 )
Classified to assets held for distribution (sale) (3,746 ) (2,742 ) (7,991 ) (397 ) (718 ) — (15,594 )
Transfer (2,863 ) (4,760 ) 63,432 — (63,432 ) — (7,623 )
Foreign currencies translation adjustments (236 ) (257 ) (69 ) 323 (126 ) — (365 )
Acquisition through business combination — — 969 661 — — 1,630
Others — (12 ) 189 7,195 — — 7,372
Ending balance 1,481,776 661,762 232,022 57,197 8,381 3 2,441,141
(4) Details of right-of-use assets are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Building Properties for<br>business use Total
Acquisition cost 576,147 21,712 597,859
Accumulated depreciation (154,443 ) (8,032 ) (162,475 )
Net carrying value 421,704 13,680 435,384
(5) Details of changes in right-of-use assets are as follows (Unit: Korean Won in millions)
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Building Properties for business<br>use Total
Beginning balance 420,712 20,458 441,170
New contracts 254,054 6,326 260,380
Changes in coontracts (47 ) — (47 )
Cancelled contracts (3,740 ) (69 ) (3,809 )
Depreciation (*) (216,015 ) (10,643 ) (226,658 )
Changes in consolidated scope (32,412 ) (2,411 ) (34,823 )
Others (848 ) 19 (829 )
Ending balance 421,704 13,680 435,384
(*) Profits and losses from discontinued operations are included
--- ---
  • 101 -
16. INTANGIBLE ASSETS
(1) Details of intangible assets are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Goodwill Software Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Acquisition cost 163,731 24,729 1,429 321,716 801,237 18,157 4,066 1,335,065
Accumulated amortization — (9,144 ) (787 ) (120,182 ) (626,271 ) — — (756,384 )
Accumulated impairment losses — — — — (25,848 ) (803 ) — (26,651 )
Net carrying value 163,731 15,585 642 201,534 149,118 17,354 4,066 552,030
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Goodwill Software Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Acquisition cost 153,602 38,839 1,250 305,114 728,399 24,099 10,415 1,261,718
Accumulated amortization — (12,602 ) (688 ) (68,696 ) (589,557 ) — — (671,543 )
Accumulated impairment losses — — — — — (2,920 ) — (2,920 )
Net carrying value 153,602 26,237 562 236,418 138,842 21,179 10,415 587,255
  • 102 -
(2) Details of changes in intangible assets are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Goodwill Software Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Beginning balance 153,602 26,237 562 236,418 138,842 21,179 10,415 587,255
Acquisitions — 6,389 314 31,102 85,902 3,976 8,755 136,438
Disposal — — — — — (813 ) — (813 )
Amortization (*1) — (4,882 ) (176 ) (59,856 ) (52,119 ) — — (117,033 )
Provision for impairment loss(*2) — — — — (25,848 ) (471 ) — (26,319 )
Classified to assets held for distribution (sale) (105 ) (13,885 ) (59 ) (14,058 ) (5,686 ) (7,371 ) — (41,164 )
Transfer — — — 7,928 7,175 — (15,103 ) —
Foreign currencies translation adjustment 10,234 1,268 — — 1,023 59 — 12,584
Others — 458 1 — (171 ) 795 (1 ) 1,082
Ending balance 163,731 15,585 642 201,534 149,118 17,354 4,066 552,030
(*1) Amortization of other intangible assets amounting to 22,317 million Won is included in other operating<br>expenses.
--- ---
(*2) The impairment test for other intangible assets indicates that the recoverable value is less than the carrying<br>amount and thus the impairment loss is recognized. Also, membership is an intangible asset with an indefinite useful life that recognizes an impairment loss if recoverable value is lower than its carrying amount, while the reversal of an impairment<br>loss should be recognized when the recoverable value is higher than its carrying amount.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Goodwill Software Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Beginning balance 108,707 40,672 539 77,241 117,546 20,685 153,209 518,599
Acquisitions — 6,839 195 20,935 45,205 5,162 97,067 175,403
Disposal — (4,359 ) — — (196 ) (2,871 ) — (7,426 )
Amortization (*1) — (14,028 ) (172 ) (46,045 ) (73,913 ) — — (134,158 )
Reversal of impairment loss (*2) — — — — — 674 — 674
Classified to assets held for distribution (sale) — (3,490 ) — (3,902 ) (455 ) (2,419 ) — (10,266 )
Transfer — — — 188,189 51,672 — (239,861 ) —
Acquisition through business combination 46,752 763 — — — — — 47,515
Foreign currencies translation adjustment (1,857 ) (165 ) — — (227 ) (52 ) — (2,301 )
Others — 5 — — (790 ) — — (785 )
Ending balance 153,602 26,237 562 236,418 138,842 21,179 10,415 587,255
(*1) Amortization of other intangible assets amounting to 51,770 million Won is included in other operating<br>expenses.
--- ---
(*2) Membership is an intangible asset with an indefinite useful life that recognizes an impairment loss if<br>recoverable value is lower than its carrying amount, while the reversal of an impairment loss should be recognized when the recoverable value is higher than its carrying amount.
--- ---
  • 103 -
(3) Goodwill
1) Details of major goodwill as of December 31, 2019 and 2018 are as follow (Unit: Korea Won in millions)<br>
--- ---
For the years ended December 31
--- --- --- --- ---
Cash Generated Unit (*1) 2019 2018
PT Bank Woori Saudara Indonesia 1906 Tbk(*2) 106,173 98,229
WB Finance Co., Ltd.(*3) 49,374 47,681
Total 155,547 145,910
(*1) The goodwill has been allocated to the cash-generating unit that will benefit from the synergies of the<br>business combination, and the cash-generating unit generally consists of a sales unit or its sub-sector.
--- ---
(*2) The Group has acquired Saudara Bank to expand retail sales in Indonesia, and recognized the goodwill as it is<br>expected to strengthen our competitiveness by securing a local sales network in Indonesia.
--- ---
(*3) The Group has acquired VisionFund Cambodia to expand Cambodian retail sales, and recognized goodwill based on<br>the economies of scale and acquired customer base.
--- ---
2) Impairment Test
--- ---

The recoverable amount of the cash-generating unit is measured at larger amount among the fair value less costs to sell or the value to use.

The net fair value is calculated by deducting costs of disposal from the amount received from the sale of the cash-generating unit in an arm’s length transaction between the parties with reasonable judgment and willingness to negotiate. In case of difficulty in measuring this amount, the sale amount of a similar cash-generating unit in the past market is calculated by reflecting the characteristics of the cash-generating unit. If reliable information related to fair value less costs to sell is not available, value in use is considered as recoverable amount. Value in use is the present value of future cash flows expected to be generated by the cash-generating unit. Future cash flows are estimated based on the latest financial budget approved by the management, with an estimated period of up to five years. The Group estimates cash flows based on an annual growth rate of 4.0% in case of PT Bank Woori Saudara Indonesia 1906 Tbk and 3.0% in case of WB Finance Co., Ltd. in relation to cash flows after the longest period. The main assumptions used to estimate cash flows are about the size of the market and the share of the group. The appropriate discount rate for discounting future cash flows is the pre-tax discount rate, including assumptions about risk-free interest rates, market risk premium, and systemic risk of cash-generating units. The impairment test, which compares the carrying amount and recoverable amount of the cash-generating unit to which goodwill has been allocated, is conducted every year and every time an impairment sign occurs.

Category PT Bank Woori<br>Saudara<br>Indonesia 1906<br>Tbk WB Finance Co.,<br>Ltd
Discount rate (%). 18.3 17.3
Terminal growth rate (%) 4.0 3.0
Recoverable amount. 952,692 133,149
Carrying amount 577,075 93,143

As a result of the damage test on goodwill, it is determined that the carrying amount of the cash-generating unit to which the goodwill has been distributed will not exceed the recoverable amount.

  • 104 -
17. ASSETS HELD FOR DISTRIBUTION (SALE)
(1) Assets held for distribution (sale) are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Disposal group as held for distribution — 75,590
Premises and equipment, etc. (*) 95 17,912
Total 95 93,502
(*) The Group classified premises and equipment that are highly likely to be sold within one year as assets held<br>for distribution (sale).
--- ---
(2) Disposal group as held for distribution:
--- ---

In accordance with the establishment of financial holding company and plans on share transfer, the Group classified assets, liabilities and equity of each subsidiary as of the end of the reporting period. The details of disposal group held for sale as of December 31, 2018 as follows:

Gross amount Intercompany<br>eliminations Net amount
Disposal group as held for distribution
Cash And Cash Equivalents 90,771 (55,500 ) 35,271
Financial assets at FVTPL 133 — 133
Loans and other financial assets at amortized cost 66,514 (57,251 ) 9,263
Investments in joint ventures and associates 339 — 339
Investment properties 127 — 127
Premises and equipment 9,351 — 9,351
Intangible assets 10,265 — 10,265
Current tax assets 242 — 242
Deferred tax assets 9,778 — 9,778
Others 821 — 821
Total 188,341 (112,751 ) 75,590
Liabilities of a disposal group classified as held for distribution
Debentures 10,000 — 10,000
Provisions 1,451 — 1,451
Net defined benefit liability 34,427 — 34,427
Current tax liabilities 2,519 — 2,519
Other financial liabilities 17,979 (576 ) 17,403
Other liabilities 6,860 — 6,860
Total 73,236 (576 ) 72,660

The Group calculated net fair value of each subsidiary subject to future distribution as of December 31, 2018 based on the value of net asset and net income. The computed value is classified as Level 3 in the fair value hierarchy.

The Group measured assets held for distribution (sale) as the smaller amount between the fair value less cost of sale and book value.

  • 105 -
(3) Net gain from discontinued operations

Details of discontinued operations are as follows: (Unit: million in Korean Won)

. For the year ended December 31, 2019 For the year ended December 31, 2018
Total Intercompany<br>eliminations Net amount Total Intercompany<br>eliminations Net amount
Interest income
Financial assets at FVTPL 882 — 882 1,808 — 1,808
Financial assets at amortized cost 480,192 (351 ) 479,841 668,431 (400 ) 668,031
Interest expense 116,555 (393 ) 116,162 160,642 (689 ) 159,953
Net interest income 364,519 42 364,561 509,597 289 509,886
Fees and commissions income 369,197 (83 ) 369,114 601,443 (76 ) 601,367
Fees and commissions expense 371,439 (86,667 ) 284,772 592,533 (149,816 ) 442,717
Net fees and commissions income (2,242 ) 86,584 84,342 8,910 149,740 158,650
Dividend income 5,836 — 5,836 10,154 — 10,154
Net gain on financial instruments at FVOCI — — — 941 — 941
Net gain arising on financial assets at amortized cost 17,687 — 17,687 35,345 — 35,345
Impairment losses due to credit loss (172,552 ) — (172,552 ) (244,762 ) — (244,762 )
General and administrative expenses (120,774 ) 250 (120,524 ) (170,766 ) 30,645 (140,121 )
Other net operating income 5,002 — 5,002 7,116 — 7,116
Operating income 97,476 86,876 184,352 156,535 180,674 337,209
Non-operating income (expense) 15,725 — 15,725 (5,546 ) 3,099 (2,447 )
Net income before income tax expense 113,201 86,876 200,077 150,989 183,773 334,762
Income tax expense 27,164 — 27,164 36,222 — 36,222
Loss on disposal of assets from discontinued operations (644,360 ) — (644,360 ) — — —
Net income (loss) from discontinued operations (558,323 ) 86,876 (471,447 ) 114,767 183,773 298,540
(4) Cash flow from discontinued operations
--- ---

Details of cash flow from discontinued operations as of December 31, 2019 and 2018 are as follows: (Unit: million in Korean Won)

December 31, 2019 December 31, 2018
Cash flow from operating activities (86,511 ) (1,014,398 )
Cash flow from investing activities (90,619 ) (15,318 )
Cash flow from financing activities 71,856 891,641
  • 106 -
18. ASSETS SUBJECT TO LIEN AND ASSETS ACQUIRED THROUGH FORECLOSURES
(1) Assets subjected to lien are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- ---
Collateral given to Amount Reason for collateral
Loan at amortized cost and other financial assets Due from banks on time in local currency Branch of IBK at Phnom Penh and others 11,352 Right of pledge
Due from banks in local currencies Samsung Securities Co., Ltd. and others 17,345 Margin deposit for futures or option
Due from banks in foreign currencies Korea Investment & Securities Co., Ltd. and others 180,919 Foreign margin deposit for future or option and others
82,594
Financial assets at FVTOCI Korean financial institutions’ debt securities and others The BOK and others 5,127,383 Settlement risk and others
Korean financial institutions’ debt securities Banco Bilbao Vizcaya Argentaria, S.A 56,975 Related to bonds sold under repurchase agreements (*)
Securities at amortized cost Korean treasury and government bonds Korea Securities Depository 5,570 Related to bonds sold under repurchase agreements (*)
Korean treasury and government bonds and others The BOK and others 6,190,630 Settlement risk and others
Premises and equipment Credit Counselling & Recovery Service and others 37,271 Right to collateral and others
Total 11,710,039
December 31, 2018
--- --- --- --- --- ---
Collateral given to Amount Reason for collateral
Loan at amortized cost and other financial assets Due from banks on time in local currency Daishin AMC and others 1,500 Right of pledge
Due from banks in local currencies Samsung Securities Co., Ltd. and others 38,112 Margin deposit for futures or option
Due from banks in foreign currencies Korea Investment & Securities Co., Ltd. and others 202,156 Foreign margin deposit for future or option and others
Financial assets at FVTOCI Korean financial institutions’ debt securities and others The BOK and others 2,919,042 Settlement risk and others
Korean financial institutions’ debt securities Banco Bilbao Vizcaya Argentaria, S.A 33,588 Related to bonds sold under repurchase agreements (*)
Securities at amortized cost Korean treasury and government bonds Korea Securities Depository 5,552 Related to bonds sold under repurchase agreements (*)
Korean treasury and government bonds and others The BOK and others 6,382,188 Settlement risk and others
Premises and equipment Land and building Credit Counselling & Recovery Service and others 5,987 Right to collateral and others
Total 9,588,125
(*) The Group has the agreements to repurchase the sold assets at the predetermined price or the price that<br>includes the rate of return and to provide the guarantee on the assets. The transferee has the right to sell or to provide as guarantee. Therefore, the Group does not derecognize the assets, but recognizes the relevant amounts as liability (bonds<br>sold under repurchase agreements).
--- ---
(2) As of December 31, 2019 and December 31, 2018 there is no asset acquired through foreclosures.<br>
--- ---
  • 107 -
(3) Securities loaned are as follows (Unit: Korean Won in millions):
December 31,<br>2019 December 31,<br>2018 Loaned to
--- --- --- --- --- --- ---
Financial assets at FVTOCI Korean financial institutions’ debt securities and others 80,737 40,029 Korea Securities Finance Corporation
Total 80,737 40,029

Securities loaned are lending of specific securities to borrowers who agree to return the same quantity of the same security at the end of lending period. As the Group does not derecognize these securities, there are no liabilities recognized through such transactions relates to securities loaned.

(4) Collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties<br>

Fair values of collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties as of December 31, 2018 and 2017 are as follows (Unit: Korean Won in millions):

December 31, 2019
Fair values of collaterals Fair values of collaterals were disposed or re-subjected to<br>lien
Securities 9,340,517 —
December 31, 2018
--- --- --- ---
Fair values of collaterals Fair values of collaterals were disposed or re-subjected to<br>lien
Securities 12,262,041 —
19. OTHER ASSETS
--- ---

Details of other assets are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Prepaid expenses 128,384 160,327
Advance payments 1,399 18,448
Others 13,204 18,057
Total 142,987 196,832
  • 108 -
20. FINANCIAL LIABILITIES AT FVTPL
(1) Financial liabilities at FVTPL are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Financial liabilities at fair value through profit or loss mandatorily measured at fair<br>value 2,868,668 2,117,919
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition 87,626 164,767
Total 2,956,294 2,282,686
(2) Financial liabilities at fair value through profit or loss mandatorily measured at fair value (Financial<br>liabilities held for trading) are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Deposits
Gold banking liabilities 27,530 27,058
Derivative liabilities 2,841,138 2,090,861
Total 2,868,668 2,117,919
(3) Financial liabilities at fair value through profit or loss designated as upon initial recognition (Financial<br>liabilities designated as at FVTPL) are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Equity-linked securities index
Equity-linked securities index in short position 87,626 164,767
Total 87,626 164,767

Financial liabilities at fair value through profit or loss designated as upon initial recognition are designated in order to eliminate or significantly reduce accounting mismatch arising from recognition or measurement.

(4) Accumulated changes in credit risk adjustments to financial liabilities at fair value through profit or loss<br>designated as upon initial recognition does not have.

The adjustment to reflect Group’s credit risk is considered in measuring the fair value of equity-linked securities index and debentures. The Group’s credit risk is determined by adjusting credit spread observed in credit rating of Group.

(5) The difference between carrying amount and maturity amount of financial liabilities at fair value through<br>profit or loss designated as upon initial recognition (Financial liabilities designated as at FVTPL) are as follows (Unit: Korean Won in millions):
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Carrying amount 87,626 164,767
Nominal amount at maturity 97,503 217,280
Difference (9,877 ) (52,513 )
  • 109 -
21. DEPOSITS DUE TO CUSTOMERS

Details of deposits due to customers by type are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Deposits in local currency:
Deposits on demand 8,680,286 11,076,417
Deposits at termination 225,426,329 204,051,570
Mutual installment 28,574 30,783
Deposits on notes payables — 1,891,556
Deposits on CMA — 137,316
Customer deposit for security investment — 30,000
Certificate of deposits 973,625 6,510,571
Other deposits 1,401,469 1,409,505
Sub-total 236,510,283 225,137,718
Deposits in foreign currency:
Deposits in foreign currencies 27,141,776 23,626,234
Present value discount (8,095 ) (73,013 )
Total 263,643,964 248,690,939
  • 110 -
22. BORROWINGS AND DEBENTURES ****
(1) Details of borrowings are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- ---
Lenders Interest rate (%) Amount
Borrowings in local currency:
Borrowings from The BOK The BOK 0.5 ~ 0.8 1,770,726
Borrowings from government funds Small Enterprise And Market Service and others 0.0 ~ 2.8 1,844,798
Others The Korea Development Bank and others 0.0 ~ 5.0 6,035,448
Sub-total 9,650,972
Borrowings in foreign currencies:
Borrowings in foreign currencies The Export-Import Bank of Korea and others (0.3) ~ 8.3 8,566,872
Offshore borrowings in foreign currencies JPMORGAN CHASE BANK 3.0 34,734
Sub-total 8,601,606
Bills sold Others 0.0 ~ 1.6 9,366
Call money Bank and others (0.3) ~ 3.5 133,519
Bonds sold under repurchase agreements Other financial institutions 4.0 ~ 12.7 180,402
Present value discount (299 )
Total 18,575,566
December 31, 2018
Lenders Interest rate (%) Amount
Borrowings in local currency:
Borrowings from The BOK The BOK 0.5 ~ 0.8 1,335,459
Borrowings from government funds Small Enterprise And Market Service and others 0.0 ~ 3.5 1,771,379
Others The Korea Development Bank and others 0.0 ~ 4.0 4,716,231
Sub-total 7,823,069
Borrowings in foreign currencies:
Borrowings in foreign currencies The Export-Import Bank of Korea and others 0.0 ~ 7.5 7,308,857
Offshore borrowings in foreign currencies JPMORGAN CHASE BANK 2.9 33,543
Sub-total 7,342,400
Bills sold Others 0.0 ~ 1.8 19,336
Call money Bank and others 0.0 ~ 7.3 975,358
Bonds sold under repurchase agreements Other financial institutions 0.8 ~ 12.7 42,907
Present value discount (84 )
Total 16,202,986
  • 111 -
(2) Details of debentures are as follows (Unit: Korean Won in millions):
December 31, 2019 December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Interest rate (%) Amount Interest rate (%) Amount
Face value of bond(*):
Ordinary bonds 0.0 ~ 4.3 17,064,976 1.6 ~ 4.5 22,422,183
Subordinated bonds 2.7 ~ 5.9 5,782,688 3.0 ~ 12.6 5,358,838
Other bonds 17.0 4,156 1.9 ~ 17.0 974,230
Sub-total 22,851,820 28,755,251
Discounts on bonds (17,412 ) (29,389 )
Total 22,834,408 28,725,862
(*) Included debentures under fair value hedge relationships are 3,151,172 million Won and<br>2,956,565 million Won as of December 31, 2019 and 2018, respectively. Also, debentures under cash flow hedge amounting to 823,219 million Won are included as of December 31, 2018.
--- ---
23. PROVISIONS
--- ---
(1) Details of provisions are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Asset retirement obligation 60,477 67,093
Provisions for guarantees (*1) 92,486 89,761
Provisions for unused loan commitments 60,228 121,535
Provisions for customer reward credits — 49,180
Other provisions (*2) 166,006 62,293
Total 379,197 389,862
(*1) Provisions for guarantees includes provision for financial guarantee of 62,764 million Won and<br>47,817 million Won as of December 31, 2019 and 2018, respectively.
--- ---
(*2) Other provisions consist of provision for litigation and others.
--- ---
  • 112 -
(2) Changes in provisions for guarantees and unused loan commitments are as follows (Unit: Korean Won in millions):<br>
1) Provisions for guarantees
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 44,903 33,760 11,098 89,761
Replaced with 12-month expected credit loss 13,568 (13,568 ) — —
Replaced with expected credit loss for the entire period (317 ) 532 (215 ) —
Replaced with credit-impaired financial assets (30 ) (32 ) 62 —
Provisions used (27,711 ) — — (27,711 )
Net reversal of unused amount (14,400 ) 5,611 4,437 (4,352 )
Others (*) 34,788 — — 34,788
Ending balance 50,801 26,303 15,382 92,486
(*) Others have occurred as a result of new financial guarantee contract valued at initial fair value.<br>
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 47,132 18,281 127,511 192,924
Replaced with 12-month expected credit loss 92 (92 ) — —
Replaced with expected credit loss for the entire period (237 ) 91,008 (90,771 ) —
Replaced with credit-impaired financial assets (38 ) (29 ) 67 —
Provisions used (20,429 ) — — (20,429 )
Net reversal of unused amount (4,866 ) (75,410 ) (25,709 ) (105,985 )
Others (*) 23,249 2 — 23,251
Ending balance 44,903 33,760 11,098 89,761
(*) Others have occurred as a result of new financial guarantee contract valued at initial fair value.<br>
--- ---
2) Provisions for unused loan commitment
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 74,624 45,285 1,626 121,535
Replaced with 12-month expected credit loss 10,179 (10,117 ) (62 ) —
Replaced with expected credit loss for the entire period (1,665 ) 1,745 (80 ) —
Replaced with credit-impaired financial assets (217 ) (213 ) 430 —
Net provision (reversal) of unused amount (*) (17,632 ) 8,199 1,262 (8,171 )
Changes in consolidated scope (34,835 ) (15,016 ) (3,176 ) (53,027 )
Others (108 ) (1 ) — (109 )
Ending balance 30,346 29,882 — 60,228
(*) Profit or loss from discontinued operations are included.
--- ---
  • 113 -
For the year ended December 31, 2018
Stage 1 Stage 2 Stage 3 Total
Beginning balance 75,232 27,875 1,878 104,985
Replaced with 12-month expected credit loss 7,770 (7,396 ) (374 ) —
Replaced with expected credit loss for the entire period (2,376 ) 2,525 (149 ) —
Replaced with credit-impaired financial assets (213 ) (1,579 ) 1,792 —
Net provision (reversal) of unused amount (*) (5,813 ) 23,860 (1,521 ) 16,526
Others 24 — — 24
Ending balance 74,624 45,285 1,626 121,535
(*) Profit or loss from discontinued operations are included.
--- ---
(3) Changes in asset retirement obligation are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Beginning balance 67,093 61,872
Provisions provided 3,097 1,489
Provisions used (1,774 ) (913 )
Reversal of provisions unused (*) (2,667 ) (1,038 )
Amortization 431 564
Changes in consolidated scope (5,286 ) —
Increase in restoration costs and others (417 ) 5,119
Ending balance 60,477 67,093
(*) Profit or loss from discontinued operations are included.
--- ---

The amount of the asset retirement obligation is the present value of the best estimate of future expected expenditure to settle the obligation – arising from leased premises as of December 31, 2018, discounted by appropriate discount rate. The restoration cost is expected to occur by the end of each premise’s lease period, and the Group has used average lease period of each category of leases terminated during the past years in order to rationally estimate the lease period. In addition, the Group used average amount of actual recovery cost for the past 3 years and the inflation rate for last year in order to estimate future recovery cost.

  • 114 -
(4) Changes in other provisions are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Provisions for customer<br>reward credits Other<br>provisions Total
Beginning balance 49,180 62,293 111,473
Provisions provided (*) — 107,473 107,473
Provisions used (49,180 ) (4,928 ) (54,108 )
Reversal of provisions unused — (25 ) (25 )
Foreign currencies translation adjustments — 1,193 1,193
Ending balance — 166,006 166,006
(*) Profit or loss from discontinued operations are included.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- ---
Provisions for customer<br>reward credits Other<br>provisions Total
Beginning balance 40,445 58,791 99,236
Provisions provided (*1) 70,138 8,384 78,522
Provisions used (98,170 ) (6,940 ) (105,110 )
Reversal of unused amount — (52 ) (52 )
Foreign currencies translation adjustments — (194 ) (194 )
Transfer (*2) 9,228 — 9,228
Others 27,539 2,304 29,843
Ending balance 49,180 62,293 111,473
(*1) Profit or loss from discontinued operations are included.
--- ---
(*2) Provision for customer reward credits have increased for the Group due to the point transfer from partners<br>during the nine months ended in December 31, 2018.
--- ---
(5) Others
--- ---
1) As of September 23, 2019, the Group temporarily suspended the won-payment business due to tightened U.S.<br>sanctions on Iran while it was ongoing to settle trade transactions between Korea and Iran. In connection with these services, the Group is currently being investigated by US government agencies including US prosecutors (United States<br>Attorney’s Office and New York State Attorney General’s Office) and Office of Foreign Assets Control as to whether the Group has violated United States laws by participating in prohibited transactions involving the following countries:<br>Iran, Sudan, Syria and Cuba, which have been sanctioned by the US.
--- ---
2) The Group recognized the provision of the estimated compensation amount related to the incomplete selling of<br>the Derivative Linked Fund (DLF) incurred during the current term and a fine expected to be imposed by the Financial Supervisory Service as the best estimate for the expenditure required to meet its obligations at the end of the reporting period. On<br>the other hand, the actual amount of compensation of the Group may change as the global spread of the new coronavirus has caused abnormal interest rate changes since the end of the reporting period
--- ---
  • 115 -
24. NET DEFINED BENEFIT LIABILITY

The characteristics of the Group’s defined benefit retirement pension plans are as follows:

Employees and directors with one or more years of service are entitled to receive a payment upon termination of their employment, based on their length of service and rate of salary at the time of termination. The assets of the plans are measured at their fair value at the end of reporting date. The plan liabilities are measured using the projected unit method, which takes account of projected earnings increases, using actuarial assumptions that give the best estimate of the future cash flows that will arise under the plan liabilities.

The Group is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:

Volatility of asset The defined benefit obligation was estimated with an interest rate calculated based on blue chip corporate bonds earnings. A deficit may occur if the rate of return of plan assets falls short of the interest rate.
Decrease in profitability of blue-chip bonds A decrease in profitability of blue-chip bonds will be offset by some increase in the value of debt securities that the employee benefit plan owns but will bring an increase in the defined benefit obligation.
Risk of inflation Defined benefit obligations are related to inflation rate; the higher the inflation rate is, the higher the level of liabilities. Therefore, deficit occurs in the system if an inflation rate increase.
(1) Details of net defined benefit liability are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Present value of defined benefit obligation 1,312,690 1,209,669
Fair value of plan assets (1,264,412 ) (1,070,987 )
Net defined benefit liability 48,278 138,682
(2) Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions):<br>
--- ---
For the year ended<br>December 31, 2019 For the year ended<br>December 31, 2018
--- --- --- --- --- --- --- ---
Beginning balance 1,209,669 1,071,170
Subsequent amount from transfer company 601 —
Current service cost (*) 147,421 144,394
Interest cost(*) 31,161 32,143
Remeasurements Financial assumption 50,720 59,429
Demographic assumptions 32,566 7,728
Experience adjustment (45,269 ) 33,697
Foreign currencies translation adjustments 179 (3 )
Retirement benefit paid (75,852 ) (74,952 )
Classification as assets held for sale — (65,351 )
Changes in consolidated scope (37,527 ) —
Others (979 ) 1,414
Ending balance 1,312,690 1,209,669
(*) Profit or loss from discontinued operations are included.
--- ---
  • 116 -
(3) Changes in the plan assets are as follows (Unit: Korean Won in millions):
For the year ended<br>December 31, 2019 For the year ended<br>December 31, 2018
--- --- --- --- --- --- ---
Beginning balance 1,070,987 1,027,906
Interest income(*) 29,493 33,825
Remeasurements (8,350 ) (14,783 )
Employer’s contributions 282,666 128,926
Retirement benefit paid (73,984 ) (71,672 )
Classification as assets held for sale — (30,924 )
Changes in consolidated scope (34,145 ) —
Others (2,255 ) (2,291 )
Ending balance 1,264,412 1,070,987
(*) Profit or loss from discontinued operations are included.
--- ---
(4) Plan assets wholly consist of fixed deposits as of December 31, 2019 and 2018. Among plan assets, realized<br>returns on plan assets amount to 21,143 million Won and 19,042 million Won for the years ended December 31, 2019 and 2018, respectively.
--- ---

Meanwhile, the contribution expected to be paid in the next accounting year amounts to 148,124 million Won.

(5) Current service cost, net interest income, loss (gain) on the curtailment or settlement and remeasurements<br>recognized in the consolidated statements comprehensive income are as follows (Unit: Korean Won in millions):
For the year ended<br>December 31, 2019 For the year ended<br>December 31, 2019
--- --- --- --- --- ---
Current service cost 147,421 144,394
Net interest income 1,668 (1,682 )
Cost recognized in net income 149,089 142,712
Remeasurements 46,367 115,637
Cost recognized in total comprehensive income 195,456 258,349

Retirement benefits related to defined contribution plans recognized as expenses are 2,171 million Won and 2,286 million Won for the nine months ended December 31, 2019 and 2018, respectively.

(6) Key actuarial assumptions used in net defined benefit liability measurement are as follows:<br>
December 31, 2019 December 31, 2018
--- --- ---
Discount rate 2.42% 2.69%
Future wage growth rate 2.64% 6.18%
Mortality rate Issued by Korea Insurance<br>Development Institute Issued by Korea Insurance<br>Development Institute
Retirement rate Experience rate for each<br>employment classification Experience rate for each<br>employment classification

The weighted average maturity of defined benefit liability is 11.85 years.

  • 117 -
(7) The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows<br>(Unit: Korean Won in millions):
December 31, 2019 December 31, 2018
--- --- --- --- --- --- --- ---
Discount rate Increase by 1% point (139,312 ) (116,812 )
Decrease by 1% point 164,744 136,990
Future wage growth rate Increase by 1% point 162,701 135,767
Decrease by 1% point (140,339 ) (118,020 )
25. OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES
--- ---

Other financial liabilities and other liabilities are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Other financial liabilities:
Accounts payable 5,513,235 5,407,025
Accrued expenses 2,359,851 2,212,350
Borrowings from trust accounts 3,277,795 3,747,492
Agency business revenue 362,820 396,735
Foreign exchange payables 1,153,457 539,554
Domestic exchange settlement credits 1,257,280 7,134,966
Lease liabilities 388,609 —
Other miscellaneous financial liabilities 2,283,352 1,990,426
Present value discount (1,001 ) (2,484 )
Sub-total 16,595,398 21,426,064
Other liabilities:
Unearned income 56,700 204,034
Other miscellaneous liabilities 121,701 134,241
Sub-total 178,401 338,275
Total 16,773,799 21,764,339
  • 118 -
26. DERIVATIVES
(1) Derivative assets and derivative liabilities are as follows (Unit: Korean Won in millions):<br>
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Assets Liabilities
Nominal<br>amount For fair<br>value<br>hedge For trading For cash flow<br>hedge For trading
Interest rate:
Futures 79,021 — — —
Swaps 150,731,987 111,764 301,116 43 413,195
Purchase options 460,000 — 11,888 — —
Written options 395,789 — — — 9,655
Currency:
Forwards 113,859,491 — 1,447,598 — 1,028,238
Swaps 81,359,428 — 965,346 — 1,106,423
Purchase options 1,588,746 — 18,835 — —
Written options 2,341,179 — — — 9,403
Equity:
Forwards 11 — — — —
Futures 630,562 — — — —
Swaps 1,280,436 — 1,217 — 54,393
Purchase options 8,851,984 — 175,221 — —
Written options 8,978,953 — — — 219,831
Total 370,557,587 111,764 2,921,221 43 2,841,138
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Assets Liabilities
Nominal<br>amount For fair<br>value<br>hedge For trading For cash flow<br>hedge For fair value<br>hedge For trading
Interest rate:
Swaps 150,710,490 35,503 218,140 665 17,654 266,207
Purchase options 530,000 — 10,461 — — —
Written options 525,000 — — — — 12,438
Currency:
Futures 320,213 — — — — —
Forwards 88,376,776 — 843,621 — — 777,039
Swaps 67,179,195 — 761,907 33,089 — 773,701
Purchase options 1,933,454 — 17,544 — — —
Written options 3,134,774 — — — — 20,747
Equity:
Futures 186,737 — — — — —
Swaps 441,573 — 31,377 — — 1,217
Purchase options 4,925,315 — 143,029 — — —
Written options 6,145,935 — — — — 239,512
Total 324,409,462 35,503 2,026,079 33,754 17,654 2,090,861

Derivatives held for trading are classified into financial assets at FVTPL (Note 7) and financial liabilities at FVTPL (Note 20), and derivatives designated for hedging are presented as a separate line item in the consolidated statements of financial position.

  • 119 -
(2) Overview of the Group’s hedge accounting

The hedging relationships the entity applies fair value hedge accounting and cash flow hedge accounting to are affected by interest rate which is related with Interest Rate Benchmark Reform. The interest rates to which the hedging relationships are exposed are USD 3M LIBOR, USD 6M LIBOR, and 3M EURIBOR. The nominal amounts of hedging instruments related to 3M LIBOR, 6M LIBOR and 3M EURIBOR are USD 2,150,000,000, USD 500,000,000, and EUR 26,635,556, respectively. The entity pays close attention to discussions in the market and industry regarding the applicable alternative benchmark interest rates for the exposed interest rate. The entity judges related uncertainty is expected to be no longer present when the exposed interest rates are replaced by the applicable benchmark interest rates.

1) Fair value hedge

As of the current period end, the Group has applied fair value hedge on fixed interest rate foreign currency denominated debentures amounting to 3,151,172 million Won. The purpose of the hedging is to avoid fair value volatility risk of fixed interest rate foreign currency denominated debentures derived from fluctuations of market interest rate, and as such the Group entered into interest rate swap agreements designated as hedging instruments.

Pursuant to the interest rate swap agreement, by swapping the calculated difference between the fixed interest rate and floating interest rate applied to the nominal value, the fair value fluctuation risk is hedged as the foreign currency denominated debentures fixed interest rate terms are converted to floating interest rate. Pursuant to the interest rate swap agreement, hedge ratio is determined by matching the nominal value to the face value of the hedging instrument.

In this hedging relationship, only the market interest rate fluctuation, which is the most significant part of the fair value change of the hedged item, is designated as the hedged risk, and other risk factors including credit risk are not included in the hedged risk. Therefore, the ineffective portion of the hedge could arise from fluctuations in the timing of the cash flow of the hedged item, the change in the total amount and price of the hedged item, or significant credit risk fluctuation of either party of the hedging instrument.

The interest rate swap agreements and the hedged items are subject to fluctuations in the underlying market rate of interest and the Group expects the fair value of the interest rate swap contract and the value of the hedged item to generally change in the opposite direction.

The fair value of the interest rate swap at the end of the reporting period is determined by discounting future cash flows estimated using the yield curve at the end of the reporting period and the credit risk embedded in the contract and the average interest rate is determined based on the outstanding balance at the end of the reporting period. The variable interest rate applied to the interest rate swap is USD Libor 3M (6M) plus spread. In accordance with the terms of each interest rate swap contract designated as a hedging instrument, the Group receives interest at a fixed interest rate and pays interest at a variable interest rate.

  • 120 -
2) Cash Flow Hedge

As of the current period end, the Group has applied cash flow hedge on borrowings in foreign currency amounting to 34,443 million Won. The Group’s hedging strategy is to mitigate risks of cash flow fluctuation from variable interest rate borrowings in foreign currency due to changes in market interest rate by entering into an interest rate swap contract and thereby designating it as hedging instrument.

This means exchanging a predetermined nominal amount as set forth in the interest rate swap contract adjusted by the differences between the fixed and variable interest rates, which results in the conversion of interest rates of borrowings from variable interest into fixed interest, eliminating the cash flow fluctuation risk.

The hedge ratio is determined by matching the nominal amount of the hedging instrument to the face amount of the hedged item in accordance with interest rate swap. Only interest rate and foreign exchange rate fluctuation risk, which is the most significant factor in the cash flow fluctuation of the hedged item, is addressed in this hedging relationship, and other risk factors such as credit risk are not subject to hedging.

Thus, there could be hedge ineffectiveness arising from price margin set by the counterparty of hedging instruments and unilateral change in credit risk of any party to the transaction. The interest rate swap and the hedged item are all affected by the changes in market interest rate and foreign exchange rates which are basic factors of the derivative.

  • 121 -
(3) The nominal amounts of the hedging instrument are as follows (Unit: USD, SGD and Korean Won in millions):<br>
--- --- --- --- --- --- --- ---
1 year to 5 years More than 5 years Total
Fair value hedge
Interest rate risk
Interest rate swap () 350,000,000 2,000,000,000 300,000,000 2,650,000,000
Cash flow hedge
Interest rate risk
Interest rate swap () — 26,635,556 — 26,635,556

All values are in US Dollars.
1 year to 5 years More than 5 years Total
Fair value hedge
Interest rate risk
Interest rate swap () — 1,350,000,000 1,300,000,000 2,650,000,000
Cash flow hedge
Interest rate risk
Interest rate swap (KRW) — 100,000 — 100,000
Foreign currencies translation risk and interest rate risk
Currency swap () 50,000,000 450,000,000 — 500,000,000
Foreign currencies translation risk
Currency swap (SGD) — 204,000,000 — 204,000,000

All values are in US Dollars.

(4) The average interest rate and average currency rate of the hedging instrument as of December 31, 2019 and<br>December 31, 2018 are as follows :
December 31, 2019
--- ---
Average interest rate and average exchange rate
Fair value hedge
Interest rate risk
Interest rate swaps (USD) Fixed 3.96% receipt and Libor 3M+1.61% floating paid<br><br><br>Fixed 5.88% receipt and Libor 6M+2.15% floating paid
Cash flow hedge
Interest rate risk
Interest rate swaps (EUR) 3M EURIBOR floating receipt and fixed EUR 0.09% paid
December 31, 2018
--- ---
Average interest rate and average exchange rate
Fair value hedge
Interest rate risk
Interest rate swaps (USD) Fixed 3.96% receipt and Libor 3M+1.61% floating paid<br><br><br>Fixed 5.88% receipt and Libor 6M+2.15% floating paid
Cash flow hedge
Interest rate risk
Interest rate swaps (KRW) CMS 3Y+0.40% receipt, 2.38% paid
Foreign currencies translation risk and interest rate risk
Currency swap (USD) USD 3M Libor+0.70% receipt, KRW 1.74% paid, USD/KRW = 1,136<br><br><br>USD 1M Libor+0.52% receipt, KRW 1.71% paid, USD/KRW = 1,178
Foreign currencies translation risk
Currency swap (SGD) SGD 1.91% receipt, KRW 1.98% paid, SGD/KRW = 828
  • 122 -
(5) The amounts related to items designated as hedging instruments are as follows (Unit: Korean Won in millions,<br>USD, EUR and SGD):
--- --- --- --- --- --- --- --- --- --- ---
Carrying amounts of the hedging<br>instrument Line item in the<br>statement of<br>financial<br> <br>position where the hedging<br>instrument is<br><br><br>located Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness
Assets Liabilities
Fair value hedge
Interest rate risk
Interest rate swaps () 2,650,000,000 111,764 — Derivative assets<br><br><br>(designated for hedging)<br> <br>Derivative<br>liabilities<br> <br>(designated for hedging) 90,244
Cash flow hedge
Interest rate risk
Interest rate swap () 26,635,556 — 43 Derivative assets<br><br><br>(designated for hedging)<br>Derivative liabilities<br><br><br>(designated for hedging) (43 )

All values are in US Dollars.
Carrying amounts of the hedging<br>instrument Line item in the<br>statement of financial<br>position<br>where the hedging<br>instrument is<br>located Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness
Assets Liabilities
Fair value hedge
Interest rate risk
Interest rate swaps () 2,650,000,000 35,503 17,654 Derivative assets<br><br><br>(Designated for hedging)<br> <br>Derivative<br>liabilities<br> <br>(Designated for hedging) (27,362 )
Cash flow hedge
Interest rate risk
Interest rate swap (KRW) 100,000 — 665 Derivative liabilities<br><br><br>(Designated for hedging) (665 )
Foreign currencies translation risk and interest rate risk
Currency swap () 500,000,000 — 28,907 Derivative liabilities<br><br><br>(Designated for hedging) 21,582
Foreign currencies translation risk
Currency swap (SGD) 204,000,000 — 4,182 Derivative liabilities<br><br><br>(Designated for hedging) 2,353

All values are in US Dollars.

  • 123 -
(6) Details of carrying amount to hedge and amount due to hedge accounting are as follows (Unit: Korean won in<br>millions):
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Carrying amounts of the hedging<br>item Accumulated amount of fair value hedge<br>adjustments on the hedged item included<br>in the carrying amount of the hedged<br>item Line item in the<br>statement of financial<br>position in which the<br>hedged item is included Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness Cash flow<br>hedge<br>reserve (*)
Assets Liabilities Assets Liabilities
Fair value hedge
Interest rate risk
Debenture 3,151,172 91,368 Debentures (85,984 )
Cash flow hedge
Interest rate risk
Borrowings in foreign currency 34,443 Borrowings<br> <br>in foreign<br>currency 43 (43 )
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Carrying amounts of the hedging<br>item Accumulated amount of fair value hedge<br>adjustments on the hedged item included<br>in the carrying amount of the hedged<br>item Line item in the<br>statement of financial<br>position in which the<br>hedged item is included Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness Cash flow<br>hedge<br>reserve (*)
Assets Liabilities Assets Liabilities
Fair value hedge
Interest rate risk
Debenture — 2,956,565 — 5,200 Debentures 25,498 —
Cash flow hedge
Interest rate risk
Debenture — 99,911 — — Debentures 521 (371 )
Foreign currencies translation risk and interest rate risk
Debenture — 557,186 — — Debentures (16,790 ) (1,211 )
Foreign currencies translation risk
Debenture — 166,122 — — Debentures (1,762 ) (2,287 )
(*) After tax amount
--- ---
  • 124 -
(7) Amounts recognized in profit or loss due to the ineffective portion of fair value hedges during the current<br>period are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- ---
Hedge ineffectiveness<br>recognized in profit or loss Line item in the profit or loss that includes<br>hedge ineffectiveness
Fair value hedge Interest rate risk 4,260 Other net operating income (expense)
For the year ended December 31, 2018
--- --- --- --- --- ---
Hedge ineffectiveness<br>recognized in profit or loss Line item in the profit or loss that includes<br>hedge ineffectiveness
Fair value hedge Interest rate risk (1,864 ) Other net operating income (expense)
(8) Reclassification of profit or loss from other comprehensive income and equity related to cash flow hedges are<br>as follows (Unit: Korean won in millions):
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Changes in the<br>value of hedging<br>instruments recognized in<br>OCI Hedge<br>ineffectiveness<br>recognized<br>in profit or<br>loss Changes in<br>the value of<br>foreign basis<br>spread<br>recognized in<br>OCI Line item in the<br>profit or loss that<br>includes<br>hedge<br>ineffectiveness Amounts<br>reclassified<br>from cash<br>flow hedge<br>reserve to<br>profit or loss Line item affected in<br>profit or loss due<br>to<br>reclassification
Cash flow hedge Interest rate risk (43 ) — — Other net operating income (expense) — Other net operating income (expense)
For the year ended December 31, 2018
Changes in the<br>value of hedging<br>instruments recognized in<br>OCI Hedge<br>ineffectiveness<br>recognized<br>in profit or<br>loss Changes in<br>the value of<br>foreign basis<br>spread<br>recognized in<br>OCI Line item in the<br>profit or loss that<br>includes hedge<br><br><br>ineffectiveness Amounts<br>reclassified<br>from cash<br>flow hedge<br>reserve to<br>profit or loss Line item affected in<br>profit or loss due<br>to<br>reclassification
Cash flow hedge Interest rate risk (517 ) (148 ) — Other net operating income (expense) — Other net operating income (expense)
Foreign currencies translation risk and interest rate risk 21,429 153 (882 ) Other net operating income (expense) (23,084 ) Other net operating income (expense)
Foreign currencies translation risk 2,353 — (491 ) Other net operating income (expense) (3,601 ) Other net operating income (expense)
  • 125 -
27. DEFERRED DAY 1 PROFITS OR LOSSES

Changes in deferred day 1 profits or losses are as follows (Unit: Korean Won in millions):

For the years ended December 31
2019 2018
Beginning balance 25,463 7,416
New transactions 53,289 23,678
Amounts recognized in losses (26,493 ) (5,631 )
Ending balance 52,259 25,463

In case some variables to measure fair values of financial instruments are not observable in the market, valuation techniques are utilized to evaluate such financial instruments. Those financial instruments are recorded the transaction price as at the time of acquisition, even though there are difference noted between the transaction price and the fair value. The table above presents the difference yet to be realized as profit or losses as of the years ended December 31, 2019 and 2018..

28. CAPITAL STOCK AND CAPITAL SURPLUS
(1) The number of shares authorized and others are as follows:
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Shares of common stock authorized 5,000,000,000 Shares 5,000,000,000 Shares
Par value 5,000 Won 5,000 Won
Shares of common stock issued 676,000,000 Shares 676,000,000 Shares
Capital stock 3,381,392 million Won 3,381,392 million Won
(2) There are no changes in the number of shares issued and outstanding for the years ended December 31, 2019<br>and 2018.
--- ---
(3) Details of capital surplus are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Capital in excess of par value 269,533 269,533
Capital Surplus by the Equity Method 1,153 —
Other capital surplus 16,794 16,356
Total 287,480 285,889
  • 126 -
29. HYBRID SECURITIES

The bond-type hybrid securities classified as owner’s equity are as follows (Unit: Korean Won in millions):

Issue date Maturity Interest rate (%) December 31,<br>2019 December 31,<br>2018
Securities in local currency April 25, 2013 April 25, 2043 4.4 500,000 500,000
November 13, 2013 November 13, 2043 5.7 200,000 200,000
December 12, 2014 December 12, 2044 5.2 — 160,000
June 3, 2015 June 3, 2045 4.4 240,000 240,000
July 26, 2018 — 4.4 400,000 400,000
Securities in foreign currencies June 10, 2015 June 10, 2045 5.0 559,650 559,650
September 27, 2016 — 4.5 553,450 553,450
May 16, 2017 — 5.3 562,700 562,700
October 4, 2019 — 4.3 662,035 —
Issuance cost (17,021 ) (13,837 )
Total 3,660,814 3,161,963

The hybrid securities mentioned above are either without a maturity date or its maturity can be extended indefinitely at the maturity date without change of terms.

