Form 6-K
Table of Contents

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of November 2004

 

Kookmin Bank

(Translation of registrant’s name into English)

 

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

(Address of principal executive office)

 

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

 

Form 20-F  x    Form 40-F  ¨

 

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

 

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

 

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

 

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

 

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

 

Yes  ¨    No  x

 


 

1


Table of Contents

 

Summary of 3rd Quarter Business Report

 

TABLE OF CONTENTS

 

Summary of 3rd Quarter Business Report

   4

1.

 

Introduction to the Bank

   5
   

1.1.

  

Business Purposes

   5
   

1.2.

  

History

   5
   

1.3.

  

Capital Structure

   6
   

1.4.

  

Employee Stock Ownership Association

   10
   

1.5.

  

Dividend

   10

2.

 

Business

   11
   

2.1.

  

Sources and Uses of Fund

   11
   

2.2.

  

Principal Banking Activities

   13
   

2.3.

  

Branch Networks

   17
   

2.4.

  

Other Information for Investment Decision

   18

3.

 

Financial Information

   20
   

3.1.

  

Non-Consolidated Condensed Financial Statements

   20
   

3.2.

  

Other Financial Information

   20

4.

 

Independent Accountant Fees and Services

   21
   

4.1.

  

Audit & Review Fees

   21
   

4.2.

  

Non-Audit Services

   21

5.

 

Corporate Governance and Affiliated Companies

   22
   

5.1.

  

Board of Directors & Committees under the Board

   22
   

5.2.

  

Audit Committee

   22
   

5.3.

  

Compensation to Directors

   23
   

5.4.

  

Voting Rights of Shareholders

   23
   

5.5.

  

Share Ownership

   23
   

5.6.

  

Affiliated Companies

   24

6.

 

Directors, Senior Management and Employees

   25
   

6.1.

  

Executive Directors

   25
   

6.2.

  

Non-Executive Directors

   25
   

6.3.

  

Senior Management

   26
   

6.4.

  

Compensation to Directors and Senior Management

   26
   

6.5.

  

Employees

   26

 

2


Table of Contents

7.

 

Related Party Transactions

   27
   

7.1.

  

Transactions with the Largest Shareholders or Affiliates

   27
   

7.2.

  

Transactions with Other than the Largest Shareholders or Affiliates

   28

Exhibit 99.1_ Kookmin Bank Non-Consolidated Interim Financial Statements September 30, 2004 and 2003.

 

3


Table of Contents

 

Summary of 3rd Quarter Business Report

 

On November 15, 2004, Kookmin Bank filed its business report for the third quarter of 2004 (the “Business Report”) with the Financial Supervisory Commission of Korea pursuant to the Securities and Exchange Act of Korea. This is the summary of the Business Report translated into English.

 

All references to “Kookmin Bank” mean Kookmin Bank on a non-consolidated basis, and all references to “we”, “us” or “the Bank” mean Kookmin Bank and, as the context may require, its subsidiaries. In addition, all references to “Won” or “W” in this document are to the currency of the Republic of Korea.

 

4


Table of Contents
1. Introduction to the Bank

 

1.1. Business Purposes

 

The business purpose of the Bank is to engage in the following business activities:

 

  The banking business as prescribed by the Bank Act,

 

  The trust business as prescribed by the Banking Trust Act,

 

  The credit card business as prescribed by the Non-Banking Financing Act, and

 

  Other businesses permitted by the Bank Act or other relevant Korea laws and regulations

 

1.2. History

 

  November 1, 2001 Incorporated and listed on the New York Stock Exchange

 

  November 9, 2001 Listed on the Korea Stock Exchange

 

  September 23, 2002 Integrated two brand operations onto a single information technology platform

 

  December 4, 2002 Entered into a strategic alliance agreement with ING Bank N.V., which replaced the prior investment agreement with H&CB

 

  May 30, 2003 Entered into a merger agreement with Kookmin Credit Card, one of our major subsidiaries, and officially submitted Merger Statement to Financial Supervisory Service

 

  September 30, 2003 Completed small-scale merger with Kookmin Credit Card

 

  December 16, 2003 Completed strategic investment in Bank Internasional Indonesia (BII) through the Consortium of Sorak Financial Holdings, of which we hold 25% stake

 

  December 19, 2003 Fully privatized through the entire disposition of Korean government’s stake in Kookmin Bank

 

  April 29, 2004 Established a subsidiary, KB Life Co. Ltd., to engage in insurance business

 

5


Table of Contents
1.3. Capital Structure

 

1.3.1. Common Shares

 

Kookmin Bank has authority to issue a total of 1,000,000,000 shares of capital stock according to its Articles of Incorporation. Kookmin Bank’s Articles of Incorporation also provide that it is authorized to issue shares of preferred stock up to one-half of all of the issued and outstanding shares of common stock. On completion of the merger between Former Kookmin Bank and H&CB, Kookmin Bank issued 299,697,462 common shares.

 

Upon the resolution of shareholders’ meeting held on March 22, 2002, Kookmin Bank issued additional 17,979,954 common shares in connection with stock dividend of 6 percent.

 

On November 25, 2002 Goldman Sachs Capital Koryo, L.P. converted all of its convertible bonds into common shares. According to this conversion on November 30, 2002, Kookmin Bank issued 10,581,269 common shares and distributed them to Goldman Sachs Capital Koryo, L.P.

 

With regard to the merger between Kookmin Bank and Kookmin Credit Card on September 30, 2003, Kookmin Bank issued additional 8,120,431 shares on October 1, 2003. Accordingly, as of September 30, 2004, total 336,379,116 shares were issued with 1,681,896 million Won of paid-in capital.

 

1.3.2. Treasury Stock

 

The following table shows the acquisition and disposition of our treasury stock as of September 30, 2004.

 

(Unit: in thousands of Won unless otherwise indicated)

 

Date


  

Transaction


  

Number of

share


  

Acquisition/

Disposition
amount


  

Average cost

per one share
(Won)


November 15, 2001

   Acquisition of fractional shares in the course of the merger    41,548    1,794,885    43,200

December 24, 2001

   Disposition due to exercise of stock option by a grantee    10,000    432,003    43,200

April 3, 2002

   Acquisition of fractional shares due to stock dividend    36,089    2,071,557    57,400

May 14, 2002

   Disposition pursuant to the Bank Act of Korea    31,548    1,601,944    50,788

July 30 ~ October 23, 2002

   Acquisition pursuant to the Securities and Exchange Act of Korea    3,000,000    147,632,489    49,210

December 24, 2002

   Disposition due to exercise of stock option by a grantee    10,000    492,294    49,229

January 15, 2003

   Disposition due to exercise of stock option by a grantee    10,000    492,294    49,229

September 4 ~ 9, 2003

   Acquisition pursuant to the Securities and Exchange Act of Korea    650,000    29,094,064    44,760

October 16, 2003

   Acquisition of fractional shares due to the Merger with Kookmin Credit Card    5,095    214,254    42,050

4th quarter, 2003

   Disposition due to exercise of stock option by grantees    78,322    3,792,977    48,428

December 17, 2003

   Acquisition from the sale of Korean government shares of the Bank    27,423,761    1,198,568,158    43,700

December 26, 2003

   Disposition due to contribution to ESOP account    1,000,000    44,252,000    44,252

1st quarter, 2004

   Disposition due to exercise of stock option by grantees    30,855    1,365,396    44,252

2nd quarter, 2004

   Disposition due to exercise of stock option by grantees    55,593    2,460,101    44,252

3rd quarter, 2004

   Disposition due to exercise of stock option by grantees    592    26,197    44,252
         
  
  

Total

   -    29,929,583    1,324,460,201    —  
         
  
  

 

6


Table of Contents
1.3.3. Stock Option

 

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees as of September 30, 2004.

 

( Units: in Won, shares)

 

Grant date


  

Name of the grantee


  

Position when granted


   Exercise period

   Exercise
price


   Number of
granted
options*


   Number of
exercised
options


   Number of
exercisable
options


         From

   To

           

31-Oct-98

   Jung Tae Kim    Chairman, President & CEO    01-Nov-01    31-Oct-04    5,000    400,000    390,000    10,000

27-Feb-99

   Choul Ju Lee    Auditor & Executive Director    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Seung Dong Kim    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,054    20,054    0

27-Feb-99

   Young Jo Joo    Executive Vice President    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Seok II Cho    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,054    20,054    0

27-Feb-99

   Hong Shik Chung    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,000    20,000    0

27-Feb-99

   Bong Hwan Cho    Executive Vice President    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Sun Joo Kim    Executive Vice President    28-Feb-02    27-Feb-05    13,900    10,000    10,000    0

27-Feb-99

   Je Hyung Jo    Executive Vice President    28-Feb-02    27-Feb-05    13,900    30,000    30,000    0

27-Feb-99

   Ho Gi Baek    Executive Vice President    28-Feb-02    27-Feb-05    13,900    20,000    20,000    0

27-Feb-99

   Bruce G. Willison    Non Executive Director    28-Feb-02    27-Feb-05    13,900    10,000    10,000    0

28-Feb-00

   Jan Op de Beeck    Director&Executive Vice President    01-Mar-03    28-Feb-06    27,600    22,490    0    22,490

28-Feb-00

   Sung Chul Kim    Executive Vice President    01-Mar-03    28-Feb-06    27,600    30,000    0    30,000

28-Feb-00

   Woo Jung Lee    Executive Vice President    01-Mar-03    28-Feb-06    27,600    30,000    0    30,000

28-Feb-00

   Kuk Ju Kwon    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    0    4,800

28-Feb-00

   Sun Jin Kim    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    1,100    5,900

28-Feb-00

   Joon Park    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    0    4,800

28-Feb-00

   Moon Soul Chung    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    0    7,000

28-Feb-00

   Ju Hyun Yoon    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    4,800    0

28-Feb-00

   Heung Hoon Chang    Non Executive Director    01-Mar-03    28-Feb-06    27,600    2,486    0    2,486

28-Feb-00

   In Joon Kang    Non Executive Director    01-Mar-03    28-Feb-06    27,600    2,486    0    2,486

28-Feb-00

   Sung Hee Jwa    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,800    0    4,800

28-Feb-00

   Seung Woo Nam    Non Executive Director    01-Mar-03    28-Feb-06    27,600    1,928    0    1,928

28-Feb-00

   Woon Youl Choi    Non Executive Director    01-Mar-03    28-Feb-06    27,600    4,909    4,909    0

28-Feb-00

   Kyung Hee Yoon    Non Executive Director    01-Mar-03    28-Feb-06    27,600    7,000    0    7,000

28-Feb-00

   Sung Cheon Hong & 9 others    Employees    01-Mar-03    28-Feb-06    27,600    67,283    24,154    43,129

24-Mar-01

   Young II Kim    Executive Vice President    25-Mar-04    24-Mar-07    25,100    30,000    0    30,000

24-Mar-01

   Jong In Park    Executive Vice President    25-Mar-04    24-Mar-07    25,100    19,333    0    19,333

24-Mar-01

   Won Bae Yoon    Non Executive Director    25-Mar-04    24-Mar-07    25,100    2,318    0    2,318

24-Mar-01

   Jae Kyu Lee    Non Executive Director    25-Mar-04    24-Mar-07    25,100    2,318    0    2,318

24-Mar-01

   Chul Soo Ahn    Non Executive Director    25-Mar-04    24-Mar-07    25,100    1,916    0    1,916

24-Mar-01

   Jae Han Kim & 2 others    Employees    25-Mar-04    24-Mar-07    25,100    16,491    10,216    6,275

18-Mar-00

   Sang Hoon Kim    Chairman & CEO    19-Mar-03    18-Mar-05    23,469    41,460    1,300    40,160

18-Mar-00

   Jong Min Lee    Auditor & Executive Director    19-Mar-03    18-Mar-05    23,469    14,807    14,807    0

18-Mar-00

   Se Jong Oh    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   In Kie Kim    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Ji Hong Kim    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    2,961    0

18-Mar-00

   Jin Ho Hwang    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Hyung Jin Chang    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    2,961    0

18-Mar-00

   Ik Rae Kim    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    2,961    0

18-Mar-00

   Bong Ho Paick    Non Executive Director    19-Mar-03    18-Mar-05    23,469    2,961    0    2,961

18-Mar-00

   Bock Woan Kim    Executive Vice President    19-Mar-03    18-Mar-05    23,469    11,845    11,845    0

* Some numbers of the granted options have been adjusted due to the merger and the early retirement of the grantees.

 

7


Table of Contents

Grant date


  

Name of the grantee


  

Position when granted


   Exercise period

   Exercise
price


  Number of
granted
options*


   Number of
exercised
options


   Number of
exercisable
options


         From

   To

          

18-Mar-00

   Yoo Hwan Kim    Executive Vice President    19-Mar-03    18-Mar-05    23,469   11,845    5,845    6,000

18-Mar-00

   Duk Hyun Kim    Executive Vice President    19-Mar-03    18-Mar-05    23,469   11,845    0    11,845

15-Mar-01

   Sang Hoon Kim    Chairman & CEO    16-Mar-04    15-Mar-09    28,027   29,614    0    29,614

15-Mar-01

   Jong Min Lee    Auditor & Executive Director    16-Mar-04    15-Mar-09    28,027   14,807    0    14,807

15-Mar-01

   In Kie Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027   2,961    0    2,961

15-Mar-01

   Hyung Jin Chang    Non Executive Director    16-Mar-04    15-Mar-09    28,027   2,961    2,961    0

15-Mar-01

   Ji Hong Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027   2,961    0    2,961

15-Mar-01

   Bong Ho Paick    Non Executive Director    16-Mar-04    15-Mar-09    28,027   1,870    0    1,870

15-Mar-01

   Ik Rae Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027   2,961    0    2,961

15-Mar-01

   Seung Heon Han    Non Executive Director    16-Mar-04    15-Mar-09    28,027   1,870    0    1,870

15-Mar-01

   Young Seok Kim    Non Executive Director    16-Mar-04    15-Mar-09    28,027   1,870    0    1,870

15-Mar-01

   Se Woong Lee    Non Executive Director    16-Mar-04    15-Mar-09    28,027   2,961    0    2,961

15-Mar-01

   Chang Ki Min    Non Executive Director    16-Mar-04    15-Mar-09    28,027   2,961    2,961    0

15-Mar-01

   Bock Woan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027   11,845    0    11,845

15-Mar-01

   Yoo Hwan Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027   11,845    0    11,845

15-Mar-01

   Duk Hyun Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027   11,845    0    11,845

15-Mar-01

   Yoon Ok Hyun    Executive Vice President    16-Mar-04    15-Mar-09    28,027   11,845    0    11,845

15-Mar-01

   Tai Gon Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027   11,845    4,845    7,000

15-Mar-01

   Byung Sang Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027   11,845    0    11,845

15-Mar-01

   Byung Jin Kim    Executive Vice President    16-Mar-04    15-Mar-09    28,027   11,845    0    11,845

15-Mar-01

   Ji Han Koo & 46 others    Employees    16-Mar-04    15-Mar-09    28,027   47,381    9,697    37,684

16-Nov-01

   Jung Tae Kim    President & CEO    17-Nov-04    16-Nov-09        500,000    0    500,000

16-Nov-01

   Sang Hoon Kim    Chairman    17-Nov-04    16-Nov-09    A1   150,000    0    150,000

22-Mar-02

   Choul Ju Lee    Auditor & Executive Director    23-Mar-05    22-Mar-10        9,963    0    9,963

22-Mar-02

   Henry Cornell    Non Executive Director    23-Mar-05    22-Mar-10        3,321    0    3,321

22-Mar-02

   Keun Shik Oh    Non Executive Director    23-Mar-05    22-Mar-10        3,321    0    3,321

22-Mar-02

   Dong Soo Chung    Non Executive Director    23-Mar-05    22-Mar-10        10,000    0    10,000

22-Mar-02

   Ji Hong Kim    Non Executive Director    23-Mar-05    22-Mar-10   

B2

  3,321    0    3,321

22-Mar-02

   Timothy Hartman    Non Executive Director    23-Mar-05    22-Mar-10        3,321    0    3,321

22-Mar-02

   Sun Jin Kim    Non Executive Director    23-Mar-05    22-Mar-10        3,000    0    3,000

22-Mar-02

   Moon Soul Chung    Non Executive Director    23-Mar-05    22-Mar-10        3,000    0    3,000

22-Mar-02

   Kyung Hee Yoon    Non Executive Director    23-Mar-05    22-Mar-10        3,000    0    3,000

22-Mar-02

   Jong Kyoo Yoon    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Bong Hwan Cho    Executive Vice President    23-Mar-05    22-Mar-10    57,100   9,498    0    9,498

22-Mar-02

   Bum Soo Choi    Executive Vice President    23-Mar-05    22-Mar-10    57,100   13,339    0    13,339

22-Mar-02

   Bock Woan Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100   13,339    0    13,339

22-Mar-02

   Ki Taek Hong    Executive Vice President    23-Mar-05    22-Mar-10    57,100   19,525    0    19,525

22-Mar-02

   Sung Hyun Chung    Executive Vice President    23-Mar-05    22-Mar-10    57,100   19,525    0    19,525

22-Mar-02

   Ki Sup Shin    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Seong Kyu Lee    Executive Vice President    23-Mar-05    22-Mar-10    57,100   30,000    0    30,000

22-Mar-02

   Byung Sang Kim    Executive Vice President    23-Mar-05    22-Mar-10    57,100   9,498    0    9,498

22-Mar-02

   Jong Young Yoon & 15 others    Employees    23-Mar-05    22-Mar-10    57,100   148,810    0    148,810

26-Jul-02

   Donald H. MacKenzie    Executive Vice President    27-Jul-05    26-Jul-10    58,800   30,000    0    30,000

21-Mar-03

   Sung Nam Lee    Auditor&Executive Director    22-Mar-06    21-Mar-11    42,500   30,000    0    30,000

1. Exercise price = 51,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4) / 100. The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - 207.25) / 207.25 x 100.

 

2. Exercise price = 57,100 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

8


Table of Contents

Grant Date


  

Name of the grantee


  

Position when granted


   Exercise Period

   Exercise
price


  Number of
granted
options


   Number of
exercised
options


   Number of
exercisable
options


         From

   To

          

21-Mar-03

   Moon Soul Chung    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Sun Jin Kim    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Richard Elliott Lint    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Kyung Hee Yoon    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Suk Yong Cha    Non Executive director    22-Mar-06    21-Mar-11    C1   10,000    0    10,000

21-Mar-03

   Bernard S. Black    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Ki Hong Kim    Non Executive director    22-Mar-06    21-Mar-11        10,000    0    10,000

21-Mar-03

   Eun Joo Park    Non Executive director    22-Mar-06    21-Mar-11        3,351    0    3,351

21-Mar-03

   Cheol Soo Ahn    Non Executive director    22-Mar-06    21-Mar-11        3,351    0    3,351

21-Mar-03

   Kyung Bae Suh    Non Executive director    22-Mar-06    21-Mar-11        3,351    0    3,351

21-Mar-03

   Sung Chul Kim    Executive Vice President    22-Mar-06    21-Mar-11    35,500   9,443    0    9,443

21-Mar-03

   Woo Jung Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,500   9,443    0    9,443

21-Mar-03

   See Young Lee    Executive Vice President    22-Mar-06    21-Mar-11    35,000   7,024    0    7,024

21-Mar-03

   Won Suk Oh &
6 others
   Employees    22-Mar-06    21-Mar-11    35,500   90,000    0    90,000

27-Aug-03

   Jin Baek Cheong    Executive Vice President    28-Aug-03    27-Aug-11    40,500   5,091    0    5,091

22-Mar-01

   Han Kyoung Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   6,644    0    6,644

22-Mar-01

   Jun Chae Song    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   6,644    0    6,644

22-Mar-01

   Cheol Ho Kim    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   4,429    0    4,429

22-Mar-01

   Myoung Woo Lee    Former KCC Officer    23-Mar-04    22-Mar-11    71,538   4,429    0    4,429

29-Mar-02

   Boung Hak Kim    Former KCC Officer    30-Mar-04    29-Mar-11        3,330    0    3,330

29-Mar-02

   Sun Lee    Former KCC Officer    30-Mar-04    29-Mar-11    D2   3,330    0    3,330

29-Mar-02

   Jang Ok Kim    Former KCC Officer    30-Mar-04    29-Mar-11        3,330    0    3,330

09-Feb-04

   Young II Kim    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100   10,000    0    10,000

09-Feb-04

   Jeung Lak Lee    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100   10,000    0    10,000

09-Feb-04

   Sang Jin Lee    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100   10,000    0    10,000

09-Feb-04

   Yun Keun Jung    Senior Executive Vice President    10-Feb-07    09-Feb-12    46,100   5,000    0    5,000

09-Feb-04

   Kuk Shin Kang &
9 others
   Employees    10-Feb-07    09-Feb-12    46,100   50,000    0    50,000

23-Mar-04

   Dong Soo Chung    Non Executive Director    24-Mar-07    23-Mar-12    E3   5.000    0    5,000

23-Mar-04

   Woon Youl Choi    Non Executive Director    24-Mar-07    23-Mar-12        5.000    0    5,000

23-Mar-04

   Wang Ha Cho    Non Executive Director    24-Mar-07    23-Mar-12        5.000    0    5,000

23-Mar-04

   Young Soon Cheon    Non Executive Director    24-Mar-07    23-Mar-12        5.000    0    5,000

23-Mar-04

   Jung Young Kang    Senior Executive Vice President    24-Mar-07    23-Mar-12    47,200   10,000    0    10,000
                            
  
  

Total

  2,628,859    718,431    1,910,428
                            
  
  

1 Exercise price = 35,500 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

2 Exercise price = 129,100 Won x (1 + the increase rate of Comparative Industry Index x 0.4).

If negative index produced, the factor is not to be considered.

The increase rate of Comparative Industry Index = (B-A)/A

A : KOSPI as of the grant date x 0.5 + KOSPI Banking Industry Index as of the grant date x 0.5

B : KOSPI as of the exercise date x 0.5 + KOSPI Banking Industry Index as of the exercise date x 0.5.

 

3 Exercise price = 47,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

9


Table of Contents
1.4. Employee Stock Ownership Association

 

     Beginning
balance


   Increase

   Decrease

  

Ending

Balance
(September 30, 2004)


   Remarks

Registered common stock

   983,137    968,427    418    1,951,146    —  
    
  
  
  
  

Total

   983,137    968,427    418    1,951,146    —  
    
  
  
  
  

 

1.5. Dividend

 

The following table shows dividend policy and the related information for the last three years. The Board of Directors of Kookmin Bank made a resolution not to pay dividend for the fiscal year of 2003, and shareholders of Kookmin Bank approved of no dividend payout for the year at the general shareholders’ meeting held on March 23, 2004

 

(Units: in millions of Won unless indicated otherwise)

 

     20036

    2002

    2001

Net (loss) income for the period

   (930,356 )   1,310,291     740,565

Basic (loss) earnings per share (Won)

   (2,854 )   4,123 1   3,706

Maximum amount available for dividend

   —       1,192,643 2   604,984

Total dividend amount

   —       325,232     119,866

Dividend payout ratio (%)

   —       24.823     16.19

Cash dividend per common share (Won)

   —       1,000     100

Stock dividend per common share (%)

   —       —       6

Dividend per preferred share (Won)

   —       —       —  

Dividend yield ratio (%)

   —       2.384     0.80

Net asset value per common share (Won)

   25,094     30,6145     29,742

Ordinary income per common share (Won)

   (2,854 )   4,123     3,706

1. Earnings per share = net income (1,310,291,195,314 Won) / weighted average number of shares (317,786,872 shares).

 

2. Maximum amount available for dividend = retained earnings before appropriations (1,319,970 millions of Won) + transferred from prior years’ reserves (5,417 millions of Won) – appropriated amount pursuant to the relevant rules and regulations (132,744 millions of Won).

 

3. Dividend payout ratio = total dividend amount for common shares (325,232,596,000 Won) / net income (1,310,291,195,314 Won).

