Table of Contents
The information in this preliminary prospectus supplement is not complete and may be changed. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. This preliminary prospectus supplement and the accompanying prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-180821
SUBJECT TO COMPLETION, DATED SEPTEMBER 5, 2012
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated June 26, 2012)
The Korea Development Bank
US$ % Notes due 20
Our US$ aggregate principal amount of notes due 20 (the “Notes”) will bear interest at a rate of % per annum. Interest on the Notes is payable semi-annually in arrears on March and September of each year, beginning on March , 2013. The Notes will mature on March , 20 .
The Notes will be issued in minimum denominations of US$200,000 principal amount and integral multiples of US$1,000 in excess thereof. The Notes will be represented by one or more global notes registered in the name of a nominee of The Depository Trust Company, as depositary.
The payment of interest and the repayment of principal on the Notes will not be guaranteed by the Government (as defined herein). However, under The Korea Development Bank Act, as amended (“the KDB Act”), the Government is obligated to guarantee the payment of the principal of and interest on our foreign currency debt with an original maturity of one year or more at the time of issuance (including the Notes offered hereby) outstanding as of the date of the initial sale of the Government’s equity interest in KDB Financial Group (“KDBFG”), subject to the authorization of the Government guarantee amount by the National Assembly of the Republic of Korea. See “The Korea Development Bank—Overview” and “—Business—Government Support and Supervision” in the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Note | Total | |||||||
Public offering price | % | US$ | �� | |||||
Underwriting discount | % | US$ | ||||||
Proceeds to us (before deduction of expenses) | % | US$ |
In addition to the initial public offering price, you will have to pay for accrued interest from and including September , 2012.
Application will be made to the Singapore Exchange Securities Trading Limited (the “SGX-ST”) for the listing and quotation of the Notes. There can be no assurance that such listing will be obtained for the Notes. The SGX-ST assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained in this prospectus supplement and the accompanying prospectus. Admission of the Notes to the Official List of, and quotation of the Notes on, the SGX-ST is 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.
We expect to make delivery of the Notes to investors through the book-entry facilities of The Depository Trust Company on or about September , 2012.
Joint Bookrunners
Credit Suisse | ||||||||||
HSBC | ||||||||||
J.P. Morgan | ||||||||||
KDB Asia | ||||||||||
Morgan Stanley | ||||||||||
The Royal Bank of Scotland |
Prospectus Supplement Dated September , 2012
Table of Contents
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.
Prospectus Supplement
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Certain Defined Terms
All references to “we” or “us” mean The Korea Development Bank. All references to “Korea” or the “Republic” contained in this prospectus supplement mean The Republic of Korea. All references to the “Government” mean the government of Korea. Terms used but not defined in this prospectus supplement shall have the same meanings given to them in the accompanying prospectus.
In this prospectus supplement and the accompanying prospectus, where information has been provided in units of thousands, millions or billions, such amounts have been rounded up or down. Accordingly, actual numbers may differ from those contained herein due to rounding. Any discrepancy between the stated total amount and the actual sum of the itemized amounts listed in a table, is due to rounding.
Prior to 2011, we prepared our financial statements in accordance with generally accepted accounting principles in Korea (“Korean GAAP” or “K-GAAP”). Commencing in 2011, we prepare our financial statements in accordance with International Financial Reporting Standards as adopted in Korea (“Korean IFRS” or “K-IFRS”) and our separate financial information as of December 31, 2011 and June 30, 2012 and for the six months ended June 30, 2011 and 2012 included in this prospectus supplement has been prepared in accordance with Korean IFRS, which differs in certain significant respects from Korean GAAP. References in this prospectus supplement to “separate” financial statements and information are to financial statements and information prepared on a non-consolidated basis. Unless specified otherwise, our financial and other information included in this prospectus supplement is presented on a separate basis in accordance with Korean IFRS and does not include such information with respect to our subsidiaries.
Additional Information
The information in this prospectus supplement is in addition to the information contained in our prospectus dated June 26, 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. 333-180821, as amended, relating to our debt securities, with or without warrants, and guarantees, 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 not to mislead potential investors. 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. Admission of the Notes to the Official List of, and the quotation of any Notes on, the SGX-ST is not to be taken as an indication of the merits of the issuer or the Notes.
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.
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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.
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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.
The Notes
We are offering US$ aggregate principal amount of % notes due , 20 .
The Notes will bear interest at a rate of % per annum, payable semi-annually in arrears on March and September , beginning on March , 2013. Interest on the Notes will accrue from September , 2012 and will be computed based on a 360-day year consisting of twelve 30-day months. See “Description of the Notes—Payment of Principal and Interest.”
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 securities registered in the name of a nominee of The Depository Trust Company (“DTC”), as depositary.
The payment of interest and the repayment of principal on the Notes will not be guaranteed by the Government. However, under the KDB Act, the Government is obligated to guarantee the payment of the principal of and interest on our foreign currency debt with an original maturity of one year or more at the time of issuance (including the Notes offered hereby) outstanding as of the date of the initial sale of the Government’s equity interest in KDBFG, subject to the authorization of the Government guarantee amount by the National Assembly of the Republic of Korea. See “The Korea Development Bank—Overview” and “—Business—Government Support and Supervision” in the accompanying prospectus.
We do not have any right to redeem the Notes prior to maturity.
Listing
Application will be made to the SGX-ST for the listing and quotation of the Notes. Settlement of the Notes is not conditioned on obtaining the listing. We cannot give assurance that the application to the SGX-ST for the Notes will be approved. The Notes will be traded on the SGX-ST in a minimum board lot size of US$200,000 for so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require.
Form and Settlement
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, as depositary. Except as described in the accompanying prospectus under “Description of the Securities—Description of Debt Securities—Global Securities,” the global notes will not be exchangeable for Notes in definitive registered form, and will not be issued in definitive registered form. 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 Bank S.A./N.V. (“Euroclear”) or Clearstream Banking,société anonyme(“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.”
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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 so that such further issue shall be consolidated and form a single series with the Notes. We will not issue any such additional debt securities unless such additional securities have no more than ade minimis amount 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 , 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.”
Underwriting
KDB Asia Limited, one of the underwriters, is our affiliate and has agreed to offer and sell the Notes only outside the United States to non-U.S. persons. See “Underwriting—Relationship with the Underwriters.”
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The net proceeds from the issue of the Notes, after deducting the underwriting discount but not estimated expenses, will be US$ . We will use the net proceeds from the sale of the Notes for our general operations, including extending foreign currency loans and repayment of our maturing debt and other obligations.
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This section provides information that supplements the information about our bank and the Republic included under the headings corresponding to the headings below in the accompanying prospectus dated June 26, 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.
THE KOREA DEVELOPMENT BANK
Unless specified otherwise, the information provided below is stated on a separate basis in accordance with Korean IFRS.
Overview
As of June 30, 2012, we had (Won)86,011.6 billion of loans outstanding (including loans for facility development, loans for working capital, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans without adjusting for allowance for possible loan losses, present value discounts and deferred loan fees), total assets of (Won)136,615.0 billion and total equity of (Won)17,936.9 billion, as compared to (Won)81,380.7 billion of loans outstanding, (Won)127,874.4 billion of total assets and (Won)17,658.0 billion of total equity as of December 31, 2011. For the six months ended June 30, 2012, we recorded interest income of (Won)2,549.7 billion, interest expense of (Won)1,641.1 billion and net income of (Won)619.6 billion, as compared to (Won)2,203.5 billion of interest income, (Won)1,403.1 billion of interest expense and (Won)1,040.9 billion of net income for the six months ended June 30, 2011.
Capitalization
As of June 30, 2012, our authorized capital was (Won)15,000 billion and capitalization was as follows:
June 30, 2012(1) | ||||
(billions of won) (unaudited) | ||||
Long-term debt(2)(3): | ||||
Won currency borrowings | 4,974.8 | |||
Foreign currency borrowings | 6,317.7 | |||
Industrial finance bonds | 46,022.1 | |||
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Total long-term debt | 57,314.6 | |||
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Capital: | ||||
Issued capital | 9,251.9 | |||
Capital surplus | 44.4 | |||
Retained earnings(4) | 8,068.0 | |||
Accumulated other comprehensive income | 572.7 | |||
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Total capital | 17,936.9 | |||
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Total capitalization | 75,251.5 | |||
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(1) | Except as disclosed in this prospectus supplement, there has been no material change in our capitalization since June 29, 2012. |
(2) | We have translated borrowings in foreign currencies into Won at the rate of (Won)1,153.8 to US$1.00, which was the market average exchange rate, as announced by the Seoul Money Brokerage Services Ltd., on June 30, 2012. |
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(3) | As of June 30, 2012, we had contingent liabilities totaling (Won)10,595.1 billion under outstanding guarantees issued on behalf of our clients. |
(4) | Includes planned regulatory reserve for possible loan losses of (Won)1,173.3 billion as of June 30, 2012. Under Korean IFRS, if our provision for possible loan losses is deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for possible loan losses, which will be deducted from retained earnings. |
Selected Financial Statement Data
The following tables present selected separate financial information as of December 31, 2011 and June 30, 2012 and for the six months ended June 30, 2011 and 2012, which has been derived from our unaudited separate financial statements as of December 31, 2011 and June 30, 2012 and for the six months ended June 30, 2011 and 2012 prepared in accordance with Korean IFRS and included in this prospectus supplement. You should read the following financial statement data together with the separate financial statements and notes included in this prospectus supplement:
Separate K-IFRS Financial Statement Data
Six Months Ended June 30, | ||||||||
2011 | 2012 | |||||||
(billions of won) (unaudited) | ||||||||
Income Statement Data | ||||||||
Total Interest Income | 2,203.5 | 2,549.7 | ||||||
Total Interest Expenses | 1,403.1 | 1,641.1 | ||||||
Net Interest Income | 800.4 | 908.6 | ||||||
Operating Income | 1,291.8 | 821.1 | ||||||
Net Income | 1,040.9 | 619.6 |
As of December 31, 2011 | As of June 30, 2012 | |||||||
(billions of won) (unaudited) | ||||||||
Balance Sheet Data | ||||||||
Total Loans(1) | 81,380.7 | 86,011.6 | ||||||
Total Borrowings(2) | 99,253.5 | 105,832.8 | ||||||
Total Assets | 127,874.4 | 136,615.0 | ||||||
Total Liabilities | 110,216.4 | 118,678.1 | ||||||
Equity | 17,658.0 | 17,936.9 |
(1) | Gross amount, which includes loans for facility development, loans for working capital, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans without adjusting for allowance for loan losses, present value discounts and deferred loan fees. |
(2) | Total Borrowings include financial liabilities designated at fair value through profit or loss (“FVTPL”), due to customers, borrowings and debt issued. |
Six Months Ended June 30, 2012
For the six months ended June 30, 2012, we had net income of (Won)619.6 billion compared to (Won)1,040.9 billion for the six months ended June 30, 2011, on a separate basis.
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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 (Won)114.9 billion in the six months ended June 30, 2012 from (Won)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; and |
• | an increase in provision for loan losses to (Won)210.9 billion in the six months ended June 30, 2012 from (Won)72.6 billion in the corresponding period of 2011, primarily due to an increase in non-performing loans among small- and medium-sized enterprises. |
The above factors were partially offset by an increase in net interest income to (Won)908.6 billion in the six months ended June 30, 2012 from (Won)800.4 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.
Provisions for Possible Loan Losses and Loans in Arrears
As of June 30, 2012, we established provisions of (Won)809.2 billion for possible loan losses under Korean IFRS. The provisions for possible loan losses under Korean IFRS are recorded for those loans for which objective evidence of impairment exists as a result of one or more events that occurred after initial recognition and, if our provision for possible loan losses is deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for possible loan losses, which will be deducted from retained earnings. See Notes 22 of the notes to our separate financial statements included in this prospectus supplement.
Certain of our customers have restructured loans with their creditor banks. As of June 30, 2012, we have provided loans of (Won)3,308.1 billion for companies under workout, court receivership, court mediation and other restructuring procedures. In addition, as of such date, we held equity securities of such companies in the amount of (Won)1,318.8 billion following debt-equity swaps. As of June 30, 2012, we had established provisions of (Won)493.2 billion for possible loan losses. We cannot assure you that actual results of the credit loss from the loans to these customers will not exceed the provisions reserved.
The following table provides information on our loan loss provisions.
As of June 30, 2012(1) | ||||||||||
Loan Amount | Loan Loss Provisions | |||||||||
(in billions of won, except percentages) | ||||||||||
Loan Classification | Normal(2) | (Won) | 82,308.1 | (Won) | 209.7 | |||||
Precautionary | 2,271.9 | 167.6 | ||||||||
Substandard | 1,198.8 | 280.4 | ||||||||
Doubtful | 20.7 | 9.2 | ||||||||
Expected Loss | 212.1 | 142.3 | ||||||||
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Total | (Won) | 86,011.6 | (Won) | 809.2 | ||||||
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Loans impaired(3) | 1,643.6 | 406.2 | ||||||||
Loans not impaired | 84,368.1 | 403.0 | ||||||||
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Total | (Won) | 86,011.6 | (Won) | 809.2 | ||||||
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(1) | These figures include loans for facility development, loans for working capital, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans. |
(2) | Includes loans guaranteed by the Government. Under Korean IFRS, we establish loan loss provisions for all loans including loans guaranteed by the Government. |
(3) | See note 2 of the notes to our separate financial statements for a summary of significant accounting policies with respect to impairment of loans. |
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As of June 30, 2012, our delinquent loans totaled (Won)1,431.6 billion, representing 1.7% of our outstanding loans as of such date. Delinquent loans are defined as loans that are classified as substandard or below. On June 30, 2012, our legal reserve was (Won)5,641.4 billion, representing 6.6% of our outstanding loans as of such date.
Loans to Financially Troubled Companies
We have credit exposure (including loans, guarantees and equity investments) to a number of financially troubled Korean companies including Kumho Tires Co., Inc., Daehan Shipbuilding Co., Ltd., Kumho Industrial, Daewoo Motor Sales and Shina SB Yard Co., Ltd. As of June 30, 2012, our credit extended to these companies totaled (Won)2,194.4 billion, accounting for 1.7% of our total assets as of such date.
As of June 30, 2012, our exposure (including loans classified as substandard or below and equity investments classified as estimated loss or below) to Kumho Tires increased to (Won)1,230.7 billion from (Won)1,088.2 billion as of December 31, 2011, primarily due to extension of additional loans. As of June 30, 2012, our exposure to Daehan Shipbuilding was (Won)229.4 billion, a decrease from (Won)369.6 billion as of December 31, 2011, primarily due to repayment of debt. As of June 30, 2012, our exposure to Kumho Industrial increased to (Won)307.7 billion from (Won)289.2 billion as of December 31, 2011, primarily due to extension of additional loans. As of June 30, 2012, our exposure to Daewoo Motor Sales decreased to (Won)175.3 billion from (Won)222.4 billion as of December 31, 2011, primarily due to the write-off of certain of our exposure to Daewoo Motor Sales. As of June 30, 2012, our exposure to Shina SB Yard Co., Ltd. increased to (Won)251.4 billion from (Won)157.9 billion as of December 31, 2011, primarily due to extension of additional loans.
As of June 30, 2012, we established provisions of (Won)61.8 billion for our exposure to Kumho Tires, (Won)14.5 billion for Daehan Shipbuilding, (Won)12.7 billion for Kumho Industrial, (Won)0.5 billion for Daewoo Motor Sales and (Won)19.7 billion for Shina SB Yard Co., Ltd.
In June 2012, we increased our equity interest in Kumho Industrial from 5.99% to 6.41% by participating in a debt-to-equity swap, but our equity interest decreased to 5.44% following a capital contribution by the former controlling shareholders later that month.
Based on our unaudited internal management accounts, as of June 30, 2012, our exposure to Kumho Tires, Kumho Industrial, Kumho Petrochemical and Asiana Airlines was (Won)1,230.7 billion, (Won)307.7 billion, (Won)1,571.9 billion and (Won)815.2 billion, respectively. Based on our unaudited internal management accounts, as of June 30, 2012, we established provisions of (Won)61.8 billion, (Won)12.7 billion, (Won)7.6 billion and (Won)5.0 billion for our exposure to Kumho Tires, Kumho Industrial, Kumho Petrochemical and Asiana Airlines, respectively.
For the six months ended June 30, 2012, we did not sell any non-performing loans to the Korea Asset Management Corporation, or KAMCO.
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Operations
Loan Operations
The following table sets out, by currency and category of loan, our total outstanding loans as of June 30, 2012:
Loans(1)
June 30, 2012 | ||||
(billions of won) | ||||
Equipment Capital Loans: | ||||
Domestic currency | (Won) | 29,854.0 | ||
Foreign currency(2) | 8,326.8 | |||
Working Capital Loans: | ||||
Domestic currency(3) | 19,836.4 | |||
Foreign currency(2) | 3,985.9 | |||
Other Loans(4) | 24,008.5 | |||
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Total loans | (Won) | 86,011.6 | ||
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(1) | Includes loans extended to affiliates. |
(2) | Includes loans disbursed and repayable in Won, the amounts of which are based upon an equivalent amount of foreign currency. This type of loan totaled (Won)8,693.9 billion as of June 30, 2012. See “The Korea Development Bank—Operations—Loan Operations—Loans by Categories—Local Currency Loans Denominated in Foreign Currencies” in the accompanying prospectus. |
(3) | Includes loans on households. |
(4) | Includes inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans. |
As of June 30, 2012, we had (Won)86,011.6 billion in outstanding loans, a 5.7% increase from December 31, 2011.
Maturities of Outstanding Loans
The following table categorizes our outstanding equipment capital and working capital loans by their remaining maturities:
Outstanding Equipment Capital and Working Capital Loans by Remaining Maturities(1)
June 30, 2012 | As % of June 30, 2012 Total | |||||||
(billions of won, except percentages) | ||||||||
Loans with remaining maturities of one year or less | (Won) | 26,044.5 | 42.0 | % | ||||
Loans with remaining maturities of more than one year | 35,958.6 | 58.0 | ||||||
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Total | (Won) | 62,003.1 | 100.0 | % | ||||
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(1) | Includes loans extended to affiliates. |
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Loans by Industrial Sector
The following table sets out the total amount of our outstanding equipment capital and working capital loans, categorized by industry sector as of June 30, 2012:
Outstanding Equipment Capital and Working Capital Loans by Industry Sector(1)
June 30, 2012 | As % of June 30, 2012 Total | |||||||
(billions of won, except percentages) | ||||||||
Manufacturing | (Won) | 36,718.2 | 59.2 | % | ||||
Banking and Insurance | 5,603.7 | 9.0 | ||||||
Transportation and Communication | 5,295.4 | 8.5 | ||||||
Public Administration | 528.2 | 0.9 | ||||||
Electric, Gas and Water Supply Industry | 1,738.2 | 2.8 | ||||||
Others | 12,119.4 | 19.6 | ||||||
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Total | (Won) | 62,003.1 | 100.0 | % | ||||
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Percentage increase from December 31, 2011 | 4.5 | % |
(1) | Includes loans extended to affiliates. |
The manufacturing sector accounted for 59.2% of our outstanding equipment capital and working capital loans as of June 30, 2012. As of June 30, 2012, loans to the transport machinery manufacturing businesses and chemical material and product manufacturing businesses accounted for 16.9% and 13.5%, respectively, of our outstanding equipment capital and working capital loans to the manufacturing sector.
KDB Value PEF VI was our single largest borrower as of June 30, 2012, accounting for 1.6% of our outstanding equipment capital and working capital loans. As of June 30, 2012, our five largest borrowers and 20 largest borrowers accounted for 6.5% and 17.3%, respectively, of our outstanding equipment capital and working capital loans. The following table breaks down the equipment capital and working capital loans to our 20 largest borrowers outstanding as of June 30, 2012 by industry sector:
20 Largest Borrowers by Industry Sector
As % of June 30, 2012 Total Outstanding Equipment Capital and Working Capital Loans | ||||
Manufacturing | 69.0 | % | ||
Transportation and Communication | 12.5 | |||
Banking and Insurance | 9.3 | |||
Public Administration | 4.0 | |||
Others | 5.2 | |||
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Total | 100.0 | % | ||
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Loans by Categories
The following table sets out equipment capital and working capital loans by categories as of June 30, 2012:
Equipment Capital Loans(1) | Working Capital Loans(1) | |||||||||||||||
June 30, 2012 | % | June 30, 2012 | % | |||||||||||||
(billions of won, except percentages) | ||||||||||||||||
Industrial fund loans | (Won) | 26,100.1 | 68.4 | % | (Won) | 17,857.0 | 77.0 | % | ||||||||
Foreign currency loans | 7,286.9 | 19.1 | 1,407.0 | 6.1 | ||||||||||||
Offshore loans in foreign currencies | 1,039.9 | 2.7 | 2,578.0 | 11.1 | ||||||||||||
Government fund loans | 691.6 | 1.8 | — | — | ||||||||||||
Overdraft | — | — | 452.3 | 1.9 | ||||||||||||
Others | 3,062.4 | 8.0 | 894.5 | 3.9 | ||||||||||||
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Total | (Won) | 38,180.8 | 100.0 | % | (Won) | 23,188.8 | 100.0 | % | ||||||||
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|
|
(1) | Excludes loans on households and loans extended to affiliates. |
Guarantee Operations
The following table shows our outstanding guarantees as of June 30, 2012:
June 30, 2012 | ||||
(billions of won) | ||||
Acceptances | (Won) | 874.5 | ||
Guarantees on local borrowing | 721.1 | |||
Guarantees on foreign borrowing | 8,949.9 | |||
Letter of guarantee for importers | 49.7 | |||
|
| |||
Total | (Won) | 10,595.1 | ||
|
|
Investments
Our equity investments decreased slightly to (Won)8,427.1 billion as of June 30, 2012 from (Won)8,448.1 billion as of December 31, 2011, due to, among others, a decrease in valuation of our equity investments.
As of June 30, 2012, the cost basis of our equity investments subject to restriction under the KDB Act and our Articles of Incorporation totaled (Won)8,427.1 billion, equal to 28.3% of our equity investment ceiling. For a discussion of Korean accounting principles relating to our equity investments, see “The Korea Development Bank—Financial Statements and the Auditors” in the accompanying prospectus.
S-15
Table of Contents
The following table sets out our equity investments by industry sector on a book value basis as of June 30, 2012:
Equity Investments
Book Value as of June 30, 2012 | ||||
(billions of won) | ||||
Electric, Gas and Water Supply Industry | (Won) | 100.2 | ||
Construction | 70.7 | |||
Banking and Insurance | 4,834.8 | |||
Real Estate Business | 130.2 | |||
Manufacturing | 1,305.9 | |||
Transportation and Communication | 1,809.6 | |||
Others | 175.7 | |||
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| |||
Total | (Won) | 8,427.1 | ||
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|
As of June 30, 2012, we held total equity investments, on a book value basis, of (Won)3,341.2 billion in two of our five largest borrowers and (Won)4,342.5 billion in five of our 20 largest borrowers.
As of June 30, 2012, the aggregate value of our equity investments accounted for approximately 116% of their aggregate cost basis. For a discussion on how we determine the value of our equity investments, see “The Korea Development Bank—Operations—Investments” in the accompanying prospectus.
Other Activities
As of June 30, 2012, we held in trust cash and other assets totaling (Won)22,765.4 billion, and we generated in the first half of 2012 trust fee income equaling (Won)323.9 billion.
Source of Funds
Borrowings from the Government
The following table sets out our Government borrowings as of June 30, 2012:
Type of Funds Borrowed | Amount as of June 30, 2012 | |||
(billions of won) | ||||
General purpose | (Won) | 700.7 | ||
Special purpose | 4,459.5 | |||
|
| |||
Total | (Won) | 5,160.3 | ||
|
|
Domestic and International Capital Markets
The following table sets out the outstanding balance of our industrial finance bonds as of June 30, 2012:
Outstanding Balance | Amount as of June 30, 2012 | |||
(billions of won) | ||||
Denominated in Won | (Won) | 27,715.4 | ||
Denominated in other currencies | 19,879.3 | |||
|
| |||
Total | (Won) | 47,594.7 | ||
|
|
S-16
Table of Contents
As of June 30, 2012, the aggregate amount of our industrial finance bonds and guarantee obligations (including guarantee obligations relating to loans that had not been borrowed as of June 30, 2012) was (Won)63,737.9 billion, equal to 14.3% of our authorized amount under the KDB Act, which was (Won)446,796.7 billion.
Foreign Currency Borrowings
As of June 30, 2012, the outstanding amount of our foreign currency borrowings was US$11.2 billion.
Our long term and short term foreign currency borrowings decreased to (Won)12,741.0 billion as of June 30, 2012 from (Won)13,895.9 billion as of December 31, 2011.
Deposits
As of June 30, 2012, demand deposits held by us totaled (Won)1,852.0 billion and time and savings deposits held by us totaled (Won)30,172.6 billion.
Debt
Debt Repayment Schedule
The following table sets out our principal repayment schedule as of June 30, 2012:
Debt Principal Repayment Schedule
Maturing on or before June 30, | ||||||||||||||||||||
Currency(1)(2) | 2013 | 2014 | 2015 | 2016 | Thereafter | |||||||||||||||
(billions of won) | ||||||||||||||||||||
Won | (Won) | 11,407 | (Won) | 9,098 | (Won) | 5,342 | (Won) | 1,216 | (Won) | 6,003 | ||||||||||
Foreign | 18,112 | 6,510 | 1,759 | 2,365 | 4,016 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
Total Won Equivalent | (Won) | 29,519 | (Won) | 15,608 | (Won) | 7,101 | (Won) | 3,582 | (Won) | 10,020 | ||||||||||
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|
|
|
|
|
|
|
|
|
(1) | Borrowings in foreign currencies have been translated into Won at the market average exchange rates on June 30, 2012, as announced by the Seoul Money Brokerage Services Ltd. |
(2) | We categorize debt with respect to which we have entered into currency swap agreements by our repayment currency under such agreements. |
Directors and Management; Employees
As of June 30, 2012, we employed 2,653 persons with 1,601 located in our Seoul head office.
S-17
Table of Contents
Financial Statements and the Auditors
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 | (Won) | 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 | (Won) | 136,614,977 | 127,874,435 | |||||||||
|
|
|
| |||||||||
Liabilities | ||||||||||||
Financial liabilities designated at fair value through profit or loss | 15,42,43 | (Won) | 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 (Won)1,034,949 at June 30, 2012) | ||||||||||||
(Planned regulatory reserve for loan losses (Won)138,327 at June 30, 2012 and (Won)1,034,949 at December 31, 2011) | ||||||||||||
|
|
|
| |||||||||
Total equity | 17,936,854 | 17,658,047 | ||||||||||
|
|
|
| |||||||||
Total liabilities and equity | (Won) | 136,614,977 | 127,874,435 | |||||||||
|
|
|
|
See accompanying notes to the separate interim financial statements.
S-18
Table of Contents
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 | (Won) | 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 | |||||||||||||||
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|
| |||||||||||||
General and administrative expenses | 31 | 156,042 | 262,295 | 124,138 | 226,193 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Operating income | 339,642 | 821,129 | 583,096 | 1,291,836 | ||||||||||||||||
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|
|
|
|
| |||||||||||||
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 : (Won)481,267 million at June 30, 2012 and (Won)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 | (Won) | 215,314 | 626,677 | 406,116 | 932,873 | |||||||||||||||
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|
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|
|
|
| |||||||||||||
Earnings per share | ||||||||||||||||||||
Basic and diluted earnings per share (won) | 34 | (Won) | 133 | 335 | 255 | 563 | ||||||||||||||
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|
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See accompanying notes to the separate interim financial statements.
S-19
Table of Contents
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 | (Won) | 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 | ) | — | |||||||||||||||||||||
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| |||||||||||||||||
9,251,861 | 44,373 | — | 755,039 | 6,383,835 | 16,435,108 | |||||||||||||||||||||||
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|
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|
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| |||||||||||||||||
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 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total comprehensive income for the period | — | — | — | (108,022 | ) | 1,040,895 | 932,873 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at June 30, 2011 | (Won) | 9,251,861 | 44,373 | — | 647,017 | 7,424,730 | 17,367,981 | |||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance at January 1, 2012 | (Won) | 9,251,861 | 44,373 | — | 565,577 | 7,796,236 | 17,658,047 | |||||||||||||||||||||
Dividends | 22 | — | — | — | — | (347,870 | ) | (347,870 | ) | |||||||||||||||||||
|
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|
|
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|
| |||||||||||||||||
9,251,861 | 44,373 | — | 565,577 | 7,448,366 | 17,310,177 | |||||||||||||||||||||||
|
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|
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|
|
|
|
|
|
| |||||||||||||||||
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 | (Won) | 9,251,861 | 44,373 | — | 572,660 | 8,067,960 | 17,936,854 | |||||||||||||||||||||
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|
|
|
|
|
|
|
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See accompanying notes to the separate interim financial statements.
S-20
Table of Contents
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 | (Won) | 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 | (Won) | 6,517,925 | 1,599,333 | |||||||||
|
|
|
| |||||||||
Cash flows from investing activities | ||||||||||||
Disposal of available-for-sale financial assets | (Won) | 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 | (Won) | 5,449,755 | 2,213,347 | ||||||||
|
|
|
|
See accompanying notes to the separate interim financial statements.
S-21
Table of Contents
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 (Won) 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 | ||||||||||||||||||
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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 |
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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 (“(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.
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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.
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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
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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”).
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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.
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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
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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. |
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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.
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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
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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.
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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.
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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.
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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-35
Table of Contents
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-36
Table of Contents
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 | (Won) | 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 | ) | — | |||||
|
|
|
| |||||
(Won) | 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”) | (Won) | 821,956 | 353,639 | |||||
Reserve for payment of principal on behalf of SPC | 93,765 | 88,050 | ||||||
Others | 89,881 | 66,215 | ||||||
|
|
|
| |||||
(Won) | 1,005,602 | 507,904 | ||||||
|
|
|
|
S-37
Table of Contents
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 | (Won) | 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 | — | ||||||
|
|
|
| |||||
(Won) | 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 | (Won) | 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 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 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 | (Won) | 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 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 1,075,840 | 1,083,653 | 1,081,028 | |||||||||
|
|
|
|
|
|
S-38
Table of Contents
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 | (Won) | 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 | ||||||
|
|
|
| |||||
(Won) | 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 (Won)210,373 million as of June 30, 2012 ((Won)208,322 million as of December 31, 2011).
S-39
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 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 | (Won) | 954,323 | ||||||||
|
|
|
|
S-40
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 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 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 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 | (Won) | 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 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 23,003,692 | 22,798,947 | 21,956,666 | |||||||||
|
|
|
|
|
|
S-41
Table of Contents
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 | (Won) | 7,233 | 7,222 | 9,266 | 9,250 | |||||||||||
Corporate bonds | 88,200 | 89,551 | 100,600 | 102,113 | ||||||||||||
Others | 975 | 976 | 978 | 978 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 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 | (Won) | 110,844 | 137,695 | |||||
Acquisition | 884 | 1,277 | ||||||
Disposal (sale or redemption) | (15,492 | ) | (13,696 | ) | ||||
Change due to amortization | 172 | (107 | ) | |||||
|
|
|
| |||||
Ending balance | (Won) | 96,408 | 125,169 | |||||
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|
S-42
Table of Contents
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 | (Won) | 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 | ) | ||||||||||||
|
|
|
| |||||||||||||
(Won) | 85,124,040 | 80,414,794 | ||||||||||||||
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S-43
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 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 | ) | |||||||||||||||
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|
| |||||||||||||||
Ending balance | (Won) | 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 | (Won) | (104,550 | ) | (210,878 | ) | (46,873 | ) | (72,567 | ) | |||||||
Loss on disposal of loan | (239,037 | ) | (238,549 | ) | (71,131 | ) | (66,487 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | (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 | (Won) | (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 | (Won) | (21,067 | ) | (33,534 | ) | |||
|
|
|
|
S-44
Table of Contents
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 | (Won) | 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 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 272,488,411 | 269,431,337 | 5,180,972 | 3,868,059 | ||||||||||||
|
|
|
|
|
|
|
|
S-45
Table of Contents
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 | (Won) | 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 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 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. | (Won) | 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-46
Table of Contents
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 | |||||||||
|
|
|
| |||||||
(Won) | 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. | (Won) | 1,567,431 | 1,040,486 | |||||
|
|
|
|
S-47
Table of Contents
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 | (Won) | 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 | (Won) | 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-48
Table of Contents
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 | (Won) | 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 | (Won) | 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-49
Table of Contents
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 | (Won) | 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 | (Won) | 439,726 | 11,917 | (1 | ) | (16,697 | ) | (14 | ) | 434,931 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
S-50
Table of Contents
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 | (Won) | 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 | (Won) | 435,789 | (2,877 | ) | (25 | ) | 6,890 | (127 | ) | 439,650 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
S-51
Table of Contents
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 | (Won) | 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 | (Won) | 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 (Won)103,589 million as of June 30, 2012 ((Won)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 | (Won) | 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 | (Won) | 90,177 | (540 | ) | (6,890 | ) | 82,747 | |||||||||
|
|
|
|
|
|
|
|
S-52
Table of Contents
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 | (Won) | 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 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 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 | (Won) | 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 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 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 | (Won) | 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 | ) | ||||
|
|
|
| |||||
(Won) | 7,108,060 | 5,204,055 | ||||||
|
|
|
|
The carrying amount of financial assets included in other assets above amounted to (Won)7,081,654 million as of June 30, 2012, ((Won)5,165,036 million as of December 31, 2011) and their fair value amounted to (Won)7,076,867 million as of June 30, 2012 ((Won)5,171,629 million as of December 31, 2011).
S-53
Table of Contents
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 | (Won) | 3,383 | 798 | |||||
Bonds | 848,038 | 991,338 | ||||||
|
|
|
| |||||
(Won) | 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 | (Won) | 851,421 | 992,136 | |||||
Principal and interest at maturity | 734,663 | 892,025 | ||||||
|
|
|
| |||||
Difference | (Won) | 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 | (Won) | 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 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 33,116,805 | 33,149,731 | 25,222,278 | 25,247,252 | ||||||||||||
|
|
|
|
|
|
|
|
S-54
Table of Contents
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 | (Won) | 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 | ) | ||||||||||||||
|
| |||||||||||||||
(Won) | 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 | (Won) | 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 | ) | ||||||||||||||
|
| |||||||||||||||
(Won) | 25,842,421 | |||||||||||||||
|
|
S-55
Table of Contents
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 |
| (Won) | 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 | ||||||||||
|
|
|
| |||||||||||
(Won) | 5,160,287 | 5,226,121 | ||||||||||||
|
|
|
|
(*1) | Borrowings from government fund are subordinated borrowings. |
S-56
Table of Contents
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 | (Won) | 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 | |||||||||
|
|
|
| |||||||||
(Won) | 12,740,990 | 13,895,897 | ||||||||||
|
|
|
|
S-57
Table of Contents
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 | (Won) | 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 | |||||||||||||||
|
|
|
| |||||||||||||
(Won) | 47,085,361 | 47,594,720 | ||||||||||||||
|
|
|
|
S-58
Table of Contents
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 | (Won) | 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 | |||||||||||||||
|
|
|
| |||||||||||||
(Won) | 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 | (Won) | 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 | (Won) | 174,666 | 162,471 | |||||
Fair value of plan assets | (147,296 | ) | (144,935 | ) | ||||
|
|
|
| |||||
(Won) | 27,370 | 17,536 | ||||||
|
|
|
|
S-59
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 138,717 | 94 | 115,045 | 79 | |||||||||||
Others | 8,579 | 6 | 29,890 | 21 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 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 | (Won) | 144,935 | 73,994 | |||||
Expected return on plan assets | 2,899 | 1,295 | ||||||
Benefits paid by the plan | (538 | ) | (2,354 | ) | ||||
|
|
|
| |||||
Ending balance | (Won) | 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 | (Won) | 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 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 7,057 | 14,115 | 5,984 | 11,969 | ||||||||||||
|
|
|
|
|
|
|
|
S-60
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 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 | (Won) | 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 (Won)3,726,028 million and (Won)335,758 million, respectively. The Bank provided a provision against contingent loss from pending lawsuits as of June 30, 2012.
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Table of Contents
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 (Won)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 | (Won) | 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 | ) | ||||
|
|
|
| |||||
(Won) | 8,360,072 | 5,908,341 | ||||||
|
|
|
|
The carrying amount of financial liabilities included in other liabilities above amounted to (Won)8,143,442 million as of June 30, 2012, ((Won)5,719,401 million as of December 31, 2011) and their fair value amounted to (Won)8,143,521 million as of June 30, 2012 ((Won)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 (Won)9,251,861 million as of June 30, 2012.
(2) | Capital surplus |
The Bank reduced (Won)5,178,600 million of its issued capital in 1998 and 2000 to offset its accumulated deficit amounting to (Won)5,134,227 million. As the result of the capital reduction, (Won)44,373 million of surplus exceeding accumulated deficit was recorded in capital surplus in equity.
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Table of Contents
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 | (Won) | 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 | ) | ||||
|
|
|
| |||||
(Won) | 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 | (Won) | 559,449 | 9,133 | 2,349 | 570,931 | |||||||||||
Exchange differences on translation of foreign operations | 6,128 | (5,803 | ) | 1,404 | 1,729 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 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 | (Won) | 761,311 | (111,167 | ) | 26,002 | 676,146 | ||||||||||
Exchange differences on translation of foreign operations | (6,272 | ) | (29,304 | ) | 6,447 | (29,129 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 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 | (Won) | 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 | ||||||
|
|
|
| |||||
(Won) | 8,067,960 | 7,796,236 | ||||||
|
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Table of Contents
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 | (Won) | 5,076,393 | 4,658,028 | |||||
Transferred from unappropriated retained earnings | 564,970 | 418,365 | ||||||
|
|
|
| |||||
(Won) | 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 | (Won) | 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 | ) | |||||
|
|
|
| |||||
(Won) | 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 | (Won) | 1,034,949 | — | |||||
Planned reserve for loan losses | 138,327 | 1,034,949 | ||||||
|
|
|
| |||||
(Won) | 1,173,276 | 1,034,949 | ||||||
|
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|
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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 | (Won) | 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 | (Won) | 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 | (Won) | 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 | (Won) | 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 (Won)23,267 million and (Won)15,357 million, respectively, and there was no interest received from impaired assets relating to financial asset other than loans.
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Table of Contents
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 | (Won) | 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 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 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 | (Won) | 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 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 61,635 | 157,437 | 17,534 | 122,118 | ||||||||||||
|
|
|
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|
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Table of Contents
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 | (Won) | 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 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 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 | (Won) | 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 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | (19,965 | ) | (16,727 | ) | (15,905 | ) | (13,670 | ) | ||||||||
|
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S-67
Table of Contents
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 | (Won) | 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 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | (13,079 | ) | 34,643 | 34,243 | 64,072 | |||||||||||
|
|
|
|
|
|
|
|
S-68
Table of Contents
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 | (Won) | 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 | (Won) | 119,605 | 266,335 | 387,005 | 676,506 | |||||||||||
|
|
|
|
|
|
|
|
S-69
Table of Contents
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 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 41,915 | 114,923 | 292,098 | 558,636 | ||||||||||||
|
|
|
|
|
|
|
|
S-70
Table of Contents
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 | (Won) | — | — | — | 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 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | (115,043 | ) | (179,396 | ) | (156,908 | ) | (221,964 | ) | ||||||||
|
|
|
|
|
|
|
|
S-71
Table of Contents
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 | (Won) | 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 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 156,042 | 262,295 | 124,138 | 226,193 | ||||||||||||
|
|
|
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|
|
|
S-72
Table of Contents
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 | (Won) | 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 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | (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) | (Won) | 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 | (Won) | 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-73
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 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 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 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 | (Won) | 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 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 831,930 | (184,913 | ) | 972,401 | (217,362 | ) | 32,449 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
S-74
Table of Contents
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) | (Won) | 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) | (Won) | 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 | (Won) | 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 | (Won) | 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) | (Won) | 8,893,362 | 4,059,430 | 8,946,778 | 4,296,466 |
(*1) Pledged as collateral for bonds sold under repurchase agreements
S-75
Table of Contents
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 | (Won) | 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 | — | |||||||
|
|
|
| |||||
(Won) | 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 | (Won) | (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 | (Won) | 1,063 | (9,498 | ) | ||||
|
|
|
|
The day one profit or loss arose from derivative financial instruments at level 3 fair value hierarchy.
S-76
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 644,072 | 3,523,618 | |||||
Guaranteed principal and interest money trust and trust without guarantees | 4,367,870 | 5,105,610 | ||||||
|
|
|
| |||||
(Won) | 5,011,942 | 8,629,228 | ||||||
|
|
|
| |||||
Principal of money trust | (Won) | 4,927,616 | 8,544,567 | |||||
Income from trust deposits payable | (Won) | 84,326 | 84,661 |
S-77
Table of Contents
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-78
Table of Contents
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 | (Won) | — | 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 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 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 | (Won) | — | 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 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 966,274 | 677,407 | 121,067 | 485,502 | 2,250,250 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
S-79
Table of Contents
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 | (Won) | 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 | ||||||||||||||||||
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28,491 | 190,099 | 111,957 | 31,340 | — | 361,887 | |||||||||||||||||||
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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 | ||||||||||||||||||
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(Won) | 63,120 | 19,417 | 20,292 | 30,091 | 1,301 | 134,221 | ||||||||||||||||||
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(In millions of won) | 2011 | |||||||||||||||||||||||
Controlling entities | Subsidiaries | Associates | Entities under same control | Key management | Total | |||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Interest income | (Won) | 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 | ||||||||||||||||||
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73,430 | 196,702 | 80,785 | 22,691 | — | 373,608 | |||||||||||||||||||
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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 | ||||||||||||||||||
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(Won) | 25,827 | 43,197 | 12,626 | 21,340 | 1,125 | 104,115 | ||||||||||||||||||
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Table of Contents
Korea Development Bank
Notes to the Separate Interim Financial Statements—(Continued)
June 30, 2012
(Unaudited)
(4) | The Bank provided various commitments amounting to (Won)604,157 million and payments guarantees amounting to (Won)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 | (Won) | 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 | ||||||
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3,147,953 | 2,278,704 | |||||||
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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 | ||||||
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3,238,493 | 960,438 | |||||||
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Cash and cash equivalents | (Won) | 5,449,755 | 2,213,347 | |||||
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(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 | (Won) | (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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Table of Contents
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 | (Won) | 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 | (Won) | 205,486 | 205,345 | ( | *1) | ||||||||
KDB SOC securitization SPC | December 7, 2010 | 16,739 | 9,000 | ( | *1) | |||||||||
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(Won) | 222,225 | 214,345 | ||||||||||||
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(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 | (Won) | 202,778 | 203,019 | ( | *1) | ||||||||
KDB SOC securitization SPC | December 7, 2010 | 17,147 | 12,000 | ( | *1) | |||||||||
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(Won) | 219,925 | 215,019 | ||||||||||||
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(*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. |
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Table of Contents
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 | (Won) | 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 | ||||||||||||
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3,188,941 | 28,262,915 | 3,266,931 | 34,718,787 | |||||||||||||
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Financial liabilities: | ||||||||||||||||
Financial liabilities designated at FVTPL | — | 848,038 | 3,383 | 851,421 | ||||||||||||
Derivative financial liabilities | — | 3,821,845 | 46,214 | 3,868,059 | ||||||||||||
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(Won) | — | 4,669,883 | 49,597 | 4,719,480 | ||||||||||||
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December 31, 2011 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Financial assets held-for- trading | (Won) | 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 | ||||||||||||
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3,204,820 | 27,424,279 | 3,267,443 | 33,896,542 | |||||||||||||
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Financial liabilities: | ||||||||||||||||
Financial liabilities designated at FVTPL | — | 991,338 | 798 | 992,136 | ||||||||||||
Derivative financial liabilities | — | 4,205,955 | 83,309 | 4,289,264 | ||||||||||||
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(Won) | — | 5,197,293 | 84,107 | 5,281,400 | ||||||||||||
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S-83
Table of Contents
Korea Development Bank
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 | (Won) | 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 | |||||||||||||||||||||||
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3,267,443 | 67,748 | 32,483 | 133,267 | (259,114 | ) | (6,682 | ) | 31,786 | 3,266,931 | |||||||||||||||||||||||
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Liability: | ||||||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL | 798 | 9 | — | 2,576 | — | — | — | 3,383 | ||||||||||||||||||||||||
Derivative financial liabilities | 83,309 | (63,120 | ) | — | 26,122 | (97 | ) | — | — | 46,214 | ||||||||||||||||||||||
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(Won) | 84,107 | (63,111 | ) | — | 28,698 | (97 | ) | — | — | 49,597 | ||||||||||||||||||||||
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(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 | (Won) | 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 | ||||||||||||||||||||
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2,739,419 | 460,501 | 8,393 | 1,083,434 | (928,691 | ) | 390,018 | 3,753,074 | |||||||||||||||||||||
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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 | |||||||||||||||||||
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(Won) | 91,204 | (42,594 | ) | — | 55,433 | (1,053 | ) | — | 102,990 | |||||||||||||||||||
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S-84
Table of Contents
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 | (Won) | 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 | |||||||||||||||||||||||||||
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5,449,755 | 5,894,515 | — | 27,213,441 | 96,408 | 90,481,391 | — | 1,033,222 | 130,168,732 | ||||||||||||||||||||||||||||
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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 | |||||||||||||||||||||||||||
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(Won) | — | 3,640,362 | 851,421 | — | — | — | 113,124,860 | 227,697 | 117,844,340 | |||||||||||||||||||||||||||
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Table of Contents
Korea Development Bank
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 | (Won) | 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 | |||||||||||||||||||||||||||
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2,019,774 | 7,094,942 | — | 25,713,538 | 110,844 | 85,527,899 | — | 1,086,058 | 121,553,055 | ||||||||||||||||||||||||||||
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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 | |||||||||||||||||||||||||||
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(Won) | — | 4,130,365 | 992,136 | — | — | — | 103,980,759 | 158,899 | 109,262,159 | |||||||||||||||||||||||||||
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S-86
Table of Contents
Korea Development Bank
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 | (Won) | 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 | ||||||||||||||
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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 | ) | ||||||||||||
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| |||||||||||
Operating income | (Won) | 483,143 | 202,524 | 12,544 | 122,918 | 821,129 | ||||||||||||||
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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 | ||||||||||||
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7,159,804 | 8,149,733 | 6,411,788 | 4,925,516 | |||||||||||||
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(*1) | Non-current assets consist of investments in subsidiaries and associates, property and equipments, investment properties, intangible assets |
S-87
Table of Contents
Korea Development Bank
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.
S-88
Table of Contents
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. |
S-89
Table of Contents
Korea Development Bank
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.
S-90
Table of Contents
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.
S-91
Table of Contents
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 | (Won) | 84,079,659 | 79,612,739 | |||||
Past due but not impaired | 288,423 | 240,455 | ||||||
Impaired | 1,643,565 | 1,527,461 | ||||||
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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 | ) | ||||
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| |||||
Net value | (Won) | 85,124,040 | 80,414,794 | |||||
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| |||||
Ratio of allowance for loan loss to total loans | %0.94 | 1.06 |
S-92
Table of Contents
Korea Development Bank
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 | 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- | (Won) | 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 | — | — | — | — | — | — | — | |||||||||||||||||||||
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(Won) | 18,420,981 | 29,456,430 | 1,284,009 | 19,413,644 | 5,392,669 | 10,111,926 | 84,079,659 | |||||||||||||||||||||
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(In millions of | 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- | (Won) | 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 | — | — | — | — | — | — | — | |||||||||||||||||||||
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(Won) | 17,142,243 | 27,936,611 | 905,538 | 19,777,484 | 5,264,944 | 8,585,919 | 79,612,739 | |||||||||||||||||||||
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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 | (Won) | 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 | |||||||||||||||||||||
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(Won) | 36,495 | 234,925 | 67 | 8,425 | 2,680 | 5,831 | 288,423 | |||||||||||||||||||||
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S-93
Table of Contents
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 | (Won) | 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 | ||||||||||||||||||
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(Won) | 84,073 | 73,987 | 26,499 | 41,533 | 14,363 | 240,455 | ||||||||||||||||||
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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 | (Won) | 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 | ||||||||||||||||||
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(Won) | 745,366 | 162,652 | 238,618 | 346,141 | 150,788 | 1,643,565 | ||||||||||||||||||
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(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 | (Won) | 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 | ||||||||||||||||||
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(Won) | 604,815 | 178,812 | 229,249 | 397,553 | 117,032 | 1,527,461 | ||||||||||||||||||
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S-94
Table of Contents
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.
S-95
Table of Contents
Korea Development Bank
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 | (Won) | 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 | ||||||||
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| |||||||
(Won) | 169,377,917 | (4,139,203 | ) | 165,238,714 | ||||||||
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S-96
Table of Contents
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 | (Won) | 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 | ||||||||
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(Won) | 161,252,857 | (4,033,628 | ) | 157,219,229 | ||||||||
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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. |
S-97
Table of Contents
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) | (Won) | 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 | ||||||||||||||||
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| |||||||||||
Financial guarantees | 55,647,265 | — | 35,571 | 612,277 | 56,295,113 | |||||||||||||||
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Credit related commitment (Commitments on loans and others) | 9,553,743 | — | — | 246,774 | 9,800,516 | |||||||||||||||
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| |||||||||||
65,201,008 | — | 35,571 | 859,051 | 66,095,629 | ||||||||||||||||
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| |||||||||||
(Won) | 199,440,417 | 1,162,009 | 1,774,657 | 7,878,850 | 210,255,933 | |||||||||||||||
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S-98
Table of Contents
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) | (Won) | 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 | |||||||||||||||
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121,867,536 | 1,056,670 | 1,571,254 | 6,349,650 | 130,845,110 | ||||||||||||||||
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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 | |||||||||||||||
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68,579,816 | — | 32,858 | 883,013 | 69,495,687 | ||||||||||||||||
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| |||||||||||
(Won) | 190,447,352 | 1,056,670 | 1,604,112 | 7,232,663 | 200,340,797 | |||||||||||||||
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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) | (Won) | — | 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 | ||||||||||||
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| |||||||||
65,811,436 | 58,872,689 | 19,476,178 | 144,160,303 | |||||||||||||
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|
| |||||||||
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 | ||||||||||||
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| |||||||||
44,028,523 | 13,314,147 | 8,752,960 | 66,095,630 | |||||||||||||
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| |||||||||
(Won) | 109,839,959 | 72,186,837 | 28,229,137 | 210,255,933 | ||||||||||||
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S-99
Table of Contents
Korea Development Bank
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) | (Won) | — | 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 | ||||||||||||
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| |||||||||
61,161,265 | 53,656,832 | 16,027,013 | 130,845,110 | |||||||||||||
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|
|
|
|
|
| |||||||||
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 | ||||||||||||
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|
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| |||||||||
45,376,725 | 15,226,439 | 8,892,523 | 69,495,687 | |||||||||||||
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| |||||||||
(Won) | 106,537,990 | 68,883,271 | 24,919,536 | 200,340,797 | ||||||||||||
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|
|
|
|
|
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- | (Won) | 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 | ||||||||||||
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|
|
|
|
|
| |||||||||
(Won) | 2,359,146 | 14,723,825 | 88,642 | 17,171,613 | ||||||||||||
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|
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| |||||||||
(In millions of won) | December 31, 2011 | |||||||||||||||
Due from banks | Available-for-sale financial assets | Held-to-maturity financial assets | Total | |||||||||||||
AAA ~ AA- | (Won) | 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 | ||||||||||||
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|
|
|
| |||||||||
(Won) | 1,611,809 | 14,418,559 | 101,042 | 16,131,410 | ||||||||||||
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S-100
Table of Contents
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 | (Won) | 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 | ||||||
|
|
|
| |||||
(Won) | 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) | (Won) | 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 | ) | ||||
|
|
|
| |||||
(Won) | 15,491,349 | 15,223,839 | ||||||
|
|
|
| |||||
Tier 2 capital (B) : | ||||||||
45% of unrealized gain on financial assets available-for-sale | (Won) | 262,847 | 241,674 | |||||
Term subordinated liabilities | 474,106 | 499,660 | ||||||
Others | 816,109 | 861,326 | ||||||
Deductions | (514,851 | ) | (503,054 | ) | ||||
|
|
|
| |||||
(Won) | 1,038,211 | 1,099,606 | ||||||
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|
|
S-101
Table of Contents
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.
S-102
Table of Contents
Korea Development Bank
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 | (Won) | 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 | ||||||||||||
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|
|
|
|
|
| |||||||||
(Won) | 3,332 | 6,169 | 2,154 | 4,052 | ||||||||||||
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|
| |||||||||
(In millions of won) | Year ended December 31, 2011 | |||||||||||||||
Average | Max | Min | December 31, 2011 | |||||||||||||
Interest rates | (Won) | 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 | ||||||||||||
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| |||||||||
(Won) | 4,279 | 6,067 | 2,774 | 2,778 | ||||||||||||
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|
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|
|
(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-103
Table of Contents
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% | (Won) 320,745 | 86,830 | ||
(In millions of won) | ||||
December 31, 2011 | ||||
Interest rate shock | Interest rate VaR | Interest rate EaR | ||
2.00% | (Won) 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 | (Won) | 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 | |||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net financial position | (Won) | 15,863,353 | 2,025,393 | (1,159,910 | ) | (983,807 | ) | 15,992 | (3,436,629 | ) | 12,324,392 | |||||||||||||||||
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S-104
Table of Contents
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 | (Won) | 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 | |||||||||||||||||||||
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|
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|
|
|
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|
|
| |||||||||||||||
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 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total financial liabilities | 70,614,283 | 28,641,757 | 1,849,230 | 5,653,179 | 21,630 | 2,482,080 | 109,262,159 | |||||||||||||||||||||
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| |||||||||||||||
Net financial position | (Won) | 13,417,112 | 2,740,877 | (699,109 | ) | (1,065,772 | ) | (10,632 | ) | (2,091,581 | ) | 12,290,895 | ||||||||||||||||
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(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-105
Table of Contents
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 | (Won) | 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 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Total financial asset | 19,576,029 | 11,229,242 | 38,208,805 | 53,656,517 | 12,991,509 | 135,662,102 | ||||||||||||||||||
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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 | ||||||||||||||||||
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| |||||||||||||
Total financial liabilities | (Won) | 24,928,983 | 14,353,212 | 38,542,309 | 34,301,501 | 11,564,334 | 123,690,339 | |||||||||||||||||
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S-106
Table of Contents
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 | (Won) | 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 | ||||||||||||||||||
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|
|
|
|
|
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|
|
| |||||||||||||
Total financial asset | 1,368,111 | 162,630 | 304,829 | 143,063 | 444 | 1,979,077 | ||||||||||||||||||
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| |||||||||||||
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 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total financial liabilities | (Won) | 21,495,498 | 12,520,151 | 34,648,628 | 34,209,599 | 11,593,148 | 114,467,024 | |||||||||||||||||
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|
|
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|
|
|
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|
|
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 | (Won) | (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 | ) | ||||||||||||||
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|
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|
| |||||||||||||
(Won) | (51,150 | ) | 523,379 | (37,541 | ) | (797,869 | ) | 1,518,773 | 1,155,592 | |||||||||||||||
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(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 | (Won) | (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 | ) | |||||||||||||
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|
| |||||||||||||
(Won) | (202,635 | ) | 1,044,801 | 54,246 | (900,133 | ) | 1,337,246 | 1,333,525 | ||||||||||||||||
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S-107
Table of Contents
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 | (Won) | 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 | (Won) | 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 | (Won) | 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 | ||||||||||||||||||
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| |||||||||||||
(Won) | 1,885,970 | 1,237,085 | 5,989,454 | 10,000,327 | 6,849,333 | 25,962,169 | ||||||||||||||||||
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| |||||||||||||
(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 | (Won) | 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 | ||||||||||||||||||
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| |||||||||||||
(Won) | 1,901,079 | 4,043,288 | 6,533,517 | 10,524,348 | 8,564,458 | 31,566,690 | ||||||||||||||||||
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S-108
Table of Contents
THE REPUBLIC OF KOREA
The Economy
Gross Domestic Product
Based on preliminary data, GDP growth in the first half of 2012 was 2.6% 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 1.2%, each compared with the corresponding period of 2011.
Prices, Wages and Employment
The inflation rate, on an annualized basis, was 3.0% in the first quarter of 2012 and 2.4% in the second quarter of 2012. 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 1,907.1 on September 4, 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 1,131.8 to US$1.00 on September 4, 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$314.4 billion as of July 31, 2012.
S-109
Table of Contents
The following is a description of some of the terms of the Notes we are offering. Since it is only a summary, we urge you to read the fiscal agency agreement described below and the forms 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 Commission as exhibits to the registration statement no. 333-180821.
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 issued under the fiscal agency agreement, dated as of February 15, 1991, as amended and supplemented from time to time, between us and The Bank of New York (now The Bank of New York Mellon), as fiscal agent. The fiscal agent will maintain a register for the Notes.
Payment of Principal and Interest
The Notes will mature on , 20 (the “Maturity Date”). The Notes will bear interest at the rate of % per annum, payable semi-annually in arrears on March and September of each year (each, an “Interest Payment Date”), beginning on March , 2013. Interest on the Notes will accrue from September , 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.
The payment of interest and the repayment of principal on the Notes will not be guaranteed by the Government. However, under the KDB Act, the Government is obligated to guarantee the payment of the principal of and interest on our foreign currency debt with an original maturity of one year or more at the time of issuance (including the Notes offered hereby) outstanding as of the date of the initial sale of the Government’s equity interest in KDBFG, subject to the authorization of the Government guarantee amount by the National Assembly of the Republic of Korea. See “The Korea Development Bank—Overview” and “—Business—Government Support and Supervision” in the accompanying prospectus.
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
We may not redeem the Notes prior to maturity. At maturity, we will redeem the Notes at par.
Form and Registration
We will issue the Notes 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. Except as described in the accompanying prospectus under “Description of the Securities—Description of Debt Securities—Global Securities,” the global notes will not be exchangeable for Notes in definitive registered form, and will not be issued in definitive registered form.
S-110
Table of Contents
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.”
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.
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 in the accompanying prospectus. 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.
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 so that such further issue shall be consolidated and form a single series with the Notes. We will not issue any such additional debt securities unless such additional securities have no more than ade minimis amount of original issue discount or such issuance would constitute a “qualified reopening” for U.S. federal income tax purposes.
Notices
All notices regarding the Notes will be published in London in the Financial Times and in New York in The 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, and notice in that newspaper will be considered valid notice. Notice will be considered made on the first date of its publication.
S-111
Table of Contents
We have obtained the information in this section from sources we believe to be reliable, including DTC, Euroclear and Clearstream. We accept responsibility only for accurately extracting information from such sources. 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.
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
S-112
Table of Contents
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.
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
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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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United States Tax Considerations
Stated interest on the Notes will be treated as qualified stated interest for U.S. federal income tax purposes. 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 refer to the discussion in “Taxation—Korean Taxation” in the accompanying prospectus and 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. 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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Relationship with the Underwriters
We and the underwriters named below (the “Underwriters”) have entered into a Terms Agreement dated September , 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. Credit Suisse Securities (USA) LLC, The Hongkong and Shanghai Banking Corporation Limited, J.P. Morgan Securities LLC, KDB Asia Limited, Morgan Stanley & Co. International plc and The Royal Bank of Scotland plc are acting as representatives of the Underwriters. 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 | |||
Credit Suisse Securities (USA) LLC | US$ | |||
The Hongkong and Shanghai Banking Corporation Limited | ||||
J.P. Morgan Securities LLC | ||||
KDB Asia Limited | ||||
Morgan Stanley & Co. International plc | ||||
The Royal Bank of Scotland plc | ||||
|
| |||
Total | US$ | |||
|
|
KDB Asia Limited, one of the Underwriters, is our affiliate and has agreed to offer and sell the Notes only outside the United States to non-U.S. persons.
Under the terms and conditions of the Underwriting Agreement, if the Underwriters take any of the Notes, then the Underwriters are obligated to take and pay for all of the Notes.
The Underwriters initially propose to offer the Notes directly to the public at the offering price described on the cover page of this prospectus supplement. 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. Application will be made to the SGX-ST for the listing and quotation of the Notes. There can be no assurance that such listing will be obtained. 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$ after deducting the underwriting discounts but not estimated expenses. Expenses associated with this offering are estimated to be approximately US$ .
The Underwriters and certain of their affiliates may have performed certain commercial banking, investment banking and advisory services for us and/or our affiliates from time to time for which they have received
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customary fees and expenses and may, from time to time, engage in transactions with and perform services for us and/or our affiliates in the ordinary course of their business.
The Underwriters or certain of their affiliates may purchase Notes and be allocated Notes for asset management and/or proprietary purposes but not with a view to distribution. The Underwriters or their respective affiliates may purchase Notes for its or their own account and enter into transactions, including credit derivatives, such as asset swaps, repackaging and credit default swaps relating to Notes and/or other securities of us or our subsidiaries or affiliates at the same time as the offer and sale of Notes or in secondary market transactions. Such transactions would be carried out as bilateral trades with selected counterparties and separately from any existing sale or resale of Notes to which this prospectus supplement relates (notwithstanding that such selected counterparties may also be purchasers of Notes).
Delivery of the Notes
We expect to make delivery of the Notes, against payment in same-day funds on or about September , 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 next 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 (i) 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 (ii) 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 (i) 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 (ii) 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
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(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) 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 has 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 (i) to an institutional investor 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 (as 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;
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(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, Credit Suisse Securities (USA) LLC (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 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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The validity of the Notes is being passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York, and by Jipyong & Jisung, 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 Jipyong & Jisung, and Jipyong & Jisung may rely as to matters of New York law upon the opinions of Cleary Gottlieb Steen & Hamilton LLP.
OFFICIAL STATEMENTS AND DOCUMENTS
Our Chief Executive Officer and Chairman of the Board of Directors, in his official capacity, has supplied the information set forth in this prospectus supplement under “Recent Developments—The Korea Development Bank.” 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.
We were established in 1954 as a government-owned financial institution pursuant to The Korea Development Bank Act, as amended. The address of our registered office is 16-3, Youido-dong, Yongdeungpo-gu, Seoul 150-973, The Republic of Korea.
Our Board of Directors can be reached at the address of our registered office: c/o 16-3, Youido-dong, Yongdeungpo-gu, Seoul 150-973, The Republic of Korea.
The issue of the Notes has been authorized by a resolution of our Board of Directors passed on November 25, 2011 and a decision of our Chief Executive Officer and Chairman of the Board of Directors dated August 22, 2012. On August 29, 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 |
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PROSPECTUS
$5,000,000,000
The Korea Development Bank
Debt Securities
Warrants to Purchase Debt Securities
Guarantees
The Republic of Korea
Guarantees
We will provide the specific terms of these securities in supplements to this prospectus. You should read this prospectus and any prospectus supplement carefully before you invest.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus is dated June 26, 2012
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CERTAIN DEFINED TERMS AND CONVENTIONS
All references to the “Bank”, “we”, “our” or “us” mean The Korea Development Bank. All references to “Korea” or the “Republic” contained in this prospectus mean The Republic of Korea. All references to the “Government” mean the government of Korea.
Unless otherwise indicated, all references to “won”, “Won” or “(Won)” contained in this prospectus are to the currency of Korea, references to “U.S. dollars”, “Dollars”, “$”, “USD” or “US$” are to the currency of the United States of America, references to “Euro”, “EUR” or “€” are to the currency of the European Union, references to “Japanese yen”, “JPY” or “¥” are to the currency of Japan, references to “Singapore dollar” or “SGD” are to the currency of Singapore, references to “Swiss franc” or “CHF” are to the currency of Switzerland, references to “pound sterling”, “GBP” or “£” are to the currency of the United Kingdom, references to “Chinese offshore renminbi” or “CNH” are to the currency of the People’s Republic of China traded outside of mainland China, references to “Hong Kong dollar” or “HKD” are to the currency of Hong Kong, S.A.R., references to “Malaysian ringgit” or “MYR” are to the currency of Malaysia, references to “Indian rupee” or “INR” are to the currency of India, references to “Thai baht” or “THB” are to the currency of Thailand, references to “Australian dollar” or “AUD” are to the currency of Australia, references to “Norwegian krone” or “NOK” are to the currency of Norway and references to “Brazilian real” or “BRL” are to the currency of the Federative Republic of Brazil.
All discrepancies in any table between totals and the sums of the amounts listed are due to rounding.
Prior to 2011, we prepared our financial statements in accordance with generally accepted accounting principles in Korea (“Korean GAAP” or “K-GAAP”). Commencing in 2011, we prepare our financial statements in accordance with International Financial Reporting Standards as adopted in Korea (“Korean IFRS” or “K-IFRS”) and our separate financial information as of December 31, 2010 and 2011 and for the years ended December 31, 2010 and 2011 included in this prospectus has been prepared in accordance with Korean IFRS, which differs in certain significant respects from Korean GAAP. Note 48 of the notes to our separate financial statements as of December 31, 2010 and 2011 and for the years ended December 31, 2010 and 2011 included in this prospectus provides a description of the effects of the conversion from Korean GAAP to Korean IFRS. References in this prospectus to “separate” financial statements and information are to financial statements and information prepared on a non-consolidated basis. Unless specified otherwise, our financial and other information included in this prospectus is presented on a separate basis in accordance with Korean IFRS and does not include such information with respect to our subsidiaries.
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Unless otherwise specified in the applicable prospectus supplement, we will use the net proceeds from the sale of the securities for our general operations.
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We were established in 1954 as a government-owned financial institution pursuant to The Korea Development Bank Act, as amended (the “KDB Act”). Since our establishment, we have been the leading bank in the Republic with respect to the provision of long-term financing for projects designed to assist the nation’s economic growth and development. The Government indirectly owns all of our paid-in capital. Our registered office is located at 16-3 Youido-dong, Youngdeungpo-gu, Seoul, The Republic of Korea.
In June 2008, the Financial Services Commission announced the Government’s preliminary plan for our privatization and, in May 2009, the KDB Act was amended to facilitate our privatization. The preliminary plan reflected the Government’s intention to nurture a more competitive corporate and investment banking sector and trigger reorganization and further advancement of the Korean financial industry.