30. OTHER EQUITY
(1) Details of other equity are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Accumulated other comprehensive loss:
Net loss on valuation of financial assets at FVTOCI (102,544 ) (87,182 )
Share of other comprehensive gain (loss) of joint ventures and associates 675 302
Loss on foreign currency translation of foreign operations (153,403 ) (244,735 )
Remeasurement loss related to defined benefit plan (250,629 ) (223,529 )
Gain (loss) on valuation of derivatives designated as cash flow hedges (43 ) (3,869 )
Other comprehensive income related to assets held for sale — (13,197 )
Sub-total (505,944 ) (572,210 )
Treasury shares — (34,113 )
Other capital adjustments (1,614,653 ) (1,607,647 )
Total (2,120,597 ) (2,213,970 )
  • 127 -
(2) Changes in the accumulated other comprehensive income are as follows (Unit: Korean Won in millions):<br>
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning<br>balance Increase<br>(decrease) (*) Reclassification<br>adjustments (*) Changes in<br>consolidated<br>scope Income<br>tax effect Ending<br>balance
Net gain (loss) on valuation of financial assets at FVTOCI (87,182 ) (34,247 ) 43,038 (32,422 ) 8,269 (102,544 )
Share of other comprehensive gain (loss) of joint ventures and associates 302 441 — — (68 ) 675
Gain (loss) on foreign currency translation of foreign operations (244,735 ) 96,303 — (720 ) (4,251 ) (153,403 )
Remeasurement gain (loss) related to defined benefit plan (223,529 ) (41,016 ) — 7,785 6,131 (250,629 )
Gain (loss) on valuation of derivatives designated as cash flow hedges (3,869 ) 25,934 (26,535 ) 5,567 (1,140 ) (43 )
Transfer to assets held for sale (13,197 ) — (6,593 ) 19,790 — —
Total (572,210 ) 47,415 9,910 — 8,941 (505,944 )
(*) Net gain (loss) on valuation of financial assets at FVTOCI included the 46,612 million Won transfer to<br>retained earnings due to disposal of equity securities.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning<br>balance Increase<br>(decrease)<br>(*1)(*2) Reclassification<br>adjustments Related to<br>assets held<br>for<br>distribution<br>(sale) Income tax<br>effect Ending<br>balance
Net gain (loss) on valuation of financial assets at FVTOCI (88,906 ) (8,677 ) 8,015 — 2,386 (87,182 )
Gain (loss) on financial liabilities at FVTPL (K-IFRS 1109) designated as upon initial recognition<br>due to own credit risk (96 ) 132 — — (36 ) —
Share of other comprehensive gain (loss) of joint ventures and associates (2,656 ) 4,080 — — (1,122 ) 302
Gain (loss) on foreign currency translation of foreign operations (242,806 ) (2,661 ) — — 732 (244,735 )
Remeasurement gain (loss) related to defined benefit plan (152,358 ) (85,007 ) — (13,197 ) 27,033 (223,529 )
Gain (loss) on valuation of derivatives designated as cash flow hedges 777 30,655 (26,871 ) — (8,430 ) (3,869 )
Transfer to assets held for distribution (sale) 4,145 (17,342 ) — — — (13,197 )
Total (481,900 ) (78,820 ) (18,856 ) (13,197 ) 20,563 (572,210 )
(*1) Net gain (loss) on valuation of financial assets at FVTOCI included the 1,009 million Won transfer to<br>retained earnings due to disposal of equity securities.
--- ---
(*2) Gain (loss) on financial liabilities at fair value through profit or loss designated as upon initial<br>recognition due to own credit risk included the 4 million Won transfer to retained earnings due to redemption.
--- ---
  • 128 -
31. RETAINED EARNINGS AND OTHER RESERVE
(1) Details of retained earnings are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- ---
Legal reserve Earned surplus reserve 2,039,754 1,857,754
Other legal reserve 46,635 46,384
Sub-total 2,086,389 1,904,138
Voluntary reserve Business rationalization reserve 8,000 8,000
Reserve for financial structure improvement 235,400 235,400
Additional reserve 8,576,105 7,759,804
Regulatory reserve for credit loss 2,017,063 2,578,457
Revaluation reserve 714,018 715,860
Sub-total 11,550,586 11,297,521
Retained earnings before appropriation (*) 3,709,010 3,922,998
Total 17,345,985 17,124,657
i. Earned surplus reserve
--- ---

In accordance with the Article 40, Banking Act, earned surplus reserve is appropriated at least one tenth of the earnings after tax on every dividend declaration, not exceeding the paid in capital. This reserve may not be used other than for offsetting a deficit or transferring to capital.

ii. Other legal reserve

Other legal reserves were appropriated in the branches located in Japan, Vietnam and Bangladesh according to the banking laws of Japan, Vietnam and Bangladesh, and may be used to offset any deficit incurred in those branches.

iii. Business rationalization reserve

Pursuant to the Restriction of Special Taxation Act, the Group was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. The requirement was no longer effective from 2002.

iv. Reserve for financial structure improvement

From 2002 to 2014, the Finance Supervisory Services recommended banks in Korea to appropriate at least 10 percent of net income after accumulated deficit for financial structure improvement, until tangible common equity ratio equals 5.5 percent. But this reserve is not available for payment of cash dividends; however, it can be used to reduce a deficit or be transferred to capital. The reserve and appropriation are an Autonomous judgment matter of the Group since 2015.

v. Additional reserve

Additional reserve was appropriated for capital adequacy and other management purpose.

vi. Regulatory reserve for credit loss

In accordance with paragraphs 1 and 2 of Article 29 of the Regulation on Supervision of Banking Business (“RSBB”), if provisions for credit loss under K-IFRS for the accounting purpose are lower than provisions under RSBB, the Bank limits such shortfall amount as regulatory reserve for credit loss.

  • 129 -
vii. Revaluation reserve

In accordance with appendix 3 of the Regulation on Supervision of Banking Business Enforcement Rules Revaluation reserve is the amount of limited dividends set by the board of directors to be recognized as complementary capital when the gain or loss occurred in the property revaluation by adopting K-IFRS.

32. REGULATORY RESERVE FOR CREDIT LOSS

In accordance with Paragraph 1 and 2 of Article 29 of the Banking Supervision Regulations, the Group calculates and discloses the regulatory reserve for credit loss.

(1) Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean Won in millions):<br>
December 31,<br>2019 December 31,<br>2018
--- --- --- --- --- --- ---
Beginning balance(*) 2,356,246 2,578,457
Planned provision of regulatory reserve (reversal) for credit loss (209,898 ) (222,211 )
Ending balance 2,146,348 2,356,246
(*) Effect of the changes in consolidated scope of the Group as it newly transferred into subsidiary of Woori<br>Financial Group Inc. as of December 31, 2019, has been applied.
--- ---
(2) Planned reserves provided, adjusted net income after the planned reserves provided and adjusted EPS after the<br>planned reserves provided are as follows (Unit: Korean Won in millions, except for EPS amount):
--- ---
For the years ended December 31
--- --- --- --- --- ---
2019 2018
Net income 1,527,065 2,051,649
Provision of regulatory reserve for credit loss(*) (209,898 ) 40,875
Adjusted net income after the provision of regulatory reserve 1,736,963 2,010,774
Adjusted EPS after the provision of regulatory reserve (Unit: Korean Won) 2,371 2,762
(*) The amount of reserve for credit loss for the year ended December 31, 2018 is calculated considering only<br>the change in the reserve for credit loss after the accounting policy change due to adoption of K-IFRS 1109. Therefore, the effect of reducing the reserve for credit losses due to changes in accounting policies was excluded.
--- ---
33. DIVIDENDS
--- ---

Dividends for the year ended December 31, 2019 and 2018 are 1,000 Won and 650 Won per share, respectively. The total amount of dividends approved are 676,000 million Won and 437,626 million Won, respectively. Also, the Bank paid interim dividend during the year 2019, and the amount is 1,000 Won for share, 676,000 million Won for total. Dividends for the year ended December 31, 2019 will be brought up as an agenda in the annual shareholder’s meeting scheduled for March 24, 2020.

  • 130 -
34. NET INTEREST INCOME
(1) Interest income recognized is as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Financial assets at FVTPL 43,318 52,434
Financial assets at FVTOCI 474,132 280,371
Financial assets at amortized cost
Securities at amortized cost 436,340 376,788
Loans and other financial assets at amortized cost:
Interest on due from banks 139,073 111,262
Interest on loans 8,692,425 8,166,153
Interest of other receivables 27,250 27,652
Sub-total 8,858,748 8,305,067
Total 9,812,538 9,014,660
(2) Interest expense recognized are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Interest on deposits due to customers 3,417,193 2,917,165
Interest on borrowings 381,366 306,599
Interest on debentures 599,791 560,637
Interest on lease liabilities 8,309 —
Other interest expense 89,183 89,193
Total 4,495,842 3,873,594
35. NET FEES AND COMMISSIONS INCOME
--- ---
(1) Details of fees and commissions income recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Fees and commission received for brokerage 194,482 162,344
Fees and commission received related to credit 183,661 171,076
Fees and commission received for electronic finance 137,456 121,250
Fees and commission received on foreign exchange handling 61,756 60,433
Fees and commission received on foreign exchange 92,408 66,036
Fees and commission received for guarantee 71,106 65,254
Fees and commission received on credit card 2,266 1,599
Fees and commission received on securities business 103,053 96,379
Fees and commission from trust management 170,937 177,456
Fees and commission received on credit Information — 12,984
Other fees 127,261 144,586
Total 1,144,386 1,079,397
(2) Details of fees and commissions expense incurred are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Fees and commissions paid 168,622 163,052
Credit card commission 703 565
Brokerage commission 614 1,833
Others 2,192 2,623
Total 172,131 168,073
  • 131 -
36. DIVIDEND INCOME
(1) Details of dividend income recognized are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Financial assets at FVTPL 85,947 67,892
Financial assets at FVTOCI 15,144 12,506
Total 101,091 80,398
(2) Details of dividends related to financial assets at FVTOCI are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Dividend income recognized from assets held Equity securities 15,144 12,232
Dividend income recognized in assets derecognized — 274
Total 15,144 12,506
37. NET GAIN OR LOSS ON FINANCIAL INSTRUMENTS AT FVTPL
--- ---
(1) Details of gains or losses related to net gain or loss on financial instruments at FVTPL are as follows (Unit:<br>Korean won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- ---
2019 2018
Gain on financial instruments at fair value through profit or loss mandatorily measured at fair<br>value 52,492 196,959
Gain on financial instruments at fair value through profit or loss designated as upon initial<br>recognition (33,237 ) 17,484
Total 19,255 214,443
  • 132 -
(2) Details of net gain or loss on financial instruments at fair value through profit or loss mandatorily measured<br>at fair value and financial instruments held for trading are as follows (Unit: Korean Won in millions):
For the years ended December 31
--- --- --- --- --- --- --- --- ---
2019 2018
Financial assets at FVTPL (financial assets held for trading) Securities Gain on valuation 116,157 137,237
Gain on disposals 59,979 45,105
Loss on valuation (59,541 ) (25,499 )
Loss on disposals (16,597 ) (26,728 )
Sub-total 99,998 130,115
Loans Gain on valuation 1,037 1,606
Gain on disposals 519 4,136
Loss on valuation (20 ) (4,805 )
Loss on disposals — (117 )
Sub-total 1,536 820
Other financial assets Gain on valuation 2,062 2,050
Gain on disposals 1,901 530
Loss on valuation (1,755 ) (2,280 )
Loss on disposals (1,815 ) (86 )
Sub-total 393 214
Sub-total 101,927 131,149
Derivatives (for trading) Interest rate derivatives Gain on transactions and valuation 1,501,055 1,255,581
Loss on transactions and valuation (1,610,697 ) (1,303,244 )
Sub-total (109,642 ) (47,663 )
Currency derivatives Gain on transactions and valuation 6,870,353 4,935,922
Loss on transactions and valuation (6,852,529 ) (4,822,915 )
Sub-total 17,824 113,007
Equity derivatives Gain on transactions and valuation 838,057 486,560
Loss on transactions and valuation (795,197 ) (484,986 )
Sub-total 42,860 1,574
Other derivatives Gain on transactions and valuation 690 4,138
Loss on transactions and valuation (1,167 ) (5,246 )
Sub-total (477 ) (1,108 )
Sub-total (49,435 ) 65,810
Total 52,492 196,959
(3) Details of net gain (loss) on financial instruments at fair value through profit or loss designated as upon<br>initial recognition and Losses on financial instruments designated as at fair value through profit or loss are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Gain (loss) on equity-linked securities:
Loss on disposal of equity-linked securities (16,006 ) (2,058 )
Gain (loss) on valuation of equity-linked securities (17,231 ) 17,945
Sub-total (33,237 ) 15,887
Gain on other securities:
Gain on valuation of other securities —
Gain on other financial instruments:
Gain on valuation of other financial instruments — 1,597
Total (33,237 ) 17,484
  • 133 -
38. NET GAIN OR LOSS ON FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS

Details of net gain or loss on financial assets at FVTOCI recognized are as follows (Unit: Korean won in millions):

For the years ended December 31
2019 2018
Gain on redemption of securities 15 53
Gain on transactions of securities 10,886 1,052
Total 10,901 1,105
39. REVERSAL OF (PROVISION FOR) IMPAIRMENT LOSSES DUE TO CREDIT LOSS
--- ---

Reversal of (provision for) impairment losses due to credit loss are as follows (Unit: Korean Won in millions):

For the years ended December 31
2019 2018
Impairment loss due to credit loss on financial assets measured at FVTOCI (3,297 ) (1,812 )
Impairment loss due to credit loss on securities at amortized cost 1,415 (1,922 )
Reversal (provision) for credit loss on loan and other financial assets at amortized cost (131,942 ) (170,419 )
Reversal of provision on guarantee 4,353 105,981
Reversal of provision on (provision for) unused loan commitment 11,222 (16,641 )
Total (118,249 ) (84,813 )
  • 134 -
40. GENERAL AND ADMINISTRATIVE EXPENSES AND OTHER NET OPERATING INCOME (EXPENSES)
(1) Details of general and administrative expenses recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Salaries Short-term employee benefits Salaries 1,391,925 1,428,164
Employee benefits 430,050 455,279
Share-based payment 5,509 —
Retirement benefit service costs 148,553 140,254
Termination 146,620 225,106
Sub-total 2,122,657 2,248,803
Depreciation and amortization 438,207 205,257
Other general and administrative expenses Rent 65,398 304,270
Taxes and public dues 121,642 101,761
Service charges 223,292 218,743
Computer and IT related 250,503 86,500
Telephone and communication 43,018 64,766
Operating promotion 41,290 42,188
Advertising 82,505 68,598
Printing 7,560 8,423
Traveling 11,470 12,496
Supplies 6,651 6,544
Insurance premium 8,185 8,062
Reimbursement 21,021 22,686
Maintenance 17,520 17,362
Water, light and heating 14,884 14,671
Vehicle maintenance 9,678 9,936
Others 8,659 42,846
Sub-total 933,276 1,029,852
Total 3,494,140 3,483,912
(2) Details of other operating income recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Gain on transactions of foreign exchange 592,190 1,227,559
Gain related to derivatives (Designated for hedging) 90,244 9,118
Gain on fair value hedged items 231 42,797
Others (*) 20,252 56,057
Total 702,917 1,335,531
(*) Other income includes income amounting to 29,316 million Won, for the years ended December 31, 2018,<br>, that the Group recognized for it is to receive from other creditor financial institutions in accordance with the creditor financial institutions committee agreement.
--- ---
  • 135 -
(3) Details of other operating expenses recognized are as follows (Unit: Korean Won in millions):<br>
For the years ended December 31
--- --- --- --- ---
2019 2018
Losses on transactions of foreign exchange 152,271 963,821
KDIC deposit insurance premium 332,497 315,315
Contribution to miscellaneous funds 317,667 298,416
Losses related to derivatives (Designated for hedging) — 36,488
Losses on fair value hedged items 86,214 17,299
Others (*) 114,808 105,897
Total 1,003,457 1,737,236
(*) Other expense includes such expenses amounting to 1,594 million Won for the years ended December 31,<br>2018, which is related to the Group’s expected payments to other creditor financial institutions in accordance with the creditor financial institutions committee agreement. In addition, it includes 22,317 million Won and<br>51,770 million Won, for the years ended December 31, 2019 and 2018, respectively, of intangible asset amortization expense.
--- ---
(4) Share-based payment
--- ---

Details of performance condition share-based payment granted to executives as of December 31, 2019 is as follows.

i. Performance condition share-based payment
Subject to Shares granted for the year 2019
--- ---
Type of payment Cash-settled
Vesting period January 1, 2019 ~ December 31, 2022
Date of payment 2023-01-01
Number of shares measured as of the closing date (*) 524,746 shares
(*) The number of payable stock is granted at the initial contract date and the payment rate is determined based on<br>the achievement of the pre-determined performance targets. Performance is evaluated as long-term performance indication including relative shareholder return, net income, return on equity (ROE), non-performing loan ratio and job performance.<br>
--- ---
ii. The Group accounts for performance condition share-based payments according to the cash-settled method and the<br>fair value of the liabilities is reflected in the compensation costs by re-measuring every closing period. As of December 31, 2019, the book value of the liabilities related to the performance condition share-based payments recognized by the<br>Group is 5,509 million Won.
--- ---
  • 136 -
41. OTHER NON-OPERATING INCOME (EXPENSES)
(1) Details of gains or losses on valuation of investments in joint ventures and associates are as follows (Unit:<br>Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Gains on valuation of investments in joint ventures and associates 103,716 25,791
Losses on valuation of investments in joint ventures and associates (15,840 ) (22,595 )
Impairment losses of investments in joint ventures and associates (3,634 ) (177 )
Total 84,242 3,019
(2) Details of other non-operating income and expenses recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Other non-operating incomes 244,625 125,961
Other non-operating expenses (276,724 ) (80,963 )
Total (32,099 ) 44,998
(3) Details of other non-operating income recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Rental fee income 19,881 6,835
Gains on disposal of investments in joint ventures and associates 189,154 50,511
Gains on disposal of premises and equipment, intangible assets and other assets 1,226 30,278
Reversal of impairment loss of premises and equipment, intangible assets and other assets 85 491
Others 34,279 37,846
Total 244,625 125,961
(4) Details of other non-operating expenses recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Depreciation on investment properties 5,004 4,045
Interest expenses of refundable deposits 843 786
Losses on disposal of investment in joint ventures and associates — 2,931
Losses on disposal of premises and equipment, intangible assets and other assets 55,361 1,110
Impairment losses of premises and equipment, intangible assets and other assets 26,915 87
Donation 60,587 48,137
Others 128,014 23,867
Total 276,724 80,963
  • 137 -
42. INCOME TAX EXPENSE
(1) Details of income tax expenses are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- ---
2019 2018
Current tax expense:
Current tax expense with respect to the current period 583,175 432,645
Adjustments recognized in the current period in relation to the tax expense of prior<br>periods (64,722 ) 5,923
Sub-total 518,453 438,568
Deferred tax expense (income):
Changes in deferred tax assets (liabilities) relating to the temporary differences 145,018 314,655
Current tax charged to equity and others directly: 8,941 —
Sub-total 153,959 314,655
Income tax expense
Income tax expense from continuing operations 645,248 717,001
Income tax expense from discontinued operations 27,164 36,222
(2) Income tax expense reconciled to net income before income tax expense is as follows (Unit: Korean Won in<br>millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Net income before income tax expense 2,199,477 2,804,872
Net income before income tax expense from continuing operations 2,643,760 2,470,111
Net income before income tax expense from discontinued operations (444,283 ) 334,761
Tax calculated at statutory tax rate (*) 760,384 760,978
Adjustments:
Effect of income that is exempt from taxation (61,620 ) (49,418 )
Effect of expenses that are not deductible in determining taxable income 22,859 18,639
Adjustments recognized in the current period in relation to the current tax of prior<br>periods (64,722 ) 5,923
Consolidated income tax return (13,748 ) —
Others 29,259 17,101
Sub-total (87,972 ) (7,755 )
Income tax expense 672,412 753,223
Income tax expense from continuing operations 645,248 717,001
Income tax expense from discontinued operations 27,164 36,222
Effective tax rate 30.6 % 26.9 %
Effective tax rate of continuing operations 24.4 % 29.0 %
Effective tax rate of discontinued operations — 10.8 %
(*) The applicable income tax rate: 1) 11% for taxable income below 200 million Won, 2) 22% for above<br>200 million Won and below<br> 20 billion Won, 3) 24.2% for above 20 billion Won and below 300 billion Won, 4) 27.5% for above 300 billion Won.
--- ---
  • 138 -
(3) Changes in cumulative temporary differences for the years ended Deferred 31, 2019 and 2018, are as follows<br>(Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning balance Recognized as income<br>(expense) Recognized as other<br>comprehensive income<br>(expense)(*2) Ending<br>Balance(*3)
Gain (loss) on financial assets 372,346 (86,999 ) 8,269 293,616
Gain on valuation using the equity method of accounting 28,354 (17,597 ) (68 ) 10,689
Gain (loss) on valuation of derivatives (27,507 ) (46,276 ) 369 (73,414 )
Accrued income (55,846 ) (9,207 ) — (65,053 )
Provision for loan losses (52,345 ) (440 ) — (52,785 )
Loan and receivables written off 6,672 (2,107 ) — 4,565
Loan origination costs and fees (154,431 ) (2,185 ) — (156,616 )
Defined benefit liability 360,087 (4,277 ) 6,131 361,941
Deposits with employee retirement insurance trust (318,330 ) (44,266 ) — (362,596 )
Provision for guarantee 11,374 (3,459 ) — 7,915
Other provision 75,194 (4,671 ) — 70,523
Others (*1) (204,083 ) (8,471 ) (5,760 ) (218,314 )
Net deferred tax assets 41,485 (229,955 ) 8,941 (179,529 )
(*1) Includes the amounts of Woori Card Co., Ltd. and Woori Investment Bank which were acquired by Woori Financial<br>Group Inc. during the term.
--- ---
(*2) Includes 2,800 million Won presented on non-controlling interests.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
K-IFRS 1109 adoption effect
Beginning balance Recognized as<br>retained<br>earnings Recognized as<br>other<br>comprehensive<br>income (loss) Beginning<br>balance after<br>K-IFRS 1109<br>adoption Business<br>combination Recognized<br>as income<br>(expense) Recognized as other<br>comprehensive income<br>(expense)(*2) Ending<br>Balance(*3)
Gain (loss) on financial assets 479,065 (150,140 ) 149,796 478,721 — (102,170 ) (4,205 ) 372,346
Gain on valuation using the equity method of accounting 24,482 — — 24,482 — 3,203 669 28,354
Gain (loss) on valuation of derivatives (10,260 ) (3,990 ) — (14,250 ) — (13,617 ) 360 (27,507 )
Accrued income (60,987 ) — — (60,987 ) 621 4,520 — (55,846 )
Provision for loan losses (47,697 ) 47,446 — (251 ) 399 (52,493 ) — (52,345 )
Loan and receivables written off 9,777 — — 9,777 — (3,105 ) — 6,672
Loan origination costs and fees (137,320 ) 36 — (137,284 ) — (17,147 ) — (154,431 )
Defined benefit liability 284,234 — — 284,234 317 43,821 31,715 360,087
Deposits with employee retirement insurance trust (287,333 ) — — (287,333 ) — (31,092 ) 95 (318,330 )
Provision for guarantee 30,602 1,370 — 31,972 — (20,598 ) — 11,374
Other provision 45,153 25,879 — 71,032 — 4,162 — 75,194
Others (*1) (72,265 ) 4,917 — (67,348 ) 44 (130,137 ) (6,642 ) (204,083 )
Net deferred tax assets 257,451 (74,482 ) 149,796 332,765 1,381 (314,653 ) 21,992 41,485
  • 139 -
(*1) Among the deferred tax assets and liabilities classified as ‘Others,’ the deferred tax asset arising<br>from unused tax losses amounts to 18,154 million Won.
(*2) Includes 1,429 million Won presented on non-controlling interests.
--- ---
(*3) Includes 9,778 million Won presented on assets held for distribution (sale) (Note 17).<br>
--- ---
(4) Unrealizable temporary differences are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Deductible temporary differences 162,457 272,911
Tax loss carry forward — 149,035
Taxable temporary differences (108,055 ) (868,541 )
Total 54,402 (446,595 )

No deferred income tax asset has been recognized for the deductible temporary difference of KRW 162,457 million associated with investments in subsidiaries and associates as of December 31, 2019, because it is not probable that the temporary differences will be reversed in the foreseeable future.

No deferred income tax liability has been recognized for the taxable temporary difference of KRW 108,055 million associated with investment in subsidiaries and associates as of December 31, 2019, due to the following reasons:

  • The Group is able to control the timing of the reversal of the temporary difference.

  • It is probable that the temporary difference will not be reversed in the foreseeable future.

(5) Details of accumulated deferred tax charged directly to other equity are as follows (Unit: Korean Won in<br>millions):
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Net gain on valuation of financial assets at FVTOCI 39,691 31,422
Share of other comprehensive loss of and associates (353 ) (285 )
Gain on foreign currency translation of foreign operations 3,932 8,183
Remeasurements of the net defined benefit liability 94,258 88,127
Gain (loss) on derivatives designated as cash flow hedge — 1,140
Total 137,528 128,587
(6) Current tax assets and liabilities are as follows (Unit: Korean Won in millions)
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Current tax assets 46,253 20,488
Current tax liabilities 135,490 156,559
  • 140 -
43. EARNINGS PER SHARE (“EPS”)
(1) Basic EPS of the controlling interest is calculated by dividing the net income attributable to controlling<br>interest by the weighted-average number of common shares outstanding (Unit: Korean Won in millions, except for EPS and number of shares):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Net income attributable to Owners 1,505,547 2,033,182
Dividends to hybrid securities (134,421 ) (151,194 )
Net income attributable to common shareholders 1,371,126 1,881,988
Continuing operations 1,842,573 1,583,448
Discontinued operations (471,447 ) 298,540
Weighted average number of common shares outstanding 676 673
Basic EPS 2,028 Won 2,796 Won
Continuing operations 2,725 Won 2,353 Won
Discontinued operations (697) Won 443 Won

Diluted EPS is equal to basic EPS because there is no dilution effect for the years ended December 31, 2019 and 2018.

(2) The weighted average number of common shares outstanding is as follows:
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Period Number of<br>shares Dates Accumulated number<br>of shares outstanding<br>during period
Common shares issued at the beginning of the period 2019-01-01 ~ 2019-12-31 673,271,226 365 245,743,997,490
Purchase of treasury stock 2019-01-09 ~ 2019-01-10 (11,453,702 ) 2 (22,907,404 )
Disposal of treasury stock 2019-01-11 ~ 2019-12-31 2,728,774 355 968,714,770
Sub-total (①) 246,689,804,856
Weighted average number of common shares outstanding<br>(②=(①/365) 675,862,479
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- ---
Period Number of<br>shares Dates Accumulated number<br>of shares outstanding<br>during period
Common shares issued at the beginning of the period 2018-01-01 ~ 2018-12-31 673,271,226 365 245,743,997,490
Sub-total (①) 245,743,997,490
Weighted average number of common shares outstanding<br>(②=(①/365) 673,271,226

Diluted EPS is equal to basic EPS because there is no dilution effect for the three months ended December 31, 2019 and 2018.

  • 141 -
44. CONTINGENT LIABILITIES AND COMMITMENTS
(1) Details of guarantees are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Confirmed guarantees
Guarantee for loans 89,699 125,870
Acceptances 391,688 371,525
Guarantees in acceptances of imported goods 224,746 158,179
Other confirmed guarantees 6,982,889 6,452,791
Sub-total 7,689,022 7,108,365
Unconfirmed guarantees
Local letters of credit 193,096 305,057
Letters of credit 3,081,390 3,322,731
Other unconfirmed guarantees 771,378 669,677
Sub-total 4,045,864 4,297,465
Commercial paper purchase commitments and others 884,031 1,260,587
Total 12,618,917 12,666,417
(2) Details of unused loan commitments and others are as follows (Unit: Korean Won in millions):<br>
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Loan commitments 70,303,900 97,796,704
Other commitments 3,204,654 5,041,314
(3) Litigation case
--- ---

Legal cases where the Group is involved are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
As plaintiff As defendant As plaintiff As defendant
Number of cases (*) 34 cases 133 cases 77 cases 154 cases
Amount of litigation 229,930 197,731 494,645 246,826
Provisions for litigations 21,562 17,925
(*) The number of lawsuits as of December 31, 2019 and 2018 does not include fraud lawsuits, etc. and those<br>lawsuits that are filed only to extend the statute of limitation.
--- ---
(4) The Financial Supervisory Service is currently in the process of examining the adequacy of internal controls<br>related to the selection and the sale of derivatives-linked products linked to foreign interest rate. The financial impact cannot be rationally estimated for the interim consolidated financial statements as of the end of current period.<br>
--- ---
  • 142 -
45. RELATED PARTY TRANSACTIONS

Related parties of the Group as of December 31, 2018 and 2017, and assets and liabilities recognized, guarantees and commitments, major transactions with related parties and compensation to key management for the years ended December 31, 2018 and 2017 are as follows:

(1) Related parties
Related parties
--- ---
Parent Woori Financial Holdings Co., Ltd.
Associates Woori Service Networks Co., Ltd., Korea Credit Bureau Co., Ltd., Korea Finance Security Co., Ltd., Lotte Card Co., Ltd., Chin Hung International Inc, 2016KIF-IMM Woori Bank Technology Venture Fund, K BANK Co., Ltd., Well to Sea<br>No. 3 Private Equity Fund, and others (Dongwoo C & C Co., Ltd. and 28 associates)
Other related parties Woori Card Co., Ltd. and its subsidiaries, Woori Investment Bank Co., Ltd. and its subsidiaries,, Woori FIS Co., Ltd, Woori Private Equity Asset Management Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit<br>Information Co., Ltd., Woori Fund Service Co., Ltd., Woori Asset Management Co., Woori global asset management co., Ltd., Woori asset trust. Ltd., Godo Kaisha Oceanos 1, Uri Hanhwa Eureka Private Equity Fund, Japanese Hotel Real Estate Private<br>Equity Fund 2, Woori Growth Partnerships New Technology Private Equity Fund 1, Tongyang China Convertible Bond Fund, WOORIG China Value Equity (C/C(F))
(2) Assets and liabilities from transactions with related parties are as follows (Unit: Korean Won in millions):<br>
--- ---
Related party A title of account December 31,<br>2019 December 31,<br>2018
--- --- --- --- --- --- --- --- ---
Parent Woori Financial Group Inc.(*1) Deposits due to customers 1,173,670 —
Other liabilities 99,181 —
Associates
Woori Service Networks Co., Ltd. Loans — 69
Deposits due to customers 1,881 1,967
Other liabilities 311 333
Korea Credit Bureau Co., Ltd. Loans — 7
Deposits due to customers 26 6,494
Other liabilities — 19
Korea Finance Security Co., Ltd. Loans 1,800 57
Loss allowance (3 ) (4 )
Deposits due to customers 1,371 5,040
Other liabilities — 10
Chin Hung International Inc. Loans — 411
Loss allowance — (204 )
Deposits due to customers 5,381 11,605
Other liabilities 320 2,974
Lotte Card Co., Ltd. Loans 7,500 —
Loss allowance (30 ) —
Deposits due to customers 2,726 —
K BANK Co., Ltd. Loans — 190
Well to Sea No.3 Private Equity Fund Loans 4,490 1,857
Loss allowance (8 ) (9 )
  • 143 -
Related party A title of account December 31,<br>2019 December 31,<br>2018
Deposits due to customers 714 356
Other liabilities 47 64
Others (*2) Loans 84 4,783
Loss allowance (84 ) (324 )
Other assets — 9
Deposits due to customers 5,577 8,049
Other liabilities 172 165
Other Related Parties Woori Card Co., Ltd. and its<br>subsidiaries(*3) Loans 4,631 —
Other assets 13,342 —
Derivative assets 420 —
Deposits due to customers 52,638 —
Other liabilities 18,641 —
Woori Investment Bank Co., Ltd. and its subsidiaries(*3) Loans 24,000 —
Loss allowance (43 ) —
Other assets 13,879 —
Deposits due to customers 6,303 —
Other liabilities 26,470 —
Woori FIS Co., Ltd. (*3) Other assets 114 —
Deposits due to customers 42,693 —
Other liabilities 24,326 —
Woori Private Equity Asset Management Co., Ltd. (*3) Deposits due to customers 1,370 —
Woori Finance Research Institute Co., Ltd. (*3) Deposits due to customers 2,132 —
Woori Credit Information Co., Ltd. (*3) Other assets 6 —
Deposits due to customers 15,765 —
Other liabilities 10,954 —
Woori Fund Service Co., Ltd.(*3) Deposits due to customers 11,238 —
Other liabilities 1,192 —
Woori Asset Management Co., Ltd.(*3) Deposits due to customers 11,665 —
Woori Global Asset Management Co., Ltd.(*3) Deposits due to customers 98 —
Woori Asset Trust Co., Ltd.(*3) Deposits due to customers 29,546 —
(*1) Woori Financial Group Inc. was established during the current period and the Group was transferred as a<br>wholly-owned subsidiary.
--- ---
(*2) Saman Co., Ltd., Kyesan Industry Corporation, Daea S&C Co., Ltd., and etc. are included during the year<br>ended December 31, 2019 and 2018.
--- ---
(*3) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current period.
--- ---
  • 144 -
(3) Gain or loss from transactions with related parties are as follows (Unit: Korean Won in millions):<br>
For the years ended<br>December 31
--- --- --- --- --- --- --- --- ---
Related party A title of account 2019 2018
Parent company Woori Financial Group (*1) Fees income 264 —
Other income 1,823 —
Interest expenses` 7,741 —
Associates Kumho Tire Co., Inc.(*2) Interest income — 1,098
Reversal of allowance for credit loss — (156,712 )
Woori Service Networks Co., Ltd. Other income 32 30
Interest expenses` 20 14
Fees expenses — 561
Other expenses — 580
Korea Credit Bureau Co., Ltd. Interest expenses` 29 62
Fees expenses — 2,310
Korea Finance Security Co., Ltd. Interest expenses 9 12
Impairment losses due to credit loss (reversal of allowance for credit loss) — 4
Other expenses — 146
Chin Hung International Inc. Interest expenses 35 43
Impairment losses due to credit loss (reversal of allowance for credit loss) — 182
STX Engine Co., Ltd.(*3) Interest income — 333
Interest expenses — 86
Impairment losses due to credit loss (reversal of allowance for credit loss) — (88,734 )
STX Corporation (*3) Interest expenses — 2
Reversal of allowance for credit loss — (31,210 )
K BANK Co., Ltd. Fees income — 1,134
Other income — 19
Well to Sea No. 3 Private Equity Fund Interest income 1,774 2,179
Interest expenses 11 9
Reversal of allowance for credit loss (18 ) (30 )
Lotte Card Co., Ltd. Interest income 213 —
Fees income 593 —
Interest expenses 53 —
Reversal of allowance for credit loss 30 —
  • 145 -
For the years ended<br>December 31
Related party A title of account 2019 2018
Others (*4) Interest income — 233
Fees income — 23
Other income 17 14
Interest expenses 55 40
Reversal of allowance for credit loss (5 ) (147 )
Other related parties Woori Card Co., Ltd and its subsidiaries(*5) Interest income 775 —
Fees income 125,183 —
Gain on derivatives 691 —
Other income 696 —
Interest expenses 185 —
Reversal of allowance for credit loss 83 —
Woori Investment Bank Co., Ltd. and its subsidiaries(*5) Interest income 648 —
Fees income 851 —
Other income 543 —
Interest expenses 21 —
Impairment losses due to credit loss (reversal of allowance for credit loss) 43 —
Woori FIS Co., Ltd.(*5)(*6) Fees income 578 —
Other income 7,675 —
Interest expenses 4 —
Other expenses 211,587 —
Woori Private Equity Asset Management Co., Ltd.(*5) Fees income 7 —
Interest expenses 17 —
Woori Finance Research Institute Co., Ltd.(*5) Fees income 12 —
Interest expenses 43 —
Woori Credit Information Co.,<br>Ltd.(*5) Fees income 83 —
Other income 698 —
Interest expenses 250 —
Fees expenses 15,009 —
Woori Fund Service Co., Ltd.(*5) Fees income 25 —
Other income 288 —
Interest expenses 252 —
Fees expenses 248 —
Other expenses 32 —
  • 146 -
For the years ended<br>December 31
Related party A title of account 2019 2018
Woori Asset Management Co.,<br>Ltd.(*5) Fees income 21 —
Other expenses 36 —
Woori Global Asset Management Co., Ltd.(*5) Fees income 1 —
  • 147 -
(*1) Woori Financial Group Inc. was established during the current period and the Group was transferred as a<br>wholly-owned subsidiary.
(*2) The Group lost significant influence over the entity due to the termination of the joint management procedures<br>of the creditors’ financial institution during the prior term, and thus the entity was excluded from the list of associates.
--- ---
(*3) During the prior term, the account was replaced by assets held for sale and disposed of and excluded from the<br>associate.
--- ---
(*4) Saman Co., Ltd., Kyesan industry Corporation, Daea S&C Co., Ltd., and etc are included during the term and<br>prior term.
--- ---
(*5) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current period.
--- ---
(*6) Total amount of 3,445 million Won of lease liability repayment is included in other expenses.<br>
--- ---
(4) Major loan transactions with related parties for the years ended December 31, 2019 and 2018 are as follows<br>(Unit: Korean Won in millions):
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Related parties Beginning<br>balance Loan Collection Others Ending<br>balance(*1)
Associates Well to Sea No. 3 Private Equity Fund 1,857 2,633 — — 4,490
Korea Finance Security Co., Ltd — 1,800 — — 1,800
Lotte Card Co., Ltd. — 7,500 — — 7,500
Other related parties Woori Investment Bank Co., Ltd. and its subsidiaries(*2) 37,900 21,300 35,200 — 24,000
Woori Card Co., Ltd and its subsidiaries(*2) — 4,551 — 80 4,631
For the year ended December 31, 2018
Related parties Beginning<br>balance Loan Collection Others Ending<br>balance(*1)
Associates Kumho Tire Co., Inc.(*3) 57,470 — 7,057 (50,413 ) —
Well to Sea No. 3 Private Equity Fund 73,810 16,857 88,810 — 1,857
STX Engine Co., Ltd. (*4) 39,886 — 2,177 (37,709 ) —
(*1) Settlement payment from normal operation among the related parties were excluded, and in the case of a limited<br>loan, it was presented as a net increase or decrease.
--- ---
(*2) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current period.
--- ---
(*3) The Group lost significant influence over the entity due to the termination of the joint management procedures<br>of the creditors’ financial institution during the year ended December 31, 2018, and thus the entity was excluded from the list of associates.
--- ---
(*4) The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the<br>year ended December 31, 2018 and thus was excluded from the list of associates.
--- ---
  • 148 -
(5) Changes in major deposits due to customers with related parties for years ended December 31, 2019 and 2018<br>are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Related parties Beginning<br>balance Borrowings Repayment<br>and others Ending<br>balance (*)
Parent company Woori Financial Group — 2,730,000 1,600,000 1,130,000
Associates Saman Corporation 2,436 86 — 2,522
Woori Service Networks Co., Ltd 1,180 1,460 1,460 1,180
Chin Hung International Inc 765 400 765 400
. Korea Credit Bureau Co., Ltd. 6,000 — 6,000 —
Partner One Value Up I Private Equity Fund 1,403 1,617 1,870 1,150
Korea Finance Security Co., Ltd. 535 25 560 —
Other related parties Woori Investment Bank Co., Ltd. 1,000 1,000 — 2,000
Woori Finance Research Institute Co., Ltd., 1,800 3,700 5,500 —
Woori Credit Information Co., Ltd. 13,199 12,000 11,000 14,199
Woori Fund Service Co., Ltd 7,900 10,000 7,900 10,000
Woori asset trust. Ltd — 15,000 — 15,000
(*) The details of payments made between related parties and the deposits due to customers that can be taken in and<br>out easily are excluded.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- ---
Related parties Beginning<br>balance Borrowings Repayment<br>and others Ending<br>balance(*1)
Associates Saman Corporation 2,334 102 — 2,436
Woori Service Networks Co., Ltd 1,135 1,025 980 1,180
Chin Hung International Inc 765 765 765 765
. Korea Credit Bureau Co., Ltd. 4,000 12,000 10,000 6,000
Partner One Value Up I Private Equity Fund — 1,803 400 1,403
Korea Finance Security Co., Ltd. 635 560 660 535
STX Corporation(*2) 330 — 330 —
STX Engine Co., Ltd.(*2) 10,256 — 10,256 —
Kumho Tire Co., Inc.(*2) 37 — 37 —
Hyunwoo International(*2) 41 — 41 —
(*1) The details of payments made between related parties and the deposits due to customers that can be taken in and<br>out easily are excluded.
--- ---
(*2) The shares of the entity were sold after it was transferred to assets held for distribution (sale) during the<br>year ended December 31, 2018 and thus was excluded from the list of associates.
--- ---
(6) There was no major borrowing transaction for the year ended December 31, 2018, and major borrowing<br>transactions with related parties for the year ended December 31, 2019 is as follows (Unit: Korean Won in millions):
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- ---
Related parties Beginning<br>balance Loan Collection Others Ending<br>balance(*1)
Other related parties Woori Card Co., Ltd and its subsidiaries 11,428 223,893 217,712 — 17,609
  • 149 -
(7) Guarantees provided to the related parties are as follows (Unit: Korean Won in millions):<br>
December 31, 2019 December 31, 2018 Warranty
--- --- --- --- --- --- ---
Woori Card Co., Ltd and its subsidiaries(*) 500,000 — Unused loan commitment
Woori Investment Bank Co., Ltd. and its subsidiaries(*) 50,000 — Unused loan commitment
Korea Finance Security Co., Ltd. 200 203 Unused loan commitment
Korea Credit Bureau Co., Ltd. — 28 Unused loan commitment
Woori Service Networks Co., Ltd. — 131 Unused loan commitment
Chin Hung International Inc. 31,749 32,058 Unused loan commitment
K BANK Co., Ltd. — 15 Unused loan commitment
Well to Sea No.3 Private Equity Fund 210,510 208,143 Unused loan commitment
Lotte Card Co., Ltd. 150,000 — Unused loan commitment
(*) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current period.
--- ---

For the guarantee provided to the related parties, the amount the Group has not recognized as provisions for guarantees as of December 31, 2019 and December 31, 2018.

The amount of guarantees and unused loan commitments provided by the related parties to the Bank as of December 31, 2019 and 2018 are as follows (Unit: Korean Won in millions):

Warranty December 31, 2019 December 31, 2018
Woori Card Co., Ltd and its subsidiaries Loan commitment in local currency 167,880 174,287
(8) Commitments of derivatives to the related parties are as follows (Unit: Korean Won in millions):<br>
--- ---
Warranty December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Woori Card Co., Ltd and its subsidiaries. Unsettled commitment 100,000 100,000
Well to Sea No. 3 Private Equity Fund Unsettled commitment 584,377 439,243
(9) Compensation for key management is as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Short-term employee salaries 9,744 12,326
Retirement benefit service costs 364 489
Share-Based payment 1,965 —
Total 12,073 12,815

Key management includes registered executives and non-registered executives. Outstanding assets and liabilities from transactions with key management amount to 2,414 million Won and 2,816 million Won, respectively, as of December 31, 2019 and 2018, and with respect to the assets, the Group has not recognized any allowance nor related impairment loss due to credit losses. In addition, related liabilities recognized, as of December 31, 2019 and 2018 are 6,543 million Won and 6,096 million Won, respectively.

  • 150 -
46. TRUST ACCOUNTS
(1) Trust accounts of the Bank are as follows (Unit: Korean Won in millions):
--- ---
Total assets Operating income
--- --- --- --- --- --- --- --- ---
December 31, 2019 December 31, 2018 For the years ended December 31
2019 2018
Trust accounts 60,288,399 53,560,071 1,118,746 1,049,105
(2) Receivables and payables between the Bank and trust accounts are as follows (Unit: Korean Won in millions):<br>
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Receivables:
Trust fees receivables 31,533 28,703
Payables:
Deposits due to customers 392,453 574,330
Borrowings from trust accounts 2,730,806 3,020,371
Total 3,123,259 3,594,701
(3) Significant transactions between the Bank and trust accounts are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Revenue:
Trust fees 171,072 177,913
Termination fees 488 5,885
Total 171,560 183,798
Expense:
Interest expenses on deposits due to customers 6,684 7,813
Interest expenses on borrowings from trust accounts 40,489 38,873
Total 47,173 46,686
  • 151 -
(4) Principal guaranteed trusts and principal and interest guaranteed trusts are as follows;
1) The carrying value of principal guaranteed trusts and principal and interest guaranteed trusts are as follows<br>(Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Partial principal guaranteed trusts:
Household money 9,430 9,989
Corporate money 630 633
Installment plan purpose 1,651 1,737
Sub-total 11,711 12,359
Principal guaranteed trusts:
Old-age pension trusts 3,298 3,564
Personal pension trusts 516,913 521,200
Pension trusts 824,735 819,102
Retirement trusts 34,374 42,187
New personal pension trusts : 7,807 8,104
New old-age pension trusts 1,742 2,134
Sub-total 1,388,869 1,396,291
Principal and interest guaranteed trusts
Development trusts 19 19
Unspecified money trusts 871 835
Sub-total 890 854
Total 1,401,470 1,409,504
2) The amounts that the Bank must pay by the operating results of the principal guaranteed trusts or the principal<br>and interest guaranteed trusts are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Liabilities for the account<br>(subsidy for trust account adjustment) 35 33
  • 152 -
47. LEASES
(1) The future lease payments under the lease contracts are as follows (Unit: Korean won in millions):<br>
--- ---
December 31, 2019
--- --- ---
Lease payments
Within one year 150,202
After one year but within five years 212,858
After five years 40,698
Total 403,758
(2) Total cash outflows from lease are as follows (Unit: Korean won in millions):
--- ---
For the year ended<br>December 31, 2019
--- --- ---
Cash outflows from lease 213,689
(3) Details of lease payments that are not included in the measurement of lease liabilities due to the fact that<br>they are short-term leases or leases for which the underlying asset is of low value are as follows (Unit: Korean won in millions):
--- ---
For the year ended<br>December 31, 2019
--- --- ---
Lease payments for short-term leases 341
Lease payments for which the underlying asset is of low value 19
Total 360
48. EVENTS AFTER THE REPORTING PERIOD
--- ---

The Coronavirus disease (COVID-19) outbreak in January, 2020 is having a negative impact on the global economy, including Korea. As a result, the macroeconomic environment is unstable overall. The Group is keeping a close eye on the situation, and credit portfolio is being reviewed to maintain proper capital ratio. Though the Group is considering various economic conditions in calculating expected credit losses, the effects of coronavirus were not explicitly considered due to the availability of limited information as of the end of the reporting period.

