KOREA FINANCE 424B2 Prospectus for primary offering

Filed Pursuant to Rule 424(b)(2)
Registration No. 333-170866

PROSPECTUS SUPPLEMENT

(To Prospectus Dated June 27, 2012)

Korea Finance Corporation

US$300,000,000 2.25% Notes due 2017

Our US$300,000,000 aggregate principal amount of notes due 2017 (the “Notes”) will bear interest at a rate of 2.25% per annum. Interest on the Notes is payable semi-annually in arrears on February 7 and August 7 of each year, beginning on February 7, 2013. The Notes will mature on August 7, 2017. The “Redemption for Tax Reasons” described in “Description of the Securities—Description of the Debt Securities—Redemption for Tax Reasons” of the accompanying prospectus does not apply to the Notes. See “Description of The Notes—No Redemption for Tax Reasons”.

The Notes offered hereby shall constitute a further issuance of, and be fungible with and be consolidated and form a single series with, our US$500,000,000 2.25% Notes due 2017, which were issued on August 7, 2012. The total principal amount of the previously-issued Notes and the Notes now being issued is US$800,000,000.

The Notes will be issued in minimum denominations of US$200,000 principal amount and integral multiples of US$1,000 in excess thereof. The Notes will be represented by one or more global notes registered in the name of a nominee of The Depository Trust Company, as depositary.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per Note		Total
Public offering price		101.432%	US$	304,296,000
Underwriting discount		0.250%	US$	750,000
Proceeds to us (before deduction of expenses)		101.182%	US$	303,546,000

In addition to the initial public offering price, you will have to pay for accrued interest from and including August 7, 2012.

Approval in-principle has been received from the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for the listing of the Notes. The SGX-ST assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained in this prospectus supplement or the accompanying prospectus. Approval in-principle from, and admission of the Notes to the Official List of, the SGX-ST are not to be taken as an indication of the merits of the issuer or the Notes. Currently, there is no public market for the Notes.

The Notes are expected to be delivered to investors through the book-entry facilities of The Depository Trust Company on or about September 24, 2012.

Joint Bookrunners & Lead Managers

Citigroup Credit Suisse UBS

Prospectus Supplement dated September 17, 2012

You should rely only on the information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you with different information. We are not making an offer to sell these securities in any state or jurisdiction where the offer or sale is not permitted.

TABLE OF CONTENTS

Prospectus Supplement

Summary of the Offering	S-6
Use of Proceeds	S-8
Recent Developments	S-9
Description of the Notes	S-105
Clearance and Settlement	S-108
Taxation	S-111
Underwriting	S-113
Legal Matters	S-117
Official Statements and Documents	S-117
General Information	S-117

Prospectus

Certain Defined Terms and Conventions	1
Use of Proceeds	2
Korea Finance Corporation	3
Overview	3
Capitalization	5
Business	5
Selected Financial Statement Data	8
Operations	14
Sources of Funds	21
Debt	23
Property	25
Directors and Management; Employees	25
Consolidated Subsidiaries	26
Tables and Supplementary Information	29
Financial Statements and the Auditors	35
The Republic of Korea	122
Land and History	122
Government and Politics	123
The Economy	127
Principal Sectors of the Economy	135
The Financial System	141
Monetary Policy	145
Balance of Payments and Foreign Trade	149
Government Finance	156
Debt	158
Tables and Supplementary Information	160
Description of the Securities	165
Description of Debt Securities	165
Description of Warrants	172
Terms Applicable to Debt Securities and Warrants	173

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Limitations on Issuance of Bearer Debt Securities and Bearer Warrants	175
Taxation	176
Korean Taxation	176
United States Tax Considerations	177
Plan of Distribution	184
Legal Matters	185
Authorized Representatives in the United States	185
Official Statements and Documents	185
Experts	185
Forward-Looking Statements	186
Further Information	188

S-3

CERTAIN DEFINED TERMS AND CONVENTIONS

All references to “Korea” or the “Republic” contained in this prospectus mean The Republic of Korea. All references to the “Government” mean the government of Korea.

Unless the context otherwise requires or otherwise indicates, references to “we”, “us” or “our” mean Korea Finance Corporation and its consolidated subsidiaries, and references to “KoFC” or the “Issuer” mean Korea Finance Corporation, excluding its subsidiaries.

In this prospectus supplement, where information has been prepared in thousands, millions or billions of units, amounts may have been rounded up or down. Accordingly, actual numbers may differ from those contained herein due to rounding. All discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

KoFC’s non-consolidated financial information as of June 30, 2012 and December 31, 2011 and for the six months ended June 30, 2012 and 2011 included in this prospectus supplement has been prepared in accordance with the Financial Services Commission (the “FSC”)’s Supervisory Regulations on Korea Finance Corporation (the “KoFC Supervisory Regulations”), summarized in “Notes to Consolidated Financial Statements of December 31, 2011 and 2010—Note 2” in the accompanying prospectus.

In addition, we include certain financial information of the Korea Development Bank (“KDB”), the principal subsidiary of KDB Financial Group (“KDBFG”), which is our consolidated subsidiary, in this prospectus supplement. Commencing in 2011, KDB prepares its financial statements in accordance with International Financial Reporting Standards as adopted in Korea (“Korean IFRS” or “K-IFRS”) and KDB’s separate financial information as of June 30, 2012 and December 31, 2011 and for the six months ended June 30, 2012 and 2011 included in this prospectus has been prepared in accordance with Korean IFRS, which differs in certain significant respects from generally accepted accounting principles in Korea (“Korean GAAP”) and the KoFC Supervisory Regulations. As a result, KDB’s separate K-IFRS financial information included in this prospectus supplement is not comparable with KoFC’s non-consolidated financial information included in this prospectus supplement. References in this prospectus supplement to “separate” financial statements and information are to financial statements and information prepared on a non-consolidated basis.

Additional Information

The information in this prospectus supplement is in addition to the information contained in our prospectus dated June 27, 2012. The accompanying prospectus contains information regarding ourselves and Korea, as well as a description of some terms of the Notes. You can find further information regarding us, Korea, and the Notes in registration statement no. 333-170866, as amended, relating to our debt securities, with or without warrants, which is on file with the U.S. Securities and Exchange Commission.

We are Responsible for the Accuracy of the Information in this Document

We are responsible for the accuracy of the information in this document and confirm that to the best of our knowledge we have included all facts that should be included so as not to mislead potential investors. The statement made in the preceding sentence is not intended to be a disclaimer or limitation of liability under the federal securities laws.

The SGX-ST assumes no responsibility for the correctness of any statements made or opinions expressed or reports contained in this prospectus supplement and the accompanying prospectus. Approval in-principle from, and admission of the Notes to the Official List of, the SGX-ST are not to be taken as an indication of the merits of the issuer or the Notes.

S-4

Not an Offer if Prohibited by Law

The distribution of this prospectus supplement and the accompanying prospectus, and the offer of the Notes, may be legally restricted in some countries. If you wish to distribute this prospectus supplement or the accompanying prospectus, you should observe any restrictions. This prospectus supplement and the accompanying prospectus should not be considered an offer and should not be used to make an offer, in any state or country which prohibits the offering.

The Notes may not be offered or sold in Korea, directly or indirectly, or to any resident of Korea, except as permitted by Korean law. For more information, see “Underwriting—Foreign Selling Restrictions”.

Information Presented Accurate as of Date of Document

This prospectus supplement and the accompanying prospectus are the only documents on which you should rely for information about the offering. We have authorized no one to provide you with different information. You should not assume that the information in this prospectus supplement or the accompanying prospectus is accurate as of any date other than the date on the front of each document.

S-5

SUMMARY OF THE OFFERING

This summary highlights selected information from this prospectus supplement and the accompanying prospectus and may not contain all of the information that is important to you. To understand the terms of our Notes, you should carefully read this prospectus supplement and the accompanying prospectus.

Issuer Korea Finance Corporation

Notes offered US$300,000,000 2.25% Notes due 2017. The Notes offered hereby shall constitute a further issuance of, and be fungible with and be consolidated and form a single series with, our US$500,000,000 2.25% Notes due 2017, which were issued on August 7, 2012. The total principal amount of the previously-issued Notes and the Notes now being issued is US$800,000,000.

Maturity August 7, 2017

Issue Price 101.432%

Interest Payment Dates February 7 and August 7 of each year, commencing February 7, 2013

Redemption at Maturity Unless previously redeemed for tax reasons as provided below, we may not redeem the Notes prior to maturity.

Redemption for Tax Reasons The “Redemption for Tax Reasons” described in “Description of the Securities—Description of the Debt Securities—Redemption for Tax Reasons” of the accompanying prospectus does not apply to the Notes. Accordingly, we will not have an option to redeem the Notes for tax reasons.

Ranking of the Notes The Notes will constitute our direct, unconditional, unsecured and unsubordinated obligations, rank at least equally in right of payment among themselves, regardless of when issued, and rank at least equally in right of payment with all of our other unsecured and unsubordinated obligations, subject to certain statutory exceptions under Korean law.

Denomination; Form The Notes will be denominated in principal amounts of US$200,000 and integral multiples of US$1,000 in excess thereof. The Notes will be represented by one or more fully registered global notes registered in the name of a nominee of The Depository Trust Company (“DTC”), as depositary.

Negative Pledge Covenant If any Notes are outstanding, we will not create or permit any security interest on the whole or any part of our assets, present or future, to secure for the benefit of the holders of any International Investment Securities (as defined in “Description of the Securities—Description of the Debt Securities—Negative Pledge Covenant” in the accompanying prospectus) (i) payment of any sum due in respect of any such securities, (ii) any payment under any guarantee of any such securities or (iii) any payment under any indemnity or other like obligation relating to any such securities, without in any such case at the same time according to the Notes the same security as is granted

S-6

to or is outstanding in respect of such International Investment Securities, guarantee, indemnity or other like obligation. See “Description of the Securities—Description of the Debt Securities—Negative Pledge Covenant” in the accompanying prospectus.

Events of Default The Notes will contain certain events of default, the occurrence of which may permit holders of the Notes to accelerate our obligations under the Notes prior to maturity. See “Description of the Securities—Description of the Debt Securities—Events of Default” in the accompanying prospectus.

Listing and Trading Approval in-principle has been received from the SGX-ST for the listing of the Notes. Settlement of the Notes is not conditioned on obtaining the listing. The Notes will be traded on the SGX-ST in a minimum board lot size of S$200,000 for so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require.

Further Issues We may from time to time, without the consent of the holders of the Notes, create and issue additional debt securities with the same terms and conditions as the Notes in all respects (except for the amount of the first interest payment and for the interest paid on the Notes prior to the issuance of the additional debt securities). We may consolidate such additional debt securities with the outstanding Notes to form a single series. We will not issue any such additional debt securities unless such additional securities have no more thana de minimisamount of original issue discount or such issuance would constitute a “qualified reopening” for U.S. federal income tax purposes.

Delivery of the Notes We expect to make delivery of the Notes, against payment in same-day funds on or about September 24, 2012, which will be the fifth business day following the date of this prospectus supplement, referred to as “T+5.” You should note that initial trading of the Notes may be affected by the T+5 settlement. See “Underwriting—Delivery of the Notes.”

S-7

USE OF PROCEEDS

The net proceeds from the issue of the Notes, after deducting the underwriting discount but not estimated expenses, will be US$303,546,000. We will use the net proceeds from the sale of the Notes for our general operations, including extending foreign currency loans.

S-8

RECENT DEVELOPMENTS

This section provides information that supplements the information about us and the Republic included under the headings corresponding to the headings below in the accompanying prospectus dated June 27, 2012. Defined terms used in this section have the meanings given to them in the accompanying prospectus. If the information in this section differs from the information in the accompanying prospectus, you should rely on the information in this section.

KOREA FINANCE CORPORATION

KoFC’s non-consolidated financial information as of June 30, 2012 and for the six months ended June 30, 2012 and 2011 in this prospectus supplement has been presented based on its unaudited internal management accounts prepared in accordance with the KoFC Supervisory Regulations. KDB’s separate financial information as of June 30, 2012 and December 31, 2011 and for the six months ended June 30, 2012 and 2011 in this prospectus supplement has been prepared under Korean IFRS, which differs in certain significant respects from generally accepted accounting principles in Korean GAAP and the KoFC Supervisory Regulations.

Selected Financial Statement Data

Balance Sheet Data

The following table presents unaudited non-consolidated balance sheet data of KoFC as of June 30, 2012 and December 31, 2011, which have been derived from KoFC’s unaudited non-consolidated internal management accounts prepared in accordance with the KoFC Supervisory Regulations:

KoFC Non-Consolidated Balance Sheet Data

	As of June 30, 2012		As of December 31, 2011
	(non-consolidated) (unaudited)
	(billions of Won)
Balance Sheet Data
Total Loans (1)		18,919.7		17,323.4
Total Borrowings (2)		41,053.3		37,082.8
Total Assets		66,454.5		62,695.2
Total Liabilities		44,279.0		40,193.8
Equity		22,175.5		22,501.4

(1) Gross amount without adjusting for allowance for loan losses, present value discounts and deferred loan fees.

(2) Total Borrowings include borrowings and policy finance bonds.

S-9

The following table presents selected separate balance sheet data of KDB, KDBFG’s principal subsidiary, as of June 30, 2012 and December 31, 2011, which have been derived from KDB’s unaudited separate balance sheets as of June 30, 2012 and December 31, 2011 prepared in accordance with Korean IFRS and included in the prospectus supplement. You should read the following balance sheet data together with KDB’s separate balance sheets and notes included in this prospectus supplement:

KDB Separate Balance Sheet Data

	As of June 30, 2012		As of December 31, 2011
	(separate) (unaudited) (billions of Won)
Balance Sheet Data
Total Loans (1)		86,011.6		81,380.7
Total Borrowings (2)		105,832.8		99,253.5
Total Assets		136,615.0		127,874.4
Total Liabilities		118,678.1		110,216.4
Equity		17,936.9		17,658.0

(1) Gross amount, which includes equipment capital loans, working capital loans and other loans (including call loans, domestic usance, bills of exchange bought, debentures accepted by private subscription, bonds purchased, inter-bank loans, local letters of credit negotiation, loan-type suspense accounts pursuant to the applicable guidelines and other loans) without adjusting for allowance for loan losses, present value discounts and deferred loan fees.

(2) Total Borrowings include deposits, call money, borrowings, bonds sold under repurchase agreements, bills sold and industrial finance bonds.

Income Statement Data

The following table presents unaudited non-consolidated income statement data of KoFC for the six months ended June 30, 2012 and 2011, which have been derived from KoFC’s unaudited internal management accounts prepared in accordance with the KoFC Supervisory Regulations:

KoFC Non-Consolidated Income Statement Data

	Six Months Ended June 30,
	2012			2011
	(non-consolidated) (unaudited) (billions of Won)
Income Statement Data
Total Interest Income		519.6			396.2
Total Interest Expense		754.3			679.7
Net Interest Income (Loss)		(234.7	)		(283.5	)
Operating Revenues		795.8			1,492.7
Operating Expenses		914.4			831.6
Net Income (Loss)		(94.1	)		1,012.7

For the six months ended June 30, 2012, KoFC had non-consolidated net loss of ￦94.1 billion compared to non-consolidated net income of ￦1,012.7 billion for the six months ended June 30, 2011.

S-10

Principal factors for net loss of ￦94.1 billion in the six months ended June 30, 2012 compared to net income of ￦1,012.7 billion in the six months ended June 30, 2011 included:

• a decrease in gain on disposal of available-for-sale securities to ￦108.6 billion in the six months ended June 30, 2012 from ￦920.2 billion in the corresponding period of 2011; the ￦108.6 billion gain in the six months ended June 30, 2012 reflected principally the sale of KoFC’s equity interest in SK Hynix Inc. and the ￦920.2 billion gain in the six months ended June 30, 2011 reflected principally the sale of KoFC’s equity interest in Hyundai Engineering & Construction Co., Ltd.; and

• a decrease in net valuation gain on equity method investments to ￦79.8 billion in the six months ended June 30, 2012 from ￦654.4 billion in the corresponding period of 2011, primarily due to a decrease in gain on valuation of equity method investments on KDBFG shares.

The above factors were partially offset by a decrease in net interest loss to ￦234.7 billion in the six months ended June 30, 2012 from ￦283.5 billion in the corresponding period of 2011, primarily due to an increase in interest income derived from loans and debt securities.

The following table presents selected separate income statement data of KDB, KDBFG’s principal subsidiary, for the six months ended June 30, 2012 and 2011, which have been derived from KDB’s unaudited separate income statement for the six months ended June 30, 2012 and 2011 prepared in accordance with Korean IFRS and included in this prospectus supplement. You should read the following income statement data together with KDB’s separate income statements and notes included in this prospectus supplement:

KDB Separate Income Statement Data

	Six Months Ended June 30,
	2012		2011
	(separate) (unaudited) (billions of Won)
Income Statement Data
Total Interest Income		2,549.7		2,203.5
Total Interest Expenses		1,641.1		1,403.1
Net Interest Income		908.6		800.4
Operating Income		821.1		1,291.8
Net Income		619.6		1,040.9

For the six months ended June 30, 2012, KDB had net income of ￦619.6 billion compared to ￦1,040.9 billion for the six months ended June 30, 2011, on a separate basis.

Principal factors for the decrease in net income for the six months ended June 30, 2012 compared to the six months ended June 30, 2011 included:

• a decrease in net gain from foreign currency transactions and derivatives to ￦114.9 billion in the six months ended June 30, 2012 from ￦558.6 billion in the corresponding period of 2011, primarily due to valuation losses on derivative financial instruments, including a large valuation loss on Kumho Petrochemical convertible bonds; commencing in 2011, embedded derivative instruments (such as conversion rights) were treated as separate derivatives and recorded at fair value under Korean IFRS); and

• an increase in provision for loan losses to ￦210.9 billion in the six months ended June 30, 2012 from ￦72.6 billion in the corresponding period of 2011, primarily due to an increase in non-performing loans among small- and medium-sized enterprises.

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The above factors were partially offset by an increase in net interest income to W908.6 billion in the six months ended June 30, 2012 from W800.4 billion in the corresponding period of 2011, primarily due to (i) an increase in interest income from asset-backed securities and (ii) an increase in interest-bearing assets exceeding an increase in interest-bearing liabilities.

Financial Statements and the Auditors

KoFC’s interim non-consolidated financial statements as of June 30, 2012 and December 31, 2011 and for the six months ended June 30, 2012 and 2011 are not available as of the date of this prospectus supplement. KDB’s interim separate financial statements as of June 30, 2012 and December 31, 2011 and for the six months ended June 30, 2012 and 2011 appearing in this prospectus supplement were prepared in conformity with Korean IFRS.

S-12

Korea Development Bank

Separate Statements of Financial Position

As of June 30, 2012 and December 31, 2011

(Unaudited)

(In millions of won)	Notes		June 30, 2012		December 31, 2011
Assets
Cash and due from banks		4,43	￦	3,147,843		1,965,839
Financial assets held-for-trading		5,42,43		1,906,812		2,585,909
Available-for-sale financial assets		6,35,42,43		27,631,003		25,713,538
Held-to-maturity financial assets		7,43		96,408		110,844
Loans		8,43,45		85,124,040		80,414,794
Derivative financial assets		9,42,43		5,180,972		5,597,095
Investments in subsidiaries and associates		10		5,824,395		5,696,767
Property and equipment, net		11		434,931		439,726
Investment property, net		12		94,008		86,899
Intangible assets, net		13		58,455		58,969
Deferred tax assets		33		8,050		—
Other assets		14,43		7,108,060		5,204,055
Total assets			￦	136,614,977		127,874,435
Liabilities
Financial liabilities designated at fair value through profit or loss		15,42,43	￦	851,421		992,136
Deposits		16,43		33,116,805		25,222,278
Borrowings		17,43		24,779,252		25,842,421
Bonds		18,43		47,085,361		47,196,659
Derivative financial liabilities		9,42,45		3,868,059		4,289,264
Defined benefit liabilities		19		27,370		17,536
Provisions		20		109,611		261,855
Deferred tax liabilities		33		389,191		357,694
Income taxes payable				90,981		128,204
Other liabilities		21,43		8,360,072		5,908,341
Total liabilities				118,678,123		110,216,388
Equity
Issued capital		22		9,251,861		9,251,861
Capital surplus		22		44,373		44,373
Accumulated other comprehensive income		22		572,660		565,577
Retained earnings		22		8,067,960		7,796,236
(Regulatory reserve for loan losses ￦1,034,949 at June 30, 2012)
(Planned regulatory reserve for loan losses ￦138,327 at June 30, 2012 and ￦1,034,949 at December 31, 2011)
Total equity				17,936,854		17,658,047
Total liabilities and equity			￦	136,614,977		127,874,435

See accompanying notes to the separate interim financial statements.

S-13

Korea Development Bank

Separate Interim Statements of Comprehensive Income

For the three and six-month periods ended June 30, 2012 and 2011

(Unaudited)

(In millions of won, except earnings per share information)			June 30, 2012						June 30, 2011
	Notes		Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Interest income		23	￦	1,300,887			2,549,742			1,146,725			2,203,538
Interest expense		23		(823,636	)		(1,641,120	)		(740,682	)		(1,403,125	)
Net interest income				477,251			908,622			406,043			800,413
Net fees and commission income		24		165,024			275,197			145,055			233,007
Dividend income		25		61,635			157,437			17,534			122,118
Net gain (loss) on financial instruments held-for-trading		26		2,496			(397	)		31,947			47,984
Net loss on financial instruments designated at fair value through profit and loss		27		(19,965	)		(16,727	)		(15,905	)		(13,670	)
Net gain (loss) on available-for-sale financial assets		28		(13,079	)		34,643			34,243			64,072
Net foreign currency transaction gain and net gain on derivatives		29		41,915			114,923			292,098			558,636
Other operating loss, net		30		(115,043	)		(179,396	)		(156,908	)		(221,964	)
Non-interest income, net				122,983			385,680			348,064			790,183
Provision for loan loss		8		104,550			210,878			46,873			72,567
General and administrative expenses		31		156,042			262,295			124,138			226,193
Operating income				339,642			821,129			583,096			1,291,836
Impairment loss on investments in associates				—			—			(1,552	)		(1,552	)
Other non-operating income		32		664			1,376			336			1,100
Other non-operating expense		32		(8,585	)		(9,808	)		(477	)		(7,202	)
Non-operating expense, net				(7,921	)		(8,432	)		(1,693	)		(7,652	)
Net income before income taxes				331,721			812,697			581,403			1,284,184
Income tax expense		33		86,373			193,103			109,085			243,289
Net income		44		245,348			619,594			472,318			1,040,895
(Net income after adjusting regulatory reserve for possible loan losses : ￦481,267 million at June 30, 2012 and ￦1,193,587 million at June 30, 2011)
Other comprehensive income (loss) for the period
Valuation gain (loss) on available-for-sale financial assets, net		22		(56,162	)		9,133			(71,925	)		(111,167	)
Exchange differences on translation of foreign operations		22		10,516			(5,803	)		(13,194	)		(29,304	)
Income tax effect		33		15,612			3,753			18,917			32,449
Other comprehensive income (loss) for the period, net of income tax				(30,034	)		7,083			(66,202	)		(108,022	)
Total comprehensive income for the period			￦	215,314			626,677			406,116			932,873
Earnings per share
Basic and diluted earnings per share (won)		34	￦	133			335			255			563

See accompanying notes to the separate interim financial statements.

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Korea Development Bank

Separate Interim Statements of Changes in Equity

For the six-month periods ended June 30, 2012 and 2011

(Unaudited)

(In millions of won)			Attributable to equity holders of the Bank
	Notes		Issued capital		Capital surplus		Capital adjustment			Accumulated other comprehensive income			Retained earnings			Total equity
Balance at January 1, 2011			￦	9,251,861		44,373		(51	)		755,039			6,681,795			16,733,017
Dividends		22		—		—		—			—			(297,909	)		(297,909	)
Discounts on stock issuance amortization				—		—		51			—			(51	)		—
				9,251,861		44,373		—			755,039			6,383,835			16,435,108
Net income for the period				—		—		—			—			1,040,895			1,040,895
Changes in valuation loss on available-for-sale financial assets		22		—		—		—			(111,167	)		—			(111,167	)
Changes in exchange differences on translation of foreign operations		22		—		—		—			(29,304	)		—			(29,304	)
Income tax effect		22		—		—		—			32,449			—			32,449
Total comprehensive income for the period				—		—		—			(108,022	)		1,040,895			932,873
Balance at June 30, 2011			￦	9,251,861		44,373		—			647,017			7,424,730			17,367,981
Balance at January 1, 2012			￦	9,251,861		44,373		—			565,577			7,796,236			17,658,047
Dividends		22		—		—		—			—			(347,870	)		(347,870	)
				9,251,861		44,373		—			565,577			7,448,366			17,310,177
Net income for the period				—		—		—			—			619,594			619,594
Changes in valuation gain on available-for-sale financial assets		22		—		—		—			9,133			—			9,133
Changes in exchange differences on translation of foreign operations		22		—		—		—			(5,803	)		—			(5,803	)
Income tax effect		22		—		—		—			3,753			—			3,753
Total comprehensive income for the period				—		—		—			7,083			619,594			626,677
Balance at June 30, 2012			￦	9,251,861		44,373		—			572,660			8,067,960			17,936,854

See accompanying notes to the separate interim financial statements.