As a first step in implementing our privatization, the Government established KDB Financial Group, or KDBFG, a financial holding company, and Korea Finance Corporation, or KoFC, a public policy financing vehicle, in October 2009, by spinning off a portion of our assets, liabilities and equity. In the spin-off, our interests in Daewoo Securities Co., Ltd., KDB Asset Management Co., Ltd. and KDB Capital Corp. were transferred to KDBFG, and our equity holdings in certain government-controlled companies, including Korea Electric Power Corporation, or KEPCO, and certain companies under restructuring programs, including Hyundai Engineering & Construction Co., Ltd., were transferred to KoFC. The Government transferred its ownership interest in us to KDBFG in exchange for all of KDBFG’s share capital on November 24, 2009 and contributed 94.27% of KDBFG’s shares to KoFC as a capital contribution on December 30, 2009 based on preliminary valuation of KDBFG shares as of December 31, 2009. In March 2010, the Government made a further capital contribution of (Won)10.0 billion in cash to KDBFG. In July 2010, KDBFG’s valuation as of December 30, 2009 was finalized and the Government’s initial contribution was adjusted to reflect an increase in the value of the KDBFG shares. As KoFC’s authorized capital is (Won)15,000.0 billion, KoFC is permitted to hold only that percentage of KDBFG shares of which the aggregate value (together with cash contributed by the Government) does not exceed (Won)15,000.0 billion. Accordingly, as of the date of this prospectus, KoFC, which is wholly owned by the Government, owns 90.26% of KDBFG’s share capital and the Government directly owns 9.74% of KDBFG’s share capital. KDBFG owns 100.0% of our share capital.
The following diagram shows our ownership structure before and after the spin-off and the share transfer.
Under the KDB Act, as amended in May 2009, the sale of KDBFG’s shares directly or indirectly owned by the Government is to commence by May 2014, and the Government will guarantee the repayment of the principal of and interest on our foreign currency debt with an original maturity of one year or more at the time of issuance (“mid-to-long term foreign currency debt”) outstanding as of the date of the initial sale of its direct or indirect
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equity interest in KDBFG, subject to the authorization by the National Assembly of the Government guarantee amount. Pursuant to the KDB Act and the Enforcement Decree of the KDB Act (the “KDB Decree”), the Government may also directly or indirectly guarantee, within the limit and scope determined by the Government and subject to the authorization by the National Assembly, the repayment of the principal of and interest on our mid-to-long term foreign currency debt incurred during the period when the Government directly or indirectly owns more than 50% of KDBFG to refinance our foreign currency debt referred to in the preceding sentence, in the event that (i) the repayment of our outstanding foreign currency debt would be difficult unless the Government provides a guarantee, (ii) the terms and conditions of our newly incurred foreign currency debt would become notably unfavorable unless the Government provides a guarantee or (iii) any other circumstances equivalent to (i) or (ii) above exist, as determined by the Minister of Strategy and Finance. In addition, the Government’s financial support to us stipulated by Article 44 of the KDB Act is expected to remain effective for so long as the Government owns, directly or indirectly, a majority of our share capital. For more information on the Government’s financial support under the KDB Act, see “—Business—Government Support and Supervision.”
We expect that both we and KoFC will perform policy bank roles until the Government through KoFC transfers a controlling stake in KDBFG to unrelated third parties and ceases to hold a majority ownership interest in us. Under the KDB Act, as amended in May 2009, if the Government ceases to be our controlling shareholder, the Government’s financial support to us stipulated by Article 44 of the KDB Act is expected to cease to be provided.
However, the implementation of the Government’s privatization plan may be delayed or changed depending on a variety of factors, such as domestic and international economic conditions, and the timing discussed above is only preliminary and is subject to change. There can be no assurance that such privatization plan will be implemented as contemplated or that the contemplated privatization will be implemented at all. In addition, the Government’s financial support to us under the KDB Act may be discontinued in connection with the privatization and the Government may decide not to provide direct guarantees for the notes offered hereby or otherwise protect our creditworthiness.
Our primary purpose, as stated in the KDB Act, the KDB Decree and our Articles of Incorporation, is to “furnish funds in order to expedite the development of the national economy.” We make loans available to major industries for equipment, capital investment and the development of high technology, as well as for working capital.
As of December 31, 2011, we had (Won)81,380.7 billion of loans outstanding (including loans, call loans, domestic usance, bills of exchange bought, local letters of credit negotiation and loan-type suspense accounts pursuant to the applicable guidelines without adjusting for allowance for possible loan losses, present value discounts and deferred loan fees), total assets of (Won)127,874.4 billion and total equity of (Won)17,658.0 billion, as compared to (Won)72,057.4 billion of loans outstanding, (Won)113,949.9 billion of total assets and (Won)16,733.0 billion of total equity as of December 31, 2010. In 2011, we recorded interest income of (Won)4,574.4 billion, interest expense of (Won)2,996.7 billion and net income of (Won)1,412.4 billion, as compared to (Won)4,450.3 billion of interest income, (Won)2,823.0 billion of interest expense and (Won)1,072.7 billion of net income in 2010. See “—Selected Financial Statement Data.”
Currently, the Government indirectly holds all of our paid-in capital. In addition to contributions to our capital, the Government provides direct financial support for our financing activities, in the form of loans or guarantees. The Government, through KDBFG, our sole shareholder, has the power to elect or dismiss our Chairman and Chief Executive Officer, members of our Board of Directors and Auditor. Pursuant to the KDB Act, the Financial Services Commission has supervisory power and authority over matters relating to our general business including, but not limited to, capital adequacy and managerial soundness.
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The Government supports our operations pursuant to Article 44 of the KDB Act. Article 44 provides that “the annual net losses of the Korea Development Bank shall be offset each year by the reserve, and if the reserve be insufficient, the deficit shall be replenished by the Government.” As a result of the KDB Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserve, consisting of our surplus and capital surplus items, is insufficient to cover our annual net losses. In light of the above, if we had insufficient funds to make any payment under any of our obligations, including the debt securities and guarantees covered by this prospectus, the Government would take appropriate steps, such as by making a capital contribution, by allocating funds or by taking other action, to enable us to make such payment when due. The provisions of Article 44 do not, however, constitute a direct guarantee by the Government of our obligations under the debt securities or the guarantees, and the provisions of the KDB Act, including Article 44, may be amended at any time by action of the National Assembly. If the Government ceases to be our controlling shareholder as a result of our privatization, the Government’s financial support to us stipulated by Article 44 of the KDB Act is expected to cease to be provided.
In January 1998, the Government amended the KDB Act to:
• | subordinate our borrowings from the Government to other indebtedness incurred in our operations; |
• | allow the Government to offset any deficit that arises if our reserve fails to cover our annual net losses by transferring Government-owned property, including securities held by the Government, to us; and |
• | allow direct injections of capital by the Government without prior National Assembly approval. |
The Government amended the KDB Act in May 1999 and the KDB Decree in March 2000, to allow the Financial Services Commission to supervise and regulate us in terms of capital adequacy and managerial soundness.
In March 2002, the Government amended the KDB Act to enable us, among other things, to:
• | obtain low-cost funds from The Bank of Korea and from the issuance of debt securities (in addition to already permitted Industrial Finance Bonds), which funds may be used for increased levels of lending to small and medium size enterprises; |
• | broaden the scope of borrowers to which we may extend working capital loans to include companies in the manufacturing industry, enterprises which are “closely related” to enhancing the corporate competitiveness of the manufacturing industry and leading-edge high-tech companies; and |
• | extend credits to mergers and acquisitions projects intended to facilitate corporate restructuring efforts. |
In July 2005 and May 2009, the Government amended Article 43 of the KDB Act. The revised Article 43 provides that:
(1) | our annual net profit, after adequate allowances are made for depreciation in assets, shall be distributed as follows: |
(i) | forty percent or more of the net profit shall be credited to reserve, until the reserve amounts equal the total amount of paid-in capital; and |
(ii) | any net profit remaining following the apportionment required under subparagraph (i) above shall be distributed in accordance with the resolution of our Board of Directors and the approval of our shareholders; |
(2) | accumulated amounts in reserve may be capitalized; and |
(3) | any distributions made in accordance with paragraph (1)(ii) above may be in the form of cash dividends or dividends in kind, provided that any distributions of dividends in kind must be made in accordance with applicable provisions of the KDB Decree. |
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In February 2008, the Government further amended the KDB Act, primarily to transfer most of the Government’s supervisory authority over us from the Ministry of Strategy and Finance (formerly the Ministry of Finance and Economy) to the Financial Services Commission.
In May 2009, the Government amended the KDB Act to facilitate our privatization. The amendment provided for, among others:
• | the preparation for the transformation of us from a special statutory entity into a corporation, including the application of the Banking Act as applicable; |
• | the expansion of our operation scope that enables us to engage in commercial banking activities, including retail banking; |
• | the provision of government guarantees for our mid-to-long term foreign currency debt outstanding at the time of initial sale of the Government’s stake in KDBFG (subject to the National Assembly’s authorization of the Government guarantee amount) and possible guarantees for our foreign currency debt incurred for the refinancing of such mid-to-long term foreign currency debt with the government guarantee during the period when the Government owns more than 50% of our shares; and |
• | the establishment of KDBFG and KoFC and application of the Financial Holding Company Act to KDBFG. |
The revised KDB Act, which was filed as an exhibit to the registration statement of which this prospectus forms a part, became effective as of November 18, 2010.
In January 2012, the Government took three Government-owned financial institutions (including us) off the list of public institutions to grant them more autonomy in such areas as budgeting and human resources and to facilitate their privatization. Although the Government has previously announced plans to privatize us, the specific timing and procedure for our privatization have not yet been announced.
The Minister of Strategy and Finance of the Republic has, on behalf of the Republic, signed the registration statement of which this prospectus forms a part.
As of December 31, 2011, our authorized capital was (Won)15,000 billion and capitalization was as follows:
December 31, 2011(1) | ||||
(billions of won) (unaudited) | ||||
Long-term debt: | ||||
Won currency borrowings | (Won) | 4,685.2 | ||
Industrial finance bonds | 46,032.7 | |||
Foreign currency borrowings | 4,966.8 | |||
|
| |||
Total long-term debt | 55,684.7 | (2)(3) | ||
|
| |||
Capital: | ||||
Paid-in capital | 9,251.9 | |||
Capital surplus | 44.4 | |||
Retained earnings | 7,796.2 | |||
Accumulated other comprehensive income | 565.6 | |||
|
| |||
Total capital | 17,658.0 | |||
|
| |||
Total capitalization | (Won) | 73,342.7 | ||
|
|
(1) | Except as disclosed in this prospectus, there has been no material adverse change in our capitalization since December 31, 2011. |
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(2) | We have translated borrowings in foreign currencies into Won at the rate of (Won)1,153.3 to US$1.00, which was the market average exchange rate, as announced by the Seoul Monetary Brokerage Services Ltd., on December 31, 2011. |
(3) | As of December 31, 2011, we had contingent liabilities totaling (Won)12,965.1 billion under outstanding guarantees issued on behalf of our clients. |
Purpose and Authority
Since our establishment, we have been the leading bank in the Republic in providing long-term financing for projects designed to assist the nation’s economic growth and development.
Under the KDB Act, the KDB Decree and our Articles of Incorporation, our primary purpose is to “furnish funds for the expansion of the national economy.” Since we serve the public policy objectives of the Government, we do not seek to maximize profits. We do, however, strive to maintain a level of profitability to strengthen our equity base and support growth in the volume of our business.
Under the KDB Act, we may:
• | carry out activities necessary to accomplish the expansion of the national economy, subject to the approval of the Financial Services Commission; |
• | provide loans or discount notes; |
• | subscribe to, underwrite or invest in securities; |
• | guarantee or assume indebtedness; |
• | raise funds by accepting demand deposits and time and savings deposits from the general public, issuing securities, borrowing from the Government, The Bank of Korea or other financial institutions, and borrowing from overseas; |
• | execute foreign exchange transactions, including currency and interest swap transactions; |
• | provide planning, management, research and other support services at the request of the Government, public bodies, financial institutions or enterprises; and |
• | carry out other businesses incidental to the foregoing. |
Government Support and Supervision
The Government owns indirectly all of our paid-in capital. On February 20, 2000, the Government contributed (Won)100 billion in cash to our capital. On December 29, 2000, we reduced our paid-in capital by (Won)959.8 billion to offset our expected net loss for the year. To compensate for the resulting deficit under the KDB Act, on June 20, 2001, the Government contributed (Won)3 trillion in the form of shares of common stock of KEPCO to our capital. On December 29, 2001, the Government contributed (Won)50 billion in cash to our capital. On August 13, 2003, the Government contributed (Won)80 billion in cash to our capital to support our existing fund for facilitating the Republic’s regional economies. On April 30, 2004, the Government contributed (Won)1 trillion in the form of shares of common stock of KEPCO and Korea Water Resources Corporation to our capital to support our lending to small-and medium-sized companies and to compensate for our contribution to LG Card Ltd. in the form of loans, cash injections and debt-for-equity swaps. On December 19, 2008, the Government contributed (Won)500 billion in the form of shares of common stock of Korea Expressway Corporation to our capital and, in January 2009, the Government contributed (Won)900 billion in cash to our capital, in each case to bolster our capital base in order to stabilize the Korean financial market by supporting small and medium-sized enterprises and providing increased liquidity to corporations. In October 2009, our paid-in capital decreased by (Won)400.0 billion in connection with the establishment by the Government of KDBFG and KoFC by spinning off a portion of our
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assets, liabilities and equity (including paid-in capital) as described under the heading “Overview” and “Selected Financial Statement Data” in this prospectus. In March 2010, the Government, through KDBFG, made a further capital contribution of (Won)10.0 billion in cash to our capital. Taking into account these capital contributions and reduction, as of December 31, 2011, our total paid-in capital was (Won)9,251.9 billion. See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2011 and 2010—Note 37.”
In addition to capital contributions, the Government directly supports our financing activities by:
• | lending us funds to on-lend; |
• | allowing us to administer Government loans made from a range of special Government funds; |
• | allowing us to administer some of The Bank of Korea’s surplus foreign exchange holdings; and |
• | allowing us to receive credit from The Bank of Korea. |
The Government also supports our operations pursuant to Articles 43 and 44 of the KDB Act. Article 43 provides that “40% or more of the annual net profit of the Korea Development Bank shall be transferred to reserve, until the reserve amounts equal the total amount of paid-in capital” and that accumulated amounts in reserve may be capitalized. Article 44 provides that “the net losses of the Korea Development Bank shall be offset each fiscal year by the reserve, and if the reserve be insufficient, the deficit shall be replenished by the Government.”
As a result of the KDB Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserve, consisting of our surplus and capital surplus items, is insufficient to cover our annual net losses. In light of the above, if we had insufficient funds to make any payment under any of our obligations, including the debt securities and the guarantees covered by this prospectus, the Government would take appropriate steps, such as by making a capital contribution, by allocating funds or by taking other action, to enable us to make such payment when due. The provisions of Article 44 do not, however, constitute a direct guarantee by the Government of our obligations under the debt securities or the guarantees, and the provisions of the KDB Act, including Article 44, may be amended at any time by action of the National Assembly. If the Government ceases to be our controlling shareholder as a result of our privatization, the Government’s financial support to us stipulated by Article 44 of the KDB Act is expected to cease to be provided.
When the initial sale by the Government of its equity interest in KDBFG is made by May 2014 in accordance with the KDB Act, as amended in May 2009, the Government will guarantee the repayment of the principal of and interest on our mid-to-long term foreign currency debt outstanding as of the date of the initial sale of its equity interest in KDBFG, subject to the authorization by the National Assembly of the Government guarantee amount, pursuant to Article 18-2 of the KDB Act. In addition, under Article 18-2 of the KDB Act, the Government may directly or indirectly guarantee, within the limit and scope determined by the Government and subject to the authorization by the National Assembly, the repayment of the principal of and interest on our mid-to-long term foreign currency debt incurred during the period when the Government directly or indirectly owns more than 50% of KDBFG to refinance our foreign currency debt referred to in the preceding sentence, in the event that (i) the repayment of our outstanding foreign currency debt would be difficult unless the Government provides a guarantee, (ii) the terms and conditions of our newly incurred foreign currency debt would become notably unfavorable unless the Government provides a guarantee or (iii) any other circumstances equivalent to (i) or (ii) above exist, as determined by the Minister of Strategy and Finance.
The Government closely supervises our operations in the following ways:
• | the Government, through KDBFG, our sole shareholder, has the power to elect or dismiss our Chairman and Chief Executive Officer, members of our Board of Directors and Auditor; |
• | within three months after the end of each fiscal year, we must submit our financial statements for the fiscal year to the Financial Services Commission; |
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• | the Financial Services Commission has broad authority to require reports from us on any matter and to examine our books, records and other documents. On the basis of the reports and examinations, the Financial Services Commission may issue any orders deemed necessary to enforce the KDB Act; |
• | the Financial Services Commission must approve our operating manual, which sets out the guidelines for all principal operating matters; |
• | the Financial Services Commission may supervise our operations to ensure managerial soundness based upon the KDB Decree and the Bank Supervisory Regulations of the Financial Services Commission and may issue orders deemed necessary for such supervision; and |
• | we may amend our Articles of Incorporation only with the approval of the Financial Services Commission. |
In addition, the conditions of the IMF aid package stated that domestic banks in the Republic, including us, should undergo external audits from internationally recognized accounting firms. Accordingly, we have had our annual financial statements for years commencing 1998 audited by an external auditor. See “—Financial Statements and the Auditors” and “Experts.”
Pursuant to our most recently approved program of operations, we expect to support the reform and restructuring of the Republic’s economic and industrial structure, including financing of promising small and medium sized enterprises, providing export finance and encouraging investments in infrastructure necessary to promote consumer demand and industrial reorganization.
Selected Financial Statement Data
You should read the following financial statement data together with the financial statements and notes included in this prospectus. Unless specified otherwise, the information provided below is stated on a separate basis in accordance with Korean IFRS.
Consolidated Financial Statement Data
The following tables present selected consolidated financial information as of and for the years ended December 31, 2010 and 2011, which has been derived from our consolidated K-IFRS financial statements as of and for the years ended December 31, 2010 and 2011.
As of December 31, | ||||||||
2010 | 2011 | |||||||
(billions of won) (audited) | ||||||||
Balance Sheet Data | ||||||||
Total Loans(1) | 75,218.9 | 83,668.9 | ||||||
Total Borrowings(2) | 88,939.2 | 103,624.2 | ||||||
Total Assets | 125,984.2 | 149,021.8 | ||||||
Total Liabilities | 108,877.9 | 128,448.1 | ||||||
Shareholder’s Equity | 17,106.3 | 20,573.7 |
(1) | Gross amount, which includes loans for facility development, loans for working capital, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans without adjusting for allowance for loan losses, present value discounts and deferred loan fees. |
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(2) | Total Borrowings include due to customers, financial liabilities designated at fair value through profit or loss (“FVTPL”), borrowings and debt issued. |
Year Ended December 31, | ||||||||
2010 | 2011 | |||||||
(billions of won) (audited) | ||||||||
Income Statement Data | ||||||||
Total Interest Income | 4,854.3 | 5,036.8 | ||||||
Total Interest Expenses | 2,939.0 | 3,136.7 | ||||||
Net Interest Income | 1,915.3 | 1,900.1 | ||||||
Operating Income | 1,472.2 | 1,642.8 | ||||||
Net Income | 1,320.8 | 1,340.3 |
Separate Financial Statement Data
The following tables present selected separate financial information as of and for the years ended December 31, 2010 and 2011, which has been derived from our separate K-IFRS financial statements as of and for the years ended December 31, 2010 and 2011 included in this prospectus.
As of December 31, | ||||||||
2010 | 2011 | |||||||
(billions of won) (audited) | ||||||||
Balance Sheet Data | ||||||||
Total Loans(1) | 72,057.4 | 81,380.7 | ||||||
Total Borrowings(2) | 85,994.4 | 99,253.5 | ||||||
Total Assets | 113,949.9 | 127,874.4 | ||||||
Total Liabilities | 97,216.9 | 110,216.4 | ||||||
Shareholder’s Equity | 16,733.0 | 17,658.0 |
(1) | Gross amount, which includes loans for facility development, loans for working capital, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans without adjusting for allowance for loan losses, present value discounts and deferred loan fees. |
(2) | Total Borrowings include due to customers, financial liabilities designated at FVTPL, borrowings and debt issued. |
Year Ended December 31, | ||||||||
2010 | 2011 | |||||||
(billions of won) (audited) | ||||||||
Income Statement Data | ||||||||
Total Interest Income | 4,450.3 | 4,574.4 | ||||||
Total Interest Expenses | 2,823.0 | 2,996.7 | ||||||
Net Interest Income | 1,627.3 | 1,577.7 | ||||||
Operating Income | 1,628.1 | 1,813.2 | ||||||
Net Income | 1,072.7 | 1,412.4 |
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2011
We had net income of (Won)1,412.4 billion in 2011 compared to net income of (Won)1,072.7 billion in 2010, on a separate K-IFRS basis.
Principal factors for the increase in net income in 2011 compared to 2010 included:
• | a decrease in credit loss expense to (Won)208.1 billion in 2011 from (Won)966.0 billion in 2010, primarily due to a decrease in non-performing loans; |
• | an increase in net gain from foreign currency transactions and derivative financial instruments to (Won)502.6 billion in 2011 from (Won)143.4 billion in 2010, primarily due to a valuation gain 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; |
• | a decrease in impairment losses on investments in subsidiaries and associates to (Won)3.9 billion in 2011 from (Won)115.1 billion in 2010; the (Won)115.1 billion of impairment losses on investments in subsidiaries and associates in 2010 reflected principally the impairment loss on investments in Banco KDB do Brasil S.A. (our Brazilian subsidiary); and |
• | an increase in net fee and commission income to (Won)541.7 billion in 2011 from (Won)492.8 billion in 2010, primarily due to an increase in advisory and arrangement commissions. |
The above factors were partially offset by a decrease in net gain from financial assets available-for-sale to (Won)16.2 billion in 2011 from (Won)1,045.7 billion in 2010, primarily due to a decrease in sales of available-for-sale securities.
Provisions for Possible Loan Losses and Loans in Arrears
We establish provisions for possible losses from problem loans, including guarantees and other extensions of credit, based on the length of the delinquent periods and the nature of the loans, including guarantees and other extensions of credit. As of December 31, 2011, we established provisions of (Won)865.3 billion for possible loan losses, 24.5% lower than the provisions as of December 31, 2010 of (Won)1,145.4 billion. The provisions for possible loan losses under Korean IFRS are recorded for those loans for which objective evidence of impairment exists as a result of one or more events that occurred after initial recognition and, if our provision for possible loan losses is deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for possible loan losses, which will be deducted from retained earnings. See Notes 37, 48 and 50 of the notes to our separate financial statements included in this prospectus.
Certain of our customers have restructured loans with their creditor banks. As of December 31, 2011, we have provided loans of (Won)4,516.6 billion for companies under workout, court receivership, court mediation and other restructuring procedures. In addition, as of such date, we held equity securities of such companies in the amount of (Won)1,282.8 billion following debt-equity swaps. As of December 31, 2011, we had established provisions of (Won)533.1 billion for possible loan losses. We cannot assure you that actual results of the credit loss from the loans to these customers will not exceed the provisions reserved.
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The following table provides information on our loan loss provisions.
As of December 31, 2010(1) | As of December 31, 2011(1) | |||||||||||||||||
Loan Amount | Loan Loss Provisions | Loan Amount | Loan Loss Provisions | |||||||||||||||
(billions of won) | ||||||||||||||||||
Loan Classification | Normal(2) | (Won) | 67,883.6 | (Won) | 271.7 | (Won) | 77,874.8 | (Won) | 229.3 | |||||||||
Precautionary | 2,505.7 | 260.8 | 2,054.5 | 153.0 | ||||||||||||||
Substandard | 1,389.2 | 435.4 | 1,301.4 | 395.7 | ||||||||||||||
Doubtful | 49.7 | 34.9 | 10.1 | 6.3 | ||||||||||||||
Expected Loss | 229.2 | 142.6 | 139.9 | 81.0 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | (Won) | 72,057.4 | (Won) | 1,145.4 | (Won) | 81,380.7 | (Won) | 865.3 | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Loans impaired(3) | 2,057.0 | 612.4 | 1,527.4 | 556.6 | ||||||||||||||
Loans not impaired | 70,000.4 | 533.0 | 79,853.3 | 308.7 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | (Won) | 72,057.4 | (Won) | 1,145.4 | (Won) | 81,380.7 | (Won) | 865.3 | ||||||||||
|
|
|
|
|
|
|
|
(1) | These figures include loans for facility development, loans for working capital, inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans. |
(2) | Includes loans guaranteed by the Government. Under Korean IFRS, we establish loan loss provisions for all loans including loans guaranteed by the Government. |
(3) | Classified as substandard or below. See note 2 of the notes to our separate financial statements for a summary of significant accounting policies with respect to impairment of loans. |
As of December 31, 2011, our delinquent loans totaled (Won)1,451.4 billion, representing 1.8% of our outstanding loans as of such date. Delinquent loans are defined as loans that are classified as substandard or below. On December 31, 2011, our legal reserve was (Won)5,076.4 billion, representing 6.2% of our outstanding loans as of such date.
Loans to Financially Troubled Companies
We have credit exposure (including loans, guarantees and equity investments) to a number of financially troubled Korean companies including Kumho Tire Co., Inc., Daehan Shipbuilding Co., Ltd., Kumho Industrial, Daewoo Motor Sales and Hanil Engineering & Construction Co., Ltd. As of December 31, 2011, our credit extended to these companies totaled (Won)2,159.1 billion, accounting for 1.7% of our total assets as of such date.
As of December 31, 2011, our exposure (including loans classified as substandard or below and equity investment classified as estimated loss or below) to Kumho Tires increased to (Won)1,088.2 billion from (Won)1,082.4 billion as of December 31, 2010, primarily due to extension of additional loans. As of December 31, 2011, our exposure to Daehan Shipbuilding was (Won)369.6 billion, a decrease from (Won)586.9 billion as of December 31, 2010, primarily due to repayment of debt. As of December 31, 2011, our exposure to Kumho Industrial decreased to (Won)289.2 billion from (Won)353.1 billion as of December 31, 2010, primarily due to repayment of debt. As of December 31, 2011, our exposure to Daewoo Motor Sales decreased to (Won)222.4 billion from (Won)351.7 billion as of December 31, 2010, primarily due to Daewoo Motor Sales’ split-off into three entities upon the consummation of its reorganization. As of December 31, 2011, our exposure to Hanil Engineering & Construction decreased to (Won)189.7 billion from (Won)192.2 billion as of December 31, 2010, primarily due to a decrease in the Won value of loans denominated in certain foreign currencies as a result of the appreciation of the Won against those foreign currencies.
As of December 31, 2011, we established provisions of (Won)60.4 billion for our exposure to Kumho Tires, (Won)13.2 billion for Daehan Shipbuilding, (Won)12.3 billion for Kumho Industrial, (Won)88.1 billion for Daewoo Motor Sales and (Won)2.1 billion for Hanil Engineering & Construction.
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In January 2010, Kumho Tires Co., Inc. and Kumho Industrial Co., Ltd. agreed with their creditors, including us, to begin an out-of-court debt restructuring program under the Corporate Restructuring Promotion Act. In March and May 2010, the creditors of these companies agreed on work-out plans, which included debt-to-equity swaps and extensions of additional credit. In connection with these work-out plans, we provided emergency loans of (Won)100.0 billion and (Won)280.0 billion to Kumho Tires and Kumho Industrial, respectively. We and other creditors of Kumho Tires and Kumho Industrial decided to freeze the repayment of both companies’ debt until December 31, 2014. In addition, we and other creditors of Kumho Petrochemical Co., Ltd. and Asiana Airlines decided to freeze the repayment of both companies’ debt until December 31, 2011, which was later extended to December 31, 2012. These four companies are members of Kumho Asiana Group, which has been undergoing financial difficulties resulting from its heavily leveraged purchase of Daewoo Engineering & Construction Co., Ltd. (“Daewoo E&C”) in 2006. We, a main creditor of Kumho Asiana Group, has acquired 50.75% of Daewoo E&C by participating in a (Won)1,000.0 billion rights issue in December 2010 and by acquiring (Won)2,178.5 billion of additional equity shares through our private equity arm in January 2011. In addition, in December 2011, we converted convertible bonds of Kumho Petrochemical Co., Ltd. into 14.1% of equity shares.
As of December 31, 2011, our exposure to Kumho Tires, Kumho Industrial, Kumho Petrochemical and Asiana Airlines was (Won)1,088.2 billion, (Won)289.2 billion, (Won)1,630.4 billion and (Won)785.6 billion, respectively. As of December 31, 2011, we established provisions of (Won)60.4 billion, (Won)12.3 billion, (Won)7.4 billion and (Won)5.0 billion for our exposure to Kumho Tires, Kumho Industrial, Kumho Petrochemical and Asiana Airlines, respectively.
In 2011, we sold non-performing loans of (Won)625.1 billion to the Korea Asset Management Corporation, or KAMCO.
Loan Operations
We mainly provide equipment capital loans and working capital loans to private Korean enterprises that undertake major industrial projects. The loans generally cover over 50%, and in some cases as much as 100%, of the total project cost. Equipment capital loans include loans to major industries for development of high technology and for acquisition, improvement or repair of machinery and equipment. We disburse loan proceeds in installments to ensure that the borrower uses the loan for its intended purpose.
Before approving a loan, we consider:
• | the economic benefits of the project to the Republic; |
• | the extent to which the project serves priorities established by the Government’s industrial policy; |
• | the project’s operational feasibility; |
• | the loan’s and the project’s profitability; and |
• | the quality of the borrower’s management. |
We charge, on average, interest of 2.47% over our prime rate, although we provide a discount between 0.2% and 0.8% to small- and medium-sized companies. We adjust the prime rate monthly. The spread depends on the purpose of the loan, maturity date and the borrower’s credit ratings. Certain loans bear interest at below market rates. Equipment capital loans generally have original maturities of three to five years, although we occasionally make equipment capital loans with longer maturities. Working capital loans usually mature within two years.
We generally obtain collateral valued in excess of the original loan from large companies and up to the value of the loan from small- and medium-sized companies. Depending on the type of borrower and loan, the collateral may be equipment purchased with the loan proceeds, industrial plants, real estate and marketable securities. We appraise the value of our collateral at least once a year.
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The following table sets out, by currency and category of loan, our total outstanding loans:
Loans(1)
December 31, | ||||||||
2010 | 2011 | |||||||
(billions of won) | ||||||||
Equipment Capital Loans: | ||||||||
Domestic Currency | (Won) | 24,333.0 | (Won) | 28,189.4 | ||||
Foreign Currency(2) | 9,511.4 | 9,015.7 | ||||||
|
|
|
| |||||
33,844.4 | 37,205.1 | |||||||
Working Capital Loans: | ||||||||
Domestic Currency(3) | 13,632.0 | 18,154.8 | ||||||
Foreign Currency(2) | 2,817.4 | 3,965.4 | ||||||
|
|
|
| |||||
16,449.4 | 22,120.2 | |||||||
Other Loans(4) | 21,763.6 | 22,055.4 | ||||||
|
|
|
| |||||
Total Loans | (Won) | 72,057.4 | (Won) | 81,380.7 | ||||
|
|
|
|
(1) | Includes loans extended to affiliates. |
(2) | Includes loans disbursed and repayable in Won, the amounts of which are based upon an equivalent amount of foreign currency. This type of loan totaled (Won)9,593.7 billion as of December 31, 2010 and (Won)9,349.3 billion as of December 31, 2011. See “—Operations—Loan Operations—Loans by Categories—Local Currency Loans Denominated in Foreign Currencies.” |
(3) | Includes loans on households. |
(4) | Includes inter-bank loans, private loans, off-shore loan receivables, loans borrowed from overseas financial institutions, bills bought in foreign currencies, advance payments on acceptances and guarantees and other loans. |
As of December 31, 2011, we had (Won)81,380.7 billion in outstanding loans, representing a 12.9% increase from December 31, 2010.
Maturities of Outstanding Loans
The following table categorizes our outstanding equipment capital and working capital loans by their remaining maturities:
Outstanding Equipment Capital and Working Capital Loans by Remaining Maturities(1)
December 31, | As % of December 31, 2011 Total | |||||||||||
2010 | 2011 | |||||||||||
(billions of won, except percentages) | ||||||||||||
Loans with Remaining Maturities of One Year or Less | (Won) | 19,724.8 | (Won) | 25,769.2 | 43.4 | % | ||||||
Loans with Remaining Maturities of More Than One Year | 30,569.1 | 33,556.2 | 56.6 | % | ||||||||
|
|
|
|
|
| |||||||
Total | (Won) | 50,293.8 | (Won) | 59,325.4 | 100.0 | % | ||||||
|
|
|
|
|
|
(1) | Includes loans extended to affiliates. |
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Loans by Industrial Sector
The following table sets out the total amount of our outstanding equipment capital and working capital loans, categorized by industry sector:
Outstanding Equipment Capital and Working Capital Loans by Industry Sector(1)
December 31, | As % of December 31, 2011 Total | |||||||||||
2010 | 2011 | |||||||||||
(billions of won, except percentages) | ||||||||||||
Manufacturing | (Won) | 30,931.4 | (Won) | 35,258.3 | 59.4 | % | ||||||
Banking and Insurance | 3,206.8 | 5,811.8 | 9.8 | % | ||||||||
Transportation and Communication | 5,475.4 | 5,217.7 | 8.8 | % | ||||||||
Public Administration | 739.6 | 593.7 | 1.0 | % | ||||||||
Electric, Gas and Water Supply Industry | 1,736.6 | 1,779.2 | 3.0 | % | ||||||||
Others | 8,203.9 | 10,664.6 | 18.0 | % | ||||||||
|
|
|
|
|
| |||||||
Total | (Won) | 50,293.8 | (Won) | 59,325.4 | 100.0 | % | ||||||
|
|
|
|
|
| |||||||
Percentage increase (decrease) from previous period | N/A | 18.0 | % |
(1) | Includes loans extended to affiliates. |
The manufacturing sector accounted for 59.4% of our outstanding equipment capital and working capital loans as of December 31, 2011. As of December 31, 2011, loans to the electronics manufacturing businesses and chemical product manufacturing businesses accounted for 14.9% and 14.3%, respectively, of our outstanding equipment capital and working capital loans to the manufacturing sector.
LG Electronics Inc. was our single largest borrower as of December 31, 2011, accounting for 1.8% of our outstanding equipment capital and working capital loans. As of December 31, 2011, our five largest borrowers and 20 largest borrowers accounted for 7.4% and 18.4%, respectively, of our outstanding equipment capital and working capital loans. The following table breaks down the equipment capital and working capital loans to our 20 largest borrowers outstanding as of December 31, 2011 by industry sector:
20 Largest Borrowers by Industry Sector
As % of December 31, 2011 Total Outstanding Equipment Capital and Working Capital Loans | ||||
Manufacturing | 65.9 | % | ||
Banking and Insurance | 13.6 | % | ||
Transportation and Communication | 12.1 | % | ||
Public Administration | 4.5 | % | ||
Others | 3.9 | % | ||
|
| |||
Total | 100.0 | % | ||
|
|
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The following table categorizes the new loans made by us by industry sector:
New Loans by Industry Sector
Year Ended December 31, | As % of Year Ended December 31, 2011 Total | |||||||||||
2010 | 2011 | |||||||||||
(billions of won, except percentages) | ||||||||||||
Manufacturing | (Won) | 13,467.6 | (Won) | 15,965.8 | 58.5 | % | ||||||
Banking and Insurance | 2,062.4 | 3,613.7 | 13.2 | % | ||||||||
Transportation and Communication | 1,569.7 | 1,539.3 | 5.6 | % | ||||||||
Electric, Gas and Water Supply Industry | 320.7 | 361.0 | 1.3 | % | ||||||||
Others | 3,724.8 | 5,821.1 | 21.3 | % | ||||||||
|
|
|
|
|
| |||||||
Total | (Won) | 21,145.1 | (Won) | 27,300.9 | 100.0 | % | ||||||
|
|
|
|
|
| |||||||
Percentage increase (decrease) from previous period | N/A | 29.1 | % |
Loans by Categories
In addition to dividing our loans into equipment capital and working capital loans, we classify loans into several groupings, the most important being:
• | industrial fund loans; |
• | foreign currency loans; |
• | local currency loans denominated in foreign currencies; |
• | offshore loans in foreign countries; and |
• | government fund loans. |
See “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2011 and 2010—Note 22” for more information on the types of credit extended by us and the amounts of each type outstanding as of December 31, 2011.
The following table sets out equipment capital and working capital loans by categories as of December 31, 2011:
Equipment Capital Loans(1) | Working Capital Loans(1) | |||||||||||||||
December 31, 2011 | % | December 31, 2011 | % | |||||||||||||
(billions of won, except percentages) | ||||||||||||||||
Industrial fund loans | (Won) | 24,418.6 | 65.6 | % | (Won) | 16,370.2 | 75.1 | % | ||||||||
Foreign currency loans | 7,972.2 | 21.4 | % | 1,376.2 | 6.3 | % | ||||||||||
Offshore loans in foreign currencies | 1,043.5 | 2.8 | % | 2,588.3 | 11.9 | % | ||||||||||
Government fund loans | 696.6 | 1.9 | % | — | — | |||||||||||
Overdraft | — | — | 316.2 | 1.5 | % | |||||||||||
Others | 3,074.2 | 8.3 | % | 1,145.6 | 5.3 | % | ||||||||||
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|
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|
|
|
|
| |||||||||
Total | (Won) | 37,205.1 | 100.0 | % | (Won) | 21,796.5 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
(1) | Excludes loans on households and loans extended to affiliates. |
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Industrial Fund Loans. Industrial fund loans are equipment capital and working capital loans denominated in Won to borrowers in major industries to finance equipment and facilities.
We currently make equipment capital industrial fund loans at floating or fixed rates for terms of up to 10 years and for up to 100% of the equipment cost being financed. We make working capital industrial fund loans at floating or fixed rates and in amounts constituting up to 40% of the borrower’s estimated annual sales.
Foreign Currency Loans. We extend loans denominated in U.S. dollars, Japanese yen or other foreign currencies principally to finance the purchase of industrial equipment from abroad or the implementation of overseas industrial development projects by Korean companies. We make these loans at floating interest rates with original maturities, in the case of equipment capital foreign currency loans, of up to 10 years and, in the case of working capital foreign currency loans, of up to three years.
Local Currency Loans Denominated in Foreign Currencies. We make local currency loans denominated in foreign currencies for the same purposes, and to the same borrowers, as foreign currency loans. Although we denominate the loans in foreign currency, the borrower receives and repays the loans in Won based on foreign exchange rates at the time of receipt and repayment. We currently make loans of this type at floating interest rates, with original maturities, in the case of equipment capital loans, of up to 10 years and, in the case of working capital loans, of up to three years.
Offshore Loans in Foreign Currencies. We extend offshore loans in foreign currencies to finance:
• | the purchase of industrial equipment and the implementation of overseas industrial projects by overseas subsidiaries and branches of Korean companies; and |
• | the overseas industrial development projects of foreign government entities, international organizations and foreign companies. |
We make these loans at floating interest rates with original maturities, in the form of equipment capital foreign currency loans, of up to 10 years and, working capital foreign currency loans, of up to three years.
Government Fund Loans. We make government fund loans primarily to finance:
• | water supply and drainage facilities; |
• | the Seoul subway system; |
• | freight terminal facilities; |
• | hospitals; and |
• | other facilities. |
Government fund loans that are equipment capital loans require approval by the appropriate Government ministry. We currently make government fund loans in Won at floating interest rates with original maturities of 10 to 20 years.
Other Loans. We also make special purpose fund loans for particular industries or projects using funds lent to us by the Government and foreign financial institutions. The Government funds that finance these loans include, among others:
• | the Tourism Promotion Fund (hotel and resort projects); |
• | the Rational Use of Energy Fund (energy conservation projects and collective energy supply projects); and |
• | the Small- and Medium-sized Enterprises Promotion Fund (small- and medium-sized enterprises). |
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For further information relating to such loans, see “—Sources of Funds” and “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2011 and 2010—Note 22.”
Guarantee Operations
We extend guarantees to our clients to facilitate their other borrowings and to finance major industrial projects. We guarantee Won-denominated corporate debentures, local currency loans, and other Won liabilities and foreign currency loans from domestic and overseas Korean financial institutions and from foreign institutions. The KDB Act and our Articles of Incorporation limit the aggregate amount of our industrial finance bond obligations and guarantee obligations. See “—Sources of Funds.”
We generally obtain collateral valued in excess of the original guarantee. We appraise the value of our collateral at least once a year. Depending on the borrower, the collateral may be industrial plants, real estate and/or marketable securities.
The following table shows our outstanding guarantees:
Guarantees Outstanding
As of December 31, | ||||||||
2010 | 2011 | |||||||
(billions of won) | ||||||||
Acceptances | (Won) | 1,015.5 | (Won) | 845.4 | ||||
Guarantees on local borrowing | 868.5 | 890.9 | ||||||
Guarantees on foreign borrowing | 11,029.9 | 11,189.6 | ||||||
Letter of guarantee for importers | 39.4 | 39.1 | ||||||
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|
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| |||||
Total | (Won) | 12,953.3 | (Won) | 12,965.1 | ||||
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|
|
|
On November 13, 2002, we entered into a guarantee agreement with KEPCO with respect to certain of KEPCO’s debt securities in connection with KEPCO’s restructuring and privatization. Pursuant to the guarantee agreement, we issued in February 2003 our guarantee to holders of KEPCO’s Yankee and Global debt securities with final maturities ranging from 2003 to 2096 (although our guarantee obligations only run through 2016) in an aggregate principal amount of approximately (Won)3.3 trillion, based on exchange rates prevailing on the guarantee issuance date, February 25, 2003. The guarantees described above constitute full, irrevocable and unconditional guarantees, on an unsecured and unsubordinated basis, in respect of the principal, interest and other payments due with respect to those debt obligations. KEPCO paid and will continue to pay us an annual guarantee fee of 0.05% of (i) the aggregate outstanding principal amount of all issues of debt securities that will be covered by the benefit of our guarantee and (ii) the sum of all interest payments due on such debt securities from the date of calculation until the earlier of their maturity or their stated redemption date.
KoFC, which indirectly owns 90.3% of our paid-in capital, currently owns approximately 29.9% of the outstanding shares of common stock of KEPCO, and the Government, which indirectly owns all of our paid-in capital, owns an additional 21.2% of such shares of KEPCO.
Investments
We invest in a range of Korean private and Government-owned enterprises but we will not take a controlling interest in a company unless the Government specifically instructs us to do so. Although generally a long-term investor, we sell investments from time to time. In recent years, sales resulted principally from the Government’s privatization program, and we expect to continue such sales in the future. The Government plans to sell its direct or indirect interest in certain private sector companies acquired during previous restructuring
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programs, including Daewoo Electronics Corp. and Daewoo Shipbuilding & Marine Engineering Co. Ltd. In accordance with such plan, we expect to sell our equity holdings in certain private sector companies if favorable opportunities for sale arise. Our equity investments increased to (Won)8,448.1 billion as of December 31, 2011 from (Won)7,061.9 billion as of December 31, 2010, primarily as a result of valuation gains on our investments resulting from market price appreciation, as well as our conversion of convertible bonds of Kumho Petrochemical Co., Ltd. into its equity shares.
The KDB Act and our Articles of Incorporation provide that the cost basis of our total equity investments may not exceed twice the sum of our paid-in capital and our reserve from profit. In addition, pursuant to the KDB Decree, we may not acquire equity securities of a single company in excess of 15% of its entire voting shares. The 15% limit, however, does not apply to certain investments, including those in Government-controlled companies financed by capital contributions from the Government. As of December 31, 2011, the cost basis of our equity investments subject to restriction under the KDB Act and our Articles of Incorporation totaled (Won)8,448.1 billion, equal to 29.5% of our equity investment ceiling. For a discussion of Korean accounting principles relating to our equity investments, see “—Financial Statements and the Auditors.”
The following table sets out our equity investments by industry sector on a book value basis as of December 31, 2011:
Equity Investments
Book Value as of December 31, 2011 | ||||
(billions of won) | ||||
Electric, Gas and Water Supply Industry | (Won) | 94.5 | ||
Construction | 43.4 | |||
Banking and Insurance | 4,730.3 | |||
Real Estate Business | 126.5 | |||
Manufacturing | 1,434.2 | |||
Transportation and Communication | 1,854.9 | |||
Others | 164.3 | |||
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| |||
Total | (Won) | 8,448.1 | ||
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|
As of December 31, 2011, we held total equity investments, on a book value basis, of (Won)2,228.7 billion in two of our five largest borrowers and (Won)4,054.1 billion in five of our 20 largest borrowers. We have not established a policy addressing loans to enterprises in which we hold equity interests or equity interests in enterprises to which we have extended loans.
When possible, we use the prevailing market price of a security to determine the value of our interest. However, if no readily ascertainable market value exists for our holdings, we record these investments at the cost of acquisition. With respect to our equity interests in enterprises in which we hold more than 15% of interest, we value these investments annually, with certain exceptions, on a net asset value basis when the investee company releases its financial statements. As of December 31, 2011, the aggregate value of our equity investments accounted for approximately 110% of their aggregate cost basis.
As part of our investment activities, we underwrite straight and convertible bond issuances in Won for domestic corporations. We also invest in municipal bonds, extending funds to municipalities at subsidized interest rates, mostly to finance water supply and drainage infrastructure projects.
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Other Activities
We engage in a range of industrial development activities in addition to providing loans and guarantees, including:
• | conducting economic and industrial research; |
• | performing engineering surveys; |
• | providing business analyses and managerial assistance; and |
• | offering trust services. |
As of December 31, 2011, we held in trust cash and other assets totaling (Won)21,396.6 billion, and we generated in 2011 trust fee income equaling (Won)311.3 billion. As of December 31, 2010, we held in trust cash and other assets totaling (Won)19,463.7 billion, and we generated in 2010 trust fee income equaling (Won)231.5 billion. Pursuant to Korean law, we segregate trust assets from our other assets; trust assets are not available to satisfy claims of our depositors or other creditors. Accordingly, we account for our trust accounts separately from our banking accounts. However, if our trust operations fail to preserve the principal of our clients’ trust assets, we are responsible for covering the deficit either from previously established provisions in our trust accounts or by a transfer from our banking accounts. In 2010 and 2011, we did not transfer any funds from our banking accounts to cover deficits in our trust accounts. Surplus funds generated by the trust assets may be deposited into the clients’ accounts and earn interest. We reflect trust fees earned by us on our trust account management services as other operating revenues in the income statement of the banking accounts.
In addition to our capital and reserves, we obtain funds primarily from:
• | borrowings from the Government; |
• | issuances of bonds in the domestic and international capital markets; |
• | borrowings from international financial institutions or foreign banks; and |
• | deposits. |
All of our borrowings are unsecured.
Borrowings from the Government
We borrow from the Government’s general purpose funds and its special purpose funds. General purpose loans generally are in Won and have fixed interest rates and maturities ranging from five to 20 years. We incur special purpose loans, principally from the Tourism Promotion Fund, the Rational Use of Energy Fund and the Small- and Medium-sized Enterprises Promotion Fund, in connection with specific projects we finance. The Government links the interest rate and maturity of each special purpose borrowing to the terms of the financing we provide for the specific project.
The following table sets out our Government borrowings as of December 31, 2011:
Type of Funds Borrowed | As of December 31, 2011 | |||
(billions of won) | ||||
General Purpose | (Won) | 715.6 | ||
Special Purpose | 4,510.5 | |||
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| |||
Total | (Won) | 5,226.1 | ||
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Domestic and International Capital Markets
We issue industrial finance bonds both in Korea and abroad, some of which the Government directly guarantees. We generally issue domestic bonds at fixed interest rates with original maturities of one to ten years.
The following table sets out the outstanding balance of our industrial finance bonds as of December 31, 2011:
Outstanding Balance | As of December 31, 2011 | |||
(billions of won) | ||||
Denominated in Won | (Won) | 29,275.3 | ||
Denominated in Other Currencies | 18,235.3 | |||
|
| |||
Total | (Won) | 47,510.6 | ||
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|
The KDB Act provides that the aggregate outstanding principal amount of our industrial finance bonds, other than those directly guaranteed or purchased by the Government, plus the aggregate outstanding amount of our on-balance sheet and off-balance sheet guarantee obligations, other than those excepted by statute, may not exceed 30 times the sum of our paid-in capital and our reserve from profit. As of December 31, 2011, the aggregate amount of our industrial finance bonds and guarantee obligations (including guarantee obligations relating to loans that had not been borrowed as of December 31, 2011) was (Won)67,472.7 billion, equal to 15.7% of our authorized amount under the KDB Act, which was (Won)429,847.6 billion.
Foreign Currency Borrowings
We borrow money from institutions, principally syndicates of commercial banks, outside the Republic in foreign currencies. We frequently enter into related interest rate and currency swap transactions. The loans generally have original maturities of one to five years. As of December 31, 2011, the outstanding amount of our foreign currency borrowings was US$12.0 billion.
Our long term and short term foreign currency borrowings increased to (Won)13,895.9 billion as of December 31, 2011 from (Won)11,573.9 billion as of December 31, 2010.
Deposits
We take demand deposits and time and savings deposits from the general public. Time and savings deposits generally have maturities shorter than three years and bear interest at fixed rates. As of December 31, 2011, demand deposits held by us totaled (Won)1,016.9 billion and time and savings deposits held by us totaled (Won)24,035.6 billion.
Debt Repayment Schedule
The following table sets out our principal repayment schedule as of December 31, 2011:
Debt Principal Repayment Schedule(1)
Maturing on or before December 31, | ||||||||||||||||||||
Currency(2)(3) | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||
(billions of won) | ||||||||||||||||||||
Won | (Won) | 12,419 | (Won) | 9,409 | (Won) | 6,375 | (Won) | 1,478 | (Won) | 4,547 | ||||||||||
Foreign | 17,329 | 4,386 | 4,459 | 937 | 3,956 | |||||||||||||||
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| |||||||||||
Total Won Equivalent | (Won) | 29,748 | (Won) | 13,795 | (Won) | 10,834 | (Won) | 2,415 | (Won) | 8,503 | ||||||||||
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(1) | Excludes bonds sold under repurchase agreements and call money. |
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(2) | Borrowings in foreign currencies have been translated into Won at the market average exchange rates on December 31, 2011, as announced by the Seoul Money Brokerage Services Ltd. |
(3) | We categorize debt with respect to which we have entered into currency swap agreements by our repayment currency under such agreements. |
The following table summarizes, as of December 31 of the years indicated, the outstanding direct internal debt of KDB:
Direct Internal Debt of KDB
(billions of Won) | ||||
2010 | (Won) | 36,802.2 | ||
2011 | 39,185.4 |
The following table summarizes, as of December 31 of the years indicated, the outstanding direct external debt of KDB:
Direct External Debt of KDB
(billions of Won) | ||||
2010 | (Won) | 26,476.2 | ||
2011 | 31,107.9 |
The following table sets out, by currency and the equivalent amount in U.S. Dollars, the outstanding external bonds of KDB as of December 31, 2011:
External Bonds of KDB
Amount in Original Currency | Equivalent Amount in U.S. Dollars(1) | |||||||
(millions) | ||||||||
US$ | US$ | 9,821.2 | US$ | 9,821.2 | ||||
Japanese yen (¥) | ¥ | 238,100.0 | 3,066.1 | |||||
Euro (EUR) | EUR | 310.0 | 401.6 | |||||
Singapore dollar (SGD) | SGD | 601.0 | 461.9 | |||||
Hong Kong dollar (HKD) | HKD | 4,049.0 | 521.0 | |||||
Chinese offshore renminbi (CNH) | CNH | 121.0 | 19.1 | |||||
Indian rupee (INR) | INR | 5,624.7 | 106.1 | |||||
Norwegian krone (NOK) | NOK | 287.0 | 47.8 | |||||
Swiss franc (CHF) | CHF | 550.0 | 584.6 | |||||
Brazilian real (BRL) | BRL | 101.3 | 54.3 | |||||
Australian dollar (AUD) | AUD | 182.0 | 184.5 | |||||
Thai Baht (THB) | THB | 6,000.0 | 189.0 | |||||
Total | US$ | 15,457.2 |
(1) | Amounts expressed in currencies other than US$ are converted to US$ at the exchange rate announced by the Seoul Money Brokerage Services, Ltd. in effect on December 31, 2011. |
For further information on the outstanding indebtedness of KDB, see “—Tables and Supplementary Information.”
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Debt Record
We have never defaulted in the payment of principal or interest on any of our obligations.
We operate overseas subsidiaries in Hong Kong, Dublin, Budapest, Sao Paulo and Tashkent. The subsidiaries engage in a variety of banking and merchant banking services, including:
• | managing and underwriting new securities issues; |
• | syndicating medium and long-term loans; |
• | trading securities; |
• | trading in the money market; and |
• | providing investment management and advisory services. |
We currently maintain branches in Tokyo, Shanghai, Singapore, New York, London, Beijing and Guangzhou and three overseas representative offices in Frankfurt, Shenyang and Ho Chi Minh City.
Our head office is located at 16-3 Youido-dong, Youngdeungpo-gu, Seoul, Korea, a 35,996 square meter building completed in July 2001 and owned by us. In addition to the head office, we maintain 65 branches in major cities throughout the Republic, including 24 in Seoul. We generally own our domestic office space and lease our overseas offices under long-term leases.
In April 2012, we entered into a discussion with HSBC Holdings PLC, which has 11 branches in Korea, concerning a possible acquisition of its retail banking and wealth management business in Korea. The discussion is ongoing and may or may not lead to a transaction.
Directors and Management; Employees
Our Board of Directors has ultimate responsibility for management of our affairs. Under the KDB Act and our Articles of Incorporation, our Board of Directors is to consist of not more than nine directors, including our Chief Executive Officer and Chairman of the Board of Directors. Under the KDB Act, as amended in May 2009, we elect our directors, including our Chief Executive Officer and Chairman of the Board of Directors, at a general meeting of shareholders. Our executive directors serve for three-year terms and our independent non-executive directors serve for one-year terms, and they may be re-appointed. Currently, the members of our Board of Directors are:
Position | Name | Expiration of Term | ||
Chief Executive Officer and Chairman of the Board of Directors: | Man Soo Kang | March 10, 2014 | ||
Chief Operating Officer and Vice Chairman of the Board of Directors | Han Chul Kim | February 3, 2013 | ||
Senior Executive Director | Dai Woo Han | January 17, 2015 | ||
Independent Directors | Chon Pyo Lee | January 6, 2013 | ||
Jean Gon Cheong | November 25, 2012 | |||
Sung Duck Park | April 26, 2014 | |||
Tae Joon Kim | April 26, 2014 |
As of December 31, 2011, we employed 2,702 persons with 1,785 located in our Seoul head office.