  • 153 -

EX-99.2

Exhibit 99.2

WOORI BANK<br> <br><br><br><br>SEPARATE FINANCIAL STATEMENTS<br> <br>AS OF AND FOR THE YEARS ENDED<br><br><br>DECEMBER 31, 2019 AND 2018<br> <br><br><br><br>ATTACHMENT: INDEPENDENT AUDITORS’ REPORT

WOORI BANK

INDEPENDENT AUDITORS’ REPORT

English Translation of a Report Originally Issued in Korean on March 16, 2020

To the Shareholder and the Board of Directors of Woori Bank

Report on the Audited Separate Financial Statements

Audit Opinion

We have audited the accompanying separate financial statements of Woori Bank (the “Bank”), which comprise the separate statement of financial position as of December 31, 2019 and December 31, 2018, respectively, and the separate statement of comprehensive income, separate statement of changes in shareholder’s equity and separate statement of cash flows, for the years then ended, and a summary of significant accounting policies and other explanatory information.

In our opinion, the separate financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2019 and December 31, 2018, respectively, and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Audit Opinion

We conducted our audits in accordance with the Korean Standards on Auditing (“KSAs”). Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements, including those related to independence, that are relevant to our audit of the separate financial statements in the Republic of Korea as required by prevailing audit regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and the Audit Committee for the Financial Statements

Management is responsible for the preparation of the accompanying separate financial statements in accordance with K-IFRS, and for such internal control as they determine is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management of the Bank is responsible for assessing and presenting the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

The audit committee is responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.

As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud<br>or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinion. The risk of not detecting a material misstatement resulting from fraud is<br>higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are<br>appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
--- ---
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and<br>related disclosures made by management.
--- ---
• Conclude on the appropriateness of the management’s use of the going concern basis of accounting and, based<br>on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we<br>are required to draw attention in our auditor’s report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to<br>the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
--- ---
• Evaluate the overall presentation, structure and content of the separate financial statements, including the<br>disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
--- ---

We communicate with the audit committee of the Bank regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

March 16, 2020

Notice to Readers

This report is effective as of March 16, 2020 the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the separate financial statements and may result in modifications to the auditors’ report.

WOORI BANK

SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS

ENDED DECEMBER 31, 2019 AND 2018

The accompanying separate financial statements, including all footnote disclosures, were

prepared by, and are the responsibility of, the management of Woori Bank.

Tae Seung Sohn

President and Chief Executive Officer

Headquarters: (Address) 51, Sogong-ro, Jung-gu, Seoul

(Phone Number)                02-2002-3000

WOORI BANK

SEPARATE STATEMENT OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2018

December 31,<br>2019 December 31,<br>2018
(Korean Won in millions)
ASSETS
Cash and cash equivalents (Notes 6 and 45) 5,398,102 5,723,801
Financial assets at fair value through profit or loss (“FVTPL”) (Notes 4, 7, 11, 12, 26<br>and 45) 5,429,401 3,877,858
Financial assets at fair value through other comprehensive income (“FVTOCI”) (Notes 4,<br>8, 11, 12, and 18) 26,548,853 17,040,674
Securities at amortized cost (Notes 4, 9, 11, 12 and 18) 20,147,137 22,802,050
Loans and other financial assets at amortized cost (Notes 4, 10, 11, 12, 18 and 45) 267,911,339 260,350,949
Investments in subsidiaries and associates (Note 13) 3,161,729 4,193,775
Investment properties (Note 14) 550,685 367,117
Premises and equipment (Note 15) 2,742,944 2,350,342
Intangible assets (Note 16) 349,273 353,167
Assets held for sale (Note 17) 95 143,288
Current tax assets (Note 42) 27,558 —
Deferred tax assets (Note 42) — 7,360
Derivative assets (Designated for hedging) (Notes 4, 11, 12 and 26) 111,764 35,503
Other assets (Notes 19 and 45) 113,750 146,995
Total assets 332,492,630 317,392,879
LIABILITIES
Financial liabilities at FVTPL (Notes 4, 11 12, 20, 26 and 45) 2,956,332 2,279,373
Deposits due to customers (Notes 4, 11, 21 and 45) 252,625,294 237,426,765
Borrowings (Notes 4, 11, 12 and 22) 15,325,821 14,081,092
Debentures (Notes 4, 11 and 22) 22,830,252 21,666,331
Provisions (Notes 23, 44 and 45) 380,113 283,501
Net defined benefit liability (Note 24) 46,826 136,163
Liabilities related to assets held for sale (Note 17) — 72,361
Current tax liabilities (Note 42) 115,513 110,127
Deferred tax liabilities (Note 42) 109,998 —
Derivative liabilities (Designated for hedging) (Notes 4, 11, 12 and 26) — 17,654
Other financial liabilities (Notes 4, 11, 12, 25 and 45) 15,889,160 20,097,011
Other liabilities (Notes 25 and 45) 151,581 173,501
Total liabilities 310,430,890 296,343,879

(Continued)

WOORI BANK

SEPARATE STATEMENT OF FINANCIAL POSITION (CONTINUED)

AS OF DECEMBER 31, 2019 AND 2018

December 31,<br>2019 December 31,<br>2018
(Korean Won in millions)
EQUITY
Capital stock (Note 28) 3,381,392 3,381,392
Hybrid securities (Note 29) 3,660,814 3,161,963
Capital surplus (Note 28) 269,533 269,533
Other equity (Note 30) (369,855 ) (386,840 ))
Retained earnings (Notes 31 and 32)
(Regulatory reserve for credit loss as of December 31, 2019 and 2018 is 1,888,816 million<br>Won and 2,091,721 million Won, respectively
Regulatory reserve for credit loss to be reserved (reversed) as of December 31, 2019 and 2018<br>is (162,779) million Won and 202,905 million Won, respectively
Planned provision of regulatory reserve(reversal) for credit loss as of December 31, 2019 and<br>2018 is (162,779) million Won and 202,905 million Won, respectively) 15,119,856 14,622,952
Total equity 22,061,740 21,049,000
Total liabilities and equity 332,492,630 317,392,879

See accompanying notes

WOORI BANK

SEPARATE STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

2019 2018
(Korean won in millions,<br><br><br>except for per share data)
Interest income 9,015,701 8,331,967
Financial assets at fair value through profit or loss (FVTPL) 359 6,047
Financial assets at fair value through other comprehensive income (FVTOCI) 437,104 256,995
Financial assets at amortized cost 8,578,238 8,068,925
Interest expense (4,155,365 ) (3,604,249 )
Net interest income (Notes 11, 34 and 45) 4,860,336 4,727,718
Fees and commissions income 1,167,983 1,151,201
Fees and commissions expense (153,490 ) (148,554 )
Net fees and commissions income (Notes 11, 35 and 45) 1,014,493 1,002,647
Dividend income (Notes 36 and 45) 100,708 75,986
Net gain on financial instruments at FVTPL (Notes 11, 37 and 45) 26,733 204,649
Net gain on financial assets at FVTOCI (Notes 11 and 38) 8,245 1,333
Net gain on disposals of amortized cost 84,240 44,166
Net gain on disposals of securities at amortized cost — 431
Net gain on disposals of loans and other financial assets at amortized cost 84,240 43,735
Impairment losses due to credit loss (Notes 11, 39 and 45) (91,455 ) (58,823 )
General and administrative expenses (Notes 40 and 45) (3,210,287 ) (3,189,336 )
Other net operating expenses (Notes 40 and 45) (321,460 ) (392,649 )
Operating income 2,471,553 2,415,691
Share of impairment losses of subsidiaries and associates (Note 13) (43,102 ) (241 )
Net other non-operating income(expense) (63,323 ) 70,181
Non-operating income(expense) (Note<br>41) (106,425 ) 69,940
Net income before income tax expense 2,365,128 2,485,631
Income tax expense (Note 42) 574,297 674,727

(Continued)

WOORI BANK

SEPARATE STATEMENT OF COMPREHENSIVE INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

2019 2018
(Korean won in millions,<br><br><br>except for per share data)
Net income
(Net income after the provision for regulatory reserve for credit loss for the years ended<br>December 31, 2019 and 2018, is 1,628,052 million won and 1,819,532 million won, respectively) (Note 32) 1,790,831 1,810,904
Net loss on valuation of equity securities at FVTOCI (72,141 ) (29,290 )
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit<br>risk — 100
Remeasurement of the net defined benefit liability (30,984 ) (79,639 )
Items that will not be reclassified to profit or loss (103,125 ) (108,829 )
Net gain on valuation of debt securities at FVTOCI 38,019 36,085
Gain on foreign currency translation of foreign operations 8,446 7,882
Items that may be reclassified to profit or loss 46,465 43,967
Other comprehensive loss, net of tax (56,660 ) (64,862 )
Total comprehensive income 1,734,171 1,746,042
Earnings per share (Note 43)
Basic and diluted earnings per share (in Korean Won) 2,451 2,466

See accompanying notes

WOORI BANK

SEPARATE STATEMENT OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

Capital<br>stock Hybrid<br>securities Capital<br>surplus Other<br>equity Retained<br>Earnings and<br>other reserves Total
(Korean Won in millions)
January 1, 2018 3,381,392 3,017,888 269,533 (135,282 ) 13,260,559 19,794,090
Cumulative effect of change in accounting policy — — — (393,473 ) 246,464 (147,009 )
Adjusted balance, beginning of the year 3,381,392 3,017,888 269,533 (528,755 ) 13,507,023 19,647,081
Net income — — — — 1,810,904 1,810,904
Dividends on common stocks — — — — (336,636 ) (336,636 )
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit<br>risk — — — 100 — 100
Changes in other comprehensive income due to redemption of financial liabilities designated as at<br>FVTPL — — — (4 ) 4 —
Net gain on valuation of financial assets at FVTOCI — — — 6,795 — 6,795
Changes in other comprehensive income due to disposal of equity securities at FVTOCI — — — (1,009 ) 1,009 —
Gain on foreign currency translation of foreign operations — — — 7,882 — 7,882
Remeasurement loss related to defined benefit plan — — — (79,639 ) — (79,639 )
Appropriation of retained earnings — — — 208,158 (208,158 ) —
Dividends to hybrid securities — — — — (151,194 ) (151,194 )
Issuance of hybrid securities — 398,707 — — — 398,707
Redemption of hybrid securities — (254,632 ) — (368 ) — (255,000 )
December 31, 2018 3,381,392 3,161,963 269,533 (386,840 ) 14,622,952 21,049,000
January 1, 2019 3,381,392 3,161,963 269,533 (386,840 ) 14,622,952 21,049,000
Net income — — — — 1,790,831 1,790,831
Dividends on common stocks — — — — (437,625 ) (437,625 )
Interim dividend — — — — (676,000 ) (676,000 )
Net changes in treasury stock — — — 28,040 — 28,040
Changes in other comprehensive income due to valuation of financial assets at FVTOCI — — — (34,122 ) — (34,122 )
Changes in other comprehensive income due to disposal of equity securities at FVTOCI — — — 45,513 (45,513 ) —
Gain on foreign currency translation of foreign operations — — — 8,446 — 8,446
Remeasurement loss related to defined benefit plan — — — (30,984 ) — (30,984 )
Appropriation of retained earnings — — — 368 (368 )
Dividends to hybrid securities — — — — (134,421 ) (134,421 )
Issuance of hybrid securities — 658,470 — — — 658,470
Redemption of hybrid securities — (159,619 ) — (276 ) — (159,895 )
December 31, 2019 3,381,392 3,660,814 269,533 (369,855 ) 15,119,856 22,061,740

See accompanying notes

WOORI BANK

SEPARATE STATEMENT OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

2019 2018
(Korean Won in millions)
Cash flows from operating activities:
Net income 1,790,831 1,810,904
Adjustments:
Income tax expense 574,297 674,727
Interest income (9,015,700 ) (8,331,967 )
Interest expense 4,155,365 3,604,249
Dividend income (152,982 ) (113,467 )
(4,439,020 ) (4,166,458 )
Additions of expenses not involving cash outflows:
Loss on financial assets at FVTOCI 895 —
Impairment losses due to credit loss 91,455 58,823
Impairment loss on investments in subsidiaries and associates 43,102 241
Loss on transaction and valuation of derivatives (designated for hedging) — 36,488
Loss on hedged items (fair value hedge) 86,214 17,299
Provision for other liabilities 108,749 10,823
Retirement benefits 146,022 128,447
Depreciation and amortization 417,168 217,074
Loss on disposal of premises and equipment, intangible assets and other assets 1,534 933
Impairment loss on premises and equipment, intangible assets and other assets 26,037 5,933
Loss on disposal of assets held for sale 205,046 —
1,126,222 476,061
Deductions of income not involving cash inflows:
Gain on valuation of financial assets at FVTPL 288,073 216,135
Gain on financial assets at FVTOCI 9,140 1,333
Gain on disposal of securities at amortized cost — 431
Gain on transaction and valuation of derivatives (designated for hedging) 90,244 9,126
Gain on hedged items (fair value hedge) 231 42,797
Reversal of provisions for other liabilities 3,866 1,883
Gain on disposal of investment in subsidiaries and associates — 35,409
Gain on disposal of premises and equipment, intangible assets and other assets 1,216 25,537
Reversal of impairment loss on premises and equipment and other assets 85 491
Gain on disposal of assets held for sale 256,829 —
649,684 333,142

(Continued)

WOORI BANK

SEPARATE STATEMENT OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

2019 2018
(Korean Won in millions)
Changes in assets and liabilities from operating activities:
Financial assets at FVTPL (111,787 ) 1,232,277
Loans and other financial assets at amortized cost (7,879,149 ) (11,927,559 )
Other assets (157,334 ) (23,497 )
Deposits due to customers 15,196,289 13,042,027
Provisions 4,360 7,781
Net defined benefit liability (280,267 ) (118,735 )
Other financial liabilities (4,901,977 ) 6,919,137
Other liabilities (10,270 ) 45,077
1,859,865 9,176,508
Cash received from operating activities:
Interest income received 8,971,435 8,305,699
Interest expense paid (3,898,180 ) (3,416,210 )
Dividend received 152,982 111,426
Income tax paid (457,514 ) (464,286 )
Net cash provided by(used in) operating activities 4,456,937 11,500,502
Cash flows from investing activities:
Cash in-flows from investing activities:
Disposal of Financial assets at FVTPL 11,355,894 11,918,394
Disposal of financial assets at FVTOCI 14,598,029 8,969,290
Redemption of securities at amortized cost 8,685,723 9,400,596
Disposal of investments in subsidiaries and associates 37,489 51,962
Disposal of premises and equipment 7,196 387
Disposal of intangible assets 80 2,845
Disposal of assets held for sale 996,885 81,650
35,681,296 30,425,124
Cash out-flows from investing activities:
Acquisition of financial assets at FVTPL 11,823,630 12,322,160
Acquisition of financial instruments at FVTOCI 23,367,718 12,945,225
Acquisition of securities at amortized cost 6,030,871 15,575,213
Acquisition of investments in subsidiaries and associates 433,138 285,140
Acquisition of investment properties 185,173 12,957
Acquisition of premises and equipment 190,677 89,414
Acquisition of intangible assets 95,330 163,877
Decrease of liabilities held for sale 37,708 —
42,164,245 41,393,986
Net cash used in investing activities (6,482,949 ) (10,968,862 )

(Continued)

WOORI BANK

SEPARATE STATEMENT OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

2019 2018
(Korean Won in millions)
Cash flows from financing activities:
Cash in-flows from financing activities:
Increase in borrowings 12,748,051 8,539,312
Issuance of debentures 7,679,374 5,248,047
Issuance of hybrid securities 658,470 398,707
21,085,895 14,186,066
Cash out-flows from financing activities:
Repayment of borrowings 11,204,529 8,280,546
Repayment of debentures 6,744,225 5,523,518
Repayment of lease liabilities 177,823 —
Dividends paid on common stocks 1,113,626 336,636
Redemption of hybrid securities 160,000 255,000
Dividends paid on hybrid securities 156,691 147,625
19,556,894 14,543,325
Net cash provided by(used in) financing activities 1,529,001 (357,259 )
Net increase(decrease) in cash and cash equivalents (497,011 ) 174,381
Cash and cash equivalents, beginning of the year 5,723,801 5,328,960
Effects of exchange rate changes on cash and cash equivalents 171,312 220,460
Cash and cash equivalents, end of the year (Note 6) 5,398,102 5,723,801

See accompanying notes

WOORI BANK

NOTES TO SEPARATE FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

1. GENERAL

Summary of Woori Bank

Woori Bank (the “Bank”) was established in 1899 and is engaged in the commercial banking business under the Banking Act, trust business and foreign exchange business under the Financial Investment Services and Capital Market Act (hereinafter referred to as the “Capital Market Act”).

As of December 31, 2019, the Bank’s shares are wholly owned by Woori Financial Group Inc. (“Woori Financial Group”) which was established in accordance with the Financial Holding Companies Act on January 11, 2019. The Bank has 676 million shares and common stocks amounting to 3,381,392 million Korean won.

The headquarters of the Bank is located at 51, Sogong-ro, Jung-gu, Seoul, Korea. The Bank has 874 branches and offices in Korea, and 23 branches and offices overseas as of December 31, 2019.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES
(1) Basis of preparation
--- ---

The Bank is preparing its financial statements in accordance with the Korean Financial Reporting Standards (“K-IFRS”), and this separate financial statements are prepared in accordance with K-IFRS 1027 “Separate Financial Statements”. Separate financial statements are those presented by an investor who has significant influence over subsidiaries or investees in which the entity could elect to account for its investments in subsidiaries, joint ventures and associates either at cost, in accordance with K-IFRS 1109 “Financial Instruments”, or using the equity method as described in K-IFRS 1028 “Investments in Associates and Joint Ventures”.

The significant accounting policies applied in the preparation of financial statements are stated below, and the accounting policies applied are identical to ones used in the preparation of previous period’s financial statements, except for the effects of adopting new standards or interpretations as explained below.

The financial statements are prepared at the end of each reporting period on the historical cost basis, except for certain non-current assets and financial assets that are either revalued or measured in fair value. Historical cost is generally measured at the fair value of consideration given to acquire assets.

The financial statements of the Bank was approved by the Board of Directors on March 3, 2020, and is planned for an approval in the annual shareholder’s meeting on March 24, 2020.

1) The Bank has newly adopted the following K-IFRS that affected the<br>Bank’s accounting policies:
① K-IFRS 1109 ‘Financial Instruments,’ K-IFRS 1107 ‘Financial Instruments: Disclosure’ amendments
--- ---

The Bank has adopted the amendments of K-IFRS 1109 and 1107 for the first time in the current year. The amendments mainly deal with the addition of temporary exceptions from applying specific hedge accounting requirements while the uncertainty arises from interest rate benchmark reform. The amendment requires that for the purpose of determining whether a forecast transaction (or a component thereof) is highly probable, an entity shall assume that the interest rate benchmark on which the hedged cash flows (contractually or non-contractually specified) are based is not altered as a result of interest rate benchmark reform. When applying the prospective assessment, the amendment further requires that an entity shall assume that the hedged risk or the interest rate benchmark on which the hedged item or the hedging instrument is based is not altered as a result of the reform. Additionally, for a hedge of a non-contractually specified benchmark component of interest rate risk, an entity shall apply the requirement that the risk component shall be separately identifiable only at the inception of the hedging relationship. Meanwhile, an entity shall prospectively cease applying the temporary exceptions to a hedged item at the earlier of:

(a) when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedged item; and (b) when the hedging relationship that the hedged item is part of is discontinued. Note 26 sets out details of the hedge accounting applied by the Bank. These amendments will be effective from January 1, 2020 but the Bank has applied such amendments in current year as the early adoption is permitted.

  • 2 -
② Leases

The Bank initially applied K-IFRS 1116 from January 1, 2019. Other accounting standards enacted from January 1, 2019 are not expected to have material impacts on the Bank’s financial statements.

K-IFRS 1116 introduces an accounting model for the single lessee and as a result, the Bank, as a lessee, recognizes right-of-use assets which represent a lessee’s right to use an underlying asset and lease liabilities which represent an obligation to make lease payments. An accounting model for the lessor is similar to the previous accounting policy.

The Bank recognized the cumulative effects due to the initial application of K-IFRS 1116 on January 1, 2019, which is the date of initial application. Therefore, the comparative financial information applies K-IFRS 1017 and the related interpretations as reported previously, and was not restated. The details of the changes to the accounting policy are described below.

i) Definition of a lease

Previously, the Bank determined whether an arrangement is, or contains, a lease on the arrangement date by applying K-IFRS 1017 and K-IFRS 2104 ‘Determining whether an arrangement contains a lease’. The Bank currently determines whether the contract is, or contains, a lease, based on the new definition of lease. According to K-IFRS 1116, a contract is, or contains a lease if the right to control the use of an identified asset is transferred in exchange for the consideration received for a period of time.

On the date of initial application for K-IFRS 1116, the Bank elected to apply a practical expedient which does not require the Bank to reassess whether the contract is a lease. The Bank applied K-IFRS 1116 only to the contracts that were previously identified as a lease and did not reassess the contracts that were not identified as a lease in line with K-IFRS 1017 and K-IFRS 2104. Therefore, the definition of a lease under K-IFRS 1116 is only applicable to contracts that are entered into or modified after January 1, 2019.

The Bank elected not to recognize right-to-use assets and lease liabilities for certain leases of low-value assets (e.g. IT equipment) and short-term leases (less than one year). The Bank will recognize the related lease payments as expenses equally over the lease period.

IFRS Interpretations Committee published its interpretation of ‘Lease Period and Lease Improvement Useful Life’ as of December 16, 2019. The Interpretation Committee discussed the calculation method of renewable lease and cancellable lease and etc., and according to the interpretation, the Bank shall identify factors to consider a wide range of economic disadvantages and calculate the lease period based on them. However, as the Bank is holding a large number of contracts and the conditions of the contract vary, sufficient time is required for analysis of the contract and accounting policy establishment. Therefore, the Bank is planning to reflect the effects in the financial statements after the analysis of the effects changes in accounting policies over the lease term is completed.

ii) Lessee

The Bank leases various assets, including buildings, vehicles and IT equipment.

Previously, the Bank classified its leases either as an operating lease or as a finance lease based on whether the lease substantially transfers the risk and reward of owning the underlying assets. According to K-IFRS 1116, the Bank recognizes right-of-use assets and lease liabilities for most of its leases, which means most of its leases are presented in the statement of financial position.

For the right-of-use assets that do not satisfy the definition of an investment property, the Bank presents those assets as the same item as the item that the corresponding underlying asset would have been presented for. Right-of-use assets that meet the definition of investment would be presented as investment properties.

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For a contract that contains a lease component, the Bank allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease and non-lease components.

Transition requirements

For leases previously classified as operating leases applying K-IFRS 1017, the Bank measures lease liabilities at the present value of the remaining lease payments using the Bank’s incremental borrowing rates as of January 1, 2019. However, the Bank elected not to apply recognition, measurement and presentation requirements for leases of low-value assets. A right-of-use asset is measured using the following method.

• It is the same amount as the lease liability (adjusted for any advanced payments or payables) and the Bank adopts<br>this method for all its leases.

For leases previously classified as operating leases applying K-IFRS 1017, the Bank applies the following practical expedient when applying K-IFRS 1116. The Bank does not apply the practical expedient that does not recognize assets and liabilities from lease contracts whose remaining lease term is less than 12 months from initial application.

• Did not apply single discount rate upon leases whose natures are quite alike.
• Any initial direct cost is excluded from the estimation of right-of-use assets on the date of initial application.
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• As an alternative to impairment review, K-IFRS 1037 ‘Provisions,<br>Contingent Liabilities and Contingent Assets’ is applied immediately prior to the date of initial application to determine whether the leases are onerous.
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• Hindsight is used when determining a lease term for contracts that contain an extension option or termination<br>option.
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iii) Impacts to the financial statements
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a) Impacts at the point of transition
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As of the date of transition to K-IFRS 1116, the Bank additionally recognized the right-of-use assets and lease liabilities, and the impacts are as follows (Unit: Korean won in millions):

January 1, 2019
Right-of-use<br>assets presented as premises and equipment 322,986
Lease liability (*) 263,496
(*) The differences have occurred due to prepaid, unpaid lease payments, transfer, etc. There is no effect on<br>retained earnings.
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When measuring lease liabilities for the leases that were previously classified as operating leases, the Bank used its incremental borrowing rate as of January 1, 2019 as follows. The applied weighted-average incremental borrowing rate is 2.09%.

January 1, 2019
Operating leases as of December 31, 2018 274,686
Amount discounted by incremental borrowing rate on January 1, 2019 263,496
Lease liability recognized on January 1, 2019 263,496
b) Impacts during the transition
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The Bank recognized depreciation expenses and interest expenses instead of the operating lease expenses for the leases in line with K-IFRS 1116. For the year ended December 31, 2019, the Bank recognized depreciation expenses of 195,986 million won and interest expenses of 6,262 million won.

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③ Share-based payment

For cash-settled share-based payment transactions that provide cash in return for the goods or services received, the Bank measures the goods or services received and the corresponding liability at the fair value, and recognizes as employee benefit, expenses and liabilities during the vesting period. The fair value of the liability is remeasured at the end of each reporting period and the settlement date until the liability is settled, and changes in fair value are recognized as employee benefits.

④ The following enacted/amended standards are not expected to significantly affect the Bank:<br>
• K-IFRS 2123 – Uncertainty over Income Tax Treatments (enacted)<br>
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• Amendments to K-IFRS 1109
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• Amendments to K-IFRS 1028
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• Amendments to K-IFRS 1019
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• Amendments to K-IFRS 1115
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• Annual Improvements to K-IFRS 2015-2017 Cycle
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These annual improvements include partial amendments of K-IFRS 1012 ‘Income Tax,’ K-IFRS 1023 ‘Borrowing Cost,’ K-IFRS 1103 ‘Business Combination’ and K-IFRS 1111 ‘Joint Arrangements’.

2) The details of K-IFRS that have been issued and published as of date of<br>issue approval of financial statements, but have not yet reached the effective date, and which the Bank has not applied earlier, are as follows:
• Amendments to the conceptual framework for financial reporting
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• Amendments to K-IFRS 1103 ‘Business combinations’
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• Amendments to K-IFRS 1001 ‘Presentation of Financial<br>Statements,’ and K-IFRS 1008 ‘Changes in Accounting Estimates and Errors’
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The above amendments are not considered to have any significant impact on the Bank.

(2) Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured as the sum of the acquisition-date fair values of the assets transferred by the Bank in exchange for control of the acquiree, liabilities assumed by the Bank and the equity interests issued by the Bank. Acquisition-related costs are generally recognized in profit or loss as incurred.

At the acquisition date, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the condition for recognition under K-IFRS 1103 are recognized at their fair value, except that:

• deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are<br>recognized and measured in accordance with K-IFRS 1012 Income Taxes and K-IFRS 1019 Employee Benefits, respectively;
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based<br>payment arrangements of the Bank entered into to replace share-based payment arrangements of the acquiree are measured in accordance with K-IFRS 1102 Share-based Payment at the acquisition date; and<br>
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• non-current assets (or disposal groups) that are classified as held for<br>sale in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations are measured at the lower of their previous carrying amounts and fair<br>value less costs to sell.
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Any excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Bank’s previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets.

If, after reassessment, the Bank’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognized immediately in net income (or other comprehensive income, if applicable) identical to the treatment assuming interests are sold directly.

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Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable.

When the consideration transferred by the Bank in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration other than the above is remeasured at subsequent reporting dates as appropriate, with the corresponding gain or loss being recognized in profit or loss.

When a business combination is achieved in stages, the Bank’s previously held equity interest in the acquiree is remeasured at fair value at the acquisition date (i.e., the date when the Bank obtains control) and the resulting gain or loss, if any, is recognized in net income (or other comprehensive income, if applicable). Amounts arising from changes in value of interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are recognized, identical to the treatment assuming interests are sold directly.

In cases where i) a common entity ultimately controls over all participating entities, or businesses, in a business combination transaction, prior to and after the transaction continuously, and ii) the control is not temporary, the transaction meets the definition of “business combination under common control” and it is deemed that the transaction only results in the changes in legal substance, and not economic substance, from the perspective of the ultimate controlling party. Thus, in such transactions, the acquirer recognizes the assets and liabilities of the acquiree in its financial statements at the book values as recognized in the ultimate controlling party’s consolidated financial statements, and the difference between the book value of consideration transferred to and the book value of net assets transferred in is recognized as equity.

(3) Investment in Joint operation

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

When the Bank operates as a joint operator, it recognizes in relation to its interest in a joint operation:

• its assets, including its share of any assets held jointly;
• its liabilities, including its share of any liabilities incurred jointly;
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• its revenue from the sale of its share of the output arising from the joint operation;
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• its share of the revenue from the sale of the output by the joint operation; and
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• its expenses, including its share of any expenses incurred jointly.
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The Bank accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the K-IFRSs applicable to the particular assets, liabilities, revenues and expenses.

When the Bank enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it does not recognize proportional share of profit or loss until the asset is sold to a third party.

(4) Revenue recognition

K-IFRS 1115 requires the recognition of revenues based on transaction price allocated to the performance obligation when or as the Bank performs that obligation to the customer. Revenues other than those from contracts with customers, such as interest revenue and loan origination fee (cost), are measured through effective interest rate method.

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1) Revenue from contracts with customers

The Bank recognizes revenue when the Bank satisfies a performance obligation by transferring a promised good or service to a customer. When a performance obligation is satisfied, the Bank recognizes as a revenue the amount of the transaction price that is allocated to that performance obligation. The transaction price is the amount of consideration to which the Bank expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

The Bank recognizes revenue by major sources as shown below:

① Fees and commission received for brokerage

The fees and commission received for agency are the amount of consideration or fee expected to be entitled to receive in return for providing goods or services to the other parties with the Bank acting as an agency, such as in the case of sales of bancassurance and beneficiary certificates. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.

② Fees and commission received related to credit

The fees and commission received related to credit mainly include the lending fees received from the loan activity and the fees received in the L/C transactions. Except for the fees and commission accounted for in calculating the effective interest rate, it is generally recognized when the performance obligation has been performed. The majority of these fees and commission received related to credit are from the business activities relevant to Consumer banking and Corporate banking segment.

③ Fees and commission received for electronic finance

The fees and commission received for electronic finance include fees received in return for providing various kinds of electronic financial services through firm-banking and CMS. These fees are recognized as revenue immediately upon the completion of services. The majority of these fees and commission received for electronic finance are from the business activities relevant to Consumer banking and Corporate banking segment.

④ Fees and commission received on foreign exchange handling

The fees and commission received on foreign exchange handling consist of various fees incurred when transferring foreign currency. The point of processing the customer’s request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange handling are substantially attributable to Corporate banking segment.

⑤ Fees and commission received on foreign exchange

The fees and commission received on foreign exchange consist of fees related to the issuance of various certificates, such as exchange, import and export performance certificates, purchase certificates, etc. The point of processing the customer’s request is the time when performance obligation is satisfied, and revenue is immediately recognized when fees and commission are received after requests are processed. The business activities relevant to these fees and commission received on foreign exchange are substantially attributable to Corporate banking segment.

⑥ Fees and commission received for guarantee

The fees and commission received for guarantee include the fees received for the various warranties. The activities related to the warranty consist mainly of performance obligations satisfied over time and fees and commission are recognized over the guarantee period. The business activities relevant to these fees and commission received for guarantee are substantially attributable to Corporate banking segment.

⑦ Fees and commission received on securities business

The fees and commission received on securities business consist mainly of fees and commission for the sale of beneficiary certificates, and these fees are recognized when the beneficiary certificates are sold to customers. The business activities relevant to these fees and commission received on credit card are substantially attributable to Consumer banking segment.

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⑧ Fees and commission from trust management

The fees and commission from trust management consist of fees and commission received in return for the operation and management services for entrusted assets. These operation and management services are performance obligations satisfied over time, and revenue is recognized over the service period. Among the fees and commission from trust management, variable considerations such as profit commission that are affected by the value of entrusted assets and base return of the future periods are recognized as revenue when limitations to the estimates are lifted. The majority of these fees and commission received for brokerage are from the business activities relevant to Consumer banking segment.

⑨ Other fees

Other fees are usually fees related to remittances, but include fees related to various other services provided to customers by the Bank. These fees are recognized when transactions occur at the customers’ request and services are provided, at the same time when commissions are received. These other fees occur across all operating segments and no single operating segment represents majority of other fees.

2) Other revenue from contracts with customers
① Interest income
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Interest income on financial assets measured at FVTOCI and financial assets at amortized costs is measured using the effective interest method.

The effective interest method is a method of calculating the amortized cost of debt securities (or group of financial assets) and of allocating the interest income over the expected life of the asset. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instrument’s initial total carrying amount over the expected period, or shorter if appropriate. Future cash flows include commissions and cost of reward points (limited to the primary component of effective interest rate) and other premiums or discounts that are paid or received between the contractual parties, and future cash flows exclude expected credit loss when calculating the effective interest rate. All contractual terms of a financial instrument are considered when estimating future cash flows.

For purchased or originated credit-impaired financial assets, interest revenue is recognized by applying the credit-adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. Even if the financial asset is no longer impaired in the subsequent periods due to credit improvement, the basis of interest revenue calculation is not changed from amortized cost to unamortized cost of the financial assets.

② Loan origination fees and costs

The commission fees earned on loans, which is part of the effective interest of loans, is accounted for as deferred origination fees. Incremental costs related to the origination of loans are accounted for as deferred origination fees and is being added or deducted to/from interest income on loans using effective interest rate method.

(5) Accounting for foreign currencies

The Bank’s separate financial statements are presented in Korean Won, which is the functional currency of the Bank. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at its prevailing exchange rates at the date. The effective portion of the changes in fair value of a derivative that qualifies as a cash flow hedge and the foreign exchange differences on monetary items that form part of net investment in foreign operations are recognized in equity.

Assets and liabilities of the foreign operations subject to consolidation are translated into Korean Won at foreign exchange rates at the end of the reporting period. Except for situations in which it is required to use exchange rates at the date of transaction due to significant changes in exchange rates during the period, items that belong to profit or loss are measured by average exchange rate, with foreign exchange differences recognized as other comprehensive income and added to equity (allocated to non-controlling interests, if appropriate). When foreign operations are disposed, the controlling interest’s share of accumulated foreign exchange differences related to such foreign operations will be reclassified to profit or loss, while non-controlling interest’s corresponding share will not be reclassified.

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Adjustments to fair value of identifiable assets and liabilities, and goodwill arising from the acquisition of foreign operations will be treated as assets and liabilities of the corresponding foreign operation, and is translated using foreign exchange rates at the end of the period. The foreign exchange differences are recognized in equity.

(6) Cash and cash equivalents

The Bank is classifying cash on hand, demand deposits, interest-earning deposits with original maturities of up to three months on acquisition date, and highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value as cash and cash equivalents.

(7) Financial assets and financial liabilities
1) Financial assets
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A regular way purchase or sale of financial assets is recognized or derecognized on the trade date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

On initial recognition, financial assets are classified into financial assets at FVTPL, financial assets at FVTOCI, and financial assets at amortized cost.

a) Business model

The Bank evaluates the way business is being managed, and the purpose of the business model for managing a financial asset best reflects the way information is provided to the management at its portfolio level. Such information considers the following:

• The accounting policies and purpose specified for the portfolio, and the actual operation of such policies. This<br>includes strategy of the management focusing on the receipt of contractual interest revenue, maintaining a certain level of interest income, matching the duration of financial assets and the duration of corresponding liabilities to obtain the asset,<br>and outflow or realization of expected cash flows from disposal of assets
• The way the performance of a financial asset held under the business model is evaluated, and the way such<br>evaluation is being reported to the management
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• The risk affecting the performance of the business model (and financial assets held under the business model),<br>and the way such risk is being managed
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• The compensation plan for the management (e.g. whether the management is being compensated based on the fair<br>value of assets or based on contractual cash flows received)
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• Frequency, amount, timing and reason for sale of financial assets in the past, and forecast of future sale<br>activities.
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b) Contractual cash flows
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The principal is defined to be the fair value of a financial assets at initial recognition. Interest is not only composed of consideration for the time value of money, consideration for the credit risk related to remaining principal at a certain period of time, and consideration for other cost (e.g. liquidity risk and cost of operation) and fundamental risk associated with lending, but also profit.

When evaluating whether contractual cash flows are solely payments of principal and interests, the Bank considers the contractual terms of the financial instrument. When a financial asset contains contractual conditions that modify the timing and amount of contractual cash flows, it is required to determine whether contractual cash flows that arise during the remaining life of the financial instrument due to such contractual condition are solely payments of principal and interest. The Bank considers the following elements when evaluating the following:

• Conditions that lead to modification of timing or amount of cash flows
• Contractual terms that adjust contractual nominal interest, including floating rate features<br>
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• Early payment features and maturity extension features
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• Contractual terms that limit the Bank’s claim on cash flows arising from certain assets (e.g. non-recourse feature)
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① Financial assets at FVTPL

The Bank is classifying those financial assets that are not classified as either financial assets at amortized cost or financial assets at FVTOCI, and those designated to be measured at FVTPL, as financial assets at FVTPL. Financial assets at FVTPL are measured at fair value, and related profit or loss is recognized in net income. Transaction costs related to acquisition at initial recognition is recognized in net income immediately upon its occurrence.

It is possible to designate a financial asset as financial asset at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial asset at FVTPL; (b) the financial asset forms part of the Bank’s financial instrument group (a group composed of a combination of financial asset or liability), is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial asset is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial asset at FVTPL is allowed under K-IFRS 1109 ‘Financial Instruments’. However, the designation is irrevocable.

② Financial assets at FVTOCI

When financial assets are held under a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at FVTOCI. Also, for investments in equity instruments that are not held for short-term trade, an irrevocable election is available at initial recognition to present subsequent changes in fair value as other comprehensive income.

At initial recognition, financial assets at FVTOCI is measured at its fair value plus any direct transaction cost, and is subsequently measured in fair value. However, for equity instruments that do not have a quotation in an active market and in which fair value cannot be measured reliably, they are measured at cost. The changes in fair value except for profit or loss items such as impairment losses (reversals), interest revenue calculated by using effective interest method, and foreign exchange gain or loss, and related income tax effects are recognized as other comprehensive income until the asset’s disposal. Upon derecognition, the accumulated other comprehensive income is reclassified from equity to net income for FVTOCI (debt instruments), and reclassified within the equity for FVTOCI (equity instruments)

③ Financial assets at amortized cost

When financial assets are held under a business model whose objective is to hold financial assets in order to collect contractual cash flows, and when contractual cash flows from such financial assets are solely payments of principal and interest, the financial assets are classified as financial assets at amortized cost. At initial recognition, financial assets at amortized cost are recognized at fair value plus any direct transaction cost. Financial assets at amortized cost is presented at amortized cost using effective interest method, less any loss allowance.

2) Financial liabilities

At initial recognition, financial liabilities are classified into either financial liabilities at FVTPL or financial liabilities at amortized cost.

Financial liabilities are usually classified as financial liabilities at FVTPL when they are acquired with a purpose to repurchase them within a short period of time, when they are part of a certain financial instrument portfolio that is actually and recently being managed with a purpose of short-term profit and joint management by the Bank at initial recognition, and when they are derivatives that do not qualify as hedging instruments. Financial liabilities at FVTPL are measured at fair value with any direct transaction cost recognized in profit or loss, and are subsequently measured at fair value. Profit or loss arising from financial liabilities at FVTPL is recognized in net income when occurred.

It is possible to designate a financial liability as financial liability at FVTPL if at initial recognition: (a) it is possible to remove or significantly reduce recognition or measurement mismatch that may otherwise have occurred if not for its designation as financial liability at FVTPL; (b) the financial asset forms part of the Bank’s financial instrument group (a group composed of a combination of financial asset or liability) according to the Bank’s documented risk management or investment strategy, is measured at fair value and is being evaluated for its performance, and such information is provided internally; and (c) the financial liability is part of a contract that contains one or more of embedded derivatives, and is a hybrid contract in which designation as financial liability at FVTPL is allowed under K-IFRS 1109 ‘Financial Instruments’.

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Financial liabilities designated as at FVTPL are initially recognized at fair value, with any direct transaction cost recognized in profit or loss, and are subsequently measured at fair value. Any profit or loss from financial liabilities at FVTPL are recognized in profit or loss.

Financial liabilities not classified as financial liabilities at FVTPL are measured at amortized cost. The Bank is classifying liabilities such as deposits due to customers, borrowings and debentures as financial liabilities at amortized cost.

3) Reclassification

Financial assets are not reclassified after initial recognition unless the Bank modifies the business model used to manage financial assets. When the Bank modifies the business model used to manage financial assets, all affected financial assets are reclassified on the first day of the first reporting period after the modification.

4) Derecognition

Financial assets are derecognized when contractual rights to cash flows from the financial assets are expired, or when substantially all of risk and reward for holding financial assets is transferred to another entity as a result of a sale of financial assets. If the Bank does not have and does not transfer substantially all of the risk and reward of holding financial assets with control of the transferred financial assets retained, the Bank recognizes financial assets to the extent of its continuing involvement. If the Bank holds substantially all the risk and reward of holding a financial asset, it continues to recognize that asset and proceeds are accounted for as collateralized borrowings.

When a financial asset is fully derecognized, the difference between the book value and the sum of proceeds and accumulated other comprehensive income is recognized as profit or loss in case of FVTOCI (debt instruments), and as retained earnings for FVTOCI (equity instruments).

In case when a financial asset is not fully derecognized, the Bank allocates the book value into amounts retained in the books and removed from the books, based on the relative fair value of each portion at the date of sale, and based on the degree of continuing involvement. For the derecognized portion of the financial assets, the difference between its book value and the sum of proceeds and the portion of accumulated other comprehensive income attributable to that portion will be recognized in profit or loss in case of debt instruments and recognized in retained earnings in case of equity instruments. The accumulated other comprehensive income is distributed to the portion of book value retained in the books, and to the portion of book value removed from the books.

The Bank derecognizes financial liabilities when, and only when, the Bank’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

When the Bank exchanges with the existing lender one debt instrument into another one with substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Bank accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 percent different from the discounted present value of the remaining cash flows of the original financial liability.

5) Fair value of financial instruments

Financial assets at FVTPL and financial assets at FVTOCI are measured and presented in financial statements at their fair values, and all derivatives are also subject to fair value measurement.

Fair value is defined as the price that would be received to exchange an asset or paid to transfer a liability in a recent transaction between independent parties that are reasonable and willing. Fair value is the transaction price of identical financial assets or financial liabilities generated in an active market. An active market is a market where trade volume is sufficient and objective price information is available due to the fact that bid and ask price differences are small.

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When trade volume of a financial instrument is low, when transaction prices within the market show large differences among them, or when it cannot be concluded that a financial instrument is being traded within an active market due to disclosures being extremely shallow, fair value is measured using valuation techniques based on alternative market information or using internal valuation techniques based on general and observable information obtained from objective sources. Market information includes maturity and characteristics, duration, similar yield curve, and variability measurement of financial instruments of similar nature. Fair value amount contains unique assumptions on each entity (the Bank concluded that it is using assumptions applied in valuing financial instruments in the market, or risk-adjusted assumptions in case marketability does not exist).

The market approach and income approach, which are valuation techniques used to estimate the fair value of financial instruments, both require significant judgment. Market approach measures fair value using either a recent transaction price that includes the financial instrument, or observable information on comparable firm or assets. Income approach measures fair value through discounting future cash flows with a discount rate reflecting market expectations, and revenue, operating income, depreciation, capital expenditures, income tax, working capital and estimated residual value of financial investments are being considered when deriving future cash flows. Valuation techniques such as the above include estimates based on the financial instruments’ complexity and usefulness of observable information in the market.

The valuation techniques used in the evaluation of financial instruments are explained below.

a) Financial assets at FVTPL and Financial assets at FVTOCI

The fair value of equity securities included in financial assets at FVTPL and financial assets at FVTOCI category is recognized in the statement of financial position at its available market price. Debt securities traded in the over-the-counter market are generally recognized at an amount computed by an independent appraiser. When the Bank uses the fair value determined by independent appraisers, the Bank usually obtains three values from three different appraisers for each financial instrument, and selects the minimum amount without making additional adjustments. For equity securities without marketability, the Bank uses the amount determined by the independent appraiser. The Bank verifies the prices obtained from appraisers in various ways, including the evaluation of independent appraisers’ competency, indirect verification through comparison between appraisers’ price and other available market information, and reappraisal done by employees who have knowledge of valuation models and assumptions that appraisers used.

b) Derivatives

The Bank’s transactions involving derivatives such as futures and exchange traded options are measured at market value. A portion of exchange traded derivatives classified as level 2 in the fair value hierarchy, the fair value is estimated using internal valuation techniques. If there are no publicly available market prices because they are traded over-the-counter, fair value is measured through internal valuation techniques. When using internal valuation techniques to derive fair value, the types of derivatives, base interest rate or characteristics of prices, or stock market indices are considered. When variables used in the internal valuation techniques are not observable information in the market, such variables may contain significant estimates.

c) Adjustment of valuation amount

The Bank is exposed to credit risk when a counterparty to a derivative contract does not perform its contractual obligation, and the exposure amount is equal to the amount of derivative asset recognized in the statement of financial position. When the Bank earns income through derivatives, such income is recognized as derivative asset in the statement of financial position. Some of the derivatives are traded in the market, but most of the derivatives are measured at estimated fair value derived from internal valuation models that use observable information in the market. As such, in order to estimate the fair value there should be an adjustment made to incorporate counterparty’s credit risk, and credit risk adjustment is being considered when valuing derivative assets such as over-the counter derivatives. The amount of financial liabilities is also adjusted by the Bank’s own credit risk when valuing them.

The amount of adjustment is derived from counterparty’s probability of default and loss given default. This adjustment considers contractual matters that are designed to reduce the Bank’s exposure to each counterparty’s credit risk. When derivatives are under master netting arrangement, the exposure used in the computation of credit risk adjustment is a net amount after adding/deducting cash collateral received (or paid) from loss(or gain) position derivatives with the same counterparty.

  • 12 -
6) Expected credit losses on financial assets

The Bank recognizes loss allowance on expected credit losses for the following assets:

• Financial assets at amortized cost
• Debt instruments measured at FVTOCI
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• Contract assets as defined by K-IFRS 1115
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Expected credit losses are weighted-average value of a range of possible results, considering the time value of money, and are measured by incorporating information on current conditions and forecasts of future economic conditions that are available without undue cost or effort.

The methods to measure expected credit losses are classified into following three categories in accordance with K-IFRS:

• General approach: Financial assets that do not belong to below two models and unused loan commitments<br>
• Simplified approach: When financial assets are either trade receivables, contract assets or lease receivables<br>
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• Credit impairment model: Purchased or originated credit-impaired financial assets
--- ---

The measurement of loss allowance under general approach is differentiated depending on whether the credit risk has increased significantly after initial recognition. That is, loss allowance is measured based on 12-month expected credit loss when the credit risk has not increased significantly after initial recognition, while loss allowance is measured at lifetime expected credit loss when credit risk has increased significantly. Lifetime is the expected remaining life of the financial instrument up to the maturity date of the contract.

The measurement of loss allowance under simplified approach is always based on lifetime expected credit loss, and loss allowance under credit impairment model is measured as the cumulative change in lifetime expected credit loss since initial recognition.

a) Measurement of expected credit losses on financial asset at amortized cost

The expected credit losses on financial assets at amortized cost is measured by the difference between the contractual cash flows during the period and the present value of expected cash flows. Expected cash inflows are computed for individually significant financial assets in order to calculate expected credit losses.