 

4. Dividend yield ratio = dividend per share (1,000 Won) / market closing price of December 31, 2002 (42,000 Won)

 

5. Net asset value per common share = total shareholders’ equity (10,049,396 millions of Won) / total issued shares as of December 31, 2002 (328,258,685 shares).

 

6. Revised due to the restated numbers for 2003.

 

10


Table of Contents
2. Business

 

2.1. Sources and Uses of Fund

 

2.1.1.  Sources of Fund

 

(Unit: in millions of Won)

 

          September 30, 2004

   December 31, 2003

   December 31, 2002

          Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


Won currency

  

Deposits

   118,669,528    3.33    117,045,837    3.69    113,157,719    4.21
    

Certificate of deposit

   5,995,904    4.13    4,068,327    4.45    2,119,900    4.82
    

Borrowings

   3,104,909    3.51    3,625,926    3.89    4,568,873    4.45
    

Call money

   1,280,689    3.60    1,315,639    3.93    1,039,249    4.02
    

Other

   22,727,921    5.70    23,311,299    5.91    14,254,281    6.70
         
  
  
  
  
  

Subtotal

        151,778,951    3.73    149,367,028    4.06    135,140,022    4.49
         
  
  
  
  
  

Foreign currency

  

Deposits

   1,740,081    0.59    1,276,952    0.84    1,096,544    1.28
    

Borrowings

   2,918,996    0.88    3,462,883    1.01    2,269,774    2.45
    

Call money

   154,650    1.29    150,609    1.07    293,151    1.65
    

Finance debentures issued

   848,146    2.21    773,840    2.11    1,071,848    3.57
    

Other

   38,076    —      26,491    —      23,087    —  
         
  
  
  
  
  

Subtotal

        5,699,949    1.00    5,690,775    1.12    4,754,404    2.67
         
  
  
  
  
  

Other

  

Total Shareholders Equity

   9,814,323    —      12,053,112    —      14,586,550    —  
    

Allowances

   450,315    —      98,422    —      63,039    —  
    

Other

   12,538,728    —      9,509,283    —      3,717,379    —  
         
  
  
  
  
  

Subtotal

        22,803,366    —      21,660,817    —      18,366,968    —  
         
  
  
  
  
  

Total

        180,282,266    3.17    176,718,620    3.47    158,261,394    3.92
         
  
  
  
  
  

 

11


Table of Contents
2.1.2. Uses of Fund

 

(Unit: in millions of Won)

 

          September 30, 2004

   December 31, 2003

   December 31, 2002

          Average
balance


  

Interest

rate
(%)


   Average
balance


  

Interest

rate
(%)


   Average
balance


   Interest
rate(%)


Won currency

   Due from banks    166,312    0.90    165,358    1.37    1,041,865    4.62
     Securities    23,422,326    5.24    30,069,922    7.26    30,180,305    6.32
     Loans    125,670,926    6.69    121,725,298    7.10    105,188,481    7.79
     Advances for customers    80,535    1.70    96,547    5.79    91,583    4.35
     Call loan    1,615,778    3.86    685,953    3.92    736,571    4.36
     Private placement corporate bonds    1,356,100    6.61    1,287,623    10.26    1,631,524    7.32
     Credit card accounts    9,953,873    10.51    6,698,954    10.44    5,719,359    10.25
     Other    193,301    —      298,858    —      374,718    —  
     Allowance for credit losses (-)    3,245,929    —      1,823,976    —      1,437,960    —  
         
  
  
  
  
  

Subtotal

        159,213,222    6.88    159,204,537    7.41    143,526,446    7.66
         
  
  
  
  
  

Foreign currency

   Due from banks    646,560    1.22    612,862    1.33    253,390    1.35
     Securities    1,264,858    3.11    1,269,538    5.23    1,302,214    7.97
     Loans    2,690,849    3.96    2,785,091    3.11    3,216,042    3.39
     Call loan    104,418    1.32    84,803    1.28    188,465    1.98
     Bills bought    1,889,254    1.74    1,983,368    1.83    835,356    4.71
     Other    5,747    —      12,391    —      15,739    —  
     Allowance for credit losses (-)    78,167    —      132,105    —      267,194    —  
         
  
  
  
  
  

Subtotal

        6,523,519    2.90    6,615,948    3.03    5,544,012    4.95
         
  
  
  
  
  

Other

   Cash    963,117    —      968,815    —      914,639    —  
     Fixed assets held for business    3,077,292    —      3,210,463    —      3,126,812    —  
     Other    10,505,116    —      6,718,857    —      5,149,485    —  
         
  
  
  
  
  

Subtotal

        14,545,525    —      10,898,135    —      9,190,936    —  
         
  
  
  
  
  

Total

        180,282,266    6.18    176,718,620    6.79    158,261,394    7.12
         
  
  
  
  
  

 

12


Table of Contents
2.2. Principal Banking Activities

 

2.2.1. Deposits

 

The following table shows the average balances of our deposits for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

 

          September 30, 2004

   December 31, 2003

   December 31, 2002

          Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Deposits in Won

   Demand deposits    12,972,860    14,678,724    12,192,971    14,110,288    10,654,651    12,987,742
     Time & savings deposits    97,253,060    94,180,300    96,668,084    97,616,747    93,347,999    93,630,423
     Mutual installment deposits    6,774,587    6,536,462    6,958,043    7,054,752    8,058,664    7,491,115
     Mutual installment for housing    5,489,175    5,393,721    5,161,535    5,423,853    4,463,601    4,872,637
     Certificates of deposits    5,995,904    7,174,805    4,068,327    6,499,258    2,119,900    3,044,089
         
  
  
  
  
  

Subtotal

        128,485,586    127,964,012    125,048,960    130,704,898    118,644,815    122,026,006
         
  
  
  
  
  

Deposits in foreign currency

   1,728,955    2,143,016    1,276,952    1,475,374    1,096,544    1,083,647
         
  
  
  
  
  

Trust deposits

   Money trust    7,902,487    7,343,177    13,064,749    10,278,357    17,214,936    15,356,285
     Property trust    17,399,801    13,795,274    24,512,746    21,453,761    16,783,690    26,852,684
         
  
  
  
  
  

Subtotal

        25,302,288    21,138,451    37,577,495    31,732,118    33,998,626    42,208,969
         
  
  
  
  
  

Total

        155,516,829    151,245,479    163,903,407    163,912,390    153,739,985    165,318,622
         
  
  
  
  
  

 

2.2.2. Average Deposit per Domestic Branch

 

The following table shows the average balances of our deposits per domestic branch as of the dates indicated.

 

(Unit: in millions of Won)

 

     September 30,
2004


   December 31,
2003


   December 31,
2002


Deposits

   125,194    119,593    121,137

Deposits in Won

   123,877    118,756    120,336

 

13


Table of Contents
2.2.3. Average Deposit per Employee

 

The following table shows the average balances of our deposits per employee as of the dates indicated.

 

(Unit: in millions of Won)

 

     September 30,
2004


   December 31,
2003


   December 31,
2002


Deposits

   7,261    7,487    7,256

Deposits in Won

   7,184    7,434    7,208

 

2.2.4. Loan Balances

 

The following table shows the average balances of our loans for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

 

     September 30, 2004

   December 31, 2003

   December 31, 2002

     Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Loans in Won

   125,662,499    125,248,264    121,705,493    123,715,244    105,117,047    116,441,303

Loans in foreign currency

   4,009,154    4,190,860    4,160,185    4,019,929    3,228,857    4,417,176

Advances to customers

   83,991    41,276    107,091    89,665    106,380    52,430
    
  
  
  
  
  

Subtotal

   129,755,644    129,480,400    125,972,769    127,824,838    108,452,284    120,910,909
    
  
  
  
  
  

Trust account loans

   448,154    410,131    531,500    489,788    789,614    575,412
    
  
  
  
  
  

Total

   130,203,798    129,890,531    126,504,269    128,314,626    109,241,898    121,486,321
    
  
  
  
  
  

 

2.2.5. Loan Balances as of September 30, 2004 by Remaining Years to Maturities

 

(Unit: in millions of Won)

 

     Less than 1 year

  

More than 1 year~

less than 3 years


  

More than 3 years

less than 5 years


   More than 5 years

   Total

Loans in Won

   71,521,331    36,161,354    5,904,573    11,661,006    125,248,264

Loans in foreign currencies

   2,961,764    435,340    174,105    619,650    4,190,859

 

14


Table of Contents
2.2.6. Loan Balances by Types

 

The following table shows the banking account balances of our loans in Won by uses as of the dates indicated.

 

(Unit: in millions of Won)

 

          September 30, 2004

   December 31, 2003

   December 31, 2002

Loans to enterprise

   Loans for operations    34,075,319    35,351,506    35,369,066
     Loans for facility    6,493,261    6,631,703    5,963,631

Loans to households

        42,908,316    42,884,305    40,477,483

Loans to public sector & others

   Loans for operations    718,260    526,227    738,632
     Loans for facility    37,877    42,473    39,414

Loans on property formation savings

   11,618    62,963    95,252

Loans for housing

        40,992,919    38,199,290    33,731,435

Inter-bank loans

        7,541    12,815    20,941

Others

        3,153    3,962    5,449
         
  
  

Total

        125,248,264    123,715,244    116,441,303
         
  
  

 

2.2.7. Loan to Deposit Ratio

 

The following table shows loan to deposit ratio as of indicated dates.

 

(Units: in millions of Won,%)

 

     September 30, 2004

   December 31, 2003

   December 31, 2002

Loans1 (A)

   125,662,499    121,705,493    105,117,146

Deposits2 (B)

   128,485,586    125,048,960    118,644,815

Loan to deposit ratio (A/B)

   97.80    97.33    88.60

 

2.2.8. Acceptances and Guarantees

 

(Unit: in millions of Won)

 

     September 30, 2004

   December 31, 2003

   December 31, 2002

Determined

   808,213    800,297    1,031,698

Contingent

   1,769,320    1,281,518    1,306,878
    
  
  

Total

   2,577,533    2,081,815    2,338,576
    
  
  

1. Average balance of loans in each indicated date.

 

2. Average balance of deposits in each indicated date. The balances include certificate of deposits.

 

15


Table of Contents
2.2.9. Breakdown of Securities Investment

 

The following table shows the average balances of our securities for the periods ended and ending balances as of the indicated dates.

 

(Unit: in millions of Won)

 

          September 30, 2004

   December 31, 2003

   December 31, 2002

          Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Securities in Won (Banking account)

   Monetary
stabilization
bonds
   6,446,411    6,970,851    4,343,978    5,540,598    2,834,534    3,269,269
     Government
and public
bonds
   4,745,473    4,108,714    5,630,422    5,885,595    4,272,946    5,252,321
     Debentures    5,891,773    5,509,267    11,028,217    7,149,089    13,154,258    12,378,717
     Stocks    985,490    1,163,640    1,380,254    877,013    2,146,149    1,661,682
     Others    5,353,179    5,771,330    7,687,051    7,299,404    7,809,012    7,162,134
         
  
  
  
  
  

Subtotal

        23,422,326    23,523,802    30,069,922    26,751,699    30,216,899    29,724,123
         
  
  
  
  
  

Securities in Won (Trust account)

   Monetary
stabilization
bonds
   1,265,329    1,158,258    984,380    878,077    1,309,515    583,379
     Government
and public
bonds
   894,168    1,102,575    1,182,165    1,252,419    2,023,503    1,323,195
     Debentures    2,406,206    2,229,302    5,876,064    4,080,362    8,035,960    7,600,794
     Stocks    577,753    516,662    763,277    592,379    904,921    924,514
     Others    2,041,940    2,342,921    3,208,160    2,106,262    3,945,649    3,821,884

Securities in foreign currency

(Trust Account)

   712,602    625,830    868,819    767,675    559,964    747,253

Subtotal

        7,897,998    7,975,548    12,882,865    9,677,174    16,779,512    15,001,019

Securities in foreign currency

(Banking account)

   Foreign
securities
   946,425    864,758    1,066,595    992,408    945,199    960,749
     Off-shore
foreign
securities
   316,468    306,220    306,376    355,737    320,423    255,878
         
  
  
  
  
  

Subtotal

        1,262,893    1,170,978    1,372,971    1,350,145    1,265,622    1,216,627
         
  
  
  
  
  

Total

        32,583,217    32,670,328    44,325,758    37,779,018    48,262,033    45,941,769
         
  
  
  
  
  

 

2.2.10. Trust Account

 

(Unit: in millions of Won)

 

     September 30, 2004

   December 31, 2003

   December 31, 2002

     Total amount
trusted


   Trust
fees


   Total amount
trusted


   Trust
fees


   Total amount
trusted


   Trust
fees


Return-guaranteed trust

   379    7,338    559    45,682    1,528    59,530

Performance trust

   25,301,909    73,133    37,576,936    186,851    33,997,098    241,444
    
  
  
  
  
  

Total

   25,302,288    80,471    37,577,495    232,533    33,998,626    300,974
    
  
  
  
  
  

 

16


Table of Contents
2.2.11. Credit Card

 

(Unit: in millions of Won unless indicated otherwise)

 

          As of or for the years ended of indicated dates

          September 30, 2004

   December 31, 2003

   December 31, 2002

Number of card holders (Person)

   Corporate    183,332    147,813    153,425
     Individual    11,603,509    10,990,703    11,638,968

Number of merchants

        1,496,350    1,528,872    1,589,015

Profit

   Sales1    48,218,328    92,535,500    111,076,680
     Fee revenue    1,579,308    4,012,017    3,482,289

 

2.3. Branch Networks

 

As of September 30, 2004, we had 1,079 branches and 41 sub-branches in Korea, the largest number of branches among Korean commercial banks. Approximately 42.1% of our branches and sub-branches are located in Seoul.

 

We also have three overseas branches in Tokyo, New York and Auckland, and 1 overseas office in Guangzhou in China.


1. Includes credit card receivables and cash advances.

 

17


Table of Contents
2.4. Other Information for Investment Decision

 

2.4.1. BIS Risk-adjusted Capital Ratios

 

(Units: in millions of Won, %)

 

     September 30, 2004

  December 31, 2003

  December 31, 2002

Risk-adjusted capital (A)

   13,060,502   12,499,542   14,439,313

Risk-weighted assets (B)

   125,171,799   127,370,180   138,703,021

BIS ratios (A/B)

   10.431   9.812   10.41

 

2.4.2. Non-Performing Loans3

 

(Units: in millions of Won unless indicated otherwise)

 

    

September 30, 2004


       

December 31, 2003


       

Change


Amount


  

NPL to total loans


  

Amount


  

NPL to total loans


  

Amount


  

NPL to total loans


4,069,767

   2.91%    4,202,254    2.99%    -132,487    -0.08%p

 

2.4.3. Loan Loss Allowances

 

The following table shows the balance of our loan loss allowances as of the dates indicated.

 

(Units: in millions of Won)

 

          September 30, 2004

   December 31, 2003

   December 31, 2002

Loan losses allowance

   Loans in Won    2,669,206    2,271,198    1,905,065
     Loans in foreign currencies    52,042    68,045    103,838
     Credit card    795,035    1,187,616    284,491
     Others    86,323    163,482    85,302
         
  
  
     Total    3,602,606    3,690,341    2,378,696
         
  
  

Write-offs for the period

   1,990,462    4,509,979    1,527,311

1 Tentative ratio.

 

2 Revised due to the restated numbers for 2003.

 

3 Non-performing loans are defined as those loans that are past due for more than 90 days or those that do not accrue interest according to the Financial Supervisory Service’s guidelines.

 

18


Table of Contents
2.4.4. Changes of Loan Loss Allowances for Recent Three Years

 

(Unit: in millions of Won)

 

     September 30, 20041

    December 31, 2003

   December 31, 2002

Beginning balance

   3,905,342     2,378,696    2,271,179

Net Write-Off(-)

   2,548,434     2,728,891    1,485,962

Write-Off

   1,990,462     4,509,979    1,527,311

Recovery

   178,899     767,718    269,533

Other

   (736,871 )   1,013,370    228,184

Provision for loan losses

   2,245,698     4,040,536    1,593,479
    

 
  

Ending balance

   3,602,606     3,690,341    2,378,696
    

 
  

1 Due to the reclassification of credit card subordinated beneficiary certificates (held as available-for-sales) into credit card receivables, the related provision for loan loss of 192,221 million won was added to the beginning balance of provision for loan losses. And according to the Statements of Korean Financial Accounting Standards No. 13, the prior year present value discount of 22,780 million won was also added to the beginning balance of provision for loan losses.

 

19


Table of Contents
3. Financial Information

 

3.1. Non-Consolidated Condensed Financial Statements

 

(Unit: in millions of Won)

 

     As of or for the years ended of indicated dates

 
     September 30, 2004

    December 31, 20031

 

Cash and due from banks

   8,508,411     6,526,345  

Securities

   24,703,466     26,908,462  

Loans

   142,047,025     141,143,674  

Fixed assets

   2,827,777     3,019,556  

Other assets

   8,176,381     6,547,547  

Total assets

   186,263,060     184,145,584  

Deposits

   130,107,028     132,180,272  

Borrowings

   10,663,592     10,902,800  

Debentures

   21,436,144     19,192,581  

Other liabilities

   14,976,352     13,632,425  

Total liabilities

   177,183,116     175,908,078  

Common stocks

   1,681,896     1,681,896  

Capital surplus

   6,230,738     6,230,738  

Retained earnings

   2,169,192     1,485,111  

Capital adjustments

   (1,001,882 )   (1,160,239 )

Total shareholders’ equity

   9,079,944     8,237,506  

Liabilities and Shareholders’ Equity

   186,263,060     184,145,584  

Operating revenue

   13,866,345     15,556,986  

Operating income

   1,858,003     (137,073 )

Continuing (loss) income before income taxes

   1,001,708     (1,386,760 )
    

 

Net (loss) income

   682,509     (930,356 )
    

 


1 Revised due to the restated number for 2003.

 

3.2. Other Financial Information

 

See attached Kookmin Bank Non-Consolidated Interim Report by our independent auditors. The Report is also available at our website www.kbstar.com.

 

20


Table of Contents
4. Independent Accountant Fees and Services

 

4.1. Audit & Review Fees

 

Our financial statements for the third quarter of 2004 have been reviewed by Samil Accounting Corporation, a Korean member firm of PRICEWATERHOUSECOOPERS. The aggregate contract fee for the audit and review fees for the fiscal year 2004 is 1,200 million Won.

 

4.2. Non-Audit Services

 

The following is a description of non-audit services rendered by our independent auditor for the recent three years.

 

(Units: in millions of Won unless indicated otherwise)

 

Year


       

Service description


   Amount of payment

2004

        —        —  

2003

   -    US GAAP conversion for 2003    US$  3,950 thousand
   -    US GAAP conversion for 2002    US$ 3,800 thousand
   -    Due Diligence on Kookmin Credit Card      250
   -    SEC Filing regarding the proposed merger with Kookmin Credit Card    US$ 30 thousand

2002

   -    Project for improving the accounting process      690
   -    Advisory service for the conversion process in US GAAP      1,450

 

21


Table of Contents
5. Corporate Governance and Affiliated Companies

 

5.1. Board of Directors & Committees under the Board

 

The board of directors holds regular meetings every quarter. The board of directors consists of directors and resolves each following matter:

 

  matters relating to business objectives and performance evaluation;

 

  matters relating to amendments of the Articles of Incorporation;

 

  matters relating to budget and accounting including salaries of directors and employees;

 

  matters relating to major organizational changes such as dissolution, business transfer and merger;

 

  matters relating to internal control standards; or

 

  other matters determined by law and the board of directors regulations.

 

We currently have six management committees that serve under the board:

 

  the Board Steering Committee;

 

  the Management Strategy Committee;

 

  the Risk Management Committee;

 

  the Audit Committee;

 

  the Compensation Committee; and

 

  the Non Executive Director Nominating Committee.

 

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of stockholders. For list of our directors, see 6. Directors, Senior Management and Employees / 6.1. Executive Directors and 6.2. Non-Executive Directors.

 

5.2. Audit Committee

 

Audit Committee oversees our financial reporting and approves the appointment of and interaction with our independent auditors, compliance officers, management personnel and other committee advisors. The committee also reviews our financial information, auditor’s examinations, key financial statement issues and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors to each general meeting of stockholders. The committee holds regular meetings every quarter and as-needed basis.

 

22


Table of Contents
5.3. Compensation to Directors

 

For the 9 months period ended September 30, 2004, the aggregate of the remuneration paid by us to the President & CEO and our other executive directors and 2) our non-executive directors was 2,621 million Won, 475 million Won, respectively. The following table shows the breakdown of the remuneration.

 

(Units: in millions of Won)

 

     The aggregate
remuneration paid


   Limit for the remuneration
resolved by shareholders’
meeting


   Average amount of the
payment per person


1) Executive Directors

   2,621    8,000    524

2) Non Executive Directors

   475         32
    
  
  

Total

   3,096    8,000    155
    
  
  

 

As part of remuneration, Kookmin Bank also granted stock options to directors. See 1.3.3. Stock Option.

 

5.4. Voting Rights of Shareholders

 

Each outstanding share of our common stock is entitled to one vote per share. If the method of written resolution at the general meeting of shareholders is adopted by resolution of the board of directors, at which the convening of the general meeting of shareholders is determined, the shareholders may exercise their voting rights in writing without participating the meeting in person. In this case, the Bank is required to send the documents and references necessary for exercise of voting rights, together with the convening notice. If a shareholder intends to exercise his/her voting rights in writing, the shareholder is required to fill in a certain form and submit it to the Bank one day before the date set for the general meeting of shareholders.

 

5.5. Share Ownership

 

The following table presents information regarding the selected major ownership of our shares as of September 30, 2004, the latest record date.

 

(Unit: Shares,        %)

 

Name


   Number of Shares of Common Stock

   Percentage of Total Issued Shares

The Bank of New York1

   46,744,257    13.90

Kookmin Bank2

   29,929,583    8.90

ING Bank N.V.

   13,650,001    4.06

1 Depositary of ADRs.

 

2 Treasury shares with no voting rights.

 

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Table of Contents
5.6. Affiliated Companies

 

5.6.1. List of Affiliates1

 

As of September 30, 2004, we have following affiliates.

 

  KB Investment Co., Ltd.

 

  KB Asset Management Co., Ltd.

 

  KB Real Estate Trust Co., Ltd.

 

  KB Credit Information Co., Ltd.

 

  KB Data Systems Corporation

 

  KB Futures Co., Ltd.

 

  KB Life Co., Ltd.

 

  ING Life Korea Ltd.

 

  Kookmin Bank Luxemburg. S.A.

 

  Kookmin Bank International (London) Ltd.

 

  Kookmin Finance Hong Kong Ltd.

 

  Sorak Financial Holdings

 

5.6.2. Operating Results of Affiliates

 

(Unit: in millions of Won)

 

Company name


  

Operating results


 
   Closing date

   Total
Assets


   Total
Liabilities


   Total
Equities


   Sales

  

Net

Income


 

KB Investment

   December 31, 2003    95,555    18,194    77,361    19,227    5,300  

KB Asset Management

   March 31, 2004    61,432    4,113    57,319    24,401    9,711  

KB Real Estate Trust

   December 31, 2003    257,724    159,595    98,129    56,613    10,402  

KB Credit Information

   December 31, 2003    25,177    7,385    17,792    43,717    3,841  

KB Data Systems Corp.

   December 31, 2003    17,898    3,244    14,654    37,389    1,035  

KB Futures

   March 31, 2004    35,791    9,973    25,818    8,691    1,056  

KB Life2

   September 30, 2004    137,699    115,539    22,160    31,023    (8,341 )

ING Life Korea

   March 31, 2004    3,461,826    3,228,415    233,411    1,865,503    103,088  

Kookmin Bank Luxemburg

   June 30, 2004    7,592    3,057    4,535    1,026    6  

Kookmin Bank International (London)

   September 30, 2004    320,376    264,695    55,681    11,078    555  

Kookmin Finance HK

   September 30, 2004    409,226    338,992    70,234    9,274    7,313  

Sorak Financial Holdings

   September 30, 2004    332,032    9,423    322,609    —      (43 )

1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures.