S-15

Korea Development Bank

Separate Interim Statements of Cash Flows

For the six-month periods ended June 30, 2012 and 2011

(Unaudited)

(In millions of won)	Notes		2012			2011
Cash flows from operating activities
Net income for the period			￦	619,594			1,040,895
Adjustments for:
Income tax expense		33		193,103			243,289
Gain on financial instruments held-for-trading				(134	)		(6,822	)
Loss on foreign exchange translation		29		8,714			238,293
Loss on financial instruments designated at fair value through profit or loss				17,541			13,675
Gain on disposal of available-for-sale financial assets				(109,308	)		(89,774	)
Impairment loss on available-for-sale financial assets				74,665			25,702
Gain on disposal of investments in subsidiaries and associates				—			(1,630	)
Impairment loss on investments in subsidiaries and associates				—			1,552
Provision for loan loss		8		210,878			72,567
Gain on derivative instruments				(134,200	)		(627,809	)
Gain from hedge accounting				(157,763	)		(128,975	)
Net interest income				(5,039	)		(6,742	)
Loss (gain) on disposal of property and equipment				(197	)		17
Impairment loss on intangible assets				160			—
Depreciation of property and equipment		11		9,600			8,484
Depreciation of investment properties		12		610			540
Amortization of intangible assets		13		7,576			7,842
Other operating income and expenses				(148,012	)		148,660
Defined benefit costs		19		14,115			11,969
Loss on redemption of bonds				—			2,456
				(17,691	)		(86,706	)
Changes in operating assets and liabilities:
Due from banks				(585,375	)		(1,062,969	)
Financial assets held-for-trading				837,512			1,648,283
Loans				(2,620,858	)		(3,890,048	)
Derivative financial assets				1,730,986			3,226,575
Other assets				(1,884,607	)		(3,135,679	)
Financial liabilities designated at fair value through profit or loss				(158,256	)		3,278
Deposits				7,907,369			4,347,693
Derivative financial liabilities				(1,584,503	)		(2,711,130	)
Defined benefit liabilities				(4,281	)		(2,703	)
Provisions				(314	)		(257	)
Other liabilities				2,481,476			2,418,396
				6,119,149			841,439
Income tax paid				(203,127	)		(196,295	)
Net cash provided by operating activities			￦	6,517,925			1,599,333
Cash flows from investing activities
Disposal of available-for-sale financial assets			￦	20,148,412			10,614,644
Acquisition of available-for-sale financial assets				(21,663,087	)		(12,733,336	)
Disposal of held to maturity financial assets				15,492			13,696
Acquisition of held to maturity financial assets				(884	)		(1,277	)
Disposal of property and equipment		11		493			8
Acquisition of property and equipment		11		(12,539	)		(5,607	)
Acquisition of intangible assets		13		(7,516	)		(8,421	)
Disposal of investments in				48,634			26,979
Acquisition of investments in subsidiaries and associates				(175,081	)		(1,354,743	)
Net cash used in investing activities				(1,646,076	)		(3,447,696	)
Cash flows from financing activities
Proceeds from borrowings				88,679,688			10,762,911
Repayment of borrowings				(89,783,689	)		(9,614,645	)
Issuance of bonds				8,589,658			4,621,474
Repayment of bonds				(8,598,169	)		(3,943,679	)
Dividends paid		22		(347,870	)		(297,909	)
Net cash provided by (used in) financing activities				(1,460,382	)		1,528,152
Effects from changes in foreign currency exchange rate for cash and cash equivalents				18,514			(107,781	)
Net increase (decrease) in cash and cash equivalents				3,429,981			(427,992	)
Cash and cash equivalents at beginning of period				2,019,774			2,641,339
Cash and cash equivalents at end of period		40	￦	5,449,755			2,213,347

See accompanying notes to the separate interim financial statements.

S-16

Korea Development Bank

Notes to the Separate Interim Financial Statements

June 30, 2012

(Unaudited)

1. Reporting Entity

Korea Development Bank (the “Bank”) was established on April 1, 1954, in accordance with Korea Development Bank Act of the Republic of Korea to finance and manage major industrial projects to expedite industrial development and enhance the national economy.

The Bank is engaged in the banking industry under the Korea Development Bank Act and other applicable statutes, and in the fiduciary in accordance with the Financial Investment Services and Capital Markets Act.

The Bank is a fully-owned subsidiary of the KDB Finance Group (“KDBFG”), which is owned by Korea government and Korea Finance Corporation (“KoFC”), and its capital stock amounts to ￦ 9,251,861 million as of June 30, 2012.

The Bank’s head office is located in Yeouido-dong, Yeongdeungpo-gu, Seoul and its service network is as follows:

	Head Office		Domestic branches		Overseas branches		Overseas subsidiaries		Overseas Representative offices		Total
KDB		1		68		7		6		3		85

2. Basis of Preparation

(1) Statement of compliance

The separate interim financial statements of the Bank have been prepared under Korea International Financial Reporting Standards (“K-IFRS”) in accordance withthe Act of External Audits of corporations in the republic of Korea, Article 13(1)(1).

These interim financial statements are separate interim financial statements prepared in accordance with K-IFRS No.1027Consolidated and Separate Financial Statements presented by a parent, an investor in an associate or a venturer in a jointly controlled entity, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.

These interim financial statements were prepared in accordance with K-IFRS No. 1034,Interim Financial Reporting as part of the period covered by the Bank’s K-IFRS annual separate financial statements.

(2) Basis of measurement

The interim financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:

• Derivative financial instruments measured at fair value

• Financial instruments at fair value through profit or loss measured at fair value

• Available-for-sale financial instruments measured at fair value

• Liabilities for defined benefit plans are recognized as net of the total present value of defined benefit obligations less the fair value of plan assets and unrecognized past service costs

S-17

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Functional and presentation currency

These financial statements are presented in Korean won (“￦”), which is the Bank’s functional currency and the currency of the primary economic environment in which the Bank operates.

(4) Use of estimates and judgments

The preparation of the financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are evaluated on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the separate interim financial statements is included in the following notes:

• Note 3.(6)—Impairment of financial assets

• Note 3.(15)—Employee benefits

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

• Note 8—Loans and allowance for possible loan loss

• Note 19—Defined benefit liabilities

• Note 20—Provisions

3. Significant Accounting Policies

(1) Investments in subsidiaries and associates

The accompanying interim financial statements is the separate financial statements presented by a parent or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost, not based on performance and net asset which is reported, in accordance with K-IFRS No.1027 Consolidated and Separate Financial Statements. On the other hand, the dividends received from subsidiaries and associates are recognized as income when the right to receive the dividends is established.

(2) Operating segments

An operating segment is a component of the Bank that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Bank’s other components. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Bank’s headquarters), head office expenses, and income tax assets and liabilities. The Bank’s chief operating decision maker makes decisions about resources to be allocated to the segment and assess its performance, and makes strategic decisions.

S-18

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Bank entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on translation are recognized in profit or loss, except for differences arising on the translation of available-for-sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or in a qualifying cash flow hedge, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

(ii) Foreign operations

If the presentation currency of the Bank is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

(iii) Foreign exchange of net investment in foreign operations

Foreign exchange gain or loss arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve. Any foreign exchange differences which have been incurred from these monetary assets and liabilities are presented in other comprehensive income and will be reclassified to the net income when they are sold.

S-19

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(4) Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months’ maturity from the date of acquisition, including cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

(5) Non-derivative financial assets

The Bank recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held to maturity investments, loans and receivables and available-for-sale financial assets. The Bank recognizes financial assets in the statement of financial position when the Bank becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

(i) Financial assets at fair value through profit or loss

A financial asset is classified as fair value through profit or loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets at fair value through profit or loss (“FVTPL”) are measured at fair value upon initial recognition and changes therein are recognized in profit or loss. Upon initial recognition, attributable transaction costs are recognized in profit or loss as incurred.

(ii) Held-to-maturity financial assets

If the non-derivative assets have a fixed maturity with fixed or determinable payments, and the Bank has the positive intent and ability to hold them until maturity, then such financial assets are classified as held to maturity. Subsequent to initial recognition, held to maturity financial assets are measured at amortized cost using the effective interest rate method.

(iii) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method. Interest income on financial investments is recognized using the effective interest rate (“EIR”), except short-term receivables, which is not significantly relevant from the EIR method.

(iv) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held to maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, which changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost. Accumulated other comprehensive income previously recognized in equity is

S-20

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

recognized in the statement of comprehensive income when the investment is disposed of or impairment loss for the investment is recognized. Dividends earned whilst holding financial investments available-for-sale are recognized in the statement of comprehensive income when the right to receive the payment has been established.

(v) De-recognition of financial assets

The Bank de-recognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognized as an asset or liability.

If the Bank retains substantially all the risks and rewards of ownership of the transferred financial assets, the Bank continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(vi) Offsetting between financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position only when the Bank currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

(6) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, loss expected as a result of future events, regardless of likelihood, are not recognized.

If there is objective evidence for impairment, impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows.

(i) Impairment of loans and receivables

The Bank assesses at each reporting date whether there is objective evidence that a loan is impaired. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the loans’ carrying amount and the present value of estimated future cash flows, which is discounted using the initial effective interest rate (“EIR”). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the statement of comprehensive income.

The Bank first assesses whether objective evidence of impairment exists for individual loan that is significant (“individual assessment”). If the Bank determines that no objective evidence of impairment exists for an individually assessed loan, the Bank includes the loan in a group of loans with similar credit risk characteristics and collectively assesses them for impairment (“collective assessment”).

S-21

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

When an individual loan is impaired, the amount of loss is measured as the difference between the carrying amount and the present value of estimated future cash flows (including estimated future cash flows from its collateral). In collective assessments, the amount of loss is statistically evaluated using the Bank’s historical loss data.

The present value of estimated future cash flows is measured using the loan’s initial EIR. If the loan has a floating interest rate, the Bank uses the current EIR for the measurement. Future cash flows from collateral are estimated at net cash flow from disposal of collateral (deducting transaction cost).

For the purpose of a collective assessment of impairment, loans are analyzed on the basis of the Bank’s internal credit rating system that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors.

Future cash flows of the loans collectively assessed are estimated on the basis of historical loss experience for loans with similar credit risk characteristics. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that no longer exists. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred loss in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

(ii) Impairment of available-for-sale financial assets

The Bank assesses at each reporting date whether there is objective evidence that an investment is impaired. If any such evidence exists, the amount recorded for impairment is the cumulative loss measured as the difference between the acquisition cost (or amortized cost for debt instrument) and current fair value, less any impairment loss on that investment previously recognized in profit or loss. Impairment loss on equity securities are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in, the impairment loss is reversed through the statement of comprehensive income. Moreover, the impairment loss is directly reduced from the carrying amount of the financial assets available-for- sale.

(iii) Impairment of held-to-maturity financial assets

The Bank assesses individually at each reporting date whether there is objective evidence that a held to maturity financial asset is impaired. If any such evidence exists, the amount of loss is measured as the difference between the carrying amount and the present value of estimated future cash flows, which is discounted using the initial EIR. The amount of loss is recognized in the statement of comprehensive income. If, in a subsequent period, the fair value of a financial assets held to maturity increases and the increase can be objectively related to an event occurring after the impairment was recognized, the impairment loss is reversed through the statement of comprehensive income. Moreover, the impairment loss is directly reduced from the carrying amount of the financial assets held to maturity.

S-22

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(iv) Loss events of financial assets

Objective evidences that a financial asset is impaired include the following loss events:

• Significant financial difficulty of the issuer or obligor

• A breach of contract, such as a default or delinquency in interest or principal payments

• The lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider

• It becoming probable that the borrower will enter bankruptcy or other financial reorganization

• The disappearance of an active market for that financial asset because of financial difficulties

• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group

(7) Derivative financial instruments including hedge accounting

At inception of the hedge relationship, the Bank formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are either recognized in profit or loss or, when the derivatives are designated in a hedging relationship and the hedge is determined to be an effective hedge, other comprehensive income.

(i) Hedge accounting

Derivative instruments are accounted differently depending on whether hedge accounting is applied, and therefore, are classified into trading purpose derivatives and hedging purpose derivatives. A fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognized asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss. For trading purpose derivatives transaction, changes in the fair value of derivatives are recognized in net income.

At inception of the hedge relationship, the Bank formally documents the relationship between the hedged item and the hedging instrument, including the nature of the risk, the objective and strategy for undertaking the hedge and the method that will be used to assess the effectiveness of the hedging relationship. Also, at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected to be highly effective in offsetting the designated risk in the hedged item and actual result was so.

Fair value hedge

For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognized in profit or loss in the statement of comprehensive income. Meanwhile, the change in the fair value of

S-23

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in profit or loss in the statement of comprehensive income. When the hedge no longer meets the criteria for hedge accounting, the hedge relationship is terminated. For hedged item recorded at amortized cost, the difference between the carrying value of the hedged item on termination and the face value is amortized over the remaining term of the original hedge using the EIR.

Cash flow hedge

For designated and qualifying cash flow hedges, the effective portion of gain or loss on the hedging instruments is initially recognized directly in equity. The ineffective portion of the gain or loss on the hedging instrument is recognized immediately in the statement of comprehensive income. When the hedged cash flow affects the profit or loss in statement of comprehensive income, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line in profit or loss in the statement of comprehensive income. When a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the hedged forecasted transaction is ultimately recognized in the statement of comprehensive income. When a forecasted transaction is no longer expected to occur, the cumulative gain and loss that was reported in equity is immediately transferred to profit or loss in the statement of comprehensive income.

(ii) Embedded derivative instruments

Derivatives embedded in other financial instruments are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not clearly and closely related to those of the host contract and the host contract is not itself held for trading or designated at fair value through profit or loss. Unless the Bank aggregately designates the host contract and embedded derivative as financial instrument at fair value through profit or loss. These embedded derivatives separated from the host contract are carried at fair value and changes in their fair value are recognized in profit or loss.

(iii) Other derivative financial instruments

Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.

(8) Fair value of financial instruments

The fair value of financial instruments that are traded in active markets is determined by referencing quoted market prices at each reporting date. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include discounted cash flow analysis or other valuation methods.

The Bank’s policies for measuring fair value of financial instruments are as follows:

• Loans: The fair value of loans is estimated future cash flows reflecting premature redemption ratio, using the market discounted interest rate, which is adjusted by credit spread considering the probability of default. For the loans with credit line facilities, short-term loans with three-month maturity or less, and impaired loans, the Bank regards their carrying amount as fair value.

• Held-to-maturity financial assets: The Bank uses the fair value measured by appraisal agencies for financial assets held to maturity.

S-24

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

• Deposits: The fair value of deposits is estimated using discounted cash flow method. However, for deposits, whose cash flows cannot be estimated reasonably, the Bank considered their carrying amount as fair value.

• Borrowings: For borrowings that have a short term maturity (less than three months) and borrowings with floating rate readjustment period of less than three months, it is assumed that the carrying amounts approximate to their fair value. The estimated fair value of fixed interest bearing borrowings is based on and discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity.

• Bonds: The fair values of bonds issued are determined based on quoted market prices. For those bonds issued where quoted market prices are not available, a discounted cash flow model is used based on a current interest rate yield curve appropriate for the remaining term to maturity and credit spreads.

• The Bank defines quoted market prices in active markets into Level 1, the fair value determined using appropriate valuation techniques with observable market data into Level 2 and the fair value Determined using valuation techniques with unobservable market data into Level 3.

(9) Day one profit or loss recognition

In cases where fair value is determined using data, which is not observable in the market, the difference between the transaction price and initial value is amortized in the statement of comprehensive income by using straight line method over time on an appropriate basis.

(10) Property and equipment

The Bank’s property and equipment is recognized at the carrying amount as costs less accumulated depreciation and accumulated impairment in value. Costs include the expenditures directly related to cost of acquisition.

Subsequent costs are recognized in the asset’s carrying amount at cost or, if appropriated as separate items if it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenances are charged to profit or loss as incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over the following estimated useful lives:

Type	Useful lives (years)
Buildings	20 ~ 50
Structure	10 ~ 40
Leasehold improvements	4
Movable property	4

Property and equipment is impaired when its carrying amount exceeds the recoverable amount. The Bank assesses residual value and economic life of its assets at each reporting date and makes adjustments to its useful life when necessary. Any gain or loss arising from the disposal of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in non-operating income (expense) in the statement of comprehensive income.

S-25

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(11) Investment property

The Bank classifies property held for the purpose of rental income or benefiting from capital appreciation as investment property. Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, the cost model is applied. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the statement of comprehensive income in the period of de-recognition. Reclassification to other account is made if there is a change in use of corresponding investment property. Subsequent to initial recognition, an item of investment property is carried at its cost less any accumulated depreciation and any accumulated impairment loss.

Investment properties are derecognized either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in the statement of comprehensive income in the period of de-recognition. Reclassification to other account is made if there is a change in use of corresponding investment properties.

Depreciation of investment property is calculated using the straight-line method over their estimated useful lives as follows:

Type	Useful lives (years)
Buildings	20 ~ 50
Structure	10 ~ 40

(12) Intangible assets

An intangible asset is recognized only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Bank. If the intangible assets are acquired separately, they are initially recognized as acquisition cost and subsequently recognized as cost less accumulated depreciation and accumulated impairment.

Intangible assets with finite lives are amortized over the useful economic life using straight line method over 4 to 30 years. The Bank reviews intangible assets for impairment annually if events or changes in circumstances indicate that the carrying amount may not be recoverable. Intangible assets are de-recognized when it has been disposed of or when no future economic benefit is expected from disposal or usage.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

(13) Impairment of non-financial assets

The Bank tests annually whether the non-financial assets suffered any impairment. Assets that have an indefinite useful life are tested annually for impairment. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. The reversal is

S-26

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.

(14) Non-derivative financial liabilities

The Bank classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Bank recognizes financial liabilities in the statement of financial position when the Bank becomes a party to the contractual provisions of the financial liability.

(i) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss in the current year include financial liabilities held for trading and financial liabilities designated at FVTPL upon initial recognition. Financial liabilities and derivatives are classified as held for trading if they are acquired for the purpose of repurchasing in the near term. Derivative financial instruments presented in the statement of financial position include derivative financial instruments that are designated as hedging instruments in hedge relationships. The Bank’s management may only designate a financial liability designated at fair value through profit or loss upon initial recognition when a judgment is made that such classification provides more useful information. Gain or loss from financial liabilities at fair value through profit or loss are credited or charged to current operation results.

(ii) Financial liabilities measured at amortized cost

Financial liabilities measured at amortized cost are recognized initially at fair value, net of transaction costs incurred. They are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the statement of comprehensive income over the period of the other financial liabilities using the EIR.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

(iii) De-recognition of financial liabilities

A financial liability is de-recognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss.

S-27

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(15) Employee benefits

(i) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Bank during an accounting period, the Bank recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

(ii) Retirement benefits: defined benefit plans

The liability recognized in the statement of financial position in respect to the defined benefit pension plans is the present value of the defined benefit obligation at the date of the statement of financial position less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity similar to the terms of the related pension liability.

Actuarial gains and losses arising from adjustments and changes in actuarial assumptions and actual results are recognized as income or expense in the current year.

(16) Provisions

Provisions are recognized when the Bank has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

(17) Financial guarantees

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Financial guarantees are initially recognized in the financial statements at fair value on the date the guarantee was given. Subsequent to initial recognition, the Bank’s liabilities under such guarantees are measured at the higher of:

• The amount determined in accordance with K-IFRS No. 1037Provisions, Contingent Liabilities and Contingent Assetsand

• The initial amount less amortization of fees recognized in accordance with K-IFRS No. 1018Revenue.

(18) Securities under resale or repurchase agreements

Securities purchased or sold under agreements to resell or repurchase are recorded as loans and receivables or borrowings, and the related interest from those securities is recorded as interest income or expense, respectively.

S-28

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(19) Interest income and expense

Interest income and expense are recognized in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability to the carrying amount of the financial asset or liability.

When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument, but not future credit loss. The calculation of the effective interest rate includes all fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Once an impairment loss has been recognized on a loan, although the accrual of interest in accordance with the contractual terms of the instrument is discontinued, interest income is recognized on the rate of interest that was used to discount future cash flow for the purpose of measuring the impairment loss.

(20) Fees and commission income

Fees and commission income and expense are classified as follows according to related regulations:

(i) Fees and commission from financial instruments

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. It includes those related to evaluation of the borrowers’ financial status, guarantee, collateral, other agreements and related evaluation as well as business transaction, rewards for activities, such as document preparation and recording and setup fees incurred during issuance of financial liabilities. When financial instruments are classified as financial instruments at fair value through profit or loss, fees and commission are recognized as revenue upon initial recognition.

(ii) Fees and commission from services

Fees and commission income charged in exchange for services to be performed during a certain period of time such as asset management fees, consignment fees and assurance service fees are recognized as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan and K-IFRS No. 1039Financial Instrument: Recognition and Measurement, is not applied for the commitment, the related loan commitment fees are recognized over the commitment period.

(iii) Fees and commission from significant transaction

Fees and commission from significant transactions, such as trading stocks and other securities, negotiation and mediation activities for third parties, for instance business transfer and takeover, are recognized when transactions are completed.

(21) Dividend income

Dividend income is recognized when the Bank’s right to receive the payment is established.

S-29

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(22) Income tax expense

Income tax expense comprises current and deferred income tax. Current income tax and deferred income tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

The Company and its two subsidiaries file consolidated tax returns and are considered as one tax-paying entity pursuant to related regulations. Therefore, the Company files its national income tax return with the Korean tax authorities under the consolidated corporate tax system, which allows it to make income tax payments based on the combined profits or loss of the Company and its wholly owned domestic subsidiaries. Deferred income taxes are measured based on the future tax benefits expected to be realized in consideration of the expected combined profits or loss of eligible companies in accordance with the consolidated corporate tax system. Consolidated corporate tax amounts, once determined, are allocated to each of the subsidiaries and are used as a basis for the income tax to be recorded in their respective financial statements.

The Bank recognizes deferred income tax liabilities for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Bank is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Bank recognizes deferred income tax assets for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax assets and deferred income tax liabilities reflects the tax consequences that would follow from the manner in which the Bank expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current income tax liabilities and assets, and they relate to income tax levied by the same tax authority and they intend to settle current income tax liabilities and assets on a net basis.

Additional income taxes arising from dividend payments are recognized when expenses related to dividend payments are recognized.

(23) Accounting for trust accounts

Assets held in an agency or trust management capacities are not included in the separate financial statement in accordance with the Capital Market and Financial Investment Business Act, as they are not owned by the Bank. The Bank recognizes trust fees earned from the trust accounts as income from trust operations.

S-30

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

When a loss is incurred arising from trust accounts where the Bank provided a guarantee of principal or principal and interest repayment, the loss is recognized as a loss from trust operations.

(24) Regulatory reserve for loan loss

In the case that the total sum of allowance for possible loan loss does not meet the amount prescribed in theRegulations on supervision of Banking Business,Regulations on Supervision of Credit Finance Service, andRegulations on Financial Investment Business, the Bank is to record the difference, if any, at the reporting date as a regulatory reserve for possible loan loss.

In the case that the amount of existing regulatory reserve for loan loss is greater than the amount needed to be set aside as at the reporting date, the difference, if any, shall be reversed, and when the undisposed deficit exist, the regulatory reserve for loan loss can be laid aside from the time when the undisposed deficit are disposed.

The transferred (reversed) amount of regulatory reserve for loan loss during the settlement year, net income after subtracting (adding) the transferred (reversed) amount of reserve for loan loss and earnings per share are disclosed in the Notes.

(25) Earnings per share

The Bank represents its diluted and basic earnings per ordinary share in separate comprehensive statement of income. Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary share holders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by adjusting net profit attributable to ordinary shareholders of the Bank for basic earnings considered potential ordinary shares with dilution effect and weighted average number of ordinary shares outstanding.

(26) Changes in accounting policies

(i) Disclosure of financial instrument

As the Bank adopted amendments to K-IFRS No. 1107Financial Instrument: Disclosure as of January 1, 2012, it is required to disclose the description of the nature of the transferred assets, nature of risk and rewards for transfers of financial assets. Any gain or loss from the entity’s continuing involvement in the derecognized financial assets requires additional disclosures.

(27) New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published that are mandatory for the Bank for annual periods beginning after January 1, 2012, and the Bank has not early adopted them.

(i) Amendments to K-IFRS No. 1019 Employee Benefits

The standard requires recognition of actuarial gain and loss immediately in other comprehensive income and to calculate expected return on plan assets based on the rate used to discount the defined benefit obligation. The standard will be applied retrospectively for the Bank’s annual periods beginning on or after January 1, 2013.

S-31

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(ii) K-IFRS No. 1113 Fair Value Measurement

The standard defines fair value and a single framework for fair value, and requires disclosures about fair value measurements. The standard will be applied prospectively for the Bank’s annual periods beginning on or after January 1, 2013. Management believes the impacts of the amendments on the Bank’s financial statements will not be significant.