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Tables and Supplementary Information
A. External Debt of KDB
(1) External Bonds of KDB
Currency | Original Principal Amount | Interest Rate (%) | Issue Date | Maturity Date | Principal Amount Outstanding as of December 31, 2011 | |||||||||||
USD | 450,000,000 | 5.5 | November 13, 2002 | November 13, 2012 | 450,000,000 | |||||||||||
USD | 150,000,000 | 5.5 | January 30, 2003 | November 13, 2012 | 150,000,000 | |||||||||||
USD | 750,000,000 | 5.75 | September 10, 2003 | September 10, 2013 | 750,000,000 | |||||||||||
USD | 500,000,000 | 3M USD Libor + 0.28 | November 22, 2005 | November 22, 2012 | 500,000,000 | |||||||||||
USD | 1,000,000,000 | 5.3 | January 17, 2008 | January 17, 2013 | 1,000,000,000 | |||||||||||
USD | 1,700,000,000 | 8 | January 23, 2009 | January 23, 2014 | 1,700,000,000 | |||||||||||
USD | 19,000,000 | 5.7 | May 12, 2009 | April 9, 2012 | 19,000,000 | |||||||||||
USD | 15,000,000 | 5.46 | May 15, 2009 | April 9, 2012 | 15,000,000 | |||||||||||
USD | 550,000,000 | 4.375 | February 10, 2010 | August 10, 2015 | 550,000,000 | |||||||||||
USD | 20,000,000 | 2.120 | July 2, 2010 | July 2, 2012 | 20,000,000 | |||||||||||
USD | 450,000,000 | 3.250 | September 9, 2010 | March 9, 2016 | 450,000,000 | |||||||||||
USD | 250,000,000 | 3.250 | September 9, 2010 | March 9, 2016 | 250,000,000 | |||||||||||
USD | 50,000,000 | 3M USD Libor + 1.15 | October 28, 2010 | October 28, 2013 | 50,000,000 | |||||||||||
USD | 300,000,000 | 6M USD Libor + 0.35 | October 4, 2007 | October 4, 2012 | 300,000,000 | |||||||||||
USD | 300,000,000 | 8 | January 23, 2009 | January 23, 2014 | 300,000,000 | |||||||||||
USD | 200,000,000 | 5.75 | May 13, 2009 | May 13, 2012 | 200,000,000 | |||||||||||
USD | 50,000,000 | 3M USD Libor + 4.3 | May 13, 2009 | May 13, 2016 | 50,000,000 | |||||||||||
USD | 20,000,000 | 3M USD Libor + 0.78 | January 27, 2010 | July 27, 2012 | 20,000,000 | |||||||||||
USD | 200,000,000 | �� | 4.375 | February 10, 2010 | August 10, 2015 | 200,000,000 | ||||||||||
USD | 200,000,000 | 3.250 | September 9, 2010 | March 9, 2016 | 200,000,000 | |||||||||||
USD | 750,000,000 | 4.000 | March 9, 2011 | September 9, 2016 | 750,000,000 | |||||||||||
USD | 50,000,000 | 3M USD Libor + 0.75 | April 18, 2011 | April 18, 2018 | 50,000,000 | |||||||||||
USD | 87,300,000 | 3M USD Libor + 0.69 | June 14, 2011 | June 14, 2012 | 87,300,000 | |||||||||||
USD | 75,000,000 | 1.170 | August 23, 2011 | August 23, 2012 | 75,000,000 | |||||||||||
USD | 20,000,000 | 2.000 | October 31, 2011 | October 31, 2012 | 20,000,000 | |||||||||||
USD | 700,000,000 | 3.875 | November 4, 2011 | May 4, 2017 | 700,000,000 | |||||||||||
USD | 300,000,000 | 3.875 | November 4, 2011 | May 4, 2017 | 300,000,000 | |||||||||||
USD | 100,000,000 | 6M USD Libor + 0.79 | January 31, 2011 | January 31, 2012 | 100,000,000 | |||||||||||
USD | 15,000,000 | 3M USD Libor + 0.80 | January 31, 2011 | January 31, 2012 | 15,000,000 | |||||||||||
USD | 50,000,000 | 3M USD Libor + 1.02 | February 17, 2011 | February 17, 2013 | 50,000,000 | |||||||||||
USD | 40,000,000 | 3M USD Libor + 0.80 | March 21, 2011 | March 21, 2012 | 40,000,000 | |||||||||||
USD | 50,000,000 | 1.280 | March 29, 2011 | March 28, 2012 | 50,000,000 | |||||||||||
USD | 50,000,000 | 1.300 | April 4, 2011 | April 3, 2012 | 50,000,000 | |||||||||||
USD | 30,000,000 | 3M USD Libor + 0.83 | April 4, 2011 | April 4, 2012 | 30,000,000 | |||||||||||
USD | 37,700,000 | 3M USD Libor + 0.70 | May 13, 2011 | May 13, 2012 | 37,700,000 | |||||||||||
USD | 45,200,000 | 3M USD Libor + 0.70 | May 18, 2011 | May 18, 2012 | 45,200,000 | |||||||||||
USD | 20,000,000 | 3M USD Libor + 1.00 | June 2, 2011 | June 2, 2014 | 20,000,000 | |||||||||||
USD | 20,000,000 | 1.070 | June 1, 2011 | June 7, 2012 | 20,000,000 | |||||||||||
USD | 30,000,000 | 1.075 | June 3, 2011 | June 22, 2012 | 30,000,000 | |||||||||||
USD | 27,000,000 | 1.030 | June 15, 2011 | June 22, 2012 | 27,000,000 | |||||||||||
USD | 20,000,000 | 1.460 | September 6, 2011 | September 6, 2012 | 20,000,000 | |||||||||||
USD | 50,000,000 | 3M USD Libor + 1.00 | September 7, 2011 | September 7, 2012 | 50,000,000 | |||||||||||
USD | 10,000,000 | 1.460 | September 9, 2011 | September 10, 2012 | 10,000,000 | |||||||||||
USD | 20,000,000 | 1.5625 | September 21, 2011 | September 21, 2012 | 20,000,000 | |||||||||||
USD | 50,000,000 | 3M USD Libor + 1.95 | October 31, 2011 | October 31, 2012 | 50,000,000 | |||||||||||
|
| |||||||||||||||
| Subtotal in Original Currency | USD | 9,821,200,000 | |||||||||||||
|
| |||||||||||||||
| Subtotal in Equivalent Amount of Won(1) | (Won) | 11,326,789,960,000 | |||||||||||||
|
|
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Table of Contents
Currency | Original Principal Amount | Interest Rate (%) | Issue Date | Maturity Date | Principal Amount Outstanding as of December 31, 2011 | |||||||||||
INR | 2,300,000,000 | 6.500 | January 24, 2012 | January 24, 2012 | 2,300,000,000 | |||||||||||
INR | 3,324,700,000 | 7.000 | May 3, 2011 | May 3, 2012 | 3,324,700,000 | |||||||||||
|
| |||||||||||||||
| Subtotal in Original Currency | INR | 5,624,700,000 | |||||||||||||
|
| |||||||||||||||
| Subtotal in Equivalent Amount of Won(2) | (Won) | 122,393,472,000 | |||||||||||||
|
| |||||||||||||||
THB | 3,000,000,000 | 2.940 | November 24, 2010 | November 24, 2013 | 3,000,000,000 | |||||||||||
THB | 3,000,000,000 | 3.880 | May 27, 2011 | May 27, 2014 | 3,000,000,000 | |||||||||||
|
| |||||||||||||||
| Subtotal in Original Currency | THB | 6,000,000,000 | |||||||||||||
|
| |||||||||||||||
| Subtotal in Equivalent Amount of Won(3) | (Won) | 217,920,000,000 | |||||||||||||
|
| |||||||||||||||
SGD | 30,000,000 | 5.65 | May 18, 2009 | May 18, 2014 | 30,000,000 | |||||||||||
SGD | 40,000,000 | 5.65 | May 18, 2009 | May 18, 2014 | 40,000,000 | |||||||||||
SGD | 15,000,000 | 5.02 | May 29, 2009 | May 29, 2014 | 15,000,000 | |||||||||||
SGD | 50,000,000 | 1.53 | November 4, 2010 | November 5, 2012 | 50,000,000 | |||||||||||
SGD | 68,000,000 | 2.44 | November 25, 2009 | May 25, 2012 | 68,000,000 | |||||||||||
SGD | 30,000,000 | 1.36 | July 26, 2010 | January 26, 2012 | 30,000,000 | |||||||||||
SGD | 28,000,000 | 1.91 | August 19, 2010 | August 19, 2013 | 28,000,000 | |||||||||||
SGD | 25,000,000 | 0.90 | September 26, 2011 | September 26, 2012 | 25,000,000 | |||||||||||
SGD | 50,000,000 | 1.45 | October 19, 2011 | October 10, 2012 | 50,000,000 | |||||||||||
SGD | 90,000,000 | 1.62 | October 31, 2011 | October 31, 2012 | 90,000,000 | |||||||||||
SGD | 25,000,000 | 0.95 | June 15, 2011 | June 15, 2012 | 25,000,000 | |||||||||||
SGD | 30,000,000 | 0.95 | June 13, 2011 | June 13, 2012 | 30,000,000 | |||||||||||
SGD | 30,000,000 | 1.73 | June 16, 2011 | June 16, 2014 | 30,000,000 | |||||||||||
SGD | 30,000,000 | 1.68 | July 6, 2011 | July 6, 2014 | 30,000,000 | |||||||||||
SGD | 30,000,000 | 1.70 | July 12, 2011 | July 14, 2014 | 30,000,000 | |||||||||||
SGD | 30,000,000 | 1.12 | August 10, 2011 | August 13, 2012 | 30,000,000 | |||||||||||
|
| |||||||||||||||
| Subtotal in Original Currency | SGD | 601,000,000 | |||||||||||||
|
| |||||||||||||||
| Subtotal in Equivalent Amount of Won(4) | (Won) | 532,750,440,000 | |||||||||||||
|
| |||||||||||||||
JPY | 30,000,000,000 | 1.64 | June 1, 2007 | June 1, 2012 | 30,000,000,000 | |||||||||||
JPY | 20,000,000,000 | 6M ¥ Libor + 0.18 | June 1, 2007 | June 1, 2012 | 20,000,000,000 | |||||||||||
JPY | 5,000,000,000 | 3M ¥ Libor + 0.23 | September 20, 2007 | September 20, 2012 | 5,000,000,000 | |||||||||||
JPY | 5,000,000,000 | 3M ¥ Libor + 0.45 | November 1, 2007 | November 1, 2012 | 5,000,000,000 | |||||||||||
JPY | 5,000,000,000 | 3M ¥ Libor + 0.6 | December 21, 2007 | December 21, 2012 | 5,000,000,000 | |||||||||||
JPY | 15,000,000,000 | 3.22 | May 30, 2008 | May 30, 2018 | 15,000,000,000 | |||||||||||
JPY | 22,600,000,000 | 1.480 | July 1, 2010 | June 29, 2012 | 22,600,000,000 | |||||||||||
JPY | 4,400,000,000 | 1.560 | July 1, 2010 | June 28, 2013 | 4,400,000,000 | |||||||||||
JPY | 33,000,000,000 | 1.94 | October 12, 2007 | October 12, 2012 | 33,000,000,000 | |||||||||||
JPY | 5,000,000,000 | 3M ¥ Libor + 0.45 | November 15, 2007 | November 15, 2012 | 5,000,000,000 | |||||||||||
JPY | 3,000,000,000 | 2.07 | April 8, 2008 | April 8, 2013 | 3,000,000,000 | |||||||||||
JPY | 10,900,000,000 | 2.67 | September 14, 2009 | September 14, 2012 | 10,900,000,000 | |||||||||||
JPY | 7,000,000,000 | 2.97 | September 14, 2009 | September 12, 2014 | 7,000,000,000 | |||||||||||
JPY | 2,000,000,000 | 0.92 | August 19, 2010 | August 20, 2012 | 2,000,000,000 | |||||||||||
JPY | 2,000,000,000 | 0.55 | August 26, 2011 | August 26, 2014 | 2,000,000,000 | |||||||||||
JPY | 8,000,000,000 | 0.83 | September 14, 2011 | September 14, 2012 | 8,000,000,000 | |||||||||||
JPY | 3,700,000,000 | 1.45 | October 21, 2011 | October 21, 2013 | 3,700,000,000 | |||||||||||
JPY | 600,000,000 | 1.57 | October 21, 2011 | October 21, 2014 | 600,000,000 | |||||||||||
JPY | 2,400,000,000 | 1.91 | October 21, 2011 | October 21, 2016 | 2,400,000,000 | |||||||||||
JPY | 1,000,000,000 | 1.38 | October 31, 2011 | October 31, 2012 | 1,000,000,000 | |||||||||||
JPY | 2,000,000,000 | 0.80 | February 24, 2011 | February 25, 2013 | 2,000,000,000 | |||||||||||
JPY | 1,500,000,000 | 0.877 | September 14, 2011 | September 14, 2012 | 1,500,000,000 | |||||||||||
JPY | 2,000,000,000 | 0.76 | September 2, 2011 | September 20, 2012 | 2,000,000,000 | |||||||||||
JPY | 47,000,000,000 | 1.30 | October 21, 2011 | October 22, 2012 | 47,000,000,000 | |||||||||||
|
| |||||||||||||||
| Subtotal in Original Currency | JPY | 238,100,000,000 | |||||||||||||
|
| |||||||||||||||
| Subtotal in Equivalent Amount of Won(5) | (Won) | 3,536,165,960,000 | |||||||||||||
|
|
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Currency | Original Principal Amount | Interest Rate (%) | Issue Date | Maturity Date | Principal Amount Outstanding as of December 31, 2011 | |||||||||||
HKD | 150,000,000 | 5.00 | November 20, 2007 | November 20, 2017 | 150,000,000 | |||||||||||
HKD | 80,000,000 | 4.77 | November 21, 2007 | November 21, 2012 | 80,000,000 | |||||||||||
HKD | 80,000,000 | 4.71 | December 18, 2007 | December 18, 2017 | 80,000,000 | |||||||||||
HKD | 230,000,000 | 2.28 | May 13, 2010 | May 13, 2013 | 230,000,000 | |||||||||||
HKD | 300,000,000 | 3.25 | July 20, 2010 | July 20, 2015 | 300,000,000 | |||||||||||
HKD | 308,000,000 | 2.15 | August 6, 2010 | August 6, 2013 | 308,000,000 | |||||||||||
HKD | 285,000,000 | 1.72 | December 20, 2010 | December 20, 2012 | 285,000,000 | |||||||||||
HKD | 200,000,000 | 2.33 | April 14, 2011 | April 14, 2014 | 200,000,000 | |||||||||||
HKD | 133,000,000 | 2.12 | September 29, 2011 | September 29, 2014 | 133,000,000 | |||||||||||
HKD | 144,000,000 | 3.30 | October 20, 2011 | October 20, 2016 | 144,000,000 | |||||||||||
HKD | 303,000,000 | 4.30 | October 21, 2011 | October 21, 2021 | 303,000,000 | |||||||||||
HKD | 225,000,000 | 1.82 | October 31, 2011 | October 31, 2012 | 225,000,000 | |||||||||||
HKD | 320,000,000 | 2.37 | February 18, 2011 | February 18, 2014 | 320,000,000 | |||||||||||
HKD | 155,000,000 | 1.68 | February 18, 2011 | February 19, 2013 | 155,000,000 | |||||||||||
HKD | 150,000,000 | 2.37 | May 3, 2011 | November 3, 2014 | 150,000,000 | |||||||||||
HKD | 170,000,000 | 2.07 | July 9, 2011 | December 9, 2014 | 170,000,000 | |||||||||||
HKD | 200,000,000 | 1.70 | September 6, 2011 | September 6, 2014 | 200,000,000 | |||||||||||
HKD | 219,000,000 | 2.40 | September 6, 2011 | September 6, 2016 | 219,000,000 | |||||||||||
HKD | 78,000,000 | 1.00 | September 7, 2011 | September 7, 2012 | 78,000,000 | |||||||||||
HKD | 89,000,000 | 3.60 | September 16, 2011 | September 16, 2021 | 89,000,000 | |||||||||||
HKD | 230,000,000 | 3M Hibor + 1.53 | December 7, 2011 | June 7, 2013 | 230,000,000 | |||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | HKD | 4,049,000,000 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(6) | (Won) | 600,790,620,000 | ||||||||||||||
|
| |||||||||||||||
CNH | 121,000,000 | 1.35 | September 19, 2011 | September 18, 2012 | 121,000,000 | |||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | CNH | 121,000,000 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(7) | (Won) | 21,971,180,000 | ||||||||||||||
|
| |||||||||||||||
NOK | 287,000,000 | 3.51 | October 17, 2011 | October 17, 2012 | 287,000,000 | |||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | NOK | 287,000,000 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(8) | (Won) | 55,141,310,000 | ||||||||||||||
|
| |||||||||||||||
EUR | 300,000,000 | 3M Euribor + 0.24 | April 3, 2007 | April 3, 2014 | 300,000,000 | |||||||||||
EUR | 10,000,000 | 6M Euribor + 0.755 | June 21, 2010 | June 21, 2013 | 10,000,000 | |||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | EUR | 310,000,000 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(9) | (Won) | 463,171,000,000 | ||||||||||||||
|
| |||||||||||||||
CHF | 50,000,000 | 4.125 | May 16, 2008 | May 16, 2013 | 50,000,000 | |||||||||||
CHF | 200,000,000 | 1.750 | October 1, 2010 | October 1, 2014 | 200,000,000 | |||||||||||
CHF | 200,000,000 | 4.204 | May 16, 2008 | May 16, 2013 | 200,000,000 | |||||||||||
CHF | 100,000,000 | 4.198 | May 16, 2008 | May 16, 2013 | 100,000,000 | |||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | CHF | 550,000,000 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(10) | (Won) | 674,228,500,000 | ||||||||||||||
|
| |||||||||||||||
BRL | 85,250,000 | CDI*94% | January 31, 2011 | January 31, 2012 | 85,250,000 | |||||||||||
BRL | 16,075,200 | 9.05 | January 31, 2011 | January 31, 2012 | 16,075,200 | |||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | BRL | 101,325,200 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(11) | (Won) | 62,635,185,632 | ||||||||||||||
|
| |||||||||||||||
AUD | 32,000,000 | 6.000 | January 25, 2010 | January 25, 2012 | 32,000,000 | |||||||||||
AUD | 50,000,000 | 6.000 | February 1, 2010 | February 1, 2012 | 50,000,000 | |||||||||||
AUD | 100,000,000 | 5.400 | September 30, 2011 | September 30, 2013 | 100,000,000 | |||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | AUD | 182,000,000 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(12) | (Won) | 212,807,140,000 | ||||||||||||||
|
| |||||||||||||||
Total External Bonds of KDB in Equivalent Amount of Won | (Won) | 17,826,764,767,632 | ||||||||||||||
|
|
(1) | U.S. dollar amounts are converted to Won amounts at the rate of US$1.00 to Won 1,153.30, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
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(2) | Indian rupee amounts are converted to Won amounts at the rate of INR 1.00 to Won 21.76, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(3) | Thai baht amounts are converted to Won amounts at the rate of THB 1.00 to Won 36.32, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(4) | Singapore dollar amounts are converted to Won amounts at the rate of SGD 1.00 to Won 886.44, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(5) | Japanese yen amounts are converted to Won amounts at the rate of JPY 100.00 to Won 1,485.16, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(6) | Hong Kong dollar amounts are converted to Won amounts at the rate of HKD 1.00 to Won 148.38, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(7) | Chinese offshore renminbi amounts are converted to Won amounts at the rate of CNH 1.00 to Won 181.58, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(8) | Norwegian krone amounts are converted to Won amounts at the rate of NOK 1.00 to Won 192.13, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(9) | Euro amounts are converted to Won amounts at the rate of EUR 1.00 to Won 1,494.10, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(10) | Swiss franc amounts are converted to Won amounts at the rate of CHF 1.00 to Won 1,225.87, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(11) | Brazilian real amounts are converted to Won amounts at the rate of BRL 1.00 to Won 618.16, the prevailing market rate on December 31, 2011. |
(12) | Australian dollar amounts are converted to Won amounts at the rate of AUD 1.00 to Won 1,169.27, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
(2) External Borrowings of KDB
Lender | Classifications | Range of Interest Rates | Range of Years of Issue | Range of Years of Maturity | Principal Amount Outstanding as of December 31, 2011(1) | |||||||||||||
(%) | (millions of Won) | |||||||||||||||||
JBIC | Borrowings from JBIC | 1.4~6M Libor + 0.8 | 2009~2011 | 2012~2023 | (Won) | 328,521 | ||||||||||||
Mizuho and others | Borrowings from foreign banks | 3M~6M Libor+ 0.3~3.8 | 2007~2011 | 2012~2016 | 2,398,449 | |||||||||||||
DBS Bank and others | Off-shore short-term borrowings |
| 0.2~ 1.55 6M Libor + 0.6~0.7 |
|
| 2011 2011 |
|
| 2012 2012 |
| | 784,489 110,717 | | |||||
Nippon Life Insurance Co Company and others | Off-shore long-term borrowings | 3M Libor+0.3~1.3 | 2009~2011 | 2012~2013 | 636,180 | |||||||||||||
JBIC | Off-shore borrowings from JBIC | 4.3~6M Libor + 1.2 | 2010 | 2012~2020 | 59,304 | |||||||||||||
Others | Short-term borrowings in foreign currency |
| 0.0~6.03 6M Libor + 0.4~1.2 |
| 2010~2011 | 2012~2013 | 8,033,849 | |||||||||||
Long-term borrowings in foreign currency | 2007~2011 | 2012~2014 | 1,544,388 | |||||||||||||||
|
| |||||||||||||||||
Total External Borrowings of KDB | (Won) | 13,895,897 | ||||||||||||||||
|
|
(1) | Converted to Won amounts at the relevant market average exchange rates in effect on December 31, 2011 as announced by Seoul Money Brokerage Services, Ltd. |
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B. Internal Debt of KDB
Title | Range of Interest Rates | Range of Years of Issue | Range of Years of Original Maturity | Principal Amounts Outstanding as of December 31, 2011 | ||||||||||||
(%) | (millions of Won) | |||||||||||||||
1. Bonds | ||||||||||||||||
Short-term Industrial Finance Bonds | 3.62~8.11 | 2010~2011 | 2010~2012 | (Won) | 169,320 | |||||||||||
Long-term Industrial Finance Bonds | 3.09~14.09 | 2002~2011 | 2007~2028 | 28,820,637 | ||||||||||||
|
| |||||||||||||||
Total Bonds | 3.09~14.09 | 2002~2011 | 2007~2028 | 28,989,957 | ||||||||||||
2. Borrowings | ||||||||||||||||
Borrowings from the Ministry of Strategy and Finance | 2.44~5.00 | 1992~2011 | 2012~2031 | (Won) | 715,628 | |||||||||||
Borrowings from Industrial Bank of Korea | 1.27~3.35 | 2004~2009 | 2012~2023 | 63,402 | ||||||||||||
Borrowings from Small Business Corp. | 1.79~3.69 | 2002~2011 | 2012~2021 | 438,358 | ||||||||||||
Borrowings from the Ministry of Culture and Tourism | 0.97~4.00 | 2003~2011 | 2012~2021 | 1,131,518 | ||||||||||||
Borrowings from Korea Energy Management Corporation | 0.50~4.25 | 1997~2011 | 2012~2026 | 1,181,303 | ||||||||||||
Others | 0.00~5.59 | 1997~2011 | 2011~2044 | 1,695,912 | ||||||||||||
|
| |||||||||||||||
Total Borrowings(1) | 5,226,121 | |||||||||||||||
3. Other Debt(2) | 4,969,297 | |||||||||||||||
|
| |||||||||||||||
Total Internal Floating Debt(3) | 5,467,586 | |||||||||||||||
Total Internal Funded Debt(4) | 33,717,789 | |||||||||||||||
|
| |||||||||||||||
Total Internal Debt | (Won) | 39,185,375 | ||||||||||||||
|
|
(1) | Consist of short term borrowings in the amount of (Won)328,969 million and long term borrowings in the amount of (Won)4,685,152 million. |
(2) | Other debt includes bonds sold under repurchase agreements and call money. |
(3) | Floating debt is debt that has a maturity at issuance of less than one year. |
(4) | Funded debt is debt that has a maturity at issuance of one year or more. |
Financial Statements and the Auditors
The Government, through KDBFG, our sole shareholder, elects our Auditor who is responsible for examining our financial operations and auditing our financial statements and records. The present Auditor is Hae Jong Lim, who was appointed by the Financial Services Commission for a three-year term on April 11, 2011.
We prepare our financial statements annually for submission to the Financial Services Commission, accompanied by an opinion of the Auditor. Although we are not legally required to have financial statements audited by external independent auditors, an independent public accounting firm has audited our non-consolidated and consolidated financial statements commencing with such financial statements as of and for the year ended December 31, 1998. As of the date of this prospectus, our external independent auditor is KPMG Samjong Accounting Corp., located at 10th Floor, Star Tower, 737 Yeoksam-dong, Gangnam-gu, Seoul, Korea. Ernst & Young Han Young, located at Taeyoung Bldg., #10-2, Yeouido-dong, Yeongdeungpo-gu, Seoul, Korea, has audited our separate financial statements as of and for the years ended December 31, 2011 and 2010 included in this prospectus.
Our separate financial statements appearing in this prospectus were prepared in conformity with Korean IFRS, as summarized in “—Financial Statements and the Auditors—Notes to Separate Financial Statements of December 31, 2011 and 2010—Note 2.” These principles and procedures differ in certain material respects from
- 28 -
Table of Contents
generally accepted accounting principles in the United States (“US GAAP”). Our non-consolidated financial statements included in our previous prospectuses filed with the SEC were prepared in accordance with Korean GAAP. Beginning in 2011, companies in Korea, including us, are generally required to prepare their interim and annual financial statements under Korean IFRS. Korean IFRS differs in significant respects from Korean GAAP, particularly with respect to accounting for loan loss allowances and provisions. As a result, our levels of loan loss allowances and provisions, as well as certain other balance sheet and income statement items, reflected in our financial statements prepared in accordance with Korean IFRS may differ substantially from those reflected under Korean GAAP. For an explanation of how the transition to Korean IFRS has affected our separate financial statements, see “Notes to Separate Financial Statements of December 31, 2011 and 2010—Note 48.”
We generally record our trading portfolio of marketable equity securities and other equity investments at the cost of acquisition (including incidental expenses related to purchase), computed on the moving average method. However, if the aggregate market value of the trading portfolio of marketable securities as of the balance sheet date differs from their purchase cost, we record the securities at market value. If the market value of equity investments, except for those of companies in which we hold more than 15% of interest (“affiliated companies”), differs from their purchase cost, we record the investment at market value. Starting in April 1999, we record our equity investments in affiliated companies by using the equity method, pursuant to which we account for adjustments in the value of our investments resulting from changes to the affiliated companies’ net asset values. However, we do not apply the equity method for the following investments: (1) total assets of investees are less than (Won)10,000 million; (2) investees which are owned by the Korean Government and Government invested companies; (3) investees under court receivership or bankruptcy; and (4) investees in the process of being sold.
We generally record our debt securities investments, except for our trading portfolio of marketable debt securities, at the cost of acquisition (including incidental expenses related to purchase), computed on the specific identification method. We record our trading portfolio of marketable debt securities at market value. Starting in April 1999, we record all our debt securities investments at market value except for debt securities invested with the intention of holding until maturity, which we record at the cost of acquisition or amortized cost.
We record the value of our premises and equipment on our balance sheet on the basis of a revaluation conducted as of July 1, 1998. The Minister of Strategy and Finance approved the revaluation in accordance with applicable Korean law. We value additions to premises and equipment since such date at cost.
- 29 -
Table of Contents
Independent auditors’ report
The Board of Directors and Stockholders
Korea Development Bank
We have audited the accompanying separate financial statements of Korea Development Bank (the “Bank”), which comprise the separate statements of financial position as of December 31, 2011, December 31, 2010 and January 1, 2010, and the related statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2011 and 2010 (thereon referred to as “separate financial statements”). These separate financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these separate financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the separate financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall separate financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the separate financial statements referred to above present fairly, in all material respects, the financial position of Korea Development Bank as of December 31, 2011, December 31, 2010, and January 1, 2010, and the results of its financial performance, and its cash flows for the years ended December 31, 2011 and 2010 in conformity with Korea International Financial Reporting Standard (K-IFRS).
/s/ Ernst & Young Han Young
March 29, 2012
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Table of Contents
Korea Development Bank
Separate statements of financial position
As of December 31, 2011, December 31, 2010 and January 1, 2010
(Korean won in millions) | Notes | December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||||
Assets | ||||||||||||||||
Cash and due from banks | 17,44 | (Won) | 1,965,839 | (Won) | 1,175,103 | (Won) | 1,975,356 | |||||||||
Financial assets held-for-trading | 18,43,44 | 2,585,909 | 4,239,195 | 1,609,318 | ||||||||||||
Financial assets designated at FVTPL | 19,43,44 | — | — | 89,503 | ||||||||||||
Financial assets-available-for-sale | 20,43,44 | 25,713,538 | 22,676,895 | 28,256,641 | ||||||||||||
Financial assets-held-to-maturity | 21,44 | 110,844 | 137,695 | 67,521 | ||||||||||||
Loans | 22,44 | 80,414,794 | 70,770,527 | 75,100,464 | ||||||||||||
Derivative financial assets | 23,43,44 | 5,597,095 | 6,088,100 | 7,661,669 | ||||||||||||
Investments in subsidiaries and associates | 4,24 | 5,696,767 | 4,099,112 | 2,705,960 | ||||||||||||
Property and equipment | 4,25 | 439,726 | 435,789 | 449,064 | ||||||||||||
Investment properties | 4,26 | 86,899 | 90,177 | 89,251 | ||||||||||||
Intangible assets | 4,27 | 47,327 | 46,868 | 40,580 | ||||||||||||
Other assets | 28,44 | 5,215,697 | 4,190,422 | 4,752,666 | ||||||||||||
Non-current assets held-for-sale | 46 | — | — | 3,870 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Assets | (Won) | 127,874,435 | (Won) | 113,949,883 | (Won) | 122,801,863 | ||||||||||
|
|
|
|
|
| |||||||||||
Liabilities | ||||||||||||||||
Financial liabilities designated at FVTPL | 29,43,44 | (Won) | 992,136 | (Won) | 951,752 | (Won) | 1,308,299 | |||||||||
Due to customers | 30,44 | 25,222,278 | 18,929,843 | 13,935,926 | ||||||||||||
Borrowings | 31,44 | 25,842,421 | 22,877,558 | 28,580,446 | ||||||||||||
Debt issued | 32,44 | 47,196,659 | 43,235,249 | 50,740,788 | ||||||||||||
Derivative financial liabilities | 23,43,44 | 4,289,264 | 4,667,703 | 6,633,175 | ||||||||||||
Severance and retirement benefits | 33 | 17,536 | 46,764 | 65,175 | ||||||||||||
Provisions | 34 | 261,855 | 173,276 | 233,576 | ||||||||||||
Deferred tax liabilities | 35 | 357,694 | 277,030 | 226,141 | ||||||||||||
Current tax liabilities | 128,204 | 191,716 | 10,182 | |||||||||||||
Other liabilities | 36,44 | 5,908,341 | 5,865,975 | 5,515,468 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total liabilities | (Won) | 110,216,388 | (Won) | 97,216,866 | (Won) | 107,249,176 | ||||||||||
|
|
|
|
|
| |||||||||||
Equity | ||||||||||||||||
Issued capital | 37 | 9,251,861 | 9,251,861 | 9,241,861 | ||||||||||||
Capital surplus | 37 | 44,373 | 44,373 | 44,373 | ||||||||||||
Capital adjustments | — | (51 | ) | — | ||||||||||||
Accumulated other comprehensive income | 565,577 | 755,039 | 657,351 | |||||||||||||
Retained earnings | 37 | 7,796,236 | 6,681,795 | 5,609,102 | ||||||||||||
|
|
|
|
|
| |||||||||||
(Planned regulatory reserve for possible loan losses (Won)1,034,949 million at December 31, 2011 (Won)822,032 million at December 31, 2010) | ||||||||||||||||
Total equity | 17,658,047 | 16,733,017 | 15,552,687 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total liabilities and equity | (Won) | 127,874,435 | (Won) | 113,949,883 | (Won) | 122,801,863 | ||||||||||
|
|
|
|
|
|
See accompanying notes.
- 31 -
Table of Contents
Korea Development Bank
Separate statements of comprehensive income
For the years ended December 31, 2011 and 2010
(Korean won in millions, except per share amounts) | Notes | 2011 | 2010 | |||||||||||||||||
Net interest income | (Won) | 1,577,671 | (Won) | 1,627,341 | ||||||||||||||||
Interest income | 5 | (Won) | 4,574,415 | (Won) | 4,450,301 | |||||||||||||||
Interest expense | 5 | (2,996,744 | ) | (2,822,960 | ) | |||||||||||||||
|
|
|
| |||||||||||||||||
Net non-interest income | 942,923 | 1,381,069 | ||||||||||||||||||
Net fee and commission income | 6 | 541,742 | 492,812 | |||||||||||||||||
Dividend income | 7 | 180,650 | 184,515 | |||||||||||||||||
Net gain from financial assets and liabilities held-for-trading | 8 | 120,696 | 96,654 | |||||||||||||||||
Net loss from financial assets and liabilities designated at FVTPL | 9 | (43,801 | ) | (83,323 | ) | |||||||||||||||
Net gain from financial assets-available-for-sale | 10 | 16,184 | 1,045,744 | |||||||||||||||||
Net gain from foreign currency transactions and derivative financial instruments | 11 | 502,560 | 143,353 | |||||||||||||||||
Other operating loss, net | 12 | (375,108 | ) | (498,686 | ) | |||||||||||||||
|
|
|
| |||||||||||||||||
Credit loss expense | 22 | 208,083 | 966,019 | |||||||||||||||||
General administrative expenses | 13 | 499,352 | 414,242 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Operating income | 1,813,159 | 1,628,149 | ||||||||||||||||||
Non-operating income (expense) | (26,941 | ) | (139,126 | ) | ||||||||||||||||
Impairment loss on investments in subsidiaries and associates | (3,937 | ) | (115,127 | ) | ||||||||||||||||
Other non-operating income | 14 | 4,150 | 6,712 | |||||||||||||||||
Other non-operating expense | 14 | (27,154 | ) | (30,711 | ) | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net income before income tax | 1,786,218 | 1,489,023 | ||||||||||||||||||
Income tax expense | 15 | 373,817 | 416,330 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Net income | 37 | 1,412,401 | 1,072,693 | |||||||||||||||||
(Net income after adjusting regulatory reserve for possible loan losses: (Won)1,199,484 million for 2011) | ||||||||||||||||||||
Other comprehensive income | (189,462 | ) | 97,688 | |||||||||||||||||
Gain(loss) on valuation of financial assets-available-for-sale | (236,401 | ) | 134,435 | |||||||||||||||||
Exchange differences on translation of foreign operations | 40 | 16,125 | (8,041 | ) | ||||||||||||||||
Tax effect | 15 | 30,814 | (28,706 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income | (Won) | 1,222,939 | (Won) | 1,170,381 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Earnings per share | ||||||||||||||||||||
Basic and diluted (unit : Korean won in unit) | 16 | (Won) | 763 | (Won) | 580 | |||||||||||||||
|
|
|
|
See accompanying notes.
- 32 -
Table of Contents
Korea Development Bank
Separate statements of changes in equity
For the years ended December 31, 2011 and 2010
(Korean won in millions) | Issued capital | Capital surplus | Capital adjustments | Accumulated other comprehensive income | Retained earnings | Total equity | ||||||||||||||||||
As of January 1, 2011 | (Won) | 9,251,861 | (Won) | 44,373 | (Won) | (51 | ) | (Won) | 755,039 | (Won) | 6,681,795 | (Won) | 16,733,017 | |||||||||||
Dividends | — | — | — | — | (297,909 | ) | (297,909 | ) | ||||||||||||||||
Appropriations of retained earnings | — | — | 51 | — | (51 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
9,251,861 | 44,373 | — | 755,039 | 6,383,835 | 16,435,108 | |||||||||||||||||||
Net income | — | — | — | — | 1,412,401 | 1,412,401 | ||||||||||||||||||
Loss on valuation of financial investments-available-for-sale | — | — | — | (236,401 | ) | — | (236,401 | ) | ||||||||||||||||
Changes in exchange differences on translation of foreign operations | — | — | — | 16,125 | — | 16,125 | ||||||||||||||||||
Income tax effect | — | — | — | 30,814 | — | 30,814 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income | — | — | — | (189,462 | ) | 1,412,401 | 1,222,939 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As of December 31, 2011 | (Won) | 9,251,861 | (Won) | 44,373 | (Won) | — | (Won) | 565,577 | (Won) | 7,796,236 | (Won) | 17,658,047 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Issued capital | Capital surplus | Capital adjustments | Accumulated other comprehensive income | Retained earnings | Total equity | |||||||||||||||||||
As of January 1, 2010 (the date of transition) | (Won) | 9,241,861 | (Won) | 44,373 | (Won) | — | (Won) | 657,351 | (Won) | 5,609,102 | (Won) | 15,552,687 | ||||||||||||
Capital injection | 10,000 | — | — | — | — | 10,000 | ||||||||||||||||||
Discount on stock issuance | — | — | (51 | ) | — | — | (51 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
9,251,861 | 44,373 | (51 | ) | 657,351 | 5,609,102 | 15,562,636 | ||||||||||||||||||
Net income | — | — | — | — | 1,072,693 | 1,072,693 | ||||||||||||||||||
Gain on valuation of financial investments-available-for-sale | — | — | — | 134,435 | — | 134,435 | ||||||||||||||||||
Changes in exchange differences on translation of foreign operations | — | — | — | (8,041 | ) | — | (8,041 | ) | ||||||||||||||||
Income tax effect | — | — | — | (28,706 | ) | — | (28,706 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total comprehensive income | — | — | — | 97,688 | 1,072,693 | 1,170,381 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
As of December 31, 2010 | (Won) | 9,251,861 | (Won) | 44,373 | (Won) | (51 | ) | (Won) | 755,039 | (Won) | 6,681,795 | (Won) | 16,733,017 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
- 33 -
Table of Contents
Korea Development Bank
Separate statements of cash flows
For the years ended December 31, 2011 and 2010
(Korean won in millions) | Notes | 2011 | 2010 | |||||||||||||||||
Cash flows from operating activities | (Won) | (2,034,734 | ) | (Won) | 8,362,153 | |||||||||||||||
|
|
|
| |||||||||||||||||
Net income before income taxes | (Won) | 1,786,218 | (Won) | 1,489,023 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Non-cash items included in profit before income tax and gain (loss) from non-operating activities: | 143,904 | (925,474 | ) | |||||||||||||||||
|
|
|
| |||||||||||||||||
Loss (gain) from hedge accounting, net | 137,278 | (62,942 | ) | |||||||||||||||||
Gain from financial assets available-for sale | (29,982 | ) | (1,023,141 | ) | ||||||||||||||||
Loss (gain) from financial assets held-to-maturity | (96 | ) | 1,145 | |||||||||||||||||
Impairment loss on investments in associates and subsidiaries | 3,937 | 115,127 | ||||||||||||||||||
Gain on disposal of investments in associates and subsidiaries | (1,393 | ) | (2,997 | ) | ||||||||||||||||
Depreciation of property and equipment | 25 | 17,096 | 16,792 | |||||||||||||||||
Loss (gain) on disposal of property and equipment | 14 | 4 | (137 | ) | ||||||||||||||||
Impairment loss on investment properties | 26 | — | 7,174 | |||||||||||||||||
Depreciation of investment properties | 26 | 1,056 | 1,023 | |||||||||||||||||
Amortization of intangible assets | 27 | 15,676 | 12,852 | |||||||||||||||||
Loss on redemption of debt issued, net | 328 | 9,630 | ||||||||||||||||||
Changes in operating assets and liabilities: | (3,639,005 | ) | 8,010,987 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Financial assets held-for-trading | 1,655,290 | (2,629,877 | ) | |||||||||||||||||
Financial assets designated at FVTPL | — | 89,503 | ||||||||||||||||||
Loans | (10,713,909 | ) | 5,079,173 | |||||||||||||||||
Derivative financial assets | 346,178 | 1,928,924 | ||||||||||||||||||
Other assets | (1,025,275 | ) | 562,014 | |||||||||||||||||
Financial liabilities designated at FVTPL | 40,384 | (356,547 | ) | |||||||||||||||||
Due to customers | 6,292,435 | 4,993,917 | ||||||||||||||||||
Derivative financial liabilities | (335,825 | ) | (1,927,916 | ) | ||||||||||||||||
Severance and retirement benefits | (29,228 | ) | (18,411 | ) | ||||||||||||||||
Provisions | 88,579 | (60,300 | ) | |||||||||||||||||
Other liabilities | 42,366 | 350,507 | ||||||||||||||||||
Income tax paid | (325,851 | ) | (212,383 | ) | ||||||||||||||||
Cash flows from investing activities | (5,179,802 | ) | 5,781,651 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Withdrawal of deposits | 339,002 | 1,345,691 | ||||||||||||||||||
Increase in deposits | (667,745 | ) | (653,210 | ) | ||||||||||||||||
Disposal of financial assets-available-for sale | 20,572,506 | 19,041,814 | ||||||||||||||||||
Acquisition of financial assets-available-for sale | 20 | (23,826,703 | ) | (12,295,903 | ) | |||||||||||||||
Disposal of financial assets-held-to-maturity | 29,113 | 10,360 | ||||||||||||||||||
Acquisition of financial assets-held-to-maturity | 21 | (2,166 | ) | (81,679 | ) | |||||||||||||||
Disposal of investment in subsidiaries and associates | 71,590 | 44,320 | ||||||||||||||||||
Acquisition of investment in subsidiaries and associates | (1,660,654 | ) | (1,602,019 | ) | ||||||||||||||||
Disposal of property and equipment | 469 | 187 | ||||||||||||||||||
Acquisition of property and equipment | 25 | (19,082 | ) | (12,636 | ) | |||||||||||||||
Acquisition of intangible assets | 27 | (16,132 | ) | (19,144 | ) | |||||||||||||||
Disposal of non-current assets held-for-sale | — | 3,870 | ||||||||||||||||||
Cash flows from financing activities | 6,592,971 | (13,538,078 | ) | |||||||||||||||||
|
|
|
| |||||||||||||||||
Proceeds from borrowings | 33,732,419 | 9,811,518 | ||||||||||||||||||
Repayment of borrowings | (31,223,049 | ) | (10,786,096 | ) | ||||||||||||||||
Proceeds (repayment) from other borrowings | 455,493 | (4,728,311 | ) | |||||||||||||||||
Proceeds from debts | 15,025,495 | 11,593,779 | ||||||||||||||||||
Repayment of debts | (11,099,478 | ) | (19,438,917 | ) | ||||||||||||||||
Capital injection | — | 9,949 | ||||||||||||||||||
Dividends paid | (297,909 | ) | — | |||||||||||||||||
|
|
|
| |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | (621,565 | ) | 605,726 | |||||||||||||||||
Cash and cash equivalents at the beginning of the year | 47 | 2,641,339 | 2,035,613 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Cash and cash equivalents at the end of the year | 47 | (Won) | 2,019,774 | (Won) | 2,641,339 | |||||||||||||||
|
|
|
|
See accompanying notes.
- 34 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements
December 31, 2011 and 2010
1. Bank information
Korea Development Bank (the “Bank”) was established on April 1, 1954, in accordance with The 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 (Won)9,251,861 million as of December 31, 2011.
The Bank’s head office is located in Yeouido-dong, Yeongdeungpo-gu, Seoul and its service network is as follows:
Domestic | Overseas | |||||||||||||||||||||||
Head office | Branches | Branches | Subsidiaries | Representative offices | Total | |||||||||||||||||||
KDB | 1 | 60 | 7 | 6 | 2 | 76 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2. Summary of significant accounting policies
Basis of preparation
The accompanying separate financial statements have been prepared on a historical cost basis, except for derivative financial instruments, financial assets and liabilities at FVTPL and financial assets available-for-sale that have measured at fair value. The carrying values of assets and liabilities that are designated as hedge items in fair value hedges that would otherwise be carried at amortized cost, are adjusted to record changes in fair value attributable to the risks that are being hedged. The financial statements are presented in Korean won and all values are rounded to the nearest million except when otherwise indicated.
The separate financial statements of the Bank have been prepared in accordance with Korea International Financial Reporting Standards (“K-IFRS”) enacted by the Act of External Audit of Stock Companies, Article 13(1)(1). The separate financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. In the event of any differences in interpreting the separate financial statements or the independent auditors’ report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail.
Interest income and interest expense
The Bank recognizes interest income and interest expense using the effective interest rate (EIR) method on an accrual basis. When a financial instrument bearing interest is impaired, the Bank reduces the carrying amount to its recoverable amount, being the estimated future cash flows discounted at its original effective interest rate of the instrument, and continues unwinding the discount as interest income.
Fee and commission income
Fee and commission are generally recognized on an accrual basis when the service has been provided. The revenue recognition of financial service fee is various based on the nature of service and the purpose of charge, and categorized as follows:
• | Fees earned for the rendering of services over a period of time are accrued over that period using the straight line method. |
- 35 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
• | Fees arising from providing significant transaction services for a third party are recognized on completion of the transaction services. |
• | Fees which are regarded as the part of the interest of financial instruments are recognized using the EIR. |
Dividend income
Dividend income is recognized when the Bank’s right to receive the payment is established.
Cash and cash equivalents
Cash and cash equivalents comprise of cash on hand, due from banks on demand and short-term highly liquid investments with an original maturity of three months or less.
Financial assets
The Bank classifies its financial assets in the following categories: financial assets at Fair Value through Profit or Loss (FVTPL), financial assets-available-for-sale, financial assets-held to-maturity, loans and receivables, and derivative financial instruments. The Bank’s management determines the category of its financial assets at initial recognition and initially measures financial assets at their fair value on the date of recognition
Purchase or sale of financial assets that require delivery of assets within a time frame established by regulation or convention in marketplace (require way trades) are recognized on the trade date, i.e., the date that the Bank commits to purchase or sell the asset.
(i) Financial assets at FVTPL
Financial assets at FVTPL include financial assets held-for-trading and financial assets designated at FVTPL upon initial recognition. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling in the near term. Derivative financial assets presented in the statement of financial position include derivative financial assets that are designated as hedging instruments in hedge relationships and separately disclosed in the notes to the financial statements. The Bank’s management may only designate a financial asset at FVTPL upon initial recognition when they determine that such classification provides more useful information. Gain or loss from financial assets at FVTPL are credited or charged to current operation results.
(ii) Financial assets-available-for-sale
Financial assets-available-for-sale are non-derivative financial instruments designated at available-for-sale item, and are not classified as loans and receivables, financial assets-held-to-maturity or financial assets at FVTPL. They are measured at fair value and their valuation gains and losses are recognized in equity as other comprehensive income. The equity ownership, whose active market values are not available and fair values cannot be reliably measured, are valued at acquisition cost. Accumulated other comprehensive income previously recognized in equity is recognized in the income statement when the investment is disposed of or impairment loss for the investment is recognized. Dividends earned whilst holding financial assets-available-for-sale are recognized in the income statement when the right to receive the payment has been established.
- 36 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
(iii) Financial assets-held-to-maturity
Financial assets-held-to-maturity are non-derivative financial instruments with fixed or determinable payments and fixed maturities, which the Bank has the positive intention and ability to hold to maturity. When the financial assets meet the definition of loans and receivables or are designated at FVTPL, or financial assets-available-for-sale, they will not be classified as financial assets-held-to-maturity. After initial measurement, financial assets-held-to-maturity are subsequently measured at amortized cost using the effective interest rate (“EIR”). Also, interest income on financial assets-held-to-maturity is recognized using the EIR method.
(iv) Loans
Loans are non-derivative financial instruments with fixed or determinable payments and are not traded in an active market. Loans (excluding short-term loan) are subsequently measured at amortized cost using the EIR, less allowance for impairment. The amortization is included in interest income in the statement of comprehensive income.
Impairment of financial assets
(i) Impairment of financial assets-available-for-sale
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 the income statement. Impairment losses on equity ownership are not reversed through the income statement. 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.
(ii) Impairment of financial assets-held-to-maturity
The Bank assesses individually at each reporting date whether there is objective evidence that a financial assets-held-to-maturity 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 effective interest rate. The amount of the 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.
(iii) Impairment of loans
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 loss is measured as the difference between the loans’s carrying amount and the present value of estimated future cash flows, which is discounted using the initial effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in the statement of comprehensive income.
- 37 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
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 categorizes the loan in a couple of loan groups with similar credit risk characteristics and collectively assesses them for impairment (“collective assessment”).
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 effective interest rate. If the loan has a floating interest rate, the Bank uses the current effective interest rate 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 evaluation of impairment, loans are grouped on the basis of the Bank’s internal credit grading 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 on a group of 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 losses in the group 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.
(iv) The evidence of impairment
Objective evidence that a financial asset is impaired includes following loss events:
(a) | Significant financial difficulty of the issuer or obligor |
(b) | A breach of contract, such as a default or delinquency in interest or principal payments |
(c) | 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 |
(d) | It becoming probable that the borrower will enter bankruptcy or other financial reorganization |
(e) | The disappearance of an active market for that financial asset because of financial difficulties |
(f) | 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 |
Financial liabilities
The Bank classifies its financial liabilities in the following categories: financial liabilities at FVTPL (financial liabilities held-for-trading and financial liabilities designated at FVTPL), financial liabilities carried at amortized cost (due to customers, borrowings and debt issued, etc.) and derivative financial liabilities. All financial liabilities are recognized at their fair value on the date of initial recognition.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
(i) Financial liabilities at FVTPL
Financial liabilities at FVTPL 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 liabilities presented in the statement of financial position include derivative financial liabilities that are designated as hedging instruments in hedge relationships and separately disclosed in Notes to the financial statements.
The Bank’s management may only designate a financial asset at FVTPL upon initial recognition when they judge that such classification provides more useful information. Gain or loss from financial assets at FVTPL are credited or charged to current operation results.
(ii) Financial liabilities carried at amortized cost
Financial liabilities carried at amortized cost are recognized initially at fair value, net of transaction costs incurred. Such financial liabilities 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 financial liability using the EIR method.
Fees paid on the establishment of credit facilities are recognized as transaction costs of the financial liabilities to the extent that it is highly likely that some or all of the facility will be borrowed. In this case, the fee is deferred until the borrowing occurs. If there is no evidence that the probability that some or all of the facility will be borrowed is high, then the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.
Financial guarantees
Financial guarantee contracts (consisting of letter of credit, guarantees and acceptances) are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor has failed to make payments when due, in accordance with the terms of contracts. Financial guarantees are initially recognized as financial guarantee liabilities in the statement of financial position at fair value on the date that 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 accordancewith K-IFRS 1037 Provisions, Contingent Liabilities, and Contingent Assets and the initial amount less cumulative amortization of fees recognized in accordance withK-IFRS 1018 Revenues.
Repurchase agreements
Securities purchased under agreements to resell at a specified future date (“reverse repos”) are recorded in the statement of financial position as bonds purchased under repurchase agreements in the other loans. Conversely, securities sold under agreements to repurchase at a specified future date (“repos”) are recorded in the statement of financial position as bonds sold under repurchase agreements in the other borrowings. Interest income and expense incurred from reverse repo and repo transactions are recorded in the statement of comprehensive income as interest income on loans and interest expense on borrowings, respectively.
Derivatives instruments and hedge accounting
Derivatives instruments are initially recognized at fair value on the contract date and are subsequently revalued at their fair value. Derivative instruments are accounted differently depending on whether hedge
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
accounting is applied, and therefore, are classified into trading purpose derivatives and hedging purpose derivatives. In a hedge relationship, when a hedge item is any asset, liability or unrecognized fixed contract, which is exposed at the possibility that its some or entire fair value is fluctuated by the specified risks, fair value hedge accounting is applied. 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 hedge 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.
(i) Fair value hedges
For designated and qualifying fair value hedges, the change in the fair value of a hedging derivative is recognized in the statement of comprehensive income. Meanwhile, the change in the fair value of 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 the income statement. 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.
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 closely related to those of the host contract and the host contract is not itself held-for-trading or designated at FVTPL. Unless the Bank aggregately designates the host contract and embedded derivative as financial instrument at FVTPL, these embedded derivatives separated from the host contract are carried at fair value and changes in their fair value are recognized in the statement of comprehensive income.
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 standards 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.
• | Financial assets-held-to-maturity: |
The Bank uses the fair value measured by appraisal agencies for financial assets-held-to-maturity.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
• | Due to customer: |
The fair value of due to customer 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: |
The fair value of borrowings in Korean won is estimated using discounted cash flow method. On the other hand, the fair value of borrowings denominated foreign currency is measured by appraisal agencies.
• | Debt issued: |
The fair value of industrial financial debts in Korean won (except structured debts) is estimated using discounted cash flow method. For industrial financial debts in foreign currency and structured debts, the Bank use the fair value measured by appraisal agencies.
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.
Day 1 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.
Derecognition of financial instruments
(i) Derecognition of financial assets
Financial assets are derecognized when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantial risks and rewards of ownership of the assets are also transferred. If the Bank has neither transferred nor retained substantial risks and rewards of the asset, but has transferred control of the asset, the asset is recognized to the extent of the Bank’s continuing involvement in the asset in the financial statement. If the Bank still retains substantial risks and rewards of the transferred asset, the Bank continuously recognizes the financial assets, and recognizes disposal proceeds as borrowings with collaterals.
(ii) Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where 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, the liability is treated as a derecognition 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 the statement of comprehensive income.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Investment in subsidiaries and associates
These separate financial statements measured investment in subsidiaries and associates using cost method based on initial investments, not investee’s reported profit and loss, and net assets in accordance with K-IFRS 1027.
Property and equipment
Land and buildings mainly comprise of the Bank’s head office and some local branches. Plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced in intervals, the Bank recognizes such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the statement of comprehensive income as incurred.
Land is not depreciated. Depreciation of other assets is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Useful life (in years) | ||
Building | 20 ~ 50 | |
Structures | 10 ~ 40 | |
Leasehold improvements | 4 | |
Furniture and equipment for operation | 4 |
Property and equipment is impaired when its carrying amount exceeds the recoverable amount. The Bank assesses residual value and economic life of its asset 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.
Investment properties
Properties for lent and future profit are classified as investment properties. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost.
Investment properties are derecognized when either 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 statements of comprehensive income in the period of derecognition. Transfers are made to or from investment property only when there is a change in use.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Useful life (in years) | ||
Building | 20 ~ 50 | |
Structures | 10 ~ 40 |
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.
Intangible assets with finite lives are amortized over the useful economic life (4~5 years) and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash generating unit level. 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.
Non-current assets and disposal groups classified as held-for-sale
Non-current assets and disposal groups classified as held-for-sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held-for-sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition.
Impairment of non-financial assets
The Bank assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is 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. Such reversal is recognized in the statement of comprehensive income.
The Bank has investigated the objective evidence for the impairment of subsidiary and associates at each reporting date. If there is an objective evidence that non-financial assets are impaired, impairment losses are recognized after comparing carrying amount with fair value.
Pension benefits
The Bank operates a defined benefit pension plan (DB plan). The liability recognized in the statement of financial position in respect to the defined benefit pension plan is the present value of the defined benefit
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
obligation at the reporting date 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 current year.
Contingent liabilities
A contingent liability is a possible obligation that arises from past events and is recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation can be measured with sufficient reliability.
Income tax expenses and deferred tax assets and liabilities
Income taxes comprise of current (including additional income taxes for the prior year and refund of prior years’ income taxes) and deferred taxes in accordance with the Corporation Tax Act.
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Bank operates and generates taxable income.
Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Dividends
Dividends are recognized as liabilities in the period in which they are approved by the Bank’s shareholders.
Foreign currency translation
(i) Functional currency and presentation currency
The Bank’s separate financial statements are presented in Korean won, which is also the parent bank’s functional currency. Each entity in the Bank determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
(ii) Recognition to functional currency and foreign currency translation
In preparing the Bank’s financial statements, transactions in foreign currencies are initially recorded by the Bank at their respective functional currency rates prevailing at the date of the transaction.
Monetary assets and liabilities in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
All foreign exchange gains and losses recognized in the statement of comprehensive income are presented net in the statement of comprehensive income and the foreign exchange gains and losses on other comprehensive income items are presented in other comprehensive income. Non-monetary assets and liabilities which are not measured at fair value, the exchange difference would not occur since the exchange rate is applied at initial recognition.
In case the monetary assets and liabilities resulting from the transactions with overseas branches or overseas subsidiaries which are not intended to pay or not expected to be paid, such amount of assets and liabilities are regarded as net investments. 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.
(iii) Translation to the presentation currency
The assets and liabilities of foreign operations are translated into Korean won at the rate of exchange prevailing at the reporting date and their statements of comprehensive income are translated at average exchange rates during the year. The exchange differences arising on the translation are recognized in other comprehensive income.
Accounting for the 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.
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.
Regulatory reserve for possible loan losses
In the case that the total sum of allowance for possible loan losses does not meet the amount prescribed in the Regulations on Supervision of Bank Business 29(1), the Bank is required to compensate the difference, if any, at the reporting date as a regulatory reserve for possible loan losses.
In the case that the amount of existing regulatory reserve for possible loan losses exceeds the amount needed to be laid aside as at the current period, the difference, if any, shall be reversed. If there is undisposed deficit, the Bank can accumulate reserves for possible loan losses after disposing deficit.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Net income after subtracting (adding) the transferred (reversed) amount of regulatory reserve for possible loan losses during the reporting period and adjusted earnings per share are disclosed in Note 37.
Significant accounting estimates and judgments
The preparation of the Bank’s separate financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
Significant assumption and uncertainty, which may be adjusted during the upcoming period, are as follows:
(i) Fair value of financial assets
If the observable market price does not exist, the Bank needs to use valuation techniques to determine the fair value of the financial asset. When the financial asset is not traded frequently and the price of the asset is not reliable, the Bank should make extensive judgment to evaluate liquidity, market uncertainties, valuation assumptions and other valuation risks.
The Bank uses various valuation techniques with many variables and assumptions to determine the fair value of the financial asset.
(ii) Allowance for credit loss (allowance for possible loan losses, provision for payment guarantees and unused commitments)
The Bank assesses whether impairment exists for loans and provides allowance for possible loan losses. In addition, the Bank records a provision for payment guarantees and unused commitments after evaluating the possibilities of credit loss. The accuracy of such allowances depends on the expected cash flows of individual loans for individual assessment, and assumptions and variables applied in collective assessment and calculation of provision for payment guarantees and unused commitments.
(iii) Defined benefit obligation measurement
The defined benefit obligation is calculated annually by actuaries using the projected unit method and depends on actuarial assumptions and variables such as salary increase rate, retirement rate and discount rate.
3. Transition to K-IFRS
Transition to K-IFRS
The Bank’s opening K-IFRS statement of financial position was prepared as of January 1, 2010, the Bank’s date of transition to K-IFRS. In addition, the date of adoption of K-IFRS is January 1, 2011.
K-IFRS 1101First-Time Adoption of Korean International Financial Reporting Standards allows the Bank, as a first-time adopter, certain exemptions from the retrospective application of certain K-IFRSs.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Optional exemptions from other K-IFRS
Optional exemptions other than provided by K-IFRS 1101 are detailed as follows:
Section | Contents | |
Cumulative translation differences | The cumulative translation differences for all foreign operations are deemed to be nil at the date of transition. | |
Investment in subsidiaries, jointly controlled entities and associates | Investment in subsidiaries, jointly controlled entities and associates at the date of transition to K-IFRS has been measured at K-GAAP carrying amounts. | |
Designation of previously recognized financial instruments | A financial product (provided it meets certain criteria) is designated as financial instruments at fair value through profit or loss or financial assets-available-for-sale. |
Mandatory exceptions to the retrospective application
Mandatory exceptions to the retrospective application that the Bank has applied are as follows:
Section | Contents | |
Derecognition under K-IFRS 1039Financial Instruments: Recognition and Measurement | K-IFRS 1039 has been applied only for the transactions entered into on or after January 1, 2010. | |
Exceptions to hedge accounting |
Hedge accounting was applied only for the qualified transactions in accordance with K-IFRS 1039 at the date of transition. |
Financial estimates
When preparing the Bank’s statement of financial position as of January 1, 2010, estimates were made consistently with the estimates made for the preparation of statutory financial statements in conformity with accounting principles generally accepted in the Republic of Korea (“Korean GAAP”) on the same date.
Reconciliation of Korean GAAP to K-IFRS
Significant adjustments made by the Bank in changing its preliminary separate statement of financial position from Korean GAAP to K-IFRS as of January 1, 2010 are summarized in Note 48.
4. Operating segment information
Geographical segment information as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
Income | Non-current assets(*) | |||||||||||||||||||
Year ended December 31, 2011 | Year ended December 31, 2010 | December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||||||||
Domestic | (Won) | 14,683,282 | (Won) | 16,877,721 | (Won) | 6,268,032 | (Won) | 4,668,755 | (Won) | 3,281,612 | ||||||||||
International | 829,341 | 906,864 | 2,687 | 3,191 | 3,243 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 15,512,623 | (Won) | 17,784,585 | (Won) | 6,270,719 | (Won) | 4,671,946 | (Won) | 3,284,855 | |||||||||||
|
|
|
|
|
|
|
|
|
|
(*) | Non-current assets comprise investments in subsidiaries and associates, property and equipment, investment properties and intangible assets. |
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
5. Net interest income
The details of net interest income for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Interest income: | ||||||||
Interest income from due from banks | (Won) | 24,614 | (Won) | 19,356 | ||||
Interest income from financial assets held-for-trading | 45,887 | 37,750 | ||||||
Interest income from financial assets-available-for-sale | 904,230 | 886,072 | ||||||
Interest income from financial assets-held-to-maturity | 6,587 | 4,448 | ||||||
Interest income from loans | 3,593,097 | 3,502,675 | ||||||
|
|
|
| |||||
4,574,415 | 4,450,301 | |||||||
Interest expense: | ||||||||
Interest expense on financial liabilities designated at FVTPL | 55,238 | 62,490 | ||||||
Interest expense on due to customers | 837,366 | 468,394 | ||||||
Interest expense on borrowings | 457,733 | 516,874 | ||||||
Interest expense on debt issued | 1,646,407 | 1,775,202 | ||||||
|
|
|
| |||||
2,996,744 | 2,822,960 | |||||||
|
|
|
| |||||
(Won) | 1,577,671 | (Won) | 1,627,341 | |||||
|
|
|
|
6. Net fee and commission income
The details of net fee and commission income for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Commission income: | ||||||||
Loan handling fee | (Won) | 213,640 | (Won) | 234,207 | ||||
Underwriting and investment financing commissions | 222,558 | 216,430 | ||||||
Brokerage and agency commissions | 30,987 | 15,922 | ||||||
Trust and retirement pension commissions | 23,816 | 18,348 | ||||||
Asset management fee | 3,326 | 915 | ||||||
Other commissions | 67,701 | 28,732 | ||||||
|
|
|
| |||||
562,028 | 514,554 | |||||||
Fee expenses: | ||||||||
Brokerage and agency fees | 7,251 | 11,072 | ||||||
Other fees | 13,035 | 10,670 | ||||||
|
|
|
| |||||
20,286 | 21,742 | |||||||
|
|
|
| |||||
(Won) | 541,742 | (Won) | 492,812 | |||||
|
|
|
|
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
7. Dividend income
The details of dividend income for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Financial assets held-for-trading | (Won) | 347 | (Won) | 87 | ||||
Financial assets-available-for-sale | 66,147 | 49,486 | ||||||
Investment in subsidiaries and associates | 114,156 | 134,942 | ||||||
|
|
|
| |||||
(Won) | 180,650 | (Won) | 184,515 | |||||
|
|
|
|
8. Net gain from financial assets and liabilities held-for-trading
Net gain from financial assets and liabilities held-for-trading for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Gains from financial assets and liabilities held-for-trading: | ||||||||
Gain on sale | (Won) | 149,693 | (Won) | 114,636 | ||||
Gain on valuation | 6,702 | 14,743 | ||||||
|
|
|
| |||||
156,395 | 129,379 | |||||||
Losses from financial assets and liabilities held-for-trading: | ||||||||
Loss on sale | 34,432 | 26,854 | ||||||
Loss on valuation | 845 | 5,568 | ||||||
Trading expense | 422 | 303 | ||||||
|
|
|
| |||||
35,699 | 32,725 | |||||||
|
|
|
| |||||
(Won) | 120,696 | (Won) | 96,654 | |||||
|
|
|
|
9. Net loss from financial assets and liabilities designated at FVTPL
Net loss from financial assets and liabilities designated at FVTPL for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Gains from financial assets and liabilities designated at FVTPL: | ||||||||
Gain on valuation | (Won) | 5,486 | (Won) | — | ||||
Gain on redemption | 52 | 5,958 | ||||||
|
|
|
| |||||
5,538 | 5,958 | |||||||
Losses from financial assets and liabilities designated at FVTPL: | ||||||||
Loss on valuation | 48,953 | 80,310 | ||||||
Loss on redemption | 386 | 8,971 | ||||||
|
|
|
| |||||
49,339 | 89,281 | |||||||
|
|
|
| |||||
(Won) | (43,801 | ) | (Won) | (83,323 | ) | |||
|
|
|
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
10. Net gain from financial assets-available-for-sale
Net gain from financial assets-available-for-sale for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Gains from financial assets-available-for-sale: | ||||||||
Gain on sale | (Won) | 216,370 | (Won) | 1,230,434 | ||||
Reversal of impairment losses | 77,609 | 22,571 | ||||||
|
|
|
| |||||
293,979 | 1,253,005 | |||||||
Losses from financial assets-available-for-sale: | ||||||||
Loss on sale | 13,953 | 37,997 | ||||||
Impairment losses | 263,842 | 169,264 | ||||||
|
|
|
| |||||
277,795 | 207,261 | |||||||
|
|
|
| |||||
(Won) | 16,184 | (Won) | 1,045,744 | |||||
|
|
|
|
11. Net gain from foreign currency transaction and derivative financial instruments
Net gain from foreign currency transaction and derivative financial instruments for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Gain (loss) on foreign currencies trading: | ||||||||
Gain on foreign currencies trading | (Won) | 937,925 | (Won) | 962,625 | ||||
Loss on foreign currencies trading | (979,147 | ) | (1,031,415 | ) | ||||
|
|
|
| |||||
(41,222 | ) | (68,790 | ) | |||||
Gain (loss) on foreign exchange translation: | ||||||||
Gain on foreign exchange translation | 182,923 | 129,504 | ||||||
Loss on foreign exchange translation | (153,777 | ) | (98,749 | ) | ||||
|
|
|
| |||||
29,146 | 30,755 | |||||||
Gain (loss) from trading purpose of derivatives: | ||||||||
Gain from trading purpose of derivatives: | ||||||||
Interest related derivatives | 1,920,498 | 2,228,454 | ||||||
Currency related derivatives | 5,505,469 | 6,413,282 | ||||||
Stock related derivatives | 87,472 | 73,983 | ||||||
Commodity related derivatives | 61,090 | 154,033 | ||||||
Embedded derivatives | 366,545 | 154,615 | ||||||
Gain on adjustment of derivatives | 6,952 | 10,893 | ||||||
|
|
|
| |||||
7,948,026 | 9,035,260 | |||||||
Loss from trading purpose of derivatives: | ||||||||
Interest related derivatives | 1,910,900 | 2,386,752 | ||||||
Currency related derivatives | 5,183,196 | 6,237,839 | ||||||
Stock related derivatives | 93,910 | 71,004 | ||||||
Commodity related derivatives | 55,067 | 152,484 | ||||||
Embedded derivatives | 41,724 | 23,989 | ||||||
Loss on adjustment of derivatives | 11,315 | 36,170 | ||||||
|
|
|
| |||||
7,296,112 | 8,908,238 | |||||||
|
|
|
| |||||
651,914 | 127,022 |
- 50 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Gain (loss) from hedging purpose of derivatives: | ||||||||
Gain from hedging purpose of derivatives: | ||||||||
Interest related derivatives | 160,183 | 246,401 | ||||||
Currency related derivatives | 80,373 | 269,694 | ||||||
Gain on adjustment of derivatives | 9,704 | 10,199 | ||||||
|
|
|
| |||||
250,260 | 526,294 | |||||||
Loss from hedging purpose derivatives: | ||||||||
Interest related derivatives | 136,290 | 49,840 | ||||||
Currency related derivatives | 127,640 | 126,872 | ||||||
Loss on adjustment of derivatives | 4,240 | 4,671 | ||||||
|
|
|
| |||||
268,170 | 181,383 | |||||||
|
|
|
| |||||
(17,910 | ) | 344,911 | ||||||
Gains (loss) from fair value hedge instrument: | ||||||||
Gain from fair value hedge instrument: | ||||||||
Gain on valuation | 228,115 | 270,978 | ||||||
Gain on redemption | 56,790 | 50,976 | ||||||
|
|
|
| |||||
284,905 | 321,954 | |||||||
Loss from fair value hedge instrument: | ||||||||
Loss on valuation | 349,732 | 552,677 | ||||||
Loss on redemption | 54,541 | 59,822 | ||||||
|
|
|
| |||||
404,273 | 612,499 | |||||||
|
|
|
| |||||
(119,368 | ) | (290,545 | ) | |||||
|
|
|
| |||||
(Won) | 502,560 | (Won) | 143,353 | |||||
|
|
|
|
12. Other operating income (expense)
Other operating income (expense) for the years ended December 31, 2011 and 2010 is as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Other operating income: | ||||||||
Gain on sale of loans | (Won) | 81,819 | (Won) | 135,364 | ||||
Reversal of other allowances | 31,111 | 109,683 | ||||||
Gain related to investment in subsidiaries and associates | 4,170 | 13,759 | ||||||
Others | 14,329 | 5,718 | ||||||
|
|
|
| |||||
131,429 | 264,524 | |||||||
Other operating expense: | ||||||||
Loss on sale of loans | 175,924 | 533,066 | ||||||
Provision for other allowances | 119,604 | 49,948 | ||||||
Loss related to investment in subsidiaries and associates | 2,777 | 10,762 | ||||||
Insurance premium paid | 30,124 | 15,274 | ||||||
Others | 178,108 | 154,160 | ||||||
|
|
|
| |||||
506,537 | 763,210 | |||||||
|
|
|
| |||||
(Won) | (375,108 | ) | (Won) | (498,686 | ) | |||
|
|
|
|
- 51 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
13. General administrative expenses
General administrative expenses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Payroll costs: | ||||||||
Short-term salary | (Won) | 233,962 | (Won) | 219,232 | ||||
Early retirement compensation (voluntary) | 53,733 | 18,504 | ||||||
Severance pay | 4,403 | 2,241 | ||||||
|
|
|
| |||||
292,098 | 239,977 | |||||||
Employee welfare | 30,097 | 20,642 | ||||||
Depreciation of property and equipment | 17,096 | 16,792 | ||||||
Amortization of intangible assets | 15,676 | 12,852 | ||||||
Other: | ||||||||
Rental fee | 19,256 | 16,920 | ||||||
Taxes and dues | 15,852 | 15,252 | ||||||
Advertising expenses | 27,725 | 15,374 | ||||||
Others | 81,552 | 76,433 | ||||||
|
|
|
| |||||
144,385 | 123,979 | |||||||
|
|
|
| |||||
(Won) | 499,352 | (Won) | 414,242 | |||||
|
|
|
|
14. Other non-operating income (expense)
The details of other non-operating income (expense) for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Other non-operating income: | ||||||||
Rental income | (Won) | 1,706 | (Won) | 1,623 | ||||
Gain on disposal of non-current assets held-for-sale | — | 179 | ||||||
Gain on disposal of property and equipment | 35 | 139 | ||||||
Others | 2,409 | 4,771 | ||||||
|
|
|
| |||||
(Won) | 4,150 | (Won) | 6,712 | |||||
|
|
|
| |||||
Other non-operating expense: | ||||||||
Donations | (Won) | 24,352 | (Won) | 20,983 | ||||
Depreciation for investment properties | 1,056 | 1,023 | ||||||
Impairment loss in investment properties | — | 7,174 | ||||||
Loss on disposal of non-current assets held-for-sale | — | 179 | ||||||
Loss on disposal of property and equipment | 39 | 2 | ||||||
Others | 1,707 | 1,350 | ||||||
|
|
|
| |||||
(Won) | 27,154 | (Won) | 30,711 | |||||
|
|
|
|
- 52 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
15. Income tax expense
The major components of income tax expense for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Current income tax(*) | (Won) | 267,724 | (Won) | 398,246 | ||||
Change in deferred income tax due to temporary differences | 80,750 | 48,423 | ||||||
|
|
|
| |||||
Income tax effect | 348,474 | 446,669 | ||||||
Deferred income tax recognized directly to equity | 30,814 | (28,706 | ) | |||||
Change in income tax due to consolidated tax filing | (5,471 | ) | (1,633 | ) | ||||
|
|
|
| |||||
Income tax expense | (Won) | 373,817 | (Won) | 416,330 | ||||
|
|
|
|
(*) | Changes in current income tax due to previous year’s final tax filing are included. |
The net income before income tax and income tax expense for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Net income before income tax | (Won) | 1,786,218 | (Won) | 1,489,023 | ||||
|
|
|
| |||||
Income tax calculated using an enacted tax rate | 432,238 | 360,317 | ||||||
Adjustments: | ||||||||
Non-deductible losses | 371,267 | 142,089 | ||||||
Tax free gains | (244,376 | ) | (94,911 | ) | ||||
Non-recognition of: | ||||||||
deferred income tax assets | — | 31,406 | ||||||
deferred income tax liabilities | (3,697 | ) | — | |||||
Tax deduction | (13,980 | ) | — | |||||
Change in income tax due to consolidated tax filing | (5,471 | ) | (1,633 | ) | ||||
Others | (162,164 | ) | (20,938 | ) | ||||
|
|
|
| |||||
(58,421 | ) | 56,013 | ||||||
|
|
|
| |||||
Income tax expense | (Won) | 373,817 | (Won) | 416,330 | ||||
|
|
|
|
16. Earnings per share
The Bank represents its diluted and basic earnings per ordinary share in separate statement of comprehensive 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.
- 53 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Basic earnings per share for the years ended December 31, 2011 and 2010 are calculated as follows (Korean won and shares in units):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Net profit attributable to ordinary shareholders of the Bank | (Won) | 1,412,400,545,773 | (Won) | 1,072,693,294,126 | ||||
Weighted average number of ordinary shares outstanding | 1,850,372,235 | 1,849,879,084 | ||||||
|
|
|
| |||||
Basic earnings per share | (Won) | 763 | (Won) | 580 | ||||
|
|
|
|
Weighted-average number of ordinary shares outstanding for the years ended December 31, 2011 and 2010 are calculated as follows (shares and day in units):
Year ended December 31, 2011 | ||||||||||||
Number of shares outstanding | Duration | Cumulative shares | Weighted number of shares outstanding | |||||||||
1,850,372,235 | 365 | 675,385,865,775 | 1,850,372,235 | |||||||||
|
|
|
|
|
|
|
Year ended December 31, 2010 | ||||||||||||||||
Number of shares outstanding | Duration | Cumulative shares | Weighted number of shares outstanding | |||||||||||||
Number of issued shares as of January 1, 2010 | 1,848,372,235 | 365 | 674,655,865,775 | 1,848,372,235 | ||||||||||||
Capital injection | 2,000,000 | 275 | 550,000,000 | 1,506,849 | ||||||||||||
|
|
|
|
|
| |||||||||||
December 31, 2010 | 1,850,372,235 | 675,205,865,775 | 1,849,879,084 | |||||||||||||
|
|
|
|
|
|
Diluted and basic earnings per share for the years ended December 31, 2011 and 2010 are identical as the Bank did not issue any potentially diluted common shares.