When financial assets are not individually significant, they are included in a group of financial assets with similar credit risk characteristics and expected credit losses of the group are calculated collectively.

Expected credit losses are deducted through loss allowance account, and when the financial asset is determined to be uncollectible, the loss allowance is written off from the books along with the related financial asset. When loan receivable previously written off is subsequently collected, the related loss allowance is increased and changes in loss allowance are recognized in profit or loss.

b) Measurement of expected credit losses on financial asset at FVTOCI

The measurement method of expected credit loss is identical to financial asset at amortized cost, but changes in the allowance is recognized in other comprehensive income. When financial assets at FVTOCI is disposed or repaid, the related allowance is reclassified from other comprehensive income to net income.

(8) Offsetting financial instruments

Financial assets and liabilities are presented as a net amount in the statements of financial position when the Bank has an enforceable legal right and an intention to settle on a net basis or to realize an asset and settle the liability simultaneously.

(9) Investment properties

The Bank classifies a property held to earn rentals and/or for capital appreciation as an investment property. Investment properties are measured initially at cost, including transaction costs, less subsequent depreciation and impairment.

Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Bank and the cost of an asset can be measured reliably, and the book value of a portion of an asset that are replaced by a subsequent expenditure is removed from the books. Routine maintenance and repairs are expensed as incurred.

  • 13 -

While land is not depreciated, all other investment properties are depreciated based on the depreciation method and useful lives of premises and equipment. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, and when it is deemed appropriate to change them, the effect of any change is accounted for as a change in accounting estimates.

An investment property is derecognized from the separate financial statements on disposal or when it is permanently withdrawn from use and no future economic benefits are expected even from its disposal. The gain or loss from derecognition of an investment property is calculated as the difference between the net disposal proceeds and the carrying amount of the property, and is recognized in profit or loss of the period.

(10) Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of premises and equipment is expenditure directly attributable to their purchase or construction, which includes any cost 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. It also includes the initial estimate of costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of an asset or as a separate asset (if appropriate) if it is probable that future economic benefit associated with the assets will flow into the Bank and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred.

While land is not depreciated, for all other premises and equipment, depreciation is charged to net income on a straight-line basis by applying the following estimated economic useful lives on the amount of cost or revalued amount less residual value.

Useful life
Buildings used for business purpose 40 years
Structures in leased office 5 years
Properties for business purpose 5 years

The Bank reassesses the depreciation method, the estimated useful lives and residual values of premises and equipment at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate. When there is an indicator of impairment and the carrying amount of a premises and equipment item exceeds the estimated recoverable amount, the carrying amount of such asset is reduced to the recoverable amount.

(11) Intangible assets and goodwill

The Bank is recognizing intangible assets measured at the manufacturing cost or acquisition cost plus additional incidental expenses less accumulated amortization and accumulated impairment losses. The Bank’s intangible asset are amortized over the following economic lives using the straight-line method. The estimated useful life and amortization method are reviewed at the end of each reporting period. If changes in the estimates are deemed appropriate, the changes are accounted for as a change in an accounting estimate.

Useful life
Industrial property rights 10 years
Development costs 5 years
Other intangible assets 5 years

In addition, when an indicator that intangible assets are impaired is noted, and the carrying amount of the asset exceeds the estimated recoverable amount of the asset, the carrying amount of the asset is reduced to its recoverable amount.

Goodwill is not amortized, but is subject to an impairment test every year, and whenever there is an indicator that goodwill is impaired.

  • 14 -

Goodwill is allocated to each of the Bank’s cash-generating unit (or groups of cash-generating units) that is expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill cannot be reversed in subsequent periods.

(12) Impairment of non-monetary assets

Intangible assets with indefinite useful lives or intangible assets that are not yet available for use are tested for impairment annually, regardless of whether or not there is any indication of impairment. All other assets are tested for impairment by estimating the recoverable amount when there is an objective indication that the carrying amount may not be recoverable. Recoverable amount is the higher of value in use or net fair value, less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized immediately in net income.

(13) Leases

As the Bank applied K-IFRS 1116 using the revised retrospective method, the comparative financial information has not been prepared. The Bank also applied K-IFRS 1017 and 2104. The accounting policies in accordance with K-IFRS 1017 and 2104 are separately disclosed.

Accounting policy applied since January 1, 2019

The Bank determines whether the agreement is a lease or includes a lease at the time of the agreement. In exchange for consideration in the contract, if the control over the use of the identified asset is transferred for a period of time, the contract is a lease or includes a lease. In determining whether a contract transfers control of the use of the identified asset, the Bank uses the definition of a lease in K-IFRS 1116.

This accounting policy applies to contracts entered into since January 1, 2019.

1) The Bank as a lessee

The Bank recognizes the right-of-use asset and the lease liability at the commencement date of the lease. The right-of-use asset is measured at cost, which comprises the amount of the initial measurement of the lease liability, lease payments made at or before the commencement date (less any lease incentives received), initial direct costs, and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located.

The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement of the lease to the end of the lease term. However, if the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee depreciates the right-of-use asset same as a fixed asset from the commencement date to the end of the useful life of the underlying asset. The right-of-use asset may be reduced by an impairment of the underlying asset or adjusted by remeasurement of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the interest rate implicit in the lease, but if that cannot be readily determined, the Bank uses its incremental borrowing rate. The Bank generally uses the incremental borrowing rate.

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The lease payments included in the measurement of the lease liability comprise the following:

• Fixed payments (including in-substance fixed payments)<br>
• Variable lease payments that depend on an index (or a rate), initially measured using the index or rate as at the<br>commencement date
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• Amounts expected to be payable by the lessee under residual value guarantees
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• The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, lease<br>payments of the extended period if the lessee is reasonably certain to exercise extension option, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease<br>
--- ---

The lease liability is subsequently increased by the interest expense recognized for the lease liability and decreased by reflecting the payment of the lease payments. The lease liability is remeasured if the future lease payments change depending on changes in the index(or a rate), changes in the expected amount to be paid under the residual value guarantee, and changes in the assessment of whether the purchase or extension option is reasonably certain to be exercised or not to exercise the terminate option.

When remeasureing a lease liability, the related right-of-use asset is adjusted and if the carrying amount of the right-of-use asset decreases to zero, the remeasurement amount is recognized in profit or loss.

The Bank applies its judgment when determining the lease term for some lease contracts that include the extension option. The assessment of whether the bank is reasonably certain to exercise the option significantly affects the lease term and therefore has a significant impact on the amount of lease liabilities and the right-of-use asset.

In the statement of financial position, the Bank classified the right-of-use assets that do not meet the definition of investment property as ‘fixed assets’ and the lease liabilities as ‘other financial liabilities.’

Short-term lease and leases for which the underlying asset is of low value

The Bank has chosen a practical expedient that does not recognize the right-of-use asset and lease liabilities for short-term leases with a lease term less than 12 months and leases for which the underlying asset is of low value. The Bank recognizes the lease payments associated with those leases as an expense on a straight-line basis over the lease term.

2) The Bank as a lessor

At the date of the agreement or the effective date of the modification containing the lease element, the Bank allocates the consideration of the contract to each lease element on the basis of its relative stand-alone price.

As a lessor, the Bank classifies its leases as either an operating lease or a finance lease at the commencement date.

The Bank subsequently judges whether the lease transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset, otherwise a lease is classified as an operating lease.

If the agreement contains both lease and non-lease elements, the Bank applies K-IFRS 1115 to allocate the consideration of the contract.

The Bank applies derecognition and impairment provisions of K-IFRS 1109 to its net investment in the lease. The Bank also carries out regular review of the unguaranteed residual value used to calculate total lease investment.

The Bank recognizes lease payments from operating lease as income on a straight-line basis.

The accounting policy that the Bank has applied as a lessor is not different from K-IFRS 1116.

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3) Accounting policy applied before January 1, 2019

The Bank classifies a lease as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee, and all lease contracts other than finance leases are classified as operating leases.

① The Bank as a lessee

In case of finance leases, the lesser amount of the present value of the minimum lease payments at the commencement date of the lease term or the fair value of the leased asset are recognized as financial lease assets and liabilities in the statement of financial position. Lease payments are allocated as interest expense and repayment of the lease liability so that the same period interest rate is calculated for the balance of the liability. Adjustment to the lease payments are accounted for as expenses during the period.

The operating lease payments are recognized as an expense on a straight-line basis if there is no other systematic basis that is more representative of the pattern in which benefit from the use of underlying asset. Adjustment lease payments from the operating leases are accounted for as expenses during the period in which they are incurred.

② The Bank as a lessor

The Bank recognizes a finance lease receivable equal to the present value of the minimum lease and the non-guaranteed residual value, which is the net investment of the finance lease. The accounting for recognizing interest income by reporting period is carried out on a financial lease receivable after the commencement date of the lease term by applying a method in which a certain interest rate of the Bank’s net investment in the lease is calculated.

The Bank recognizes income from lease payments of operating lease on a straight line basis over the lease term, and the direct costs of the lease incurred during the negotiation and contract phase of the operating lease is added to the carrying value of the lease asset and recognized as an expense over the lease term on a straight-line basis. Operating lease assets are included in other assets and are depreciated over their economic useful life.

(14) Derivative instruments

Derivative instruments are classified as forwards, futures, options and swaps, depending on the types of transactions and are classified at the point of transaction as either trading or hedging based on its purpose.

Derivatives are initially recognized at fair value at the date of contract and are subsequently measured at fair value at the end of each reporting period. The resulting gain or loss is recognized in net income immediately unless the derivative is designated and effective as a hedging instrument. If derivatives have been designated as hedging instruments and if it is effective, the point of recognition of gain or loss depends on the characteristics of hedging relationship.

1) Embedded derivatives

Embedded derivatives are components of a hybrid financial instrument that includes a non-derivative host contract. It has an effect of modifying part of cash flows of the hybrid financial instrument similar to an independent derivative.

Embedded derivatives that are part of a hybrid contract of which the host contract is a financial asset within the scope of K-IFRS 1109 is not separated. The classification is done by considering the hybrid contract as a whole, and subsequent measurement is either at amortized cost or fair value.

If embedded derivatives are part of a hybrid contract of which the host contract is not a financial asset within the scope of K-IFRS 1109 (e.g. financial liability), then these are treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics and risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL.

In the previous year, all embedded derivatives which were part of a hybrid contract were treated as separate derivatives if embedded derivatives meet the definition of a derivative, characteristics and risk of the embedded derivatives are not closely related to that of host contract, and if the host contract is not measured at FVTPL

  • 17 -
2) Hedge accounting

The Bank is applying K-IFRS 1109 in regards to hedge accounting. The Bank designates certain derivatives as hedging instrument against fair value changes in relation to the interest rate risk, foreign currency translation and interest rate risk, and foreign currency translation risk.

The Bank documents the relationship between hedging instruments and hedged items at the commencement of hedging in accordance with their purpose and strategy. Also, the Bank documents at the commencement and subsequent dates whether the hedging instrument effectively counters the changes in fair value of hedged items. A hedging instrument is effective only when it meets all the following criteria:

• When there is an economic relationship between the hedged items and hedging instruments.
• When the effect of credit risk is not stronger than the change in value due to the economic relationship between<br>the hedged items and hedging instruments.
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• When the hedge ratio is equal to the proportion and the number of hedged items to those of the hedging<br>instruments.
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When a hedging relationship no longer meets the hedging effectiveness requirements related to hedge ratio, but when the purpose of risk management on designated hedging relationship is still maintained, the hedge ratio of the hedging relationship is adjusted so that hedging relationship may meet the requirements again (Hedge ratio readjustment).

3) Fair value hedge

Gain or loss arising from valid hedging instrument is recognized in profit or loss. However, when the hedging instrument mitigates risks on equity instruments designated as financial assets at FVTOCI, related gain or loss is recognized in other comprehensive income.

The book value of hedged items that are not measured in fair value is adjusted by the changes in fair value arising from the hedged risk, with resulting gain or loss reflected in net income. In case of debt instruments measured at FVTOCI, book value is an amount that is already adjusted to fair value and thus gain or loss arising from the hedged risk is recognized in profit or loss instead of other comprehensive income without adjustments in book value. When the hedged item is equity instruments measured at FVTOCI, the gain or loss arising from hedged risk is retained at other comprehensive income in order to match the gain or loss with hedging instruments.

Hedge accounting ceases to apply only when hedging relationship (or part of it) does not meet the requirements of hedge accounting (even after hedging relationship readjustment, if applicable). This treatment holds in case of lapse, disposal, expiry and exercise of hedging instruments, and this cease of treatment applies prospectively. The fair value adjustments made to book value of hedged item due to hedged risk is amortized from the date of discontinuance of hedge accounting and is recognized in profit or loss.

(15) Assets (or disposal group) held for sale

The Bank classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

(16) Provisions

The Bank recognizes provision if (a) it has present or contractual obligations as a result of the past event, (b) it is probable that an outflow of resources will be required to settle the obligation and (c) the amount of the obligation is reliably estimated. Provision is not recognized for the future operating losses.

The Bank recognizes provision related to the unused membership points, payment guarantees, loan commitment and litigations. Where the Bank is required to restore a leased property that is used as a branch to an agreed condition after the contractual term expires, the present value of expected amounts to be used to dispose, decommission or repair the facilities is recognized as an asset retirement obligation.

Where there are a number of similar obligations, the probability that an outflow will be required in settlement is determined by considering the obligations as a whole. Although the likelihood of outflow for any one item may be small, if it is probable that some outflow of resources will be needed to settle the obligations as a whole, a provision is recognized.

  • 18 -
(17) Capital and compound financial instruments

The Bank classifies a financial instrument that it issues as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. A financial liability is a contractual obligation to deliver cash or another financial asset to another entity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The compound financial instruments issued by the Bank are financial instruments where it is neither a financial liability nor an equity instrument because it was designed to contain both equity and debt elements.

If the Bank reacquires its own equity instruments, the consideration paid including the direct transaction costs (net of tax expense) are presented as a deduction from total equity until such instruments are retired or reissued. When these instruments are reissued, the consideration received (net of direct transaction costs) is included in the shareholder’s equity.

(18) Financial guarantee liabilities

A financial guarantee contract is a contract where the issuer must pay a certain amount of money in order to compensate losses suffered by the creditor when debtor defaults on a debt instrument in accordance with original or modified contractual terms.

A financial guarantee is initially measured at fair value and is subsequently measured at the higher of the amounts below unless it is designated to be measured at FVTPL or when it arises from disposal of an asset.

• Loss allowance in accordance with K-IFRS 1109
• Initial book value less accumulated profit measured in accordance with<br>K-IFRS 1115
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(19) Employee benefits and pensions
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The Bank recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by the employees. Also, the Bank recognizes expenses and liabilities in the case of accumulating compensated absences when the employees render services that entitle their right to future compensated absences. Similarly, the Bank recognizes expenses and liabilities for customary profit distribution or bonuses when the employees render services, even though the Bank does not have legal obligation to do so because it can be construed as constructive obligation.

The Bank is operating defined contribution plans and defined benefit plans. Contributions to defined contribution plans are recognized as an expense when employees have rendered services entitling them to receive the benefits. For defined benefit plans, the defined benefit liability is calculated through an actuarial assessment using the projected unit credit method every end of the reporting period, conducted by professional actuaries. Remeasurement, comprising actuarial gains and losses, the return on plan assets (excluding interest), and the effect of the changes to the asset ceiling (if applicable) is reflected immediately in the separate statement of financial position with a charge or credit recognized as other comprehensive income in the period in which they occur.

Remeasurement recognized in the statement of comprehensive income is not reclassified to profit or loss in the subsequent periods. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are composed of service cost (including current service cost and past service cost, as well as gains and losses on curtailments and settlements), net interest expense (income) and remeasurement.

The Bank presents the service cost and net interest expense (income) components in profit or loss, and the remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past service costs.

The retirement benefit obligation recognized in the separate statement of financial position represents the actual deficit or surplus in the Bank’s defined benefit plans. Any surplus resulting from this calculation is recognized as an asset limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans.

  • 19 -

Liabilities for termination benefits are recognized at the earlier of either 1) the date when the Bank is no longer able to cancel its proposal for termination benefits or 2) the date when the Bank has recognized the cost of restructuring that accompanies the payment of termination benefits.

(20) Income taxes

Income tax expense is composed of current tax and deferred tax. That is, income tax expense is composed of taxes payable or refundable during the period and deferred taxes calculated by applying asset-liability method to taxable and deductible temporary differences arising from operating loss and tax credit carryforwards. Temporary differences are the differences between the carrying values of assets and liabilities for financial reporting purposes and their tax bases. Deferred income tax benefit or expense is recognized for the change in deferred tax assets or liabilities. Deferred tax assets and liabilities are measured as of the reporting date using the enacted or substantively enacted tax rates expected to apply in the period in which the liability is settled or asset realized. Deferred tax assets, including the carryforwards of unused tax losses, are recognized to the extent it is probable that the deferred tax assets will be realized.

Deferred income tax assets and liabilities are offset if, and only if, the Bank has a legally enforceable right to offset current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority or when the entity intends to settle current tax liabilities and assets on a net basis with different taxable entities.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill. Deferred tax assets or liabilities are not recognized if they arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity or when it arises from business combination.

The tax uncertainty arises from the compensation claim filed by the company, and the refund litigation for the amount of tax levied by the tax authority due to differences in tax law analysis

In response, the Bank paid taxes in accordance with K-IFRS 2123 due to the tax authority’s claim, but recognized as a corporate tax asset if it is highly probable of a refund in the future.

(21) Earnings per share (“EPS”)

Basic EPS is a calculation of net income per each common stock. It is calculated by dividing net income attributable to ordinary shareholders by the weighted-average number of common shares outstanding. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential common shares.

3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS

The significant accounting estimates and assumptions are continuously being evaluated based on numerous factors including historical experiences and expectations of future events considered to be reasonably possible. Actual results can differ from those estimates based on such definitions. The accounting estimates and assumptions that contain significant risk of materially changing current book values of assets and liabilities in the next accounting periods are as follows:

(1) Income taxes

The Bank has recognized current and deferred taxes based on best estimates of expected future income tax effect arising from the Bank’s operations until the end of the current reporting period. However, actual tax payment may not be identical to the related assets and/or liabilities already recognized, and these differences may affect current taxes and deferred tax assets/liabilities at the time when income tax effects are finalized. Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. In this case the Bank’s evaluation considers various factors such as estimated future taxable profit based on forecasted operating results, which are based on historical financial performance. The Bank is reviewing the book value of deferred tax assets every end of the reporting period and in the event that the possibility of earning future taxable income changes, the deferred tax assets are adjusted up to taxable income sufficient to use deductible temporary differences.

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(2) Valuation of financial instruments

Financial assets at FVTPL and FVTOCI are recognized in the separate financial statements at fair value. All derivatives are measured at fair value. Valuation techniques are required in order to determine fair values of financial instruments where observable market prices do not exist. Financial instruments that are not actively traded and have low price transparency will have less objective fair value and require broad judgment in liquidity, concentration, uncertainty in market factors and assumption in price determination and other risks.

As described in Note 2-(7)-5), ‘Fair value of financial assets and liabilities’, when valuation techniques are used to determine the fair value of a financial instrument, various general and internally developed techniques are used, and various types of assumptions and variables are incorporated during the process.

(3) Impairment of financial instruments

K-IFRS 1109 requires entities to measure loss allowance equal to 12-month expected credit losses or lifetime expected credit losses after classifying financial assets into one of the three stages, which depends on the degree of increase in credit risk after their initial recognition.

Stage number Stage 1 Stage 2 Stage 3
Credit risk has not significantly increased<br><br><br>since initial recognition(*) Credit risk has significantly<br><br><br>increased since initial<br><br><br>recognition Credit has<br>been impaired
Allowance for expected credit losses Expected 12-month credit losses:<br><br><br>Expected credit losses due to possible defaults on financial instruments within a 12-month period from the year-end. Expected lifetime credit losses:<br><br><br>Expected credit losses from all possible defaults during the expected lifetime of the financial instruments.
(*) Credit risk may be considered to not have been significantly increased when credit risk is low at year-end.
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The Bank has estimated the allowance for credit losses based on reasonable and supportable information that was available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

Probability of default (PD) and Loss given default (LGD) for each category of financial asset is being calculated by considering factors such as debtor type, credit rating and portfolio. The estimates are regularly reviewed in order to reduce discrepancies with actual losses.

In measuring the expected credit losses, the Bank is also using reasonable and supportable macroeconomic indicators such as economic growth rate, interest rates, market index rates, etc., in order to forecast future economic conditions.

The Bank is conducting the following procedures to estimate and apply future economic forecast information.

• Development of estimation models by analyzing the correlation between default rates of corporate and retail<br>exposures per year and macroeconomic indicators
• Calculation of estimated default rate incorporating future economic forecasts by applying estimated macroeconomic<br>indicators provided by verified institutions such as Bank of Korea and National Assembly Budget Office to the estimation model developed.
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At the end of every reporting period, the Bank evaluates whether credit risk reflected forward-looking information has significantly increased since the date of initial recognition. When evaluating whether credit risk has significantly been increased, the changes in the probability of default over the financial instrument’s remaining life is used instead of changes in the amount of expected credit losses. The Bank performs the above evaluation with distinctions made to corporate and retail exposures, and indicators of significant increase in credit risk are as follows:

Corporate Exposures Retail Exposures
Asset quality level ‘Precautionary’ or lower Asset quality level ‘Precautionary’ or lower
Overdue of 30 days or longer Overdue of 30 days or longer
‘Warning’ level in early warning system Significant decrease in credit rating(*)
Debtor experiencing financial difficulties (Capital impairment, Adverse opinion or Disclaimer of audit opinion)
Significant decrease in credit rating(*)
(*) Determining whether there has been a significant decrease in the credit rating of corporate and retail<br>exposures applies only to credit ratings that are measured through 12-month expected credit loss. The Bank has applied the above indicators of significant decrease in credit rating since initial recognition as<br>follows, and the estimation method is regularly being monitored.
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Credit rating Indicators of significant decrease in credit rating
--- --- ---
Corporate AAA ~ A+ More than 4 steps
A- ~ BBB More than 3 steps
BBB- ~ BB+ More than 2 steps
BB ~ BB- More than 1 step
Retail 1 ~ 3 More than 3 steps
4 ~ 5 More than 2 steps
6 ~ 10 More than 1 step

The Bank sees no significant increase in credit risk after initial recognition for debt securities, etc. with a credit rating of A + or higher, which are deemed to have low credit risk at the end of the reporting period.

The Bank concludes that credit is impaired when financial assets are under conditions stated below:

• When principal of loan is overdue for 90 days or longer due to significant deterioration in credit<br>
• For loans overdue for less than 90 days, when it is determined that not even a portion of the loan will be<br>recovered unless claim actions such as disposal of collaterals are taken
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• When other objective indicators of impairment have been noted for the financial asset.
--- ---

The Bank determines which loan is subject to write-off in accordance with internal guidelines, and writes off loan receivables when it is determined that the loans are practically irrecoverable. For example, loans are practically irrecoverable when application is made for rehabilitation under the Debtor Rehabilitation and Bankruptcy Act and loans are confirmed as irrecoverable by the court’s decision to waive debtor’s obligation, or when it is impossible to recover the loan amount through legal means such as auctioning of debtor’s assets or through any other means of recovery available. Notwithstanding the write-off, the Bank may still exercise its right of collection after the asset has been written off in accordance with its collection policies.

(4) Defined benefit plan

The Bank operates a defined benefit pension plan. Defined benefit obligation is calculated at every end of the reporting period by performing actuarial valuation, and estimation of assumptions such as discount rate, expected wage growth rate and mortality rate is required to perform such actuarial valuation. The defined benefit plan, due to its long-term nature, contains significant uncertainties in its estimates.

  • 22 -
4. RISK MANAGEMENT

The Bank’s operating activity is exposed to various financial risks. The Bank is required to analyze and assess the level of complex risks, and determine the permissible level of risks and manage such risks. The Bank’s risk management procedures have been established to improve the quality of assets for holding or investment purposes by making decisions as how to avoid or mitigate risks through the identification of the source of the potential risks and their impact.

The Bank has established an approach to manage the acceptable level of risks and reduce the excessive risks in financial instruments in order to maximize the profit given risks present, for which the Bank has implemented processes for risk identification, assessment, control, and monitoring and reporting.

The risk is managed by the risk management department in accordance with the Bank’s risk management policy. The Risk Management Committee makes decisions on the risk strategies such as the allocation of risk capital and the establishment of acceptable level of risk.

(1) Credit risk

Credit risk represents the possibility of financial losses incurred when the counterparty fails to fulfill its contractual obligations. The goal of credit risk management is to maintain the Bank’s credit risk exposure to a permissible degree and to optimize the rate of return considering such credit risk.

1) Credit risk management

The Bank considers the probability of failure in performing the obligation of its counterparties, credit exposure to the counterparty, the related default risk and the rate of default loss. The Bank uses the credit rating model to assess the possibility of counterparty’s default risk; and when assessing the obligor’s credit grade, the Bank utilizes credit grades derived using statistical methods.

In order to manage credit risk limit, the Bank establishes the appropriate credit line per obligor, company or industry. It monitors obligor’s credit line, total exposures and loan portfolios when approving the loan.

The Bank mitigates credit risk resulting from the obligor’s credit condition by using financial and physical collateral, guarantees, netting agreements and credit derivatives. The Bank has adopted the entrapment method to mitigate its credit risk. Credit risk mitigation is reflected in qualifying financial collateral, trade receivables, guarantees, residential and commercial real estate and other collaterals. The Bank regularly performs a revaluation of collateral reflecting such credit risk mitigation.

2) Maximum exposure to credit risk

The Bank’s maximum exposure to credit risk refers to net book value of financial assets net of allowances, which shows the uncertainties of maximum changes of net value of financial assets attributable to a particular risk without considering collateral and other credit enhancements obtained. However, the maximum exposure is the fair value amount (recorded on the books) for derivatives, maximum contractual obligation for payment guarantees and unused loan commitment.

  • 23 -

The maximum exposure to credit risk is as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Loans and other financial assets at amortized cost Korean treasury and government agencies 14,747,037 13,513,927
Banks 14,582,652 19,965,172
Corporates 91,102,467 87,357,986
Consumers 147,479,183 139,513,864
Sub-total 267,911,339 260,350,949
Financial assets at FVTPL(*) Deposit 27,901 26,935
Loans 9,037 21,492
Derivative assets 2,945,273 2,034,988
Sub-total 2,982,211 2,083,415
Financial assets at FVTOCI Debt securities 25,776,164 16,254,592
Securities at amortized cost Debt securities 20,147,137 22,802,050
Derivative assets Derivative assets (Held for hedging) 111,764 35,503
Off-balance accounts Guarantees 14,523,768 13,990,450
Loan commitments 69,035,560 65,012,748
Sub-total 83,559,328 79,003,198
Total 400,487,943 380,529,707
(*) Puttable Financial instruments are not included.
--- ---
a) Credit risk exposure by geographical areas
--- ---

The following tables analyze credit risk exposure by geographical areas (Unit: Korean Won in millions):

December 31, 2019
Korea U.S.A U.K Japan Others (*) Total
Loans and other financial assets at amortized cost 254,467,439 3,030,372 1,844,374 1,172,209 7,396,945 267,911,339
Securities at amortized cost 20,104,604 — — — 42,533 20,147,137
Financial assets at FVTPL 2,981,487 — — 724 — 2,982,211
Financial assets at FVTOCI 24,543,575 — 102,311 — 1,130,278 25,776,164
Derivative assets (designated for hedging) 111,764 — — — — 111,764
Off-balance accounts 82,020,882 262,018 78,850 46,662 1,150,916 83,559,328
Total 384,229,751 3,292,390 2,025,535 1,219,595 9,720,672 400,487,943
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Korea U.S.A U.K Japan Others (*) Total
Loans and other financial assets at amortized cost 249,216,942 2,754,044 1,526,532 893,354 5,960,077 260,350,949
Securities at amortized cost 22,757,047 — — — 45,003 22,802,050
Financial assets at FVTPL 2,083,148 — — 267 — 2,083,415
Financial assets at FVTOCI 15,642,031 — 16,718 — 595,843 16,254,592
Derivative assets (designated for hedging) 35,503 — — — — 35,503
Off-balance accounts 77,614,417 257,816 136,727 34,999 959,239 79,003,198
Total 367,349,088 3,011,860 1,679,977 928,620 7,560,162 380,529,707
(*) Others consist of financial assets in Hong Kong, Singapore and Australia and others.
--- ---
b) Credit risk exposure by industries
--- ---

The following tables analyze credit risk exposure by industries, which are service, manufacturing, finance and insurance, construction, individuals and others in accordance with the Korea Standard Industrial Classification Code (Unit: Korean Won in millions):

December 31, 2019
Service Manufacturing Finance and<br>insurance Construction Individuals Others Total
Loans and other financial assets at amortized cost 49,207,201 30,848,489 32,356,929 2,445,858 143,965,810 9,087,052 267,911,339
Securities at amortized cost 8,545,838 — 10,892,540 364,591 — 344,168 20,147,137
Financial assets at FVTPL 122,809 144,614 2,674,784 9,057 15,430 15,517 2,982,211
Financial assets at FVTOCI 15,051 65,042 18,746,268 — 9,241 6,940,562 25,776,164
Derivative assets (designated for hedging) — — 111,764 — — — 111,764
Off-balance accounts 15,449,472 25,313,872 9,600,883 3,498,976 23,771,740 5,924,385 83,559,328
Total 73,340,371 56,372,017 74,383,168 6,318,482 167,762,221 22,311,684 400,487,943
  • 24 -
December 31, 2018
Service Manufacturing Finance and<br>insurance Construction Individuals Others Total
Loans and other financial assets at amortized cost 46,177,373 32,891,096 37,453,611 2,557,684 135,827,962 5,443,223 260,350,949
Securities at amortized cost 1,157,512 — 13,376,324 527,847 — 7,740,367 22,802,050
Financial assets at FVTPL 82,351 81,451 1,872,922 9,173 7,614 29,904 2,083,415
Financial assets at FVTOCI 326,333 41,673 12,830,631 194,562 5,535 2,855,858 16,254,592
Derivative assets (designated for hedging) — — 35,503 — — — 35,503
Off-balance accounts 15,205,797 23,696,274 8,784,514 3,706,275 21,663,309 5,947,029 79,003,198
Total 62,949,366 56,710,494 74,353,505 6,995,541 157,504,420 22,016,381 380,529,707
3) Credit risk exposure
--- ---
a) Financial assets
--- ---

The maximum exposure to credit risk by asset quality, except for financial assets at FVTPL and derivative assets (Held for hedging) is as follows (Unit: Korean Won in millions):

December 31, 2019
Stage 1 Stage 2 Stage 3 Total Loss<br>allowance Total, net
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited<br>credit rating<br>(*3) Above<br>appropriate<br>credit<br>rating (*2) Less than a<br>limited credit<br>rating<br>(*3)
Loans and other financial assets at amortized cost 233,368,538 17,470,260 8,099,456 9,054,064 1,155,612 ,<br>269,147,930 (1,236,591 ) 267,911,339
Korean treasury and government agencies 14,750,308 — — — — 14,750,308 (3,271 ) 14,747,037
Banks 14,452,687 2,316 146,664 — — 14,601,667 (19,015 ) 14,582,652
Corporates 74,515,326 13,313,552 433,256 2,987,899 727,743 91,977,776 (875,309 ) 91,102,467
General business 41,610,937 4,537,441 390,456 1,343,639 494,382 48,376,855 (586,386 ) 47,790,469
Small- and medium-sized enterprise 29,679,249 8,275,146 42,800 1,584,575 220,028 39,801,798 (266,116 ) 39,535,682
Project financing and others 3,225,140 500,965 — 59,685 13,333 3,799,123 (22,807 ) 3,776,316
Consumers 129,650,217 4,154,392 7,519,536 6,066,165 427,869 147,818,179 (338,996 ) 147,479,183
Securities at amortized cost 20,152,619 — — — — 20,152,619 (5,482 ) 20,147,137
Financial assets at FVTOCI (*4) 25,710,935 65,229 — — — 25,776,164 (8,051 ) 25,776,164
Total 279,232,092 17,535,489 8,099,456 9,054,064 1,155,612 315,076,713 (1,250,124 ) 313,834,640
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~<br>6.
--- ---
(*3) Credit grade of corporate are BBB- ~ C, and consumers are grades 7 ~<br>10.
--- ---
(*4) Financial assets at FVTOCI have been disclosed as the amount before deducting loss allowance because loss<br>allowance does not reduce the carrying amount.
--- ---
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total Loss<br>allowance Total, net
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited<br>credit rating<br>(*3) Above<br>appropriate<br>credit<br>rating (*2) Less than a<br>limited credit<br>rating<br>(*3)
Loans and other financial assets at amortized cost 234,604,099 15,064,338 5,597,603 5,209,197 1,340,212 261,815,449 (1,464,500 ) 260,350,949
Korean treasury and government agencies 13,517,080 — — — — 13,517,080 (3,153 ) 13,513,927
Banks 19,956,800 10,314 23,935 — — 19,991,049 (25,877 ) 19,965,172
Corporates 70,302,975 13,451,275 532,000 3,236,305 931,193 88,453,748 (1,095,762 ) 87,357,986
General business 39,440,686 4,565,102 469,573 1,537,953 648,087 46,661,401 (736,204 ) 45,925,197
Small- and medium-sized enterprise 27,303,978 8,337,471 62,427 1,545,602 269,059 37,518,537 (318,312 ) 37,200,225
Project financing and others 3,558,311 548,702 — 152,750 14,047 4,273,810 (41,246 ) 4,232,564
Consumers 130,827,244 1,602,749 5,041,668 1,972,892 409,019 139,853,572 (339,708 ) 139,513,864
Securities at amortized cost 22,808,945 — — — — 22,808,945 (6,895 ) 22,802,050
Financial assets at FVTOCI (*4) 16,167,536 87,056 — — — 16,254,592 (5,413 ) 16,254,592
Total 273,580,580 15,151,394 5,597,603 5,209,197 1,340,212 300,878,986 (1,476,808 ) 299,407,591
  • 25 -
December 31,<br>2019 For the year ended<br>December 31, 2019 December 31,<br>2018 For the year ended<br>December 31, 2018
Collateral value Collateral value
Risk factor Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Loans and other financial assets at amortized cost 182,360,472 167,284,524 14,420,473 655,475 170,983,239 161,494,496 8,815,347 673,396
Korean treasury and government agencies — — — — 11,600 11,600 — —
Banks 613,357 611,329 2,028 — 363,436 360,102 3,334 —
Corporates 57,265,633 54,588,838 2,310,316 366,479 53,362,185 50,464,533 2,492,375 405,277
General business 22,685,764 21,464,348 998,586 222,830 20,175,240 18,803,891 1,150,747 220,602
Small- and medium-sized enterprise 32,972,767 31,517,388 1,311,730 143,649 31,255,455 29,779,557 1,291,223 184,675
Project financing and others 1,607,102 1,607,102 — — 1,931,490 1,881,085 50,405 —
Consumers 124,481,482 112,084,357 12,108,129 288,996 117,246,018 110,658,261 6,319,638 268,119
Securities at amortized cost — — — — — — — —
Financial assets at FVTOCI (*4) — — — — — — — —
Total 182,360,472 167,284,524 14,420,473 655,475 170,983,239 161,494,496 8,815,347 673,396
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~<br>6.
--- ---
(*3) Credit grade of corporate are BBB- ~ C, and consumers are grades 7 ~<br>10.
--- ---
(*4) Financial assets at FVTOCI have been disclosed as the amount before deducting loss allowance because loss<br>allowance does not reduce the carrying amount.
--- ---
b) Guarantees and loan commitments
--- ---

The credit quality of the guarantees and loan commitments on December 31, 2019 and 2018 are as follows (Unit: Korean Won in millions):

December 31, 2019
Financial assets Stage 1 Stage 2 Stage3 Total
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited credit<br>rating<br>(*3) Above<br>appropriate<br>credit rating<br>(*2) Less than a<br>limited<br>credit rating<br>(*3)
Off-balance accounts Guarantees 13,370,253 829,650 355 215,084 108,426 14,523,768
Loan commitments 64,611,094 2,605,074 1,270,196 549,196 — 69,035,560
Total 77,981,347 3,434,724 1,270,551 764,280 108,426 83,559,328
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~<br>6.
--- ---
(*3) Credit grade of corporates are BBB- ~ C, and consumers are grades 7 ~<br>10.
--- ---
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Financial assets Stage 1 Stage 2 Stage3 Total
Above<br>appropriate<br>credit rating<br>(*1) Less than a<br>limited credit<br>rating<br>(*3) Above<br>appropriate<br>credit rating<br>(*2) Less than a<br>limited<br>credit rating<br>(*3)
Off-balance accounts Guarantees 12,800,981 806,487 7,147 254,487 121,348 13,990,450
Loan commitments 60,405,878 2,663,904 1,404,007 538,959 — 65,012,748
Total 73,206,859 3,470,391 1,411,154 793,446 121,348 79,003,198
(*1) Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6.
--- ---
(*2) Credit grade of corporates are A- ~ BBB, and consumers are grades 1 ~<br>6.
--- ---
(*3) Credit grade of corporates are BBB- ~ C, and consumers are grades 7 ~<br>10.
--- ---
  • 26 -
4) Collateral and other credit enhancements

There have been no significant decreases in the value of collateral or other credit enhancements held by the Bank during the current year or significant changes in collateral or other credit enhancements due to changes in the collateral policy of the Bank. As of December 31, 2019, there are no financial assets that do not recognize the allowance for losses due to collateral.

5) For the financial assets that record loss allowance as total expected credit loss, the amortized cost before<br>the change in contractual cash flows is 18,735 million won, and the net loss due to the change is 82 million won.
6) As the Bank manages receivables that have not lost the right of claim to the debtor for the grounds of<br>incomplete statute limitation and uncollected receivables under the related laws as receivable charge-offs, the balance as of December 31, 2019 and December 31, 2018 is 8,024,466 million won and 8,099,143 million Won<br>respectively.
--- ---
(2) Market risk
--- ---

Market risk is the possible risk of loss arising from trading and non-trading activities in the volatility of market factors such as interest rates, stock prices, and foreign exchange rates. Market risk occurs as a result of changes in the interest rates and foreign exchange rates for financial instruments that are not yet settled, and all contracts are exposed to a certain level of volatility according to the interest rates, credit spreads, foreign exchange rates and the price of equity securities.

For trading activities and non-trading activities, the Bank avoids, bears or mitigates risks by identifying the underlying source of risks, measuring parameters and evaluating their appropriateness. The process is called market risk management.

1) Market risk management for trading activities

The Bank uses both a standard-based and an internal model-based approach to measure market risk. The standard-based approach is used to calculate individual market risk of owned capital while the internal model-based approach is used to calculate general capital market risk and it is used to measure internal risk management measure.

The Bank measures Value at Risk (“VaR,” maximum losses) with Historical Simulation Method based on 99% confidence level and 10-day holding period of positions, and calculates the required market risk capital using the internal model, which has been approved by Financial Supervisory Service in Korea. For the internal management purpose, VaR is measured based on 99% confidence level and one-day holding period of positions and the limit management is performed on a daily basis. The validation of the model is assessed through the performance of back testing, which is to compare the actual gain or loss to the VaR measurements on a daily basis.

In addition, for crisis management, the Bank performs stress testing on a monthly basis, which is to measure the expected loss amount in case of extreme situation, such as IMF bailout in 1997 or global financial crisis in 2008.

Each year, the Risk Management Committee establishes the VaR limit, loss limit and risk capital limit discriminated by managerial unit(group, department, team, risk element, etc.), and as for minor operating units, the limits are decided by position operating department up to given limit. Limit compliance is independently monitored by risk general department and periodically reported to risk management committee and risk management council.

2) Market risk management for non-trading activities<br>

For non-trading sectors of the Bank, the risk is managed and measured by DNII(change in Net Interest Income) and DEVE(change in Economic Value of Equity) through NII(Net Interest Income) and NPV(Net Present Value) simulation, and for the remaining subsidiaries, the risk is managed and measured with interest rate EaR(Earning at Risk, maximum of the expected change for profit or loss) and interest rate VaR that are in accordance with BIS Framework.

  • 27 -

NII is a profit-based indicator for displaying the profit changes in the short term due to the short-term interest changes. It will be estimated as subtracting interest expenses of liabilities from the interest income of assets. NPV is an indicator for displaying risks in an economic view according to unfavorable changes related to interest rate. It will be estimated as subtracting the present value of liabilities from the present value of assets. Meanwhile, DNII means possible variation of net interest income induced by changes of interest rate during the certain future period of time(e.g. 1year), and DEVE is possible variation of present value of assets, liabilities, off-balance accounts and ultimately, economic value of shareholder’s equity which is incurred by the same reason as DNII.

a) Trading activities

The minimum, maximum and average VaR for the year ended December 31, 2019 and 2018, respectively, and the VaR as of December 31, 2019 and 2018, respectively, are as follows (Unit: Korean Won in millions):

December 31,<br>2019 For the year ended<br>December 31, 2019 December 31,<br>2018 For the year ended<br>December 31, 2018
Risk factor Average Maximum Minimum Average Maximum Minimum
Interest rate 5,052 3,406 5,725 1,176 3,107 3,702 5,528 1,730
Stock price 3,730 3,203 5,935 1,146 2,353 2,669 5,081 1,138
Foreign currencies 5,028 5,033 6,469 4,395 4,972 4,678 6,136 3,439
Commodity 1 32 — — 3 24 —
Diversification (6,233 ) (5,127 ) (9,229 ) (2,339 ) (4,445 ) (4,869 ) (8,155 ) (1,815 )
Total VaR(*) 7,577 6,516 8,932 4,378 5,987 6,183 8,614 4,492
(*) VaR (Value at Risk): Maximum expected daily losses at 99% confidence level
--- ---
b) Non-trading activities
--- ---

For assets and liabilities as of December 31, 2019, DEVE and the DNII calculated based on interest rate risk in the banking book (IRRBB) are as follows (Unit: Korean Won in millions):

December 31, 2019
DEVE(*1) DNII(*2)
485,693 146,025
(*1) DEVE: change in Economic Value of Equity
--- ---
(*2) DNII: change in Net Interest Income
--- ---

For assets and liabilities as of December 31, 2018, NII and NPV calculated for the assets and liabilities owned by the Bank, respectively, by using the simulation method are as follows (Unit: Korean Won in millions):

Name of scenario December 31, 2018
NII(*1) NPV(*2)
Base case 4,886,919 24,635,872
Base case (Prepay) 4,881,567 24,225,127
IR 100bp up 5,580,848 24,414,552
IR 100bp down 4,321,315 24,906,922
IR 200bp up 6,622,298 24,231,110
IR 200bp down 3,500,800 25,245,603
IR 300bp up 7,593,109 24,077,356
IR 300bp down 3,344,206 25,680,348
(*1) NII: Net Interest Income
--- ---
(*2) NPV: Net Portfolio Value
--- ---
  • 28 -

The Bank estimates and manages risks related to changes in interest rate due to the difference in the maturities of interest-bearing assets and liabilities and discrepancies in the terms of interest rates. Cash flows (both principal and interest), interest-bearing assets and liabilities, presented by each repricing date, are as follows (Unit: Korean Won in millions):

December 31, 2019
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over 5<br>years Total
Asset:
Loans and other financial assets at amortized cost 136,468,173 46,964,614 11,045,037 9,406,431 51,908,166 4,286,512 260,078,933
Financial assets at FVTPL 23,808 1,352 37 36 1,161 13,347 39,741
Financial assets at FVTOCI 5,005,157 5,350,722 3,407,372 3,129,659 9,098,128 275,018 26,266,056
Securities at amortized cost 1,700,810 1,654,622 735,105 1,406,665 14,806,513 807,538 21,111,253
Total 143,197,948 53,971,310 15,187,551 13,942,791 75,813,968 5,382,415 307,495,983
Liability:
Deposits due to customers 111,584,479 44,934,733 31,569,737 24,123,007 41,724,832 59,140 253,995,928
Borrowings 8,893,123 1,422,464 1,027,528 682,473 2,992,835 500,685 15,519,108
Debentures 1,775,711 2,326,926 2,770,855 1,998,438 13,872,930 1,487,529 24,232,389
Total 122,253,313 48,684,123 35,368,120 26,803,918 58,590,597 2,047,354 293,747,425
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over 5<br>years Total
Asset:
Loans and other financial assets at amortized cost 145,015,086 43,247,365 7,827,430 9,077,245 41,492,032 3,419,576 250,078,734
Financial assets at FVTPL 117,324 50 160 49 2,281 27,536 147,400
Financial assets at FVTOCI 2,137,253 1,667,291 1,404,980 2,170,105 9,146,385 153,545 16,679,559
Securities at amortized cost 2,410,986 2,249,552 1,735,698 1,944,756 15,140,236 373,268 23,854,496
Total 149,680,649 47,164,258 10,968,268 13,192,155 65,780,934 3,973,925 290,760,189
Liability:
Deposits due to customers 96,816,710 41,903,982 28,169,284 33,573,893 38,622,661 64,425 239,150,955
Borrowings 8,806,595 1,290,054 580,935 460,078 2,664,135 495,516 14,297,313
Debentures 1,723,882 1,972,348 1,693,796 1,839,700 13,675,096 2,387,717 23,292,539
Total 107,347,187 45,166,384 30,444,015 35,873,671 54,961,892 2,947,658 276,740,807
  • 29 -
3) Currency risk

Currency risk arises from the financial instrument denominated in foreign currencies other than the functional currency. Therefore, no currency risk arises from non-monetary items or financial instruments denominated in the functional currency.

Financial instruments in foreign currencies exposed to currency risk are as follows (Unit: USD in millions, JPY in millions, CNY in millions, and EUR in millions and Korean Won in millions):

December 31, 2019
CNY Others Total
Foreigncurrency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Foreign<br>currency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Korean<br>won<br>equivalent Korean Won<br>equivalent
Asset Loans and other financial assets at amortized cost 21,109,458 1,596,760 2,546 421,901 2,814,799 2,249,997 28,192,915
Financial assets at FVTPL 178,149 56,602 — — 135,827 100,965 471,543
Financial assets at FVTOCI 2,642,470 — — — — 223,365 2,865,835
Securities at amortized cost 302,930 — — — — 42,546 345,476
Total 24,233,007 1,653,362 2,546 421,901 2,950,626 2,616,873 31,875,769
Liability Financial liabilities at FVTPL 291,102 46,957 — — 87,776 83,790 509,625
Deposits due to customers 12,129,878 1,764,918 1,419 235,241 2,224,506 1,156,049 17,510,592
Borrowings 7,043,586 116,252 75 12,382 546,752 177,807 7,896,779
Debentures 4,074,200 — — — 136,230 96,646 4,307,076
Other financial liabilities 3,162,520 119,503 2,105 348,841 463,411 148,930 4,243,205
Total 26,701,286 2,047,630 3,599 596,464 3,458,675 1,663,222 34,467,277
Off-balance accounts 7,884,777 364,917 1,340 222,074 709,388 430,725 9,611,881

All values are in US Dollars.