4. Cash and Due from Banks

(1) Cash and due from banks as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012			December 31, 2011
Cash	￦	71,644			91,476
Due from banks:
Due from bank of Korea		717,163			262,554
Other Due from banks in Korean Won		94,034			88,464
Due from banks in foreign currencies/off-shores		2,265,112			1,523,345
		3,076,309			1,874,363
Provisions		(110	)		—
	￦	3,147,843			1,965,839

(2) Restricted due from banks as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Deposits with Bank of Korea (“BOK”)	￦	821,956		353,639
Reserve for payment of principal on behalf of SPC		93,765		88,050
Others		89,881		66,215
	￦	1,005,602		507,904

S-32

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

5. Financial Assets Held-for-Trading

(1) Financial assets held-for-trading as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Financial assets held-for-trading denominated in Korean won:
Equity securities	￦	17,721		2,621
Debt securities:
Government bonds		1,342,710		847,204
Financial bonds		482,279		131,314
Corporate paper		19,709		88,677
		1,844,698		1,067,195
Beneficiary certificates		—		1,452,781
		1,862,419		2,522,597
Financial assets held-for-trading denominated in foreign currencies / off-shores:
Equity securities		6,200		3,988
Debt securities		28,160		13,833
Others		—		45,491
		34,360		63,312
Loaned financial assets held-for-trading (debt securities)		10,033		—
	￦	1,906,812		2,585,909

(2) The details of debt securities in financial assets held-for-trading as of June 30, 2012, and December 31, are as follows:

(In millions of won)	June 30, 2012
	Face value		Acquisition cost		Fair Value (Carrying amount)
Government bonds	￦	1,342,000		1,352,473		1,342,710
Financial bonds		482,000		483,694		482,279
Corporate paper		20,000		19,706		19,709
Debt securities in foreign currency		28,154		27,987		28,160
Loaned financial assets held-for-trading		10,000		9,962		10,033
	￦	1,882,154		1,893,822		1,882,891
(In millions of won)	December 31, 2011
	Face value		Acquisition cost		Fair Value (Carrying amount)
Government bonds	￦	840,000		849,767		847,204
Financial bonds		132,000		132,094		131,314
Corporate paper		90,000		88,671		88,677
Debt securities in foreign currency		13,840		13,121		13,833
	￦	1,075,840		1,083,653		1,081,028

S-33

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

Debt securities in Korean won are measured at the lower of fair values provided by KIS Bonds Pricing Inc. and Korea Asset Pricing Co. Debt securities in foreign currency are measured at the lower of the fair values provided by NICE Bonds Pricing Services Inc. and the Korea Asset Pricing Co.

6. Available-for-Sale Financial Assets

(1) Available-for-sale financial assets as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Financial investments available-for-sale denominated in Korean won:
Equity securities	￦	2,610,987		2,810,301
Debt securities:
Government bonds		572,167		842,553
Financial bonds		3,058,478		4,027,149
Corporate bonds		11,310,947		12,482,509
Others		481,463		453,519
		15,423,055		17,805,730
Beneficiary certificates		5,249,975		729,811
		23,284,017		21,345,842
Financial investments available-for-sale denominated in foreign currencies:
Equity securities		45,273		22,138
Debt securities		4,060,489		4,089,237
Others		241,224		194,622
		4,346,986		4,305,997
Loaned available-for-sale financial assets (debt securities)		—		61,699
	￦	27,631,003		25,713,538

Equity securities with no quoted market prices in active markets and for which the fair value cannot be measured reliably are recorded at cost amounting to ￦210,373 million as of June 30, 2012 (￦208,322 million as of December 31, 2011).

S-34

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(2) Changes in available-for-sale financial assets for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012			2011
Beginning balance	￦	25,713,538			22,676,895
Acquisition		21,663,087			12,733,336
Disposal (sale or redemption)		(19,708,004	)		(10,524,870	)
Change due to amortization		13,238			2,189
Unrealized change in fair value recorded in equity		95,595			(111,167	)
Impairment loss		(74,665	)		(25,702	)
Reclassification		(1,180	)		(53,141	)
Foreign exchange differences		(105,807	)		(157,785	)
Others(*1)		35,201			—
Ending balance	￦	27,631,003			24,539,755

(*1) Represents available-for-sale equity securities investments acquired in 2012 by converting convertible bonds under Company Restructuring Promotion Act.

(3) Equity securities available-for-sale with disposal restrictions as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
Company	Number of shares		Carrying amount		Restricted period
Pantech Co., Ltd.		249,427,382	￦	109,997	Subject to shareholders’ committee’s decision
Chinhung International Inc.		37,516,000		19,133	Until March 31, 2013
Daehan Shipbuilding Co., Ltd.		14,753,600		103,792	Until December 31, 2013
KUMHO Tire Co., Inc.		13,161,600		155,412	Until December 31, 2014
Ssangyong Cement Industry Co., Ltd.		11,090,842		47,979	Undecided
Taesan LCD Co., Ltd.		7,027,574		6,444	Until December 31, 2013
KUMHO Industrial Co., Ltd		8,910,453		47,671	Until December 31, 2014
Hanchang Paper Co., Ltd.		6,409,200		3,480	Until December 31, 2012
Kumho Petrochemical		4,281,715		454,024	Until May 3, 2013
Jaeyoung Solutec Co., Ltd.		1,962,000		1,844	Until December 31, 2012
Hanil Engineering & Construction Co., Ltd		909,600		1,110	Until December 31, 2014
Young Gwang Stainless Co., Ltd.		413,000		681	Until December 31, 2012
Namkwang Engineering & Construction		341,447		939	Until March 31, 2013
Daewoo Electronics Corp.		12,063		1,817	Until March 31, 2013
		356,216,476	￦	954,323

S-35

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
Company	Number of shares		Carrying amount		Restricted period
Pantech Co., Ltd.		249,427,382	￦	108,501	Subject to shareholders’ committee’s decision
Daehan Shipbuilding Co., Ltd.		14,753,600		109,634	Until December 31, 2013
KUMHO Tire Co., Inc.		13,161,600		115,282	Until December 31, 2014
Ssangyong Cement Industry Co., Ltd.		11,090,842		44,740	Undecided
Taesan LCD Co., Ltd.		7,027,574		7,772	Until December 31, 2013
KUMHO Industrial Co., Ltd		6,633,608		40,133	Until December 31, 2014
Hanchang Paper Co.		6,409,200		3,237	Until December 31, 2012
Kumho Petrochemical		4,281,715		590,984	Until May 3, 2013
Jaeyoung Solutec Co., Ltd		1,962,000		1,283	Until December 31, 2012
MB SHIROYAMA CO., LTD.		480,975		345	Until January 12, 2012
Hanil Engineering & Construction Co., Ltd		909,600		1,519	Until December 31, 2014
Young Gwang Stainless Co., Ltd.		413,000		681	Until December 31, 2012
Daewoo Electronics Corp.		12,063		1,790	Until March 31, 2013
		316,563,159	￦	1,025,901

(4) The details of debt investments-available-for-sale as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Face value		Acquisition cost		Fair value (Carrying amount)
Government bonds	￦	568,464		572,632		572,167
Financial bonds		3,050,000		3,060,960		3,058,478
Corporate paper		11,409,169		11,407,794		11,310,947
Financial assets held-for-trading denominated in foreign currencies		4,609,352		4,713,891		4,060,489
Others		614,388		265,259		481,463
	￦	20,251,373		20,020,536		19,483,544
(In millions of won)	December 31, 2011
	Face value		Acquisition cost		Fair value (Carrying amount)
Government bonds	￦	808,048		850,285		842,553
Financial bonds		4,020,000		4,036,573		4,027,149
Corporate paper		12,638,672		12,634,175		12,482,509
Financial assets held-for-trading denominated in foreign currencies		4,862,584		4,950,270		4,089,237
Loaned debt securities		60,000		62,385		61,699
Others		614,388		265,259		453,519
	￦	23,003,692		22,798,947		21,956,666

S-36

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

Debt securities in Korean won are measured at the lower of fair values provided by KIS Bonds Pricing Inc. and Korea Asset Pricing Co. Debt securities in foreign currency are measured at the lower of the fair values provided by NICE Bonds Pricing Services Inc. and the Korea Asset Pricing Co.

7. Held-to-Maturity Financial Assets

(1) Held-to-maturity financial assets as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012				December 31, 2011
	Amortized cost		Fair value		Amortized cost		Fair value
Held-to-maturity financial assets in Korean won:
Government and public bonds	￦	7,233		7,222		9,266		9,250
Corporate bonds		88,200		89,551		100,600		102,113
Others		975		976		978		978
	￦	96,408		97,749		110,844		112,341

(2) Changes in Held-to-maturity financial assets for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012			2011
Beginning balance	￦	110,844			137,695
Acquisition		884			1,277
Disposal (sale or redemption)		(15,492	)		(13,696	)
Change due to amortization		172			(107	)
Ending balance	￦	96,408			125,169

S-37

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

8. Loans and Allowance for Possible Loan Losses

(1) Loans as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012					December 31, 2011
	Amortized cost			Fair value		Amortized cost			Fair value
Loans in Korean won:
Loans for working capital	￦	19,202,841			18,914,444		17,831,132			17,626,321
Loans for facility development		29,854,005			30,150,292		28,189,410			28,390,219
Loans for households		633,585			654,237		323,691			333,985
Inter-bank loans		650,491			608,043		581,865			549,002
		50,340,922			50,327,016		46,926,098			46,899,527
Loans in foreign currencies:
Loans		12,337,262			12,446,407		12,988,603			13,070,379
Inter-bank loans		1,482,565			1,483,696		1,906,361			1,906,281
Loans borrowed from overseas financial institution		295,844			301,455		328,521			333,233
Off-shore loans receivables		5,545,017			5,682,149		4,809,746			4,905,964
		19,660,688			19,913,707		20,033,231			20,215,857
Other loans receivables:
Bills bought in foreign currency		1,747,048			1,738,266		1,890,729			1,881,596
Advance payments on acceptances and guarantees		111,159			100,216		68,426			66,000
Privately-placed corporate bonds		5,741,490			5,758,349		5,704,030			5,687,223
Others		8,410,340			8,370,509		6,758,141			6,742,967
		16,010,037			15,967,340		14,421,326			14,377,786
		86,011,647			86,208,063		81,380,655			81,493,170
Less:
Allowance for possible loan loss		(809,198	)				(865,254	)
Present value discount		(57,342	)				(69,946	)
Deferred loan origination costs and fees		(21,067	)				(30,661	)
	￦	85,124,040					80,414,794

S-38

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(2) Changes in allowance for loan loss for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	Loans in Korean won												Other loans
	Loans for working capital			Loans for facility development			Others			Loans in foreign currency			Private placed corporate bonds			Others			Total
Beginning balance	￦	306,430			177,551			722			146,126			180,906			53,519			865,254
Provision for loan loss		129,899			4,966			777			33,372			26,144			15,720			210,878
Foreign exchange differences		—			—			—			(63	)		—			—			(63	)
Others		(98,088	)		(46,481	)		—			(24,448	)		(92,826	)		(5,028	)		(266,871	)
Ending balance	￦	338,241			136,036			1,499			154,987			114,224			64,211			809,198
(In millions of won)	2011
	Loans in Korean won												Other loans
	Loans for working capital			Loans for facility development			Others			Loans in foreign currency			Private placed corporate bonds			Others			Total
Beginning balance	￦	403,465			154,547			46			230,978			235,739			120,631			1,145,406
Provision for (reversal of allowance for) loan loss		38,593			44,295			6			32,798			16,131			(59,256	)		72,567
Foreign exchange differences		—			—			—			(4,205	)		—			(10	)		(4,215	)
Others		(1,055	)		(3,064	)		(1	)		2,210			(5,121	)		(9,835	)		(16,866	)
Ending balance	￦	441,003			195,778			51			261,781			246,749			51,530			1,196,892

(3) Losses related to loans for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Provision for loan loss	￦	(104,550	)		(210,878	)		(46,873	)		(72,567	)
Loss on disposal of loan		(239,037	)		(238,549	)		(71,131	)		(66,487	)
	￦	(343,587	)		(449,427	)		(118,004	)		(139,054	)

(4) Changes in loan origination cost (fees) for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012			2011
Beginning balance	￦	(30,661	)		(25,497	)
Increase in loan origination costs and fees		4,561			(13,629	)
Decrease in loan origination costs and fees		5,033			5,592
Ending balance	￦	(21,067	)		(33,534	)

S-39

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

9. Derivative Financial Instruments

The Bank’s derivative financial instruments consist of trading derivatives and hedging derivatives, depending on the nature of each transaction. The Bank enters into hedging derivative transactions mainly for the purpose of hedging fair value risk related to changes in fair value of the underlying assets and liabilities.

The Bank enters into trading derivative transactions such as futures, forwards, swaps and options for arbitrage transactions by speculating on the future value of the underlying asset. Derivatives held-for trading transactions include contracts with the Bank’s clients and its liquidation position.

For the purpose of hedging the exposure to the variability of fair values of funds in Korean won by changes in interest rate, the Bank mainly uses interest swaps or currency swaps. The main counterparties are foreign financial institutions and local banks. In addition, to hedge the exposure to the variability of fair values of bonds in foreign currency by changing in interest rate or foreign exchange rate, the Bank mainly uses interest swaps or currency swaps.

The notional amounts outstanding for derivatives contracts and the fair value of the derivative financial instruments as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Notional amounts				Fair value (Carrying amount)
	Buy		Sell		Asset			Liability
Trading purpose derivative financial instruments:
Interest	￦	196,125,970		196,975,072		1,717,179			1,652,927
Currency		56,714,871		52,929,418		2,278,382			1,951,554
Stock		261,083		573,772		6,291			11,204
Commodities		711,953		711,953		23,097			23,096
Embedded derivatives		306,872		—		146,116			—
Allowance and other adjustment		—		—		(23,315	)		1,581
		254,120,749		251,190,215		4,147,750			3,640,362
Hedging purpose derivative financial instruments:
Interest		11,680,007		11,680,007		619,652			52,174
Currency		6,687,655		6,561,115		405,459			174,648
Allowance and other adjustment		—		—		8,111			875
		18,367,662		18,241,122		1,033,222			227,697
	￦	272,488,411		269,431,337		5,180,972			3,868,059

S-40

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Notional amounts				Fair value (carrying amount)
	Buy		Sell		Asset			Liability
Trading purpose derivative financial instruments:
Interest	￦	184,515,634		185,305,873		1,645,241			1,660,279
Currency		58,529,502		56,874,593		2,772,533			2,419,664
Stock		345,923		569,890		8,333			24,727
Commodities		614,478		614,478		24,390			24,390
Embedded derivatives		391,822		—		85,792			—
Allowance and other adjustments		—		—		(25,253	)		1,305
		244,397,359		243,364,834		4,511,036			4,130,365
Hedging purpose derivative financial instruments:
Interest		12,627,955		12,627,955		613,357			55,174
Currency		5,128,962		4,870,341		465,364			101,277
Allowance and other adjustments		—		—		7,338			2,448
		17,756,917		17,498,296		1,086,059			158,899
	￦	262,154,276		260,863,130		5,597,095			4,289,264

10. Investments in Subsidiaries and Associates

(1) Investments in subsidiaries and associates as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)		June 30, 2012		December 31, 2011
Subsidiaries	KDB Asia Ltd.	￦	214,807		214,807
	KDB Ireland Ltd.		62,389		62,389
	UzKDB Bank		18,634		18,634
	RBS Uz		18,730		18,730
	KDB Hungary Ltd.		151,952		151,952
	Banco KDB Do Brazil S.A		99,531		99,531
	Korea Infrastructure Fund		34,413		36,232
	KDB Consus Value PEF		256,563		254,828
	KDB Value PEF III		44,286		42,419
	KDB Value PEF VI		2,300,700		2,228,660
	KDB Turn Around		72,816		64,436
	Components and Materials M&A PEF		165,756		116,441
	KoFC-KDB Materials and Components Investment
	Fund		25,000		25,000
Others			—		1,868
			3,465,577		3,335,927

S-41

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)		June 30, 2012		December 31, 2011
Associates
	Daewoo Shipbuilding & Marine Engineering Co., Ltd.		1,040,486		1,040,486
	GM Korea Company		287,774		287,774
	Korea BTL Fund No. 1		259,551		252,997
	Korea Railroad Fund I		178,179		172,179
	KDB electronic power PEF		125,358		149,858
	Korea Infrastructure Fund II		128,013		125,347
	Korea Education Fund		88,802		84,211
Others			250,655		247,988
			2,358,818		2,360,840
		￦	5,824,395		5,696,767

(2) The market value of marketable investments in subsidiaries and associates as of June 30, 2012 is as follows:

(In millions of won)	Market value		Carrying amount
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	￦	1,567,431		1,040,486

S-42

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) The key financial information of subsidiaries and associates invested and ownership ratios as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Country	Industry	Assets		Liabilities		Equity		Operating revenue		Net income (loss)			Ownership (%)
Subsidiaries:
KDB Asia Ltd.	Hongkong	Finance	￦	854,056		595,258		258,798		21,570		8,015			100.00
KDB Ireland Ltd.	Ireland	Finance		378,205		303,128		75,077		11,119		2,244			100.00
UzKDB Bank	Uzbekistan	Finance		378,754		335,725		43,029		10,113		5,886			61.11
RBS Uz	Uzbekistan	Finance		753,775		725,431		28,344		8,095		2,395			82.35
KDB Hungary Ltd.	Hungary	Finance		753,875		618,713		135,162		111,514		4,311			100.00
Banco KDB Do Brazil S.A	Brazil	Finance		324,861		288,942		35,919		41,227		269			100.00
Korea Infrastructure Fund	Korea	Financial Investment		36,694		14		36,680		1,331		1,139			85.00
KDB Consus Value PEF	Korea	Financial Investment		10,426,448		9,780,803		645,645		1,456,570		(7,690	)		40.59
KDB Value PEF III	Korea	Financial Investment		54,139		129		54,009		184		(2,083	)		100.00
KDB Value PEF VI	Korea	Financial Investment		12,498,996		7,901,043		4,597,953		3,893,016		(33,642	)		99.84
KDB Turn Around	Korea	Financial Investment		295,926		292,067		3,859		246,037		(537	)		95.17
Components and Materials M&A PEF	Korea	Financial Investment		193,732		425		193,307		1,130		(6	)		88.33
KoFC-KDB Materials and Components Investment Fund No. 1	Korea	Financial Investment		50,020		255		49,765		461		(51	)		50.00
Associates:
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Korea	Manufacturing	￦	15,759,988		11,207,416		4,552,572		7,057,894		180,105			31.26
GM Korea Company	Korea	Manufacturing		11,168,464		8,858,228		2,310,236		4,057,855		46,193			17.02
Korea BTL Fund I	Korea	Financial Investment		635,132		445		634,687		17,531		16,570			41.67
KDB electronic power PEF	Korea	Financial Investment		245,891		3,478		242,413		3,609		3,452			50.00
Korea Infrastructure Fund II	Korea	Financial Investment		618,442		132,689		485,753		22,604		16,220			26.67
Korea Education Fund	Korea	Financial Investment		180,403		8		180,395		4,851		4,624			50.00
Korea Railroad Fund I	Korea	Financial Investment		363,403		8		363,395		9,832		9,383			50.00

S-43

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Country	Industry	Assets		Liabilities		Equity		Operating revenue		Net income			Ownership (%)
Subsidiaries
KDB Asia Ltd.	Hongkong	Finance	￦	866,871		621,406		245,465		39,508		15,179			100.00
KDB Ireland Ltd.	Ireland	Finance		370,981		300,195		70,786		23,393		5,666			100.00
UzKDB Bank	Uzbekistan	Finance		480,524		441,830		38,694		18,598		7,464			61.11
RBS Uz	Uzbekistan	Finance		345,438		319,786		25,652		11,110		753			82.35
KDB Hungary Ltd.	Hungary	Finance		775,936		648,354		127,582		99,186		3,051			100.00
Banco KDB Do Brazil S.A	Brazil	Finance		399,183		359,645		39,538		136,551		3,492			100.00
Korea Infrastructure Fund	Korea	Financial Investment		37,696		15		37,681		2,565		2,135			85.00
KDB Consus Value PEF	Korea	Financial Investment		10,008,311		9,370,334		637,977		2,763,055		(32,684	)		40.52
KDB Value PEF III	Korea	Financial Investment		58,701		131		58,570		250		(1,471	)		100.00
KDB Value PEF VI	Korea	Financial Investment		12,171,388		7,597,954		4,573,434		7,237,869		(93,183	)		99.84
KDB Turn Around	Korea	Financial Investment		309,205		300,428		8,777		209,267		(24,646	)		95.15
Components and Materials M&A PEF	Korea	Financial Investment		135,255		1,120		134,135		1,961		(2,834	)		83.33
KoFC-KDB Materials and Components Investment Fund No. 1	Korea	Financial Investment		50,071		255		49,816		1,028		15			50.00
Associates
Daewoo Shipbuilding & Marine Engineering Co., Ltd.	Korea	Manufacturing	￦	16,690,081		12,186,237		4,503,844		13,911,836		650,532			31.26
GM Korea Company	Korea	Manufacturing		10,336,775		8,173,418		2,163,357		2,015,990		(39,534	)		17.02
Korea BTL Fund I	Korea	Financial Investment		618,198		412		617,786		16,304		15,397			41.67
KDB electronic power PEF	Korea	Financial Investment		303,889		12,476		291,413		12,867		12,425			50.00
Korea Infrastructure Fund II	Korea	Financial Investment		601,235		123,597		477,638		23,777		17,708			26.67
Korea Education Fund	Korea	Financial Investment		170,914		9		170,905		4,536		4,315			50.00
Korea Railroad Fund I	Korea	Financial Investment		350,556		10		350,546		9,392		8,536			50.00

S-44

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

11. Property and Equipment

Changes in property and equipment for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	January 1, 2012		Acquisition/ depreciation		Disposal			Reclassification			Foreign exchange differences			June 30, 2012
Acquisition cost:
Land	￦	209,947		—		—			(3,632	)		(8	)		206,307
Buildings and structures		285,092		4,660		—			(5,239	)		(41	)		284,472
Leasehold improvements		19,119		2,773		—			7			(151	)		21,748
Vehicles		1,212		—		(22	)		—			4			1,194
Equipment		35,784		2,150		(20	)		—			43			37,957
Construction in-progress		1,065		8,217		—			(8,985	)		—			297
Others		74,332		3,717		(1,885	)		—			4			76,168
		626,551		21,517		(1,927	)		(17,849	)		(149	)		628,143
Accumulated depreciation :
Buildings and structures		80,922		4,071		—			(1,152	)		(36	)		83,805
Leasehold improvements		11,085		1,149		—			—			(149	)		12,085
Vehicles		769		63		(22	)		—			2			812
Equipment		28,477		1,174		(20	)		—			47			29,678
Others		60,188		3,143		(1,884	)		—			1			61,448
		181,441		9,600		(1,926	)		(1,152	)		(135	)		187,828
Impairment loss:
Land		3,023		—		—			—			—			3,023
Buildings and structures		2,361		—		—			—			—			2,361
		5,384		—		—			—			—			5,384
Carrying amount	￦	439,726		11,917		(1	)		(16,697	)		(14	)		434,931

S-45

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	2011
	January 1, 2011		Acquisition/ depreciation			Disposal			Reclassification		Foreign exchange differences			June 30, 2011
Acquisition cost:
Land	￦	207,818		210			—			4,911		(15	)		212,924
Buildings and structures		282,587		1,025			(280	)		3,009		(78	)		286,263
Leasehold improvements		15,464		1,272			(62	)		—		(232	)		16,442
Vehicles		1,197		—			—			—		(30	)		1,167
Equipment		32,581		1,066			(107	)		—		(184	)		33,356
Others		68,957		2,034			(25	)		—		(57	)		70,909
		608,604		5,607			(474	)		7,920		(596	)		621,061
Accumulated depreciation :
Buildings and structures		73,486		3,492			(276	)		1,030		190			77,922
Leasehold improvements		10,421		715			(47	)		—		(437	)		10,652
Vehicles		621		67			—			—		(10	)		678
Equipment		26,932		904			(103	)		—		(167	)		27,566
Others		55,971		3,306			(23	)		—		(45	)		59,209
		167,431		8,484			(449	)		1,030		(469	)		176,027
Impairment loss:
Land		3,023		—			—			—		—			3,023
Buildings and structures		2,361		—			—			—		—			2,361
		5,384		—			—			—		—			5,384
Carrying amount	￦	435,789		(2,877	)		(25	)		6,890		(127	)		439,650

S-46

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

12. Investment Property

Changes in carrying value of investment property for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	January 1, 2012		Acquisition/ depreciation			Reclassification		June 30, 2012
Acquisition cost:
Land	￦	65,428		—			3,632		69,060
Buildings and structures		44,981		—			5,239		50,220
		110,409		—			8,871		119,280
Accumulated depreciation :
Buildings and structures		13,361		610			1,152		15,123
		13,361		610			1,152		15,123
Accumulated Impairment loss:
Land		8,371		—			—		8,371
Buildings and structures		1,778		—			—		1,778
		10,149		—			—		10,149
Carrying amount	￦	86,899		(610	)		7,719		94,008

The fair value of the Bank’s investment property, as determined on the basis of a valuation by an independent appraiser amounted to ￦103,589 million as of June 30, 2012 (￦91,187 million as of December 31, 2011).