 

2 Since its establishment (i.e. April 29, 2004 ~ September 30, 2004)

 

24


Table of Contents
6. Directors, Senior Management and Employees

 

As of September 30, 2004, our board of directors, which consists of 3 executive directors and 11 non-executive directors, has the ultimate responsibility for the management of our affairs.

 

6.1. Executive Directors

 

Our 3 executive directors consist of the President & CEO and two executive vice presidents.

 

The names and positions of our directors with Kookmin Bank’s common stocks owned are set forth below.

 

Name


   Date of Birth

   Position

   Common Stocks Owned

Jung Tae Kim

   08/15/1947    President & CEO    126,581

Seong Kyu Lee

   10/25/1959    Executive Director & EVP    —  

Donald H. MacKenzie

   12/20/1948    Executive Director & EVP    —  

 

6.2. Non-Executive Directors

 

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting. As of September 30, 2004, 11 non-executive directors are in office.

 

Our current non-executive directors with Kookmin Bank’s shares owned are as follows.

 

Name


   Date of Birth

   Position

   Common Stocks Owned

Moon Soul Chung

   03/07/1938    Non-Executive Director    5,221

Richard Elliott Lint

   01/04/1946    Non-Executive Director    1,110

Sun Jin Kim

   06/08/1942    Non-Executive Director    4,065

Dong Soo Chung

   09/24/1945    Non-Executive Director    1,010

Kyung Hee Yoon

   01/05/1947    Non-Executive Director    —  

Suk Yong Cha

   06/09/1953    Non-Executive Director    1,540

Bernard S. Black

   11/13/1953    Non-Executive Director    1,110

Ki Hong Kim

   01/10/1957    Non-Executive Director    1,660

Woon Youl Choi

   04/02/1950    Non-Executive Director    9,379

Wang Ha Cho

   09/18/1953    Non-Executive Director    661

Young Soon Cheon

   02/01/1961    Non-Executive Director    590

 

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Table of Contents
6.3. Senior Management

 

In addition to the executive directors who are also our executive officers, we currently have the following 7 executive officers as of September 30, 2004.

 

Name


   Date of Birth

   Position

   Common
Shares
Owned


Jong Kyoo Yoon

   10/13/1955    Senior Executive Vice President    3,300

Jeung Lak Lee

   06/13/1958    Senior Executive Vice President    —  

Sang Jin Lee

   05/21/1955    Senior Executive Vice President    1,078

Yun Keun Jung

   07/01/1951    Senior Executive Vice President    2,416

Jung Young Kang

   01/29/1951    Senior Executive Vice President    —  

Young Il Kim

   07/06/1953    Senior Executive Vice President    3,327

Ki Sup Shin

   10/29/1955    Senior Executive Vice President    280

 

6.4. Compensation to Directors and Senior Management

 

The total compensation to both directors and senior management for the three quarters of 2004, excluding grant of stock options, is 6,143,123,785 Won, and the average compensation amount per person is 180,680,111 Won. During the nine months, we had 20 directors and 14 executive vice presidents.

 

6.5. Employees

 

The following table shows the breakdown of our employees as of September 30, 2004.

 

(Unit: in millions of Won)

 

     Number of Employees

   Average Tenure
of the Full-time
Employees


  

Total Payment for

Three Quarters of
2004


  

Average Monthly
Payment

per Person


     Full-time

   Contractual

   Total

        

Male

   14,080    1,223    15,303    16.40    613,382    4.5

Female

   4,931    7,764    12,695    13.68    320,616    2.8

Total

   19,011    8,987    27,998    15.69    933,998    3.7

 

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Table of Contents
7. Related Party Transactions

 

A number of banking transactions are entered into with related parties in the ordinary course of business. Generally, these transactions include loans, deposits, debt securities and other arms-length transactions relating to our banking business. These transactions are carried out on commercial terms and conditions and at market rates.

 

7.1. Transactions with the Largest Shareholders or Affiliates

 

7.1.1. Investments in Affiliates1

 

(Unit: in millions of Won)

 

Name


   Relation
with the
Bank


  

Account


   Par
Value


   Beginning
Balance
(January 1, 2004)


   Increase

   Decrease

  

Ending

Balance
(September 30, 2004)


KB Real Estate Trust

   Affiliate    Equity Securities of Affiliate    79,999    79,999    —      —      79,999

KB Investment

   Affiliate    Equity Securities of Affiliate    44,708    44,708    —      —      44,708

KB Asset Management

   Affiliate    Equity Securities of Affiliate    30,670    30,670    —      —      30,670

KB Futures

   Affiliate    Equity Securities of Affiliate    19,996    19,996    —      —      19,996

KB Data Systems Corp.

   Affiliate    Equity Securities of Affiliate    7,998    7,998    —      —      7,998

KB Credit Information

   Affiliate    Equity Securities of Affiliate    4,154    4,154    —      —      4,154

KB Life

   Affiliate    Equity Securities of Affiliate    30,000    0    30,000    —      30,000

ING Life Korea

   Affiliate    Equity Securities of Affiliate    14,000    14,000    —      —      14,000

KOMOCO

   Affiliate    Equity Securities of Affiliate    30,000    30,000    —      30,000    0
              
  
  
  
  

Total

             261,525    231,525    30,000    30,000    231,525
              
  
  
  
  

1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures.

 

27


Table of Contents
7.1.2. Real Estate Transactions

 

(Unit: in millions of Won)

 

Name


   Relation with
the Bank


   Type

   Account

   The Number
of Contracts


   Deposits

   Rent Fee

KB Credit Information

   Affiliate    Building    Rental Income    21    4,727.46    11.73

KB Real Estate Trust

   Affiliate    Building    Rental Income    2    1,738.00    3.56

KB Data Systems Corp.

   Affiliate    Building    Rental Income    1    2,484.31    —  

KB Futures

   Affiliate    Building    Rental Income    1    1,363.36    —  

KB Life

   Affiliate    Building    Rental Income    1    1,839.20    —  
    
  
  
  
  
  

Total

   —      —      —      26    12,152.33    15.29
    
  
  
  
  
  

 

7.2. Transactions with Other than the Largest Shareholders or Affiliates

 

7.2.1. Loans and Guarantees

 

(Unit: in millions of Won)

 

Name


  

Relation with

the Bank


  

Account


  

Beginning Balance

(January 1, 2004,
or on the date of
appointment)


   Ending Balance
(September 30, 2004)


   Increase /
(Decrease)
for the
period


 

Kolon Co.

   Related party of Non executive director, Wang Ha Cho    Overdraft and etc.    30,000    25,000    25,378
(30,378
 
)

Kolon Construction

   Related party of Non executive director, Wang Ha Cho    Overdraft    77    0    (77 )

Hankyoreh Plus

  

Related party of Senior executive vice president,

Seong Kyu Lee

   Loans for working capital and etc.    6,915    8,798    3,349
(1,466
 
)

Janssen Korea

   Related party of Non executive director, Sun Jin Kim    Corporate loans    0    6,500    6,500  

Hyundai Mipo Dockyard Co.

   Related party of Non executive director, Woon Youl Choi    Housing loan    36    36    0  
              
  
  

Total

             37,028    40,334    3,306  
              
  
  

 

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Table of Contents
7.2.2. Real Estate Transactions

 

(Unit: in millions of Won)

 

Name


  

Relation with

Kookmin Bank


   Type

   Account

   Deposits

   Rent Fee

DSME Co.

  

Related party of

Non executive director, Dong Soo Chung

   Building    Rental Deposit    —      11.04
                   
  

Total

                  —      11.04
                   
  

 

29


Table of Contents

SIGNATURES

 

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

 

       

Kookmin Bank

(Registrant)

Date: November 15, 2004

      By:  

/s/ Kap Shin

           

(Signature)

           

Name:

 

Kap Shin

           

Title:

 

Senior Executive Vice President &

Chief Financial Officer

 

30


Table of Contents

Exhibit 99.1

 

Kookmin Bank

 

Non-Consolidated Interim Financial Statements

September 30, 2004 and 2003

 


Table of Contents

Kookmin Bank

Index

September 30, 2004 and 2003, and December 31, 2003

 

     Page(s)

Report of Independent Accountants

   1–3

Non-Consolidated Interim Financial Statements

    

Balance Sheets

   4

Statements of Operations

   5

Statements of Cash Flows

   6–7

Notes to Non-Consolidated Interim Financial Statements

   8–58

 


Table of Contents

 

LOGO     
     LOGO
         Samil PricewaterhouseCoopers
        

Kukje Center Building

        

191 Hankangro 2ga, Yongsanku

        

Seoul 140-702, KOREA

        

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

 

Report of Independent Accountants

 

To the Board of Directors and Shareholders of Kookmin Bank

 

We have reviewed the accompanying non-consolidated balance sheet of Kookmin Bank (“the Bank”) as of September 30, 2004, and the related non-consolidated statements of operations and cash flows for the three-month and nine-month periods ended September 30, 2004 and 2003, expressed in Korean won. These interim financial statements are the responsibility of the Bank’s management. Our responsibility is to issue a report on these interim financial statements based on our review.

 

We conducted our reviews in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. These standards require that we plan and perform our review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of the Bank’s personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

Based on our reviews, nothing has come to our attention that causes us to believe that the non-consolidated interim financial statements referred to above are not presented fairly, in all material respects, in accordance with accounting principles generally accepted in the Republic of Korea.

 

We have audited the non-consolidated balance sheet of Kookmin Bank as of December 31, 2003 and the related non-consolidated statements of operations, appropriation of retained earnings and cash flows for the year then ended, in accordance with auditing standards generally accepted in the Republic of Korea. We expressed an unqualified opinion on those financial statements in our audit report dated March 3, 2004.

 

As discussed in Note 36 to the non-consolidated financial statements, the Bank restated its non-consolidated balance sheet as of December 31. 2003 and the related non-consolidated statements of operations and cash flows for the nine-month period ended September 30, 2003, presented herein for comparative purposes, as instructed by the Securities and Futures Commission of underestimate of other allowance by (Won) 213,157 million and overestimate of valuation loss using equity method by (Won)27,159 million. On the other hand, the financial statements for the year ended in December 31, 2003 in the audit report dated March 3, 2004, are no longer valid, as they were prior to restatement.

 

Samil PricewaterhouseCoopers is the Korean member firm of the PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

 


Table of Contents

LOGO

 

As discussed in Note 33 to the non-consolidated financial statements, on May 30, 2003, the Bank obtained approval from the Board of Directors to enter into a merger agreement with Kookmin Credit Card Co., Ltd. (the “Subsidiary”), its majority-owned subsidiary. According to the resolution of the Board of Directors, the Bank merged with the Subsidiary on September 30, 2003. The merger was effected through an exchange of shares with the minority shareholders of the Subsidiary as of July 24, 2003, who each received 0.442983 share of the Bank’s common stock for each share of the Subsidiary.

 

As discussed in Note 20 to the non-consolidated financial statements, in accordance with the resolution of the Board of Directors on December 17, 2003, the Bank acquired 27,423,761 of its own shares previously owned by the Korean government at (Won)43,700 per share through public bidding and intends to sell these shares of treasury stock depending on certain market conditions. As of September 30, 2004, the Bank holds 8.90% of the total common stock issued as treasury stock.

 

As discussed in Note 4 to the non-consolidated financial statements, as a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) on April 29, 2004, to acquire a 100% ownership of KB Life Insurance Co., Ltd., which was founded to acquire the assets and the liabilities of Hanil Life Insurance Co., Ltd.

 

As discussed in Note 16 to the non-consolidated financial statements, the Bank’s total exposure (including loans and securities) to LG Card Co., Ltd., which is under the joint control of financial institutions as it is currently experiencing a financial crisis, amounts to (Won)520,134 million as of September 30, 2004. In addition, the Bank holds securities issued by credit card companies and capital companies, which are experiencing liquidity problems, amounting to (Won)201,538 million as of September 30, 2004. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying non-consolidated financial statements.

 

As discussed in Note 2, during the quarter ended September 30, 2004, the Bank changed its accounting on its sale of loans. Previously, the gain or loss on sale of written-off loans is computed by adjusting the loan’s related allowance. The gain or loss on sale of loans other than written-off loans is computed by comparing the book value at the date of sale against the proceeds of the sale. Currently, the gain or loss on sale of both kinds of loans is now computed by comparing the sale proceeds against its book value on the year end immediately preceding the date of sale. Due to this change, loss on sale of loans increased by (Won)864,445 million and gain on sale of loans and allowance for loan losses decreased by (Won)43,039 million and (Won)907,484 million, respectively, for the nine-month period ended September 30, 2004. The income statement for the nine-month period ended September 30, 2003, presented herein for comparative purposes, were restated to reflect the changes in calculation of gain or loss on sales of loans loss resulting in an increase in loss on sale of loans and gain on sale of loans by (Won)498,143 million and (Won)4,668 million, respectively, and decrease in allowance for loans losses by (Won)493,475 million. Such restatement has no effect on the current period’s net income and net assets.

 

2


Table of Contents

LOGO

 

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

 

Seoul, Korea

October 14, 2004

 

This report is effective as of October 14, 2004, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

3


Table of Contents

 

Kookmin Bank

Non-Consolidated Balance Sheets

September 30, 2004 and December 31, 2003

(Unaudited)

 

(in millions of Korean won)    2004

    2003

 

Assets

                

Cash and due from banks (Note 3)

   (Won) 8,508,411     (Won) 6,526,345  

Securities (Note 4)

     24,703,466       26,908,462  

Loans, net (Notes 5 and 6)

     142,047,025       141,143,674  

Fixed assets, net (Note 7)

     2,827,777       3,019,556  

Other assets (Note 8)

     8,176,381       6,547,547  
    


 


Total assets

   (Won) 186,263,060     (Won) 184,145,584  
    


 


Liabilities and Shareholders’ Equity

                

Deposits (Note 9)

   (Won) 130,107,028     (Won) 132,180,272  

Borrowings (Note 10)

     10,663,592       10,902,800  

Debentures (Note 11)

     21,436,144       19,192,581  

Other liabilities (Note 13)

     14,976,352       13,632,425  
    


 


Total liabilities

     177,183,116       175,908,078  
    


 


Commitments and contingencies (Notes 14 and 16)

                

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

     1,681,896       1,681,896  

Capital surplus (Note 18)

     6,230,738       6,230,738  

Retained earnings (Note 19)

     2,169,192       1,485,111  

Capital adjustments (Note 20)

     (1,001,882 )     (1,160,239 )
    


 


Total shareholders’ equity

     9,079,944       8,237,506  
    


 


Total liabilities and shareholders’ equity

   (Won) 186,263,060     (Won) 184,145,584  
    


 


 

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

 

See Report of Independent Accountants

 

4


Table of Contents

 

Kookmin Bank

Non-Consolidated Statements of Operations

Three-Month and Nine-Month Periods Ended September 30, 2004 and 2003

(Unaudited)

 

(in millions of Korean won, except per share amounts)    Three-month period

    Nine-month period

 
   2004

    2003

    2004

    2003

 

Interest income

                                

Interest on due from banks

   (Won) 2,900     (Won) 1,388     (Won) 7,038     (Won) 5,167  

Interest on trading securities

     35,791       27,296       115,477       51,818  

Interest on available-for-sale securities

     115,227       176,792       378,091       344,469  

Interest on held-to-maturity securities

     86,929       175,238       272,889       363,497  

Interest on loans

     2,538,438       2,413,620       7,824,498       4,791,321  

Other interest income

     25,496       26,616       76,194       49,382  
    


 


 


 


       2,804,781       2,820,950       8,674,187       5,605,654  
    


 


 


 


Interest expenses

                                

Interest on deposits

     967,229       1,079,533       2,986,152       2,183,020  

Interest on borrowings

     74,841       105,782       254,163       214,312  

Interest on debentures

     288,322       280,770       818,822       564,021  

Other interest expenses

     11,728       20,016       50,009       32,722  
    


 


 


 


       1,342,120       1,486,101       4,109,146       2,994,075  
    


 


 


 


Net interest income

     1,462,661       1,334,849       4,565,041       2,611,579  

Provision for loan losses (Note 6)

     966,507       1,026,698       2,245,698       1,685,764  
    


 


 


 


Net interest income after provision for loan losses

     496,154       308,151       2,319,343       925,815  
    


 


 


 


Non-interest income

                                

Fees and commission income

     518,802       344,963       1,631,272       681,829  

Dividends on trading securities

     324       —         3,289       1,514  

Dividends on available-for-sale securities

     95       2,622       7,709       5,288  

Gain on foreign currency transactions

     82,226       35,210       203,995       165,926  

Gain on derivatives transactions (Note 15)

     861,535       498,267       2,049,392       1,240,561  

Others (Note 22)

     864,082       500,401       1,296,501       546,430  
    


 


 


 


       2,327,064       1,381,463       5,192,158       2,641,548  
    


 


 


 


Non-interest expenses

                                

Fees and commission expenses

     107,534       43,143       359,902       92,378  

General and administrative expenses (Note 23)

     650,573       628,663       1,966,199       1,210,779  

Loss on foreign currency transactions

     44,885       46,213       124,779       129,016  

Loss on derivatives transactions (Note 15)

     833,429       465,014       2,008,046       1,214,154  

Others (Note 22)

     562,689       574,745       1,194,572       624,648  
    


 


 


 


       2,199,110       1,757,778       5,653,498       3,270,975  
    


 


 


 


Operating income (loss)

     624,108       (68,164 )     1,858,003       296,388  

Non-operating income (expenses), net (Note 24)

     (69,764 )     (117,275 )     (856,295 )     (334,712 )
    


 


 


 


Net income (loss) before income tax expense

     554,344       (185,439 )     1,001,708       (38,324 )

Income tax expense (benefit) (Note 25)

     179,396       (70,838 )     319,199       2,344  
    


 


 


 


Net income (loss)

   (Won) 374,948     (Won) (114,601 )   (Won) 682,509     (Won) (40,668 )
    


 


 


 


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

                   (Won) 2,227     (Won) (125 )
                    


 


 

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

 

See Report of Independent Accountants

 

5


Table of Contents

 

Kookmin Bank

Non-Consolidated Statements of Cash Flows

Three-Month and Nine-Month Periods Ended September 30, 2004 and 2003

(Unaudited)

 

(in millions of Korean won)    Three-month period

    Nine-month period

 
   2004

    2003

    2004

    2003

 

Cash flows from operating activities

                                

Net income (loss)

   (Won) 374,947     (Won) (114,601 )   (Won) 682,509     (Won) (40,668 )
    


 


 


 


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

                                

Realized (gain) loss on trading securities, net

     (11,847 )     (15,417 )     (49,879 )     (42,500 )

Unrealized gain on trading securities, net

     (32,020 )     (39,005 )     (42,442 )     (56,625 )

(Gain) loss on foreign currency transactions, net

     (37,341 )     11,003       (79,216 )     (36,910 )

Provision for loan losses

     966,507       1,026,698       2,245,698       1,685,764  

Reversal of losses from guarantees and acceptances

     —         122,950       —         122,746  

Gain on derivative transactions, net

     (28,106 )     (33,253 )     (41,346 )     (26,407 )

Loss on valuation of derivatives, net

     (18,541 )     (11,652 )     (24,215 )     (13,224 )

Loss (gain) on fair value hedged items, net

     10,116       6,671       (2,147 )     8,076  

Retirement benefits

     26,037       22,040       81,200       45,990  

Stock compensation expense

     1       —         3,223       —    

Depreciation and amortization

     102,063       109,440       304,041       210,912  

Loss on disposal of fixed assets, net

     658       32,188       507       33,553  

Impairment loss on disposal of fixed assets, net

     16,103               16,103          

Realized gain on available-for-sale securities, net

     (7,420 )     (46,843 )     (81,207 )     (86,530 )

Impairment loss on available-for-sale securities, net

     —         46,397       55,058       38,627  

Realized gain on held-to-maturity securities

     —         (475 )     (1,509 )     (1,268 )

Unrealized loss (gain) on investment in associates, net

     6,389       91,990       (10,089 )     349,642  

Loss on sale of loans, net

     24,150       420       840,839       1,633  

Provision for other allowances

     (236,573 )     —         15,562       —    

Others, net

     (87,889 )     (6,454 )     (233,594 )     (12,796 )

Changes in assets and liabilities resulting from operations

                                

Accrued income

     (25,322 )     (61,502 )     27,782       24,382  

Prepaid expenses

     (30,716 )     3,206       132,056       (29,166 )

Deferred tax assets

     180,315       3,771       242,890       (167,223 )

Other assets

     (2,460 )     (251 )     (2,924 )     3,168  

Accrued expenses

     (14,703 )     (200,965 )     (110,868 )     (174,510 )

Unearned income

     (12,865 )     (8,230 )     (15,683 )     (9,163 )

Withholding taxes

     (31,015 )     9,236       (74,000 )     12,214  

Other liabilities

     68,523       (67,749 )     (169,532 )     275,557  

Payment of retirement benefits

     (4,284 )     (3,953 )     (34,466 )     (7,225 )

Retirement pension funds

     310       183,484       14,759       (10,752 )

Account for agency business

     73,071       —         21,385       —    

Stock compensation expense

     —         3,805       —         (2,683 )
    


 


 


 


Net cash provided by operating activities

     1,268,088       1,062,949       3,710,495       2,094,614  
    


 


 


 


 

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

 

See Report of Independent Accountants

 

6


Table of Contents

 

Kookmin Bank

Non-Consolidated Financial Statements of Cash Flows

Three-Month and Nine-Month Periods Ended September 30, 2004 and 2003

(Unaudited)

 

     Three-month period

    Nine-month period

 
(in millions of Korean won)    2004

    2003

    2004

    2003

 

Cash flows from investing activities

                                

(Increase) decrease in due from banks

   (Won) (269,681 )   (Won) 974,688     (Won) (1,891,166 )   (Won) (699,744 )

Decrease in trading securities

     1,109,170       573,215       1,356,119       876,918  

(Increase) decrease in available-for-sale securities

     (1,153,744 )     (66,010 )     891,513       (4,089,009 )

Decrease (increase) in held-to-maturity securities

     261,538       462,681       647,443       1,492,244  

Acquisition of investment in associates

     (9,231 )     —         (6,299 )     —    

Increase in loans granted, net

     (3,286,720 )     (3,359,993 )     (4,181,343 )     (6,736,889 )

Proceeds from disposal of fixed assets

     526       126,525       4,424       133,742  

Acquisition of fixed assets

     (46,574 )     (114,917 )     (133,131 )     (173,845 )

Acquisition of intangible assets

     (132 )     (70 )     (891 )     (340 )

Proceeds from disposal of foreclosed assets

     382       248       518       279  

(Increase) decrease in guarantee deposits

     (333 )     (13,989 )     53,026       (21,046 )

Decrease (increase) in other accounts receivable

     1,389,600       (1,742,280 )     (2,063,443 )     (1,692,171 )

(Increase) decrease in payments in advance

     (4,316 )     (13,284 )     (278 )     (27,683 )

(Increase) decrease in derivative assets, net

     (26,823 )     (20,065 )     41,717       64,537  

Decrease in collection of domestic exchange receivables

     92,791       328,534       291,728       764,687  

Collection of loans to trust accounts

     —         29,869       —         36,748  

Acquisition of foreclosed assets

     (64 )     —         —         —    
    


 


 


 


Net cash used in investing activities

     (1,943,611 )     (2,834,848 )     (4,990,063 )     (10,071,572 )
    


 


 


 


Cash flows from financing activities

                                

Increase (decrease) in deposits, net

     188,083       3,281,589       (2,073,242 )     4,592,498  

(Decrease) increase in borrowings, net

     (712,282 )     (415,760 )     (239,208 )     2,637,463  

Increase (decrease) in debentures, net

     1,767,846       (2,024,557 )     2,243,564       (493,759 )

(Decrease) increase in borrowings from trust accounts

     (122,119 )     192,924       (2,809,326 )     734,550  

(Decrease) increase in other accounts payable

     (951,058 )     1,702,214       2,659,765       1,536,531  

Increase in advances received from customers

     48,355       483,570       320,692       1,169,615  

Increase (decrease) in guarantee deposits received

     15,098       2,161       1,432       (7,229 )

Increase in domestic exchange payables

     714,240       239,705       889,032       (191,352 )

Increase (decrease) in liabilities incurred by agency relationships

     138,427       (887,284 )     367,757       (50,079 )

Stock options exercised

     —         —         —         (35 )

Sale of treasury stock

     16       —         2,251       50  

Decrease in dividend payable

     —         (3 )     —         (325,183 )
    


 


 


 


Net cash provided by financing activities

     1,086,606       2,574,559       1,362,717       9,603,070  
    


 


 


 


Net increase in cash and cash equivalents

     411,083       802,660       83,149       1,626,112  

Cash and due from banks, beginning of period

     3,443,823       3,924,033       3,771,757       3,100,581  
    


 


 


 


Cash and due from banks, end of period (Note 34)

   (Won) 3,854,906     (Won) 4,726,693     (Won) 3,854,906     (Won) 4,726,693  
    


 


 


 


 

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

 

See Report of Independent Accountants

 

7


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

1. The Bank

 

Kookmin Bank (“the Bank”) was established in 1963 under the Citizens National Bank Act to provide and administer funds for financing the general public and small businesses. Pursuant to the repeal of the Citizens National Bank Act, effective January 5, 1995, the Bank has conducted its operations in accordance with the provisions of the General Banking Act.