December 31, 2018
CNY Others Total
Foreigncurrency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Foreign<br>currency Korean<br>Won<br>equivalent Foreigncurrency Korean<br>Won<br>equivalent Korean<br>won<br>equivalent Korean Won<br>equivalent
Asset Loans and other financial assets at amortized cost 20,497,663 1,694,870 2,761 449,355 2,528,998 2,569,555 27,740,441
Financial assets at FVTPL 80,953 14,434 — — 75,169 90,925 261,481
Financial assets at FVTOCI 1,646,081 — — — — 187,959 1,834,040
Securities at amortized cost 58,489 — — — — 45,013 103,502
Total 22,283,186 1,709,304 2,761 449,355 2,604,167 2,893,452 29,939,464
Liability Financial liabilities at FVTPL 131,927 19,815 — — 70,250 121,658 343,650
Deposits due to customers 11,307,931 1,719,796 1,660 270,215 1,132,860 1,226,881 15,657,683
Borrowings 7,123,977 37,985 26 4,169 344,905 81,868 7,592,904
Debentures 3,516,034 — — — — 103,050 3,619,084
Other financial liabilities 2,669,323 293,362 1,282 208,665 240,478 94,540 3,506,368
Total 24,749,192 2,070,958 2,968 483,049 1,788,493 1,627,997 30,719,689
Off-balance accounts 7,892,048 337,852 992 161,534 594,603 496,243 9,482,280

All values are in US Dollars.

  • 30 -
(3) Liquidity risk

Liquidity risk refers to the risk that the Bank may encounter difficulties in meeting obligations from its financial liabilities.

1) Liquidity risk management

Liquidity risk management is to prevent potential cash shortage as a result of mismatching the use of funds (assets) and sources of funds (liabilities) or unexpected cash outflows. The financial liabilities that are relevant to liquidity risk are incorporated within the scope of risk management. Derivative instruments are excluded from those financial liabilities as they reflect expected cash flows for a predetermined period.

Assets and liabilities are grouped by account under Asset Liability Management (“ALM”) in accordance with the characteristics of the account. The Bank manages liquidity risk by identifying maturity gap, and then gap ratio through performing various cash flows analysis (i.e., based on remaining maturity and contract period, etc.), while maintaining the gap ratio at or below the target limit.

2) Maturity analysis of non-derivative financial liabilities<br>
a) Cash flows of principals and interests by remaining contractual maturities of<br>non-derivative financial liabilities are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over<br>5 years Total
Financial liabilities at FVTPL 115,156 — — — — — 115,156
Deposits due to customers 160,955,482 35,917,880 23,560,412 28,653,283 5,305,862 543,242 254,936,161
Borrowings 5,516,024 2,522,971 2,068,362 1,742,550 3,213,689 500,685 15,564,281
Debentures 1,775,711 2,326,926 2,770,855 1,998,438 13,872,930 1,487,529 24,232,389
Lease liabilities 36,291 32,753 28,959 25,170 147,182 13,170 283,525
Other financial liabilities 9,637,118 — — — — 2,533,989 12,171,107
Total 178,035,782 40,800,530 28,428,588 32,419,441 22,539,663 5,078,615 307,302,619
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over<br>5 years Total
Financial liabilities at FVTPL 191,825 — — — — — 191,825
Deposits due to customers 139,983,251 32,838,781 20,969,174 40,220,788 5,701,940 509,189 240,223,123
Borrowings 4,979,142 2,682,745 1,775,656 1,512,857 2,917,566 495,516 14,363,482
Debentures 1,723,882 1,972,348 1,693,796 1,839,700 13,675,096 2,387,717 23,292,539
Other financial liabilities 14,057,046 — — — — 2,182,602 16,239,648
Total 160,935,146 37,493,874 24,438,626 43,573,345 22,294,602 5,575,024 294,310,617
b) Cash flows of principals and interests by expected maturities of<br>non-derivative financial liabilities are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over<br>5 years Total
Financial liabilities at FVTPL 115,156 — — — — — 115,156
Deposits due to customers 169,606,757 37,282,908 22,440,335 21,408,158 3,766,940 78,231 254,583,329
Borrowings 5,516,024 2,522,971 2,068,362 1,742,550 3,213,689 500,685 15,564,281
Debentures 1,775,711 2,326,926 2,770,855 1,998,438 13,872,930 1,487,529 24,232,389
Lease liabilities 36,291 32,753 28,959 25,170 147,182 13,170 283,525
Other financial liabilities 9,637,118 — — — — 2,533,989 12,171,107
Total 186,687,057 42,165,558 27,308,511 25,174,316 21,000,741 4,613,604 306,949,787
  • 31 -
December 31, 2018
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over<br>5 years Total
Financial liabilities at FVTPL 191,825 — — — — — 191,825
Deposits due to customers 158,276,249 36,903,728 19,594,060 21,300,055 3,549,305 965 239,624,362
Borrowings 4,979,142 2,682,745 1,775,656 1,512,857 2,917,566 495,516 14,363,482
Debentures 1,723,882 1,972,348 1,693,796 1,839,700 13,675,096 2,387,717 23,292,539
Other financial liabilities 14,057,046 — — — — 2,182,602 16,239,648
Total 179,228,144 41,558,821 23,063,512 24,652,612 20,141,967 5,066,800 293,711,856
3) Maturity analysis of derivative financial liabilities
--- ---

Derivatives held for trading purposes are not managed in accordance with their contractual maturity since the Bank holds such financial instruments with the purpose of disposing or redemption before their maturity. As such, those derivatives are incorporated as “Within 3 months” in the table below.

Derivatives held for hedging purposes are estimated by offsetting cash inflows and cash outflows.

The cash flow by the maturity of derivative financial liabilities as of December 31, 2019 and 2018, is as follows (Unit: Korean Won in millions):

Remaining maturity
Within 3<br>months 4 to 6<br>months 7 to 9<br>months 10 to 12<br>months 1 to 5<br>years Over<br>5 years Total
December 31, 2019 Trading 2,841,176 — — — — — 2,841,176
December 31, 2018 Fair value hedge (3,835 ) 9,448 (3,541 ) 9,133 6,991 — 18,196
Trading 2,087,548 — — — — — 2,087,548
4) Maturity analysis of off-balance accounts (guarantees and loan<br>commitments)
--- ---

The Bank provides guarantees on behalf of customers. A financial guarantee represents an irrevocable undertaking that the Bank should meet customer’s obligations to third parties if the customer fails to do so. Under a loan commitment, the Bank agrees to make funds available to a customer in the future. Commitments to lend include commercial standby facilities and credit lines, liquidity facilities to commercial paper conduits and utilized overdraft facilities. The maximum limit to be paid by the Bank in accordance with guarantees and loan commitment only applies to principal amounts. There are contractual maturities for financial guarantees, such as guarantees for debentures issued or loans, loan commitments, and other guarantees, however, under the terms of the guarantees and loan commitments, funds should be paid upon demand from the counterparty. Details of off-balance accounts are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Guarantees 14,523,768 13,990,450
Loan commitments 69,035,560 65,012,748
  • 32 -
(4) Operational risk

The Bank defines the operational risk as the risk of potential losses arising from inadequate or incorrect internal procedures, human resource and system, and external factors.

1) Operational risk management

The Bank has been running the operational risk management system under Basel II. The Bank developed operational risk management system for the purpose of reducing the amount of risk capitals, managing the risk, and precaution for any unexpected occasions, etc. This system has been tested by an independent third party, and is approved by the Financial Supervisory Service.

2) Operational risk measurement

To quantify the required capital for operational risk, the Bank applies Advanced Measurement Approaches (AMA) using of internal and external loss data, business environment and internal control factors (BEICFs), and scenario analysis (SBA).

(5) Capital management

The Bank complies with the standard of capital adequacy provided by financial regulatory authorities. The capital adequacy standard is based on Basel published by Basel III Committee on Banking Supervision in Bank for International Settlement in 2010 and was implemented in Korea as of December 2013. The capital adequacy ratio is calculated by dividing own capital by asset (weighted with a risk premium – risk weighted assets) based on the consolidated financial statements of the Bank.

According to the above regulations, the Bank is required to meet the following new minimum requirements: Common Equity Tier 1 capital ratio of 8.00% and 7.13%, a Tier 1 capital ratio of 9.50% and 8.63% and a minimum total capital ratio of 11.50% and 10.63% as of December 31, 2019 and December 31, 2018, respectively.

Details of the Group’s capital adequacy ratio as of December 31, 2019 and 2018, and are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Tier 1 capital 17,321,301 17,275,539
Other Tier 1 capital 3,466,009 3,147,680
Tier 2 capital 3,526,902 3,827,573
Total risk-adjusted capital 24,314,212 24,250,792
Risk-weighted assets for credit risk 139,043,544 142,626,069
Risk-weighted assets for market risk 2,706,955 2,372,451
Risk-weighted assets for operational risk 9,197,928 9,972,430
Additional amount due to lower capital limit 6,941,108 —
Total risk-weighted assets 157,889,535 154,970,950
Common Equity Tier 1 ratio 10.97 % 11.15 %
Tier 1 capital ratio 13.17 % 13.18 %
Total capital ratio 15.40 % 15.65 %
  • 33 -
5. OPERATING SEGMENTS

In evaluating the results of the Bank and allocating resources, the Bank’s Chief Operation Decision Maker (“CODM”) utilizes the information per type of customer. This financial information of the segments is regularly reviewed by the CODM to make decisions about resources to be allocated to each segment and evaluate its performance.

(1) Segment by type of customers

The Bank’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided:

• Consumer banking: Loans/deposits and financial services for retail and individual consumers, etc.<br>
• Corporate banking: Loans/deposits and export/import, financial services for corporations, etc.<br>
--- ---
• Investment banking: Domestic/foreign investment, structured finance, M&A, equity & fund<br>investment-related business, venture advisory related tasks, real estate SOC development practices, etc.
--- ---
• Capital market: Fund management, investment securities and derivatives business, etc.
--- ---
• Headquarters and others: Segments that do not belong to above operating segments
--- ---

The details of operating income by each segment are as follows (Unit: Korean Won in millions):

For the year ended December 31, 2019
Consumer<br>banking Corporate<br>banking Investment<br>banking Capital<br>market Headquarters<br>and others Sub-total Adjustments<br>(*) Total
Net interest income(expense)
Interest income 3,782,031 3,648,980 152,368 6,635 1,065,068 8,655,082 360,619 9,015,701
Interest expense (1,158,128 ) (2,549,507 ) — — (731,455 ) (4,439,090 ) 283,725 (4,155,365 )
Intersegment (868,580 ) 885,816 (174,188 ) 63,738 93,214 — — —
1,755,323 1,985,289 (21,820 ) 70,373 426,827 4,215,992 644,344 4,860,336
Net non-interest income(expense)
Non-interest income 541,013 662,186 283,304 9,963,528 (165,774 ) 11,284,257 (9,896,348 ) 1,387,909
Non-interest expense (34,268 ) (119,374 ) (80,681 ) (9,877,111 ) 297,795 (9,813,639 ) 9,338,689 (474,950 )
Intersegment 126,756 72,052 — — (198,808 ) — — —
633,501 614,864 202,623 86,417 (66,787 ) 1,470,618 (557,659 ) 912,959
Other income(expense)
General and administrative expense (1,872,196 ) (913,239 ) (20,586 ) (22,902 ) (381,364 ) (3,210,287 ) — (3,210,287 )
Reversal of allowance for credit loss and impairment losses due to credit loss (80,181 ) (12,617 ) 9,343 (178 ) 78,863 (4,770 ) (86,685 ) (91,455 )
(1,952,377 ) (925,856 ) (11,243 ) (23,080 ) (302,501 ) (3,215,057 ) (86,685 ) (3,301,742 )
Operating income 436,447 1,674,297 169,560 133,710 57,539 2,471,553 — 2,471,553
Non-operating income(expense) (99,015 ) (23,843 ) 41,754 (9,453 ) (15,868 ) (106,425 ) — (106,425 )
Net income before income tax expense 337,432 1,650,454 211,314 124,257 41,671 2,365,128 — 2,365,128
Income tax expense (92,794 ) (447,731 ) (58,111 ) (34,171 ) 58,510 (574,297 ) — (574,297 )
Net income 244,638 1,202,723 153,203 90,086 100,181 1,790,831 — 1,790,831
(*) These adjustments are performed in order to present intersegment profit or loss adjustments based on managerial<br>accounting as profit or loss in accordance with K-IFRS.
--- ---
  • 34 -
For the year ended December 31, 2018
Consumer<br>banking Corporate<br>banking Investment<br>banking Capital<br>market Headquarters<br>and others Sub-total Adjustments<br>(*) Total
Net interest income(expense)
Interest income 3,529,645 3,409,835 152,273 8,945 896,479 7,997,177 334,790 8,331,967
Interest expense (1,021,639 ) (2,168,000 ) (150 ) — (685,647 ) (3,875,436 ) 271,187 (3,604,249 )
Intersegment (634,110 ) 833,224 (163,962 ) 25,963 (61,115 ) — — —
1,873,896 2,075,059 (11,839 ) 34,908 149,717 4,121,741 605,977 4,727,718
Non-interest income(expense)
Non-interest income 678,360 721,096 230,357 7,020,740 475,258 9,125,811 (7,648,476 ) 1,477,335
Non-interest expense (143,704 ) (290,347 ) (53,671 ) (6,964,671 ) (165,937 ) (7,618,330 ) 7,077,127 (541,203 )
Intersegment 132,690 70,016 — — (202,706 ) — — —
667,346 500,765 176,686 56,069 106,615 1,507,481 (571,349 ) 936,132
Other income(expense)
General and administrative expense (1,865,933 ) (868,608 ) (14,318 ) (18,452 ) (422,025 ) (3,189,336 ) — (3,189,336 )
Reversal of allowance for credit loss and impairment losses due to credit loss (127,220 ) (61,064 ) 62,454 (16,861 ) 118,496 (24,195 ) (34,628 ) (58,823 )
(1,993,153 ) (929,672 ) 48,136 (35,313 ) (303,529 ) (3,213,531 ) (34,628 ) (3,248,159 )
Operating income 548,089 1,646,152 212,983 55,664 (47,197 ) 2,415,691 — 2,415,691
Non-operating income(expense) (20,208 ) 900 32,738 — 56,510 69,940 — 69,940
Net income before income tax expense 527,881 1,647,052 245,721 55,664 9,313 2,485,631 — 2,485,631
Income tax expense (145,167 ) (445,619 ) (67,573 ) (15,308 ) (1,060 ) (674,727 ) — (674,727 )
Net income 382,714 1,201,433 178,148 40,356 8,253 1,810,904 — 1,810,904
(*) These adjustments are performed in order to present intersegment profit or loss adjustments based on managerial<br>accounting as profit or loss in accordance with K-IFRS.IFRS.
--- ---
(2) Information on financial products and services
--- ---

The products of the Bank are classified as interest-bearing products such as loans, deposits and debt securities and non-interest-bearing products such as loan commitment, credit commitment, equity securities and credit card service. This classification of products has been reflected in the segment information presenting interest income and non-interest income.

(3) Information on geographical areas

Among the Bank’s revenue (interest income and non-interest income) from services, revenue from domestic operations for the nine months ended December 31, 2019 and 2018, amounted to 9,812,045 million Won and 9,288,996 million Won, respectively, and revenue from foreign operations amounted to 591,565 million Won and 520,306 million Won, respectively. Among the Bank’s non-current assets (investments in joint ventures and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of December 31, 2019 and December 31, 2018, are 6,767,214 million Won and 7,256,271 million Won, respectively, and foreign subsidiaries are 37,417 million Won and 8,130 million Won, respectively.

(4) Information about major customers

The Bank does not have any single customer that generates 10% or more of the Bank’s total revenue.

6. CASH AND CASH EQUIVALENTS
(1) Details of cash and cash equivalents are as follows (Unit: Korean Won in millions):
--- ---
December 31,<br>2019 December 31,<br>2018
--- --- --- --- ---
Cash 1,957,984 2,207,844
Foreign currencies 568,110 670,829
Demand deposits 2,872,008 2,618,265
Fixed deposits — 226,863
Total 5,398,102 5,723,801
  • 35 -
(2) Among the investing and financing activities, significant transactions not involving cash inflows and outflows<br>are as follows (Unit: Korean Won in millions):
For the years ended<br>December 31
--- --- --- --- --- --- ---
2019 2018
Changes in other comprehensive income related to valuation of financial assets at FVTOCI (34,122 ) 6,795
Changes in financial assets at FVTOCI as a result of debt-equity swap 96,527 14,378
Changes in investments in associates due to accounts transfer — (223,366 )
Changes in unpaid dividends on hybrid equity securities (22,269 ) 3,569
Changes in intangible assets related to account payables 29,705 35,585
Changes in other comprehensive gain(loss) of foreign currency translation of foreign<br>operations 8,446 7,882
Changes in other comprehensive loss due to remeasurement of defined benefit liabilities (30,984 ) (79,639 )
Classified to assets held for distribution (sale) from premises and equipment 95 7,163
Classified to assets held for distribution (sale) from other assets — 26,997
Increase in<br>right-of-use assets and lease liabilities 449,872 —
Changes in investments in subsidiaries and associates due to the Changes in consolidated<br>scope 1,418,074 116,620
(3) Adjustments of liabilities from financing activities in current year are as follows (Unit: Korean Won in<br>millions):
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
January 1,<br>2019 Cash flow Not involving cash inflows and outflows December 31,<br>2019
Foreign<br>exchange Variation of<br>gains on<br>valuation of<br>hedged items Others
Borrowings 14,081,092 1,543,522 (298,577 ) — (216 ) 15,325,821
Debentures 21,666,331 935,149 124,471 85,983 18,318 22,830,252
Lease liabilities (*) 263,496 (177,823 ) 934 — 191,048 277,655
Total 36,010,919 2,300,848 (173,172 ) 85,983 209,150 38,433,728
(*) The amount of lease liability at the beginning of the current in applying<br>K-IFRS 1116 is reflected.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
January 1,<br>2018 Cash flow Not involving cash inflows and outflows December 31,<br>2018
Foreign<br>exchange Variation of<br>gains on<br>valuation of<br>hedged items Others
Borrowings 13,662,984 258,766 159,261 — 81 14,081,092
Debentures 21,707,466 (275,471 ) 240,828 (25,498 ) 19,006 21,666,331
Total 35,370,450 (16,705 ) 400,089 (25,498 ) 19,087 35,747,423
  • 36 -
7. FINANCIAL ASSETS AT FVTPL

Details of financial assets at fair value through profit or loss mandatorily measured at fair value and financial assets held for trading are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Deposits:
Gold banking assets 27,901 26,935
Securities:
Equity securities 600,622 410,604
Capital contributions 470,579 386,096
Beneficiary certificates 1,375,989 997,743
Sub-total 2,447,190 1,794,443
Loans 9,037 21,492
Derivative assets 2,945,273 2,034,988
Total 5,429,401 3,877,858

As of December 31, 2019, and December 31, 2018, the Bank does not hold financial assets designated at FVTPL.

8. FINANCIAL ASSETS AT FVTOCI
(1) Details of financial assets at FVTOCI as of December 31, 2019 and 2018 are as follows (Unit: Korean Won in<br>millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Debt securities:
Korean treasury and government agencies 1,152,711 1,353,401
Financial institutions 17,769,924 11,252,790
Corporates 3,906,957 1,774,332
Bond denominated in foreign currencies 2,865,835 1,834,040
Sub-total 25,695,427 16,214,563
Equity securities 772,689 786,082
Securities loaned 80,737 40,029
Total 26,548,853 17,040,674
(2) Details of equity securities designated as financial assets at FVTOCI are as follows (Unit: Korean Won in<br>millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Purpose of acquisition Fair value Fair value
Investment for strategic business partnership purpose 517,244 498,092
Debt-equity swap 255,445 287,990
Total 772,689 786,082
  • 37 -
(3) Changes in the loss allowance and gross carrying amount of financial assets at FVTOCI are as follows (Unit:<br>Korean Won in millions):
1) Allowance for credit losses
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (5,413 ) — — (5,413 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net allowance for credit losses (3,111 ) — — (3,111 )
Disposal 476 — — 476
Others (*) (3 ) — — (3 )
Ending balance (8,051 ) — — (8,051 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (3,778 ) — — (3,778 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net allowance for credit losses (1,704 ) — — (1,704 )
Others (*) 69 — — 69
Ending balance (5,413 ) — — (5,413 )
(*) Others consist of foreign currencies translation, etc.
--- ---
2) Gross carrying amount
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 16,254,592 — — 16,254,592
Transfer to 12-month expected credit losses — — —
Transfer to lifetime expected credit losses — — —
Transfer to credit-impaired financial assets — — —
Acquisition 23,182,940 — — 23,182,940
Disposal (13,760,417 ) — — (13,760,417 )
Gain on valuation 47,827 — — 47,827
Amortization on the effective interest method 11,522 — — 11,522
Others (*) 39,700 — — 39,700
Ending balance 25,776,164 — — 25,776,164
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 12,247,623 — — 12,247,623
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Acquisition 12,718,786 — — 12,718,786
Disposal (8,851,549 ) — — (8,851,549 )
Gain on valuation 69,825 — — 69,825
Amortization on the effective interest method 6,894 — — 6,894
Others (*) 63,013 — — 63,013
Ending balance 16,254,592 — — 16,254,592
(*) Others consist of foreign currencies translation, etc.
--- ---
(4) The Bank disposed equity securities designated as financial assets at FVTOCI in accordance with the limitation<br>from commercial law of acquiring holding company (Woori Financial Group Inc.) equity as a subsidiary. The fair value and accumulated loss on valuation of the equity securities at disposal date are 767,727 million Won and 23,782 million<br>Won, respectively. The Bank disposed equity securities designated as financial assets at FVTOCI in accordance with the resolution of disposal from the creditors’ council during the current year. The fair value and accumulated loss on valuation<br>of the equity securities at the disposal date are 34,640 million Won and 38,995 million Won, respectively.
--- ---
  • 38 -
9. SECURITIES AT AMORTIZED COST
(1) Details of securities at amortized cost as of December 31, 2018 and 2019 are as follows (Unit: Korean Won<br>in millions):
--- ---
December 31,<br>2019 December 31,<br>2018
--- --- --- --- --- --- ---
Korean treasury and government agencies 8,044,040 7,523,458
Financial institutions 6,694,614 9,474,922
Corporates 5,068,489 5,707,063
Bond denominated in foreign currencies 345,476 103,502
Allowance for credit losses (5,482 ) (6,895 )
Total 20,147,137 22,802,050
(2) Changes in the loss allowance and gross carrying amount of securities at amortized cost are as follows (Unit:<br>Korean Won in millions):
--- ---
1) Allowance for credit losses
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (6,895 ) — — (6,895 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net reversal of credit losses 1,413 — — 1,413
Ending balance (5,482 ) — — (5,482 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (4,996 ) — — (4,996 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net allowance for credit losses (1,921 ) — — (1,921 )
Disposal 22 — — 22
Ending balance (6,895 ) — — (6,895 )
2) Gross carrying amount
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 22,808,945 — — 22,808,945
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Acquisition 6,030,871 — — 6,030,871
Disposal / Redemption (8,685,723 ) — — (8,685,723 )
Amortization on the effective interest method (3,286 ) — — (3,286 )
Others (*) 1,812 — — 1,812
Ending balance 20,152,619 — — 20,152,619
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 16,638,727 — — 16,638,727
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Acquisition 15,575,213 — — 15,575,213
Disposal / Redemption (9,400,576 ) — — (9,400,576 )
Amortization on the effective interest method (8,349 ) — — (8,349 )
Others (*) 3,930 — — 3,930
Ending balance 22,808,945 — — 22,808,945
(*) Others consist of foreign currencies translation, etc.
--- ---
  • 39 -
10. LOAN AND OTHER FINANCIAL ASSETS AT AMORTIZED COST
(1) Details of loans and other financial assets at amortized cost as of December 31, 2019 and 2018 are as<br>follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Due from banks 12,554,759 12,268,372
Loans 247,799,726 241,285,766
Other financial assets 7,556,854 6,796,811
Total 267,911,339 260,350,949
(2) Details of due from banks are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Due from banks in local currency:
Due from The Bank of Korea (“BOK”) 11,028,850 11,034,602
Others 39,136 81,889
Allowance for credit losses (2,591 ) (2,660 )
Sub-total 11,065,395 11,113,831
Due from banks in foreign currencies:
Due from banks on demand 862,747 622,354
Due from banks on time 42,539 40,527
Others 585,301 493,204
Allowance for credit losses (1,223 ) (1,544 )
Sub-total 1,489,364 1,154,541
Total 12,554,759 12,268,372
(3) Details of restricted due from banks are as follows (Unit: Korean Won in millions):
--- ---
Counterparty December 31, 2019 Reason of restriction
--- --- --- --- ---
Due from banks in local currency:
Due from BOK The BOK 11,028,850 Reserve deposits under the BOK Act
Others The Korea Exchange and others 39,136 Central counterparty KRW margin and others
Sub-total 11,067,986
Due from banks in foreign currencies:
Due from banks on demand The BOK and others 861,027 Reserve deposits under the BOK Act and others
Others Korea Investment & Securities Co., Ltd. and others 585,301 Deposits for foreign futures and options trading and others
Sub-total 1,446,328
Total 12,514,314
Counterparty December 31, 2018 Reason of restriction
--- --- --- --- ---
Due from banks in local currency:
Due from BOK The BOK 11,034,602 Reserve deposits under the BOK Act
Others The Korea Exchange and others 81,889 Central counterparty KRW margin and others
Sub-total 11,116,491
Due from banks in foreign currencies:
Due from banks on demand The BOK and others 620,452 Reserve deposits under the BOK Act and others
Others Korea Investment & Securities Co., Ltd. and others 493,204 Deposits for foreign futures and options trading and others
Sub-total 1,113,656
Total 12,230,147
  • 40 -
(4) Changes in the loss allowance and gross carrying amount of due from banks are as follows (Unit: Korean Won in<br>millions):
1) Allowance for credit losses
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (4,204 ) — — (4,204 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net reversal of credit losses 390 — — 390
Ending balance (3,814 ) — — (3,814 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (2,464 ) — — (2,464 )
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net allowance for credit losses (1,740 ) — — (1,740 )
Ending balance (4,204 ) — — (4,204 )
2) Gross carrying amount
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 12,272,576 — — 12,272,576
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net increase 285,997 — — 285,997
Ending balance 12,558,573 — — 12,558,573
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 7,394,885 — — 7,394,885
Transfer to 12-month expected credit losses — — — —
Transfer to lifetime expected credit losses — — — —
Transfer to credit-impaired financial assets — — — —
Net increase 4,877,691 — — 4,877,691
Ending balance 12,272,576 — — 12,272,576
(5) Details of loans are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Loans in local currency 219,156,962 208,837,131
Loans in foreign currencies 11,089,570 8,958,771
Domestic banker’s letter of credit 2,846,259 2,910,115
Bills bought in foreign currencies 4,633,210 7,727,904
Bills bought in local currency 16,012 19,385
Factoring receivables 20,737 45,661
Advances for customers on guarantees 11,425 12,364
Private placement bonds 62,468 81,368
Call loans 1,889,927 1,944,678
Bonds purchased under resale agreements 8,670,352 11,605,383
Others 470 590
Loan origination costs and fees 569,512 539,470
Discounted present value (69 ) —
Loss allowance (1,167,109 ) (1,397,054 )
Total 247,799,726 241,285,766
  • 41 -
(6) Changes in the loss allowance on loans for the years ended December 31, 2019 and 2018 are as follows<br>(Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance (98,645 ) (41,383 ) (113,886 ) (317,581 ) (336,546 ) (489,013 )
Transfer to 12-month expected credit losses (13,493 ) 12,751 742 (57,996 ) 49,345 8,651
Transfer to lifetime expected credit losses 13,381 (14,596 ) 1,215 11,672 (28,524 ) 16,852
Transfer to credit-impaired financial assets 1,216 4,136 (5,352 ) 3,120 17,751 (20,871 )
Net reversal of (allowance for) credit losses 29,265 (32,564 ) (143,545 ) 89,888 12,005 (54,851 )
Recovery from write-off receivables — — (58,512 ) — — (60,484 )
Charge-off — — 197,072 — — 198,394
Disposal — — 2,763 — 1 42,095
Unwinding effect — — 9,647 — — 17,887
Others (*) — — — (19,108 ) — (8 )
Ending balance (68,276 ) (71,656 ) (109,856 ) (290,005 ) (285,968 ) (341,348 )
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Total
Stage 1 Stage 2 Stage 3
Beginning balance (416,226 ) (377,929 ) (602,899 )
Transfer to 12-month expected credit losses (71,489 ) 62,096 9,393
Transfer to lifetime expected credit losses 25,053 (43,120 ) 18,067
Transfer to credit-impaired financial assets 4,336 21,887 (26,223 )
Net reversal of (allowance for) credit losses 119,153 (20,559 ) (198,396 )
Recovery from write-off receivables — — (118,996 )
Charge-off — — 395,466
Disposal — 1 44,858
Unwinding effect — — 27,534
Others (*) (19,108 ) — (8 )
Ending balance (358,281 ) (357,624 ) (451,204 )
(*) Others consist of debt-equity swap, foreign currencies translation, etc.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance (89,404 ) (32,352 ) (108,689 ) (342,921 ) (251,368 ) (849,467 )
Transfer to 12-month expected credit losses (8,720 ) 7,900 820 (24,116 ) 22,451 1,665
Transfer to lifetime expected credit losses 5,058 (6,222 ) 1,164 14,736 (407,442 ) 392,706
Transfer to credit-impaired financial assets 66,967 36,871 (103,838 ) 62,709 97,697 (160,406 )
Net reversal of (allowance for) credit losses (72,546 ) (47,613 ) (39,332 ) (61,605 ) 201,879 (85,654 )
Recovery — — (50,381 ) — — (137,334 )
Charge-off — — 176,792 — — 276,489
Disposal — 33 1,633 — 237 49,902
Unwinding effect — — 7,945 — — 23,274
Others (*) — — — 33,616 — (188 )
Ending balance (98,645 ) (41,383 ) (113,886 ) (317,581 ) (336,546 ) (489,013 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- ---
Total
Stage 1 Stage 2 Stage 3
Beginning balance (432,325 ) (283,720 ) (958,156 )
Transfer to 12-month expected credit losses (32,836 ) 30,351 2,485
Transfer to lifetime expected credit losses 19,794 (413,664 ) 393,870
Transfer to credit-impaired financial assets 129,676 134,568 (264,244 )
Net reversal of (allowance for) credit losses (134,151 ) 154,266 (124,986 )
Recovery — — (187,715 )
Charge-off — — 453,281
Disposal — 270 51,535
Unwinding effect — — 31,219
Others (*) 33,616 — (188 )
Ending balance (416,226 ) (377,929 ) (602,899 )
(*) Others consist of debt-equity swap, foreign currencies translation, etc
--- ---
  • 42 -
(7) Changes in the gross carrying amount of loans are as follows (Unit: Korean Won in millions):<br>
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance 107,107,365 5,976,763 359,331 123,518,883 4,810,308 910,170
Transfer to 12-month expected credit losses 2,620,006 (2,607,808 ) (12,198 ) 1,554,441 (1,543,871 ) (10,570 )
Transfer to lifetime expected credit losses (8,215,779 ) 8,233,760 (17,981 ) (2,268,548 ) 2,304,243 (35,695 )
Transfer to credit-impaired financial assets (140,980 ) (97,205 ) 238,185 (251,440 ) (142,645 ) 394,085
Charge-off — — (197,072 ) — — (198,394 )
Disposal — (55 ) (67,924 ) — (70 ) (161,318 )
Net increase (decrease) 5,584,609 897,046 77,256 1,248,174 (704,027 ) (194,210 )
Ending balance 106,955,221 12,402,501 379,597 123,801,510 4,723,938 704,068
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Total
Stage 1 Stage 2 Stage 3
Beginning balance 230,626,248 10,787,071 1,269,501
Transfer to 12-month expected credit losses 4,174,447 (4,151,679 ) (22,768 )
Transfer to lifetime expected credit losses (10,484,327 ) 10,538,003 (53,676 )
Transfer to credit-impaired financial assets (392,420 ) (239,850 ) 632,270
Charge-off — — (395,466 )
Disposal — (125 ) (229,242 )
Net increase (decrease) 6,832,783 193,019 (116,954 )
Ending balance 230,756,731 17,126,439 1,083,665
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Consumers Corporates
Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3
Beginning balance 100,815,109 5,432,359 309,302 124,381,464 4,246,421 1,506,875
Transfer to 12-month expected credit losses 1,912,698 (1,903,350 ) (9,348 ) 1,078,166 (1,074,810 ) (3,356 )
Transfer to lifetime expected credit losses (3,163,028 ) 3,176,368 (13,340 ) (2,250,991 ) 2,708,867 (457,876 )
Transfer to credit-impaired financial assets (197,915 ) (115,696 ) 313,611 (348,147 ) (274,987 ) 623,134
Charge-off — — (176,792 ) — — (276,489 )
Disposal — (478 ) (31,910 ) — (2,782 ) (166,346 )
Net increase (decrease) 7,740,501 (612,440 ) (32,192 ) 658,391 (792,401 ) (315,772 )
Ending balance 107,107,365 5,976,763 359,331 123,518,883 4,810,308 910,170
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- ---
Total
Stage 1 Stage 2 Stage 3
Beginning balance 225,196,573 9,678,780 1,816,177
Transfer to 12-month expected credit losses 2,990,864 (2,978,160 ) (12,704 )
Transfer to lifetime expected credit losses (5,414,019 ) 5,885,235 (471,216 )
Transfer to credit-impaired financial assets (546,062 ) (390,683 ) 936,745
Charge-off — — (453,281 )
Disposal — (3,260 ) (198,256 )
Net increase (decrease) 8,398,892 (1,404,841 ) (347,964 )
Ending balance 230,626,248 10,787,071 1,269,501
(8) Details of other financial assets are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Receivables 5,411,855 4,528,060
Accrued income 855,296 879,274
Telex and telephone subscription rights and refundable deposits 961,058 951,761
Other receivables 394,313 500,958
Allowance for credit losses (65,668 ) (63,242 )
Total 7,556,854 6,796,811
  • 43 -
(9) Changes in the allowances for credit losses on other financial assets are as follows (Unit: Korean Won in<br>millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (1,120 ) (836 ) (61,286 ) (63,242 )
Transfer to 12-month expected credit losses (145 ) 136 9 —
Transfer to lifetime expected credit losses 68 (101 ) 33 —
Transfer to credit-impaired financial assets 15 153 (168 ) —
Net reversal of (allowance for) credit losses 358 (75 ) (6,791 ) (6,508 )
Charge-off — — 2,397 2,397
Disposal — — 1,685 1,685
Ending balance (824 ) (723 ) (64,121 ) (65,668 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance (1,302 ) (960 ) (52,496 ) (54,758 )
Transfer to 12-month expected credit losses (93 ) 83 10 —
Transfer to lifetime expected credit losses 62 (373 ) 311 —
Transfer to credit-impaired financial assets 6,444 207 (6,651 ) —
Net reversal of (allowance for) credit losses (6,231 ) 205 (31,735 ) (37,761 )
Charge-off — — 28,012 28,012
Disposal — 2 1,263 1,265
Ending balance (1,120 ) (836 ) (61,286 ) (63,242 )
(10) Changes in the gross carrying amount of other financial assets are as follows (Unit: Korean Won in millions):<br>
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 6,769,613 19,729 70,711 6,860,053
Transfer to 12-month expected credit losses 6,533 (6,517 ) (16 ) —
Transfer to lifetime expected credit losses (15,999 ) 16,060 (61 ) —
Transfer to credit-impaired financial assets (803 ) (845 ) 1,648 —
Charge-off — — (2,397 ) (2,397 )
Disposal — — (2,212 ) (2,212 )
Net increase (decrease) 764,150 (1,346 ) 4,274 767,078
Ending balance 7,523,494 27,081 71,947 7,622,522
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 6,134,524 21,013 78,140 6,233,677
Transfer to 12-month expected credit losses 6,227 (6,210 ) (17 ) —
Transfer to lifetime expected credit losses (9,744 ) 10,059 (315 ) —
Transfer to credit-impaired financial assets (7,375 ) (925 ) 8,300 —
Charge-off — — (28,012 ) (28,012 )
Disposal — (6 ) (1,639 ) (1,645 )
Net increase (decrease) 645,981 (4,202 ) 14,254 656,033
Ending balance 6,769,613 19,729 70,711 6,860,053
  • 44 -
11. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
(1) The fair value hierarchy
--- ---

The fair value hierarchy is determined by the level of market observable inputs. The market observable inputs reflect unique characteristics of a financial instrument or market condition (including transparency and whether there are transactions among market participants), and when a financial instrument is traded in an active market, the best estimate of its fair value is the quoted price in the active market. The Bank maximizes the use of market observable inputs and minimizes the use of unobserved firm-specific inputs to selected valuation technique. Fair value of the Bank is measured based on the perspective of a market participant. As such, even when market observable inputs are not readily available, firm-specific inputs reflect factors that market participants would use for measuring the fair value of assets or liabilities.

The fair value measurement is described in one of the following three levels used to classify fair value measurements:

• Level 1: When a financial instrument measures its fair value at the quoted price in the active market, the fair<br>value of such financial instruments are classified as Level 1. The types of financial assets or liabilities generally included in Level 1 are publicly traded equity securities, derivatives and debt securities issued by governmental bodies.<br>
• Level 2: When fair value of a financial instrument is measured using valuation techniques, the fair value is<br>classified as Level 2 when all major elements are market observable inputs. The types of financial instruments generally included in Level 2 are most debt securities both in local and foreign currencies and regular OTC derivatives such as<br>swaps, forwards, options, etc.
--- ---
• Level 3: When fair value of a financial instrument is measured using valuation techniques, the fair value is<br>classified as Level 3 when one or more major elements are inputs that are not observable in the market. The types of financial assets or liabilities generally included in Level 3 are non-public<br>securities and derivatives and debt securities whose valuation techniques require significant judgments and subjectivity.
--- ---

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Bank’s assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.

  • 45 -
(2) Fair value hierarchy of financial assets and liabilities measured at fair value are as follows (Unit: Korean<br>Won in millions):
December 31, 2019
--- --- --- --- --- --- --- --- ---
Level 1 (*) Level 2 (*) Level 3 Total
Financial assets:
Financial assets at FVTPL
Due from banks 27,901 — — 27,901
Equity securities 136,723 — 463,899 600,622
Capital contributions — — 470,579 470,579
Beneficiary certificates — 27,476 1,348,513 1,375,989
Loans — — 9,037 9,037
Derivative assets 3,057 2,917,168 25,048 2,945,273
Sub-total 167,681 2,944,644 2,317,076 5,429,401
Financial assets at FVTOCI
Debt securities 2,014,978 23,680,449 — 25,695,427
Equity securities 441,655 — 331,034 772,689
Securities loaned — 80,737 — 80,737
Sub-total 2,456,633 23,761,186 331,034 26,548,853
Derivative assets (designated for hedging) — 111,764 — 111,764
Total 2,624,314 26,817,594 2,648,110 32,090,018
Financial liabilities:
Financial liabilities at FVTPL
Deposit due to customers 27,530 — — 27,530
Derivative liabilities 4,336 2,764,801 72,039 2,841,176
Sub-total 31,866 2,764,801 72,039 2,868,706
Financial liabilities designated as at FVTPL Equity-linked securities — — 87,626 87,626
Total 31,866 2,764,801 159,665 2,956,332
December 31, 2018
--- --- --- --- --- --- --- --- ---
Level 1 (*) Level 2 (*) Level 3 Total
Financial assets:
Financial assets at FVTPL
Due from banks 26,935 — — 26,935
Equity securities 37,420 — 373,184 410,604
Capital contributions — — 386,096 386,096
Beneficiary certificates — 125,720 872,023 997,743
Loans — — 21,492 21,492
Derivative assets 13,216 1,972,831 48,941 2,034,988
Sub-total 77,571 2,098,551 1,701,736 3,877,858
Financial assets at FVTOCI
Debt securities 1,757,107 14,457,456 — 16,214,563
Equity securities 482,310 — 303,772 786,082
Securities loaned — 40,029 — 40,029
Sub-total 2,239,417 14,497,485 303,772 17,040,674
Derivative assets (designated for hedging) — 35,503 — 35,503
Total 2,316,988 16,631,539 2,005,508 20,954,035
Financial liabilities:
Financial liabilities at FVTPL
Deposit due to customers 27,058 — — 27,058
Derivative liabilities 2,245 2,068,612 16,691 2,087,548
Sub-total 29,303 2,068,612 16,691 2,114,606
Financial liabilities designated as at FVTPL
Equity-linked securities — — 164,767 164,767
Derivative liabilities (designated for hedging) — 17,654 — 17,654
Total 29,303 2,086,266 181,458 2,297,027
(*) There were no transfers between Level 1 and Level 2 of financial assets and liabilities measured at<br>fair value. The Bank recognizes transfers among levels at the end of reporting period in which events have occurred or conditions have changed.
--- ---
  • 46 -

Financial assets and liabilities at FVTPL, financial assets and liabilities designated as at FVTPL, financial assets at FVTOCI, and derivative assets and liabilities are recognized at fair value. Fair value is the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

Financial instruments are measured at fair value using a quoted market price in active markets. If there is no active market for a financial instrument, the Bank determines the fair value using valuation methods.

① Valuation methods and input variables used for the fair value measurement of level 2 financial assets and<br>liabilities are as follows:
Valuation methods Input variables
--- --- ---
Debt securities The fair value is measured by discounting the projected cash flows of debt securities by applying the risk-free market rate. Risk-free market rate
Beneficiary certificates Beneficiary certificates classified as Level 2 are Money Market Fund(MMF), and are measured with base price. Base price
Derivatives The fair value is measure by using Option model(Closed Form), Finite Difference Method(FDM), Monte Carlo Simulation. Discount rate, foreign exchange rate, stock prices, price and volatility of underlying asset and etc.
② Valuation methods and input variables used for the fair value measurement of level 3 financial assets and<br>liabilities are as follows:
--- ---
Valuation methods Input variables
--- --- ---
Loans The fair value of loans is measured by the Binomial Tree given the values of underlying assets and volatility. Values of underlying assets, Volatility
Debt securities The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the<br>securities. Risk-free market rate, credit spread
Equity securities, capital contributions<br> <br>and<br>beneficiary certificates Among DCF (Discounted Cash Flow) Model, FCFE (Free Cash Flow to Equity) Model, Comparable Company Analysis, Dividend Discount Model, Risk-adjusted Rate of Return Method, and Net Asset Value Method, more than one method is used given<br>the characteristic of the subject of fair value measurement. Risk-free market rate, market risk premium, Beta, etc.
Derivatives The fair value is measure by using Option model(Closed Form), DCF model, Finite Difference Method(FDM), Monte Carlo Simulation. Discount rate, foreign exchange rate, stock prices, price and volatility of underlying asset and etc.
Equity-linked securities The fair value is measure by using Option model(Closed Form), DCF model, Finite Difference Method(FDM), Monte Carlo Simulation. Values of underlying assets, discount rate, dividend, volatility, correlation coefficient and foreign exchange rate
  • 47 -

The valuation technique for level 3 financial assets and financial liabilities measured at fair value and the details of significant but unobservable inputs are as follows:

Valuation techniques Type Input variable Range Impact of changes in significant unobservable<br>inputs on fair value measurement
Loans Binomial Tree Stock price and volatility of underlying asset 14.51% ~ 46.06% Fair value increases as volatility of underlying asset increases.
Derivative assets Option valuation model and others Interest rate Correlation coefficient 0.9 ~ 0.98 Variation of fair value increases as correlation coefficient increases.
Volatility of underlying asset 16.3% ~ 41.2% Variation of fair value increases as volatility increases.
Securities Correlation coefficient 0.237 ~ 0.675 Variation of fair value increases as correlation coefficient increases.
DCF model Currency Credit risk adjustment ratio 7.7% ~ 100.0% Variation of fair value increases as the ratio increases
Derivative liabilities Option valuation model and others Interest rate Correlation coefficient 0.9 ~ 0.98 Variation of fair value increases as correlation coefficient increases.
Volatility of underlying asset 16.3% ~ 41.2% Variation of fair value increases as volatility increases.
Securities Correlation coefficient 0.237 ~ 0.675 Variation of fair value increases as correlation coefficient increases.
Volatility of underlying asset 21.4% ~ 22.4% Variation of fair value increases as volatility increases.
Equity linked securities Monte Carlo Simulation and others Securities Correlation coefficient 0.294 ~0.675 Equity linked securities’ variation of fair value increases if both volatility<br>and correlation coefficient increase. However when correlation coefficient decreases, despite the increase in volatility, the variation of fair value of equity linked securities may decrease.
Volatility of underlying asset 19.1% ~ 25.3%
Equity securities, capital contributions and beneficiary certificates External appraisal value and others Terminal growth rate 0 Fair value increases as terminal growth rate increases<br><br><br>.
Discount rate 0.35% ~ 19.21% Fair value increases as discount rate decreases.
Volatility of real<br><br><br>estate sale price 0 Fair value increases as volatility of real estate sale price increases.
Volatility of underlying assets 13.21% ~ 34.72% Fair value increases as volatility of underlying assets increases.

Fair value of financial assets and liabilities classified into Level 3 is measured by the Bank using its own valuation methods or using external specialists. Unobservable inputs used in the fair value measurements are produced by the internal system of the Bank and the appropriateness of inputs is reviewed regularly.

  • 48 -
(3) Changes in financial assets and liabilities measured at fair value classified into Level 3 are as follows<br>(Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
January 1,<br>2019 Net Income<br>(loss)<br>(*1) Other<br>comprehensive<br>income Purchases/<br>issuances Disposals/<br>settlements Transfer to or<br>out of Level 3<br>(*2) December 31,<br>2019
Financial assets:
Financial assets at FVTPL
Equity securities 373,184 57,675 — 60,942 (27,902 ) — 463,899
Capital contributions 386,096 (13,244 ) — 148,960 (51,233 ) — 470,579
Beneficiary certificates 872,023 22,177 — 600,524 (154,652 ) 8,441 1,348,513
Loans 21,492 1,536 — 500 (14,491 ) — 9,037
Derivative assets 48,941 16,935 — 1,115 (40,344 ) (1,599 ) 25,048
Subtotal 1,701,736 85,079 — 812,041 (288,622 ) 6,842 2,317,076
Financial assets at FVTOCI
Equity securities 303,772 — 26,936 431 (105 ) — 331,034
Total 2,005,508 85,079 26,936 812,472 (288,727 ) 6,842 2,648,110
Financial liabilities:
Financial liabilities at FVTPL
Derivative liabilities 16,691 84,034 — (11,140 ) (14,817 ) (2,729 ) 72,039
Financial liabilities designated at FVTPL
Equity-linked securities 164,767 33,237 — 1,810 (112,188 ) — 87,626
Total 181,458 117,271 — (9,330 ) (127,005 ) (2,729 ) 159,665
(*1) The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease<br>financial liabilities are presented as negative amounts. The loss amounting to 25,834 million Won for the years ended December 31, 2019, which is from financial assets and liabilities that the Bank holds as at the end of the periods, has<br>been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on financial assets at FVTOCI in the separate statement of comprehensive income.
--- ---
(*2) The Bank recognizes transfers between levels at the end of reporting period within which events have occurred<br>or conditions have changed.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
January 1,<br>2018 Net Income<br>(loss)<br>(*1) Other<br>comprehensive<br>income Purchases/<br>issuances Disposals/<br>settlements Transfer to or out<br>of Level 3<br>(*2) December 31,<br>2018
Financial assets:
Financial assets at FVTPL
Equity securities 260,085 55,759 — 57,953 (613 ) — 373,184
Capital contributions 273,789 15,888 — 121,577 (25,158 ) — 386,096
Beneficiary certificates 655,507 17,006 — 311,672 (115,472 ) 3,310 872,023
Loans 52,854 (1,118 ) — 24,830 (55,074 ) — 21,492
Derivative assets 19,243 75,839 — 4,722 (50,863 ) — 48,941
Subtotal 1,261,478 163,374 — 520,754 (247,180 ) 3,310 1,701,736
Financial assets at FVTOCI
Equity securities 285,397 — 20,714 220 (2,559 ) — 303,772
Total 1,546,875 163,374 20,714 520,974 (249,739 ) 3,310 2,005,508
Financial liabilities:
Financial liabilities at FVTPL
Derivative liabilities 20,941 46,409 — 255 (50,911 ) (3 ) 16,691
Financial liabilities designated at FVTPL
Equity-linked securities 160,057 (16,243 ) — 183,039 (162,086 ) — 164,767
Total 180,998 30,166 — 183,294 (212,997 ) (3 ) 181,458
(*1) The losses that increase financial liabilities are presented as positive amounts, and the gains that decrease<br>financial liabilities are presented as negative amounts. The gain amounting to 138,718 million Won for the years ended December 31, 2018, which is from financial assets and liabilities that the Bank holds as at the end of the periods, has<br>been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on financial assets at FVTOCI in the separate statement of comprehensive income.
--- ---
(*2) The Bank recognizes transfers between levels at the end of reporting period within which events have occurred<br>or conditions have changed.
--- ---
  • 49 -
(4) The results of a sensitivity analysis on the rational fluctuation in the unobservable inputs used for measuring<br>Level 3 financial instruments are as follows.