(In millions of won)	2011
	January 1, 2011		Acquisition/ depreciation			Reclassification			June 30, 2011
Acquisition cost:
Land	￦	67,266		—			(4,911	)		62,355
Buildings and structures		45,722		—			(3,009	)		42,713
		112,988		—			(7,920	)		105,068
Accumulated depreciation :
Buildings and structures		12,662		540			(1,030	)		12,172
		12,662		540			(1,030	)		12,172
Accumulated Impairment loss:
Land		8,371		—			—			8,371
Buildings and structures		1,778		—			—			1,778
		10,149		—			—			10,149
Carrying amount	￦	90,177		(540	)		(6,890	)		82,747

S-47

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

13. Intangible Assets

Changes in intangible assets for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	January 1, 2012		Acquisition		Disposal			Amortization			Impairment loss			Foreign exchange differences			June 30, 2012
Development expense	￦	38,261		4,291		—			(5,386	)		—			—			37,166
Equipment usage right		335		—		—			(15	)		—			—			320
Other deposits provided		11,642		684		—			—			(158	)		(1	)		12,167
Others		8,731		2,541		(295	)		(2,175	)		—			—			8,802
	￦	58,969		7,516		(295	)		(7,576	)		(158	)		(1	)		58,455

(In millions of won)	2011
	January 1, 2011		Acquisition		Disposal			Amortization			Foreign exchange differences			June 30, 2011
Development expense	￦	36,482		7,853		—			(5,979	)		—			38,356
Equipment usage right		296		66		—			(13	)		(5	)		344
Other deposits provided		11,198		270		(361	)		—			(36	)		11,071
Others		10,090		232		—			(1,850	)		(7	)		8,465
	￦	58,066		8,421		(361	)		(7,842	)		(48	)		58,236

14. Other Assets

Other assets as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012			December 31, 2011
Accounts receivable	￦	4,655,374			1,941,139
Unsettled domestic exchange receivables		1,643,050			2,480,046
Accrued income		626,282			631,527
Guarantee deposits		142,808			124,402
Prepaid expenses		11,819			19,646
Advance payments		882			916
Others		113,412			87,136
		7,193,627			5,284,812
Allowance for possible losses		(79,093	)		(75,432	)
Present value discount		(6,474	)		(5,325	)
	￦	7,108,060			5,204,055

The carrying amount of financial assets included in other assets above amounted to ￦7,081,654 million as of June 30, 2012, (￦5,165,036 million as of December 31, 2011) and their fair value amounted to ￦7,076,867 million as of June 30, 2012 (￦5,171,629 million as of December 31, 2011).

S-48

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

15. Financial Liabilities Designated at Fair Value Through Profit or Loss

(1) Financial liabilities designated at fair value through profit or loss as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Borrowings	￦	3,383		798
Bonds		848,038		991,338
	￦	851,421		992,136

In accordance with the Bank’s risk management policy, the Bank maintains certain derivatives embedded in the above financial instruments, such as interest swaps. If the above financial instruments were valued at amortized cost, it may cause some discrepancies in gain (loss) on derivative instruments, which are measured at fair value. Therefore, the Bank designates the above financial instruments as at FVTPL, and recognizes the changes in the fair value in profit or loss.

(2) The difference between the carrying amount and contractual cash flow amount of financial liabilities designated at fair value through profit or loss as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Carrying amount	￦	851,421		992,136
Principal and interest at maturity		734,663		892,025
Difference	￦	116,758		100,111

16. Deposits

Deposits as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012				December 31, 2011
	Amortized cost		Fair value		Amortized cost		Fair value
Deposits in Korean won:
Demand deposits	￦	378,610		378,610		460,057		460,057
Time and saving deposits		27,943,567		27,974,180		22,352,587		22,377,042
Certificates of deposit		81,539		81,863		87,437		87,794
		28,403,716		28,434,653		22,900,081		22,924,893
Deposits in foreign currencies:
Demand deposits		1,473,439		1,473,439		556,804		556,804
Time and saving deposits		2,229,005		2,230,299		1,683,061		1,683,220
Certificates of deposit		1,010,645		1,011,340		82,332		82,335
		4,713,089		4,715,078		2,322,197		2,322,359
	￦	33,116,805		33,149,731		25,222,278		25,247,252

S-49

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

17. Borrowings

(1) Borrowings as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Borrowings in Korean won		0.25		5.54	￦	5,160,287			5,163,061
Borrowings in foreign currencies		0.01		7.19		11,071,151			11,108,276
Off-shore borrowings in foreign currencies		0.25		4.27		1,669,839			1,690,756
Others		0.10		4.20		6,888,002			6,888,859
						24,789,279			24,850,952
Deferred borrowing costs						(10,027	)
					￦	24,779,252
(In millions of won)	December 31, 2011
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Borrowings in Korean won		0.50		5.59	￦	5,226,121			5,229,415
Borrowings in foreign currencies		0.01		6.20		12,305,307			12,338,508
Off-shore borrowings in foreign currencies		0.20		4.32		1,590,590			1,594,710
Others		3.42		6.90		6,730,445			6,730,411
						25,852,463			25,893,044
Deferred borrowing costs						(10,042	)
					￦	25,842,421

S-50

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(2) Borrowings in Korean won before adjusting for gains and losses on deferred borrowing cost as of June 30, 2012, and December 31, 2011 are as follows:

				(In millions of won)
Lender	Classification	Annual interest rate (%)		June 30, 2012		December 31, 2011
Ministry of Strategy and Finance	Borrowings from government fund(*1)		2.37 ~ 5.00	￦	700,748		715,628
Industrial Bank of Korea	Borrowings from industrial technique fund		2.57 ~ 2.75		54,845		63,402
Small & Medium Business Corp.	Borrowings from local small and medium company promotion fund		1.70 ~ 3.30		401,236		438,358
Ministry of Culture and Tourism	Borrowings from tourism promotion fund		1.12 ~ 4.00		1,157,167		1,131,518
Korea Energy Management Corporation	Borrowings from und for rational use of energy		0.25 ~ 3.75		1,183,163		1,181,303
Local governments	Borrowings from local small and medium company promotion fund		1.52 ~ 4.47		127,930		136,837
Others	Borrowings from environment improvement support fund		0.50 ~ 5.59		1,535,198		1,559,075
				￦	5,160,287		5,226,121

(*1) Borrowings from government fund are subordinated borrowings.

S-51

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Borrowings in foreign currency and off-shore borrowings won before adjusting for gains and losses on deferred borrowing cost as of June 30, 2012, and December 31, 2011 consist of the following.

			(In millions of won)
Lender	Classification	Annual interest rate (%)	June 30, 2012		December 31, 2011
Japan Bank for International Cooperation(“JBIC”)	Borrowings from JBIC	1.43 ~ 2.16	￦	294,175		328,521
Mizuho and others	Off-shore short	3M Libor+0.60 ~ 3.80		2,620,869		2,321,553
	term borrowings	6M Libor+0.30 ~ 0.75		32,768		76,896
				2,653,637		2,398,449
DBS Bank and others	Off-shore short	0.25 ~ 1.75		879,386		784,489
	term borrowings	6M Libor+0.60 ~ 1.20		46,152		110,717
				925,538		895,206
Nippon Life Insurance Company and Others	Off-shore long	3M Libor+0.60 ~ 1.30		513,441		636,180
	term borrowings	3M EURIBOR+0.28		180,627		—
				694,068		636,180
Japan Bank for International Cooperation(“JBIC”)	Borrowings from JBIC	4.27~ 6M Libor+1.20		58,418		59,304
Others	Short term borrowings	0.00 ~ 5.80		6,188,732		7,652,470
	in foreign currency	6M Libor+0.6 ~ 1.20		299,411		381,379
				6,488,143		8,033,849
	Long term borrowings in foreign currency	0.00 ~ 6.20		1,627,011		1,544,388
			￦	12,740,990		13,895,897

S-52

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

18. Bonds

(1) Bonds as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Bonds in Korean won:
Bonds		3.09		10.00	￦	27,489,584			27,715,432
Discount on bonds						(30,313	)
Premium on bonds						6
Valuation adjustment for fair value hedges						67,720
						27,526,997			27,715,432
Bonds in foreign currencies:
Bonds		3M Libor+0.24		3M Libor+6.28		12,820,073			13,522,022
Discount on bonds						(34,585	)
Premium on bonds						532
Valuation adjustment for fair value hedges						521,881
						13,307,901			13,522,022
Off-shore bonds:
Bonds		3M Libor+0.42		3M Libor+6.18		5,938,051			6,357,266
Discount on bonds						(6,587	)
Premium on bonds						(66	)
Valuation adjustment for fair value hedges						319,065
						6,250,463			6,357,266
					￦	47,085,361			47,594,720

S-53

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Minimum interest rate (%)		Maximum interest rate (%)		Amortized cost			Fair value
Bonds in Korean won:
Bonds		3.09		10.00	￦	28,989,957			29,275,305
Discount on bonds						(28,149	)
Premium on bonds						183
Valuation adjustment for fair value hedges						52,929
						29,014,920			29,275,305
Bonds in foreign currencies:
Bonds		3M Libor-0.23		3M Libor+6.28		12,235,066			12,775,426
Discount on bonds						(34,427	)
Premium on bonds						837
Valuation adjustment for fair value hedges						568,897
						12,770,373			12,775,426
Off-shore bonds:
Bonds		3M Libor-0.46		3M Libor+6.18		4,976,980			5,459,906
Discount on bonds						(5,770	)
Premium on bonds						220
Valuation adjustment for fair value hedges						439,936
						5,411,366			5,459,906
					￦	47,196,659			47,510,637

19. Defined Benefit Liabilities

(1) Defined benefit liabilities as of June 30, 2012 and December 31, 2011 and recognized defined benefit costs for the six-month periods ended June 30, 2012 and the year ended December 31, 2011 are as follows:

(In millions of won)	Six-month period ended  June 30, 2012		Year ended December 31, 2011
Defined benefit obligation	￦	27,370		17,536
Defined benefit costs		14,115		53,733

(2) Defined benefit liabilities as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012			December 31, 2011
Present value of defined benefit obligation	￦	174,666			162,471
Fair value of plan assets		(147,296	)		(144,935	)
	￦	27,370			17,536

S-54

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Changes in defined benefit liabilities for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012			2011
Beginning balance	￦	162,471			120,758
Current service cost		13,490			9,844
Interest expense		3,524			3,420
Benefits paid by the plan		(4,818	)		(5,054	)
Others		(1	)		(3	)
Ending balance	￦	174,666			128,965

(4) Plan assets as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012				December 31, 2011
	Amounts		Rate (%)		Amounts		Rate (%)
Cash and due from banks	￦	138,717		94		115,045		79
Others		8,579		6		29,890		21
	￦	147,296		100		144,935		100

(5) Changes in the fair value of plan assets for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012			2011
Beginning balance	￦	144,935			73,994
Expected return on plan assets		2,899			1,295
Benefits paid by the plan		(538	)		(2,354	)
Ending balance	￦	147,296			72,935

(6) Defined benefit costs for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Current service cost	￦	6,745			13,490			4,922			9,844
Interest expense		1,762			3,524			1,710			3,420
Expected return on plan assets		(1,450	)		(2,899	)		(648	)		(1,295	)
	￦	7,057			14,115			5,984			11,969

S-55

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(7) The principal actuarial assumptions used as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Discount rate (%)		4.50		4.50
Expected return on plan assets (%)		4.00		4.00
Future salary increasing rate (%)		5.60		5.60

20. Provisions

(1) Changes in provisions for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	Provision for payment guarantees			Provision for unused commitments			Lawsuit provision			Other provision		Total
Beginning balance	￦	63,748			194,122			2,953			1,032		261,855
Reversal of provision		(3,259	)		(147,908	)		(758	)		—		(151,925	)
Foreign exchange differences		1			(6	)		—			—		(5	)
Others		—			—			(314	)		—		(314	)
Ending balance	￦	60,490			46,208			1,881			1,032		109,611
(In millions of won)	2011
	Provision for payment guarantees			Provision for unused commitments			Lawsuit provision			Other provision		Total
Beginning balance	￦	89,645			80,715			1,884			1,032		173,276
Increase (reversal) of provision		(6,508	)		70,432			(3	)		—		63,921
Others		(56	)		(201	)		—			—		(257	)
Ending balance	￦	83,081			150,946			1,881			1,032		236,940

(2) Provision for payment guarantees

Confirmed acceptances and guarantees, unconfirmed acceptances and guarantees and bills endorsed are not recognized on the statement of financial position, but are disclosed as off-statement of financial position items in the notes to the financial statements. The Bank provides a provision for such off-statement of financial position items, applying a Credit Conversion Factor (“CCF”) and provision rates, and records the provision as a reserve for possible losses on acceptances and guarantees

(3) Provision for unused commitments

The Bank records a provision for a certain portion of unused credit lines which are calculated using a CCF as provision for unused commitments applying provision rates.

(4) Provision for possible losses from lawsuits

As of June 30, 2012, the Bank is involved in 11 lawsuits as a plaintiff and 15 lawsuits as a defendant. The aggregate amount of claims as a plaintiff and a defendant amounted to ￦3,726,028 million and ￦335,758 million, respectively. The Bank provided a provision against contingent loss from pending lawsuits as of June 30, 2012.

S-56

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

The financial institution creditors of Renault Samsung Motors (including KDB) filed a lawsuit against Kun-hee Lee and 28 Samsung affiliates (including Samsung Electronics), claiming compensation for delays in payment of liquidated damages and contract bills of ￦2,450 billion based on the agreement signed at August 24, 1999. In connection to the litigation, the financial institution creditors partially won the second trial at the Seoul High Court, but both parties filed an appeal to the Supreme Court judgment, and are waiting for the final decision as of June 30, 2012.

(5) Other provision

The Bank has recognized other possible losses.

21. Other Liabilities

Other liabilities as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012			December 31, 2011
Accounts payable	￦	4,632,712			1,869,980
Accrued expense		1,302,882			1,194,890
Advance receipts		558			—
Unearned income		51,329			52,840
Deposits withholding tax		24,994			23,234
Guarantee money received		258,163			322,848
Foreign exchanges payable		23,471			17,869
Domestic exchanges payable		1,529,172			1,823,364
Borrowing from trust accounts		292,348			392,392
Others		245,325			211,761
		8,360,954			5,909,178
Present value discount		(882	)		(837	)
	￦	8,360,072			5,908,341

The carrying amount of financial liabilities included in other liabilities above amounted to ￦8,143,442 million as of June 30, 2012, (￦5,719,401 million as of December 31, 2011) and their fair value amounted to ￦8,143,521 million as of June 30, 2012 (￦5,719,452 million as of December 31, 2011).

22. Equity

(1) Issued capital

The Bank is authorized to issue 3,000 million shares of common stock and has 1,850,372,235 shares issued and outstanding with a total par value of ￦9,251,861 million as of June 30, 2012.

(2) Capital surplus

The Bank reduced ￦5,178,600 million of its issued capital in 1998 and 2000 to offset its accumulated deficit amounting to ￦5,134,227 million. As the result of the capital reduction, ￦44,373 million of surplus exceeding accumulated deficit was recorded in capital surplus in equity.

S-57

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Accumulated other comprehensive income

(i) Accumulated other comprehensive income (loss) as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012			December 31, 2011
Valuation gain on available-for-sale financial assets	￦	570,931			559,449
Valuation gain on available-for-sale financial assets (before tax)		753,174			744,041
Income tax effect		(182,243	)		(184,592	)
Exchange differences on translation of foreign operations		1,729			6,128
Exchange differences on translation of foreign operations (before tax)		2,281			8,084
Income tax effect		(552	)		(1,956	)
	￦	572,660			565,577

(ii) Changes in accumulated other comprehensive income for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	January 1, 2012			Increase (Decrease)			Tax Effect		June 30, 2012
Valuation gain on available-for-sale financial assets	￦	559,449			9,133			2,349		570,931
Exchange differences on translation of foreign operations		6,128			(5,803	)		1,404		1,729
	￦	565,577			3,330			3,753		572,660
(In millions of won)	2011
	January 1, 2011			Increase (Decrease)			Tax Effect		June 30, 2011
Valuation gain on available-for-sale financial assets	￦	761,311			(111,167	)		26,002		676,146
Exchange differences on translation of foreign operations		(6,272	)		(29,304	)		6,447		(29,129	)
	￦	755,039			(140,471	)		32,449		647,017

(4) Retained earnings

The Korea Development Bank Act requires the Bank to appropriate at least 40% of net income as a legal reserve. This reserve can be transferred to paid-in capital or offset an accumulated deficit. In accordance with the Korea Development Bank Act, the Bank offsets an accumulated deficit with reserves. If the reserve is insufficient to offset the accumulated deficit, the Korean government is responsible for the deficit.

(i) Retained earnings as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Legal reserves	￦	5,641,363		5,076,393
Voluntary Reserves
Reserve for possible loan losses		1,034,949		—
Unappropriated retained earnings		1,391,648		2,719,843
	￦	8,067,960		7,796,236

S-58

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(ii) Changes in legal reserves for the six-months ended June 30, 2012 and the year ended December 31, 2011 are as follows:

(In millions of won)	Six-month period ended June 30, 2012		Year ended December 31, 2011
Legal reserves
Beginning balance	￦	5,076,393		4,658,028
Transferred from unappropriated retained earnings		564,970		418,365
	￦	5,641,363		5,076,393

(iii) Changes in unappropriated retained earnings for the six-months ended June 30, 2012 and the year ended December 31, 2011 are as follows:

(In millions of won)	Six-month period ended June 30, 2012			Year ended December 31, 2011
Beginning balance	￦	2,719,843			2,023,767
Net income		619,594			1,412,401
Contribution to legal reserves		(564,970	)		(418,365	)
Contribution to reserve for loan losses		(1,034,949	)		—
Dividend		(347,870	)		(297,909	)
Offset with discount on stock issuance		—			(51	)
	￦	1,391,648			2,719,843

(5) Regulatory reserve for loan loss

The Bank is required to provide a regulatory reserve for possible loan losses in accordance with Regulations on Supervision of Bank Business 29(1), and (2), and details are as follows :

(i) Regulatory reserve for loan losses as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Beginning balance	￦	1,034,949		—
Planned reserve for loan losses		138,327		1,034,949
	￦	1,173,276		1,034,949

S-59

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(ii) Provision for regulatory reserve for possible loan losses and net income after adjusting regulatory reserve for loan losses for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended		Six-month period ended
Net Income	￦	245,348			619,594			472,318		1,040,895
Provision for regulatory reserve for possible loan losses		(67,404	)		(138,327	)		—		—
Reversal of regulatory reserve for possible loan losses		—			—			90,672		152,692
Net income after adjusting reserve for possible loan losses		177,944			481,267			562,990		1,193,587
Earnings per share after adjusting regulatory reserve for loan losses	￦	96			260			304		645

23. Net Interest Income

Net interest income for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Interest income:
Due from banks	￦	8,295			15,785			5,278			10,168
Financial assets held-for-trading		17,245			29,938			13,275			24,509
Financial assets available-for-sale		288,147			527,003			256,754			457,719
Financial assets held-to-maturity		1,343			2,787			1,600			3,341
Loans		985,857			1,974,229			869,818			1,707,801
		1,300,887			2,549,742			1,146,725			2,203,538
Interest expense:
Financial liabilities designated at fair value through profit or loss		(12,741	)		(26,795	)		(13,956	)		(27,578	)
Due to customers		(271,512	)		(512,639	)		(194,825	)		(347,717	)
Borrowings		(118,691	)		(245,063	)		(110,432	)		(214,431	)
Debt issued		(420,692	)		(856,623	)		(421,469	)		(813,399	)
		(823,636	)		(1,641,120	)		(740,682	)		(1,403,125	)
Net interest income	￦	477,251			908,622			406,043			800,413

Interest received from impaired assets relating to loan receivables for the six-month periods ended June 30, 2012 and 2011 was ￦23,267 million and ￦15,357 million, respectively, and there was no interest received from impaired assets relating to financial asset other than loans.

S-60

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

24. Net Fees and Commission Income

Net fees and commission income for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Fees and commission income:
Loan commissions	￦	57,575			111,335			49,610			106,574
Underwriting and investment consulting commissions		72,947			126,678			78,080			99,367
Brokerage and agency commissions		13,939			17,270			5,060			7,010
Trust and retirement pension plan commissions		10,250			18,363			7,128			12,307
Asset Management commissions		918			1,197			328			556
Other fees		15,668			20,937			9,028			14,732
		171,297			295,780			149,234			240,546
Fees and commission expenses:
Brokerage and agency fees		(2,226	)		(4,100	)		(1,803	)		(3,077	)
Other fees		(4,047	)		(16,483	)		(2,376	)		(4,462	)
		(6,273	)		(20,583	)		(4,179	)		(7,539	)
	￦	165,024			275,197			145,055			233,007

25. Dividend Income

Dividend income for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012				June 30, 2011
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Financial assets held-for-trading	￦	76		130		271		275
Available-for-sale financial assets		11,710		43,753		16,789		40,317
Investments in subsidiaries and associates		49,849		113,554		474		81,526
	￦	61,635		157,437		17,534		122,118

S-61

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

26. Net Gain (Loss) on Financial Assets and Liabilities Held-for-Trading

Net gain (loss) related to financial assets and liabilities held-for-trading for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Gains on financial assets held-for-trading :
Gains on sale	￦	4,895			11,539			45,546			63,536
Gains on valuation		4,508			1,939			—			9,839
		9,403			13,478			45,546			73,375
Losses on financial assets held-for-trading :
Losses on sale		(6,801	)		(11,870	)		(7,803	)		(22,134	)
Losses on valuation		—			(1,805	)		(5,704	)		(3,017	)
Purchase related expense		(106	)		(200	)		(92	)		(240	)
		(6,907	)		(13,875	)		(13,599	)		(25,391	)
	￦	2,496			(397	)		31,947			47,984

27. Net Loss on Financial Assets and Liabilities Designated at Fair Value Through Profit or Loss

Net gain/loss related to financial assets and liabilities designated at fair value through profit or loss for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Gains on financial assets and liabilities designated at FVTPL :
Gains on redemption	￦	633			850			52			52
Gains on valuation		—			1,475			975			4,227
		633			2,325			1,027			4,279
Losses from financial assets and liabilities designated at FVTPL:
Losses on redemption		(36	)		(36	)		—			(47	)
Losses on valuation		(20,562	)		(19,016	)		(16,932	)		(17,902	)
		(20,598	)		(19,052	)		(16,932	)		(17,949	)
	￦	(19,965	)		(16,727	)		(15,905	)		(13,670	)

S-62

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

28. Net Gain (Loss) on Available-for-Sale Financial Assets

Net gain (loss) on available-for-sale financial assets for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Gains on available-for-sale financial assets:
Gains on sale	￦	52,540			129,366			46,814			93,680
Reversal of impairment loss		45,255			45,255			36,040			36,040
		97,795			174,621			82,854			129,720
Losses on available-for-sale financial assets:
Losses on sale		(11,868	)		(20,058	)		(2,193	)		(3,906	)
Impairment loss		(99,006	)		(119,920	)		(46,418	)		(61,742	)
		(110,874	)		(139,978	)		(48,611	)		(65,648	)
	￦	(13,079	)		34,643			34,243			64,072

S-63

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

29. Net Foreign Currency Transaction Gains (Losses) and Net Gains (Losses) on Derivatives

Net foreign currency transaction gains (loss) and net gains on derivatives for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Gains (losses) on foreign currencies:
Net losses on foreign currencies trading:
Gains	￦	143,433			272,612			145,875			276,871
Losses		(164,626	)		(301,599	)		(148,356	)		(285,424	)
		(21,193	)		(28,987	)		(2,481	)		(8,553	)
Net gains (losses) on foreign exchange translation:
Gains		274,991			180,215			5,881			19,060
Losses		(209,712	)		(188,929	)		(99,989	)		(257,353	)
		65,279			(8,714	)		(94,108	)		(238,293	)
		44,086			(37,701	)		(96,589	)		(246,846	)
Gains (losses) from trading purpose of derivatives:
Gains from trading purpose of derivatives:
Interest related derivatives		288,866			984,819			388,755			1,056,088
Currency related derivatives		524,219			1,972,133			1,536,420			2,970,120
Stock related derivatives		6,956			32,948			22,796			36,200
Commodity related derivatives		21,557			36,046			22,598			43,279
Embedded derivatives		31,544			91,549			263,753			508,847
Gains on adjustment of derivatives		1,556			4,866			4,584			10,296
		874,698			3,122,361			2,238,906			4,624,830
Losses on trading purpose of derivatives:
Interest related derivatives		(262,359	)		(894,378	)		(391,136	)		(1,073,859	)
Currency related derivatives		(454,734	)		(1,869,500	)		(1,406,131	)		(2,780,685	)
Stock related derivatives		(6,724	)		(31,855	)		(22,682	)		(35,985	)
Commodity related derivatives		(19,710	)		(34,199	)		(18,499	)		(39,167	)
Embedded derivatives		(6,616	)		(17,175	)		(7,953	)		(11,101	)
Loss on adjustment of derivatives		(4,950	)		(8,919	)		(5,500	)		(7,527	)
		(755,093	)		(2,856,026	)		(1,851,901	)		(3,948,324	)
Net gain on trading purpose of derivatives	￦	119,605			266,335			387,005			676,506