 

The Bank merged with Korea Long Term Credit Bank (“KLB”) on December 31, 1998 and with Daegu, Busan, Jeonnam Kookmin Mutual Savings & Finance Co., Ltd. on August 22, 1999. Also, under the decision of the Financial Supervisory Commission in accordance with the Structural Improvement of the Financial Industry Act, the Bank purchased certain assets, including loans classified as normal or precautionary, and assumed most of the liabilities of Daedong Bank as of June 29, 1998. Also, the Bank completed the legal consolidation with Housing and Commercial Bank (“H&CB”) as of October 31, 2001 (Note 32) and merged with Kookmin Credit Card Co., Ltd. (the “Subsidiary”), its majority-owned subsidiary, on September 30, 2003 (Note 33).

 

The Bank has its shares listed on the Korea Stock Exchange since September 1994. As a result of the business combination with H&CB, the former shareholders of the Bank and H&CB received new common shares of the Bank on the basis of a pre-determined ratio. The new common shares of the Bank were relisted on the Korea Stock Exchange on November 9, 2001. As of September 30, 2004, the Bank’s paid-in capital amounts to (Won)1,681,896 million and its 46,744,257 shares are listed on the New York Stock Exchange as American Depositary Shares (“ADSs”).

 

The Bank engages in the banking and trust businesses according to the provisions of the General Banking Act and the Trust Business Act, and operates through 1,119 domestic branches and offices (excluding automated teller machines) and three overseas branches as of September 30, 2004.

 

2. Summary of Significant Accounting Policies

 

The significant accounting policies followed by the Bank in the preparation of its non-consolidated financial statements are summarized below.

 

Basis of Financial Statement Presentation

 

The Bank maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Bank that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language non-consolidated financial statements. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations, or cash flows, is not presented in the accompanying non-consolidated financial statements.

 

Application of the Statements of Korean Financial Accounting Standards

 

The Bank has adopted Statements of Korean Financial Accounting Standards (“SKFAS”) Nos. 1~10, 12 and 13 (SKFAS Nos.10, 12 and 13 have been effective as of January 1, 2004) in the preparation of its financial statements. Except for the adoption of these SKFAS, the same accounting policies are applied for the financial statements as of and for the nine-month period ended September 30, 2004 and as of and for the year ended December 31, 2003.

 

Accounting Estimates

 

The preparation of the non-consolidated financial statements requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management’s best knowledge of current events and actions that the Bank may undertake in the future, actual results may differ from those estimates.

 

See Report of Independent Accountants

 

8


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Recognition of Interest Income

 

The Bank recognizes interest income on loans and debt securities on an accrual basis. However, interest income on delinquent and dishonored loans and debt securities, other than those collateralized with security deposits or guaranteed by financial institutions, is recognized on a cash basis. As of September 30, 2004, the Bank has non-accrual loans and securities of (Won)9,798,553 million and (Won)553,114 million, respectively, with related foregone interest of (Won)539,230 million and (Won)188,915 million, respectively.

 

Securities

 

Securities that are bought and held principally for the purpose of generating profits on short-term differences in price, and which are actively and frequently bought and sold, are classified as trading securities. Debt securities with fixed or determinable payments and fixed maturity, and which the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Investments neither classified as trading securities nor held-to-maturity securities are classified as available-for-sale securities.

 

Securities are recognized initially at their fair value plus transaction costs that are directly attributable to the acquisition. The Bank uses the moving average method and specific identification method for determining the carrying value of equity securities and debt securities, respectively.

 

Trading and available-for-sale debt securities are carried at fair value using the average of quoted prices provided by bond pricing service institutions. Held-to-maturity debt securities are carried at amortized cost.

 

Marketable equity securities are carried at market prices and beneficiary certificates are carried at quoted prices provided by the beneficiary certificate dealers. However, non-marketable equity securities are carried at fair value only if the fair value is reasonably measurable. Otherwise, they are carried at cost.

 

Unrealized holding gains or losses on trading securities are charged to current operations and those resulting from available-for-sale securities are recorded as capital adjustments. Premiums and discounts on debt securities are amortized over the maturity period of the debt securities using the effective interest method. Impairment losses are recognized in the current operations when there is evidence of impairment and recoverable amounts of available-for-sale securities or held-to-maturity securities are less than either the acquisition cost of equity securities or the amortized cost of debt securities. Unrealized holding gains or losses on available-for-sale or held-to-maturity securities that had not been recognized through income are realized when the related securities are disposed of.

 

The wholly owned beneficiary certificates are each classified based on the Bank’s intention for acquiring the certificates. The fund assets of these wholly owned beneficiary certificates are comprised of deposits, call loans and securities, and the fund income is comprised of interest income, realized gains and losses, and valuation gains and losses. The Bank recorded all gains and losses from these wholly owned beneficiary certificates as income from beneficiary certificates. Accounting policies of these funds that are different from those of the Bank include application of the moving average method for determining the cost of debt securities and amortization of discounts/premiums on debt securities using the straight line method.

 

See Report of Independent Accountants

 

9


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Investments in Associates

 

Investments in associates, over which the Bank exercises significant control or influence, are accounted for using the equity method. Under the equity method, the Bank records changes in its proportionate ownership of the associate in the current operations as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investment in associate.

 

The Bank discontinues the equity method of accounting for investments in associates when the Bank’s share of accumulated losses of the associates equals the costs of the investments and until the subsequent cumulative changes in its proportionate net income of the associate equal its cumulative proportionate net losses not recognized during the periods when the equity method was suspended.

 

Differences between the initial purchase price and the Bank’s initial proportionate ownership of the net book value of the associate are amortized or accreted using an appropriate method and the resulting amortization is charged to current operations.

 

Gains and losses recorded by the Bank from inter-company transactions with associates are fully eliminated. Gains and losses recorded by the associates from these transactions are proportionately eliminated, based on the Bank’s percentage of ownership.

 

Deferred Loan Origination Fees and Costs

 

The Bank defers loan origination fees associated with originating loans and loan origination costs that have future economic benefits. Loan balances are reported net of these loan origination fees and costs. The deferred loan origination fees and costs are amortized using the effective interest method with the amortization recognized as adjustments to other interest income.

 

Allowances for Loan Losses

 

The Bank applies its internal credit rating system, the Forward Looking Criteria (“FLC”), to corporate loans in order to classify the borrowers and to determine the allowances for loan losses. The credit rating criteria are divided into 12 categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC, CC, C, D) with consideration of the credit risk of corporate borrowers, which is evaluated based on financial and non-financial risks, and the loan type, collateral and/or guarantees.

 

Allowances are determined by applying at minimum the following rates to the outstanding balances under each credit risk classification:

 

Credit Risk Classification


 

Credit Ratings


 

Allowance Rates


Normal

  AAA~B   0.50%

Precautionary

  B-~CCC   2.00%

Sub-standard

  CC   20.00%

Doubtful

  C   50.00%

Estimated loss

  D   100.00%

 

See Report of Independent Accountants

 

10


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

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

 

Credit Risk Classification


   Allowance Rates

 
   Small-sized corporate

    Consumer

    Credit Card

 

Normal

   0.50 %   0.75 %   1.00 %

Precautionary

   2.00 %   8.00 %   12.00 %

Sub-standard

   20.00 %   20.00 %   20.00 %

Doubtful

   50.00 %   55.00 %   60.00 %

Estimated loss

   100.00 %   100.00 %   100.00 %

 

The Bank applies the credit risk classification used for loans to outstanding guarantees and acceptances, and provides allowances for losses of 20 %, 50 % and 100 % of the outstanding guarantees and acceptances classified as sub-standard, doubtful, and estimated loss, respectively.

 

Troubled Debt Structuring

 

The equity interest in the debtors, net of real estates and/or other assets received as full or partial satisfaction of the Bank’s loans, collected through reorganization proceedings, court mediation, or debt restructuring agreements of parties concerned, are recorded at their fair value at the time of the restructuring. In cases where the fair value of the assets received are less than the book value of the loan (book value before allowances), the Bank offsets the book value against allowances for loans first and then recognizes provisions for loans. Impairment losses for loans, that were restructured in a troubled debt restructuring involving a modification of terms, are computed by getting the difference between the present value of future cash flows under debt restructuring agreements discounted at effective interest rates at the time when loans are originated, and the book value before allowances for loans. If the amount of allowances already established is less than the impairment losses under the workout plans, the Bank establishes additional allowances for the difference. Otherwise, the Bank reverses the allowances for loan losses.

 

Before the adoption of SKFAS No. 13, Troubled Debt Structuring, the difference between the nominal value and the present value of loan under troubled debt structuring agreements was recorded as present value discounts and was presented separately as a deduction from the loan nominal value. However, in accordance with the Bank’s adoption of SKFAS No. 13, unamortized present value discounts as of the beginning of the current period are classified as allowances for loan losses.

 

Fixed Assets and Related Depreciation

 

Tangible assets are recorded at cost, except for upward revaluation of certain assets in accordance with the Korean Asset Revaluation Law. Depreciation is calculated based on the estimated average useful lives of the assets and the accumulated depreciation is presented as a contra account of tangible assets in the financial statements. In addition, impairment loss is recognized based on the difference between the recoverable amount and the book value. The accumulated impairment loss is presented as a contra account of tangible assets in the financial statements.

 

See Report of Independent Accountants

 

11


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The estimated useful lives and depreciation methods of the tangible assets are as follows:

 

Tangible Assets


 

Depreciation Method


 

Estimated Useful Life


Buildings and structures

  Straight-line   40 years

Leasehold improvements

  Declining balance   4-5 years

Equipment and vehicles

  Declining balance   4-5 years

 

Expenditures that enhance the value or extend the useful life of the related assets are capitalized as additions to tangible assets. Routine maintenance and repairs are recognized as expenses when incurred.

 

Foreclosed assets acquired through, or in lieu of, loan redemption are stated at cost and are not depreciated. A valuation allowance is recorded when the latest bidding price at a public auction is below the book value, and is presented as a contra account of foreclosed assets in the financial statements.

 

Intangible assets are amortized based on the following estimated average useful lives and are presented in the financial statements net of accumulated amortization:

 

Intangible assets


 

Amortization Method


 

Estimated Useful Life


Goodwill

  Straight-line   9 years

Development costs

  Straight-line   5 years

Trademarks

  Straight-line   1-10 years

Others

  Straight-line   5-30 years

 

The Bank estimates the useful life of endowment assets, that are beneficial upon usage and are classified under other intangible assets, to be 30 years based on the term of the contract. The Bank records goodwill as a result of the merger with H&CB as the cost of the merger exceeded the fair value of the net assets acquired.

 

Development costs directly related to new technology or new products, including costs related to software development, are capitalized as intangible assets to the extent that the estimated future benefits are probable.

 

The Bank adjusts the book value of a fixed asset to its recoverable amount and recognizes the difference as an impairment loss when the recoverable amount is significantly below the book value due to obsolescence or decline in market value. The subsequent increase in recoverable amount in excess of the impaired book value is recognized, to the extent of the original book value before impairment, as a reversal of fixed asset impairment losses.

 

Stock Issuance Costs and Debenture Issuance Costs

 

Stock issuance costs are deducted from paid-in capital in excess of par value. Debenture issuance costs are recorded as discounts on debentures and amortized over the maturity period of the debentures using the effective interest method.

 

Accrued Retirement Benefits

 

Employees and directors with at least one year of service and temporary employees with at least a one-year contract, as of September 30, 2004, are entitled to receive a lump-sum payment upon termination of their employment with the Bank, based on their length of service and rate of pay at the time of termination.

 

Additionally, the Bank records the contributions to pension funds, which grant the payment rights to its employees, as contra accounts of accrued retirement benefits.

 

See Report of Independent Accountants

 

12


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Deferred Income Taxes

 

The Bank records the future tax effects of temporary differences between the financial and tax bases of assets and liabilities as deferred income tax assets or liabilities. The tax effects of temporary differences arising from the cumulative effects of accounting changes are adjusted in retained earnings.

 

Bonds under Repurchase/Resale Agreements

 

Securities bought under resale agreements are recorded under loans as bonds purchased under resale agreements. Securities sold under repurchase agreements are recorded under borrowings as bonds sold under repurchase agreements. Interest from bonds purchased under resale agreements and bonds sold under repurchase agreements are recognized as interest income on loans and interest expense on borrowings, respectively.

 

Derivative Instruments

 

Derivative instruments for trading or hedging purpose are recorded at fair value and the resulting unrealized gains and losses are recognized in the current operations, except for the effective portion of derivative transactions entered into for the purpose of cash-flow hedges, which is recorded as an adjustment to shareholders’ equity.

 

Fair value hedge accounting is applied to a derivative instrument with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment that is attributable to a particular risk. The gain or loss, both on the hedging derivative instrument and on the hedged item attributable to the hedged risk, is reflected in the current operations.

 

Cash flow hedge accounting is applied to a derivative instrument with the purpose of hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recognized in the current operations. The effective portion of the gain or loss recorded as a capital adjustment is reclassified to current operations in the same period during which the hedged forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss recognized as a capital adjustment is added to or deducted from the asset or the liability.

 

Stock Options

 

Compensation costs for stock options granted to employees and executives are recognized using the fair value method. Under the fair value method, compensation costs for stock option plans are determined using an option-pricing model and are recognized over the vesting period (Note 21).

 

National Housing Fund

 

The Bank, as designated by the Korean Government under the Housing Construction Promotion Law, manages the sources and uses of funds of the National Housing Fund (the “NHF”) and records the related NHF account in other liabilities. In addition, the Bank pays NHF the interest, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate.

 

Gains and Losses on Trust Management

 

The Bank’s trust accounts (“the Trust Accounts”) recognize as an expense the trust commissions paid to the banking accounts, which is equivalent to the total trust revenue less total trust expenses and trustee benefits, including the guaranteed principal and minimum rate of return. The Bank recognizes these trust commissions as a gain on trust management in other operating income. The trust fees on money trusts consist of base fees of 0.5 ~ 2.0 % (depending on trust fund types) and special fees applied to the invested capital.

 

Under the Trust Business Act, reserves for future losses are set up in the trust accounts for losses related to those trust funds with a guarantee of the principal or of a certain minimum rate of return. The reserves are used to provide for the losses on such trust funds and, if the losses incurred are in excess of the reserves for future losses, the excess losses are compensated by the Bank. Accordingly, the banking accounts recognize the compensation paid as a loss on trust management in other operating expenses and the trust accounts recognize the corresponding compensation as compensation from banking accounts. There were no compensations paid for the nine-month period ended September 30, 2004.

 

See Report of Independent Accountants

 

13


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Foreign Currency Translation

 

All assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates in effect as of the balance sheet dates (September 30, 2004: (Won)1,147.9:US$1, December 31, 2003: (Won)1,197.8:US$1), and resulting translation gains and losses are recognized in the current period.

 

Accounting records of the overseas branches are maintained in the foreign currency prevailing in their respective countries. For the purpose of presentation in the accompanying financial statements, the financial statements of the branches have been translated into Korean Won, using exchange rates published by Seoul Money Brokerage Services, Ltd. as of the balance sheet dates.

 

Statement of Cash Flows

 

In the preparation of the statement of cash flows, the Bank has presented net amounts of cash inflows and cash outflows for items where the turnover is quick and the amounts are large.

 

Restatement of Prior Period Financial Statements

 

During the quarter ended September 30, 2004, the Bank changed its accounting on its sale of loans. Previously, the gain or loss on sale of written-off loans is computed by adjusting the loan’s related allowance. The gain or loss on sale of loans other than written-loans is computed by comparing the book value at the date of sale against the proceeds of the sale. Currently, the gain or loss on sale of both kinds of loans is now computed by comparing the sale proceeds against its book value on the year end immediately preceding the date of sale. Due to this change, loss on sale of loans increased by (Won)864,445 million and gain on sale of loans and allowance for loan losses decreased by (Won)43,039 million and (Won)907,484 million, respectively, for the nine-month period ended September 30, 2004. The income statement for the nine-month period ended September 30, 2003, presented herein for comparative purposes, were restated to reflect the changes in calculation of gain or loss on sales of loans loss resulting in an increase in loss on sale of loans and gain on sale of loans by (Won)498,143 million and (Won)4,668 million, respectively, and decrease in allowance for loans losses by (Won)493,475 million. Such restatement has no effect on the current period’s net income and net assets.

 

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

 

As explained in Note 36, the Bank restated its financial statements as of September 30, 2003 and December 31, 2003 and for nine-month period ended September 30, 2003 and the year ended December 31, 2003 to comply with SFC’s instructions.

 

See Report of Independent Accountants

 

14


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

3. Cash and Due from Banks

 

Cash and due from banks as of September 30, 2004 and December 31, 2003 consist of:

 

(in millions of Korean won)         2004

    2003

 

Cash on hand

                     

Cash in won

        (Won) 3,023,458     (Won) 2,945,921  

Cash in foreign currencies

          139,945       228,153  
         


 


            3,163,403       3,174,074  
         


 


Due from banks in Won

                     

Bank of Korea

   Reserve deposits in the Bank of Korea      4,446,922       2,612,248  
         


 


Other banks

   Time deposits      —         810  
    

Passbook deposits

     29,279       8,185  
    

Certificate of deposit

     98,632       —    
         


 


            127,911       8,995  
         


 


Other financial institutions

   Deposits at Hansol Mutual Savings & Finance Co., Ltd.      140,000       140,000  
         


 


Others

   Futures margin accounts      4       1,560  
    

Market participation margin

     463       454  
    

KOSPI futures margin accounts

     2,822       200  
         


 


            3,289       2,214  
         


 


            4,718,122       2,763,457  
    

Present value discounts 1

     (5,059 )     (12,810 )
         


 


            4,713,063       2,750,647  
         


 


Due from banks in foreign currencies

                     

Bank of Korea

   Demand deposits      67,923       12,415  
         


 


Other banks

   Demand deposits      83,859       71,879  
    

Time deposits

     15,502       —    
         


 


Others

   Other deposits      5,616       3,354  
         


 


Off-shore

   Demand deposits      459,045       513,976  
         


 


            631,945       601,624  
         


 


          (Won) 8,508,411     (Won) 6,526,345  
         


 



1 Present value discounts are related to the (Won)140,000 million of time deposits (1% interest, scheduled in installments by the end of 2005) placed with Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.).

 

The maturities of the due from banks as of September 30, 2004 are as follows:

 

(in millions of Korean won)   

Due from Banks

in Won


   Due from Banks in
Foreign Currencies


   Total

Due in 3 months or less

   (Won) 4,529,490    (Won) 501,653    (Won) 5,031,143

Due after 3 months through 6 months

     121,132      114,790      235,922

Due after 6 months through 1 year

     67,500      15,502      83,002
    

  

  

     (Won) 4,718,122    (Won) 631,945    (Won) 5,350,067
    

  

  

 

See Report of Independent Accountants

 

15


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Included in cash and due from banks as of September 30, 2004 are the following restricted deposits:

 

(in millions of Korean won)    Amount

  

Restrictions


Reserve deposits in the Bank of Korea

   (Won) 4,446,922    General Banking Act

Deposits at Hansol Mutual Savings & Finance Co., Ltd.

     140,000    Withdrawal at maturity

Due from banks in foreign currency

     67,923    General Banking Act

Other deposits

     3,719    Futures guarantee deposits
    

    
     (Won) 4,658,564     
    

    

 

See Report of Independent Accountants

 

16


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

4. Securities

 

Securities as of September 30, 2004 and December 31, 2003 consist of:

 

(in millions of Korean won)    2004

   2003

Trading

   (Won) 3,438,555    (Won) 4,482,948

Available-for-sale

     15,361,559      15,894,974

Held-to-maturity

     5,333,407      5,979,341

Investment in associates

     569,945      551,199
    

  

     (Won) 24,703,466    (Won) 26,908,462
    

  

 

Trading, available-for-sale, and held-to-maturity securities as of September 30, 2004 and December 31, 2003 consist of:

 

     Unrealized

   Book Value

(in millions of Korean won)    Gain

   Loss

   2004

   2003

Trading

                           

Equity securities

   (Won) 15,542    (Won) 428    (Won) 164,613    (Won) 113,171

Beneficiary certificates

     1      2      8,409      1,686,754

Government and municipal bonds

     7,460      5      781,872      1,076,427

Corporate bonds

     20,002      347      2,412,203      1,365,060

Asset-backed securities

     219      —        71,458      241,536
    

  

  

  

     (Won) 43,224    (Won) 782    (Won) 3,438,555    (Won) 4,482,948
    

  

  

  

 

     Impairment

   Capital Adjustments

   Book Value

(in millions of Korean won)    Reversal

   Loss

   Gain

   Loss

   2004

   20031*

Available-for-Sale

                                         

Equity securities

   (Won) —      (Won) 17,154    (Won) 145,843    (Won) 9,012    (Won) 689,495    (Won) 439,791

Investment in funds

     —        3      3,169      —        4,676      30,872

Beneficiary certificates

     —        —        48,783      3      5,721,477      4,375,817

Government and municipal bonds

     —        —        19,354      —        863,007      2,322,889

Foreign government bonds

     —        —        1,794      111      36,470      28,153

Corporate bonds

     —        2,451      81,957      2,367      7,425,287      8,228,640

Asset-backed securities

     —        35,450      1,484      —        621,099      468,669

Other debt securities

     —        —        —        —        48      143
    

  

  

  

  

  

     (Won) —      (Won) 55,058    (Won) 302,384    (Won) 11,493    (Won) 15,361,559    (Won) 15,894,974
    

  

  

  

  

  

 

     Impairment

   Unrealized Holding

   Book Value

(in millions of Korean won)    Reversal of

   Loss

   Gain

   Loss

   2004

   2003

Held-to-Maturity

                                         

Government and municipal bonds

   (Won) —      (Won) —      (Won) 130,745    (Won) 32    (Won) 2,463,836    (Won) 2,489,998

Corporate bonds

     —        —        86,078      —        2,622,226      3,163,020

Asset-backed securities

     —        —        8,143      —        228,188      326,323

Other securities

     —        —        —        1      19,157      —  
    

  

  

  

  

  

     (Won) —      (Won) —      (Won) 224,966    (Won) 33    (Won) 5,333,407    (Won) 5,979,341
    

  

  

  

  

  


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

 

See Report of Independent Accountants

 

17


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004 and December 31, 2003, investments in associates include:

 

(in millions of Korean won)   Owner-
ship (%)


  Acquisition
Cost


  Beginning
balance1


  Equity Method2

    Book Value

       

Net

Income


    Retained
Earnings


    Capital
Adjustments


    2004

  2003

Domestic Associates

                                                   

KB Investment Co., Ltd.3

  99.89   (Won) 155,311   (Won) 75,932   (Won) (3,471 )   (Won) —       (Won) 3,234     (Won) 75,695   (Won) 77,273

KB Data Systems Co., Ltd.4

  99.98     7,998     14,247     962       —         (3 )     15,206     14,647

KB Futures Co., Ltd.5

  99.98     19,996     25,121     593       —         —         25,714     25,521

KLB Securities

  36.41     10,316     —       —         —         —         —       —  

KB Asset Management 6

  80.00     39,015     38,918     5,845       —         (238 )     44,525     45,051

Jooeun Industrial

  99.99     23,994     —       —         —         —         —       —  

KB Real Estate Trust

  99.99     76,103     98,129     (7,565 )     (336 )     336       90,564     98,129

KB Credit Information

  66.34     8,444     11,447     1,244       —         —         12,691     11,863

ING Life Korea

  20.00     21,769     41,845     15,124       —         2,186       59,155     43,845

Korea Mortgage8

  —       30,629     —               —         —         —       35,788

KICO No. 2 Venture Investment Partnership2

  55.56     —       —       207       —         —         207     —  

KICO No. 3 Venture Investment Partnership2

  69.23     —       —       149       —         —         149     —  

Pacific IT Investment Partnership2

  50.00     7,000     7,000     (114 )     —         —         6,886     —  

NPC02-4 Kookmin Venture Fund2

  33.33     10,000     10,000     318       —         —         10,318     —  

KB Life Insurance Co., Ltd.