The sensitivity analysis of the financial instruments has been performed by classifying favorable and unfavorable changes based on how changes in unobservable inputs would lead to the fluctuations of financial instruments’ value. When the fair value of a financial instrument is affected by more than one unobservable input, the below table reflects the most favorable or the most unfavorable circumstances. The sensitivity analysis was performed for two types of level 3 financial instruments: (1) debt securities, equity securities, interest rate related derivatives, currency related derivatives, equity related derivatives, equity-linked securities, beneficiary certificates and loans of which fair value changes are recognized as net income; (2) equity securities of which fair value changes are recognized as other comprehensive income.

Meanwhile, among the financial instruments that are classified as Level 3 amounting to 2,807,775 million Won and 2,186,966 million Won as of December 31, 2019 and December 31, 2018 respectively, equity investments of 2,021,513 million Won and 1,392,874 million Won that are considered to provide the best estimate of fair value are excluded from the sensitivity analysis respectively.

The following table shows the sensitivity analysis to disclose the effect of reasonably possible volatility on the fair value of Level 3 financial instruments (Unit: Korean Won in millions):

As of December 31, 2019
Net income (loss) Other comprehensive income<br>(loss)
Favorable Unfavorable Favorable Unfavorable
Financial assets:
Financial assets at FVTPL
Derivative assets (*1) 640 (935 ) — —
Loans (*2) 152 (128 ) — —
Equity securities (*3) 15,317 (10,361 ) — —
Beneficiary certificates (*4) 1,125 (1,125 ) — —
Financial assets at FVTOCI
Equity securities (*3) — — 19,547 (9,399 )
Total 17,234 (12,549 ) 19,547 (9,399 )
Financial liabilities:
Financial liabilities at FVTPL
Derivative liabilities (*1) 1,054 (816 ) — —
Financial liabilities designated as at FVTPL
Equity-linked securities (*1) 136 (142 ) — —
Total 1,190 (958 ) — —
As of December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Net income (loss) Other comprehensive income<br>(loss)
Favorable Unfavorable Favorable Unfavorable
Financial assets:
Financial assets at FVTPL
Derivative assets (*1) 4,579 (4,352 ) — —
Loans (*2) 146 (127 ) — —
Equity securities (*3) 11,854 (8,420 ) — —
Beneficiary certificates (*4) 1,441 (1,440 ) — —
Financial assets at FVTOCI
Equity securities (*3) — — 14,517 (7,128 )
Total 18,020 (14,339 ) 14,517 (7,128 )
Financial liabilities:
Financial liabilities at FVTPL
Derivative liabilities (*1) 2,433 (2,751 ) — —
Financial liabilities designated as at FVTPL
Equity-linked securities (*1) 1,561 (1,669 ) — —
Total 3,994 (4,420 ) — —
(*1) Fair value changes of equity related derivatives assets and liabilities and equity-linked securities are<br>calculated by increasing or decreasing historical volatility of the stock price and correlation, which are major unobservable variables, by 10%, respectively. In the case of interest rate related derivative assets and liabilities, fair value changes<br>are calculated by increasing or decreasing the volatility of interest rate, which are major unobservable variables, by 10%.
--- ---
(*2) Fair value changes of equity securities are calculated by increasing or decreasing stock price (-10~10%) and fluctuation rate (-10~10%) and discount rate. The growth rate, discount rate, and liquidation value are major unobservable variables.
--- ---
  • 50 -
(*3) Fair value changes of equity securities are calculated by increasing or decreasing growth rate (0~1%) and<br>discount rate or liquidation value (-1~1%). The growth rate, discount rate, and liquidation value are major unobservable variables.
(*4) Even if the sensitivity analysis of the capital contributions and beneficiary certificates is not possible in<br>practice, fair value changes of beneficiary certificates and other securities whose major unobservable variables are composed of the real estate are calculated by increasing or decreasing price fluctuation of real estate which is underlying assets<br>and discount rate by 1%.
--- ---
(5) Fair value and carrying amount of financial assets and liabilities that are recorded at amortized cost are as<br>follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Fair value Book<br>value
Level 1 Level 2 Level 3 Total
Financial assets:
Securities at amortized cost 3,123,898 17,205,518 — 20,329,416 20,147,137
Loans and other financial assets at amortized cost — — 257,019,589 257,019,589 267,911,339
Financial liabilities:
Deposits due to customers — 252,857,819 — 252,857,819 252,625,294
Borrowings — 15,245,919 — 15,245,919 15,325,821
Debentures — 23,058,735 — 23,058,735 22,830,252
Other financial liabilities — 15,888,244 — 15,888,244 15,889,160
December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Fair value Book<br>value
Level 1 Level 2 Level 3 Total
Financial assets:
Securities at amortized cost 3,604,176 19,300,641 — 22,904,817 22,802,050
Loans and other financial assets at amortized cost — — 263,712,018 263,712,018 260,350,949
Financial liabilities:
Deposits due to customers — 237,496,448 — 237,496,448 237,426,765
Borrowings — 14,081,175 — 14,081,175 14,081,092
Debentures — 21,689,756 — 21,689,756 21,666,331
Other financial liabilities — 20,097,664 — 20,097,664 20,097,011

The fair values of financial instruments are measured using quoted market price in active markets. In case there is no active market for financial instruments, the Bank determines the fair value using valuation methods. Valuation techniques and input variables for financial assets and liabilities that are measured at amortized costs are given as follows:

Valuation methods Input variables
Securities at amortized cost The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the<br>securities. Risk-free market rate and credit spread
Loans and other financial assets at amortized cost The fair value is measured by discounting the projected cash flows of loan products by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the debtor. Risk-free market rate, credit spread and prepayment rate
Deposits due to customers, borrowings, debentures and other financial liabilities The fair value is measured by discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Bank. Risk-free market rate and forward rate
  • 51 -
(6) Financial instruments by category

Carrying amounts of financial assets and liabilities are as follows (Unit: Korean Won in millions):

December 31, 2019
Financial<br>assets at<br>FVTPL Financial<br>assets at<br>FVTOCI Financial<br>assets at<br>amortized<br>cost Derivative<br>assets<br>(designated<br>for hedging) Total
Financial assets:
Due from banks 27,901 — 12,554,759 — 12,582,660
Securities 2,447,190 26,548,853 20,147,137 — 49,143,180
Loans 9,037 — 247,799,726 — 247,808,763
Derivative assets 2,945,273 — — 111,764 3,057,037
Other financial assets at amortized cost — — 7,556,854 — 7,556,854
Total 5,429,401 26,548,853 288,058,476 111,764 320,148,494
December 31, 2019
--- --- --- --- --- --- --- --- ---
Financial<br>liabilities at<br>FVTPL Financial<br>liabilities at<br>amortized cost Derivative assets<br>(designated for<br>hedging) Total
Financial liabilities:
Deposits due to customers 27,530 252,625,294 — 252,652,824
Borrowings 87,626 15,325,821 — 15,413,447
Debentures — 22,830,252 — 22,830,252
Derivative liabilities 2,841,176 — — 2,841,176
Other financial liabilities (*) — 15,955,782 — 15,955,782
Total 2,956,332 306,737,149 — 309,693,481
(*) Other financial liabilities include 66,622 million Won of financial guarantee liabilities measured at<br>amortized cost included in provisions.
--- ---
December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Financial<br>assets at<br>FVTPL Financial<br>assets at<br>FVTOCI Financial<br>assets at<br>amortized<br>cost Derivative<br>assets<br>(designated<br>for hedging) Total
Financial assets:
Due from banks 26,935 — 12,268,372 — 12,295,307
Securities 1,794,443 17,040,674 22,802,050 — 41,637,167
Loans 21,492 — 241,285,766 — 241,307,258
Derivative assets 2,034,988 — — 35,503 2,070,491
Other financial assets at amortized cost — — 6,796,811 — 6,796,811
Total 3,877,858 17,040,674 283,152,999 35,503 304,107,034
December 31, 2018
--- --- --- --- --- --- --- --- ---
Financial<br>liabilities at<br>FVTPL Financial<br>liabilities at<br>amortized cost Derivative assets<br>(designated for<br>hedging) Total
Financial liabilities:
Deposits due to customers 27,058 237,426,765 — 237,453,823
Borrowings 164,767 14,081,092 — 14,245,859
Debentures — 21,666,331 — 21,666,331
Derivative liabilities 2,087,548 — 17,654 2,105,202
Other financial liabilities (*) — 20,148,283 — 20,148,283
Total 2,279,373 293,322,471 17,654 295,619,498
(*) Other financial liabilities include 51,272 million Won of financial guarantee liabilities measured at<br>amortized cost included in provisions.
--- ---
  • 52 -
(7) Income or expense from financial assets and liabilities by each category are as follows (Unit: Korean Won in<br>millions):
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
Interest<br>income(expense) Fees and<br>commissions<br>income(expense) Reversal of<br>(provision for)<br>credit losses Others Total
Financial assets at FVTPL 359 90,188 — 112,322 202,869
Financial assets at FVTOCI 437,104 — (3,111 ) 23,229 457,222
Securities at amortized cost 430,440 — 1,413 — 431,853
Loans and other financial assets at amortized cost 8,147,798 150,754 (105,919 ) 84,240 8,276,873
Financial liabilities at FVTPL — — — 135 135
Financial liabilities at amortized cost (4,155,366 ) — — — (4,155,366 )
Derivative assets (designated for hedging) — — — 4,261 4,261
Off-balance provisions — 56,635 16,162 — 72,797
Total 4,860,335 297,577 (91,455 ) 224,187 5,290,644
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Interest<br>income(expense) Fees and<br>commissions<br>income(expense) Reversal of<br>(provision for)<br>credit losses Others Total
Financial assets at FVTPL 6,047 88,149 — 250,854 345,050
Financial assets at FVTOCI 256,995 66 (1,704 ) 13,630 268,987
Securities at amortized cost 372,006 — (1,921 ) 431 370,516
Loans and other financial assets at amortized cost 7,696,919 144,479 (144,372 ) 43,735 7,740,761
Financial liabilities at FVTPL (3,164 ) — — 17,484 14,320
Financial liabilities at amortized cost (3,601,085 ) 27,138 — 25,498 (3,548,449 )
Derivative assets (designated for hedging) — — — (27,362 ) (27,362 )
Off-balance provisions — — 89,174 — 89,174
Total 4,727,718 259,832 (58,823 ) 324,270 5,252,997
12. DERECOGNITION AND OFFSET OF FINANCIAL INSTRUMENTS
--- ---
(1) Derecognition of financial instruments
--- ---

Transferred financial assets that do not meet the condition of derecognition in their entirety.

a) Bonds sold under repurchase agreements

The financial instruments that were disposed but the Bank agreed to repurchase at the fixed amounts at the same time, so that they did not meet the conditions of derecognition, are as follows (Unit: Korean Won in millions):

December<br>31, 2019 December<br>31, 2018
Asset transferred Securities at amortized cost 5,570 5,552
Related liabilities Bonds sold under repurchase agreements 6,008 2,129
  • 53 -
b) Securities loaned

When the Bank loans its securities to outside parties, the legal ownerships of the securities are transferred; however, they should be returned at the end of lending period. Therefore, the Bank does not derecognize them from the financial statements as it owns the majority of risks and benefits from the securities continuously, regardless of the transfer of legal ownership. The carrying amounts of the securities loaned are as follows (Unit: Korean won in millions):

December 31,<br>2019 December 31,<br>2018 Loaned to
Financial assets at FVTOCI Korean corporate bonds and others 80,737 40,029 Korea Securities Finance Corporation

The details of the transferred financial assets that do not meet the condition of derecognition in their entirety, such as disposal of securities under repurchase agreement or securities loaned, are also explained in Note 18.

(2) The offset of financial assets and liabilities

The Bank possesses both the uncollected domestic exchange receivables and the unpaid domestic exchange payable, which satisfy offsetting criteria of K-IFRS 1032. Therefore, the total number of uncollected domestic exchange receivables or unpaid domestic exchange payable has been countervailed with part of unpaid domestic exchange payable or uncollected domestic exchange receivables and has been disclosed in loans and other financial assets at amortized cost or other financial liabilities of the Bank’s statements of financial position.

The Bank possesses the derivative assets, derivative liabilities, receivable spot exchange and payable spot exchange that do not satisfy the offsetting criteria of K-IFRS 1032, but provide the Bank under the circumstances of the trading party’s defaults, insolvency or bankruptcy, the right of offsetting. Items such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading party’s default, insolvency or bankruptcy, the derivative assets, derivative liabilities, receivable spot exchange and net amount of payable spot exchange can be offset.

The Bank has entered into a sale and repurchase agreement and accounted it as a collateralized borrowing. The Bank has also entered into a purchase and resale agreement and accounted it as a secured loan. The Bank under the repurchase agreements has offsetting right only upon the counterparty’s default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of K-IFRS 1032. The Bank disclosed bonds sold (purchased) under repurchase agreements as borrowings, loans and other financial assets at amortized cost.

  • 54 -

As of December 31, 2019, and 2018, the financial instruments to be offset and covered by master netting agreements and similar agreements are as follows (Unit: Korean Won in millions):

December 31, 2019
Gross<br>amounts of<br>recognized<br>financial<br>assets Gross<br>amounts of<br>recognized<br>financial<br>assets setoff Net<br>amounts of<br>financial<br>assets<br>presented Related amounts not setoff<br>in the statement of<br>financial position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>received
Financial assets:
Derivative assets (*1) 3,056,782 — 3,056,782 6,954,531 111,122 970,177
Receivable spot exchange (*2) 4,979,048 — 4,979,048
Bonds purchased under repurchase agreements (*2) 8,670,352 — 8,670,352 8,670,352 — —
Domestic exchanges receivable (*2) (*6) 31,639,302 31,269,258 370,044 — — 370,044
Total 48,345,484 31,269,258 17,076,226 15,624,883 111,122 1,340,221
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- ---
Gross<br>amounts of<br>recognized<br>financial<br>liabilities Gross<br>amounts of<br>recognized<br>financial<br>liabilities<br>setoff Net<br>amounts of<br>financial<br>liabilities<br>presented Related amounts not<br>setoff in the statement of<br>financial position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>pledged
Financial liabilities:
Derivative liabilities (*1) 2,822,441 — 2,822,441 6,967,194 172,488 748,596
Equity-linked securities index in short position (*3) 87,626 — 87,626
Payable spot exchange (*4) 4,978,211 — 4,978,211
Bonds sold under repurchase agreements (*5) 6,008 — 6,008 6,008 — —
Domestic exchanges payable (*4) (*6) 32,526,538 31,269,258 1,257,280 1,257,280 — —
Total 40,420,824 31,269,258 9,151,566 8,230,482 172,488 748,596
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- ---
Gross<br>amounts of<br>recognized<br>financial<br>assets Gross<br>amounts of<br>recognized<br>financial<br>assets setoff Net<br>amounts of<br>financial<br>assets<br>presented Related amounts not setoff<br>in the statement of financial<br>position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>received
Financial assets:
Derivative assets (*1) 1,905,771 — 1,905,771 5,439,720 66,857 485,781
Receivable spot exchange (*2) 4,086,587 — 4,086,587
Bonds purchased under repurchase agreements (*2) 11,605,383 — 11,605,383 11,605,383 — —
Domestic exchanges receivable (*2) (*6) 30,084,899 29,699,412 385,487 — — 385,487
Total 47,682,640 29,699,412 17,983,228 17,045,103 66,857 871,268
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- ---
Gross<br>amounts of<br>recognized<br>financial<br>liabilities Gross<br>amounts of<br>recognized<br>financial<br>liabilities<br>setoff Net<br>amounts of<br>financial<br>liabilities<br>presented Related amounts not setoff<br>in the statement of financial<br>position Net<br>amounts
Netting<br>agreements<br>and others Cash<br>collateral<br>pledged
Financial liabilities:
Derivative liabilities (*1) 1,859,865 — 1,859,865 5,452,751 115,615 548,321
Equity-linked securities index in short position (*3) 164,767 — 164,767
Payable spot exchange (*4) 4,092,055 — 4,092,055
Bonds sold under repurchase agreements (*5) 2,129 — 2,129 2,129 — —
Domestic exchanges payable (*4) (*6) 36,825,514 29,699,412 7,126,102 6,231,538 — 894,564
Total 42,944,330 29,699,412 13,244,918 11,686,418 115,615 1,442,885
(*1) The items include derivatives held for trading and derivatives designated for hedging.
--- ---
  • 55 -
(*2) The items are included in loans and other financial assets at amortized cost.
(*3) The items are equity linked securities related to derivatives and are included in financial liabilities at<br>FVTPL.
--- ---
(*4) The items are included in other financial liabilities.
--- ---
(*5) The items are included in borrowings.
--- ---
(*6) Certain financial assets and liabilities are presented as net amounts.
--- ---
13. INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES
--- ---
(1) The Bank has the following subsidiaries (Unit: Korean Won in 100 million, USD in 10 thousand, CNY in<br>100 million, RUB in 100 million, IDR in 100 million, BRL in 10 thousand, MMK in 100 million, PHP in 100 million, VND in trillion):
--- ---
Subsidiaries Location Capital stock Main business
--- --- --- --- ---
Woori FIS Co., Ltd. (*1) Korea — System software development and maintenance
Woori Private Equity Asset Management Co., Ltd.(*1) Korea — Finance
Woori Finance Research Institute Co., Ltd. (*1) Korea — Other service business
Woori Card Co., Ltd. (*1) Korea — Finance
Woori Investment Bank Co., Ltd.(*1) Korea — Other credit finance business
Woori Credit Information Co., Ltd. (*1) Korea — Credit information
Woori America Bank America USD 19,250 Finance
PT Bank Woori Saudara Indonesia 1906 Tbk Indonesia IDR 6,581 Finance
Woori Global Markets Asia Limited Hong<br>Kong USD 10,000 Finance
Woori Bank China Limited China CNY 21.6 Finance
AO Woori Bank Russia RUB 14.5 Finance
Banco Woori Bank do Brasil S.A. Brazil BRL 7,709 Finance
Korea BTL Infrastructure Fund(*2) Korea KRW 8,118 Finance
Woori Fund Service Co., Ltd.(*1) Korea — Finance
Woori Finance Cambodia PLC. Cambodia USD 1,300 Finance
Woori Finance Myanmar Co., Ltd. Myanmar MMK 162 Finance
Wealth Development Bank Philippine PHP 7.7 Finance
Woori Bank Vietnam Limited Vietnam VND 4.6 Finance
WB Finance Co., Ltd.(*2) Cambodia USD 5,939 Finance
Woori Bank Europe Germany EUR 5,000 Finance
(*1) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current period.
--- ---
(*2) The number of capital and investment shares increased during the current term due to paid-in capital increase by subsidiary.
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Subsidiaries Number of<br>shares<br>owned Percentage<br>of ownership<br>(%) Financial<br>statements<br>as of Number of<br>shares<br>owned Percentage<br>of ownership<br>(%) Financial<br>statements<br>as of
Woori FIS Co., Ltd. (*1) — — — 4,900,000 100.0 Dec. 31, 2018
Woori Private Equity Asset Management Co., Ltd.(*1) — — — 6,000,000 100.0 Dec. 31, 2018
Woori Finance Research Institute Co., Ltd. (*1) — — — 600,000 100.0 Dec. 31, 2018
Woori Card Co., Ltd. (*1) — — — 179,266,200 100.0 Dec. 31, 2018
Woori Investment Bank Co., Ltd.(*1) — — — 403,404,538 59.8 Dec. 31, 2018
Woori Credit Information Co., Ltd. (*1) — — — 1,008,000 100.0 Dec. 31, 2018
Woori America Bank 38,500,000 100.0 Dec. 31, 2019 38,500,000 100.0 Dec. 31, 2018
PT Bank Woori Saudara Indonesia 1906 Tbk 5,256,690,211 79.9 Dec. 31, 2019 5,256,690,211 79.9 Dec. 31, 2018
Woori Global Markets Asia Limited 78,000,000 100.0 Dec. 31, 2019 78,000,000 100.0 Dec. 31, 2018
Woori Bank China Limited — 100.0 Dec. 31, 2019 — 100.0 Dec. 31, 2018
AO Woori Bank 57,999,999 100.0 Dec. 31, 2019 57,999,999 100.0 Dec. 31,2018
Banco Woori Bank do Brasil S.A. 77,093,999 100.0 Dec. 31, 2019 77,093,999 100.0 Dec. 31, 2018
Korea BTL Infrastructure Fund(*2) 162,167,420 99.9 Dec. 31, 2019 154,910,839 99.9 Dec. 31, 2018
  • 56 -
December 31, 2019 December 31, 2018
Subsidiaries Number of<br>shares<br>owned Percentage<br>of ownership<br>(%) Financial<br>statements<br>as of Number of<br>shares<br>owned Percentage<br>of ownership<br>(%) Financial<br>statements<br>as of
Woori Fund Service Co., Ltd.(*1) — — — 2,000,000 100.0 Dec. 31, 2018
Woori Finance Cambodia PLC. 13,000,000 100.0 Dec. 31, 2019 13,000,000 100.0 Dec. 31, 2018
Woori Finance Myanmar Co., Ltd. 1,200,000 100.0 Dec. 31, 2019 1,200,000 100.0 Dec. 31, 2018
Wealth Development Bank 3,931,365 51.0 Dec. 31, 2019 3,931,365 51.0 Dec. 31, 2018
Woori Bank Vietnam Limited — 100.0 Dec. 31, 2019 — 100.0 Dec. 31, 2018
WB Finance Co., Ltd.(*2) 2,400,000 100.0 Dec. 31, 2019 1,200,000 100.0 Dec. 31, 2018
Woori Bank Europe 50,000,000 100.0 Dec. 31, 2019 50,000,000 100.0 Dec. 31, 2018
(*1) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current period.
--- ---
(*2) Capital stock and the number of investment shares increased due to the capital increase of subsidiaries.<br>
--- ---
(2) As for the structured entities in accordance with K-IFRS 1110 and K-IFRS 1112, it is determined that the Bank controls the entity after considering facts and circumstances, such as the Bank’s power over the entity’s related business activities, the Bank’s exposure<br>to variable returns from the its involvement with the entity and the Bank’s ability to affect the returns through its power over the entity.
--- ---
1) Details of structured entities that the Bank controls are as follows:
--- ---
As of December 31, 2019
--- --- --- --- --- --- ---
Structured entities Location Main<br>business Percentage<br>of ownership<br>(%) Financial<br>statements as of
Structured entities established for securitization of financial assets (*1)
Kumho Trust First Co., Ltd. and 46 structured entities Korea Asset securitization — Dec. 31, 2019
KAMCO Value Recreation First Securitization Specialty Co., Ltd. Korea Asset securitization 15.0 Dec. 31, 2019
Money trust under the FISCM Act (*2)
Principal Guaranteed Trust and Principal and Interest Guaranteed Trust Korea Trust — Dec. 31, 2019
Structured entity for the investments in securities
G5 Pro Short-term Bond Investment Fund 13 Korea Securities investment and others 100.0 Dec. 31, 2019
Igis Australia Investment Trust No. 209-1 Korea Securities investment and others 99.4 Dec. 31, 2019
Multi Asset Global Real Estate Investment Trust<br>No. 5-2 Korea Securities investment and others 99.0 Dec. 31, 2019
HeungkukWoori Tech Company Private Placement Investment Trust No. 1 Korea Securities investment and others 98.0 Dec. 31, 2019
AI Partners Water Supply Private Placement Investment Trust No. 2 U.K Securities investment and others 97.3 Dec. 31, 2019
Heungkuk Global Private Placement Investment Trust No. 1 Korea Securities investment and others 98.5 Dec. 31, 2019
Consus Sakhalin Real Estate Investment Trust 1st Korea Securities investment and others 75.0 Dec. 31, 2019
Woori Global Development Infrastructure Synergy Company Private Placement Investment Trust No.<br>1 Korea Securities investment and others 99.9 Dec. 31, 2019
IGIS Global Private Placement Real Estate Fund<br>No. 316-1 Korea Securities investment and others 99.3 Dec. 31, 2019
(*1) It is determined that the Bank controls the entity after considering all the facts and circumstances, such as<br>the Bank’s power over the entity’s related business activities, the Bank’s exposure to variable returns from its involvement with the entity and the Bank’s ability to affect the returns through its power over the entity, even<br>though the Bank holds less than 50% ownership interest of the entity.
--- ---
(*2) The Bank controls the trust because it has power that determines the management performance over the trust and<br>is exposed to variable returns to absorb losses through the guarantees of payment of principal and fixed rate of return.
--- ---
  • 57 -
As of December 31, 2018
Structured entities Location Main<br><br><br>business Percentage<br>of ownership<br>(%) Financial<br><br><br>statements as of
Structured entities established for securitization of financial assets (*1)
Kumho Trust First Co., Ltd. and 27 structured entities Korea Asset securitization — Dec. 31, 2018
KAMCO Value Recreation First Securitization Specialty Co., Ltd. Korea Asset securitization 15.0 Dec. 31, 2018
Money trust under the FISCM Act (*2)
Principal Guaranteed Trust and Principal and Interest Guaranteed Trust Korea Trust — Dec. 31, 2018
Structured entity for the investments in securities G5 Pro Short-term Bond Investment Fund<br>13 Korea Securities investment 100.0 Dec. 31, 2018
Heungkuk Global Private Placement Investment Trust No. 1 Korea Securities investment 98.5 Dec. 31, 2018
HeungkukWoori Tech Company Private Placement Investment Trust No. 1 Korea Securities investment 98.0 Dec. 31, 2018
AI Partners Water Supply Private Placement Investment Trust No. 2 U.K Securities investment 97.3 Dec. 31, 2018
Consus Sakhalin Real Estate Investment Trust 1st Korea Securities investment 75.0 Dec. 31, 2018
(*1) It is determined that the Bank controls the entity after considering all the facts and circumstances, such as<br>the Bank’s power over the entity’s related business activities, the Bank’s exposure to variable returns from its involvement with the entity and the Bank’s ability to affect the returns through its power over the entity, even<br>though the Bank holds less than 50% ownership interest of the entity.
--- ---
(*2) The Bank controls the trust because it has power that determines the management performance over the trust and<br>is exposed to variable returns to absorb losses through the guarantees of payment of principal and fixed rate of return.
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  • 58 -
2) The following companies have been excluded from the consolidation scope despite the Bank’s majority<br>ownership interest:
December 31, 2019
--- --- --- --- ---
Subsidiaries Location Main<br><br><br>business Percentage of<br>ownership (%)
Golden Bridge NHN Online Private Equity Investment (*) Korea Securities investment 60.0
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) Korea Securities investment 59.7
Kiwoom Yonsei Private Equity Investment Trust (*) Korea Securities investment 88.9
IGIS Europe Private Placement Real Estate Fund<br>No. 163-2(*) Korea Securities investment 97.9
IGIS Global Private Placement Real Estate Fund<br>No. 148-1(*) Korea Securities investment 69.0
IGIS Global Private Placement Real Estate Fund<br>No. 148-2(*) Korea Securities investment 69.0
Mirae Asset Seoul Ring Expressway Private Special Asset Fund No. 1 (*) Korea Securities investment 66.7
Hangkang Sewage Treatment Plant Fund (*) Korea Securities investment 55.6
KIM Pocheon-Hwado Highway Infra Private Placement Special Asset Fund(*) Korea Securities investment 55.2
Woori Innovative Growth Professional Investment Trust(*) Korea Securities investment 55.0
(*) The Bank owns the majority ownership interest in these structured entities but has no power over the<br>investees’ relevant activities as they are private investment trusts. As a result, it is deemed that the Bank has no power or control over the structured entities.
--- ---
December 31, 2018
--- --- --- --- ---
Subsidiaries Location Main<br><br><br>business Percentage of<br>ownership (%)
Golden Bridge NHN Online Private Equity Investment (*) Korea Securities investment 60.0
Mirae Asset Seobu Underground Expressway Professional Investment (*) Korea Securities investment 65.8
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th(*) Korea Securities investment 59.7
Kiwoom Yonsei Private Equity Investment Trust (*) Korea Securities investment 88.9
Hana Walmart Real Estate Investment Trust 41-1<br>(*) Korea Securities investment 77.0
IGIS Europe Private Placement Real Estate Fund<br>No. 163-2 (*) Korea Securities investment 97.9
IGIS Global Private Placement Real Estate Fund<br>No. 148-1 (*) Korea Securities investment 69.0
IGIS Global Private Placement Real Estate Fund<br>No. 148-2 (*) Korea Securities investment 69.0
KB Nongso Sewage Treatment Equipment Private Special Asset (*) Korea Securities investment 50.0
Mirae Asset Seoul Ring Expressway Private Special Asset Fund(*) Korea Securities investment 66.2
Hangang Sewage Treatment Plant Fund (*) Korea Securities investment 55.6
Consus KyungJu Green Private Placement Real Estate Fund 1(*) Korea Securities investment 52.4
(*) The Bank owns the majority ownership interest in these structured entities but has no power over the<br>investees’ relevant activities as they are private investment trusts. As a result, it is deemed that the Bank has no power or control over the structured entities.
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  • 59 -
(3) Investments in associates are as follows (Unit: Korean Won in 100 million):
December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Investees Location Capital Main<br><br><br>Business Number of shares<br>owned Percentage<br>of ownership<br>(%) Financial<br>statements<br>as of
Woori Service Networks Co., Ltd. (*2) Korea 5 Freight & staffing services 4,704 4.9 2019.11.30.(*5)
Korea Credit Bureau Co., Ltd. (*1) Korea 100 Credit information 180,000 9.9 2019.12.31.
Korea Finance Security Co., Ltd. (*2) Korea 60 Security service 180,000 15.0 2019.11.30.(*5)
Chin Hung International Inc. (*4) Korea 733 Construction 37,059,405 25.3 2019.11.30.(*5)
Saman Corporation (*1) Korea 7 General construction Technology service 12,542 9.2 2019.9.30.(*5)
Dongwoo C & C Co., Ltd. (*3) Korea 7 Construction 13,317 23.2 —
SJCO Co., Ltd. (*3) Korea 26 Aggregate transportation and wholesale 70,529 26.5 —
G2 collection Co., Ltd. (*3) Korea 2 Wholesale and retail sales 12,574 28.9 —
The Base Enterprise Co., Ltd. (*3) Korea 7 Manufacturing 68,470 48.4 —
Kyesan Engineering Co., Ltd. (*3) Korea 13 Construction 60,581 23.2 —
Good Software Lab Co., Ltd. (*3) Korea 3 Service 17,121 28.9 —
Wongwang Co., Ltd. (*3) Korea 1 Wholesale and real estate 2,590 29.0 —
Sejin Construction Co., Ltd. (*3) Korea 4 Construction 12,123 29.6 —
QTS Shipping Co., Ltd. (*3) Korea 4 Complex transportation brokerage 17,460 49.4 —
Reading Doctors Co., Ltd. (*3) Korea 1 Other services 7,398 35.4 —
PREXCO Co., Ltd. (*3) Korea 16 Manufacturing 919,972 28.1 —
Jiwon Plating Co., Ltd. (*3) Korea 7 Plating 28,705 20.5 —
Cultizm Korea LTD Co., Ltd. (*3) Korea 0.14 Wholesale and retail sales 858 31.3 —
Gil Co., Ltd. (*9) Korea — Manufacturing — — —
NK Eng Co., Ltd. (*3) Korea 15 Manufacturing 697,033 23.1 —
Woori Growth Partnerships New Technology (*6) Korea 968 Other financial services 21,609 23.1 2019.12.31.
DAEA SNC Co., Ltd. (*3) Korea 1 Wholesale and retail sales 1,253 24.0 —
ARES-TECH Co., Ltd. (*3) Korea 2 Electronic component manufacturing 7,187 23.4 —
Force TEC Co., Ltd. Korea 93 Manufacturing 4,780,907 25.8 —
Sinseong Trading Co., Ltd. (*3) Korea 1 Manufacturing 2,584 27.2 —
2016KIF-IMM Woori Bank Technology (*6) Korea 650 Other financial services 12,993 20.0 2019.12.31.
K BANK Co., Ltd. (*1)(*7) Korea 5,051 Finance 14,630,057 14.5 2019.11.30.(*5)
Smart Private Equity Fund No. 2 (*6) Korea 146 Other financial services 2,915 20.0 2019.12.31.
Woori Bank-Company K Korea Movie Asset Korea 120 Other financial services 3,000 25.0 2019.12.31.
Well to Sea No. 3 Private Equity Fund (*8) Korea 2,051 Finance 102,500,000,000 50.0 2019.9.30.(*5)
Youngdong Sea Food Co., Ltd. (*3) Korea 3 Processed sea food manufacturing 12,106 24.0 —
Partner One Value Up I Private Equity Fund Korea 430 Other financial services 10,000,000,000 23.3 2019.12.31.
IBK KIP Seongjang Dideemdol 1st Private (*7) Korea 229 Other financial services 4,576,000,000 20.0 2019.12.31.
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund (*7) Korea 175 Other financial services 4,375,000,000 25.0 2019.12.31.
Woori-Shinyoung Growth-Cap Private Equity Fund I<br>(*10) Korea 397 Other financial services 9,742,331,288 24.5 2019.12.31.
Lotte Card Co., Ltd. (*10) Korea 3,737 Credit card and installment financial business 14,948,013 20.0 2019.9.30.(*5)
Woori-Q Corporate Restructuring Private Equity Fund<br>(*10) Korea 160 Trust and collective investment 4,532,000,000 28.4 2019.12.31.
PCC-Woori LP Secondary Fund (*10) Korea 65 Other financial investment businesses 1,750 26.9 2019.12.31.
  • 60 -
December 31, 2018
Investees Location Capital Main<br><br><br>business Number of shares<br>owned Percentage of<br>ownership (%) Financial<br>statements<br>as of
Woori Service Networks Co., Ltd. (*2) Korea 5 Freight & staffing services 4,704 4.9 2018.11.30.(*5)
Korea Credit Bureau Co., Ltd. (*1) Korea 100 Credit information 180,000 9.9 2018.12.31.
Korea Finance Security Co., Ltd. (*2) Korea 60 Security service 180,000 15.0 2018.11.30.(*5)
Chin Hung International Inc. (*4) Korea 733 Construction 37,059,405 25.3 2018.11.30.(*5)
Saman Corporation (*1) Korea 7 General construction Technology service 12,542 9.2 2018.09.30.(*5)
Dongwoo C & C Co., Ltd. (*3) Korea 7 Construction 13,317 23.2 —
SJCO Co., Ltd. (*3) Korea 26 Aggregate transportation and wholesale 70,529 26.5 —
G2 collection Co., Ltd. (*3) Korea 2 Wholesale and retail sales 12,574 28.9 —
The Base Enterprise Co., Ltd. (*3) Korea 7 Manufacturing 68,470 48.4 —
Kyesan Engineering Co., Ltd. (*3) Korea 13 Construction 60,581 23.2 —
Good Software Lab Co., Ltd. (*3) Korea 3 Service 17,121 28.9 —
Wongwang Co., Ltd. (*3) Korea 1 Wholesale and real estate 2,590 29.0 —
Sejin Construction Co., Ltd. (*3) Korea 4 Construction 12,123 29.6 —
QTS Shipping Co., Ltd. (*3) Korea 4 Complex transportation brokerage 17,460 49.4 —
Reading Doctors Co., Ltd. (*3) Korea 1 Other services 7,398 35.4 —
PREXCO Co., Ltd. (*3) Korea 16 Manufacturing 919,972 28.1 —
Jiwon Plating Co., Ltd. (*3) Korea 7 Plating 28,705 20.5 —
Cultizm Korea LTD Co., Ltd. (*3) Korea 0.14 Wholesale and retail sales 858 31.3 —
Gil Co., Ltd. (*9) Korea — Manufacturing 44,662 26.1 —
NK Eng Co., Ltd. (*3) Korea 15 Manufacturing 697,033 23.1 —
Woori Growth Partnerships New Technology (*6) Korea 968 Other financial services 27,282 23.1 2018.12.31.
DAEA SNC Co., Ltd. (*3) Korea 1 Wholesale and retail sales 1,253 24.0 —
ARES-TECH Co., Ltd. (*3) Korea 2 Electronic component manufacturing 7,187 23.4 —
Force TEC Co., Ltd. Korea 93 Manufacturing 4,780,907 25.8 —
Sinseong Trading Co., Ltd. (*3) Korea 1 Manufacturing 2,584 27.2 —
2016KIF-IMM Woori Bank Technology (*6) Korea 663 Other financial services 15,000 20.0 2018.12.31.
K BANK Co., Ltd. (*1)(*7) Korea 5,051 Finance 13,468,600 14.1 2018.11.30.(*5)
Smart Private Equity Fund No. 2 Korea 146 Other financial services 3,000 20.0 2018.12.31.
Woori Bank-Company K Korea Movie Asset Korea 120 Other financial services 3,000 25.0 2018.12.31.
Well to Sea No. 3 Private Equity Fund (*8) Korea 2,051 Finance 102,500,000,000 50.0 2018.09.30.(*5)
Youngdong Sea Food Co., Ltd. (*3) Korea 3 Processed sea food manufacturing 12,106 24.0 —
Partner One Value Up I Private Equity Fund Korea 430 Other financial services 10,000,000,000 23.3 2018.12.31.
IBK KIP Seongjang Dideemdol 1st Private (*7) Korea 229 Other financial services 4,426,000,000 20.0 2018.12.31.
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund (*7) Korea 166 Other financial services 3,025,000,000 25.0 2018.12.31.
Woori-Shinyoung Growth-Cap Private Equity Fund I<br>(*10) Korea — Other financial services — — —
Lotte Card Co., Ltd. (*10) Korea — Credit card and installment financial business — — —
Woori-Q Corporate Restructuring Private Equity Fund<br>(*10) Korea — Trust and collective investment — — —
PCC-Woori LP Secondary Fund (*10) Korea — Other financial investment businesses — — —
(*1) The Bank has significant influence over the creditors’ council, which makes the financial and operating<br>policy decisions.
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  • 61 -
(*2) Most of the significant business transactions are with the associates as of December 31, 2019 and<br>December 31, 2018.
(*3) There is no investment amount as of December 31, 2019 and December 31, 2018.
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(*4) Equity securities with quoted market prices in the investment assets of the associates are the common stock of<br>the Chin Hung International Inc. The share price of Chin Hung International Inc. as quoted in the market as of December 31, 2019 and December 31, 2018 are 2,310 Won and 2,065 Won, respectively.
--- ---
(*5) Significant transactions or events that occurred between the end of the reporting period of the associates and<br>the end of the reporting period of the Bank were properly reflected.
--- ---
(*6) Due to the consolidation of stocks and debt-equity swap of the associates, the Bank’s number of holding<br>shares and ownership ratio decreased during the year ended December 31, 2019.
--- ---
(*7) Due to paid capital increase of associates, the Bank’s capital stock and number of holding shares<br>increased during the nine months ended December 31, 2019.
--- ---
(*8) The Bank has entered into an agreement as the Bank (or a third party designated by the Bank) may exercise the<br>right of purchase upon the disposal of the underlying asset (Aju Capital Co., Ltd.).
--- ---
(*9) Due to the sale of the entire shares, it was excluded from the associates as of December 31, 2019.<br>
--- ---
(*10) Included in associates due to the Bank’s investment during the reporting period.
--- ---
(4) The entities excluded from associates, although the Bank’s ownership interest in them is higher than 20%<br>as of December 31, 2019 and 2018, are as follows:
--- ---
As of December 31, 2019
--- --- --- --- ---
Associate (*) Number of shares owned Ownership (%)
Orient Shipyard Co., Ltd. 464,812 21.4
Saenuel Co., Ltd. 3,531 37.4
E Mirae Tech Co., Ltd. 7,696 41.0
Jehin Trading Co., Ltd. 81,610 27.3
The Season Company Co., Ltd. 18,187 30.1
Yuil PESC Co., Ltd. 8,642 24.0
CL Tech Co., Ltd. 13,759 38.6
As of December 31, 2018
--- --- --- --- ---
Associate (*) Number of shares owned Ownership (%)
Orient Shipyard Co., Ltd. 464,812 21.4
Saenuel Co., Ltd. 3,531 37.4
E Mirae Tech Co., Ltd. 7,696 41.0
Jehin Trading Co., Ltd. 81,610 27.3
The Season Company Co., Ltd. 18,187 30.1
Yuil PESC Co., Ltd. 8,642 24.0
CL Tech Co., Ltd. 13,759 38.6
(*) Even though the Bank’s ownership interest in the entity is more than 20%, it is determined that the Bank<br>does not have significant influence over the entity since it is going through workout process under receivership; thus, it is excluded from the investment in associates.
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  • 62 -
(5) Changes in carrying value of investments in subsidiaries and associates are as follows (Korean won in<br>millions). As the investments associated with structured entities were classified as financial assets at FVTPL for the current and previous quarter, they were excluded from the carrying value of investments in subsidiaries and associates.<br>
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Investees January<br>1, 2019 Acquisitions Disposals and<br>others (*1) Impairment<br>(*2) December<br>31, 2019
Woori Card Co., Ltd. 1,274,260 — (1,274,260 ) — —
Woori Investment Bank 143,814 — (143,814 ) — —
Woori America Bank 281,471 — — — 281,471
PT Bank Woori Saudara Indonesia 1906 Tbk 328,012 — — — 328,012
Woori Global Markets Asia Limited 113,858 — — — 113,858
Woori Bank China Limited 427,802 — — — 427,802
AO Woori Bank 51,780 — — — 51,780
Banco Woori Bank do Brasil S.A 44,045 — — — 44,045
Korea BTL Infrastructure Fund 778,620 63,500 (27,299 ) — 814,821
Woori Finance Cambodia PLC. 15,850 — — — 15,850
Woori Finance Myanmar Co., Ltd. 13,649 — — — 13,649
Wealth Development Bank 24,355 — — — 24,355
Woori Bank Vietnam Limited 232,840 — — — 232,840
WB Finance Co., Ltd. 87,562 33,480 — — 121,042
Woori Bank Europe 64,062 — — — 64,062
Woori Service Networks Co., Ltd. 108 — — — 108
Korea Credit Bureau Co., Ltd. 3,313 — — — 3,313
Korea Finance Security Co., Ltd. 3,267 — — — 3,267
Chin Hung International Inc. 70,969 — — (1,112 ) 69,857
Saman Corporation 1,014 — — (95 ) 919
Woori Growth Partnerships New Technology Private Equity Fund 25,847 309 (7,490 ) — 18,666
2016KIF-IMM Woori Bank Technology Venture Fund 15,000 — (2,615 ) — 12,385
K BANK Co., Ltd. 67,343 5,807 — (41,896 ) 31,254
Smart Private Equity Fund No. 2 3,000 — (85 ) — 2,915
Woori Bank-Company K Korea Movie Asset Fund 3,000 — — — 3,000
Well to Sea No. 3 Private Equity Fund 101,483 — — — 101,483
Partner One Value Up 1 Private Equity Fund 10,000 — — — 10,000
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership 4,426 150 — — 4,576
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund 3,025 1,350 — — 4,375
Woori-Shinyoung Growth-Cap Private Equity Fund I — 9,742 — — 9,742
Lotte Card Co., Ltd. — 346,000 — — 346,000
Woori-Q Corporate Restructuring Private Equity<br>Fund — 4,532 — — 4,532
PCC-Woori LP Secondary Fund — 1,750 — — 1,750
Total 4,193,775 466,620 (1,455,563 ) (43,103 ) 3,161,729
(*1) The amount of 1,418,074 million Won among the investments in subsidiaries and associates, was sold to<br>Woori Financial Group Inc., the holding company.
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(*2) The Bank recognized the impairment because carrying amount of the investments in subsidiaries and associates<br>exceeds the estimated recoverable amount.
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  • 63 -
For the year ended December 31, 2018
Investees January<br>1, 2018 Acquisitions Disposals<br>and<br>others(*) Impairment December<br>31, 2018
Woori FIS Co., Ltd. 35,362 — (35,362 ) — —
Woori Private Equity Asset Management Co., Ltd. 43,227 — (43,227 ) — —
Woori Finance Research Institute Co., Ltd. 3,364 — (3,364 ) — —
Woori Card Co., Ltd. 1,274,260 — — — 1,274,260
Woori Investment Bank 143,814 — — — 143,814
Woori Credit Information Co., Ltd. 24,666 — (24,666 ) — —
Woori America Bank 281,471 — — — 281,471
PT Bank Woori Saudara Indonesia 1906 Tbk 328,012 — — — 328,012
Woori Global Markets Asia Limited 113,858 — — — 113,858
Woori Bank China Limited 427,802 — — — 427,802
AO Woori Bank 51,780 — — — 51,780
Banco Woori Bank do Brasil S.A. 44,045 — — — 44,045
Korea BTL Infrastructure Fund 783,164 7,500 (12,044 ) — 778,620
Woori Fund Service Co., Ltd. 10,000 — (10,000 ) — —
Woori Finance Cambodia PLC. 15,850 — — — 15,850
Woori Finance Myanmar Co., Ltd. 13,649 — — — 13,649
Wealth Development Bank 24,355 — — — 24,355
Woori Bank Vietnam Limited 155,400 77,440 — — 232,840
WB Finance Co., Ltd. — 88,216 (654 ) — 87,562
Woori Bank Europe — 64,062 — — 64,062
Kumho Tire Co., Inc. 98,932 — (98,932 ) — —
Woori Service Networks Co., Ltd. 108 — — — 108
Korea Credit Bureau Co., Ltd. 3,313 — — — 3,313
Korea Finance Security Co., Ltd. 3,267 — — — 3,267
Chin Hung International Inc. 70,969 — — — 70,969
Poonglim Industrial Co., Ltd. 6 — (6 ) — —
STX Corporation 7,809 — (7,809 ) — —
Saman Corporation 1,255 — — (241 ) 1,014
Woori Growth Partnerships New Technology Private Equity Fund 28,833 360 (3,346 ) — 25,847
2016KIF-IMM Woori Bank Technology Venture Fund 6,840 8,160 — — 15,000
K BANK Co., Ltd. 45,392 21,951 — — 67,343
Smart Private Equity Fund No. 2 3,000 — — — 3,000
Woori Bank-Company K Korea Movie Asset Fund 3,000 — — — 3,000
Well to Sea No. 3 Private Equity Fund 101,992 — (509 ) — 101,483
Partner One Value Up 1st Private Equity Fund — 10,000 — — 10,000
IBK KIP Seongjang Dideemdol 1st Private Investment Limited Partnership — 4,426 — — 4,426
Crevisse Raim Impact 1st Startup Venture Specialist Private Equity Fund — 3,025 — — 3,025
Total 4,148,795 285,140 (239,919 ) (241 ) 4,193,775
(*) The amounts replaced in subsidiaries to assets held for sales is 116,619 million Won. Also, the amounts<br>replaced from investments in associates to financial assets at FVTPL is 6 million Won and the amount replaced from investments in associates to financial assets at FVTOCI) is 98,932 million Won.
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  • 64 -
14. INVESTMENT PROPERTIES
(1) Details of investment properties are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Acquisition cost 588,246 399,805
Accumulated depreciation (37,561 ) (32,688 )
Net carrying value 550,685 367,117
(2) Changes in investment properties are as follows (Unit: Korean Won in millions):
--- ---
For the year ended December 31
--- --- --- --- --- --- ---
2019 2018
Beginning net carrying value 367,117 350,235
Acquisition 185,173 12,957
Depreciation (4,901 ) (3,723 )
Transfers 3,273 7,623
Foreign currencies translation adjustments 23 25
Ending net carrying value 550,685 367,117
(3) Fair value of investment properties amounted to 647,899 million won and 427,329 million won as of<br>December 31, 2019 and 2018, respectively. The fair value of investment properties has been assessed on the basis of recent similar real estate market price and officially assessed land price in the area of the investment properties, is<br>classified as Level 3 on the fair value hierarchy.
--- ---
(4) Rental fee earned from investment properties amounted to 20,386 million Won and 14,402 million Won<br>for the years ended December 31, 2019 and 2018, respectively. The operating expenses directly related to the investment property in which the rent income occurred are 5,638 million won and 3,723 million won, respectively.<br>
--- ---
(5) The minimum lease payments expected to be received in the future under<br>non-refundable lease contracts for the year ended December 31, 2019 and 2018 are as follows (Unit: Korean Won in millions):
--- ---
For the year ended December 31
--- --- --- --- ---
2019 2018
Lease payments
Within 1 year 10,641 3,622
After 1 year but within 2 years 4,500 1,485
After 2 years but within 3 years 2,157 787
After 3 years but within 4 years 1,418 397
After 4 years but within 5 years 904 —
After 5 years 241 —
Total 19,861 6,291
  • 65 -
15. PREMISES AND EQUIPMENT
(1) Details of premises and equipment are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Properties for<br>business use Structures in<br>leased office Construction<br>in progress Total
Premises and equipment(owned) 1,516,297 674,522 188,849 35,872 399 2,415,939
Right-of-use<br>asset — 314,477 12,528 — — 327,005
Total 1,516,297 988,999 201,377 35,872 399 2,742,944
(2) Details of premises and equipment (ownership) are as follows (Unit: Korean Won in millions):<br>
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Properties for<br>business use Leasehold<br>improvement Construction<br>in progress Total
Acquisition cost 1,516,297 902,392 665,303 406,209 399 3,490,600
Accumulated depreciation — (227,870 ) (476,454 ) (370,337 ) — (1,074,661 )
Net carrying value 1,516,297 674,522 188,849 35,872 399 2,415,939
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Properties for<br>business use Leasehold<br>improvement Construction<br>in progress Total
Acquisition cost 1,466,639 852,662 609,709 396,751 7,720 3,333,481
Accumulated depreciation — (202,213 ) (424,871 ) (356,055 ) — (983,139 )
Net carrying value 1,466,639 650,449 184,838 40,696 7,720 2,350,342
(3) Details of changes in premises and equipment (owned) are as follows (Unit: Korean Won in millions):<br>
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Properties for<br>business use Structures in<br>leased office Construction<br>in progress Total
Beginning net carrying value 1,466,639 650,449 184,838 40,696 7,720 2,350,342
Acquisitions 51,684 45,555 67,058 21,309 5,070 190,676
Disposals (3,284 ) (2,245 ) (22 ) (2,151 ) — (7,702 )
Depreciation — (26,878 ) (64,411 ) (22,035 ) — (113,324 )
Classified to assets held for sale (21 ) (74 ) — — — (95 )
Transfer 991 6,040 1,101 987 (12,393 ) (3,274 )
Foreign currencies translation adjustments 19 5 253 86 2 365
Others 269 1,670 32 (3,020 ) — (1,049 )
Ending net carrying value 1,516,297 674,522 188,849 35,872 399 2,415,939
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Land Building Properties for<br>business use Structures in<br>leased office Construction<br>in progress Total
Beginning net carring value 1,472,170 669,823 119,066 49,290 64,241 2,374,590
Acquisitions 990 13,088 55,710 12,567 7,059 89,414
Disposals (29 ) — (24 ) (731 ) (187 ) (971 )
Depreciation — (25,103 ) (52,431 ) (27,852 ) — (105,386 )
Classification to held for sale (3,651 ) (2,592 ) (920 ) — — (7,163 )
Transfer (2,863 ) (4,760 ) 63,283 — (63,283 ) (7,623 )
Foreign currencies translation adjustments 22 5 122 82 (110 ) 121
Others — (12 ) 32 7,340 — 7,360
Ending carrying value 1,466,639 650,449 184,838 40,696 7,720 2,350,342
  • 66 -
(4) Details of right-of-use assets<br>are as follows (Unit: Korean Won in millions):
December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Building Properties for<br>business use Total
Acquisition cost 449,060 19,869 468,929
Accumulated depreciation (134,583 ) (7,341 ) (141,924 )
Net carrying value 314,477 12,528 327,005
(5) Details of changes in<br>right-of-use assets are as follows (Unit: Korean Won in millions)
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Building Properties for<br>business use Total
Beginning net carrying value 304,930 18,056 322,986
New contracts 200,626 3,505 204,131
Change of contracts (47 ) — (47 )
Cancelled contracts (3,740 ) (69 ) (3,809 )
Depreciation (187,010 ) (8,976 ) (195,986 )
Others (282 ) 12 (270 )
Ending net carrying value 314,477 12,528 327,005
16. INTANGIBLE ASSETS
--- ---
(1) Details of intangible assets are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Acquisition cost 1,429 321,716 757,835 16,174 4,066 1,101,220
Accumulated amortization (787 ) (120,182 ) (604,327 ) — — (725,296 )
Accumulated impairment losses — — (25,848 ) (803 ) — (26,651 )
Net carrying value 642 201,534 127,660 15,371 4,066 349,273
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Acquisition cost 1,143 284,898 667,262 12,438 10,415 976,156
Accumulated amortization (623 ) (64,330 ) (557,329 ) — — (622,282 )
Accumulated impairment losses — — — (707 ) — (707 )
Net carrying value 520 220,568 109,933 11,731 10,415 353,167
(2) Details of changes in intangible assets are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Beginning balance 520 220,568 109,933 11,731 10,415 353,167
Acquisitions 287 28,878 83,310 3,806 8,754 125,035
Disposal — — — (75 ) — (75 )
Amortization (*1) (165 ) (55,840 ) (46,953 ) — — (102,958 )
Impairment loss (*2) — — (25,848 ) (105 ) — (25,953 )
Transfer — 7,928 7,175 — (15,103 ) —
Foreign currencies translation adjustments — — 67 14 — 81
Others — — (24 ) — — (24 )
Ending balance 642 201,534 127,660 15,371 4,066 349,273
(*1) Amortization of other intangible assets amounting to 22,317 million Won is included in other operating<br>expenses.
--- ---
(*2) Membership is an intangible asset with an indefinite useful life that recognizes an impairment loss if<br>recoverable value is lower than its carrying amount, while the reversal of an impairment loss should be recognized when the recoverable value is higher than its carrying amount. The bank also recognized impairment loss from other intangible assets<br>as recoverable value of them is lower than its carrying amount.
--- ---
  • 67 -
December 31, 2018
Industrial<br>property rights Development<br>cost Others Membership<br>deposit Construction<br>in progress Total
Beginning balance 480 54,397 85,715 9,524 153,209 303,325
Acquisitions 192 18,594 42,382 2,811 97,067 161,046
Disposal — — (196 ) (1,021 ) — (1,217 )
Amortization (*1) (152 ) (38,790 ) (69,023 ) — — (107,965 )
Reversal of impairment loss(*2) — — — 403 — 403
Transfer — 188,189 51,672 — (239,861 ) —
Classified to assets held for distribution (sale) — (1,822 ) (630 ) — — (2,452 )
Foreign currencies translation adjustments — — 32 14 — 46
Others — — (19 ) — — (19 )
Ending balance 520 220,568 109,933 11,731 10,415 353,167
(*1) Amortization of other intangible assets amounting to 51,770 million Won is included in other operating<br>expenses.
--- ---
(*2) Membership is an intangible asset with an indefinite useful life that recognizes an impairment loss if<br>recoverable value is lower than its carrying amount, while the reversal of an impairment loss should be recognized when the recoverable value is higher than its carrying amount.
--- ---
  • 68 -
17. ASSETS HELD FOR DISTRIBUTION (SALE)
(1) Assets held for distribution (sale) are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Disposal group as held for distribution — 141,143
Premises and equipment, etc. (*) 95 2,145
Total 95 143,288
(*) The Bank classified premises and equipment and others that are highly likely to be sold within one year as<br>assets held for sale.
--- ---
(2) Details of disposal group as held for distribution and liabilities related to assets held for sale are as<br>follows (Unit: Korean Won in millions)
--- ---