S-64

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Gains (losses) from hedging purpose of derivatives:
Gains from hedging purpose of derivatives:
Interest related derivatives		38,329			61,703			62,870			69,688
Currency related derivatives		—			46,207			56,269			118,853
Gain on adjustment of derivatives		2,389			4,833			2,376			4,824
		40,718			112,743			121,515			193,365
Losses from hedging purpose of derivatives:
Interest related derivatives		(24,367	)		(161,783	)		—			(56,246	)
Currency related derivatives		(74,567	)		(208,366	)		—			(40,809	)
Loss on adjustment of derivatives		(1,400	)		(2,494	)		(1,135	)		(2,277	)
		(100,334	)		(372,643	)		(1,135	)		(99,332	)
		(59,616	)		(259,900	)		120,380			94,033
Gains (losses) on fair value hedged items:
Gains on fair value hedged items:
Gains on valuation		—			258,262			6,151			216,193
Gains on redemption		6,201			13,150			10,342			21,656
		6,201			271,412			16,493			237,849
Losses on fair value hedged items:
Losses on valuation		(51,801	)		(103,335	)		(112,141	)		(159,540	)
Losses on redemption		(16,560	)		(21,888	)		(23,050	)		(43,366	)
		(68,361	)		(125,223	)		(135,191	)		(202,906	)
		(62,160	)		146,189			(118,698	)		34,943
	￦	41,915			114,923			292,098			558,636

S-65

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

30. Net Other Operating Expense

Net other operating expense for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended			Six-month period ended
Other operating income
Gains on investments in subsidiaries and associates	￦	—			—			—			2,033
Gains on sales of loans		43,847			44,538			4,351			9,025
Reversal of provisions		165,126			151,981			4,122			7,504
Reversal of other provisions		4,119			—			359			396
Others		979			5,262			1,759			4,124
		214,071			201,781			10,591			23,082
Other operating expenses
Insurance expense		(9,850	)		(19,121	)		(6,646	)		(12,497	)
Losses on sale of loans		(282,884	)		(283,087	)		(75,482	)		(75,512	)
Provision for other allowances		—			(56	)		(36,170	)		(71,425	)
Contribution to provision for other asset		—			(4,742	)		(15,631	)		(19,659	)
Losses on investments in subsidiaries and associates		—			—			(404	)		(404	)
Others		(36,380	)		(74,171	)		(33,166	)		(65,549	)
		(329,114	)		(381,177	)		(167,499	)		(245,046	)
	￦	(115,043	)		(179,396	)		(156,908	)		(221,964	)

S-66

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

31. General and Administrative Expenses

General and administrative expenses for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012				June 30, 2011
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Payroll costs:
Salary	￦	85,670		142,856		65,143		122,660
Retirement benefits		7,057		14,115		5,984		11,969
Termination benefits		185		2,039		796		796
		92,912		159,010		71,923		135,425
Employee welfare benefits		6,687		12,813		10,084		15,609
Depreciation of property and equipment		4,982		9,600		4,254		8,484
Amortization of property and equipment		3,940		7,576		3,974		7,842
Other:
Rental fees		5,345		10,155		4,601		8,902
Taxes and dues		3,059		6,559		2,690		6,293
Advertising expenses		14,695		16,887		8,013		10,327
Others		24,422		39,695		18,599		33,311
		47,521		73,297		33,903		58,833
	￦	156,042		262,295		124,138		226,193

S-67

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

32. Other Non-Operating Income and Expense

Non-operating income and expense for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-  month period ended			Six-month period ended
Non-operating income:
Gain on disposal of property and equipment	￦	198			198			—			—
Rental income on investment property		213			402			243			449
Others		253			776			93			651
		664			1,376			336			1,100
Non-operating expense:
Loss on disposal of property and equipment		(1	)		(1	)		(17	)		(17	)
Depreciation of investment property		(340	)		(610	)		(269	)		(540	)
Impairment losses on tangible assets		(160	)		(160	)		—			—
Donations		(8,071	)		(8,615	)		(78	)		(6,015	)
Others		(13	)		(422	)		(113	)		(630	)
		(8,585	)		(9,808	)		(477	)		(7,202	)
	￦	(7,921	)		(8,432	)		(141	)		(6,102	)

33. Income Tax Expense and Deferred Income Taxes

(1) Income tax expense for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012						June 30, 2011
	Three-month period ended			Six-month period ended			Three-month period ended		Six-month period ended
Current income tax(*1)	￦	52,086			167,036			40,180		92,695
Change in deferred income taxes due to temporary differences		19,717			23,446			48,012		118,178
Deferred income tax recognized directly to equity		15,612			3,753			18,917		32,449
Change in income taxes due to consolidated tax return		(1,042	)		(1,132	)		1,976		(33	)
Income tax expense	￦	86,373			193,103			109,085		243,289

(*1) Change in current income tax due to previous year’s final tax filing is included.

S-68

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(2) The net income before income taxes and income tax expense for the six-month periods ended June 30, 2012 and 2011 are as follows :

(In millions of won)	2012			2011
Net income before income taxes	￦	812,697			1,284,184
Income taxes calculated using an enacted tax rate		196,673			310,759
Adjustments:
Non-deductible losses and tax free gains		(4,011	)		122,299
Non-recognition effect of deferred income taxes		—			20
Change in income taxes due to consolidated tax return		(1,132	)		(33	)
Others		1,573			(189,756	)
		(3,570	)		(67,470	)
Income tax expense	￦	193,103			243,289

(3) Change in deferred income taxes recognized directly to equity for the six-month periods ended June 30, 2012 and 2011 are as follows :

(In millions of won)	2012
	June 30, 2012			Deferred tax liabilities			December 31, 2011			Deferred tax liabilities			Changes in deferred tax liabilities
Gains (loss) on valuation of available-for-sale securities	￦	753,174			(182,243	)		744,041			(184,592	)		2,349
Exchange differences on translation of foreign operations		2,281			(552	)		8,084			(1,956	)		1,404
	￦	755,455			(182,795	)		752,125			(186,548	)		3,753
(In millions of won)	2011
	June 30, 2011			Deferred tax assets (liabilities)			December 31, 2010			Deferred tax assets (liabilities)			Changes in deferred tax assets (liabilities)
Gain (loss) on valuation of available-for-sale securities	￦	869,275			(193,129	)		980,442			(219,131	)		26,002
Exchange differences on translation of foreign operations		(37,345	)		8,216			(8,041	)		1,769			6,447
	￦	831,930			(184,913	)		972,401			(217,362	)		32,449
				��

S-69

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

34. Earnings per Share

(1) Basic earnings per share

The Bank’s basic earnings per share for the six-month periods ended June 30, 2012 and 2011 are computed as follows:

(i) Basic earnings per share

	June 30, 2012				June 30, 2011
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Net income attributable to ordinary shareholders of the Bank (A)	￦	245,348,040,151		619,594,049,630		472,317,638,744		1,040,894,925,736
Weighted average number of ordinary shares outstanding (B)		1,850,372,235		1,850,372,235		1,850,372,235		1,850,372,235
Basic earnings per share (A/B)	￦	133		335		255		563

(ii) Weighted-average number of shares of common stocks outstanding

	June 30, 2012				June 30, 2011
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Number of ordinary shares outstanding	￦	1,850,372,235		1,850,372,235		1,850,372,235		1,850,372,235
Days		91		182		91		181
Cumulative shares		168,383,873,385		336,767,746,770		168,383,873,385		334,917,374,535
Weighted average number of ordinary shares outstanding	￦	1,850,372,235		1,850,372,235		1,850,372,235		1,850,372,235

(2) Diluted earnings per share

Diluted and basic earnings per share for the six-month periods ended June 30, 2012 and 2011 are the same because there were no potential dilutive instruments.

35. Pledged Assets

Assets pledged by the Bank as collateral relating to futures, options and securities trading as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012				December 31, 2011
	Pledged assets		Relating liabilities		Pledged assets		Relating liabilities
Financial assets available-for-sale(*1)	￦	8,893,362		4,059,430		8,946,778		4,296,466

(*1) Pledged as collateral for bonds sold under repurchase agreements

S-70

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

36. Guarantees and Commitments

Guarantees and commitments as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012			December 31, 2011
Confirmed acceptances and guarantees:
Acceptances in foreign currency	￦	870,786			841,123
Guarantees for bond issuance		735,214			563,758
Guarantees for loans		820,372			866,201
Acceptances for foreign loans		3,674			—
Acceptances for letter of guarantee		49,728			39,112
Others		8,115,347	��		10,654,874
		10,595,121			12,965,068
Unconfirmed acceptances and guarantees
Letter of guarantee		3,251,161			2,991,547
Others		2,912,914			4,423,100
		6,164,075			7,414,647
Commitments:
Commitments on loans		8,942,718			10,875,138
Others		246,774			258,774
		9,189,492			11,133,912
Bills endorsed
With recourse		380			—
		380			—
	￦	25,949,068			31,513,627

37. Day One Profit or Loss

Changes in day one profit or loss for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012			2011
Beginning balance	￦	(2,716	)		(12,237	)
Difference between the transaction price and fair value at initial recognition		(1,788	)		(519	)
Recognized in current profit or loss		6,284			2,650
Others (transfer levels)		(717	)		608
Ending balance	￦	1,063			(9,498	)

The day one profit or loss arose from derivative financial instruments at level 3 fair value hierarchy.

S-71

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

38. Trust Accounts

(1) Trust account as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Trust accounts payable	￦	269,401		340,003

(2) Transactions with trust accounts for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012		2011
Fees on trust accounts	￦	17,934		12,002
Interest expense of trust accounts payable		4,669		5,397

(3) Guaranteed principal money trust and guaranteed principal and interest money trust

The carrying amounts of guaranteed principal money trust and guaranteed principal and interest money trust as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012		December 31, 2011
Guaranteed principal money trust	￦	644,072		3,523,618
Guaranteed principal and interest money trust and trust without guarantees		4,367,870		5,105,610
	￦	5,011,942		8,629,228
Principal of money trust	￦	4,927,616		8,544,567
Income from trust deposits payable	￦	84,326		84,661

S-72

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

39. Related Party Transactions

(1) The Bank’s related parties as of June 30, 2012 are as follows:

Classification	Corporate name
Ultimate controlling party	KoFC
Controlling entities	KDBFG
Entities under same control	Daewoo Securities Co., Ltd., KDB Capital Corporation, KDB Asset Management Co., Ltd., Korea Infrastructure Investments Asset Management Co., Ltd
Subsidiaries	KDB Asia Ltd., KDB Ireland Ltd., KDB Hungary Ltd., Banco KDB Do Brazil S.A, RBS Uz, UzKDB Bank, Korea Infrastructure Fund, KDB Value PEF II, KDB Value PEF III, KDB Value PEF VI, KDB Venture M&A PEF, KDB Consus Value PEF, KDB Turnaround PEF, Components and Materials M&A PEF, KoFC-KDB Materials and Components Investment Fund No.1, Certain trust accounts of KDB, KDB SPC I and 12 others, KDB Shipping Private Fund KL I and 26 others,
Associates	Daewoo shipbuilding & Marine engineering Co., Ltd, GM Korea Company and 85 others, Troika Resource Investment PEF and 4 others, National Pension Service 05-4 Saneun Venture Investment Inc. and 6 others.
Others	Key management personnel

S-73

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(2) Significant balances with related parties as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Controlling entities		Subsidiaries			Associates			Entities under same control		Total
Assets:
Cash and due from banks	￦	—		438,444			—			—		438,444
Financial assets available-for-sale		—		390,786			538,047			—		928,833
Loans		136,568		1,727,979			1,135,725			2,200		3,002,472
Allowance for doubtful accounts		—		(1,030	)		(252	)		—		(1,282	)
Derivative financial assets		17,959		41,342			71,913			53,511		184,725
Other assets		—		164,703			125			4,913		169,741
Allowance for doubtful accounts		—		(27	)		—			—		(27	)
		154,527		2,762,197			1,745,558			60,624		4,722,906
Liabilities:
Deposits		98,681		365,770			2,736			25,876		493,063
Borrowings		—		564,851			—			—		564,851
Bonds		—		143,893			—			358,953		502,846
Derivative financial liabilities		36,993		7,063			17,328			40,146		101,530
Other liabilities		99,560		4,869			240			3,951		108,620
	￦	235,234		1,086,446			20,304			428,926		1,770,910
(In millions of won)	December 31, 2011
	Controlling entities		Subsidiaries			Associates			Entities under same control		Total
Assets:
Cash and due from banks	￦	—		380,589			—			—		380,589
Financial assets available-for-sale		1,399,684		315,150			463,575			—		2,178,409
Loans		136,509		1,885,372			1,006,882			706		3,029,469
Allowance for doubtful accounts		—		(1,055	)		(251	)		—		(1,306	)
Derivative financial assets		10,910		50,676			56,721			57,294		175,601
Other assets		246		174,711			44,233			4,865		224,055
Allowance for doubtful accounts		—		(2	)		—			—		(2	)
		1,547,349		2,805,441			1,571,160			62,865		5,986,815
Liabilities:
Deposits		822,770		265,332			105,201			244,935		1,438,238
Borrowings		—		245,505			2,051			—		247,556
Bonds		—		161,236			—			191,250		352,486
Derivative financial liabilities		14,239		4,441			12,975			45,087		76,742
Other liabilities		129,265		837			386			4,230		134,718
Other provisions		—		56			454			—		510
	￦	966,274		677,407			121,067			485,502		2,250,250

S-74

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Significant transactions with related parties for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	Controlling entities		Subsidiaries		Associates		Entities under same control		Key management		Total
Revenues:
Interest income	￦	1,960		46,118		35,547		220		—		83,845
Reversal of allowance for loan loss		—		190		654		—		—		844
Fees and commission income, other revenues		26,531		143,791		75,756		31,120		—		277,198
		28,491		190,099		111,957		31,340		—		361,887
Expenses:
Interest expense		25,155		794		2,891		5,635		—		34,475
Provision for Loan loss		—		42		—		—		—		42
Administrative expenses		—		—		—		—		1,301		1,301
Other operating expenses		37,965		18,581		17,401		24,456		—		98,403
	￦	63,120		19,417		20,292		30,091		1,301		134,221
(In millions of won)	2011
	Controlling entities		Subsidiaries		Associates		Entities under same control		Key management		Total
Revenues:
Interest income	￦	1,596		51,062		8,002		58		—		60,718
Reversal of allowance for loan loss		63		3,933		4,938		—		—		8,934
Fees and commission income, other revenues		71,771		141,707		67,845		22,633		—		303,956
		73,430		196,702		80,785		22,691		—		373,608
Expenses:
Interest expense		17,958		769		1,934		359		—		21,020
Provision for Loan loss		—		10,923		—		—		—		10,923
Administrative expenses		—		—		—		—		1,125		1,125
Other operating expenses		7,869		31,505		10,692		20,981		—		71,047
	￦	25,827		43,197		12,626		21,340		1,125		104,115

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(4) The Bank provided various commitments amounting to ￦604,157 million and payments guarantees amounting to ￦428,774 million in the transactions with related parties as of June 30, 2012.

40. Statements of Cash Flows

(1) Cash and cash equivalents in the statements of cash flows as of June 30, 2012 and 2011 are as follows:

(In millions of won)	June 30, 2012			June 30, 2011
Cash and due from banks:
Cash and foreign currencies	￦	71,644			62,939
Due from banks denominated in Korean won		811,197			1,154,909
Due from banks denominated in foreign currencies		2,265,112			1,060,856
		3,147,953			2,278,704
Less: Restricted due from banks, others		(1,514,300	)		(1,625,255	)
Add: Financial instruments with a maturity within three months from date of acquisition		3,816,102			1,559,898
Held- for- trading financial assets Treasury bonds		160,047			1,002
Available-for-sale financial assets Treasury bonds		417,562			598,458
Loans:
Call-loans		2,840,432			790,098
Interbank loans		398,061			170,340
		3,238,493			960,438
Cash and cash equivalents	￦	5,449,755			2,213,347

(2) Significant transactions not involving cash flows for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012			2011
Decrease in loans due to write-offs	￦	(165,939	)		—
Increase in allowance for credit losses due to recovery of write-offs		4,905			—
Increase in available-for-sale securities due to debt-to equity swap		35,201			—
Increase in accumulated other comprehensive income due to securities valuation		95,595			(87,654	)
Deferred income tax effect due to securities valuation		(23,134	)		21,212
Increase in accumulated other comprehensive income due to disposition of securities		(86,461	)		(23,513	)
Increase in investments in subsidiaries and associates due to reclassification of securities from available-for-sale securities		3,769			53,141
Reclassification from property and equipment to investment property		2,589			—
Transfer from property and equipment to investment property		7,720			(6,890	)

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Total interest and dividend that received or paid for the six-months ended June 30, 2012 and 2011 are as follows

(In millions of won)	June 30, 2012				June 30, 2011
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
Total interest received	￦	1,371,701		2,569,767		1,144,135		2,090,871
Total interest paid		736,234		1,551,472		578,856		1,265,229
Total dividend received		62,397		110,968		17,534		122,118

41. Transfers of Financial Assets that do not Qualify for Derecognition

Transfers of financial assets that do not qualify for derecognition as of June 30, 2012, and December 31, 2011 are as follows

(In millions of won)	June 30, 2012
	Date of sale	Carrying amount of the assets		Carrying amount of the liabilities		Reason for not qualifying for derecognition
Songsan II Industrial Complex Securitization SPC	February 25, 2010	￦	205,486		205,345		(	*1)
KDB SOC securitization SPC	December 7, 2010		16,739		9,000		(	*1)
		￦	222,225		214,345

(In millions of won)	December 31, 2011
	Date of sale	Carrying amount of the assets		Carrying amount of the liabilities		Reason for not qualifying for derecognition
Songsan II Industrial Complex Securitization SPC	February 25, 2010	￦	202,778		203,019		(	*1)
KDB SOC securitization SPC	December 7, 2010		17,147		12,000		(	*1)
		￦	219,925		215,019

(*1) Most of the risks and rewards from ownership of the securitized financial assets have not been transferred to the Bank’s credit supports. Accordingly, the Bank does not derecognize the securitized financial assets.

S-77

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

42. Fair Value of Financial Assets and Liabilities

(1) Fair value classification of financial instruments

The Bank classifies and discloses fair value of the financial instruments into the following three-level hierarchy:

• Level 1: Financial instruments measured at quoted prices from active markets are classified as fair value level 1.

• Level 2: Financial instruments measured using valuation techniques where all significant inputs are observable market data are classified as level 2.

• Level 3: Financial instruments measured using valuation techniques where one or more significant inputs are not based on observable market data are classified as level 3.

The tables below analyze financial instruments measured at the fair value as of June 30, 2012 and December 31, 2011 by the level in the fair value hierarchy into which the fair value measurement is categorized:

(In millions of won)	June 30, 2012
	Level 1		Level 2		Level 3		Total
Financial assets:
Financial assets held-for-trading	￦	1,356,570		550,242		—		1,906,812
Available-for-sale financial assets		1,832,371		22,733,805		3,064,827		27,631,003
Derivative financial assets		—		4,978,868		202,104		5,180,972
		3,188,941		28,262,915		3,266,931		34,718,787
Financial liabilities:
Financial liabilities designated at FVTPL		—		848,038		3,383		851,421
Derivative financial liabilities		—		3,821,845		46,214		3,868,059
	￦	—		4,669,883		49,597		4,719,480
	December 31, 2011
	Level 1		Level 2		Level 3		Total
Financial assets:
Financial assets held-for- trading	￦	853,813		1,732,096		—		2,585,909
Available-for-sale financial assets		2,351,007		20,255,062		3,107,469		25,713,538
Derivative financial assets		—		5,437,121		159,974		5,597,095
		3,204,820		27,424,279		3,267,443		33,896,542
Financial liabilities:
Financial liabilities designated at FVTPL		—		991,338		798		992,136
Derivative financial liabilities		—		4,205,955		83,309		4,289,264
	￦	—		5,197,293		84,107		5,281,400

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(2) Changes in the fair value of level 3 financial instruments for the six-month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	2012
	January 1, 2012		Profit or loss			Other comprehensive income		Acquisition/ Issue		Sale/ Settlement			Transfer levels			Foreign exchange differences		June 30, 2012
Assets:
Available-for-sale financial assets	￦	3,107,469		36,839			32,483		99,826		(236,894	)		(6,682	)		31,786		3,064,827
Derivative financial assets		159,974		30,909			—		33,441		(22,220	)		—			—		202,104
		3,267,443		67,748			32,483		133,267		(259,114	)		(6,682	)		31,786		3,266,931
Liability:
Financial liabilities designated at FVTPL		798		9			—		2,576		—			—			—		3,383
Derivative financial liabilities		83,309		(63,120	)		—		26,122		(97	)		—			—		46,214
	￦	84,107		(63,111	)		—		28,698		(97	)		—			—		49,597

(In millions of won)	2011
	January 1, 2011		Profit or loss			Other comprehensive income		Acquisition/ Issue		Sale/ Settlement			Foreign exchange differences		June 30, 2011
Assets:
Available-for-sale financial assets	￦	2,432,041		23,700			8,393		1,026,487		(924,882	)		390,018		2,955,757
Derivative financial assets		307,378		436,801			—		56,947		(3,809	)		—		797,317
		2,739,419		460,501			8,393		1,083,434		(928,691	)		390,018		3,753,074
Liability:
Financial liabilities designated at FVTPL		4,093		141			—		2,998		—			—		7,232
Derivative financial liabilities		87,111		(42,735	)		—		52,435		(1,053	)		—		95,758
																	��
	￦	91,204		(42,594	)		—		55,433		(1,053	)		—		102,990

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

43. Categories of Financial Assets and Liabilities

Categories of financial assets and liabilities as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Cash and cash equivalents		Financial instruments held-for- trading		Financial instruments designated at FVTPL		Available- for-sale financial instruments		Held-to- maturity financial instruments		Loan and receivables		Financial liabilities measured at amortized cost		Hedging purpose derivatives instruments		Total
Assets:
Cash and due from banks	￦	1,633,653		—		—		—		—		1,514,190		—		—		3,147,843
Financial assets held-for-trading		160,047		1,746,765		—		—		—		—		—		—		1,906,812
Available-for-sale financial assets		417,562		—		—		27,213,441		—		—		—		—		27,631,003
Held-to-maturity financial assets		—		—		—		—		96,408		—		—		—		96,408
Loans		3,238,493		—		—		—		81,885,547		—		—		85,124,040
Derivative financial assets		—		4,147,750		—		—		—		—		—		1,033,222		5,180,972
Other financial assets		—		—		—		—		—		7,081,654		—		—		7,081,654
		5,449,755		5,894,515		—		27,213,441		96,408		90,481,391		—		1,033,222		130,168,732
Liabilities:
Financial liabilities designated at FVTPL		—		—		851,421		—		—		—		—		—		851,421
Deposits		—		—		—		—		—		—		33,116,805		—		33,116,805
Borrowings		—		—		—		—		—		—		24,779,252		—		24,779,252
Bonds		—		—		—		—		—		—		47,085,361		—		47,085,361
Derivative financial liabilities		—		3,640,362		—		—		—		—		—		227,697		3,868,059
Other financial liabilities		—		—		—		—		—		—		8,143,442		—		8,143,442
	￦	—		3,640,362		851,421		—		—		—		113,124,860		227,697		117,844,340

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Cash and cash equivalents		Financial instruments held-for- trading		Financial instruments designated at FVTPL		Available- for-sale financial instruments		Held-to- maturity financial instruments		Loan and receivables		Financial liabilities measured at amortized cost		Hedging purpose derivatives instruments		Total
Assets:
Cash and due from banks	￦	1,037,025		—		—		—		—		928,814		—		—		1,965,839
Financial assets held-for-trading		2,004		2,583,905		—		—		—		—		—		—		2,585,909
Available-for-sale financial assets		—		—		—		25,713,538		—		—		—		—		25,713,538
Held-to-maturity financial assets		—		—		—		—		110,844		—		—		—		110,844
Loans		980,745		—		—		—		—		79,434,049		—		—		80,414,794
Derivative financial assets		—		4,511,037		—		—		—		—		—		1,086,058		5,597,095
Other financial assets		—		—		—		—		—		5,165,036		—		—		5,165,036
		2,019,774		7,094,942		—		25,713,538		110,844		85,527,899		—		1,086,058		121,553,055
Liabilities:
Financial liabilities designated at FVTPL		—		—		992,136		—		—		—		—		—		992,136
Deposits		—		—		—		—		—		—		25,222,278		—		25,222,278
Borrowings		—		—		—		—		—		—		25,842,421		—		25,842,421
Bonds		—		—		—		—		—		—		47,196,659		—		47,196,659
Derivative financial liabilities		—		4,130,365		—		—		—		—		—		158,899		4,289,264
Other financial liabilities		—		—		—		—		—		—		5,719,401		—		5,719,401
	￦	—		4,130,365		992,136		—		—		—		103,980,759		158,899		109,262,159

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

44. Operating Segments

(1) Information about operating segments:

Industry	General information
Corporate finance	Loans to or deposits from corporations
Investment finance	Provides consulting services to corporate such as capital finance, restructuring, etc.
Asset management	Provides asset management services to individual and corporate customers
Others	Any other segments not mentioned above

(2) Financial information about the Bank’s operating segments (for the periods ended June 30, 2012) is as follows:

(In millions of won)	June 30, 2012
	Corporate finance			Investment finance			Asset management			Others			Total
Operating revenues, net
Interest income	￦	712,854			56,329			—			139,439			908,622
Non-interest income (loss)		146,672			308,934			18,486			(32,004	)		442,088
Income (loss) from securities		(25,700	)		500			—			59,452			34,252
		833,826			365,763			18,486			166,887			1,384,962
Selling and general administrative expenses		(162,752	)		(49,502	)		(5,942	)		(44,099	)		(262,295	)
Provision for Loan loss, etc		(187,931	)		(113,737	)		—			130			(301,538	)
Operating income	￦	483,143			202,524			12,544			122,918			821,129

The Bank disclosed operating segment information to make decisions regarding asset allocation and assess performance of each segment. The disclosed information is based on the internal report which is regularly reported to the top decision maker of the Bank. However, the operating segment information from the previous periods is not disclosed as the necessary information was unavailable.