17. Cash and due from banks
Cash and due from banks as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Cash | (Won) | 91,476 | (Won) | 56,093 | (Won) | 66,915 | ||||||
Due from banks in Korean won: | ||||||||||||
Due from Bank of Korea (“BOK”) | 262,554 | 88,165 | 646,172 | |||||||||
Other due from banks in Korean won | 88,464 | 187,252 | 174,506 | |||||||||
Due from banks in foreign currency/off-shores | 1,523,345 | 843,593 | 1,087,763 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 1,965,839 | (Won) | 1,175,103 | (Won) | 1,975,356 | |||||||
|
|
|
|
|
|
- 54 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Restricted due from banks as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Deposits with BOK | (Won) | 353,639 | (Won) | 180,704 | (Won) | 705,876 | ||||||
Reserve for payment of principal on behalf of SPC | 88,050 | 157,210 | 141,853 | |||||||||
Others | 66,215 | 64,633 | 46,689 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 507,904 | (Won) | 402,547 | (Won) | 894,418 | |||||||
|
|
|
|
|
|
18. Financial assets held-for-trading
The details of financial assets held-for-trading as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Held-for-trading in Korean won: | ||||||||||||
Equity securities | (Won) | 2,621 | (Won) | 8,345 | (Won) | — | ||||||
Debt securities: | ||||||||||||
Government bonds | 847,204 | 823,528 | 224,243 | |||||||||
Financial bonds | 131,314 | 50,928 | 180,395 | |||||||||
Corporate bonds | — | — | 10,050 | |||||||||
Commercial paper | 88,677 | 138,919 | 128,880 | |||||||||
|
|
|
|
|
| |||||||
1,067,195 | 1,013,375 | 543,568 | ||||||||||
Beneficiary certificates | 1,452,781 | 3,180,285 | 993,953 | |||||||||
|
|
|
|
|
| |||||||
2,522,597 | 4,202,005 | 1,537,521 | ||||||||||
Held-for-trading in foreign currency and off-shores investments: | ||||||||||||
Equity securities | 3,988 | 17,217 | — | |||||||||
Debt securities | 13,833 | 2,498 | 71,797 | |||||||||
Beneficiary certificates | 45,491 | 17,475 | — | |||||||||
|
|
|
|
|
| |||||||
63,312 | 37,190 | 71,797 | ||||||||||
|
|
|
|
|
| |||||||
(Won) | 2,585,909 | (Won) | 4,239,195 | (Won) | 1,609,318 | |||||||
|
|
|
|
|
|
The details of debt securities in financial assets held-for-trading as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||
Par value | Acquisition cost | Fair value (carrying amount) | ||||||||||
Government bonds | (Won) | 840,000 | (Won) | 849,767 | (Won) | 847,204 | ||||||
Financial bonds | 132,000 | 132,094 | 131,314 | |||||||||
Commercial paper | 90,000 | 88,671 | 88,677 | |||||||||
Debt securities in foreign currency | 13,840 | 13,121 | 13,833 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 1,075,840 | (Won) | 1,083,653 | (Won) | 1,081,028 | |||||||
|
|
|
|
|
|
- 55 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||
Par value | Acquisition cost | Fair value (carrying amount) | ||||||||||
Government bonds | (Won) | 818,000 | (Won) | 820,455 | (Won) | 823,52 | ||||||
Financial bonds | 51,000 | 50,875 | 50,928 | |||||||||
Commercial paper | 140,000 | 138,915 | 138,919 | |||||||||
Debt securities in foreign currency | 2,505 | 2,457 | 2,498 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 1,011,505 | (Won) | 1,012,702 | (Won) | 1,015,873 | |||||||
|
|
|
|
|
| |||||||
January 1, 2010 | ||||||||||||
Par value | Acquisition cost | Fair value (carrying amount) | ||||||||||
Government bonds | (Won) | 224,000 | (Won) | 225,768 | (Won) | 224,243 | ||||||
Financial bonds | 181,000 | 181,086 | 180,395 | |||||||||
Corporate bonds | 10,000 | 10,084 | 10,050 | |||||||||
Commercial paper | 130,000 | 128,881 | 128,880 | |||||||||
Debt securities in foreign currency | 73,103 | 70,490 | 71,797 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 618,103 | (Won) | 616,309 | (Won) | 615,365 | |||||||
|
|
|
|
|
|
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.
19. Financial assets designated at FVTPL
The financial assets designated at FVTPL as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Loans | (Won) | — | (Won) | — | (Won) | 89,503 | ||||||
|
|
|
|
|
|
The above financial assets designated at FVTPL consist of equity index linked securities, which are not separated from host contracts, and the entire financial asset is designated at FVTPL.
- 56 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
20. Financial assets-available-for-sale
The details of financial assets-available-for-sale as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Available-for-sale in Korean won: | ||||||||||||
Equity securities | (Won) | 2,810,301 | (Won) | 2,230,995 | (Won) | 2,893,201 | ||||||
Debt securities: | ||||||||||||
Government and public bonds | 842,553 | 938,811 | 1,082,033 | |||||||||
Financial bonds | 4,027,149 | 3,649,045 | 3,922,906 | |||||||||
Corporate bonds | 12,482,509 | 10,006,291 | 13,593,502 | |||||||||
Others(*) | 453,519 | 463,348 | — | |||||||||
|
|
|
|
|
| |||||||
17,805,730 | 15,057,495 | 18,598,441 | ||||||||||
Beneficiary certificates | 729,811 | 1,338,854 | 2,714,851 | |||||||||
|
|
|
|
|
| |||||||
21,345,842 | 18,627,344 | 24,206,493 | ||||||||||
Available-for-sale in foreign currency and off-shore investments: | ||||||||||||
Equity securities | 22,138 | 12,464 | 12,636 | |||||||||
Debt securities | 4,089,237 | 3,859,517 | 3,995,178 | |||||||||
Beneficiary certificates | 194,622 | 177,570 | 42,334 | |||||||||
|
|
|
|
|
| |||||||
4,305,997 | 4,049,551 | 4,050,148 | ||||||||||
Financial assets-available-for-sale lended | 61,699 | — | — | |||||||||
|
|
|
|
|
| |||||||
(Won) | 25,713,538 | (Won) | 22,676,895 | (Won) | 28,256,641 | |||||||
|
|
|
|
|
|
(*) | GM Korea Company’s callable preferred stocks were classified as debt securities. |
Changes in carrying value of financial assets-available-for-sale for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Beginning balance | (Won) | 22,676,895 | (Won) | 28,256,641 | ||||
Acquisition | 23,826,703 | 12,295,903 | ||||||
Disposal and redemption | (20,370,089 | ) | (17,893,205 | ) | ||||
Changes due to amortization | 13,798 | (22,603 | ) | |||||
Changes in fair value | (235,968 | ) | 134,458 | |||||
Impairment loss | (263,842 | ) | (169,264 | ) | ||||
Reversal of impairment loss | 77,609 | 22,571 | ||||||
Reclassification | (11,135 | ) | 52,417 | |||||
Foreign exchange differences | (433 | ) | (23 | ) | ||||
|
|
|
| |||||
Ending balance | (Won) | 25,713,538 | (Won) | 22,676,895 | ||||
|
|
|
|
- 57 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
The details of marketable financial assets-available-for-sale (including equity securities in foreign currencies) as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||||||
Company | Ownership (%) | Fair value (carrying Amount) | Fair value (carrying Amount) | Fair value (carrying Amount) | ||||||||||||
KUMHO Petrochemical Co., Ltd. | 14.05 | (Won) | 590,984 | (Won) | — | (Won) | — | |||||||||
STX Pan Ocean Co., Ltd. | 14.99 | 187,637 | 353,347 | 348,718 | ||||||||||||
KUMHO Tire Inc. | 12.43 | 115,282 | 74,771 | — | ||||||||||||
Doosan Heavy Industries & Construction Co., Ltd. | 1.27 | 87,684 | 115,565 | 610,889 | ||||||||||||
Asiana Airlines Inc. | 6.66 | 78,690 | 117,852 | 44,469 | ||||||||||||
Sungjin Geotec Co., Ltd. | 14.90 | 75,034 | — | — | ||||||||||||
Ssangyong Cement Industry Co., Ltd. | 14.86 | 44,740 | 69,140 | 94,738 | ||||||||||||
ILJIN Materials Co., Ltd. | 6.63 | 44,200 | 10,026 | — | ||||||||||||
KUMHO Industrial Co., Ltd. | 12.25 | 40,133 | 85,003 | — | ||||||||||||
STX Corporation | 4.74 | 32,811 | 68,494 | 40,375 | ||||||||||||
Unison Co., Ltd. | 13.67 | 32,000 | — | — | ||||||||||||
Daihan Eunpakgy | 22.71 | 9,234 | 2,815 | 2,846 | ||||||||||||
KOCREF15CR-REIT | 15.00 | 8,184 | 9,374 | 9,300 | ||||||||||||
Taesan LCD Co., Ltd. (*) | 13.13 | 7,772 | 17,808 | 9,995 | ||||||||||||
SIMPAC Inc. | 5.24 | 7,513 | 6,202 | 3,480 | ||||||||||||
Others | 86,871 | 49,917 | 148,569 | |||||||||||||
|
|
|
|
|
| |||||||||||
(Won) | 1,448,769 | (Won) | 980,314 | (Won) | 1,313,379 | |||||||||||
|
|
|
|
|
|
(*) | Listed shares with disposal restrictions are measured at fair value provided by independent appraisal agencies. |
- 58 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
The details of non-marketable financial assets-available-for-sale (including equity securities in foreign currencies) as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):
Company | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||||
Ownership (%) | Fair value (carrying Amount) | Fair value (carrying Amount) | Fair value (carrying Amount) | |||||||||||||
Daehan Shipbuilding Co., Ltd.(*) | 53.20 | (Won) | 109,634 | (Won) | 2,238 | (Won) | 2,618 | |||||||||
Consumer Credit Assistant Fund Co., Ltd. | 4.67 | 102,198 | 102,198 | 102,198 | ||||||||||||
Pantech Co., Ltd.(*) | 15.09 | 108,501 | 101,268 | 103,762 | ||||||||||||
Hyundai Engineering Co., Ltd. | 14.84 | 63,952 | 56,242 | 5,740 | ||||||||||||
United Private Equity Fund 1st | 11.50 | 92,000 | — | — | ||||||||||||
Korea Securities Finance | 10.38 | 39,214 | 34,523 | 29,397 | ||||||||||||
Hwan Young Steel Ind. Co., Ltd. | 14.28 | 33,250 | 32,541 | 32,983 | ||||||||||||
Shinbundang Railroad Co., Ltd. | 10.28 | 31,377 | 28,881 | 23,790 | ||||||||||||
Econhill Development Co., Ltd. | 14.00 | 23,996 | 17,013 | 17,013 | ||||||||||||
Alpha dome City Co., Ltd. | 4.32 | 19,668 | 19,668 | 11,800 | ||||||||||||
Nonperforming Asset Management Fund | 10.47 | 18,059 | 30,901 | 48,880 | ||||||||||||
Samsung General Chemicals Co., Ltd. | 6.49 | 47,292 | 43,328 | 38,391 | ||||||||||||
Kangnam Beltway | 12.58 | 16,291 | 15,420 | 13,973 | ||||||||||||
Others | 678,238 | 778,924 | 1,161,913 | |||||||||||||
|
|
|
|
|
| |||||||||||
(Won) | 1,383,670 | (Won) | 1,263,145 | (Won) | 1,592,458 | |||||||||||
|
|
|
|
|
|
(*) | Listed shares with disposal restrictions are measured at fair value provided by independent appraisal agencies. |
Equity securities-available-for-sale with disposal restrictions as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Shares in unit and Korean won in millions):
December 31, 2011 | ||||||||||
Company | Number of shares | Carrying amount | Restricted term | |||||||
Pantech Co., Ltd. | 249,427,382 | (Won) | 108,501 | Until resolution of the shareholder’s meeting | ||||||
Daehan Shipbuilding Co., Ltd. | 14,753,600 | 109,634 | Until December 31, 2013 | |||||||
KUMHO Tire Inc. | 13,161,600 | 115,282 | Until December 31, 2014 | |||||||
Ssangyong Cement Industry Co., Ltd. | 11,090,842 | 44,740 | Not defined | |||||||
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., Ltd. | 6,409,200 | 3,237 | Until December 31, 2012 | |||||||
Jeayoung Solutec Co., Ltd. | 1,962,000 | 1,283 | Until December 31, 2012 | |||||||
MB CORP 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 Corporation | 12,063 | 1,790 | Until March 31, 2013 | |||||||
|
| |||||||||
(Won) | 434,917 | |||||||||
|
|
- 59 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||
Company | Number of shares | Carrying amount | Restricted term | |||||||
Pantech Co., Ltd. | 249,427,382 | (Won) | 101,268 | Until December 31, 2011 | ||||||
KUMHO Tire Co., Inc. | 13,161,600 | 74,771 | Until December 31, 2014 | |||||||
Ssangyong Cement Industry Co., Ltd. | 11,090,842 | 69,140 | Not defined | |||||||
Taesan LCD Co., Ltd. | 7,027,574 | 17,808 | Until December 31, 2013 | |||||||
KUMHO Industrial Co., Ltd. | 6,633,608 | 85,003 | Until December 31, 2014 | |||||||
Hanchang Paper Co., Ltd. | 6,409,200 | 3,230 | Until December 31, 2012 | |||||||
Daewoo Electronics Corporation | 2,412,662 | 2,085 | Until March 31, 2011 | |||||||
Daehan Shipbuilding Co., Ltd. | 309,500 | 2,238 | Until December 31, 2013 | |||||||
Young Gwang Stainless Co., Ltd. | 413,000 | 772 | Until December 31, 2012 | |||||||
|
| |||||||||
(Won) | 356,315 | |||||||||
|
|
January 1, 2010 | ||||||||||
Company | Number of shares | Carrying amount | Restricted term | |||||||
Ssangyong Cement Industry Co., Ltd. | 11,092,842 | (Won) | 94,738 | Not defined | ||||||
Hanchang Paper Co., Ltd. | 9,156,000 | 4,779 | Until August 8, 2010 | |||||||
Daehan Eunpakgy Co., Ltd. | 2,815,093 | 2,846 | Until March 27, 2010 | |||||||
Daewoo Electronics Corporation | 2,412,662 | 1,884 | Until March 31, 2011 | |||||||
|
| |||||||||
(Won) | 104,247 | |||||||||
|
|
The details of debt securities-available-for-sale as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):
December 31, 2011 | ||||||||||||
Par value | Acquisition cost | Fair value (carrying amount) | ||||||||||
Government and public bonds | (Won) | 808,048 | (Won) | 850,285 | (Won) | 842,553 | ||||||
Finance bonds | 4,020,000 | 4,036,573 | 4,027,149 | |||||||||
Corporate bonds | 12,638,672 | 12,634,175 | 12,482,509 | |||||||||
Bonds in foreign currencies | 4,862,584 | 4,950,270 | 4,089,237 | |||||||||
Available-for-sale bonds lended | 60,000 | 62,385 | 61,699 | |||||||||
Others | 614,388 | 265,259 | 453,519 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 23,003,692 | (Won) | 22,798,947 | (Won) | 21,956,666 | |||||||
|
|
|
|
|
|
December 31, 2010 | ||||||||||||
Par value | Acquisition cost | Fair value (carrying amount) | ||||||||||
Government and public bonds | (Won) | 918,826 | (Won) | 965,760 | (Won) | 938,811 | ||||||
Finance bonds | 3,640,000 | 3,649,624 | 3,649,045 | |||||||||
Corporate bonds | 11,210,266 | 11,169,389 | 10,006,291 | |||||||||
Bonds in foreign currencies | 3,905,897 | 3,985,741 | 3,859,517 | |||||||||
Others | 614,388 | 265,259 | 463,348 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 20,289,377 | (Won) | 20,035,773 | (Won) | 18,917,012 | |||||||
|
|
|
|
|
|
- 60 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||
Par value | Acquisition cost | Fair value (carrying amount) | ||||||||||
Government and public bonds | (Won) | 1,075,000 | (Won) | 1,131,286 | (Won) | 1,082,033 | ||||||
Finance bonds | 3,940,000 | 3,951,579 | 3,922,906 | |||||||||
Corporate bonds | 13,873,089 | 13,818,425 | 13,593,502 | |||||||||
Bonds in foreign currencies | 4,168,939 | 4,176,729 | 3,995,178 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 23,057,028 | (Won) | 23,078,019 | (Won) | 22,593,619 | |||||||
|
|
|
|
|
|
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.
21. Financial assets-held-to-maturity
The details of financial assets-held-to-maturity as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
Amortized cost | Fair value | |||||||||||||||||||||||
December 31, 2011 | December 31, 2010 | January 1, 2010 | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||||||||||
Government and public bonds | (Won) | 9,266 | (Won) | 9,848 | (Won) | 16,662 | (Won) | 9,250 | (Won) | 10,483 | (Won) | 15,334 | ||||||||||||
Corporate bonds | 100,600 | 127,000 | 50,000 | 102,113 | 129,370 | 50,853 | ||||||||||||||||||
Others | 978 | 847 | 859 | 978 | 847 | 859 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 110,844 | (Won) | 137,695 | (Won) | 67,521 | (Won) | 112,341 | (Won) | 140,700 | (Won) | 67,046 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Changes in carrying value of financial assets-held-to-maturity for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Beginning balance | (Won) | 137,695 | (Won) | 67,521 | ||||
Acquisition | 2,166 | 81,679 | ||||||
Disposal and redemption | (29,113 | ) | (10,360 | ) | ||||
Changes due to amortization | 96 | (1,145 | ) | |||||
|
|
|
| |||||
Ending balance | (Won) | 110,844 | (Won) | 137,695 | ||||
|
|
|
|
- 61 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
22. Loans and allowance for possible loan losses
The details of loans as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
Amortized cost | Fair value | |||||||||||||||||||||||
December 31, 2011 | December 31, 2010 | January 1, 2010 | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||||||||||
Loans in Korean won: | ||||||||||||||||||||||||
Loans for facility development | (Won) | 28,189,410 | (Won) | 24,332,971 | (Won) | 24,695,227 | (Won) | 28,390,219 | (Won) | 24,395,221 | (Won) | 24,483,608 | ||||||||||||
Loans for working capital | 17,831,132 | 13,586,684 | 12,121,625 | 17,626,321 | 13,270,246 | 11,871,473 | ||||||||||||||||||
Inter-bank loans | 581,865 | 513,262 | 429,630 | 549,002 | 484,217 | 396,373 | ||||||||||||||||||
Private loans | 323,691 | 45,363 | 20,249 | 333,985 | 46,509 | 19,607 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
46,926,098 | 38,478,280 | 37,266,731 | 46,899,527 | 38,196,193 | 36,771,061 | |||||||||||||||||||
Loans in foreign currency: | ||||||||||||||||||||||||
Loans | 12,988,603 | 12,328,793 | 12,966,866 | 13,070,379 | 12,350,815 | 12,887,500 | ||||||||||||||||||
Off-shore loan receivables | 4,809,746 | 3,995,358 | 3,665,882 | 4,905,964 | 3,922,419 | 3,616,365 | ||||||||||||||||||
Inter-bank loans | 1,906,361 | 1,029,070 | 909,264 | 1,906,281 | 1,029,294 | 909,035 | ||||||||||||||||||
Loans borrowed from overseas financial institutions | 328,521 | 343,067 | 1,575,954 | 333,233 | 345,759 | 1,646,663 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
20,033,231 | 17,696,288 | 19,117,966 | 20,215,857 | 17,648,287 | 19,059,563 | |||||||||||||||||||
Other loans: | ||||||||||||||||||||||||
Private-placed corporate bonds | 5,704,030 | 6,724,279 | 11,426,504 | 5,687,223 | 6,570,343 | 11,421,315 | ||||||||||||||||||
Bills bought in foreign currencies | 1,890,729 | 1,720,579 | 2,315,945 | 1,881,596 | 1,714,435 | 2,299,302 | ||||||||||||||||||
Advance payments on acceptances and guarantees | 68,426 | 125,936 | 75,401 | 66,000 | 45,318 | 56,096 | ||||||||||||||||||
Others | 6,758,141 | 7,312,001 | 5,916,243 | 6,742,967 | 7,305,730 | 5,351,650 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
14,421,326 | 15,882,795 | 19,734,093 | 14,377,786 | 15,635,826 | 19,128,363 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 81,380,655 | (Won) | 72,057,363 | (Won) | 76,118,790 | (Won) | 81,493,170 | (Won) | 71,480,306 | (Won) | 74,958,987 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less: | ||||||||||||||||||||||||
Allowance for possible loan losses | (865,254 | ) | (1,145,406 | ) | (912,782 | ) | ||||||||||||||||||
Present value discount | (69,946 | ) | (115,933 | ) | (90,216 | ) | ||||||||||||||||||
Deferred loan origination fees | (30,661 | ) | (25,497 | ) | (15,328 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
(Won) | 80,414,794 | (Won) | 70,770,527 | (Won) | 75,100,464 | |||||||||||||||||||
|
|
|
|
|
|
- 62 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Changes in allowance for possible loan losses for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | ||||||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||||||
Loans for working capital | Loans for facility development | Others | Loans in foreign currencies | Private - placed corporate bonds | Others | Total | ||||||||||||||||||||||
Beginning balance | (Won) | 403,465 | (Won) | 154,547 | (Won) | 46 | (Won) | 230,978 | (Won) | 235,739 | (Won) | 120,631 | (Won) | 1,145,406 | ||||||||||||||
Net increase (decrease) in allowance for possible loan losses | 230,786 | 69,985 | 676 | 348 | (34,244 | ) | (59,468 | ) | 208,083 | |||||||||||||||||||
Write-off | (248,827 | ) | (12,295 | ) | — | (62,776 | ) | (5,610 | ) | (1,390 | ) | (330,898 | ) | |||||||||||||||
Foreign exchange differences | — | — | — | 1,710 | — | — | 1,710 | |||||||||||||||||||||
Others | (78,994 | ) | (34,686 | ) | — | (24,134 | ) | (14,979 | ) | (6,254 | ) | (159,047 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Ending balance | (Won) | 306,430 | (Won) | 177,551 | (Won) | 722 | (Won) | 146,126 | (Won) | 180,906 | (Won) | 53,519 | (Won) | 865,254 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 | ||||||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||||||
Loans for working capital | Loans for facility development | Others | Loans in foreign currencies | Private - placed corporate bonds | Others | Total | ||||||||||||||||||||||
Beginning balance | (Won) | 396,154 | (Won) | 181,645 | (Won) | 50 | (Won) | 203,683 | (Won) | 66,594 | (Won) | 64,656 | (Won) | 912,782 | ||||||||||||||
Net increase (decrease) in allowance for possible loan losses | 554,486 | 18,259 | (3 | ) | 95,589 | 230,401 | 67,287 | 966,019 | ||||||||||||||||||||
Write-off | (217,285 | ) | (35,941 | ) | — | (46,908 | ) | (47,287 | ) | (17,573 | ) | (364,994 | ) | |||||||||||||||
Foreign exchange differences | — | — | — | (54 | ) | — | (5 | ) | (59 | ) | ||||||||||||||||||
Others | (329,890 | ) | (9,416 | ) | (1 | ) | (21,332 | ) | (13,969 | ) | 6,266 | (368,342 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Ending balance | (Won) | 403,465 | (Won) | 154,547 | (Won) | 46 | (Won) | 230,978 | (Won) | 235,739 | (Won) | 120,631 | (Won) | 1,145,406 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) related loans for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Credit loss expense | (Won) | (208,083 | ) | (Won) | (966,019 | ) | ||
Net loss on sale of loans | (94,105 | ) | (397,702 | ) | ||||
|
|
|
| |||||
(Won) | (302,188 | ) | (Won) | (1,363,721 | ) | |||
|
|
|
|
- 63 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
23. Derivative financial instruments
The Bank’s derivative financial instruments consist of held-for-trading and derivatives used as fair value hedge, depending on the nature of each transaction. The Bank enters into derivatives used as fair value hedge 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 derivatives held-for-trading transactions such as futures, forwards, swaps and options for arbitrage transactions by speculating on the future value of the underlying asset. Trading derivative transactions include contracts with the Bank’s customers 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 financial institutions and local banks. To hedge against the exposure to the variability of fair values of bonds on foreign currency by changes in interest or currency rates, the Bank primarily relies on interest swaps or currency swaps.
The notional amounts outstanding for derivatives contracts and the fair values of the derivative instruments held as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||
Notional amounts | Fair value | |||||||||||||||
Bought | Sold | Asset | Liability | |||||||||||||
Trading derivative instruments: | ||||||||||||||||
Interest | (Won) | 184,515,634 | (Won) | 185,305,873 | (Won) | 1,645,241 | (Won) | 1,660,279 | ||||||||
Currency | 58,529,502 | 56,874,593 | 2,772,533 | 2,419,664 | ||||||||||||
Equity | 345,923 | 569,890 | 8,333 | 24,727 | ||||||||||||
Commodities | 614,478 | 614,478 | 24,390 | 24,390 | ||||||||||||
Embedded derivatives | 391,822 | — | 85,792 | — | ||||||||||||
Valuation adjustments | — | — | (25,253 | ) | 1,305 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
244,397,359 | 243,364,834 | 4,511,036 | 4,130,365 | |||||||||||||
Hedging derivatives instruments: | ||||||||||||||||
Interest | 12,627,955 | 12,627,955 | 613,357 | 55,174 | ||||||||||||
Currency | 5,128,962 | 4,870,341 | 465,364 | 101,277 | ||||||||||||
Valuation adjustments | — | — | 7,338 | 2,448 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
17,756,917 | 17,498,296 | 1,086,059 | 158,899 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 262,154,276 | (Won) | 260,863,130 | (Won) | 5,597,095 | (Won) | 4,289,264 | |||||||||
|
|
|
|
|
|
|
|
- 64 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||
Notional amounts | Fair value | |||||||||||||||
Bought | Sold | Asset | Liability | |||||||||||||
Trading derivative instruments: | ||||||||||||||||
Interest | (Won) | 161,829,543 | (Won) | 162,908,097 | (Won) | 1,391,639 | (Won) | 1,666,178 | ||||||||
Currency | 52,638,162 | 51,670,867 | 3,250,376 | 2,758,899 | ||||||||||||
Equity | 146,903 | 412,718 | 8,836 | 25,765 | ||||||||||||
Commodities | 441,510 | 441,510 | 12,576 | 12,393 | ||||||||||||
Embedded derivatives | 548,950 | 548,950 | 233,770 | — | ||||||||||||
Valuation adjustments | — | — | (39,982 | ) | 2,954 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
215,605,068 | 215,982,142 | 4,857,215 | 4,466,189 | |||||||||||||
Hedging derivatives instruments: | ||||||||||||||||
Interest | 12,831,019 | 12,831,019 | 596,035 | 71,155 | ||||||||||||
Currency | 5,406,094 | 5,013,358 | 622,160 | 115,885 | ||||||||||||
Valuation adjustments | — | — | 12,690 | 14,474 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
18,237,113 | 17,844,377 | 1,230,885 | 201,514 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 233,842,181 | (Won) | 233,826,519 | (Won) | 6,088,100 | (Won) | 4,667,703 | |||||||||
|
|
|
|
|
|
|
|
January 1, 2010 | ||||||||||||||||
Notional amounts | Fair value | |||||||||||||||
Bought | Sold | Asset | Liability | |||||||||||||
Trading derivative instruments: | ||||||||||||||||
Interest | (Won) | 161,348,140 | (Won) | 159,618,395 | (Won) | 1,440,598 | (Won) | 1,848,596 | ||||||||
Currency | 56,464,556 | 53,949,247 | 5,240,602 | 4,428,846 | ||||||||||||
Equity | 159,387 | 203,523 | 1,022 | 29,426 | ||||||||||||
Commodities | 397,922 | 397,955 | 87,448 | 84,968 | ||||||||||||
Embedded derivatives | 356,726 | — | 68,248 | — | ||||||||||||
Valuation adjustments | — | — | (51,780 | ) | 2,269 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
218,726,731 | 214,169,120 | 6,786,138 | 6,394,105 | |||||||||||||
Hedging derivatives instruments: | ||||||||||||||||
Interest | 10,137,751 | 10,288,655 | 330,282 | 174,599 | ||||||||||||
Currency | 5,425,027 | 4,981,724 | 552,550 | 75,294 | ||||||||||||
Valuation adjustments | — | — | (7,301 | ) | (10,823 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
15,562,778 | 15,270,379 | 875,531 | 239,070 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 234,289,509 | (Won) | 229,439,499 | (Won) | 7,661,669 | (Won) | 6,633,175 | |||||||||
|
|
|
|
|
|
|
|
- 65 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
24. Investments in subsidiaries and associates
Investments in subsidiaries and associates as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Subsidiaries: | ||||||||||||
KDB Asia Ltd. | (Won) | 214,807 | (Won) | 214,807 | (Won) | 214,807 | ||||||
KDB Ireland Ltd. | 62,389 | 62,389 | 62,389 | |||||||||
UzKDB Bank | 18,634 | 18,634 | 18,634 | |||||||||
KDB Hungary Ltd. | 151,952 | 151,952 | 151,952 | |||||||||
Banco KDB Do Brazil S.A | 99,531 | — | 15,910 | |||||||||
RBS Uz | 18,730 | — | — | |||||||||
Korea Infrastructure Fund | 36,232 | 37,107 | 64,301 | |||||||||
KDB Consus Value PEF | 254,828 | 253,845 | — | |||||||||
KDB Value PEF I | — | — | 46,450 | |||||||||
KDB Value PEF II | — | — | 136,807 | |||||||||
KDB Value PEF III | 42,419 | 62,302 | 62,302 | |||||||||
KDB Value PEF VI(*) | 2,228,660 | 1,003,870 | — | |||||||||
KDB Turn Around | 64,436 | 52,666 | 46,866 | |||||||||
KDB Venture M&A PEF | — | 13,599 | 13,599 | |||||||||
Components and Materials M&A PEF | 116,441 | 53,566 | — | |||||||||
KoFC-KDB Materials and Components Investment Fund No. 1 | 25,000 | 12,500 | — | |||||||||
|
|
|
|
|
| |||||||
Associates: | ||||||||||||
Daewoo Shipbuilding & Marine Engineering Co., Ltd. | 1,040,486 | 1,040,486 | 1,040,486 | |||||||||
GM Korea Company | 287,774 | 287,774 | — | |||||||||
Korea BTL Fund I | 252,997 | 219,253 | 172,378 | |||||||||
KDB electronic power PEF | 149,858 | 149,858 | 126,151 | |||||||||
Korea Infrastructure Fund II | 125,347 | 115,164 | 96,795 | |||||||||
Korea Education Fund | 84,211 | 82,449 | 73,312 | |||||||||
Korea Railroad Fund I | 172,179 | 131,677 | 73,176 | |||||||||
Sungjin Geotec Co., Ltd | — | — | 60,542 | |||||||||
Others | 249,856 | 135,214 | 229,103 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 5,696,767 | (Won) | 4,099,112 | (Won) | 2,705,960 | |||||||
|
|
|
|
|
|
(*) | KDB Value PEF VI increases its capital by (Won)1,226,786 million in current year. |
The details of marketable investments in associates as of December 31, 2011 consist of the following (Korean won in millions):
Company | Market value | Carrying amount | ||||||
Daewoo Shipbuilding & Marine Engineering Co., Ltd. | (Won) | 1,453,762 | (Won) | 1,040,486 |
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
The keys of financial information of subsidiaries and associates invested and ownership ratios are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||||||||||||||||
Category | Investee’s name | Country | Industry | Assets | Liabilities | Equity | Operating revenue | Operating income (loss) | Ownership (%) | |||||||||||||||||||||
Subsidiaries | KDB Asia Ltd. | Hongkong | Financial service | (Won) | 866,871 | (Won) | 621,406 | (Won) | 245,465 | (Won) | 39,508 | (Won) | 15,179 | 100.00 | ||||||||||||||||
" | KDB Ireland Ltd. | Ireland | Financial service | 370,981 | 300,195 | 70,786 | 23,393 | 5,666 | 100.00 | |||||||||||||||||||||
" | UzKDB Bank | Uzbekistan | Financial service | 480,524 | 441,830 | 38,694 | 18,598 | 7,464 | 61.11 | |||||||||||||||||||||
" | KDB Hungary Ltd. | Hungary | Financial service | 775,936 | 648,354 | 127,582 | 99,186 | 3,051 | 100.00 | |||||||||||||||||||||
" | Banco KDB Do Brazil S.A | Brazil | Financial service | 399,183 | 359,645 | 39,538 | 136,551 | 3,492 | 100.00 | |||||||||||||||||||||
RBS Uz | Uzbekistan | Financial service | 345,438 | 319,786 | 25,652 | 11,110 | 753 | 82.35 | ||||||||||||||||||||||
" | 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 | (34,684 | ) | 40.52 | ||||||||||||||||||||
" | KDB Value PEF I | Korea | Financial investment | 16 | — | 16 | 54 | (37 | ) | 77.02 | ||||||||||||||||||||
" | KDB Value PEF II | Korea | Financial investment | 24,511 | 24,823 | (312 | ) | 29,540 | 5,372 | 51.93 | ||||||||||||||||||||
" | 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 | ||||||||||||||||||||
" | KDB Venture M&A PEF | Korea | Financial investment | 15,535 | 109 | 15,426 | 21,300 | 20,730 | 57.56 | |||||||||||||||||||||
" | 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 |
- 67 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||||||||||||||||
Category | Investee’s name | Country | Industry | Assets | Liabilities | Equity | Operating revenue | Operating income (loss) | Ownership (%) | |||||||||||||||||||||
Subsidiaries | KDB Asia Ltd. | Hongkong | Financial service | (Won) | 803,055 | (Won) | 569,095 | (Won) | 233,960 | (Won) | 42,004 | (Won) | 14,492 | 100.00 | ||||||||||||||||
" | KDB Ireland Ltd. | Ireland | Financial service | 398,096 | 330,375 | 67,721 | 26,104 | 6,580 | 100.00 | |||||||||||||||||||||
" | UzKDB Bank | Uzbekistan | Financial service | 218,692 | 184,798 | 33,894 | 16,183 | 7,645 | 61.11 | |||||||||||||||||||||
" | KDB Hungary Ltd. | Hungary | Financial service | 752,292 | 611,634 | 140,658 | 92,710 | 7,507 | 100.00 | |||||||||||||||||||||
" | Banco KDB Do Brazil S.A | Brazil | Financial service | 535,901 | 599,201 | (63,300 | ) | 289,224 | (139,282 | ) | 100.00 | |||||||||||||||||||
" | Korea Infrastructure Fund | Korea | Financial investment | 42,897 | 17 | 42,880 | 4,691 | 4,232 | 85.00 | |||||||||||||||||||||
" | KDB Consus Value PEF | Korea | Financial investment | 9,508,321 | 8,873,320 | 635,001 | 2,136,439 | (100,417 | ) | 40.52 | ||||||||||||||||||||
" | KDB Value PEF I | Korea | Financial investment | 2,016 | — | 2,016 | 15,925 | 7,871 | 77.02 | |||||||||||||||||||||
" | KDB Value PEF II | Korea | Financial investment | 58,807 | 281 | 58,526 | 203,740 | 181,067 | 51.93 | |||||||||||||||||||||
" | KDB Value PEF III | Korea | Financial investment | 111,431 | 323 | 111,108 | 368 | (1,263 | ) | 69.22 | ||||||||||||||||||||
" | KDB Value PEF VI | Korea | Financial investment | 1,005,294 | — | 1,005,294 | — | (226 | ) | 99.84 | ||||||||||||||||||||
" | KDB Turn Around | Korea | Financial investment | 294,010 | 272,936 | 21,074 | 264,787 | 26,571 | 95.13 | |||||||||||||||||||||
" | KDB Venture M&A PEF | Korea | Financial investment | 35,173 | 337 | 34,836 | 246 | (461 | ) | 57.56 | ||||||||||||||||||||
" | Components and Materials M&A PEF | Korea | Financial investment | 62,655 | 1,137 | 61,518 | 20 | (4,653 | ) | 83.33 | ||||||||||||||||||||
" | KoFC-KDB Materials and Components Investment Fund No. 1 | Korea | Financial investment | 24,801 | — | 24,801 | 303 | (199 | ) | 50.00 | ||||||||||||||||||||
Associates | Daewoo Shipbuilding & Marine Engineering Co., Ltd | Korea | Manufacturing | 14,176,729 | 10,133,496 | 4,043,233 | 12,074,505 | 780,132 | 31.26 | |||||||||||||||||||||
" | GM Korea Company | Korea | Manufacturing | 9,421,578 | 7,308,065 | 2,113,513 | 13,961,769 | 544,457 | 17.02 | |||||||||||||||||||||
" | Korea BTL Fund I | Korea | Financial investment | 451,505 | 278 | 451,227 | 5,419 | 5,103 | 41.67 | |||||||||||||||||||||
" | KDB electronic power PEF | Korea | Financial investment | 282,373 | 323 | 282,050 | 4,043 | 3,852 | 50.00 | |||||||||||||||||||||
" | Korea Infrastructure Fund II | Korea | Financial investment | 454,027 | 96,226 | 357,801 | 5,965 | 3,598 | 26.67 | |||||||||||||||||||||
" | Korea Education Fund | Korea | Financial investment | 165,074 | 7 | 165,067 | 2,129 | 2,029 | 50.00 | |||||||||||||||||||||
" | Korea Railroad Fund I | Korea | Financial investment | 165,998 | 10 | 165,988 | 2,194 | 1,983 | 50.00 |
- 68 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||||||||||||
Category | Investment | Country | Industry | Assets | Liabilities | Equity | Ownership (%) | |||||||||||||||
Subsidiaries | KDB Asia Ltd. | Hong Kong | Financial service | (Won) | 723,380 | (Won) | 508,673 | (Won) | 214,707 | 100.00 | ||||||||||||
" | KDB Ireland Ltd. | Ireland | Financial service | 438,546 | 378,985 | 59,561 | 100.00 | |||||||||||||||
" | UzKDB Bank | Uzbekistan | Financial service | 143,142 | 112,799 | 30,343 | 61.11 | |||||||||||||||
" | KDB Hungary Ltd. | Hungary | Financial service | 858,677 | 708,585 | 150,092 | 100.00 | |||||||||||||||
" | Banco KDB Do Brazil S.A | Brazil | Financial service | 635,274 | 626,355 | 8,919 | 100.00 | |||||||||||||||
" | Korea Infrastructure Fund | Korea | Financial investment | 75,677 | 29 | 75,648 | 85.00 | |||||||||||||||
" | KDB Value PEF I | Korea | Financial investment | 68,026 | 229 | 67,797 | 77.02 | |||||||||||||||
" | KDB Value PEF II | Korea | Financial investment | 251,330 | 1,193 | 250,137 | 50.63 | |||||||||||||||
" | KDB Value PEF III | Korea | Financial investment | 107,357 | 1,261 | 106,096 | 67.07 | |||||||||||||||
" | KDB Turn Around | Korea | Financial investment | 336,284 | 286,482 | 49,802 | 95.13 | |||||||||||||||
" | KDB Venture M&A PEF | Korea | Financial investment | 23,777 | 150 | 23,627 | 57.56 | |||||||||||||||
Daewoo Shipbuilding & | ||||||||||||||||||||||
Associates | Marine Engineering Co., Ltd | Korea | Manufacturing | 16,177,480 | 12,931,010 | 3,246,470 | 31.26 | |||||||||||||||
" | Korea BTL Fund I | Korea | Financial investment | 417,854 | 263 | 417,591 | 41.67 | |||||||||||||||
" | KDB Electronic Power PEF | Korea | Financial investment | 250,819 | 43 | 250,776 | 50.00 | |||||||||||||||
" | Korea Infrastructure Fund II | Korea | Financial investment | 456,258 | 93,278 | 362,980 | 26.67 | |||||||||||||||
" | Korea Education Fund | Korea | Financial investment | 148,427 | 8 | 148,419 | 50.00 | |||||||||||||||
" | Korea Railroad Fund I | Korea | Financial investment | 146,967 | 9 | 146,958 | 50.00 | |||||||||||||||
" | Sungjin Geotec Co., Ltd | Korea | Manufacturing | 588,858 | 554,493 | 34,365 | 29.51 |
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
25. Property and equipment
Changes in carrying value of property and equipment for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | ||||||||||||||||||||||||
January 1, 2011 | Acquisition / depreciation | Disposal / write-off | Reclassification | Foreign exchange differences | December 31, 2011 | |||||||||||||||||||
Acquisition cost: | ||||||||||||||||||||||||
Land | (Won) | 207,818 | (Won) | 270 | (Won) | — | (Won) | 1,838 | (Won) | 21 | (Won) | 209,947 | ||||||||||||
Buildings and structures | 282,587 | 1,688 | (35 | ) | 741 | 111 | 285,092 | |||||||||||||||||
Leasehold improvements | 15,464 | 4,899 | (941 | ) | — | (303 | ) | 19,119 | ||||||||||||||||
Vehicles | 1,197 | — | — | — | 15 | 1,212 | ||||||||||||||||||
Equipment | 32,581 | 3,568 | (472 | ) | — | 107 | 35,784 | |||||||||||||||||
Construction in-progress | — | 1,065 | — | — | — | 1,065 | ||||||||||||||||||
Others | 68,957 | 7,592 | (2,242 | ) | — | 25 | 74,332 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
608,604 | 19,082 | (3,690 | ) | 2,579 | (24 | ) | 626,551 | |||||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||
Buildings and structures | 73,486 | 6,998 | (17 | ) | 357 | 98 | 80,922 | |||||||||||||||||
Leasehold improvements | 10,421 | 1,619 | (656 | ) | — | (299 | ) | 11,085 | ||||||||||||||||
Vehicles | 621 | 136 | — | — | 12 | 769 | ||||||||||||||||||
Equipment | 26,932 | 1,909 | (467 | ) | — | 103 | 28,477 | |||||||||||||||||
Others | 55,971 | 6,434 | (2,077 | ) | — | (140 | ) | 60,188 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
167,431 | 17,096 | (3,217 | ) | 357 | (226 | ) | 181,441 | |||||||||||||||||
Accumulated impairment loss: | ||||||||||||||||||||||||
Land | 3,023 | — | — | — | — | 3,023 | ||||||||||||||||||
Buildings and structures | 2,361 | — | — | — | — | 2,361 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
5,384 | — | — | — | — | 5,384 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 435,789 | (Won) | 1,986 | (Won) | (473 | ) | (Won) | 2,222 | (Won) | 202 | (Won) | 439,726 | ||||||||||||
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- 70 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Year ended December 31, 2010 | ||||||||||||||||||||||||
January 1, 2010 | Acquisition / depreciation | Disposal / write-off | Reclassification | Foreign exchange differences | December 31, 2010 | |||||||||||||||||||
Acquisition cost: | ||||||||||||||||||||||||
Land | (Won) | 213,236 | (Won) | 46 | (Won) | — | (Won) | (5,496 | ) | (Won) | 32 | (Won) | 207,818 | |||||||||||
Buildings and structures | 286,574 | 720 | — | (4,877 | ) | 170 | 282,587 | |||||||||||||||||
Leasehold improvements | 12,749 | 3,056 | — | — | (341 | ) | 15,464 | |||||||||||||||||
Vehicles | 1,053 | 541 | (428 | ) | — | 31 | 1,197 | |||||||||||||||||
Equipment | 31,277 | 1,900 | (362 | ) | — | (234 | ) | 32,581 | ||||||||||||||||
Construction in-progress | 13 | — | — | (13 | ) | — | — | |||||||||||||||||
Others | 63,208 | 6,373 | (606 | ) | — | (18 | ) | 68,957 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
608,110 | 12,636 | (1,396 | ) | (10,386 | ) | (360 | ) | 608,604 | ||||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||||||
Buildings and structures | 67,499 | 7,103 | — | (1,263 | ) | 147 | 73,486 | |||||||||||||||||
Leasehold improvements | 9,563 | 1,176 | — | — | (318 | ) | 10,421 | |||||||||||||||||
Vehicles | 855 | 148 | (394 | ) | — | 12 | 621 | |||||||||||||||||
Equipment | 25,763 | 1,770 | (360 | ) | — | (241 | ) | 26,932 | ||||||||||||||||
Others | 49,982 | 6,595 | (592 | ) | — | (14 | ) | 55,971 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
153,662 | 16,792 | (1,346 | ) | (1,263 | ) | (414 | ) | 167,431 | ||||||||||||||||
Accumulated impairment loss: | ||||||||||||||||||||||||
Land | 3,023 | — | — | — | — | 3,023 | ||||||||||||||||||
Buildings and structures | 2,361 | — | — | — | — | 2,361 | ||||||||||||||||||
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| |||||||||||||
5,384 | — | — | — | — | 5,384 | |||||||||||||||||||
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|
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| |||||||||||||
(Won) | 449,064 | (Won) | (4,156 | ) | (Won) | (50 | ) | (Won) | (9,123 | ) | (Won) | 54 | (Won) | 435,789 | ||||||||||
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- 71 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
26. Investment properties
Changes in carrying value of investment properties for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | ||||||||||||||||
January 1, 2011 | Acquisition/ depreciation | Reclassification | December 31, 2011 | |||||||||||||
Acquisition cost: | ||||||||||||||||
Land | (Won) | 67,266 | (Won) | — | (Won) | (1,838 | ) | (Won) | 65,428 | |||||||
Buildings and structures | 45,722 | — | (741 | ) | 44,981 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
112,988 | — | (2,579 | ) | 110,409 | ||||||||||||
Accumulated depreciation: | ||||||||||||||||
Buildings and structures | 12,662 | 1,056 | (357 | ) | 13,361 | |||||||||||
Accumulated impairment loss: | ||||||||||||||||
Land | 8,371 | — | — | 8,371 | ||||||||||||
Buildings and structures | 1,778 | — | — | 1,778 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
10,149 | — | — | 10,149 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 90,177 | (Won) | (1,056 | ) | (Won) | (2,222 | ) | (Won) | 86,899 | |||||||
|
|
|
|
|
|
|
|
Year ended December 31, 2010 | ||||||||||||||||||||
January 1, 2010 | Acquisition/ depreciation | Impairment loss | Reclassification | December 31, 2010 | ||||||||||||||||
Acquisition cost: | ||||||||||||||||||||
Land | (Won) | 61,770 | (Won) | — | (Won) | — | (Won) | 5,496 | (Won) | 67,266 | ||||||||||
Buildings and structures | 40,832 | — | — | 4,890 | 45,722 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
102,602 | — | — | 10,386 | 112,988 | ||||||||||||||||
Accumulated depreciation: | ||||||||||||||||||||
Buildings and structures | 10,376 | 1,023 | — | 1,263 | 12,662 | |||||||||||||||
Accumulated impairment loss: | ||||||||||||||||||||
Land | 1,197 | — | 7,174 | — | 8,371 | |||||||||||||||
Buildings and structures | 1,778 | — | — | — | 1,778 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
2,975 | — | 7,174 | — | 10,149 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 89,251 | (Won) | (1,023 | ) | (Won) | (7,174 | ) | (Won) | 9,123 | (Won) | 90,177 | |||||||||
|
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|
|
|
|
|
|
|
|
The fair value of the Bank’s investment properties, which was determined on the basis of a valuation by an independent appraisal agency, amounts to (Won)91,187 million as of December 31, 2011 ( (Won)113,423 million as of December 31, 2010 and (Won)95,557 million as of January 1, 2010).
- 72 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
27. Intangible assets
Changes in carrying value of intangible assets for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | ||||||||||||||||||||
January 1, 2011 | Acquisition | Amortization | Foreign exchange differences | December 31, 2011 | ||||||||||||||||
Development costs | (Won) | 36,482 | (Won) | 13,637 | (Won) | (11,858 | ) | (Won) | — | (Won) | 38,261 | |||||||||
Equipment usage right | 296 | 66 | (28 | ) | 1 | 335 | ||||||||||||||
Others | 10,090 | 2,429 | (3,790 | ) | 2 | 8,731 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 46,868 | (Won) | 16,132 | (Won) | (15,676 | ) | (Won) | 3 | (Won) | 47,327 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 | ||||||||||||||||||||
January 1, 2010 | Acquisition | Amortization | Foreign exchange differences | December 31, 2010 | ||||||||||||||||
Development costs | (Won) | 32,285 | (Won) | 13,711 | (Won) | (9,514 | ) | (Won) | — | (Won) | 36,482 | |||||||||
Equipment usage right | 324 | — | (28 | ) | — | 296 | ||||||||||||||
Others | 7,971 | 5,433 | (3,310 | ) | (4 | ) | 10,090 | |||||||||||||
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|
| |||||||||||
(Won) | 40,580 | (Won) | 19,144 | (Won) | (12,852 | ) | (Won) | (4 | ) | (Won) | 46,868 | |||||||||
|
|
|
|
|
|
|
|
|
|
28. Other assets
The details of other assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Accounts receivable | (Won) | 1,941,139 | (Won) | 2,538,427 | (Won) | 2,869,395 | ||||||
Unsettled domestic exchange receivables | 2,480,046 | 933,161 | 1,152,904 | |||||||||
Accrued income | 631,527 | 487,108 | 519,311 | |||||||||
Guarantee deposits | 136,044 | 125,253 | 127,043 | |||||||||
Prepaid expenses | 19,646 | 32,383 | 58,899 | |||||||||
Advance payments | 916 | 613 | 805 | |||||||||
Others | 87,136 | 133,681 | 36,406 | |||||||||
|
|
|
|
|
| |||||||
5,296,454 | 4,250,626 | 4,764,763 | ||||||||||
Allowance for possible losses | (75,432 | ) | (55,659 | ) | (6,055 | ) | ||||||
Present value discount | (5,325 | ) | (4,545 | ) | (6,042 | ) | ||||||
|
|
|
|
|
| |||||||
(Won) | 5,215,697 | (Won) | 4,190,422 | (Won) | 4,752,666 | |||||||
|
|
|
|
|
|
The carrying amount of financial assets included in other assets above amounted to (Won)5,165,035 million as of December 31, 2011 ((Won)4,094,219 million as of December 31, 2010 and (Won)4,652,596 million as of January 1, 2010) and its fair value amounted to (Won)5,171,629 million as of December 31, 2011 ((Won)4,047,897 million as of December 31, 2010 and (Won)4,654,867 million as of January 1, 2010).
- 73 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
29. Financial liabilities designated at FVTPL
The financial liabilities designated at FVTPL as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Borrowings | (Won) | 798 | (Won) | 4,093 | (Won) | 139,748 | ||||||
Debt issued | 991,338 | 947,659 | 1,168,551 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 992,136 | (Won) | 951,752 | (Won) | 1,308,299 | |||||||
|
|
|
|
|
|
The Bank utilizes derivatives to hedge the risk that the fair value of debt issued fluctuates. For those hedge transactions, the Bank designates debt issued at FVTPL, and recognizes the changes in the fair value of such financial liabilities in the statement of comprehensive income.
The difference between carrying amount and maturity amount of financial liabilities designated at FVTPL as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Carrying amount | (Won) | 992,136 | (Won) | 951,752 | (Won) | 1,308,299 | ||||||
Principal and interest at maturity | 892,025 | 895,121 | 1,354,224 | |||||||||
|
|
|
|
|
| |||||||
Difference | (Won) | 100,111 | (Won) | 56,631 | (Won) | (45,925 | ) | |||||
|
|
|
|
|
|
30. Due to customers
The details of deposits liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
Amortized cost | Fair value | |||||||||||||||||||||||
December 31, 2011 | December 31, 2010 | January 1, 2010 | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||||||||||
Deposits in Korean won: | ||||||||||||||||||||||||
Demand deposits | (Won) | 460,057 | (Won) | 412,107 | (Won) | 223,127 | (Won) | 460,057 | (Won) | 412,013 | (Won) | 223,127 | ||||||||||||
Time and saving deposits | 22,352,587 | 16,322,211 | 8,594,913 | 22,377,042 | 16,150,501 | 8,596,192 | ||||||||||||||||||
Certificate of deposits | 87,437 | 879,738 | 3,428,842 | 87,794 | 873,365 | 3,428,931 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
22,900,081 | 17,614,056 | 12,246,882 | 22,924,893 | 17,435,879 | 12,248,250 | |||||||||||||||||||
Deposits in foreign currency: | ||||||||||||||||||||||||
Demand deposits | 556,804 | 391,577 | 298,690 | 556,804 | 391,577 | 298,690 | ||||||||||||||||||
Time and saving deposits | 1,683,061 | 667,001 | 1,234,410 | 1,683,220 | 665,889 | 1,235,554 | ||||||||||||||||||
Certificate of deposits | 82,332 | 257,209 | 155,944 | 82,335 | 257,240 | 155,936 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2,322,197 | 1,315,787 | 1,689,044 | 2,322,359 | 1,314,706 | 1,690,180 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 25,222,278 | (Won) | 18,929,843 | (Won) | 13,935,926 | (Won) | 25,247,252 | (Won) | 18,750,585 | (Won) | 13,938,430 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
- 74 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
31. Borrowings
The details of borrowings as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||
Minimum interest rate (%) | Maximum interest rate (%) | Amortized cost | Fair value | |||||||||||||
Borrowings in Korean won | 0.50 | 5.59 | (Won) | 5,226,121 | (Won) | 5,229,415 | ||||||||||
Borrowings in foreign currencies | 0.01 | 6.20 | 12,305,307 | 12,338,508 | ||||||||||||
Off-shore borrowings in foreign currency | 0.20 | 4.32 | 1,590,590 | 1,594,710 | ||||||||||||
Others | 3.42 | 6.90 | 6,730,445 | 6,730,411 | ||||||||||||
|
|
|
| |||||||||||||
25,852,463 | (Won) | 25,893,044 | ||||||||||||||
|
| |||||||||||||||
Deferred borrowing costs | (10,042 | ) | ||||||||||||||
|
| |||||||||||||||
(Won) | 25,842,421 | |||||||||||||||
|
|
December 31, 2010 | ||||||||||||||||
Minimum interest rate (%) | Maximum interest rate (%) | Amortized cost | Fair value | |||||||||||||
Borrowings in Korean won | 0.50 | 6.00 | (Won) | 5,034,508 | (Won) | 5,038,156 | ||||||||||
Borrowings in foreign currencies | 0.80 | 5.20 | 10,271,995 | 10,287,177 | ||||||||||||
Off-shore borrowings in foreign currency | 0.20 | 4.70 | 1,301,925 | 1,304,201 | ||||||||||||
Others | 2.14 | 7.75 | 6,274,952 | 6,246,230 | ||||||||||||
|
|
|
| |||||||||||||
22,883,380 | (Won) | 22,875,764 | ||||||||||||||
|
| |||||||||||||||
Deferred borrowing costs | (5,822 | ) | ||||||||||||||
|
| |||||||||||||||
(Won) | 22,877,558 | |||||||||||||||
|
|
January 1, 2010 | ||||||||||||||||
Minimum interest rate (%) | Maximum interest rate (%) | Amortized cost | Fair value | |||||||||||||
Borrowings in Korean won | — | 6.79 | (Won) | 4,493,939 | (Won) | 4,493,881 | ||||||||||
Borrowings in foreign currencies | — | 11.00 | 11,918,444 | 11,899,259 | ||||||||||||
Off-shore borrowings in foreign currency | 0.28 | 0.65 | 1,169,097 | 1,172,075 | ||||||||||||
Others | — | 7.75 | 11,003,262 | 10,915,300 | ||||||||||||
|
|
|
| |||||||||||||
(Won) | 28,584,742 | (Won) | 28,480,515 | |||||||||||||
|
| |||||||||||||||
Deferred borrowing costs | (4,296 | ) | ||||||||||||||
|
| |||||||||||||||
(Won) | 28,580,446 | |||||||||||||||
|
|
- 75 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Borrowings in Korean won before adjusting deferred borrowing costs as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):
Lender | Classification | Annual interest rate (%) | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||||
Ministry of Strategy and Finance | Borrowings from government fund(*) | 2.44 ~ 5.00 | (Won) | 715,628 | (Won) | 803,068 | (Won) | 848,647 | ||||||||||
Industrial Bank of Korea | Borrowings from industrial technique fund | 1.27 ~ 3.35 | 63,402 | 90,732 | 144,713 | |||||||||||||
Small & Medium Business Corp. | Borrowings from local small and medium company promotion fund | 1.79 ~ 3.69 | 438,358 | 506,138 | 557,702 | |||||||||||||
Ministry of Culture and Tourism | Borrowings from tourism promotion fund | 0.97 ~ 4.00 | 1,131,518 | 1,154,203 | 1,150,502 | |||||||||||||
Korea Energy Management Corporation | Borrowings from fund for rational use of energy | 0.50 ~ 4.25 | 1,181,303 | 1,022,210 | 923,453 | |||||||||||||
Others | Borrowings from environment improvement support fund | 0.00 ~ 5.59 | 1,695,912 | 1,458,157 | 868,922 | |||||||||||||
|
|
|
|
|
| |||||||||||||
(Won) | 5,226,121 | (Won) | 5,034,508 | (Won) | 4,493,939 | |||||||||||||
|
|
|
|
|
|
(*) | Borrowings from government fund are subordinated borrowings. |
- 76 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Borrowings in foreign currency before adjusting deferred borrowing costs as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):
Lender | Classification | Annual interest rate (%) | December 31, 2011 | December 31, 2010 | January 1, 2010 | |||||||||||
Japan Bank for International Cooperation (“JBIC”) | Borrowings from JBIC | 1.4 ~ 6M Libor+0.8 | (Won) | 328,521 | (Won) | 353,001 | (Won) | 167,147 | ||||||||
International Bank for Reconstruction and Development (“IBRD”) | Borrowings from IBRD(*) | — | — | — | 1,481,451 | |||||||||||
Mizuho and others | Borrowings from | 3M Libor+0.5 ~ 3.8 | 2,321,553 | 1,803,873 | 1,655,870 | |||||||||||
overseas banks | — | — | 138,059 | 166,942 | ||||||||||||
6M Libor+0.3 ~ 0.8 | 76,896 | 347,946 | 316,887 | |||||||||||||
|
|
|
|
|
| |||||||||||
2,398,449 | 2,289,878 | 2,139,699 | ||||||||||||||
DBS Bank and others | Off-shore short- | 0.20 ~ 1.55 | 784,489 | 124,577 | 194,766 | |||||||||||
term borrowings | — | — | 56,945 | 122,598 | ||||||||||||
6M Libor+0.6 ~ 0.7 | 110,717 | 261,947 | 36,932 | |||||||||||||
— | — | — | 93,408 | |||||||||||||
|
|
|
|
|
| |||||||||||
895,206 | 443,469 | 447,704 | ||||||||||||||
Nippon Life Insurance | Off-shore long- | 3M Libor+0.3 ~ 1.3 | 636,180 | 473,241 | 306,615 | |||||||||||
Company and others | term borrowings | — | — | 45,556 | 216,286 | |||||||||||
6M EURIBOR+0.6 | — | 212,052 | 198,492 | |||||||||||||
|
|
|
|
|
| |||||||||||
636,180 | 730,849 | 721,393 | ||||||||||||||
JBIC | Off-shore borrowings | |||||||||||||||
from JBIC | 4.2 ~ 6M Libor +1.2 | 59,304 | 65,070 | — | ||||||||||||
Others | Short-term borrowings | 0.00 ~ 6.03 | 7,652,470 | 6,123,094 | 6,405,850 | |||||||||||
in foreign currency | 6M Libor+0.4 ~ 1.2 | 381,379 | 22,778 | 72,913 | ||||||||||||
— | — | 148,057 | 188,720 | |||||||||||||
3M Libor+0.9 | — | — | 151,788 | |||||||||||||
|
|
|
|
|
| |||||||||||
8,033,849 | 6,293,929 | 6,819,271 | ||||||||||||||
Long-term borrowings in foreign currency | 1,544,388 | 1,397,724 | 1,310,876 | |||||||||||||
|
|
|
|
|
| |||||||||||
(Won) | 13,895,897 | (Won) | 11,573,920 | (Won) | 13,087,541 | |||||||||||
|
|
|
|
|
|
(*) | Borrowings from IBRD are subordinated borrowings. |
- 77 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
32.Debt issued
The details of debt issued as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||
Minimum interest rate (%) | Maximum interest rate (%) | Amortized cost | Fair value | |||||||||||||
Debentures in Korean won: | ||||||||||||||||
Debentures | 3.09 | 10.00 | (Won) | 28,989,957 | (Won) | 29,275,305 | ||||||||||
Discount on bonds | (28,149 | ) | ||||||||||||||
Premium on bonds | 183 | |||||||||||||||
Valuation adjustments for hedge | 52,929 | |||||||||||||||
|
|
|
| |||||||||||||
29,014,920 | 29,275,305 | |||||||||||||||
Debentures in foreign currencies: | ||||||||||||||||
Debentures | 3M Libor-0.23 | 3M Libor+6.28 | 12,235,066 | 12,775,426 | ||||||||||||
Discount on bonds | (34,427 | ) | ||||||||||||||
Premium on bonds | 837 | |||||||||||||||
Valuation adjustments for hedge | 568,897 | |||||||||||||||
|
|
|
| |||||||||||||
12,770,373 | 12,775,426 | |||||||||||||||
Off-shore debentures: | ||||||||||||||||
Debentures | 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 hedge | 439,936 | |||||||||||||||
|
|
|
| |||||||||||||
5,411,366 | 5,459,906 | |||||||||||||||
|
|
|
| |||||||||||||
(Won) | 47,196,659 | (Won) | 47,510,637 | |||||||||||||
|
|
|
|
December 31, 2010 | ||||||||||||||||
Minimum interest rate (%) | Maximum interest rate (%) | Amortized cost | Fair value | |||||||||||||
Debentures in Korean won: | ||||||||||||||||
Debentures | 2.53 | 12.00 | (Won) | 27,112,169 | (Won) | 27,626,045 | ||||||||||
Discount on bonds | (15,418 | ) | — | |||||||||||||
Premium on bonds | 526 | — | ||||||||||||||
Valuation adjustments for hedge | 53,934 | — | ||||||||||||||
|
|
|
| |||||||||||||
27,151,211 | 27,626,045 | |||||||||||||||
Debentures in foreign currencies: | ||||||||||||||||
Debentures | 0.20 | 8.00 | 11,211,723 | 12,168,609 | ||||||||||||
Discount on bonds | (28,710 | ) | — | |||||||||||||
Premium on bonds | 1,435 | — | ||||||||||||||
Valuation adjustments for hedge | 823,586 | — | ||||||||||||||
|
|
|
| |||||||||||||
12,008,034 | 12,168,609 | |||||||||||||||
Off-shore debentures: | ||||||||||||||||
Debentures | 0.48 | 9.50 | 3,690,600 | 4,128,591 | ||||||||||||
Discount on bonds | (6,057 | ) | — | |||||||||||||
Premium on bonds | 371 | — | ||||||||||||||
Valuation adjustment for hedge | 391,090 | — | ||||||||||||||
|
|
|
| |||||||||||||
4,076,004 | 4,128,591 | |||||||||||||||
|
|
|
| |||||||||||||
(Won) | 43,235,249 | (Won) | 43,923,245 | |||||||||||||
|
|
|
|
- 78 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||||||
Minimum interest rate (%) | Maximum interest rate (%) | Amortized cost | Fair value | |||||||||||||
Debentures in Korean won: | ||||||||||||||||
Debentures | 2.28 | 9.76 | (Won) | 33,869,910 | (Won) | 33,942,633 | ||||||||||
Discount on bonds | (76,661 | ) | — | |||||||||||||
Premium on bonds | 856 | — | ||||||||||||||
Valuation adjustments for hedge | (59,169 | ) | — | |||||||||||||
|
|
|
| |||||||||||||
33,734,936 | 33,942,633 | |||||||||||||||
Debentures in foreign currencies: | ||||||||||||||||
Debentures | 0.87 | 8.00 | 12,415,349 | 13,502,045 | ||||||||||||
Discount on bonds | (28,530 | ) | — | |||||||||||||
Premium on bonds | 2,320 | — | ||||||||||||||
Valuation adjustments for hedge | 914,965 | — | ||||||||||||||
|
|
|
| |||||||||||||
13,304,104 | 13,502,045 | |||||||||||||||
Off-shore Debentures: | ||||||||||||||||
Debentures | 1.56 | 8.00 | 3,403,006 | 3,749,138 | ||||||||||||
Discount on bonds | (5,645 | ) | — | |||||||||||||
Premium on bonds | 525 | — | ||||||||||||||
Valuation adjustments for hedge | 303,862 | — | ||||||||||||||
|
|
|
| |||||||||||||
3,701,748 | 3,749,138 | |||||||||||||||
|
|
|
| |||||||||||||
(Won) | 50,740,788 | (Won) | 51,193,816 | |||||||||||||
|
|
|
|
33. Severance and retirement benefits
Details of severance and retirement benefits as of December 31, 2011, December 31, 2010, and January 1, 2010 and defined benefit pension for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Severance and retirement benefits | (Won) | 17,536 | (Won) | 46,764 | (Won) | 65,175 | ||||||
Defined benefit pension | (Won) | 53,733 | (Won) | 18,504 | (Won) | — |
Details of severance and retirement benefits as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Present value of defined benefit obligation | (Won) | 162,471 | (Won) | 120,758 | (Won) | 109,056 | ||||||
Fair value of plan assets | (144,935 | ) | (73,994 | ) | (43,881 | ) | ||||||
|
|
|
|
|
| |||||||
(Won) | 17,536 | (Won) | 46,764 | (Won) | 65,175 | |||||||
|
|
|
|
|
|
- 79 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Changes in defined benefit obligation for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Beginning balance | (Won) | 120,758 | (Won) | 109,056 | ||||
Current service cost | 19,687 | 20,521 | ||||||
Interest cost on benefit obligation | 6,840 | 7,389 | ||||||
Actuarial gain on obligation | (7,430 | ) | (2,951 | ) | ||||
Benefits paid | (14,362 | ) | (8,357 | ) | ||||
Past service costs | 36,978 | (4,898 | ) | |||||
Others | — | (2 | ) | |||||
|
|
|
| |||||
Ending balance | (Won) | 162,471 | (Won) | 120,758 | ||||
|
|
|
|
The principal actuarial assumptions are as follows (%):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Discount rate | 4.50 | 4.95 | 5.77 | |||||||||
Expected return on plan assets | 4.00 | 3.50 | 3.50 | |||||||||
Future salary increase rate | 5.60 | 6.89 | 8.01 |
Details of plan assets as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||||||||||||||
Amounts | Rate (%) | Amounts | Rate (%) | Amounts | Rate (%) | |||||||||||||||||||
Due from banks | (Won) | 115,045 | 79 | (Won) | 44,182 | 60 | (Won) | 23,600 | 54 | |||||||||||||||
Others | 29,890 | 21 | 29,812 | 40 | 20,281 | 46 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 144,935 | 100 | (Won) | 73,994 | 100 | (Won) | 43,881 | 100 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of plan assets for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Beginning balance | (Won) | 73,994 | (Won) | 43,881 | ||||
Expected return on plan assets | 2,590 | 1,557 | ||||||
Actuarial gain on obligation | (248 | ) | — | |||||
Contributions by employer | 76,601 | 30,000 | ||||||
Contributions by employee | 5,249 | — | ||||||
Benefits paid | (13,251 | ) | (1,444 | ) | ||||
|
|
|
| |||||
Ending balance | (Won) | 144,935 | (Won) | 73,994 | ||||
|
|
|
|
- 80 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Changes in severance and retirement benefits for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Current service cost | (Won) | 19,687 | (Won) | 20,521 | ||||
Interest cost on benefit obligation | 6,840 | 7,389 | ||||||
Expected return on plan assets | (2,590 | ) | (1,557 | ) | ||||
Actuarial gain on obligation | (7,182 | ) | (2,951 | ) | ||||
Past service costs | 36,978 | (4,898 | ) | |||||
|
|
|
| |||||
(Won) | 53,733 | (Won) | 18,504 | |||||
|
|
|
|
34. Provisions
Changes of provisions for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions)
Year ended December 31, 2011 | ||||||||||||||||||||
Payment guarantees | Unused commitments | Lawsuit | Other | Total | ||||||||||||||||
Beginning balance | (Won) | 89,645 | (Won) | 80,715 | (Won) | 1,884 | (Won) | 1,032 | (Won) | 173,276 | ||||||||||
Net increase (decrease) | (25,910 | ) | 113,334 | 1,069 | — | 88,493 | ||||||||||||||
Others | 13 | 73 | — | — | 86 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Ending balance | (Won) | 63,748 | (Won) | 194,122 | (Won) | 2,953 | (Won) | 1,032 | (Won) | 261,855 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 | ||||||||||||||||||||
Payment guarantees | Unused commitments | Lawsuit | Other | Total | ||||||||||||||||
Beginning balance | (Won) | 150,902 | (Won) | 78,393 | (Won) | 3,249 | (Won) | 1,032 | (Won) | 233,576 | ||||||||||
Net increase (decrease) | (59,418 | ) | 1,048 | (1,365 | ) | — | (59,735 | ) | ||||||||||||
Others | (1,839 | ) | 1,274 | — | — | (565 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Ending balance | (Won) | 89,645 | (Won) | 80,715 | (Won) | 1,884 | (Won) | 1,032 | (Won) | 173,276 | ||||||||||
|
|
|
|
|
|
|
|
|
|
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.
