Exhibit 99.1
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
AS OF MARCH 31, 2018 AND FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
The accompanying consolidated interim financial statements including all footnote disclosures were prepared by and are the responsibility of the management of Woori Bank.
Tae Seung Sohn
President and Chief Executive Officer
Main Office Address: (Road Name Address) 51,Sogong-ro,Jung-gu, Seoul
(PhoneNumber) 02-2002-3000
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
AS OF MARCH 31, 2018 AND DECEMBER 31, 2017
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
| | (Korean Won in millions) | |
ASSETS | | | | | | | | |
Cash and cash equivalents (Note 6) | | | 5,738,002 | | | | 6,908,286 | |
Financial assets at fair value through profit or loss (“FVTPL”) (IFRS 9) (Notes 4, 7, 11, 12, 18 and 26) | | | 7,578,339 | | | | — | |
Financial assets at FVTPL (IAS 39) (Notes 4, 7, 11, 12, 18 and 26) | | | — | | | | 5,843,077 | |
Financial assets at FVTOCI (Note 4, 8, 11, 12, and 18) | | | 13,254,613 | | | | — | |
Available-for-sale (“AFS”) financial assets (Notes 4,8,11,12 and 18) | | | — | | | | 15,352,950 | |
Securities at amortized cost (Notes 4, 9, 11, 12 and 18) | | | 16,831,342 | | | | — | |
Held to maturity (“HTM”) financial assets (Notes 4, 9, 11, 12 and 18) | | | — | | | | 16,749,296 | |
Loans and other financial assets at amortized cost (Notes 4, 10, 11, 12, 18 and 45) | | | 278,109,106 | | | | — | |
Loans and receivables (Notes 4,10,11,12,18 and 45) | | | — | | | | 267,106,204 | |
Investments in joint ventures and associates (Note 13) | | | 414,486 | | | | 417,051 | |
Investment properties (Note 14) | | | 382,402 | | | | 371,301 | |
Premises and equipment (Notes 15 and 18) | | | 2,455,678 | | | | 2,477,545 | |
Intangible assets and goodwill (Note 16) | | | 538,956 | | | | 518,599 | |
Assets held for sale (Note 17) | | | 54,576 | | | | 48,624 | |
Current tax assets | | | 5,347 | | | | 4,722 | |
Deferred tax assets | | | 156,873 | | | | 280,130 | |
Derivative assets (Notes 4,11,12 and 26) | | | 39,272 | | | | 59,272 | |
Other assets (Notes 19 and 45) | | | 236,911 | | | | 158,404 | |
| | | | | | | | |
Total assets | | | 325,795,903 | | | | 316,295,461 | |
| | | | | | | | |
LIABILITIES | | | | | | | | |
Financial liabilities at FVTPL (IFRS 9) (Note 4, 11, 12, 20 and 26) | | | 3,024,971 | | | | — | |
Financial liabilities at FVTPL (IAS 39) (Notes 4, 11, 12, 20 and 26) | | | — | | | | 3,427,909 | |
Deposits due to customers (Notes 4,11,21 and 45) | | | 237,497,139 | | | | 234,695,084 | |
Borrowings (Notes 4, 11, 12 and 22) | | | 13,935,114 | | | | 14,784,706 | |
Debentures (Notes 4, 11 and 22) | | | 27,091,625 | | | | 27,869,651 | |
Provisions (Notes 23, 44 and 45) | | | 452,713 | | | | 410,470 | |
Net defined benefit liability (Note 24) | | | 152,098 | | | | 43,264 | |
Current tax liabilities | | | 201,329 | | | | 232,600 | |
Deferred tax liabilities | | | 23,392 | | | | 22,681 | |
Derivative liabilities (Notes 4,11,12 and 26) | | | 87,336 | | | | 67,754 | |
Other financial liabilities (Notes 4,11,12, 25 and 45) | | | 22,451,144 | | | | 13,892,461 | |
Other liabilities (Notes 25 and 45) | | | 339,057 | | | | 283,981 | |
| | | | | | | | |
Total liabilities | | | 305,255,918 | | | | 295,730,561 | |
| | | | | | | | |
(Continued)
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
AS OF MARCH 31, 2018 AND DECEMBER 31, 2017 (CONTINUED)
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
| | (Korean Won in millions) | |
EQUITY | | | | | | | | |
Owners’ equity: | | | 20,340,112 | | | | 20,365,892 | |
Capital stock (Note 28) | | | 3,381,392 | | | | 3,381,392 | |
Hybrid securities (Note 29) | | | 3,017,888 | | | | 3,017,888 | |
Capital surplus (Note 28) | | | 285,883 | | | | 285,880 | |
Other equity (Note 30) | | | (2,147,261 | ) | | | (1,939,274 | ) |
Retained earnings (Notes 31 and 32) (Regulatory reserve for credit loss as of March 31, 2018 and December 31, 2017 is 2,578,457 million Won and 2,438,191 million Won, respectively Regulatory reserve for credit loss to be reserved (reversed) as of March 31, 2018 and December 31, 2017 is (-) 213,068 million Won and 140,266 million Won, respectively Planned provision (reversal) of regulatory reserve for credit loss as of March 31, 2018 and December 31, 2017 is (-) 213,068 million Won and 140,266 million Won, respectively | | | 15,802,210 | | | | 15,620,006 | |
Non-controlling interests | | | 199,873 | | | | 199,008 | |
| | | | | | | | |
Total equity | | | 20,539,985 | | | | 20,564,900 | |
| | | | | | | | |
Total liabilities and equity | | | 325,795,903 | | | | 316,295,461 | |
| | | | | | | | |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
| | (Korean Won in millions, except for per share data) | |
Interest income | | | 2,274,747 | | | | 2,083,776 | |
Financial assets at FVTPL (IFRS 9) | | | 15,170 | | | | — | |
Financial assets at FVTOCI | | | 57,276 | | | | — | |
Financial assets at amortized cost | | | 2,202,301 | | | | — | |
Financial assets at FVTPL (IAS 39) | | | — | | | | 13,732 | |
AFS financial assets | | | — | | | | 76,400 | |
HTM financial assets | | | — | | | | 74,983 | |
Loans and receivables | | | — | | | | 1,918,661 | |
Interest expense | | | (907,596 | ) | | | (821,032 | ) |
| | | | | | | | |
Net interest income(Notes 34 and 45) | | | 1,367,151 | | | | 1,262,744 | |
| | |
Fees and commissions income | | | 557,606 | | | | 507,612 | |
Fees and commissions expense | | | (252,298 | ) | | | (232,660 | ) |
| | | | | | | | |
Net fees and commissions income(Notes 35 and 45) | | | 305,308 | | | | 274,952 | |
| | |
Dividend income (Notes 36 and 45) | | | 35,553 | | | | 39,828 | |
Net gain on financial instruments at FVTPL (IFRS 9) (Note 11, 37 and 45) | | | 49,330 | | | | — | |
Net loss on financial instruments at FVTPL (IAS 39) (Note 11, 37 and 45) | | | — | | | | (158,475 | ) |
Net gain on financial assets at FVTOCI (Note 11 and 38) | | | 812 | | | | — | |
Net gain on AFS financial assets (Notes 11 and 38) | | | — | | | | 15,785 | |
Net gain arising on financial assets at amortized cost | | | 21,525 | | | | — | |
Impairment losses due to credit loss (Notes 39 and 45) | | | (122,235 | ) | | | (79,277 | ) |
General and administrative expenses (Notes 40 and 45) | | | (739,684 | ) | | | (754,270 | ) |
Other net operating income (expenses) (Notes 40 and 45) | | | (96,463 | ) | | | 278,457 | |
| | | | | | | | |
Operating income | | | 821,297 | | | | 879,744 | |
| | |
Share of losses of joint ventures and associates (Note 13) | | | (9,143 | ) | | | (49,415 | ) |
Net othernon-operating loss | | | (6,119 | ) | | | (1,699 | ) |
| | | | | | | | |
Non-operating loss (Note 41) | | | (15,262 | ) | | | (51,114 | ) |
| | | | | | | | |
Net income before income tax expense | | | 806,035 | | | | 828,630 | |
| | |
Income tax expense (Note 42) | | | 211,515 | | | | 185,899 | |
| | | | | | | | |
Net income | | | 594,520 | | | | 642,731 | |
| | | | | | | | |
Net gain on valuation of equity securities at FVTOCI | | | 28,938 | | | | — | |
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk | | | 90 | | | | — | |
Items out of change in equity method securities due to change in equity of investee that will not be reclassified to profit or loss | | | 311 | | | | (3,046 | ) |
Remeasurement of the net defined benefit liability | | | (53,460 | ) | | | (26,517 | ) |
| | | | | | | | |
Items that will not be reclassified to profit or loss | | | (24,121 | ) | | | (29,563 | ) |
| | |
Net gain on valuation of debt securities at FVTOCI | | | 2,015 | | | | — | |
Net gain on valuation of AFS financial assets | | | — | | | | 12,974 | |
Change in equity method securities due to change in equity of investees’ | | | (1,201 | ) | | | 4,750 | |
Loss on foreign currency translation of foreign operations | | | (1,742 | ) | | | (100,460 | ) |
Loss on valuation of cash flow hedge | | | (3,426 | ) | | | (853 | ) |
| | | | | | | | |
Items that may be reclassified to profit or loss | | | (4,354 | ) | | | (83,589 | ) |
| | | | | | | | |
Other comprehensive loss, net of tax | | | (28,475 | ) | | | (113,152 | ) |
| | | | | | | | |
Total comprehensive income | | | 566,045 | | | | 529,579 | |
| | | | | | | | |
(continued)
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
| | (Korean Won in millions, except for per share data) | |
Net income attributable to: | | | | | | | | |
Net income attributable to owners | | | 589,736 | | | | 637,473 | |
Net income attributable tonon-controlling interests | | | 4,784 | | | | 5,258 | |
Total comprehensive income attributable to: | | | | | | | | |
Comprehensive income attributable to owners | | | 563,794 | | | | 531,613 | |
Comprehensive income (loss) attributable tonon-controlling interests | | | 2,251 | | | | (2,034 | ) |
Basic and diluted earnings per share (In Korean Won) (Note 43) | | | 820 | | | | 874 | |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital Stock | | | Hybrid securities | | | Capital surplus | | | Other equity | | | Retained earnings | | | Controlling interests | | | Non-controlling interests | | | Total equity | |
| | (Korean Won in millions) | |
January 1, 2017 | | | 3,381,392 | | | | 3,574,896 | | | | 286,331 | | | | (1,468,025 | ) | | | 14,611,566 | | | | 20,386,160 | | | | 159,793 | | | | 20,545,953 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | 637,473 | | | | 637,473 | | | | 5,258 | | | | 642,731 | |
Dividends to common stocks | | | — | | | | — | | | | — | | | | — | | | | (269,308 | ) | | | (269,308 | ) | | | (11 | ) | | | (269,319 | ) |
Gain on valuation ofavailable-for-sale financial assets | | | — | | | | — | | | | — | | | | 12,780 | | | | — | | | | 12,780 | | | | 194 | | | | 12,974 | |
Changes in equity of joint ventures and associates | | | — | | | | — | | | | — | | | | 1,704 | | | | — | | | | 1,704 | | | | — | | | | 1,704 | |
Loss on foreign currency translation of foreign operations | | | — | | | | — | | | | — | | | | (92,970 | ) | | | — | | | | (92,970 | ) | | | (7,490 | ) | | | (100,460 | ) |
Loss on valuation of cash flow hedge | | | — | | | | — | | | | — | | | | (853 | ) | | | — | | | | (853 | ) | | | — | | | | (853 | ) |
Remeasurement of the net defined benefit liability | | | — | | | | — | | | | — | | | | (26,521 | ) | | | — | | | | (26,521 | ) | | | 4 | | | | (26,517 | ) |
Dividends to hybrid securities | | | — | | | | — | | | | — | | | | — | | | | (49,266 | ) | | | (49,266 | ) | | | — | | | | (49,266 | ) |
Redemption of hybrid securities | | | — | | | | (189,396 | ) | | | — | | | | (604 | ) | | | — | | | | (190,000 | ) | | | — | | | | (190,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2017 | | | 3,381,392 | | | | 3,385,500 | | | | 286,331 | | | | (1,574,489 | ) | | | 14,930,465 | | | | 20,409,199 | | | | 157,748 | | | | 20,566,947 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
January 1, 2018 | | | 3,381,392 | | | | 3,017,888 | | | | 285,880 | | | | (1,939,274 | ) | | | 15,620,006 | | | | 20,365,892 | | | | 199,008 | | | | 20,564,900 | |
Cumulative effect of change in accounting policy (Note 2) | | | — | | | | — | | | | — | | | | (392,177 | ) | | | 177,091 | | | | (215,086 | ) | | | 723 | | | | (214,363 | ) |
Adjusted balance, beginning of period | | | 3,381,392 | | | | 3,017,888 | | | | 285,880 | | | | (2,331,451 | ) | | | 15,797,097 | | | | 20,150,806 | | | | 199,731 | | | | 20,350,537 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | 589,736 | | | | 589,736 | | | | 4,784 | | | | 594,520 | |
Dividends to common stocks | | | — | | | | — | | | | — | | | | — | | | | (336,636 | ) | | | (336,636 | ) | | | (2,109 | ) | | | (338,745 | ) |
Net gain on valuation of financial liabilities designated as at FVTPL due to own credit risk | | | — | | | | — | | | | — | | | | 90 | | | | — | | | | 90 | | | | — | | | | 90 | |
Net gain (loss) on valuation of financial assets at FVTOCI | | | — | | | | — | | | | — | | | | 31,269 | | | | — | | | | 31,269 | | | | (316 | ) | | | 30,953 | |
Changes in other comprehensive income due to disposal of equity securities at FVTOCI | | | — | | | | — | | | | — | | | | 1,974 | | | | (1,974 | ) | | | — | | | | — | | | | — | |
Change in equity method securities due to change in equity of investees’ | | | — | | | | — | | | | — | | | | (890 | ) | | | — | | | | (890 | ) | | | — | | | | (890 | ) |
Gain (loss) on foreign currency translation of foreign operations | | | — | | | | — | | | | — | | | | 408 | | | | — | | | | 408 | | | | (2,150 | ) | | | (1,742 | ) |
Loss on valuation of cash flow hedge | | | — | | | | — | | | | — | | | | (3,426 | ) | | | — | | | | (3,426 | ) | | | — | | | | (3,426 | ) |
Remeasurement of the net defined benefit liability | | | — | | | | — | | | | — | | | | (53,393 | ) | | | — | | | | (53,393 | ) | | | (67 | ) | | | (53,460 | ) |
Dividends to hybrid securities | | | — | | | | — | | | | — | | | | — | | | | (37,855 | ) | | | (37,855 | ) | | | — | | | | (37,855 | ) |
Appropriation of retained earnings | | | — | | | | — | | | | — | | | | 208,158 | | | | (208,158 | ) | | | — | | | | — | | | | — | |
Capital adjustment fluctuation (Subsidiaries) | | | — | | | | — | | | | 3 | | | | — | | | | — | | | | 3 | | | | — | | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2018 | | | 3,381,392 | | | | 3,017,888 | | | | 285,883 | | | | (2,147,261 | ) | | | 15,802,210 | | | | 20,340,112 | | | | 199,873 | | | | 20,539,985 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
| | (Korean Won in millions) | |
Cash flows from operating activities: | | | | | | | | |
Net income | | | 594,520 | | | | 642,731 | |
Adjustments: | | | | | | | | |
Income tax expense | | | 211,515 | | | | 185,899 | |
Interest income | | | (2,274,747 | ) | | | (2,083,776 | ) |
Interest expense | | | 907,596 | | | | 821,032 | |
Dividend income | | | (35,553 | ) | | | (39,828 | ) |
| | | | | | | | |
| | | (1,191,189 | ) | | | (1,116,673 | ) |
| | | | | | | | |
Additions of expenses not involving cash outflows: | | | | | | | | |
Impairment losses due to credit loss | | | 122,235 | | | | 79,277 | |
Net loss on financial assets at FVTOCI | | | 219 | | | | — | |
Loss on valuation of financial instruments at FVTPL (IAS 39) | | | — | | | | 149,488 | |
Share of losses of investments in joint ventures and associates | | | 13,803 | | | | 62,792 | |
Loss on disposal of investments in joint ventures and associates | | | 2,931 | | | | 27,684 | |
Loss on transaction and valuation of derivatives (hedging) | | | 49,307 | | | | 47,572 | |
Loss on hedged items (fair value hedge) | | | — | | | | 26 | |
Provision for liabilities | | | 21,450 | | | | 18,120 | |
Retirement benefits | | | 35,810 | | | | 35,795 | |
Depreciation and amortization | | | 60,253 | | | | 62,685 | |
Loss on disposal of premises and equipment and other assets | | | 54 | | | | 337 | |
Impairment loss on premises and equipment and other assets | | | — | | | | 120 | |
| | | | | | | | |
| | | 306,062 | | | | 483,896 | |
| | | | | | | | |
Deduction of revenues not involving cash inflows: | | | | | | | | |
Net gain on financial instruments at FVTPL (IFRS 9) | | | 33,826 | | | | — | |
Gain on financial assets at FVTOCI | | | 1,031 | | | | — | |
Gain on disposal of securities at amortized cost | | | 431 | | | | — | |
Gain on AFS financial assets | | | — | | | | 15,785 | |
Gain on transaction and valuation of derivatives (hedging) | | | 2,570 | | | | 64 | |
Gain on hedged items (fair value hedge) | | | 47,694 | | | | 18,954 | |
Reversal of provisions and others | | | 1,164 | | | | 2,731 | |
Share of profits of investments in joint ventures and associates | | | 4,660 | | | | 13,377 | |
Gain on disposal of investments in joint ventures and associates | | | — | | | | 28,420 | |
Gain on disposal of premises and equipment and other assets | | | 1,277 | | | | 181 | |
Reversal of impairment loss on premises and equipment and other assets | | | 341 | | | | 32 | |
| | | | | | | | |
| | | 92,994 | | | | 79,544 | |
| | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | |
Financial assets at FVTPL (IFRS 9) | | | 519,586 | | | | — | |
Financial assets at FVTPL (IAS 39) | | | — | | | | (563 | ) |
Loans and other financial assets at amortized cost | | | (11,517,570 | ) | | | — | |
Loans and receivables | | | — | | | | (1,228,368 | ) |
Other assets | | | (36,057 | ) | | | (1,030 | ) |
Deposits due to customers | | | 2,801,603 | | | | 1,366,846 | |
Provision for guarantee and loan commitment and others | | | (17,774 | ) | | | (103,089 | ) |
Net defined benefit liability | | | 511 | | | | (4,766 | ) |
Other financial liabilities | | | 8,220,962 | | | | 596,403 | |
Other liabilities | | | 33,228 | | | | 8,880 | |
| | | | | | | | |
| | | 4,489 | | | | 634,313 | |
| | | | | | | | |
(Continued)
WOORI BANK AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017 (CONTINUED)
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
| | (Korean Won in millions) | |
Interest income received | | | 2,303,857 | | | | 2,135,970 | |
Interest expense paid | | | (873,666 | ) | | | (918,381 | ) |
Dividends received | | | 28,520 | | | | 32,175 | |
Income tax paid | | | (34,702 | ) | | | (40,006 | ) |
| | | | | | | | |
Net cash provided by operating activities | | | 1,044,897 | | | | 1,774,481 | |
| | | | | | | | |
Cash flows from investing activities: | | | | | | | | |
Cashin-flows from investing activities: | | | | | | | | |
Disposal of financial assets at FVTPL (IFRS 9) | | | 2,055,411 | | | | — | |
Disposal of financial assets at FVTOCI | | | 1,497,686 | | | | — | |
Disposal of AFS financial assets | | | — | | | | 6,502,288 | |
Redemption of securities at amortized cost | | | 2,159,843 | | | | — | |
Redemption of HTM financial assets | | | — | | | | 2,501,593 | |
Disposal of investments in joint ventures and associates | | | 1,128 | | | | 51,659 | |
Disposal of investment properties | | | 870 | | | | 393 | |
Disposal of premises and equipment | | | 46 | | | | 313 | |
Disposal of intangible assets | | | 1,317 | | | | 500 | |
Disposal of assets held for sale | | | — | | | | 738 | |
| | | | | | | | |
| | | 5,716,301 | | | | 9,057,484 | |
| | | | | | | | |
Cashout-flows from investing activities: | | | | | | | | |
Acquisition of financial assets at FVTPL (IFRS 9) | | | 3,069,218 | | | | — | |
Acquisition of financial assets at FVTOCI | | | 1,009,430 | | | | — | |
Acquisition of AFS financial assets | | | — | | | | 5,619,903 | |
Acquisition of securities at amortized cost | | | 2,242,037 | | | | — | |
Acquisition of HTM financial assets | | | — | | | | 2,921,380 | |
Acquisition of investments in joint ventures and associates | | | 13,660 | | | | 8,412 | |
Acquisition of investment properties | | | 4,730 | | | | 342 | |
Acquisition of premises and equipment | | | 21,229 | | | | 25,478 | |
Acquisition of intangible assets | | | 55,519 | | | | 36,002 | |
| | | | | | | | |
| | | 6,415,823 | | | | 8,611,517 | |
| | | | | | | | |
Net cash provided by (used in) investing activities | | | (699,522 | ) | | | 445,967 | |
| | | | | | | | |
Cash flows from financing activities: | | | | | | | | |
Cashin-flows from financing activities: | | | | | | | | |
Increase in borrowings | | | 1,870,805 | | | | 2,593,035 | |
Issuance of debentures | | | 3,871,052 | | | | 4,819,830 | |
| | | | | | | | |
| | | 5,741,858 | | | | 7,412,865 | |
| | | | | | | | |
Cashout-flows from financing activities: | | | | | | | | |
Repayment of borrowings | | | 2,686,086 | | | | 4,496,149 | |
Repayment of debentures | | | 4,601,422 | | | | 4,398,001 | |
Redemption of hybrid securities | | | — | | | | 190,000 | |
Dividends paid on hybrid securities | | | 30,177 | | | | 33,413 | |
| | | | | | | | |
| | | 7,317,684 | | | | 9,117,563 | |
| | | | | | | | |
Net cash used in financing activities | | | (1,575,826 | ) | | | (1,704,698 | ) |
| | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (1,230,451 | ) | | | 515,750 | |
| | |
Cash and cash equivalents, beginning of the period | | | 6,908,286 | | | | 7,591,324 | |
| | |
Effects of exchange rate changes on cash and cash equivalents | | | 60,167 | | | | (123,074 | ) |
| | | | | | | | |
Cash and cash equivalents, end of the period | | | 5,738,002 | | | | 7,984,000 | |
| | | | | | | | |
See accompanying notes
WOORI BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(1) | Summary of the parent company |
Woori Bank (hereinafter referred to the “Bank”), which is a controlling entity in accordance with International Financial Reporting Standards (“IFRS”) 10 –Consolidated Financial Statements, was established in 1899 and is engaged in the commercial banking business under the Banking Act, trust business and foreign exchange business under the Financial Investment Services and Capital Market Act.
Previously, Woori Finance Holdings Co., Ltd., the former holding company of Woori Financial Group, established on March 27, 2001 held a 100% ownership of the Bank. Effective November 1, 2014, Woori Finance Holdings Co., Ltd. completed its merger (the “Merger”) with and into the Bank. Accordingly, the shares of the Bank, 597 million shares, prior to the merger, were reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. As a result, as of March 31, 2018, the common stock of the Bank amounts to 3,381,392 million Korean won.
During the year ended December 31, 2016, the Korea Deposit Insurance Corporation (“KDIC”), the majority shareholder of the Bank, sold its 187 million shares in the Bank in accordance with the contract of “Disposal of Woori Bank’s shares to Oligopolistic Shareholders”. In addition to the sale, during the year ended December 31, 2017, KDIC sold additional 33 million shares. As of March 31, 2018 and December 31, 2017, KDIC held 125 million shares (18.43% ownership interest), of the Bank’s shares issued.
On June 24, 2002, Woori Finance Holdings Co., Ltd. listed its common shares on the Korea Exchange through public offering. In addition, on September 29, 2003, the holding company registered with the Securities and Exchange Commission in the United States of America and, on the same day, listed its American Depositary Shares on the New York Stock Exchange. As Woori Finance Holdings Co., Ltd. was merged into the Bank, the Bank, which is the existing company, succeeded such rights and obligations as a listed company on the Korea Exchange and the New York Stock Exchange.
As a result of such merger, the Bank incorporated Woori Card Co., Ltd., Woori Investment Bank Co., Ltd., Woori FIS Co., Ltd., Woori Private Equity Asset Management Co., Ltd., and Woori Finance Research Institute Co., Ltd. as its subsidiaries.
The head office of the Bank is located in 51,Sogong-ro, Jung Gu, Seoul, Korea. The Bank has 880 branches and offices in Korea, and 23 branches and offices overseas as of March 31, 2018.
(2) | The consolidated financial statementsfor Woori Bank and its subsidiaries (the “Group”) include the following subsidiaries: |
| | | | | | | | | | | | | | | | | | |
| | | | Percentage of ownership (%) | | | | | | | |
Subsidiaries | | Main business | | March 31, 2018 | | | December 31, 2017 | | | Location | | | Financial statements as of (2018) | |
Woori Bank: | | | | | | | | | | | | | | | | | | |
Woori FIS Co., Ltd. | | System software development & maintenance | | | 100.0 | | | | 100.0 | | | | Korea | | | | March 31 | |
Woori Private Equity Asset Management Co., Ltd. | | Finance | | | 100.0 | | | | 100.0 | | | | Korea | | | | March 31 | |
Woori Finance Research Institute Co., Ltd. | | Other service business | | | 100.0 | | | | 100.0 | | | | Korea | | | | March 31 | |
Woori Card Co., Ltd. | | Finance | | | 100.0 | | | | 100.0 | | | | Korea | | | | March 31 | |
Woori Investment Bank Co., Ltd | | Other credit finance business | | | 59.8 | | | | 59.8 | | | | Korea | | | | March 31 | |
Woori Credit Information Co., Ltd. | | Credit information | | | 100.0 | | | | 100.0 | | | | Korea | | | | March 31 | |
Woori America Bank | | Finance | | | 100.0 | | | | 100.0 | | | | U.S.A. | | | | March 31 | |
Woori Global Markets Asia Limited | | ” | | | 100.0 | | | | 100.0 | | | | Hong Kong | | | | March 31 | |
Woori Bank China Limited | | ” | | | 100.0 | | | | 100.0 | | | | China | | | | March 31 | |
AO Woori Bank | | ” | | | 100.0 | | | | 100.0 | | | | Russia | | | | March 31 | |
PT Bank Woori Saudara Indonesia 1906 Tbk(*1) | | ” | | | 79.9 | | | | 79.9 | | | | Indonesia | | | | March 31 | |
Banco Woori Bank do Brasil S.A. | | ” | | | 100.0 | | | | 100.0 | | | | Brazil | | | | March 31 | |
Korea BTL Infrastructure Fund | | ” | | | 99.9 | | | | 99.9 | | | | Korea | | | | March 31 | |
Woori Fund Service Co., Ltd. | | ” | | | 100.0 | | | | 100.0 | | | | Korea | | | | March 31 | |
Woori Finance Cambodia PLC. | | ” | | | 100.0 | | | | 100.0 | | | | Cambodia | | | | March 31 | |
Woori Finance Myanmar Co., Ltd. | | ” | | | 100.0 | | | | 100.0 | | | | Myanmar | | | | March 31 | |
Wealth Development Bank | | ” | | | 51.0 | | | | 51.0 | | | | Philippines | | | | March 31 | |
Woori Bank Vietnam Limited | | ” | | | 100.0 | | | | 100.0 | | | | Vietnam | | | | March 31 | |
Kumho Trust First Co., Ltd. (*1) | | Asset securitization | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Asiana Saigon Inc. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Consus Eighth Co., LLC (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
KAMCO Value Recreation First Securitization Specialty Co., Ltd. (*1) | | ” | | | 15.0 | | | | 15.0 | | | | Korea | | | | March 31 | |
Hermes STX Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
BWL First Co., LLC (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Deogi Dream Fourth Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Jeonju Iwon Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Wonju I one Inc. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Heitz Third Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Woorihansoop 1st Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Electric Cable First Co., Ltd (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Woori International First Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Woori HJ First Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Woori WEBST 1st Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Wibihansoop 1st Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
HNLD 1st Inc.(*4) | | ” | | | — | | | | 0.0 | | | | Korea | | | | March 31 | |
Uri QS 1st Co., Ltd (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Uri Display 1st Co., Ltd.(*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Tiger Eyes 2nd Co., Ltd.(*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Woori Serveone 1st Co., Ltd. (*1) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Uri Display 2nd Co.,Ltd. (*1) | | ” | | | 0.0 | | | | — | | | | Korea | | | | March 31 | |
HeungkukWoori Tech Company Private Placement Investment Trust No. 1 and 6 beneficiary certificates (*2) | | Securities investment and others | | | — | | | | — | | | | Korea | | | | March 31 | |
Principle Guaranteed Trust (*3) | | Trust | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Principle and Interest Guaranteed Trust (*3) | | ” | | | 0.0 | | | | 0.0 | | | | Korea | | | | March 31 | |
Woori Investment Bank: | | | | | | | | | | | | | | | | | March 31 | |
Dongwoo First Securitization Specialty Co., Ltd. (*1) | | Asset securitization | | | 5.0 | | | | 5.0 | | | | Korea | | | | March 31 | |
Seari First Securitization Specialty Co., Ltd. (*1) | | ” | | | 5.0 | | | | 5.0 | | | | Korea | | | | March 31 | |
Namjong 1st Securitization Specialty Co., Ltd. (*1) | | ” | | | 5.0 | | | | 5.0 | | | | Korea | | | | March 31 | |
Bukgeum First Securitization Specialty Co., Ltd. (*1) | | ” | | | 5.0 | | | | 5.0 | | | | Korea | | | | March 31 | |
| | | | | | | | | | | | | | |
| | | | Percentage of ownership (%) | | | | | |
Subsidiaries | | Main business | | March 31, 2018 | | | December 31, 2017 | | | Location | | Financial statements as of (2018) |
Woori Card Co., Ltd.: | | | | | | | | | | | | | | |
TUTUFinance-WCI Myanmar Co., Ltd. | | Finance | | | 100.0 | | | | 100.0 | | | Myanmar | | March 31 |
Woori Card one of2017-1 Securitization Specialty Co., Ltd. (*1) | | Asset securitization | | | 0.5 | | | | 0.5 | | | Korea | | March 31 |
Woori Card one of2017-2 Securitization Specialty Co., Ltd. (*1) | | ” | | | 0.5 | | | | 0.5 | | | Korea | | March 31 |
(*1) | The entity was a structured entity for the purpose of asset securitization and was in scope for consolidation. Although the Group is not a majority shareholder, the Group 1) had the power over the investee, 2) was exposed, or had rights, to variable returns from its involvement with the investee, and 3) had the ability to use its power to affect its returns. |
(*2) | The entity was a structured entity for the purpose of investment in securities and was in scope for consolidation, considering that the Group 1) had the power over the investee, 2) was exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. |
(*3) | The entity was a money trust under the Financial Investment Services and Capital Markets Act and was in scope for consolidation. Although the Group was not a majority shareholder, the Group 1) has the power over the investee, 2) was exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. |
(*4) | The entity is a structured entity for the purpose of asset securitization and is not in scope for consolidation considering that the Group 1) does not have the power over the investee, 2) is not exposed, or does not have rights to variable returns from its involvement with the investee, and 3) does not have the ability to use its power to affect its returns. |
(3) | As of March 31, 2018 and December 31, 2017, despite having more than a 50% ownership interest, the Group has not consolidated the following companies as the Group does not have the ability to control following subsidiaries: |
| | | | | | | | |
| | As of March 31, 2018 | |
Subsidiaries | | Location | | Main Business | | Percentage of ownership (%) | |
Golden Bridge NHN Online Private Equity Investment (*) | | Korea | | Securities Investment | | | 60.0 | |
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) | | Korea | | Securities Investment | | | 59.7 | |
Kiwoom Yonsei Private Equity Investment Trust (*) | | Korea | | Securities Investment | | | 88.9 | |
Hana Walmart Real Estate Investment Trust41-1 (*) | | Korea | | Securities Investment | | | 90.1 | |
IGIS Global Private Placement Real Estate FundNo. 148-1 (*) | | Korea | | Securities Investment | | | 75.0 | |
IGIS Global Private Placement Real Estate FundNo. 148-2 (*) | | Korea | | Securities Investment | | | 75.0 | |
MIRAE ASSET SEOUL RING EXPRESSWAY PRIVATE SPECIAL ASSET FUND I (*) | | Korea | | Securities Investment | | | 66.7 | |
HANGANG SEWAGE TREATMENT PLANT FUND (*) | | Korea | | Securities Investment | | | 55.6 | |
(*) | The Group owns the majority ownership interest in these structured entities, but has no power on the investees’ relevant activities. As results, it is deemed that the Group has no power or control on the structured entities. |
| | | | | | | | |
| | As of December 31, 2017 | |
Subsidiaries | | Location | | Main Business | | Percentage of ownership (%) | |
Golden Bridge NHN Online Private Equity Investment (*) | | Korea | | Securities Investment | | | 60.0 | |
Mirae Asset Maps Clean Water Private Equity Investment Trust 7th (*) | | Korea | | Securities Investment | | | 59.7 | |
Kiwoom Yonsei Private Equity Investment Trust (*) | | Korea | | Securities Investment | | | 88.9 | |
Hana Walmart Real Estate Investment Trust41-1 (*) | | Korea | | Securities Investment | | | 90.1 | |
IGIS Global Private Placement Real Estate FundNo. 148-1 (*) | | Korea | | Securities Investment | | | 75.0 | |
IGIS Global Private Placement Real Estate FundNo. 148-2 (*) | | Korea | | Securities Investment | | | 75.0 | |
(*) | The Group owns the majority ownership interest in these structured entities, but has no power on the investees’ relevant activities. As results, it is deemed that the Group has no power or control on the structured entities. |
(4) | The summarized financial information before the elimination of intercompany transactions of the subsidiaries whose financial information was prepared under IFRS for the Group’s consolidated financial statements is as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | |
| | As of and for the three months ended March 31, 2018 | |
| | Assets | | | Liabilities | | | Operating revenue | | | Net income (loss) attributable to owners | | | Comprehensive income (loss) attributable to owners | |
Woori FIS Co., Ltd. | | | 97,388 | | | | 69,290 | | | | 72,678 | | | | (4,447 | ) | | | (4,481 | ) |
Woori Private Equity Asset Management Co., Ltd. | | | 42,280 | | | | 2,702 | | | | 286 | | | | (654 | ) | | | (647 | ) |
Woori Finance Research Institute Co., Ltd. | | | 4,104 | | | | 499 | | | | 1,386 | | | | 165 | | | | 165 | |
Woori Card Co., Ltd. | | | 8,744,775 | | | | 7,132,983 | | | | 463,393 | | | | 39,316 | | | | 36,345 | |
Woori Investment Bank Co., Ltd. | | | 2,458,089 | | | | 2,162,084 | | | | 48,406 | | | | 6,436 | | | | 6,296 | |
Woori Credit Information Co., Ltd. | | | 34,228 | | | | 6,737 | | | | 8,982 | | | | 367 | | | | 367 | |
Woori America Bank | | | 1,960,890 | | | | 1,683,720 | | | | 21,203 | | | | 6,535 | | | | 5,169 | |
Woori Global Markets Asia Limited | | | 319,918 | | | | 208,204 | | | | 2,805 | | | | 633 | | | | (51 | ) |
Woori Bank (China) Limited | | | 5,327,620 | | | | 4,808,126 | | | | 185,272 | | | | 2,886 | | | | 21,574 | |
AO Woori Bank | | | 244,467 | | | | 190,738 | | | | 3,767 | | | | 1,107 | | | | 1,234 | |
PT Bank Woori Saudara Indonesia 1906 Tbk | | | 2,293,523 | | | | 1,816,074 | | | | 46,859 | | | | 10,589 | | | | 2,350 | |
Banco Woori Bank do Brasil S.A. | | | 200,014 | | | | 167,209 | | | | 4,101 | | | | 613 | | | | 495 | |
Korea BTL Infrastructure Fund | | | 774,171 | | | | 285 | | | | 7,312 | | | | 6,376 | | | | 6,376 | |
Woori Fund Service Co., Ltd. | | | 12,909 | | | | 1,006 | | | | 2,409 | | | | 491 | | | | 491 | |
Woori Finance Cambodia PLC. | | | 63,345 | | | | 44,398 | | | | 2,573 | | | | 604 | | | | 517 | |
Woori Finance Myanmar Co., Ltd. | | | 18,957 | | | | 5,689 | | | | 1,357 | | | | 401 | | | | 339 | |
Wealth Development Bank | | | 178,787 | | | | 146,097 | | | | 3,108 | | | | 120 | | | | (1,551 | ) |
Woori Bank Vietnam Limited | | | 748,591 | | | | 604,643 | | | | 13,997 | | | | 2,206 | | | | 980 | |
Money trust under the FISCM Act (*) | | | 1,561,421 | | | | 1,531,759 | | | | 11,897 | | | | (250 | ) | | | (250 | ) |
Structured entity for the securitization of financial assets | | | 1,043,453 | | | | 1,448,547 | | | | 19,794 | | | | 12,299 | | | | 2,931 | |
Structured entity for the investments in securities | | | 32,987 | | | | 110 | | | | 272 | | | | (146 | ) | | | (146 | ) |
(*) | FISCM Act: Financial Investment Services and Capital Markets Act |
| | | | | | | | | | | | | | | | | | | | |
| | As of and for the year ended December 31, 2017 | |
| | Assets | | | Liabilities | | | Operating revenue | | | Net income (loss) attributable to owners | | | Comprehensive income (loss) attributable to owners | |
Woori FIS Co., Ltd. | | | 103,932 | | | | 71,386 | | | | 252,460 | | | | 1,940 | | | | (2,963 | ) |
Woori Private Equity Asset Management Co., Ltd. | | | 42,894 | | | | 2,670 | | | | 7,257 | | | | (4,114 | ) | | | (4,074 | ) |
Woori Finance Research Institute Co., Ltd. | | | 3,790 | | | | 350 | | | | 4,733 | | | | 83 | | | | 64 | |
Woori Card Co., Ltd. | | | 8,605,993 | | | | 6,973,705 | | | | 1,771,157 | | | | 101,214 | | | | 107,321 | |
Woori Investment Bank Co., Ltd. | | | 1,880,157 | | | | 1,588,610 | | | | 183,376 | | | | 20,023 | | | | 20,210 | |
Woori Credit Information Co., Ltd. | | | 33,298 | | | | 6,175 | | | | 31,580 | | | | 861 | | | | 752 | |
Woori America Bank | | | 1,954,301 | | | | 1,679,248 | | | | 81,337 | | | | 11,869 | | | | (16,833 | ) |
Woori Global Markets Asia Limited | | | 290,226 | | | | 178,343 | | | | 11,345 | | | | 1,922 | | | | (12,544 | ) |
Woori Bank (China) Limited | | | 4,960,637 | | | | 4,458,683 | | | | 388,913 | | | | 13,809 | | | | (15,252 | ) |
AO Woori Bank | | | 201,704 | | | | 149,101 | | | | 15,656 | | | | 4,748 | | | | 1,217 | |
PT Bank Woori Saudara Indonesia 1906 Tbk | | | 2,230,617 | | | | 1,745,171 | | | | 192,485 | | | | 38,488 | | | | (18,689 | ) |
Banco Woori Bank do Brasil S.A. | | | 213,889 | | | | 181,544 | | | | 20,455 | | | | 1,843 | | | | (2,840 | ) |
Korea BTL Infrastructure Fund | | | 786,480 | | | | 301 | | | | 30,240 | | | | 26,390 | | | | 26,390 | |
Woori Fund Service Co., Ltd. | | | 12,653 | | | | 1,242 | | | | 9,021 | | | | 1,398 | | | | 1,398 | |
Woori Finance Cambodia PLC. | | | 51,304 | | | | 32,873 | | | | 5,895 | | | | 983 | | | | (473 | ) |
Woori Finance Myanmar Co., Ltd. | | | 18,236 | | | | 5,307 | | | | 2,506 | | | | 791 | | | | 15 | |
Wealth Development Bank | | | 191,049 | | | | 156,808 | | | | 13,632 | | | | 1,323 | | | | (1,093 | ) |
Woori Bank Vietnam Limited | | | 775,758 | | | | 632,160 | | | | 29,698 | | | | 2,436 | | | | (15,347 | ) |
Money trust under the FISCM Act (*) | | | 1,560,672 | | | | 1,530,760 | | | | 44,344 | | | | 582 | | | | 582 | |
Structured entity for the securitization of financial assets | | | 867,583 | | | | 1,275,719 | | | | 22,730 | | | | 1,179 | | | | (2,800 | ) |
Structured entity for the investments in securities | | | 34,939 | | | | 76 | | | | 377 | | | | (475 | ) | | | (38,592 | ) |
(*) | FISCM Act: Financial Investment Services and Capital Markets Act |
(5) | The financial support that the Group provides to consolidated structured entities is as follows: |
| • | | Structured entity for the securitization of financial assets |
The structured entity is established for the purpose of securitization of project financing loans, corporate bonds, and other financial assets. The Group is involved with the structured entity through providing with credit facility over asset-backed commercial papers issued by the entity, originating loans directly to the structured entity, or purchasing 100% of the subordinated debts issued by the structured entity.
| • | | Structured entity for the investments in securities |
The structured entity is established for the purpose of investments in securities. The Group acquires beneficiary certificates through its contribution of fund to the structured entity, and it is exposed to the risk that it may not be able to recover its fund depending on the result of investment performance of asset managers of the structured entity.
| • | | Money trust under the Financial Investment Services and Capital Markets Act |
The Group provides with financial guarantee of principal and interest or principal only to some of its trust products. Due to the financial guarantees, the Group may be obliged to supplement when the principal and interest or principal of the trust product sold is short of the guaranteed amount depending on the result of investment performance of the trust product.