(3) Geographical information about the Bank’s operating segments as of June 30, 2012 and December 31, 2011, and the geographical information for the six–month periods ended June 30, 2012 and 2011 are as follows:

(In millions of won)	Revenues				Non-current assets(*1)
	2012		2011		June 30, 2012		December 31, 2011
Domestic		6,805,906		7,702,509		6,408,374		4,922,619
Overseas		353,898		447,224		3,414		2,897
		7,159,804		8,149,733		6,411,788		4,925,516

(*1) Non-current assets consist of investments in subsidiaries and associates, property and equipments, investment properties, intangible assets

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

45. Risk Management

(1) Introduction

(i) Objectives and principles

The Bank’s risk management aims to maintain financial soundness and effectively manage various risks pertinent to the nature of the Bank’s business. In addition, the Bank has improved the risk management process to reflect the changes in the financial environment. The Bank has set up and fulfilled policies to manage risks timely and effectively. Pursuant to the policies, the Bank’s risks shall be

• managed comprehensively and independently.

• recognized timely, evaluated exactly and managed effectively.

• maintained to the extent that the risks balance with profit.

• diversified appropriately to avoid concentration on specific segments.

• managed to prevent from being excessively exposed by setting up and managing the tolerance limit and the guidelines

(ii) Risk management strategy and process

The Bank measures risks in a way so as to monitor and manage. The Bank’s risk management is at the level that the information generated in the risk management process is integrated and applied strategically to the Bank’s business. In the circumstance that risk management is recognized as the key function in the banking operations, the Bank reestablishes risk management from an adaptive and limited role to a leading and comprehensive role.

In addition, the Bank has focused on regular communications among the various departments to form a consensus on the strategy and process of risk management.

(iii) Risk management governance

Risk Management Committee

The Bank’s Risk Management Committee (the “Committee”) is comprised of the chief commissioner, the president of the Bank, and six commissioners including outside directors. The Committee’s function is to establish the policies of risk management, to evaluate the capital adequacy of the Bank, to discuss material issues relating to risk management, and to present its preliminary decisions on material issues to the board of directors.

The president of the Bank and the head of Risk Management Department

The president abides by risk management policies and manages and monitors whether the Bank’s risk management and internal controls are effectively operated .The head of the Risk Management Department is responsible for supervising overall administration of risk management and providing the risk-related information to members of the board of directors and the Bank’s top management.

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

Risk Management Practice Committee

The Bank’s Risk Management Practice Committee supports the head of Risk Management Department in performing review at an operational level. The Risk Management Practice Committee is divided into the each risk type (i.e. credit risk, market risk, interest rate risk, liquidity risk and operational risk). The Risk Management Practice Committee consists of the leaders of business segments.

(iv) Performance of Risk Management Committee

The Risk Management Committee performs comprehensive review of all the affairs related to risk management and deliberating the decisions of the board of directors. For the six-month period ended June 30, 2012, the key activities of the Risk Management Committee are as follows:

• Major deliberation and resolution

• Improvement on credit evaluation system for K-IFRS adopted counterparties (plan)

• Change of standards to calculate standard interest rate for retirement pension plan time deposits

• Major reporting

• Plans for complying Basel III capital regulation

• Analysis of enterprise-wide stress test and check capital adequacy

• Allocate internal capital limitation and set standards for 2012

• Analysis of equity for each bank and risk adjusted assets

• Establish and change standards to approve personal loans

(v) Improvement of risk management system

For continuous improvement of risk management, financial soundness and capital adequacy, the Bank performs the following:

• Improvement of risk management system under Basel II

• In 2008 the Korean Financial Supervisory (“FSS”) provided a guideline on the capital adequacy and, in turn, the Bank improved the internal capital adequacy assessment process for more effective capital adequacy management. Pursuant to Roll-Out Plan, the Bank plans to improve the model for Low Default Portfolio (“LDP”).

• The Bank elaborated the risk measuring criteria (including credit risk parameter and measuring logic) to enhance the practical uses of risk management system under Basel II.

• The Advanced Measurement Approach (“AMA”) was preliminarily operated for calculating the operational risk.

• Set-up of the risk management infrastructure

• The Bank completed the development of RAPM system in order to reflect risks to the Bank’s business and enhance decision-making support function. Using the RAPM, the Bank evaluates the performances of each branch from 2010.

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

• The Bank enforced the risk management related to irregular compound derivatives and as part of the enforcement, the Bank validated the derivative pricing model that the Bank’s front office had developed.

(vi) Risk management reporting and measuring system

The Bank tries consistently to measure and manage objectively and rationally all of significant risk types with reference to the characteristics of operational areas, assets, and risks. In relation to reporting and measurement, the Bank has developed the application systems which are listed as follows:

Application system	Approach	Completion date	Major function
Corporate Credit Rating System	Logit Model	Jun. 2004 Mar. 2008 Mar. 2010	Calculate corporate credit rating
Credit Risk Measurement System	Credit Risk+ Credit Metrics	Jul. 2003 Nov. 2007	Summarize exposures, manage exposure limit and calculate Credit VaR
Market Risk Management System	Risk Watch	Jun. 2002	Summarize position, manage exposure limit and calculate Market VaR
Interest/Liquidity Risk Management System	OFSA	Feb. 2006	Calculate repricing gap, duration gap, VaR and EaR
Operational Risk Management System	Standardized Approach AMA	May 2006 May 2009	Manage the process and calculate CSA, KRI, OP and VaR Calculate Op VaR

(vii) Response to Basel II

The Korean authority implemented Basel II in January 2008 and adopted the Standardize Approach and the Foundation Internal Rating-Based Approach. The Advanced Approaches were later adopted in 2009.

In conformity with the implementation roadmap of Basel II, the Bank obtained the approval to use the Foundation Internal Rating-Based Approach in the credit risk from the FSS in July 2008 and has applied the approach since June 2008. The Bank has applied Standardized Approach in the market risk and operational risk.

The Bank plans to adopt the Advanced Approaches (Credit risk: Advanced Internal Rating-Based Approach, Operational risk: Advanced Measurement Approach etc) to enhance reliability and financial soundness for the future. In preparing the adoption, the Bank also plans to improve the related systems and policies.

(viii) Internal capital adequacy assessment process

Internal capital adequacy assessment process is defined as the process that the Bank aggregates significant risks, calculates its internal capital, compares the internal capital with the available capital and assesses its internal capital adequacy.

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

• Internal capital adequacy assessment

For the purpose of the internal capital adequacy assessment, the Bank calculates its aggregated internal capital and available capital by evaluating all significant risks and taking into account the quality and components of capital and then assesses the internal capital adequacy by comparing the aggregated internal capital with the available capital.

• Goal setting in the internal capital management

The Bank sets up on an annual basis, a basic plan of risk management for the maintenance of the internal capital adequacy within the limits of available capital. The Risk Management Committee deliberates on the plan and the board of directors approves the plan. The Bank sets up the goal of the BIS capital adequacy ratio in consideration of the risk appetite, prior year’s internal capital, financial environment, operation’s direction and scale.

• Allocation of internal capital

The Bank’s entire internal capital is allocated to each headquarter and department reflecting the amount of the available risk and the business scale after the Risk Management Committee’s deliberation and the board of directors’ approval. The allocated internal capital is monitored regularly and managed using various management methods. The results of monitoring and managing the allocated internal capital are reported to the Risk Management Committee and others. In case of any material changes in the Bank’s business plan or risk operation strategy, the Bank adjusts the allocation.

• Composition of internal capital

Internal capital is composed of quantifiable and non- quantifiable risks. The quantifiable risk is composed of credit risk, market risk, interest rate risk, operational risk and credit concentration risk. The quantifiable risk is measured quantitatively by applying reasonable methodology using objective data. Non-quantifiable risk is comprised of strategy risk, reputation risk, residual risk on asset securitization and others. Non-quantifiable risks not measured quantitatively because appropriate measuring methodology and related data do not exist to rate its risk level.

(2) Credit Risk

(i) Concept

Credit risk is defined as potential losses resulting from counterparty’s default or refusal to perform obligations.

(ii) Approach to credit risk management

Summary of credit risk management

The Bank regards credit risk as the most important risk area in its business operations, and accordingly, closely monitors its credit risk exposure. The Bank manages both credit risk at portfolio level and at individual credit level. At portfolio level, the Bank reduces credit concentration and restructures the portfolio in such a way to maximize profitability considering the risk level. To avoid credit concentration on a particular sector, the Bank manages credit limits by client, group, and industry. The Bank also resets exposure management directives for each industry by conducting an industry credit evaluation twice a year.

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

At the individual credit level, relationship manager (“RM”), credit officer (“CO”) and the Credit Review Committee manage each borrower’s credit risk.

Post management and insolvent borrower management

The Bank consistently monitors the borrower’s credit rating from the date of the loan to the date of final collection of debt and inspects the borrower’s status regularly and frequently in order to prevent bad debts generated from newer accounts and to stabilize the number of debt recoveries.

In addition, the early warning system is operated timely to find out borrowers that are likely to be highly insolvent. Early warning system provides financial information, financial transaction information, public information and market information of the borrower. Using the information, the relationship officer and the credit officer consistently watch out for the changes in the borrower’s credit rating.

Under the early warning system, the borrower that is highly likely to be insolvent is classified as early warning borrower or precautionary borrower. The Bank sets up a specific and practical stabilization plan on the borrower considering the borrower’s characteristics and constantly manages whether the borrower complies with the plan. The borrower classified as substandard borrower doubtful borrower or estimated loss is managed by the Bank’s department which is exclusively responsible for insolvent borrowers. The department takes legal proceedings, disposals or corporate turnaround with the borrower.

Classification of asset soundness and allowance for bad debts provision

Classification of asset soundness is fulfilled by the analysis and assessment of credit risk. The classification is used in order to prevent further occurrence of insolvent asset and promote the normalization of existing insolvent asset and enhance the stabilization of operational asset.

Based on the Regulation on Supervision of Banking Business, the Bank established guidelines on classification of asset soundness according to Forward Looking Criteria (“FLC”) by which asset soundness is classified reflecting not only the past record of repayment but debt repayment capacity.

In conformity with the guidelines, the Bank’s assets are classified as normal, precautionary, substandard, doubtful or estimated loss by credit rating and the Bank provides allowance for bad debts for each level of classification.

Loans

The details of loans as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012			December 31, 2011
Neither past due nor impaired	￦	84,079,659			79,612,739
Past due but not impaired		288,423			240,455
Impaired		1,643,565			1,527,461
		86,011,647			81,380,655
Allowance for possible loan losses		(809,198	)		(865,254	)
Present value discount		(57,342	)		(69,946	)
Deferred loan origination costs and fees		(21,067	)		(30,661	)
Net value	￦	85,124,040			80,414,794
Ratio of allowance for loan loss to total loans		%0.94			1.06

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

Loans that are neither past due nor impaired

Loans as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Loans in Korean won								Other loans
	Loans for working capital		Loans for facility developments		Others		Loans in foreign currencies		Private placed corporate bonds		Others		Total
AAA ~ B-	￦	17,464,969		28,992,980		1,284,009		18,992,185		5,173,805		9,818,052		81,726,000
CCC		885,254		428,073		—		384,042		212,864		276,152		2,186,385
CC		70,758		35,377		—		37,417		6,000		17,722		167,274
C		—		—		—		—		—		—		—
D		—		—		—		—		—		—		—
	￦	18,420,981		29,456,430		1,284,009		19,413,644		5,392,669		10,111,926		84,079,659

(In millions of won)	December 31, 2011
	Loans in Korean won								Other loans
	Loans for working capital		Loans for facility developments		Others		Loans in foreign currencies		Private placed corporate bonds		Others		Total
AAA ~ B-	￦	16,314,373		27,584,415		905,538		19,382,101		5,049,895		8,275,214		77,511,536
CCC		781,946		344,196		—		392,834		207,126		301,083		2,027,185
CC		45,924		8,000		—		2,549		7,923		9,622		74,018
C		—		—		—		—		—		—		—
D		—		—		—		—		—		—		—
	￦	17,142,243		27,936,611		905,538		19,777,484		5,264,944		8,585,919		79,612,739

Loans that are past due but not impaired

Loans that are past due but not impaired as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Loans in Korean won								Other loans
	Loans for working capital		Loans for facility developments		Others		Loans in foreign currencies		Private placed corporate bonds		Others		Total
Within 30 days	￦	36,495		230,928		67		8,425		980		5,831		282,727
Within 30 ~ 60 days		—		3,416		—		—		700		—		4,116
Within 60 ~ 90 days		—		580		—		—		1,000		—		1,580
	￦	36,495		234,925		67		8,425		2,680		5,831		288,423

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Loans in Korean won						Other loans
	Loans for working capital		Loans for facility developments		Loans in foreign currencies		Private placed corporate bonds		Others		Total
Within 30 days	￦	68,998		54,803		21,220		41,533		14,363		200,917
Within 30 ~ 60 days		13,087		16,321		4,840		—		—		34,248
Within 60 ~ 90 days		1,988		2,863		439		—		—		5,290
	￦	84,073		73,987		26,499		41,533		14,363		240,455

Impaired loans

Impaired loans as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Loans in Korean won						Other loans
	Loans for working capital		Loans for facility developments		Loans in foreign currencies		Private placed corporate bonds		Others		Total
Impaired Loans:
Individual impairment	￦	721,099		141,834		63,021		342,941		141,702		1,410,597
Collective impairment		24,267		20,818		175,597		3,200		9,086		232,968
	￦	745,366		162,652		238,618		346,141		150,788		1,643,565
(In millions of won)	December 31, 2011
	Loans in Korean won						Other loans
	Loans for working capital		Loans for facility developments		Loans in foreign currencies		Private placed corporate bonds		Others		Total
Impaired Loans:
Individual impairment	￦	549,605		110,309		80,774		393,053		108,290		1,242,031
Collective impairment		55,210		68,503		148,475		4,500		8,742		285,430
	￦	604,815		178,812		229,249		397,553		117,032		1,527,461

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(iii) Measurement methodology of credit risk

Pursuant to Basel II, the Bank selects the measurement methodology of credit risk considering the difficulty of measurement, measurement factors, estimating methods and others. Measurement approaches are divided into Standardized Approach and Internal Rating-Based Approach.

Standardized Approach (“SA”)

In the case of the Standardized Approach, the risk weights are applied according to the credit rating assessed by External Credit Assessment Institution (“ECAI”). Risk weights in each credit rating are as follows:

Credit rating(*)	Corporate			Country			Bank			Asset securitization
AAA ~ AA-		20.00	%		0.00	%		20.00	%	20.00%
A+ ~ A-		50.00	%		20.00	%		50.00	%	50.00%
BBB+ ~ BBB-		100.00	%		50.00	%		100.00	%	100.00%
BB+ ~ BB-		100.00	%		100.00	%		100.00	%	350.00%
B+ ~ B-		150.00	%		100.00	%		100.00	%	Deducted from Equity (1,250%)
Below B-		150.00	%		150.00	%		150.00	%	”
Unrated		100.00	%		100.00	%		100.00	%	”

(*) Credit rating is referenced that of global credit rating agencies such as S&P or Moody’s

The OECD, S&P, Moody’s and Fitch are designated as foreign ECAI and Korea Investors Service Co., Ltd., NICE Investors Services Co., Ltd. and the Korea Ratings Co., Ltd. are designated as domestic ECAI.

The Bank assesses the credit rating based on the same borrower’s unsecured and senior loans. In the case where the borrower’s risk weight is higher than the unrated exposure’s risk weight (100%), the higher weight is applied. In the case where the borrower has more than one rating, the higher weight of the two lowest weights (second best criteria) is applied.

Internal Rating-Based Approach (“IRB”)

The Bank should be approved by the FSS and also should meet the requirement pre-set by the FSS to use the Internal Rating-Based Approach.

In July 2008, the Bank was approved by the FSS to use the Foundation Internal Rating-Based Approach. The Bank has calculated credit risk weighted asset using the approach since July 2008.

Measurement method of credit risk weighted asset

The Bank has calculated credit risk weighted asset of corporate exposures and asset securitization exposures using the Foundation Internal Rating-Based Approach as of June 30, 2012.

The Standardized Approach is permanently applied to country exposures, public institution exposures and bank exposures according to the interpretation of the FSS and the Standardized Approach is applied to overseas subsidiary and the Bank’s branch pursuant to the prior consultation with the FSS.

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

For the phased exposures, Standard Approach is applied to special finance, non-residents, non-banking financial institutions, and Internal Rating-Based Approach will be applied for these exposures in the future.

<Approved measurement method>
Measurement method		Exposure
	Permanent
Standardized Approach	SA (*1)	—Country, public institution and bank
	SA (*2)	—Overseas subsidiaries and branches, and other assets
Foundation Internal Rating-Based Approach		—Corporate and small and medium enterprises and asset securitization (at each credit level)
Phased Application		—Special lending, non-residence, non-bank financial institution

(*1) Pursuant to the interpretation of the FSS, the Standardized Approach is applied to the exposures of governments and banks including public institutions.

(*2) The Standardized Approach is applied in the case where the credit risk weighted assets of a specific business segment is less than 15% of the entire credit risk weighted assets with the consultation of the FSS.

The mitigated effect of credit risk reflects the related policies which considers eligible collateral and guarantees. The Bank calculates the credit risk-weighted assets using the capital adequacy ratio.

When calculating credit risk-weighted assets for derivatives, the Bank calculates exposure considering a legally enforceable right to set off the exposures.

Exposures at default by the asset type as of June 30, 2012, and December 31, 2010 are as follows:

(In millions of won)	June 30, 2012
	Exposure		Credit risk mitigation			Exposure less credit risk mitigation
Government	￦	5,295,267		—			5,295,267
Bank		8,230,840		—			8,230,840
Corporate		105,695,578		(70,441	)		105,625,137
Equity securities		8,444,794		—			8,444,794
Indirect investments		5,591,082		—			5,591,082
Asset securitization		8,427,425		—			8,427,425
Over-the-counter derivatives		8,453,634		(3,849,775	)		4,603,859
Others		19,239,297		(218,987	)		19,020,310
	￦	169,377,917		(4,139,203	)		165,238,714

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Exposure		Credit risk mitigation			Exposure less credit risk mitigation
Government	￦	8,991,805		—			8,991,805
Bank		6,631,048		—			6,631,048
Corporate		101,901,592		(71,932	)		101,829,660
Equity securities		8,801,465		—			8,801,465
Indirect investments		1,069,963		—			1,069,963
Asset securitization		9,523,677		—			9,523,677
Over-the-counter derivatives		8,782,731		(3,732,708	)		5,050,023
Others		15,550,576		(228,988	)		15,321,588
	￦	161,252,857		(4,033,628	)		157,219,229

Credit rating model

The results of credit rating are presented as grades through an assessment of the debt repayment capacity that the principal and interest of debt securities or loans are redeemed while complying with contractual redemption schedule.

Using the Bank’s internal credit rating model, the Bank classifies debtors’ credit rating into 10 grades (AAA~D). Plus sign (+) and minus sign (-) are attached to the grades (AA~B) to distinguish the difference between credits in the identical grade. As a result, the Bank’s credit rating model uses 20 grades.

The Bank’s regular credit rating process is carried out once a year and in the case of the change of debtor’s credit condition, the credit rating is frequently adjusted as necessary to retain the adequacy of credit rating.

The results of credit rating is applied to various areas such as discrimination of loan processes, loan limit, loan interest rate, post loan management standard process, credit risk measurement, and allowance for bad debts assessment.

Credit process control structure

According to the Principle of Checks and Balances the Bank has established the credit process control structure by which the credit rating system operates appropriately.

• Independent assessment of credit rating: The Bank’s business segment (RM) and credit rating assessment segment (CO) are independently operated

• Independent control of credit rating system: The control of credit rating system including the development of credit rating model is independently implemented by the Bank’s risk management department.

• Independent verification of credit rating system: Credit rating system is independently verified by the validation team of the Risk Management Department.

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

• Internal audit of credit rating process: Credit rating process is audited by the Bank’s internal audit department.

• Role of the Board of Directors and the Bank’s management: Major issues relating to credit process are approved by the Board of Directors and are regularly monitored by the Bank’s top management.

The Bank reviews debt serviceability based on a credit analysis when handling loans. Depending on the results, credit loan preservation is adjusted as necessary using such methods as interest rate preservation due to credit risk.

The Bank evaluates the value of the collateral, performing ability and legal validity of the guarantee at the initial acquisition. The Bank re-evaluates the provided collateral and guarantees regularly for them to be reasonably preserved.

For guarantees, the Bank demands a corresponding written guarantee according to loan handling standards and the guarantor’s credit rating is independently calculated when in conformance with the credit rating endowment method

(iv) Credit exposure

Geographical information as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Korea		UK		USA		Others		Total
Due from banks (excluding due from BOK)	￦	1,344,864		47,853		206,385		760,044		2,359,146
Available-for-sale financial assets:
Bonds (excluding government bonds)		13,130,922		669,131		496,489		427,284		14,723,825
Held-to-maturity financial assets:
Bonds (excluding government bonds)		88,642		—		—		—		88,642
Loans		111,914,409		392,780		1,008,343		5,523,827		118,839,359
Derivative financial assets		1,033,219		3		—		—		1,033,222
Other assets		6,727,354		52,243		27,870		308,644		7,116,110
		134,239,410		1,162,010		1,739,087		7,019,799		144,160,304
Financial guarantees		55,647,265		—		35,571		612,277		56,295,113
Credit related commitment (Commitments on loans and others)		9,553,743		—		—		246,774		9,800,516
		65,201,008		—		35,571		859,051		66,095,629
	￦	199,440,417		1,162,009		1,774,657		7,878,850		210,255,933

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Korea		UK		USA		Others		Total
Due from banks (excluding due from BOK)	￦	889,201		2,461		76,257		643,890		1,611,809
Available-for-sale financial assets:
Bonds (excluding government bonds)		12,641,549		577,363		515,677		683,970		14,418,559
Held-to-maturity financial assets:
Bonds (excluding government bonds)		101,042		—		—		—		101,042
Loans		101,949,752		474,693		976,797		5,010,702		108,411,944
Derivative financial assets		1,086,059		—		—		—		1,086,059
Other assets		5,199,933		2,153		2,523		11,088		5,215,697
		121,867,536		1,056,670		1,571,254		6,349,650		130,845,110
Financial guarantees		57,369,531		—		32,858		624,239		58,026,628
Credit related commitment (Commitments on loans and others)		11,210,285		—		—		258,774		11,469,059
		68,579,816		—		32,858		883,013		69,495,687
	￦	190,447,352		1,056,670		1,604,112		7,232,663		200,340,797

Industry information as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Loans for corporate
	Manufacturing		Service		Others		Total
Due from banks (excluding due from BOK)	￦	—		1,096,405		1,262,741		2,359,146
Available-for-sale financial assets:
Bonds (excluding government bonds)		3,443,897		9,358,755		1,921,172		14,723,824
Held-to-maturity financial assets:
Bonds (excluding government bonds)		20,000		68,642		—		88,642
Loans		62,346,158		47,286,454		9,206,747		118,839,359
Derivative financial assets		—		1,025,525		7,697		1,033,222
Other assets		1,381		36,908		7,077,821		7,116,110
		65,811,436		58,872,689		19,476,178		144,160,303
Financial guarantees		44,020,371		4,183,740		8,091,002		56,295,113
Credit related commitment (Commitments on loans and others)		8,152		9,130,407		661,958		9,800,516
		44,028,523		13,314,147		8,752,960		66,095,630
	￦	109,839,959		72,186,837		28,229,137		210,255,933

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Loans for corporate
	Manufacturing		Service		Others		Total
Due from banks (excluding due from BOK)	￦	—		938,101		673,708		1,611,809
Available-for-sale financial assets:
Bonds (excluding government bonds)		3,413,690		9,141,481		1,863,388		14,418,559
Held-to-maturity financial assets:
Bonds (excluding government bonds)		20,000		81,042		—		101,042
Loans		57,726,181		42,390,399		8,295,364		108,411,944
Derivative financial assets		—		1,068,956		17,103		1,086,059
Other assets		1,394		36,853		5,177,450		5,215,697
		61,161,265		53,656,832		16,027,013		130,845,110
Financial guarantees		45,368,426		4,444,192		8,214,010		58,026,628
Credit related commitment (Commitments on loans and others)		8,299		10,782,247		678,513		11,469,059
		45,376,725		15,226,439		8,892,523		69,495,687
	￦	106,537,990		68,883,271		24,919,536		200,340,797

Rating information as of June 30, 2012, and December 31, 2010 are as follows:

(In millions of won)	June 30, 2012
	Due from banks		Available-for-sale financial assets		Held-to-maturity financial assets		Total
AAA ~ AA-	￦	521,813		2,928,006		8,200		3,458,019
A+ ~ A-		497,288		1,111,985		—		1,609,273
BBB+ ~ BB-		—		5,113,726		20,000		5,133,726
Less BB-		—		586,240		—		586,240
Unrated		1,340,045		4,983,868		60,442		6,384,355
	￦	2,359,146		14,723,825		88,642		17,171,613
(In millions of won)	December 31, 2011
	Due from banks		Available-for-sale financial assets		Held-to-maturity financial assets		Total
AAA ~ AA-	￦	434,807		2,482,470		20,600		2,937,877
A+ ~ A-		380,589		1,264,568		—		1,645,157
BBB+ ~ BB-		—		5,134,763		20,000		5,154,763
Less BB-		—		456,549		—		456,549
Unrated		796,413		5,080,209		60,442		5,937,064
	￦	1,611,809		14,418,559		101,042		16,131,410

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(3) Capital management activities

(i) Capital adequacy

The FSS approved the Bank’s use of the Foundation Internal Rating-Based Approach in July 2008. The Company has been using the same approach when calculating credit risk weighted assets since the end of June, 2008. The equity capital ratio and equity capital according to the standards of the Bank for International Settlements are calculated for the purpose of such disclosure. The equity capital ratio and equity capital are calculated on a consolidated basis.