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.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Provision for possible losses from lawsuits
As of December 31, 2011, the Bank is involved in 7 lawsuits as a plaintiff and 14 lawsuits as a defendant. The aggregate amount of claims as a plaintiff and a defendant amounted to (Won)3,730,582 million and (Won)372,922 million, respectively. The Bank provided a provision against contingent loss from pending lawsuits as of December 31, 2011.
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 (Won)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 December 31, 2011.
Other provision
The Bank has recognized provision for other possible losses.
35. Deferred tax assets and liabilities
The temporary differences which comprise of deferred tax assets and liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Cumulative temporary differences | (Won) | 726,408 | (Won) | 176,731 | (Won) | 308,930 | ||||||
Income tax rate (%) | (*1 | ) | (*1 | ) | (*1 | ) | ||||||
|
|
|
|
|
| |||||||
Income tax effect due to cumulative temporary differences | 175,792 | 60,089 | 67,965 | |||||||||
Unrealizable deferred tax assets etc.(*2) | (26,035 | ) | (21,897 | ) | — | |||||||
|
|
|
|
|
| |||||||
Deferred tax liabilities due to cumulative temporary differences | 149,757 | 38,192 | 67,965 | |||||||||
Deferred tax liabilities recognized directly to equity | 186,548 | 217,362 | 188,656 | |||||||||
Deferred tax liabilities from oversea operations | 21,389 | 21,476 | (30,480 | ) | ||||||||
|
|
|
|
|
| |||||||
Deferred tax liabilities | (Won) | 357,694 | (Won) | 277,030 | (Won) | 226,141 | ||||||
|
|
|
|
|
|
(*1) | Deferred income taxes are calculated by using expected and enacted marginal tax rate for the year when each temporary difference is terminated. |
Details of expected marginal tax rate applied are as follows:
2011 | From 2012 | |||||||
December 31, 2011 | — | 24.2 | % | |||||
December 31 and January 1, 2010 | 24.2 | % | 22.0 | % |
(*2) | The Bank does not recognize deferred tax liabilities amounting to (Won)107,577 million as of December 31, 2011 ( (Won)101,533 million as of December 31, 2010) for the temporary differences, from equity method valuation under Korean GAAP. Such unrealizable deferred tax liabilities are proportionate to the tax exemption ratio on dividends from subsidiary. |
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
The temporary differences which comprise of deferred tax assets and liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||
Temporary differences(*) | Deferred tax liabilities (assets) | |||||||
Derivative financial liabilities | (Won) | 1,329,182 | (Won) | 321,663 | ||||
Investments in subsidiaries and associates | 854,866 | 180,844 | ||||||
Loss on valuation of hedged items | (906,762 | ) | (219,436 | ) | ||||
Gain on foreign exchange translation of hedged items | 467,782 | 113,203 | ||||||
Impairment loss on debt investments | (429,598 | ) | (103,963 | ) | ||||
Impairment loss in equity investments | (771,012 | ) | (186,585 | ) | ||||
Others | 181,950 | 44,031 | ||||||
|
|
|
| |||||
(Won) | 726,408 | (Won) | 149,757 | |||||
|
|
|
|
(*) | The temporary differences presented as of December 31, 2011 did not contain temporary differences from overseas branches and differences whose tax effect to be charged directly to equity. |
December 31, 2010 | ||||||||
Temporary differences | Deferred tax liabilities (assets) | |||||||
Gain on valuation of financial assets available-for-sale | (Won) | 980,442 | (Won) | 219,131 | ||||
Derivative financial liabilities | 1,167,505 | 256,851 | ||||||
Investments in subsidiaries and associates | 1,103,600 | 288,321 | ||||||
Loss on valuation of hedged items | (1,158,118 | ) | (254,786 | ) | ||||
Impairment loss on debt investments | (527,176 | ) | (115,979 | ) | ||||
Impairment loss in equity investments | (437,743 | ) | (96,303 | ) | ||||
Others | (91,845 | ) | (20,205 | ) | ||||
|
|
|
| |||||
(Won) | 1,036,665 | (Won) | 277,030 | |||||
|
|
|
|
January 1, 2010 | ||||||||
Temporary differences | Deferred tax liabilities (assets) | |||||||
Gain on valuation of financial assets available-for-sale | (Won) | 846,007 | (Won) | 188,656 | ||||
Derivative financial liabilities | 880,036 | 193,608 | ||||||
Investments in subsidiaries associates | 991,741 | 218,183 | ||||||
Loss on valuation of hedged items | (1,029,850 | ) | (226,567 | ) | ||||
Impairment loss of debt investments | (512,118 | ) | (112,666 | ) | ||||
Reversal of impairment loss on equity investments | 268,702 | 59,115 | ||||||
Others | (289,765 | ) | (94,188 | ) | ||||
|
|
|
| |||||
(Won) | 1,154,753 | (Won) | 226,141 | |||||
|
|
|
|
- 83 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Changes in deferred tax assets (liabilities) recognized directly to equity for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||
Beginning balance | Increase (decrease) | Ending balance | Deferred tax assets and liabilities | |||||||||||||
Gain on valuation of financial Assets available-for-sale | (Won) | (1,211,685 | ) | (Won) | 267,413 | (Won) | (944,272 | ) | (Won) | 228,239 | ||||||
Loss on valuation of financial Assets available-for-sale | 231,493 | (31,446 | ) | 200,047 | (43,603 | ) | ||||||||||
Gain on redemption of financial Assets available-for-sale | (416 | ) | 386 | (30 | ) | 7 | ||||||||||
Loss on redemption of financial Assets available-for-sale | 166 | 48 | 214 | (52 | ) | |||||||||||
Gain on translation of foreign Operations | (1,285 | ) | (5,941 | ) | (7,226 | ) | 1,749 | |||||||||
Loss on translation of foreign Operations | 1,275 | (1,275 | ) | — | — | |||||||||||
Gain on translation of foreign net Investment | (4,924 | ) | (1,953 | ) | (6,877 | ) | 1,665 | |||||||||
Loss on translation of foreign net Investment | 12,975 | (6,956 | ) | 6,019 | (1,457 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | (972,401 | ) | (Won) | 220,276 | (Won) | (752,125 | ) | (Won) | 186,548 | |||||||
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||
Beginning balance | Increase (decrease) | Ending balance | Deferred tax assets and liabilities | |||||||||||||
Gain on valuation of financial Assets available-for-sale | (Won) | (1,307,750 | ) | (Won) | 96,065 | (Won) | (1,211,685 | ) | (Won) | 266,027 | ||||||
Loss on valuation of financial Assets available-for-sale | 462,014 | (230,521 | ) | 231,493 | (46,950 | ) | ||||||||||
Gain on redemption of financial Assets available-for-sale | (332 | ) | (84 | ) | (416 | ) | 92 | |||||||||
Loss on redemption of financial Assets available-for-sale | 59 | 107 | 166 | (35 | ) | |||||||||||
Gain on translation of foreign operations | — | (1,285 | ) | (1,285 | ) | 283 | ||||||||||
Loss on translation of foreign operations | — | 1,275 | 1,275 | (281 | ) | |||||||||||
Gain on translation of foreign net investment | — | (4,924 | ) | (4,924 | ) | 1,083 | ||||||||||
Loss on translation of foreign net investment | — | 12,975 | 12,975 | (2,857 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | (846,009 | ) | (Won) | (126,392 | ) | (Won) | (972,401 | ) | (Won) | 217,362 | ||||||
|
|
|
|
|
|
|
|
- 84 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
36. Other liabilities
The details of other liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Accounts payables | (Won) | 1,869,980 | (Won) | 2,520,909 | (Won) | 2,845,308 | ||||||
Accrued expense | 1,194,890 | 963,791 | 942,317 | |||||||||
Domestic exchange obligation payables | 1,823,364 | 930,878 | 641,067 | |||||||||
Guarantee money received | 322,848 | 561,547 | 106,185 | |||||||||
Borrowing from trust accounts | 392,392 | 532,839 | 455,424 | |||||||||
Income in advance | 52,840 | 47,878 | 49,225 | |||||||||
Foreign bills payables | 17,869 | 83,526 | 11,188 | |||||||||
Withholding taxes | 23,234 | 17,404 | 10,576 | |||||||||
Advance receipts | — | 32,127 | 248,380 | |||||||||
Others | 211,761 | 175,719 | 206,843 | |||||||||
|
|
|
|
|
| |||||||
5,909,178 | 5,866,618 | 5,516,513 | ||||||||||
Present value discount | (837 | ) | (643 | ) | (1,045 | ) | ||||||
|
|
|
|
|
| |||||||
(Won) | 5,908,341 | (Won) | 5,865,975 | (Won) | 5,515,468 | |||||||
|
|
|
|
|
|
The carrying amount of financial liabilities included in other liabilities amounted to (Won)5,719,401 million as of December 31, 2011 ( (Won)5,765,550 million as of December 31, 2010 and (Won)5,168,905 million as of January 1, 2010), and its fair value amounted to (Won)5,719,452 million as of December 31, 2011 ( (Won)5,765,681 million as of December 31, 2010 and (Won)5,168,941 million as of January 1, 2010).
37. Equity
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. Total par value of outstanding share amounts in the amount of (Won)9,251,861 million as of December 31, 2011.
Capital surplus
The Bank reduced (Won)5,178,600 million of its issued capital in 1998 and 2000 to offset its accumulated deficit amounting to (Won)5,134,227 million. As the result of the capital reduction, (Won)44,373 million of surplus exceeding accumulated deficit was recorded in capital surplus in equity.
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 accumulated deficit.
In accordance with the Korea Development Bank Act, the Bank offsets accumulated deficit with reserves. If reserve is insufficient to offset the accumulated deficit, the Korean government is supposed to be responsible for the deficit.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
The details of retained earnings as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Legal reserves | (Won) | 5,076,393 | (Won) | 4,658,028 | (Won) | 4,353,489 | ||||||
Unappropriated retained earnings | 2,719,843 | 2,023,767 | 1,255,613 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 7,796,236 | (Won) | 6,681,795 | (Won) | 5,609,102 | |||||||
|
|
|
|
|
|
Changes in legal reserves for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Beginning balance | (Won) | 4,658,028 | (Won) | 4,353,489 | ||||
Transferred from retained earnings | 418,365 | 304,539 | ||||||
|
|
|
| |||||
Ending balance | (Won) | 5,076,393 | (Won) | 4,658,028 | ||||
|
|
|
|
Changes in unappropriated retained earnings for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Beginning balance | (Won) | 2,023,767 | (Won) | 1,255,613 | ||||
Net income | 1,412,401 | 1,072,693 | ||||||
Contribution to legal reserves | (418,365 | ) | (304,539 | ) | ||||
Dividend | (297,909 | ) | — | |||||
Offset with discount on stock issuance | (51 | ) | — | |||||
|
|
|
| |||||
Ending balance | (Won) | 2,719,843 | (Won) | 2,023,767 | ||||
|
|
|
|
Details of appropriation of retained earnings, which is required in accordance with Korean commercial law, for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
I. Unappropriated retained earnings | (Won) | 2,719,843 | (Won) | 2,023,767 | ||||
1. Unappropriated retained earning carried forward from the prior year | 1,307,442 | 412,900 | ||||||
2. Net income | 1,412,401 | 1,072,693 | ||||||
3. Accounting policies change | — | 538,175 | ||||||
II. Appropriation of retained earnings | 1,947,789 | 716,326 | ||||||
|
|
|
| |||||
1. Legal reserve | 564,960 | 418,365 | ||||||
2. Discount on stock issuance | — | 51 | ||||||
3. Regulatory reserve for possible loan losses | 1,034,949 | |||||||
4. Dividend | 347,870 | 297,909 | ||||||
|
|
|
| |||||
III. Retained earnings carried forward to the next year | (Won) | 772,054 | (Won) | 1,307,442 | ||||
|
|
|
|
- 86 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
The Bank is required to provide regulatory reserve for possible loan losses in accordance with Regulations on Supervision of Bank Business 29(1) and (2).
The balance of regulatory reserve for possible loan losses as of December 31, 2011 and 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | |||||||
Beginning balance | (Won) | — | (Won) | — | ||||
Planned reserve for possible loan losses | 1,034,949 | 822,032 | ||||||
|
|
|
| |||||
(Won) | 1,034,949 | (Won) | 822,032 | |||||
|
|
|
|
Changes in regulatory reserve for possible loan losses and adjusted profit reflecting reserve for possible loan losses for the year ended December 31, 2011 are as follows (Korean won in millions except per share amount):
Year ended December 31, 2011 | ||||
Net income | (Won) | 1,412,401 | ||
Regulatory reserve for possible loan losses | (212,917 | ) | ||
|
| |||
Net income after adjusting reserve for possible loan losses | (Won) | 1,199,484 | ||
|
| |||
Earnings per share after adjusting regulatory reserve for possible loan losses (Korean won in unit) | (Won) | 648 | ||
|
|
38. Collateral
Details of assets pledged by the Bank as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||
Pledged assets | Related liabilities | Reason of restriction | ||||||||
Financial assets | (Won) | 8,946,778 | (Won) | 4,296,466 | Collateral for reverse repo transactions etc. | |||||
|
|
|
|
| ||||||
December 31, 2010 | ||||||||||
Pledged assets | Related liabilities | Reason of restriction | ||||||||
Financial assets | (Won) | 7,993,147 | (Won) | 4,130,443 | Collateral for reverse repo transactions etc. | |||||
|
|
|
|
| ||||||
January 1, 2010 | ||||||||||
Pledged assets | Related liabilities | Reason of restriction | ||||||||
Financial assets | (Won) | 13,051,781 | (Won) | 8,324,409 | Collateral for reverse repo transactions etc. | |||||
|
|
|
|
|
- 87 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
39. Guarantees and Commitments
Guarantees and commitments provided by the Bank as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Confirmed acceptances and guarantees: | ||||||||||||
Acceptances in foreign currency | (Won) | 841,123 | (Won) | 1,010,386 | (Won) | 1,225,215 | ||||||
Guarantees for bond issuance | 563,758 | 102,620 | 1,210 | |||||||||
Guarantees for loans | 866,201 | 124,900 | 154,772 | |||||||||
Acceptances for L/G | 39,112 | 39,383 | 40,332 | |||||||||
Others | 10,654,874 | 11,676,010 | 12,907,487 | |||||||||
|
|
|
|
|
| |||||||
12,965,068 | 12,953,299 | 14,329,016 | ||||||||||
|
|
|
|
|
| |||||||
Unconfirmed acceptances and guarantees: | ||||||||||||
Letter of guarantee | 2,991,547 | 3,107,835 | 2,909,229 | |||||||||
Others | 4,423,100 | 6,551,192 | 7,254,340 | |||||||||
|
|
|
|
|
| |||||||
7,414,647 | 9,659,027 | 10,163,569 | ||||||||||
|
|
|
|
|
| |||||||
Commitments: | ||||||||||||
Commitments on loans | 10,875,138 | 11,711,015 | 12,238,484 | |||||||||
Commitments on purchase of securities | — | — | 1,000,000 | |||||||||
Others | 258,774 | 81,979 | — | |||||||||
|
|
|
|
|
| |||||||
11,133,912 | 11,792,994 | 13,238,484 | ||||||||||
|
|
|
|
|
| |||||||
(Won) | 31,513,627 | (Won) | 34,405,320 | (Won) | 37,731,069 | |||||||
|
|
|
|
|
|
40. Effects of changes in foreign exchange rates
The effects of changes in foreign exchange rates for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Recognized in current income: | ||||||||
Gain (loss) from foreign currency transaction: | ||||||||
Realized gain | (Won) | 937,925 | (Won) | 962,625 | ||||
Realized loss | (979,147 | ) | (1,031,415 | ) | ||||
|
|
|
| |||||
(41,222 | ) | (68,790 | ) | |||||
Gain (loss) from foreign currency transaction: | ||||||||
Unrealized gain | 182,923 | 129,504 | ||||||
Unrealized loss | (153,777 | ) | (98,749 | ) | ||||
|
|
|
| |||||
29,146 | 30,755 | |||||||
|
|
|
| |||||
(12,076 | ) | (38,035 | ) | |||||
|
|
|
| |||||
Recognized in other comprehensive income: | ||||||||
Beginning balance | (8,041 | ) | — | |||||
Changes during the year | 16,125 | (8,041 | ) | |||||
|
|
|
| |||||
Ending balance | (Won) | 8,084 | (Won) | (8,041 | ) | |||
|
|
|
|
- 88 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
41. Day 1 profit or loss recognition
Changes in Day 1 profit or loss for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Beginning balance | (Won) | (12,237 | ) | (Won) | 516 | |||
Difference between the transaction price and fair value at initial | (4,414 | ) | (15,191 | ) | ||||
Amortization | 11,443 | 10,810 | ||||||
Transactions completed etc. | 2,492 | (8,372 | ) | |||||
|
|
|
| |||||
Ending balance | (Won) | (2,716 | ) | (Won) | (12,237 | ) | ||
|
|
|
|
(*) | Day 1 profit or loss arose from derivatives financial investments, whose fair value are classified as level 3. |
42. Related-party disclosures
The entities controlling the Bank and the Bank’s subsidiaries as of December 31, 2011, December 31, 2010, and January 1, 2010 are summarized as follows (Korean won in millions):
Investor | Investee | |
KoFC | KDBFG, Korea Aerospace Industries Ltd. | |
KDBFG | KDB, Daewoo Securities Co., Ltd., KDB Capital Corporation, KDB Asset Management Co., Ltd., Korea Infrastructure Investments Asset Management Co., Ltd. | |
KDB | 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 I, 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 |
- 89 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Outstanding balances with related-parties as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||
Controlling entities | Investee under equity method | Entities under same control | Total | |||||||||||||
Asset : | ||||||||||||||||
Cash and due from banks | (Won) | — | (Won) | — | (Won) | — | (Won) | — | ||||||||
Financial assets -available-for-sale | 1,399,684 | 463,575 | — | 1,863,259 | ||||||||||||
Loans | 136,509 | 1,006,882 | 706 | 1,144,097 | ||||||||||||
(Allowance for possible loan losses) | — | (251 | ) | — | (251 | ) | ||||||||||
Derivative financial assets | 10,910 | 56,721 | 57,294 | 124,925 | ||||||||||||
Others | 246 | 44,233 | 4,865 | 49,344 | ||||||||||||
(Allowance for possible other asset losses) | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 1,547,349 | (Won) | 1,571,160 | (Won) | 62,865 | (Won) | 3,181,374 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities : | ||||||||||||||||
Due to customers | (Won) | 822,770 | (Won) | 105,201 | (Won) | 244,935 | (Won) | 1,172,906 | ||||||||
Borrowings | — | 2,051 | — | 2,051 | ||||||||||||
Debt issued | — | — | 191,250 | 191,250 | ||||||||||||
Derivative financial liabilities | 14,239 | 12,975 | 45,087 | 72,301 | ||||||||||||
Others | 129,265 | 386 | 4,230 | 133,881 | ||||||||||||
Other provisions | — | 454 | — | 454 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 966,274 | (Won) | 121,067 | (Won) | 485,502 | (Won) | 1,572,843 | |||||||||
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||
Controlling entities | Investee under equity method | Entities under same control | Key management | Total | ||||||||||||||||
Asset : | ||||||||||||||||||||
Cash and due from banks | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | — | ||||||||||
Financial assets available-for-sale | 2,789,173 | 557 | 12,342 | — | 2,802,072 | |||||||||||||||
Loans | 134,805 | 192,135 | 220,981 | 97 | 548,018 | |||||||||||||||
(Allowance for possible loan losses) | — | (5,721 | ) | — | (3 | ) | (5,724 | ) | ||||||||||||
Derivative financial assets | 3,476 | — | 70,986 | — | 74,462 | |||||||||||||||
Others | 848 | 431 | 13,336 | — | 14,615 | |||||||||||||||
(Allowance for possible other asset losses) | — | (160 | ) | — | — | (160 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 2,928,302 | (Won) | 187,242 | (Won) | 317,645 | (Won) | 94 | (Won) | 3,433,283 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities : | ||||||||||||||||||||
Due to customers | (Won) | 235,152 | (Won) | 21,988 | (Won) | 125,305 | (Won) | — | (Won) | 382,445 | ||||||||||
Borrowings | 1 | 3,423 | 90,860 | — | 94,284 | |||||||||||||||
Derivative financial liabilities | — | — | 45,724 | — | 45,724 | |||||||||||||||
Others | 151,792 | 250 | 12,004 | — | 164,046 | |||||||||||||||
Other provisions | — | 147 | — | — | 147 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 386,945 | (Won) | 25,808 | (Won) | 273,893 | (Won) | — | (Won) | 686,646 | |||||||||||
|
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- 90 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||||||||||
Controlling entities | Investee under equity method | Entities under same control | Key management | Total | ||||||||||||||||
Asset : | ||||||||||||||||||||
Cash and due from banks | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | — | ||||||||||
Financial assets available-for-sale | — | — | 12,650 | — | 12,650 | |||||||||||||||
Loans | — | 1,583,776 | 177,651 | 115 | 1,761,542 | |||||||||||||||
(Allowance for possible loan losses) | — | (123,958 | ) | (180 | ) | (3 | ) | (124,141 | ) | |||||||||||
Derivative financial assets | — | 176,936 | 60,017 | — | 236,953 | |||||||||||||||
Others | — | 11,591 | 3,910 | — | 15,501 | |||||||||||||||
(Allowance for possible other asset losses) | — | (789 | ) | — | — | (789 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | — | (Won) | 1,647,556 | (Won) | 254,048 | (Won) | 112 | (Won) | 1,901,716 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities : | ||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | — | (Won) | 14,262 | (Won) | — | (Won) | 14,262 | ||||||||||
Due to customers | 1,868 | 138,389 | 171,460 | — | 311,717 | |||||||||||||||
Borrowings | — | 23,945 | 8,800 | — | 32,745 | |||||||||||||||
Debt issued | — | 3,000 | — | — | 3,000 | |||||||||||||||
Derivative financial liabilities | — | 76 | 29,710 | — | 29,786 | |||||||||||||||
Others | 5,705 | 2,815 | 4,473 | — | 12,993 | |||||||||||||||
Other provisions | — | 108 | — | — | 108 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 7,573 | (Won) | 168,333 | (Won) | 228,705 | (Won) | — | (Won) | 404,611 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Transactions with related-parties for the years ended December 31, 2011 and 2010 are summarized as follows (Korean won in millions):
Year ended December 31, 2011 | ||||||||||||||||||||
Controlling entities | Investee under equity method | Entities under same control | Key management | Total | ||||||||||||||||
Income : | ||||||||||||||||||||
Interest income | (Won) | 86,280 | (Won) | 207,111 | (Won) | 72,117 | (Won) | — | (Won) | 365,508 | ||||||||||
Reversal of allowance for possible loan losses | — | 2,285 | — | — | 2,285 | |||||||||||||||
Commission income and others | 4,418 | 12,769 | 2,456 | — | 19,643 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 90,698 | (Won) | 222,165 | (Won) | 74,573 | (Won) | — | (Won) | 387,436 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Expense : | ||||||||||||||||||||
Interest expense | (Won) | 59,756 | (Won) | 96,374 | (Won) | 67,331 | (Won) | — | (Won) | 223,461 | ||||||||||
Credit loss expense | — | — | — | — | — | |||||||||||||||
Administration expense | — | — | — | 1,519 | 1,519 | |||||||||||||||
Other operating loss | 775 | 1,146 | 2,682 | — | 4,603 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 60,531 | (Won) | 97,520 | (Won) | 70,013 | (Won) | 1,519 | (Won) | 229,583 | |||||||||||
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- 91 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Year ended December 31, 2010 | ||||||||||||||||||||
Controlling entities | Investee under equity method | Entities under same control | Key management | Total | ||||||||||||||||
Income : | ||||||||||||||||||||
Interest income | (Won) | 32,432 | (Won) | 12,214 | (Won) | 9,215 | (Won) | — | (Won) | 53,861 | ||||||||||
Reversal of allowance for possible loan losses | — | — | — | — | — | |||||||||||||||
Commission income and others | 7,303 | 3,640 | 94,373 | — | 105,316 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 39,735 | (Won) | 15,854 | (Won) | 103,588 | (Won) | — | (Won) | 159,177 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Expense : | ||||||||||||||||||||
Interest expense | (Won) | 9,803 | (Won) | 687 | (Won) | 4,165 | (Won) | — | (Won) | 14,655 | ||||||||||
Credit loss expense | 1,146 | 5,652 | 845 | — | 7,643 | |||||||||||||||
Administration expense | — | — | — | 2,752 | 2,752 | |||||||||||||||
Other operating loss | 501 | 2,573 | 90,903 | — | 93,977 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 11,450 | (Won) | 8,912 | (Won) | 95,913 | (Won) | 2,752 | (Won) | 119,027 | |||||||||||
|
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|
|
|
|
|
|
|
|
The Bank provided various commitments amounting to (Won)655,891 million and payment guarantees amounting to (Won)1,145,310 million in the transactions with related-parties.
- 92 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
43. Fair value of financial assets and liabilities
The details of the fair value of financial instruments as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Financial assets held-for-trading | (Won) | 853,813 | (Won) | 1,732,096 | (Won) | — | (Won) | 2,585,909 | ||||||||
Financial assets -available-for-sale | 2,351,007 | 20,255,062 | 3,107,469 | 25,713,538 | ||||||||||||
Derivative financial assets | — | 5,437,121 | 159,974 | 5,597,095 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 3,204,820 | (Won) | 27,424,279 | (Won) | 3,267,443 | (Won) | 33,896,542 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities: | ||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | 991,338 | (Won) | 798 | (Won) | 992,136 | ||||||||
Derivative financial liabilities | — | 4,205,955 | 83,309 | 4,289,264 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | — | (Won) | 5,197,293 | (Won) | 84,107 | (Won) | 5,281,400 | |||||||||
|
|
|
|
|
|
|
| |||||||||
December 31, 2010 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Financial assets held-for-trading | (Won) | 849,090 | (Won) | 3,390,105 | (Won) | — | (Won) | 4,239,195 | ||||||||
Financial assets -available-for-sale | 1,914,251 | 18,330,603 | 2,432,041 | 22,676,895 | ||||||||||||
Derivative financial assets | — | 5,780,722 | 307,378 | 6,088,100 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 2,763,341 | (Won) | 27,501,430 | (Won) | 2,739,419 | (Won) | 33,004,190 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities: | ||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | 947,659 | (Won) | 4,093 | (Won) | 951,752 | ||||||||
Derivative financial liabilities | — | 4,580,592 | 87,111 | 4,667,703 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | — | (Won) | 5,528,251 | (Won) | 91,204 | (Won) | 5,619,455 | |||||||||
|
|
|
|
|
|
|
| |||||||||
January 1, 2010 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Financial assets held-for-trading | (Won) | 224,243 | (Won) | 1,385,075 | (Won) | — | (Won) | 1,609,318 | ||||||||
Financial assets designated at FVTPL | — | — | 89,503 | 89,503 | ||||||||||||
Financial assets -available-for-sale | 2,395,412 | 21,066,866 | 4,794,363 | 28,256,641 | ||||||||||||
Derivative financial assets | — | 7,560,604 | 101,065 | 7,661,669 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 2,619,655 | (Won) | 30,012,545 | (Won) | 4,984,931 | (Won) | 37,617,131 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Financial liabilities: | ||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | 1,168,551 | (Won) | 139,748 | (Won) | 1,308,299 | ||||||||
Derivative financial liabilities | — | 6,536,703 | 96,472 | 6,633,175 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | — | (Won) | 7,705,254 | (Won) | 236,220 | (Won) | 7,941,474 | |||||||||
|
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- 93 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Changes in carrying value of financial instruments, whose fair value is categorized as level 3, for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | ||||||||||||||||||||||||||||
Beginning balance | Current profit or loss | Other comprehensive income | Purchase | Disposal/ settlement | Foreign exchange differences | Ending balance | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Financial assets-available-for-sale | (Won) | 2,432,041 | (Won) | (117,118 | ) | (Won) | 164,591 | (Won) | 1,348,797 | (Won) | (1,105,152 | ) | (Won) | 384,310 | (Won) | 3,107,469 | ||||||||||||
Derivative financial assets | 307,378 | (61,517 | ) | — | 378,228 | (472,551 | ) | 8,436 | 159,974 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 2,739,419 | (Won) | (178,635 | ) | (Won) | 164,591 | (Won) | 1,727,025 | (Won) | (1,577,703 | ) | (Won) | 392,746 | (Won) | 3,267,443 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Liability: | ||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | 4,093 | (Won) | 214 | (Won) | — | (Won) | — | (Won) | (3,509 | ) | (Won) | — | (Won) | 798 | |||||||||||||
Derivative financial liabilities | 87,111 | (43,497 | ) | — | 70,729 | (31,034 | ) | — | 83,309 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 91,204 | (Won) | (43,283 | ) | (Won) | — | (Won) | 70,729 | (Won) | (34,543 | ) | (Won) | — | (Won) | 84,107 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Year ended December 31, 2010 | ||||||||||||||||||||||||||||
Beginning balance | Current profit or loss | Other comprehensive income | Purchase | Disposal/ settlement | Foreign exchange differences | Ending balance | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Financial assets designated at FVTPL | (Won) | 89,503 | (Won) | — | (Won) | — | (Won) | — | (Won) | (89,503 | ) | (Won) | — | (Won) | — | |||||||||||||
Financial assets-available-for-sale | 4,794,363 | 161,438 | — | 1,050,874 | (2,998,913 | ) | (575,721 | ) | 2,432,041 | |||||||||||||||||||
Derivative financial assets | 101,065 | 119,579 | — | 104,835 | (18,101 | ) | — | 307,378 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 4,984,931 | (Won) | 281,017 | (Won) | — | (Won) | 1,155,709 | (Won) | (3,106,517 | ) | (Won)(575,721) | (Won) | 2,739,419 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Liability: | ||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | 139,748 | (Won) | (200 | ) | (Won) | — | (Won) | — | (Won) | (135,455 | ) | (Won) | — | (Won) | 4,093 | ||||||||||||
Derivative financial liabilities | 96,472 | (39,957 | ) | — | 51,564 | (20,968 | ) | — | 87,111 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 236,220 | (Won) | (40,157 | ) | (Won) | — | (Won) | 51,564 | (Won) | (156,423 | ) | (Won) | — | (Won) | 91,204 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 94 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
44. Categories of financial assets and liabilities
Categories of the Bank’s financial assets and liabilities as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | Financial instruments held-for- trading | Financial instruments designated at FVTPL | Available- for-sale financial investments | Held-to- maturity financial assets | Loan and receivables | Financial liabilities carrying at amortized cost | Derivative financial instruments utilized in fair value hedging | Total | ||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||
Cash and due from banks | (Won) | 1,037,025 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | 928,814 | (Won) | — | (Won) | — | (Won) | 1,965,839 | ||||||||||||||||||
Financial assets held-for-trading | 2,004 | 2,583,905 | — | — | — | — | — | — | 2,585,909 | |||||||||||||||||||||||||||
Financial assets -available-for-sale | — | — | — | 25,713,538 | — | — | — | — | 25,713,538 | |||||||||||||||||||||||||||
Financial assets -held-to-maturity | — | — | — | — | 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 | |||||||||||||||||||||||||||
Others | — | — | — | — | — | 5,165,036 | — | — | 5,165,036 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(Won) | 2,019,774 | (Won) | 7,094,942 | (Won) | — | (Won) | 25,713,538 | (Won) | 110,844 | (Won) | 85,527,899 | (Won) | — | (Won) | 1,086,058 | (Won) | 121,553,055 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | — | (Won) | 992,136 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | 992,136 | ||||||||||||||||||
Due to customers | — | — | — | — | — | — | 25,222,278 | — | 25,222,278 | |||||||||||||||||||||||||||
Borrowings | — | — | — | — | — | — | 25,842,421 | — | 25,842,421 | |||||||||||||||||||||||||||
Debt issued | — | — | — | — | — | — | 47,196,659 | — | 47,196,659 | |||||||||||||||||||||||||||
Derivative financial liabilities | — | 4,130,365 | — | — | — | — | — | 158,899 | 4,289,264 | |||||||||||||||||||||||||||
Others | — | — | — | — | — | — | 5,719,401 | — | 5,719,401 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(Won) | — | (Won) | 4,130,365 | (Won) | 992,136 | (Won) | — | (Won) | — | (Won) | — | (Won) | 103,980,759 | (Won) | 158,899 | (Won) | 109,262,159 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 95 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | Financial instruments held-for- trading | Financial instruments designated at FVTPL | Available- for-sale financial investments | Held-to- maturity financial assets | Loan and receivables | Financial liabilities carrying at amortized cost | Derivative financial instruments utilized in fair value hedging | Total | ||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||
Cash and due from banks | (Won) | 575,032 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | 600,071 | (Won) | — | (Won) | — | (Won) | 1,175,103 | ||||||||||||||||||
Financial assets held-for-trading | — | 4,239,195 | — | — | — | — | — | — | 4,239,195 | |||||||||||||||||||||||||||
Financial assets -available-for-sale | — | — | — | 22,676,895 | — | — | — | — | 22,676,895 | |||||||||||||||||||||||||||
Financial assets -held-to-maturity | — | — | — | — | 137,695 | — | — | — | 137,695 | |||||||||||||||||||||||||||
Loans | 2,066,307 | — | — | — | — | 68,704,220 | — | — | 70,770,527 | |||||||||||||||||||||||||||
Derivative financial assets | — | 4,857,214 | — | — | — | — | — | 1,230,886 | 6,088,100 | |||||||||||||||||||||||||||
Others | — | — | — | — | — | 4,094,219 | — | — | 4,094,219 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(Won) | 2,641,339 | (Won) | 9,096,409 | (Won) | — | (Won) | 22,676,895 | (Won) | 137,695 | (Won) | 73,398,510 | (Won) | — | (Won) | 1,230,886 | (Won) | 109,181,734 | |||||||||||||||||||
|
|
|
|
|
|
|
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|
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Financial liabilities: | ||||||||||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | — | (Won) | 951,752 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | 951,752 | ||||||||||||||||||
Due to customers | — | — | — | — | — | — | 18,929,843 | — | 18,929,843 | |||||||||||||||||||||||||||
Borrowings | — | — | — | — | — | — | 22,877,558 | — | 22,877,558 | |||||||||||||||||||||||||||
Debt issued | — | — | — | — | — | — | 43,235,249 | — | 43,235,249 | |||||||||||||||||||||||||||
Derivative financial liabilities | — | 4,466,189 | — | — | — | — | — | 201,514 | 4,667,703 | |||||||||||||||||||||||||||
Others | — | — | — | — | — | — | 5,765,550 | — | 5,765,550 | |||||||||||||||||||||||||||
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(Won) | — | (Won) | 4,466,189 | (Won) | 951,752 | (Won) | — | (Won) | — | (Won) | — | (Won) | 90,808,200 | (Won) | 201,514 | (Won) | 96,427,655 | |||||||||||||||||||
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | Financial instruments held-for-tra ding | Financial instruments designated at FVTPL | Available- for-sale financial investments | Held-to- maturity financial assets | Loan and receivables | Financial liabilities carrying at amortized cost | Derivative financial instruments utilized in fair value hedging | Total | ||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||||
Cash and due from banks | (Won) | 682,804 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | 1,292,552 | (Won) | — | (Won) | — | (Won) | 1,975,356 | ||||||||||||||||||
Financial assets held-for-trading | — | 1,609,318 | — | — | — | — | — | — | 1,609,318 | |||||||||||||||||||||||||||
Financial assets designated at FVTPL | — | — | 89,503 | — | — | — | — | — | 89,503 | |||||||||||||||||||||||||||
Financial assets -available-for-sale | — | — | — | 28,256,641 | — | — | — | — | 28,256,641 | |||||||||||||||||||||||||||
Financial assets -held-to-maturity | — | — | — | — | 67,521 | — | — | — | 67,521 | |||||||||||||||||||||||||||
Loans | 1,352,809 | — | — | — | — | 73,747,655 | — | — | 75,100,464 | |||||||||||||||||||||||||||
Derivative financial assets | — | 6,786,138 | — | — | — | — | — | 875,531 | 7,661,669 | |||||||||||||||||||||||||||
Others | — | — | — | — | — | 4,652,596 | — | — | 4,652,596 | |||||||||||||||||||||||||||
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(Won) | 2,035,613 | (Won) | 8,395,456 | (Won) | 89,503 | (Won) | 28,256,641 | (Won) | 67,521 | (Won) | 79,692,803 | (Won) | — | (Won) | 875,531 | (Won) | 119,413,068 | |||||||||||||||||||
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Financial liabilities: | ||||||||||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | — | (Won) | 1,308,299 | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | — | (Won) | 1,308,299 | ||||||||||||||||||
Due to customers | — | — | — | — | — | — | 13,935,926 | — | 13,935,926 | |||||||||||||||||||||||||||
Borrowings | — | — | — | — | — | — | 28,580,446 | — | 28,580,446 | |||||||||||||||||||||||||||
Debt issued | — | — | — | — | — | — | 50,740,788 | — | 50,740,788 | |||||||||||||||||||||||||||
Derivative financial liabilities | — | 6,394,105 | — | — | — | — | — | 239,070 | 6,633,175 | |||||||||||||||||||||||||||
Others | — | — | — | — | — | — | 5,168,905 | — | 5,168,905 | |||||||||||||||||||||||||||
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(Won) | — | (Won) | 6,394,105 | (Won) | 1,308,299 | (Won) | — | (Won) | — | (Won) | — | �� | (Won) | 98,426,065 | (Won) | 239,070 | (Won) | 106,367,539 | ||||||||||||||||||
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- 97 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
45. Transfers of financial assets that do not qualify for derecognition
Transfers of financial assets that do not qualify for derecognition as of December 31, 2011 and 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||
Counterparty | Disposal date | Carrying amount of related assets | Carrying amount of related liabilities | Reason of restriction | ||||||||||
Songsan II Industrial Complex Securitization SPC | 2010.02.25 | (Won) | 202,778 | (Won) | 203,019 | (*) | ||||||||
KDB SOC securitization SPC | 2010.12.07 | 17,147 | 12,000 | (*) | ||||||||||
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| |||||||||||
(Won) | 219,925 | (Won) | 215,019 | |||||||||||
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| |||||||||||
December 31, 2010 | ||||||||||||||
Counterparty | Disposal date | Carrying amount of related assets | Carrying amount of related liabilities | Reason of restriction | ||||||||||
Songsan II Industrial Complex Securitization SPC | 2010.02.25 | (Won) | 201,852 | (Won) | 202,985 | (*) | ||||||||
KDB SOC securitization SPC | 2010.12.07 | 15,550 | 16,031 | (*) | ||||||||||
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| |||||||||||
(Won) | 217,402 | (Won) | 219,016 | |||||||||||
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(*) | Most of the risks and rewards from ownership of the securitized financial assets have not been transferred due to the Bank’s credit supports. Accordingly, the Bank does not derecognize the securitized financial assets. |
46. Non-current assets-held-for-sale
Details of non-current assets held-for-sale as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Non-current assets held-for-sale: | ||||||||||||
Investments in associates(*) | (Won) | — | (Won) | — | (Won) | — | ||||||
Property and equipment | — | — | 3,870 | |||||||||
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(Won) | — | (Won) | — | (Won) | 3,870 | |||||||
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| |||||||
Gain (loss) from non-current assets held-for-sale: | ||||||||||||
Gain on disposal of non-current assets held-for-sale | (Won) | — | (Won) | 179 | (Won) | — | ||||||
Loss on disposal of non-current assets held-for-sale | — | (179 | ) | — | ||||||||
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| |||||||
(Won) | — | (Won) | — | (Won) | — | |||||||
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(*) | The Bank classified Daewoo Shipbuilding & Marine Engineering Co,. Ltd. (number of shares: 59,825,596 shares, ownership: 31.26%) as non-current assets held-for-sale on January 1, 2010. Subsequently, the share-transfer deal was not accomplished and the Bank reclassified the shares as investment in associates because it no longer meets the criteria of classification for non-current assets held-for-sale as of December 31, 2011. There are no effects on the net income (transition date) and total asset in the financial statements as of December 31, 2011 and 2010. |
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
47. Additional cash flow information
Cash and cash equivalents in the statement of cash flows as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Cash and due from banks : | ||||||||||||
Cash | (Won) | 91,476 | (Won) | 56,093 | (Won) | 66,915 | ||||||
Deposits | 945,549 | 518,939 | 615,889 | |||||||||
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1,037,025 | 575,032 | 682,804 | ||||||||||
Financial assets held-for-trading: | ||||||||||||
Government bonds | 2,004 | — | — | |||||||||
Loans : | ||||||||||||
Call loans | 800,830 | 1,970,640 | 1,258,655 | |||||||||
Loans to banks | 179,915 | 95,667 | 94,154 | |||||||||
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| |||||||
980,745 | 2,066,307 | 1,352,809 | ||||||||||
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| |||||||
(Won) | 2,019,774 | (Won) | 2,641,339 | (Won) | 2,035,613 | |||||||
|
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|
|
Total interest and dividend that received or paid for the years ended December 31, 2011 and 2010 are as follows (Korean won in millions):
Year ended December 31, 2011 | Year ended December 31, 2010 | |||||||
Total interest received | (Won) | 4,429,996 | (Won) | 4,482,504 | ||||
Total interest paid | 2,765,645 | 2,801,486 | ||||||
Total dividend received | 180,650 | 184,515 |
- 99 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
48. Explanation of transition to K-IFRS
The details of reconciliation from Korean GAAP to K-IFRS key financial figures as of December 31, 2010 and January 1, 2010 are as follows (Korean won in millions):
December 31, 2010 | ||||||||||||||||||||
Total assets | Total liabilities | Total equity | Net income for the year | Comprehensive income | ||||||||||||||||
Korean GAAP | (Won) | 113,205,485 | (Won) | 96,977,136 | (Won) | 16,228,349 | (Won) | 1,045,721 | (Won) | 1,110,403 | ||||||||||
Adjustments: | ||||||||||||||||||||
Changes in calculation of allowance for possible loan losses(*1) | 783,437 | (160,044 | ) | 943,481 | 259,529 | 259,529 | ||||||||||||||
Recognition of financial guarantees | 66,300 | 92,833 | (26,533 | ) | 32,707 | 32,707 | ||||||||||||||
Changes in measurement of severance and retirement benefits | — | 43,260 | (43,260 | ) | 2,831 | 2,831 | ||||||||||||||
Deferred income tax effect | (27,315 | ) | 161,220 | (188,535 | ) | (42,690 | ) | (42,690 | ) | |||||||||||
Others(*2) | (78,024 | ) | 102,461 | (180,485 | ) | (225,405 | ) | (192,399 | ) | |||||||||||
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| |||||||||||
Total adjustments | 744,398 | 239,730 | 504,668 | 26,972 | 59,978 | |||||||||||||||
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|
|
|
| |||||||||||
K-IFRS | (Won) | 113,949,883 | (Won) | 97,216,866 | (Won) | 16,733,017 | (Won) | 1,072,693 | (Won) | 1,170,381 | ||||||||||
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|
|
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|
|
January 1, 2010 | ||||||||||||
Total asset | Total liability | Total equity | ||||||||||
Korean GAAP | (Won) | 122,333,446 | (Won) | 107,222,739 | (Won) | 15,110,707 | ||||||
Adjustments : | ||||||||||||
Changes in calculation of allowance for possible loan losses(*1) | 480,763 | (203,189 | ) | 683,952 | ||||||||
Recognition of financial guarantees | 72,576 | 140,942 | (68,366 | ) | ||||||||
Changes in measurement of severance and retirement benefits | — | 46,091 | (46,091 | ) | ||||||||
Deferred income tax effect | (27,315 | ) | 118,530 | (145,845 | ) | |||||||
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|
| |||||||
Others(*2) | (57,607 | ) | (75,937 | ) | 18,330 | |||||||
|
|
|
|
|
| |||||||
Total adjustments | 468,417 | 26,437 | 441,980 | |||||||||
K-IFRS | (Won) | 122,801,863 | (Won) | 107,249,176 | (Won) | 15,552,687 | ||||||
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|
|
(*1) | Allowance for possible loan losses is measured using the incurred loss model. |
(*2) | Other items represent the separation of embedded derivatives, recognition of accrued interest on overdue loans, and financial instruments designated at FVTPL etc. |
- 100 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Designation financial instruments at FVTPL first time adoption
Fair value at the transition date | Carrying amount under previous GAAP | |||||||
Financial assets designated at FVTPL(*1) | (Won) | 89,503 | (Won) | 89,503 | ||||
Financial liabilities designated at FVTPL(*2) | 1,308,299 | 1,330,748 |
(*1) | Financial assets designated at FVTPL are comprised of loans amounted to (Won)92,526 million and derivative financial liabilities amounted to (Won)3,023 million as of December 31, 2009 in accordance with previous GAAP. |
(*2) | Financial liabilities designated at FVTPL are comprised of borrowings amounted to (Won)163,224 million, debt issued amounted to (Won) 1,191,000 million and derivative assets to (Won)23,476 million as of December 31, 2009 in accordance with previous GAAP. |
K-IFRS cash flow differences adjustment
Income tax payment is represented separately in the statement of cash flows in accordance with K-IFRS, which was not separately shown in the statement of cash flows under Korean GAAP. The transactions related with certain securities are reclassified as investing activities from operating activities. There is no significant differences in the statement of cash flows prepared under K-IFRS and Korean GAAP except the items mentioned above.
49. Actually confirmed day and approval authority
The financial statements are actually confirmed on March 29, 2012 by the Board of Directors.
50. Risk management
Introduction
Objectives and policies
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 |
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
- 101 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Bank’s business. In the circumstance that risk management is recognized as the key function in the banking operations, the Bank re-establishes 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.
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 four 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.
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 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.
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 year ended December 31, 2011, the key activities of the Risk Management Committee are as follows:
• | Major deliberation |
• | Regulating and amendment due to re-organization of risk management committee |
• | Operation policy of interest applied for the guaranteed pension product |
• | Alteration on calculation method for screening benchmark rate of retirement pension deposits |
• | BIS ratio goal and internal capital limit for 2012 |
• | Major reporting |
• | Monthly results of risk management |
• | Foundation and alteration on evaluation and approval criteria of private loan |
- 102 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
• | Distribution of inner capital limits and control standard of inner capital for the year |
• | Integrated analysis on crisis situation and capital adequacy |
• | Status for management of IT Operating Risk |
• | Provision of regulatory reserve for possible loan losses under K-IFRS and expansion of individual assessment (mainly focusing PF loans) |
• | Regular corporate credit rating analysis of 2011 |
• | Monitoring operation of limit for industrial portfolio. |
• | A verification of adequacy of credit rating model and probabilities of default |
• | Report of joint stress test conducted by Bank |
• | Report of simulation exercise for Business Continuity Planning (BCP) |
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 Services (“FSS”) provided a detail 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. |
• | 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. |
- 103 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
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 | CreditRisk+ Credit Metrics | Jul. 2003 Nov. 2007 | Summarize exposures, manage exposure limit and calculate Credit VaR | |||
Market Risk Management System | RiskWatch | 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 |
Response and Plan for Basel II
The Korean authority implemented Basel II in January 2008 and adopted the Standardized 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.
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.
• | 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.
- 104 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
• | 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, direction and scale of the operation.
• | 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 are not measured quantitatively because appropriate measuring methodology and related data do not exist to rate its risk level.
Credit Risk
Concept
Credit risk is defined as potential losses resulting from counterparty’s default or refusal to perform obligations.
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 risks 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 for twice a year.
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 new accounts and to stabilize the number of debt recoveries.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
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 Manager 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 is classified as substandard borrower or doubtful borrower so that the 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 not only reflecting the past record of repayment but also the 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 December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Neither past due nor impaired | (Won) | 79,612,756 | (Won) | 69,777,694 | (Won) | 74,633,385 | ||||||
Past due but not impaired | 240,454 | 222,639 | 201,675 | |||||||||
Impaired | 1,527,445 | 2,057,030 | 1,283,730 | |||||||||
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|
|
|
|
| |||||||
Total | 81,380,655 | 72,057,363 | 76,118,790 | |||||||||
Allowance for possible loan losses | (865,254 | ) | (1,145,406 | ) | (912,782 | ) | ||||||
Present value discount | (69,946 | ) | (115,933 | ) | (90,216 | ) | ||||||
Deferred loan handling fees | (30,661 | ) | (25,497 | ) | (15,328 | ) | ||||||
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|
| |||||||
Net amount | (Won) | 80,414,794 | (Won) | 70,770,527 | (Won) | 75,100,464 | ||||||
|
|
|
|
|
| |||||||
Ratio of allowance for possible loan losses to total loans (%) | 1.06 | 1.59 | 1.20 | |||||||||
|
|
|
|
|
|
- 106 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Loans that are neither past due nor impaired as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):
December 31, 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 | ||||||||||||||||||||||
AAA ~ B | ||||||||||||||||||||||||||||
(Normal) | (Won) | 16,314,373 | (Won) | 27,584,415 | (Won) | 905,538 | (Won) | 19,382,101 | (Won) | 5,049,895 | (Won) | 8,275,167 | (Won) | 77,511,489 | ||||||||||||||
CCC | ||||||||||||||||||||||||||||
(Precautionary) | 781,946 | 344,196 | — | 392,834 | 207,126 | 301,083 | 2,027,185 | |||||||||||||||||||||
CC | ||||||||||||||||||||||||||||
(Substandard) | 45,924 | 8,000 | — | 2,549 | 7,923 | 9,622 | 74,018 | |||||||||||||||||||||
C (Doubtful) | — | — | — | — | — | — | — | |||||||||||||||||||||
D (Estimated Loss) | — | — | 17 | — | — | 47 | 64 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 17,142,243 | (Won) | 27,936,611 | (Won) | 905,555 | (Won) | 19,777,484 | (Won) | 5,264,944 | (Won) | 8,585,919 | (Won) | 79,612,756 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||
AAA ~ B | ||||||||||||||||||||||||||||
(Normal) | (Won) | 11,508,686 | (Won) | 23,520,900 | (Won) | 558,608 | (Won) | 17,161,045 | (Won) | 6,020,525 | (Won) | 8,674,235 | (Won) | 67,443,999 | ||||||||||||||
CCC | ||||||||||||||||||||||||||||
(Precautionary) | 911,068 | 378,170 | — | 306,288 | 249,307 | 300,813 | 2,145,646 | |||||||||||||||||||||
CC | ||||||||||||||||||||||||||||
(Substandard) | 122,837 | 33,854 | 17 | 3,562 | 11,923 | 15,856 | 188,049 | |||||||||||||||||||||
C (Doubtful) | — | — | — | — | — | — | — | |||||||||||||||||||||
D (Estimated Loss) | — | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 12,542,591 | (Won) | 23,932,924 | (Won) | 558,625 | (Won) | 17,470,895 | (Won) | 6,281,755 | (Won) | 8,990,904 | (Won) | 69,777,694 | |||||||||||||||
|
|
|
|
|
|
|
|
|
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- 107 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||
AAA ~ B | ||||||||||||||||||||||||||||
(Normal) | (Won) | 10,787,484 | (Won) | 23,994,787 | (Won) | 449,879 | (Won) | 18,572,571 | (Won) | 11,252,235 | (Won) | 7,999,503 | (Won) | 73,056,459 | ||||||||||||||
CCC | ||||||||||||||||||||||||||||
(Precautionary) | 218,673 | 244,391 | — | 316,085 | 87,438 | 40,642 | 907,229 | |||||||||||||||||||||
CC | ||||||||||||||||||||||||||||
(Substandard) | 246,924 | 170,975 | — | 98,597 | 7,923 | 144,689 | 669,108 | |||||||||||||||||||||
C (Doubtful) | — | — | — | — | — | — | — | |||||||||||||||||||||
D (Estimated | ||||||||||||||||||||||||||||
Loss) | 589 | — | — | — | — | — | 589 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
(Won) | 11,253,670 | (Won) | 24,410,153 | (Won) | 449,879 | (Won) | 18,987,253 | (Won) | 11,347,596 | (Won) | 8,184,834 | (Won) | 74,633,385 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans that are past due but not impaired as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):
December 31, 2011 | ||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||
Loans for working capital | Loans for facility development | Loans in foreign currency | Private placed corporate bonds | Others | Total | |||||||||||||||||||
Less 30 days | (Won) | 68,998 | (Won) | 54,803 | (Won) | 21,220 | (Won) | 41,533 | (Won) | 14,363 | (Won) | 200,917 | ||||||||||||
Less 30~60 days | 13,087 | 16,321 | 4,840 | — | — | 34,248 | ||||||||||||||||||
Less 60~90days | 1,988 | 2,863 | 439 | — | — | 5,290 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 84,073 | (Won) | 73,987 | (Won) | 26,499 | (Won) | 41,533 | (Won) | 14,363 | (Won) | 240,455 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||
Loans for working capital | Loans for facility development | Loans in foreign currency | Private placed corporate bonds | Others | Total | |||||||||||||||||||
Less 30 days | (Won) | 38,318 | (Won) | 103,602 | (Won) | 61,311 | (Won) | 10,700 | (Won) | 8,708 | (Won) | 222,639 | ||||||||||||
Less 30~60 days | — | — | — | — | — | — | ||||||||||||||||||
Less 60~90days | — | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 38,318 | (Won) | 103,602 | (Won) | 61,311 | (Won) | 10,700 | (Won) | 8,708 | (Won) | 222,639 | |||||||||||||
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- 108 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||
Loans for working capital | Loans for facility development | Loans in foreign currency | Private placed corporate bonds | Others | Total | |||||||||||||||||||
Less 30 days | (Won) | 116,494 | (Won) | 19,147 | (Won) | 7,128 | (Won) | 2,900 | (Won) | 8,142 | (Won) | 153,811 | ||||||||||||
Less 30 ~ 60 days | 19,455 | 17,976 | 3,054 | — | — | 40,485 | ||||||||||||||||||
Less 60 ~ 90 days | 650 | — | 5,729 | 1,000 | — | 7,379 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 136,599 | (Won) | 37,123 | (Won) | 15,911 | (Won) | 3,900 | (Won) | 8,142 | (Won) | 201,675 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
Impaired loans as of December 31, 2011, December 31, 2010, and January 1, 2010 consist of the following (Korean won in millions):
December 31, 2011 | ||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||
Loans for working capital | Loans for facility development | Loans in foreign currency | Private placed corporate bonds | Others | Total | |||||||||||||||||||
Individually assessed loans | (Won) | 549,605 | (Won) | 110,309 | (Won) | 80,774 | (Won) | 393,053 | (Won) | 108,290 | (Won) | 1,242,031 | ||||||||||||
Collectively assessed loans | 55,210 | 68,503 | 148,475 | 4,500 | 8,725 | 285,413 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 604,815 | (Won) | 178,812 | (Won) | 229,249 | (Won) | 397,553 | (Won) | 117,015 | (Won) | 1,527,444 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||
Loans for working capital | Loans for facility development | Loans in foreign currency | Private placed corporate bonds | Others | Total | |||||||||||||||||||
Individually assessed loans | (Won) | 962,140 | (Won) | 209,578 | (Won) | 48,649 | (Won) | 422,364 | (Won) | 146,816 | (Won) | 1,789,547 | ||||||||||||
Collectively assessed loans | 43,635 | 86,868 | 115,433 | 9,460 | 12,087 | 267,483 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 1,005,775 | (Won) | 296,446 | (Won) | 164,082 | (Won) | 431,824 | (Won) | 158,903 | (Won) | 2,057,030 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2010 | ||||||||||||||||||||||||
Loans in Korean won | Other loans | |||||||||||||||||||||||
Loans for working capital | Loans for facility development | Loans in foreign currency | Private placed corporate bonds | Others | Total | |||||||||||||||||||
Individually assessed loans | (Won) | 685,149 | (Won) | 211,114 | (Won) | 41,174 | (Won) | 73,247 | (Won) | 85,849 | (Won) | 1,096,533 | ||||||||||||
Collectively assessed loans | 46,208 | 36,838 | 73,629 | 1,760 | 28,762 | 187,197 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 731,357 | (Won) | 247,952 | (Won) | 114,803 | (Won) | 75,007 | (Won) | 114,611 | (Won) | 1,283,730 | |||||||||||||
|
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- 109 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
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.
(1) | 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- | 20.0% | 0.0% | 20.0% | 20.0% | ||||||||||
A+ ~ A- | 50.0% | 20.0% | 50.0% | 50.0% | ||||||||||
BBB+ ~ BBB- | 100.0% | 50.0% | 100.0% | 100.0% | ||||||||||
BB+ ~ BB- | 100.0% | 100.0% | 100.0% | 350.0% | ||||||||||
B+ ~ B- | 150.0% | 100.0% | 100.0% | Deducted from | ||||||||||
equity (1,250%) | ||||||||||||||
Below B- | 150.0% | 150.0% | 150.0% | ” | ||||||||||
Unrated | 100.0% | 100.0% | 100.0% | ” |
(*) | Credit rating is referenced that of global credit rating agencies such as S&P or Moody’s etc. |
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.
(2) | 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 June 31, 2008.
(3) | 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 December 2011.
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 subsidiaries and the Bank’s branch pursuant to the prior consultation with the FSS.
- 110 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Special lending, non-residence, non-bank financial institution is using the Phased Application. The Bank plans to apply Internal Rating-Based Approach.
<Approved measurement method> | ||||
Measurement method | Exposure | |||
Standardized Approach | Permanent | |||
SA(*1) | —Country, public institution and bank | |||
SA(*2) | —Overseas subsidiaries and branches, and other assets | |||
Foundation Internal | —Corporate and small and medium enterprises and asset securitization (at each credit level) | |||
Phased Application | —Special lending, nonresidence, non-bank financial institution |
(*1) | Pursuant to the interpretation of the FSS, the Standardized Approach is applied to the exposures of government and bank 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 December 31, 2011 and 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||
Exposure | Credit risk mitigation | Exposure less credit risk mitigation | ||||||||||
Government | (Won) | 8,991,805 | (Won) | (Won) | 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 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 161,252,856 | (Won) | 4,033,627 | (Won) | 157,219,229 | |||||||
|
|
|
|
|
|
- 111 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||
Exposure | Credit risk mitigation | Exposure less credit risk mitigation | ||||||||||
Government | (Won) | 9,403,633 | (Won) | — | (Won) | 9,403,633 | ||||||
Bank | 6,598,854 | — | 6,598,854 | |||||||||
Corporate | 84,669,468 | 73,978 | 84,595,490 | |||||||||
Equity securities | 4,110,671 | — | 4,110,671 | |||||||||
Indirect investments | 200,515 | — | 200,515 | |||||||||
Asset securitization | 8,514,778 | — | 8,514,778 | |||||||||
Over-the-counter derivatives | 8,848,064 | 3,863,319 | 4,984,745 | |||||||||
Others | 12,129,622 | 134,468 | 11,995,154 | |||||||||
|
|
|
|
|
| |||||||
(Won) | 134,475,605 | (Won) | 4,071,765 | (Won) | 130,403,840 | |||||||
|
|
|
|
|
|
(4) | 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 are 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.
(5) | 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. |
• | 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. |
- 112 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
The Bank reviews debt serviceability based on a credit analysis when handling loans. Depending on the results, credit loan preservation is adjusted as necessary by 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 the loan handling standards and the guarantor’s credit rating is independently calculated in conformity with the credit rating endowment method.
Credit exposure
(1) | Geographical information as of December 31, 2011 and 2010 is as follows (Korean won in millions): |
December 31, 2011 | ||||||||||||||||||||
Korea | England | U.S. | Others | Total | ||||||||||||||||
Due from banks (excluding due from the BOK) | (Won) | 889,201 | (Won) | 2,461 | (Won) | 76,257 | (Won) | 643,890 | (Won) | 1,611,809 | ||||||||||
Financial assets-available-for-sale: | ||||||||||||||||||||
Bonds (excluding government bonds) | 12,641,549 | 577,363 | 515,677 | 683,970 | 14,418,559 | |||||||||||||||
Financial assets-held-to-maturity: | ||||||||||||||||||||
Bonds (excluding government bonds) | 101,042 | — | — | — | 101,042 | |||||||||||||||
Loans | 101,949,752 | 474,693 | 976,797 | 5,010,702 | 108,411,944 | |||||||||||||||
Derivative financial instruments | 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 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 190,447,352 | (Won) | 1,056,670 | (Won) | 1,604,112 | (Won) | 7,232,663 | (Won) | 200,340,797 | |||||||||||
|
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- 113 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||||||
Korea | England | U.S. | Others | Total | ||||||||||||||||
Due from banks (excluding due from the BOK) | (Won) | 679,160 | (Won) | 10,565 | (Won) | 7,932 | (Won) | 333,213 | (Won) | 1,030,870 | ||||||||||
Financial assets-available-for-sale: | ||||||||||||||||||||
Bonds (excluding government bonds) | 8,875,751 | 651,866 | 537,592 | 874,822 | 10,940,031 | |||||||||||||||
Financial assets-held-to-maturity: | ||||||||||||||||||||
Bonds (excluding government bonds) | 127,568 | — | — | — | 127,568 | |||||||||||||||
Loans | 88,332,095 | 385,802 | 630,098 | 3,424,275 | 92,772,270 | |||||||||||||||
Derivative financial instruments | 1,437,041 | 558 | — | — | 1,437,599 | |||||||||||||||
Other assets | 3,972,476 | 2,486 | 8,574 | 10,428 | 3,993,964 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
103,424,091 | 1,051,277 | 1,184,196 | 4,642,738 | 110,302,302 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial guarantees | 59,130,273 | — | 42,936 | 730,347 | 59,903,556 | |||||||||||||||
Credit related commitment (commitments on loans and others) | 12,646,487 | — | — | 81,979 | 12,728,466 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
71,776,760 | — | 42,936 | 812,326 | 72,632,022 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Won) | 175,200,851 | (Won) | 1,051,277 | (Won) | 1,227,132 | (Won) | 5,455,064 | (Won) | 182,934,324 | |||||||||||
|
|
|
|
|
|
|
|
|
|
(2) | Industry information as of December 31, 2011 and 2010 is as follows (Korean won in millions): |
December 31, 2011 | ||||||||||||||||
Manufacturing | Service | Others | Total | |||||||||||||
Due from banks (excluding due from the BOK) | (Won) | — | (Won) | 938,101 | (Won) | 673,708 | (Won) | 1,611,809 | ||||||||
Financial assets-available-for-sale: | ||||||||||||||||
Bonds (excluding government bonds) | 3,413,690 | 9,141,481 | 1,863,388 | 14,418,559 | ||||||||||||
Financial assets-held-to-maturity: | ||||||||||||||||
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 | ||||||||||||
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| |||||||||
61,161,265 | 53,656,832 | 16,027,013 | 130,845,110 | |||||||||||||
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|
|
|
|
|
| |||||||||
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 | ||||||||||||
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| |||||||||
45,376,725 | 15,226,439 | 8,892,523 | 69,495,687 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 106,537,990 | (Won) | 68,883,271 | (Won) | 24,919,536 | (Won) | 200,340,797 | |||||||||
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||
Manufacturing | Service | Others | Total | |||||||||||||
Due from banks (excluding due from the BOK) | (Won) | — | (Won) | 744,651 | (Won) | 286,219 | (Won) | 1,030,870 | ||||||||
Financial assets-available-for-sale: | ||||||||||||||||
Bonds (excluding government bonds) | 2,333,682 | 7,042,306 | 1,564,043 | 10,940,031 | ||||||||||||
Financial assets-held-to-maturity: | ||||||||||||||||
Bonds (excluding government bonds) | 20,000 | 107,000 | 568 | 127,568 | ||||||||||||
Loans | 50,116,259 | 36,126,197 | 6,529,814 | 92,772,270 | ||||||||||||
Derivative financial assets | 220,962 | 1,206,148 | 10,489 | 1,437,599 | ||||||||||||
Other assets | 1,540 | 35,884 | 3,956,540 | 3,993,964 | ||||||||||||
|
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|
|
|
|
|
| |||||||||
52,692,443 | 45,262,186 | 12,347,673 | 110,302,302 | |||||||||||||
|
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|
|
|
|
|
| |||||||||
Financial guarantees | 48,702,055 | 3,116,175 | 8,085,326 | 59,903,556 | ||||||||||||
Credit related commitment (commitments on loans and others) | — | 12,445,111 | 283,355 | 12,728,466 | ||||||||||||
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|
|
|
|
|
| |||||||||
48,702,055 | 15,561,286 | 8,368,681 | 72,632,022 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 101,394,498 | (Won) | 60,823,472 | (Won) | 20,716,354 | (Won) | 182,934,324 | |||||||||
|
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|
|
|
|
|
|
(3) | Rating information as of December 31, 2011 and 2010 is as follows (Korean won in millions): |
December 31, 2011 | ||||||||||||||||
Due from banks | Financial assets-available- for-sale | Financial assets-held-to -maturity | Total | |||||||||||||
AAA ~ AA- | (Won) | 434,807 | (Won) | 2,482,470 | (Won) | 20,600 | (Won) | 2,937,877 | ||||||||
A+ ~ A- | 380,589 | 1,264,568 | — | 1,645,157 | ||||||||||||
BBB+ ~ BB- | — | 5,134,763 | 20,000 | 5,154,763 | ||||||||||||
Below BB- | — | 456,549 | — | 456,549 | ||||||||||||
Unrated | 796,413 | 5,080,209 | 60,442 | 5,937,064 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 1,611,809 | (Won) | 14,418,559 | (Won) | 101,042 | (Won) | 16,131,410 | |||||||||
|
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|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||
Due from banks | Financial assets-available- for-sale | Financial assets-held-to -maturity | Total | |||||||||||||
AAA ~ AA- | (Won) | 204,473 | (Won) | 2,267,682 | (Won) | 47,000 | (Won) | 2,519,155 | ||||||||
A+ ~ A- | 390,519 | 761,723 | — | 1,152,242 | ||||||||||||
BBB+ ~ BB- | — | 3,787,221 | 20,000 | 3,807,221 | ||||||||||||
Below BB- | — | 559,737 | — | 559,737 | ||||||||||||
Unrated | 435,878 | 3,563,668 | 60,568 | 4,060,114 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
(Won) | 1,030,870 | (Won) | 10,940,031 | (Won) | 127,568 | (Won) | 12,098,469 | |||||||||
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- 115 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Capital management activities
Capital adequacy
The FSS approved the Bank’s use of the Foundation Internal Rating-Based Approach in July 2008. The Bank 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.