  100.00     30,246     30,246     (16,722 )     —         501       14,025     —  
       

 

 


 


 


 

 

          440,821     352,885     (3,430 )     (336 )     6,016       355,135     352,117
       

 

 


 


 


 

 

Foreign Associates

                                                   

KB Int’l Ltd. (London)

  100.00     41,328     55,080     602       —         —         55,682     56,755

KB Luxembourg S.A

  100.00     24,564     5,386     (969 )     —         —         4,417     5,950

Kookmin Singapore Ltd.

  100.00     23,103     1,993     —         —         —         1,993     2,080

Kookmin Finance Asia Ltd. (HK)

  100.00     8,035     274     3       —         —         277     286

Kookmin Bank HK Ltd.7

  100.00     22,958     60,103     7,683       2,818       (370 )     70,234     62,716

Sorak Financial Holdings

  25.00     81,938     81,938     6,200       —         (5,931 )     82,207     71,295
       

 

 


 


 


 

 

          201,926     204,774     13,519       2,818       (6,301 )     214,810     199,082
       

 

 


 


 


 

 

        (Won) 642,747   (Won) 557,659   (Won) 10,089     (Won) 2,482     (Won) (285 )   (Won) 569,945   (Won) 551,199
       

 

 


 


 


 

 


1 The beginning balance is the prior year’s book value adjusted by dividends, changes in foreign exchange rates, and all the transactions during current year.

 

2 The investments in funds which had been classified as available-for-sale for the prior years are reclassified as investments in associates as of January 1, 2004.

 

3 Kookmin Investment Co.,Ltd. has changed its name to KB Investment Co.,Ltd. on April 30, 2004.

 

4 Kookmin Data Systems Corp. has changed its name to KB Data Systems Co., Ltd., on April 30, 2004.

 

5 Kookmin Futures Co., Ltd. has changed its name to KB Futures Co., Ltd., on April 30, 2004.

 

6 KB Investment Trust Management has changed its name to KB Asset Management, on April 29, 2004.

 

7 Kookmin Finance HK Ltd. has changed its name to Kookmin Bank HK Ltd., on January 1, 2004.

 

8 All equity securities of Korea Mortgage have been sold on June 4, 2004.

 

See Report of Independent Accountants

 

18


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., KICO No. 2 Venture Investment Partnership  , KICO No.3 Venture Investment Partnership, Kookmin Singapore, Ltd. and Kookmin Finance Asia, Ltd. (HK), KB Luxembourg S.A are all in the process of liquidation. Consequently, accounting under the equity method is no longer applied to investments in KLB Securities Co., Ltd. and Jooeun Industrial Co., Ltd. due to accumulated deficits resulting to a decrease of the investment value below zero . Accordingly, the total accumulated estimated loss that has not been recognized by the Bank arising from the securities amounts to (Won)55,219 million.

 

The Bank applies the equity method accounting to subsidiaries based on unaudited financial statements as of September 30, 2004. In the case of ING Life Korea Co., Ltd., the Bank applies the equity method based on the most recent available audited financial statements that are adjusted for changes in net assets for the period ended September 30, 2004, including adjustment for income tax expenses of (Won)22,236 million.

 

As a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) on April 29, 2004, to acquire a 100% ownership of KB Life Insurance Co., Ltd., which was founded to acquire the assets and the liabilities of Hanil Life Insurance Co., Ltd.

 

The maturities of the available-for-sale and held-to-maturity debt securities, excluding equity investments, as of September 30, 2004 are summarized as follows:

 

(in millions of Korean won)    Available-for-sale

   Held-to-maturity

   Book Value

   Fair value

   Book Value

   Fair value

Maturities

                           

Due in 1 year or less

   (Won) 9,384,223    (Won) 9,384,223    (Won) 1,988,208    (Won) 2,016,890

Due after 1 year through 5 years

     4,941,103      4,941,103      3,072,439      3,231,158

Due after 5 years through 10 years

     341,519      341,519      272,760      310,292

After 10 years

     543      543      —        —  
    

  

  

  

     (Won) 14,667,388    (Won) 14,667,388    (Won) 5,333,407    (Won) 5,558,340
    

  

  

  

 

Investment securities risk concentrations as of September 30, 2004 are as follows:

 

(in millions of Korean won, except ratio)    Book Value

   Ratio (%)

By Country

           

Korea

   (Won) 24,465,443    99.04

Singapore

     82,234    0.33

USA

     56,218    0.23

Indonesia

     27,641    0.11

Philippines

     20,838    0.08

Mexico

     13,138    0.05

Others

     37,954    0.16
    

  
     (Won) 24,703,466    100.00
    

  

 

See Report of Independent Accountants

 

19


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

(in millions of Korean won, except ratio)    Book Value

   Ratio (%)

By Type

           

Fixed rate bonds

   (Won) 14,394,591    58.27

Floating rate bonds

     2,012,461    8.15

Subordinated bonds

     866,620    3.51

Convertible bonds

     271,128    1.10

Beneficiary certificates

     5,729,887    23.19

Equity securities

     1,406,493    5.69

Others

     22,286    0.09
    

  
     (Won) 24,703,466    100.00
    

  

 

(in millions of Korean won, except ratio)    Book Value

   Ratio (%)

By Industry

           

Government and municipalities

   (Won) 7,470,057    30.24

Financial institutions

     15,978,332    64.68

Manufacturing industries

     516,822    2.09

Others

     738,255    2.99
    

  
     (Won) 24,703,466    100.00
    

  

 

See Report of Independent Accountants

 

20


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Available-for-sale equity securities of which the fair value cannot be reasonably measured as of September 30, 2004 are as follows:

 

(in millions of Korean won)    Acquisition Cost

   Net Asset Value 1

   Book Value

Daewoo Electronics Co., Ltd.

   (Won) 23,800    (Won) —      (Won) —  

Daehan Investment Trust Securities Co., Ltd.

     10,000      1,604      —  

Bad Bank Harmony

     9,792      44,065      9,792

Mastercard, Inc. Korea

     8,688      6,969      8,688

Korea Asset Management Corp.

     7,827      12,783      7,827

Samsung Life Insurance Co., Ltd.

     7,479      7,848      7,479

Korea Highway Corp.

     6,248      5,903      6,248

Continuous Linked Settlement System

     6,146      3,241      6,146

Baring Communications Equity

     5,355      2,153      2,153

KOHAP Corporation

     3,440      —        —  

Pan Asia Paper

     3,244      1,696      1,696

Asia Finance and Investment Corp.

     2,870      1,166      290

Seoul Smart Card

     2,505      2,460      2,505

Nanjing Kumho Tire Co., Ltd.

     2,442      3,473      2,442

Kyobo Investment Trust Management Co., Ltd.

     2,100      3,574      2,100

Integra Telecom Co., Ltd.

     2,000      —        —  

Harex Info Tech Inc.

     1,365      64      64

Korea Money Broker Corp.

     1,291      2,514      1,291

A-Cash Inc.

     1,275      139      139

Mondex Korea.

     1,250      —        —  

MYbi Co., Ltd.

     1,200      192      192

Tianjin Samsung Opto Electronics

     1,121      1,365      1,121

Digital World Corp.

     1,080      147      114

Bo Go Corp.

     1,026      —        —  

Linux One Inc.

     1,000      144      144

Others

     26,310      70,568      16,558
    

  

  

     (Won) 140,854    (Won) 172,068    (Won) 76,989
    

  

  


1 Net asset values are calculated using the unaudited financial statements of the investees as of September 30, 2004 when available. Otherwise, the most recent financial information is used.

 

See Report of Independent Accountants

 

21


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, the following investment securities are pledged at various institutions:

 

(in millions of Korean won)

 

Restrictions


    Restricted securities

Related Transactions


  

Placed with


   Amount

    Book Value

   Pledge Value

Bonds sold under REPO agreements

   Customers    (Won) 3,719,602     (Won) 3,981,452    (Won) 3,982,300

Borrowings from the Bank of Korea

   Bank of Korea      834,421       1,069,778      1,060,000

Bank of Korea settlements

   Bank of Korea      (balance limits )     170,597      170,200

Derivative transactions

   Samsung Futures, others      (balance limits )     127,024      134,000

Other

   Standard Chartered Bank              19,887      20,000
                 

  

                  (Won) 5,368,738    (Won) 5,366,500
                 

  

 

See Report of Independent Accountants

 

22


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

5. Loans

 

Loans as of September 30, 2004 and December 31, 2003 are summarized as follows:

 

(in millions of Korean won)         2004

    2003

 

Loans in Won

                     

Corporate loans

   Operation loans                 
     General operation loans    (Won) 27,419,350     (Won) 28,884,554  
     Notes discounted      1,160,904       1,415,445  
     Overdraft accounts      601,566       447,992  
     Trading notes      808,908       809,921  
     Other operation loans      4,084,591       3,793,594  
         


 


            34,075,319       35,351,506  
         


 


     Facility loans                 
     General facility loans      5,310,401       5,413,333  
     Other facility loans      1,182,860       1,218,370  
         


 


            6,493,261       6,631,703  
         


 


            40,568,580       41,983,209  
         


 


Consumer loans

   General consumer loans      42,026,708       41,951,219  
     Consumer housing loans      40,992,919       38,199,290  
    

Remunerations on mutual installment

savings

     304,906       297,868  
     Other consumer loans      576,702       635,218  
         


 


            83,901,235       81,083,595  
         


 


Public loans

   Public operation loans      718,260       526,227  
     Public facility loans      37,877       42,473  
         


 


            756,137       568,700  
         


 


Other loans

   Property formation loans      11,618       62,963  
     Inter-bank loans      7,541       12,815  
     Others      3,153       3,962  
         


 


            22,312       79,740  
         


 


            125,248,264       123,715,244  
         


 


Loans in foreign currencies

   Domestic funding loans      1,070,574       1,165,988  
     Overseas funding loans      592,219       887,018  
     Inter-bank loans      1,219,850       767,884  
     Domestic usance bills      1,307,683       1,197,563  
     Government funding loans      533       1,477  
         


 


            4,190,859       4,019,930  
         


 


Call loans

   In Won      3,087,000       1,640,000  
     In foreign currencies      344,061       5,351  
     Inter-bank reconciliation funds      —         —    
         


 


            3,431,061       1,645,351  
         


 


Privately placed debentures

          1,279,254       1,787,131  
         


 


Other loans

          11,465,211       13,872,793  
         


 


Allowances for loan losses (Note 6)

          (3,602,606 )     (3,905,342 )
         


 


Net deferred loan origination fees and costs

          34,982       8,567  
         


 


          (Won) 142,047,025     (Won) 141,143,674  
         


 


 

See Report of Independent Accountants

 

23


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, restructured debts due to workout plans or other similar restructuring programs are as follows:

 

(in millions of Korean won)    Workout

   Court
Receivership


   Court
Mediation


   Others

   Total

Period (in years)

     1~4      1~7      3~10      2~5       

Adjusted interest rate (%)

     6.05~22.22      7.33~12.12      6.10~17.00      9.5       

Balances Before Restructuring

   (Won) 108,369    (Won) 15,493    (Won) 34,027    (Won) 663,457    (Won) 821,346

Loans swapped to equity

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

Swapped equity securities

     —        —        —        —        —  

Swapped convertible debt securities

     —        —        —        —        —  

Debts to be restructured

     104,669      11,403      34,027      169,143      319,242

Balances after restructuring

     100,353      5,285      30,560      162,358      298,556

Allowances for loan losses (present value discounts)

     4,316      6,118      3,467      6,785      20,686

 

The loans, or portions thereof, that are approved for debt restructuring by issuance or grant of equity are separately classified as loans due for equity conversion as of the agreement date. The loans due for equity conversion are stated at the lower of nominal amount or the fair value of the to-be-converted equity interest. The difference between the nominal amount and the fair value of the equity interest is adjusted in the related allowance for loan losses.

 

The movements in allowance for loan losses from present value discounts and deferred loan incidental income for the nine-month period ended September 30, 2004 are as follows :

 

(in millions of Korean won)    Beginning Balance

   Increase

   Decrease

   Ending Balance

Allowance for loan losses (present value discounts)

   (Won) 22,780    (Won) 7,315    (Won) 9,409    (Won) 20,686

Deferred loan incidental income

     8,567      29,104      2,689      34,982

 

See Report of Independent Accountants

 

24


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of loans as of September 30, 2004 are as follows:

 

(in millions of Korean won)   

Loans in

Won


   Loans in
Foreign
Currencies


  

Bills

Bought


  

Credit

Card


  

Call

Loans


   Privately –
placed
Debentures


   Others

   Total

Due in 3 months or less

   (Won) 21,448,220    (Won) 978,464    (Won) 493,786    (Won) 6,509,789    (Won) 3,431,061    (Won) 148,089    (Won) 2,092,990    (Won) 35,102,399

Due after 3 months through 6 months

     16,424,734      1,229,612      47,930      541,924      —        87,000      780      18,331,980

Due after 6 months through 1 year

     33,648,377      753,688      7,662      674,713      —        349,000      —        35,433,440

Due after 1 year through 2 years

     22,296,964      196,900      6,356      548,423      —        542,115      —        23,590,758

Due after 2 years through 3 years

     13,864,390      238,440      2,967      220,859      —        52,400      —        14,379,056

Due after 3 years through 4 years

     2,681,720      92,095      —        259,754      —        650      —        3,034,219

Due after 4 years through 5 years

     3,222,853      82,010      —        26,476      —        —        30,802      3,362,141

Thereafter

     11,661,006      619,650      —        —        —        100,000      —        12,380,656
    

  

  

  

  

  

  

  

     (Won) 125,248,264    (Won) 4,190,859    (Won) 558,701    (Won) 8,781,938    (Won) 8,781,938    (Won) 1,279,254    (Won) 2,124,572    (Won) 145,614,649
    

  

  

  

  

  

  

  

 

Loan risk concentrations by country as of September 30, 2004 are as follows:

 

(in millions of Korean won)    Loans in Won

   Loans in Foreign
Currencies


   Others

   Total

   Percentage (%)

 

Korea

   (Won) 125,248,264    (Won) 2,636,523    (Won) 15,828,386    (Won) 143,713,173    98.70 %

Southeast Asia

     —        865,790      328,105      1,193,895    0.82 %

Central and South

America

     —        99,259      12      99,271    0.07 %

China

     —        219,429      —        219,429    0.15 %

Japan

     —        298,384      —        298,384    0.20 %

Others

     —        71,474      19,023      90,497    0.06 %
    

  

  

  

  

     (Won) 125,248,264    (Won) 4,190,859    (Won) 16,175,526    (Won) 145,614,649    100.00 %
    

  

  

  

  

 

Loan risk concentrations by industry as of September 30, 2004 are as follows:

 

(in millions of Korean won)    Loans in Won

   Loans in
Foreign
Currencies


   Others

   Total

   Percentage
(%)


 

Industrial loans

                                  

Financial institutions

   (Won) 833,244    (Won) 1,285,633    (Won) 3,738,500    (Won) 5,857,377    4.02 %

Manufacturing companies

     13,800,440      1,642,290      1,248,532      16,691,262    11.46 %

Service companies

     22,196,849      899,433      518,969      23,615,251    16.22 %

Others

     4,115,214      246,334      266,067      4,627,615    3.18 %
    

  

  

  

  

       40,945,747      4,073,690      5,772,068      50,791,505    34.88 %
    

  

  

  

  

Household loans

     83,916,005      74,209      8,403,458      92,393,672    63.45 %
    

  

  

  

  

Public and other loans

     386,512      42,960      2,000,000      2,429,472    1.67 %
    

  

  

  

  

     (Won) 125,248,264    (Won) 4,190,859    (Won) 16,175,526    (Won) 145,614,649    100.00 %
    

  

  

  

  

 

See Report of Independent Accountants

 

25


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, the credit card accounts amounting to (Won)1,147,333 million are provided as collateral for asset-backed securities transactions.

 

6. Allowances for Loan Losses

 

As of September 30, 2004 , allowances for loan losses are as follows:

 

(in millions of Korean won)    2004

Loans in won

   (Won) 2,669,206

Loans in foreign currencies

     52,042

Bills bought in won and foreign currencies

     8,394

Payments on guarantees

     28,280

Factoring receivable

     1,439

Credit card accounts

     795,035

Privately placed debentures

     10,656

Loans due for equity conversion

     —  

Suspense receivables

     33,326

Others

     4,228
    

     (Won) 3,602,606
    

 

See Report of Independent Accountants

 

26


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, allowances for loan losses by credit risk classification are as follows:

 

(in millions of Korean won)        Normal

   Pre-cautionary

   Substandard

   Doubtful

   Estimated Loss

   Total

Loans in won

   Balance   (Won) 116,026,857    (Won) 5,359,563    (Won) 2,225,530    (Won) 1,164,123    (Won) 472,191    (Won) 125,248,264
     Allowances     787,204      298,613      484,715      626,483      472,191      2,669,206
        

  

  

  

  

  

     Ratio (%)     0.68      5.57      21.78      53.82      100.00      2.13
        

  

  

  

  

  

Loans in foreign currencies

   Balance     3,939,458      199,339      28,824      22,077      1,161      4,190,859
     Allowances     13,598      11,879      13,216      12,188      1,161      52,042
        

  

  

  

  

  

     Ratio (%)     0.35      5.96      45.85      55.21      100.00      1.24
        

  

  

  

  

  

Bills bought

   Balance     537,895      13,796      1,421      1,117      4,472      558,701
     Allowances     2,689      337      337      559      4,472      8,394
        

  

  

  

  

  

     Ratio (%)     0.50      2.44      23.72      50.04      100.00      1.50
        

  

  

  

  

  

Payments on guarantees

   Balance     1,711      5,051      2,876      9,023      22,615      41,276
     Allowances     9      544      601      4,511      22,615      28,280
        

  

  

  

  

  

     Ratio (%)     0.53      10.77      20.90      49.99      100.00      68.51
        

  

  

  

  

  

Credit card accounts

   Balance     7,070,934      802,665      648      766,062      141,629      8,781,938
     Allowances     70,708      96,320      130      486,248      141,629      795,035
        

  

  

  

  

  

     Ratio (%)     1.00      12.00      20.06      63.47      100.00      9.05
        

  

  

  

  

  

Repurchase agreements

   Balance     2,050,775      —        —        —        —        2,050,775
     Allowances     —        —        —        —        —         
        

  

  

  

  

  

     Ratio (%)     0.00      0.00      0.00      0.00      0.00      0.00
        

  

  

  

  

  

Call loans

   Balance     3,431,061      —        —        —        —        3,431,061
     Allowances     —        —        —        —        —        —  
        

  

  

  

  

  

     Ratio (%)     0.00      0.00      0.00      0.00      0.00      0.00
        

  

  

  

  

  

Privately placed debentures

   Balance     1,270,994      826      3,109      4,257      68      1,279,254
     Allowances     6,355      26      1,175      3,032      68      10,656
        

  

  

  

  

  

     Ratio (%)     0.50      3.15      37.79      71.22      100.00      0.83
        

  

  

  

  

  

Factoring receivables

   Balance     30,802      —        516      1,178      25      32,521
     Allowances     722      —        103      589      25      1,439
        

  

  

  

  

  

     Ratio (%)     2.34      0.00      19.96      50.00      100.00      4.42
        

  

  

  

  

  

Loans due for equity conversion

   Balance     —        —        —        —        —        —  
     Allowances     —        —        —        —        —        —  
        

  

  

  

  

  

     Ratio (%)     0.00      0.00      0.00      0.00      0.00      0.00
        

  

  

  

  

  

Total

   Balance   (Won) 134,360,487    (Won) 6,381,240    (Won) 2,262,924    (Won) 1,967,837    (Won) 642,161    (Won) 145,614,649
     Allowances 1     881,285      407,719      500,277      1,133,610      642,161      3,565,052
        

  

  

  

  

  

     Ratio (%)     0.66      6.39      22.11      57.61      100.00      2.45
        

  

  

  

  

  


1 The above amounts of allowances for loan losses do not include the allowances for suspense receivables and other allowances.

 

See Report of Independent Accountants

 

27


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

For the nine-month period ended September 30, 2004, the movements in allowances for loan losses are as follows:

 

(in millions of Korean won)    Amount

 

Beginning balance 1

   (Won) 3,905,342  

Provision for loan losses

     2,245,698  

Reclassification from other allowances 2

     156,928  

Collection of written-off loans

     178,899  

Repurchase of loans sold

     15,451  

Sale of loans

     (644,112 )

Write-off of loans

     (1,990,462 )

Conversion of loans into equity securities

     (242,546 )

Exemption of loans

     (25,874 )

Changes in exchange rates and others

     3,282  
    


Ending balance

   (Won) 3,602,606  
    



1 Available-for-sale subordinated retained interest is reclassified into credit card receivables and its related allowances for loans losses have been added to the beginning balance.

 

2 Other allowances for loans receivable from LG Card Co., Ltd. amounting to (Won)136,108 million that had been recorded as of December 31, 2003 were transferred to allowances for loan losses. Also, other allowances on credit lines to Kookmin Credit Card 16th ABS Specialty Co., Ltd. amounting to (Won)20,820 million that had been recorded as of December 31, 2003 were transferred to allowances for loans loss.

 

7. Fixed Assets

 

Fixed assets as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)    2004

   2003

Tangible assets

   (Won) 2,338,852    (Won) 2,469,353

Intangible assets

     488,641      549,427

Foreclosed and other properties

     284      776
    

  

     (Won) 2,827,777    (Won) 3,019,556
    

  

 

See Report of Independent Accountants

 

28


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Movements in tangible assets for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Land

    Buildings and
structures


    Leasehold
improvements


    Equipment
and vehicles


    Construction-
in-progress


    Total

 

Acquisition cost

                                                

Beginning balances

   (Won) 1,105,869     (Won) 963,295     (Won) 157,231     (Won) 1,449,062     (Won) 12,325     (Won) 3,687,782  

Acquisition

     —         22       —         61,711       71,398       133,131  

Transfer

     —         14,636       16,276       —         (30,912 )     —    

Disposal

     (45 )     (442 )     (6,171 )     (51,811 )     —         (58,469 )
    


 


 


 


 


 


Ending balances

     1,105,824       977,511       167,336       1,458,962       52,811       3,762,444  
    


 


 


 


 


 


Accumulated depreciation

                                                

Beginning balances

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

Depreciation expense

     —         15,530       29,456       197,378       —         242,364  

Disposal

     —         (35 )     (4,596 )     (48,672 )     —         (53,303 )
    


 


 


 


 


 


Ending balances

     —         157,598       115,668       1,111,996       —         1,385,262  
    


 


 


 


 


 


Impairment

     20,633       17,697       —         —         —         38,330  
    


 


 


 


 


 


Book Value

   (Won) 1,085,191     (Won) 802,216     (Won) 51,668     (Won) 346,966     (Won) 52,811     (Won) 2,338,852  
    


 


 


 


 


 


 

Tangible assets covered by insurance policies as of September 30, 2004 are as follows:

 

(in millions of Korean won)    Amount
Insured


  

Insurance Company


  

Type of Insurance


Buildings and structures

   (Won) 664,547    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Leasehold improvements

     66,213    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Equipment and vehicles

     274,719    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Construction-in-progress

     30,057    Samsung Fire & Marine Insurance Co., Ltd    General property insurance
    

         
     (Won) 1,035,536          
    

         

 

Movements in intangible assets for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Goodwill

  

Development

Costs


   Rights to
Income on
Donated Asset


   Store
Possessory
Right


   Trademarks

   Others

   Total

Beginning balances

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

Acquisition

     —        —        —        —        17      874      891

Amortization

     58,759      2,616      6      16      40      240      61,677
    

  

  

  

  

  

  

Ending balances

   (Won) 476,601    (Won) 10,146    (Won) 96    (Won) 123    (Won) 127    (Won) 1,548    (Won) 488,641
    

  

  

  

  

  

  

 

See Report of Independent Accountants

 

29


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The Bank recorded (Won)94,139 million of current development costs under general and administrative expenses for the nine-month period ended September 30, 2004.