In accordance with the establishment of financial holding company and plans on share transfer, the Bank classified assets, liabilities and equity of each subsidiary as of the end of the reporting period. The details of disposal group held for distribution as of December 31, 2018 as follows (Unit: KRW Won in millions)

December 31, 2018
Disposal group as held for distribution
Investment in subsidiaries Woori FIS Co., Ltd. 35,362
Woori Private Equity Asset Management Co., Ltd. 43,227
Woori Finance Research Institute Co., Ltd. 3,364
Woori Credit Information Co., Ltd. 24,666
Woori Fund Service Co., Ltd. 10,000
Other assets Wibee Members 30,370
impairment losses (5,846 )
Total 141,143
Liabilities related to assets held for sale
Other liabilities Wibee Members 72,361

The Bank calculated net fair value of each subsidiary subject to future distribution as of December 31, 2018 based on the value of net asset and net income. The computed value 110,773 million Won is classified as Level 3 in the fair value, hierarchy.

The Bank estimates the assets held for distribution (sale) the lower of net fair value and book value, and thus 5,846 million won is recognized as impairment loss as the end of December 2018.

  • 69 -
18. ASSETS SUBJECT TO LIEN AND ASSETS ACQUIRED THROUGH FORECLOSURES
(1) Assets subjected to lien are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- ---
Collateral given to Amount Reason for collateral
Loans and other financial assets at amortized cost Due from banks in local currency Samsung Securities Co., Ltd. and others 17,345 Margin deposit for futures or option
Due from banks in foreign currencies Korea Investment & Securities Co., Ltd. and others 180,919 Foreign margin deposit for future or option and others
Financial assets at FVTOCI Korean debt securities corporate bonds and others The BOK and others 5,127,379 Settlement risk and others
Securities at amortized cost Korean treasury and government agencies bonds Korea Securities Depository 5,570 Related to bonds sold under repurchase agreements (*)
Korean treasury and government agencies bonds and others The BOK and others 6,190,626 Settlement risk and others
Total 11,521,839
December 31, 2018
--- --- --- --- --- ---
Collateral given to Amount Reason for collateral
Loans and other financial assets at amortized cost Due from banks in local currency Samsung Securities Co., Ltd. and others 38,112 Margin deposit for futures or option
Due from banks in foreign currencies Korea Investment & Securities Co., Ltd. and others 202,156 Foreign margin deposit for future or option and others
Financial assets at FVTOCI Korean financial institutions’ debt securities and others The BOK and others 2,887,218 Settlement risk and others
Securities at amortized cost Korean treasury and government bonds Korea Securities Depository 5,552 Related to bonds sold under repurchase agreements (*)
Korean treasury government bonds and others The BOK and others 6,378,398 Settlement risk and others
Total 9,511,436
(*) The Bank entered into the repurchase agreements at predetermined price or original sale price added with<br>certain rate of return after the disposal of securities. In this regard, the securities are provided as collateral, and the purchasers are eligible to dispose or provide them as collateral. The Bank has not derecognized the securities after<br>transferring them, and therefore has recognized the relevant amount as liabilities (bonds sold under repurchase agreements).
--- ---
(2) As of December 31, 2019 and December 31, 2018 there is no asset acquired through foreclosures.<br>
--- ---
(3) Securities loaned are as follows (Unit: Korean Won in millions):
--- ---
December 31,<br>2019 December 31,<br>2018 Loaned to
--- --- --- --- --- --- ---
Financial assets at FVTOCI Korean financial institutions’ debt securities and others 80,737 40,029 Korea Securities Finance Corporation

Securities loaned are lending of specific securities to borrowers who agree to return the same quantity of the same security at the end of lending period. As the Bank does not derecognize these securities, there are no liabilities recognized through such transactions relates to securities loaned.

(4) Collaterals held that can be disposed and re-subjected to lien<br>regardless of defaults of counterparties

Fair values of collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties as of December 31, 2019 and 2018, are as follows (Unit: Korean Won in millions):

December 31, 2019
Fair values of collaterals Fair values of collaterals were disposed or re-subjected to lien
Securities 9,029,117 —
  • 70 -
December 31, 2018
Fair values of collaterals Fair values of collaterals were disposed or re-subjected to lien
Securities 12,165,473 —
19. OTHER ASSETS
--- ---

Details of other assets are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Prepaid expenses 108,664 140,843
Advance payments — 3,007
Others 5,086 3,145
Total 113,750 146,995
20. FINANCIAL LIABILITIES AT FVTPL
--- ---
(1) Financial liabilities at FVTPL are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Financial liabilities at fair value through profit or loss mandatorily measured at fair<br>value 2,868,706 2,114,606
Financial liabilities at fair value through profit or loss designated as upon initial<br>recognition 87,626 164,767
Total 2,956,332 2,279,373
(2) Financial liabilities at fair value through profit or loss mandatorily measured at fair value(Financial<br>liabilities held for trading) are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Deposits
Gold banking liabilities 27,530 27,058
Derivative liabilities 2,841,176 2,087,548
Total 2,868,706 2,114,606
(3) Financial liabilities designated as at FVTPL are as follows (Unit: Korean won in millions):<br>
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Equity-linked securities index
Equity-linked securities index in short position 87,626 164,767

Financial liabilities at fair value through profit or loss designated as upon initial recognition are designated in order to eliminate or significantly reduce accounting mismatch arising from recognition or measurement.

(4) There are no accumulated changes in credit risk adjustments to financial liabilities at fair value through<br>profit or loss designated as upon initial recognition.

The adjustment to reflect Bank’s credit risk is considered in measuring the fair value of equity-linked securities and debentures. The Bank’s credit risk is determined by adjusting credit spread observed in credit rating of Bank.

(5) The difference between financial liabilities at fair value through profit or loss designated as upon initial<br>recognition carrying amount and nominal amount at maturity is as follows (Unit: Korean won in millions):
December 31, 2019 December 31,2018
--- --- --- --- --- --- ---
Carrying amount 87,626 164,767
Nominal amount at maturity 97,503 217,280
Difference (9,877 ) (52,513 )
  • 71 -
21. DEPOSITS DUE TO CUSTOMERS

Details of deposits due to customers by type are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Deposits in local currency:
Deposits on demand 8,680,363 11,081,708
Deposits at termination 225,438,122 204,215,703
Mutual installment 28,574 30,783
Certificate of deposits 973,625 6,510,571
Sub-total 235,120,684 221,838,765
Deposits in foreign currency:
Deposits in foreign currencies 17,510,592 15,657,683
Present value discount (5,982 ) (69,683 )
Total 252,625,294 237,426,765
22. BORROWINGS AND DEBENTURES
--- ---
(1) Details of borrowings are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019
--- --- --- --- --- --- ---
Lenders Interest rate (%) Amount
Borrowings in local currency:
Borrowings from the BOK The BOK 0.5 ~ 0.8 1,770,726
Borrowings from government funds Small Enterprise And Market Service and others 0.0 ~ 2.8 1,844,798
Others The Korea Development Bank and others 0.0 ~ 2.8 3,804,072
Sub-total 7,419,596
Borrowings in foreign currencies:
Borrowings in foreign currencies The Export-Import BOK and others (0.3) ~ 3.6 7,716,113
Offshore borrowings in foreign currencies HSBC, HKG 3.0 34,734
Sub-total 7,750,847
Bills sold Others 0.0 ~ 1.6 9,367
Call money Bank and others 0.1 ~ 3.0 140,302
Bonds sold under repurchase agreements Other financial institutions 4.0 ~ 12.7 6,008
Present value discount (299 )
Total 15,325,821
December 31, 2018
--- --- --- --- --- --- ---
Lender Interest rate (%) Amount
Borrowings in local currency:
Borrowings from The BOK The BOK 0.5 ~ 0.8 1,335,459
Borrowing from government funds Small Enterprise and Market Service and others 0.0 ~ 3.5 1,771,379
Others The Korea Development Bank and others 0.0 ~ 3.8 3,359,968
Sub-total 6,466,806
Borrowings in foreign currencies:
Borrowings in foreign currencies The Export-Import Bank of Korea and others 0.0 ~ 3.7 6,961,717
Offshore borrowings in foreign currencies JPMORGAN CHASE BANK 2.9 33,543
Sub-total 6,995,260
Bills sold Others 0.0 ~ 1.8 19,336
Call money Banks and others 0.0 ~ 7.3 597,645
Bonds sold under repurchase agreements Other financial institutions 0.8 ~ 12.7 2,129
Present value discount (84 )
Total 14,081,092
  • 72 -
(2) Details of debentures are as follows (Unit: Korean Won in millions):
December 31, 2019 December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Interest rate (%) Amount Interest rate (%) Amount
Face value of bond (*):
Ordinary bonds 0.0 ~ 4.3 17,064,976 1.6 ~ 4.5 16,346,278
Subordinated bonds 2.7 ~ 5.9 5,782,688 3.0 ~ 5.9 5,343,478
Sub-total 22,847,664 21,689,756
Discount on bonds (17,412 ) (23,425 )
Total 22,830,252 21,666,331
(*) Included debentures under fair value hedge relationships are 3,151,172 million Won and<br>2,956,565 million Won as of December 31, 2019 and 2018, respectively.
--- ---
23. PROVISIONS
--- ---
(1) Details of provisions are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Asset retirement obligation 60,477 61,477
Provisions for guarantees (*1) 95,402 92,636
Provisions for unused loan commitments 59,479 71,368
Other provisions (*2) 164,755 58,020
Total 380,113 283,501
(*1) Provisions for guarantees include provision for financial guarantee of 66,622 million Won and<br>51,272 million Won as of December 31, 2019 and 2018, respectively.
--- ---
(*2) Other provisions consist of provision for litigation and others.
--- ---
(2) Changes in provisions for guarantees and unused loan commitments are as follows (Unit: Korean Won in millions):<br>
--- ---
1) Provisions for guarantees
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 47,860 33,698 11,078 92,636
Replaced with 12-month expected credit loss 13,568 (13,568 ) — —
Replaced with expected credit loss for the entire period (317 ) 532 (215 ) —
Replaced with credit-impaired financial assets (30 ) (32 ) 62 —
Provisions used (27,711 ) — — (27,711 )
Net reversal of unused amount (14,278 ) 5,603 4,437 (4,238 )
Others (*) 34,717 (2 ) — 34,715
Ending balance 53,809 26,231 15,362 95,402
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 49,384 18,102 127,511 194,997
Replaced with 12-month expected credit loss 84 (84 ) — —
Replaced with expected credit loss for the entire period (236 ) 91,007 (90,771 ) —
Replaced with credit-impaired financial assets (38 ) (29 ) 67 —
Provisions used (20,429 ) — — (20,429 )
Net reversal of unused amount (4,118 ) (75,298 ) (25,729 ) (105,145 )
Others (*) 23,213 — — 23,213
Ending balance 47,860 33,698 11,078 92,636
(*) This is the effect of new financial guarantee contracts that are initially measured at fair value.<br>
--- ---
  • 73 -
2) Provisions for unused loan commitments
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 40,813 30,555 — 71,368
Replaced with 12-month expected credit loss 5,401 (5,401 ) — —
Replaced with expected credit loss for the entire period (503 ) 503 — —
Replaced with credit-impaired financial assets (78 ) (35 ) 113 —
Net provision(reversal) of unused amount (16,050 ) 4,239 (113 ) (11,924 )
Others 34 1 — 35
Ending balance 29,617 29,862 — 59,479
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- ---
Stage 1 Stage 2 Stage 3 Total
Beginning balance 42,106 13,100 167 55,373
Replaced with 12-month expected credit loss 1,708 (1,551 ) (157 ) —
Replaced with expected credit loss for the entire period (820 ) 825 (5 ) —
Replaced with credit-impaired financial assets (77 ) (1,329 ) 1,406 —
Net provision(reversal) of unused amount (2,128 ) 19,510 (1,411 ) 15,971
Others 24 — — 24
Ending balance 40,813 30,555 — 71,368
(3) Changes in asset retirement obligation are as follows (Unit: Korean Won in millions):
--- ---
For years ended December 31
--- --- --- --- --- --- ---
2019 2018
Beginning balance 61,477 56,243
Provisions provided 3,025 1,361
Provisions used (1,418 ) (822 )
Reversal of provisions unused (2,635 ) (989 )
Amortization 431 562
Increase in restoration costs and others (403 ) 5,122
Ending balance 60,477 61,477

The amount of the asset retirement obligation is the present value of the best estimate of future expected expenditure to settle the obligation – arising from leased premises as of December 31, 2019, discounted by appropriate discount rate. The restoration cost is expected to occur by the end of each premise’s lease period, and the Bank has used average lease period of each category of leases terminated during the past years in order to rationally estimate the lease period. In addition, the Bank used average amount of actual recovery cost for the past 3 years and the inflation rate for the preceding year in order to estimate future recovery cost.

  • 74 -
(4) Changes in other provisions are as follows (Unit: Korean Won in millions):
For the nine months ended December 31, 2019
--- --- --- ---
Other provisions
Beginning balance 58,020
Provisions provided 104,891
Provisions used (883 )
Transfer —
Classified as held for sale —
Others 2,727
Ending balance 164,755
For year ended December 31, 2018
--- --- --- --- --- --- --- --- --- ---
Provisions for customer<br>reward credits Other<br>provisions Total
Beginning balance 37,256 52,940 90,196
Provisions provided 2,050 7,795 9,845
Provisions used (80,629 ) (5,015 ) (85,644 )
Transfer (*) 59,924 — 59,924
Classified as held for sale (46,140 ) (2,055 ) (48,195 )
Others 27,539 4,355 31,894
Ending balance — 58,020 58,020
(*) Provision for customer reward credits have increased for the Bank due to the point transfer from partners<br>during the year ended in December 31, 2018.
--- ---
(5) Others
--- ---
1) As of September 23, 2019, the Bank temporarily suspended the<br>won-payment business due to tightened U.S. sanctions on Iran while it was ongoing to settle trade transactions between Korea and Iran. In connection with these services, the Bank is currently being<br>investigated by US government agencies including US prosecutors (United States Attorney’s Office and New York State Attorney General’s Office) and Office of Foreign Assets Control as to whether the Bank has violated United States laws by<br>participating in prohibited transactions involving the following countries: Iran, Sudan, Syria and Cuba, which have been sanctioned by the US.
--- ---
2) The Bank recognized the provision of the estimated compensation amount related to the incomplete selling of the<br>Derivative Linked Fund (DLF) incurred during the current term and a fine expected to be imposed by the Financial Supervisory Service as the best estimate for the expenditure required to meet its obligations at the end of the reporting period. On the<br>other hand, the actual amount of compensation of the Bank may change as the global spread of the new coronavirus has caused abnormal interest rate changes since the end of the reporting period
--- ---
  • 75 -
24. NET DEFINED BENEFIT LIABILITIES

The characteristics of the Bank’s defined benefit retirement pension plans are as follows:

Employees and directors with one or more years of service are entitled to receive a payment upon termination of their employment, based on their length of service and rate of pay at the time of termination. The assets of the plans are measured at their fair value at the end of reporting date. The plan liabilities are measured using actuarial assumption that is considered to be the most reasonable estimate of future cash flows (the projected unit method, which takes account of projected earnings increases).

The Bank is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:

Volatility of asset The defined benefit obligation was estimated with an interest rate calculated based on blue chip corporate bonds earnings. A deficit may occur if the rate of return of plan assets falls short of the discount<br>rate.
Decrease in profitability of blue-chip bonds A decrease in profitability of blue chip bonds will be partially offset by increases in the value of debt securities that the employee benefit plan owns but will bring an increase in the defined benefit obligation.
Risk of inflation Most defined benefit obligations are related to inflation rate; the higher the inflation rate is, the higher the level of liabilities. Therefore, deficit occurs in the system if an inflation rate increases.
(1) Details of net defined benefit liabilities are as follows (Unit: Korean Won in millions):<br>
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Present value of defined benefit obligation 1,311,238 1,175,650
Fair value of plan assets (1,264,412 ) (1,039,487 )
Net defined benefit liabilities 46,826 136,163
(2) Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions):<br>
--- ---
For the year ended<br>December 31, 2019 For the year ended<br>December 31, 2018
--- --- --- --- --- --- --- ---
Beginning balance 1,175,650 990,007
Transfer effect 601 —
Current service cost 144,317 130,006
Interest cost 30,751 30,604
Remeasurements Financial assumptions 49,554 54,423
Demographic assumptions 32,566 7,728
Experience adjustments (47,481 ) 33,697
Foreign currencies translation adjustments 12 29
Retirement benefit paid (74,732 ) (70,844 )
Ending balance 1,311,238 1,175,650
(3) Changes in the plan assets are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Beginning balance 1,039,487 975,723
Interest income 29,046 32,163
Remeasurements (8,098 ) (13,999 )
Employer’s contributions 279,066 117,000
Retirement benefit paid (72,930 ) (69,109 )
Others (2,159 ) (2,291 )
Ending balance 1,264,412 1,039,487
  • 76 -
(4) Plan assets consist of regular deposits as of December 31, 2019 and December 31, 2018, and the actual<br>return on plan assets amount to 20,948 million Won and 18,164 million Won for the year ended December 31, 2019 and 2018, respectively.

Meanwhile, the contribution expected to be paid in the current accounting year amounts to 148,124 million Won.

(5) Current service cost, net interest income, loss(gain) on the curtailment or settlement and re-measurements recognized in the separate statements comprehensive income are as follows (Unit: Korean Won in millions):
For the year ended December 31
--- --- --- --- --- ---
2019 2018
Current service cost 144,317 130,006
Net interest income 1,705 (1,559 )
Cost recognized in net income 146,022 128,447
Remeasurements 42,737 109,847
Cost recognized in total comprehensive income 188,759 238,294

Retirement benefits related to defined contribution plans recognized as expenses are 2,097 million Won and 1,873 million Won for the year ended December 31, 2019 and 2018, respectively.

(6) Key actuarial assumptions used in net defined benefit liability measurement are as follows:<br>
December 31, 2019 December 31, 2018
--- --- ---
Discount rate 2.42% 2.69%
Future wage growth rate 2.64% 6.18%
Mortality rate Issued by Korea Insurance<br>Development Institute Issued by Korea Insurance<br>Development Institute
Retirement rate Experience rate for each<br>employment classification Experience rate for each<br>employment classification

The weighted average maturity of defined benefit liability is 11.85 years.

(7) The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows<br>(Unit: Korean Won in millions):
December 31, 2019 (*) December 31, 2018 (*)
--- --- --- --- --- --- --- ---
Discount rate Increase by 1% point (139,312 ) (113,874 )
Decrease by 1% point 164,744 133,530
Future wage growth rate Increase by 1% point 162,701 132,324
Decrease by 1% point (140,339 ) (115,041 )
(*) The above sensitivity analyses are based on a change in an assumption while holding all other assumptions<br>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 principal actuarial assumptions is calculated using the projected unit credit<br>method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position.
--- ---
  • 77 -
25. OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES

Other financial liabilities and other liabilities are as follows (Unit: Korean Won in millions):

December 31, 2019 December 31, 2018
Other financial liabilities:
Accounts payable 5,268,280 4,360,077
Accrued expenses 2,259,532 2,018,814
Borrowing from trust accounts 3,440,874 3,850,860
Agency business revenue 362,820 396,735
Foreign exchanges payable 753,819 520,815
Domestic exchanges payable 1,257,280 7,127,706
Lease liabilities 277,655 —
Other miscellaneous financial liabilities 2,269,901 1,822,657
Present value discount (1,001 ) (653 )
Sub-total 15,889,160 20,097,011
Other liabilities:
Unearned income 40,100 56,502
Other miscellaneous liabilities 111,481 116,999
Sub-total 151,581 173,501
Total 16,040,741 20,270,512
  • 78 -
26. DERIVATIVES
(1) Derivative assets and derivative liabilities are as follows (Unit: Korean Won in millions):<br>
--- ---
December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Assets Liabilities
Notional<br>amount For fair value<br>hedge For<br>trading For fair value<br>hedge For<br>trading
Interest rate:
Futures 79,021 — — — —
Swaps 152,784,737 111,764 325,542 — 413,568
Purchase options 460,000 — 11,888 — —
Written options 395,789 — — — 9,655
Currency:
Forwards 113,791,702 — 1,447,224 — 1,027,903
Swaps 81,359,428 — 965,346 — 1,106,423
Purchase options 1,588,746 — 18,835 — —
Written options 2,341,179 — — — 9,403
Equity:
Forwards 11 — — — —
Futures 630,562 — — — —
Swaps 1,280,436 — 1,217 — 54,393
Purchase options 8,851,984 — 175,221 — —
Written options 8,978,953 — — — 219,831
Total 372,542,548 111,764 2,945,273 — 2,841,176
December 31, 2018
--- --- --- --- --- --- --- --- --- --- ---
Assets Liabilities
Notional<br>amount For fair value<br>hedge For<br>trading For fair value<br>hedge For<br>trading
Interest rate:
Futures — — — — —
Swaps 151,908,990 35,503 229,811 17,654 266,596
Purchase options 530,000 — 10,461 — —
Written options 525,000 — — — 12,438
Currency:
Futures 294,172 — — — —
Forwards 87,625,827 — 840,859 — 774,241
Swaps 66,419,673 — 761,907 — 772,805
Purchase options 1,933,454 — 17,544 — —
Written options 3,134,774 — — — 20,739
Equity:
Futures 186,737 — — — —
Swaps 441,573 — 31,377 — 1,217
Purchase options 4,925,315 — 143,029 — —
Written options 6,145,935 — — — 239,512
Total 324,071,450 35,503 2,034,988 17,654 2,087,548

Derivatives held for trading are classified to financial assets at FVTPL (Note 7) and financial liabilities at FVTPL (Note 20), and derivatives held for hedging are presented as derivative assets and derivative liabilities in the statements of financial position.

  • 79 -
(2) Overview of the Bank’s hedge accounting

The hedging relationships the Bank applies fair value hedge accounting and cash flow hedge accounting to are affected by interest rate which is related with Interest Rate Benchmark Reform. The interest rates to which the hedging relationships are exposed are USD 3M LIBOR, USD 6M LIBOR. The nominal amounts of hedging instruments related to 3M LIBOR and 6M LIBOR are USD 2,150,000,000 and USD 500,000,000, respectively. The Bank pays close attention to discussions in the market and industry regarding the applicable alternative benchmark interest rates for the exposed interest rate. The entity judges related uncertainty is expected to be no longer present when the exposed interest rates are replaced by the applicable benchmark interest rates.

As of the year end, the Bank has applied fair value hedge on fixed interest rate foreign currency denominated debentures amounting to 3,151,172 million Won. The purpose of the hedging is to avoid fair value change risk of fixed interest rate foreign currency denominated debentures derived from fluctuations of market interest rate, and as such the Bank entered into interest rate swap agreements designated as hedging instruments.

Pursuant to the interest rate swap agreement, by swapping the calculated difference between the fixed interest rate and floating interest rate applied to the nominal value, the fair value fluctuation risk is hedged as the foreign currency denominated debentures fixed interest rate terms are converted to floating interest rate. Pursuant to the interest rate swap agreement, hedge ratio is determined by matching the nominal value to the face value of the hedging instrument.

In this hedging relationship, only the market interest rate fluctuation, which is the most significant part of the fair value change of the hedged item, is designated as the hedged risk, and other risk factors including credit risk are not included in the hedged risk. Therefore, the ineffective portion of the hedge could arise from difference in the timing of the cash flow of the hedged item, price margin set by the counterparty of hedging instruments, or unilateral credit risk fluctuation of either party of the hedging instrument.

The interest rate swap agreements and the hedged items are subject to fluctuations in the underlying market rate of interest and the Bank expects the fair value of the interest rate swap contract and the value of the hedged item to generally change in the opposite direction.

The fair value of the interest rate swap at the end of the reporting period is determined by discounting future cash flows estimated using the yield curve at the end of the reporting period and the credit risk embedded in the contract and the average interest rate is determined based on the outstanding balance at the end of the reporting period. The variable interest rate applied to the interest rate swap is USD Libor 3M (6M) plus spread. In accordance with the terms of each interest rate swap contract designated as a hedging instrument, the Bank receives interest at a fixed interest rate and pays interest at a variable interest rate.

  • 80 -
(3) The nominal amounts of the hedging instrument are as follows (Unit: Korean Won in millions, USD, SGD):<br>
--- --- --- --- --- --- --- ---
1 year to 5<br>years More than 5<br>years Total
Fair value hedge
Interest rate risk
Interest rate swap () 350,000,000 2,000,000,000 300,000,000 2,650,000,000

All values are in US Dollars.
1 year to 5<br>years More than 5<br>years Total
Fair value hedge
Interest rate risk
Interest rate swap () — 1,350,000,000 1,300,000,000 2,650,000,000

All values are in US Dollars.

(4) The average interest rate and average currency rate of the hedging instrument as of December 31, 2019 and<br>as of December 31, 2018 are as follows:
December 31, 2019
--- ---
Average interest rate
Fair value hedge
Interest rate risk
Interest rate swaps (USD) Fixed 3.96% receipt and Libor 3M+1.61% floating paid<br><br><br>Fixed 5.88% receipt and Libor 6M+2.15% floating paid
December 31, 2018
--- ---
Average interest rate
Fair value hedge
Interest rate risk
Interest rate swaps (USD) Fixed 3.96% receipt and Libor 3M+1.61% floating paid<br><br><br>Fixed 5.88% receipt and Libor 6M+2.15% floating paid
(5) The amounts related to items designated as hedging instruments are as follows (Unit: Korean Won in millions,<br>USD):
--- ---
--- --- --- --- --- --- --- --- --- ---
Carrying amounts of the<br>hedging instrument Line item in the statement<br>of financial position<br>where the hedging<br>instrument is located Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness
Liabilities
Fair value hedge
Interest rate risk
Interest rate swaps () 2,650,000,000 111,764 — Derivative assets<br> <br>(designated for hedging)<br><br><br>Derivative liabilities<br> <br>(designated<br>for hedging 90,244

All values are in US Dollars.
Carrying amounts of the<br>hedging instrument Line item in the statement<br>of financial position<br>where the hedging<br>instrument is located Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness
Liabilities
Fair value hedge
Interest rate risk
Interest rate swaps () 2,650,000,000 35,503 17,654 Derivative assets<br> <br>(designated for hedging<br><br><br>Derivative liabilities<br><br><br>(designated for hedging )<br> <br><br><br><br>) (27,362 )

All values are in US Dollars.

  • 81 -
(6) Details of carrying amount to hedged and amount adjusted due to hedge accounting as of December 31, 2019<br>and 2018 are as follows (Unit: Korean Won in millions):
December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
Accumulated amount of<br><br><br>fair value hedge
Carrying amounts of<br>the hedging item adjustments on the hedged<br>item included in the<br>carrying amount of the<br>hedged item Line item in the statement<br>of financial position in<br>which the hedged item <br>is<br>included Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness
Assets Liabilities Assets Liabilities
Fair value hedge
Interest rate risk
Debenture — 3,151,172 — 91,368 Debentures (85,984 )
December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- ---
Carrying amounts of<br>the hedging item Accumulated amount of<br>fair value hedge<br>adjustments on the hedged<br>item included in the<br>carrying amount of the<br>hedged<br>item Line item in the statement<br>of financial position in<br>which the hedged item is<br>included Changing in fair<br>value used for<br>calculating hedge<br>ineffectiveness
Assets Liabilities Assets Liabilities
Fair value hedge
Interest rate risk
Debenture — 2,956,565 — 5,200 Debentures 25,498
(7) Amounts recognized in profit or loss due to the ineffective portion of fair value hedges for the years ended<br>December 31, 2019 and 2018 are as follows (Unit: Korean won in millions):
--- ---
December 31, 2019
--- --- --- --- ---
Hedge ineffectiveness<br>recognized in profit or loss Line item in the profit or loss that<br>includes hedge ineffectiveness
Fair value hedge Interest rate risk 4,260 Other net operating income
December 31, 2018
--- --- --- --- --- ---
Hedge ineffectiveness<br>recognized in profit or loss Line item in the profit or loss that<br>includes hedge ineffectiveness
Fair value hedge Interest rate risk (1,864 ) Other net operating income
27. DEFERRED DAY 1 PROFITS OR LOSSES
--- ---

Changes in deferred day 1 profits or losses are as follows (Unit: Korean Won in millions):

For the years ended December 31
2019 2018
Beginning balance 25,515 7,416
New transactions 53,289 23,744
Amounts recognized in losses (26,545 ) (5,645 )
Ending balance 52,259 25,515

In case some variables to measure fair values of financial instruments are not observable in the market, valuation techniques are utilized to evaluate such financial instruments. These financial instruments are recorded the transaction price as at the time of acquisition, even though there are differences noted between the transaction price and the fair value. The table above presents the differences yet to be realized as profit or losses.

28. CAPITAL STOCK AND CAPITAL SURPLUS
(1) The number of shares authorized and others are as follows:
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Shares of common stock authorized 5,000,000,000 shares 5,000,000,000 shares
Par value 5,000 Won 5,000 Won
Shares of common stock issued 676,000,000 shares 676,000,000 shares
Capital 3,381,392 million Won 3,381,392 million Won
  • 82 -
(2) There are no changes in the number of shares issued and outstanding for the years ended December 31, 2019<br>and 2018.
(3) Details of capital surplus are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Paid in capital in excess of par value 269,533 269,533
29. HYBRID SECURITIES
--- ---

The bond-type hybrid securities classified as equity are as follows (Unit: Korean Won in millions):

Issue date Maturity Interest<br>rates (%) December 31,<br>2019 December 31,<br>2018
Securities in local currency April 25, 2013 April 25, 2043 4.4 500,000 500,000
November 13, 2013 November 13, 2043 5.7 200,000 200,000
December 12, 2014 December 12, 2044 5.2 — 160,000
June 3, 2015 June 3, 2045 4.4 240,000 240,000
July 26, 2018 — 4.4 400,000 400000
Securities in foreign currencies June 10, 2015 June 10, 2045 5.0 559,650 559,650
September 27, 2016 — 4.5 553,450 553,450
May 16, 2017 — 5.3 562,700 562,700
October 4, 2019 — 4.3 662,035 —
Issuance cost (17,021 ) (13,837 )
Total 3,660,814 3,161,963

The hybrid securities mentioned above are either without a maturity date or its maturity can be extended indefinitely at the maturity date without change of terms.

  • 83 -
30. OTHER EQUITY
(1) Details of other equity are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Accumulated other comprehensive loss:
Net loss on valuation of financial assets at FVTOCI (104,639 ) (116,032 )
Loss on foreign currency translation of foreign operations (10,366 ) (18,811 )
Remeasurement loss related to defined benefit plan (248,500 ) (217,516 )
Sub-total (363,505 ) (352,359 )
Treasury shares — (34,113 )
Other capital adjustments (6,350 ) (368 )
Total (369,855 ) (386,840 )
(2) Changes in the accumulated other comprehensive income are as follows (Unit: Korean Won in millions):<br>
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning<br>balance Increase<br>(decrease) (*) Reclassification<br>adjustments Income tax<br>effect Ending<br>balance
Net gain (loss) on valuation of financial assets at FVTOCI (116,032 ) 15,767 (53 ) (4,321 ) (104,639 )
Gain (loss) on foreign currency translation of foreign operations (18,811 ) 11,649 — (3,204 ) (10,366 )
Remeasurement gain (loss) related to defined benefit plan (217,516 ) (42,737 ) — 11,753 (248,500 )
Total (352,359 ) (15,321 ) (53 ) 4,228 (363,505 )
(*) Net gain (loss) on valuation of financial assets at FVTOCI included the 45,513 million Won transferred to<br>retained earnings due to disposal of equity securities.
--- ---
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning<br>balance Increase<br>(decrease)<br>(*1)(*2) Reclassification<br>adjustments Income tax<br>effect Ending<br>balance
Net gain (loss) on valuation of financial assets at FVTOCI (121,818 ) (34 ) 8,015 (2,195 ) (116,032 )
Gain (loss) on financial liabilities at FVTPL designated as upon initial recognition due to own<br>credit risk (96 ) 132 — (36 ) —
Gain (loss) on foreign currency translation of foreign operations (26,693 ) 10,872 — (2,990 ) (18,811 )
Remeasurement gain (loss) related to defined benefit plan (137,877 ) (109,847 ) — 30,208 (217,516 )
Total (286,484 ) (98,877 ) 8,015 24,987 (352,359 )
(*1) Net gain (loss) on valuation of financial assets at FVTOCI included the 1,009 million Won transferred to<br>retained earnings due to disposal of equity securities.
--- ---
(*2) Gain (loss) on financial liabilities at fair value through profit or loss designated as upon initial<br>recognition due to own credit risk included the 4 million Won and is transferred to retained earnings due to redemption.
--- ---
  • 84 -
31. RETAINED EARNINGS AND OTHER RESERVES
(1) Details of retained earnings are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- --- ---
Legal reserve Earned surplus reserve 2,039,754 1,857,754
Other legal reserve 46,635 46,384
Sub-total 2,086,389 1,904,138
Voluntary reserve Business rationalization reserve 8,000 8,000
Reserve for financial structure improvement 235,400 235,400
Additional reserve 8,576,105 7,759,804
Regulatory reserve for credit loss 1,888,816 2,091,721
Revaluation reserve 714,018 715,860
Sub-total 11,422,339 10,810,785
Retained earnings before appropriation 1,611,128 1,908,029
Total 15,119,856 14,622,952
i. Earned surplus reserve
--- ---

In accordance with the Article 40, Banking Act, earned surplus reserve is appropriated at least one tenth of the earnings after tax on every dividend declaration, not exceeding the paid in capital. This reserve may not be used other than for offsetting a deficit or transferring to capital.

ii. Other legal reserve

Other legal reserves were appropriated in the branches located in Japan, Vietnam and Bangladesh according to the banking laws of Japan, Vietnam and Bangladesh respectively, and may be used to offset any deficit incurred in those branches.

iii. Business rationalization reserve

Pursuant to the Restriction of Special Taxation Act, the Bank was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. The requirement was no longer effective from 2002.

iv. Reserve for financial structure improvement

From 2002 to 2014, the Finance Supervisory Services recommended banks in Korea to appropriate at least 10 percent of net income after accumulated deficit for financial structure improvement, until tangible common equity ratio equals 5.5 percent. But this reserve is not available for payment of cash dividends; however, it can be used to reduce a deficit or be transferred to capital. The reserve and appropriation is an autonomous judgment matter of the Bank since 2015.

v. Additional reserve

Additional reserve was appropriated for capital adequacy and other management purpose.

vi. Regulatory reserve for credit loss

In accordance with Article 29 of the Regulation on Supervision of Banking Business (“RSBB”), if provisions for credit loss under K-IFRS for the accounting purpose are lower than provisions under RSBB, the Bank discloses such short fall amount as regulatory reserve for credit loss.

vii. Revaluation reserve

In accordance with appendix 3 of the Regulation on Supervision of Banking Business Enforcement Rules, revaluation reserve is the amount of limited dividends set by the board of directors to be recognized as complementary capital when the gains or losses occurred in the property revaluation by adopting K-IFRS.

  • 85 -
(2) Statements of appropriations of retained earnings (plan) are as follows (Unit: Korean won in millions):<br>
2019(*) 2018
--- --- --- --- --- --- ---
Unappropriated retained earnings:
Unappropriated retained earnings carried over from prior years 676,231 842
Interim dividend (676,000 ) —
Adjustment of K-IFRS 1109 implementation effect — 246,464
Disposal gain or loss in FVOCI financial assets (45,513 ) 1,013
Net income 1,790,831 1,810,904
Dividend on/repayment of hybrid equity securities (134,421 ) (151,194 )
1,611,128 1,908,029
Transfer from retained earnings:
Provision of revaluation excess 1,069 1,842
Credit loss — 202,905
1,069 204,747
Appropriation of retained earnings:
Legal reserve 180,000 182,000
Regulatory reserve for credit loss 162,779 —
Other reserve 498 251
Amortization of loss of repayment of hybrid equity securities 276 368
Losses on disposal of treasury stock 6,073 —
Cash dividend (dividend per share (%))<br>2019: 1,000 won (20.0%),<br>2018: 650 won<br>(13.0%) 676,000 437,626
Additional reserve — 816,300
1,025,626 1,436,545
Unappropriated retained earnings to be carried forward to next year 586,571 676,231
(*) Expected appropriation date is on March 24, 2020.
--- ---
  • 86 -
32. REGULATORY RESERVE FOR CREDIT LOSS

In accordance with paragraphs 1 and 2 of Article 29 of the Regulation on the Supervision of Banking Business (“RSBB”), the Bank discloses the difference as the planned regulatory reserve for credit loss.