(1) | BIS capital adequacy ratio |
(Unit: Korean won in millions) | ||||||||||||
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Equity capital based on BIS (A): | (Won) | 16,323,445 | (Won) | 15,724,982 | (Won) | 15,399,399 | ||||||
Tier 1 capital | 15,223,839 | 14,642,375 | 13,867,302 | |||||||||
Tier 2 capital | 1,099,606 | 1,082,607 | 1,532,097 | |||||||||
|
|
|
|
|
| |||||||
Risk-weighted assets (B): | (Won) | 107,004,298 | (Won) | 90,078,941 | (Won) | 94,052,684 | ||||||
Credit risk-weighted assets | 101,028,212 | 85,730,427 | 90,594,757 | |||||||||
Market risk-weighted assets | 1,698,215 | 909,729 | 637,859 | |||||||||
Operational risk-weighted assets | 4,277,871 | 3,438,785 | 2,820,068 | |||||||||
|
|
|
|
|
| |||||||
BIS capital adequacy ratio (A/B): | 15.25 | 17.46 | 16.37 | |||||||||
Tier 1 capital ratio | 14.22 | 16.26 | 14.74 | |||||||||
Tier 2 capital ratio | 1.03 | 1.20 | 1.63 | |||||||||
|
|
|
|
|
|
(2) | Equity capital based on BIS |
(Unit: Korean won in millions) | ||||||||||||
December 31, 2011 | December 31, 2010 | January 1, 2010 | ||||||||||
Equity capital (A+B) | (Won) | 16,323,445 | (Won) | 15,724,982 | (Won) | 15,399,399 | ||||||
|
|
|
|
|
| |||||||
Tier 1 capital (A): | (Won) | 15,223,839 | (Won) | 14,642,375 | (Won) | 13,867,302 | ||||||
Capital stock | 9,251,861 | 9,251,861 | 9,241,861 | |||||||||
Capital surplus | 44,178 | 39,288 | 52,168 | |||||||||
Retained earnings | 7,940,829 | 6,804,113 | 5,086,984 | |||||||||
Non-controlling interest | 25,227 | 19,614 | 211,976 | |||||||||
Deductions | (2,038,255 | ) | (1,472,501 | ) | (725,687 | ) | ||||||
|
|
|
|
|
| |||||||
Tier 2 capital (B): | (Won) | 1,099,606 | (Won) | 1,082,607 | (Won) | 1,532,097 | ||||||
45% of unrealized gain on financial assets available-for-sale | 241,674 | 172,925 | 372,140 | |||||||||
Term subordinated liabilities | 499,660 | 576,526 | 973,551 | |||||||||
Others | 861,326 | 725,865 | 446,767 | |||||||||
Deductions | (503,053 | ) | (392,709 | ) | (260,361 | ) | ||||||
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- 116 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Market risk
Concept
Market risk is defined as the possibility of potential loss on a trading position resulting from unexpected fluctuations in interest rates, foreign exchange rates and the price of stocks and derivatives.
Approach to market risk management
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. The estimation of VaR is validated daily through the stress test and back test.
In the estimation 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 risk 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 levels. 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 daily by the system 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 backtesting 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.
Trading VaR
The Bank’s trading VaRs as of December 31, 2011 and 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||
Average | Max | Min | December 31, 2011 | |||||||||||||
Interest rates | (Won) | 4,212 | (Won) | 5,481 | (Won) | 2,446 | (Won) | 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 | ||||||||||||
Total | 4,279 | 6,067 | 2,774 | 2,778 |
- 117 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||
Average | Max | Min | December 31, 2010 | |||||||||||||
Interest rates | (Won) | 3,786 | (Won) | 4,972 | (Won) | 3,134 | (Won) | 3,790 | ||||||||
Price of a stock | 1,130 | 1,502 | 616 | 1,502 | ||||||||||||
Foreign exchange rates | 1,202 | 3,049 | 434 | 514 | ||||||||||||
Options | 151 | 182 | 23 | 182 | ||||||||||||
Total | 4,128 | 7,912 | 2,645 | 3,530 |
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 method used by the Bank and its subsidiaries.
(1) | Interest rate EaR/VaR |
(unit : Korean won in millions) | ||||||
December 31, 2011 | ||||||
Interest rate shock | Interest rate VaR | Interest rate EaR | ||||
2.00% | (Won) 335,134 | (Won) 35,716 |
(unit : Korean won in millions) | ||||||
December 31, 2010 | ||||||
Interest rate shock | Interest rate VaR | Interest rate EaR | ||||
2.00% | (Won) 121,068 | (Won) 108,472 |
- 118 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
(2) | Cash flows by maturity of interest bearing assets and liabilities |
Cash flows by maturity of interest bearing assets and liabilities as of December 31, 2011 and 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and due from banks | (Won) | 1,048,537 | (Won) | 236,182 | (Won) | 246,031 | (Won) | — | (Won) | — | (Won) | 1,530,750 | ||||||||||||
Financial assets-available-for-sale | 899,869 | 3,886,967 | 4,258,473 | 13,183,534 | 2,192,982 | 24,421,825 | ||||||||||||||||||
Financial assets-held-to-maturity | — | 8 | 3,550 | 117,340 | 4,151 | 125,049 | ||||||||||||||||||
Loans | 14,697,878 | 28,775,138 | 23,659,134 | 14,753,800 | 3,775,632 | 85,661,582 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 16,646,284 | (Won) | 32,898,295 | (Won) | 28,167,188 | (Won) | 28,054,674 | (Won) | 5,972,765 | (Won) | 111,739,206 | |||||||||||||
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|
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|
|
|
|
|
|
| |||||||||||||
Liabilities: | ||||||||||||||||||||||||
Financial liabilities designated at | ||||||||||||||||||||||||
TVTPL | (Won) | — | (Won) | 5,334 | (Won) | 17,485 | (Won) | 237,553 | (Won) | 1,385,133 | (Won) | 1,645,505 | ||||||||||||
Due to customer | 4,361,796 | 5,304,912 | 12,912,880 | 3,213,021 | 21,570 | 25,814,179 | ||||||||||||||||||
Borrowings | 7,729,075 | 8,312,118 | 5,626,568 | 3,195,083 | 1,694,783 | 26,557,627 | ||||||||||||||||||
Debt issued | 2,200,653 | 3,753,270 | 14,193,641 | 26,970,438 | 5,149,380 | 52,267,382 | ||||||||||||||||||
Others | 392,392 | — | — | — | — | 392,392 | ||||||||||||||||||
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|
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|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 14,683,916 | (Won) | 17,375,634 | (Won) | 32,750,574 | (Won) | 33,616,095 | (Won) | 8,250,866 | (Won) | 106,677,085 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and due from banks | (Won) | 400,756 | (Won) | 209,222 | (Won) | 337,682 | (Won) | — | (Won) | — | (Won) | 947,660 | ||||||||||||
Financial assets-available-for-sale | 1,222,992 | 3,389,100 | 4,588,116 | 9,700,826 | 1,718,032 | 20,619,066 | ||||||||||||||||||
Financial assets-held-to-maturity | 1 | 23 | 1,041 | 155,157 | 6,021 | 162,243 | ||||||||||||||||||
Loans | 16,012,230 | 26,142,020 | 20,301,141 | 9,171,624 | 3,778,820 | 75,405,835 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 17,635,979 | (Won) | 29,740,365 | (Won) | 25,227,980 | (Won) | 19,027,607 | (Won) | 5,502,873 | (Won) | 97,134,804 | |||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Liabilities: | ||||||||||||||||||||||||
Financial liabilities designated at TVTPL | 4,093 | 5,400 | 17,626 | (Won) | 249,703 | (Won) | 1,308,004 | (Won) | 1,584,826 | |||||||||||||||
Due to customer | 3,055,255 | 6,253,545 | 5,870,029 | 3,921,947 | 20,000 | 19,120,776 | ||||||||||||||||||
Borrowings | 6,501,118 | 6,199,073 | 5,909,023 | 3,325,627 | 1,762,885 | 23,697,726 | ||||||||||||||||||
Debt issued | 3,488,794 | 5,182,012 | 11,031,712 | 23,631,945 | 5,089,774 | 48,424,237 | ||||||||||||||||||
Others | 532,839 | — | — | — | — | 532,839 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 13,582,099 | (Won) | 17,640,030 | (Won) | 22,828,390 | (Won) | 31,129,222 | (Won) | 8,180,663 | (Won) | 93,360,404 | |||||||||||||
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- 119 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Foreign currency risk
Outstanding balances by currency with significant exposure as of December 31, 2011, December 31, 2010, and January 1, 2010 are as follows (Korean won in millions):
December 31, 2011 | ||||||||||||||||||||||||||||
KRW | USD | EUR | JYP | GBP | Others | Total | ||||||||||||||||||||||
Asset: | ||||||||||||||||||||||||||||
Cash and due from banks | (Won) | 434,435 | (Won) | 1,412,497 | (Won) | 21,472 | (Won) | 77,852 | (Won) | 637 | (Won) | 18,946 | (Won) | 1,965,839 | ||||||||||||||
Financial assets held-for-trading | 2,522,596 | 13,833 | — | — | — | 49,480 | 2,585,909 | |||||||||||||||||||||
Financial assets-available-for-sale | 21,407,540 | 3,562,252 | 124,786 | 607,418 | — | 11,542 | 25,713,538 | |||||||||||||||||||||
Financial assets-held-to-maturity | 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 | |||||||||||||||||||||
Due to customers | 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 | |||||||||||||||||||||
Debt issued | 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 | 2,482,079 | 109,262,158 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net financial position | (Won) | 13,417,112 | (Won) | 2,740,877 | (Won) | (699,109 | ) | (Won) | (1,065,772 | ) | (Won) | (10,632 | ) | (Won) | (2,091,580 | ) | (Won) | 12,290,896 | ||||||||||
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- 120 -
Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||||||||||||||
KRW | USD | EUR | JYP | GBP | Others | Total | ||||||||||||||||||||||
Asset: | ||||||||||||||||||||||||||||
Cash and due from banks | (Won) | 323,915 | (Won) | 801,730 | (Won) | 7,605 | (Won) | 10,976 | (Won) | 598 | (Won) | 30,279 | (Won) | 1,175,103 | ||||||||||||||
Financial assets-held-for-trading | 4,202,004 | 2,230 | — | — | — | 34,961 | 4,239,195 | |||||||||||||||||||||
Financial assets-available-for-sale | 18,627,344 | 3,433,039 | 137,815 | 475,302 | — | 3,395 | 22,676,895 | |||||||||||||||||||||
Financial assets-held-to-maturity | 137,695 | — | — | — | — | — | 137,695 | |||||||||||||||||||||
Loans | 45,840,006 | 20,102,965 | 617,847 | 3,767,961 | 20,450 | 421,298 | 70,770,527 | |||||||||||||||||||||
Derivative financial assets | 4,503,432 | 1,484,341 | 49,673 | 50,654 | — | — | 6,088,100 | |||||||||||||||||||||
Other assets | 2,532,752 | 1,183,127 | 16,076 | 351,230 | 1 | 11,033 | 4,094,219 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total financial assets | 76,167,148 | 27,007,432 | 829,016 | 4,656,123 | 21,049 | 500,966 | 109,181,734 | |||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL | 951,752 | — | — | — | — | — | 951,752 | |||||||||||||||||||||
Due to customers | 17,614,056 | 1,224,610 | 26,247 | 47,912 | 149 | 16,869 | 18,929,843 | |||||||||||||||||||||
Borrowings | 9,775,379 | 9,559,381 | 1,410,352 | 2,101,733 | 1,713 | 29,000 | 22,877,558 | |||||||||||||||||||||
Debt issued | 28,098,244 | 9,251,022 | 968,395 | 2,628,406 | 253,437 | 2,035,745 | 43,235,249 | |||||||||||||||||||||
Derivative financial liabilities | 3,081,820 | 1,519,046 | 30,055 | 36,782 | — | — | 4,667,703 | |||||||||||||||||||||
Other liabilities | 3,349,514 | 2,268,968 | 52,510 | 55,301 | 3,586 | 35,671 | 5,765,550 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total financial liabilities | 62,870,765 | 23,823,027 | 2,487,559 | 4,870,134 | 258,885 | 2,117,285 | 96,427,655 | |||||||||||||||||||||
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|
|
|
|
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|
|
|
|
|
|
| |||||||||||||||
Net financial position | (Won) | 13,296,383 | (Won) | 3,184,405 | (Won) | (1,658,543 | ) | (Won) | (214,011 | ) | (Won) | (237,836 | ) | (Won) | (1,616,319 | ) | (Won) | 12,754,079 | ||||||||||
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
January 1, 2010 | ||||||||||||||||||||||||||||
KRW | USD | EUR | JYP | GBP | Others | Total | ||||||||||||||||||||||
Asset: | ||||||||||||||||||||||||||||
Cash and due from banks | (Won) | 880,751 | (Won) | 953,822 | (Won) | 8,003 | (Won) | 25,294 | (Won) | 102,835 | (Won) | 4,651 | (Won) | 1,975,356 | ||||||||||||||
Financial assets held-for-trading | 1,537,522 | 50,879 | 3,300 | 17,617 | — | — | 1,609,318 | |||||||||||||||||||||
Financial assets designated at FVTPL | 89,503 | — | — | — | — | — | 89,503 | |||||||||||||||||||||
Financial assets-available-for-sale | 24,206,493 | 2,556,665 | 297,862 | 535,195 | 660,426 | — | 28,256,641 | |||||||||||||||||||||
Financial assets-held-to-maturity | 67,521 | — | — | — | — | — | 67,521 | |||||||||||||||||||||
Loans | 49,015,827 | 21,227,216 | 919,972 | 3,289,064 | 370,908 | 277,477 | 75,100,464 | |||||||||||||||||||||
Derivative financial assets | 5,927,484 | 1,367,482 | 48,120 | 66,083 | 252,500 | — | 7,661,669 | |||||||||||||||||||||
Other assets | 2,794,745 | 1,498,282 | 111,697 | 122,001 | 122,712 | 3,159 | 4,652,596 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total financial assets | 84,519,846 | 27,654,346 | 1,388,954 | ,055,254 | 1,509,381 | 285,287 | 119,413,068 | |||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Financial liabilities designated at FVTPL: | 1,308,299 | — | — | — | — | — | 1,308,299 | |||||||||||||||||||||
Due to customer | 12,246,882 | 1,353,364 | 99,872 | 93,435 | 141,092 | 1,281 | 13,935,926 | |||||||||||||||||||||
Borrowings | 13,949,813 | 9,831,266 | 1,636,488 | 1,688,204 | 1,255,483 | 219,192 | 28,580,446 | |||||||||||||||||||||
Debt issued | 34,771,905 | 9,203,996 | 1,790,595 | 3,069,181 | 253,437 | 1,651,674 | 50,740,788 | |||||||||||||||||||||
Derivative financial liabilities | 4,615,023 | 1,641,865 | 37,781 | 46,983 | 291,523 | — | 6,633,175 | |||||||||||||||||||||
Other liabilities | 3,329,488 | 1,593,455 | 12,087 | 106,880 | 117,353 | 9,642 | 5,168,905 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total financial liabilities | 70,221,410 | 23,623,946 | 3,576,823 | 5,004,683 | 2,058,888 | 1,881,789 | 106,367,539 | |||||||||||||||||||||
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|
|
|
|
|
| |||||||||||||||
Net financial position | (Won) | 14,298,436 | (Won) | 4,030,400 | (Won) | (2,187,869 | ) | (Won) | (949,429 | ) | (Won) | (549,507 | ) | (Won) | (1,596,502 | ) | (Won) | 13,045,529 | ||||||||||
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Liquidity risk management
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.
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:
(1) | 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
(2) | 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.
(3) | 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.
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
Remaining maturity gap
(1) | Liquidity risks of non-derivative financial instruments as of December 31, 2011 and 2010 are as follows (Korean won in millions): |
December 31, 2011 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and due from banks | (Won) | 1,368,111 | (Won) | 162,630 | (Won) | 304,829 | (Won) | 143,063 | (Won) | 444 | (Won) | 1,979,077 | ||||||||||||
Financial assets held-for-trading | 2,596,516 | — | — | — | — | 2,596,516 | ||||||||||||||||||
Financial assets—available-for-sale | 280,781 | 2,974,195 | 4,744,571 | 14,809,868 | 5,468,678 | 28,278,093 | ||||||||||||||||||
Financial assets—held-to-maturity | — | 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 | ||||||||||||||||||
Others | 4,310,268 | 225,177 | 605,118 | 510,536 | 2,299,387 | 7,950,486 | ||||||||||||||||||
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|
|
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|
|
| |||||||||||||
(Won) | 14,780,888 | (Won) | 14,517,250 | (Won) | 32,974,784 | (Won) | 51,785,944 | (Won) | 15,114,825 | (Won) | 129,173,691 | |||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||
Liabilities: | ||||||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | — | (Won) | 5,334 | (Won) | 17,485 | (Won) | 237,553 | (Won) | 1,385,133 | (Won) | 1,645,505 | ||||||||||||
Due to customers | 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 | ||||||||||||||||||
Debt issued | 1,397,216 | 2,466,576 | 15,660,149 | 27,777,238 | 6,875,621 | 54,176,800 | ||||||||||||||||||
Others | 4,122,517 | 225,316 | 651,786 | 559,048 | 2,858,441 | 8,417,108 | ||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||
(Won) | 21,570,635 | (Won) | 12,745,160 | (Won) | 35,294,602 | (Won) | 34,715,964 | (Won) | 12,836,781 | (Won) | 117,163,142 | |||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Cash and due from banks | (Won) | 528,556 | (Won) | 48,556 | (Won) | 332,353 | (Won) | 279,947 | (Won) | 75 | (Won) | 1,189,487 | ||||||||||||
Financial assets held-for-trading | 4,257,985 | — | — | — | — | 4,257,985 | ||||||||||||||||||
Financial assets—available-for-sale | 2,012,139 | 2,154,221 | 4,676,126 | 10,975,537 | 4,558,519 | 24,376,542 | ||||||||||||||||||
Financial assets—held-to-maturity | 1 | 23 | 1,041 | 155,157 | 6,021 | 162,243 | ||||||||||||||||||
Loans | 7,042,786 | 7,764,572 | 24,362,268 | 31,460,865 | 6,764,976 | 77,395,467 | ||||||||||||||||||
Others | 3,472,101 | 42,845 | 392,255 | 434,033 | 4,185,679 | 8,526,913 | ||||||||||||||||||
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|
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|
| |||||||||||||
(Won) | 17,313,568 | (Won) | 10,010,217 | (Won) | 29,764,043 | (Won) | 43,305,539 | (Won) | 15,515,270 | (Won) | 115,908,637 | |||||||||||||
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
December 31, 2010 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Financial liabilities designated at FVTPL | (Won) | 4,093 | (Won) | 5,400 | (Won) | 17,626 | (Won) | 249,703 | (Won) | 1,308,004 | (Won) | 1,584,826 | ||||||||||||
Due to customers | 7,390,087 | 5,696,374 | 4,764,722 | 1,554,199 | 20,075 | 19,425,457 | ||||||||||||||||||
Borrowings | 5,264,626 | 4,350,506 | 7,735,983 | 4,650,730 | 1,847,803 | 23,849,648 | ||||||||||||||||||
Debt issued | 2,006,337 | 2,887,794 | 12,636,738 | 26,012,958 | 7,098,668 | 50,642,495 | ||||||||||||||||||
Others | 4,081,645 | 101,889 | 425,705 | 474,022 | 2,855,000 | 7,938,261 | ||||||||||||||||||
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|
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|
|
| |||||||||||||
(Won) | 18,746,788 | (Won) | 13,041,963 | (Won) | 25,580,774 | (Won) | 32,941,612 | (Won) | 13,129,550 | (Won) | 103,440,687 | |||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
(2) | Liquidity risks of derivatives instruments as of December 31, 2011 and 2010 are as follows (Korean won in millions): |
(a) | Net-settled derivatives |
December 31, 2011 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Derivatives for trading: | ||||||||||||||||||||||||
Currency | (Won) | (195,738 | ) | (Won) | 3,244 | (Won) | 18,896 | (Won) | (439 | ) | (Won) | — | (Won) | (174,037 | ) | |||||||||
Interest | 34 | 167,899 | 115,302 | (187,709 | ) | 1,373,886 | 1,469,412 | |||||||||||||||||
Stock | — | 78,468 | (14,997 | ) | (14,996 | ) | — | 48,475 | ||||||||||||||||
Derivatives for hedging: | — | |||||||||||||||||||||||
Interest | (6,931 | ) | 676,248 | (64,955 | ) | (696,989 | ) | (36,640 | ) | (129,267 | ) | |||||||||||||
Stock | — | 118,942 | — | — | — | 118,942 | ||||||||||||||||||
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|
|
|
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|
|
|
|
|
|
| |||||||||||||
(Won) | (202,635 | ) | (Won) | 1,044,801 | (Won) | 54,246 | (Won) | (900,133 | ) | (Won) | 1,337,246 | (Won) | 1,333,525 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Derivatives for trading: | ||||||||||||||||||||||||
Currency | (Won) | (178,126 | ) | (Won) | 2,229 | (Won) | 23 | (Won) | 383 | (Won) | — | (Won) | (175,491 | ) | ||||||||||
Interest | (12,371 | ) | 172,541 | (556,409 | ) | (84,594 | ) | 1,092,543 | 611,710 | |||||||||||||||
Stock | — | (37,958 | ) | (37,517 | ) | (35,949 | ) | — | (111,424 | ) | ||||||||||||||
Commodity | — | 1 | 6 | 18 | — | 25 | ||||||||||||||||||
Derivatives for hedging: | ||||||||||||||||||||||||
Interest | — | 664,330 | (60,162 | ) | (649,115 | ) | (134,764 | ) | (179,711 | ) | ||||||||||||||
Stock | — | (12,193 | ) | — | — | — | (12,193 | ) | ||||||||||||||||
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|
|
|
| |||||||||||||
(Won) | (190,497 | ) | (Won) | 788,950 | (Won) | (654,059 | ) | (Won) | (769,257 | ) | (Won) | 957,779 | (Won) | 132,916 | ||||||||||
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Table of Contents
Korea Development Bank
Notes to the separate financial statements—(Continued)
December 31, 2011 and 2010
(b) | Gross settled derivatives |
December 31, 2011 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Derivatives for trading: | ||||||||||||||||||||||||
Currency | ||||||||||||||||||||||||
Inflow | (Won) | 706,054 | (Won) | 12,599,706 | (Won) | 18,701,998 | (Won) | 8,977,907 | (Won) | 624,597 | (Won) | 41,610,262 | ||||||||||||
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|
|
|
|
|
|
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|
|
|
| |||||||||||||
Outflow | (Won) | 723,417 | (Won) | 12,576,310 | (Won) | 18,619,201 | (Won) | 8,849,180 | (Won) | 580,715 | (Won) | 41,348,823 | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Derivatives for trading: | ||||||||||||||||||||||||
Currency | ||||||||||||||||||||||||
Inflow | (Won) | 5,826,533 | (Won) | 15,175,401 | (Won) | 13,568,062 | (Won) | 5,859,220 | (Won) | 266,644 | (Won) | 40,691,369 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Outflow | (Won) | 5,784,368 | (Won) | 15,055,476 | (Won) | 13,201,515 | (Won) | 5,839,144 | (Won) | 253,661 | (Won) | 40,126,188 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(3) | Liquidity risks of guarantees and commitments as of December 31, 2011 and 2010 are as follows (Korean won in millions): |
December 31, 2011 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Guarantees | (Won) | 1,234,814 | (Won) | 1,967,233 | (Won) | 4,502,154 | (Won) | 4,637,328 | (Won) | 8,076,205 | (Won) | 20,417,734 | ||||||||||||
Commitments | 666,265 | 2,076,055 | 2,031,363 | 5,887,020 | 488,253 | 11,148,956 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(Won) | 1,901,079 | (Won) | 4,043,288 | (Won) | 6,533,517 | (Won) | 10,524,348 | (Won) | 8,564,458 | (Won) | 31,566,690 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
December 31, 2010 | ||||||||||||||||||||||||
Less 1 month | 1 ~ 3 months | 3 ~ 12 months | Less 1 ~ 5 years | Over 5 years | Total | |||||||||||||||||||
Guarantees | (Won) | 1,578,619 | (Won) | 1,251,925 | (Won) | 3,967,968 | (Won) | 5,486,312 | (Won) | 10,528,187 | (Won) | 22,813,011 | ||||||||||||
Commitments | 172,985 | 79,163 | 3,480,445 | 7,789,244 | 82,183 | 11,604,020 | ||||||||||||||||||
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|
|
|
|
|
| |||||||||||||
(Won) | 1,751,604 | (Won) | 1,331,088 | (Won) | 7,448,413 | (Won) | 13,275,556 | (Won) | 10,610,370 | (Won) | 34,417,031 | |||||||||||||
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Table of Contents
Territory and Population
Located generally south of the 38th parallel on the Korean peninsula, The Republic of Korea covers about 38,000 square miles, approximately one-fourth of which is arable. The Republic has a population of approximately 48 million people. The country’s largest city and capital, Seoul, has a population of about 11 million people.
Map of the Republic of Korea
Political History
Dr. Rhee Seungman, who was elected President in each of 1948, 1952, 1956 and 1960, dominated the years after the Republic’s founding in 1948. Shortly after President Rhee’s resignation in 1960 in response to student-led demonstrations, a group of military leaders headed by Park Chung Hee assumed power by coup. The military leaders established a civilian government, and the country elected Mr. Park as President in October 1963. President Park served as President until his assassination in 1979 following a period of increasing strife between the Government and its critics. The Government declared martial law and formed an interim
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Table of Contents
government under Prime Minister Choi Kyu Hah, who became the next President. After clashes between the Government and its critics, President Choi resigned, and General Chun Doo Hwan, who took control of the Korean army, became President in 1980.
In late 1980, the country approved, by national referendum, a new Constitution, providing for indirect election of the President by an electoral college and for certain democratic reforms, and shortly thereafter, in early 1981, re-elected President Chun.
Responding to public demonstrations in 1987, the legislature revised the Constitution to provide for direct election of the President. In December 1987, Roh Tae Woo won the Presidency by a narrow plurality, after opposition parties led by Kim Young Sam and Kim Dae Jung failed to unite behind a single candidate. In February 1990, two opposition political parties, including the one led by Kim Young Sam, merged into President Roh’s ruling Democratic Liberal Party.
In December 1992, the country elected Kim Young Sam as President. The election of a civilian and former opposition party leader considerably lessened the controversy concerning the legitimacy of the political regime. President Kim’s administration reformed the political sector and deregulated and internationalized the Korean economy.
In December 1997, the country elected Kim Dae Jung as President. President Kim’s party, the Millennium Democratic Party (formerly known as the National Congress for New Politics), formed a coalition with the United Liberal Democrats led by Kim Jong Pil, with Kim Jong Pil becoming the first prime minister in President Kim’s administration. The coalition, which temporarily ended before the election held in April 2000, continued with the appointment of Lee Han Dong of the United Liberal Democrats as the Prime Minister in June 2000. The coalition again ended in September 2001.
In December 2002, the country elected Roh Moo Hyun as President. President Roh and his supporters left the Millennium Democratic Party in 2003 and formed a new party, the Uri Party, in November 2003. On August 15, 2007, 85 members of the National Assembly, previously belonging to the Uri Party, or the Democratic Party, formed the United New Democratic Party (the “UNDP”). The Uri Party merged into the UNDP in August 20, 2007. In February 2008, the UNDP merged back into the Democratic Party. In December 2011, the Democratic Party merged with the Citizens Unity Party to form the Democratic United Party.
In December 2007, the country elected Lee Myung-Bak as President. He commenced his term on February 25, 2008. The Lee administration’s key policy priorities include:
• | pursuing a lively market economy through deregulation, free trade and the attraction of foreign investment; |
• | establishing an efficient government by reorganizing government functions and privatizing state-owned enterprises; |
• | taking initiatives on the denuclearization of North Korea; |
• | seeking a productive welfare system based on customized welfare benefits and job training; and |
• | strengthening the competitiveness of Korea’s education system. |
Government and Administrative Structure
Governmental authority in the Republic is centralized and concentrated in a strong Presidency. The President is elected by popular vote and can only serve one term of five years. The President chairs the State Council, which consists of the prime minister, the deputy prime ministers, the respective heads of Government ministries and the ministers of state. The President can select the members of the State Council and appoint or remove all other Government officials, except for elected local officials.
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Table of Contents
The President can veto new legislation and take emergency measures in cases of natural disaster, serious fiscal or economic crisis, state of war or other similar circumstances. The President must promptly seek the concurrence of the National Assembly for any emergency measures taken and failing to do so automatically invalidates the emergency measures. In the case of martial law, the President may declare martial law without the consent of the National Assembly; provided, however, that the National Assembly may request the President to rescind such martial law.
The National Assembly exercises the country’s legislative power. The Constitution and the Election for Public Offices Act provide for the direct election of about 82% of the members of the National Assembly and the distribution of the remaining seats proportionately among parties winning more than 5 seats in the direct election or receiving over 3% of the popular vote. National Assembly members serve four-year terms. The National Assembly enacts laws, ratifies treaties and approves the national budget. The executive branch drafts most legislation and submits it to the National Assembly for approval.
The country’s judicial branch comprises the Supreme Court, the Constitutional Court and lower courts of various levels. The President appoints the Chief Justice of the Supreme Court and appoints the other Justices of the Supreme Court upon the recommendation of the Chief Justice. All appointments to the Supreme Court require the consent of the National Assembly. The Chief Justice, with the consent of the conference of Supreme Court Justices, appoints all the other judges in Korea. Supreme Court Justices serve for six years and all other judges serve for ten years. Other than the Chief Justice, justices and judges may be reappointed to successive terms.
The President formally appoints all nine judges of the Constitutional Court, but three judges must be designated by the National Assembly and three by the Chief Justice of the Supreme Court. Constitutional Court judges serve for six years and may be reappointed to successive terms.
Administratively, the Republic comprises nine provinces and seven cities with provincial status: Seoul, Busan, Daegu, Incheon, Gwangju, Daejon and Ulsan. From 1961 to 1995, the national government controlled the provinces and the President appointed provincial officials. Local autonomy, including the election of provincial officials, was reintroduced in June 1995.
Political Organizations
The 19th legislative general election was held on April 11, 2012 and the term of the National Assembly members elected in the 19th legislative general election commenced on May 30, 2012. Currently, there are two major political parties, the Saenuri Party (formerly known as the Grand National Party), or SP, and the Democratic United Party, or DUP.
As of June 7, 2012, the parties control the following number of seats in the National Assembly:
SP | DUP | Others | Total | |||||||||||||
Number of Seats | 150 | 127 | 23 | 300 |
Relations with North Korea
Relations between the Republic and North Korea have been tense over most of the Republic’s history. The Korean War, which took place between 1950 and 1953 began with the invasion of the Republic by communist forces from North Korea and, following a military stalemate, an armistice was reached establishing a demilitarized zone monitored by the United Nations in the vicinity of the 38th parallel.
North Korea maintains a regular military force estimated at more than 1,000,000 troops, mostly concentrated near the northern border of the demilitarized zone. The Republic’s military forces, composed of
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approximately 650,000 regular troops and almost 3.0 million reserves, maintain a state of military preparedness along the southern border of the demilitarized zone. In addition, the United States has historically maintained its military presence in the Republic. In October 2004, the United States and the Republic agreed to a three-phase withdrawal of approximately one-third of the 37,500 troops stationed in the Republic by the end of 2008. By the end of 2004, 5,000 U.S. troops departed the Republic in the first phase of such withdrawal and in the plan’s second phase, the United States removed 5,000 troops by the end of 2006. In the final phase, another 2,500 U.S. troops were scheduled to depart by the end of 2008. In April 2008, however, the United States and the Republic decided not to proceed with the final phase of withdrawal and agreed to maintain 28,500 U.S. troops in the Republic. In February 2007, the United States and the Republic agreed to dissolve their joint command structure by 2012, which would allow the Republic to assume the command of its own armed forces in the event of war on the Korean peninsula.
The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapons and long-range missile programs and increased uncertainty regarding North Korea’s actions and possible responses from the international community. In December 2002, North Korea removed the seals and surveillance equipment from its Yongbyon nuclear power plant and evicted inspectors from the United Nations International Atomic Energy Agency. In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty. Since the renouncement, the Republic, the United States, North Korea, China, Japan and Russia have held numerous rounds of six party multi-lateral talks in an effort to resolve issues relating to North Korea’s nuclear weapons program.
In addition to conducting test flights of long-range missiles, North Korea announced in October 2006 that it had successfully conducted a nuclear test, which increased tensions in the region and elicited strong objections worldwide. In response, the United Nations Security Council passed a resolution that prohibits any United Nations member state from conducting transactions with North Korea in connection with any large scale arms and material or technology related to missile development or weapons of mass destruction and from providing luxury goods to North Korea, imposes an asset freeze and travel ban on persons associated with North Korea’s weapons program, and calls upon all United Nations member states to take cooperative action, including thorough inspection of cargo to or from North Korea. In response, North Korea agreed in February 2007 at the six-party talks to shut down and seal the Yongbyon nuclear facility, including the reprocessing facility, and readmit international inspectors to conduct all necessary monitoring and verifications.
In April 2009, North Korea launched a long-range rocket over the Pacific Ocean. The Republic, Japan and the United States responded that the launch poses a threat to neighboring nations and that it was in violation of the United Nations Security Council resolution adopted in 2006 against nuclear tests by North Korea, and the United Nations Security Council unanimously passed a resolution that condemned North Korea for the launch and decided to tighten sanctions against North Korea. Subsequently, North Korea announced that it would permanently pull out of the six-party talks and restart its nuclear program, and the International Atomic Energy Agency reported that its inspectors had been ordered to remove surveillance devices and other equipment at the Yongbyon nuclear power plant and to leave North Korea. In May 2009, North Korea announced that it had successfully conducted a second nuclear test and test-fired three short-range, surface-to-air missiles. In response, the United Nations Security Council unanimously passed a resolution that condemned North Korea for the nuclear test and decided to expand and tighten sanctions against North Korea. In March 2010, a Korean warship was destroyed by an underwater explosion, killing many of the crewmen on board. The Government formally accused North Korea of causing the sinking in May 2010. North Korea has denied responsibility for the sinking and has threatened retaliation for any attempt to punish it for the act. On November 23, 2010, North Korean forces fired more than one hundred artillery shells targeting Yeonpyeong Island located near the maritime border between the Republic and North Korea on the west coast of the Korean peninsula, killing two Korean soldiers and two civilians as well as causing substantial property damage. The Republic responded by firing approximately 80 artillery shells and putting the military on its highest alert level. The Government condemned North Korea for the act and vowed stern retaliation should there be further provocation. On April 13, 2012, North
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Korea launched a long-range rocket over the Yellow Sea. The Republic, Japan and the United States condemned the launch and the United Nations Security Council adopted a chairman’s statement condemning North Korea for the launch.
There recently has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its implications for economic and political stability in the region. In June 2009, U.S. and Korean officials announced that Kim Jong-il, the North Korean ruler who reportedly suffered a stroke in August 2008, designated his third son, Kim Jong-eun, who is reportedly in his twenties, to become his successor. In September 2010, Kim Jong-eun was made a general in the North Korean army, named the vice chairman of the Central Military Commission and appointed to the Central Committee of the Workers’ Party in a series of measures widely believed to be part of the succession plan. In addition, North Korea’s economy faces severe challenges. For example, in November 2009, the North Korean government redenominated its currency at a ratio of 100 to 1 as part of a currency reform undertaken in an attempt to control inflation and reduce income gaps. In tandem with the currency redenomination, the North Korean government banned the use or possession of foreign currency by its residents and closed down privately run markets, which led to severe inflation and food shortages. Such developments may further aggravate social and political tensions within North Korea.
Since the death of Kim Jong-il, the former North Korean ruler, in mid-December 2011, there has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its implications for political and economic stability in the region. Although before his death, Kim Jong-il designated his third son, Kim Jong-eun, as his successor, the eventual outcome of such leadership transition remains uncertain. Furthermore, as only limited information is available outside of North Korea about Kim Jong-eun, and it is unclear which individuals or factions, if any, will share political power with Kim Jong-eun or assume the leadership if the transition is not successful, there is significant uncertainty regarding the policies, actions and initiatives that North Korea might pursue in the future.
There can be no assurance that the level of tension on the Korean peninsula will not escalate in the future or that such escalation will not have a material adverse impact on the Republic’s economy or its ability to obtain future funding. Any further increase in tension, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between the Republic and North Korea break down or military hostilities occur, could have a material adverse effect on the Republic’s economy.
Over the longer term, reunification of the two Koreas could occur. Reunification may entail a significant economic commitment by the Republic. In President Lee’s national address on August 15, 2010, he suggested the possible adoption of a reunification tax as a potential means of alleviating the potential long-term economic burden associated with reunification. Such discussions on reunification are very preliminary, and it has not been decided whether or when such a reunification tax would be implemented. If a reunification tax is implemented, depending on how it is structured, it may lead to a decrease in domestic consumption, which in turn may have a material adverse effect on the Republic’s economy.
Foreign Relations and International Organizations
The Republic maintains diplomatic relations with most nations of the world, most importantly with the United States with which it entered into a mutual defense treaty and several economic agreements. The Republic also has important relationships with Japan and China, its largest trading partners together with the United States.
The Republic belongs to a number of supranational organizations, including:
• | the International Monetary Fund, or the IMF; |
• | the World Bank; |
• | the Asian Development Bank, or ADB; |
• | the Multilateral Investment Guarantee Agency; |
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• | the International Finance Corporation; |
• | the International Development Association; |
• | the African Development Bank; |
• | the European Bank for Reconstruction and Development; |
• | the Bank for International Settlements; |
• | the World Trade Organization, or WTO; and |
• | the Inter-American Development Bank, or IDB. |
In September 1991, the Republic and North Korea became members of the United Nations. During the 1996 and 1997 sessions, the Republic served as a non-permanent member of the United Nations Security Council.
In March 1995, the Republic applied for admission to the Organization for Economic Cooperation and Development, or the OECD, which the Republic officially joined as the twenty-ninth regular member in December 1996.
Current Worldwide Economic and Financial Difficulties
Recent difficulties affecting the U.S. and global financial sectors, adverse conditions and volatility in the U.S. and worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the U.S. and global economy during the second half of 2008 and first half of 2009 increased the uncertainty of global economic prospects in general and adversely affected, and may continue to adversely affect, the Korean economy. During the second and third quarter of 2007, credit markets in the United States started to experience difficult conditions and volatility that in turn have affected worldwide financial markets. In particular, in late July and early August 2007, market uncertainty in the U.S. sub-prime mortgage sector increased dramatically and further expanded to other markets such as those for leveraged finance, collateralized debt obligations and other structured products. In September and October 2008, liquidity and credit concerns and volatility in the global credit and financial markets increased significantly with the bankruptcy or acquisition of, and government assistance to, several major U.S. and European financial institutions. These developments resulted in reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the United States and global credit and financial markets.
As liquidity and credit concerns and volatility in the global financial markets increased significantly since September 2008, the value of the Won relative to the U.S. dollar depreciated at an accelerated rate during the fourth quarter of 2008 and first half of 2009. See “Monetary Policy—Foreign Exchange.” Such depreciation of the Won increased the cost of imported goods and services and the Won revenue needed by Korean companies to service foreign currency-denominated debt. Furthermore, as a result of adverse global and Korean economic conditions, there was a significant overall decline and continuing volatility in the stock prices of Korean companies. The Korea Composite Stock Price Index declined by 27.8% from 1,852.0 on May 30, 2008 to 1,336.7 on April 16, 2009. See “The Financial System—Securities Markets”. Further declines in the Korea Composite Stock Price Index and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies to raise capital. In addition, increases in credit spreads, as well as limitations on the availability of credit resulting from heightened concerns about the stability of the markets generally and the strength of counterparties specifically that led many lenders and institutional investors to reduce or cease funding to borrowers, adversely affected Korean banks’ ability to borrow, particularly with respect to foreign currency funding, during the fourth quarter of 2008 and first half of 2009. Moreover, GDP in the first quarter of 2009 contracted by 4.3% at chained 2005 year prices
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compared with the same period in 2008, and exports in the first quarter of 2009 decreased by 24.8% to US$74.7 billion from US$99.4 billion in the same period in 2008. In the event that such difficult conditions in the global credit markets continue or the global economy deteriorates in the future, the Korean economy could be adversely affected and Korean banks, including us, may be forced to fund their operations at a higher cost or may be unable to raise as much funding as they need to support their lending and other activities.
In response to these developments, legislators and financial regulators in the United States and other jurisdictions, including Korea, implemented a number of policy measures designed to add stability to the financial markets, including the provision of direct and indirect assistance to distressed financial institutions. In particular, the Government has implemented or announced, among other things, the following measures during the fourth quarter of 2008 and in 2009:
• | in October 2008, the Government implemented a guarantee program to guarantee foreign currency-denominated debt incurred by Korean banks and their overseas branches between October 20, 2008 and June 30, 2009 (subsequently extended to December 31, 2009), up to an aggregate amount of US$100 billion, for a period of three years (subsequently extended to five years) from the date such debt was incurred; |
• | in October 2008, The Bank of Korea established a temporary reciprocal currency swap arrangement with the Federal Reserve Board of the United States for up to US$30 billion, effective until April 30, 2009 (subsequently extended to October 30, 2009). The Bank of Korea provided U.S. dollar liquidity, through competitive auction facilities, to financial institutions established in Korea, using funds from the swap line; |
• | in December 2008, a (Won)10 trillion bond market stabilization fund was established to purchase financial and corporate bonds and debentures in order to provide liquidity to companies and financial institutions; |
• | in December 2008, The Bank of Korea agreed with the People’s Bank of China to establish a bilateral currency swap arrangement for up to (Won)38 trillion, effective for three years, and agreed with the Bank of Japan to increase the maximum amount of their bilateral swap arrangement from US$3 billion to US$20 billion, effective until April 30, 2009; |
• | in December 2008 and March 2009, the Government, through Korea Asset Management Corporation, purchased non-performing loans held by savings banks in the amount of approximately (Won)1.7 trillion; |
• | in February 2009, the Government announced its plan to contribute capital to Korean banks through a (Won)20 trillion bank recapitalization fund and received applications from 14 banks; |
• | during the first quarter of 2009, the Government, through the Bank of Korea and the Korea Development Bank, purchased from Korean banks hybrid securities and subordinated bonds in the amount of approximately (Won)4 trillion; |
• | during the fourth quarter of 2008 and the first quarter of 2009, The Bank of Korea decreased the policy rate by a total of 3.25% points to 2.00% in order to address financial market instability and to help combat the slowdown of the domestic economy; |
• | in April 2009, the National Assembly authorized the expansion of the 2009 national budget by (Won)28.4 trillion to provide stimulus for the Korean economy. The stimulus plan includes (Won)17.2 trillion to be used for cash handouts, low-interest loans, infrastructure spending and job training, as well as (Won)11.2 trillion in various tax incentives; and |
• | in December 2009, the Government, together with the member countries of the Association of Southeast Asian Nations, China and Japan, signed the Chiang Mai Initiative Multilateralization Agreement to address balance-of-payments and short-term liquidity difficulties in the region and to supplement the existing international financial arrangements. |
However, the overall impact of these legislative and regulatory efforts on the financial markets is uncertain, and they may not have the intended stabilizing effects.
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In November 2009, the Dubai government announced a moratorium on the outstanding debt of Dubai World, a government-affiliated investment company. In addition, many governments in Europe have shown increasing signs of fiscal stress and may experience difficulties in meeting their debt service requirements. For example, in November 2008, the Icelandic government, facing mounting debt problems, reached an agreement with the IMF to receive loans in the amount of US$2.1 billion over a two-year period, and in May 2010 and March 2012, the Greek government reached an agreement with the IMF and the European Union to receive loans in the amount of Euro 110 billion over a three-year period and to receive additional loans in the amount of Euro 130 billion over a four-year period, respectively. The global financial markets have experienced significant volatility in recent months as a result of, among other things, the downgrading by Standard & Poor’s Rating Services of the long-term sovereign credit rating of the United States to “AA+” from “AAA” in August 2011, as well as the continuing financial difficulties and resulting ratings downgrades experienced by the governments of Greece and other countries in Europe. Any of these or other developments could potentially trigger another financial and economic crisis, which could have a material adverse effect on the Korean economy and financial markets (including depreciation of the value of the Won, decline and volatility in the stock prices of Korean companies, increases in credit spreads and funding costs and decreases in exports) and our financial conditions and results of operations.
There have been increased volatility and substantial declines in the Korea Composite Stock Index recently, due to adverse global financial and economic conditions. See “—The Financial System—Securities Markets”. There is no guarantee that the stock prices of Korean companies will not decline again in the future. Future declines in the index and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies and banks (including us) to raise capital.
Furthermore, while many governments worldwide are considering or are in the process of implementing “exit strategies”, in the form of reduced government spending, higher interest rates or otherwise, with respect to the economic stimulus measures adopted in response to the global financial crisis, such strategies may, for reasons related to timing, magnitude or other factors, have the unintended consequence of prolonging or worsening global economic and financial difficulties. In light of the high level of interdependence of the global economy, any of the foregoing developments could have a material adverse effect on the Korean economy and financial markets.
Gross Domestic Product
Gross domestic product, or GDP, measures the market value of all final goods and services produced within a country for a given period and reveals whether a country’s productive output rises or falls over time. Economists present GDP in both current market prices and “real” or “inflation-adjusted” terms. In March 2009, the Republic adopted a method known as the “chain-linked” measure of GDP, replacing the previous fixed-base, or “constant” measure of GDP, to show the real growth of the aggregate economic activity, as recommended by the System of National Accounts 1993. GDP at current market prices values a country’s output using the actual prices of each year, whereas the “chain-linked” measure of GDP is compiled by using “chained indices” linking volume growth between consecutive time periods.
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The following table sets out the composition of the Republic’s GDP at current and chained 2005 year prices and the annual average increase in the Republic’s GDP.
Gross Domestic Product
2007 | 2008 | 2009 | 2010 | 2011(1) | As % of GDP 2011(1) | |||||||||||||||||||
(billions of Won) | ||||||||||||||||||||||||
Gross Domestic Product at Current Market Prices: | ||||||||||||||||||||||||
Private | 530,264.1 | 561,627.5 | 575,970.2 | 616,982.6 | 654,857.7 | 52.9 | ||||||||||||||||||
Government | 143,262.2 | 156,944.1 | 170,324.7 | 178,396.1 | 190,485.6 | 15.4 | ||||||||||||||||||
Gross Capital Formation | 286,917.6 | 320,368.8 | 279,858.1 | 346,430.2 | 364,339.8 | 29.5 | ||||||||||||||||||
Exports of Goods and Services | 408,754.1 | 544,110.7 | 529,645.1 | 613,368.3 | 694,765.8 | 56.2 | ||||||||||||||||||
Less Imports of Goods and Services | (394,026.2 | ) | (556,197.9 | ) | (490,188.3 | ) | (583,157.3 | ) | (669,746.4 | ) | (54.1 | ) | ||||||||||||
Statistical Discrepancy | (158.9 | ) | (401.4 | ) | (573.0 | ) | 1,254.8 | 2,425.5 | 0.2 | |||||||||||||||
Expenditures on Gross Domestic Product | 975,013.0 | 1,026,451.8 | 1,065,036.8 | 1,173,274.9 | 1,237,128.2 | 100.0 | ||||||||||||||||||
Net Factor Income from the Rest of the World | 1,800.9 | 7,663.6 | 4,746.2 | 1,478.1 | 3,375.7 | 0.3 | ||||||||||||||||||
Gross National Income(2) | 976,813.9 | 1,034,115.4 | 1,069,783.1 | 1,174,753.0 | 1,240,503.9 | 100.3 | ||||||||||||||||||
Gross Domestic Product at Chained 2005 Year Prices: | ||||||||||||||||||||||||
Private | 512,094.8 | 518,820.8 | 518,776.0 | 541,537.3 | 553,778.2 | 51.2 | ||||||||||||||||||
Government | 134,806.9 | 140,633.6 | 148,471.7 | 152,811.1 | 155,966.0 | 14.4 | ||||||||||||||||||
Gross Capital Formation | 277,729.0 | 277,772.8 | 240,411.7 | 278,359.2 | 282,641.9 | 26.1 | ||||||||||||||||||
Exports of Goods and Services | 426,070.6 | 454,248.9 | 448,813.8 | 514,700.8 | 563,687.9 | 52.1 | ||||||||||||||||||
Less Imports of Goods and Services | (393,207.1 | ) | (410,567.7 | ) | (377,795.8 | ) | (442,975.9 | ) | (471,719.9 | ) | (43.6 | ) | ||||||||||||
Statistical Discrepancy | 91.3 | (323.6 | ) | (528.1 | ) | (797.4 | ) | (1,632.8 | ) | (0.2 | ) | |||||||||||||
Expenditures on Gross Domestic Product(3) | 956,514.5 | 978,498.8 | 981,625.1 | 1,043,666.3 | 1,081,593.9 | 100.0 | ||||||||||||||||||
Net Factor Income from the Rest of the World in the Terms of Trade | 1,622.9 | 6,776.2 | 4,055.5 | 1,017.8 | 2,527.2 | 0.2 | ||||||||||||||||||
Trading Gains and Losses from Changes in the Terms of Trade | (16,827.8 | ) | (50,031.9 | ) | (35,622.1 | ) | (41,197.0 | ) | (65,820.8 | ) | (6.1 | ) | ||||||||||||
Gross National Income(4) | 941,317.3 | 935,248.8 | 950,041.1 | 1,003,474.7 | 1,018,254.8 | 94.1 | ||||||||||||||||||
Percentage Increase (Decrease) of GDP over Previous Year At Current Prices | 7.3 | 5.3 | 3.8 | 10.2 | 5.4 | — | ||||||||||||||||||
At Chained 2005 Year Prices | 5.1 | 2.3 | 0.3 | 6.3 | 3.6 | — |
(1) | Preliminary. |
(2) | GDP plus net factor income from the rest of the world is equal to the Republic’s gross national product. |
(3) | Under the “chain-linked” measure of GDP, the components of GDP will not necessarily add to the total GDP. |
(4) | Under the “chain-linked” measure of Gross National Income, the components of Gross National Income will not necessarily add to the total Gross National Income. |
Source: The Bank of Korea.
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The following table sets out the Republic’s GDP by economic sector at current prices:
Gross Domestic Product by Economic Sector
(at current market prices)
2007 | 2008 | 2009 | 2010 | 2011(1) | As % of GDP 2011(1) | |||||||||||||||||||
(billions of Won) | ||||||||||||||||||||||||
Industrial Sectors: | ||||||||||||||||||||||||
Agriculture, Forestry and Fisheries | 25,208.8 | 24,686.0 | 26,615.0 | 27,832.1 | 30,095.6 | 2.4 | ||||||||||||||||||
Mining and Manufacturing | 240,612.1 | 258,545.4 | 268,798.7 | 321,498.4 | 349,612.2 | 28.3 | ||||||||||||||||||
Mining and Quarrying | 2,001.2 | 2,336.0 | 2,220.5 | 2,223.2 | 2,241.1 | 0.2 | ||||||||||||||||||
Manufacturing | 238,610.9 | 256,209.4 | 266,578.2 | 319,275.2 | 347,371.1 | 28.1 | ||||||||||||||||||
Electricity, Gas and Water | 19,155.3 | 12,298.6 | 17,258.2 | 21,473.6 | 21,835.1 | 1.8 | ||||||||||||||||||
Construction | 64,979.0 | 64,612.2 | 66,576.6 | 66,156.6 | 65,444.6 | 5.3 | ||||||||||||||||||
Services: | 524,826.9 | 559,545.8 | 579,587.5 | 616,972.0 | 647,738.7 | 52.4 | ||||||||||||||||||
Wholesale and Retail Trade, Restaurants and Hotels | 93,405.5 | 100,419.3 | 103,994.8 | 114,858.5 | 123,625.5 | 10.0 | ||||||||||||||||||
Transportation, Storage and Communication | 40,070.5 | 41,613.1 | 40,162.5 | 44,213.6 | 40,911.9 | 3.3 | ||||||||||||||||||
Financial Intermediation | 61,114.0 | 65,132.2 | 65,035.5 | 71,846.9 | 78,115.2 | 6.3 | ||||||||||||||||||
Real Estate, Renting and Business Activities | 69,435.7 | 71,886.2 | 74,361.1 | 76,046.5 | 79,381.5 | 6.4 | ||||||||||||||||||
Information, Communication | 39,198.1 | 39,666.8 | 41,225.0 | 42,421.0 | 42,802.8 | 3.5 | ||||||||||||||||||
Business Activities | 45,056.0 | 49,905.7 | 51,001.9 | 55,493.9 | 57,933.8 | 4.7 | ||||||||||||||||||
Public Administration and Defense; Compulsory Social Security | 55,515.9 | 59,396.8 | 63,706.6 | 65,079.2 | 69,595.8 | 5.6 | ||||||||||||||||||
Education | 55,554.4 | 60,940.1 | 63,448.7 | 64,887.0 | 67,746.6 | 5.5 | ||||||||||||||||||
Health and Social Work | 35,451.6 | 38,452.1 | 43,092.1 | 47,228.9 | 50,788.6 | 4.1 | ||||||||||||||||||
Recreational, Cultural and Sporting | 12,209.1 | 13,048.9 | 13,693.8 | 14,289.8 | 15,164.8 | 1.2 | ||||||||||||||||||
Other Service Activities | 17,816.1 | 19,084.6 | 19,865.5 | 20,606.7 | 21,672.2 | 1.8 | ||||||||||||||||||
Taxes less subsidies on products | 100,231.0 | 106,763.8 | 106,200.8 | 119,342.2 | 122,401.9 | 9.9 | ||||||||||||||||||
Gross Domestic Product at Current Prices | 975,013.0 | 1,026,451.8 | 1,065,036.8 | 1,173,274.9 | 1,237,128.2 | 100.0 | ||||||||||||||||||
Net Factor Income from the Rest of the World | 1,800.9 | 7,663.6 | 4,746.2 | 1,478.1 | 3,375.7 | 0.3 | ||||||||||||||||||
Gross National Income at Current Price | 976,813.9 | 1,034,115.4 | 1,069,783.1 | 1,174,753.0 | 1,240,503.9 | 100.3 |
(1) | Preliminary. |
Source: The Bank of Korea.
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The following table sets out the Republic’s GDP per capita:
Gross Domestic Product per capita
(at current market prices)
2007 | 2008 | 2009 | 2010 | 2011(1) | ||||||||||||||||
GDP per capita (thousands of Won) | 20,121 | 21,117 | 21,848 | 24,005 | 25,245 | |||||||||||||||
GDP per capita (U.S. dollar) | 21,653 | 19,162 | 17,110 | 20,765 | 22,778 | |||||||||||||||
Average Exchange Rate (in Won per U.S. dollar) | 929.3 | 1,102.0 | 1,276.9 | 1,156.0 | 1,108.3 |
(1) | Preliminary. |
Source: International Monetary Fund.
The following table sets out the Republic’s Gross National Income, or GNI, per capita:
Gross National Income per capita
(at current market prices)
2007 | 2008 | 2009 | 2010 | 2011(1) | ||||||||||||||||
GNI per capita (thousands of Won) | 20,100 | 21,130 | 21,750 | 23,780 | 24,920 | |||||||||||||||
GNI per capita (U.S. dollar) | 21,632 | 19,161 | 17,041 | 20,562 | 22,489 | |||||||||||||||
Average Exchange Rate (in Won per U.S. dollar) | 929.2 | 1,102.6 | 1,276.4 | 1,156.3 | 1,108.1 |
(1) | Preliminary. |
Source: The Bank of Korea.
The following table sets out the Republic’s GDP by economic sector at chained 2005 year prices:
Gross Domestic Product by Economic Sector
(at chained 2005 year prices)
2007 | 2008 | 2009 | 2010 | 2011(1) | As % of GDP 2011(1) | |||||||||||||||||||
(billions of Won) | ||||||||||||||||||||||||
Industrial Sectors: | ||||||||||||||||||||||||
Agriculture, Forestry and Fisheries | 27,294.0 | 28,826.9 | 29,759.2 | 28,443.8 | 27,862.0 | 2.6 | ||||||||||||||||||
Mining and Manufacturing | 249,317.9 | 254,658.8 | 252,473.7 | 289,119.9 | 309,675.1 | 28.6 | ||||||||||||||||||
Mining and Quarrying | 1,909.8 | 1,922.1 | 1,906.0 | 1,743.0 | 1,662.6 | 0.2 | ||||||||||||||||||
Manufacturing | 247,408.1 | 254,466.7 | 250,567.7 | 287,376.9 | 308,012.5 | 28.5 | ||||||||||||||||||
Electricity, Gas and Water | 19,026.2 | 20,199.0 | 21,023.6 | 21,937.4 | 22,574.0 | 2.1 | ||||||||||||||||||
Construction | 62,134.9 | 60,611.1 | 61,716.0 | 60,047.9 | 57,268.7 | 5.3 | ||||||||||||||||||
Services: | 502,050.0 | 515,983.6 | 521,915.1 | 542,470.9 | 556,961.0 | 51.5 | ||||||||||||||||||
Wholesale and Retail Trade, Restaurants and Hotels | 90,291.3 | 91,512.4 | 90,725.7 | 97,125.1 | 101,583.5 | 9.4 | ||||||||||||||||||
Transportation and Storage | 39,136.8 | 41,033.4 | 38,666.2 | 42,657.4 | 44,279.8 | 4.1 | ||||||||||||||||||
Financial Intermediation | 61,614.4 | 64,612.2 | 67,425.2 | 69,063.0 | 70,167.0 | 6.5 | ||||||||||||||||||
Real Estate and Renting | 65,524.8 | 66,491.6 | 66,368.7 | 67,210.4 | 68,695.4 | 6.4 | ||||||||||||||||||
Information and Communication | 39,664.7 | 41,024.7 | 41,933.8 | 43,589.1 | 45,978.6 | 4.3 | ||||||||||||||||||
Business Activities | 41,800.2 | 42,990.6 | 42,727.5 | 44,047.8 | 44,474.6 | 4.1 | ||||||||||||||||||
Public Administration and Defense: | 52,183.9 | 52,903.0 | 54,887.7 | 55,767.5 | 56,418.4 | 5.2 | ||||||||||||||||||
Education | 49,971.2 | 51,619.6 | 52,135.1 | 52,752.5 | 52,874.4 | 4.9 | ||||||||||||||||||
Health and Social Work | 32,905.8 | 34,197.6 | 36,897.6 | 39,395.4 | 41,203.3 | 3.8 | ||||||||||||||||||
Culture and Entertainment Services | 11,781.1 | 12,175.8 | 12,477.2 | 12,739.0 | 12,954.6 | 1.2 | ||||||||||||||||||
Other Service Activities | 17,175.8 | 17,422.7 | 17,670.4 | 18,123.7 | 18,331.4 | 1.7 | ||||||||||||||||||
Taxes less subsidies on products | 96,992.4 | 97,090.1 | 95,514.0 | 102,595.5 | 108,287.7 | 10.0 | ||||||||||||||||||
Gross Domestic Product at Market Prices(2) | 956,514.5 | 978,498.8 | 981,625.1 | 1,043,666.3 | 1,081,593.9 | 100.0 |
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(1) | Preliminary. |
(2) | Under the “chain-linked” measure of GDP, the components of GDP will not necessarily add to the total GDP. |
Source: The Bank of Korea.
GDP growth in 2007 was 5.1% at chained 2005 year prices, as aggregate private and general government consumption expenditures increased by 5.1%, exports of goods and services increased by 12.6% and gross domestic fixed capital formation increased by 4.2%, each compared with 2006.
GDP growth in 2008 was 2.3% at chained 2005 year prices, as aggregate private and general government consumption expenditures increased by 2.0% and exports of goods and services increased by 6.6%, which more than offset a decrease in gross domestic fixed capital formation by 1.9%, each compared with 2007.
GDP growth in 2009 was 0.3% at chained 2005 year prices, as aggregate private and general government consumption expenditures increased by 1.2%, which more than offset a decrease in exports of goods and services by 1.2% and a decrease in gross domestic fixed capital formation by 1.0%, each compared with 2008.
GDP growth in 2010 was 6.3% at chained 2005 year prices, as aggregate private and general government consumption expenditures increased by 4.1%, exports of goods and services increased by 14.7% and gross domestic fixed capital formation increased by 5.8%, each compared with 2009.
Based on preliminary data, GDP growth in 2011 was 3.6% at chained 2005 year prices, as aggregate private and general government consumption expenditures increased by 2.2% and exports of goods and services increased by 9.5%, which more than offset a decrease in gross domestic fixed capital formation by 1.1%, each compared with 2010.
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Principal Sectors of the Economy
Industrial Sectors
The following table sets out production indices for the principal industrial products of the Republic and their relative contribution to total industrial production:
Industrial Production
(2005 = 100)
Index Weight(1) | 2007 | 2008 | 2009 | 2010 | 2011(2) | |||||||||||||||||||
All Industries | 10,000.0 | 115.9 | 119.8 | 119.7 | 139.2 | 148.7 | ||||||||||||||||||
Mining and Manufacturing | 9,458.5 | 116.3 | 120.1 | 119.9 | 139.8 | 149.6 | ||||||||||||||||||
Mining | 36.5 | 91.5 | 82.3 | 87.9 | 81.5 | 80.8 | ||||||||||||||||||
Petroleum, Crude Petroleum and Natural Gas | 8.7 | 82.1 | 65.7 | 89.1 | 87.3 | 77.8 | ||||||||||||||||||
Metal Ores | 0.5 | 171.0 | 154.9 | 122.2 | 221.5 | 276.7 | ||||||||||||||||||
Non-metallic Minerals | 27.3 | 93.0 | 86.4 | 86.8 | 77.1 | 78.2 | ||||||||||||||||||
Manufacturing | 9,422.0 | 116.4 | 120.3 | 120.0 | 140.1 | 149.9 | ||||||||||||||||||
Food Products | 479.2 | 101.8 | 99.4 | 99.0 | 105.0 | 105.7 | ||||||||||||||||||
Beverage Products | 159.0 | 101.7 | 104.8 | 99.3 | 104.4 | 107.9 | ||||||||||||||||||
Tobacco Products | 55.1 | 116.2 | 120.8 | 120.3 | 116.2 | 118.1 | ||||||||||||||||||
Textiles | 226.0 | 98.9 | 90.9 | 85.8 | 96.3 | 97.8 | ||||||||||||||||||
Wearing Apparel, Clothing Accessories and Fur Articles | 174.6 | 116.3 | 122.1 | 118.5 | 124.5 | 126.0 | ||||||||||||||||||
Tanning and Dressing of Leather, Luggage and Footwear | 47.9 | 100.5 | 98.8 | 87.1 | 82.7 | 78.1 | ||||||||||||||||||
Wood and Products of Wood and Cork (Except Furniture) | 46.7 | 107.1 | 99.7 | 88.2 | 87.3 | 84.5 | ||||||||||||||||||
Pulp, Paper and Paper Products | 145.0 | 104.8 | 103.2 | 100.2 | 106.9 | 109.2 | ||||||||||||||||||
Printing and Reproduction of Recorded Media | 77.0 | 101.8 | 112.0 | 99.2 | 113.3 | 101.3 | ||||||||||||||||||
Coke, hard-coal and lignite fuel briquettes and Refined Petroleum Products | 315.2 | 102.5 | 103.2 | 102.0 | 105.5 | 113.4 | ||||||||||||||||||
Chemicals and Chemical Products | 772.2 | 109.6 | 110.8 | 116.6 | 126.1 | 129.9 | ||||||||||||||||||
Pharmaceuticals, Medicinal Chemicals and Botanical Products | 187.1 | 120.6 | 130.3 | 138.3 | 144.2 | 143.7 | ||||||||||||||||||
Rubber and Plastic Products | 434.2 | 113.0 | 109.2 | 100.0 | 112.2 | 117.1 | ||||||||||||||||||
Non-metallic Minerals | 309.9 | 112.2 | 113.4 | 112.2 | 118.4 | 117.1 | ||||||||||||||||||
Basic Metals | 753.2 | 108.4 | 110.0 | 99.7 | 119.7 | 128.4 | ||||||||||||||||||
Fabricated Metal Products | 490.8 | 112.0 | 118.3 | 106.4 | 115.5 | 127.3 | ||||||||||||||||||
Electronic Components, Computer, Radio, Television and Communication Equipment and Apparatuses | 1,970.4 | 138.9 | 151.6 | 165.7 | 207.4 | 228.2 | ||||||||||||||||||
Medical, Precision and Optical Instruments, Watches and Clocks | 102.8 | 112.5 | 117.9 | 119.7 | 133.9 | 151.3 | ||||||||||||||||||
Electrical Equipment | 449.5 | 104.8 | 111.4 | 113.1 | 124.4 | 124.3 | ||||||||||||||||||
Other Machinery and Equipment | 737.5 | 120.4 | 121.2 | 108.5 | 150.4 | 160.8 | ||||||||||||||||||
Motor Vehicles, Trailers and Semitrailers | 1,101.2 | 114.8 | 111.0 | 103.9 | 128.0 | 145.7 | ||||||||||||||||||
Other Transport Equipment | 254.3 | 115.9 | 142.6 | 160.7 | 149.6 | 159.6 | ||||||||||||||||||
Furniture | 79.0 | 100.6 | 102.8 | 92.0 | 97.2 | 100.4 | ||||||||||||||||||
Other Products | 54.2 | 93.9 | 79.8 | 75.2 | 86.8 | 88.9 | ||||||||||||||||||
Electricity, Gas | 541.5 | 108.8 | 114.5 | 116.5 | 127.5 | 132.9 | ||||||||||||||||||
Publishing activities | 109.3 | 96.0 | 94.8 | 91.5 | 89.8 | 86.6 | ||||||||||||||||||
Total Index (including Publishing Activities) | 10,109.3 | 115.7 | 119.5 | 119.4 | 138.6 | 148.1 |
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(1) | Index weights were established on the basis of an industrial census in 2005 and reflect the average annual value added by production in each of the classifications shown, expressed as a percentage of total value added in the mining, manufacturing and electricity and gas industries in that year. |
(2) | Preliminary |
Source: The Bank of Korea; Korea National Statistical Office.