(6) | The details of the limitations with regard to the transfer of assets or the redemption of liabilities within the Group are provided below. |
Some subsidiaries are regulated by the rules of the jurisdictions, in which they were incorporated, with regard to funding or management of deposits. Also, there is the limitation that they must havepre-approval from their regulators in case of remittance of earnings to the Group.
(7) | The Group has entered into various agreements with structured entities such as asset securitization vehicles, structured finance and investment funds, and monetary funds. Where it is determined in accordance with IFRS 10 that the Group has no controlling power over such structured entities, the entities are not consolidated. The nature of interests, which the Group retains, and the risks, to which the Group is exposed, of the unconsolidated structured entities are as follows: |
The interests to unconsolidated structured entities, which the Group retains, are classified to asset securitization vehicles, structured finance and investment fund, based on the nature and the purpose of the structured entities.
Asset securitization vehicle issues asset-backed securities and redeems the principal and interest or distributes dividends on asset-backed securities with profits from collecting cash flows or sale of securitized assets. The Group, as a secondary guarantor, provides purchase commitments for its asset-backed securities or guarantees to such asset securitization vehicle and recognizes commission income or interest income related to the commitment or guarantees. Therefore, the Group would be exposed to risks to purchases or pays back asset-backed securities issued by the vehicles when a primary guarantor fails to provide the financing asset securitization vehicles.
Structured finance includes investments in project financing on real estates, social overhead capital (“SOC”), infrastructure and shipping finance. They are formed as special purpose entity by funding through equity investments and loans from various investors. Investment decisions are made by the Group based on business outlook of such projects. In relation to such investments, the Group recognizes interest income on loans, gains or losses on valuation of equity investments or dividend income. The structured finance is secured by additional funding agreement, guarantee or credit facilities. However, the structured financing project would fail to return the capital of equity investments or principal of loans to the Group if it is discontinued or did not achieve business outcome.
Investment funds include trusts and private equity funds. A trust is formed by contributions from various investors, operated by a manager engaged to the trust and distributed proceeds from sales of investments to the investors. A private equity fund is established in order to acquire ownership interests in a portfolio company with exit strategy after implementing financial and operational restructuring of the company. The Group recognizes unrealized gains or losses on change in value of investments in proposition of ownership interests in investments. The Group would be exposed to risks of loss when the value of portfolio investment is decreased.
Total assets of the unconsolidated structured entities, the carrying value of the related items recorded, the maximum exposure to risks, and the loss recognized in conjunction with the unconsolidated structured entities as of March 31, 2018 and December 31, 2017 are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | |
| | March 31, 2018 | |
| | Asset securitization vehicle | | | Structured finance | | | Investment Funds | |
Total asset of the unconsolidated structured entities | | | 8,630,579 | | | | 22,102,269 | | | | 13,500,328 | |
Assets recognized in the consolidated financial statements related to the unconsolidated structured entities | | | 3,440,123 | | | | 2,099,036 | | | | 1,238,464 | |
Financial assets at FVTPL | | | 248,544 | | | | 63,733 | | | | 982,111 | |
Financial assets at FVTOCI | | | 857,768 | | | | 49,797 | | | | — | |
Financial assets at amortized cost | | | 2,333,604 | | | | 1,981,294 | | | | 16,481 | |
Investments in joint ventures and associates | | | — | | | | — | | | | 239,872 | |
Derivative assets | | | 207 | | | | 4,212 | | | | — | |
Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities | | | 1,703 | | | | 2,067 | | | | — | |
Derivative liabilities | | | 529 | | | | 966 | | | | — | |
Other liabilities (including provisions) | | | 1,174 | | | | 1,101 | | | | — | |
The maximum exposure to risks | | | 4,282,274 | | | | 2,822,711 | | | | 1,238,464 | |
Investments | | | 3,440,123 | | | | 2,099,036 | | | | 1,238,464 | |
Credit facilities | | | 842,151 | | | | 723,675 | | | | — | |
Loss recognized on unconsolidated structured entities | | | 357 | | | | 6,513 | | | | 4,350 | |
| | | | | | | | | | | | |
| | December 31, 2017 | |
| | Asset securitization vehicle | | | Structured finance | | | Investment Funds | |
Total asset of the unconsolidated structured entities | | | 7,295,601 | | | | 40,172,830 | | | | 13,641,135 | |
Assets recognized in the consolidated financial statements related to the unconsolidated structured entities | | | 3,215,159 | | | | 2,314,043 | | | | 1,138,523 | |
Loans and receivables | | | 43,180 | | | | 1,969,760 | | | | — | |
Financial assets held for trading | | | — | | | | 233,428 | | | | 10,160 | |
AFS financial assets | | | 902,390 | | | | 106,819 | | | | 904,774 | |
HTM financial assets | | | 2,269,451 | | | | — | | | | — | |
Investments in joint ventures and associates | | | — | | | | — | | | | 223,589 | |
Derivative assets | | | 138 | | | | 4,036 | | | | — | |
Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities | | | 1,433 | | | | 1,506 | | | | — | |
Derivative liabilities | | | 575 | | | | 968 | | | | — | |
Other liabilities (including provisions) | | | 858 | | | | 538 | | | | — | |
The maximum exposure to risks | | | 4,032,531 | | | | 2,918,448 | | | | 1,138,523 | |
Investments | | | 3,215,159 | | | | 2,314,043 | | | | 1,138,523 | |
Credit facilities | | | 817,372 | | | | 604,405 | | | | — | |
Loss recognized on unconsolidated structured entities | | | 837 | | | | 3,939 | | | | 5,993 | |
(8) | Subsidiaries of whichnon-controlling interests are significant to the Group’s consolidated financial statements are as follows (Unit: Korean Won in millions): |
| 1) | Accumulatednon-controlling interests at the end of the reporting period |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Woori Investment Bank | | | 122,363 | | | | 119,111 | |
PT Bank Woori Saudara Indonesia 1906 Tbk | | | 63,268 | | | | 64,877 | |
Wealth Development Bank | | | 16,018 | | | | 16,778 | |
| 2) | Net income attributable tonon-controlling interests |
| | | | | | | | |
| | For the three months ended March 31, 2018 | | | For the three months ended March 31, 2017 | |
Woori Investment Bank | | | 2,585 | | | | 1,761 | |
PT Bank Woori Saudara Indonesia 1906 Tbk | | | 2,131 | | | | 3,238 | |
Wealth Development Bank | | | 59 | | | | 250 | |
| 3) | Dividends tonon-controlling interests |
| | | | | | | | |
| | For the three months ended March 31, 2018 | | | For the three months ended March 31, 2017 | |
PT Bank Woori Saudara Indonesia 1906 Tbk | | | 2,082 | | | | — | |
2. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES |
The Group’s consolidated interim financial statements are prepared in accordance with International Accounting Standards (“IAS”) 34,Interim Financial Reporting and IFRS 10,ConsolidatedFinancial Statements. It is necessary to use the annual consolidated financial statements for the year ended December 31, 2017 for understanding of the accompanying interim financial statements.
Unless stated below, the accounting policies applied in preparing the accompanying consolidated interim financial statements have been applied consistently with the annual consolidated financial statements as of and for the year ended December 31, 2017.
1) | The Group has newly adopted the following amendment to IFRS that affected the Group’s accounting policies: |
| • | | Amendment to IFRS 9 –Financial instruments(enacted) |
The Group applied for the first time as of January 1, 2018, the amendment to IFRS 9 and other standards related to IFRS 9 introduces new rules: 1) classification and measurement of financial assets and financial liabilities, 2) impairment of financial assets, and 3) hedge accounting.
The Group did not reclassify the prior period when applying the Standard, and accordingly the comparative financial statements have not been restated.
The main contents of the new accounting standard and the effect on the financial statements of the Group are as follows:
a) Classification and measurement of financial assets and financial liabilities
All financial assets included in the scope of IFRS 9 are subsequently measured at amortized cost or fair value based on the business model for the management of financial assets and the nature of the contractual cash flows.
Debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods (financial assets at amortized cost).
Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income (financial assets at fair value through other comprehensive income (“FVTOCI”)).
All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods (financial assets at fair value through profit or loss (“FVTPL”)).
Notwithstanding the foregoing, the Group may make the following irrevocable choice or designation at the time of initial recognition of financial assets.
The Group may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of this Standard that is neither held for trading nor contingent consideration recognized by an acquirer in a business combination to which IFRS 3(R) applies.
At initial recognition, financial assets at amortized cost or FVTOCI may be irrevocably designated financial assets measured at FVTPL if doing so eliminate or significantly reduce a measurement or recognition inconsistency.
During the period, there are no financial assets at amortized cost or FVTOCI designated financial assets at FVTPL to eliminate accounting mismatch.
When debt instruments measured at FVTOCI are removed, the cumulative gain or loss recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. On the other hand, for equity instruments designated as other comprehensive income, cumulative gains or losses previously recognized in other comprehensive income are not subsequently reclassified to profit or loss. Debt instruments measured subsequently at amortized cost of other comprehensive income or loss are eligible for impairment if criteria of impairments are satisfied.
The classification and measurement of financial assets and financial liabilities in accordance with IFRS 9 and IAS 39 as of January 1, 2018 are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | |
| | | | | | December 31, 2017 | | | January 1, 2018 | |
Account subject | | Classification according to IAS 39 | | Classification according to IFRS 9 | | Classification according to IAS 39 | | | Classification according to IFRS 9 | |
Deposit | | Loans and receivables | | Loans and other financial assets at amortized cost | | | 8,870,835 | | | | 8,870,835 | |
Deposit | | Financial assets at FVTPL | | Financial assets at FVTPL | | | 25,972 | | | | 25,972 | |
Debt securities | | Financial assets at FVTPL | | Financial assets at FVTPL | | | 2,654,027 | | | | 2,654,027 | |
Debt securities | | AFS financial assets | | Financial assets at FVTPL | | | 46,855 | | | | 46,855 | |
Debt securities | | AFS financial assets | | Financial assets at FVTOCI | | | 12,874,209 | | | | 12,874,209 | |
Debt securities | | AFS financial assets | | Securities at amortized cost | | | 308,181 | | | | 322,300 | |
Debt securities | | HTM financial assets | | Securities at amortized cost | | | 16,749,296 | | | | 16,749,296 | |
Equity securities | | Financial assets at FVTPL | | Financial assets at FVTPL | | | 47,304 | | | | 47,304 | |
Equity securities | | AFS financial assets | | Financial assets at FVTPL (*) | | | 1,273,498 | | | | 1,274,716 | |
Equity securities | | AFS financial assets | | Financial assets at FVTOCI | | | 850,207 | | | | 850,207 | |
Loans(*) | | Loans and receivables | | Financial assets at FVTPL (*) | | | 279,032 | | | | 280,001 | |
Loans | | Loans and receivables | | Loans and other financial assets at amortized cost | | | 253,014,491 | | | | 253,014,491 | |
| | | | | | | | | | | | |
Derivatives | | Financial assets at FVTPL | | Financial assets at FVTPL (*) | | | 3,115,775 | | | | 3,113,638 | |
Derivatives | | Derivatives | | Derivatives | | | 59,272 | | | | 59,272 | |
Other financial assets | | Loans and receivables | | Loans and other financial assets at amortized cost | | | 6,772,088 | | | | 6,772,088 | |
| | | | | | | | | | | | |
Total financial assets | | | 306,941,042 | | | | 306,955,211 | |
| | | | | | | | |
(*) | Under IAS 39, the embedded derivatives out of hybrid financial instruments are accounted for as derivatives assets or liabilities if the requirements of separating are met and the rest of principle contracts in those instruments are recorded asavailable-for-sale financial assets or loans and receivables, respectively. Since IFRS 9 requires financial instruments be accounted for based on the terms of the entire financial instruments, the hybrid financial instruments are revalued and recorded as financial assets at fair value through profit or loss. |
| | | | | | | | | | | | |
Account subject | | Classification according to IAS 39 | | Classification according to IFRS 9 | | December 31, 2017 | | | January 1, 2018 | |
| Classification according to IAS 39 | | | Classification according to IFRS 9 | |
Deposit due to customers | | Financial liabilities at FVTPL | | Financial liabilities at FVTPL | | | 25,964 | | | | 25,964 | |
Deposit due to customers | | Deposit due to customers | | Deposit due to customers | | | 234,695,084 | | | | 234,695,084 | |
Borrowings | | Borrowings | | Borrowings | | | 14,784,706 | | | | 14,784,706 | |
Debentures | | Debentures | | Debentures | | | 27,869,651 | | | | 27,869,651 | |
Debentures | | Financial liabilities at FVTPL | | Financial liabilities at FVTPL | | | 91,739 | | | | 91,739 | |
Equity-linked securities | | Financial liabilities at FVTPL | | Financial liabilities at FVTPL | | | 160,057 | | | | 160,057 | |
Derivatives liabilities | | Financial liabilities at FVTPL | | Financial liabilities at FVTPL | | | 3,150,149 | | | | 3,150,149 | |
Derivatives liabilities | | Derivatives liabilities | | Derivatives liabilities | | | 67,754 | | | | 67,754 | |
Other financial liabilities | | Other financial liabilities | | Other financial liabilities | | | 13,892,461 | | | | 13,892,461 | |
Provision for financial guarantee | | Provision for financial guarantee | | Provision for financial guarantee | | | 71,697 | | | | 71,697 | |
| | | | | | | | | | | | |
Total financial liabilities | | | 294,809,262 | | | | 294,809,262 | |
| | | | | | | | |
No financial assets and financial liabilities designated as FVTPL before the initial application of IFRS 9 were reclassified to financial assets and liabilities at FVTOCI or amortized cost. After the adoption of IFRS 9, there are no financial assets and financial liabilities designated at FVTPL after the date of first application of IFRS 9.
As of the initial adoption of IFRS 9, there were no financial assets at FVTPL or FVTOCI reclassified to the amortization cost measurement category.
As of the date of first adoption of IFRS 9, the amount of valuation gain or loss and fair value of financial assets that would have been recognized in the book, had the entity decided not to reclassify financial assets at FVTPL or FVTOCI that has been reclassified into financial assets at amortized cost, is as follows: (Unit: Korean Won in millions)
| | | | | | | | | | |
Account subject | | Category before the adoption of IFRS 9 | | Amount of valuation gain/loss had it not been reclassified | | | Fair value | |
Debt securities | | AFS securities | | | 382 | | | | 305,281 | |
b) Impairment of financial assets
The impairment model under IFRS 9 reflects expected credit losses, as opposed to incurred credit losses under IAS 39. Under the impairment approach in IFRS 9, it is no longer necessary for a credit event to have occurred before credit losses are recognized. Instead, the Group accounts for expected credit losses and changes in those expected credit losses. The amount of expected credit losses should be updated at each reporting date to reflect changes in credit risk since initial recognition.
The Group is required to recognize the expected credit losses for debt instruments measured at amortized cost or fair value through other comprehensive income, and loan commitments and financial guarantee contracts that are subject to the impairment provisions of IFRS 9. In particular, when the credit risk of the financial instrument is significantly increased after initial recognition, or when the credit quality of the financial asset is impaired, the allowance for losses is measured as the expected credit loss for the whole period. If the credit risk of a financial instrument does not increase significantly after initial recognition (excluding financial assets where credit is impaired), the Group measures the allowance for losses on the financial instruments at the amount equivalent to the expected12-month credit loss.
Management determines the credit risk at the date of initial recognition of the financial instrument in accordance with IFRS 9 and provides a reasonable and supportive measure that can be used without undue cost or effort in comparison with the credit risk of the initial application date (January 1, 2018) We used information that could be used to assess the impairment of the Group’s financial assets, lending arrangements and financial guarantees at the date of initial application. As of January 1, 2018, the evaluation results are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | |
Account subject | | Classification according to IAS 39 | | Classification according to IFRS 9 | | Allowance for credit losses per IAS 39 (A) | | | Allowance for credit losses per IFRS 9 (B) | | | Increases (B-A) | |
Deposit | | Loans and receivables | | Loans and other financial assets at amortized cost | | | 2,458 | | | | 3,092 | | | | 634 | |
Debt securities | | | | | | | | | | | | | | | | |
Available-for-sale debt instruments | | Available-for-sale financial assets | | Financial assets at FVTOCI | | | — | | | | 4,293 | | | | 4,293 | |
Maturity debt instruments | | Held-to-maturity financial assets | | Securities at amortized cost | | | — | | | | 5,078 | | | | 5,078 | |
Loans and other financial assets | | Loans and receivables | | Loans and other financial assets at amortized cost | | | 1,827,785 | | | | 2,075,752 | | | | 247,967 | |
Payment guarantee | | | | | | | 183,247 | | | | 192,980 | | | | 9,733 | |
Loan agreement | | | | | | | 66,115 | | | | 104,985 | | | | 38,870 | |
| | | | | | | | | | | | | | | | |
Total | | | | | | | 2,079,605 | | | | 2,386,180 | | | | 305,873 | |
| | | | | | | | | | | | | | | | |
c) Classification and measurement of financial liabilities
One of the major changes related to the classification and measurement of financial liabilities as a result of the adoption of IFRS 9 is the change in the fair value of financial liabilities measured at fair value through profit or loss. The Group recognizes the effect of changes in the credit risk of financial liabilities designated as fair value measurement in other comprehensive income, except for cases where it causes or disproves accounting misstatement of the profit or loss. Changes in the financial liabilities’ credit risk are recognized in other comprehensive income. Changes in fair value due to credit risk of financial liabilities are not subsequently reclassified to profit or loss, but are replaced with retained earnings when financial liabilities are eliminated.
In accordance with IAS 39, the entire of changes in fair value of financial liabilities designated as at FVTPL are recognized in profit or loss. As of March 31, 2018, the Group designated 251,796 million Korean won of FVTOCI out of 294,809,262 million of financial liabilities, and recognized 133 million Korean won as other comprehensive loss in relation to the credit risk of financial liabilities.
d) Hedge accounting
The new hedge accounting model maintains three types of hedge accounting. However, it is introduced more flexibility in the types of transactions that are eligible for hedge accounting and is expanded the types of hedging instruments andnon-financial hedge items that qualify for hedge accounting. As a whole, it has been amended and replaced by the principle of “economic relationship” between the hedged item and the hedging instrument. Retrospective assessment of the hedging effectiveness is no longer required. Additional disclosure requirements have been introduced in relation to the Group’s risk management activities.
In accordance with the transitional provisions of IFRS 9 on hedge accounting, the Group adopted the hedge accounting provisions of IFRS 9 prospectively from January 1, 2018. As of the date of initial application, the Group has considered that the hedging relationship in the Group in accordance with IAS 39 is appropriate for hedge accounting under IFRS 9. The hedging relationship between the hedging instrument and the hedged item is consistent, therefore, all hedging relationships are consistent with the effectiveness assessment requirements of IFRS 9. The Group has not designated a hedging relationship in accordance with IFRS 9 as a hedging relationship in which the hedge relationship would not have met the requirements for hedge accounting under IAS 39.
The Group continues to designate fair value changes in interest rate swaps as a hedging instrument in the fair value hedge relationship.
e) Effect on equity as a result of adoption of IFRS 9
The effect on equity due to the adoption of IFRS 9 as of January 1, 2018 is as follows (Unit: Korean Won in millions):
| • | | Other comprehensive income |
| | | | |
| | Amount | |
Beginning balance (prior to IFRS 9) | | | (89,722 | ) |
Reclassification | | | (392,177 | ) |
Reclassification ofavailable-for-sale financial assets to financial assets at Amortized cost | | | 494 | |
Reclassification ofavailable-for-sale financial assets to financial assets at FVTPL | | | (152,124 | ) |
Recognition of expected credit losses of debt securities at FVTOCI | | | 4,293 | |
Reversal of impairment losses of equity securities recognized due to reclassification of equity securities at FVTOCI to financial assets at FVTPL | | | (397,508 | ) |
Effect on credit risk of financial liabilities | | | (133 | ) |
Others | | | 3,005 | |
Income tax effect | | | 149,796 | |
| | | | |
Ending balance (based on IFRS 9) | | | (481,899 | ) |
| | | | |
| • | | Retained earnings impact |
| | | | |
| | Amount | |
Beginning balance (prior to IFRS 9) | | | 15,620,006 | |
Reclassification | | | 177,091 | |
Reclassification ofavailable-for-sale financial assets to financial assets at Amortized cost | | | (494 | ) |
Reclassification ofavailable-for-sale financial assets to financial assets at FVTPL | | | 152,124 | |
Recognition of expected credit losses of debt instruments at FVTOCI | | | (4,293 | ) |
Reversal of impairment losses of equity securities recognized due to reclassification of equity securities at FVTOCI to financial assets at FVTPL | | | 397,508 | |
Effect on revaluation of financial assets at amortized cost from loan and receivables or AFS financial assets | | | 282 | |
Recognition of expected credit losses of financial assets at amortized cost which previously loan and receivables | | | (240,563 | ) |
Effect of payment guarantees / unused commitments on liabilities | | | (48,603 | ) |
Effect on credit risk of financial liabilities | | | 133 | |
Others | | | (4,521 | ) |
Income tax effect | | | (74,482 | ) |
| | | | |
Ending balance (based on IFRS 9) | | | 15,797,097 | |
| | | | |
| • | | Amendments to IFRS 15 – Revenue from contracts with customers (enacted) |
The Group adopted IFRS 15 for the first time and applied the retrospective application of the cumulative effect of the first application of IFRS 15 as of January 1, 2018. In addition, the Standard has been retrospectively applied only to contracts that are not completed on the date of initial application, and all contractual changes made prior to the first application date are not rewritten.
| • | | Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions |
The amendments clarify the following; i) In estimating the fair value of a cash-settled share-based payment, the accounting for the effects of vesting andnon-vesting conditions should follow the same approach as for equity-settled share-based payments ii) Where tax law or regulation requires an entity to withhold a specified number of equity instruments equal to the monetary value of the employee’s tax obligation to meet the employee’s tax liability which is then remitted to the tax authority, i.e. the share-based payment arrangement has a ‘net settlement feature’, such an arrangement should be classified as equity-settled in its entirety, provided that the share-based payment would have been classified as equity-settled had it not included the net settlement feature, iii) A modification of a share-based payment that changes the transaction from cash-settled to equity-settled should be accounted for as follows; a) the original liability is derecognized; b) the equity-settled share-based payment is recognized at the modification date fair value of the equity instrument granted to the extent that services have been rendered up to the modification date; and c) any difference between the carrying amount of the liability at the modification date and the amount recognized in equity should be recognized in profit or loss immediately.
| • | | Amendments to IAS 40 – Transfers of Investment Property |
The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that the situations listed IAS 40 are not exhaustive and that a change in use is possible for properties under construction (i.e. a change in use in not limited to completed properties).
| • | | Amendments to IFRIC 22 – Foreign Currency Transactions and Advance Consideration |
IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of anon-monetary asset ornon-monetary liability (e.g. anon-refundable deposit or deferred revenue).
The Interpretation specifies that the date of transaction is the date on which the entity initially recognizes thenon-monetary asset ornon-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of transaction for each payment or receipt of advance consideration.
Other than the application of IFRS 9 Financial Instruments, there are several annual improvements in the current period, but the application of the amendments has had no material effect on the Group’s consolidated financial statements.
| • | | Annual Improvements to IFRS 2014-2016 Cycle |
The amendments include partial amendments to IFRS 1 ‘First-time Adoption of IFRS’ and IAS 28 ‘Investments in Associates and Joint Ventures.’ Amendments to IAS 28 provide that an investment company such as a venture capital investment vehicle may selectively designate each of its investment in associates and/or joint ventures to be measured at FVTPL, and that such designation must be made at the time of each investment’s initial recognition. In addition, whennon-investment companies apply equity method to investment in associates and/or joint ventures that are investment companies, these companies may apply the same fair value measurement used by the said associates to value their own subsidiaries. This accounting treatment may be selectively applied to each associate.
There are no significant impacts on financial statements due to newly adopted the following amendment to IFRS expect of IFRS 9.
2) | The Group has not applied the following IFRSs that have been issued but are not yet effective: |
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accountings treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations from the financial year beginning on or after January 1, 2019.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by model where aright-of-use asset and corresponding liability have to be recognized for all leases by lessees except for short-term leases and leases of low value assets.
Theright-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected as operating lease payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a principal and an interest portion which will be presented as financing and operating cash flows respectively.
In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.
According to the preliminary assessment of the Group, the lease agreements entered into by the Group at the end of the quarter are expected to meet the definition of lease under the Standard, and accordingly, if the Group adopts the Standard, it applies to all leases except short—term leases and leases of low value assets, we will recognize the licensed assets and liabilities accordingly. The Group is analyzing the potential impact of these standards.
3. | SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS |
In the application of the Group’s accounting policies to the interim financial statements, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results can differ from those estimates based on such definitions.
The significant judgments which management has made about the application of the Group’s accounting policies and key sources of uncertainty in estimate do not differ from those used in preparing the consolidated financial statements for the year ended December 31, 2017.
The Group’s operating activity is exposed to various financial risks. The Group is required to analyze and assess the level of complex risks, and determine the permissible level of risks and manage such risks. The Group’s risk management procedures have been established to improve the quality of assets for holding or investment purposes by making decisions as how to avoid or mitigate risks through the identification of the source of the potential risks and their impact.
The Group has established an approach to manage the acceptable level of risks and reduce the excessive risks in financial instruments in order to maximize the profit given risks present, for which the Group has implemented processes for risk identification, assessment, control, and monitoring and reporting.
The risk is managed by the risk management department in accordance with the Group’s risk management policy. The Risk Management Committee makes decisions on the risk strategies such as the allocation of risk capital and the establishment of acceptable level of risk.
Credit risk represents the possibility of financial losses incurred when the counterparty fails to fulfill its contractual obligations. The goals of credit risk management are to maintain the Group’s credit risk exposure to a permissible degree and to optimize its rate of return considering such credit risk.
The Group considers the probability of failure in performing the obligation of its counterparties, credit exposure to the counterparty, the related default risk and the rate of default loss. The Group uses the credit rating model to assess the possibility of counterparty’s default risk; and when assessing the obligor’s credit grade, the Group utilizes credit grades derived using statistical methods.
In order to manage credit risk limit, the Group establishes the appropriate credit line per obligor, company or industry. It monitors obligor’s credit line, total exposures and loan portfolios when approving the loan.
The Group mitigates credit risk resulting from the obligor’s credit condition by using financial and physical collateral, guarantees, netting agreements and credit derivatives. The Group has adopted the entrapment method to mitigate its credit risk. Credit risk mitigation is reflected in qualifying financial collateral, trade receivables, guarantees, residential and commercial real estate and other collaterals. The Group regularly performs a revaluation of collateral reflecting such credit risk mitigation.
| 2) | Maximum exposure to credit risk |
The Group’s maximum exposure to credit risk refers to net book value of financial assets net of allowances, which shows the uncertainties of maximum changes of net value of financial assets attributable to a particular risk without considering collateral and other credit enhancements obtained. However, the maximum exposure is the fair value amount (recorded on the books) for derivatives, maximum contractual obligation for payment guarantees and loan commitment for loan contracts.
The maximum exposure to credit risk is as follows (Unit: Korean Won in millions):
| | | | | | | | | | |
| | | | March 31, 2018 | | | December 31, 2017 | |
Loans and other financial assets | | Korean treasury and government agencies | | | 21,273,432 | | | | — | |
| | Banks | | | 22,368,350 | | | | — | |
| | Corporates | | | 91,829,493 | | | | — | |
| | Consumers | | | 142,637,831 | | | | — | |
| | | | | | | | | | |
| | Subtotal | | | 278,109,106 | | | | — | |
| | | | | | | | | | |
Loans and receivables | | Korean treasury and government agencies | | | — | | | | 8,823,584 | |
| | Banks | | | — | | | | 26,845,309 | |
| | Corporates | | | — | | | | 90,570,551 | |
| | Consumers | | | — | | | | 140,866,760 | |
| | | | | | | | | | |
| | Subtotal | | | — | | | | 267,106,204 | |
| | | | | | | | | | |
Financial assets at FVTPL | | Deposit | | | 25,311 | | | | — | |
| | Debt securities | | | 2,236,626 | | | | — | |
| | Loans and receivables | | | 294,975 | | | | — | |
| | Derivative assets | | | 2,612,869 | | | | — | |
| | | | | | | | | | |
| | Subtotal | | | 5,169,781 | | | | — | |
| | | | | | | | | | |
Financial assets at FVTPL | | Deposit | | | — | | | | 25,972 | |
| | Debt securities | | | — | | | | 2,644,333 | |
| | Financial assets designated at FVTPL | | | — | | | | 9,694 | |
| | Derivative assets | | | — | | | | 3,115,775 | |
| | | | | | | | | | |
| | Subtotal | | | — | | | | 5,795,774 | |
| | | | | | | | | | |
Financial assets at FVTOCI | | Debt securities | | | 12,352,041 | | | | — | |
AFS financial assets | | Debt securities | | | — | | | | 13,229,244 | |
Securities at amortized cost | | Debt securities | | | 16,831,342 | | | | — | |
HTM financial assets | | Debt securities | | | — | | | | 16,749,296 | |
Derivative assets | | Derivative assets (hedging) | | | 39,272 | | | | 59,272 | |
Off-balance accounts | | Guarantees | | | 12,408,153 | | | | 12,859,715 | |
| | Loan commitments | | | 96,822,354 | | | | 80,760,325 | |
| | | | | | | | | | |
| | Subtotal | | | 109,230,507 | | | | 93,620,040 | |
| | | | | | | | | | |
| | total | | | 421,732,049 | | | | 396,559,830 | |
| | | | | | | | | | |
a) | Credit risk exposure by geographical areas |
The following tables analyze credit risk exposure by geographical areas (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Korea | | | China | | | USA | | | UK | | | Japan | | | Others (*) | | | Total | |
Loans and other financial assets at amortized cost | | | 260,285,977 | | | | 4,778,158 | | | | 3,700,301 | | | | 1,118,226 | | | | 396,238 | | | | 7,830,206 | | | | 278,109,106 | |
Securities at amortized cost | | | 16,684,661 | | | | — | | | | 70,265 | | | | — | | | | — | | | | 76,416 | | | | 16,831,342 | |
Financial assets at FVTPL | | | 5,002,243 | | | | 3,035 | | | | — | | | | 90,941 | | | | — | | | | 73,562 | | | | 5,169,781 | |
Financial assets at FVTOCI | | | 11,483,419 | | | | 25,470 | | | | 147,287 | | | | 7,462 | | | | 2,165 | | | | 686,238 | | | | 12,352,041 | |
Derivative assets | | | 13,269 | | | | — | | | | — | | | | 26,003 | | | | — | | | | — | | | | 39,272 | |
Off-balance accounts | | | 107,070,500 | | | | 685,895 | | | | 176,295 | | | | 63,204 | | | | 28,979 | | | | 1,205,634 | | | | 109,230,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 400,540,069 | | | | 5,492,558 | | | | 4,094,148 | | | | 1,305,836 | | | | 427,382 | | | | 9,872,056 | | | | 421,732,049 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Korea | | | China | | | USA | | | UK | | | Japan | | | Others (*) | | | Total | |
Loans and receivables | | | 250,678,479 | | | | 4,104,912 | | | | 2,823,247 | | | | 1,094,988 | | | | 381,890 | | | | 8,022,688 | | | | 267,106,204 | |
Financial assets at FVTPL | | | 5,551,870 | | | | 2,937 | | | | — | | | | 148,955 | | | | — | | | | 92,012 | | | | 5,795,774 | |
AFS debt securities | | | 12,407,602 | | | | 52,259 | | | | 151,131 | | | | — | | | | — | | | | 618,252 | | | | 13,229,244 | |
HTM securities | | | 16,606,692 | | | | — | | | | 63,732 | | | | — | | | | — | | | | 78,872 | | | | 16,749,296 | |
Derivative assets | | | 16,590 | | | | — | | | | — | | | | 42,682 | | | | — | | | | — | | | | 59,272 | |
Off-balance accounts | | | 91,603,852 | | | | 529,193 | | | | 172,570 | | | | 66,974 | | | | 25,039 | | | | 1,222,412 | | | | 93,620,040 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 376,865,085 | | | | 4,689,301 | | | | 3,210,680 | | | | 1,353,599 | | | | 406,929 | | | | 10,034,236 | | | | 396,559,830 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Others consist of financial assets in Indonesia, Vietnam, Panama, European countries and others. |
b) | Credit risk exposure by industries |
The following tables analyze credit risk exposure by industries, which are service, manufacturing, finance and insurance, construction, individuals and others in accordance with the Korea Standard Industrial Classification Code (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Service | | | Manufacturing | | | Finance and insurance | | | Construction | | | Individuals | | | Others | | | Total | |
Loans and other financial assets at amortized cost | | | 47,848,927 | | | | 34,374,432 | | | | 46,046,354 | | | | 3,815,554 | | | | 136,074,168 | | | | 9,949,671 | | | | 278,109,106 | |
Securities at amortized cost | | | 1,142,618 | | | | — | | | | 11,012,940 | | | | 274,348 | | | | — | | | | 4,401,436 | | | | 16,831,342 | |
Financial assets at FVTPL | | | 112,888 | | | | 135,964 | | | | 3,907,115 | | | | 48,209 | | | | 1,523 | | | | 964,082 | | | | 5,169,781 | |
Financial assets at FVTOCI | | | 605,414 | | | | 33,308 | | | | 7,011,364 | | | | 141,220 | | | | — | | | | 4,560,735 | | | | 12,352,041 | |
Derivative assets | | | — | | | | — | | | | 39,272 | | | | — | | | | — | | | | — | | | | 39,272 | |
Off-balance accounts | | | 18,334,145 | | | | 21,396,031 | | | | 9,490,345 | | | | 3,657,108 | | | | 49,665,145 | | | | 6,687,733 | | | | 109,230,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 68,043,992 | | | | 55,939,735 | | | | 77,507,390 | | | | 7,936,439 | | | | 185,740,836 | | | | 26,563,657 | | | | 421,732,049 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Service | | | Manufacturing | | | Finance and insurance | | | Construction | | | Individuals | | | Others | | | Total | |
Loans and receivables | | | 47,192,641 | | | | 34,502,509 | | | | 38,260,051 | | | | 3,574,746 | | | | 133,094,287 | | | | 10,481,970 | | | | 267,106,204 | |
Financial assets at FVTPL | | | 100,766 | | | | 83,239 | | | | 4,640,068 | | | | 15,073 | | | | 1,040 | | | | 955,588 | | | | 5,795,774 | |
AFS debt securities | | | 707,737 | | | | 37,719 | | | | 7,331,774 | | | | 153,534 | | | | — | | | | 4,998,480 | | | | 13,229,244 | |
HTM securities | | | 1,348,754 | | | | — | | | | 10,962,149 | | | | 296,214 | | | | — | | | | 4,142,179 | | | | 16,749,296 | |
Derivative assets | | | — | | | | — | | | | 59,272 | | | | — | | | | — | | | | — | | | | 59,272 | |
Off-balance accounts | | | 16,892,926 | | | | 21,427,378 | | | | 9,841,379 | | | | 3,842,479 | | | | 36,928,554 | | | | 4,687,324 | | | | 93,620,040 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 66,242,824 | | | | 56,050,845 | | | | 71,094,693 | | | | 7,882,046 | | | | 170,023,881 | | | | 25,265,541 | | | | 396,559,830 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
3) | Maximum exposure to credit risk |
The allowance to be recognized under IFRS 9 is the amount of expected12-month credit loss or the expected lifetime credit loss, according to the three stages of credit risk deterioration since initial recognition as shown below.
| | | | | | |
| | Stage 1 | | Stage 2 | | Stage 3 |
| Credit risk has not significantly increased since initial recognition(*) | | Credit risk has significantly increased since initial recognition | | Credit has been impaired |
Allowance for expected credit losses | | Expected12-month credit losses: | | Expected lifetime credit losses: |
| Expected credit losses due to possible defaults on financial instruments within a12-month period from theyear-end. | | Expected credit losses from all possible defaults during the expected lifetime of the financial instruments. |
(*) | Credit risk may be considered to not have been significantly increased when credit risk is low atyear-end. |
The Group has estimated the allowance for credit losses based on historical experience losses with taken account of forward -looking information.