BIS capital adequacy ratio

(In millions of won)	June 30, 2012		December 31, 2011
Equity capital based on BIS (A):
Tier 1 capital	￦	15,491,349		15,223,839
Tier 2 capital		1,038,211		1,099,606
		16,529,560		16,323,445
Risk-weighted assets (B):
Credit risk-weighted assets		106,826,157		101,028,212
Market risk-weighted assets		1,745,018		1,698,215
Operational risk-weighted assets		4,715,292		4,277,871
	￦	113,286,467		107,004,298
BIS capital adequacy ratio (A/B):	%	14.59		15.25
Tier 1 capital ratio		13.67		14.22
Tier 2 capital ratio		0.92		1.03

Equity capital based on BIS

(In millions of won)	June 30, 2012			December 31, 2011
Equity capital (A+B)	￦	16,529,560			16,323,445
Tier 1 capital (A) :
Capital stock		9,251,861			9,251,861
Capital surplus		47,209			44,178
Retained earnings		8,217,419			7,940,829
Non-controlling interest		27,238			25,227
Deductions		(2,052,378	)		(2,038,256	)
	￦	15,491,349			15,223,839
Tier 2 capital (B) :
45% of unrealized gain on financial assets available-for-sale	￦	262,847			241,674
Term subordinated liabilities		474,106			499,660
Others		816,109			861,326
Deductions		(514,851	)		(503,054	)
	￦	1,038,211			1,099,606

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Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(4) Market risk

(i) Concept

Market risk is defined as the possibility of potential loss on a trading position resulting from fluctuations in interest rates, foreign exchange rates and the price of stocks and derivatives. Trading position is exposed to the risk, such as interest rates, equity prices, and foreign exchange rates, etc. And non-trading position is mostly exposed to interest rates. Accordingly, the Bank classifies market risk into either trading or non-trading position.

(ii) Market risk management of trading positions

Measurement method on market risk arising from trading position

Trading position includes securities, foreign exchange position, and derivatives which are traded for short-term profits. Market risk is managed using VaR limit and loss limit. VaR limit is calculated in the view of entire bank and the calculated VaR limit is distributed into each department and each type (price of a stock, interest rates, foreign exchange rates and option). The trading department regulates and operates terms of stop loss and investment limits.

Using the Standardized Approach and internal model of VaR, the Bank’s VaR is measured daily and the measured VaR is used at risk monitoring and limit management. In the estimation of VaR, the historical simulation and two other supplemental procedures are used: variance-covariance matrix and Monte Carlo simulation. Through the stress test and back test, the estimation of VaR is validated daily.

In estimating of market risk, the Standardized Approach and the internal model are used. The Standardized Approach is used in order to calculate the required capital from market risk and the internal model is used in order to manage risks internally.

Since July 2007 the Bank has measured one-day 99% VaR through the historical simulation method using the time series data of past 250 days under 99% confidence level. The calculated VaR is monitored on a daily basis.

In the implementation of the stress test, the Bank applied three scenarios based on the fluctuation of market index occurred at the time of the historical event that resulted in the significant shock. The stress test is implemented by the system daily in order to provide for crisis occurrence. Furthermore, the Bank is conducting a contingency plan for market risk management. The plan distinguishes the crisis condition into three stages—precautious stage, precrisis stage and crisis stage—through the measurement of the market volatility.

For the validation of the market risk measurement methodology, the Bank daily implements the back testing that compares the simulated loss, the actual loss and the previous day’s VaR. In addition, the Bank enforces the market risk management relating to irregular compound derivatives through the validation of the derivative pricing model developed by the Bank’s Front Office.

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Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

VaR of trading position

The Bank’s trading VaRs as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	Six-month period ended June 30, 2012
	Average		Max		Min		June 30, 2012
Interest rates	￦	3,228		4,112		2,364		4,112
Price of a stock		1,127		3,219		53		565
Foreign exchange rates		623		4,789		171		332
Others		196		927		40		209
	￦	3,332		6,169		2,154		4,052
(In millions of won)	Year ended December 31, 2011
	Average		Max		Min		December 31, 2011
Interest rates	￦	4,212		5,481		2,446		2,453
Price of a stock		711		1,425		44		229
Foreign exchange rates		1,041		3,435		459		1,047
Others		152		222		79		149
	￦	4,279		6,067		2,774		2,778

(iii) Market risk management of non-trading positions

Measurement method on market risk arising from non-trading position

The most critical market risk that arises in non-trading position is the interest rate risk. Interest rate risk is defined as the likely loss resulting from the unfavorable fluctuation of interest rate in the Bank’s financial condition and is measured by interest rate VaR and interest rate EaR.

Interest rate VaR is the maximum amount of a decrease in net asset value resulting from the unfavorable fluctuation of interest rate. Interest rate EaR is the maximum amount of decrease in net interest income resulting from the unfavorable fluctuation of interest rate for a year.

The Bank’s interest rate VaR and interest rate EaR are measured through the simulation of conclusive interest rate scenario with the Oracle Financial Services Application (OFSA) and are reported on a monthly basis to the Risk Management Committee. The Management’s target of interest rate VaR and interest rate EaR are approved at the beginning of the year. Additionally, the interest rate VaR and interest rate EaR on a consolidated basis are calculated using the Standardized Approach in order to retain the consistency in the methods used by the Bank and its subsidiaries.

S-98

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

EaR/VaR of non-trading positions

(In millions of won)
June 30, 2012
Interest rate shock	Interest rate VaR	Interest rate EaR
2.00%	￦ 320,745	86,830
(In millions of won)
December 31, 2011
Interest rate shock	Interest rate VaR	Interest rate EaR
2.00%	￦ 335,134	35,716

(4) Foreign currency risk

Outstanding balances by currency with significant exposure as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	KRW		USD		EUR			JPY			GBP		Others			Total
Assets:
Cash and due from banks	￦	873,857		2,180,841		11,866			24,897			1,452		54,930			3,147,843
Financial assets held-for-trading		1,872,453		19,534		2,852			—			—		11,973			1,906,812
Available-for-sale financial assets		23,284,017		3,652,793		123,546			489,364			—		81,283			27,631,003
Held-to-maturity financial assets		96,408		—		—			—			—		—			96,408
Loans		55,845,063		24,574,348		710,131			3,701,351			30,869		262,278			85,124,040
Derivative financial assets		3,361,162		1,705,354		92,708			21,748			—		—			5,180,972
Other assets		4,572,868		2,271,687		156,838			70,589			1		9,671			7,081,654
Total financial assets		89,905,828		34,404,557		1,097,941			4,307,949			32,322		420,135			130,168,732
Liabilities:
Financial liabilities designated at FVTPL		851,421		—		—			—			—		—			851,421
Deposits		28,403,716		4,142,555		382,778			186,378			81		1,297			33,116,805
Borrowings		9,502,611		11,600,478		1,131,187			2,454,774			16,237		73,965			24,779,252
Bonds		28,052,344		12,239,308		465,313			2,598,985			—		3,729,411			47,085,361
Derivative financial liabilities		2,279,703		1,504,544		60,308			23,504			—		—			3,868,059
Other liabilities		4,952,680		2,892,279		218,265			28,115			12		52,091			8,143,442
Total financial liabilities		74,042,475		32,379,164		2,257,851			5,291,756			16,330		3,856,764			117,844,340
Net financial position	￦	15,863,353		2,025,393		(1,159,910	)		(983,807	)		15,992		(3,436,629	)		12,324,392

S-99

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	KRW		USD		EUR			JPY			GBP			Others			Total
Assets:
Cash and due from banks	￦	434,435		1,412,497		21,472			77,852			637			18,946			1,965,839
Financial assets held-for-trading		2,522,596		13,833		—			—			—			49,480			2,585,909
Available-for-sale financial assets		21,407,540		3,562,252		124,786			607,418			—			11,542			25,713,538
Held-to-maturity financial assets		110,844		—		—			—			—			—			110,844
Loans		51,906,283		23,644,888		797,519			3,755,546			10,361			300,197			80,414,794
Derivative financial assets		3,845,709		1,656,099		70,089			25,198			—			—			5,597,095
Other assets		3,803,988		1,093,065		136,255			121,393			—			10,334			5,165,035
Total financial assets		84,031,395		31,382,634		1,150,121			4,587,407			10,998			390,499			121,553,054
Liabilities:
Financial liabilities designated at FVTPL		992,136		—		—			—			—			—			992,136
Deposits		22,900,082		2,110,120		29,923			181,379			105			669			25,222,278
Borrowings		10,206,101		11,959,394		1,311,337			2,277,223			21,505			66,861			25,842,421
Bonds		29,697,123		11,610,221		390,225			3,122,391			—			2,376,699			47,196,659
Derivative financial liabilities		2,698,898		1,511,465		51,026			27,875			—			—			4,289,264
Other liabilities		4,119,943		1,450,557		66,719			44,311			20			37,851			5,719,401
Total financial liabilities		70,614,283		28,641,757		1,849,230			5,653,179			21,630			2,482,080			109,262,159
Net financial position	￦	13,417,112		2,740,877		(699,109	)		(1,065,772	)		(10,632	)		(2,091,581	)		12,290,895

(5) Liquidity risk management

(i) Concept

Liquidity risk is defined as the possibility of potential loss due to a temporary shortage in funds caused by a maturity mismatch or an unexpected capital outlay. Liquidity risk soars when funding rates rise, assets are sold below a normal price, or a good investment opportunity is missed.

(ii) Approach to liquidity risk management

Since the methodology to quantifiably measure liquidity risk does not formally exist, the Bank manages its liquidity risks as follows:

Allowable limit for liquidity risk

• The allowable limit for liquidity risk sets liquidity ratio and remaining maturity gap

• The management standards with regards to the allowable limit for liquidity risk should be set using separate and stringent set ratios in accordance with the FSS guidelines.

<Measurement Methodology>

• Liquidity ratio : (Maturing liquidity asset in the interval / Maturing liquidity liability in the interval) X 100

• Remaining maturity gap : (Maturing liquidity asset in the interval—Maturing liquidity liability in the interval) / total assets X 100

S-100

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

Early Warning Indicator

In order to identify prematurely and cope with worsening liquidity risk trends, the Bank has set up 13 indexes such as the “Foreign Exchange Stabilization Bond CDS Premium,” and measures the trend monthly, weekly and daily as a means for establishing the allowable liquidity risk limit complementary measures.

Stress-Test analysis and contingency plan

The Bank evaluates the effects on the liquidity risk and identifies the inherent flaws. In the case where an unpredictable and significant liquidity crisis occurs, the Bank executes risk situation analysis quarterly based on crises specific to the Bank, market risk, and complex emergency, and reports to the Risk Management Committee for the purpose of the Bank’s solvency securitization.

(iii) Remaining maturity gap

Liquidity risks of non-derivative financial instruments as of June 30, 2012, and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Within 1 month		1~3 months			3~12 months		1~5 years		Over 5 years		Total
Assets:
Cash and due from banks	￦	2,318,821		163,222	��		422,394		193,344		189		3,097,970
Financial assets held-for-trading		1,910,831		175			174		11,439		—		1,922,619
Available-for-sale financial assets		471,786		2,306,602			8,476,166		14,249,202		4,261,872		29,765,628
Held-to-maturity financial assets		—		—			48,678		54,051		3,153		105,882
Loans		8,749,631		8,759,091			29,258,164		39,123,607		7,658,733		93,549,226
Other assets		6,124,960		152			3,229		24,874		1,067,562		7,220,777
Total financial asset		19,576,029		11,229,242			38,208,805		53,656,517		12,991,509		135,662,102
Liabilities:
Financial liabilities designated at FVTPL		1,790		4,779			7,403		288,243		1,141,533		1,443,748
Deposits		11,679,940		5,094,503			17,204,699		419,768		1,340		34,400,250
Borrowings		5,950,883		6,431,804			5,758,864		5,737,888		1,628,493		25,507,932
Bonds		991,816		2,821,954			15,563,297		27,799,835		6,215,099		53,392,001
Other liabilities		6,304,554		172			8,046		55,767		2,577,869		8,946,408
Total financial liabilities	￦	24,928,983		14,353,212			38,542,309		34,301,501		11,564,334		123,690,339

S-101

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

(In millions of won)	December 31, 2011
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Assets:
Cash and due from banks	￦	1,368,111		162,630		304,829		143,063		444		1,979,077
Financial assets held-for-trading		2,596,516		—		—		—		—		2,596,516
Available-for-sale financial assets		280,781		2,974,195		4,744,571		14,809,868		5,468,678		28,278,093
Held-to-maturity financial assets		—		8		3,550		117,340		4,151		125,049
Loans		6,225,212		11,155,240		27,316,716		36,205,137		7,342,165		88,244,470
Derivative financial assets		4,313,779		2		984		24,051		826,261		5,165,077
Other assets		14,784,399		14,292,075		32,370,650		51,299,459		13,641,699		126,388,282
Total financial asset		1,368,111		162,630		304,829		143,063		444		1,979,077
Liabilities:
Financial liabilities designated at FVTPL		—		5,334		17,485		237,553		1,385,133		1,645,505
Deposits		9,463,398		4,666,740		11,629,859		466,763		21,744		26,248,504
Borrowings		6,587,504		5,381,194		7,335,323		5,675,362		1,695,842		26,675,225
Bonds Derivative financial liabilities		1,397,216		2,466,576		15,660,149		27,777,238		6,875,621		54,176,800
Other liabilities		4,047,380		307		5,812		52,683		1,614,808		5,720,990
Total financial liabilities	￦	21,495,498		12,520,151		34,648,628		34,209,599		11,593,148		114,467,024

Liquidity risks of derivative financial instruments as of June 3, 2012 and December 31, 2011 are as follows:

Net settlement of derivative instruments

(In millions of won)	June 30, 2012
	Within 1 month			1~3 months			3~12 months			1~5 years			Over 5 years			Total
Trading purpose derivatives:
Currency	￦	(36,208	)		(28,120	)		4,660			(3,739	)		—			(63,407	)
Interest		(14,663	)		(7,038	)		(118,840	)		48,076			1,603,074			1,510,609
Stock		(279	)		(37,703	)		88,369			(10,108	)		—			40,279
Hedging purpose derivatives:
Interest		—			596,240			(11,730	)		(832,098	)		(84,301	)		(331,889	)
	￦	(51,150	)		523,379			(37,541	)		(797,869	)		1,518,773			1,155,592
(In millions of won)	December 31, 2011
	Within 1 month			1~3 months			3~12 months			1~5 years			Over 5 years			Total
Trading purpose derivatives:
Currency	￦	(195,738	)		3,244			18,896			(439	)		—			(174,037	)
Interest		34			167,899			115,302			(187,709	)		1,373,886			1,469,412
Stock		—			197,410			(14,997	)		(14,996	)		—			167,417
Hedging purpose derivatives:
Interest		(6,931	)		676,248			(64,955	)		(696,989	)		(36,640	)		(129,267	)
	￦	(202,635	)		1,044,801			54,246			(900,133	)		1,337,246			1,333,525

S-102

Korea Development Bank

Notes to the Separate Interim Financial Statements—(Continued)

June 30, 2012

(Unaudited)

Gross settlement of derivative instruments

(In millions of won)	June 30, 2012
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Trading purpose derivatives:
Currency
Outflow	￦	5,469,272		13,400,213		16,231,540		9,689,077		710,548		45,500,650
Inflow		5,458,373		13,394,385		16,093,508		9,587,129		666,222		45,199,617
(In millions of won)	December 31, 2011
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Trading purpose derivatives:
Currency
Outflow	￦	706,054		12,599,706		18,701,998		8,977,907		624,597		41,610,262
Inflow		723,417		12,576,310		18,619,201		8,849,180		580,715		41,348,823

Liquidity risks of guarantees and commitments as of June 30, 2012 and December 31, 2011 are as follows:

(In millions of won)	June 30, 2012
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Off-Balance:
Guarantees	￦	1,078,739		843,958		4,108,689		4,298,762		6,433,283		16,763,431
Commitments		807,231		393,127		1,880,765		5,701,565		416,050		9,198,738
	￦	1,885,970		1,237,085		5,989,454		10,000,327		6,849,333		25,962,169
(In millions of won)	December 31, 2011
	Within 1 month		1~3 months		3~12 months		1~5 years		Over 5 years		Total
Off-Balance:
Guarantees	￦	1,234,814		1,967,233		4,502,154		4,637,328		8,076,205		20,417,734
Commitments		666,265		2,076,055		2,031,363		5,887,020		488,253		11,148,956
	￦	1,901,079		4,043,288		6,533,517		10,524,348		8,564,458		31,566,690

S-103

THE REPUBLIC OF KOREA

The Economy

Gross Domestic Product

Based on preliminary data, GDP growth in the first half of 2012 was 2.5% at chained 2005 year prices, as aggregate private and general government consumption expenditures increased by 2.0%, exports of goods and services increased by 3.9% and gross domestic fixed capital formation increased by 0.8%, each compared with the corresponding period of 2011.

Prices, Wages and Employment

The inflation rate was 3.0% in the first quarter of 2012 and 2.4% in the second quarter of 2012, each compared to the corresponding period of 2011. The unemployment rate was 3.8% in the first quarter of 2012 and 3.3% in the second quarter of 2012.

The Financial System

Securities Markets

The Korea Composite Stock Price Index was 1,854.0 on June 29, 2012, 1,882.0 on July 31, 2012, 1,905.1 on August 31, 2012 and 2,007.6 on September 14, 2012.

Monetary Policy

Foreign Exchange

The market average exchange rate between the Won and the U.S. Dollar (in Won per one U.S. Dollar) as announced by the Seoul Money Brokerage Service Ltd. was Won 1,153.8 to US$1.00 on June 29, 2012, Won 1,136.2 to US$1.00 on July 31, 2012, Won 1,134.6 to US$1.00 on August 31, 2012 and Won 1,127.8 to US$1.00 on September 14, 2012.

Balance of Payments and Foreign Trade

Balance of Payments

Based on preliminary data, the Republic recorded a current account surplus of approximately US$13.7 billion in the first half of 2012. The current account surplus in the first half of 2012 increased from the current account surplus of US$8.1 billion in the corresponding period of 2011, primarily due to (i) a surplus of US$1.7 billion from the service account in the first half of 2012 compared to a deficit of US$3.3 billion in the corresponding period of 2011 and (ii) a surplus of US$2.3 billion from the income account in the first half of 2012 compared to a deficit of US$0.4 billion in the corresponding period of 2011, which more than offset a decrease in surplus from the goods account to US$11.1 billion in the first half of 2012 from US$13.5 billion in the corresponding period of 2011.

Trade Balance

Based on preliminary data, the Republic recorded a trade surplus of US$10.6 billion in the first half of 2012. Exports increased by 0.6% to US$275.2 billion and imports increased by 2.4% to US$264.6 billion from US$273.6 billion of exports and US$258.3 billion of imports, respectively, in the corresponding period of 2011.

Foreign Currency Reserves

The amount of the Government’s foreign currency reserves was US$316.9 billion as of August 31, 2012.

S-104

DESCRIPTION OF THE NOTES

The following is a description of some of the terms of the Noteswe are offering. Since it is only a summary,we urge you to read thefiscal agency agreement described below and the form of global note before deciding whether to invest in the Notes.We have filed a copy of these documents with the United States Securities and Exchange Commissionas exhibits to the registration statement no.333-170866.

The general terms of our Notes are described in the accompanying prospectus. The description in this prospectus supplement further adds to that description or, to the extent inconsistent with that description, replaces it.

Governed by Fiscal Agency Agreement

We will issue the Notes, which, together with the previously-issued notes, will constitute a single series, under the fiscal agency agreement, dated as of September 20, 2010, between us and Citibank, N.A., as fiscal agent (the “Fiscal Agent”). The Fiscal Agent will maintain a register for the Notes.

Payment of Principal and Interest

The Notes will mature on August 7, 2017 (the “Maturity Date”). The Notes will bear interest at the rate of 2.25% per annum, payable semi-annually in arrears on February 7 and August 7 of each year (each, an “Interest Payment Date”), beginning on February 7, 2013. Interest on the Notes will accrue from August 7, 2012. If any Interest Payment Date or the Maturity Date shall be a day on which banking institutions in The City of New York or Seoul are authorized or obligated by law to close, then such payment will not be made on such date but will be made on the next succeeding day which is not a day on which banking institutions in The City of New York or Seoul are authorized or obligated by law to close, with the same force and effect as if made on the date for such payment, and no interest shall be payable in respect of any such delay. We will pay interest to the person who is registered as the owner of a Note at the close of business on the fifteenth day (whether or not a business day) preceding such Interest Payment Date. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. We will make principal and interest payments on the Notes in immediately available funds in U.S. dollars.

Denomination

The Notes will be issued in minimum denominations of US$200,000 principal amount and integral multiples of US$1,000 in excess thereof.

Redemption at Maturity

Unless previously redeemed for tax reasons as provided in the accompanying prospectus, we may not redeem the Notes prior to maturity. At maturity, we will redeem the Notes at par.

No Redemption for Tax Reasons

The “Redemption for Tax Reasons” described in “Description of the Securities—Description of the Debt Securities—Redemption for Tax Reasons” of the accompanying prospectus does not apply to the Notes. All paragraphs under the heading “Redemption for Tax Reasons” on pages 166 and 167 of the accompanying prospectus shall be deleted. Accordingly, we will not have an option to redeem the Notes for tax reasons.

Form and Registration

The Notes will be issued in the form of one or more fully registered global notes, registered in the name of a nominee of and deposited with the custodian for DTC. DTC, or its nominee, will therefore be considered the sole owner or holder of the Notes represented by each global note for all purposes under the Note and the fiscal agency agreement. Except as specified below, beneficial owners:

• will not be entitled to have any of the Notes represented by the global note registered in their names;

S-105

• will not receive physical delivery of any Notes in definitive form;

• will not be considered the owners or holders of the Notes;

• must rely on the procedures of DTC and, if applicable, any participants (institutions that have accounts with DTC or its nominee, such as securities brokers and dealers) to exercise any rights of a holder; and

• will receive payments of principal and interest from DTC or its participants rather than directly from us.

We understand that, under existing industry practice, DTC and its participants will allow beneficial owners to take all actions required of, and exercise all rights granted to, the registered holders of the Notes. Financial institutions, acting as direct and indirect participants in DTC, will represent your beneficial interests in the global notes. These financial institutions will record the ownership and transfer of your beneficial interest through book-entry accounts. You may hold your beneficial interests in the Notes through Euroclear or Clearstream if you are a participant in such systems, or indirectly through organizations that are participants in such systems. Any secondary market trading of book-entry interests in the Notes will take place through DTC participants, including Euroclear and Clearstream. See “Clearance and Settlement—Transfers Within and Between DTC, Euroclear and Clearstream”.