Industrial production increased by 6.8% in 2007, primarily due to solid export growth and domestic consumption. Industrial production growth was only 3.3% in 2008, primarily due to a slowdown in growth of exports and domestic consumption as a result of adverse global and Korean economic conditions beginning in the second half of 2008. Industrial production decreased by 0.1% in 2009, primarily due to decreased exports as a result of adverse global economic conditions. Industrial production increased by 16.1% in 2010, primarily due to increased exports and domestic consumption. Based on preliminary data, industrial production increased by 6.9% in 2011, primarily due to increased exports and domestic consumption.
Manufacturing
The manufacturing sector increased production by 7.1% in 2007 and 3.4% in 2008. In 2009, the manufacturing sector decreased production by 0.2%. The manufacturing sector increased production by 16.8% in 2010 and 7.0% in 2011.
Automobiles. In 2007, automobile production increased by 6.4%, domestic sales volume recorded an increase of 4.7% and export sales volume recorded an increase of 7.5%, compared with 2006. In 2007, export sales of automobiles constituted approximately 9.3% of the Republic’s total exports. In 2008, automobile production decreased by 6.4%, domestic sales volume recorded a decrease of 5.3% and export sales volume recorded a decrease of 5.7%, compared with 2007, primarily due to a decrease in the domestic and global demand for automobiles as a result of adverse global and Korean economic conditions. In 2008, export sales of automobiles constituted approximately 7.4% of the Republic’s total exports. In 2009, automobile production decreased by 8.2%, domestic sales volume recorded an increase of 20.7% and export sales volume recorded a decrease of 19.9%, compared with 2008, primarily due to the continued decrease in global demand for automobiles. In 2009, export sales of automobiles constituted approximately 6.2% of the Republic’s total exports. The automobile stimulus programs of a number of governments, including those in the United States and Europe, encouraged demand for automobiles in the relevant countries for the first nine months of 2009, the effect of which partially offset the decrease in global demand for Korean automobiles during the duration of such stimulus programs. In the fourth quarter of 2009, export sales of automobiles increased compared to previous quarters of 2009, primarily due to the recovery of global demand for automobiles, the effect of which more than offset the negative impact of termination of most of such governments’ automobile stimulus programs in the second half of 2009. In 2010, automobile production increased by 21.6%, domestic sales volume recorded an increase of 5.1% and export sales volume recorded an increase of 29.0%, compared with 2009. In 2011, automobile production increased by 9.0%, domestic sales volume recorded an increase of 0.6% and export sales volume recorded an increase of 13.7%, compared with 2010.
Electronics. In 2006, electronics production amounted to (Won)216,956 billion, an increase of 22.3% from the previous year, and exports amounted to US$119.1 billion, an increase of 18.6% from the previous year. In 2006, export sales of semiconductor memory chips constituted approximately 11.5% of the Republic’s total exports. In 2007, electronics production amounted to (Won)226,741 billion, an increase of 4.5% from the previous year, and exports amounted to US$130.1 billion, an increase of 9.2% from the previous year. In 2007, export sales of semiconductor memory chips constituted approximately 10.5% of the Republic’s total exports. In 2008, electronics production amounted to (Won)252,695 billion, an increase of 11.5% from the previous year, and exports amounted to US$131.2 billion, an increase of 0.8% from the previous year. In 2008, export sales of semiconductor memory chips constituted approximately 7.8% of the Republic’s total exports. In 2009, electronics production amounted to (Won)261,456 billion, an increase of 3.5% from the previous year, and exports
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amounted to US$120.9 billion, a decrease of 7.8% from the previous year. In 2009, export sales of semiconductor memory chips constituted approximately 8.5% of the Republic’s total exports. In 2010, electronics production amounted to (Won)322,027 billion, an increase of 22.8% from the previous year, and exports amounted to US$153.9 billion, an increase of 27.3% from the previous year. In 2010, export sales of semiconductor memory chips constituted approximately 10.9% of the Republic’s total exports.
Iron and Steel. In 2007, crude steel production totaled 51.5 million tons, an increase of 6.3% from 2006. Domestic sales volume increased by 10.8% and export sales volume increased by 5.2%. In 2008, crude steel production totaled 53.3 million tons, an increase of 3.8% from 2007. Domestic sales volume increased by 6.2% and export sales volume increased by 8.6%. In 2009, crude steel production totaled 48.6 million tons, a decrease of 8.9% from 2008. Domestic sales volume and export sales volume decreased by 22.5% and 1.2%, respectively. In 2010, crude steel production totaled 58.9 million tons, an increase of 20.2% from 2009. Domestic sales volume and export sales volume increased by 14.3% and 21.1%, respectively. Based on preliminary data, in 2011, crude steel production totaled 68.5 million tons, an increase of 20.2% from 2010. Domestic sales volume and export sales volume increased by 7.6% and 16.9%, respectively.
Shipbuilding. In 2006, the Republic’s shipbuilding orders amounted to 19 million compensated gross tons, an increase of 35.7% compared to 2005. In 2007, the Republic’s shipbuilding orders amounted to 32 million compensated gross tons, an increase of 68.4% compared to 2006. In 2008, the Republic’s shipbuilding orders amounted to 14 million compensated gross tons, a decrease of 56.3% compared to 2007. In 2009, the Republic’s shipbuilding orders amounted to 2 million compensated gross tons, a decrease of 85.7% compared to 2008 as a result of a decrease in ship orders due to adverse global economic conditions. In 2010, the Republic’s shipbuilding orders amounted to 8 million compensated gross tons, an increase of 300.0% compared to 2009.
Agriculture, Forestry and Fisheries
The Government’s agricultural policy has traditionally focused on:
• | grain production; |
• | development of irrigation systems; |
• | land consolidation and reclamation; |
• | seed improvement; |
• | mechanization measures to combat drought and flood damage; and |
• | increasing agricultural incomes. |
Recently, however, the Government has increased emphasis on cultivating profitable crops and strengthening international competitiveness in anticipation of opening the domestic agricultural market.
In 2007, rice production decreased 6.4% from 2006 to 4.4 million tons. In 2008, rice production increased 9.1% from 2007 to 4.8 million tons. Based on preliminary data, in 2009, rice production increased 2.1% from 2008 to 4.9 million tons. Based on preliminary data, in 2010, rice production decreased 12.6% from 2009 to 4.3 million tons. Based on preliminary data, in 2011, rice production decreased 14.0% from 2010 to 4.9 million tons. Due to limited crop yields resulting from geographical and physical constraints, the Republic depends on imports for certain basic foodstuffs.
The Government is seeking to develop the fishing industry by encouraging the building of large fishing vessels and modernizing fishing equipment, marketing techniques and distribution outlets.
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In 2007, the agriculture, forestry and fisheries industry increased by 4.0% compared to 2006 primarily due to an increase in fishing catch which offset a decrease in the production of rice. In 2008, the agriculture, forestry and fisheries industry increased by 5.6% compared to 2007. In 2009, the agriculture, forestry and fisheries industry increased by 3.2% compared to 2008. In 2010, the agriculture, forestry and fisheries industry decreased by 4.3% compared to 2009. Based on preliminary data, in 2011, the agriculture, forestry and fisheries industry decreased by 1.0% compared to 2010.
Construction
In 2007, the construction industry increased by 2.6% compared to 2006 primarily due to an increase in the construction of commercial buildings which offset a slight decrease in the construction of residential buildings. In 2008, the construction industry decreased by 2.5% compared to 2007 primarily due to a significant decrease in the construction of commercial and residential buildings. In 2009, the construction industry increased by 1.8% compared to 2008. In 2010, the construction industry decreased by 0.1% compared to 2009. Based on preliminary data, in 2011, the construction industry decreased by 5.6% compared to 2010. The construction industry has experienced a significant downturn since the second half of 2009, due to excessive investment in recent years in residential property development projects, stagnation of real property prices and reduced demand for residential property, especially in areas outside of Seoul, as a result of deteriorating conditions in the Korean economy in the second half of 2009 and into 2010. The Government has taken measures to support the Korean construction industry, including a (Won)5 trillion program to buy unsold housing units and land from construction companies. However, the effect of these measures is uncertain and the construction industry may continue to experience adverse conditions.
Electricity and Gas
The following table sets out the Republic’s dependence on imports for energy consumption:
Dependence on Imports for Energy Consumption
Total Energy Consumption | Imports | Imports Dependence Ratio | ||||||||||
(millions of tons of oil equivalents, except ratios) | ||||||||||||
2007 | 236.5 | 228.3 | 96.5 | |||||||||
2008 | 240.8 | 232.2 | 96.4 | |||||||||
2009 | 243.3 | 234.7 | 96.5 | |||||||||
2010 | 262.6 | 253.4 | 96.5 | |||||||||
2011 | 271.4 | 261.8 | 96.5 |
Source: Korea Energy Economics Institute.
Korea has almost no domestic oil or gas production and depends on imported oil and gas to meet its energy requirements. Accordingly, the international prices of oil and gas significantly affect the Korean economy. Any significant long-term increase in the prices of oil and gas will increase inflationary pressures in Korea and adversely affect the Republic’s balance of trade.
To reduce its dependence on oil and gas imports, the Government has encouraged energy conservation and energy source diversification emphasizing nuclear energy. The following table sets out the principal primary sources of energy consumed in the Republic, expressed in oil equivalents and as a percentage of total energy consumption.
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Consumption of Energy by Source
Coal | Petroleum | Nuclear | Others(1) | Total | ||||||||||||||||||||||||||||||||||||
Quantity | % | Quantity | % | Quantity | % | Quantity | % | Quantity | % | |||||||||||||||||||||||||||||||
2007 | 59.7 | 25.2 | 105.5 | 44.6 | 30.7 | 13.0 | 40.6 | 17.2 | 236.5 | 100.0 | ||||||||||||||||||||||||||||||
2008 | 66.1 | 27.5 | 100.2 | 41.6 | 32.5 | 13.5 | 42.0 | 17.4 | 240.8 | 100.0 | ||||||||||||||||||||||||||||||
2009 | 68.6 | 28.2 | 102.3 | 42.0 | 31.8 | 13.1 | 40.6 | 16.7 | 243.3 | 100.0 | ||||||||||||||||||||||||||||||
2010 | 75.9 | 28.9 | 104.3 | 39.7 | 31.9 | 12.1 | 50.5 | 19.2 | 262.6 | 100.0 | ||||||||||||||||||||||||||||||
2011 | 79.4 | 29.3 | 105.1 | 38.7 | 32.3 | 11.9 | 54.6 | 20.1 | 271.4 | 100.0 |
(1) | Includes natural gas, hydroelectric power and renewable energy. |
Source: Korea Energy Economics Institute.
The Republic’s first nuclear power plant went into full operation in 1978 with a rated generating capacity of 587 megawatts. Construction of an additional 18 nuclear power plants was completed by July 2004, adding 16,129 megawatts of generating capacity. The Republic’s total nuclear power generating capacity is estimated to be 20,716 megawatts as of December 31, 2011.
Services Sector
In 2007, the transportation and storage sector increased by 5.5%, the financial intermediation sector increased by 10.8% and the real estate and renting sector increased by 1.4%, each compared with 2006. In 2008, the transportation and storage sector increased by 4.8%, the financial intermediation sector increased by 4.9% and the real estate and renting sector increased by 1.5%, each compared with 2007. In 2009, the transportation and storage sector decreased by 5.8%, the financial intermediation sector increased by 4.4% and the real estate and renting sector decreased by 0.2%, each compared with 2008. In 2010, the transportation and storage sector increased by 9.6%, the financial intermediation sector increased by 2.5% and the real estate and renting sector increased by 0.3%, each compared with 2009. Based on preliminary data, in 2011, the transportation and storage sector increased by 3.9%, the financial intermediation sector increased by 1.5% and the real estate and renting sector increased by 1.6%, each compared with 2010.
Prices, Wages and Employment
The following table shows selected price and wage indices and unemployment rates:
Producer Price Index(1) | Increase Over Previous Year | Consumer Price Index(1) | Increase Over Previous Year | Wage Index(1)(2) | Increase Over Previous Year | Unemployment Rate(1)(3) | ||||||||||||||||||||||
(2005=100) | (%) | (2010=100) | (%) | (2005=100) | (%) | (%) | ||||||||||||||||||||||
2006 | 100.9 | 0.9 | 88.1 | 2.2 | 105.6 | 5.6 | 3.5 | |||||||||||||||||||||
2007 | 102.3 | 1.4 | 90.3 | 2.5 | 112.8 | 6.8 | 3.2 | |||||||||||||||||||||
2008 | 111.1 | 8.6 | 94.5 | 4.7 | 111.4 | (1.2 | ) | 3.2 | ||||||||||||||||||||
2009 | 110.9 | (0.2 | ) | 97.1 | 2.8 | 113.7 | 2.1 | 3.6 | ||||||||||||||||||||
2010 | 115.1 | 3.8 | 100.0 | 3.0 | 124.1 | 9.1 | 3.7 | |||||||||||||||||||||
2011 | 122.1 | 6.1 | 104.0 | 4.0 | N/A | (4) | N/A | (4) | 3.4 |
(1) | Average for year. |
(2) | Nominal wage index of earnings in manufacturing industry. |
(3) | Expressed as a percentage of the economically active population. |
(4) | Not available. |
Source: The Bank of Korea; Korea National Statistical Office.
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The inflation rate, on an annualized basis, was 2.5% in 2007, 4.7% in 2008, 2.8% in 2009, 3.0% in 2010 and 4.0% in 2011. The unemployment rate was 3.5% in 2006, 3.2% in 2007, 3.2% in 2008, 3.6% in 2009, 3.7% in 2010 and 3.4% in 2011.
From 1992 to 2009, the economically active population of the Republic increased by approximately 24.8% to 24.3 million, while the number of employees increased by approximately 23.7% to 23.5 million. The economically active population over 15 years old as a percentage of the total over-15 population has remained between 60% and 63% over the past decade. Literacy among workers under 50 is almost universal. As of December 31, 2011, the economically active population of the Republic was 25.1 million and the number of employees was 24.2 million.
As of July 1, 2004, the Republic adopted a five-day workweek for large corporations with over 1,000 employees, publicly-owned (state-run) companies, banks and insurance companies, reducing working hours from 44 to 40 hours a week. The adoption of the five-day workweek has been extended to companies with over 300 employees and to government employees as of July 1, 2005 and to companies with over 100 employees as of July 1, 2006. Companies with more than 50 employees adopted the five-day workweek as of July 1, 2007 and those with over 20 adopted the five-day workweek as of July 1, 2008. Companies with less than 20 employees are also scheduled to adopt the five-day workweek by July 1, 2011.
Approximately 9.8% of the Republic’s workers were unionized as of December 31, 2010. In the early 2000s, the labor unions of several of the Republic’s largest commercial banks, including Kookmin Bank, Chohung Bank (which was later acquired by Shinhan Bank) and Citibank Korea Inc. (formerly KorAm Bank), staged strikes in response to consolidation in the banking industry. In addition, in the summer of 2004 and 2005, respectively, unionized workers of GS Caltex Corporation and Asiana Airlines staged strikes demanding better compensation and working conditions. In the fall of 2005, unionized workers at Hyundai Motor Company and Kia Motors Corp. went on strikes during annual contract talks. In December 2005, Korean Air’s unionized pilots also staged strikes demanding a higher wage increase. In the summer of 2006, unionized workers of Hyundai Motor Company and Kia Motors Corp. went on partial strikes demanding better compensation and working conditions, and unionized workers of Ssangyong Motor Company went on strike in response to the company’s proposed layoff plans. In July 2006, unionized workers of POSCO’s subcontractors initiated a sit-in strike at POSCO’s headquarters in Pohang demanding better wages and working conditions, disrupting POSCO’s operations for nine days. In June 2007, unionized workers of Hyundai Motor Company went on partial strikes demanding a higher bonus increase. Also, in May 2009, unionized workers of Ssangyong Motor Company went on full-scale strike and illegally occupied the company’s factory premises in Pyungtaek opposing the company’s reorganization plan. Actions such as these by labor unions may hinder implementation of the labor reform measures and disrupt the Government’s plans to create a more flexible labor market. Although much effort is being expended to resolve labor disputes in a peaceful manner, there can be no assurance that further labor unrest will not occur in the future. Continued labor unrest in key industries of the Republic may have an adverse effect on the economy.
In 1997, the Korean Confederation of Trade Unions organized a political alliance, which led to the formation of the Democratic Labor Party in January 2000. The Democratic Labor Party, which seeks to represent the interests of workers, controlled five seats in the National Assembly from May 30, 2008 as a result of the 18th legislative general election held on April 9, 2008. The Democratic Labor Party merged with The New People’s Participation Party and changed its name to The Unified Progressive Party in December 2011. The Unified Progressive Party controls seven seats in the National Assembly as of March 31, 2012.
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Structure of the Financial Sector
The Republic’s financial sector includes the following categories of financial institutions:
• | The Bank of Korea; |
• | banking institutions; |
• | non-bank financial institutions; and |
• | other financial entities, including: |
• | financial investment companies; |
• | credit guarantee institutions; |
• | venture capital companies; and |
• | miscellaneous others. |
To increase transparency in financial transactions and enhance the integrity and efficiency of the financial markets, Korean law requires that financial institutions confirm that their clients use their real names when transacting business. To ease the liquidity crisis, the Government altered the real-name financial transactions system during 1998, to allow the sale or deposit of foreign currencies through domestic financial institutions and the purchase of certain bonds, including Government bonds, without identification. The Government also strengthened confidentiality protection for private financial transactions.
In July 2007, the Korean National Assembly passed the Financial Investment Services and Capital Markets Act or FSCMA, under which various industry-based capital markets regulatory systems currently were consolidated into a single regulatory system. The FSCMA, which became effective in February 2009, expands the scope of permitted investment-related financial products and activities through expansive definitions of financial instruments and function-based regulations that allow financial investment companies to offer a wider range of financial services, as well as strengthening investor protection and disclosure requirements. The Enforcement Decree of the FSCMA classifies the financial investment companies into a total of 82 categories depending on the types of (i) financial investment services, (ii) financial investment products, and (iii) investors.
Prior to the effective date of the Financial Investment Services and Capital Markets Act, separate laws regulated various types of financial institutions depending on the type of the financial institution (for example, securities companies, futures companies, trust business companies and asset management companies) and subjected financial institutions to different licensing and ongoing regulatory requirements (for example, under the Securities and Exchange Act, the Futures Business Act and the Indirect Investment Asset Management Business Act). By applying one uniform set of rules to financial businesses having the same economic function, the Financial Investment Services and Capital Markets Act attempts to improve and address issues caused by the previous regulatory system under which the same economic function relating to capital markets-related business were governed by multiple regulations. To this end, the Financial Investment Services and Capital Markets Act categorizes capital markets-related businesses into six different functions, as follows:
• | investment dealing (trading and underwriting of financial investment products); |
• | investment brokerage (brokerage of financial investment products); |
• | collective investment (establishment of collective investment schemes and the management thereof); |
• | investment advice; |
• | discretionary investment management; and |
• | trusts (together with the five businesses set forth above, “Financial Investment Businesses”). |
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Accordingly, all financial businesses relating to financial investment products are reclassified as one or more of the Financial Investment Businesses described above, and financial institutions are subject to the regulations applicable to their relevant Financial Investment Businesses, irrespective of what type of financial institution it is. For example, under the Financial Investment Services and Capital Markets Act, derivative businesses conducted by securities companies and future companies will be subject to the same regulations under the Financial Investment Services and Capital Markets Act, at least in principle.
The banking business and the insurance business are not subject to the Financial Investment Services and Capital Markets Act and will continue to be regulated under separate laws; provided, however, that they are subject to the Financial Investment Services and Capital Markets Act if their activities involve any Financial Investment Businesses requiring a license based on the Financial Investment Services and Capital Markets Act.
Banking Industry
The banking industry comprises commercial banks and specialized banks. Commercial banks serve the general public and corporate sectors. They include nationwide banks, regional banks and branches of foreign banks. Regional banks provide services similar to nationwide banks, but operate in a geographically restricted region. Branches of foreign banks have operated in the Republic since 1967 but provide a relatively small proportion of the country’s banking services. As of December 31, 2011, commercial banks consisted of seven nationwide banks, all of which have branch networks throughout the Republic, six regional banks and 53 branches of 38 foreign banks operating in the country. Nationwide and regional banks had, in the aggregate, 5,606 domestic branches and offices, 42 overseas branches, 19 overseas representative offices and 31 overseas subsidiaries as of December 31, 2011.
Specialized banks meet the needs of specific sectors of the economy in accordance with Government policy; they are organized under, or chartered by, special laws. Specialized banks include:
• | The Korea Development Bank; |
• | The Export-Import Bank of Korea; |
• | The Industrial Bank of Korea; |
• | National Federation of Fisheries Cooperatives; and |
• | NH Bank (which was established by a spin-off of the credit and banking unit from the National Agricultural Cooperative Federation in March 2012). |
The economic difficulties in 1997 and 1998 caused an increase in Korean banks’ non-performing assets and a decline in capital adequacy ratios of Korean banks. From 1998 through 2002, the Financial Services Commission amended banking regulations several times to adopt more stringent criteria for non-performing loans that more closely followed international standards. The new criteria increased the level of non-performing loans held by banks and other financial institutions. The following table sets out the total loans and discounts and non-performing assets of the commercial banking sector.
Total Loans | Non-Performing Assets | Percentage of Total | ||||||||||
(trillions of won) | (percentage) | |||||||||||
December 31, 2007 | 1,073.8 | 6.5 | 0.6 | |||||||||
December 31, 2008 | 1,288.1 | 11.0 | 0.9 | |||||||||
December 31, 2009 | 1,285.8 | 10.4 | 0.8 | |||||||||
December 31, 2010 | 1,308.9 | 24.8 | 1.9 | |||||||||
December 31, 2011 | 1,387.6 | 18.8 | 1.4 |
Source: Financial Supervisory Service.
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Most of the growth in total loans since the end of 2002 has been attributable to loans to the retail sector, accounting for 38.1% of total loans as of December 31, 2010, compared to 34.3% as of December 31, 1999.
In 2007, these banks posted an aggregate net profit of (Won)15.0 trillion. In 2008, these banks posted an aggregate net profit of (Won)7.7 trillion, compared to an aggregate net profit of (Won)15.0 trillion in 2007, primarily due to increased loan loss provisions. In 2009, these banks posted an aggregate net profit of (Won)6.9 trillion, compared to an aggregate net profit of (Won)7.7 trillion in 2008, primarily due to increased non-performing loans. In 2010, these banks posted an aggregate net profit of (Won)9.3 trillion, compared to an aggregate net profit of (Won)6.9 trillion in 2009, primarily due to increased net interest income. Based on preliminary data, in 2011, these banks posted an aggregate net profit of (Won)12.0 trillion, compared to an aggregate net profit of (Won)9.3 trillion in 2010, primarily due to decreased non-performing loans.
Non-Bank Financial Institutions
Non-bank financial institutions include:
• | savings institutions, including trust accounts of banks, mutual savings banks, credit unions, mutual credit facilities, community credit cooperatives and postal savings; |
• | life insurance institutions; and |
• | credit card companies. |
The country had 100 mutual savings banks as of December 31, 2011, with assets totaling (Won)65.5 trillion.
As of December 31, 2011, 13 domestic life insurance institutions, two joint venture life insurance institutions and nine wholly-owned subsidiaries of foreign life insurance companies, with assets totaling approximately (Won)442.7 trillion as of December 31, 2011, were operating in the Republic.
As of December 31, 2011, seven credit card companies operated in the country with loans totaling approximately (Won)81.9 trillion.
Money Markets
In the Republic, the money markets consist of the call market and markets for a wide range of other short- term financial instruments, including treasury bills, monetary stabilization bonds, negotiable certificates of deposits, repurchase agreements and commercial paper.
Securities Markets
On January 27, 2005, the Korea Exchange was established pursuant to the now repealed Korea Securities and Futures Exchange Act by consolidating the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc., or the KOSDAQ, and the KOSDAQ Committee of the Korea Securities Dealers Association, which had formerly managed the KOSDAQ. There are three different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market, and the KRX Derivatives Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a joint stock company with limited liability, the shares of which are held by (i) financial investment companies that were formerly members of the Korea Futures Exchange or the Korea Stock Exchange and (ii) the stockholders of the KOSDAQ. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members Korean financial investment companies and some Korean branches of foreign financial investment companies.
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The Korea Exchange publishes the Korea Composite Stock Price Index every ten seconds, which is an index of all equity securities listed on the Korea Exchange. The Korea Composite Stock Price Index is computed using the aggregate value method, whereby the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.
The following table shows the value of the Korea Composite Stock Price Index as of the dates indicated:
December 28, 2007 | 1,897.1 | |||
January 31, 2008 | 1,624.7 | |||
February 29, 2008 | 1,711.6 | |||
March 31, 2008 | 1,704.0 | |||
April 30, 2008 | 1,825.5 | |||
May 30, 2008 | 1,852.0 | |||
June 30, 2008 | 1,674.9 | |||
July 31, 2008 | 1,594.7 | |||
August 29, 2008 | 1,474.2 | |||
September 30, 2008 | 1,448.1 | |||
October 31, 2008 | 1,113.1 | |||
November 28, 2008 | 1,076.1 | |||
December 31, 2008 | 1,124.5 | |||
January 30, 2009 | 1,162.1 | |||
February 27, 2009 | 1,063.0 | |||
March 31, 2009 | 1,206.3 | |||
April 30, 2009 | 1,369.4 | |||
May 29, 2009 | 1,395.9 | |||
June 30, 2009 | 1,390.1 | |||
July 31, 2009 | 1,557.3 | |||
August 31, 2009 | 1,591.9 | |||
September 30, 2009 | 1,673.1 | |||
October 31, 2009 | 1,580.7 | |||
November 30, 2009 | 1,555.6 | |||
December 31, 2009 | 1,682.8 | |||
January 29, 2010 | 1,602.4 | |||
February 26, 2010 | 1,594.6 | |||
March 31, 2010 | 1,692.9 | |||
April 30, 2010 | 1,741.6 | |||
May 31, 2010 | 1,641.3 | |||
June 30, 2010 | 1,698.3 | |||
July 30, 2010 | 1,759.3 | |||
August 31, 2010 | 1,742.8 | |||
September 30, 2010 | 1,872.8 | |||
October 29, 2010 | 1,883.0 | |||
November 30, 2010 | 1,904.6 | |||
December 31, 2010 | 2,051.0 | |||
January 31, 2011 | 2,069.7 | |||
February 28, 2011 | 1,939.3 | |||
March 31, 2011 | 2,106.7 | |||
April 30, 2011 | 2,192.4 | |||
May 29, 2011 | 2,142.5 | |||
June 30, 2011 | 2,100.7 | |||
July 31, 2011 | 2,133.2 |
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August 31, 2011 | 1,880.1 | |||
September 30, 2011 | 1,769.7 | |||
October 31, 2011 | 1,909.0 | |||
November 30, 2011 | 1,847.5 | |||
December 31, 2011 | 1,825.7 | |||
January 31, 2012 | 1,955.8 | |||
February 29, 2012 | 2,030.3 | |||
March 31, 2012 | 2,014.0 | |||
April 30, 2012 | 1,982.0 | |||
May 31, 2012 | 1,843.5 |
On December 27, 1997, the last day of trading in 1997, the index stood at 376.3, a sharp decline from 647.1 on September 30, 1997. The fall resulted from growing concerns about the Republic’s weakening financial and corporate sectors, the Republic’s falling foreign currency reserves, the sharp depreciation of the Won against the U.S. Dollar and other external factors, such as a sharp decline in stock prices in Hong Kong on October 24, 1997 and financial turmoil in Southeast Asian countries. The Korea Composite Stock Price Index recovered to reach a high of 2,064.9 in late 2007 but since then the index declined. As liquidity and credit concerns and volatility in the global financial markets increased significantly since September 2008, there was a significant overall decline and continuing volatility in the stock prices of Korean companies during the fourth quarter of 2008 and first half of 2009. The index was 1,889.2 on June 21, 2012.
Supervision System
The Office of Bank Supervision, the Securities Supervisory Board, the Insurance Supervisory Board and all other financial sector regulatory bodies merged in January 1999 to form the Financial Services Commission. The Financial Services Commission acts as the executive body over the Financial Supervisory Service. The Financial Services Commission reports to, but operates independently of, the Prime Minister’s office.
The Ministry of Strategy and Finance (formerly the Ministry of Finance and Economy) focuses on financial policy and foreign currency regulations. The Bank of Korea manages monetary policy focusing on price stabilization.
Deposit Insurance System
The Republic’s deposit insurance system insures amounts on deposit with banks, non-bank financial institutions, securities companies and life insurance companies.
Since January 2001, deposits at any single financial institution are insured only up to (Won)50 million per person regardless of the amount deposited.
The Government excluded certain deposits, such as repurchase agreements, from the insurance scheme, expanded the definition of unsound financial institutions to which the insurance scheme would apply and gradually increased the insurance premiums payable by insured financial institutions.
The Bank of Korea
The Bank of Korea was established in 1950 as Korea’s central bank and the country’s sole currency issuing bank. A seven-member Monetary Policy Committee, chaired by the Governor of The Bank of Korea, formulates and controls monetary and credit policies.
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Inflation targeting is the basic system of operation for Korean monetary policy. The consumer price index is used as The Bank of Korea’s target indicator. To achieve its established inflation target, the Monetary Policy Committee of The Bank of Korea determines and announces the “Bank of Korea Base Rate,” the reference rate applied in transactions such as repurchase agreements between The Bank of Korea and its financial institution counterparts. The Bank of Korea uses open market operations as its primary instrument to keep the call rate in line with the Monetary Policy Committee’s target rate. In addition, The Bank of Korea is able to establish policies regarding its lending to banks in Korea and their reserve requirements.
Interest Rates
On October 11, 2005, The Bank of Korea raised the policy rate from 3.25% to 3.5%, which was further raised to 3.75% on December 8, 2005, to 4.0% on February 9, 2006, to 4.25% on June 8, 2006 and to 4.50% on August 10, 2006, in response to the increasing side-effects of a low interest rate environment including inflationary pressures coupled with signs of recovery of the real economy. On July 12, 2007, The Bank of Korea raised the policy rate to 4.75% from 4.5%, and raised it further to 5.0% on August 9, 2007. The rationale for this change was the concern that the ample market liquidity might put upside pressure on inflation in the medium to long term as the economic upswing continued. On August 7, 2008, The Bank of Korea raised the policy rate to 5.25% from 5.0%, taking the view that inflation in consumer prices had picked up its pace, due to the direct and indirect effects of high oil prices, at a time when domestic economic activity had slackened. On October 9, 2008, The Bank of Korea cut its policy rate to 5.0% from 5.25%, and continued to lower it further to 4.25% on October 27, 2008, 4.0% on November 7, 2008, 3.0% on December 11, 2008, 2.5% on January 9, 2009 and 2.0% on February 12, 2009, in order to address financial market instability and to help combat the slowdown of the domestic economy. On July 9, 2010, The Bank of Korea raised the policy rate to 2.25% from 2.0%, which was further raised to 2.5% on November 16, 2010, in response to signs of inflationary pressures and the continued growth of domestic economy. On January 13, 2011, The Bank of Korea raised the policy rate to 2.75%, which was further increased to 3.0% on March 10, 2011 and to 3.25% on June 10, 2011, in response to inflationary pressures driven mainly by rises in the prices of petroleum products and farm products.
With the deregulation of interest rates on banks’ demand deposits on February 2, 2004, The Bank of Korea completed the interest rate deregulation based upon the “Four-Stage Interest Rate Liberalization Plan” announced in 1991. The prohibition on the payment of interest on ordinary checking accounts was, however, maintained.
Money Supply
The following table shows the volume of the Republic’s money supply:
December 31, | ||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||
(billions of Won) | ||||||||||||||||||||
Money Supply (M1)(1) | 316,382.7 | 330,623.7 | 389,394.5 | 427,791.6 | 442,077.5 | |||||||||||||||
Quasi-money(2) | 957,229.2 | 1,095,263.8 | 1,177,455.5 | 1,232,738.4 | 1,309,380.9 | |||||||||||||||
Money Supply (M2)(3) | 1,273,611.9 | 1,425,887.5 | 1,566,850.0 | 1,660,530.0 | 1,751,458.4 | |||||||||||||||
Percentage Increase Over Previous Year | 10.8 | % | 12.0 | % | 9.9 | % | 6.0 | % | 5.5% |
(1) | Consists of currency in circulation and demand and instant access savings deposits at financial institutions. |
(2) | Includes time and installment savings deposits, marketable instruments, yield-based dividend instruments and financial debentures, excluding financial instruments with a maturity of more than two years. |
(3) | Money Supply (M2) is the sum of Money Supply (M1) and quasi-money. |
Source: The Bank of Korea.
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Exchange Controls
Authorized foreign exchange banks, as registered with the Ministry of Strategy and Finance, handle foreign exchange transactions. The ministry has designated other types of financial institutions to handle foreign exchange transactions on a limited basis.
Korean laws and regulations generally require a report to either the Ministry of Strategy and Finance, The Bank of Korea or authorized foreign exchange banks, as applicable, for issuances of international bonds and other instruments, overseas investments and certain other transactions involving foreign exchange payments.
In 1994 and 1995, the Government relaxed regulations of foreign exchange position ceilings and foreign exchange transaction documentation and created free Won accounts which may be opened by non-residents at Korean foreign exchange banks. The Won funds deposited into the free Won accounts may be converted into foreign currencies and remitted outside Korea without any governmental approval. In December 1996, after joining the OECD, the Republic freed the repatriation of investment funds, dividends and profits, as well as loan repayments and interest payments. The Government continues to reduce exchange controls in response to changes in the world economy, including the new trade regime under the WTO, anticipating that such foreign exchange reform will improve the Republic’s competitiveness and encourage strategic alliances between domestic and foreign entities.
In September 1998, the National Assembly passed the Foreign Exchange Transactions Act, which became effective in April 1999 and was subsequently amended in October 2000, December 2000, December 2005, October 2006, January 2007, August 2007, February 2008, January 2009 and April 2009. In principle, most currency and capital transactions, including, among others, the following transactions, have been liberalized:
• | the investment in real property located overseas by Korean companies and financial institutions; |
• | the establishment of overseas branches and subsidiaries by Korean companies and financial institutions; |
• | the investment by non-residents in deposits and trust products having more than one year maturities; and |
• | the issuance of debentures by non-residents in the Korean market. |
To minimize the adverse effects from further opening of the Korean capital markets, the Ministry of Strategy and Finance is authorized to introduce a variable deposit requirement system to restrict the influx of short-term speculative funds.
The Government has also embarked on a second set of liberalization initiatives starting in January 2001, under which ceilings on international payments for Korean residents have been eliminated, including overseas travel expenses, overseas inheritance remittances and emigration expenses. Overseas deposits, trusts, acquisitions of foreign securities and other foreign capital transactions made by residents and the making of deposits in Korean currency by non-residents have also been liberalized. In line with the foregoing liberalization, measures will also be adopted to curb illegal foreign exchange transactions and to stabilize the foreign exchange market.
Effective as of January 1, 2006, the Government liberalized the regulations governing “capital transactions.” The regulations provide that no regulatory approvals are required for any capital transactions. The capital transactions previously subject to approval requirements are now subject only to reporting requirements.
In January 2010, the Financial Supervisory Services releasedFX Derivative Transactions Risk Management Guideline to prevent over-hedging of foreign exchange risk by corporate investors. According to the guideline as amended in July 2010, if a corporate investor, other than a financial institution or a public enterprise, wishes to enter into a foreign exchange forward, option or swap agreement with a bank, the bank is required to verify whether the corporate investor’s assets, liabilities or contracts face foreign exchange risks that could be mitigated
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by a foreign exchange forward, option or swap agreement. In addition, the bank is required to ensure that the corporate investor’s risk hedge ratio, which is the ratio of the aggregate notional amount to the aggregate amount of risk, does not exceed 100%.
Foreign Exchange
The following table shows the exchange rate between the Won and the U.S. Dollar (in Won per U.S. Dollar) as announced by the Seoul Money Brokerage Services, Ltd. as of the dates indicated:
Exchange Rates
Won/U.S. Dollar Exchange Rate | ||||
December 31, 2007 | 938.2 | |||
January 31, 2008 | 943.9 | |||
February 29, 2008 | 937.3 | |||
March 31, 2008 | 991.7 | |||
April 30, 2008 | 999.7 | |||
May 31, 2008 | 1,031.4 | |||
June 30, 2008 | 1,043.4 | |||
July 31, 2008 | 1,008.5 | |||
August 29, 2008 | 1,081.8 | |||
September 30, 2008 | 1,187.7 | |||
October 31, 2008 | 1,291.4 | |||
November 28, 2008 | 1,482.7 | |||
December 31, 2008 | 1,257.5 | |||
January 31, 2009 | 1,368.5 | |||
February 27, 2009 | 1,516.4 | |||
March 31, 2009 | 1,377.1 | |||
April 30, 2009 | 1,348.0 | |||
May 29, 2009 | 1,272.9 | |||
June 30, 2009 | 1,284.7 | |||
July 31, 2009 | 1,240.5 | |||
August 31, 2009 | 1,244.9 | |||
September 30, 2009 | 1,188.7 | |||
October 31, 2009 | 1,200.6 | |||
November 30, 2009 | 1,167.4 | |||
December 31, 2009 | 1,167.6 | |||
January 29, 2010 | 1,156.5 | |||
February 26, 2010 | 1,158.4 | |||
March 31, 2010 | 1,130.8 | |||
April 30, 2010 | 1,115.5 | |||
May 31, 2010 | 1,200.2 | |||
June 30, 2010 | 1,210.3 | |||
July 30, 2010 | 1,187.2 | |||
August 31, 2010 | 1,189.1 | |||
September 30, 2010 | 1,142.0 | |||
October 29, 2010 | 1,126.6 | |||
November 30, 2010 | 1,157.3 | |||
December 31, 2010 | 1,138.9 | |||
January 31, 2011 | 1,114.3 |
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Won/U.S. Dollar Exchange Rate | ||||
February 28, 2011 | 1,127.9 | |||
March 31, 2011 | 1,107.2 | |||
April 30, 2011 | 1,072.3 | |||
May 31, 2011 | 1,080.6 | |||
June 30, 2011 | 1,078.1 | |||
July 30, 2011 | 1,052.6 | |||
August 31, 2011 | 1,071.7 | |||
September 30, 2011 | 1,179.5 | |||
October 31, 2011 | 1,104.9 | |||
November 30, 2011 | 1,150.3 | |||
December 31, 2011 | 1,153.3 | |||
January 31, 2012 | 1,125.0 | |||
February 29, 2012 | 1,126.5 | |||
March 31, 2012 | 1,137.8 | |||
April 30, 2012 | 1,134.2 | |||
May 31, 2012 | 1,177.8 |
Prior to November 1997, the Government permitted exchange rates to float within a daily range of 2.25%. In response to the substantial downward pressures on the Won caused by the Republic’s economic difficulties in late 1997, in November 1997, the Government expanded the range of permitted daily exchange rate fluctuations to 10%. The Government eliminated the daily exchange rate band in December 1997, and the Won now floats according to market forces. The value of the Won relative to the U.S. dollar depreciated from (Won)888.1 to US$1.00 on June 30, 1997 to (Won)1,964.8 to US$1.00 on December 24, 1997. Due to improved economic conditions and increases in trade surplus, the Won has generally appreciated against the U.S. dollar, although the trend reversed in March 2008. During the period from January 2, 2008 through April 16, 2009, the value of the Won relative to the U.S. dollar declined by approximately 29.9%, due primarily to adverse economic conditions resulting from liquidity and credit concerns and volatility in the global credit and financial markets and repatriations by foreign investors of their investments in the Korean stock market. The market average exchange rate was (Won)1,152.7 to US$1.00 on June 21, 2012.
Balance of Payments and Foreign Trade
Balance of Payments
Balance of payments figures measure the relative flow of goods, services and capital into and out of the country as represented in the current balance and the capital balance. The current balance tracks a country’s trade in goods and services and transfer payments and measures whether a country is living within its income from trading and investments. The capital balance covers all transactions involving the transfer of capital into and out of the country, including loans and investments. The overall balance represents the sum of the current and capital balances. An overall balance surplus indicates a net inflow of foreign currencies, thereby increasing demand for and strengthening the local currency. An overall balance deficit indicates a net outflow of foreign currencies, thereby decreasing demand for and weakening the local currency. The financial account mirrors the overall balance. If the overall balance is positive, the surplus, which represents the nation’s savings, finances the overall deficit of the country’s trading partners. Accordingly, the financial account will indicate cash outflows equal to the overall surplus. If, however, the overall balance is negative, the nation has an international deficit which must be financed. Accordingly, the financial account will indicate cash inflows equal to the overall deficit.
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The following table sets out certain information with respect to the Republic’s balance of payments:
Balance of Payments(1)
Classification | 2007 | 2008 | 2009 | 2010 | 2011(4) | |||||||||||||||
(millions of dollars) | ||||||||||||||||||||
Current Account | 21,769.7 | 3,197.5 | 32,790.5 | 29,393.5 | 26,505.3 | |||||||||||||||
Goods | 37,129.1 | 5,170.1 | 37,866.0 | 40,082.5 | 30,950.3 | |||||||||||||||
Exports(2) | 389,568.5 | 434,651.5 | 358,189.7 | 461,444.9 | 552,564.3 | |||||||||||||||
Imports(2) | 352,439.4 | 429,481.4 | 320,323.7 | 421,362.4 | 521,614.0 | |||||||||||||||
Services | (11,967.3 | ) | (5,734.1 | ) | (6,640.5 | ) | (8,626.0 | ) | (4,377.4 | ) | ||||||||||
Income | 135.0 | 4,435.4 | 2,276.7 | 1,015.9 | 2,455.8 | |||||||||||||||
Current Transfers | (3,527.1 | ) | (673.9 | ) | (711.7 | ) | (3,078.9 | ) | (2,523.4 | ) | ||||||||||
Capital and Financial Account | (23,876.6 | ) | (1,154.0 | ) | (34,651.2 | ) | (27,478.5 | ) | (31,964.6 | ) | ||||||||||
Capital Account | (2,387.5 | ) | 109.3 | 289.6 | (217.9 | ) | 150 | |||||||||||||
Financial Account(3) | (21,489.1 | ) | (1,263.3 | ) | (34,940.7 | ) | (27,260.6 | ) | (32,114.6 | ) | ||||||||||
Net Errors and Omissions | 2,106.9 | (2,043.5 | ) | 1,860.7 | (1,915.0 | ) | 5,459.3 |
(1) | Figures are prepared based on the sixth edition of Balance of Payment Manual, or BPM6, published by International Monetary Fund in December 2008 and implemented by the Government in December 2010. |
(2) | These entries are derived from trade statistics and are valued on a free on board basis, meaning that the insurance and freight costs are not included. |
(3) | Includes borrowings from the IMF, syndicated bank loans and short-term borrowings. |
(4) | Preliminary. |
Source: The Bank of Korea.
The Republic recorded a current account surplus of approximately US$29.4 billion in 2010. The current account surplus in 2010 decreased from the current account surplus of US$32.8 billion in 2009, primarily due to increases in deficit from the current transfers account and the services account which more than offset an increase in surplus from the goods account.
Based on preliminary data, the Republic recorded a current account surplus of approximately US$26.5 billion in 2011. The current account surplus in 2011 decreased from the current account surplus of US$29.4 billion in 2010, primarily due to a decrease in surplus from the goods account which more than offset a decrease in deficit from the services account.
Foreign Direct Investment
Since 1960, the Government has adopted a broad range of related laws, administrative rules and regulations, providing a framework for the conduct and regulation of foreign investment activities. In September 1998, the Government promulgated the Foreign Investment Promotion Act (the “FIPA”), which replaced previous foreign direct investment related laws, rules and regulations, to promote inbound foreign investments by providing incentives to, and facilitating investment activities in the Republic by, foreign nationals. The FIPA prescribes, among others, procedural requirements for inbound foreign investments, incentives for foreign investments such as tax reductions, and requirements relating to designation and development of foreign investment target regions. The Government believes that providing a stable and receptive environment for foreign direct investment will accelerate the inflow of foreign capital, technology and management techniques.
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The following table sets forth information regarding annual foreign direct investment in the Republic for the periods indicated.
Foreign Direct Investment
2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||
(billions of dollars) | ||||||||||||||||||||
Contracted and Reported Investment | ||||||||||||||||||||
Greenfield Investment(1) | 8.0 | 7.3 | 8.1 | 11.1 | 11.7 | |||||||||||||||
Merger & Acquisition | 2.5 | 4.4 | 3.4 | 2.0 | 2.0 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 10.5 | 11.7 | 11.5 | 13.1 | 13.7 | |||||||||||||||
|
|
|
|
|
|
|
|
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| |||||||||||
Actual Investment | 7.8 | 8.4 | 6.7 | 5.4 | 6.5 |
(1) | Includes building new factories and operational facilities. |
Source: Ministry of Knowledge Economy
In 2011, the contracted and reported amount of foreign direct investment in the Republic increased to US$13.7 billion from US$13.1 billion in 2010, primarily due to an increase in foreign investment in the service sector to US$7.3 billion in 2010 from US$6.3 billion in 2010 and an increase in foreign investment in the electricity and gas section to US$0.7 billion in 2011 from US$0.1 billion in 2010, which was partially offset by a decrease in foreign investment in the manufacturing sector to US$5.7 billion in 2010 from US$6.7 billion in 2010.
The following table sets forth information regarding the source of foreign direct investment by region and country for the periods indicated:
Foreign Direct Investment by Region and Country
2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||
(billions of dollars) | ||||||||||||||||||||
North America | ||||||||||||||||||||
U.S.A | 2.3 | 1.3 | 1.5 | 2.0 | 2.4 | |||||||||||||||
Others | 0.9 | 0.6 | 0.7 | 0.7 | 1.3 | |||||||||||||||
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| |||||||||||
3.2 | 1.9 | 2.2 | 2.7 | 3.7 | ||||||||||||||||
Asia | ||||||||||||||||||||
Japan | 1.0 | 1.4 | 1.9 | 2.1 | 2.3 | |||||||||||||||
Hong Kong | 0.1 | 0.2 | 0.8 | 0.1 | 0.6 | |||||||||||||||
Singapore | 0.5 | 0.9 | 0.4 | 0.8 | 0.6 | |||||||||||||||
China | 0.4 | 0.4 | 0.2 | 0.4 | 0.7 | |||||||||||||||
Others | 0.3 | 0.4 | 0.4 | 3.5 | 0.2 | |||||||||||||||
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| |||||||||||
2.3 | 3.3 | 3.7 | 6.9 | 4.4 | ||||||||||||||||
European Union | ||||||||||||||||||||
England | 0.3 | 1.2 | 2.0 | 0.6 | 0.9 | |||||||||||||||
Netherlands | 2.0 | 1.2 | 1.9 | 1.2 | 1.0 | |||||||||||||||
Germany | 0.4 | 0.7 | 0.6 | 0.3 | 1.5 | |||||||||||||||
France | 0.4 | 0.5 | 0.1 | 0.2 | 0.2 | |||||||||||||||
Others | 1.2 | 2.7 | 0.7 | 1.0 | 1.8 | |||||||||||||||
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| |||||||||||
4.3 | 6.3 | 5.3 | 3.3 | 5.4 | ||||||||||||||||
Others regions and countries | 0.7 | 0.2 | 0.3 | 0.2 | 0.2 | |||||||||||||||
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| |||||||||||
Total | 10.5 | 11.7 | 11.5 | 13.1 | 13.7 | |||||||||||||||
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Table of Contents
Source:Ministry of Knowledge Economy
Trade Balance
Trade balance figures measure the difference between a country’s exports and imports. If exports exceed imports the country has a trade balance surplus while if imports exceed exports the country has a deficit. A deficit, indicating that a country’s receipts from abroad fall short of its payments to foreigners, must be financed, rendering the country a debtor nation. A surplus, indicating that a country’s receipts exceed its payments to foreigners, allows the country to finance its trading partners’ net deficit to the extent of the surplus, rendering the country a creditor nation.
The following table summarizes the Republic’s trade balance for the periods indicated:
Trade Balance
Exports(1) | Imports(2) | Balance of Trade | Exports as % of Imports | |||||||||||||
(millions of dollars, except percentages) | ||||||||||||||||
2007 | 371,489.0 | 356,845.7 | 14,643.3 | 104.1 | ||||||||||||
2008 | 422,007.3 | 435,274.7 | (13,267.4 | ) | 97.0 | |||||||||||
2009 | 363,533.6 | 323,084.5 | 40,449.1 | 112.5 | ||||||||||||
2010 | 466,383.8 | 425,212.2 | 41,171.6 | 109.7 | ||||||||||||
2011(3) | 555,213.7 | 524,413.1 | 30,800.6 | 105.9 |
(1) | These entries are derived from trade statistics and are valued on a free on board basis, meaning that the insurance and freight costs are not included. |
(2) | These entries are derived from customs clearance statistics on a C.I.F. basis, meaning that the price of goods include insurance and freight cost. |
(3) | Preliminary. |
Source: The Bank of Korea.
Overall exports increased during the period from 2005 to 2008 primarily due to the continued increase in global demand (including strong demand in China) for electronics products (including semiconductors and information technology products), iron and steel products and machinery and precision equipment. Overall exports decreased in 2009 compared to 2008 due to the effects of the global financial crisis on global demand for goods in general.
The Republic, due to its lack of natural resources, relies on extensive trading activity for growth. The country meets virtually all domestic requirements for petroleum, wood and rubber with imports, as well as much of its coal and iron needs. Exports consistently represent a high percentage of GDP and, accordingly, the international economic environment is of crucial importance to the Republic’s economy.
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Table of Contents
The following tables give information regarding the Republic’s exports and imports by major commodity groups:
Exports by Major Commodity Groups (F.O.B.)(1)
2007 | As % of Total | 2008 | As % of Total | 2009 | As % of Total | 2010 | As % of Total | 2011 | As % of Total | |||||||||||||||||||||||||||||||
(billions of dollars, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Foods & Consumer Goods | 3.5 | 1.0 | 4.1 | 1.0 | 4.3 | 1.2 | 5.4 | 1.2 | 6.5 | 1.2 | ||||||||||||||||||||||||||||||
Raw Materials and Fuels | 29.4 | 7.9 | 44.1 | 10.5 | 27.9 | 7.7 | 38.5 | 8.3 | 61.7 | 11.1 | ||||||||||||||||||||||||||||||
Petroleum & Derivatives | 24.2 | 6.5 | 37.8 | 9.0 | 23.2 | 6.4 | 31.9 | 6.8 | 52.0 | 9.4 | ||||||||||||||||||||||||||||||
Light Industrial Products | 27.5 | 7.4 | 29.4 | 7.0 | 27.5 | 7.6 | 32.7 | 7.0 | 39.0 | 7.0 | ||||||||||||||||||||||||||||||
Heavy & Chemical Industrial Products | 311.0 | 83.7 | 344.4 | 81.6 | 303.9 | 83.6 | 389.9 | 83.6 | 449.3 | 80.9 | ||||||||||||||||||||||||||||||
Electronic & Electronic Products | 126.9 | 34.2 | 127.2 | 30.0 | 121.2 | 33.3 | 154.2 | 33.1 | 156.9 | 28.3 | ||||||||||||||||||||||||||||||
Chemicals & Chemical Products | 36.8 | 9.9 | 41.9 | 9.9 | 36.6 | 10.1 | 47.5 | 10.2 | 59.1 | 10.6 | ||||||||||||||||||||||||||||||
Metal Goods | 31.6 | 8.5 | 38.1 | 9.0 | 29.9 | 8.2 | 37.7 | 8.1 | 48.6 | 8.8 | ||||||||||||||||||||||||||||||
Machinery & Precision Equipment | 36.2 | 9.7 | 42.9 | 10.3 | 32.8 | 9.0 | 44.0 | 9.4 | 54.6 | 9.8 | ||||||||||||||||||||||||||||||
Passenger Cars | 34.5 | 9.3 | 31.3 | 7.4 | 22.4 | 6.2 | 31.8 | 6.8 | 40.9 | 7.4 | ||||||||||||||||||||||||||||||
Ship & Boat | 26.9 | 7.2 | 41.3 | 9.8 | 42.8 | 11.8 | 47.1 | 10.1 | 54.6 | 9.8 | ||||||||||||||||||||||||||||||
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Total | 371.5 | 100.0 | 422.0 | 100.0 | 363.5 | 100.0 | 466.4 | 100.0 | 555.2 | 100.0 | ||||||||||||||||||||||||||||||
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(1) | These entries are derived from trade statistics and are valued on a free on board basis, meaning that the insurance and freight costs are not included. |
Source: The Bank of Korea.
Imports by Major Commodity Groups (C.I.F.)(1)
2007 | As % of Total | 2008 | As % of Total | 2009 | As % of Total | 2010 | As % of Total | 2011 | As % of Total | |||||||||||||||||||||||||||||||
(billions of dollars, except percentages) | ||||||||||||||||||||||||||||||||||||||||
Industrial Materials and Fuels | 201.7 | 56.5 | 269.0 | 61.8 | 184.4 | 57.1 | 247.2 | 58.1 | 324.8 | 61.9 | ||||||||||||||||||||||||||||||
Crude Petroleum | 60.3 | 16.9 | 85.9 | 19.7 | 50.8 | 15.7 | 68.7 | 16.2 | 100.8 | 19.2 | ||||||||||||||||||||||||||||||
Mineral | 16.0 | 4.5 | 19.6 | 4.5 | 13.7 | 4.2 | 21.4 | 5.0 | 31.1 | 5.9 | ||||||||||||||||||||||||||||||
Chemicals | 29.2 | 8.8 | 33.1 | 7.6 | 28.7 | 8.9 | 37.7 | 8.9 | 44.2 | 8.4 | ||||||||||||||||||||||||||||||
Iron & Steel Products | 24.1 | 6.7 | 37.1 | 8.5 | 21.6 | 6.7 | 27.3 | 6.4 | 30.4 | 5.8 | ||||||||||||||||||||||||||||||
Non-ferrous Metal | 14.3 | 4.0 | 13.4 | 3.1 | 9.1 | 2.8 | 12.6 | 3.0 | 15.1 | 2.9 | ||||||||||||||||||||||||||||||
Capital Goods | 118.1 | 33.1 | 124.1 | 28.5 | 104.5 | 32.4 | 135.7 | 31.9 | 146.5 | 27.9 | ||||||||||||||||||||||||||||||
Machinery & Precision Equipment | 39.3 | 11.0 | 40.0 | 9.2 | 33.6 | 10.4 | 47.7 | 11.2 | 50.5 | 9.6 | ||||||||||||||||||||||||||||||
Electric & Electronic Machines | 67.0 | 18.7 | 70.4 | 16.2 | 59.8 | 18.5 | 73.3 | 17.2 | 80.1 | 15.3 | ||||||||||||||||||||||||||||||
Transport Equipment | 10.0 | 2.8 | 11.7 | 2.7 | 9.5 | 3.0 | 12.9 | 3.0 | 13.9 | 2.7 | ||||||||||||||||||||||||||||||
Consumer Goods | 37.0 | 10.4 | 42.1 | 9.7 | 34.1 | 10.6 | 42.3 | 9.9 | 53.1 | 10.1 | ||||||||||||||||||||||||||||||
Cereals | 4.7 | 1.3 | 7.4 | 1.7 | 5.3 | 1.6 | 5.9 | 1.4 | 7.5 | 1.4 | ||||||||||||||||||||||||||||||
Goods for Direct Consumption | 9.7 | 2.7 | 10.2 | 2.3 | 8.9 | 2.7 | 11.0 | 2.6 | 15.0 | 2.9 | ||||||||||||||||||||||||||||||
Consumer Durable Goods | 14.6 | 4.1 | 16.4 | 3.8 | 12.9 | 4.0 | 16.2 | 3.8 | 18.6 | 3.5 | ||||||||||||||||||||||||||||||
Consumer Nondurable Goods | 8.0 | 2.2 | 8.2 | 1.9 | 7.1 | 2.2 | 9.2 | 2.2 | 12.1 | 2.3 | ||||||||||||||||||||||||||||||
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Total | 356.8 | 100.0 | 435.3 | 100.0 | 323.1 | 100.0 | 425.2 | 100.0 | 524.4 | 100.0 | ||||||||||||||||||||||||||||||
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(1) | These entries are derived from customs clearance statistics. C.I.F. means that the price of goods includes insurance and freight costs. |
Source: The Bank of Korea.
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In 2006, the Republic recorded a trade surplus of US$16.1 billion. Exports increased by 14.5% to US$325.5 billion and imports increased by 18.5% to US$309.4 billion from US$284.4 billion of exports and US$261.2 billion of imports, respectively, in 2005.
In 2007, the Republic recorded a trade surplus of US$14.6 billion. Exports increased by 14.1% to US$371.5 billion and imports increased by 15.3% to US$356.8 billion from US$325.5 billion of exports and US$309.4 billion of imports, respectively, in 2006.
In 2008, the Republic recorded a trade deficit of US$13.3 billion. Exports increased by 13.6% to US$422.0 billion and imports increased by 22.0% to US$435.3 billion from US$371.5 billion of exports and US$356.8 billion of imports, respectively, in 2007.
In 2009, the Republic recorded a trade surplus of US$40.4 billion. Exports decreased by 13.9% to US$363.5 billion and imports decreased by 25.8% to US$323.1 billion from US$422.0 billion of exports and US$435.3 billion of imports, respectively, in 2008.
In 2010, the Republic recorded a trade surplus of US$41.2 billion. Exports increased by 28.3% to US$466.4 billion and imports increased by 31.6% to US$425.2 billion from US$363.5 billion of exports and US$323.1 billion of imports, respectively, in 2009.
Based on preliminary data, the Republic recorded a trade surplus of US$30.8 billion in 2011. Exports increased by 19.0% to US$555.2 billion and imports increased by 23.3% to US$524.4 billion from US$466.4 billion of exports and US$425.2 billion of imports, respectively, in 2010.
The following table sets forth the Republic’s exports trading partners:
Exports
2007 | As % of 2007 Total | 2008 | As % of 2008 Total | 2009 | As % of 2009 Total | 2010 | As % of 2010 Total | 2011(1) | As % of 2011 Total(1) | |||||||||||||||||||||||||||||||
(millions of dollars, except percentages) | ||||||||||||||||||||||||||||||||||||||||
China | 81,985.2 | 22.1 | 91,388.9 | 21.7 | 86,703.2 | 23.9 | 116,837.8 | 25.1 | 134,185.0 | 24.2 | ||||||||||||||||||||||||||||||
United States | 45,766.1 | 12.3 | 46,376.6 | 11.0 | 37,649.9 | 10.4 | 49,816.1 | 10.7 | 56,207.7 | 10.1 | ||||||||||||||||||||||||||||||
Japan | 26,370.2 | 7.1 | 28,252.5 | 6.7 | 21,770.8 | 6.0 | 28,176.3 | 6.0 | 39,679.7 | 7.1 | ||||||||||||||||||||||||||||||
Hong Kong | 18,654.5 | 5.0 | 19,771.9 | 4.7 | 19,661.1 | 5.4 | 25,294.3 | 5.4 | 30,968.4 | 5.6 | ||||||||||||||||||||||||||||||
Singapore | 11,949.5 | 3.2 | 16,293.0 | 3.9 | 13,617.0 | 3.7 | 15,244.2 | 3.3 | 20,839.0 | 3.8 | ||||||||||||||||||||||||||||||
Taiwan | 13,027.1 | 3.5 | 11,462.0 | 2.7 | 9,501.1 | 2.6 | 14,830.5 | 3.2 | 18,206.0 | 3.3 | ||||||||||||||||||||||||||||||
Germany | 11,542.5 | 3.1 | 10,522.7 | 2.5 | 8,820.9 | �� | 2.4 | 10,702.2 | 2.3 | 9,500.9 | 1.7 | |||||||||||||||||||||||||||||
India | 6,600.0 | 1.8 | 8,977.1 | 2.1 | 8,013.3 | 2.2 | 11,434.6 | 2.5 | 12,654.1 | 2.3 | ||||||||||||||||||||||||||||||
Russia | 8,087.7 | 2.2 | 9,748.0 | 2.3 | 4,194.1 | 1.2 | 7,759.8 | 1.7 | 10,304.9 | 1.9 | ||||||||||||||||||||||||||||||
Indonesia | 5,770.6 | 1.6 | 7,933.6 | 1.9 | 5,999.9 | 1.7 | 8,897.3 | 1.9 | 13,564.5 | 2.4 | ||||||||||||||||||||||||||||||
Others(2) | 141,735.7 | 38.2 | 171,281.0 | 40.6 | 147,602.3 | 40.6 | 177,390.7 | 38.0 | 209,103.5 | 37.7 | ||||||||||||||||||||||||||||||
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Total | 371,489.1 | 100.0 | 422,007.3 | 100.0 | 363,533.6 | 100.0 | 466,383.8 | 100.0 | 555,213.7 | 100.0 | ||||||||||||||||||||||||||||||
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(1) | Preliminary |
(2) | Includes more than 200 countries and regions with lower exports levels than those shown above. |
Source: The Bank of Korea.
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Table of Contents
The following table sets forth the Republic’s imports trading partners:
Imports
2007 | As % of 2007 Total | 2008 | As % of 2008 Total | 2009 | As % of 2009 Total | 2010 | As % of 2010 Total | 2011(1) | As % of 2011 Total(1) | |||||||||||||||||||||||||||||||
(millions of dollars, except percentages) | ||||||||||||||||||||||||||||||||||||||||
China | 63,027.8 | 17.7 | 76,930.3 | 17.7 | 54,246.1 | 16.8 | 71,573.6 | 16.8 | 86,432.2 | 16.5 | ||||||||||||||||||||||||||||||
Japan | 56,250.1 | 15.8 | 60,956.4 | 14.0 | 49,427.5 | 15.3 | 64,296.1 | 15.1 | 68,320.2 | 13.0 | ||||||||||||||||||||||||||||||
United States | 37,219.3 | 10.4 | 38,364.8 | 8.8 | 29,039.5 | 9.0 | 40,402.7 | 9.5 | 44,569.0 | 8.5 | ||||||||||||||||||||||||||||||
Saudi Arabia | 21,163.5 | 5.9 | 33,781.5 | 7.8 | 19,736.8 | 6.1 | 26,820.0 | 6.3 | 36,972.6 | 7.1 | ||||||||||||||||||||||||||||||
Australia | 13,232.5 | 3.7 | 18,000.3 | 4.1 | 14,756.1 | 4.6 | 20,456.2 | 4.8 | 26,316.3 | 5.0 | ||||||||||||||||||||||||||||||
Germany | 13,534.3 | 3.8 | 14,769.1 | 3.4 | 12,298.5 | 3.8 | 14,304.9 | 3.4 | 16,962.6 | 3.2 | ||||||||||||||||||||||||||||||
Taiwan | 9,966.5 | 2.8 | 10,642.9 | 2.4 | 9,851.4 | 3.0 | 13,647.1 | 3.2 | 14,693.6 | 2.8 | ||||||||||||||||||||||||||||||
United Arab Emirates | 12,656.2 | 3.5 | 19,248.5 | 4.4 | 9,310.0 | 2.9 | 12,170.1 | 2.9 | 14,759.4 | 2.8 | ||||||||||||||||||||||||||||||
Indonesia | 9,113.8 | 2.6 | 11,320.3 | 2.6 | 9,264.1 | 2.9 | 13,985.8 | 3.3 | 17,216.4 | 3.3 | ||||||||||||||||||||||||||||||
Malaysia | 8,442.2 | 2.4 | 9,909.1 | 2.3 | 7,574.1 | 2.3 | 9,531.0 | 2.2 | 10,467.8 | 2.0 | ||||||||||||||||||||||||||||||
Others(2) | 112,239.5 | 31.4 | 141,351.5 | 32.5 | 107,580.4 | 33.3 | 138,024.7 | 32.5 | 187,703.0 | 35.8 | ||||||||||||||||||||||||||||||
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Total | 356,845.7 | 100.0 | 435,274.7 | 100.0 | 323,084.5 | 100.0 | 425,212.2 | 100.0 | 524,413.1 | 100.0 | ||||||||||||||||||||||||||||||
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(1) | Preliminary |
(2) | Includes more than 200 countries and regions with lower imports levels than those shown above. |
Source: The Bank of Korea.
In 2003, the outbreak of severe acute respiratory syndrome, or SARS, and the avian influenza in Asia (including China) and other parts of the world increased uncertainty about prospects for international trade and economic growth for affected countries, as well as world economic prospects in general. The avian influenza carried by migrating wild birds spread to several Asian countries, Russia, Romania and Turkey. In response to these outbreaks of avian influenza, the Government issued an advisory on disease prevention as of October 14, 2005 and conducted special monitoring of poultry farms. In addition, the Government continued to cooperate with regional and international efforts to develop and implement additional measures to contain and prevent SARS, the avian influenza and other diseases. Another outbreak of SARS, the avian influenza or similar incidents in the future may have an adverse effect on Korean and world economies and on international trade.
On October 6, 2010, the Republic and the EU signed an agreement on a bilateral free trade agreement, or FTA, which provisionally came into effect on July 1, 2011 after approval of the EU parliament and ratification by the Republic and EU member states. In April 2007, the Republic and the United States reached a FTA, which was subsequently renegotiated and signed by both nations in December 2010. The FTA was ratified by the U.S. Congress in October 2011 and the Korean National Assembly in November 2011 and came into effect on March 15, 2012.