The probability of default and loss at given default per financial assets considering account of type of borrowers, credit rate grade, portfolio are used in estimation of allowance for expected credit losses and those factors are reviewed periodically to reduce the difference of expected losses and actual losses.
The Group also measure expected credit losses by using supportive and reasonable macroeconomic indicators, such as economic growth rates, interest rates, and composite stock indexes. The methods for the estimation of forward- looking are also regularly reviewed.
At the end of each reporting period, the Group assesses whether there is a significant increase in credit risk at the end of the reporting period compared to its initial recognition. The Group uses credit ratings, asset soundness, early warning systems, and delinquency days to determine whether the credit risk has significantly increased.
The financial assets are impaired if the following conditions are met;
| • | | The principal and interest of the loan has been overdue for more than 90 days due to the serious deterioration of the credit condition, |
| • | | It is deemed that the borrowers will not pay any portion of the debts without actions of recourse such as the disposition of the collateral is not taken |
| • | | Objective evidence of impairment of financial assets are identified |
The maximum exposure to credit risk is as follows (Unit: Korean won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | | | Allowance for loan losses | | | Total, net | | | Collateral value of impaired asset | |
| | Above appropriate credit rating (*1) | | | Less than a limited credit rating (*2) | | | Above appropriate credit rating (*1) | | | Less than a limited credit rating (*2) | | | | | | |
Loans and other financial assets at amortized cost | | | 248,626,852 | | | | 18,537,458 | | | | 6,130,985 | | | | 4,728,736 | | | | 2,176,372 | | | | 280,200,403 | | | | (2,091,297 | ) | | | 278,109,106 | | | | 806,638 | |
Korean treasury and government agencies | | | 21,278,412 | | | | — | | | | — | | | | — | | | | — | | | | 21,278,412 | | | | (4,980 | ) | | | 21,273,432 | | | | — | |
Banks | | | 22,065,007 | | | | 29 | | | | 321,774 | | | | 13 | | | | 1 | | | | 22,386,824 | | | | (18,474 | ) | | | 22,368,350 | | | | — | |
Corporates | | | 72,670,492 | | | | 15,713,892 | | | | 733,767 | | | | 2,582,292 | | | | 1,600,366 | | | | 93,300,809 | | | | (1,471,316 | ) | | | 91,829,493 | | | | 585,356 | |
General business | | | 43,590,406 | | | | 5,880,647 | | | | 635,409 | | | | 1,062,966 | | | | 1,321,308 | | | | 52,490,736 | | | | (1,102,513 | ) | | | 51,388,223 | | | | 434,107 | |
Small- andmedium-sized enterprise | | | 24,700,820 | | | | 9,134,524 | | | | 98,358 | | | | 1,293,767 | | | | 232,730 | | | | 35,460,199 | | | | (328,067 | ) | | | 35,132,132 | | | | 129,792 | |
Project financing and others | | | 4,379,266 | | | | 698,721 | | | | — | | | | 225,559 | | | | 46,328 | | | | 5,349,874 | | | | (40,736 | ) | | | 5,309,138 | | | | 21,457 | |
Consumers | | | 132,612,941 | | | | 2,823,537 | | | | 5,075,444 | | | | 2,146,431 | | | | 576,005 | | | | 143,234,358 | | | | (596,527 | ) | | | 142,637,831 | | | | 221,282 | |
Securities at amortized cost | | | 16,786,430 | | | | 49,958 | | | | — | | | | — | | | | — | | | | 16,836,388 | | | | (5,046 | ) | | | 16,831,342 | | | | — | |
Financial assets at FVTOCI (*3) | | | 10,518,214 | | | | 1,803,630 | | | | 30,197 | | | | — | | | | — | | | | 12,352,041 | | | | (3,955 | ) | | | 12,352,041 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 275,931,496 | | | | 20,391,046 | | | | 6,161,182 | | | | 4,728,736 | | | | 2,176,372 | | | | 309,388,832 | | | | (2,100,298 | ) | | | 307,292,489 | | | | 806,638 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*1) | Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6. |
(*2) | Credit grade of corporate areBBB- ~ C, and consumers are grades 7 ~ 10. |
(*3) | Other Financial Assets designated at Fair FVTOCI has not been disclosed after deducting provisions because the carrying amount does not decrease. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | | | | | | Corporates | | | | | | | |
| Korean treasury and government agencies | | | Banks | | | General business | | | Small and medium sized enterprise | | | Project financing and others | | | Subtotal | | | Consumers | | | Total | |
Loans and receivables neither overdue nor impaired | | | 8,825,767 | | | | 26,861,286 | | | | 50,463,112 | | | | 34,107,547 | | | | 5,547,950 | | | | 90,118,609 | | | | 139,886,407 | | | | 265,692,069 | |
Loans and receivables overdue but not impaired | | | 8 | | | | — | | | | 65,616 | | | | 63,067 | | | | — | | | | 128,683 | | | | 878,406 | | | | 1,007,097 | |
Impaired loans and receivables | | | — | | | | — | | | | 1,402,131 | | | | 251,431 | | | | 46,717 | | | | 1,700,279 | | | | 537,001 | | | | 2,237,280 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 8,825,775 | | | | 26,861,286 | | | | 51,930,859 | | | | 34,422,045 | | | | 5,594,667 | | | | 91,947,571 | | | | 141,301,814 | | | | 268,936,446 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance for credit losses | | | 2,191 | | | | 15,977 | | | | 1,078,733 | | | | 267,162 | | | | 31,125 | | | | 1,377,020 | | | | 435,054 | | | | 1,830,242 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total, net | | | 8,823,584 | | | | 26,845,309 | | | | 50,852,126 | | | | 34,154,883 | | | | 5,563,542 | | | | 90,570,551 | | | | 140,866,760 | | | | 267,106,204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Group manages debt securities based on the external credit rating. Credit soundness of debt securities on the basis of External Credit Assessment Institution (ECAI)’s rating is as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Financial assets at FVTPL (*) | | | AFS debt securities | | | HTM securities | | | Total | |
AAA | | | 1,685,099 | | | | 9,897,689 | | | | 15,806,327 | | | | 27,389,115 | |
AA- ~ AA+ | | | 722,923 | | | | 2,386,567 | | | | 888,547 | | | | 3,998,037 | |
BBB- ~ A+ | | | 236,311 | | | | 876,482 | | | | 52,188 | | | | 1,164,981 | |
Below BBB- | | | 9,694 | | | | 68,506 | | | | 2,234 | | | | 80,434 | |
| | | | | | | | | | | | | | | | |
Total | | | 2,654,027 | | | | 13,229,244 | | | | 16,749,296 | | | | 32,632,567 | |
| | | | | | | | | | | | | | | | |
(*) | Financial assets at FVTPL comprise debt securities held for trading and financial assets designated at FVTPL |
| b) | Guarantees and loan commitments |
The credit quality of the guarantees and loan commitments on March 31, 2018 as follows (Unit: Korean won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
Financial assets | | Stage 1 | | | Stage 2 | | | Stage3 | | | Total | |
| Above appropriate credit rating (*1) | | | Less than a limited credit rating (*2) | | | Above appropriate credit rating (*1) | | | Less than a limited credit rating (*2) | | | |
Off-balance accounts | | | | | | | | | | | | | | | | | | | | | | | | |
Guarantees | | | 11,001,548 | | | | 971,329 | | | | 6,838 | | | | 197,884 | | | | 230,554 | | | | 12,408,153 | |
Loan commitments | | | 91,114,718 | | | | 3,736,304 | | | | 1,403,617 | | | | 565,064 | | | | 2,651 | | | | 96,822,354 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 102,116,266 | | | | 4,707,633 | | | | 1,410,455 | | | | 762,948 | | | | 233,205 | | | | 109,230,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(*1) | Credit grade of corporates are AAA ~ BBB, and consumers are grades 1 ~ 6. |
(*2) | Credit grade of corporate areBBB- ~ C, and consumers are grades 7 ~ 10. |
4) | Collateral and other credit enhancements |
There have been no significant changes in the value of collateral or other credit enhancements held by the Group during the current quarter or changes in collateral or other credit enhancements due to changes in the collateral policy of the Group. As of March 31, 2018, there are no financial assets that do not recognize the allowance for losses due to collateral.
Market risk is the possible risk of loss arising from trading activities andnon-trading activities in the volatility of market factors such as interest rates, stock prices and foreign exchange rates. Market risk occurs as a result of changes in the interest rates and foreign exchange rates for financial instruments that are not yet settled, and all contracts are exposed to a certain level of volatility according to changes in the interest rates, credit spreads, foreign exchange rates and the price of equity securities.
For trading activities andnon-trading activities, the Group avoids, bears, or mitigates risks by identifying the underlying source of the risks, measuring parameters and evaluating their appropriateness.
On a yearly basis, the Risk Management Committee establishes a Value at Risk (“VaR”, maximum losses) limit, loss limit and risk capital limit by subsidiaries for its management purposes. The limit by investment desk/dealer is independently managed to the extent of the limit given to subsidiaries and the limit by investment and loss cut is managed by the risk management personnel within the department.
The Group uses both a standard-based and an internal model-based approach to measure market risk. The standard-based approach is used to calculate individual market risk of owned capital while the internal model-based approach is used to calculate general capital market risk and it is used to measure internal risk management measure. For the trading activities, the Risk Management department measures the VaR limit by department, risk factor and loss limit on a daily basis and reports regularly to the Risk Management Committee.
| 2) | Sensitivity analysis of market risk |
The Group performs the sensitivity analyses both for trading and fornon-trading activities.
For trading activities, the Group uses a VaR model that uses certain assumptions of possible fluctuations in market condition and, by conducting simulations of gains and losses, under which the model estimates the maximum losses that may occur. A VaR model predicts based on statistics of possible losses on the portfolio at a certain period currently or in the future. It indicates the maximum expected loss with at least 99% credibility. In short, there exists a one percent possibility that the actual loss might exceed the predicted loss generated from the VaR calculation. The actual results are periodically monitored to examine the validity of the assumptions, variables, and factors that are used in VaR calculations. However, this approach cannot prevent the loss when the market fluctuation exceeds expectation.
For thenon-trading activities, interest rate Earning at Risk (“EaR”) and interest rate VaR, which is based on the simulations of the Net Interest Income (“NII”) and Net Present Value (“NPV”), are calculated for the Bank and the consolidated trusts, and the risks for all other subsidiaries are measured and managed by the interest rate EaR and the interest rate VaR calculations based on the Bank for International Settlements (“BIS”) Framework.
NII is a profit-based indicator for displaying the profit changes in short term due to the short-term interest changes. It will be estimated as subtracting interest expenses of liabilities from the interest income of assets. NPV is an indicator for displaying risks in economic view according to unfavorable changes related to interest rate. It will be estimated as subtracting the present value of liabilities from the present value of assets.
EaR shows the maximum profit-loss amount, which indicates the maximum deduction amount caused by the unfavorable changes related to the interest rate of a certain period (i.e. 1 year). Interest rate VaR shows the potential maximum loss generated by the unfavorable changes during a certain period of time in the present or future.
The minimum, maximum and average VaR for the three months ended March 31, 2018 and for the year ended December 31, 2017, respectively, and the VaR as of March 31, 2018 and December 31, 2017, respectively, are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2018 | | | For the three months ended March 31, 2018 | | | As of December 31, 2017 | | | For the year ended December 31, 2017 | |
Risk factor | | | Average | | | Maximum | | | Minimum | | | | Average | | | Maximum | | | Minimum | |
Interest rate | | | 2,406 | | | | 3,723 | | | | 4,992 | | | | 2,053 | | | | 4,183 | | | | 3,799 | | | | 4,918 | | | | 2,467 | |
Stock price | | | 2,380 | | | | 2,602 | | | | 4,618 | | | | 1,138 | | | | 909 | | | | 2,863 | | | | 4,419 | | | | 909 | |
Foreign currencies | | | 5,569 | | | | 5,081 | | | | 6,136 | | | | 4,284 | | | | 4,750 | | | | 5,051 | | | | 6,636 | | | | 4,061 | |
Commodity price | | | 1 | | | | — | | | | 2 | | | | — | | | | — | | | | 31 | | | | 188 | | | | — | |
Diversification | | | (4,916 | ) | | | (4,657 | ) | | | (7,134 | ) | | | (2,661 | ) | | | (4,472 | ) | | | (4,621 | ) | | | (6,798 | ) | | | (2,067 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total VaR | | | 5,440 | | | | 6,749 | | | | 8,614 | | | | 4,814 | | | | 5,370 | | | | 7,123 | | | | 9,363 | | | | 5,370 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The NII and NPV are calculated for the assets and liabilities owned by the Bank and consolidated trusts, respectively, by using the simulation method. The scenario responding to interest rate (“IR”) changes are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
| | | | | | | | | | | | | | | |
| | NII | | | NPV | | | NII | | | NPV | |
Base case | | | 4,421,061 | | | | 23,693,555 | | | | 4,916,138 | | | | 23,472,792 | |
Base case (Prepay) | | | 4,409,454 | | | | 23,350,238 | | | | 4,916,015 | | | | 23,163,942 | |
IR 100bp up | | | 4,968,378 | | | | 23,640,606 | | | | 5,361,546 | | | | 22,886,122 | |
IR 100bp down | | | 3,939,491 | | | | 23,783,029 | | | | 4,386,437 | | | | 24,127,559 | |
IR 200bp up | | | 5,952,573 | | | | 23,614,194 | | | | 5,806,723 | | | | 22,372,208 | |
IR 200bp down | | | 3,535,169 | | | | 23,924,035 | | | | 3,452,590 | | | | 24,830,482 | |
IR 300bp up | | | 6,833,380 | | | | 23,607,457 | | | | 6,251,897 | | | | 21,929,189 | |
IR 300bp down | | | 3,386,252 | | | | 24,140,012 | | | | 2,254,609 | | | | 26,633,807 | |
The interest EaR and VaR calculated based on the BIS Framework of subsidiaries other than the Bank and consolidated trusts are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | |
March 31, 2018 | | | December 31, 2017 | |
EaR | | | VaR | | | EaR | | | VaR | |
| 263,233 | | | | 122,704 | | | | 255,679 | | | | 130,821 | |
The Group estimates and manages risks related to changes in interest rate due to the difference in the maturities of interest-bearing assets and liabilities and discrepancies in the terms of interest rates. Cash flows (both principal and interest) fromnon-trading, interest bearing assets and liabilities, presented by eachre-pricing date, are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Within 3 months | | | 4 to 6 months | | | 7 to 9 months | | | 10 to 12 months | | | 1 to 5 years | | | Over 5 years | | | Total | |
Asset: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans and other financial assets at amortized cost | | | 152,753,998 | | | | 40,494,795 | | | | 6,660,446 | | | | 9,271,764 | | | | 47,917,967 | | | | 5,006,195 | | | | 262,105,165 | |
Financial assets at FVTOCI | | | 3,288,142 | | | | 2,148,319 | | | | 2,352,608 | | | | 1,741,042 | | | | 2,776,897 | | | | 231,919 | | | | 12,538,927 | |
Securities at amortized cost | | | 2,787,164 | | | | 1,729,074 | | | | 1,660,492 | | | | 1,611,856 | | | | 9,212,690 | | | | 354,270 | | | | 17,355,546 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 158,829,304 | | | | 44,372,188 | | | | 10,673,546 | | | | 12,624,662 | | | | 59,907,554 | | | | 5,592,384 | | | | 291,999,638 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liability: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits due to customers | | | 102,703,704 | | | | 37,452,306 | | | | 36,828,804 | | | | 23,300,319 | | | | 37,536,370 | | | | 8,045 | | | | 237,829,548 | |
Borrowings | | | 8,126,016 | | | | 1,500,998 | | | | 665,160 | | | | 696,096 | | | | 2,644,365 | | | | 522,799 | | | | 14,155,434 | |
Debentures | | | 2,490,511 | | | | 1,010,869 | | | | 1,771,211 | | | | 2,171,694 | | | | 18,673,960 | | | | 2,812,414 | | | | 28,930,659 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 113,320,231 | | | | 39,964,173 | | | | 39,265,175 | | | | 26,168,109 | | | | 58,854,695 | | | | 3,343,258 | | | | 280,915,641 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Within 3 months | | | 4 to 6 months | | | 7 to 9 months | | | 10 to 12 months | | | 1 to 5 years | | | Over 5 years | | | Total | |
Asset: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans and receivables | | | 161,653,892 | | | | 41,671,530 | | | | 7,614,159 | | | | 6,411,841 | | | | 54,150,998 | | | | 26,272,958 | | | | 297,775,378 | |
AFS financial assets | | | 2,150,708 | | | | 2,500,103 | | | | 2,016,711 | | | | 2,367,762 | | | | 4,229,000 | | | | 601,735 | | | | 13,866,019 | |
HTM financial assets | | | 2,286,179 | | | | 2,161,467 | | | | 1,433,425 | | | | 1,687,362 | | | | 9,369,794 | | | | 345,868 | | | | 17,284,095 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 166,090,779 | | | | 46,333,100 | | | | 11,064,295 | | | | 10,466,965 | | | | 67,749,792 | | | | 27,220,561 | | | | 328,925,492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liability: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits due to customers | | | 106,815,564 | | | | 37,750,367 | | | | 25,117,556 | | | | 27,585,458 | | | | 37,518,878 | | | | 91,246 | | | | 234,879,069 | |
Borrowings | | | 9,865,249 | | | | 1,056,579 | | | | 412,966 | | | | 437,431 | | | | 2,709,010 | | | | 479,827 | | | | 14,961,062 | |
Debentures | | | 1,955,902 | | | | 2,452,240 | | | | 1,018,563 | | | | 1,752,847 | | | | 19,770,538 | | | | 2,869,766 | | | | 29,819,856 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 118,636,715 | | | | 41,259,186 | | | | 26,549,085 | | | | 29,775,736 | | | | 59,998,426 | | | | 3,440,839 | | | | 279,659,987 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Currency risk arises from the financial instruments denominated in foreign currencies other than the functional currency. Therefore, no currency risk arises fromnon-monetary items or financial instruments denominated in the functional currency.
Financial instruments in foreign currencies exposed to currency risk are as follows (Unit: USD in millions, JPY in millions, CNY in millions, EUR in millions, and Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | USD | | | JPY | | | CNY | | | EUR | | | Others | | | Total | |
| Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Won equivalent | | | Won equivalent | |
Asset: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans and other financial assets at amortized cost | | | 24,365 | | | | 25,979,438 | | | | 133,617 | | | | 1,338,123 | | | | 27,480 | | | | 4,662,772 | | | | 1,474 | | | | 1,933,233 | | | | 4,304,684 | | | | 38,218,250 | |
Financial assets at FVTPL | | | 75 | | | | 80,200 | | | | 92 | | | | 925 | | | | — | | | | — | | | | 38 | | | | 49,535 | | | | 93,809 | | | | 224,469 | |
Financial assets at FVTOCI | | | 2,037 | | | | 2,172,973 | | | | — | | | | — | | | | 150 | | | | 25,470 | | | | — | | | | — | | | | 325,757 | | | | 2,524,200 | |
Securities at amortized cost | | | 116 | | | | 124,212 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 76,488 | | | | 200,700 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 26,593 | | | | 28,356,823 | | | | 133,709 | | | | 1,339,048 | | | | 27,630 | | | | 4,688,242 | | | | 1,512 | | | | 1,982,768 | | | | 4,800,738 | | | | 41,167,619 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | USD | | | JPY | | | CNY | | | EUR | | | Others | | | Total | |
| | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Won equivalent | | | Won equivalent | |
Liability: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities at FVTPL | | | 55 | | | | 58,706 | | | | 414 | | | | 4,150 | | | | — | | | | — | | | | 37 | | | | 48,241 | | | | 110,503 | | | | 221,600 | |
Deposits due to customers | | | 13,069 | | | | 13,936,698 | | | | 149,090 | | | | 1,493,076 | | | | 21,977 | | | | 3,729,010 | | | | 1,081 | | | | 1,418,174 | | | | 2,709,096 | | | | 23,286,054 | |
Borrowings | | | 5,470 | | | | 5,837,226 | | | | 1,663 | | | | 16,657 | | | | — | | | | — | | | | 172 | | | | 225,885 | | | | 310,601 | | | | 6,390,369 | |
Debentures | | | 3,722 | | | | 3,969,933 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 283,787 | | | | 4,253,720 | |
Other financial liabilities | | | 4,129 | | | | 4,401,097 | | | | 27,708 | | | | 277,489 | | | | 5,170 | | | | 877,217 | | | | 124 | | | | 162,098 | | | | 911,229 | | | | 6,629,130 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 26,445 | | | | 28,203,660 | | | | 178,875 | | | | 1,791,372 | | | | 27,147 | | | | 4,606,227 | | | | 1,414 | | | | 1,854,398 | | | | 4,325,216 | | | | 40,780,873 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Off-balance accounts | | | 7,754 | | | | 8,269,778 | | | | 34,556 | | | | 346,067 | | | | 1,291 | | | | 218,972 | | | | 423 | | | | 555,589 | | | | 365,014 | | | | 9,755,420 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | USD | | | JPY | | | CNY | | | EUR | | | Others | | | Total | |
| | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Won equivalent | | | Won equivalent | |
Asset: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Loans and receivables | | | 23,000 | | | | 24,642,900 | | | | 126,944 | | | | 1,204,843 | | | | 25,224 | | | | 4,127,936 | | | | 1,156 | | | | 1,479,351 | | | | 3,937,733 | | | | 35,392,763 | |
Financial assets at FVTPL | | | 32 | | | | 34,303 | | | | 25 | | | | 238 | | | | — | | | | — | | | | 27 | | | | 34,583 | | | | 104,892 | | | | 174,016 | |
AFS financial assets | | | 1,966 | | | | 2,105,972 | | | | — | | | | — | | | | 319 | | | | 52,259 | | | | — | | | | 590 | | | | 302,801 | | | | 2,461,622 | |
HTM financial assets | | | 111 | | | | 118,868 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 78,175 | | | | 197,043 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 25,109 | | | | 26,902,043 | | | | 126,969 | �� | | | 1,205,081 | | | | 25,543 | | | | 4,180,195 | | | | 1,183 | | | | 1,514,524 | | | | 4,423,601 | | | | 38,225,444 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | USD | | | JPY | | | CNY | | | EUR | | | Others | | | Total | |
| | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Foreign currency | | | Won equivalent | | | Won equivalent | | | Won equivalent | |
Liability: | |
Financial liabilities at FVTPL | | | 41 | | | | 43,423 | | | | 79 | | | | 752 | | | | — | | | | — | | | | 19 | | | | 24,878 | | | | 69,977 | | | | 139,030 | |
Deposits due to customers | | | 13,744 | | | | 14,725,686 | | | | 195,176 | | | | 1,852,440 | | | | 21,865 | | | | 3,578,142 | | | | 883 | | | | 1,129,802 | | | | 2,396,826 | | | | 23,682,896 | |
Borrowings | | | 6,604 | | | | 7,080,118 | | | | 2,218 | | | | 21,056 | | | | — | | | | — | | | | 247 | | | | 315,685 | | | | 242,874 | | | | 7,659,733 | |
Debentures | | | 3,467 | | | | 3,714,411 | | | | — | | | | — | | | | 700 | | | | 114,555 | | | | — | | | | — | | | | 375,749 | | | | 4,204,715 | |
Other financial liabilities | | | 2,392 | | | | 2,562,740 | | | | 16,125 | | | | 153,043 | | | | 1,802 | | | | 294,950 | | | | 129 | | | | 165,189 | | | | 588,625 | | | | 3,764,547 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 26,248 | | | | 28,126,378 | | | | 213,598 | | | | 2,027,291 | | | | 24,367 | | | | 3,987,647 | | | | 1,278 | | | | 1,635,554 | | | | 3,647,051 | | | | 39,450,921 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Off-balance accounts | | | 8,108 | | | | 8,687,009 | | | | 33,624 | | | | 319,127 | | | | 1,199 | | | | 196,261 | | | | 406 | | | | 519,843 | | | | 176,886 | | | | 9,899,126 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liquidity risk refers to the risk that the Group may encounter difficulties in meeting obligations from its financial liabilities.
| 1) | Liquidity risk management |
Liquidity risk management is to prevent potential cash shortages as a result of mismatching the use of funds (assets) and sources of funds (liabilities) or unexpected cash outflows. The financial liabilities that are relevant to liquidity risk are incorporated within the scope of risk management. Derivatives instruments are excluded from those financial liabilities as they reflect expected cash flows for apre-determined period.
Assets and liabilities are grouped by account under Asset Liability Management (“ALM”) in accordance with the characteristics of the account. The Group manages liquidity risk by identifying the maturity gap and such gap ratio through various cash flows analysis (i.e. based on remaining maturity and contract period, etc.), while maintaining the gap ratio at or below the target limit.
| 2) | Maturity analysis ofnon-derivative financial liabilities |
| a) | Cash flows of principals and interests by remaining contractual maturities ofnon-derivative financial liabilities are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Within 3 months | | | 4 to 6 months | | | 7 to 9 months | | | 10 to 12 months | | | 1 to 5 years | | | Over 5 years | | | Total | |
Financial liabilities at FVTPL | | | 325,359 | | | | 1,929 | | | | 629 | | | | 470 | | | | 111 | | | | — | | | | 328,498 | |
Deposits due to customers | | | 146,426,211 | | | | 27,487,385 | | | | 30,193,853 | | | | 27,909,927 | | | | 6,609,711 | | | | 1,938,253 | | | | 240,565,340 | |
Borrowings | | | 4,510,162 | | | | 2,581,705 | | | | 1,383,261 | | | | 1,479,627 | | | | 3,738,152 | | | | 522,673 | | | | 14,215,580 | |
Debentures | | | 2,490,511 | | | | 1,010,869 | | | | 1,771,211 | | | | 2,171,694 | | | | 18,673,960 | | | | 2,812,414 | | | | 28,930,659 | |
Other financial liabilities | | | 16,162,851 | | | | 57,369 | | | | 162,467 | | | | 1,552 | | | | 139,313 | | | | 1,957,373 | | | | 18,480,925 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 169,915,094 | | | | 31,139,257 | | | | 33,511,421 | | | | 31,563,270 | | | | 29,161,247 | | | | 7,230,713 | | | | 302,521,002 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | December 31, 2017 | |
| | Within 3 months | | | 4 to 6 months | | | 7 to 9 months | | | 10 to 12 months | | | 1 to 5 years | | | Over 5 years | | | Total | |
Financial liabilities at FVTPL | | | 168,442 | | | | 155,984 | | | | 1,717 | | | | 512 | | | | 375 | | | | — | | | | 327,030 | |
Deposits due to customers | | | 148,008,777 | | | | 29,563,310 | | | | 18,175,348 | | | | 32,468,110 | | | | 7,409,118 | | | | 2,624,594 | | | | 238,249,257 | |
Borrowings | | | 6,115,732 | | | | 1,893,173 | | | | 1,489,272 | | | | 1,178,107 | | | | 3,924,681 | | | | 479,568 | | | | 15,080,533 | |
Debentures | | | 1,955,255 | | | | 2,452,565 | | | | 1,018,714 | | | | 1,744,731 | | | | 19,770,380 | | | | 2,869,699 | | | | 29,811,344 | |
Other financial liabilities | | | 7,121,342 | | | | 162,871 | | | | 825 | | | | 1,003 | | | | 128,940 | | | | 2,730,001 | | | | 10,144,982 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 163,369,548 | | | | 34,227,903 | | | | 20,685,876 | | | | 35,392,463 | | | | 31,233,494 | | | | 8,703,862 | | | | 293,613,146 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| b) | Cash flows of principals and interests by expected maturities ofnon-derivative financial liabilities are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Within 3 months | | | 4 to 6 months | | | 7 to 9 months | | | 10 to 12 months | | | 1 to 5 years | | | Over 5 years | | | Total | |
Financial liabilities at FVTPL | | | 325,359 | | | | 1,929 | | | | 629 | | | | 470 | | | | 111 | | | | — | | | | 328,498 | |
Deposits due to customers | | | 156,729,683 | | | | 30,847,798 | | | | 26,925,234 | | | | 20,228,734 | | | | 5,052,919 | | | | 135,223 | | | | 239,919,591 | |
Borrowings | | | 4,510,162 | | | | 2,581,705 | | | | 1,383,261 | | | | 1,479,627 | | | | 3,738,152 | | | | 522,673 | | | | 14,215,580 | |
Debentures | | | 2,490,511 | | | | 1,010,869 | | | | 1,771,211 | | | | 2,171,694 | | | | 18,673,960 | | | | 2,812,414 | | | | 28,930,659 | |
Other financial liabilities | | | 16,162,851 | | | | 57,369 | | | | 162,467 | | | | 1,552 | | | | 139,313 | | | | 1,957,373 | | | | 18,480,925 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 180,218,566 | | | | 34,499,670 | | | | 30,242,802 | | | | 23,882,077 | | | | 27,604,455 | | | | 5,427,683 | | | | 301,875,253 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | December 31, 2017 | |
| | Within 3 months | | | 4 to 6 months | | | 7 to 9 months | | | 10 to 12 months | | | 1 to 5 years | | | Over 5 years | | | Total | |
Financial liabilities at FVTPL | | | 168,442 | | | | 155,984 | | | | 1,717 | | | | 512 | | | | 375 | | | | — | | | | 327,030 | |
Deposits due to customers | | | 159,146,602 | | | | 31,298,562 | | | | 16,667,130 | | | | 21,995,294 | | | | 6,487,047 | | | | 2,278,756 | | | | 237,873,391 | |
Borrowings | | | 6,115,732 | | | | 1,893,173 | | | | 1,489,272 | | | | 1,178,107 | | | | 3,924,681 | | | | 479,568 | | | | 15,080,533 | |
Debentures | | | 1,955,255 | | | | 2,452,565 | | | | 1,018,714 | | | | 1,744,731 | | | | 19,770,380 | | | | 2,869,699 | | | | 29,811,344 | |
Other financial liabilities | | | 7,121,342 | | | | 162,871 | | | | 825 | | | | 1,003 | | | | 128,940 | | | | 2,730,001 | | | | 10,144,982 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 174,507,373 | | | | 35,963,155 | | | | 19,177,658 | | | | 24,919,647 | | | | 30,311,423 | | | | 8,358,024 | | | | 293,237,280 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 3) | Maturity analysis of derivative financial liabilities |
Derivatives held for trading purpose are not managed in accordance with their contractual maturity, as the Group holds such financial instruments with the purpose of disposing or redemption before their maturity. As such, those derivatives are incorporated as “within 3 months” in the table below.
The cash flow by the maturity of derivative financial liabilities as of March 31, 2018 and December 31, 2017 is as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remaining maturity | |
| | Within 3 months | | | 4 to 6 months | | | 7 to 9 months | | | 10 to 12 months | | | 1 to 5 years | | | Over 5 years | | | Total | |
March 31, 2018 | | | 2,678,311 | | | | — | | | | — | | | | — | | | | 87,336 | | | | — | | | | 2,765,647 | |
December 31, 2017 | | | 3,150,149 | | | | — | | | | — | | | | 381 | | | | 67,373 | | | | — | | | | 3,217,903 | |
| 4) | Maturity analysis ofoff-balance accounts |
The Group provides guarantees on behalf of customers. A financial guarantee represents an irrevocable undertaking that the Group should meet a customer’s obligations to third parties if the customer fails to do so. Under a loan commitment, the Group agrees to make funds available to a customer in the future. Loan commitments that are usually for a specified term may persist or may be unconditionally cancellable, provided all conditions in the loan facility are satisfied or waived. Commitments to lend include commercial standby facilities and credit lines, liquidity facilities to commercial paper conduits and utilized overdraft facilities. The maximum limit to be paid by the Group in accordance with guarantees and loan commitment only applies to principal amounts. There are contractual maturities for financial guarantees, such as guarantees for debentures issued or loans, loan commitments, and other guarantees, however, under the terms of the guarantees and loan commitments, funds should be paid upon demand from the counterparty. Details ofoff-balance accounts are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Guarantees | | | 12,408,153 | | | | 12,859,715 | |
Loan commitments | | | 96,822,354 | | | | 80,760,325 | |
The Group defines the operational risk that could cause a negative effect on capital resulting from inadequate internal process, labor work and systematic problem or external factors.
| 1) | Operational risk management |
The Group has been running the operational risk management system under Basel II. The Group developed advanced measurement approaches to quantify required capital for operational risk. This system is used for reinforcement in foreign competitions, reducing the amount of risk capitals, managing the risk, and precaution for any unexpected occasions. This system has been tested by an independent third party, and this system approved by the Financial Supervisory Service.
| 2) | Operational risk measurement |
To quantify required capital for operational risk, the Group applies Advanced Measurement Approaches (AMA) using of internal and external loss data, business environment and internal control factors (BEICFs), and scenario analysis (SBA). For the operational risk management for its subsidiaries, the Group adopted the Basic Indicator Approach.
The Group complies with the standard of capital adequacy provided by financial regulatory authorities. The capital adequacy ratio is based on Basel III of Basel Committee on Banking Supervision and Basel III was applied from the end of December, 2013. The capital adequacy ratio is calculated by dividing own capital by asset (weighted with a risk premium – risk weighted assets) based on the consolidated financial statements of the Group.
According to the above regulations, the Group is required to meet the following new minimum requirements: Common Equity Tier 1 capital ratio of 7.13% and 6.25%, a minimum Tier 1 ratio of 8.63% and 7.75% and a minimum total regulatory capital of 10.63% and 9.75% as of March 31, 2018 and December 31, 2017, respectively.
Details of the Group’s capital adequacy ratio as of March 31, 2018 and December 31, 2017 are as follows (Unit: Korean won in millions):
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Tier 1 capital | | | 16,593,321 | | | | 16,074,987 | |
Other Tier 1 capital | | | 2,847,206 | | | | 3,041,664 | |
Tier 2 capital | | | 3,167,074 | | | | 3,486,555 | |
| | | | | | | | |
Total risk-adjusted capital | | | 22,607,601 | | | | 22,603,206 | |
| | | | | | | | |
Risk-weighted assets for credit risk | | | 137,670,034 | | | | 134,767,711 | |
Risk-weighted assets for market risk | | | 2,387,231 | | | | 2,316,938 | |
Risk-weighted assets for operational risk | | | 9,801,519 | | | | 9,677,559 | |
| | | | | | | | |
Total risk-weighted assets | | | 149,858,784 | | | | 146,762,208 | |
| | | | | | | | |
Common Equity Tier 1 ratio | | | 11.07 | % | | | 10.95 | % |
| | | | | | | | |
Tier 1 capital ratio | | | 12.97 | % | | | 13.03 | % |
| | | | | | | | |
Total capital ratio | | | 15.09 | % | | | 15.40 | % |
| | | | | | | | |
In evaluating the results of the Group and allocating resources, the Group’s Chief Operation Decision Maker (the “CODM”) utilizes the information per type of customers. This financial information of the segments is regularly audited by the CODM to make decisions about resources to be allocated to each segment and evaluate its performance.