 

The total government-posted prices of land, used for tax imposition and compensation for confiscation, as of September 30, 2004 are as follows:

 

(in millions of Korean won)    Book Value

   Appraisal Value

Land included in tangible assets

   (Won) 1,085,191    (Won) 904,668

Land included in foreclosed assets

     287      239
    

  

     (Won) 1,085,478    (Won) 904,907
    

  

 

8. Other Assets

 

Other assets as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)    2004

   2003

Guarantee deposits paid

   (Won) 1,283,612    (Won) 1,336,639

Accounts receivable

     3,778,543      1,715,100

Accrued income

     1,052,274      1,080,057

Payments in advance

     92,495      92,217

Prepaid expenses

     175,098      307,154

Deferred tax assets (Note 25)

     372,371      615,944

Derivative assets (Note 15)

     1,061,608      751,252

Unsettled domestic exchange assets

     320,864      612,592

Others

     39,516      36,592
    

  

     (Won) 8,176,381    (Won) 6,547,547
    

  

 

See Report of Independent Accountants

 

30


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

9. Deposits

 

Deposits as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)    Annual Interest (%)
September 30, 2004


   2004

   2003

Deposits in Won

                  

Demand deposits

                  

Checking deposits

   —      (Won) 147,508    (Won) 125,533

Household checking deposits

   0.10      407,492      476,132

Passbook deposits

   0.10      10,720,624      10,001,043

Temporary deposits

   —        3,239,934      3,292,770

Public fund deposits

   0.10      118,328      190,593

Others

   0.10      44,837      24,218
         

  

            14,678,723      14,110,289
         

  

Time deposits and savings deposits

                  

Time deposits

   2.45~4.00      60,372,370      62,247,870

Installment savings deposits

   3.20~3.75      1,260,876      1,306,793

Property formation savings

   8.5      1,567      1,870

Time and savings deposits of non residents in Won

   2.45~4.00      262,243      340,388

General savings deposits

   0.10~2.90      19,373,893      21,644,066

Corporate savings deposits

   0.10~2.80      8,953,393      7,800,122

Long-term savings deposits for workers

   11.5~12.00      45,957      69,031

Long-term housing savings deposits

   4.35      1,453,020      983,684

Long-term savings for households

   11      28,089      494,606

Workers’ preferential savings deposits

   5.35      2,428,832      2,728,236

Workers’ savings for housing

   8.50~11.5      61      81

Mutual installment deposits

   2.80~3.75      6,536,462      7,054,752

Mutual installment for housing

   2.45~3.65      5,393,721      5,423,853
         

  

            106,110,484      110,095,352
         

  

Total deposits in Won

          120,789,207      124,205,641
         

  

Deposits in foreign currencies

                  

Demand deposits

                  

Checking deposits

   0.00~0.88      44,631      40,778

Passbook deposits

   0.09      868,285      787,798

Notice deposits

   0.00~0.18      331      410

Temporary deposits

   —        1,142      1,049
         

  

            914,389      830,035
         

  

Time deposits and savings deposits

                  

Time deposits

   0.99      1,224,954      642,039

Others

   0.00~4.50      3,673      3,299
         

  

            1,228,627      645,338
         

  

Total deposits in foreign currencies

          2,143,016      1,475,373
         

  

Certificates of deposit

   3.20~3.30      7,174,805      6,499,258
         

  

          (Won) 130,107,028    (Won) 132,180,272
         

  

 

See Report of Independent Accountants

 

31


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of deposits as of September 30, 2004 are as follows:

 

(in millions of Korean won)    Deposits in Won

  

Deposits in

Foreign Currencies


  

Certificates of

Deposit


   Total

Due in 3 months or less

   (Won) 67,717,358    (Won) 1,713,024    (Won) 4,524,530    (Won) 73,954,912

Due after 3 months through 6 months

     14,406,757      330,501      2,001,835      16,739,093

Due after 6 months through 1 year

     27,399,718      92,408      648,440      28,140,566

Due after 1 year through 2 years

     6,457,294      6,339      —        6,463,633

Due after 2 years through 3 years

     2,861,530      744      —        2,862,274

Due after 3 years through 4 years

     365,957      —        —        365,957

Due after 4 years through 5 years

     85,859      —        —        85,859

Thereafter

     1,494,734      —        —        1,494,734
    

  

  

  

     (Won) 120,789,207    (Won) 2,143,016    (Won) 7,174,805    (Won) 130,107,028
    

  

  

  

 

10. Borrowings

 

Borrowings as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)    Annual Interest (%)
September 30, 2004


   2004

   2003

Borrowings in Won

                  

Borrowings from the Bank of Korea

   2.50    (Won) 834,421    (Won) 992,433

Borrowings from the Korean government

   0.00~8.00      718,754      920,589

Borrowings from banking institutions

   3.48~6.00      174,557      253,822

Borrowings from National Housing Fund

   8.00      3,201      8,553

Borrowings from other financial institutions

   2.00~4.00      5,537      5,688

Other borrowings

   1.98~7.00      1,164,933      1,173,284
         

  

            2,901,403      3,354,369
         

  

Borrowings in foreign currencies

                  

Due to banks

   —        23,520      189,976

Borrowings from domestic banks

   0.06~5.80      1,562,956      2,360,652

Borrowings from other financial institutions

   5.13      15,267      19,486

Borrowings from foreign banks

   —        798,630      752,803
         

  

            2,400,373      3,322,917
         

  

Bonds sold under repurchase agreements

                  

In won

   2.50~3.40      3,719,602      3,613,505

In foreign currencies

   —        —        9,651
         

  

            3,719,602      3,623,156
         

  

Bills sold

   3.10~3.21      40,738      44,239
         

  

Due to the Bank of Korea in foreign currencies

   —        3,673      12,608
         

  

Call money

                  

In won

   3.00~3.15      107,900      55,800

In foreign currencies

   1.01~6.60      25,033      193,700

Inter-bank borrowings

          1,464,870      296,011
         

  

            1,597,803      545,511
         

  

          (Won) 10,663,592    (Won) 10,902,800
         

  

 

See Report of Independent Accountants

 

32


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of borrowings as of September 30, 2004 are as follows:

 

(in millions of Korean won)    Borrowings in
Won


  

Borrowings in

Foreign
Currencies


   Others

   Total

Due in 3 months or less

   (Won) 903,440    (Won) 621,422    (Won) 3,842,611    (Won) 5,367,473

Due after 3 months through 6 months

     76,078      544,393      814,758      1,435,229

Due after 6 months through 1 year

     162,345      591,584      704,053      1,457,982

Due after 1 year through 2 years

     363,544      518,693      394      882,631

Due after 2 years through 3 years

     360,122      41,267      —        401,389

Due after 3 years through 4 years

     324,808      26,409      —        351,217

Due after 3 years through 4 years

     260,496      56,605      —        317,101

Thereafter

     450,570      —        —        450,570
    

  

  

  

     (Won) 2,901,403    (Won) 2,400,373    (Won) 5,361,816    (Won) 10,663,592
    

  

  

  

 

11. Debentures

 

Debentures as of September 30, 2004 and December 31, 2003 include:

 

(in millions of Korean won)    Annual Interest
(%)
September 30, 2004


   2004

    2003

 
In Won    Hybrid debentures1    6.00 ~ 7.00    (Won) 903,668     (Won) 903,668  
     Subordinated fixed rate debentures    5.12 ~ 15.66      5,331,286       4,896,072  
     KCC2 subordinated fixed rate debentures    7.10 ~ 8.00      205,000       205,000  
     KCC2 fixed rate debentures    5.43 ~ 8.00      1,050,000       2,895,000  
     KCC2 floating rate debentures    0.91 ~ 8.48      820,000       870,000  
     Floating rates debentures    3.43 ~ 8.71      12,524,067       8,609,663  
              


 


                 20,834,021       18,379,403  
     Discounts on debentures           (183,251 )     (83,443 )
              


 


                 20,650,770       18,295,960  
              


 


In foreign currencies    Floating rates debentures    0.60 ~ 1.99      121,575       196,211  
     Fixed rates debentures    1.08 ~ 4.63      581,885       613,549  
          2.46 ~ 2.56      75,417       78,695  
              


 


                 778,877       888,455  
     Premiums on debentures           7,541       9,639  
     Discounts on debentures           (1,044 )     (1,473 )
              


 


                 785,374       896,621  
              


 


               (Won) 21,436,144     (Won) 19,192,581  
              


 



1 The hybrid debentures are perpetual type debts in which the Bank retains the early redemption option after 5 years from issuance date and the term extending option on maturity date. Hybrid debentures are superior to common stock but subordinate to other subordinated debentures.

 

2 Kookmin Credit Card Co., Ltd.

 

See Report of Independent Accountants

 

33


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, subordinated debentures and hybrid debentures consist of the following:

 

(in millions of Korean won)                    

Type


   Issue Date

   Amount

   Annual
Interest (%)


   Maturity

Subordinated fixed rate

debentures

   98.01.27 ~ 98.11.15      147,668    12.87~ 15.66    03.01.27 ~ 09.11.15
     2000.03.27      200,000    9.65    2005.03.27
     2000.06.28      253,975    9.04 ~ 9.10    2006.01.28
     2000.09.27      300,000    8.99    2006.01.27
     2000.09.28      150,000    8.79 ~ 8.85    2006.01.28
     2000.11.28      100,000    8.65 ~ 8.71    2006.02.28
     2000.11.28      150,721    9.57 ~ 9.65    2010.11.28
     2000.11.28      11,330    9.65    2010.12.28
     2000.12.27      200,000    8.71    2006.01.27
     2001.05.28      200,000    7.60 ~ 7.65    2007.02.28
     2001.06.27      160,000    7.68    2008.03.27
     2001.06.27      217,529    7.86    2009.03.27
     2001.08.28      100,000    6.69 ~ 6.73    2007.08.28
     2001.09.28      150,000    6.69 ~ 6.73    2008.03.28
     2002.03.27      241,684    7.06 ~ 7.10    2008.01.27
     2002.07.27      302,399    6.96 ~ 7.00    2008.01.27
     2002.09.27      257,363    6.27 ~ 6.30    2008.03.27
     2002.09.27      150,000    6.51 ~ 6.55    2010.03.27
     2002.09.27      92,637    6.66 ~ 6.70    2013.03.27
     2002.11.27      400,673    6.07 ~ 6.10    2008.05.27
     2002.11.27      57,846    6.27 ~ 6.30    2010.05.27
     2002.11.27      100,256    6.51 ~ 6.55    2013.05.27
     2002.12.18      110,000    8.00    2008.01.18
     2002.12.27      10,000    6.20    2008.06.27
     2002.12.27      90,000    6.40    2010.06.27
     2002.12.27      50,000    6.65    2013.06.27
     2002.12.27      30,370    6.55    2014.12.27
     2003.01.21      50,000    7.65    2008.02.21
     2003.03.10      45,000    7.10    2008.04.10
     2003.10.27      356,561    5.18 ~ 5.20    2009.01.27
     2003.10.27      88,769    5.33 ~ 5.35    2011.01.27
     2003.10.27      3,721    5.58 ~ 5.60    2014.01.27
     2004.02.27      636,798    5.65 ~ 5.68    2009.08.27
     2004.02.27      22,895    5.84 ~ 5.87    2011.08.27
     2004.02.27      40,307    6.13 ~ 6.16    2014.08.27
     2004.09.30      57,784    5.12    2018.12.30
         

         
            5,536,286          
         

         
Hybrid debentures    2003.06.27      105,145    6.00    2033.06.27
     2003.08.27      533,355    7.00    2033.08.27
     2003.10.27      265,168    6.80    2033.10.27
         

         
            903,668          
         

         
          (Won) 6,439,954          
         

         

 

See Report of Independent Accountants

 

34


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The maturities of debentures as of September 30, 2004 are as follows:

 

(in millions of Korean won)    In Won

   In Foreign
Currencies


   Total

Due in 3 months or less

   (Won) 1,864,874    (Won) 9,183    (Won) 1,874,057

Due after 3 months through 6 months

     1,835,776      17,663      1,853,439

Due after 6 months through 1 year

     6,741,379      —        6,741,379

Due after 1 year through 2 years

     4,725,083      66,234      4,791,317

Due after 2 years through 3 years

     428,742      79,249      507,991

Due after 3 years through 4 years

     2,023,603      583,590      2,607,193

Due after 4 years through 5 years

     1,217,360      22,958      1,240,318

Thereafter

     1,997,204      —        1,997,204
    

  

  

     (Won) 20,834,021    (Won) 778,877    (Won) 21,612,898
    

  

  

 

12. Accrued Retirement Benefits

 

The movements in accrued retirement benefits for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)   

Beginning

Balance


   

Amounts

Provided


  

Amounts

Paid Out


   

Ending

Balance


 

Accrued retirement benefits

   (Won) 71,083     (Won) 81,200    (Won) 19,695     (Won) 132,588  

Contributed retirement benefits

     163,349       —        14,760       148,589  
    


 

  


 


Total accrued retirement benefits

     234,432       81,200      34,455       281,177  

Contribution to pension funds

     (163,349 )     —        (14,760 )     (148,589 )
    


 

  


 


     (Won) 71,083     (Won) 81,200    (Won) 19,695     (Won) 132,588  
    


 

  


 


 

As of September 30, 2004, approximately 52.85% of total accrued retirement benefits is contributed to pension funds, over which the Bank’s employees hold the right of payment and is placed at two insurance companies, including Korea Life Insurance Co., Ltd. The total retirement benefits paid for the nine-month period ended September 30, 2004 amount to (Won)84,474 million, including the additional early retirement benefits paid in February 2004 to 459 employees amounting to (Won)50,029 million.

 

See Report of Independent Accountants

 

35


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

13. Other Liabilities

 

Other liabilities as of September 30, 2004 and 2003 consist of:

 

(in millions of Korean won)    2004

   2003

Accrued retirement benefits (Note 12)

   (Won) 132,588    (Won) 71,083

Allowance for losses on guarantees and acceptances (Note 14)

     908      1,074

Due to trust accounts

     1,173,968      3,983,295

Accounts payable

     4,546,210      1,886,446

Accrued expenses

     4,308,072      4,418,940

Advances from customers

     430,368      109,675

Unearned income

     115,095      130,778

Withholding taxes

     49,455      123,455

Guarantee deposits received

     121,869      120,437

Derivative liabilities (Note 15)

     970,636      686,271

Unsettled domestic exchange liabilities

     1,289,478      400,445

Accounts for agency business

     386,169      364,783

Other allowances1

     505,222      890,320

Liabilities incurred by agency relationship

     682,999      315,241

Others

     263,315      130,182
    

  

     (Won) 14,976,352    (Won) 13,632,425
    

  


1 Other allowances are as follows:

 

(in millions of Korean won)          

Allowances for


   Amounts

  

Remarks


Suspense receivables

   (Won) 8,547    Allowances for frauds/accidents and litigation fee

Loss on branch closure

     255    Allowances for closure of the Buenos Aires branch

Uncollected leasehold deposits

     10,531    Allowances for uncollected leasehold deposits

Credit card receivables

     46,125    Allowances for unused cash advance credit lines

Mileage rewards

     47,791    Allowances for mileage on credit cards and currency exchange rates

Claimed assets

     22,860    Allowances for credit card claimed assets

Credit commitments to SPC

     363,754    Allowances for the credit line commitment to SPC (Note 16)

Securitization allowances

     89    Allowances for repurchase obligations from asset securitization (Note 16)

KAMCO loans sold

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

Allowances for tax deficiencies

     3,185    Allowances for tax deficiencies (Note 16)

Master Card share agreement

     458    Allowances for the share settlement provision for Master Card shares

Others

     1,000    Allowance for time deposits of Hansol Mutual Savings & Finance Co., Ltd.
    

    
     (Won) 505,222     
    

    

 

See Report of Independent Accountants

 

36


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

14. Guarantees and Acceptances

 

Guarantees and acceptances as of September 30, 2004 are summarized as follows:

 

(in millions of Korean won)    Amount

Guarantees and acceptances outstanding

      

In Won

      

Guarantees on debentures

   (Won) 480

Guarantees on loan collateral

     29,307

Others

     258,122
    

       287,909
    

In Foreign Currencies

      

Acceptances on letters of credit

     99,713

Acceptances for letters of guarantee for importers

     55,556

Guarantees for performance of contracts

     24,413

Guarantees for bids

     2,671

Guarantees for borrowings

     27,842

Guarantees for repayment of advances

     21,576

Others

     288,534
    

       520,305
    

       808,214
    

Contingent guarantees and acceptances

      

Letters of credit

     1,388,146

Others

     381,174
    

       1,769,320
    

     (Won) 2,577,534
    

 

As of September 30, 2004, the allowances for losses on guarantees and acceptances outstanding according to credit risk classifications are as follows:

 

(in millions of Korean won)    Normal

   Precautionary

   Sub-standard

   Doubtful

  

Estimated

loss


   Total

Guarantees and Acceptances Outstanding                  

In Won

   Balance    (Won) 274,914    (Won) 10,953    (Won) 1,942    (Won) 100    (Won) —      (Won) 287,909
     Allowance      —        —        389      50      —        439
         

  

  

  

  

  

     Ratio (%)      —        —        20.03      50.00      —        0.15
         

  

  

  

  

  

Foreign Currencies

   Balance      505,731      13,821      505      44      204      520,305
     Allowance      —        —        243      22      204      469
         

  

  

  

  

  

     Ratio (%)      —        —        48.12      50.00      100.00      0.09
         

  

  

  

  

  

Total

   Balance    (Won) 780,645    (Won) 24,774    (Won) 2,447    (Won) 144    (Won) 204    (Won) 808,214
     Allowance      —        —        632      72      204      908
         

  

  

  

  

  

     Ratio (%)      —        —        25.83      50.00      100.00      0.11
         

  

  

  

  

  

 

See Report of Independent Accountants

 

37


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

For the nine-month period ended September 30, 2004, the changes in allowances for losses on guarantees and acceptances outstanding are as follows:

 

(in millions of Korean won)       

Beginning balance

   (Won) 1,074  

Reversal of losses from guarantees and acceptances

     (129 )

Changes in foreign exchange rates

     (37 )
    


Ending balance

   (Won) 908  
    


 

The guarantees and acceptances risk concentration by country as of September 30, 2004 are as follows:

 

     Guarantees and Acceptances
Outstanding


  

Contingent

Guarantees and Acceptances


   Total

(in millions of Korean won)    Balance

   Percentage (%)

   Balance

   Percentage (%)

   Balance

   Percentage (%)

Korea

   (Won) 762,297    94.32    (Won) 1,769,320    100.00    (Won) 2,531,617    98.22

USA

     45,917    5.68      —      —        45,917    1.78
    

  
  

  
  

  
     (Won) 808,214    100.00    (Won) 1,769,320    100.00    (Won) 2,577,534    100.00
    

  
  

  
  

  

 

The guarantees and acceptances risk concentration by industry as of September 30, 2004 are as follows:

 

     Guarantees and Acceptances
Outstanding


  

Contingent

Guarantees and Acceptances


   Total

(in millions of Korean won)    Balance

   Percentage (%)

   Balance

   Percentage (%)

   Balance

   Percentage (%)

Manufacturing

   (Won) 284,048    35.15    (Won) 1,224,003    69.18    (Won) 1,508,051    58.51

Service

     386,118    47.77      499,335    28.22      885,453    34.35

Finance

     46,332    5.73      1,234    0.07      47,566    1.85

Others

     91,716    11.35      44,748    2.53      136,464    5.29
    

  
  

  
  

  
     (Won) 808,214    100.00    (Won) 1,769,320    100.00    (Won) 2,577,534    100.00
    

  
  

  
  

  

 

15. Derivatives

 

The Bank’s derivative instruments are divided into hedge derivatives and trading derivatives, based on the nature of the transaction. The Bank enters into hedge transactions mainly for purposes of hedging fair value risks related to its assets and liabilities. Some hedging transactions do not qualify for hedge accounting and are thus accounted for as trading derivatives. These transactions include the hedge relationships where the hedged item is an asset or liability that is re-measured with the changes in fair value attributable to the hedged risk reported in the current operations, or where the hedged item cannot be specifically identified

 

Trading derivatives include future contracts, forward contracts, swaps, and options entered into by the Bank to meet the financing needs of its customers and to gain profit from arbitrage transactions between customers and other banks. The Bank also uses derivative instruments in managing its own trading and asset-liability management exposures to fluctuations in interest rates and foreign exchange risks.

 

Hedge derivatives mainly consist of interest rate swaps to hedge the fair value changes of debentures arising from the interest rate fluctuations.