(1) Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean Won in millions):<br>
December 31, 2019 December 31, 2018
--- --- --- --- --- ---
Regulatory reserve for credit loss 1,888,816 2,091,721
Planned provision (reversal) of regulatory reserve for credit loss 162,779 (202,905 )
Ending balance of regulatory reserve for credit loss 2,051,595 1,888,816
(2) Planned reserves provided, adjusted net income after the planned reserves provided and adjusted EPS after the<br>planned reserves provided are as follows (Unit: Korean Won in millions, except for EPS amount):
--- ---
For the years ended December 31
--- --- --- --- --- ---
2019 2018
Net income 1,790,831 1,810,904
Provision (reversal) of regulatory reserve for credit loss (*) 162,779 (8,628 )
Adjusted net income after the provision (reversal) of regulatory reserve 1,628,052 1,819,532
Adjusted EPS after the provision (reversal) of regulatory reserve (Unit: Korean Won) 2,210 2,479
(*) The amount of reserve for credit loss for the year ended December 31, 2018 is calculated considering only<br>the change in the reserve for credit loss after the accounting policy change due to adoption of K-IFRS 1109. Therefore, the effect of reducing the reserve for credit losses due to changes in accounting<br>policies was excluded.
--- ---
33. DIVIDENDS
--- ---

Dividends for the year ended December 31, 2019 and 2018 are 1,000 Won and 650 Won per share, respectively. The total amount of dividends approved are 676,000 million Won and 437,626 million Won, respectively. Also, the Bank paid interim dividend during the year 2019, and the amount is 1,000 Won for share, 676,000 million Won for total. Dividends for the year ended December 31, 2019 will be brought up as an agenda in the annual shareholder’s meeting scheduled for March 24, 2020.

  • 87 -
34. NET INTEREST INCOME
(1) Interest income recognized is as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Financial assets at FVTPL 359 6,047
Financial assets at FVTOCI 437,104 256,995
Securities at amortized cost 430,440 372,006
Financial assets at amortized cost:
Interest on due from banks 120,691 96,901
Interest on loans 8,003,563 7,578,302
Interest of other receivables 23,544 21,716
Sub-total 8,147,798 7,696,919
Total 9,015,701 8,331,967
(2) Interest expenses recognized are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Interest on deposits due to customers 3,155,097 2,704,194
Interest on borrowings 305,279 252,140
Interest on debentures 598,295 558,328
Interest on lease liabilities 6,262 —
Other interest expense 90,432 89,587
Total 4,155,365 3,604,249
35. NET FEES AND COMMISSIONS INCOME
--- ---
(1) Details of fees and commissions income recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Fees and commission received for brokerage 278,847 301,106
Fees and commission received related to credit 175,316 163,489
Fees and commission received for electronic finance 137,892 121,712
Fees and commission received on foreign exchange handling 51,700 51,977
Fees and commission received on foreign exchange 37,815 25,390
Fees and commission received for guarantee 86,801 73,302
Fees and commission received on securities business 90,188 88,149
Fees and commission from trust management 178,752 185,239
Other fees 130,672 140,837
Total 1,167,983 1,151,201
(2) Details of fees and commissions expense incurred are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Fees and commissions paid 153,262 148,296
Others 228 258
Total 153,490 148,554
  • 88 -
36. DIVIDEND INCOME
(1) Details of dividend income recognized are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Financial assets at FVTPL 85,724 63,690
Financial assets at FVTOCI 14,984 12,296
Total 100,708 75,986
(2) Details of dividends related to Financial assets at FVTOCI for the year ended December 31, 2019 and 2018<br>are as follows (Unit: Korean won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Dividend income recognized from assets held
Equity securities 14,984 12,022
Dividend income recognized in assets derecognized — 274
Total 14,984 12,296
  • 89 -
37. NET GAIN OR LOSS ON FINANCIAL INSTRUMENTS AT FVTPL
(1) Details of gains or losses related to net gain or loss on financial instruments at FVTPL are as follows (Unit:<br>Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- ---
2019 2018
Gains on financial instruments at fair value through profit or loss mandatorily measured at fair<br>value 59,970 187,165
Gains(Losses) on financial instruments at fair value through profit or loss designated as upon<br>initial recognition (33,237 ) 17,484
Total 26,733 204,649
(2) Details of net gain or loss on financial instrument at FVTPL are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- --- --- --- --- ---
2019 2018
Financial assets at FVTPL Securities Gain on valuation 106,452 113,618
(financial assets held for Gain on disposals 45,230 28,136
trading) Loss on valuation (50,420 ) (20,479 )
Loss on disposals (9,388 ) (11,745 )
Sub-total 91,874 109,530
Loans Gain on valuation 1,037 1,606
Gain on disposals 519 4,136
Loss on valuation (20 ) (4,805 )
Loss on disposals — (117 )
Sub-total 1,536 820
Other financial assets Gain on valuation 2,062 2,050
Gain on disposals 1,901 530
Loss on valuation (1,755 ) (2,280 )
Loss on disposals (1,815 ) (86 )
Sub-total 393 214
Sub-total 93,803 110,564
Derivatives (for trading) Interest rate derivatives Gain on transactions and valuation 1,511,965 1,269,528
Loss on transactions and valuation (1,608,840 ) (1,302,937 )
Sub-total (96,875 ) (33,409 )
Currency derivatives Gain on transactions and valuation 6,855,592 4,888,508
Loss on transactions and valuation (6,836,794 ) (4,780,695 )
Sub-total 18,798 107,813
Equity derivatives Gain on transactions and valuation 832,070 481,123
Loss on transactions and valuation (787,827 ) (478,946 )
Sub-total 44,243 2,177
Other derivatives Gain on transactions and valuation 39 2,099
Loss on transactions and valuation (38 ) (2,079 )
Sub-total 1 20
Sub-total (33,833 ) 76,601
Total 59,970 187,165
  • 90 -
(3) Details of net gain or loss on financial instrument designated as at FVTPL are as follows (Unit: Korean Won in<br>millions):
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Gain (loss) on equity-linked securities:
Loss on disposal of equity-linked securities (16,006 ) (2,058 )
Gain(loss) on valuation of equity-linked securities (17,231 ) 17,945
Sub-total (33,237 ) 15,887
Gain(loss) on other financial instruments:
Gain on valuation of other financial instruments — 1,597
Total (33,237 ) 17,484
38. NET GAIN OR LOSS ON FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS
--- ---

Details of net gain or loss on financial assets at FVTOCI recognized are as follows (Unit: Korean Won in millions):

For the years ended December 31
2019 2018
Gains on redemption of securities (5 ) 28
Gains on transactions of securities 8,250 1,305
Total 8,245 1,333
39. REVERSAL OF (PROVISION FOR) IMPAIRMENT LOSSES DUE TO CREDIT LOSS
--- ---

Reversal of (provision for) impairment losses due to credit loss are as follows (Unit: Korean Won in millions):

For the years ended December 31
2019 2018
Provision of credit loss on financial assets at financial assets at FVTOCI (3,111 ) (1,704 )
Reversal of credit loss on (provision for) securities at amortized cost losses 1,413 (1,921 )
Reversal of credit loss on (provision for) loans and other financial assets at amortized<br>cost (105,919 ) (144,372 )
Reversal of provision on (provision for) guarantee 4,238 105,145
Reversal of provision on (provision for) unused loan commitment 11,924 (15,971 )
Total (91,455 ) (58,823 )
  • 91 -
40. GENERAL AND ADMINISTRATIVE EXPENSES AND OTHER NET OPERATING INCOME (EXPENSES)
(1) Details of general and administrative expenses recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Salaries Short-term employee benefits Salaries 1,271,874 1,229,278
Employee benefits 404,763 411,175
Share based payments 5,509 —
Retirement benefit service costs 148,119 130,320
Termination 146,620 221,677
Sub-total 1,976,885 1,992,450
Depreciation and amortization 389,951 161,581
Other general and administrative expenses Rent 51,380 255,594
Taxes and public dues 111,542 92,816
Service charges 208,029 199,221
Computer and IT related 235,418 262,477
Telephone and communication 35,357 36,663
Operating promotion 37,345 36,804
Advertising 80,151 66,341
Printing 6,236 7,073
Traveling 8,435 8,805
Supplies 5,303 5,154
Insurance premium 3,158 2,997
Reimbursement 20,446 21,147
Maintenance 15,030 14,312
Water, light and heating 12,497 12,428
Vehicle maintenance 7,192 7,653
Others 5,932 5,820
Sub-total 843,451 1,035,305
Total 3,210,287 3,189,336
(2) Details of other operating income recognized are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Gains on transactions of foreign exchange 557,082 982,555
Gains related to derivatives (Designated for hedging) 90,244 9,126
Gains on fair value hedged items 231 42,797
Others (*) 7,989 55,016
Total 655,546 1,089,494
(*) For the year ended December 31, 2018, other income includes gains amounting to 29,316 million Won<br>respectively that the Bank recognized in relation to amounts receivable from other creditor financial institutions in accordance with the creditor financial institutions committee agreement.
--- ---
  • 92 -
(3) Details of other operating expenses recognized are as follows (Unit: Korean Won in millions):<br>
For the years ended December 31
--- --- --- --- ---
2019 2018
Losses on transactions of foreign exchange 138,542 724,229
KDIC deposit insurance premium 329,198 311,662
Contribution to miscellaneous funds 315,145 295,909
Losses related to derivatives (Designated for hedging) — 36,488
Losses on fair value hedged items 86,214 17,299
Others (*) 107,907 96,556
Total 977,006 1,482,143
(*) For the years ended December 31, 2019 and 2018, ‘other expense’ includes 22,317 million Won<br>and 51,770 million Won of intangible asset amortization expense. In addition, as for 2018, it includes losses amounting to 1,594 million Won, which is related to the Bank’s expected payments to other creditor financial institutions in<br>accordance with the creditor financial institutions committee agreement.
--- ---
(4) Share-based Payment
--- ---

Details of performance condition share-based payment granted to executives as of December 31, 2019 are as follows:

1) Performance condition Share-based Payment
Subject to Shares granted for the year 2019
--- ---
Type of payment Cash-settled
Vesting period January 1, 2019 ~ December 31, 2022
Date of payment January 1, 2023
Number of shares measured as of the closing date (*) 524,746 shares
(*) The number of payable stock is granted at the initial contract date and the payment rate is determined based on<br>the achievement of the pre-determined performance targets. Performance is evaluated as long-term performance indication including relative shareholder return, net income, return on equity (ROE), non-performing loan ratio and job performance.
--- ---
2) The Bank accounts for performance condition share-based payments according to the cash-settled method and the<br>fair value of the liabilities is reflected in the compensation costs by re-measuring every closing period. As of December 31, 2019, the book value of the liabilities related to the performance condition<br>share-based payments recognized by the Bank is 5,509 million Won.
--- ---
  • 93 -
41. OTHER NON-OPERATING INCOME (EXPENSES)
(1) Details of losses on valuation of investments in subsidiaries and associates are as follows (Unit: Korean Won<br>in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Impairment losses of investments in subsidiaries and associates 43,102 241
(2) Details of other non-operating income and expenses recognized are as<br>follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Other non-operating income 360,787 149,165
Other non-operating expenses (424,110 ) (78,984 )
Total (63,323 ) 70,181
(3) Other non-operating income recognized are as follows (Unit: Korean Won<br>in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Rental fee income 20,386 15,022
Dividends from investments in subsidiaries and associates 52,273 37,481
Gains from disposal of investments in subsidiaries and associates 256,829 35,409
Gains on disposal of premises and equipment, intangible assets and other assets 1,033 25,537
Reversal of impairment loss of premises and equipment, intangible assets and other assets 85 491
Others 30,181 35,225
Total 360,787 149,165
(4) Other non-operating expenses recognized are as follows (Unit: Korean<br>Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Depreciation of investment properties 4,901 3,723
Interest expenses of refundable deposits 738 620
Loss on disposal of investments in subsidiaries and associates 205,046 —
Loss on disposal of premises and equipment, intangible assets and other assets 1,534 933
Impairment loss on premises and equipment, intangible assets and other assets 26,037 5,933
Donation 60,328 47,542
Others 125,526 20,233
Total 424,110 78,984
  • 94 -
42. INCOME TAX EXPENSE
(1) Details of income tax expense are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- --- ---
2019 2018
Current tax expense:
Current tax expense with respect to the current period 500,006 355,754
Adjustments recognized in the current period in relation to the tax expense of prior<br>periods (47,295 ) 6,283
Sub-total 452,711 362,037
Deferred tax expense(income):
Changes in deferred tax assets (liabilities) relating to the temporary differences 117,358 312,690
Income tax expense directly reflected in capital, etc. 4,228 —
Sub-total 121,586 312,690
Income tax expense 574,297 674,727
(2) Income tax expense reconciled to net income before income tax expense is as follows (Unit: Korean Won in<br>millions):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Net income before income tax expense 2,365,128 2,485,631
Tax calculated at statutory tax rate (*) 640,048 683,086
Adjustments:
Effect of income that is exempt from taxation (56,899 ) (44,151 )
Effect of expenses not deductible in determining taxable profit 22,345 11,339
Adjustments recognized in the current period in relation to the current tax of prior<br>periods (47,295 ) 6,283
Consolidated taxation effect (14,452 ) —
Others 30,550 18,170
Sub-total (65,751 ) (8,359 )
Income tax expense 574,297 674,727
Effective tax rate 24.3 % 27.2 %
(*) The applicable income tax rate: 1) 11% for taxable income below 200 million Won, 2) 22% for above<br>200 million Won and below 20 billion Won, 3) 24.2% for above 20 billion Won and below 300 billion Won, 4) 27.5% for above 300 billion Won.
--- ---
  • 95 -
(3) Changes in cumulative temporary differences for the years ended December 31, 2019 and 2018, are as follows<br>(Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning balance Recognized as income<br>(loss) Recognized as other<br>comprehensive income (loss) Ending<br>balance
Gain (loss) on financial assets at FVTPL 287,531 (93,857 ) (4,321 ) 189,353
Loss on valuation of derivatives (27,851 ) (45,563 ) — (73,414 )
Accrued income (55,471 ) (9,582 ) — (65,053 )
Provision for loan losses 1,156 (107 ) — 1,049
Loans and receivables written off 4,565 — — 4,565
Deferred loan origination costs and fees (148,354 ) (8,261 ) — (156,615 )
Defined benefit liability 322,168 28,020 11,753 361,941
Deposits with employee retirement insurance trust (298,515 ) (64,081 ) — (362,596 )
Provisions for guarantees 11,375 (3,460 ) — 7,915
Other provision 57,843 12,680 — 70,523
Others (147,087 ) 62,625 (3,204 ) (87,666 )
Net deferred tax assets (liabilities) 7,360 (121,586 ) 4,228 (109,998 )
For the year ended December 31, 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
K-IFRS 1109 adoption effect
Beginning<br>balance Recognized<br>as retained<br>earnings Recognized as<br>other<br>comprehensive<br>income Beginning<br>balance after<br>K-IFRS 1109<br>adoption Recognized as<br>income (loss) Recognized as<br>other<br>comprehensive<br>income (loss) Ending<br>balance
Gain (loss) on financial assets at FVTPL 494,159 (150,140 ) 149,247 493,266 (100,500 ) (2,231 ) 390,535
Loss on valuation of derivatives (9,828 ) (3,990 ) — (13,818 ) (14,033 ) — (27,851 )
Accrued income (60,460 ) — — (60,460 ) 4,989 — (55,471 )
Provision for loan losses 572 46,870 — 47,442 (46,286 ) — 1,156
Loans and receivables written off 7,776 — — 7,776 (3,211 ) — 4,565
Deferred loan origination costs and fees (134,477 ) 36 — (134,441 ) (13,913 ) — (148,354 )
Defined benefit liability 266,785 — — 266,785 25,175 30,208 322,168
Deposits with employee retirement insurance trust (277,130 ) — — (277,130 ) (21,385 ) — (298,515 )
Provisions for guarantees 30,602 1,370 — 31,972 (20,597 ) — 11,375
Other provision 34,712 7,732 — 42,444 15,399 — 57,843
Others (114,168 ) 5,395 — (108,773 ) (138,328 ) (2,990 ) (250,091 )
Net deferred tax assets (liabilities) 238,543 (92,727 ) 149,247 295,063 (312,690 ) 24,987 7,360
  • 96 -
(4) Unrealizable temporary differences are as follows (Unit: Korean Won in millions):
December 31, 2019 December 31, 2018
--- --- --- --- --- --- ---
Deductible temporary differences 162,457 264,972
Tax loss carry forward — 56,513
Taxable temporary differences (108,055 ) (866,294 )
Total 54,402 (544,809 )

No deferred income tax asset has been recognized for the deductible temporary difference of 162,457 million Won associated with investments in subsidiaries and associates as of December 31, 2019, because it is not probable that the temporary differences will be reversed in the foreseeable future.

No deferred income tax liability has been recognized for the taxable temporary difference of 108,055 million Won associated with investment in subsidiaries and associates as of December 31, 2019, due to the following reasons:

• The Bank can control the timing of the reversal of the temporary differences.
• It is probable that the temporary differences will not be reversed in the foreseeable future.<br>
--- ---
(5) Details of accumulated deferred tax charged directly to other equity are as follows (Unit: Korean Won in<br>millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Net gain on valuation of financial assets at FVTOCI 39,691 44,012
Gain on foreign currency translation of foreign operations 3,931 7,135
Remeasurement of the net defined benefit liability 94,259 82,506
Total 137,881 133,653
(6) Current tax assets and liabilities are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Current tax assets 27,558 —
Current tax liabilities 115,513 110,127
  • 97 -
43. EARNINGS PER SHARE(“EPS”)
(1) Basic EPS is calculated by dividing net income by weighted-average number of common shares outstanding (Unit:<br>Korean Won in millions, except for EPS and number of shares):
--- ---
For the years ended December 31
--- --- --- --- --- --- ---
2019 2018
Net income for the period attributable to Common shareholders 1,790,831 1,810,904
Dividends to hybrid securities (134,421 ) (151,194 )
Net income attributable to common shareholders 1,656,410 1,659,710
Weighted-average number of common shares outstanding 676 million<br>shares 673 million<br>shares
Basic EPS (Unit: Korean Won) 2,451 2,466
(2) The weighted average number of common shares outstanding is as follows:
--- ---
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Period Number of<br>shares Dates Accumulated number<br>of shares outstanding<br>during period
Common shares issued at the beginning of the period 2019-01-01 ~ 2019-12-31 673,271,226 365 245,743,997,490
Purchase of treasury stock 2019-01-09 ~ 2019-01-10 (11,453,702 ) 2 (22,907,404 )
Disposal of treasury stock 2019-01-11 ~ 2019-12-31 2,728,774 355 968,714,770
Sub-total (①) 246,689,804,856
Weighted average number of common shares outstanding (②=(①/365) 675,862,479
For the year ended December 31, 2018
--- --- --- --- --- --- --- ---
Period Number of<br>shares Dates Accumulated number<br>of shares outstanding<br>during period
Common shares issued at the beginning of the period 2018-01-01 ~ 2018-12-31 673,271,226 365 245,743,997,490
Sub-total (①) 245,743,997,490
Weighted average number of common shares outstanding (②=(①/365) 673,271,226

Diluted EPS is equal to basic EPS because there is no dilution effect for the years ended December 31, 2019 and 2018.

44. CONTINGENT LIABILITIES AND COMMITMENTS
(1) Details of guarantees are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Confirmed guarantees:
Guarantees for loans 89,699 125,870
Acceptances 254,231 257,203
Guarantees in acceptance of imported goods 224,746 158,179
Other confirmed guarantees 6,882,899 6,638,359
Sub-total 7,451,575 7,179,611
Unconfirmed guarantees:
Local letters of credit 193,096 305,057
Letters of credit 3,046,201 3,276,807
Other unconfirmed guarantees 742,125 647,968
Sub-total 3,981,422 4,229,832
Commercial paper purchase commitments and others 3,090,771 2,581,007
Total 14,523,768 13,990,450
  • 98 -
(2) Details of loan commitments and other commitments are as follows (Unit: Korean Won in millions):<br>
December 31, 2019 December 31, 2018
--- --- --- --- ---
Loan commitments 69,035,560 65,012,748
Other commitments 3,438,625 2,173,333
(3) Litigation case
--- ---

The Bank had filed lawsuits as follows (Unit: Korean Won in millions except for number of cases):

December 31, 2019
As plaintiff As defendant
Number of cases 31 cases 132 cases
Amount of litigation 227,071 197,216
Provisions for litigations 21,562
December 31, 2018
--- --- --- --- ---
As plaintiff As defendant
Number of cases 54 cases 132 cases
Amount of litigation 448,357 245,287
Provisions for litigations 16,770
(4) Recently, the FSS announced ‘Results of interim inspection of Lime Asset Management Co., Ltd and future<br>countermeasures’ regarding the deferment of the redemption of Lime Asset Management Co., Ltd. The status of the sale of the Lime Asset Management Co., Ltd. operation deferral fund of the Bank is 357.7 billion won for 1,640 accounts as of<br>the end of December 2019. Currently, a full-time management team is dispatched to monitor the implementation of the normal repurchase and management plan of lime and proper performance of internal control work.
--- ---
  • 99 -
45. RELATED-PARTY TRANSACTIONS

Related parties of the Bank as of December 31, 2019 and 2018, and assets and liabilities recognized, guarantees and commitments, major transactions with related parties and compensation to key management for the years ended December 31, 2019 and 2018 are as follows:

(1) Related parties
Related parties
--- ---
Parent Woori Financial Group Inc.
Subsidiaries Woori America Bank, PT Bank Woori Saudara Indonesia 1906 Tbk, Woori Global Markets Asia Limited, Woori Bank China Limited, Banco Woori<br>Bank do Brasil S.A., AO Woori Bank, Korea BTL Infrastructure Fund, Woori Finance Cambodia PLC., Woori Finance Myanmar Co., Ltd., Wealth Development Bank, Woori Bank Vietnam Limited, WB Finance Co., Ltd., Woori Bank Europe, Woori Bank Principal and<br>Interest Guaranteed Trust, Woori Bank Principal Guaranteed Trust, Kumho Trust First Co., Ltd. and 49 SPCs,<br> <br>Heungkuk Woori Tech Company Private Placement<br>Investment Trust No. 1 and 8 beneficiary certificates
Associates Woori Service Networks Co., Ltd., Korea Credit Bureau Co., Ltd., Korea Finance Security Co., Ltd., Lotte Card Co., Ltd., Chin Hung International Inc, 2016KIF-IMM Woori Bank Technology<br>Venture Fund, K BANK Co., Ltd., Well to Sea No. 3 Private Equity Fund, and others (Dongwoo C & C Co., Ltd. and 28 associates)
Other related parties Woori Card Co., Ltd. and its subsidiaries, Woori Investment Bank Co., Ltd. and its subsidiaries,, Woori FIS Co., Ltd, Woori Private Equity Asset Management Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit<br>Information Co., Ltd., Woori Fund Service Co., Ltd.,Woori Asset Management Co., Woori global asset management co.,Ltd., Woori asset trust. Ltd., Godo Kaisha Oceanos 1, Uri Hanhwa Eureka Private Equity Fund, Japanese Hotel Real Estate Private Equity<br>Fund 2, Woori Growth Partnerships New Technology Private Equity Fund 1, Tongyang China Convertible Bond Fund, WOORIG China Value Equity (C/C(F))
  • 100 -
(2) Assets and liabilities from transactions with related parties are as follows (Unit: Korean Won in millions):<br>
Related parties A title of account December 31, 2019 December 31, 2018
--- --- --- --- --- --- --- --- ---
Parent Woori Financial Group Inc.(*1) Deposits due to customers 1,173,670 —
Other liabilities 99,181 —
Subsidiaries Woori America Bank Cash and cash equivalents 6,534 12,354
Loans 15,569 15,350
Loss allowance (6 ) (4 )
PT Bank Woori Saudara Indonesia 1906 Tbk Cash and cash equivalents 5,969 11,110
Loans 277,872 368,973
Loss allowance (497 ) (791 )
Other assets 616 1,463
Woori Global Markets Asia Limited Loans 452,827 354,364
Loss allowance (365 ) (369 )
Deposits due to customers 6,692 2,613
Borrowings 3,167 3,041
Banco Woori Bank do Brasil S.A. Loans — 1,006
Loss allowance — (1 )
Woori Bank China Limited Cash and cash equivalents 24,006 38,312
Loans 208,404 325,060
Loss allowance (373 ) (697 )
Other assets 3,379 3,853
Deposits due to customers 58,403 61,526
Other liabilities 2,339 2,492
Derivative liabilities 8 9
AO Woori Bank Cash and cash equivalents 7,529 16,699
Loans 78,521 54,687
Loss allowance (140 ) (117 )
Other assets 327 79
Korea BTL Infrastructure Fund Other assets 10 9
Woori Finance Cambodia PLC. Loans 99,339 69,099
Loss allowance (80 ) (72 )
Other liabilities 1 6
Woori Finance Myanmar Co., Ltd. Loans 6,947 4,472
Loss allowance (6 ) (5 )
Woori Bank Vietnam Limited Loans 13,508 16,883
Loss allowance (51 ) (159 )
Other assets 180,254 165,560
Deposits due to customers 4,049 195
Borrowings 75,338 16,772
WB Finance Co., Ltd. Loan 245,454 122,991
Loss allowance (198 ) (128 )
Other liabilities 1 13
Woori Bank Principal and Interest Guaranteed Trust and Principal Guaranteed<br>Trust Other assets 479 565
Other liabilities 163,302 103,367
Structured entities Loans 22,509 2,882
Loss allowance (175 ) (4 )
Other assets 146 121
Derivative assets 24,427 11,671
Deposits due to customers 11,870 6,485
Other liabilities 5,215 3,706
Derivative liabilities 373 126
Beneficiary certificates Other assets 20 20
  • 101 -
Related parties A title of account December 31, 2019 December 31, 2018
Associates Woori Service Networks Co., Ltd. Deposits due to customers 1,881 1,967
Other liabilities 311 312
Korea Credit Bureau Co., Ltd. Deposits due to customers 26 6,494
Other liabilities — 19
Korea Finance Security Co., Ltd. Loan 1,800 —
Loss allowance (3 ) —
Deposits due to customers 1,371 5,040
Other liabilities — 6
Chin Hung International Inc. Deposits due to customers 5,381 11,605
Other liabilities 320 2,960
Lotte Card Co., Ltd. Loan 7,500 —
Loss allowance (30 ) —
Deposits due to customers 2,726 —
Well to Sea No. 3 Private Equity Fund Loans 4,490 1,857
Loss allowance (8 ) (9 )
Deposits due to customers 714 356
Other liabilities 47 64
Others (*2) Loans 84 260
Loss allowance (84 ) (234 )
Deposits due to customers 5,577 8,049
Other liabilities 172 165
  • 102 -
Related parties A title of account December 31, 2019 December 31, 2018
Other Related Parties Woori Card Co., Ltd. and its subsidiaries(*3) Loans 4,631 —
Other assets 13,342 14,820
Derivative assets 420 —
Deposits due to customers 52,638 78,490
Other liabilities 18,641 14,656
Derivative liabilities — 271
Woori Investment Bank Co., Ltd. (*3) Cash and cash equivalents — 100,000
Loans 24,000 37,900
Loss allowance (43 ) (81 )
Other assets 13,879 6,712
Deposits due to customers 6,303 6,050
Other liabilities 26,470 9,237
Woori FIS Co., Ltd. (*3) Other assets 114 61
Deposits due to customers 42,693 51,057
Other liabilities 23,415 16,498
Woori Private Equity Asset Management Co., Ltd. (*3) Deposits due to customers 1,370 1,323
Woori Finance Research Institute Co., Ltd. (*3) Deposits due to customers 2,132 2,741
Other liabilities — 588
Woori Credit Information Co., Ltd. (*3) Other assets 6 —
Deposits due to customers 15,765 14,674
Other liabilities 10,954 10,945
Woori Fund Service Co., Ltd.(*3) Deposits due to customers 11,238 8,605
Other liabilities 1,157 1,128
Woori Asset Management Co., Ltd.(*3) Deposits due to customers 11,665 —
Woori Global Asset Management Co., Ltd.(*3) Deposits due to customers 98 —
Woori Asset Trust Co., Ltd.(*3) Deposits due to customers 29,546 —
(*1) Woori Financial Group Inc. was established during the current period and the Bank was transferred as a<br>wholly-owned subsidiary.
--- ---
(*2) Saman Co., Ltd., Kyesan Industry Corporation, Daea S&C Co., Ltd., and etc. are included during the year<br>ended December 31, 2019 and 2018.
--- ---
(*3) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current period.
--- ---
  • 103 -
(3) Gain or loss from transactions with related parties is as follows (Unit: Korean Won in millions):<br>
For the years ended December 31
--- --- --- --- --- --- --- ---
Related party Title of account 2019 2018
Parent company Woori Financial Group (*1) Fees income 264 —
Other income 1,823 —
Interest expenses’ 7,741 —
Subsidiaries Woori America Bank Interest income 21 —
Fees income 280 343
Other income 180 13
Impairment losses due to credit loss 2 —
PT Bank Woori Saudara Indonesia 1906 Tbk Interest income 11,650 1,463
Fees income 121 121
Dividends income 6,300 6,127
Impairment losses due to credit loss (reversal of provision for credit loss) (294 ) 625
Woori Global Markets Asia Limited Interest income 12,739 7,162
Fee income 39 19
Interest expenses 390 3
Impairment losses due to credit loss (reversal of provision for credit loss) (3 ) 299
Woori Bank China Limited Interest income 9,257 7,589
Fees income 476 438
Other income 64 —
Gains related to derivatives 26 7
Interest expenses 708 612
Fee expenses 2 1
Other expenses 55 1
Impairment losses due to credit loss (reversal of provision for credit loss) (325 ) 467
AO Woori Bank Interest income 2,394 965
Fees income 41 —
Impairment losses due to credit loss 23 62
Banco Woori Bank do Brasil S. A Interest income 27 45
Reversal of provision for credit loss (1 ) —
Korea BTL Infrastructure Fund Dividends income 26,835 30,185
Fees income 82 77
Woori Finance Cambodia PLC. Interest income 3,514 2,126
Fees income 23 12
Impairment losses due to credit loss 8 59
Woori Finance Myanmar Co., Ltd Interest income 218 158
Fees income 9 5
Impairment losses due to credit loss 1 3
Woori Bank Vietnam Limited Interest income 778 618
Fees income 205 62
Interest expenses 1,861 2,186
Impairment losses due to credit loss (reversal of provision for credit loss) (108 ) 16
  • 104 -
For the years ended December 31
Related party Title of account 2019 2018
WB Finance Co., Ltd Interest income 6,648 1,453
Impairment losses due to credit loss 70 128
Consolidated trusts Other income 7,815 8,282
Interest expenses 2,030 1,626
Other expenses 35 33
Consolidated SPC Interest income 912 106
Fees income 19,158 10,150
Gains related to derivatives 14,134 13,187
Interest expenses 9 9
Impairment losses due to credit loss (reversal of provision for credit loss) 171 (298 )
Losses related to derivatives 401 —
Consolidated beneficiary certificates Dividend income — 852
Fees income 73 774
  • 105 -
For the years ended December 31
Related party Title of account 2019 2018
Associates Kumho Tire Co., Inc. (*2) Interest income — 1,098
Reversal of provision for credit loss — (156,621 )
Woori Service Networks Co., Ltd. Dividend income 2 2
Other income 32 30
Interest expenses 20 14
Korea Credit Bureau Co., Ltd. Dividend income 135 113
Interest expenses 29 62
Korea Finance Security Co., Ltd. Dividends income — 54
Interest expenses 9 12
Impairment losses due to credit loss 3 —
Chin Hung International Inc. Interest expenses 35 43
STX Engine Co., Ltd.(*3) Interest income — 333
Interest expenses — 86
Reversal of provision for credit loss — (88,603 )
STX Corporation (*3) Interest expenses — 2
Reversal of provision for credit loss — (31,164 )
Well to Sea No. 3 Private Equity Fund Interest income 1,774 2,179
Dividends income 18,836 517
Interest expenses 11 9
Reversal of provision for credit loss (18 ) (30 )
Lotte Card Co., Ltd. Interest income 213 —
Fees income 593 —
Interest expenses 53 —
Impairment losses due to credit loss 30 —
Others (*4) Other income 17 14
Dividends income 164 484
Interest expenses 55 40
Reversal of provision for credit loss (5 ) (237 )
  • 106 -
For the years ended December 31
Related party Title of account 2019 2018
Other related parties Woori Card Co., Ltd and its subsidiaries(*5) Interest income 775 689
Fees income 125,183 142,552
Gains related to derivatives 691 961
Other income 696 798
Interest expenses 185 39
Fees expenses 83 76
Woori Investment Bank Co., Ltd. and its subsidiaries(*5) Interest income 648 1,853
Fees income 851 669
Other income 543 538
Interest expenses 21 20
Impairment losses due to credit loss (reversal of provision for credit loss) (38 ) 58
Woori FIS Co., Ltd.(*5)(*6) Fees income 578 537
Other income 7,675 7,507
Interest expenses 4 16
Other expenses 208,145 238,312
Woori Private Equity Asset Management Co., Ltd.(*5) Fees income 7 20
Interest expenses 17 8
Woori Finance Research Institute Co., Ltd.(*5) Fees income 12 10
Interest expenses 43 51
Fees expenses — 4,650
Woori Credit Information Co.,<br>Ltd.(*5) Fees income 83 69
Other income 698 408
Interest expenses 250 232
Fees expenses 15,009 12,668
Woori Fund Service Co., Ltd.(*5) Fees income 25 21
Other income 288 192
Interest expenses 252 140
Woori Asset Management Co.,<br>Ltd.(*5) Fees income 21 —
Interest expenses 36 —
Woori Global Asset Management Co., Ltd.(*5) Fees income 1 —
(*1) Woori Financial Group Inc. was established during the current period and the Bank was transferred as a<br>wholly-owned subsidiary.
--- ---
(*2) The Bank lost significant influence over the entity due to the termination of the joint management procedures<br>of the creditors’ financial institution during the prior term, and thus the entity was excluded from the list of associates.
--- ---
(*3) During the prior term, the account was replaced by assets held for sale and disposed of and excluded from the<br>associate.
--- ---
(*4) Saman Co., Ltd., Kyesan industry Corporation, Daea S&C Co., Ltd., and etc are included during the term and<br>prior term.
--- ---
(*5) These related parties were transferred as a wholly-owned subsidiary of Woori Financial Group Inc. during the<br>current year.
--- ---
(*6) Total amount of 3,445 million Won of lease liability repayment is included in other expenses.<br>
--- ---
  • 107 -
(4) Major loan transactions with related parties for the years ended December 31, 2019 and 2018 are as follows<br>(Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Related parties Beginning<br>balance Loan Collection Others Ending<br>balance(*1)
Subsidiaries PT Bank Woori Saudara Indonesia 1906 Tbk 368,973 510,407 614,424 12,916 277,872
Woori Global Markets Asia Limited 354,364 1,032,745 939,915 5,633 452,827
Woori Bank China Limited 325,060 453,440 580,291 10,195 208,404
AO Woori Bank 54,687 290,225 266,835 444 78,521
Banco Woori Bank do Brasil S.A. 1,006 1,907 2,913 — —
Woori Finance Cambodia PLC. 69,099 30,624 2,883 2,499 99,339
Woori Finance Myanmar Co., Ltd. 4,472 2,403 — 72 6,947
Woori Bank Vietnam Limited 16,883 650 4,805 773 13,501
WB Finance Co., Ltd.(*2) 122,991 122,328 2,892 3,027 245,454
Woori America Bank 15,350 15,569 15,350 — 15,569
Consolidated SPC 2,882 20,790 613 (550 ) 22,509
Associates Well to Sea No.3 Private Equity Fund 1,857 2,633 — — 4,490
Lotte Card Co., Ltd. — 7,500 — — 7,500
Korea Finance Security Co., Ltd — 1,800 — — 1,800
Other related parties Woori Investment Bank Co., Ltd. and its subsidiaries 37,900 21,300 35,200 — 24,000
Woori Card Co., Ltd and its subsidiaries — 4,551 — 80 4,631
For the year ended December 31, 2018
Related parties Beginning<br>balance Loan Collection Others Ending<br>balance(*1)
Subsidiaries PT Bank Woori Saudara Indonesia 1906 Tbk 160,710 346,809 142,341 3,795 368,973
Woori Global Markets Asia Limited 172,184 732,518 553,559 3,221 354,364
Woori Bank China Limited 246,422 713,980 647,078 11,736 325,060
AO Woori Bank 53,426 208,783 207,522 — 54,687
Banco Woori Bank do Brasil S.A. 1,607 2,230 2,682 (149 ) 1,006
Woori Finance Cambodia PLC. 32,142 34,963 — 1,994 69,099
Woori Finance Myanmar Co., Ltd. 4,286 — — 186 4,472
Woori Bank Vietnam Limited 17,410 — 1,283 756 16,883
WB Finance Co., Ltd. (*2) — 122,602 — 389 122,991
Woori America Bank — 15,350 — — 15,350
Woori Investment Bank Co., Ltd. 22,600 44,900 29,600 — 37,900
Structured entities 2,102 1,026 463 217 2,882
Associates Kumho Tire Co., Inc.(*3) 57,470 — 7,057 (50,413 ) —
Well to Sea No. 3 Private Equity Fund 73,810 16,857 88,810 — 1,857
STX Engine Co., Ltd. (*4) 39,886 — 2,177 (37,709 ) —
(*1) Settlement payment from normal operation among the related parties were excluded, and in the case of a limited<br>loan, it was presented as a net increase or decrease.
--- ---
(*2) With more than half of capital contribution, companies were included in subsidiaries during the prior term.<br>
--- ---
(*3) The Bank lost significant influence over the entity due to the termination of the joint management procedures<br>of the creditors’ financial institution during the prior term, and thus the entity was excluded from the list of associates.
--- ---
(*4) During the prior term, the account was replaced by assets held for sale and disposed of and excluded from the<br>associate.
--- ---
  • 108 -
(5) Changes in major deposits due to customers with related parties for years ended December 31, 2019 and 2018<br>are as follows (Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- ---
Related parties Beginning<br>balance Borrowings Repayment<br>and others Ending<br>balance (*)
Parent company Woori Financial Group — 2,730,000 1,600,000 1,130,000
Subsidiaries Woori Global Markets Asia Limited — 2,316 — 2,316
Associates Saman Corporation 2,436 86 — 2,522
Woori Service Networks Co., Ltd 1,180 1,460 1,460 1,180
Chin Hung International Inc 765 400 765 400
. Korea Credit Bureau Co., Ltd. 6,000 — 6,000 —
Partner One Value Up I Private Equity Fund 1,403 1,617 1,870 1,150
Korea Finance Security Co., Ltd. 535 25 560 —
Other related parties Woori Investment Bank Co., Ltd. and its subsidiaries 1,000 1,000 — 2,000
Woori Finance Research Institute Co., Ltd., 1,800 3,700 5,500 —
Woori Credit Information Co., Ltd. 13,199 12,000 11,000 14,199
Woori Fund Service Co., Ltd 7,900 10,000 7,900 10,000
Woori asset trust. Ltd — 15,000 — 15,000
For the year ended December 31, 2018
Related parties Beginning<br>balance Borrowings Repayment<br>and others Ending<br>balance (*)
Subsidiaries Woori Global Markets Asia Limited 2,143 — 2,143 —
Woori Investment Bank Co., Ltd. 1,000 — — 1,000
Woori Credit Information Co., Ltd. 12,699 11,500 11,000 13,199
. Woori Fund Service Co., Ltd 6,100 7,900 6,100 7,900
Woori asset trust. Ltd 2,100 5,700 6,000 1,800
Associates Saman Corporation 2,334 102 — 2,436
Woori Service Networks Co., Ltd 1,135 1,025 980 1,180
Chin Hung International Inc 765 765 765 765
. Korea Credit Bureau Co., Ltd. 4,000 12,000 10,000 6,000
Partner One Value Up I Private Equity Fund — 1,803 400 1,403
Korea Finance Security Co., Ltd. 635 560 660 535
STX Corporation 330 — 330 —
STX Engine Co., Ltd. 10,256 — 10,256 —
Kumho Tire Co., Inc. 37 — 37 —
Hyunwoo International 41 — 41 —
(*) The details of payments made between related parties and the deposits due to customers that can be taken in and<br>out easily are excluded.
--- ---
  • 109 -
(6) Major borrowing transactions with related parties for years ended December 31, 2019 and 2018 are as<br>follows (Unit: Korean Won in millions):
For the year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- ---
Related parties Beginning<br>balance Borrowings Repayment Others Ending<br>balance (*)
Subsidiaries Woori Global Markets Asia Limited 3,041 51,011 51,011 126 3,167
Woori Bank Vietnam Limited 16,772 255,022 195,751 (705 ) 75,338
Other related parties Woori Investment Bank Co., Ltd. and its subsidiaries 11,428 223,893 217,712 — 17,609
For the year ended December 31, 2018
Related parties Beginning<br>balance Borrowings Repayment Others Ending<br>balance (*)
Subsidiaries Woori Global Markets Asia Limited — 3,041 — — 3,041
Woori Bank Vietnam Limited — 146,291 129,520 1 16,772
Other related parties Woori Investment Bank Co., Ltd. and its subsidiaries 11,088 216,989 216,649 — 11,428
(7) Guarantees provided to the related parties are as follows (Unit: Korean Won in millions):<br>
--- ---
Warranty December 31,<br>2019 December 31,<br>2018
--- --- --- --- --- ---
Woori Card Co., Ltd. Unused loan commitment 500,000 500,000
Woori Investment Bank Co., Ltd. Unused loan commitment 50,000 50,000
PT Bank Woori Saudara Indonesia 1906 Tbk Confirmed guarantees in foreign currencies and others 109,673 161,758
Woori Bank China Limited Confirmed guarantees in foreign currencies and others 84,801 92,545
AO Woori Bank Confirmed guarantees in foreign currencies 29,888 27,826
Banco Woori Bank do Brasil S.A. Confirmed guarantees in foreign currencies and others 25,686 21,017
Woori Global Markets Asia Limited Confirmed guarantees in foreign currencies 247,327 47,799
Woori Bank Europe Loan commitment in foreign currency 1,492 —
Korea BTL Infrastructure Fund Securities purchase contract 240,078 303,578
Woori Finance Cambodia PLC. Unused loan commitment 5,789 20,349
22,230 —
Woori Bank Vietnam Limited Confirmed guarantees in foreign currencies and others 50,276 40,398
WB Finance Co., Ltd. (*1) Unused loan commitment 5,210 44,724
Loan commitment in foreign currency 4,052 —
Structured entities Loan commitment in local currency 2,206,740 1,320,420
Unused loan commitment 4,756 1,618
Securities purchase contract 1,274 1,274
Chin Hung International Inc. Unused loan commitment 31,749 31,749
Well to Sea No. 3 Private Equity Fund Unused loan commitment 210,510 208,143
Korea Finance Security Co., Ltd Unused loan commitment 200 —
Lotte Card Co., Ltd. Unused loan commitment 150,000 —
  • 110 -

For the guarantees provided to the related parties, the Bank recognized provisions for guarantees amounting to 4,034 million Won and 3,510 million Won as of December 31, 2019 and 2018, respectively.

The amount of guarantees and unused loan commitments provided by the related parties to the Bank as of December 31, 2019 and 2018 are as follows (Unit: Korean Won in millions):

Warranty December 31, 2019 December 31, 2018
Woori Card Co., Ltd and its subsidiaries Loan commitment in local currency 167,880 174,287
(8) Commitments of derivatives to the related parties are as follows (Unit: Korean Won in millions):<br>
--- ---
Warranty December 31,<br>2019 December 31,<br>2018
--- --- --- --- --- ---
Woori Card Co., Ltd and its subsidiaries Unsettled commitment 100,000 100,000
Woori Bank China Limited Unsettled commitment 964 203
Structured entities Unsettled commitment 2,052,750 1,198,500
Well to Sea No. 3 Private Equity Fund Unsettled commitment 584,377 439,243
(9) Details of compensation to key management are as follows (Unit: Korean Won in millions):
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Short-term employee salaries 9,744 12,326
Retirement benefit service costs 364 489
Share-based payments 1,965 —
Total 12,073 12,815

Key management includes registered executives and non-registered executives. Outstanding assets and from transactions with key management amount to 2,414 million Won and 2,816 million Won, respectively, as of the years ended December 31, 2019 and 2018, and with respect to the assets, the Bank has not recognized any allowance nor related impairment loss due to credit losses. Also, outstanding liabilities from transactions with key management amount to 6,543 million Won and 6,096 million Won, respectively.

(10) The Bank and Woori Card Co., Ltd. have joint obligation on the liability of the Bank that arose prior to the spin-off of Woori Card Co., Ltd.
  • 111 -
46. TRUST ACCOUNTS
(1) Trust accounts of the Bank are as follows (Unit: Korean Won in millions):
--- ---
Total assets Operating income
--- --- --- --- --- --- --- --- ---
December 31, 2019 December 31, 2018 For the years ended December 31
2019 2018
Trust accounts 60,288,399 53,560,071 1,118,746 1,049,105
(2) Receivables and payables between the Bank and trust accounts are as follows (Unit: Korean Won in millions):<br>
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Receivables:
Trust fees receivable 31,533 28,703
Payables:
Deposits due to customers 392,453 574,330
Borrowings from trust accounts 2,730,806 3,020,371
Total 3,123,259 3,594,701
(3) Significant transactions between the Bank and trust accounts are as follows (Unit: Korean Won in millions):<br>
--- ---
For the years ended December 31
--- --- --- --- ---
2019 2018
Revenue:
Trust fees 171,072 177,913
Termination fees 488 5,885
Total 171,560 183,798
Expense:
Interest expenses on deposits due to customers 6,684 7,813
Interest expenses on borrowings from trust accounts 40,489 38,873
Total 47,173 46,686
  • 112 -
(4) Principal guaranteed trusts and principal and interest guaranteed trusts
1) The carrying values of principal guaranteed trusts and principal and interest guaranteed trusts are as follows<br>(Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Partial principal guaranteed trusts:
Household money 9,430 9,989
Corporate money 630 633
Installment plan purpose 1,651 1,737
Sub-total 11,711 12,359
Principal guaranteed trusts:
Old-age pension trusts 3,298 3,564
Personal pension trusts 516,913 521,200
Pension trusts 824,735 819,102
Retirement trusts 34,374 42,187
New personal pension trusts 7,807 8,104
New old-age pension trusts 1,742 2,134
Sub-total 1,388,869 1,396,291
Principal and interest guaranteed trusts:
Development trusts 19 19
Unspecified money trusts 871 835
Sub-total 890 854
Total 1,401,470 1,409,504
2) The amounts that the Bank must pay by the operating results of the principal guaranteed trusts or the principal<br>and interest guaranteed trusts are as follows (Unit: Korean Won in millions):
--- ---
December 31, 2019 December 31, 2018
--- --- --- --- ---
Liabilities for the account<br>(subsidy for trust account adjustment) 35 33
  • 113 -
47. LEASES
(1) The future lease payments under lease contracts are as follows (Unit: Korean won in millions):<br>
--- ---
For the year ended December 31
--- --- ---
2019
Lease payments
Within one year 123,173
After one year but within five years 147,182
After five years 13,170
Total 283,525
(2) Total cash outflows from leases are as follows (Unit: Korean won in millions):
--- ---
For the year ended December 31
--- --- ---
2019
Cash outflows from leases 177,823
(3) There are no lease payments that are not included in the measurement of lease liabilities due to the fact that<br>they are short-term leases or leases for which the underlying asset is of low value.
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48. EVENTS AFTER THE REPORTING PERIOD
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The Coronavirus disease (COVID-19) outbreak in January 2020 is having a negative impact on the global economy, including Korea. As a result, the macroeconomic environment is unstable overall. The Bank is keeping a close eye on the situation, and credit portfolio is being reviewed to maintain proper capital ratio. Though the Bank is considering various economic conditions in calculating expected credit losses, the effects of coronavirus were not explicitly considered due to the availability of limited information as of the end of the reporting period.

  • 114 -

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