(1) | Segment by type of customers |
The Group’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market, credit card market and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided.
| • | | Consumer banking: Loans/deposits and financial services for retail and individual consumers, etc. |
| • | | Corporate banking: Loans/deposits and export/import, financial services for corporations, etc. |
| • | | Investment banking: Domestic/foreign investment, structured finance, M&A, Equity & fund investment related business, venture advisory related tasks, real estate SOC development practices, etc. |
| • | | Capital market: Fund management, investment in securities and derivatives, etc. |
| • | | Credit card: Credit card, cash service and card loan, etc. |
| • | | Headquarter and others: Segments that do not belong to above operating segments |
The details of operating income by each segment are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Consumer banking | | | Corporate banking | | | Investment banking | | | Capital market | | | Credit cards | | | Headquarters and others | | | Subtotal | | | Adjust- ments | | | Total | |
Net Interest income | | | 465,989 | | | | 505,909 | | | | (1,166 | ) | | | 8,543 | | | | 121,413 | | | | 117,360 | | | | 1,218,048 | | | | 149,103 | | | | 1,367,151 | |
Interest income | | | 835,505 | | | | 800,441 | | | | 36,333 | | | | 3,655 | | | | 157,507 | | | | 365,063 | | | | 2,198,504 | | | | 76,243 | | | | 2,274,747 | |
Interest expense | | | (244,864 | ) | | | (474,932 | ) | | | (48 | ) | | | — | | | | (36,094 | ) | | | (224,518 | ) | | | (980,456 | ) | | | 72,860 | | | | (907,596 | ) |
Inter-segment | | | (124,652 | ) | | | 180,400 | | | | (37,451 | ) | | | 4,888 | | | | — | | | | (23,185 | ) | | | — | | | | — | | | | — | |
Netnon-interest income | | | 187,905 | | | | 144,039 | | | | 60,706 | | | | 16,020 | | | | 22,547 | | | | 86,657 | | | | 517,874 | | | | (205,306 | ) | | | 312,568 | |
Non-interest income | | | 249,394 | | | | 251,806 | | | | 74,975 | | | | 1,529,763 | | | | 293,667 | | | | 617,979 | | | | 3,017,584 | | | | (117,090 | ) | | | 2,900,494 | |
Non-interest expense | | | (103,151 | ) | | | (125,384 | ) | | | (14,269 | ) | | | (1,513,743 | ) | | | (271,120 | ) | | | (472,043 | ) | | | (2,499,710 | ) | | | (88,216 | ) | | | (2,587,926 | ) |
Inter-segment | | | 41,662 | | | | 17,617 | | | | — | | | | — | | | | — | | | | (59,279 | ) | | | — | | | | — | | | | — | |
Other income(expense) | | | (430,307 | ) | | | (220,523 | ) | | | (2,266 | ) | | | (3,688 | ) | | | (91,321 | ) | | | (155,733 | ) | | | (903,838 | ) | | | 45,416 | | | | (858,422 | ) |
Administrative expense | | | (396,035 | ) | | | (186,879 | ) | | | (2,266 | ) | | | (3,688 | ) | | | (40,321 | ) | | | (175,509 | ) | | | (804,698 | ) | | | 65,014 | | | | (739,684 | ) |
Impairment losses due to credit loss and others | | | (34,272 | ) | | | (33,644 | ) | | | — | | | | — | | | | (51,000 | ) | | | 19,776 | | | | (99,140 | ) | | | (19,598 | ) | | | (118,738 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 223,587 | | | | 429,425 | | | | 57,274 | | | | 20,875 | | | | 52,639 | | | | 48,284 | | | | 832,084 | | | | (10,787 | ) | | | 821,297 | |
Non-operating income(expense) | | | (8,914 | ) | | | 129 | | | | 6,344 | | | | — | | | | (1,034 | ) | | | 14,888 | | | | 11,413 | | | | (26,675 | ) | | | (15,262 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income before income tax expense | | | 214,673 | | | | 429,554 | | | | 63,618 | | | | 20,875 | | | | 51,605 | | | | 63,172 | | | | 843,497 | | | | (37,462 | ) | | | 806,035 | |
Income tax expense | | | (51,951 | ) | | | (92,188 | ) | | | (15,395 | ) | | | (5,051 | ) | | | (12,289 | ) | | | (34,989 | ) | | | (211,863 | ) | | | 348 | | | | (211,515 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | 162,722 | | | | 337,366 | | | | 48,223 | | | | 15,824 | | | | 39,316 | | | | 28,183 | | | | 631,634 | | | | (37,114 | ) | | | 594,520 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | Consumer banking | | | Corporate banking | | | Investment banking | | | Capital market | | | Credit cards | | | Headquarters and others | | | Subtotal | | | Adjust- ments | | | Total | |
Net Interest income | | | 403,256 | | | | 430,779 | | | | 3,227 | | | | 8,998 | | | | 110,127 | | | | 161,416 | | | | 1,117,803 | | | | 144,941 | | | | 1,262,744 | |
Interest income | | | 760,510 | | | | 724,847 | | | | 37,261 | | | | 4,478 | | | | 142,436 | | | | 336,338 | | | | 2,005,870 | | | | 77,906 | | | | 2,083,776 | |
Interest expense | | | (241,214 | ) | | | (408,390 | ) | | | (64 | ) | | | — | | | | (32,309 | ) | | | (206,090 | ) | | | (888,067 | ) | | | 67,035 | | | | (821,032 | ) |
Inter-segment | | | (116,040 | ) | | | 114,322 | | | | (33,970 | ) | | | 4,520 | | | | — | | | | 31,168 | | | | — | | | | — | | | | — | |
Netnon-interest income | | | 169,789 | | | | 130,010 | | | | 53,897 | | | | 14,313 | | | | 16,928 | | | | 54,071 | | | | 439,008 | | | | (160,252 | ) | | | 278,756 | |
Non-interest income | | | 202,994 | | | | 162,875 | | | | 139,252 | | | | 4,891,977 | | | | 293,970 | | | | 421,601 | | | | 6,112,669 | | | | (45,107 | ) | | | 6,067,562 | |
Non-interest expense | | | (58,041 | ) | | | (47,565 | ) | | | (85,355 | ) | | | (4,877,664 | ) | | | (277,042 | ) | | | (327,994 | ) | | | (5,673,661 | ) | | | (115,145 | ) | | | (5,788,806 | ) |
Inter-segment | | | 24,836 | | | | 14,700 | | | | — | | | | — | | | | — | | | | (39,536 | ) | | | — | | | | — | | | | — | |
Other income(expense) | | | (450,534 | ) | | | (194,424 | ) | | | 14,801 | | | | 23,180 | | | | (87,213 | ) | | | 8,715 | | | | (685,475 | ) | | | 23,719 | | | | (661,756 | ) |
Administrative expense | | | (429,830 | ) | | | (195,141 | ) | | | (3,306 | ) | | | (4,471 | ) | | | (39,123 | ) | | | (142,319 | ) | | | (814,190 | ) | | | 59,917 | | | | (754,273 | ) |
Impairment losses due to credit loss and others | | | (20,704 | ) | | | 717 | | | | 18,107 | | | | 27,651 | | | | (48,090 | ) | | | 151,034 | | | | 128,715 | | | | (36,198 | ) | | | 92,517 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income | | | 122,511 | | | | 366,365 | | | | 71,925 | | | | 46,491 | | | | 39,842 | | | | 224,202 | | | | 871,336 | | | | 8,408 | | | | 879,744 | |
Non-operating income(expense) | | | 2,085 | | | | (1,018 | ) | | | 13,813 | | | | — | | | | (1,125 | ) | | | (16,997 | ) | | | (3,242 | ) | | | (47,872 | ) | | | (51,114 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income before income tax expense | | | 124,596 | | | | 365,347 | | | | 85,738 | | | | 46,491 | | | | 38,717 | | | | 207,205 | | | | 868,094 | | | | (39,464 | ) | | | 828,630 | |
Income tax expense | | | (30,152 | ) | | | (84,092 | ) | | | (20,749 | ) | | | (11,251 | ) | | | (9,429 | ) | | | (30,242 | ) | | | (185,915 | ) | | | 16 | | | | (185,899 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | 94,444 | | | | 281,255 | | | | 64,989 | | | | 35,240 | | | | 29,288 | | | | 176,963 | | | | 682,179 | | | | (39,448 | ) | | | 642,731 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) | Information on products and services |
The products of the Group are classified as interest-bearing products such as loans, deposits and debt securities andnon-interest bearing products such as loan commitment, credit commitment, equity securities, and credit card service. This classification of products has been reflected in the segment information presenting interest income andnon-interest income.
(3) | Information on geographical areas |
Among the Group’s revenue (interest income andnon-interest income) from services, revenue from the domestic customers for the three months ended March 31, 2018 and March 31, 2017 amounted to 4,705,993 million Won and 7,901,606 million Won, respectively, and revenue from the foreign customers amounted to 469,248 million Won and 249,732 million Won, respectively. Among the Group’snon-current assets (investments in joint ventures and associates, investment properties, premises and equipment and intangible assets),non-current assets attributed to domestic subsidiaries as of March 31, 2018 and December 31, 2017 are 3,561,846 million Won and 3,550,764 million Won, respectively, and foreign subsidiaries are 229,676 million Won and 233,732 million Won, respectively.
6. | CASH AND CASH EQUIVALENTS |
(1) | Details of cash and cash equivalents are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Cash | | | 1,866,850 | | | | 2,009,363 | |
Foreign currencies | | | 769,013 | | | | 617,155 | |
Demand deposits | | | 2,587,200 | | | | 3,423,355 | |
Fixed deposits | | | 514,939 | | | | 858,413 | |
| | | | | | | | |
Total | | | 5,738,002 | | | | 6,908,286 | |
| | | | | | | | |
(2) | Significant transactions not involving cash inflows and outflows are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31, 2018 | | | For the three months ended March 31, 2017 | |
Changes in other comprehensive loss due to remeasurement of financial assets designated at FVTOCI | | | 30,953 | | | | — | |
Changes in other comprehensive income due to valuation of AFS financial assets | | | — | | | | 12,974 | |
Changes in other comprehensive income (loss) of investment in associates | | | (890 | ) | | | 1,704 | |
Changes in other comprehensive loss of foreign operations translation | | | (1,742 | ) | | | (100,460 | ) |
Changes in other comprehensive income related to valuation of cash flow hedging | | | (3,426 | ) | | | (853 | ) |
Changes in other comprehensive income due to remeasurement of the net defined benefit liability | | | (53,460 | ) | | | (26,517 | ) |
Changes in investments in associates due to equity swap | | | — | | | | 50,300 | |
Changes in unpaid dividends to common stocks | | | 336,636 | | | | 269,308 | |
Changes in unpaid dividends of hybrid equity securities | | | 7,679 | | | | 15,853 | |
7. | FINANCIAL ASSETS AT FVTPL |
(1) | Financial assets at FVTPL are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Financial assets at FVTPL | | | 7,578,339 | | | | — | |
Financial assets held for trading | | | — | | | | 5,820,787 | |
Financial assets designated at FVTPL | | | — | | | | 22,290 | |
| | | | | | | | |
Total | | | 7,578,339 | | | | 5,843,077 | |
| | | | | | | | |
(2) | Financial assets at FVTPL and financial assets held for trading are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Deposits: | | | | | | | | |
Gold banking asset | | | 25,311 | | | | 25,972 | |
Securities: | | | | | | | | |
Debt securities | | | | | | | | |
Korean treasury and government agencies | | | 603,513 | | | | 540,438 | |
Financial institutions | | | 852,276 | | | | 1,476,498 | |
Corporates | | | 772,066 | | | | 627,397 | |
Others | | | 8,771 | | | | — | |
Equity securities | | | 352,477 | | | | 21,666 | |
Capital contributions | | | 300,601 | | | | — | |
Beneficiary certificates | | | 1,755,480 | | | | 13,041 | |
| | | | | | | | |
Subtotal | | | 4,645,184 | | | | 2,679,040 | |
| | | | | | | | |
Loans | | | 294,975 | | | | — | |
| | | | | | | | |
Derivatives assets | | | 2,612,869 | | | | 3,115,775 | |
| | | | | | | | |
Total | | | 7,578,339 | | | | 5,820,787 | |
| | | | | | | | |
(3) | Financial assets designated at fair value through Profit or Loss are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Debt securities | | | — | | | | 9,694 | |
Equity securities | | | — | | | | 12,596 | |
| | | | | | | | |
Total | | | — | | | | 22,290 | |
| | | | | | | | |
8. | FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS |
| (1) | Details of financial assets at FVTOCI as of March 31, 2018 and AFS financial assets as of December 31, 2017 are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Debt securities: | | | | | | | | |
Korean treasury and government agencies | | | 2,187,641 | | | | 2,330,567 | |
Financial institutions | | | 5,173,150 | | | | 5,217,266 | |
Corporates | | | 2,371,732 | | | | 2,725,232 | |
Asset-backed securities | | | — | | | | 308,181 | |
Bond denominated in foreign currencies | | | 2,524,166 | | | | 2,442,579 | |
Others | | | 5,006 | | | | 35,163 | |
Subtotal | | | 12,261,695 | | | | 13,058,988 | |
Equity securities | | | 902,572 | | | | 1,411,078 | |
Beneficiary certificates | | | — | | | | 712,628 | |
Securities loaned | | | 90,346 | | | | 170,256 | |
| | | | | | | | |
Total | | | 13,254,613 | | | | 15,352,950 | |
| | | | | | | | |
| (2) | Details of equity securities designated as financial assets at FVTOCI are as follows (Unit: Korean won in millions): |
| | | | |
| | March 31, 2018 | |
Purpose of acquisition | | Fair value | |
Investment policy | | | 733,220 | |
Debt-equity swap | | | 169,248 | |
Others(*) | | | 104 | |
| | | | |
Total | | | 902,572 | |
| | | | |
(*) | Cooperate insurance, etc. |
(3) | Changes in the loss allowance and gross carrying amount of financial assets at FVTOCI are as follows (Unit: Korean won in millions): |
| 1) | Allowance for credit losses |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | (4,192 | ) | | | (101 | ) | | | — | | | | (4,293 | ) |
Transfer to12-month expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to lifetime expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to credit-impaired financial assets | | | — | | | | — | | | | — | | | | — | |
Net reversal of loss allowance | | | 209 | | | | 7 | | | | — | | | | 216 | |
Others (*) | | | 122 | | | | — | | | | — | | | | 122 | |
| | | | | | | | | | | | | | | | |
Ending balance | | | (3,861 | ) | | | (94 | ) | | | — | | | | (3,955 | ) |
| | | | | | | | | | | | | | | | |
(*) | Others consist of foreign currencies translation and etc. |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | 12,814,010 | | | | 30,212 | | | | — | | | | 12,844,222 | |
Transfer to12-month expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to lifetime expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to credit-impaired financial assets | | | — | | | | — | | | | — | | | | — | |
Acquisition | | | 1,048,437 | | | | — | | | | — | | | | 1,048,437 | |
Disposal / Redemption | | | (1,534,686 | ) | | | — | | | | — | | | | (1,534,686 | ) |
Gain (loss) on valuation | | | 5,744 | | | | (15 | ) | | | — | | | | 5,729 | |
Amortization on the effective interest method | | | (948 | ) | | | — | | | | — | | | | (948 | ) |
Others (*) | | | (10,713 | ) | | | — | | | | — | | | | (10,713 | ) |
| | | | | | | | | | | | | | | | |
Ending balance | | | 12,321,844 | | | | 30,197 | | | | — | | | | 12,352,041 | |
| | | | | | | | | | | | | | | | |
(*) | Others consist of foreign currencies translation, etc. |
(4) | The Bank disposed equity securities designated as financial assets at FVTOCI in accordance with the resolution of disposal from the creditors’ council during the three months ended March 31, 2018. The fair value and accumulative loss on valuation of that equity securities at disposal date are 1,461 million won and 1,974 million won, respectively. |
9. | SECURITIES AT AMORTIZED COST AND HTM FINANCIAL ASSETS |
| (1) | Details of securities at amortized cost as of March 31, 2018 and HTM financial assets as of December 31, 2017 are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Korean treasury and government agencies | | | 4,249,324 | | | | 3,994,857 | |
Financial institutions | | | 7,325,328 | | | | 7,245,426 | |
Corporates | | | 5,061,036 | | | | 5,311,970 | |
Bond denominated in foreign currencies | | | 200,700 | | | | 197,043 | |
Allowance for credit losses | | | (5,046 | ) | | | — | |
| | | | | | | | |
Total | | | 16,831,342 | | | | 16,749,296 | |
| | | | | | | | |
| (2) | Changes in the loss allowance and gross carrying amount of securities at amortized cost are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | (5,078 | ) | | | — | | | | — | | | | (5,078 | ) |
Transfer to12-month expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to lifetime expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to credit-impaired financial assets | | | — | | | | — | | | | — | | | | — | |
Net reversal of loss allowance | | | 9 | | | | — | | | | — | | | | 9 | |
Disposal | | | 23 | | | | — | | | | — | | | | 23 | |
| | | | | | | | | | | | | | | | |
Ending balance | | | (5,046 | ) | | | — | | | | — | | | | (5,046 | ) |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | 16,749,296 | | | | — | | | | — | | | | 16,749,296 | |
Transfer to12-month expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to lifetime expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to credit-impaired financial assets | | | — | | | | — | | | | — | | | | — | |
Acquisition | | | 2,242,037 | | | | — | | | | — | | | | 2,242,037 | |
Redemption / Disposal | | | (2,149,690 | ) | | | — | | | | — | | | | (2,149,690 | ) |
Amortization on the effective interest method | | | (3,979 | ) | | | — | | | | — | | | | (3,979 | ) |
Others (*) | | | (1,276 | ) | | | — | | | | — | | | | (1,276 | ) |
| | | | | | | | | | | | | | | | |
Ending balance | | | 16,836,388 | | | | —�� | | | | — | | | | 16,836,388 | |
| | | | | | | | | | | | | | | | |
(*) | Others consist of foreign currencies translation and etc. |
10. | LOANS AND OTHER FINANCIAL ASSETS AT AMORTIZED COST, AND LOANS AND RECEIVABLES |
(1) | Details of loans and other financial assets at amortized cost as of March 31, 2018 and loans and receivables as of December 31, 2017 are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Due from banks | | | 20,919,478 | | | | 8,868,378 | |
Loans | | | 244,871,023 | | | | 251,523,301 | |
Other receivables | | | 12,318,605 | | | | 6,714,525 | |
| | | | | | | | |
Total | | | 278,109,106 | | | | 267,106,204 | |
| | | | | | | | |
(2) | Details of due from banks are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Due from banks in local currency: | | | | | | | | |
Due from The Bank of Korea (“BOK”) | | | 17,531,004 | | | | 6,246,496 | |
Due from depository banks | | | 50,003 | | | | 30,003 | |
Due fromnon-depository institutions | | | 165 | | | | 150 | |
Due from the Korea Exchange | | | 20,000 | | | | 50,000 | |
Others | | | 48,103 | | | | 97,365 | |
Allowance for credit losses | | | (4,186 | ) | | | (1,541 | ) |
| | | | | | | | |
Subtotal | | | 17,645,089 | | | | 6,422,473 | |
| | | | | | | | |
Due from banks in foreign currencies: | | | | | | | | |
Due from banks on demand | | | 1,035,078 | | | | 794,353 | |
Due from banks on time | | | 1,369,065 | | | | 972,915 | |
Others | | | 872,103 | | | | 679,554 | |
Allowances for credit losses | | | (1,857 | ) | | | (917 | ) |
| | | | | | | | |
Subtotal | | | 3,274,389 | | | | 2,445,905 | |
| | | | | | | | |
Total | | | 20,919,478 | | | | 8,868,378 | |
| | | | | | | | |
(3) | Details of restricted due from banks are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | Counterparty | | March 31, 2018 | | | Reason of restriction |
Due from banks in local currency: | | | | | | |
Due from BOK | | BOK | | | 17,531,004 | | | Reserve deposits under the BOK Act |
Others | | The Korea Exchange and others | | | 45,120 | | | Central counterparty KRW margin and others |
| | | | | | | | |
Subtotal | | | 17,576,124 | | | |
| | | | | | | | |
Due from banks in foreign currencies: | | | | | | |
Due from banks on demand | | BOK and others | | | 1,032,208 | | | Reserve deposits under the BOK Act and others |
Others | | The People’s Bank of China and others | | | 872,103 | | | Reserve deposits and others |
| | | | | | | | |
Subtotal | | | 1,904,311 | | | |
| | | | | | | | |
Total | | | 19,480,435 | | | |
| | | | | | |
| | | | | | | | |
| | Counterparty | | December 31, 2017 | | | Reason of restriction |
Due from banks in local currency: | | | | | | |
Due from BOK | | BOK | | | 6,246,496 | | | Reserve deposits under the BOK Act |
Others | | The Korea Exchange and others | | | 94,394 | | | Central counterparty KRW margin and others |
| | | | | | | | |
Subtotal | | | 6,340,890 | | | |
| | | | | | | | |
Due from banks in foreign currencies: | | | | | | |
Due from banks on demand | | BOK and others | | | 787,520 | | | Reserve deposits under the BOK Act and others |
Others | | The People’s Bank of China and others | | | 367,108 | | | Reserve deposits and others |
| | | | | | | | |
Subtotal | | | 1,154,628 | | | |
| | | | | | | | |
Total | | | 7,495,518 | | | |
| | | | | | |
(4) | Changes in the loss allowance and gross carrying amount of due from banks are as follows (Unit: Korean won in millions): |
| 1) | Allowance for credit losses |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | (3,092 | ) | | | — | | | | — | | | | (3,092 | ) |
Transfer to12-month expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to lifetime expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to credit-impaired financial assets | | | — | | | | — | | | | — | | | | — | |
Net provision of loss allowance | | | (2,933 | ) | | | — | | | | — | | | | (2,933 | ) |
Others (*) | | | (18 | ) | | | — | | | | — | | | | (18 | ) |
| | | | | | | | | | | | | | | | |
Ending balance | | | (6,043 | ) | | | — | | | | — | | | | (6,043 | ) |
| | | | | | | | | | | | | | | | |
(*) | Others consist of foreign currencies translation and etc. |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | 8,870,835 | | | | — | | | | — | | | | 8,870,835 | |
Transfer to12-month expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to lifetime expected credit losses | | | — | | | | — | | | | — | | | | — | |
Transfer to credit-impaired financial assets | | | — | | | | — | | | | — | | | | — | |
Net increase | | | 12,011,935 | | | | — | | | | — | | | | 12,011,935 | |
Others (*) | | | 42,751 | | | | — | | | | — | | | | 42,751 | |
| | | | | | | | | | | | | | | | |
Ending balance | | | 20,925,521 | | | | — | | | | — | | | | 20,925,521 | |
| | | | | | | | | | | | | | | | |
(*) | Others consist of foreign currencies translation and etc. |
(5) | Details of loans are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Loans in local currency | | | 203,166,938 | | | | 200,213,230 | |
Loans in foreign currencies | | | 13,782,904 | | | | 13,147,888 | |
Domestic banker’s letter of credit | | | 2,793,583 | | | | 2,516,907 | |
Credit card accounts | | | 7,271,495 | | | | 6,827,295 | |
Bills bought in foreign currencies | | | 6,801,509 | | | | 8,197,159 | |
Bills bought in local currency | | | 303,848 | | | | 334,714 | |
Factoring receivables | | | 60,910 | | | | 137,523 | |
Advances for customers on guarantees | | | 17,126 | | | | 23,620 | |
Private placement bonds | | | 307,598 | | | | 362,319 | |
Securitized loans | | | 1,047,532 | | | | 563,152 | |
Call loans | | | 3,489,562 | | | | 3,003,455 | |
Bonds purchased under resale agreements | | | 6,581,269 | | | | 16,859,064 | |
Loan origination costs and fees | | | 737,525 | | | | 510,860 | |
Others | | | 534,777 | | | | 607,325 | |
Discounted present value | | | (5,320 | ) | | | (10,988 | ) |
Loss allowance | | | (2,020,233 | ) | | | (1,770,222 | ) |
| | | | | | | | |
Total | | | 244,871,023 | | | | 251,523,301 | |
| | | | | | | | |
(6) | Changes in the loss allowance of loans for the three months ended March 31, 2018 are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Consumers | | | Corporates | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Stage 1 | | | Stage 2 | | | Stage 3 | |
Beginning balance | | | (101,385 | ) | | | (41,352 | ) | | | (117,168 | ) | | | (364,218 | ) | | | (255,932 | ) | | | (905,243 | ) |
Transfer to12-month expected credit losses | | | (6,959 | ) | | | 6,683 | | | | 276 | | | | (10,984 | ) | | | 10,910 | | | | 74 | |
Transfer to lifetime expected credit losses | | | 4,593 | | | | (6,188 | ) | | | 1,595 | | | | 3,447 | | | | (5,051 | ) | | | 1,604 | |
Transfer to credit-impaired financial assets | | | 1,258 | | | | 9,287 | | | | (10,545 | ) | | | 1,579 | | | | 8,909 | | | | (10,488 | ) |
Net reversal (provision) of loss allowance | | | (7,767 | ) | | | (14,527 | ) | | | (26,940 | ) | | | (8,010 | ) | | | (22,208 | ) | | | 10 | |
Charge-off | | | 147 | | | | 2,201 | | | | 23,952 | | | | 104 | | | | 2,343 | | | | 25,190 | |
Disposal | | | — | | | | — | | | | 588 | | | | — | | | | 5 | | | | 10,225 | |
Unwinding effect | | | — | | | | — | | | | 1,741 | | | | — | | | | — | | | | 6,656 | |
Others (*) | | | 32 | | | | 8 | | | | 104 | | | | 24,736 | | | | (26 | ) | | | (4,699 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | (110,081 | ) | | | (43,888 | ) | | | (126,397 | ) | | | (353,346 | ) | | | (261,050 | ) | | | (876,671 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Credit card accounts | | | Total | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Stage 1 | | | Stage 2 | | | Stage 3 | |
Beginning balance | | | (57,134 | ) | | | (71,463 | ) | | | (102,858 | ) | | | (522,737 | ) | | | (368,747 | ) | | | (1,125,269 | ) |
Transfer to12-month expected credit losses | | | (9,940 | ) | | | 9,902 | | | | 38 | | | | (27,883 | ) | | | 27,495 | | | | 388 | |
Transfer to lifetime expected credit losses | | | 6,393 | | | | (6,621 | ) | | | 228 | | | | 14,433 | | | | (17,860 | ) | | | 3,427 | |
Transfer to credit-impaired financial assets | | | 402 | | | | 14,984 | | | | (15,386 | ) | | | 3,239 | | | | 33,180 | | | | (36,419 | ) |
Net provision of loss allowance | | | (172 | ) | | | (18,163 | ) | | | (30,030 | ) | | | (15,949 | ) | | | (54,898 | ) | | | (56,960 | ) |
Charge-off | | | — | | | | — | | | | 31,020 | | | | 251 | | | | 4,544 | | | | 80,162 | |
Disposal | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | 10,813 | |
Unwinding effect | | | — | | | | — | | | | — | | | | — | | | | — | | | | 8,397 | |
Others (*) | | | — | | | | — | | | | — | | | | 24,768 | | | | (18 | ) | | | (4,595 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | (60,451 | ) | | | (71,361 | ) | | | (116,988 | ) | | | (523,878 | ) | | | (376,299 | ) | | | (1,120,056 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Others consist of debt-equity swap, foreign currencies translation and etc. |
Changes in the allowances for credit losses on loans and receivables for the three months ended March 31, 2017, are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | Consumers | | | Corporates | | | Credit card | | | Others | | | Total | |
Beginning balance | | | (163,858 | ) | | | (1,498,842 | ) | | | (155,372 | ) | | | (209,024 | ) | | | (2,027,096 | ) |
Net reversal of provision (net provision) | | | (34,639 | ) | | | (64,371 | ) | | | (41,356 | ) | | | 18,232 | | | | (122,134 | ) |
Recoveries ofwritten-off loans | | | (10,808 | ) | | | (33,178 | ) | | | (12,585 | ) | | | — | | | | (56,571 | ) |
Charge-off | | | 35,647 | | | | 101,546 | | | | 37,959 | | | | 50,745 | | | | 225,897 | |
Sales of loans and receivables | | | 495 | | | | 42,424 | | | | — | | | | 413 | | | | 43,332 | |
Unwinding effect | | | 2,421 | | | | 10,580 | | | | — | | | | — | | | | 13,001 | |
Others (*) | | | 604 | | | | 103,423 | | | | — | | | | (95 | ) | | | 103,932 | |
| | | | | | | | | | | | | | | | | | | | |
Ending balance | | | (170,138 | ) | | | (1,338,418 | ) | | | (171,354 | ) | | | (139,729 | ) | | | (1,819,639 | ) |
| | | | | | | | | | | | | | | | | | | | |
(*) | Others consist of debt-equity swap, foreign currencies translation and etc. |
(7) | Changes in the gross carrying amount of loans are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Consumers | | | Corporates | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Stage 1 | | | Stage 2 | | | Stage 3 | |
Beginning balance | | | 102,731,650 | | | | 5,486,433 | | | | 326,678 | | | | 131,330,304 | | | | 5,001,095 | | | | 1,622,417 | |
Transfer to12-month expected credit losses | | | 1,299,906 | | | | (1,297,721 | ) | | | (2,185 | ) | | | 680,639 | | | | (679,984 | ) | | | (655 | ) |
Transfer to lifetime expected credit losses | | | (1,761,299 | ) | | | 1,775,876 | | | | (14,577 | ) | | | (624,117 | ) | | | 629,997 | | | | (5,880 | ) |
Transfer to credit-impaired financial assets | | | (28,204 | ) | | | (74,962 | ) | | | 103,166 | | | | (94,278 | ) | | | (81,942 | ) | | | 176,220 | |
Charge-off | | | (147 | ) | | | (2,201 | ) | | | (35,243 | ) | | | (104 | ) | | | (2,343 | ) | | | (65,565 | ) |
Disposal | | | — | | | | (270 | ) | | | (7,322 | ) | | | — | | | | (65 | ) | | | (35,835 | ) |
Net increase (decrease) | | | 1,282,840 | | | | (463,769 | ) | | | (24,751 | ) | | | (6,966,924 | ) | | | (426,059 | ) | | | (141,038 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | 103,524,746 | | | | 5,423,386 | | | | 345,766 | | | | 124,325,520 | | | | 4,440,699 | | | | 1,549,664 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Credit card accounts | | | Total | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Stage 1 | | | Stage 2 | | | Stage 3 | |
Beginning balance | | | 5,725,172 | | | | 935,266 | | | | 177,983 | | | | 239,787,126 | | | | 11,422,794 | | | | 2,127,078 | |
Transfer to12-month expected credit losses | | | 198,845 | | | | (198,794 | ) | | | (51 | ) | | | 2,179,390 | | | | (2,176,499 | ) | | | (2,891 | ) |
Transfer to lifetime expected credit losses | | | (255,532 | ) | | | 255,884 | | | | (352 | ) | | | (2,640,948 | ) | | | 2,661,757 | | | | (20,809 | ) |
Transfer to credit-impaired financial assets | | | (8,263 | ) | | | (48,364 | ) | | | 56,627 | | | | (130,745 | ) | | | (205,268 | ) | | | 336,013 | |
Charge-off | | | — | | | | — | | | | (45,111 | ) | | | (251 | ) | | | (4,544 | ) | | | (145,919 | ) |
Disposal | | | — | | | | — | | | | — | | | | — | | | | (335 | ) | | | (43,157 | ) |
Net increase (decrease) | | | 455,768 | | | | 24,923 | | | | 7,474 | | | | (5,228,316 | ) | | | (864,905 | ) | | | (158,315 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | 6,115,990 | | | | 968,915 | | | | 196,570 | | | | 233,966,256 | | | | 10,833,000 | | | | 2,092,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(8) | Details of other receivables are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
CMA accounts | | | 205,000 | | | | 135,000 | |
Receivables | | | 9,952,577 | | | | 4,459,318 | |
Accrued income | | | 1,016,628 | | | | 1,026,273 | |
Telex and telephone subscription rights and refundable deposits | | | 990,101 | | | | 984,620 | |
Other receivables | | | 219,320 | | | | 166,877 | |
Allowance for credit losses | | | (65,021 | ) | | | (57,563 | ) |
| | | | | | | | |
Total | | | 12,318,605 | | | | 6,714,525 | |
| | | | | | | | |
(9) | Changes in the allowances for credit losses on other receivables are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | (3,090 | ) | | | (1,832 | ) | | | (54,077 | ) | | | (58,999 | ) |
Transfer to12-month expected credit losses | | | (116 | ) | | | 105 | | | | 11 | | | | — | |
Transfer to lifetime expected credit losses | | | 75 | | | | (83 | ) | | | 8 | | | | — | |
Transfer to credit-impaired financial assets | | | 156 | | | | 590 | | | | (746 | ) | | | — | |
Net provision of loss allowance | | | (216 | ) | | | (131 | ) | | | (6,666 | ) | | | (7,013 | ) |
Charge-off | | | (51 | ) | | | (391 | ) | | | 1,175 | | | | 733 | |
Disposal | | | — | | | | — | | | | 337 | | | | 337 | |
Others | | | (185 | ) | | | — | | | | 106 | | | | (79 | ) |
| | | | | | | | | | | | | | | | |
Ending balance | | | (3,427 | ) | | | (1,742 | ) | | | (59,852 | ) | | | (65,021 | ) |
| | | | | | | | | | | | | | | | |
(10) | Changes in the gross carrying amount of other receivables are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | 6,662,470 | | | | 29,124 | | | | 79,777 | | | | 6,771,371 | |
Transfer to12-month expected credit losses | | | 6,314 | | | | (6,300 | ) | | | (14 | ) | | | — | |
Transfer to lifetime expected credit losses | | | (6,066 | ) | | | 6,077 | | | | (11 | ) | | | — | |
Transfer to credit-impaired financial assets | | | (617 | ) | | | (2,280 | ) | | | 2,897 | | | | — | |
Charge-off | | | — | | | | (32 | ) | | | (953 | ) | | | (985 | ) |
Disposal | | | — | | | | (2 | ) | | | (407 | ) | | | (409 | ) |
Net increase | | | 5,610,432 | | | | 134 | | | | 3,083 | | | | 5,613,649 | |
| | | | | | | | | | | | | | | | |
Ending balance | | | 12,272,533 | | | | 26,721 | | | | 84,372 | | | | 12,383,626 | |
| | | | | | | | | | | | | | | | |
11. | THE FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
(1) | The fair value hierarchy |
The fair value hierarchy is determined by the levels of judgment involved in estimating fair values of financial assets and liabilities. The specific financial instruments characteristics and market condition such as volume of transactions and transparency are reflected to the market observable inputs. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities. The Group maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value of its financial assets and financial liabilities. Fair value is measured based on the perspective of a market participant. As such, even when market assumptions are not readily available, the Group’s own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.
The fair value measurement is described in the one of the following three levels used to classify fair value measurements:
| • | | Level 1—fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The types of financial assets or liabilities generally included in Level 1 are publicly traded equity securities, derivatives, and debt securities issued by governmental bodies. |
| • | | Level 2— fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices). The types of financial assets or liabilities generally included in Level 2 are debt securities not traded in active markets and derivatives traded in OTC but not required significant judgment. |
| • | | Level 3— fair value measurements are those derived from valuation technique that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). The types of financial assets or liabilities generally included in Level 3 arenon-public securities and derivatives and debt securities of which valuation techniques require significant judgments and subjectivity. |
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Group’s assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.