 

See Report of Independent Accountants

 

38


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The notional amounts outstanding for derivative contracts as of September 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean won)    2004

   2003

     Trading

   Hedge

   Total

   Trading

   Hedge

   Total

Interest related

                                         

Future

   (Won) 675,873    (Won) —      (Won) 675,873    (Won) 519,665    (Won) —      (Won) 519,665

Swap

     29,888,027      573,950      30,461,977      26,773,100      598,900      27,372,000

Option

     1,124,000      —        1,124,000      2,340,000      —        2,340,000
    

  

  

  

  

  

       31,687,900      573,950      32,261,850      29,632,765      598,900      30,231,665
    

  

  

  

  

  

Currency related

                                         

Forward

     55,008,301      —        55,008,301      25,870,850      —        25,870,850

Future

     1,883,073      —        1,883,073      967,823      —        967,823

Swap

     4,653,629      —        4,653,629      4,136,776      —        4,136,776

Option bought

     281,501      —        281,501      28,148      —        28,148

Option sold

     249,383      —        249,383      81,450      —        81,450
    

  

  

  

  

  

       62,075,887      —        62,075,887      31,085,047      —        31,085,047
    

  

  

  

  

  

Stock related

                                         

Future

     18,891      —        18,891      —        —        —  

Option bought

     2,047,028      —        2,047,028      1,964,870      —        1,964,870

Option sold

     1,943,537      —        1,943,537      1,954,093      —        1,954,093
    

  

  

  

  

  

       4,009,456      —        4,009,456      3,918,963      —        3,918,963
    

  

  

  

  

  

     (Won) 97,773,243    (Won) 573,950    (Won) 98,347,193    (Won) 64,636,775    (Won) 598,900    (Won) 65,235,675
    

  

  

  

  

  

 

Gains and losses on derivatives for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)     

Gain on derivatives

      

Gain on derivative transactions

   (Won) 2,049,392

Gain on valuation of derivatives

     786,141

Gain on fair value hedged items

     2,838
    

     (Won) 2,838,371
    

Loss on derivatives

      

Loss on derivative transactions

   (Won) 2,008,046

Loss on valuation of derivatives

     761,926

Loss on fair value hedged items

     691
    

     (Won) 2,770,663
    

 

See Report of Independent Accountants

 

39


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Gains and losses on derivatives for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won    Valuation Gains (P/L)

   Valuation Losses (P/L)

   Fair Value (B/S)

     Trading

   Hedge

   Total

   Trading

   Hedge

   Total

   Asset

   Liability

Interest related

                                                       

•      Option

   (Won) 7,390    (Won) —      (Won) 7,390    (Won) 9,592    (Won) —      (Won) 9,592    (Won) 6,629    (Won) 15,132

•      Swap

     254,638      691      255,329      236,126      2,838      238,964      279,290      343,105
    

  

  

  

  

  

  

  

       262,028      691      262,719      245,718      2,838      248,556      285,919      358,237
    

  

  

  

  

  

  

  

Currency related

                                                       

•      Forward

     358,291      —        358,291      385,338      —        385,338      349,390      387,668

•      Option bought

     151      —        151      1,282      —        1,282      1,284      1,232

•      Option sold

     777      —        777      225      —        225      5      1,455

•      Swap

     142,469      —        142,469      102,044      —        102,044      334,065      152,292
    

  

  

  

  

  

  

  

       501,688      —        501,688      488,889      —        488,889      684,744      542,647
    

  

  

  

  

  

  

  

Stock related

                                                       

•      Option bought

     2,833      —        2,833      21,261      —        21,261      90,945      —  

•      Option sold

     18,901      —        18,901      3,220      —        3,220      —        69,752
    

  

  

  

  

  

  

  

       21,734      —        21,734      24,481      —        24,481      90,945      69,752
    

  

  

  

  

  

  

  

     (Won) 785,450    (Won) 691    (Won) 786,141    (Won) 759,088    (Won) 2,838    (Won) 761,926    (Won) 1,061,608    (Won) 970,636
    

  

  

  

  

  

  

  

 

16. Commitments and Contingencies

 

As of September 30, 2004, the Bank faces 193 pending legal actions involving aggregate amount of damages of (Won)313,444 million. On the other hand, the Bank also filed 222 lawsuits, which are still pending, with an aggregate amount of claims of (Won)129,370 million. Management believes that the actions against the Bank are without merit and that the ultimate liability, if any, will not materially affect the Bank’s financial position.

 

Details of the pending material legal actions charged against the Bank are as follows:

 

(in millions of Korean Won)    Exposure to
possible loss


   Results

        1st trial

  2nd trial

    3rd trial

Details

                     

Cancellation of a registered mortgage (3 cases)

   (Won) 4,399    closed1   in progress     in progress

Confirmation of obligations

     14,603    closed1   closed1 *   in progress

Indemnification for damage etc.

     14,196    closed1   in progress     in progress

1 The Bank (partially) won the case.

 

The Bank, under the Mutual Savings & Finance Company Act, is liable for the payment of the deposits of Orange Mutual Savings & Finance Co., Ltd. (previously Kookmin Mutual Savings & Finance Co., Ltd.) and Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.), previously the Bank’s subsidiaries but were sold in 1999, if they declare bankruptcy within three years of sale. Orange Mutual Savings & Finance Co., Ltd. declared bankruptcy in 2001 and is currently undergoing bankruptcy procedures due to the disapproval of its business by the Financial Supervisory Commission. Korea Deposit Insurance Corporation (KDIC) has paid for the deposit money subject to the Depositor Protection Act. As of September 30, 2004, despite the fact that Resolution and Finance Corp., a subsidiary of KDIC, has filed a lawsuit against the Bank for the recovery of the repayment, such lawsuit is not expected to cause losses that would materially affect the Bank’s financial position.

 

See Report of Independent Accountants

 

40


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of September 30, 2004, the Bank has entered into commitments to provide a credit line of (Won)5,521,781 million, and to purchase commercial papers amounting to (Won)520,000 million, with several special purpose companies. Commitments to provide a credit line and to purchase commercial paper with a one year term amounted to (Won)123,500 million and (Won)466,000 million, respectively. Under these commitments, the Bank provides money, in case of a temporary fund shortage, for the principal and interest repayment of these companies’ senior bonds and subordinated bonds within the contracted term and amounts.

 

As of September 30, 2004, loans outstanding under the credit line commitment amounted to (Won)162,151 million, and there is no outstanding balance for commercial papers under the purchase commitment. The Bank has arranged various methods to compensate for losses on these credit line commitments including payment guarantees, repurchase contracts, surety certificate guarantees, and cash reserves. As of September 30, 2004, the Bank provided (Won)363,754 million in other allowances for its expected losses related to these commitments.

 

Pursuant to its asset securitization plans, the Bank has an outstanding obligation to indemnify for losses on the loans sold to Jooeun 2nd-ABS Specialty Co., Ltd. with a ceiling of (Won)36,957 million. As of September 30, 2004, the Bank provided (Won)89 million in other allowances for its expected losses related to the commitments to Jooeun 2nd-ABS Specialty Co., Ltd.

 

As of September 30, 2004, post settlements on the loan sales transactions with Korea Asset Management Corporation (“KAMCO”) have been completed. Accordingly, the Bank provided allowances of (Won)627 million for losses from possible future repurchase of loans from KAMCO under the repurchase agreement on loans amounting (Won)3,181 million.

 

The Bank has an off-shore loan commitment, limited to US$ 30,738 thousand. The loan balance under the commitment as of September 30, 2004 is US$ 23,282 thousand.

 

As of March 30, 2004, the Bank recognized loss on sale of loans of (Won)186,666 million for loans sold to FN Star 3rd Securitization Specialty Co., Ltd. that amounts to (Won)1,032,297 million.

 

As of June 17, 2004, the Bank recognized gain on sale of loans of (Won)21,450 million for loans sold to KB 2cd Securitization Specialty Co., Ltd. that amounts to(Won) 606,833 million.

 

As of June 30, 2004, the Bank recognized loss on sale of loans of (Won)324,445 million for loans sold to Jinheung Savings Bank, Solomon Mutual Saving Bank and Solomon AMC that amounts to (Won)1,074,110 million.

 

As of September 30, 2004, the Bank recognized loss on sale of loans of 353,333 million for loans sold to Hyundai Swiss Savings Bank, Solomon Mutual Saving Bank and Solomon AMC that amounts to (Won)430,240 million.

 

As of December 31, 2003, the Bank provided (Won)142,021 million as allowances for tax deficiencies resulting from the tax investigations by the National Tax Administration (“NTA”) for the fiscal years 1998 to 2001. In the current period, the NTA assessed the Bank (Won)123,310 million in tax deficiencies, wherein the Bank actually paid (Won)122,852 million and subsequently recording the difference between the accrued assessment and the actual assessment paid of (Won)18,711 million as non-operating income. As of September 30, 2004, the unpaid tax deficiencies of (Won)458 million still remain under other allowances.

 

As of September 30, 2004, the Bank still holds (Won)741,033 million in unexpired rights to claim from borrowers or guarantors for loans in accordance with the relevant law. This amount, however, has been written off. Also, as of September 30, 2004, the Bank holds endorsed bills amounting to (Won)6,647 million.

 

As of September 30, 2004, the Bank recorded receivables amounting to (Won)3,705,626 million, and payables amounting to (Won)3,703,942 million for unsettled foreign currency spot transactions.

 

See Report of Independent Accountants

 

41


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The Bank entered into an alliance with Koram Bank, Woori Credit Card, Citibank and Nonghyup for the operation of a credit card business. Accordingly, the Bank shares the related revenue from such business operation.

 

As of September 30, 2004, the Bank has provided one blank promissory note to Korea Securities Finance Corporation as collateral for borrowings and other obligations.

 

In accordance with the November 24, 2003 agreement with the creditors’ committee of LG Card Co., Ltd.(‘LG Card’), which is experiencing a financial crisis, the Bank provided the said company loans totaling (Won)437,000 million. And on January 9, 2004, the Bank agreed to also provide additional loans of (Won) 205,900, a debt-equity swap of (Won) 518,600 million, and an extension of maturities of loans maturing in 2004. On February 13, 2004, the Bank executed a debt-equity swap with LG Card for (Won)156,350 million for loans amounting to (Won)145,950 million and corporate debt securities amounting to (Won)10,400 million. After the capital reduction in May 2004 at a rate of 43.4:1, a second debt-equity swap was executed in July 28, 2004 amounting to (Won)362,250 million for loans of (Won)348,364 million and corporate debt securities of (Won)13,886 million. As of September 30, 2004, the Bank’s total exposure related to LG Card includes loans and debt-equity swapped equity securities amounting to (Won)342,300 million and (Won)177,834 million, respectively. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying non-consolidated financial statements.

 

As of September 30, 2004, the Banks holds debt securities issued by domestic credit card companies and capital companies related to these assets amounting to (Won)201,538 million. Currently, debt securities issued by domestic credit card companies and capital companies, which are experiencing liquidity problems, are not widely traded in the bond market. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying financial statements.

 

In common with certain other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices including corporate governance. The Bank may be either directly or indirectly affected by these volatile economic conditions and the reform program described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Bank. Actual results may differ materially from management’s current assessment.

 

17. Capital Stock

 

As of September 30, 2004, the Bank has 1 billion common shares authorized with a par value per share of (Won)5,000 and 336,379,116 shares issued. ING Insurance International B.V. owns 4.06% of the total issued shares. As of September 30, 2004,.46,744,257 common shares, equivalent to 13.90% of the total issued shares, are listed on the New York Stock Exchange as ADSs and are managed by the Bank of New York, the trustee of the Bank.

 

As a result of the legal consolidation with H&CB, the registered shareholders of both the Bank and H&CB, as of October 31, 2001, received 179,775,233 shares and 119,922,229 shares, respectively. The new shares were distributed based on an exchange ratio of one new Bank share each for 1.688346 old Bank shares, and one new Bank share for an H&CB share. The new shares were listed on the Korea Stock Exchange as of November 9, 2001. Further, as a result of the merger with Kookmin Credit Co., Ltd., the Bank issued 8,120,431 shares.

 

Under the General Banking Act, if a single entity, other than the government or a foreign investor, owns more than 4% of total outstanding voting shares, that entity’s voting rights are limited to 4% shareholding.

 

The Bank is authorized to issue to non-shareholders convertible bonds and bonds with stock purchase warrants up to total par value amounts of (Won)2,500 billion and (Won)500 billion, respectively.

 

See Report of Independent Accountants

 

42


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

18. Capital Surplus

 

The movements in capital surplus for the nine -month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Beginning Balance

   Changes

   Ending Balance

Paid-in capital in excess of par value

   (Won) 5,655,840    (Won) —      (Won) 5,655,840

Gain on business combination

     397,669      —        397,669

Revaluation increment

     177,229      —        177,229
    

  

  

     (Won) 6,230,738    (Won) —      (Won) 6,230,738
    

  

  

 

The gain on business combination is due to the difference between the business combination consideration and the net asset value acquired from the merger with KLB on December 31, 1998.

 

19. Retained Earnings

 

The General Banking Act requires the Bank to appropriate as a legal reserve a minimum of 10% of annual net income until the legal reserve equals paid in capital. This reserve is not available for the payment of cash dividends but may be transferred to capital stock by an appropriate resolution of the Bank’s Board of Directors or used to reduce accumulated deficit, if any, by an appropriate approval of the Bank’s shareholders.

 

Under the guidance provided by Financial Supervisory Services, the Company is required to appropriate, as a reserve for improvement of financial structure, a minimum of 10% of its annual income less carried over accumulated deficit, until its capital adequacy ratio equals 5.5%. As of September 30, 2004, the Bank has no reserve for improvement of financial structure.

 

Pursuant to the Tax Exemption and Reduction Control Law, the Bank was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. However, as of January 1, 2002, the requirement was no longer effective.

 

The Bank, at its own option, also appropriated a portion of retained earnings as other reserves for the operations of overseas branches.

 

20. Capital Adjustments

 

The movements in capital adjustments for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)   

Beginning

Balance


   

Increase/

Decrease


   

Disposal/

Realization1


   

Ending

Balance


 

Treasury stock

   (Won) (1,328,312 )   (Won) —       (Won) (3,852 )   (Won) (1,324,460 )

Unrealized gain on available-for-sale securities

     137,987       218,317       65,413       290,891  

Unrealized gain on investment in associates

     4,624       (285 )     (80 )     4,419  

Stock options

     26,211       3,223       1,189       28,245  

Loss on disposal of treasury stock

     (749 )     (228 )     —         (977 )
    


 


 


 


     (Won) (1,160,239 )   (Won) 221,027     (Won) 62,670     (Won) (1,001,882 )
    


 


 


 


 

1 Changes in foreign exchange rates from capital adjustments are included.

 

The Bank, with the approval of the Board of Directors on July 26, 2002, established an employee stock option plan for the welfare of the employees and purchased three million shares of treasury stock under the said plan. On December 26, 2003, the Bank contributed one million shares to the Employee Stock Ownership Association.

 

See Report of Independent Accountants

 

43


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

In accordance with the resolution of the Board of Directors on December 17, 2003, the Bank acquired 27,423,761 of its own shares previously owned by the Korean government at (Won)43,700 per share through public bidding and intends to sell these shares depending on certain market conditions. As a result of the acquisition, the Bank holds 8.90% the total common stock issued as treasury stock as of September 30, 2004.

 

21. Employee Stock Options

 

As of September 30, 2004, the stock options granted to the Bank’s executives and chief executive officer are as follows:

 

     Grant Date

   Shares
Granted


   Forfeiture

   Shares
Exercised


   Shares
Outstanding


   Exercise Price

   Exercise Period

Series 1

   00.03.18    233,940    121,411    42,680    69,849    (Won) 23,469    03.03.19 - 05.03.18

Series 2

   01.03.15    214,975    16,882    20,464    177,629      28,027    04.03.16 - 09.03.15

Series 3

   98.10.31    400,000    —      390,000    10,000      5,000    01.11.01 - 04.10.31

Series 4

   99.02.27    280,000    59,892    220,108    —        13,900    02.02.28 - 05.02.27

Series 5

   00.02.28    267,000    65,218    34,963    166,819      27,600    03.03.01 - 06.02.28

Series 6

   01.03.24    111,000    38,624    10,216    62,160      25,100    04.03.25 - 07.03.24

Series 71 2

   01.11.16    850,000    200,000    —      650,000      51,200    04.11.17 - 09.11.16

Series 8-12

   02.03.22    132,000    89,753    —      42,247      57,100    05.03.23 - 10.03.22

Series 8-13

   02.03.22    490,000    166,466    —      323,534      57,100    05.03.23 - 10.03.22

Series 93

   02.07.26    30,000    —      —      30,000      58,800    05.07.27 - 10.07.26

Series 10-12

   03.03.21    140,000    29,947    —      110,053      41,646    06.03.22 - 11.03.21

Series 10-13

   03.03.21    180,000    64,090    —      115,910      35,500    06.03.22 - 11.03.21

Series 113

   03.08.27    30,000    24,909    —      5,091      40,500    06.08.28 - 11.08.27

Series 123

   04.02.09    85,000    —      —      85,000      46,100    07.02.10 - 12.02.09

Series 13-12

   04.03.23    20,000    —      —      20,000      47,200    07.03.22 - 12.03.23

Series 13-13

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

Increase due to merger-14

   01.03.22    22,146    —      —      22,146      71,538    04.03.23 - 11.03.22

Increase due to merger-22 4

   02.03.29    9,990    —      —      9,990      129,100    04.03.30 - 11.03.29

1 The stock options excluded the 200,000 shares, which were to be additionally granted if the three-month weighted average stock price of the Bank prior to the exercise period is higher than that of any other listed banks and the Bank achieves total market value and ROE target, due to failure of target achievement.

 

2 The exercise prices are based on the increase rate of the stock price index in the banking industry.

 

3 The number of shares to be granted will be determined by the results of the evaluation of the grantees after 3 years from grant date. The number of shares is calculated under the assumption that the performance-based stock options have been fully granted.

 

4 The Bank took over the stock options granted by Kookmin Credit Card Co., Ltd. of which the exercise prices and number of shares have been adjusted in proportion to the merger ratio.

 

See Report of Independent Accountants

 

44


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Compensation costs for stock options granted to employees and executives are recognized on the basis of fair value. Assumptions used under the fair value basis method are summarized as follows:

 

     Stock price as of grant
date (Won)


   Risk free interest
rate 1 (%)


   Expected exercise
period (years) 2


  

Volatility of
underlying stock

price 3 (%)


   Expected dividend
rate 4 (%)


  

Compensation

cost (Won)


Series 1

   (Won) 21,441    9.32    4.00    71.14    2.25    (Won) 12,638

Series 2

     25,156    6.06    5.50    70.30    2.47      15,987

Series 3

     5,430    9.74    3.00    59.06    1.14      1,395

Series 45

     33,750    4.74    0.33    73.30    1.93      19,850

Series 55

     33,750    4.74    1.33    73.30    1.93      13,320

Series 65

     33,750    4.74    2.42    73.30    1.93      17,117

Series 7

     45,800    4.91    3.00    58.90    —        18,364

Series 8-1

     58,000    6.14    3.00    53.56    —        24,496

Series 8-2

     58,000    6.14    3.00    53.56    —        24,496

Series 9

     53,900    5.73    3.00    43.09    —        17,333

Series 10-1

     36,500    4.74    3.00    48.77    —        12,073

Series 10-2

     36,500    4.74    3.00    48.77    —        14,073

Series 11

     41,100    5.75    3.00    44.48    —        15,098

Series 12

     47,000    4.90    3.00    42.74    —        16,430

Series 13-1

     45,900    4.67    3.00    42.74    —        15,121

Series 13-2

     45,900    4.67    3.00    42.74    —        15,121

Increase due to merger-1

     27,200    5.17    3.00    46.02    —        8,447

Increase due to merger-2

     55,900    6.39    2.00    49.24    20      6,536

1 Interest rate of government bonds as of grant date.

 

2 The average of vesting period and exercise period was applied for series 1 and 2. Vesting period was applied for series 3-11 and stock options succeeded from Kookmin Credit Card Co., Ltd.

 

3 Annualized stock volatility for the past one-year period before the grant date was applied for series 1-2, and the average of stock volatility of banking industries and the Bank was applied for series 3-11 and stock options succeeded from Kookmin Credit Card Co., Ltd.

 

4 Average historical dividend rate for the past period from grant date that equals the expected exercise period, were assumed.

 

5 Compensation costs were recalculated to reflect the effects of merger with H&CB.

 

See Report of Independent Accountants

 

45


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The compensation costs to be recognized in the future as of September 30, 2004, are as follows:

 

(in millions of Korean won)          
     Compensation cost recognized

   Compensation cost to be recognized

    
     Prior period
compensation
cost


   Current period
compensation
cost


    Accumulated
compensation
cost


   Within 1
year


   More than 1
year to 2
years


   More than 2
years to 3
years


   Total

   Total
compensation
cost


Series 1

   (Won) 883    (Won) —       (Won) 883    (Won) —      (Won) —      (Won) —      (Won) —      (Won) 883

Series 2

     2,603      237       2,840      —        —        —        —        2,840

Series 3

     14      —         14      —        —        —        —        14

Series 5

     2,222      —         2,222      —        —        —        —        2,222

Series 6

     975      89       1,064      —        —        —        —        1,064

Series 7

     10,840      434       11,274      663      —        —        663      11,937

Series 8-1

     604      259       863      172      —        —        172      1,035

Series 8-2

     5,297      1,308       6,605      1,321      —        —        1,321      7,926

Series 9

     246      130       376      144      —        —        144      520

Series 10-1

     426      237       663      443      221      —        664      1,328

Series 10-2

     633      182       815      544      272      —        816      1,631

Series 11

     50      (23 )     27      26      23      —        49      76

Series 12

     —        272       272      466      466      194      1,126      1,398

Series 13-1

     —        50       50      101      101      50      252      302

Series 13-2

     —        25       25      50      50      25      125      150

Increase due to merger-1

     171      16       187      —        —        —        —        187

Increase due to merger-2

     57      8       65      —        —        —        —        65
    

  


 

  

  

  

  

  

     (Won) 25,021    (Won) 3,224     (Won) 28,245    (Won) 3,930    (Won) 1,133    (Won) 269    (Won) 5,332    (Won) 33,578
    

  


 

  

  

  

  

  

 

As of September 30, 2004, the weighted average exercise price per stock option granted is (Won)44,951 and the weighted average compensation cost per stock option granted is (Won)17,576.