We will register the Notes in the name of a person other than DTC or its nominee only if:

• DTC is unwilling or unable to continue as depositary; or

• we determine, in our sole discretion, not to have the Notes represented by a global note.

In either such instance, an owner of a beneficial interest in a global note will be entitled to registration of a principal amount of Notes equal to its beneficial interest in its name and to physical delivery of the Notes in definitive form.

Only participants, and persons that may hold beneficial interests through participants, can own a beneficial interest in the global note. DTC keeps records of the ownership and transfer of beneficial interests in the global note by its participants. In turn, participants keep records of the ownership and transfer of beneficial interests in the global note by other persons (such as their customers). No other records of the ownership and transfer of beneficial interests in the global security will be kept.

All payments on a global note will be made to DTC or its nominee. When DTC receives payment of principal or interest on the global note, we expect DTC to credit its participants’ accounts with amounts that correspond to their respective beneficial interests in the global note. We also expect that, after the participants’ accounts are credited, the participants will credit the accounts of the owners of beneficial interests in the global note with amounts that correspond to the owners’ respective beneficial interests in the global note.

DTC and its participants establish policies and procedures governing payments, transfers, exchanges and other important matters that affect owners of beneficial interests in a global note. DTC and its participants may change these policies and procedures from time to time. We have no responsibility or liability for the records of ownership of beneficial interests in the global note, or for payments made or not made to owners of such beneficial interests. We also have no responsibility or liability for any aspect of the relationship between DTC and its participants or for any aspect of the relationship between participants and owners of beneficial interests in the global note.

The Fiscal Agent will not charge you any fees for the Notes, other than reasonable fees for the replacement of lost, stolen, mutilated or destroyed Notes. However, you may incur fees for the maintenance and operation of the book-entry accounts with the clearing systems in which your beneficial interests are held.

S-106

Paying Agent; Transfer Agent; Registrar

The Fiscal Agent will serve as the initial paying agent, transfer agent and registrar.

For so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, we will appoint and maintain a paying and transfer agent in Singapore, where the certificates representing the Notes may be presented or surrendered for payment or redemption (if required), in the event that we issue the Notes in definitive form in the limited circumstances set forth above. In addition, an announcement of such issue will be made through the SGX-ST. Such announcement will include all material information with respect to the delivery of the definitive Notes, including details of the paying and transfer agent in Singapore.

Notices

All notices or communications to a registered holder of the Notes shall be sufficient if given in writing in the English language and delivered by depositing such notice or communication by first class mail (air mail in the case of holders whose addresses appearing in the register are in a country other than the United States of America), postage prepaid, addressed to such registered holder at its address as it then appears in the register. All notices regarding the Notes will be published in London in theFinancial Times and in New York inThe Wall Street Journal (U.S. Edition). If we cannot, for any reason, publish notice in any of those newspapers, we will choose an appropriate alternate English language newspaper of general circulation in London or New York, respectively, and notice in that newspaper will be considered valid notice. Notice will be considered made on the first date of its publication.

S-107

CLEARANCE AND SETTLEMENT

DTC, Euroclear and Clearstream are under no obligation to perform or continue to perform the procedures described below, and they may modify or discontinue them at any time. Neither we nor the registrar will be responsible for DTC’s, Euroclear’s or Clearstream’s performance of their obligations under their rules and procedures. Nor will we or the registrar be responsible for the performance by direct or indirect participants of their obligations under their rules and procedures.

Introduction

The Depository Trust Company

DTC is:

• a limited-purpose trust company organized under the New York Banking Law;

• a “banking organization” under the New York Banking Law;

• a member of the Federal Reserve System;

• a “clearing corporation” under the New York Uniform Commercial Code; and

• a “clearing agency” registered under Section 17A of the Securities Exchange Act of 1934.

DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between its participants. It does this through electronic book-entry changes in the accounts of its direct participants, eliminating the need for physical movement of securities certificates. DTC is owned by a number of its direct participants and by the New York Stock Exchange Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers Inc.

Euroclear and Clearstream

Like DTC, Euroclear and Clearstream hold securities for their participants and facilitate the clearance and settlement of securities transactions between their participants through electronic book-entry changes in their accounts. Euroclear and Clearstream provide various services to their participants, including the safekeeping, administration, clearance and settlement and lending and borrowing of internationally traded securities. Participants in Euroclear and Clearstream are financial institutions such as underwriters, securities brokers and dealers, banks and trust companies. Some of the underwriters participating in this offering are participants in Euroclear or Clearstream. Other banks, brokers, dealers and trust companies have indirect access to Euroclear or Clearstream by clearing through or maintaining a custodial relationship with a Euroclear or Clearstream participant.

Ownership of the Notes through DTC, Euroclear and Clearstream

We will issue the Notes in the form of one or more fully registered global notes, registered in the name of a nominee of DTC. Financial institutions, acting as direct and indirect participants in DTC, will represent your beneficial interests in the Notes. These financial institutions will record the ownership and transfer of your beneficial interests through book-entry accounts. You may also hold your beneficial interests in the Notes through Euroclear or Clearstream, if you are a participant in such systems, or indirectly through organizations that are participants in such systems. Euroclear and Clearstream will hold their participants’ beneficial interests in the global notes in their customers’ securities accounts with their depositaries. These depositaries of Euroclear and Clearstream in turn will hold such interests in their customers’ securities accounts with DTC.

We and the fiscal agent generally will treat the registered holder of the Notes, initially Cede & Co., as the absolute owner of the Notes for all purposes. Once we and the fiscal agent make payments to the registered

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holder, we and the fiscal agent will no longer be liable on the Notes for the amounts so paid. Accordingly, if you own a beneficial interest in the global notes, you must rely on the procedures of the institutions through which you hold your interests in the Notes, including DTC, Euroclear, Clearstream and their respective participants, to exercise any of the rights granted to holders of the Notes. Under existing industry practice, if you desire to take any action that Cede & Co., as the holder of the global notes, is entitled to take, then Cede & Co. would authorize the DTC participant through which you own your beneficial interest to take such action. The participant would then either authorize you to take the action or act for you on your instructions.

DTC may grant proxies or authorize its participants, or persons holding beneficial interests in the Notes through such participants, to exercise any rights of a holder or take any actions that a holder is entitled to take under the fiscal agency agreement or the Notes. Euroclear’s or Clearstream’s ability to take actions as holder under the Notes or the fiscal agency agreement will be limited by the ability of their respective depositaries to carry out such actions for them through DTC. Euroclear and Clearstream will take such actions only in accordance with their respective rules and procedures.

Transfers Within and Between DTC, Euroclear and Clearstream

Trading Between DTC Purchasers and Sellers

DTC participants will transfer interests in the Notes among themselves in the ordinary way according to DTC rules. Participants will pay for such transfers by wire transfer. The laws of some states require certain purchasers of securities to take physical delivery of the securities in definitive form. These laws may impair your ability to transfer beneficial interests in the global notes to such purchasers. DTC can act only on behalf of its direct participants, who in turn act on behalf of indirect participants and certain banks. Thus, your ability to pledge a beneficial interest in the global notes to persons that do not participate in the DTC system, and to take other actions, may be limited because you will not possess a physical certificate that represents your interest.

Trading Between Euroclear and/or Clearstream Participants

Participants in Euroclear and Clearstream will transfer interests in the Notes among themselves according to the rules and operating procedures of Euroclear and Clearstream.

Trading Between a DTC Seller and a Euroclear or Clearstream Purchaser

When the Notes are to be transferred from the account of a DTC participant to the account of a Euroclear or Clearstream participant, the purchaser must first send instructions to Euroclear or Clearstream through a participant at least one business day prior to the settlement date. Euroclear or Clearstream will then instruct its depositary to receive the Notes and make payment for them. On the settlement date, the depositary will make payment to the DTC participant’s account, and the Notes will be credited to the depositary’s account. After settlement has been completed, DTC will credit the Notes to Euroclear or Clearstream, Euroclear or Clearstream will credit the Notes, in accordance with its usual procedures, to the participant’s account, and the participant will then credit the purchaser’s account. These securities credits will appear the next day (European time) after the settlement date. The cash debit from the account of Euroclear or Clearstream will be back-valued to the value date, which will be the preceding day if settlement occurs in New York. If settlement is not completed on the intended value date (i.e., the trade fails), the cash debit will instead be valued at the actual settlement date.

Participants in Euroclear and Clearstream will need to make funds available to Euroclear or Clearstream to pay for the Notes by wire transfer on the value date. The most direct way of doing this is to pre-position funds (i.e., have funds in place at Euroclear or Clearstream before the value date), either from cash on hand or existing lines of credit. Under this approach, however, participants may take on credit exposure to Euroclear and Clearstream until the Notes are credited to their accounts one day later.

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As an alternative, if Euroclear or Clearstream has extended a line of credit to a participant, the participant may decide not to pre-position funds, but to allow Euroclear or Clearstream to draw on the line of credit to finance settlement for the Notes. Under this procedure, Euroclear or Clearstream would charge the participant overdraft charges for one day, assuming that the overdraft would be cleared when the Notes were credited to the participant’s account. However, interest on the Notes would accrue from the value date. Therefore, in many cases the interest income on the Notes which the participant earns during that one-day period will substantially reduce or offset the amount of the participant’s overdraft charges. Of course, this result will depend on the cost of funds (i.e., the interest rate that Euroclear or Clearstream charges) to each participant.

Since the settlement will occur during New York business hours, a DTC participant selling an interest in the Notes can use its usual procedures for transferring global securities to the depositories of Euroclear or Clearstream for the benefit of Euroclear or Clearstream participants. The DTC seller will receive the sale proceeds on the settlement date. Thus, to the DTC seller, a cross-market sale will settle no differently than a trade between two DTC participants.

Finally, day traders who use Euroclear or Clearstream and who purchase Notes from DTC participants for credit to Euroclear participants or Clearstream participants should note that these trades will automatically fail unless one of three steps is taken:

• borrowing through Euroclear or Clearstream for one day, until the purchase side of the day trade is reflected in the day trader’s Euroclear or Clearstream account, in accordance with the clearing system’s customary procedures;

• borrowing the Notes in the United States from DTC participants no later than one day prior to settlement, which would allow sufficient time for the Notes to be reflected in the Euroclear or Clearstream account in order to settle the sale side of the trade; or

• staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC participant is at least one day prior to the value date for the sale to the Euroclear or Clearstream participant.

Trading Between a Euroclear or Clearstream Seller and a DTC Purchaser

Due to time-zone differences in their favor, Euroclear and Clearstream participants can use their usual procedures to transfer Notes through their depositaries to a DTC participant. The seller must first send instructions to Euroclear or Clearstream through a participant at least one business day prior to the settlement date. Euroclear or Clearstream will then instruct its depositary to credit the Notes to the DTC participant’s account and receive payment. The payment will be credited in the account of the Euroclear or Clearstream participant on the following day, but the receipt of the cash proceeds will be back-valued to the value date, which will be the preceding day if settlement occurs in New York. If settlement is not completed on the intended value date (i.e., the trade fails), the receipt of the cash proceeds will instead be valued at the actual settlement date.

If the Euroclear or Clearstream participant selling the Notes has a line of credit with Euroclear or Clearstream and elects to be in debit for the Notes until it receives the sale proceeds in its account, then the back-valuation may substantially reduce or offset any overdraft charges that the participant incurs over that period.

Settlement in other currencies between DTC and Euroclear and Clearstream is possible using free-of-payment transfers to move the Notes, but funds movement will take place separately.

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TAXATION

Korean Taxation

Tax on Interest Payments

Under current Korean tax laws, when we make payments of interest to you (excluding payments to your permanent establishment in Korea) on the debt securities denominated in a foreign currency issued outside of Korea, no amount will be withheld from such payments for, or on account of, taxes of any kind imposed, levied, withheld or assessed by Korea or any political subdivision or taxing authority thereof or therein.

If the tax exemption under current Korean tax law referred to above were to cease to be in effect, the rate of income tax or corporation tax applicable to interest on the debt securities for you would be 15.4% (including local income tax) of interest income, which may be reduced or exempt by an applicable tax treaty between Korea and your country.

Tax on Capital Gains

You will not be subject to any Korean income or withholding taxes in connection with the sale, exchange or other disposition of the debt securities, if (i) such sale, exchange or disposition is made to other non-residents or non-Korean corporations (other than their permanent establishments in Korea) or (ii) such sale, exchange or disposition takes place outside Korea, provided that the issuance of the debt securities is deemed to be an overseas issuance under Korean tax law. If you sell, exchange or otherwise dispose of the debt securities to a Korean resident or a Korean corporation (or the permanent establishment in Korea of a non-resident or a non-Korean corporation) and such sale, exchange or disposition is made within Korea, any gain realized on the transaction will be taxable at ordinary Korean withholding tax rates (the lower of (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs) 22% of net gain or 11% of the gross sale proceeds with respect to such transaction), unless an exemption is available under an applicable income tax treaty. For example, if you are a resident of the United States for the purposes of the income tax treaty currently in force between Korea and the United States, you are generally entitled to an exemption from Korean taxation in respect of any gain realized on a disposition of the debt securities, regardless of whether the disposition is to a Korean resident. For more information regarding tax treaties, please refer to “Taxation—Korean Taxation—Tax Treaties” in the accompanying prospectus.

For a discussion of certain Korean tax considerations that may be relevant to you if you invest in the Notes, see “Taxation—Korean Taxation” in the accompanying prospectus.

United States Tax Considerations

We expect that the issue price of the Notes (excluding amounts paid in respect of accrued interest) will reflect no more than ade minimis amount of Original Issue Discount. In that case, the Notes will be treated for United States federal income tax purposes as part of the same issue as our 2.25% Notes due 2017 issued on August 7, 2012.

Stated interest on the Notes will be treated as qualified stated interest for U.S. federal income tax purposes. Interest income earned on a Note will constitute foreign-source income for U.S. federal income tax purposes and generally should constitute “passive category” income for purposes of calculating a U.S. holder’s foreign tax credit limitation. As described under “Taxation—Korean Taxation” above and in the accompanying prospectus, payments of interest to a U.S. holder may in certain circumstances be subject to Korean withholding tax. The amount of interest taxable to a U.S. holder as described under “Taxation—United States Tax Considerations—Payments or Accruals of Interest” in the accompanying prospectus will include any amounts withheld in respect of Korean taxes and any additional amounts paid pursuant to the Notes as described in “Description of the

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Securities—Description of Debt Securities—Additional Amounts” in the accompanying prospectus. Subject to applicable limitations, Korean income taxes withheld from interest income on a Note at a rate not in excess of any applicable treaty rate may be creditable against a U.S. holder’s U.S. federal income tax liability. Under certain circumstances as described under “Taxation—Korean Taxation” in the accompanying prospectus, a U.S. holder may be subject to Korean withholding tax upon the sale or other disposition of Notes. A U.S. holder eligible for benefits of the Korea-U.S. tax treaty, which exempts capital gains from tax in Korea, would not be eligible to credit against its U.S. federal income tax liability any such Korean tax withheld. U.S. holders should consult their own tax advisers with respect to their eligibility for benefits under the Korea-U.S. tax treaty and, in the case of U.S. holders that are not eligible for treaty benefits, their ability to credit any Korean tax withheld upon sale of the Notes against their U.S. federal income tax liability. The rules governing foreign tax credits are complex and you should consult your tax adviser regarding the availability of foreign tax credits in your particular circumstances. For a discussion of additional U.S. federal income tax considerations that may be relevant to you if you invest in the Notes and are a U.S. holder, see “Taxation—United States Tax Considerations” in the accompanying prospectus.

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UNDERWRITING

Relationship with the Underwriters

We and the underwriters named below (the “Underwriters”) have entered into a Terms Agreement dated September 17, 2012 (the “Terms Agreement”) with respect to the Notes relating to the Underwriting Agreement—Standard Terms (together with the Terms Agreement, the “Underwriting Agreement”) filed as an exhibit to the registration statement. Subject to the terms and conditions set forth in the Underwriting Agreement, we have agreed to sell to each of the Underwriters, severally and not jointly, and each of the Underwriters has severally and not jointly agreed to purchase, the following principal amount of the Notes set out opposite its name below:

Name of Underwriters	Principal Amount of the Notes
Citigroup Global Markets Inc.	US$	100,000,000
Credit Suisse Securities (USA) LLC		100,000,000
UBS AG, Hong Kong Branch		100,000,000
Total	US$	300,000,000

The Underwriters, or certain of their respective affiliates acting as selling agents, initially propose to offer the Notes directly to the public at the offering price described on the cover page of this prospectus supplement. Any Underwriter may allow, and any such dealer may reallow, a concession to certain other dealers. After the initial offering of the Notes, the Underwriters may from time to time vary the offering price and other selling terms.

The Notes are a new class of securities with no established trading market. Approval in-principle has been received from the SGX-ST for the listing of the Notes. The Underwriters have advised us that they intend to make a market in the Notes. However, they are not obligated to do so and they may discontinue any market making activities with respect to the Notes at any time without notice. Accordingly, we cannot assure you as to the liquidity of any trading market for the Notes.

We have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments which the Underwriters may be required to make in respect of any such liabilities.

The amount of net proceeds is US$303,546,000 after deducting the underwriting discounts but not estimated expenses. Expenses associated with this offering are estimated to be approximately US$150,000. The Underwriters have agreed to pay certain of our expenses incurred in connection with the offering of the Notes.

In the ordinary course of their respective businesses, some of the Underwriters and their affiliates have engaged, and may in the future engage, in commercial banking and/or investment banking transactions and other related services with us and our affiliates for which the Underwriters and/or their affiliates have received or may receive customary fees and reimbursement of out-of-pocket expenses.

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Delivery of the Notes

We expect to make delivery of the Notes, against payment in same-day funds on or about September 24, 2012, which we expect will be the fifth business day following the date of this prospectus supplement. Under Rule 15c6-1 promulgated under the Securities Exchange Act of 1934, as amended, U.S. purchasers are generally required to settle trades in the secondary market in three business days, unless they and the other parties to any such trade expressly agree otherwise. Accordingly, if you wish to trade in the Notes on the date of this prospectus supplement or the succeeding business day, because the Notes will initially settle in T+5, you may be required to specify an alternate settlement cycle at the time of your trade to prevent a failed settlement. Purchasers in other countries should consult with their own advisors.

Foreign Selling Restrictions

Each Underwriter has agreed, severally and not jointly, to the following selling restrictions in connection with the offering with respect to the following jurisdictions:

Korea

Each Underwriter has severally represented and agreed that:

• it has not offered, sold or delivered and will not offer, sell or deliver, directly or indirectly, any Notes in Korea, or to, or for the account or benefit of, any resident of Korea, except as otherwise permitted by applicable Korean laws and regulations; and

• any securities dealer to whom the Underwriters may sell the Notes will agree that it will not offer any Notes, directly or indirectly, in Korea, or to any resident of Korea, except as permitted by applicable Korean laws and regulations, or to any other dealer who does not so represent and agree.

United Kingdom

Each Underwriter has severally represented and agreed that:

• it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 (the “FSMA”)) received by it in connection with the issue or sale of any of the Notes in circumstances in which section 21(1) of the FSMA does not apply to us; and

• it has complied, and will comply with, all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes, from or otherwise involving the United Kingdom.

Japan

Each Underwriter has severally represented and agreed that the Notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended); it has not offered or sold, and it will not offer or sell, directly or indirectly, any of the Notes in Japan or to, or for the account or benefit of, any resident of Japan or to, or for the account or benefit of, any resident for reoffering or resale, directly or indirectly, in Japan or to, or for the account or benefit of, any resident of Japan except (i) pursuant to an exemption from the registration requirements of, or otherwise in compliance with, the Financial Instruments and Exchange Law of Japan and (ii) in compliance with the other relevant laws of Japan.

Hong Kong

Each Underwriter has severally represented and agreed that:

• it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571)

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of Hong Kong and any rules made under that Ordinance or (ii) in circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and

• it has not issued, or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, any advertisement, invitation or document relating to the Notes, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are or are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of the laws of Hong Kong and any rules made thereunder.

Singapore

Each Underwriter has severally represented and agreed that neither the preliminary prospectus nor the prospectus have been or will be registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289 of Singapore) (the “SFA”). Accordingly, each Underwriter has severally represented, warranted and agreed that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, the preliminary prospectus or the prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to any person in Singapore other than under exemptions provided in the SFA for offers made (i) to an institutional investor (as defined in Section 4A of the SFA) under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within 6 months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:

(1) to an institutional investor (under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA or (in the case of such corporation) where the transfer arises from an offer referred to in Section 276(3)(i)(B) of the SFA, or (in the case of such trust), where the transfer arises from an offer referred to in Section 276(4)(i)(B) of the SFA;

(2) where no consideration is or will be given for the transfer;

(3) where the transfer is by operation of law; or

(4) pursuant to Section 276(7) of the SFA.

Price Stabilization and Short Position

In connection with this offering, Citigroup Global Markets Inc. (the “Stabilizing Manager”) or any person acting for it, on behalf of the Underwriters, may purchase and sell the Notes in the open market. These

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transactions may include over-allotment, covering transactions, penalty bids and stabilizing transactions. Over-allotment involves sales of the Notes in excess of the principal amount of Notes to be purchased by the Underwriters in this offering, which creates a short position for the Underwriters. Covering transactions involve purchases of the Notes in the open market after the distribution has been completed in order to cover short positions. Penalty bid occurs when a particular Underwriter repays to the Underwriters a portion of the underwriting discount received by it because the Underwriters or the Stabilizing Manager has repurchased Notes sold by or for the account of such Underwriter in stabilizing or short covering transactions. Stabilizing transactions consist of certain bids or purchases of Notes in the open market for the purpose of preventing or retarding a decline in the market price of the Notes while the offering is in progress. Any of these activities may have the effect of preventing or retarding a decline in the market price of the Notes. They may also cause the price of the Notes to be higher than the price that otherwise would exist in the open market in the absence of these transactions. The Stabilizing Manager may conduct these transactions in the over-the-counter market or otherwise. If the Stabilizing Manager commences any of these transactions, it may discontinue them at any time, and must discontinue them after a limited period.

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LEGAL MATTERS

The validity of the Notes is being passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York, and by Kim & Chang, Seoul, Korea. Certain legal matters will also be passed upon for the Underwriters by Davis Polk & Wardwell LLP, New York, New York. In giving their opinions, Cleary Gottlieb Steen & Hamilton LLP and Davis Polk & Wardwell LLP may rely as to matters of Korean law upon the opinions of Kim & Chang, and Kim & Chang may rely as to matters of New York law upon the opinions of Cleary Gottlieb Steen & Hamilton LLP.

OFFICIAL STATEMENTS AND DOCUMENTS

Our President, in his official capacity, has supplied the information set forth in this prospectus supplement under “Recent Developments—Korea Finance Corporation.” Such information is stated on his authority. The documents identified in the portion of this prospectus supplement captioned “Recent Developments—The Republic of Korea” as the sources of financial or statistical data are derived from official public documents of the Republic and of its agencies and instrumentalities.

GENERAL INFORMATION

We were established in 2009 as a government-owned policy finance institution pursuant to the Korea Finance Corporation Act. The address of our registered office is 16 Yeouido-dong, Youngdeungpo-gu, Seoul, The Republic of Korea.

The issue of the Notes has been authorized by a decision of our President dated September 14, 2012. On September 17, 2012, we filed our reports on the proposed issuance of the Notes with the Ministry of Strategy and Finance of Korea.

The registration statement with respect to us and the Notes has been filed with the U.S. Securities and Exchange Commission in Washington, D.C. under the Securities Act of 1933, as amended. Additional information concerning us and the Notes is contained in the registration statement and post-effective amendments to such registration statement, including their various exhibits, which may be inspected at the public reference facilities maintained by the Securities and Exchange Commission at Room 1580, 100 F Street N.E., Washington, D.C. 20549, United States.

The Notes have been accepted for clearance through DTC, Euroclear and Clearstream:

	ISIN		CUSIP		Common Code
Notes		US50065TAD54		50065T AD5		081084548

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HEAD OFFICE OF KoFC

16 Youido-dong,

Youngdeungpo-gu, Seoul 150-873

The Republic of Korea

FISCAL AGENT AND PRINCIPAL PAYING AGENT

Citibank, N.A.

21^st Floor

Citigroup Centre

Canada Square

Canary Wharf

London E14 5LB

United Kingdom

LEGAL ADVISORS TO KoFC

as to Korean law	as to U.S. law
Kim & Chang Seyang Building 223 Naeja-dong, Jongno-gu Seoul 110-720 The Republic of Korea	Cleary Gottlieb Steen & Hamilton LLP c/o 39th Floor Bank of China Tower One Garden Road Hong Kong

LEGAL ADVISOR TO THE UNDERWRITERS

as to U.S. law

Davis Polk & Wardwell LLP

c/o 18th Floor

The Hong Kong Club Building

3A Chater Road

Hong Kong

AUDITOR OF KoFC

Ernst & Young

3^rd to 8^th Floor, Taeyoung Building

10-2 Youido-dong

Youngdeungpo-gu, Seoul 150-777

The Republic of Korea

SINGAPORE LISTING AGENT

Shook Lin & Bok LLP

1 Robinson Road

#18-00 AIA Tower

Singapore 048542