(2) | Fair value hierarchy of financial assets and liabilities measured at fair value are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Level 1 (*1) | | | Level 2 (*1) | | | Level 3 | | | Total | |
Financial assets: | | | | | | | | | | | | | | | | |
Financial assets at FVTPL | | | | | | | | | | | | | | | | |
Deposits | | | 25,311 | | | | — | | | | — | | | | 25,311 | |
Debt securities | | | 390,247 | | | | 1,837,764 | | | | 8,615 | | | | 2,236,626 | |
Equity securities | | | 59,499 | | | | — | | | | 292,978 | | | | 352,477 | |
Capital contributions | | | — | | | | — | | | | 300,601 | | | | 300,601 | |
Beneficiary certificates | | | — | | | | 1,052,675 | | | | 702,805 | | | | 1,755,480 | |
Loans | | | — | | | | 150,000 | | | | 144,975 | | | | 294,975 | |
Derivative assets | | | 2,651 | | | | 2,576,751 | | | | 33,467 | | | | 2,612,869 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | 477,708 | | | | 5,617,190 | | | | 1,483,441 | | | | 7,578,339 | |
| | | | | | | | | | | | | | | | |
Financial assets at FVTOCI | | | | | | | | | | | | | | | | |
Debt securities | | | 2,804,478 | | | | 9,457,217 | | | | — | | | | 12,261,695 | |
Equity securities | | | 436,777 | | | | — | | | | 465,795 | | | | 902,572 | |
Securities loaned | | | 10,070 | | | | 80,276 | | | | — | | | | 90,346 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | 3,251,325 | | | | 9,537,493 | | | | 465,795 | | | | 13,254,613 | |
| | | | | | | | | | | | | | | | |
Derivative assets | | | — | | | | 39,272 | | | | — | | | | 39,272 | |
| | | | | | | | | | | | | | | | |
Total | | | 3,729,033 | | | | 15,193,955 | | | | 1,949,236 | | | | 20,872,224 | |
| | | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Financial liabilities at FVTPL | | | | | | | | | | | | | | | | |
Deposits due to customers | | | 25,218 | | | | — | | | | — | | | | 25,218 | |
Derivative liabilities | | | 6,354 | | | | 2,642,272 | | | | 29,684 | | | | 2,678,310 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | 31,572 | | | | 2,642,272 | | | | 29,684 | | | | 2,703,528 | |
| | | | | | | | | | | | | | | | |
Financial liabilities designated as at FVTPL | | | | | | | | | | | | | | | | |
Equity-linked securities | | | — | | | | — | | | | 230,441 | | | | 230,441 | |
Debentures | | | — | | | | 91,002 | | | | — | | | | 91,002 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | — | | | | 91,002 | | | | 230,441 | | | | 321,443 | |
Derivative liabilities | | | — | | | | 87,336 | | | | — | | | | 87,336 | |
| | | | | | | | | | | | | | | | |
Total | | | 31,572 | | | | 2,820,610 | | | | 260,125 | | | | 3,112,307 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Level 1 (*1) | | | Level 2 (*1) | | | Level 3 (*2) | | | Total | |
Financial assets: | | | | | | | | | | | | | | | | |
Financial assets held for trading | | | | | | | | | | | | | | | | |
Deposits | | | 25,972 | | | | — | | | | — | | | | 25,972 | |
Debt securities | | | 405,942 | | | | 2,238,391 | | | | — | | | | 2,644,333 | |
Equity securities | | | 21,666 | | | | — | | | | — | | | | 21,666 | |
Beneficiary certificates | | | — | | | | 13,041 | | | | — | | | | 13,041 | |
Derivative assets | | | 1,021 | | | | 3,093,272 | | | | 21,482 | | | | 3,115,775 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | 454,601 | | | | 5,344,704 | | | | 21,482 | | | | 5,820,787 | |
| | | | | | | | | | | | | | | | |
Financial assets designated at FVTPL | | | | | | | | | | | | | | | | |
Debt securities | | | — | | | | — | | | | 9,694 | | | | 9,694 | |
Equity securities | | | — | | | | — | | | | 12,596 | | | | 12,596 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | — | | | | — | | | | 22,290 | | | | 22,290 | |
| | | | | | | | | | | | | | | | |
AFS financial assets | | | | | | | | | | | | | | | | |
Debt securities | | | 2,710,172 | | | | 10,348,815 | | | | — | | | | 13,058,987 | |
Equity securities | | | 399,214 | | | | — | | | | 1,011,864 | | | | 1,411,078 | |
Beneficiary certificates | | | — | | | | 68,722 | | | | 643,906 | | | | 712,628 | |
Securities loaned | | | 69,778 | | | | 100,478 | | | | — | | | | 170,256 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | 3,179,164 | | | | 10,518,015 | | | | 1,655,770 | | | | 15,352,949 | |
| | | | | | | | | | | | | | | | |
Derivative assets | | | — | | | | 59,272 | | | | — | | | | 59,272 | |
| | | | | | | | | | | | | | | | |
Total | | | 3,633,765 | | | | 15,921,991 | | | | 1,699,542 | | | | 21,255,298 | |
| | | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Financial liabilities held for trading | | | | | | | | | | | | | | | | |
Deposits due to customers | | | 25,964 | | | | — | | | | — | | | | 25,964 | |
Derivative liabilities | | | 2,613 | | | | 3,126,585 | | | | 20,951 | | | | 3,150,149 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | 28,577 | | | | 3,126,585 | | | | 20,951 | | | | 3,176,113 | |
| | | | | | | | | | | | | | | | |
Financial liabilities designated at FVTPL | | | | | | | | | | | | | | | | |
Equity-linked securities | | | — | | | | — | | | | 160,057 | | | | 160,057 | |
Debentures | | | — | | | | 91,739 | | | | — | | | | 91,739 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | — | | | | 91,739 | | | | 160,057 | | | | 251,796 | |
| | | | | | | | | | | | | | | | |
Derivative liabilities | | | — | | | | 67,754 | | | | — | | | | 67,754 | |
| | | | | | | | | | | | | | | | |
Total | | | 28,577 | | | | 3,286,078 | | | | 181,008 | | | | 3,495,663 | |
| | | | | | | | | | | | | | | | |
(*1) | There were no transfers between Level 1 and Level 2 of financial assets and liabilities measured at fair value. The Group recognizes transfers among levels at the end of reporting period in which events have occurred or conditions have changed. |
(*2) | Certain AFS unquoted equity securities were measured at cost as of December 31, 2017, that amounted to 37,092 million won. These unquoted equity instruments mostly represent minority investments in structured entity vehicles, such as asset securitization structures. They are measured at cost because (a) observable inputs of financial information to measure fair value were not available to obtain, (b) there was a significant variance in likely estimated cash flows or (c) the probabilities for various estimated cash flows could not be measured reliably. In addition, the Group has no intention to dispose these investments in the foreseeable future. |
Financial assets and liabilities measured at fair value, financial assets and liabilities designated as at FVTPL, financial assets at FVTOCI, and derivative assets and liabilities are recognized at fair value. Fair value is the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
Financial instruments are measured at fair value using a quoted market price in active markets. If there is no active market for a financial instrument, the Group determines the fair value using valuation methods. Valuation methods and input variables for each type of financial instruments are as follows:
| | | | |
| | Valuation methods | | Input variables |
Debt securities | | The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities. | | Risk-free market rate, credit spread |
Equity securities and Beneficiary certificates | | Among DCF (Discounted Cash Flow) Model, FCFE (Free Cash Flow to Equity) Model, Comparable Company Analysis, Dividend Discount Model, Risk-adjusted Rate of Return Method, and Net Asset Value Method, more than one method is used given the characteristic of the subject of fair value measurement. | | Risk-free market rate, market risk premium, Beta, etc. |
Derivatives | | Thein-house developed model which is based on the models that are used by market participants in the valuation of general OTC derivative products, such as options, interest rate swaps, currency swap and currency forward that are based on inputs observable in the market. However, for some complicated financial instruments of which valuation should be based on some assumptions since some significant or all inputs to be used in the model are not observable in the market, thein-house derived model which is developed from the general valuation models, such as Finite Difference Method (“FDM”) or Monte Carlo Simulation. | | Risk-free market rate, forward rate, volatility, foreign exchange rate, stock prices, etc. |
Equity-linked securities | | The fair value of security linked to stock prices or derivatives is measured by the models such as DCF model, FDM, or Monte Carlo Simulation given the natures of the securities or underlying assets. | | Values of underlying assets, risk-free market rate, market rate, dividend and convenience yield, volatility, correlation coefficient, credit spread, and foreign exchange rate |
Debentures | | The fair value is measured by discounting the projected cash flows of a debenture by applying the market discount rate that is reflecting credit rating of the Group. | | Risk-free market rate, forward rate |
Valuation methods of financial assets and liabilities measured at fair value and classified into Level 3 and significant but unobservable inputs are as follows:
| | | | | | | | |
| | Valuation methods | | Input variable | | Range | | Impact of changes in significant unobservable inputs on fair value measurement |
Derivative assets | | Option valuation model and others | | Correlation coefficient | | 0.900–0.980 | | Variation of fair value increases as correlation coefficient increases. |
| | Volatility of underlying asset | | 13.5%–28.9% | | Variation of fair value increases as volatility increases. |
Derivative liabilities | | Option valuation model and others | | Correlation coefficient | | 0.900–0.980 | | Variation of fair value increases as correlation coefficient increases. |
| | Volatility of underlying asset | | 13.5%–28.9% | | Variation of fair value increases as volatility increases. |
Equity linked securities | | Monte Carlo Simulation and others | | Correlation coefficient | | 0.190–0.694 | | Equity linked securities’ variation of fair value increases if both volatility and correlation coefficient increase. However when correlation coefficient decreases, despite the increase in volatility, the variation of fair value of equity linked securities may decrease. |
| | Volatility of underlying asset | | 12.7%–25.8% | |
Equity securities and Beneficiary certificates | | External appraisal value and others | | Expected growth rate | | 0.0%–1.0% | | Fair value increases as expected growth rate increases. |
| | Volatility of real estate sale price | | 0% | | Fair value increases as sale price Increases |
| | Discount rate of lease cash flow and others | | 7.40%–8.54% | | Fair value increases as discount rate of lease cash flow decreases |
Fair value of financial assets and liabilities classified into Level 3 is measured by the Group using its own valuation methods or using external specialists. Unobservable inputs used in the fair value measurements are produced by the internal system of the Group and the appropriateness of inputs is reviewed regularly.
(3) | Changes in financial assets and liabilities measured at fair value classified into Level 3 are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For three months ended March 31, 2018 | |
| | January 1, 2018 | | | Net Income (loss) (*1) | | | Other comprehensive income | | | Purchases/ issuances | | | Disposals/ settlements | | | Transfer to or out of Level 3 (*2) | | | March 31, 2018 | |
Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets at FVTPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Debt securities | | | 9,694 | | | | (8 | ) | | | — | | | | — | | | | (1,071 | ) | | | — | | | | 8,615 | |
Equity securities | | | 272,682 | | | | 20,522 | | | | — | | | | 4 | | | | (230 | ) | | | — | | | | 292,978 | |
Capital contributions | | | 294,121 | | | | 5,812 | | | | — | | | | 8,234 | | | | (7,566 | ) | | | — | | | | 300,601 | |
Beneficiary certificates | | | 654,066 | | | | 3,817 | | | | — | | | | 801,606 | | | | (756,683 | ) | | | — | | | | 702,806 | |
Loans | | | 151,938 | | | | 4,038 | | | | — | | | | — | | | | (11,001 | ) | | | — | | | | 144,975 | |
Derivative assets | | | 19,346 | | | | 61,836 | | | | — | | | | 3,251 | | | | (50,966 | ) | | | — | | | | 33,467 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 1,401,847 | | | | 96,017 | | | | — | | | | 813,095 | | | | (827,517 | ) | | | — | | | | 1,483,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets at FVTOCI | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | | 451,287 | | | | (133 | ) | | | 14,610 | | | | 31 | | | | — | | | | — | | | | 465,795 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,853,134 | | | | 95,884 | | | | 14,610 | | | | 813,126 | | | | (827,517 | ) | | | — | | | | 1,949,237 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities at FVTPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities | | | 20,951 | | | | 59,654 | | | | — | | | | — | | | | (50,921 | ) | | | — | | | | 29,684 | |
Financial liabilities designated as at FVTPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity-linked securities | | | 160,057 | | | | (4,688 | ) | | | — | | | | 168,520 | | | | (93,448 | ) | | | — | | | | 230,441 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 181,008 | | | | 54,966 | | | | — | | | | 168,520 | | | | (144,369 | ) | | | — | | | | 260,125 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*1) | The losses that increase the financial liabilities are presented as positive amounts, and the gains that decrease the financial liabilities are presented as negative amounts. The loss amounting to 40,522 million won for three months ended March 31, 2018, which is from financial assets and liabilities that the Group holds as at the end of the periods, has been recognized in net gain (loss) on financial assets at FVTPL and net gain (loss) on financial assets at FVTOCI in the consolidated statement of comprehensive income. |
(*2) | The Group recognizes transfers between levels at the end of reporting period within which events have occurred or conditions have changed. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | January 1, 2017 | | | Net Income (loss) (*1) | | | Other compre -hensive income (loss) | | | Purchases/ Issuances | | | Disposals/ Settlements | | | Transfer to or out of level 3 (*2) | | | March 31, 2017 | |
Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets held for trading: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | | 23,153 | | | | 6,605 | | | | — | | | | 1 | | | | (10,231 | ) | | | — | | | | 19,528 | |
Financial assets designated at FVTPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity-linked securities | | | 4,348 | | | | (15 | ) | | | — | | | | — | | | | — | | | | — | | | | 4,333 | |
Equity securities | | | 12,652 | | | | 113 | | | | — | | | | — | | | | — | | | | — | | | | 12,765 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 17,000 | | | | 98 | | | | — | | | | — | | | | — | | | | — | | | | 17,098 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
AFS financial assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities (*3) | | | 1,024,935 | | | | 3,131 | | | | 7,528 | | | | 17,237 | | | | (13,390 | ) | | | 3 | | | | 1,039,444 | |
Beneficiary certificates | | | 530,511 | | | | 3,144 | | | | (4,921 | ) | | | 56,110 | | | | (42,006 | ) | | | — | | | | 542,838 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Subtotal | | | 1,555,446 | | | | 6,275 | | | | 2,607 | | | | 73,347 | | | | (55,396 | ) | | | 3 | | | | 1,582,282 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | | 99 | | | | 169 | | | | — | | | | — | | | | (141 | ) | | | — | | | | 127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 1,595,698 | | | | 13,147 | | | | 2,607 | | | | 73,348 | | | | (65,768 | ) | | | 3 | | | | 1,619,035 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities held for trading Derivative liabilities | | | 33,524 | | | | 3,722 | | | | — | | | | 500 | | | | (9,112 | ) | | | — | | | | 28,634 | |
Financial liabilities designated at FVTPL | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity-linked securities | | | 673,709 | | | | 61,231 | | | | — | | | | — | | | | (196,672 | ) | | | — | | | | 538,268 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 707,233 | | | | 64,953 | | | | — | | | | 500 | | | | (205,784 | ) | | | — | | | | 566,902 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*1) | The loss amounting to 51,559 million Won for the three months ended March 31, 2017, which is from financial assets and liabilities that the Group holds , has been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on AFS financial assets in the statement of comprehensive income. |
(*2) | The Group recognizes transfers between levels at the end of reporting period within which events have occurred or conditions have changed. |
(*3) | AFS financial assets were transferred out of Level 1 to Level 3 upon the change of the fair value measurement method of the assets by using market the external valuation specialists from previously using quoted prices in the active market. |
(4) | Sensitivity analysis on the unobservable inputs used for measuring Level 3 financial instruments |
The sensitivity analysis of the financial instruments has been performed by classifying with favorable and unfavorable changes based on how changes in unobservable assumptions would have effects on the fluctuations of financial instruments’ value. When the fair value of a financial instrument is affected by more than one unobservable assumption, the below table reflects the most favorable or the most unfavorable changes which resulted from varying the assumptions individually. The sensitivity analysis was performed for two types of level 3 financial instruments: (1) debt securities, equity securities, interest rate related derivatives, currency related derivatives, equity related derivatives, equity-linked securities and beneficiary certificates of which fair value changes are recognized as net income; (2) equity securities of which fair value changes are recognized as other comprehensive income. Equity investments classified as Level 3 equity securities whose costs are considered to provide the best estimate of fair value are excluded from sensitivity analysis.
The following table presents the sensitivity analysis to disclose the effect of reasonably possible volatility on the fair value of a Level 3 financial instruments (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | |
| | As of March 31, 2018 | |
| | Net income (loss) | | | Other comprehensive income (loss) | |
| | Favorable | | | Unfavorable | | | Favorable | | | Unfavorable | |
Financial assets: | | | | | | | | | | | | | | | | |
Financial assets at FVTPL | | | | | | | | | | | | | | | | |
Derivative assets (*1) (*2) | | | 3,033 | | | | (2,645 | ) | | | — | | | | — | |
Loans | | | 482 | | | | (371 | ) | | | — | | | | — | |
Debt securities | | | 1,086 | | | | (1,019 | ) | | | — | | | | — | |
Equity securities (*3) (*4) | | | 10,796 | | | | (7,231 | ) | | | — | | | | — | |
Beneficiary certificates (*4) | | | 1,828 | | | | (2,904 | ) | | | — | | | | — | |
Financial assets at FVTOCI | | | | | | | | | | | | | | | | |
Equity securities (*3) (*4) | | | — | | | | — | | | | 22,987 | | | | (9,762 | ) |
| | | | | | | | | | | | | | | | |
Total | | | 17,225 | | | | (14,170 | ) | | | 22,987 | | | | (9,762 | ) |
| | | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Financial liabilities at FVTPL | | | | | | | | | | | | | | | | |
Derivative liabilities (*1) (*2) | | | 1,844 | | | | (2,250 | ) | | | — | | | | — | |
Financial liabilities designated as at FVTPL | | | | | | | | | | | | | | | | |
Equity-linked securities (*1) | | | 992 | | | | (1,059 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | | 2,836 | | | | (3,309 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
| |
| | As of December 31, 2017 | |
| | Net income (loss) | | | Other comprehensive income (loss) | |
| | Favorable | | | Unfavorable | | | Favorable | | | Unfavorable | |
Financial assets: | | | | | | | | | | | | | | | | |
Financial assets held for trading | | | | | | | | | | | | | | | | |
Derivatives assets (*1)(*2) | | | 1,234 | | | | (526 | ) | | | — | | | | — | |
Financial assets designed at FVTPL | | | | | | | | | | | | | | | | |
Debt securities (*5) | | | 265 | | | | (309 | ) | | | — | | | | — | |
Equity securities (*5) | | | 670 | | | | (624 | ) | | | — | | | | — | |
AFS Financial assets | | | | | | | | | | | | | | | | |
Equity securities (*3)(*4) | | | — | | | | — | | | | 28,583 | | | | (15,246 | ) |
Beneficiary certificates (*4) | | | — | | | | — | | | | 1,861 | | | | (1,857 | ) |
| | | | | | | | | | | | | | | | |
Total | | | 2,169 | | | | (1,459 | ) | | | 30,444 | | | | (17,103 | ) |
| | | | | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | |
Financial liabilities held for trading | | | | | | | | | | | | | | | | |
Derivative liabilities (*1)(*2) | | | 5 | | | | (513 | ) | | | — | | | | — | |
Financial liabilities designated at FVTPL | | | | | | | | | | | | | | | | |
Equity-linked securities (*1) | | | 8 | | | | (7 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | | 13 | | | | (520 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
(*1) | Fair value changes of equity related derivatives assets and liabilities and equity-linked securities are calculated by increasing or decreasing historical volatility of the stock price and correlation, which are major unobservable variables, by 10%, respectively. In the case of interest rate related derivative assets and liabilities, fair value changes are calculated by increasing or decreasing the volatility of interest rate, which are major unobservable variables, by 10%. |
(*2) | Both derivative assets and liabilities for held for trading and hedging are included. |
(*3) | Fair value changes of equity securities are calculated by increasing or decreasing growth rate (0~1%) and discount rate or liquidation value(-1~1%). The growth rate, discount rate, and liquidation value are major unobservable variables. |
(*4) | Even if the sensitivity analysis of the capital contributions and beneficiary certificates is not possible in practice, fair value changes of beneficiary certificates and other securities whose major unobservable variables are composed of the real estate are calculated by increasing or decreasing price fluctuation of real estate which is underlying assets and discount rate by 1%. |
(*5) | Changes of fair value are measured by increasing or decreasing the discount rate by 10%, which is major unobservable variable, respectively. |
(5) | Fair value and carrying amount of financial assets and liabilities that are recorded at amortized cost are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Fair value | | | Book value | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Securities at amortized cost | | | 1,269,228 | | | | 15,531,601 | | | | — | | | | 16,800,829 | | | | 16,831,342 | |
Loans and other financial assets at amortized cost | | | — | | | | — | | | | 277,475,813 | | | | 277,475,813 | | | | 278,109,106 | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits due to customers | | | — | | | | 237,361,067 | | | | — | | | | 237,361,067 | | | | 237,497,139 | |
Borrowings | | | — | | | | 13,938,136 | | | | — | | | | 13,938,136 | | | | 13,935,114 | |
Debentures | | | — | | | | 26,989,332 | | | | — | | | | 26,989,332 | | | | 27,091,625 | |
Other financial liabilities | | | — | | | | 22,427,494 | | | | — | | | | 22,427,494 | | | | 22,451,144 | |
| |
| | December 31, 2017 | |
| | Fair value | | | Book value | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
HTM financial assets | | | 1,206,292 | | | | 15,509,387 | | | | — | | | | 16,715,679 | | | | 16,749,296 | |
Loans and receivables | | | — | | | | — | | | | 265,570,649 | | | | 265,570,649 | | | | 267,106,204 | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits due to customers | | | — | | | | 234,682,775 | | | | — | | | | 234,682,775 | | | | 234,695,084 | |
Borrowings | | | — | | | | 14,754,506 | | | | — | | | | 14,754,506 | | | | 14,784,706 | |
Debentures | | | — | | | | 27,889,781 | | | | — | | | | 27,889,781 | | | | 27,869,651 | |
Other financial liabilities | | | — | | | | 13,890,789 | | | | — | | | | 13,890,789 | | | | 13,892,461 | |
The fair values of financial instruments are measured using quoted market price in active markets. In case there is no active market for financial instruments, the Group determines the fair value using valuation methods. Valuation methods and input variables for financial assets and liabilities that are measured at amortized costs are given as follows:
| | | | |
| | Valuation methods | | Input variables |
Securities at amortized cost(HTM financial assets in previous year) | | The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities. | | Risk-free market rate and credit spread |
Loans and other financial assets at amortized cost (Loans and receivables in previous year) | | The fair value is measured by discounting the projected cash flows of loan products by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the debtor. | | Risk-free market rate, credit spread and prepayment-rate |
Deposits due to customers, borrowings, debentures and other financial liabilities | | The fair value is measured by discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Group. | | Risk-free market rate and forward rate |
12. | DERECOGNITION AND OFFSET OF FINANCIAL INSTRUMENTS |
(1) | Derecognition of financial assets |
| 1) | Transferred financial assets that do not meet the condition of derecognition |
| a) | Disposal of securities under repurchase agreements |
The financial instruments that were disposed but the Group agreed to repurchase at the fixed amounts at the same time, so that they did not meet the conditions of derecognition, are as follows (Unit: Korean won in millions):
| | | | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Assets transferred | | Financial assets at FVTOCI | | | 10,004 | | | | — | |
| | AFS financial assets | | | — | | | | 9,998 | |
| | Securities at amortized cost | | | 5,440 | | | | — | |
| | HTM financial assets | | | — | | | | 5,436 | |
| | | | | | | | | | |
| | Total | | | 15,444 | | | | 15,434 | |
| | | | | | | | | | |
Related liabilities | | Bonds sold under repurchase agreements | | | 2,570 | | | | 3,173 | |
| | | | | | | | | | |
When the Group loans its securities to outside parties, the legal ownerships of the securities are transferred; however, they should be returned at the end of lending period. Therefore, the Group does not derecognize them from the financial statements as it owns majority of risks and benefits from the securities continuously, regardless of the transfer of legal ownership. The carrying amounts of the securities loaned are as follows (Unit: Korean won in millions):
| | | | | | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | | | Loaned to |
Financial assets at FVTOCI | | Industrial and financial debt securities and others | | | 90,346 | | | | — | | | Korea Securities Finance Corporation |
AFS financial assets | | Korean treasury and government agencies and others | | | — | | | | 170,256 | | | Korea Securities Finance Corporation and others |
| | | | | | | | | | | | |
| | Total | | | 90,346 | | | | 170,256 | | | |
| | | | | | | | | | | | |
The details of the transferred financial assets that are not derecognized in their entirety, such as disposal of securities under repurchase agreement or securities loaned, are explained in Note 18.
(2) | The offset of financial assets and liabilities |
The Group possesses both the uncollected domestic exchange receivables and the unpaid domestic exchange payable, which satisfy offsetting criteria of IAS 32. Therefore, the total number of uncollected domestic exchange receivables or unpaid domestic exchange payable has been countervailed with part of unpaid domestic exchange payable or uncollected domestic exchange receivables and has been disclosed in loans and other financial assets at amortized cost (loans and receivables in previous year) or other financial liabilities of the Group’s statements of financial position.
The Group possesses the derivative assets, derivative liabilities, receivable spot exchange and payable spot exchange that do not satisfy the offsetting criteria of IAS 32, but provide the Group under the circumstances of the trading party’s defaults, insolvency or bankruptcy, the right of offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of IAS 32, but in accordance with the collateral arrangements and under the circumstances of the trading party’s default, insolvency or bankruptcy, the derivative assets, derivative liabilities, receivable spot exchange and net amount of payable spot exchange can be offset.
The Group has entered into a sale and repurchase agreement and accounted it as a collateralized borrowing. The Group has also entered into a purchase and resale agreement and accounted it as a secured loan. The repurchase and resale agreements can have the offsetting right only under the trading party’s default, insolvency or bankruptcy, which do not satisfy the offsetting criteria of IAS 32. The Group recorded the collateralized borrowing in borrowings and the secured loans in loans and receivables. The Group under the repurchase agreements has offsetting right only upon the counterparty’s default, insolvency or bankruptcy; thus, the repurchase agreements are applied by the TBMA/ISMA Global Master Repurchase Agreement, which does not satisfy the offsetting criteria of IAS 32. The Group disclosed bonds sold (purchased) under repurchase agreements as borrowings (loans and other financial assets at amortized cost (loans and receivables in previous year)).
As of March 31, 2018 and December 31, 2017, the financial instruments to be set off and maybe covered by master netting agreements and similar agreements are given as follows (Unit: Korean won in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Gross amounts of recognized financial assets | | | Gross amounts of recognized financial assets set off | | | Net amounts of financial assets presented | | | Related amounts not set off in the consolidated statement of financial position | | | Net amounts | |
| | Netting agreements and others | | | Cash collateral received | |
Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets and others (*1) | | | 2,621,529 | | | | — | | | | 2,621,529 | | | | 9,430,201 | | | | 135,926 | | | | 983,476 | |
Receivable spot exchange (*2) | | | 7,928,074 | | | | — | | | | 7,928,074 | | | | | | | | | | | | | |
Bonds purchased under resale agreements (*2) | | | 6,581,269 | | | | — | | | | 6,581,269 | | | | 6,581,269 | | | | — | | | | — | |
Domestic exchanges receivable (*2)(*5) | | | 24,139,040 | | | | 24,015,691 | | | | 123,349 | | | | — | | | | — | | | | 123,349 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 41,269,912 | | | | 24,015,691 | | | | 17,254,221 | | | | 16,011,470 | | | | 135,926 | | | | 1,106,825 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Gross amounts of recognized financial liabilities | | | Gross amounts of recognized financial liabilities set off | | | Net amounts of financial liabilities presented | | | Related amounts not set off in the consolidated statement of financial position | | | Net amounts | |
| | Netting agreements and others | | | Cash collateral pledged | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities and others (*1) | | | 2,933,028 | | | | — | | | | 2,933,028 | | | | 9,383,031 | | | | 272,708 | | | | 1,203,368 | |
Payable spot exchange (*3) | | | 7,926,079 | | | | — | | | | 7,926,079 | | | | | | | | | | | | | |
Bonds sold under repurchase agreements (*4) | | | 2,570 | | | | — | | | | 2,570 | | | | 2,570 | | | | — | | | | — | |
Domestic exchanges payable (*3)(*5) | | | 27,598,567 | | | | 24,015,691 | | | | 3,582,876 | | | | 3,579,023 | | | | — | | | | 3,853 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 38,460,244 | | | | 24,015,691 | | | | 14,444,553 | | | | 12,964,624 | | | | 272,708 | | | | 1,207,221 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(*1) | The items include derivatives held for trading, derivatives held for hedging and equity-linked securities. |
(*2) | The items are included in loans and other financial assets at amortized cost. |
(*3) | The items are included in other financial liabilities. |
(*4) | The items are included in borrowings. |
(*5) | Certain financial assets and liabilities are presented as net amounts. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Gross amounts of recognized financial assets | | | Gross amounts of recognized financial assets set off | | | Net amounts of financial assets presented | | | Related amounts not set off in the consolidated statement of financial position | | | Net amounts | |
| | Netting agreements and others | | | Cash collateral received | |
Financial assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets and others (*1) | | | 2,992,476 | | | | 1,710 | | | | 2,990,766 | | | | 5,787,448 | | | | 174,415 | | | | 796,629 | |
Receivable spot exchange (*2) | | | 3,767,726 | | | | — | | | | 3,767,726 | | | | | | | | | | | | | |
Bonds purchased under resale agreements (*2) | | | 16,859,064 | | | | — | | | | 16,859,064 | | | | 16,859,064 | | | | — | | | | — | |
Domestic exchanges receivable (*2)(*5) | | | 39,050,227 | | | | 38,985,354 | | | | 64,873 | | | | — | | | | — | | | | 64,873 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 62,669,493 | | | | 38,987,064 | | | | 23,682,429 | | | | 22,646,512 | | | | 174,415 | | | | 861,502 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | December 31, 2017 | |
| | Gross amounts of recognized financial liabilities | | | Gross amounts of recognized financial liabilities set off | | | Net amounts of financial liabilities presented | | | Related amounts not set off in the consolidated statement of financial position | | | Net amounts | |
| | Netting agreements and others | | | Cash collateral pledged | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative liabilities and others (*1) | | | 3,160,217 | | | | 1,710 | | | | 3,158,507 | | | | 5,866,682 | | | | 157,750 | | | | 857,961 | |
Payable spot exchange (*3) | | | 3,723,886 | | | | — | | | | 3,723,886 | | | | | | | | | | | | | |
Bonds sold under repurchase agreements (*4) | | | 3,173 | | | | — | | | | 3,173 | | | | 3,173 | | | | — | | | | — | |
Domestic exchanges payable (*3)(*5) | | | 40,284,515 | | | | 38,985,354 | | | | 1,299,161 | | | | 1,293,931 | | | | — | | | | 5,230 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 47,171,791 | | | | 38,987,064 | | | | 8,184,727 | | | | 7,163,786 | | | | 157,750 | | | | 863,191 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(*1) | The items include derivatives held for trading, derivatives for hedging and equity linked securities. |
(*2) | The items are included in Loans receivable measured at amortized cost. |
(*3) | The items are included in other financial liabilities. |
(*4) | The items are included in borrowings. |
(*5) | Certain financial assets and liabilities are presented at as net amounts. |
13. | INVESTMENTS IN JOINT VENTURES AND ASSOCIATES |
(1) | Investments in joint ventures and associates accounted for using the equity method of accounting are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | |
| | | | Percentage of | | | Financial statements as of | |
| | | | ownership (%) | |
Joint ventures and Associates | | Main business | | March 31, 2018 | | | December 31,2017 | | | March 31, 2018 | |
Woori Bank: | | | | | | | | | | | | | | |
Kumho Tire Co., Inc. (*1)(*2) | | Manufacturing | | | 14.2 | | | | 14.2 | | | | December 31 | (*3) |
Woori Service Networks Co., Ltd. (*4) | | Freight & staffing services | | | 4.9 | | | | 4.9 | | | | February 28 | (*3) |
Korea Credit Bureau Co., Ltd. (*5) | | Credit information | | | 9.9 | | | | 9.9 | | | | March 31 | |
Korea Finance Security Co., Ltd. (*4) | | Security service | | | 15.0 | | | | 15.0 | | | | February 28 | (*3) |
Chin Hung International Inc. (*2) | | Construction | | | 25.3 | | | | 25.3 | | | | February 28 | (*3) |
Poonglim Industrial Co., Ltd. (*6)(*9) | | Construction | | | — | | | | 29.4 | | | | — | |
STX Engine Co., Ltd. (*10) | | Manufacturing | | | 29.2 | | | | 29.2 | | | | — | |
STX Corporation (*1) | | Wholesale ofnon-specialized goods | | | 19.7 | | | | 19.7 | | | | December 31 | (*3) |
Saman Corporation (*5) | | General construction Technology service | | | 9.2 | | | | 9.2 | | | | December 31 | (*3) |
Dongwoo C & C Co., Ltd. (*6) | | Construction | | | 23.2 | | | | 23.2 | | | | — | |
SJCO Co., Ltd. (*6) | | Aggregate transportation and wholesale | | | 26.5 | | | | 26.5 | | | | — | |
G2 Collection Co., Ltd. (*6) | | Wholesale and retail sales | | | 28.9 | | | | 28.9 | | | | — | |
| | | | | | | | | | | | | | |
| | | | Percentage of ownership (%) | | | Financial statements as of March 31, 2018 | |
Joint ventures and Associates | | Main business | | March 31, 2018 | | | December 31,2017 | | |
The Base Enterprise Co., Ltd. (*6) | | Manufacturing | | | 48.4 | | | | 48.4 | | | | — | |
Kyesan Engineering Co., Ltd. (*6) | | Construction | | | 23.2 | | | | 23.2 | | | | — | |
Good Software Lap Co., Ltd. (*6) | | Service | | | 28.9 | | | | 28.9 | | | | — | |
Wongwang Co., Ltd. (*6) | | Wholesale and real estate | | | 29.0 | | | | 29.0 | | | | — | |
Sejin Construction Co., Ltd. (*6) | | Construction | | | 29.6 | | | | 29.6 | | | | — | |
QTS Shipping Co., Ltd. (*6) | | Composite transportation Arrangement | | | 49.4 | | | | 49.4 | | | | — | |
DAEA SNC Co., Ltd. (*6) | | Wholesale and retail sales | | | 24.0 | | | | 24.0 | | | | | |
ARES-TECH Co., Ltd. (*6) | | Electronic component manufacturing | | | 23.4 | | | | 23.4 | | | | — | |
Reading Doctors Co., Ltd. (*6) | | Other service business | | | 35.4 | | | | 35.4 | | | | — | |