 

See Report of Independent Accountants

 

46


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

22. Other Non-Interest Income (Expenses)

 

Other non-interest income and expenses for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Amount

Other non-interest income

      

•      Realized gain on trading securities

   (Won) 111,369

•      Unrealized gain on trading securities

     42,442

•      Income from beneficiary certificates

     219,404

•      Gain on trust management

     92,119

•      Gain on valuation of derivatives

     786,141

•      Gain on fair value hedged items

     2,838

•      Others

     42,188
    

     (Won) 1,296,501
    

Other non-interest expenses

      

•      Realized loss on trading securities

   (Won) 61,490

•      Contributions to special funds

     135,481

•      Loss on valuation of derivatives

     761,926

•      Others

     235,675
    

     (Won) 1,194,572
    

 

23. General and Administrative Expenses

 

General and administrative expenses for the nine-month period September 30, 2004 are as follows:

 

(in millions of Korean won)    Amount

Salaries and wages

   (Won) 858,949

Retirement benefits (Note 12)

     81,200

Other employee benefits

     237,491

Rent

     57,000

Depreciation

     242,364

Amortization

     61,677

Taxes and dues

     89,019

Advertising

     26,638

Ordinary Research and Development

     94,139

Fees and commissions

     67,003

Others

     150,719
    

     (Won) 1,966,199
    

 

See Report of Independent Accountants

 

47


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

24. Non-Operating Income (Expenses)

 

Non-operating income (expenses) for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Amount

 

Non-operating income

        

•      Gain on disposal of fixed assets

   (Won) 1,861  

•      Rent income

     2,264  

•      Unrealized gain on investment in associates

     10,089  

•      Realized gain on available-for-sale securities

     104,082  

•      Realized gain on held-to-maturity securities

     1,509  

•      Realized gain on investment in associates

     79  

•      Reversal of impairment loss on tangible assets

     3,281  

•      Gain on sale of loans

     23,770  

•      Others

     104,985  
    


       251,920  
    


Non-operating expenses

        

•      Loss on disposal of fixed assets

     2,368  

•      Loss on impairment loss on tangible assets

     19,384  

•      Realized loss on available-for-sale securities

     22,875  

•      Realized loss on held-to-maturity securities

     —    

•      Impairment loss on available-for-sale securities

     55,058  

•      Early retirement benefits

     50,029  

•      Loss on sale of loans

     864,609  

•      Others

     93,892  
    


       1,108,215  
    


     (Won) (856,295 )
    


 

25. Income Tax Expense

 

Income tax expense for the nine-month period ended September 30, 2004 is as follows:

 

(in millions of Korean won)    2004

Income tax payable

   (Won) 100,446

Deferred income taxes from temporary differences

     155,986

Retained earnings and other capital surplus adjustments 1

     62,767
    

Income tax expense

   (Won) 319,199
    


1 Income tax effect from the change in retained earnings from loss on disposal of treasury stock.

 

See Report of Independent Accountants

 

48


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The statutory income tax rate applicable to the Bank, including resident tax surcharges, is 29.7% for the years ended December 31, 2002 and 2003. However, due to tax adjustments, the effective tax rate for the nine-month period ended September 30, 2004 is 31.87%. The statutory income tax rate of 29.7% is applied for deferred income tax assets (liabilities) that will be realized before 2005 while the statutory income tax rate of 27.5% is applied for deferred income tax assets (liabilities) that will be realized after 2005, reflecting the 2% corporate tax rate cut from 2005. The basis for calculating the effective tax rate is as follows:

 

(in millions of Korean won)    2004

 

Net income before income taxes

   (Won) 1,001,708  
    


Income tax expense based on the effective tax rate

     297,497  

Tax effects on adjustments

        

Adjustments to increase taxable income

     64,801  

Adjustments to decrease taxable income

     (45,913 )

Discount effect

     2,814  
    


Income tax benefit per statements of operations

   (Won) 319,199  
    


 

The significant changes in accumulated temporary differences and deferred income taxes for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Beginning
balance


    Increase

    Decrease

    Ending balance

    Deferred tax asset
(liability)


 

Allowance for loan losses

   (Won) 299,023     (Won) 301,038     (Won) 234,014     (Won) 366,047     (Won) 104,283  

Accrued interest

     (349,435 )     (240,428 )     (308,068 )     (281,795 )     (77,494 )

Unrealized loss on securities

     762,266       308,460       555,602       515,124       141,659  

Unrealized loss on derivatives

     (35,045 )     20,395       (23,924 )     9,274       2,550  

Present value discounts

     14,774       5,729       14,774       5,729       1,576  

Allowance for losses on guarantees and acceptances

     1,074       908       1,074       908       250  

Accrued severance benefits

     —         20,117       —         20,117       5,532  

Stock options

     26,211       28,245       26,211       28,245       7,768  

Loss on fair value hedges

     (1,502 )     (2,148 )     —         (3,650 )     (1,004 )

Accumulated depreciation

     8,313       92       3,176       5,229       1,438  

Other allowances

     505,372       504,764       505,372       504,764       143,500  

Others

     104,471       27,817       (21,580 )     153,868       42,313  

Net operating loss carry-forward

     567,825       —         567,825       —         —    
    


 


 


 


 


     (Won) 1,903,347     (Won) 974,989     (Won) 1,554,476     (Won) 1,323,860     (Won) 372,371  
    


 


 


 


 


 

See Report of Independent Accountants

 

49


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

26. Earnings Per Share

 

The weighted average numbers of common shares outstanding for the nine-month period ended September 30, six-month period ended June 30, 2004 and three-month period ended March 31, 2004 are calculated as follows:

 

     2004.9.30

    2004.6.30

    2004.3.31

 

Number of common shares outstanding-beginning balance

     336,379,116       336,379,116       336,379,116  

Weighted average number of shares of treasury stock

     (29,961,429 )     (29,977,371 )     (30,002,382 )
    


 


 


Weighted average number of common shares outstanding

     306,417,687       306,401,745       306,376,734  
    


 


 


Details of the computation of the basic earnings per share (“EPS”) and basic ordinary income per share for the nine-month period ended September 30, six-month period ended June 30, 2004 and three-month period ended March 31, 2004 are shown below.   
     2004.9.30

    2004.6.30

    2004.3.31

 

Net income (in millions of Korean won)

   (Won) 682,509     (Won) 307,561     (Won) 151,258  

Weighted average number of common shares outstanding

     306,417,687       306,401,745       306,376,734  
    


 


 


Basic earnings per share and basic ordinary income per share (in won)

   (Won) 2,227     (Won) 1,004     (Won) 494  
    


 


 


Details of the computation of the diluted EPS and diluted ordinary income per share for the nine-month period ended September 30, six-month period ended June 30, 2004 and three-month period ended March 31, 2004 are shown below.   
     2004.9.30

    2004.6.30

    2004.3.31

 

Net income (in millions of Korean won)

   (Won) 682,509     (Won) 307,561     (Won) 151,258  

Weighted average number of common shares outstanding

     306,512,245       306,518,191       306,376,734  
    


 


 


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

   (Won) 2,227     (Won) 1,003     (Won) 494  
    


 


 


 

Potential common shares as of September 30, 2004 are as follows:

 

     Exercise Period

   Shares
Outstanding


   Exercise Price

 

Stock options

   2001.11.01—2012.03.23    1,910,428    (Won) 5,000 –  (Won)129,100

 

As discussed in Note 36, the restated net loss and basic loss per share for the year ended December 31, 2003 were (Won)930,356 million and (Won)2,854, respectively.

 

See Report of Independent Accountants

 

50


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

27. Assets and Liabilities Denominated in Foreign Currencies

 

Significant assets and liabilities denominated in foreign currencies as of September 30, 2004 are the following :

 

     Total Balances

   Major Denomination Currencies

     Millions of
Korean Won


  

Thousands of

US Dollars1


   Thousands of
US Dollars


   Thousands of
EC Euro


  

Thousands of

Japanese Yen


Assets

                                  

Cash

   (Won) 139,945    $ 121,914    $ 55,177    19,394    ¥ 3,327,095

Due from banks

     631,945      550,522      503,593      4,779      4,396,326

Securities

     1,179,666      1,027,673      850,356      3,119      4,685,984

Loans in foreign currencies

     4,190,859      3,650,892      2,705,753      100,018      82,716,189

Bills bought

     527,635      459,652      429,724      17,934      434,706

Advances payments on acceptances and guarantees

     —        —        —        —        —  

Call loans

     344,061      299,737      279,500      1,700      80,619

Liabilities

                                  

Deposits

     2,143,016      1,866,902      847,996      28,504      97,264,514

Borrowings

     2,400,373      2,091,099      1,526,246      69,690      48,293,104

Due to Bank of Korea

     3,673      3,200      3,200      —        —  

Call money

     25,033      21,808      —        9,000      —  

Debentures

     778,878      678,524      582,558      —        —  

Unsettled foreign exchange liabilities

     67,953      59,198      39,090      810      530,992

 

1 Foreign currencies other than US dollars are converted into US dollar amounts using the exchange rates provided by Seoul Money Brokerage Services, Ltd. at the balance sheet date.

 

28. Transactions with Financial Institutions

 

The assets and liabilities arising from transactions with financial institutions for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)   

Description


   Bank of Korea

   Other Banks

   Other Financial
Institutions


   Total

Cash and due from banks

   In Won    (Won) 4,446,922    (Won) 127,911    (Won) 140,000    (Won) 4,714,833
     In foreign currencies      67,923      558,406      5,616      631,945
         

  

  

  

          (Won) 4,514,845    (Won) 686,317    (Won) 145,616    (Won) 5,346,778
         

  

  

  

Loans

   In Won    (Won) —      (Won) 7,541    (Won) 825,703    (Won) 833,244
     In foreign currencies      —        1,242,814      42,819      1,285,633
     Others      2,000,000      3,496,537      241,963      5,738,500
         

  

  

  

          (Won) 2,000,000    (Won) 4,746,892    (Won) 1,110,485    (Won) 7,857,377
         

  

  

  

Deposits

   In Won    (Won) —      (Won) 1,239,599    (Won) 5,139,362    (Won) 6,378,961
     In foreign currencies      —        —        450,000      450,000
         

  

  

  

          (Won) —      (Won) 1,239,599    (Won) 5,589,362    (Won) 6,828,961
         

  

  

  

Borrowings

   In Won    (Won) 834,421    (Won) 174,557    (Won) 5,537    (Won) 1,014,515
     In foreign currencies      —        1,586,476      15,267      1,601,743
     Others      3,673      25,033      107,900      136,606
         

  

  

  

          (Won) 838,094    (Won) 1,786,066    (Won) 128,704    (Won) 2,752,864
         

  

  

  

Debentures

   In Won    (Won) —      (Won) —      (Won) 146,900    (Won) 146,900
     In foreign currencies      —        778,877      —        778,877
         

  

  

  

          (Won) —      (Won) 778,877    (Won) 146,900    (Won) 925,777
         

  

  

  

 

See Report of Independent Accountants

 

51


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

29. Related Party Transactions

 

Significant transactions with related parties for the nine-month period ended September 30, 2004 are as follows:

 

          Amount

 
(in millions of Korean won)   

Account


   Balances

   Transactions

 
KB Investment Co., Ltd.    Deposits    (Won) 12,556    (Won) (300)  
     Other liabilities      265      —    
KB Data Systems Co., Ltd.    Deposits      10,331      (312 )
     Other assets      72      —    
     Borrowings      1,100      (7 )
     Other liabilities      4,688      (13,001 )
KB Futures Co., Ltd.    Due from banks      1      1  
     Other assets      7      —    
     Deposits      4,359      (265 )
     Borrowings      5,000      (70 )
     Other liabilities      1,519      —    
     Rent      —        61  
     Commissions income      —        8  
     Commissions expenses      —        (413 )
KB Luxembourg S.A.    Due from banks      —        70  
     Loans      —        254  
     Borrowings      3,541      (166 )
KB International Ltd.(London)    Due from banks      5,388      29  
     Loans      223,841      2,028  
     Other assets      581      637  
     Borrowings      33,227      (155 )
     Other liabilities      607      (1,564 )
     Commissions expenses      —        (1,778 )
Kookmin Finance H.K. Ltd.    Due from banks      676      54  
     Loans      279,970      3,076  
     Other assets      500      —    
     Borrowings      10,492      (11 )
     Commissions expenses      —        (1,545 )
KB Asset Management    Deposits      22,596      (858 )
     Other liabilities      299      —    
KB Real Estate Co., Ltd.    Loans      38,282      1,543  
     Deposits      1,735      (47 )
     Other liabilities      1,753      —    
     Other assets      42      —    
     Rent      —        115  
Jooeun Industrial Co., Ltd.    Loans      122,032      —    
KB Credit Information Co., Ltd.    Deposits      11,625      (263 )
     Other liabilities      6,640      —    
     Commissions expenses      —        (23,311 )

 

See Report of Independent Accountants

 

52


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

          Amount

 
(in millions of Korean won)   

Account


   Balances

   Transactions

 
KB Life Insurance Co., Ltd.    Other assets    (Won) 2,500    (Won) —    
     Deposits      5,924      (21 )
     Other liabilities      1,912      —    
     Commissions income      —        8,794  
     Rent             31  

 

30. Interest Bearing Assets and Liabilities

 

Interest bearing assets and liabilities as of September 30, 2004 and the related interest income and interest expenses for the nine-month period then ended are as follows:

 

(in millions of Korean won)    Average Balance

   Interest Income

   Average Yield (%)

Assets

                  

Due from banks

   (Won) 3,651,811    (Won) 7,038    0.26

Securities

     23,367,685      766,457    4.37

Loans

     140,025,811      7,824,498    7.46
    

  

    
     (Won) 167,045,307    (Won) 8,597,993     
    

  

    

Liabilities

                  

Deposits

   (Won) 130,225,666    (Won) 2,986,152    3.06

Borrowings

     11,205,673      254,163    3.03

Debentures

     18,274,273      818,822    5.99
    

  

    
     (Won) 159,705,612    (Won) 4,059,137     
    

  

    

 

31. Operations of Trust Accounts

 

The summarized statement of assets and liabilities of trust accounts as of September 30, 2004 are categorized into principal or dividend guaranteed money trusts, performance money trusts and property trusts, as follows:

 

(in millions of Korean won)   

Guaranteed

Money Trusts


   

Performance

Money Trusts


   

Property

Trusts


   Total

 

Securities

   (Won) 2,891,265     (Won) 4,069,293     (Won) 1,014,989    (Won) 7,975,547  

Loans

     210,246       199,886       —        410,132  

Receivables

     —         —         11,791,961      11,791,961  

Due from banking accounts

     114,461       251,516       471,664      837,641  

Present value discounts

     (402 )     —         —        (402 )

Allowance for loan losses

     (35,273 )     (34,778 )     —        (70,051 )

Other assets

     120,632       132,896       694,060      947,588  
    


 


 

  


Total assets

   (Won) 3,300,929     (Won) 4,618,813     (Won) 13,972,674    (Won) 21,892,416  
    


 


 

  


Trusts

   (Won) 2,989,410     (Won) 4,353,768     (Won) 13,795,274    (Won) 21,138,452  

Reserves for future losses

     52,685       2,726       —        55,411  

Other liabilities

     258,834       262,319       177,400      698,553  
    


 


 

  


Total liabilities

   (Won) 3,300,929     (Won) 4,618,813     (Won) 13,972,674    (Won) 21,892,416  
    


 


 

  


 

See Report of Independent Accountants

 

53


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The Bank is liable as of September 30, 2004 for the following portion of the difference between the book value and fair value of principal and/or dividend guaranteed money trusts:

 

(in millions of Korean won)    Book Value

   Fair Value

   Liability

Principal guaranteed money trusts

   (Won) 3,193,597    (Won) 3,217,126    (Won) —  

Principal and dividend guaranteed money trusts

     107,332      109,429      —  
    

  

  

     (Won) 3,300,929    (Won) 3,326,555    (Won) —  
    

  

  

 

The key results of operations from transactions between bank accounts and trust accounts, excluding securities investment trust, for nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Trust Account
Related Income


        Trust Account
Related Expenses


Gain on trust management

   (Won) 80,406    Interest expense on borrowings from trust accounts    (Won) 30,229

Early withdrawal penalties

     65            
    

       

     (Won) 80,471         (Won) 30,229
    

       

 

32. Business Combination with H&CB

 

The Bank entered into a business combination contract (“the Contract”) with H&CB on April 23, 2001 and obtained approval from the shareholders for such combination on September 29, 2001. In accordance with the Contract, the Bank completed the legal consolidation with H&CB as of October 31, 2001. Under the Contract, the shareholders of the Bank and H&CB received 1 new common share of the Bank for every 1.688346 old shares of the Bank and 1 share of H&CB. The new common shares of the Bank were listed on the Korea Stock Exchange on November 9, 2001. Despite the legal form of consolidation, the business combination was accounted for as an acquisition with the Bank as acquirer of H&CB’s total assets of (Won)67,742,958 million and liabilities of (Won)64,381,185 million.

 

33. Merger with Kookmin Credit Card Co., Ltd.

 

The Bank obtained approval from its Board of Directors on May 30, 2003 to merge with Kookmin Credit Card Co., Ltd., (the “Subsidiary”) of which the Bank previously owned 74.27%, and merged with the Subsidiary on September 30, 2003.

 

The merger was effected through the issuance of 8,120,431 common shares by the Bank to the shareholders of the Subsidiary as of July 24, 2003, at a ratio of 0.442983 share of the Bank’s common stock for each share of the Subsidiary. The newly issued common shares due to this transaction constituted 2.4% of total outstanding shares of the Bank as of September 30, 2003.

 

See Report of Independent Accountants

 

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

34. Statement of Cash Flows

 

Cash and cash equivalents as of September 30, 2004 as presented in the non-consolidated statements of cash flows are as follows:

 

(in millions of Korean won)    Amount

 

Cash on hand

   (Won) 3,023,458  

Cash in foreign currencies

     139,945  

Due from banks in Won

     4,718,122  

Due from banks in foreign currencies

     631,945  
    


       8,513,470  

Restricted deposits (Note 3)

     (4,658,564 )
    


     (Won) 3,854,906  
    


 

Major transactions that do not involve cash inflows and cash outflows for the nine-month period ended September 30, 2004 are as follows:

 

(in millions of Korean won)    Amount

Unrealized gains on investment securities

   (Won) 152,904

Write-off of loans

     2,016,336

Increase in loan loss provision due to sales and repurchase of non-performing loans

     628,661

Conversion of loans into equity securities

     179,046

 

See Report of Independent Accountants

 

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

35. Business Segments

 

The following table shows the general information and the distribution of the Bank’s operations by business segment as of and for the nine-month period ended September 30, 2004:

 

(1) General information

 

(1) General information   

Business Scope


Retail Banking

   Operation of loans to individual, household and related to it

Corporate Banking

   Operation of loans to corporate and related to it

Capital Markets Activities

   Operation of funds and securities

Capital Card Operations

   Operation of credit card and card loan

Others

   Others

 

(2) Financial information

 

(in millions of Korean won)                              
    

Retail

Banking


  

Corporate

Banking


   Capital Markets
Activities


   Credit Card
Operations


   Others

   Total

Loans

   (Won) 82,284,042    (Won) 45,441,520    (Won) 6,712,267    (Won) 7,609,196    (Won) —      (Won) 142,047,025

Securities

     —        964,856      22,498,804      —        1,239,806      24,703,466

Fixed assets

     1,638,305      139,231      7,934      51,529      990,778      2,827,777

Other assets

     2,262,125      211,080      9,395,645      44,784      4,771,158      16,684,792
    

  

  

  

  

  

Total assets

   (Won) 86,184,472    (Won) 46,756,687    (Won) 38,614,650    (Won) 7,705,509    (Won) 7,001,742    (Won) 186,263,060
    

  

  

  

  

  

Operating revenue

   (Won) 4,593,824    (Won) 2,517,180    (Won) 3,530,422    (Won) 2,046,854    (Won) 1,178,065    (Won) 13,866,345
    

  

  

  

  

  

 

The following table shows the general information and the distribution of the Bank’s operations by geographical market as of and for the nine-month period ended September 30, 2004:

 

(1) General information

 

The Bank’s operations consist of domestic operations and overseas operations.

 

(2) Financial information

 

(in millions of Korean won)    Domestic

   Overseas

   Total

Loans

   (Won) 141,590,767    (Won) 456,258    (Won) 142,047,025

Securities

     24,700,821      2,645      24,703,466

Fixed assets

     2,824,698      3,079      2,827,777

Other assets

     16,114,877      569,915      16,684,792
    

  

  

Total assets

   (Won) 185,231,163    (Won) 1,031,897    (Won) 186,263,060
    

  

  

Operating revenue

   (Won) 13,828,443    (Won) 37,902    (Won) 13,866,345
    

  

  

 

See Report of Independent Accountants

 

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

36. Results of Securities and Futures Commission (SFC)’s investigation and Restatement of prior periods’ financial statements

 

On of August 25, 2004, the Securities and Futures Commission’s (‘SFC’) announced the results of the investigation on Kookmin Bank’s accounting treatments related to acquisition of Kookmin Credit Card and other transactions.

 

(1) Results of Securities and Futures Commission’s investigation

 

Accounting treatment in relation to the acquisition of Kookmin Credit Card (‘KCC’)

 

As discussed earlier, the Bank merged with KCC in September 2003. Relative to the merger, for the nine-month period ended September 30, 2003, KCC failed to recognize an allowance on loan loss of (Won)1,266,405 million, which included other allowances of (Won)15,442 million, resulting in the overstatement of the its net income. Consequently, the Bank recognized an income from equity investments of (Won)211,202 million in proportion to its 74.2692% interest in KCC which recorded a net income of (Won)284,373 million for the same period. Regarding KCC’s under-recording of the allowance of loan loss of (Won)1,266,405 million and the additional allowance on loan losses due to the difference in accounting treatments on the Bank’s consolidated financial statements of (Won)389,980 million, both of which total (Won)1,656,385 million, these were subsequently recorded by the Bank as allowance on loan loss due to merger of (Won)1,652,264 million and impairment loss on investments available-for-sale of (Won)4,121 million. To comply with the SFC’s instructions, the Bank recorded equity loss on investments of (Won)1,018,982 million, proportionate to its 74.2692% interest in the sum of (Won)1,372,012, which is the total of KCC’s net loss of (Won)982,032 million and the additional allowance on loan loss due to merger of (Won)389,980 million; and deducted the minority interest of (Won)309,559 million from additional paid in capital.

 

Accounting treatment in relation to asset securitization

 

The Bank is currently offering credit lines to the KCC 16th Special Purpose Co., Ltd (‘SPC’) and FN Star 3rd SPC amounting to (Won)757,000 million (transferred value of (Won)1,243,000 million, transfer gain of(Won) 488,000 million). However, the recovery rate of the assets transferred to the SPCs decreased dramatically between September 2003 and January 2004, before actual issuance of year-end financial status. As the present value of the underlying assets dropped below the SPCs liability amount, there is a high probability that the Bank would be liable to cover the difference up to the credit line limit. Even though the Bank could have reflected the probable contingency loss amount by estimating future cash flows based on the recovery rates available to the latest month and the fair valuation models used at the point of asset securitization, the Bank appropriated only (Won)133,376 million for the estimable contingency loss of (Won)346,533 million , underestimating other allowances (allowance for acceptances and guarantees outstanding) by (Won)213,157 million and overestimating net assets (underestimating net income) by the same amount.

 

Accounting treatment in relation to Special Purpose Co., Ltd. currency swap

 

In relation to the early redemption of asset-backed securities (‘ABS’) by KCC 10th Special Purpose Co., Ltd on September 18, 2003, a settlement loss of (Won)27,159 million was paid to ING Bank due to a decline in currency swap interest rate. Therefore, since KCC, the holder of the ABS, guaranteed the payment of the loss, KCC should have recognized the settlement payment as loss and the Bank should have recognized its equity share portion of (Won)20,171 million and the excess amount over minority interest of (Won)6,988 million as valuation loss using equity method. However, KCC recognized the swap settlement payment as asset, ABS advance payment, and the Bank accounted for the amount as offset liabilities, agency fee. As a result, the Bank underestimated the liability by (Won)27,159 million and overestimated net assets by the same amount.

 

(2) Restatement of Prior periods’ financial statements

 

To comply with SFC’s instructions, the Bank restated its financial statements as of and for the year ended December 31, 2003 regarding the understatement of other allowance and overstatement of valuation loss using equity method for the amount of (Won) 213,157million and (Won)27,159 million, respectively, by reversing the underestimation of other allowance by (Won) 213,157million in income statement for the year ended in December 31, 2003 and overestimation of valuation loss using equity method by (Won)27,159 million in income statement for the nine-month period ended in September 30, 2003. Therefore, the net income and retained earning before appropriation in the financial statements for the year ended in December 31, 2003 in the audit report dated March 3, 2004, were understated by (Won) 177,008 million due to tax effect of the understatement of other allowance by (Won) 213,157 million and the overstatement of valuation loss using equity method by (Won)27,159 million.

 

See Report of Independent Accountants

 

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

September 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Although the Bank had originally reflected the overestimated valuation loss using equity method amount of (Won)27,159 million in the income statement for the period ended March 31, 2004 and underestimated other allowance amount of (Won)213,157 million in the income statement for the period ended June 30, 2004, SFC instructed restatement of prior year’s financial statements. Thus, the Bank reversed the loss incurred in the current year’s financial statements.

 

The balance sheet as December 31, 2003 and income statement for the nine-months period ended September 30, 2003 ,presented herein for comparative purposes, has been restated in accordance with above.

 

The following summarizes the adjustments made by the Bank and the effects on financial statements of December 31, 2003 and September 30, 2003 are as follows:

 

(in millions of Korean won)    Before Adjustments

    After Adjustments

 

Balance sheet (2003.12.31)

                

Deferred income tax assets

   (Won) 552,636     (Won) 615,944  

Other allowances

     647,393       860,550  

Agency fee

     337,624       364,783  

Retained earnings

     1,662,119       1,485,111  

Income statement (2003.1.1-2003.12.31)

                

Valuation loss using equity method

   (Won) 267,870     (Won) 240,711  

Provision of other allowances

     432,871       646,028  

Income tax expense (revenue)

     (393,096 )     (456,404 )

 

(in millions of Korean won)    Before Adjustments

   After Adjustments

Balance sheet (2003.9.30)

             

Agency fee

   (Won) 341,411    (Won) 368,570

Retained earnings

     2,033,159      2,060,318

Income statement (2003.1.1-2003.9.30)

             

Valuation loss using equity method

   (Won) 238,738    (Won) 265,897

 

The following shows the recomputed ordinary income, net income, ordinary income per share and net income per share as of and for the nine-month period ended September 30, 2003 and as of and for the year end of December 31, 2003:

 

     September 30, 2003

    December 31, 2003

 
(in millions of Korean won)    Before Adjustments

    After Adjustments

    Before Adjustments

    After Adjustments

 

Ordinary income

   (Won) (382,109 )   (Won) (409,268 )   (Won) (753,348 )   (Won) (930,356 )

Net income

     (382,109 )     (409,268 )     (753,348 )     (930,356 )

Ordinary income per share(in Won)

     (1,175 )     (1,259 )     (2,311 )     (2,854 )

Net income per share(in won)

     (1,175 )     (1,259 )     (2,311 )     (2,854 )

 

37. Subsequent Event

 

On of November 1, 2004, the current chief executive officer of the Bank, Mr. Kim Jung-Tae, will be replaced by Mr. Kang Jung-Won.

 

See Report of Independent Accountants

 

58