PREXCO Co., Ltd. (*6) | | Manufacturing | | | 28.1 | | | | 28.1 | | | | — | |
Hyunwoo International Co., Ltd. (*6) | | Manufacturing | | | 25.9 | | | | 25.9 | | | | — | |
Jiwon Plating Co., Ltd. (*6) | | Plating | | | 20.5 | | | | 20.5 | | | | — | |
Cultizm Korea LTD Co., Ltd. (*6) | | Wholesale and retail sales | | | 31.3 | | | | 31.3 | | | | — | |
Gil Co.,Ltd. (*6) | | Manufacturing | | | 26.1 | | | | 26.1 | | | | — | |
NK Eng Co., Ltd. (*6) | | Manufacturing | | | 23.1 | | | | 23.1 | | | | — | |
Youngdong Sea Food Co., Ltd. (*6)(*7) | | Processed sea food manufacturing | | | 24.0 | | | | — | | | | — | |
Woori Growth Partnerships New Technology Private Equity Fund | | Other financial business | | | 23.1 | | | | 23.1 | | | | March 31 | |
2016KIF-IMM Woori Bank Technology Venture Fund | | Other financial business | | | 20.0 | | | | 20.0 | | | | March 31 | |
K BANK Co., Ltd. (*5) | | Finance | | | 13.0 | | | | 13.0 | | | | February 28 | (*3) |
Smart Private Equity Fund No.2 | | Other financial business | | | 20.0 | | | | 20.0 | | | | March 31 | |
Woori Bank-Company K Korea Movie Asset Fund | | Other financial business | | | 25.0 | | | | 25.0 | | | | March 31 | |
Well to Sea No. 3 Private Equity Fund | | Finance | | | 50.0 | | | | 50.0 | | | | December 31 | (*3) |
Partner One Value Up I Private Equity Fund (*8) | | Other financial business | | | 23.3 | | | | — | | | | March 31 | |
Nomura-Rifa Private Real Estate Investment Trust No.17 | | Other financial business | | | 25.0 | | | | 25.0 | | | | March 31 | |
(*1) | The Group has significant influence on these entities through its position in the creditors’ council which is the decision making body regarding to financial and operational policies of associates. |
(*2) | The investments in associates that have quoted market prices are Kumho Tire Co., Ltd. (current period: KRW 4,615, previous year: KRW 4,425), Chin Hung International Inc. (current period: KRW 1,950, previous year: KRW 1,915). |
(*3) | The significant transactions and events between the end of reporting period of the associates and the Group have been properly incorporated. |
(*4) | Most of the significant business transactions of associates are with the Group as of March 31, 2018 and December 31, 2017. |
(*5) | The Group can participate in decision-making body and exercise significant influence over associates through business partnerships. |
(*6) | The carrying values of investments in associates are nil as of March 31, 2018 and December 31, 2017. |
(*7) | As of December 31, 2017, the ownership ratio of the common stocks was more than 20%, but the entity was excluded from investments in associates because it has been under rehabilitation and not able to exercise significant influence. However, as of March 31, 2018, it was included in investments in associates by finalizing rehabilitation process by the court administration. |
(*8) | Due to capital contribution by the Group for the three months ended March 31, 2018, the entities has been included in the investment in associates. |
(*9) | The Group does not have significant influence over the entity since it is going throughwork-out process under receivership, thus it is excluded from the investment in associates for the three months ended March 31, 2018. |
(*10) | The shares of STX Engine Co., Ltd. owned by the Group were reclassified as assets held for sale, as the creditor financial institutions committee entered into a contract with UAMCO during the previous year to sell STX Engine Co., Ltd. shares. |
(2) | Changes in the carrying value of investments in joint ventures and associates accounted for using the equity method of accounting are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Acquisition cost | | | January 1, 2018 | | | Share of profits (losses) | | | Acquisi- tion | | | Disposal and others | | | Dividends | | | Change in Capital | | | March 31, 2018 | |
Kumho Tires Co., Inc. | | | 175,652 | | | | 98,933 | | | | (8,927 | ) | | | — | | | | — | | | | — | | | | (6,765 | ) | | | 83,241 | |
Woori Service Networks Co., Ltd. | | | 108 | | | | 158 | | | | (35 | ) | | | — | | | | — | | | | — | | | | — | | | | 123 | |
Korea Credit Bureau Co., Ltd. | | | 3,313 | | | | 5,816 | | | | 323 | | | | — | | | | — | | | | (113 | ) | | | — | | | | 6,026 | |
Korea Finance Security Co., Ltd. | | | 3,267 | | | | 3,519 | | | | 64 | | | | — | | | | — | | | | (54 | ) | | | 1 | | | | 3,530 | |
Chin Hung International Inc. | | | 130,779 | | | | 45,101 | | | | 231 | | | | — | | | | — | | | | — | | | | 112 | | | | 45,444 | |
Poonglim Industrial Co., Ltd. | | | 13,916 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
STX Corporation | | | 50,760 | | | | 6,947 | | | | (1,668 | ) | | | — | | | | — | | | | — | | | | (142 | ) | | | 5,137 | |
Saman Corporation | | | 8,521 | | | | 1,254 | | | | (18 | ) | | | — | | | | — | | | | — | | | | 34 | | | | 1,270 | |
Woori Growth Partnerships New Technology Private Equity Fund | | | 28,833 | | | | 27,611 | | | | (193 | ) | | | — | | | | (708 | ) | | | — | | | | — | | | | 26,710 | |
2016KIF-IMM Woori Bank Technology Venture Fund | | | 6,840 | | | | 6,840 | | | | — | | | | 3,660 | | | | — | | | | — | | | | — | | | | 10,500 | |
K BANK Co., Ltd. | | | 45,392 | | | | 31,735 | | | | (2,820 | ) | | | — | | | | — | | | | — | | | | 19 | | | | 28,934 | |
Smart Private Equity Fund No.2 | | | 3,000 | | | | 2,932 | | | | (10 | ) | | | — | | | | — | | | | — | | | | — | | | | 2,922 | |
Woori Bank-Company K Korea Movie Asset Fund | | | 3,000 | | | | 2,957 | | | | (101 | ) | | | — | | | | — | | | | — | | | | — | | | | 2,856 | |
Well to Sea No.3 Private Equity Fund | | | 101,992 | | | | 182,309 | | | | 4,042 | | | | — | | | | (253 | ) | | | — | | | | 787 | | | | 186,885 | |
Partner One Value Up I Private Equity Fund | | | 10,000 | | | | — | | | | — | | | | 10,000 | | | | — | | | | — | | | | — | | | | 10,000 | |
Nomura-Rifa Private Real Estate Investment Trust No.17 | | | 1,000 | | | | 939 | | | | (31 | ) | | | — | | | | — | | | | — | | | | — | | | | 908 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 586,373 | | | | 417,051 | | | | (9,143 | ) | | | 13,660 | | | | (961 | ) | | | (167 | ) | | | (5,954 | ) | | | 414,486 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | Acquisition cost | | | January 1, 2017 | | | Share of profits (losses) | | | Acquisi- tion (*) | | | Disposal and others | | | Dividends | | | Change in Capital | | | Others (*) | | | March 31, 2017 | |
Woori Blackstone Korea Opportunity No.1 Private Equity Fund | | | 6,881 | | | | 15,289 | | | | (3,391 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11,898 | |
Kumho Tire Co., Inc. | | | 175,652 | | | | 200,332 | | | | 8,637 | | | | — | | | | — | | | | — | | | | (1,996 | ) | | | — | | | | 206,973 | |
Woori Service Networks Co., Ltd. | | | 108 | | | | 145 | | | | (26 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 119 | |
Korea Credit Bureau Co., Ltd. | | | 3,313 | | | | 5,592 | | | | (79 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,513 | |
Korea Finance Security Co., Ltd. | | | 3,266 | | | | 3,376 | | | | 61 | | | | — | | | | — | | | | (54 | ) | | | — | | | | — | | | | 3,383 | |
Chin Hung International Inc. | | | 89,725 | | | | 43,032 | | | | (21,017 | ) | | | 41,053 | | | | — | | | | — | | | | 170 | | | | (27,686 | ) | | | 35,552 | |
Poonglim Industrial Co., Ltd. | | | 13,916 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
STX Engine Co., Ltd. | | | 92,038 | | | | 43,036 | | | | (1,133 | ) | | | — | | | | — | | | | — | | | | 4,489 | | | | — | | | | 46,392 | |
SamHo Co., Ltd. | | | 7,492 | | | | 19,729 | | | | 2,021 | | | | — | | | | — | | | | — | | | | (19 | ) | | | — | | | | 21,731 | |
STX Corporation | | | 42,215 | | | | — | | | | (34,339 | ) | | | 8,546 | | | | — | | | | — | | | | (74 | ) | | | 28,380 | | | | 2,513 | |
Saman Corporation | | | 8,521 | | | | 8,699 | | | | (173 | ) | | | — | | | | — | | | | — | | | | 26 | | | | — | | | | 8,552 | |
Woori Growth Partnerships New Technology Private Equity Fund | | | 13,602 | | | | 13,118 | | | | (183 | ) | | | 2,052 | | | | (498 | ) | | | — | | | | (156 | ) | | | — | | | | 14,333 | |
2016KIF-IMM Woori Bank Technology Venture Fund | | | 1,800 | | | | 1,800 | | | | — | | | | 1,860 | | | | — | | | | — | | | | — | | | | — | | | | 3,660 | |
K BANK Co., Ltd. | | | 32,500 | | | | 30,442 | | | | (2,413 | ) | | | — | | | | — | | | | — | | | | (142 | ) | | | — | | | | 27,887 | |
Smart Private Equity Fund No.2 | | | 3,000 | | | | — | | | | (37 | ) | | | 3,000 | | | | — | | | | — | | | | — | | | | — | | | | 2,963 | |
Woori Bank-Company K Korea Movie Asset Fund | | | 1,500 | | | | — | | | | — | | | | 1,500 | | | | — | | | | — | | | | — | | | | — | | | | 1,500 | |
Woori Renaissance Holdings | | | 63,000 | | | | 54,422 | | | | 2,657 | | | | — | | | | — | | | | (51,107 | ) | | | — | | | | — | | | | 5,972 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 558,529 | | | | 439,012 | | | | (49,415 | ) | | | 58,011 | | | | (498 | ) | | | (51,161 | ) | | | 2,298 | | | | 694 | | | | 398,941 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Changes in investments in joint ventures and associates due to debt-equity swap is 50,300 million Won. |
(3) | Summary financial information relating to investments in joint ventures and associates accounted for using the equity method of accounting is as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Assets | | | Liabilities | | | Operating revenue | | | Net income (loss) | |
Kumho Tire Co., Inc. | | | 4,500,924 | | | | 3,509,514 | | | | 2,876,420 | | | | (124,831 | ) |
Woori Service Networks Co., Ltd. | | | 4,592 | | | | 2,100 | | | | 2,905 | | | | 101 | |
Korea Credit Bureau Co., Ltd. | | | 75,425 | | | | 17,119 | | | | 17,387 | | | | 2,198 | |
Korea Finance Security Co., Ltd. | | | 31,482 | | | | 7,956 | | | | 10,620 | | | | (171 | ) |
Chin Hung International Inc. | | | 352,899 | | | | 269,716 | | | | 92,925 | | | | 9,677 | |
STX Corporation | | | 627,542 | | | | 584,982 | | | | 1,803,878 | | | | 334,386 | |
Saman Corporation | | | 88,692 | | | | 60,017 | | | | 109,695 | | | | (6,295 | ) |
Woori Growth Partnerships New Technology Private Equity Fund | | | 116,204 | | | | 463 | | | | 2,115 | | | | (838 | ) |
2016KIF-IMM Woori Bank Technology Venture Fund | | | 50,734 | | | | 379 | | | | 2 | | | | (376 | ) |
K BANK Co., Ltd. | | | 1,476,940 | | | | 1,255,385 | | | | 8,678 | | | | (12,355 | ) |
Smart Private Equity Fund No.2 | | | 14,660 | | | | 51 | | | | — | | | | (50 | ) |
Woori Bank-Company K Korea Movie Asset Fund | | | 11,425 | | | | — | | | | 385 | | | | 325 | |
Well to Sea No.3 Private Equity Fund | | | 5,286,870 | | | | 4,740,508 | | | | 267,418 | | | | 170,829 | |
Partner One Value Up I Private Equity Fund | | | 43,000 | | | | — | | | | — | | | | — | |
Nomura-Rifa Private Real Estate Investment Trust No.17 | | | 20,038 | | | | 16,407 | | | | 51 | | | | (87 | ) |
| |
| | December 31, 2017 | |
| | Assets | | | Liabilities | | | Operating revenue | | | Net income (loss) | |
Kumho Tire Co., Inc. | | | 5,105,107 | | | | 3,928,327 | | | | 2,136,569 | | | | (61,748 | ) |
Woori Service Networks Co., Ltd. | | | 4,982 | | | | 1,780 | | | | 14,887 | | | | 1,003 | |
Korea Credit Bureau Co., Ltd. | | | 75,504 | | | | 19,323 | | | | 68,750 | | | | 3,580 | |
Korea Finance Security Co., Ltd. | | | 33,915 | | | | 10,461 | | | | 55,610 | | | | 1,071 | |
Chin Hung International Inc. | | | 341,284 | | | | 259,454 | | | | 513,285 | | | | 28,698 | |
Poonglim Industrial Co., Ltd. | | | 241,063 | | | | 309,925 | | | | 107,360 | | | | (29,812 | ) |
STX Corporation | | | 595,348 | | | | 543,458 | | | | 1,371,272 | | | | 342,869 | |
Saman Corporation | | | 98,435 | | | | 69,929 | | | | 76,135 | | | | (6,096 | ) |
Woori Growth Partnerships New Technology Private Equity Fund | | | 120,133 | | | | 485 | | | | 1,024 | | | | (3,199 | ) |
2016KIF-IMM Woori Bank Technology Venture Fund | | | 32,815 | | | | 380 | | | | 6 | | | | (1,515 | ) |
K BANK Co., Ltd. | | | 1,244,270 | | | | 1,001,121 | | | | 19,231 | | | | (74,403 | ) |
Smart Private Equity Fund No.2 | | | 14,711 | | | | 51 | | | | 1 | | | | (340 | ) |
Woori Bank-Company K Korea Movie Asset Fund | | | 11,830 | | | | 2 | | | | 16 | | | | (172 | ) |
Well to Sea No.3 Private Equity Fund | | | 5,068,424 | | | | 4,534,957 | | | | 131,488 | | | | 162,743 | |
Nomura-Rifa Private Real Estate Investment Trust No.17 | | | 20,265 | | | | 16,507 | | | | 62 | | | | (242 | ) |
(4) | The entities that the Group has not applied equity method of accounting although the Group’s ownership interest is more than 20% as of March 31, 2018 and December 31, 2017, are as follows: |
| | | | | | | | |
| | As of March 31, 2018 | |
Associate (*) | | Number of shares owned | | | Ownership (%) | |
Poonglim Industrial Co., Ltd. | | | 4,142,782 | | | | 29.1 | |
Orient Shipyard Co., Ltd. | | | 464,812 | | | | 21.4 | |
Saenuel Co., Ltd. | | | 3,531 | | | | 37.4 | |
E Mirae Tech Co., Ltd. | | | 7,696 | | | | 41.0 | |
Jehin Trading Co., Ltd. | | | 81,610 | | | | 27.3 | |
The season Co., Ltd. | | | 18,187 | | | | 30.1 | |
Yuil PESC Co., Ltd. | | | 8,642 | | | | 24.0 | |
Sinseong Trading Co., Ltd. | | | 2,584 | | | | 27.2 | |
CL Tech Co., Ltd. | | | 13,759 | | | | 38.6 | |
Force TEC Co., Ltd. | | | 4,780,907 | | | | 25.8 | |
Protronics Co., Ltd. | | | 95,921 | | | | 48.1 | |
Instern Co., Ltd. | | | 14,296 | | | | 20.1 | |
(*) | Even though the Group’s ownership interest of the entity is more than 20%, the Group does not have significant influence over the entity since it is going throughwork-out process under receivership, thus it is excluded from the investment in associates. |
| | | | | | | | |
| | As of December 31, 2017 | |
Associate (*) | | Number of shares owned | | | Ownership (%) | |
Orient Shipyard Co., Ltd. | | | 465,050 | | | | 21.4 | % |
Saenuel Co., Ltd. | | | 3,531 | | | | 37.4 | % |
E Mirae Tech Co., Ltd. | | | 7,696 | | | | 41.0 | % |
Jehin Trading Co., Ltd. | | | 81,610 | | | | 27.3 | % |
The season Co., Ltd. | | | 18,187 | | | | 30.1 | % |
Yuil PESC Co., Ltd. | | | 8,642 | | | | 24.0 | % |
Youngdong Sea Food Co., Ltd. | | | 12,106 | | | | 24.0 | % |
Sinseong Trading Co., Ltd. | | | 2,584 | | | | 27.2 | % |
CL Tech Co., Ltd. | | | 13,759 | | | | 38.6 | % |
Force TEC Co., Ltd. | | | 4,780,907 | | | | 25.8 | % |
Protronics Co., Ltd. | | | 95,921 | | | | 48.1 | % |
Instern Co., Ltd. | | | 14,296 | | | | 20.1 | % |
(*) | Even though the Group’s ownership interest of the entity is more than 20%, the Group does not have significant influence over the entity since it is going throughwork-out process under receivership, thus it is excluded from the investment in associates. |
(5) | As of March 31, 2018 and December 31, 2017, the reconciliations from the net assets of associates based on the ownership ratio of the Group to its corresponding book value of investment in joint ventures and associates are as follows (Unit: Korean Won in millions except for ownership): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2018 | |
| | Total net asset | | | Ownership (%) | | | Ownership portion of net assets | | | Cost-book value differential and others | | | Impairment | | | Intercompany transaction and others | | | Book value | |
Kumho Tire Co., Inc. (*) | | | 954,539 | | | | 14.2 | | | | 135,077 | | | | 48,459 | | | | (102,843 | ) | | | 2,548 | | | | 83,241 | |
Woori Service Networks Co., Ltd. | | | 2,492 | | | | 4.9 | | | | 123 | | | | — | | | | — | | | | — | | | | 123 | |
Korea Credit Bureau Co., Ltd. | | | 58,306 | | | | 9.9 | | | | 5,780 | | | | 246 | | | | — | | | | — | | | | 6,026 | |
Korea Finance Security Co., Ltd. | | | 23,526 | | | | 15.0 | | | | 3,530 | | | | — | | | | — | | | | — | | | | 3,530 | |
Chin Hung International Inc. (*) | | | 83,039 | | | | 25.3 | | | | 21,015 | | | | 24,565 | | | | — | | | | (136 | ) | | | 45,444 | |
STX Corporation | | | 42,560 | | | | 19.7 | | | | 8,395 | | | | 24,641 | | | | (27,904 | ) | | | 5 | | | | 5,137 | |
Saman Corporation | | | 28,675 | | | | 9.2 | | | | 2,635 | | | | 5,373 | | | | (6,738 | ) | | | — | | | | 1,270 | |
Woori Growth Partnerships New Technology Private Equity Fund | | | 115,741 | | | | 23.1 | | | | 26,710 | | | | — | | | | — | | | | — | | | | 26,710 | |
2016KIF-IMM Woori Bank Technology Venture Fund | | | 50,355 | | | | 20.0 | | | | 10,071 | | | | — | | | | — | | | | 429 | | | | 10,500 | |
K BANK Co., Ltd. | | | 221,555 | | | | 13.0 | | | | 28,734 | | | | — | | | | — | | | | 200 | | | | 28,934 | |
Smart Private Equity Fund No.2 | | | 14,609 | | | | 20.0 | | | | 2,922 | | | | — | | | | — | | | | — | | | | 2,922 | |
Woori Bank-Company K Korea Movie Asset Fund | | | 11,425 | | | | 25.0 | | | | 2,856 | | | | — | | | | — | | | | — | | | | 2,856 | |
Well to Sea No.3 Private Equity Fund (*) | | | 373,685 | | | | 50.0 | | | | 186,751 | | | | — | | | | — | | | | 134 | | | | 186,885 | |
Partner One Value Up I Private Equity Fund | | | 43,000 | | | | 23.3 | | | | 10,000 | | | | — | | | | — | | | | — | | | | 10,000 | |
Nomura-Rifa Private Real Estate Investment Trust No.17 | | | 3,631 | | | | 25.0 | | | | 908 | | | | — | | | | — | | | | — | | | | 908 | |
(*) | The net asset amount is after reflecting debt-equity swap and others. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2017 | |
| | Total net asset | | | Ownership (%) | | | Ownership portion of net assets | | | Cost-book value differential and others | | | Impairment | | | Intercompany transaction and others | | | Book value | |
Kumho Tire Co., Inc. (*) | | | 1,065,421 | | | | 14.2 | | | | 150,767 | | | | 48,459 | | | | (102,843 | ) | | | 2,549 | | | | 98,932 | |
Woori Service Networks Co., Ltd. | | | 3,202 | | | | 4.9 | | | | 158 | | | | — | | | | — | | | | — | | | | 158 | |
Korea Credit Bureau Co., Ltd. | | | 56,181 | | | | 9.9 | | | | 5,568 | | | | 248 | | | | — | | | | — | | | | 5,816 | |
Korea Finance Security Co., Ltd. | | | 23,454 | | | | 15.0 | | | | 3,519 | | | | — | | | | — | | | | — | | | | 3,519 | |
Chin Hung International Inc. (*) | | | 81,686 | | | | 25.3 | | | | 20,671 | | | | 24,565 | | | | — | | | | (136 | ) | | | 45,100 | |
Poonglim Industrial Co., Ltd. (*) | | | (168,154 | ) | | | 29.4 | | | | (49,446 | ) | | | 54,542 | | | | (20,504 | ) | | | 15,408 | | | | — | |
STX Corporation | | | 51,890 | | | | 19.7 | | | | 10,232 | | | | 24,614 | | | | (27,904 | ) | | | 5 | | | | 6,947 | |
Saman Corporation | | | 28,506 | | | | 9.2 | | | | 2,619 | | | | 5,373 | | | | (6,738 | ) | | | — | | | | 1,254 | |
Woori Growth Partnerships New Technology Private Equity Fund | | | 119,648 | | | | 23.1 | | | | 27,611 | | | | — | | | | — | | | | — | | | | 27,611 | |
2016KIF-IMM Woori Bank Technology Venture Fund | | | 32,435 | | | | 20.0 | | | | 6,487 | | | | — | | | | — | | | | 353 | | | | 6,840 | |
K BANK Co., Ltd. | | | 243,149 | | | | 13.0 | | | | 31,535 | | | | — | | | | — | | | | 200 | | | | 31,735 | |
Smart Private Equity Fund No.2 | | | 14,660 | | | | 20.0 | | | | 2,932 | | | | — | | | | — | | | | — | | | | 2,932 | |
Woori Bank-Company K Korea Movie Asset Fund | | | 11,828 | | | | 25.0 | | | | 2,957 | | | | — | | | | — | | | | — | | | | 2,957 | |
Well to Sea No.3 Private Equity Fund (*) | | | 364,909 | | | | 50.0 | | | | 182,366 | | | | — | | | | — | | | | (57 | ) | | | 182,309 | |
Nomura-Rifa Private Real Estate Investment Trust No.17 | | | 3,758 | | | | 25.0 | | | | 939 | | | | — | | | | — | | | | — | | | | 939 | |
(*) | The net asset amount is after reflecting debt-equity swap and others. |
(1) | Investment properties are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Acquisition cost | | | 417,539 | | | | 404,741 | |
Accumulated depreciation | | | (35,137 | ) | | | (33,440 | ) |
| | | | | | | | |
Net carrying value | | | 382,402 | | | | 371,301 | |
| | | | | | | | |
(2) | Changes in investment properties are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended December 31 | |
| | 2018 | | | 2017 | |
Beginning balance | | | 371,301 | | | | 358,497 | |
Acquisition | | | 4,730 | | | | 342 | |
Disposal | | | (698 | ) | | | (463 | ) |
Depreciation | | | (1,006 | ) | | | (999 | ) |
Transfers | | | 8,308 | | | | 1,938 | |
Foreign currencies translation adjustments | | | (232 | ) | | | (250 | ) |
Others | | | — | | | | 5,675 | |
| | | | | | | | |
Ending balance | | | 382,402 | | | | 364,740 | |
| | | | | | | | |
(3) | Fair value of investment properties is amounting to 432,505 million Won and 396,587 million Won as of March 31, 2018 and December 31, 2017, respectively. The fair value of investment property, based on the assessment that was independently performed by external appraisal agencies, is classified as level 3 on the fair value hierarchy. |
(4) | Rental fee earned from investment properties is amounting to 1,166 million Won and 1,170 million Won for the year ended March 31, 2018 and December 31, 2017, respectively. |
15. | PREMISES AND EQUIPMENT |
(1) | Details of premises and equipment are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Land | | | Building | | | Properties for business use | | | Structures in leased office | | | Construction in progress | | | Structures | | | Total | |
Acquisition cost | | | 1,477,729 | | | | 863,973 | | | | 1,028,126 | | | | 436,735 | | | | 67,300 | | | | 20 | | | | 3,873,883 | |
Accumulated depreciation | | | — | | | | (192,038 | ) | | | (852,543 | ) | | | (373,607 | ) | | | — | | | | (17 | ) | | | (1,418,205 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net carrying value | | | 1,477,729 | | | | 671,935 | | | | 175,583 | | | | 63,128 | | | | 67,300 | | | | 3 | | | | 2,455,678 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | December 31, 2017 | |
| | Land | | | Building | | | Properties for business use | | | Structures in leased office | | | Construction in progress | | | Structures | | | Total | |
Acquisition cost | | | 1,487,278 | | | | 867,804 | | | | 1,024,186 | | | | 429,665 | | | | 64,559 | | | | 20 | | | | 3,873,512 | |
Accumulated depreciation | | | — | | | | (186,958 | ) | | | (844,114 | ) | | | (364,878 | ) | | | — | | | | (17 | ) | | | (1,395,967 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net carrying value | | | 1,487,278 | | | | 680,846 | | | | 180,072 | | | | 64,787 | | | | 64,559 | | | | 3 | | | | 2,477,545 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) | Details of changes in premises and equipment are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Land | | | Building | | | Properties for business use | | | Structures in leased office | | | Construction in progress | | | Structures | | | Total | |
Beginning balance | | | 1,487,278 | | | | 680,846 | | | | 180,072 | | | | 64,787 | | | | 64,559 | | | | 3 | | | | 2,477,545 | |
Acquisition | | | — | | | | 2,426 | | | | 12,683 | | | | 3,181 | | | | 2,939 | | | | — | | | | 21,229 | |
Disposal | | | — | | | | — | | | | (25 | ) | | | — | | | | — | | | | — | | | | (25 | ) |
Depreciation | | | — | | | | (6,481 | ) | | | (17,134 | ) | | | (11,353 | ) | | | — | | | | — | | | | (34,968 | ) |
Classified to held for sale | | | (3,481 | ) | | | (2,245 | ) | | | — | | | | — | | | | — | | | | — | | | | (5,726 | ) |
Foreign currencies translation adjustment | | | (197 | ) | | | (171 | ) | | | (145 | ) | | | 18 | | | | (49 | ) | | | — | | | | (544 | ) |
Transfer | | | (5,871 | ) | | | (2,437 | ) | | | — | | | | — | | | | — | | | | — | | | | (8,308 | ) |
Others | | | — | | | | (3 | ) | | | 132 | | | | 6,495 | | | | (149 | ) | | | — | | | | 6,475 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | 1,477,729 | | | | 671,935 | | | | 175,583 | | | | 63,128 | | | | 67,300 | | | | 3 | | | | 2,455,678 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | Land | | | Building | | | Properties for business use | | | Structures in leased office | | | Construction in progress | | | Structures | | | Total | |
Beginning balance | | | 1,488,745 | | | | 691,699 | | | | 189,902 | | | | 68,958 | | | | 18,717 | | | | 4 | | | | 2,458,025 | |
Acquisition | | | — | | | | 2,549 | | | | 12,400 | | | | 4,638 | | | | 5,922 | | | | — | | | | 25,509 | |
Disposal | | | — | | | | — | | | | (56 | ) | | | (247 | ) | | | (229 | ) | | | — | | | | (532 | ) |
Depreciation | | | — | | | | (6,501 | ) | | | (19,226 | ) | | | (11,189 | ) | | | — | | | | — | | | | (36,916 | ) |
Classified to held for sale | | | (2,693 | ) | | | (1,066 | ) | | | — | | | | — | | | | — | | | | — | | | | (3,759 | ) |
Foreign currencies translation adjustments | | | (828 | ) | | | (756 | ) | | | (1,294 | ) | | | (965 | ) | | | (397 | ) | | | — | | | | (4,240 | ) |
Transfer | | | (1,200 | ) | | | (738 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,938 | ) |
Others | | | — | | | | (2 | ) | | | 658 | | | | 4,825 | | | | 678 | | | | — | | | | 6,159 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | 1,484,024 | | | | 685,185 | | | | 182,384 | | | | 66,020 | | | | 24,691 | | | | 4 | | | | 2,442,308 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
16. | INTANGIBLE ASSETS AND GOODWILL |
(1) | Details of intangible assets are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | Goodwill | | | Software | | | Industrial property rights | | | Development cost | | | Others | | | Membership deposit | | | Total | |
Acquisition cost | | | 106,493 | | | | 205,715 | | | | 1,102 | | | | 455,411 | | | | 636,718 | | | | 27,065 | | | | 1,432,504 | |
Accumulated amortization | | | — | | | | (166,562 | ) | | | (567 | ) | | | (187,864 | ) | | | (532,109 | ) | | | — | | | | (887,102 | ) |
Accumulated impairment losses | | | — | | | | — | | | | — | | | | — | | | | (137 | ) | | | (6,309 | ) | | | (6,446 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net carrying value | | | 106,493 | | | | 39,153 | | | | 535 | | | | 267,547 | | | | 104,472 | | | | 20,756 | | | | 538,956 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | Goodwill | | | Software | | | Industrial property rights | | | Development cost | | | Others | | | Membership deposit | | | Total | |
Acquisition cost | | | 108,707 | | | | 203,418 | | | | 1,063 | | | | 413,296 | | | | 634,150 | | | | 27,337 | | | | 1,387,971 | |
Accumulated amortization | | | — | | | | (162,746 | ) | | | (524 | ) | | | (182,846 | ) | | | (516,467 | ) | | | — | | | | (862,583 | ) |
Accumulated impairment losses | | | — | | | | — | | | | — | | | | — | | | | (137 | ) | | | (6,652 | ) | | | (6,789 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net carrying value | | | 108,707 | | | | 40,672 | | | | 539 | | | | 230,450 | | | | 117,546 | | | | 20,685 | | | | 518,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(2) | Details of changes in intangible assets are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Goodwill | | | Software | | | Industrial property rights | | | Development cost | | | Others | | | Membership deposit | | | Total | |
Beginning balance | | | 108,707 | | | | 40,672 | | | | 539 | | | | 230,450 | | | | 117,546 | | | | 20,685 | | | | 518,599 | |
Acquisition | | | — | | | | 2,607 | | | | 39 | | | | 42,105 | | | | 2,352 | | | | — | | | | 47,103 | |
Disposal | | | — | | | | — | | | | — | | | | — | | | | — | | | | (285 | ) | | | (285 | ) |
Amortization (*) | | | — | | | | (3,893 | ) | | | (43 | ) | | | (5,008 | ) | | | (15,335 | ) | | | — | | | | (24,279 | ) |
Reversal of impairment losses | | | — | | | | — | | | | — | | | | — | | | | — | | | | 341 | | | | 341 | |
Foreign currencies translation adjustment | | | (2,214 | ) | | | (233 | ) | | | — | | | | — | | | | (86 | ) | | | 59 | | | | (2,474 | ) |
Others | | | — | | | | — | | | | — | | | | — | | | | (5 | ) | | | (44 | ) | | | (49 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | 106,493 | | | | 39,153 | | | | 535 | | | | 267,547 | | | | 104,472 | | | | 20,756 | | | | 538,956 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Amortization of other intangible assets amounting to 11,771 million Won is included in other operating expenses. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | Goodwill | | | Software | | | Industrial property rights | | | Development cost | | | Others | | | Membership deposit | | | Total | |
Beginning balance | | | 124,803 | | | | 35,477 | | | | 313 | | | | 138,696 | | | | 164,364 | | | | 20,086 | | | | 483,739 | |
Acquisition | | | 105 | | | | 4,845 | | | | 32 | | | | 17,348 | | | | 4,949 | | | | 219 | | | | 27,498 | |
Disposal | | | — | | | | — | | | | — | | | | — | | | | — | | | | (500 | ) | | | (500 | ) |
Amortization (*) | | | — | | | | (3,897 | ) | | | (28 | ) | | | (5,673 | ) | | | (15,172 | ) | | | — | | | | (24,770 | ) |
Impairment loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (88 | ) | | | (88 | ) |
Foreign currencies translation adjustment | | | (9,441 | ) | | | (186 | ) | | | — | | | | 2,819 | | | | (1,855 | ) | | | (146 | ) | | | (8,809 | ) |
Other | | | (332 | ) | | | 18 | | | | — | | | | 1,047 | | | | (6,111 | ) | | | (6 | ) | | | (5,384 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | | | 115,135 | | | | 36,257 | | | | 317 | | | | 154,237 | | | | 146,175 | | | | 19,565 | | | | 471,686 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(*) | Amortization of other intangible assets amounting to 12,139 million Won is included in other operating expenses. |
Assets held for sale are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Investments in subsidiaries and associates | | | 46,217 | | | | 46,217 | |
Premises and equipment | | | 8,359 | | | | 2,407 | |
| | | | | | | | |
Total | | | 54,576 | | | | 48,624 | |
| | | | | | | | |
18. | ASSETS SUBJECT TO LIEN AND ASSETS ACQUIRED THROUGH FORECLOSURES |
(1) | Assets subjected to lien are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | | | March 31, 2018 |
| | | | Collateral given to | | Amount | | Reason for collateral |
Loans and other financial assets at amortized cost | | Due from banks on time in local currency | | DaishinAMC and others | | 1,500 | | Collaterals for issuing letter of guarantee and others |
| | Due from banks in local currency | | Samsung Securities Co., Ltd. and others | | 18,026 | | Margin deposit for futures or option |
| | Due from banks in foreign currencies | | Korea Investment & Securities Co., Ltd. and others | | 96,291 | | Foreign margin deposit for future or option and others |
Financial assets at FVTPL | | Korean financial institutions’ debt securities and others | | Kyobo Life Insurance,.ltd and others | | 130,492 | | CSA collateral and others |
Financial assets at FVTOCI | | Korean debt securities corporate bonds | | Korea Securities Depository | | 10,004 | | Related to bonds sold under repurchase agreements (*) |
| | Korean treasury and government agencies bonds and others | | The BOK and others | | 1,610,097 | | Settlement risk and others |
Securities at amortized cost | | Korean treasury and government agencies bonds | | Korea Securities Depository | | 5,440 | | Related to bonds sold under repurchase agreements (*) |
| | Korean treasury and government agencies bonds and others | | The BOK and others | | 5,839,482 | | Settlement risk and others |
Premises and equipment | | Land and building | | Credit Counselling & Recovery Service and others | | 6,103 | | Leasehold rights and others |
| | | | | | | | |
| | | | Total | | 7,717,435 | | |
| | | | | | | | |
(*) | The Group enters into the repurchase agreements at predetermined price or original sale price added with certain rate of return after the disposal of securities. In this regards, the securities are provided as collaterals, and the purchasers are eligible to dispose or provide them as collateral. Therefore, as such securities have been transferred but have not been derecognized, the Group recognizes the relevant amount as liability (bond sold under repurchase agreements). |
| | | | | | | | |
| | | | December 31, 2017 |
| | | | Collateral given to | | Amount | | Reason for collateral |
Loan and receivables | | Due from banks on time in local currency | | Bank of China and others | | 6,629 | | Collaterals for issuing letter of guarantee and others |
| | Due from banks in local currency | | Samsung Securities Co., Ltd. and others | | 10,809 | | Margin deposit for futures or option |
| | Due from banks in foreign currencies | | Korea Investment & Securities Co., Ltd. and others | | 9,136 | | Foreign margin deposit for future or option and others |
Financial assets at FVTPL | | Korean financial institutions debt securities and others | | Yuanta Securities Co., Ltd. and others | | 501,523 | | Substitute securities and others |
AFS financial assets | | Korean debt securities corporate bonds | | Korea Securities Depository and others | | 9,998 | | Related to bonds sold under repurchase agreements (*) |
| | Korean treasury and government agencies bonds and others | | The BOK and others | | 1,570,608 | | Settlement risk and others |
HTM financial assets | | Korean treasury and government agencies bonds | | Korea Securities Depository | | 5,436 | | Related to bonds sold under repurchase agreements (*) |
| | Korean financial institutions’ debt securities and others | | The BOK and others | | 7,605,292 | | Settlement risk and others |
Premises and equipment | | Land and building | | Credit Counselling & Recovery Service and others | | 6,186 | | Leasehold rights and others |
| | | | | | | | |
| | | | Total | | 9,725,617 | | |
| | | | | | | | |
(*) | The Group enters into the repurchase agreements at predetermined price or original sale price added with certain rate of return after the disposal of securities. In this regards, the securities are provided as collaterals, and the purchasers are eligible to dispose or provide them as collateral. Therefore, as such securities have been transferred but have not been derecognized, the Group recognizes the relevant amount as liability (bond sold under repurchase agreements). |
(2) | The carrying amounts of buildings acquired through foreclosure are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Land | | | 325 | | | | 332 | |
Buildings | | | — | | | | 44 | |
| | | | | | | | |
Total | | | 325 | | | | 376 | |
| | | | | | | | |
(3) | Securities loaned are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | |
| | | | March 31, 2018 | | | December 31, 2017 | | | Loaned to |
Financial assets at FVTOCI | | Korean debt securities Corporate bonds | | | 90,346 | | | | — | | | Korea Securities Finance Corporation |
AFS financial assets | | Korean treasury and government agencies bonds and others | | | — | | | | 170,256 | | | Korea Securities Finance Corporation and others |
| | | | | | | | | | | | |
| | Total | | | 90,346 | | | | 170,256 | | | |
| | | | | | | | | | | | |
Securities loaned are lending of specific securities to borrowers who agree to return the same quantity of the same security at the end of lending period. As the Group does not derecognize these securities, there are no liabilities recognized through such transactions relates to securities loaned.
(4) | Collaterals held that can be disposed andre-subjected to lien regardless of defaults of counterparties |
Fair values of collaterals held that can be disposed andre-subjected to lien regardless of defaults of counterparties as of March 31, 2018 and December 31, 2017 are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | March 31, 2018 | |
| | Fair values of collaterals | | | Fair values of collaterals were disposed or re-subjected to lien | |
Securities | | | 6,839,271 | | | | — | |
| |
| | December 31, 2017 | |
| | Fair values of collaterals | | | Fair values of collaterals were disposed orre-subjected to lien | |
Securities | | | 17,671,490 | | | | — | |
Details of other assets are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Prepaid expenses | | | 212,971 | | | | 130,245 | |
Advance payments | | | 14,783 | | | | 18,363 | |
Non-operative assets | | | 325 | | | | 376 | |
Others | | | 8,832 | | | | 9,420 | |
| | | | | | | | |
Total | | | 236,911 | | | | 158,404 | |
| | | | | | | | |
20. | FINANCIAL LIABILITIES AT FVTPL |
(1) | Financial liabilities at FVTPL are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Financial liabilities at FVTPL | | | 2,703,528 | | | | — | |
Financial liabilities held for trading | | | — | | | | 3,176,113 | |
Financial liabilities designated at FVTPL with fair value option elected | | | 321,443 | | | | — | |
Financial liabilities designated as at FVTPL | | | — | | | | 251,796 | |
| | | | | | | | |
Total | | | 3,024,971 | | | | 3,427,909 | |
| | | | | | | | |
(2) | Financial liabilities at FVTPL are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Deposits | | | | | | | | |
Gold banking liabilities | | | 25,218 | | | | 25,964 | |
Derivative liabilities | | | 2,678,310 | | | | 3,150,149 | |
| | | | | | | | |
Total | | | 2,703,528 | | | | 3,176,113 | |
| | | | | | | | |
(3) | Financial liabilities at FVTPLare as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Equity linked securities index: | | | | | | | | |
Equity linked securities index in short position | | | 230,441 | | | | 160,057 | |
Debentures: | | | | | | | | |
Debentures in local currency | | | 91,002 | | | | 91,739 | |
| | | | | | | | |
Total | | | 321,443 | | | | 251,796 | |
| | | | | | | | |
(4) | Credit risk adjustments to financial liabilities at FVTPL are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | For the three months ended March31 | |
| | 2018 | | | 2017 | |
Financial liabilities designated as at FVTPL (IFRS 9) | | | 321,443 | | | | — | |
Financial liabilities designated as at FVTPL (IAS 39) | | | — | | | | 632,331 | |
Changes in fair value for credit risk adjustments | | | (124 | ) | | | (174 | ) |
Accumulated changes in credit risk adjustments | | | 9 | | | | 185 | |
The adjustment to reflect Group’s credit risk is considered in measuring the fair value of derivatives. The Group’s credit risk is determined by adjusting credit spread observed in credit rating of bank.
(5) | The difference between financial liabilities at FVTPL’s carrying amount and nominal amount at maturity is as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Carrying amount | | | 321,443 | | | | 251,796 | |
Nominal amount at maturity | | | 358,680 | | | | 255,408 | |
| | | | | | | | |
Difference | | | (37,237 | ) | | | (3,612 | ) |
| | | | | | | | |
(6) | Capital fluctuation in financial liabilities at FVTPL (IFRS 9) |
Realized cumulative gain or loss designated in other comprehensive income due to derecognition of financial liabilities at FVTPL is as follows (Unit: Korean won in millions):
| | | | |
| | For the three months ended March31 | |
Equity-linked securities index: | | | (5 | ) |
21. | DEPOSITS DUE TO CUSTOMERS |
Details of deposits due to customers by type are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | March 31, 2018 | | | March 31, 2017 | |
Deposits in local currency: | | | | | | | | |
Deposits on demand | | | 8,899,752 | | | | 9,349,070 | |
Deposits at termination | | | 198,009,537 | | | | 194,292,679 | |
Mutual installment | | | 33,213 | | | | 34,055 | |
Deposits on notes payables | | | 1,463,284 | | | | 1,323,679 | |
Deposits on CMA | | | 162,876 | | | | 164,431 | |
Certificate of deposits | | | 4,257,091 | | | | 4,436,443 | |
Other deposits | | | 1,418,091 | | | | 1,451,841 | |
| | | | | | | | |
Subtotal | | | 214,243,844 | | | | 211,052,198 | |
| | | | | | | | |
Deposits in foreign currencies | | | 23,286,054 | | | | 23,682,896 | |
Present value discount | | | (32,759 | ) | | | (40,010 | ) |
| | | | | | | | |
Total | | | 237,497,139 | | | | 234,695,084 | |
| | | | | | | | |
22. | BORROWINGS AND DEBENTURES |
(1) | Details of borrowings are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | |
| | March 31, 2018 | |
| | Lenders | | Interest rate (%) | | | Amount | |
Borrowings in local currency: | | | | | | | | | | |
Borrowings from The BOK | | The BOK | | | 0.5 ~ 0.8 | | | | 1,427,134 | |
Borrowings from government funds | | Small Enterprise And Market Service and others | | | 0.0 ~ 3.5 | | | | 1,780,176 | |
Others | | The Korea Development Bank and others | | | 0.0 ~ 4.0 | | | | 4,294,780 | |
| | | | | | | | | | |
Subtotal | | | | | | | | | 7,502,090 | |
| | | | | | | | | | |
Borrowings in foreign currencies: | | | | | | | | | | |
Borrowings in foreign currencies | | The Export-Import BOK and others | | | 0.0 ~ 6.5 | | | | 5,862,259 | |
Offshore borrowings in foreign currencies | | JPMORGAN CHASE BANK | | | 2.2 | | | | 31,995 | |
| | | | | | | | | | |
Subtotal | | | | | | | | | 5,894,254 | |
| | | | | | | | | | |
Bills sold | | Others | | | 0.0 ~ 1.2 | | | | 40,134 | |
Call money | | Bank and others | | | 0.0 ~ 2.8 | | | | 496,115 | |
Bonds sold under repurchase agreements | | Other financial institutions | | | 0.6 ~ 12.7 | | | | 2,570 | |
Present value discount | | | | | | | | | (49 | ) |
| | | | | | | | | | |
Total | | | | | | | | | 13,935,114 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | December 31, 2017 | |
| | Lenders | | Interest rate (%) | | | Amount | |
Borrowings in local currency: | | | | | | | | | | |
Borrowings from The BOK | | The BOK | | | 0.5 ~ 0.8 | | | | 1,404,087 | |
Borrowings from government funds | | Small Enterprise And Market Service and others | | | 0.0 ~ 2.9 | | | | 1,723,340 | |
Others | | The Korea Development Bank and others | | | 0.0 ~ 3.2 | | | | 3,957,421 | |
| | | | | | | | | | |
Subtotal | | | | | | | | | 7,084,848 | |
| | | | | | | | | | |
Borrowings in foreign currencies: | | | | | | | | | | |
Borrowings in foreign currencies | | The Export-Import BOK and others | | | 0.0 ~ 6.8 | | | | 6,996,551 | |
Offshore borrowings in foreign currencies | | Commonwealth Bank | | | 1.8 | | | | 28,285 | |
| | | | | | | | | | |
Subtotal | | | | | | | | | 7,024,836 | |
| | | | | | | | | | |
Bills sold | | Others | | | 0.0 ~ 1.2 | | | | 36,953 | |
Call money | | Bank and others | | | 1.5 ~ 2.7 | | | | 635,061 | |
Bonds sold under repurchase agreements | | Other financial institutions | | | 0.6 ~ 12.7 | | | | 3,173 | |
Present value discount | | | | | | | | | (165 | ) |
| | | | | | | | | | |
Total | | | | | | | | | 14,784,706 | |
| | | | | | | | | | |
(2) | Details of debentures are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
| | Interest rate (%) | | | Amount | | | Interest rate (%) | | | Amount | |
Face value of bond(*): | | | | | | | | | | | | | | | | |
Ordinary bonds | | | 1.5 ~ 4.5 | | | | 21,731,204 | | | | 1.5 ~ 5.8 | | | | 22,468,908 | |
Subordinated bonds | | | 3.0 ~ 12.6 | | | | 4,737,477 | | | | 3.4 ~ 12.6 | | | | 4,781,301 | |
Other bonds | | | 1.6 ~ 17.0 | | | | 649,978 | | | | 1.6 ~ 17.0 | | | | 649,615 | |
| | | | | | | | | | | | | | | | |
Subtotal | | | | | | | 27,118,659 | | | | | | | | 27,899,824 | |
| | | | | | | | | | | | | | | | |
Discounts on bond | | | | | | | (27,034 | ) | | | | | | | (30,173 | ) |
| | | | | | | | | | | | | | | | |
Total | | | | | | | 27,091,625 | | | | | | | | 27,869,651 | |
| | | | | | | | | | | | | | | | |
(*) | Included debentures under fair value hedge relationships are 3,020,748 million Won and 3,102,386 million Won as of March 31, 2018 and December 31, 2017, respectively. Also, debentures under cash flow hedge amounting to 699,142 million Won and 699,029 million Won are included as of March 31, 2018 and December 31, 2017. |
(1) | Details of provisions are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Asset retirement obligation | | | 67,111 | | | | 61,872 | |
Provision for guarantee (*1) | | | 181,936 | | | | 183,247 | |
Provisions for unused commitments | | | 100,329 | | | | 66,115 | |
Provisions for customer reward credits | | | 44,677 | | | | 40,445 | |
Other provisions (*2) | | | 58,660 | | | | 58,791 | |
| | | | | | | | |
Total | | | 452,713 | | | | 410,470 | |
| | | | | | | | |
(*1) | Provision for guarantee includes provision for financial guarantee of 66,953 million Won and 71,697 million Won as of March 31, 2018 and December 31, 2017, respectively. |
(*2) | Other provisions consist of provision for litigation and others. |
(2) | Changes in provision on guarantee and loan commitments are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage 1 | | | Stage 2 | | | Stage 3 | | | Total | |
Beginning balance | | | 47,188 | | | | 18,281 | | | | 127,511 | | | | 192,980 | |
Replaced by12-month expected credit loss | | | 56 | | | | (56 | ) | | | — | | | | — | |
Replaced with expected credit loss for the entire period | | | (51 | ) | | | 51 | | | | — | | | | — | |
Replaced credit-impaired financial assets | | | (17 | ) | | | (5 | ) | | | 22 | | | | — | |
Provisions used | | | (4,727 | ) | | | — | | | | — | | | | (4,727 | ) |
Net reversal of unused amount | | | (2,848 | ) | | | (530 | ) | | | (7,258 | ) | | | (10,636 | ) |
Others | | | 4,313 | | | | 6 | | | | — | | | | 4,319 | |
| | | | | | | | | | | | | | | | |
Ending balance | | | 43,914 | | | | 18,281 | | | | 120,275 | | | | 181,936 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | For the three months ended March 31,��2017 | |
Beginning balance | | | 238,117 | |
Provisions provided | | | 397 | |
Provisions used | | | (6,696 | ) |
Reversal of provisions unused | | | (29,294 | ) |
Foreign currencies translation adjustments | | | (10 | ) |
Others | | | 4,377 | |
| | | | |
Ending balance | | | 206,891 | |
| | | | |
| 2) | Provision on loan commitments |
| | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Stage1 | | | Stage2 | | | Stage3 | | | Total | |
Beginning balance | | | 75,232 | | | | 27,875 | | | | 1,878 | | | | 104,985 | |
Replaced by12-month expected credit loss | | | 4,138 | | | | (4,079 | ) | | | (59 | ) | | | — | |
Replaced with expected credit loss for the entire period | | | (1,195 | ) | | | 1,238 | | | | (43 | ) | | | — | |
Replaced credit-impaired financial assets | | | (50 | ) | | | (199 | ) | | | 249 | | | | — | |
Provisions used | | | (1 | ) | | | — | | | | — | | | | (1 | ) |
Net provision (reversal) of unused amount | | | (5,595 | ) | | | 510 | | | | 428 | | | | (4,657 | ) |
Others | | | 2 | | | | — | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | |
Ending balance | | | 72,531 | | | | 25,345 | | | | 2,453 | | | | 100,329 | |
| | | | | | | | | | | | | | | | |
| | | | |
| | For the three months ended March 31, 2017 | |
Beginning balance | | | 87,909 | |
Provisions provided | | | 252 | |
Provisions used | | | (52 | ) |
Reversal of provisions unused | | | (14,212 | ) |
Foreign currencies translation adjustments | | | (8 | ) |
| | | | |
Ending balance | | | 73,889 | |
| | | | |
(3) | Changes in asset retirement obligation are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Beginning balance | | | 61,872 | | | | 58,076 | |
Provisions provided | | | 526 | | | | 424 | |
Provisions used | | | (119 | ) | | | (311 | ) |
Amortization | | | 104 | | | | 83 | |
Reversal of provisions unused | | | (989 | ) | | | (727 | ) |
Increase in restoration costs and others | | | 5,717 | | | | 4,323 | |
| | | | | | | | |
Ending balance | | | 67,111 | | | | 61,868 | |
| | | | | | | | |
(4) | Changes in other obligation are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Provisions for customer reward credits | | | Other provisions | | | Total | |
Beginning balance | | | 40,445 | | | | 58,791 | | | | 99,236 | |
Provisions provided | | | 19,099 | | | | 2,112 | | | | 21,211 | |
Provisions used | | | (24,827 | ) | | | (2,335 | ) | | | (27,162 | ) |
Reversal of unused amount | | | — | | | | (52 | ) | | | (52 | ) |
Foreign currencies translation adjustments | | | — | | | | (26 | ) | | | (26 | ) |
Transfer(*) | | | 3,039 | | | | — | | | | 3,039 | |
Others | | | 6,921 | | | | 170 | | | | 7,091 | |
| | | | | | | | | | | | |
Ending balance | | | 44,677 | | | | 58,660 | | | | 103,337 | |
| | | | | | | | | | | | |
(*) | As the credits of the affiliates were transferred to the Group, the allowance for the provisions for customer reward credits increased for the three months ended March 31, 2018. |
| | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | Provisions for customer reward credits | | | Other provisions | | | Total | |
Beginning balance | | | 22,093 | | | | 22,282 | | | | 44,375 | |
Provisions provided | | | 17,420 | | | | 7 | | | | 17,427 | |
Provisions used | | | (18,963 | ) | | | (3,429 | ) | | | (22,392 | ) |
Reversal of unused amount | | | — | | | | (1,570 | ) | | | (1,570 | ) |
Foreign currencies translation adjustments | | | — | | | | (2,683 | ) | | | (2,683 | ) |
Transfer(*) | | | 6,427 | | | | — | | | | 6,427 | |
Others | | | 14 | | | | — | | | | 14 | |
| | | | | | | | | | | | |
Ending balance | | | 26,991 | | | | 14,607 | | | | 41,598 | |
| | | | | | | | | | | | |
(*) | As the credits of the affiliates were transferred to the Group, the allowance for the provisions for customer reward credits increased for the three months ended March 31, 2018. |
24. | NET DEFINED BENEFIT LIABILITY |
The characteristics of the Group’s defined benefit retirement pension plans characteristics are as follows:
Employees and directors with one or more years of service are entitled to receive a payment upon termination of their employment, based on their length of service and rate of pay at the time of termination. The assets of the plans are measured at their fair value at the end of reporting date. The plan liabilities are measured using the projected unit method, which takes account of projected earnings increases, using actuarial assumptions that give the best estimate of the future cash flows that will arise under the plan liabilities.
The Group is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:
| | |
Volatility of asset | | The defined benefit obligation was estimated with an interest rate calculated based on blue chip corporate bonds earnings. A deficit may occur if the rate of return of plan assets falls short of the interest rate. |
| |
Decrease in profitability of blue chip bonds | | A decrease in profitability of blue chip bonds will be offset by some increase in the value of debt securities that the employee benefit plan owns but will bring an increase in the defined benefit obligation. |
| |
Risk of inflation | | Defined benefit obligations are related to inflation rate; the higher the inflation rate is, the higher the level of liabilities. Therefore, deficit occurs in the system if an inflation rate increases. |
(1) | Details of net defined benefit liability are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Defined benefit obligation | | | 1,142,150 | | | | 1,071,170 | |
Fair value of plan assets | | | (990,052 | ) | | | (1,027,906 | ) |
| | | | | | | | |
Net defined benefit liability | | | 152,098 | | | | 43,264 | |
| | | | | | | | |
(2) | Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31, 2018 | | | For the three months ended March 31, 2017 | |
Beginning balance | | | 1,071,170 | | | | 984,381 | |
Current service cost | | | 36,225 | | | | 36,787 | |
Interest expense | | | 7,901 | | | | 6,572 | |
Remeasurements | | | 69,414 | | | | 31,876 | |
Foreign currencies translation adjustments | | | (13 | ) | | | (139 | ) |
Retirement benefit paid | | | (42,602 | ) | | | (4,766 | ) |
Curtailment or liquidation | | | — | | | | (6 | ) |
Others | | | 55 | | | | (806 | ) |
| | | | | | | | |
Ending balance | | | 1,142,150 | | | | 1,053,899 | |
| | | | | | | | |
(3) | Changes in the plan assets are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31, 2018 | | | For the three months ended March 31, 2017 | |
Beginning balance | | | 1,027,906 | | | | 990,653 | |
Interest income | | | 8,317 | | | | 7,564 | |
Remeasurements | | | (4,080 | ) | | | (3,156 | ) |
Employer’s contributions | | | 2 | | | | — | |
Retirement benefit paid | | | (42,093 | ) | | | (3,590 | ) |
Curtailment or liquidation | | | — | | | | (6 | ) |
Others | | | — | | | | 18,396 | |
| | | | | | | | |
Ending balance | | | 990,052 | | | | 1,009,861 | |
| | | | | | | | |
(4) | Plan assets wholly consist of time deposits as of March 31, 2018 and December 31, 2017, respectively. Among plan assets, realized returns on plan assets amount to 4,237 million Won and 4,408 million Won for the three months ended March 31, 2018 and 2017, respectively. |
Meanwhile, the contribution expected to be paid in the current accounting year amounts to 125,818 million Won.
(5) | Current service cost, net interest income, loss (gain) on the curtailment or liquidation and remeasurements recognized in the consolidated statements of net income and total comprehensive income are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31, 2018 | | | For the three months ended March 31, 2017 | |
Current service cost | | | 36,225 | | | | 36,787 | |
Net interest income | | | (416 | ) | | | (992 | ) |
| | | | | | | | |
Cost recognized in net income | | | 35,809 | | | | 35,795 | |
| | | | | | | | |
Remeasurements(*) | | | 73,494 | | | | 35,032 | |
| | | | | | | | |
Cost recognized in total comprehensive income | | | 109,303 | | | | 70,827 | |
| | | | | | | | |
(*) | This is an amount before considering the tax effects. |
Retirement benefit service costs related to defined contribution plans are recognized 615 million Won and 1,290 million Won for the three months ended March 31, 2018 and 2017, respectively.
(6) | Key actuarial assumptions used in defined benefit liability measurement are as follows: |
| | | | |
| | March 31, 2018 | | December 31, 2017 |
Discount rate | | 3.33% | | 3.18% |
Future wage growth rate | | 6.18% | | 6.18% |
Mortality rate | | Issued by Korea Insurance Development Institute | | Issued by Korea Insurance Development Institute |
Retirement rate | | Experience rate for each employment classification | | Experience rate for each employment classification |
(7) | The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows (Unit: Korean Won in millions): |
| | | | | | | | | | |
| | | | March 31, 2018 | | | December 31, 2017 | |
Discount rate | | Increase by 1% point | | | (120,320 | ) | | | (116,405 | ) |
| | Decrease by 1% point | | | 141,685 | | | | 137,151 | |
Future wage growth rate | | Increase by 1% point | | | 141,392 | | | | 136,707 | |
| | Decrease by 1% point | | | (121,834 | ) | | | (117,765 | ) |
25. | OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES |
Other financial liabilities and other liabilities are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Other financial liabilities: | | | | | | | | |
Accounts payable | | | 10,596,605 | | | | 4,692,320 | |
Accrued expenses | | | 1,753,606 | | | | 2,049,861 | |
Borrowings from trust accounts | | | 3,317,982 | | | | 3,271,817 | |
Agency business revenue | | | 457,777 | | | | 344,591 | |
Foreign exchange payables | | | 465,576 | | | | 590,667 | |
Domestic exchange payables | | | 3,601,254 | | | | 1,309,646 | |
Other miscellaneous financial liabilities | | | 2,260,308 | | | | 1,635,156 | |
Present value discount | | | (1,964 | ) | | | (1,597 | ) |
| | | | | | | | |
Subtotal | | | 22,451,144 | | | | 13,892,461 | |
| | | | | | | | |
Other liabilities: | | | | | | | | |
Unearned income | | | 186,813 | | | | 180,664 | |
Other miscellaneous liabilities | | | 152,244 | | | | 103,317 | |
| | | | | | | | |
Subtotal | | | 339,057 | | | | 283,981 | |
| | | | | | | | |
Total | | | 22,790,201 | | | | 14,176,442 | |
| | | | | | | | |
(1) | Derivative assets and derivative liabilities are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2018 | |
| | | | | Assets | | | Liabilities | |
| | Nominal amount | | | For fair value hedge | | | For trading | | | For cash flow hedge | | | For fair value hedge | | | For trading | |
Interest rate: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | 181,562 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Swaps | | | 137,767,689 | | | | 39,272 | | | | 214,118 | | | | — | | | | 28,256 | | | | 238,983 | |
Purchase options | | | 590,000 | | | | — | | | | 12,155 | | | | — | | | | — | | | | — | |
Written options | | | 785,000 | | | | — | | | | — | | | | — | | | | — | | | | 12,512 | |
Currency: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | 524,462 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Forwards | | | 64,937,799 | | | | — | | | | 824,698 | | | | — | | | | — | | | | 860,121 | |
Swaps | | | 50,143,713 | | | | — | | | | 1,368,662 | | | | 59,080 | | | | — | | | | 1,347,093 | |
Purchase options | | | 2,467,720 | | | | — | | | | 43,584 | | | | — | | | | — | | | | — | |
Written options | | | 4,110,567 | | | | — | | | | — | | | | — | | | | — | | | | 42,935 | |
Equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | 168,857 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Swaps | | | 282,342 | | | | — | | | | 6,105 | | | | — | | | | — | | | | — | |
Purchase options | | | 4,545,896 | | | | — | | | | 142,962 | | | | — | | | | — | | | | — | |
Written options | | | 5,692,891 | | | | — | | | | — | | | | — | | | | — | | | | 175,995 | |
Others: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Swaps | | | 6,216 | | | | — | | | | 585 | | | | — | | | | — | | | | 569 | |
Purchase options | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Written options | | | 5,132 | | | | — | | | | — | | | | — | | | | — | | | | 102 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 272,209,846 | | | | 39,272 | | | | 2,612,869 | | | | 59,080 | | | | 28,256 | | | | 2,678,310 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 | |
| | | | | Assets | | | Liabilities | |
| | Nominal amount | | | For fair value hedge | | | For trading | | | For cash flow hedge | | | For fair value hedge | | | For trading | |
Interest rate: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | 75,845 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Swaps | | | 130,197,378 | | | | 59,272 | | | | 223,935 | | | | — | | | | 12,103 | | | | 253,972 | |
Purchase options | | | 630,000 | | | | — | | | | 12,346 | | | | — | | | | — | | | | — | |
Written options | | | 795,000 | | | | — | | | | — | | | | — | | | | — | | | | 12,869 | |
Currency: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | 318,217 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Forwards | | | 72,526,956 | | | | — | | | | 1,314,368 | | | | — | | | | — | | | | 1,375,799 | |
Swaps | | | 48,176,306 | | | | — | | | | 1,352,924 | | | | 55,651 | | | | — | | | | 1,347,905 | |
Purchase options | | | 2,291,154 | | | | — | | | | 64,267 | | | | — | | | | — | | | | — | |
Written options | | | 4,038,237 | | | | — | | | | — | | | | — | | | | — | | | | 58,687 | |
Equity: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | 91,436 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Swaps | | | 15,000 | | | | — | | | | 103 | | | | — | | | | — | | | | 10 | |
Purchase options | | | 5,060,706 | | | | — | | | | 146,775 | | | | — | | | | — | | | | — | |
Written options | | | 4,504,290 | | | | — | | | | — | | | | — | | | | — | | | | 99,770 | |
Others: | | | | | | | | | | | | | | | | | | | | | | | | |
Futures | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Swaps | | | 7,805 | | | | — | | | | 1,056 | | | | — | | | | — | | | | 1,037 | |
Purchase options | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Written options | | | 5,000 | | | | — | | | | — | | | | — | | | | — | | | | 100 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | 268,733,330 | | | | 59,272 | | | | 3,115,775 | | | | 55,651 | | | | 12,103 | | | | 3,150,149 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives held for trading are classified into financial assets at FVTPL (Note 7) and financial liabilities at FVTPL (Note 20), and derivatives held for hedging are presented as a separate line item in the consolidated statements of financial position.
(2) | Overview of the Group’s hedge accounting |
As of the current period end, the Group has applied fair value hedge on fixed interest rate foreign currency denominated debentures amounting to 3,020,748 million Won. The purpose of the hedging is to avoid fair value volatility risk of fixed interest rate foreign currency denominated debentures derived from fluctuations of market interest rate, and as such the Group entered into interest rate swap agreements designated as hedging instruments.
The Group entered into interest rate swap agreements to manage its exposure to interest rate risk and designated as hedging instruments. Pursuant to the interest rate swap agreement, hedge ratio is determined by matching the nominal value to the face value of the hedging instrument.
In this hedging relationship, only the market interest rate fluctuation, which is the most significant part of the fair value change of the hedged item, is designated as the hedged risk, and other risk factors including credit risk are not included in the hedged risk. Therefore, the ineffective portion of the hedge could arise from fluctuations in the timing of the cash flow of the hedged item, the change in the total amount and price of the hedged item, or significant credit risk fluctuation of either party of the hedged item.
The interest rate swap agreements and the hedged items are subject to fluctuations in the underlying market rate of interest and the Group expects the value of the interest rate swap contract and the value of the hedged item to generally change in the opposite direction.
The fair value of the interest rate swap at the end of the reporting period is determined by discounting future cash flows estimated using the yield curve at the end of the reporting period and the credit risk embedded in the contract and the average interest rate is determined based on the outstanding balance at the end of the reporting period. The variable interest rate applied to the interest rate swap is USD Libor 3M (6M) plus spread. In accordance with the terms of each interest rate swap contract designated as a hedging instrument, the Group receives interest at a fixed interest rate and pays interest at a variable interest rate.
As of the current period end, the Group has applied Cash Flow hedge on foreign currency denominated bonds amounting to 699,147 million Won. The purpose of the hedging is to avoid cash flow volatility risk of foreign currency denominated bonds derived from fluctuations of exchange rate, and as such the Group entered into currency swap agreements designated as hedging instruments.
(3) | The nominal amounts of the hedging instrument as of March 31, 2018 are as follows (Unit: USD, SGD): |
| | | | | | | | | | | | | | | | |
| | 1 year or less | | | 1 year to 5 years | | | More than 5 years | | | Total | |
Fair value hedging derivatives | |
Interest rate swap | | | 500,000,000 | | | | 1,350,000,000 | | | | 1,000,000,000 | | | | 2,850,000,000 | |
Cash flow hedge | | | | | | | | | | | | | | | | |
Currency swap(USD) | | | — | | | | 500,000,000 | | | | — | | | | 500,000,000 | |
Currency swap(SGD) | | | — | | | | 204,000,000 | | | | — | | | | 204,000,000 | |
(4) | The average interest rate and average currency rate of the hedging instrument as of March 31, 2018 is as follows: |
| | |
| | Average interest rate and average currency rate |
Fair value hedging derivatives | | |
Interest rate swaps | | Fixed 3.98% receipt and 3.93% floating paid |
Cash flow hedge | | |
Currency swap(USD) | | USD 2.46% receipt, KRW 1.91% paid, USD/KRW =1,173 Won |
Currency swap(SGD) | | SGD 1.91% receipt, KRW 1.98% paid, SGD/KRW = 828 Won |
(5) | The amounts related to items designated as hedging instruments as of March 31, 2018 are as follows (Unit: Korean Won in millions, USD, SGD): |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Carrying amounts of the hedging instrument | | | | | | | |
| | Nominal amounts of the hedging instrument | | | Assets | | | Liabilities | | | Line item in the statement of financial position where the hedging instrument is located | | | Changing in fair value used for calculating hedge ineffectiveness | |
Fair value hedge Interest rate swaps | | | USD 2,850,000,000 | | | | 39,272 | | | | 28,256 | | |
| Derivative assets, Derivative liabilities | | | | (46,650 | ) |
Cash flow hedge Currency swap | |
| USD 500,000,000 SGD 204,000,000 | | | | — | | | | 59,080 | | |
| Derivative liabilities | | | | (4,723 | ) |
(6) | Details of carrying amount to hedge and amount due to hedge accounting are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying amounts of the hedging item | | | Accumulated amount of fair value hedge adjustments on the hedged item included in the carrying amount of the hedged item | | | Line item in the statement of financial position in which the hedged item is included | | | Changing in fair value used for calculating hedge ineffectiveness | | | Cash flow hedge reserve (*) | |
| | Assets | | | Liabilities | | | Assets | | | Liabilities | | | | |
Fair value hedging Interest rate swap | | | — | | | | 3,020,748 | | | | — | | | | (79,382 | ) | | | debentures | | | | 47,594 | | | | — | |
Cash flow hedge Currency swap | | | — | | | | 699,147 | | | | — | | | | — | | | | debentures | | | | 4,725 | | | | (2,649 | ) |
(*) | Amount after tax deduction |
(7) | Amounts recognized in profit or loss due to the ineffective portion of fair value hedges during the current quarter are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | | | Hedge ineffectiveness recognized in profit or loss | | | Line item in the profit or loss that includes hedge ineffectiveness |
Fair value hedge | | Interest rate risk | | | 944 | | | Other net operating income(expense) |
(8) | Reclassification of profit or loss from other comprehensive income and equity related to cash flow hedges is as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | | | | | | | |
| | | | Changes in the value of hedging instruments recognized in cash flow hedge reserve | | | Hedge ineffectiveness recognized in profit or loss | | | Line item in the profit or loss that includes hedge ineffectiveness | | Amounts reclassified from cash flow hedge reserve to profit or loss | | | Line item affected in profit or loss because of the reclassification |
Cash flow hedge | | Currency risk | | | (4,725 | ) | | | 2 | | | Other net operating income(expense) | | | — | | | Other net operating income(expense) |
27. | DEFERRED DAY 1 PROFITS OR LOSSES |
Changes in deferred day 1 profits or losses are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Beginning balance | | | 7,416 | | | | 13,422 | |
New transactions | | | 17,443 | | | | 500 | |
Amounts recognized in profits or losses | | | (1,004 | ) | | | (2,315 | ) |
| | | | | | | | |
Ending balance | | | 23,855 | | | | 11,607 | |
| | | | | | | | |
In case some variables to measure fair values of financial instruments are not observable or available in the market, valuation techniques are utilized to evaluate such financial instruments. Those financial instruments are recorded at the fair value produced by the valuation techniques as at the time of acquisition, even though there are difference noted between the transaction price and the fair value. The table above presents the difference yet to be realized as profit or losses.
28. | CAPITAL STOCK AND CAPITAL SURPLUS |
(1) | The number of authorized shares and others are as follows: |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Authorized shares of common stock | | | 5,000,000,000 Shares | | | | 5,000,000,000 Shares | |
Par value | | | 5,000 Won | | | | 5,000 Won | |
Issued shares of common stock | | | 676,000,000 Shares | | | | 676,000,000 Shares | |
Capital stock | | | 3,381,392 million Won | | | | 3,381,392 million Won | |
(2) | There is no change to be disclosed in numbers of issued and outstanding shares of common stock for the three months ended March 31, 2018 and 2017. |
(3) | Details of capital surplus are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Capital in excess of par value | | | 269,533 | | | | 269,533 | |
Other capital surplus | | | 16,350 | | | | 16,347 | |
| | | | | | | | |
Total | | | 285,883 | | | | 285,880 | |
| | | | | | | | |
The bond-type hybrid securities classified as owner’s equity are as follows (Unit: Korean Won in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Issue date | | | Maturity | | | Interest rate (%) | | | March 31, 2018 | | | December 31, 2017 | |
Securities in local currency | | | June 20, 2008 | | | | June 20, 2038 | | | | 7.7 | | | | 255,000 | | | | 255,000 | |
| | | April 25, 2013 | | | | April 25, 2043 | | | | 4.4 | | | | 500,000 | | | | 500,000 | |
| | | November 13, 2013 | | | | November 13, 2043 | | | | 5.7 | | | | 200,000 | | | | 200,000 | |
| | | December 12, 2014 | | | | December 12, 2044 | | | | 5.2 | | | | 160,000 | | | | 160,000 | |
| | | June 3, 2015 | | | | June 3, 2045 | | | | 4.4 | | | | 240,000 | | | | 240,000 | |
Securities in foreign currencies | | | June 10, 2015 | | | | June 10, 2045 | | | | 5.0 | | | | 559,650 | | | | 559,650 | |
| | | September 27, 2016 | | | | — | | | | 4.5 | | | | 553,450 | | | | 553,450 | |
| | | May 16, 2017 | | | | — | | | | 5.3 | | | | 562,700 | | | | 562,700 | |
Issuance cost | | | | | | | | | | | | | | | (12,912 | ) | | | (12,912 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | | 3,017,888 | | | | 3,017,888 | |
| | | | | | | | | | | | | | | | | | | | |
The hybrid securities mentioned above are either without a maturity date or its maturity can be extended indefinitely at the maturity date without change of terms. Further, if a resolution is passed not to pay dividends on common stock, interest payments on the hybrid securities may be skipped.
(1) | Details of other equity are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Accumulated other comprehensive income: | | | | | | | | |
Net gain or loss on valuation of financial assets at FVTOCI | | | (55,663 | ) | | | — | |
Gain on valuation of AFS financial assets | | | — | | | | 301,930 | |
Net gain or loss on financial liabilities at FVTOCI due to own credit risk | | | (6 | ) | | | — | |
Share of other comprehensive loss of joint ventures and associates | | | (3,547 | ) | | | (1,251 | ) |
Loss on foreign currency translation of foreign operations | | | (242,398 | ) | | | (242,700 | ) |
Remeasurement loss related to defined benefit plan | | | (205,750 | ) | | | (152,624 | ) |
Gain on valuation of cash flow hedges | | | (2,649 | ) | | | 777 | |
Equity related tonon-current assets held for sale | | | 4,145 | | | | 4,145 | |
| | | | | | | | |
Subtotal | | | (505,868 | ) | | | (89,723 | ) |
| | | | | | | | |
Treasury shares | | | (34,113 | ) | | | (34,113 | ) |
Other capital adjustments | | | (1,607,280 | ) | | | (1,815,438 | ) |
| | | | | | | | |
Total | | | (2,147,261 | ) | | | (1,939,274 | ) |
| | | | | | | | |
(2) | Changes in the accumulated other comprehensive income are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2018 | |
| | Beginning balance | | | Increase (decrease)(*) | | | Reclassif- ication adjustments(*) | | | Income tax effect | | | Ending balance | |
Gain (loss) on valuation of AFS financial assets | | | (88,906 | ) | | | 43,910 | | | | 1,943 | | | | (12,610 | ) | | | (55,663 | ) |
Net gain or loss on financial liabilities at FVTOCI due to own credit risk | | | (96 | ) | | | 124 | | | | — | | | | (34 | ) | | | (6 | ) |
Share of other comprehensive loss of joint ventures and associates | | | (2,656 | ) | | | (1,228 | ) | | | — | | | | 337 | | | | (3,547 | ) |
Loss on foreign currency translation of foreign operations | | | (242,806 | ) | | | 563 | | | | — | | | | (155 | ) | | | (242,398 | ) |
Remeasurement gain (loss) related to defined benefit plan | | | (152,358 | ) | | | (73,645 | ) | | | — | | | | 20,253 | | | | (205,750 | ) |
Gain (loss) on valuation of cash flow hedges | | | 777 | | | | (4,725 | ) | | | — | | | | 1,299 | | | | (2,649 | ) |
Transfer tonon-current assets held for sale | | | 4,145 | | | | — | | | | — | | | | — | | | | 4,145 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | (481,900 | ) | | | (35,001 | ) | | | 1,943 | | | | 9,090 | | | | (505,868 | ) |
| | | | | | | | | | | | | | | | | | | | |
(*) | For the change in gain (loss) on valuation of financial assets at FVTOCI, “increase (decrease)” represents change due to the valuation during the period and “reclassification adjustments” represent disposal on financial assets at FVTOCI. |
| | | | | | | | | | | | | | | | | | | | |
| | For the three months ended March 31, 2017 | |
| | Beginning balance | | | Increase (decrease)(*) | | | Reclassif- ication adjustments(*) | | | Income tax effect | | | Ending balance | |
Gain (loss) on valuation of AFS financial assets | | | 386,981 | | | | 5,822 | | | | 11,715 | | | | (4,757 | ) | | | 399,761 | |
Share of other comprehensive income (loss) of joint ventures and associates | | | (1,863 | ) | | | 2,298 | | | | — | | | | (594 | ) | | | (159 | ) |
Gain (loss) on foreign currency translation of foreign operations | | | (48,353 | ) | | | (123,762 | ) | | | — | | | | 30,792 | | | | (141,323 | ) |
Remeasurement of the net defined benefit liability | | | (163,397 | ) | | | (34,991 | ) | | | — | | | | 8,470 | | | | (189,918 | ) |
Gain (loss) on valuation of cash flow hedges | | | — | | | | (1,100 | ) | | | — | | | | 247 | | | | (853 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total | | | 173,368 | | | | (151,733 | ) | | | 11,715 | | | | 34,158 | | | | 67,508 | |
| | | | | | | | | | | | | | | | | | | | |
(*) | For the change in gain (loss) on valuation of AFS financial assets, “increase (decrease)” represents change due to the valuation during the period, and “reclassification adjustments” explains disposal or recognition of impairment losses on AFS financial assets. |
(1) | Details of retained earnings are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | |
| | | | March 31, 2018 | | | December 31, 2017 | |
Legal reserve | | Earned surplus reserve | | | 1,857,754 | | | | 1,729,754 | |
| | Other legal reserve | | | 46,384 | | | | 45,668 | |
| | | | | | | | | | |
| | Subtotal | | | 1,904,138 | | | | 1,775,422 | |
| | | | | | | | | | |
Voluntary reserve | | Business rationalization reserve | | | 8,000 | | | | 8,000 | |
| | Reserve for financial structure improvement | | | 235,400 | | | | 235,400 | |
| | Additional reserve | | | 7,759,804 | | | | 7,418,806 | |
| | Regulatory reserve for credit loss | | | 2,578,457 | | | | 2,438,191 | |
| | Revaluation reserve | | | 715,860 | | | | 751,964 | |
| | Other voluntary reserve | | | — | | | | 11,700 | |
| | | | | | | | | | |
| | Subtotal | | | 11,297,521 | | | | 10,864,061 | |
| | | | | | | | | | |
Net interest income before acquisition of subsidiary | | | (1,553 | ) | | | — | |
Conversion of loss on disposal of financial assets at FVTOCI to retained earnings | | | (1,974 | ) | | | — | |
Retained earnings before appropriation | | | 2,604,078 | | | | 2,980,523 | |
| | | | | | | | |
Total | | | 15,802,210 | | | | 15,620,006 | |
| | | | | | | | |
In accordance with the Banking Act, earned surplus reserve are appropriated at least one tenth of the earnings after tax on every dividend declaration, not exceeding the paid in capital. This reserve may not be used other than for offsetting a deficit or transferring to capital.
Other legal reserves were appropriated in the branches located in Japan, Vietnam and Bangladesh according to the banking laws of Japan, Vietnam and Bangladesh, and may be used to offset any deficit incurred in those branches.
| iii. | Business rationalization reserve |
Pursuant to the Restriction of Special Taxation Act, the Group was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. The requirement was no longer effective from 2002.
| iv. | Reserve for financial structure improvement |
From 2002 to 2014, the Finance Supervisory Services recommended banks in Korea to appropriate at least 10 percent of net income after accumulated deficit for financial structure improvement, until tangible common equity ratio equals 5.5 percent. But this reserve is not available for payment of cash dividends; however, it can be used to reduce a deficit or be transferred to capital. The reserve and appropriation is an Autonomous judgment matter of the Group since 2015.
Additional reserve was appropriated for capital adequacy and other management purpose.
| vi. | Regulatory reserve for credit loss |
In accordance with Article 29 of the Regulation on Supervision of Banking Business (“RSBB”), if provisions for credit loss under IFRS for the accounting purpose are lower than provisions under RSBB, the Group discloses such short fall amount as regulatory reserve for credit loss.
Revaluation reserve is the amount of limited dividends set by the board of directors to be the recognized as complementary capital when the gain or loss occurred in the property revaluation by adopting IFRS.
(2) | Changes in retained earnings are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Beginning balance | | | 15,797,097 | | | | 14,611,566 | |
Net attributable to owners | | | 589,736 | | | | 637,473 | |
Dividends on common stock | | | (336,636 | ) | | | (269,308 | ) |
Dividends on hybrid securities | | | (37,855 | ) | | | (49,266 | ) |
Conversion to retained earnings and others | | | (210,132 | ) | | | — | |
| | | | | | | | |
Ending balance | | | 15,802,210 | | | | 14,930,465 | |
| | | | | | | | |
32. | REGULATORY RESERVE FOR CREDIT LOSS |
In accordance with Paragraph 1 and 2 of Article 29 of the Regulation on the Supervision of Banking Business (“RSBB”), if the estimated provisions for credit loss under IFRS for the accounting purpose are lower than those in accordance with the provisions under the RSBB, the Group shall disclose the difference as the planned regulatory reserve for credit loss.
(1) | Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Beginning balance | | | 2,578,457 | | | | 2,438,191 | |
Planned provision of regulatory reserve(reversal) for credit loss | | | (213,068 | ) | | | 140,266 | |
| | | | | | | | |
Ending balance | | | 2,365,389 | | | | 2,578,457 | |
| | | | | | | | |
(2) | Planned reserves provided, adjusted net income after the planned reserves provided and adjusted earnings per share after the planned reserves provided are as follows (Unit: Korean Won in millions, except for earnings per share amount): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Net income | | | 594,520 | | | | 642,731 | |
Provision of regulatory reserve for credit loss(*) | | | 50,018 | | | | 1,549 | |
Adjusted net income after the provision of regulatory reserve | | | 544,502 | | | | 641,182 | |
Adjusted EPS after the provision of regulatory reserve (Unit: Korean Won) | | | 753 | | | | 880 | |
(*) | The amount of reserve for credit loss for the three months ended March 31, 2018 is calculated considering only the change in the reserve for credit loss after the accounting policy change due to adoption of IFRS 9. Therefore, the effect of reducing the reserve for credit losses due to changes in accounting policies was excluded. |
At the shareholders’ meeting on March 23, 2018, dividend payment for the year ended December 31, 2017 amounting to 336,636 million Won (500 Won per share) was approved.
(1) | Interest income recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Financial assets at FVTPL (IFRS 9) | | | 15,170 | | | | — | |
Financial assets at FVTPL (IAS 39) | | | — | | | | 13,732 | |
Financial assets at FVTOCI | | | 57,276 | | | | — | |
AFS financial assets | | | — | | | | 76,400 | |
Securities at amortized cost | | | 81,202 | | | | — | |
HTM financial assets | | | — | | | | 74,983 | |
Financial assets at amortized cost: | | | | | | | | |
Interest on due from banks | | | 33,138 | | | | — | |
Interest on loans | | | 2,081,206 | | | | — | |
Interest of other receivables | | | 6,755 | | | | — | |
| | | | | | | | |
Subtotal | | | 2,121,099 | | | | — | |
| | | | | | | | |
Loans and receivables: | | | | | | | | |
Interest on due from banks | | | — | | | | 21,221 | |
Interest on loans | | | — | | | | 1,888,649 | |
Interest of other receivables | | | — | | | | 8,791 | |
| | | | | | | | |
Subtotal | | | — | | | | 1,918,661 | |
| | | | | | | | |
Total | | | 2,274,747 | | | | 2,083,776 | |
| | | | | | | | |
(2) | Interest expense recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Interest on deposits due to customers | | | 654,957 | | | | 588,333 | |
Interest on borrowings | | | 59,410 | | | | 57,882 | |
Interest on debentures | | | 172,058 | | | | 151,359 | |
Other interest expense | | | 21,171 | | | | 23,458 | |
| | | | | | | | |
Total | | | 907,596 | | | | 821,032 | |
| | | | | | | | |
35. | NET FEES AND COMMISSIONS INCOME |
(1) | Details of fees and commissions income recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Fees and commissions received (*) | | | 177,754 | | | | 172,634 | |
Fees and commissions received for provision of guarantee | | | 15,603 | | | | 15,789 | |
Fees and commissions received on project financing | | | 6,417 | | | | 1,720 | |
Fees and commissions received on credit card | | | 273,577 | | | | 258,679 | |
Fees and commissions received on securities | | | 26,471 | | | | 20,510 | |
Other fees and commissions received | | | 57,784 | | | | 38,280 | |
| | | | | | | | |
Total | | | 557,606 | | | | 507,612 | |
| | | | | | | | |
(*) | Fees and commissions received include fees income from agency commission, fees income from electronic finance, fees income related to loan, fees for import letter of credit dealing, commission received on foreign exchange and others. |
(2) | Details of fees and commissions expense incurred are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Fees and commissions paid | | | 39,334 | | | | 31,237 | |
Credit card commissions | | | 211,317 | | | | 200,074 | |
Brokerage commissions | | | 334 | | | | 227 | |
Others | | | 1,313 | | | | 1,122 | |
| | | | | | | | |
Total | | | 252,298 | | | | 232,660 | |
| | | | | | | | |
(1) | Details of dividend income recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Financial assets at FVTPL (IFRS 9) | | | 19,650 | | | | — | |
Financial assets at FVTPL (IAS 39) | | | — | | | | 143 | |
Financial assets at FVTOCI | | | 15,903 | | | | — | |
AFS financial assets | | | — | | | | 39,685 | |
| | | | | | | | |
Total | | | 35,553 | | | | 39,828 | |
| | | | | | | | |
(2) | Details of dividends related to Financial assets at FVTOCI for the three months ended March 31 are as follows (Unit: Korean won in millions): |
| | | | |
| | 2018 | |
Dividend income recognized from assets held as of March 31, 2018: | | | | |
Equity securities | | | 15,903 | |
Dividend income recognized in assets derecognized on March 31: | | | — | |
| | | | |
Total | | | 15,903 | |
| | | | |
37. | NET GAIN OR LOSS ON FINANCIAL INSTRUMENTS AT FVTPL |
(1) | Details of gains or losses related to net gain or loss on financial instruments at FVTPL are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Gain on financial assets at FVTPL | | | 44,030 | | | | — | |
Losses on financial assets held for trading | | | — | | | | (96,452 | ) |
Gain on financial instruments designated at FVTPL | | | 5,300 | | | | — | |
Losses on financial assets designated as at FVTPL | | | — | | | | (62,023 | ) |
| | | | | | | | |
Total | | | 49,330 | | | | (158,475 | ) |
| | | | | | | | |
(2) | Details of net gain or loss on financial instruments at FVTPL and financial assets held for trading are as follows (Unit: Korean won in millions): |
| | | | | | | | | | | | |
| | | | | | For the three months ended March 31 | |
| | | | | | 2018 | | | 2017 | |
Financial assets at | | Securities | | Gain on valuation | | | 44,879 | | | | 4,840 | |
FVTPL | | | | Gain on disposals | | | 3,492 | | | | 5,924 | |
(financial assets | | | | Loss on valuation | | | (11,838 | ) | | | (3,726 | ) |
held for trading) | | | | Loss on disposals | | | (1,699 | ) | | | (749 | ) |
| | | | | | | | | | | | |
| | | | Subtotal | | | 34,834 | | | | 6,289 | |
| | | | | | | | | | | | |
| | Loans and receivables | | Gain on valuation | | | 2,818 | | | | — | |
| | | | Loss on valuation | | | (20 | ) | | | — | |
| | | | | | | | | | | | |
| | | | Subtotal | | | 2,798 | | | | — | |
| | | | | | | | | | | | |
| | Other financial assets | | Gain on valuation | | | 1,741 | | | | 1,576 | |
| | | | Gain on disposals | | | 262 | | | | 119 | |
| | | | Loss on valuation | | | (1,873 | ) | | | (1,619 | ) |
| | | | Loss on disposals | | | (72 | ) | | | (23 | ) |
| | | | | | | | | | | | |
| | | | Subtotal | | | 58 | | | | 53 | |
| | | | | | | | | | | | |
| | Total of financial instruments held for trading | | | 37,690 | | | | 6,342 | |
| | | | | | | | | | | | |
Derivatives (for trading) | | Interest rates derivatives | | Gain on transactions and valuation | | | 368,990 | | | | 231,712 | |
| | | | Loss on transactions and valuation | | | (347,144 | ) | | | (223,564 | ) |
| | | | | | | | | | | | |
| | | | Subtotal | | | 21,846 | | | | 8,148 | |
| | | | | | | | | | | | |
| | Currencies derivatives | | Gain on transactions and valuation | | | 988,952 | | | | 3,867,771 | |
| | | | Loss on transactions and valuation | | | (1,002,956 | ) | | | (4,048,664 | ) |
| | | | | | | | | | | | |
| | | | Subtotal | | | (14,004 | ) | | | (180,893 | ) |
| | | | | �� | | | | | | | |
| | Equity derivatives | | Gain on transactions and valuation | | | 133,652 | | | | 210,625 | |
| | | | Loss on transactions and valuation | | | (134,775 | ) | | | (140,435 | ) |
| | | | | | | | | | | | |
| | | | Subtotal | | | (1,123 | ) | | | 70,190 | |
| | | | | | | | | | | | |
| | Other derivatives | | Gain on transactions and valuation | | | 648 | | | | 10,017 | |
| | | | Loss on transactions and valuation | | | (1,027 | ) | | | (10,256 | ) |
| | | | | | | | | | | | |
| | | | Subtotal | | | (349 | ) | | | (239 | ) |
| | | | | | | | | | | | |
| | Total of derivatives(for trading) | | | 6,340 | | | | (102,794 | ) |
| | | | | | | | | | | | |
| | Total | | | 44,030 | | | | (96,452 | ) |
| | | | | | | | | | | | |
(3) | Details of net gain or loss on financial instruments at FVTPL are as follows (Unit: Korean won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Gain on equity-linked securities | | | | | | | | |
Loss on disposals of equity-linked securities | | | (331 | ) | | | (12,191 | ) |
Gain (loss) on valuation of equity-linked securities | | | 4,978 | | | | (49,047 | ) |
| | | | | | | | |
Subtotal | | | 4,647 | | | | (61,238 | ) |
| | | | | | | | |
Gain on other securities: | | | | | | | | |
Gain on valuation of other securities | | | — | | | | 98 | |
Gain (loss) on other financial instruments: | | | | | | | | |
Gain (loss) on valuation of other financial instruments | | | 653 | | | | (883 | ) |
| | | | | | | | |
Total | | | 5,300 | | | | (62,023 | ) |
| | | | | | | | |
38. | NET GAIN OR LOSS ON FINANCIAL ASSETS AT FVTOCI AND AFS FINANCIAL ASSETS |
Details of net gain or loss on financial assets at FVTOCI and AFS financial assets recognized are as follows (Unit: Korean won in millions):
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Gains on redemption of securities | | | 5 | | | | 327 | |
Gains on transaction of securities | | | 807 | | | | 21,243 | |
Impairment losses on securities | | | — | | | | (5,785 | ) |
| | | | | | | | |
Total | | | 812 | | | | 15,785 | |
| | | | | | | | |
39. | IMPAIRMENT LOSSES DUE TO CREDIT LOSS |
Impairment losses on loans and receivables, guarantees and loan commitment recognized for credit loss are as follows (Unit: Korean Won in millions):
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Reversal of credit loss on financial assets at financial assets at FVTOCI | | | 216 | | | | — | |
Reversal of credit loss on securities at amortized cost losses | | | 9 | | | | — | |
Provision for credit loss on loans and other financial assets at amortized cost | | | (137,753 | ) | | | — | |
Impairment losses due to credit loss | | | — | | | | (122,134 | ) |
Reversal of provision on guarantee | | | 10,636 | | | | 28,897 | |
Reversal of provision on loan commitment | | | 4,657 | | | | 13,960 | |
| | | | | | | | |
Total | | | (122,235 | ) | | | (79,277 | ) |
| | | | | | | | |
40. | GENERAL ADMINISTRATIVE EXPENSES AND OTHER NET OPERATING INCOME (EXPENSES) |
(1) | General and administrative expenses recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | |
| | | | | | For the three months ended March 31 | |
| | | | | | 2018 | | | 2017 | |
Employee benefits | | Short term employee benefits | | Salaries Employee benefits | | | 303,018 | | | | 328,157 | |
| | | 104,694 | | | | 99,430 | |
| | Retirement benefit service costs | | | 36,326 | | | | 37,085 | |
| | | | | | | | | | | | |
| | Subtotal | | | 444,038 | | | | 464,672 | |
| | | | | | | | | | | | |
Depreciation and amortization | | | | | | | 47,476 | | | | 49,547 | |
Other general and administrative expenses | | Rent | | | 79,580 | | | | 80,411 | |
| Taxes and dues | | | 29,110 | | | | 29,101 | |
| Service charges | | | 52,163 | | | | 48,807 | |
| Computer and IT related | | | 21,877 | | | | 14,388 | |
| Telephone and communication | | | 16,910 | | | | 15,479 | |
| Operating promotion | | | 10,429 | | | | 11,050 | |
| Advertising | | | 6,685 | | | | 7,446 | |
| Printing | | | 1,964 | | | | 2,142 | |
| Traveling | | | 3,355 | | | | 3,104 | |
| Supplies | | | 1,486 | | | | 1,600 | |
| Insurance premium | | | 2,041 | | | | 2,213 | |
| Reimbursement | | | 938 | | | | 4,467 | |
| Maintenance | | | 4,355 | | | | 3,551 | |
| Water, light and heating | | | 4,394 | | | | 4,263 | |
| Vehicle maintenance | | | 2,215 | | | | 2,362 | |
| Others | | | 10,668 | | | | 9,667 | |
| | | | | | | | | | | | |
| | Subtotal | | | 248,170 | | | | 240,051 | |
| | | | | | | | | | | | |
| | Total | | | 739,684 | | | | 754,270 | |
| | | | | | | | | | | | |
(2) | Other operating income recognized is as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Gain on transaction of foreign exchange | | | 690,152 | | | | 1,079,690 | |
Gain on disposals of loans and receivables (*1) | | | — | | | | 186,999 | |
Gain related to derivatives | | | 2,570 | | | | 64 | |
Gain on fair value hedged items | | | 47,694 | | | | 18,954 | |
Other (*2) | | | 15,781 | | | | 62,855 | |
| | | | | | | | |
Total | | | 756,197 | | | | 1,348,562 | |
| | | | | | | | |
(*1) | Gain on disposal of loan and receivables occurred for the three month ended March 31, 2017 was presented into a separate account for gain related to financial assets at amortized cost in accordance with the adoption of IFRS 9. |
(*2) | Other income includes such income amounting to 28,800 million Won for the three months ended March 31, 2017 that the Group recognized for it is to receive from other creditor financial institutions in accordance with the creditor financial institutions committee agreement. |
(3) | Other operating expenses recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Loss on transaction of foreign exchange | | | 611,377 | | | | 840,024 | |
KDIC deposit insurance fees | | | 77,180 | | | | 73,110 | |
Contribution to miscellaneous funds | | | 72,932 | | | | 72,335 | |
Loss on disposals of loans and receivables(*1) | | | — | | | | 68 | |
Loss related to derivatives | | | 49,307 | | | | 47,572 | |
Loss on fair value hedged items | | | — | | | | 26 | |
Others (*2) | | | 41,864 | | | | 36,970 | |
| | | | | | | | |
Total | | | 852,660 | | | | 1,070,105 | |
| | | | | | | | |
(*1) | Loss on disposal of loan and receivables occurred for the three month ended March 31, 2017 was presented into a separate account for loss related to financial assets at amortized cost in accordance with the adoption ofK-IFRS 1109. |
(*2) | For the three months ended March 31, 2018, ‘Other expense’ includes losses amounting to 200 million won million won, which are related to the Group’s expected payments to other creditor financial institutions in accordance with the creditor financial institutions committee agreement. In addition, ‘Other expense’ for the three months ended March 31, 2018 and 2017 includes 11,771 million won and 12,139 million won, respectively, of intangible asset amortization expense. |
41. | OTHERNON-OPERATING INCOME (EXPENSES) |
(1) | Details of gains or losses on valuation of investments in joint ventures and associates are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Gain on valuation | | | 4,660 | | | | 13,377 | |
Loss on valuation | | | (13,803 | ) | | | (62,792 | ) |
| | | | | | | | |
Total | | | (9,143 | ) | | | (49,415 | ) |
| | | | | | | | |
(2) | Othernon-operating income and expenses recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Othernon-operating income | | | 15,696 | | | | 46,774 | |
Othernon-operating expenses | | | (21,815 | ) | | | (48,473 | ) |
| | | | | | | | |
Total | | | (6,119 | ) | | | (1,699 | ) |
| | | | | | | | |
(3) | Othernon-operating income recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Rental fee income | | | 1,516 | | | | 1,820 | |
Gains on disposal of investment in joint ventures and associates | | | — | | | | 28,420 | |
Gains on disposal of premises and equipment and other assets | | | 1,277 | | | | 181 | |
Reversal of impairment loss on premises and equipment and other assets | | | 340 | | | | 32 | |
Others | | | 12,563 | | | | 16,321 | |
| | | | | | | | |
Total | | | 15,696 | | | | 46,774 | |
| | | | | | | | |
(4) | Othernon-operating expenses recognized are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Depreciation on investment properties | | | 1,006 | | | | 999 | |
Interest expenses of rent leasehold deposits | | | 142 | | | | 118 | |
Losses on disposal of investment in joint ventures and associates | | | 2,931 | | | | 27,684 | |
Losses on disposal of premises and equipment and other assets | | | 54 | | | | 337 | |
Impairment losses on premises and equipment and other assets | | | — | | | | 120 | |
Donation | | | 13,491 | | | | 4,554 | |
Others | | | 4,191 | | | | 14,661 | |
| | | | | | | | |
Total | | | 21,815 | | | | 48,473 | |
| | | | | | | | |
(1) | Income tax expenses are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Current tax expense | | | | | | | | |
Current tax expense in respect of the current year | | | 8,742 | | | | 210,589 | |
Adjustments recognized in the current period in relation to the current tax of prior periods | | | (971 | ) | | | (722 | ) |
| | | | | | | | |
Subtotal | | | 7,771 | | | | 209,867 | |
| | | | | | | | |
Deferred tax expense | | | | | | | | |
Deferred tax benefit relating to the origination and reversal of temporary differences | | | 123,968 | | | | (56,047 | ) |
Deferred tax charged directly to equity | | | 4,457 | | | | 32,079 | |
Others (tax effect charged directly to equity due to the adoption ofK-IFRS 1109) | | | 75,319 | | | | — | |
| | | | | | | | |
Subtotal | | | 203,744 | | | | (23,968 | ) |
| | | | | | | | |
Income tax expense | | | 211,515 | | | | 185,899 | |
| | | | | | | | |
(2) | Income tax expense can be reconciled to net income before income tax expense as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Net income before income tax expense | | | 806,035 | | | | 828,630 | |
Tax calculated at statutory tax rate (*) | | | 211,298 | | | | 200,066 | |
Adjustments | | | | | | | | |
Effect of income that is exempt from taxation | | | (7,789 | ) | | | (18,387 | ) |
Effect of expense not deductible in determining taxable profit | | | 5,794 | | | | 4,847 | |
Adjustments recognized in the current period in relation to the current tax of prior periods | | | (971 | ) | | | (722 | ) |
Others | | | 3,183 | | | | 95 | |
| | | | | | | | |
Subtotal | | | 217 | | | | (14,167 | ) |
| | | | | | | | |
Income tax expense | | | 211,515 | | | | 185,899 | |
| | | | | | | | |
Effective tax rate | | | 26.2 | % | | | 22.4 | % |
| | | | | | | | |
(*) | The applicable income tax rate; 1) 11% for below 200 million Won, 2) 22% for above 200 million Won and below 20 billion Won, 3) 24.2% for above 20 billion Won and below 300 billion Won, 4) 27.5% for above 300 billion won.. |
(3) | Details of accumulated deferred tax charged direct to equity is as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Net gain or loss on valuation of financial assets at FVTOCI | | | 22,094 | | | | — | |
Loss on valuation of AFS securities | | | — | | | | (114,169 | ) |
Share of other comprehensive income (loss) of joint ventures and associates | | | 1,016 | | | | (954 | ) |
Foreign currency translation of foreign operations | | | 10,994 | | | | 15,855 | |
Remeasurements of the net defined benefit liability | | | 76,540 | | | | 56,317 | |
Gain (loss) on cash flow hedge | | | 410 | | | | (248 | ) |
| | | | | | | | |
Total | | | 111,054 | | | | (43,199 | ) |
| | | | | | | | |
43. | EARNINGS PER SHARE (“EPS”) |
Basic EPS is calculated by dividing net income by weighted average number of common shares outstanding (Unit: Korean Won in millions, except for EPS and number of shares):
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Net income attributable to owners | | | 589,736 | | | | 637,473 | |
Dividends to hybrid securities | | | (37,855 | ) | | | (49,266 | ) |
Net income attributable to common shareholders | | | 551,881 | | | | 588,207 | |
Weighted average number of common shares outstanding | | | 673 million shares | | | | 673 million shares | |
Basic Earnings Per Share (Unit: Korean Won) | | | 820 | | | | 874 | |
Diluted EPS is equal to basic EPS because there is no dilution effect for the three months ended March 31, 2018 and 2017.
44. | CONTINGENT LIABILITIES AND COMMITMENTS |
(1) | Details of guarantees are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Confirmed guarantees | | | | | | | | |
Guarantee for loans | | | 155,519 | | | | 157,299 | |
Acceptances | | | 342,924 | | | | 320,519 | |
Guarantees in acceptances of imported goods | | | 107,100 | | | | 108,238 | |
Other confirmed guarantees | | | 5,928,457 | | | | 6,288,965 | |
| | | | | | | | |
Total | | | 6,534,000 | | | | 6,875,021 | |
| | | | | | | | |
Unconfirmed guarantees | | | | | | | | |
Local letter of credit | | | 381,056 | | | | 383,117 | |
Letter of credit | | | 3,453,960 | | | | 3,637,787 | |
Other unconfirmed guarantees | | | 573,976 | | | | 505,689 | |
| | | | | | | | |
Total | | | 4,408,992 | | | | 4,526,593 | |
| | | | | | | | |
Commercial paper purchase commitments and others | | | 1,465,161 | | | | 1,458,101 | |
(2) | Details of loan commitments and others are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Loan commitments | | | 96,822,354 | | | | 80,760,325 | |
Other commitments | | | 5,814,876 | | | | 4,546,090 | |
Ongoing litigations of the Group are as follows (Unit: Korean Won in millions except for number of cases):
| | | | | | | | | | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
| | As plaintiff | | | As defendant | | | As plaintiff | | | As defendant | |
Number of cases | | | 82 cases | | | | 163 cases | | | | 83 cases | | | | 155 cases | |
Amount of litigation | | | 423,184 | | | | 259,628 | | | | 413,267 | | | | 244,767 | |
Provisions for litigations | | | | | | | 4,418 | | | | | | | | 9,277 | |
The Group provides clearance services for payments in Korean Won in order to facilitate trade transactions between Korea and Iran. In connection with these services, the Group is currently being investigated by US government agencies including US prosecutors (United States Attorney’s Office and New York State Attorney General’s Office) as to whether the Group has violated United States laws by participating in prohibited transactions involving countries sanctioned by the US. The Group has decided not to disclose the required disclosures stated inK-IFRS 1037 ‘Provisions, Contingent Liabilities and Contingent Assets’ as such information may adversely affect the current investigation against the Group.
45. | RELATED PARTY TRANSACTIONS |
Related parties of the Group as of March 31, 2018 and its assets and liabilities recognized as of March 31, 2018 and December 31, 2017 and major transactions with related parties for the three months ended March 31, 2018 and March 31, 2017 are as follows:
| | |
| | Related parties |
Associates | | Kumho Tires Co., Inc., Woori Service Networks Co., Ltd., Korea Credit Bureau Co., Ltd., Korea Finance Security Co., Ltd., Chin Hung International Inc., STX Engine Co., Ltd, STX Corporation,2016KIF-IMM Woori Bank Technology Venture Fund, K BANK Co., Ltd., Well to Sea No. 3 Private Equity Fund, and Others (Dongwoo C & C Co., Ltd. and other 24 associates) |
(2) | Assets and liabilities from transactions with related parties are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | |
Related party | | A title of account | | March 31, 2018 | | | December 31, 2017 | |
Associates | | Kumho Tires Co., Inc. | | Loans | | | 157,124 | | | | 170,917 | |
| | | | Allowance for credit loss | | | (145,188 | ) | | | (156,712 | ) |
| | | | Deposits due to customers | | | 75 | | | | 666 | |
| | | | Other liabilities | | | 495 | | | | 50 | |
| | Woori Service Networks Co., Ltd. | | Loans | | | 35 | | | | 45 | |
| | | Deposits due to customers | | | 1,696 | | | | 1,311 | |
| | | | Other liabilities | | | 357 | | | | 357 | |
| | Korea Credit Bureau Co., Ltd. | | Loans | | | 4 | | | | 6 | |
| | | Deposits due to customers | | | 1,127 | | | | 5,586 | |
| | | | Other liabilities | | | 10 | | | | 54 | |
| | Korea Finance Security Co., Ltd. | | Loans | | | 33 | | | | 56 | |
| | | Deposits due to customers | | | 2,221 | | | | 2,854 | |
| | | | Other liabilities | | | 10 | | | | 7 | |
| | Chin Hung International Inc. | | Loans | | | 218 | | | | 408 | |
| | | Allowance for credit loss | | | (35 | ) | | | (22 | ) |
| | | | Deposits due to customers | | | 68,234 | | | | 46,220 | |
| | | | Other liabilities | | | 2,900 | | | | 1,658 | |
| | Poonglim Industrial Co., Ltd. (*1) | | Deposits due to customers | | | — | | | | 4 | |
| | STX Engine Co., Ltd. | | Loans | | | 107,588 | | | | 106,176 | |
| | | | Allowance for credit loss | | | (89,867 | ) | | | (88,734 | ) |
| | | | Deposits due to customers | | | 16,853 | | | | 18,092 | |
| | | | Other liabilities | | | 260 | | | | 29 | |
| | STX Corporation | | Loans | | | 64,979 | | | | 47,711 | |
| | | | Allowance for credit loss | | | (44,561 | ) | | | (31,210 | ) |
| | | | Deposits due to customers | | | 11,216 | | | | 77,555 | |
| | | | Other liabilities | | | 110 | | | | 80 | |
| | | | | | | | | | | | |
Related party | | A title of account | | March 31, 2018 | | | December 31, 2017 | |
| | K BANK Co., Ltd. | | Loans | | | 248 | | | | 212 | |
| | Well to Sea No.3 Private Equity Fund (*2) | | Loans | | | 5,840 | | | | 73,810 | |
| | | Allowance for credit loss | | | (29 | ) | | | (39 | ) |
| | | Deposits due to customers | | | 587 | | | | 61 | |
| | | | Other liabilities | | | 82 | | | | 27 | |
| | Others (*3) | | Loans | | | 330 | | | | 499 | |
| | | | Allowance for credit loss | | | (304 | ) | | | (471 | ) |
| | | | Other assets | | | 1 | | | | 1 | |
| | | | Deposits due to customers | | | 6,203 | | | | 2,906 | |
| | | | Other liabilities | | | 144 | | | | 73 | |
(*1) | The Group did not have significant influence over the entity due to the fact that the entity was going through workout process under receivership, and thus the entity was excluded from the investment in associates |
(*2) | Due to capital contribution by the Group for the year ended December 31, 2017, the entities has been included in the investment in associates. |
(*3) | Others include Saman Corporation, Kyesan Engineering Co., Ltd., Hyunwoo International Co., Ltd., DAEA SNC Co., Ltd. and others as of March 31, 2018 and 2017. |
(3) | Gain or loss from transactions with related parties are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | |
| | | | | | For the three months ended March 31 | |
Related party | | A title of account | | 2018 | | | 2017 | |
Corporation that have significant influence over the group | | KDIC(*1) | | Interest expenses | | | — | | | | 7,612 | |
Associates | | Kumho Tires Co., Ltd. | | Interest income | | | 686 | | | | 854 | |
| | | | Fees income | | | 4 | | | | 5 | |
| | | | Interest expenses | | | — | | | | — | |
| | | | Reversal of allowance for credit loss | | | (11,524 | ) | | | (47 | ) |
| | Woori Blackstone Korea Opportunity Private Equity Fund No.1 (*2) | | Fees income | | | — | | | | 14 | |
| | Woori Service Networks Co., Ltd. | | Other income | | | 7 | | | | 7 | |
| | | Interest expenses | | | 4 | | | | 7 | |
| | | | Fees expenses | | | 125 | | | | 179 | |
| | | | Other expenses | | | 126 | | | | 124 | |
| | Korea Credit Bureau Co., Ltd. | | Interest expenses | | | 16 | | | | 17 | |
| | | Fees expenses | | | 519 | | | | 12 | |
| | Korea Finance Security Co., Ltd. | | Interest expenses | | | 3 | | | | 3 | |
| | | Fees expenses | | | 34 | | | | — | |
| | Chin Hung International Inc. | | Interest income | | | — | | | | 53 | |
| | | Fees income | | | 1 | | | | 1 | |
| | | | Interest expenses | | | 8 | | | | 6 | |
| | | | Impairment losses due to credit loss (reversal of allowance for credit loss) | | | 13 | | | | (4,029 | ) |
| | STX Engine Co., Ltd. | | Interest income | | | 333 | | | | 332 | |
| | | | Fees income | | | 15 | | | | 84 | |
| | | | Interest expenses | | | 41 | | | | 35 | |
| | | | Impairment losses due to credit loss (reversal of allowance for credit loss) | | | 1,133 | | | | (3,821 | ) |
| | | | | | | | | | | | |
| | | | | | For the three months ended March 31 | |
Related party | | A title of account | | 2018 | | | 2017 | |
| | Samho International Co., Ltd. (*3) | | Interest income | | | — | | | | 180 | |
| | | Fees income | | | — | | | | 5 | |
| | | | Interest expenses | | | — | | | | 111 | |
| | | | Reversal of allowance for credit loss | | | — | | | | (168 | ) |
| | STX Corporation | | Interest income | | | — | | | | 218 | |
| | | | Fees income | | | 1 | | | | 34 | |
| | | | Interest expenses | | | 1 | | | | 2 | |
| | | | Impairment losses due to credit loss (reversal of allowance for credit loss) | | | 13,351 | | | | (63,426 | ) |
Associates | | K BANK Co., Ltd | | Fees income | | | 208 | | | | 199 | |
| | | | Other income | | | — | | | | 1,051 | |
| | | | Impairment losses due to credit loss | | | — | | | | 9 | |
| | Well to Sea No.3 Private Equity Fund (*4) | | Interest incomes | | | 685 | | | | — | |
| | | Interest expenses | | | 2 | | | | — | |
| | | | Impairment losses due to credit loss (reversal of allowance for credit loss) | | | (10 | ) | | | — | |
| | Others (*5) | | Other income | | | 1 | | | | | |
| | | | Interest expenses | | | 6 | | | | 3 | |
| | | | Impairment losses due to credit loss (reversal of allowance for credit loss) | | | (167 | ) | | | 774 | |
(*1) | As its ownership interest in the Group is lower than 20% as of December 31, 2017, it has been exclude from the corporation that have significant influence over the Group. |
(*2) | Due to disposition previous year, the entity is not in scope for associate. |
(*3) | The entity was sold after it was transferred to assets held for sale and was excluded from the investment in associates during the year ended December 31, 2017 |
(*4) | Due to capital contribution during the year ended December 31, 2017, the entity has been included in the investment in associates. |
(*5) | Others include Saman Corporation, Kyesan Engineering Co., Ltd., Hyunwoo International Co., Ltd., DAEA SNC Co., Ltd. and others as of March 31, 2018. Others include Kyesan Engineering Co., Ltd., Good Software Lab Co., Ltd., Dongwoo C&C Co., Ltd., Saman Corporation, DAEA SNC Co., Ltd., and Hyunwoo International Co., Ltd. and others as of March 31, 2017. |
(4) | Guarantees provided to the related parties are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | | | Warranty |
Kumho Tires Co., Inc. | | | 9,554 | | | | 4,181 | | | Letter of credit and others |
| | 538 | | | 636 | | | Loan commitment |
Korea Finance Security Co., Ltd. | | | 227 | | | | 204 | | | Loan commitment |
Korea Credit Bureau Co., Ltd. | | | 31 | | | | 29 | | | Loan commitment |
Woori Service Networks Co., Ltd. | | | 165 | | | | 155 | | | Loan commitment |
Chin Hung International Inc. | | | 32,081 | | | | 31,891 | | | Loan commitment |
STX Engine Co., Ltd. | | | 68,842 | | | | 68,858 | | | Letter of credit and others |
| | 238 | | | — | | | Loan commitment |
STX corporation | | | 10,541 | | | | 17,557 | | | Letter of credit and others |
| | 111 | | | 53 | | | Loan commitment |
Well to Sea No.3 Private Equity Fund | | | 304,160 | | | | 236,190 | | | Loan commitment |
For the guarantee provided to the related parties, the Group recognized provisions for guarantees amounting to 75,110 million Won and 71,459 million Won, as of March 31, 2018 and December 31, 2017, respectively.
(5) | Compensation for key management is as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Short term benefits | | | 3,130 | | | | 2,877 | |
Severance payments | | | 209 | | | | 163 | |
| | | | | | | | |
Total | | | 3,339 | | | | 3,040 | |
| | | | | | | | |
Key management includes registered executives andnon-registered executives. Outstanding assets and liabilities from transactions with key management amount to 2,274 million Won and 6,857 million Won, respectively, as of March 31, 2018. With respect to the assets, the Group has not recognized any any allowance nor provision.
(1) | Trust accounts of the Group are as follows (Unit: Korean Won in millions): |
| | | | | | | | | | | | | | | | |
| | Total assets | | | Operating income | |
| | March 31, 2018 | | | December 31, 2017 | | | For the three months ended March 31, 2018 | | | For the three months ended March 31, 2017 | |
Trust accounts | | | 49,657,336 | | | | 43,895,511 | | | | 284,292 | | | | 203,016 | |
(2) | Receivables and payables from the transactions between the Group and trust accounts are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Receivables | | | | | | | | |
Trust fees receivables | | | 25,620 | | | | 25,286 | |
| | | | | | | | |
Payables | | | | | | | | |
Deposits due to customers | | | 589,782 | | | | 585,832 | |
Borrowings from trust accounts | | | 2,644,524 | | | | 2,711,529 | |
| | | | | | | | |
Total | | | 3,234,306 | | | | 3,297,361 | |
| | | | | | | | |
(3) | Significant transactions between the Group and trust accounts are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | For the three months ended March 31 | |
| | 2018 | | | 2017 | |
Revenue | | | | | | | | |
Trust fees | | | 50,717 | | | | 34,735 | |
Termination fees | | | 4,199 | | | | 36 | |
| | | | | | | | |
Total | | | 54,916 | | | | 34,771 | |
| | | | | | | | |
Expense | | | | | | | | |
Interest expenses on deposits due to customers | | | 1,982 | | | | 7,143 | |
Interest expenses on borrowings from trust accounts | | | 10,067 | | | | 8,117 | |
| | | | | | | | |
Total | | | 12,049 | | | | 15,260 | |
| | | | | | | | |
(4) | Principal guaranteed trusts and principal and fixed rate of return guaranteed trusts |
| 1) | As of March 31, 2018 and December 31, 2017, the carrying of principal guaranteed trusts and principal and fixed rate of return guaranteed trusts are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Principal guaranteed trusts | | | | | | | | |
Old-age pension trusts | | | 3,868 | | | | 4,058 | |
Personal pension trusts | | | 523,231 | | | | 530,556 | |
Pension trusts | | | 797,776 | | | | 791,920 | |
Retirement trusts | | | 48,642 | | | | 50,035 | |
New personal pension trusts | | | 8,412 | | | | 8,563 | |
Newold-age pension trusts | | | 2,374 | | | | 2,467 | |
| | | | | | | | |
Subtotal | | | 1,384,303 | | | | 1,387,599 | |
| | | | | | | | |
Principal and fixed rate of return guaranteed trusts | | | | | | | | |
Development trusts | | | 19 | | | | 19 | |
Unspecified money trusts | | | 801 | | | | 801 | |
| | | | | | | | |
Subtotal | | | 820 | | | | 820 | |
| | | | | | | | |
Total | | | 1,385,123 | | | | 1,388,419 | |
| | | | | | | | |
| 2) | As of March 31, 2018 and December 31, 2017, the amounts that the Group has to pay by the capital guaranteed contract or the operating results of the principal and return guaranteed trusts are as follows (Unit: Korean Won in millions): |
| | | | | | | | |
| | March 31, 2018 | | | December 31, 2017 | |
Liabilities for the account (subsidy for trust account adjustment) | | | 7 | | | | 32 | |