Non-Commodities Trade Balance
The non-commodities trade deficit was US$15.4 billion in 2007, US$2.0 billion in 2008, US$5.1 billion in 2009 and US$10.7 billion in 2010. Based on preliminary data, the non-commodities trade deficit was US$4.4 billion in 2011.
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Foreign Currency Reserves
The following table shows the Republic’s total official foreign currency reserves:
Total Official Reserves
December 31, | ||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||
(millions of dollars) | ||||||||||||||||||||
Gold(1) | $ | 74.3 | $ | 75.7 | $ | 79.0 | $ | 79.6 | $ | 2,166.6 | ||||||||||
Foreign Exchange | 261,770.7 | 200,479.1 | 265,202.3 | 286,926.4 | 298,232.9 | |||||||||||||||
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Total Gold and Foreign Exchange | 261,845.0 | 200,554.8 | 265,281.3 | 287,006.0 | 300,399.5 | |||||||||||||||
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Reserve Position at IMF. | 310.5 | 582.6 | 981.6 | 1,024.7 | 2,556.2 | |||||||||||||||
Special Drawing Rights | 68.6 | 86.0 | 3,731.8 | 3,539.9 | 3,446.7 | |||||||||||||||
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Total Official Reserves | $ | 262,224.1 | $ | 201,223.4 | $ | 269,994.7 | $ | 291,570.7 | $ | 306,402.5 | ||||||||||
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(1) | For this purpose, domestically-owned gold is valued at US$42.22 per troy ounce (31.1035 grams) and gold deposited overseas is calculated at cost of purchase. |
Source: The Bank of Korea.
The Government’s foreign currency reserves increased to US$262.2 billion as of December 31, 2007 from US$8.9 billion as of December 31, 1997, primarily due to continued balance of trade surpluses and capital inflows. In 2008, the Government’s foreign currency reserves decreased, falling to US$201.2 billion as of December 31, 2008, partially as a result of the Government’s use of the foreign currency reserve to provide foreign currency liquidity to Korean financial institutions and to defend the value of the Won against depreciation. The amount of the Government’s foreign currency reserve was US$316.0 billion as of March 31, 2012.
The Ministry of Strategy and Finance prepares the Government budget and administers the Government’s finances.
The Government’s fiscal year commences on January 1. The Government must submit the budget, which is drafted by the Minister of Strategy and Finance and approved by the President of the Republic, to the National Assembly not later than 90 days prior to the start of the fiscal year and may submit supplementary budgets revising the original budget at any time during the fiscal year.
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The following table shows consolidated Government revenues and expenditures:
Consolidated Central Government Revenues and Expenditures
December 31, | ||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010(1) | |||||||||||||||||||
(billions of Won) | ||||||||||||||||||||||||
Total Revenues | 191,446 | 209,573 | 243,633 | 250,713 | 250,810 | 270,923 | ||||||||||||||||||
Current Revenues | 190,165 | 208,091 | 241,693 | 248,809 | 248,278 | 268,540 | ||||||||||||||||||
Total Tax Revenues | 127,466 | 138,044 | 161,459 | 167,306 | 164,542 | 177,718 | ||||||||||||||||||
Social Security Contribution | 24,905 | 27,315 | 29,739 | 32,896 | 33,896 | 35,601 | ||||||||||||||||||
Non-Tax Revenues | 37,795 | 42,733 | 50,495 | 48,607 | 49,840 | 55,221 | ||||||||||||||||||
Capital Revenues | 1,281 | 1,482 | 1,940 | 1,904 | 2,532 | 2,383 | ||||||||||||||||||
Total Expenditures and Net Lending | 187,946 | 205,928 | 206,584 | 238,854 | 268,431 | 254,231 | ||||||||||||||||||
Total Expenditures | 184,922 | 200,181 | 199,477 | 229,374 | 250,382 | 251,146 | ||||||||||||||||||
Current Expenditures | 160,274 | 173,688 | 173,278 | 200,935 | 215,134 | 216,937 | ||||||||||||||||||
Goods and Services | 36,165 | 38,987 | 41,340 | 45,410 | 48,724 | 49,821 | ||||||||||||||||||
Interest Payments | 10,094 | 12,150 | 10,218 | 10,376 | 11,519 | 13,387 | ||||||||||||||||||
Subsidies and Other Transfers(2) | 111,448 | 119,997 | 119,565 | 142,782 | 151,791 | 151,030 | ||||||||||||||||||
Non-Financial Public Enterprises Expenditures | 2,566 | 2,554 | 2,155 | 2,367 | 3,100 | 2,699 | ||||||||||||||||||
Capital Expenditures | 24,648 | 26,493 | 26,199 | 28,439 | 35,248 | 34,209 | ||||||||||||||||||
Net Lending | 3,024 | 5,746 | 7,107 | 5,480 | 18,049 | 3,084 |
(1) | Preliminary. |
(2) | Includes transfers to local governments, non-profit institutions, households and abroad. |
Source: Ministry of Strategy and Finance; Korea National Statistical Office.
The consolidated Government account consists of a General Account, Special Accounts (including a non-financial public enterprise special account) and Public Funds. The Government segregates the accounts of certain functions of the Government into Special Accounts and Public Funds for more effective administration and fiscal control. The Special Accounts and Public Funds relate to business type activities, such as economic development, road and railway construction and maintenance, monopolies, and communications developments and the administration of loans received from official international financial organizations and foreign governments.
Revenues derive mainly from national taxes and non-tax revenues. Taxes in Korea can be roughly classified into the following types:
• | income tax and capital gains tax, |
• | property tax, |
• | value-added tax, |
• | customs duty tax, and |
• | other taxes. |
Income tax and capital gains tax are imposed on income derived from labor, business operation and ownership of assets and profits derived from capital appreciation. Income tax and capital gains tax, depending on the type of taxpayer, can be further classified into corporate income tax and individual income tax. Property tax is imposed on exchange or ownership of property and includes inheritance tax and gift tax. Value-added tax is imposed on value added to goods and services. Customs duty tax is imposed on imported goods. Other taxes include tax on certain securities transactions and a stamp tax for certain documents.
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Expenditures include general administration, national defense, community service, education, health, social security, certain annuities and pensions and local finance, which involves the transfer of tax revenues to local governments.
For 2006, revenues increased by approximately 9.5%, which represented 24.7% of the Republic’s GDP, principally due to higher tax revenues. Tax revenues increased principally as a result of the country’s export growth and the accompanying increase in corporate income. The Republic had a fiscal surplus of (Won)3.6 trillion in 2006.
For 2007, revenues increased by approximately 16.3%, which represented 27.0% of the Republic’s GDP, principally due to higher tax revenues. Tax revenues increased principally as a result of the country’s export growth and the accompanying increase in corporate income. The Republic had a fiscal surplus of (Won)37.0 trillion in 2007.
For 2008, revenues increased by approximately 2.9% principally due to higher tax revenues. Tax revenues increased principally as a result of the country’s export growth and the accompanying increase in corporate income. The Republic had a fiscal surplus of (Won)15.9 trillion in 2008.
For 2009, the Republic recorded total revenues of (Won)250.8 trillion and total expenditures and net lending of (Won)272.9 trillion in 2009. The Republic had a fiscal deficit of (Won)17.6 trillion in 2009.
Based on preliminary data, the Republic recorded total revenues of (Won)270.9 trillion and total expenditures and net lending of (Won)254.2 trillion in 2010. The Republic had a fiscal surplus of (Won)16.7 trillion in 2010.
The Government estimates that the total outstanding debt of the Government (including guarantees by the Government) as of December 31, 2011 amounted to approximately (Won)434.6 trillion, an increase of 7.2% over the previous year.
External and Internal Debt of the Government
The following table sets out, by currency and the equivalent amount in U.S. Dollars, the estimated outstanding direct external debt of the Government as of December 31, 2011:
Direct External Debt of the Government
Amount in Original Currency | Equivalent Amount in U.S. Dollars(1) | |||||||
(millions) | ||||||||
US$ | US$ | 6,829.3 | US$ | 6,829.3 | ||||
Japanese Yen (¥) | ¥ | 6,759.1 | 87.0 | |||||
Euro (EUR) | EUR | 875.8 | 1,134.6 | |||||
|
| |||||||
Total | US$ | 8,050.9 | ||||||
|
|
(1) | Amounts expressed in currencies other than US$ are converted to US$ at the arbitrage rate announced by the Seoul Money Brokerage Services, Ltd. in effect on December 31, 2011. |
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The following table summarizes, as of December 31 of the years indicated, the outstanding direct internal debt of the Republic:
Direct Internal Debt of the Government
(billions of Won) | ||||
2007 | 278,800.8 | |||
2008 | 288,719.8 | |||
2009 | 331,904.1 | |||
2010 | 360,804.5 | |||
2011 | 390,249.4 |
The following table sets out all guarantees by the Government of indebtedness of others:
Guarantees by the Government
December 31, | ||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||
(billions of Won) | ||||||||||||||||||||
Domestic | 33,031.1 | 28,112.8 | 28,292.4 | 33,291.7 | 33,799.1 | |||||||||||||||
External(1) | 31.8 | — | 1,508.4 | 1,508.3 | 1,258.6 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 33,062.9 | 28,112.8 | 29,800.8 | 34,800.0 | 35,057.7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Converted to Won at foreign exchange banks’ telegraphed transfer selling rates to customers or the market average exchange rates in effect on December 31 of each year. |
For further information on the outstanding indebtedness, including guarantees, of the Republic, see “—Tables and Supplementary Information”.
External Debt
The following tables set out certain information regarding the Republic’s external debt calculated under the criteria based on the sixth edition of Balance of Payment Manual, or BPM6, published by the International Monetary Fund in December 2008 and implemented by the Government in December 2010. Under BPM6, in particular, prepayments received in connection with the construction of ships are excluded from the external debt.
December 31, | ||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | 2011 | ||||||||||||||||
(billions of dollars) | ||||||||||||||||||||
Long-term Debt | 173.2 | 167.5 | 196.2 | 219.7 | 262.2 | |||||||||||||||
General Government | 31.7 | 21.1 | 27.8 | 44.4 | 53.5 | |||||||||||||||
Monetary Authorities | 12.3 | 13.1 | 28.3 | 25.3 | 21.6 | |||||||||||||||
Banks | 58.9 | 59.0 | 64.6 | 71.0 | 93.5 | |||||||||||||||
Other Sectors | 70.2 | 74.2 | 75.5 | 79.0 | 93.7 | |||||||||||||||
Short-term Debt | 160.2 | 149.9 | 149.2 | 139.8 | 136.1 | |||||||||||||||
Monetary Authorities | 9.6 | 18.3 | 11.7 | 10.3 | 8.9 | |||||||||||||||
Banks | 134.0 | 110.4 | 115.7 | 102.1 | 100.6 | |||||||||||||||
Other Sectors | 16.7 | 21.2 | 21.8 | 27.4 | 26.6 | |||||||||||||||
Total External Liabilities | 333.4 | 317.4 | 345.4 | 359.4 | 398.4 |
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Debt Record
The Government has always paid when due the full amount of principal of, interest on, and amortization of sinking fund requirements of, all of its indebtedness.
Tables and Supplementary Information
A. External Debt of the Government
(1) External Bonds of the Government
Series | Issue Date | Maturity Date | Interest Rate (%) | Currency | Original Principal Amount | Principal Amount Outstanding as of December 31, 2011 | ||||||||||||||
2003-001 | June 3, 2003 | June 1, 2013 | 4.25 | USD | 1,000,000,000 | 1,000,000,000 | ||||||||||||||
2004-001 | September 22, 2004 | September 22, 2014 | 4.875 | USD | 1,000,000,000 | 1,000,000,000 | ||||||||||||||
2005-001 | November 2, 2005 | November 3, 2025 | 5.625 | USD | 400,000,000 | 400,000,000 | ||||||||||||||
2005-002 | November 2, 2005 | November 2, 2015 | 3.625 | EUR | 500,000,000 | 500,000,000 | ||||||||||||||
2006-001 | December 7, 2006 | December 7, 2016 | 5.125 | USD | 500,000,000 | 500,000,000 | ||||||||||||||
2006-002 | December 7, 2006 | December 7, 2021 | 4.25 | EUR | 375,000,000 | 375,000,000 | ||||||||||||||
2009-001 | April 16, 2009 | April 16, 2014 | 5.75 | USD | 1,500,000,000 | 1,500,000,000 | ||||||||||||||
2009-002 | April 16, 2009 | April 16, 2019 | 7.125 | USD | 1,500,000,000 | 1,500,000,000 | ||||||||||||||
|
| |||||||||||||||||||
Total External Bonds in Original Currencies |
| USD | 5,900,000,000 | |||||||||||||||||
EUR | 875,000,000 | |||||||||||||||||||
|
| |||||||||||||||||||
Total External Bonds in Equivalent Amount of Won(1) |
| (Won) | 8,111,807,500,000 | |||||||||||||||||
|
|
(1) | U.S. dollar amounts are converted to Won amounts at the rate of US$1.00 to (Won)1,153.3, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. Euro amounts are converted to Won amounts at the rate of EUR1.00 to (Won)1,494.1, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
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(2) External Borrowings of the Government
a. Borrowings in U.S. Dollars
Date of Borrowing | Original Maturity (Years) | Interest Rate (%) | Original Principal Amount (USD) | Principal Amount Outstanding as of December 31, 2011 (USD) | ||||||||||||
January 29, 1971 | 41 | 3 | 29,200,000 | 939,405 | ||||||||||||
April 12, 1971 | 30 | 3 | 400,000 | 10,888 | ||||||||||||
June 24, 1971 | 40 | 3 | 14,000,000 | 346,704 | ||||||||||||
August 31, 1971 | 41 | 3 | 6,000,000 | 146,509 | ||||||||||||
January 20, 1972 | 41 | 3 | 2,000,000 | 178,818 | ||||||||||||
February 14, 1972 | 41 | 3 | 40,000,000 | 2,306,944 | ||||||||||||
February 14, 1972 | 40 | 3 | 162,200,000 | 5,032,041 | ||||||||||||
March 16, 1972 | 41 | 3 | 17,000,000 | 1,244,420 | ||||||||||||
June 27, 1972 | 40 | 3 | 5,000,000 | 237,315 | ||||||||||||
September 13, 1972 | 41 | 3 | 2,500,000 | 174,542 | ||||||||||||
February 28, 1973 | 40 | 3 | 25,000,000 | 2,339,733 | ||||||||||||
April 12, 1973 | 42 | 3 | 96,300,000 | 12,034,264 | ||||||||||||
April 12, 1973 | 43 | 3 | 5,300,000 | 826,041 | ||||||||||||
April 12, 1973 | 40 | 3 | 25,200,000 | 1,578,382 | ||||||||||||
January 28, 1974 | 40 | 3 | 5,000,000 | 487,131 | ||||||||||||
April 19, 1974 | 40 | 3 | 2,800,000 | 360,500 | ||||||||||||
September 11, 1974 | 41 | 3 | 25,700,000 | 4,262,421 | ||||||||||||
September 13, 1975 | 41 | 3 | 5,000,000 | 819,121 | ||||||||||||
September 13, 1975 | 41 | 3 | 5,000,000 | 818,222 | ||||||||||||
September 13, 1975 | 41 | 3 | 5,000,000 | 1,148,677 | ||||||||||||
February 18, 1976 | 40 | 3 | 11,900,000 | 1,596,466 | ||||||||||||
February 18, 1976 | 40 | 3 | 27,900,000 | 3,870,144 | ||||||||||||
February 18, 1976 | 40 | 3 | 23,400,000 | 4,996,542 | ||||||||||||
February 18, 1976 | 40 | 3 | 90,800,000 | 13,774,070 | ||||||||||||
July 21, 1977 | 41 | 3 | 59,500,000 | 12,555,707 | ||||||||||||
July 21, 1977 | 40 | 3 | 43,800,000 | 7,944,731 | ||||||||||||
June 7, 1979 | 30 | 3 | 40,000,000 | 9,673,136 | ||||||||||||
January 25, 1980 | 40 | 3 | 30,000,000 | 8,161,941 | ||||||||||||
May 18, 1981 | 40 | 3 | 27,000,000 | 7,990,217 | ||||||||||||
October 12, 1994 | 20 | 6.25 | 1,640,370,000 | 349,363,083 | ||||||||||||
March 27, 1998 | 15 | LIBOR+0.75 | 2,000,000,000 | 68,856,448 | ||||||||||||
September 14, 1998 | 16 | LIBOR+0.5 | 48,000,000 | 5,209,749 | ||||||||||||
October 23, 1998 | 15 | LIBOR+0.75 | 2,000,000,000 | 400,000,000 | ||||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | USD | 929,284,314 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(1) | (Won) | 1,071,743,599,260 | ||||||||||||||
|
|
(1) | U.S. dollar amounts are converted to Won amounts at the rate of US$1.00 to (Won)1,153.3, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
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b. Borrowings in Euro
Date of Borrowing | Original Maturity (Years) | Interest Rate (%) | Original Principal Amount (EUR) | Principal Amount Outstanding as of December 31, 2011 (EUR) | ||||||||||||
April 19, 1982 | 39 | 2 | 25,000,000 | 318,509 | ||||||||||||
March 27, 1985 | 30 | 2 | 6,000,000 | 511,858 | ||||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | EUR | 830,367 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(1) | (Won) | 1,240,652,000 | ||||||||||||||
|
|
(1) | Euro amounts are converted to Won amounts at the rate of EUR1.00 to (Won)1,494.1, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
c. Borrowings in Japanese Yen
Date of Borrowing | Original Maturity (Years) | Interest Rate (%) | Original Principal Amount (JPY) | Principal Amount Outstanding as of December 31, 2011 (JPY) | ||||||||||||
August 18, 1987 | 25 | 4.25 | 7,750,000,000 | 418,918,000 | ||||||||||||
August 18, 1987 | 25 | 4.25 | 12,911,000,000 | 653,622,000 | ||||||||||||
June 22, 1988 | 25 | 4.25 | 2,679,000,000 | 214,395,000 | ||||||||||||
June 22, 1988 | 25 | 4.25 | 5,920,000,000 | 466,425,000 | ||||||||||||
June 22, 1988 | 25 | 4.25 | 5,254,000,000 | 311,151,000 | ||||||||||||
June 22, 1988 | 25 | 4.25 | 4,440,000,000 | 359,475,000 | ||||||||||||
December 13, 1989 | 25 | Floating | 8,745,658,966 | 2,488,139,866 | ||||||||||||
October 31, 1990 | 25 | 4 | 4,320,000,000 | 901,288,000 | ||||||||||||
October 31, 1990 | 25 | 4 | 5,414,000,000 | 478,992,000 | ||||||||||||
October 31, 1990 | 25 | 4 | 2,160,000,000 | 466,712,000 | ||||||||||||
|
| |||||||||||||||
Subtotal in Original Currency | JPY | 6,759,117,866 | ||||||||||||||
|
| |||||||||||||||
Subtotal in Equivalent Amount of Won(1) | (Won) | 100,383,714,900 | ||||||||||||||
|
| |||||||||||||||
Total External Borrowings in Equivalent Amount of Won | (Won) | 1,173,367,966,160 | ||||||||||||||
|
|
(1) | Japanese yen amounts are converted to Won amounts at the rate of JPY100.00 to (Won)1,485.16, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
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B. External Guaranteed Debt of the Government
Borrower | Issue Date | Maturity Date | Interest Rate (%) | Currency | Original Principal Amount | Principal Amount Outstanding as of December 31, 2011 | ||||||||||||||
Hana Bank | April 9, 2009 | April 9, 2012 | 6.5 | USD | 1,000,000,000 | 1,000,000,000 | ||||||||||||||
Hana Bank | June 30, 2009 | June 29, 2012 | 4.85 | MYR | 290,000,000 | 290,000,000 | ||||||||||||||
|
| |||||||||||||||||||
Total External Guaranteed Debt in Original Currencies |
| USD | 1,000,000,000 | |||||||||||||||||
MYR | 290,000,000 | |||||||||||||||||||
|
| |||||||||||||||||||
Total External Guaranteed Debt in Equivalent Amount of Won(1) |
| (Won) | 1,258,558,400,000 | |||||||||||||||||
|
|
(1) | U.S. dollar amounts are converted to Won amounts at the rate of US$1.00 to (Won)1,153.3, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. Malaysian ringgit amounts are converted to Won amounts at the rate of MYR1.00 to (Won)362.96, the market average exchange rate in effect on December 31, 2011, as announced by Seoul Money Brokerage Services, Ltd. |
C. Internal Debt of the Government
Title | Range of Interest Rates | Range of Years of Issue | Range of Years of Original Maturity | Principal Amounts Outstanding as of December 31, 2011 | ||||||||||||
(%) | (billions of Won) | |||||||||||||||
1. Bonds | ||||||||||||||||
Interest-Bearing Treasury Bond for Treasury Bond Management Fund | 1.5-7.28 | 2002-2011 | 2012-2031 | 340,060.8 | ||||||||||||
Interest-Bearing Treasury Bond for National Housing I | 3.0 | 2002-2011 | 2007-2016 | 44,528.0 | ||||||||||||
Interest-Bearing Treasury Bond for National Housing II | 0.0-3.0 | 1987-2011 | 2007-2030 | 3,777.9 | ||||||||||||
Interest-Bearing Treasury Bond for National Housing III | 0 | 2005 | 2015 | 594.2 | ||||||||||||
Non-interest-Bearing Treasury Bond for Contribution to International Organizations(1) | — | 1967-1985 | — | 11.3 | ||||||||||||
Total Bonds | 388,972.2 | |||||||||||||||
2. Borrowings | ||||||||||||||||
Borrowings from The Bank of Korea | 3.44 | 2011 | 2012 | 1,117.2 | ||||||||||||
Borrowings from the Sports Promotion Fund | 3.36 | 2011 | 2014 | 20.0 | ||||||||||||
Borrowings from the Korea Foundation Fund | 4.31 | 2009 | 2014 | 10.0 | ||||||||||||
Borrowings from the Government Employees’ Pension Fund | 2.8-3.88 | 2009-2011 | 2012-2014 | 60.0 | ||||||||||||
Borrowings from the Film Industry Development Fund | 3.04-3.85 | 2010-2011 | 2013-2014 | 50.0 | ||||||||||||
Borrowings from the Culture and Arts Promotion Fund | 3.29 | 2010 | 2013 | 20.0 | ||||||||||||
Total Borrowings | 1,277.2 | |||||||||||||||
|
| |||||||||||||||
Total Internal Funded Debt | 390,249.4 | |||||||||||||||
|
|
(1) | Interest Rates and Years of Maturity not applicable. |
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D. Internal Guaranteed Debt of the Government
Title | Range of Interest Rates | Range of Years of Issue | Range of Years of Original Maturity | Principal Amounts Outstanding as of December 31, 2011 | ||||||||||||
(%) | (billions of Won) | |||||||||||||||
1. Bonds of Government-Affiliated Corporations | ||||||||||||||||
Korea Deposit Insurance Corporation | 4.09-6.32 | 2007-2011 | 2012-2016 | 23,740.0 | ||||||||||||
KAMCO | Floating-5.27 | 2009-2011 | 2012-2014 | 5,152.1 | ||||||||||||
Korea Student Aid Foundation | Floating-5.26 | 2010-2011 | 2012-2031 | 4,800.0 | ||||||||||||
Total Bonds | 33,692.1 | |||||||||||||||
2. Borrowings of Government-Affiliated Corporations | ||||||||||||||||
Rural Development Corporation and Federation of Farmland | 5.5 | 1989 | 2023 | 107.0 | ||||||||||||
Total Borrowings | 107.0 | |||||||||||||||
|
| |||||||||||||||
Total Internal Guaranteed Debt | 33,799.1 | |||||||||||||||
|
|
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Description of Debt Securities
We will issue debt securities under a fiscal agency agreement or agreements. The description below summarizes the material provisions of the debt securities and the fiscal agency agreement. Since it is only a summary, the description may not contain all of the information that may be important to you as a potential investor in the debt securities. Therefore, we urge you to read the form of fiscal agency agreement and the form of global debt security before deciding whether to invest in the debt securities. We have filed a copy of these documents with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part. You should refer to such exhibits for more complete information.
The financial terms and other specific terms of your debt securities will be described in the prospectus supplement relating to your debt securities. The description in the prospectus supplement will supplement this description or, to the extent inconsistent with this description, replace it.
We will appoint a fiscal agent or agents in connection with debt securities whose duties will be governed by the fiscal agency agreement. We may replace the fiscal agent or appoint different fiscal agents for different series of debt securities.
General Terms of the Debt Securities
We may issue debt securities in separate series at various times. The Republic may irrevocably guarantee the payment of principal of, and interest on, one or more series of debt securities. The prospectus supplement that relates to your debt securities will specify some or all of the following terms:
• | the aggregate principal amount; |
• | the currency of denomination and payment; |
• | any limitation on principal amount and authorized denominations; |
• | the percentage of their principal amount at which the debt securities will be issued; |
• | the maturity date or dates; |
• | the interest rate for the debt securities and, if variable, the method by which the interest rate will be calculated; |
• | whether any amount payable in respect of the debt securities will be determined based on an index or formula, and how any such amount will be determined; |
• | the dates from which interest, if any, will accrue for payment of interest and the record dates for any such interest payments; |
• | where and how we will pay principal and interest; |
• | whether and in what circumstances the debt securities may be redeemed before maturity; |
• | any sinking fund or similar provision; |
• | whether any part or all of the debt securities will be in the form of a global security and the circumstances in which a global security is exchangeable for certificated securities; |
• | if issued in certificated form, whether the debt securities will be in bearer form with interest coupons, if any, or in registered form without interest coupons, or both forms, and any restrictions on exchanges from one form to the other; |
• | whether any of the terms set out herein will differ for the debt securities; |
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• | whether the Republic will irrevocably guarantee the payment of principal of, and interest on, the debt securities; and |
• | other specific provisions. |
Depending on the terms of the debt securities we issue, the prospectus supplement relating to the debt securities may also describe applicable U.S. federal income tax and other considerations additional to the disclosure in this prospectus.
Unless otherwise specified in the applicable prospectus supplement, we will maintain at an office in the Borough of Manhattan, The City of New York, a register for the registration of transfers of debt securities issued in registered form.
Payments of Principal, Premium and Interest
On every payment date specified in the relevant prospectus supplement, we will pay the principal, premium and/or interest due on that date to the registered holder of the relevant debt security at the close of business on the related record date. We will make all payments at the place and in the currency set out in the prospectus supplement. Unless otherwise specified in the relevant prospectus supplement or the debt securities, we will make payments in U.S. dollars at the New York office of the fiscal agent or, outside the United States, at the office of any paying agent. Unless otherwise specified in the applicable prospectus supplement or debt securities, we will pay interest by check, payable to the registered holder.
We will make any payments on debt securities in bearer form at the offices and agencies of the fiscal agent or any other paying agent outside the United States as we may designate. At the option of the holder of the bearer debt securities, we will make such payments by check or by transfer to an account maintained by the holder with a bank located outside of the United States. We will not make payments on bearer debt securities at the corporate trust office of the fiscal agent in the United States or at any other paying agency in the United States. In addition, we will not make any payment by mail to an address in the United States or by transfer to an account maintained by a holder of bearer debt securities with a bank in the United States. Nevertheless, we will make payments on a bearer debt security denominated and payable in U.S. dollars at an office or agency in the United States if:
• | payment outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions; and |
• | the payment is then permitted under United States law, without material adverse consequences to us. |
If we issue bearer debt securities, we will designate the offices of at least one paying agent outside the United States as the location for payment.
Repayment of Funds; Prescription
If no one claims money paid by us to the fiscal agent for the payment of principal or interest in respect of any series of debt securities for two years after the payment was due and payable, the fiscal agent or paying agent will repay the money to us. After such repayment, the fiscal agent or paying agent will not be liable with respect to the amounts so repaid, and you may look only to us for any payment under the debt securities.
Under Korean law, you will not be permitted to file a claim against us for payment of principal or interest on any series of debt securities unless you do so within five years, in the case of principal, and two years, in the case of interest, from the date on which payment was due.
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Global Securities
The prospectus supplement relating to a series of debt securities will indicate whether any of that series of debt securities will be represented by a global security. The prospectus supplement will also describe any unique specific terms of the depositary arrangement with respect to that series. Unless otherwise specified in the prospectus supplement, we anticipate that the following provisions will apply to depositary arrangements.
Registered Ownership of the Global Security
The global security will be registered in the name of a depositary identified in the prospectus supplement, or its nominee, and will be deposited with the depositary, its nominee or a custodian. The depositary, or its nominee, will therefore be considered the sole owner or holder of debt securities represented by the global security for all purposes under the fiscal agency agreement. Except as specified below or in the applicable prospectus supplement, beneficial owners:
• | will not be entitled to have any of the debt securities represented by the global security registered in their names; |
• | will not receive physical delivery of any debt securities in definitive form; |
• | will not be considered the owners or holders of the debt securities; |
• | must rely on the procedures of the depositary and, if applicable, any participants (institutions that have accounts with the depositary or a nominee of the depositary, such as securities brokers and dealers) to exercise any rights of a holder; and |
• | will receive payments of principal and interest from the depositary or its participants rather than directly from us. |
We understand that, under existing industry practice, the depositary and participants will allow beneficial owners to take all actions required of, and exercise all rights granted to, the registered holders of the debt securities.
We will register debt securities in the name of a person other than the depositary or its nominee only if:
• | the depositary for a series of debt securities is unwilling or unable to continue as depositary; or |
• | we determine, in our sole discretion, not to have a series of debt securities represented by a global security. |
In either such instance, an owner of a beneficial interest in a global security will be entitled to registration of a principal amount of debt securities equal to its beneficial interest in its name and to physical delivery of the debt securities in definitive form.
Beneficial Interests in and Payments on a Global Security
Only participants, and persons that may hold beneficial interests through participants, can own a beneficial interest in the global security. The depositary keeps records of the ownership and transfer of beneficial interests in the global security by its participants. In turn, participants keep records of the ownership and transfer of beneficial interests in the global security 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 security will be made to the depositary or its nominee. When the depositary receives payment of principal or interest on the global security, we expect the depositary to credit its participants’ accounts with amounts that correspond to their respective beneficial interests in the global security. 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 security with amounts that correspond to the owners’ respective beneficial interests in the global security.
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The depositary and its participants establish policies and procedures governing payments, transfers, exchanges and other important matters that affect owners of beneficial interests in a global security. The depositary 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 security, 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 the depositary and its participants or for any aspect of the relationship between participants and owners of beneficial interests in the global security.
Bearer Securities
We may issue debt securities in a series in the form of one or more bearer global debt securities deposited with a common depositary for the Euroclear and Clearstream, or with a nominee identified in the applicable prospectus supplement. The specific terms and procedures, including the specific terms of the depositary arrangement, with respect to any portion of a series of debt securities to be represented by a global security will be described in the applicable prospectus supplement.
Additional Amounts
We will make all payments of principal of, and premium and interest, if any, on the debt securities without withholding or deducting any present or future taxes imposed by the Republic or any of its political subdivisions, unless required by law. If Korean law requires us to deduct or withhold taxes, we will pay additional amounts as necessary to ensure that you receive the same amount as you would have received without such withholding or deduction.
We will not pay, however, any additional amounts if you are liable for Korean tax because:
• | you are connected with the Republic other than by merely owning the debt security or receiving income or payments on the debt security; |
• | you failed to complete and submit a declaration of your status as a non-resident of the Republic after we or the relevant tax authority requested you to do so; or |
• | you failed to present your debt security for payment within 30 days of when the payment is due or, if the fiscal agent did not receive the money prior to the due date, the date notice is given to holders that the fiscal agent has received the full amount due to holders. Nevertheless, we will pay additional amounts to the extent you would have been entitled to such amounts had you presented your debt security for payment on the last day of the 30-day period. |
We will not pay any additional amounts for taxes on the debt securities except for taxes payable through deduction or withholding from payments of principal, premium or interest. Examples of the types of taxes for which we will not pay additional amounts include the following: estate or inheritance taxes, gift taxes, sales or transfer taxes, personal property or related taxes, assessments or other governmental charges. We will pay stamp or other similar taxes that may be imposed by the Republic, the United States or any political subdivision or taxing authority in one of those two countries on the fiscal agency agreement or be payable in connection with the issuance of the debt securities.
Status of Debt Securities
The debt securities will:
• | constitute our direct, unconditional, unsecured and unsubordinated obligations; |
• | rank at least equally in right of payment among themselves, regardless of when issued or currency of payment; 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. |
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Negative Pledge Covenant
If any debt securities are outstanding, we will not create or permit any security interests on our assets as security for any of our indebtedness or guarantees issued by us, unless the security interest also secures our obligations under the debt securities.
We may, however, create or permit a security interest:
• | on any promissory debt securities or commercial paper discounted or otherwise provided as security to or issued or held by us created in favor of The Bank of Korea in the normal operation of The Bank of Korea’s discount facilities or facilities for the funding of loans by us to our customers; or |
• | on any asset (or documents of title to such asset) incurred when the asset was purchased or improved to secure payment of the cost of the activity; or |
• | of a statutory nature arising in the ordinary course of our business but unrelated to our activities of borrowing or raising money; or |
• | on any real estate owned by us imposed by a tenant of such real estate as security for repayment of any key money paid by the tenant; or |
• | arising by operation of Korean law or given preference by law following our failure to meet an obligation, although we will not permit such a security interest to exist for more than 30 days. |
Events of Default
Unless otherwise specified in the applicable prospectus supplement in connection with a particular offering of debt securities, each of the following constitutes an event of default with respect to any series of debt securities:
1. | Non-Payment: we do not pay principal or interest or premium or deposit any sinking fund payment on any debt securities of the series when due and such failure to pay continues for 30 days. |
2. | Breach of Other Obligations: we fail to observe or perform any of the covenants in the series of debt securities (other than non-payment) for 60 days after written notice of the default is delivered to us at the corporate trust office of the fiscal agent in New York City by holders representing at least 10% of the aggregate principal amount of the debt securities of the series. |
3. | Cross Default and Cross Acceleration: |
• | we default on any External Indebtedness, and, as a result, becomes obligated to pay an amount equal to or greater than US$10,000,000 in aggregate principal amount prior to its due date; or |
• | we fail to pay when due, including any grace period, any of our External Indebtedness in aggregate principal amount equal to or greater than US$10,000,000 or we fail to pay when requested and required by the terms thereof any guarantee for External Indebtedness of another person equal to or greater than US$10,000,000 in aggregate principal amount. |
4. | Moratorium/Default: |
• | the Republic declares a general moratorium on the payment of its External Indebtedness, including obligations under guarantees; |
• | the Republic becomes liable to repay prior to maturity any amount of External Indebtedness, including obligations under guarantees, as a result of a default under such External Indebtedness or obligations; or |
• | the international monetary reserves of the Republic become subject to a security interest or segregation or other preferential arrangement for the benefit of any creditors. |
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5. | Bankruptcy: |
• | we are declared bankrupt or insolvent by any court or administrative agency with jurisdiction over us; |
• | we pass a resolution to apply for bankruptcy or to request the appointment of a receiver or trustee or similar official in insolvency; |
• | a substantial part of our assets are liquidated; or |
• | we cease to conduct the banking business. |
6. | Cessation of Government Control or Failure of Support: the Republic ceases to (directly or indirectly) control us or fails to provide financial support for us as required under Article 44 of the KDB Act as of the issue date of the debt securities of such series, provided, however, that neither such event will constitute an event of default if, at such time, the debt securities of such series shall have the benefit of a Government Guarantee (as defined below). |
For purposes of the foregoing, “External Indebtedness” means any obligation for the payment or repayment of money borrowed that is denominated in a currency other than the currency of the Republic.
As used in paragraph 6 above, “Government Guarantee” means a direct and irrevocable obligation by the Republic to guarantee or repay in full, or otherwise protect against any losses on any amount due under, or to purchase, the debt securities of such series, including principal of, premium, if any, and interest on the debt securities of such series, provided that:
a) | the Republic shall have expressly assumed the payment obligations in respect of the debt securities of such series under such Government Guarantee by way of agreement, deed, statute or any other instrument or law or regulation having a similar effect; |
b) | the Government Guarantee shall be subject to the obligation to make all payments of principal of, premium, if any, and interest on the debt securities of such series without withholding or deducting any present or future taxes imposed by the Republic or any of its political subdivisions; any obligation to pay additional amounts as described in “—Additional Amounts” above shall apply to the Government Guarantee and the Republic, as guarantor; and |
c) | we shall have obtained an opinion of independent legal advisers that the Government Guarantee is binding upon and enforceable against the Republic, and that the debt securities of such series shall remain our valid, binding and enforceable obligations. |
We will notify holders of the debt securities of the occurrence of the cessation of government control or failure of support described under paragraph 6 above as soon as practicable thereafter setting out details of the event, cessation or failure described above and the establishment of the Government Guarantee, and shall make available for inspection by the holders copies of the documentation or statute, law or regulation, as the case may be, evidencing the Government Guarantee and the opinion described in paragraph (c) of the definition of “Government Guarantee” above, during normal business hours at the office of the fiscal agent.
As used in paragraph 6 above, “control” means the acquisition or control of a majority of our voting share capital or the right to appoint and/or remove all or the majority of the members of our board of directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise.
If an event of default occurs, any holder may declare the principal amount of debt securities that it holds to be immediately due and payable by written notice to us and the fiscal agent.
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You should note that:
• | despite the procedure described above, no debt securities may be declared due and payable if we cure the applicable event of default before we receive the written notice from the debt security holder; |
• | we are not required to provide periodic evidence of the absence of defaults; and |
• | the fiscal agency agreement does not require us to notify holders of the debt securities of an event of default or grant any debt security holder a right to examine the security register. |
Modifications and Amendments; Debt Securityholders’ Meetings
Each holder of a series of debt securities must consent to any amendment or modification of the terms of that series of debt securities or the fiscal agency agreement that would, among other things:
• | change the stated maturity of the principal of the debt securities or any installment of interest; |
• | reduce the principal amount of such series of debt securities or the portion of the principal amount payable upon acceleration of such debt securities; |
• | change the debt security’s interest rate or premium payable; |
• | change the currency of payment of principal, interest or premium; |
• | amend either the procedures provided for a redemption event or the definition of a redemption event; |
• | shorten the period during which we are not allowed to redeem the debt securities or grant us a right to redeem the debt securities which we previously did not have; or |
• | reduce the percentage of the outstanding principal amount needed to modify or amend the fiscal agency agreement or the terms of such series of debt securities. |
We may, with the exception of the above changes, with the consent of the holders of at least 66 2/3% in principal amount of the debt securities of a series that are outstanding, modify and amend other terms of that series of debt securities.
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We may at any time call a meeting of the holders of a series of debt securities to seek the holders of the debt securities’ approval of the modification, or amendment, or obtain a waiver, of any provision of that series of debt securities. The meeting will be held at the time and place in the Borough of Manhattan in New York City as determined by the fiscal agent. The notice calling the meeting must be given at least 30 days and not more than 60 days prior to the meeting.
While an event of default with respect to a series of debt securities is continuing, holders of at least 10% of the aggregate principal amount of that series of debt securities may compel the fiscal agent to call a meeting of all holders of debt securities of that series.
Holders of debt securities who hold, in the aggregate, a majority in principal amount of the debt securities of the series that are outstanding at the time will constitute a quorum at a meeting. At the reconvening of any meeting adjourned for a lack of a quorum, the persons entitled to vote 25% in principal amount of the debt securities of the series that are outstanding at the time will constitute a quorum for taking any action set out in the original notice. To vote at a meeting, a person must either hold outstanding debt securities of the relevant series or be duly appointed as a proxy for a debt securityholder. The fiscal agent will make all rules governing the conduct of any meeting.
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The fiscal agency agreement and a series of debt securities may be modified or amended, without the consent of the holders of the debt securities, to:
• | add covenants made by us that benefit holders of the debt securities; |
• | surrender any right or power given to us; |
• | secure the debt securities; |
• | permit registered securities to be exchanged for bearer securities or relax or eliminate restrictions on the payment of principal, premium or interest on bearer securities to the extent permitted under United States Department of Treasury regulations, provided that holders of the debt securities do not suffer any adverse tax consequences as a result; and |
• | cure any ambiguity or correct or supplement any defective provision in the fiscal agency agreement or the debt securities, without materially and adversely affecting the interests of the holders of the debt securities. |
Fiscal Agent
The fiscal agency agreement governs the duties of each fiscal agent. We may maintain bank accounts and a banking relationship with each fiscal agent. The fiscal agent is our agent and does not act as a trustee for the holders of the debt securities.
Further Issues of Debt Securities
We may, without the consent of the holders of the debt securities, create and issue additional debt securities with the same terms and conditions as any series of debt securities (or that are the same except for the amount of the first interest payment and for the interest paid on the series of debt securities prior to the issuance of the additional debt securities). We may consolidate such additional debt securities with the outstanding debt securities to form a single series.
We may offer additional debt securities with original issue discount (“OID”) for U.S. federal income tax purposes as part of a further issue. Purchasers of debt securities after the date of any further issue will not be able to differentiate between debt securities sold as part of the further issue and previously issued debt securities of the same series. If we were to issue further debt securities with OID, purchasers of debt securities after such further issue may be required to accrue OID (or greater amounts of OID that they would otherwise have accrued) with respect to their debt securities. This may affect the price of outstanding debt securities following a further issue. Purchasers are advised to consult legal counsel with respect to the implications of any future decision by us to undertake a further issue of debt securities with OID.
The description below summarizes some of the provisions of warrants for the purchase of debt securities that we may issue from time to time and of the warrant agreement. Copies of the forms of warrants and the warrant agreement are or will be filed as exhibits to the registration statement of which this prospectus is a part. Since it is only a summary, the description may not contain all of the information that is important to you as a potential investor in the warrants.
The description of the warrants that will be contained in the prospectus supplement will supplement this description and, to the extent inconsistent with this description, replace it.
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General Terms of the Warrants
Each series of warrants will be issued under a warrant agreement to be entered into between us and a bank or trust company, as warrant agent. The prospectus supplement relating to the series of warrants will describe:
• | the terms of the debt securities purchasable upon exercise of the warrants, as described above under “—Description of Debt Securities—General Terms of the Debt Securities”; |
• | the principal amount of debt securities purchasable upon exercise of one warrant and the exercise price; |
• | the procedures and conditions for the exercise of the warrants; |
• | the dates on which the right to exercise the warrants begins and expires; |
• | whether and under what conditions the warrants may be terminated or canceled by us; |
• | whether and under what conditions the warrants and any debt securities issued with the warrants will be separately transferable; |
• | whether the warrants will be issued in bearer or registered form; |
• | whether the warrants will be exchangeable between registered and bearer form, and, if issued in registered form, where they may be transferred and registered; and |
• | other specific provisions. |
Terms Applicable to Debt Securities and Warrants
Governing Law
The fiscal agency agreement, any warrant agreement and the debt securities and any warrants will be governed by the laws of the State of New York without regard to any principles of New York law requiring the application of the laws of another jurisdiction. Nevertheless, all matters governing our authorization, execution and delivery of the debt securities and the fiscal agency agreement and any warrants and warrant agreement by us will be governed by the laws of the Republic.
Jurisdiction and Consent to Service
We are owned by a foreign sovereign government and all of our directors and executive officers and some of the experts named in this prospectus are residents of Korea. In addition, all or most of our assets and the assets of the people named in the preceding sentence are located outside of the United States. For that reason, you may have difficultly serving process on us or the individuals described above in the United States or enforcing in a U.S. court a U.S.-court judgment based on the U.S. federal securities laws. Our Korean counsel, Lee & Ko, has informed us that there would be certain conditions to be met under Korean law regarding the enforceability in Korea, either in original actions or in actions for the enforcement of U.S.-court judgments, of civil liabilities based on the U.S. federal securities laws.
We have appointed the General Manager of our New York Branch, Mr. Joo Yung Sung, and the Senior Deputy General Manager of our New York Branch, Mr. Jong Kug Yoon, and each of their successors in the future, as our authorized agents to receive service of process in any suit which a holder of any series of debt securities or warrants may bring in any state or federal court in New York City and we have accepted the jurisdiction of those courts for those actions. Our New York Branch is located at 320 Park Avenue, 32nd Floor, New York, New York 10022. These appointments are irrevocable as long as any amounts of principal, premium or interest remain payable by us to the Fiscal Agent under any series of debt securities or any warrants have not expired or otherwise terminated under their terms. If for any reason either of these two men ceases to act as our authorized agent or ceases to have an address in Manhattan, we shall appoint a replacement. The appointment of agents for receipt of service of process and the acceptance of jurisdiction of state or federal courts in New York City do not, however, apply to actions brought under the United States federal securities laws. We may also be sued in courts having jurisdiction over us located in the Republic.
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We will irrevocably consent to any relief and process in connection with a suit against us in relation to the debt securities or warrants, including the enforcement or execution of any order or judgment of the court. To the extent permitted by law, we will waive irrevocably any immunity from jurisdiction to which we might otherwise be entitled in any suit based on any series of debt securities or warrants.
Foreign Exchange Controls
Before we may issue debt securities outside the Republic, the Minister of Strategy and Finance of Korea must receive a report with respect to the issuance by us of debt securities in accordance with the Foreign Exchange Transaction Act and Regulation of Korea. After issuance of debt securities outside the Republic, we are required to notify the Minister of Strategy and Finance of such issuance. No further approval or authorization is required for us to pay principal of or interest on the debt securities.
Description of Guarantees to be Issued by Us
The description below summarizes some of the provisions of the guarantees that we may issue from time to time. Copies of the forms of guarantees are or will be filed as exhibits to the registration statement of which this prospectus is a part. Since it is only a summary, the description may not contain all of the information that is important to you as a potential beneficiary of a guarantee.
The description of a guarantee that will be contained in the prospectus supplement will supplement this description and, to the extent inconsistent with this description, replace it.
General Terms of the Guarantees
Each guarantee will be issued by us as guarantor. The prospectus supplement relating to a guarantee will specify:
• | the relevant obligor and the obligations guaranteed under the guarantee; |
• | the nature and scope of the guarantee, including whether or not it is irrevocable and unconditional; |
• | the status of the guarantee in relation to our other obligations; |
• | the governing law of the guarantee; and |
• | other relevant provisions of the guarantee. |
Description of Guarantees to be Issued by The Republic of Korea
The description below summarizes some of the provisions of the guarantees that the Republic may issue from time to time to guarantee our debt securities. Since it is only a summary, the description may not contain all of the information that is important to you as a potential beneficiary of a guarantee.
The prospectus supplement relating to a guarantee to be issued by the Republic will specify other specific provisions. The description of a guarantee to be issued by the Republic that will be contained in the prospectus supplement will supplement this description and, to the extent inconsistent with this description, replace it.
General Terms of the Guarantees
Each guarantee will be issued by the Republic as guarantor. The prospectus supplement relating to a guarantee will specify:
• | the relevant obligor and the obligations guaranteed under the guarantee; |
• | the nature and scope of the guarantee, including whether or not it is irrevocable and unconditional; |
• | the status of the guarantee in relation to the Republic’s other obligations; |
• | the governing law of the guarantee; and |
• | other relevant provisions of the guarantee. |
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LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES AND BEARER WARRANTS
Bearer securities will not be offered, sold or delivered in the United States or its possessions or to a United States person; except in certain circumstances permitted by United States tax regulations. Bearer securities will initially be represented by temporary global securities, without interest coupons, deposited with a common depositary in London for Euroclear and Clearstream for credit to designated accounts. Unless otherwise indicated in the prospectus supplement:
• | each temporary global security will be exchangeable for definitive bearer securities on or after the date that is 40 days after issuance only upon receipt of certification of non-United States beneficial ownership of the temporary global security as provided for in United States tax regulations, provided that no bearer security will be mailed or otherwise delivered to any location in the United States in connection with the exchange; and |
• | any interest payable on any portion of a temporary global security with respect to any interest payment date occurring prior to the issuance of definitive bearer securities will be paid only upon receipt of certification of non-United States beneficial ownership of the temporary global security as provided for in United States tax regulations. |
Bearer securities, other than temporary global debt securities, and any related coupons will bear the following legend: “Any United States person who holds this obligation will be subject to limitations under the United States federal income tax laws, including the limitations provided in Section 165(j) and 1287(a) of the Internal Revenue Code.” The sections referred to in the legend provide that, with certain exceptions, a United States person who holds a bearer security or coupon will not be allowed to deduct any loss realized on the disposition of the bearer security, and any gain, which might otherwise be characterized as capital gain, recognized on the disposition will be treated as ordinary income.
For purposes of this section, “United States person” means:
• | a citizen or resident of the United States; |
• | a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof; or |
• | an estate or trust the income of which is subject to United States federal income taxation regardless of its source. |
For purposes of this section, “United States” means the United States of America, including each state and the District of Columbia, its territories, possessions and other areas subject to its jurisdiction.
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The following discussion summarizes certain Korean and U.S. federal income tax considerations that may be relevant to you if you invest in debt securities. This summary is based on laws, regulations, rulings and decisions in effect as of the date of this Prospectus. These laws, regulations, rulings and/or decisions may change; any such change could apply retroactively and could affect the continued validity of this summary.
This summary does not describe all of the tax considerations that may be relevant to you or your situation, particularly if you are subject to special tax rules. You should consult your tax adviser about the tax consequences of holding the debt securities, including the relevance to your particular situation of the considerations discussed below, as well as of state, local or other tax laws.
The following summary of Korean tax consideration applies to you so long as you are not:
• | a citizen of Korea; |
• | a resident of Korea; |
• | a corporation organized under Korean law; |
• | a corporation of which the place of management is located in Korea; or |
• | maintaining a permanent establishment or a fixed base in Korea for business, trade or otherwise. |
Tax on Interest Payments
Under current Korean tax laws, when we make payments of interest to you on the debt securities issued outside of Korea denominated in a foreign currency, 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.
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 issued outside of Korea, as long as such debt securities are denominated in a currency other than Won, provided that the disposition does not involve a transfer of such debt securities within Korea and the disposition does not involve a transfer of such debt securities by a resident of Korea or a Korean corporation (or the Korean permanent establishment of a non-resident or a non-Korean corporation). If you sell or otherwise dispose of such debt securities within Korea, any gain realized on the transaction will generally be taxable at ordinary Korean withholding tax rates (the lesser of 22.0% of net gain or 11% of gross sale proceeds with respect to transactions), 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 the heading “Tax Treaties” below.
Inheritance Tax and Gift Tax
If you die while you are the holder of the debt security, the subsequent transfer of the debt security by way of succession will be subject to Korean inheritance tax. Similarly, if you transfer the debt security as a gift, the donee will be subject to Korean gift tax and you may be required to pay the gift tax if the donee fails to do so or the donee is a non-resident.
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Stamp Duty
You will not be subject to any Korean transfer tax, stamp duty, registration duty or similar documentary tax in respect of or in connection with a transfer of any debt securities or in connection with the exercise of exchange rights or conversion rights that may be acquired with the debt securities.
Guarantees
Although there are no Korean tax laws, regulations or rulings specific to the payment under the guarantee herein, we believe any payments of interest on and principal amount of the debt securities (or the issue price if the debt securities were originally issued at a discount) by the Republic under the Republic’s guarantee on the debt securities denominated in a foreign currency and issued by us or any payments of interest on and principal amount of the debt securities (or the issue price if the debt securities were originally issued at a discount) by us under our guarantee on the debt securities denominated in a foreign currency and issued by a third-party Korean issuer are not subject to withholding tax. Further details of the tax consequences of the holders of our debt securities guaranteed by the Republic or third-party debt securities guaranteed by us may be provided in the relevant prospectus supplement.
Tax Treaties
At the date of this prospectus, Korea has tax treaties with, among others, Australia, Austria, Bangladesh, Belgium, Brazil, Bulgaria, Canada, Chile, China, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, Mexico, Mongolia, the Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Republic of Fiji, Romania, Russia, Singapore, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Tunisia, Turkey, the United Kingdom, the United States of America and Vietnam under which the rate of withholding tax on interest and dividends is reduced, generally to between 5% and 16.5% (including surtax), and the tax on capital gains is often eliminated.
With respect to any gains subject to Korean withholding tax, as described under “—Tax on Capital Gains” above, you should inquire for yourself whether you are entitled to the benefit of a tax treaty with Korea. It will be your responsibility to claim the benefits of any tax treaty that may exist between your country and Korea in respect of capital gains, and to provide to the purchaser of the debt securities, or the relevant securities company handling the debt securities, as applicable, a certificate as to your country of residence. In the absence of sufficient proof, the purchaser, or the relevant securities company, as the case may be, must withhold tax at the normal rates.
At present, Korea has not entered into tax treaties regarding inheritance or gift tax.
Warrants
A description of the tax consequences of an investment in warrants will be provided in the applicable prospectus supplement.
United States Tax Considerations
The following discussion summarizes certain U.S. federal income tax considerations that may be relevant to you if you invest in debt securities and are a U.S. holder. You will be a U.S. holder if you are an individual who is a citizen or resident of the United States, a U.S. domestic corporation, or any other person that is subject to U.S. federal income tax on a net income basis in respect of its investment in a debt security. This summary deals only with U.S. holders that hold debt securities as capital assets for tax purposes. This summary does not apply to you if you are an investor that is subject to special tax rules, such as:
• | a bank or thrift; |
• | a real estate investment trust; |
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• | a regulated investment company; |
• | an insurance company; |
• | a dealer in securities or currencies; |
• | a trader in securities or commodities that elects mark-to-market treatment; |
• | a person that will hold debt securities as a hedge against currency risk or as a position in a straddle or conversion transaction for tax purposes; |
• | a tax exempt organization; or |
• | a person whose functional currency for tax purposes is not the U.S. dollar. |
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.
Any special U.S. federal income tax considerations relevant to a particular issuance of debt securities will be discussed in the applicable prospectus supplement. You should consult your tax adviser about the tax consequences of holding debt securities, including the relevance to your particular situation of the considerations discussed below, as well as of state, local or other tax laws.
Payments or Accruals of Interest
Payments or accruals of “qualified stated interest” (as defined below) on a debt security will be taxable to you as ordinary interest income at the time that you receive or accrue such amounts, in accordance with your regular method of tax accounting. If you use the cash method of tax accounting and you receive payments of interest pursuant to the terms of a debt security in a currency other than U.S. dollars, a “foreign currency”, the amount of interest income you will realize will be the U.S. dollar value of the foreign currency payment based on the exchange rate in effect on the date you receive the payment regardless of whether you convert the payment into U.S. dollars. If you are an accrual-basis U.S. holder, the amount of interest income you will realize will be based on the average exchange rate in effect during the interest accrual period or, with respect to an interest accrual period that spans two taxable years, at the average exchange rate for the partial period within the taxable year. Alternatively, as an accrual-basis U.S. holder you may elect to translate all interest income on foreign currency-denominated debt securities at the spot rate on the last day of the accrual period (or the last day of the taxable year, in the case of an accrual period that spans more than one taxable year), or on the date that you receive the interest payment if that date is within five business days of the end of the accrual period. If you make this election you must apply it consistently to all debt instruments from year to year and you cannot change the election without the consent of the Internal Revenue Service. If you use the accrual method of accounting for tax purposes you will recognize foreign currency gain or loss on the receipt of a foreign currency interest payment if the exchange rate in effect on the date the payment is received differs from the rate applicable to a previous accrual of that interest income. This foreign currency gain or loss will be treated as ordinary income or loss, but generally will not be treated as an adjustment to interest income received on the debt security.
Purchase, Sale and Retirement of Notes
Initially, your tax basis in a debt security generally will equal the cost of the debt security to you. Your basis will increase by any amounts that you are required to include in income under the rules governing original issue discount and market discount, and will decrease by the amount of any amortized premium and any payments other than qualified stated interest made on the debt security. The rules for determining these amounts are discussed below. If you purchase a debt security that is denominated in a foreign currency, the cost to you, and therefore generally your initial tax basis, will be the U.S. dollar value of the foreign currency purchase price on the date of purchase calculated at the exchange rate in effect on that date. If the foreign currency-denominated
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debt security is traded on an established securities market and you are a cash-basis taxpayer, or if you are an accrual-basis taxpayer that makes a special election, then you will determine the U.S. dollar value of the cost of the debt security by translating the amount of the foreign currency that you paid for the debt security at the spot rate of exchange on the settlement date of your purchase. The amount of any subsequent adjustments to your tax basis in a foreign currency-denominated debt security in respect of original issue discount, market discount and premium will be determined in the manner described below. If you convert U.S. dollars into a foreign currency and then immediately use that foreign currency to purchase a debt security, you generally will not have any taxable gain or loss as a result of the purchase.
When you sell or exchange a debt security, or if a debt security is retired, you generally will recognize gain or loss equal to the difference between the amount you realize on the transaction, less any accrued qualified stated interest, which will be subject to tax in the manner described above, and your tax basis in the debt security. If you sell or exchange a debt security for a foreign currency, or receive foreign currency on the retirement of a debt security, the amount you will realize for U.S. tax purposes generally will be the dollar value of the foreign currency that you receive calculated at the exchange rate in effect on the date the foreign currency debt security is disposed of or retired. If you dispose of a foreign currency debt security that is traded on an established securities market and you are a cash-basis U.S. holder, or if you are an accrual-basis holder that makes a special election, then you will determine the U.S. dollar value of the amount realized by translating the amount at the spot rate of exchange on the settlement date of the sale, exchange or retirement.
The special election available to you if you are an accrual-basis taxpayer in respect of the purchase and sale of foreign currency debt securities traded on an established securities market, which is discussed in the two preceding paragraphs, must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the Internal Revenue Service.
Except as discussed below with respect to market discount, short-term debt securities and foreign currency gain or loss, the gain or loss that you recognize on the sale, exchange or retirement of a debt security generally will be long-term capital gain or loss if you have held the debt security for more than one year. Under present law, the Code provides preferential treatment under certain circumstances for net long-term capital gains recognized by individual investors. The ability of U.S. holders to offset capital losses against ordinary income is limited.
The gain or loss that you recognize on the sale, exchange or retirement of a foreign currency debt security generally will be treated as ordinary income or loss to the extent that the gain or loss is attributable to changes in exchange rates during the period in which you held the debt security. This foreign currency gain or loss will not be treated as an adjustment to interest income that you receive on the debt security.
Original Issue Discount
If we issue debt securities at a discount from their stated redemption price at maturity, and the discount is equal to or more than the product of one-fourth of one percent (0.25%) of the stated redemption price at maturity of the debt securities multiplied by the number of whole years to their maturity, the debt securities will be “Original Issue Discount Debt Securities.” The difference between the issue price and their stated redemption price at maturity will be the “original issue discount.” The “issue price” of the debt securities will be the first price at which a substantial amount of the debt securities are sold to the public (i.e., excluding sales of debt securities to underwriters, placement agents, wholesalers, or similar persons). The “stated redemption price at maturity” will include all payments under the debt securities other than payments of qualified stated interest. The term “qualified stated interest” generally means stated interest that is unconditionally payable in cash or property, other than debt instruments issued by the Company, at least annually during the entire term of a debt security at a single fixed interest rate or, subject to certain conditions, based on one or more interest indices.
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If you invest in Original Issue Discount Debt Securities you generally will be subject to the special tax accounting rules for original issue discount obligations provided by the Internal Revenue Code and certain Treasury regulations (the “OID regulations”). You should be aware that, as described in greater detail below, if you invest in an Original Issue Discount Debt Security you generally will be required to include original issue discount in ordinary gross income for U.S. federal income tax purposes as it accrues, before you receive the cash attributable to that income.
In general, and regardless of whether you use the cash or the accrual method of tax accounting, if you are the holder of an Original Issue Discount Debt Security with a maturity greater than one year, you will be required to include in ordinary gross income the sum of the “daily portions” of original issue discount on that debt security for all days during the taxable year that you own the debt security. The daily portions of original issue discount on an Original Issue Discount Debt Security are determined by allocating to each day in any accrual period a ratable portion of the original issue discount allocable to that period. Accrual periods may be any length and may vary in length over the term of an Original Issue Discount Debt Security, so long as no accrual period is longer than one year and each scheduled payment of principal or interest occurs on the first or last day of an accrual period. If you are the initial holder of the debt security, the amount of original issue discount on an Original Issue Discount Debt Security allocable to each accrual period is determined by:
(i) | multiplying the “adjusted issue price” (as defined below) of the debt security at the beginning of the accrual period by a fraction, the numerator of which is the annual yield to maturity of the debt security and the denominator of which is the number of accrual periods in a year; and |
(ii) | subtracting from that product the amount, if any, payable as qualified stated interest allocable to that accrual period. |
In the case of an Original Issue Discount Debt Security that is a floating rate debt security, both the “annual yield to maturity” and the qualified stated interest will be determined for these purposes as though the debt security had borne interest in all periods at a fixed rate generally equal to the rate that would be applicable to interest payments on the debt security on its date of issue or, in the case of some floating rate debt securities, the rate that reflects the yield that is reasonably expected for the debt security. Additional rules may apply if interest on a floating rate debt security is based on more than one interest index. The “adjusted issue price” of an Original Issue Discount Debt Security at the beginning of any accrual period will generally be the sum of its issue price, including any accrued interest, and the amount of original issue discount allocable to all prior accrual periods, reduced by the amount of all payments other than any qualified stated interest payments on the debt security in all prior accrual periods. All payments on an Original Issue Discount Debt Security, other than qualified stated interest, will generally be viewed first as payments of previously accrued original issue discount, to the extent of the previously accrued discount, with payments considered made from the earliest accrual periods first, and then as a payment of principal. The “annual yield to maturity” of a debt security is the discount rate, appropriately adjusted to reflect the length of accrual periods, that causes the present value on the issue date of all payments on the debt security to equal the issue price. As a result of this “constant yield” method of including original issue discount income, the amounts you will be required to include in your gross income if you invest in an Original Issue Discount Debt Security denominated in U.S. dollars will generally be less in the early years and greater in the later years than amounts that would be includible on a straight-line basis.
You generally may make an irrevocable election to include in income your entire return on a debt security (i.e., the excess of all remaining payments to be received on the debt security, including payments of qualified stated interest, over the amount you paid for the debt security) under the constant yield method described above. For debt securities purchased at a premium or bearing market discount in your hands, if you make this election you will also be deemed to have made the election (discussed below under “Premium and Market Discount”) to amortize premium or to accrue market discount in income currently on a constant yield basis.
In the case of an Original Issue Discount Debt Security that is also a foreign currency-denominated debt security, you should determine the U.S. dollar amount includible as original issue discount for each accrual period by (i) calculating the amount of original issue discount allocable to each accrual period in the foreign
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currency using the constant yield method, and (ii) translating the foreign currency amount so determined at the average exchange rate in effect during that accrual period (or, with respect to an interest accrual period that spans two taxable years, at the average exchange rate for each partial period). Alternatively, you may translate the foreign currency amount so determined at the spot rate of exchange on the last day of the accrual period (or the last day of the taxable year, for an accrual period that spans two taxable years), or at the spot rate of exchange on the date of receipt, if that date is within five business days of the last day of the accrual period, provided that you have made the election described under “—Payments or Accruals of Interest” above. Because exchange rates may fluctuate, if you are the holder of an Original Issue Discount Debt Security that is also a foreign currency debt security you may recognize a different amount of original issue discount income in each accrual period than would be the case if you were the holder of an otherwise similar Original Issue Discount Debt Security denominated in U.S. dollars. Upon the receipt of an amount attributable to original issue discount, whether in connection with a payment of an amount that is not qualified stated interest or the sale or retirement of the Original Issue Discount Debt Security, you will recognize ordinary income or loss measured by the difference between the amount received, translated into U.S. dollars at the exchange rate in effect on the date of receipt or on the date of disposition of the Original Issue Discount Debt Security, as the case may be, and the amount accrued, using the exchange rate applicable to such previous accrual.
If you purchase an Original Issue Discount Debt Security outside of the initial offering at a cost less than its “remaining redemption amount”, or if you purchase an Original Issue Discount Debt Security in the initial offering at a price other than the debt security’s issue price, you will also generally be required to include in gross income the daily portions of original issue discount, calculated as described above. However, if you acquire an Original Issue Discount Debt Security at a price greater than its adjusted issue price, you will be entitled to reduce your periodic inclusions of original issue discount to reflect the premium paid over the adjusted issue price. The remaining redemption amount for an Original Issue Discount Debt Security is the total of all future payments to be made on the debt security other than qualified stated interest.
Floating rate debt securities generally will be treated as “variable rate debt instruments” under the OID regulations. Accordingly, the stated interest on a floating rate debt security generally will be treated as qualified stated interest, and such a debt security will not have original issue discount solely as a result of the fact that it provides for interest at a variable rate. A floating rate debt security that does not qualify as a variable rate debt instrument will be subject to special rules (the “contingent payment regulations”) that govern the tax treatment of debt obligations that provide for contingent payments (“contingent debt obligations”). A detailed description of the tax considerations relevant to U.S. holders of any such debt securities will be provided in the applicable prospectus supplement.
Certain debt securities may be redeemed prior to maturity, either at our option or at the option of the holder, or may have special repayment or interest rate reset features as indicated in the prospectus supplement. Original Issue Discount Debt Securities containing these features may be subject to rules that differ from the general rules discussed above. If you purchase Original Issue Discount Debt Securities with these features, you should carefully examine the prospectus supplement and consult your tax adviser about their treatment since the tax consequences with respect to original issue discount will depend, in part, on the particular terms and features of the debt securities.
Short-Term Debt Securities
The rules described above will also generally apply to Original Issue Discount Debt Securities with maturities of one year or less (“short-term debt securities”), but with some modifications.
First, the original issue discount rules treat none of the interest on a short-term debt security as qualified stated interest, but treat a short-term debt security as having original issue discount. Thus, all short-term debt securities will be Original Issue Discount Debt Securities. Except as noted below, if you are a cash-basis holder of a short-term debt security and you do not identify the short-term debt security as part of a hedging transaction
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you will generally not be required to accrue original issue discount currently, but you will be required to treat any gain realized on a sale, exchange or retirement of the debt security as ordinary income to the extent such gain does not exceed the original issue discount accrued with respect to the debt security during the period you held the debt security. You may not be allowed to deduct all of the interest paid or accrued on any indebtedness incurred or maintained to purchase or carry a short-term debt security until the maturity of the debt security or its earlier disposition in a taxable transaction. Notwithstanding the foregoing, if you are a cash-basis U.S. holder of a short-term debt security you may elect to accrue original issue discount on a current basis, in which case the limitation on the deductibility of interest described above will not apply. A U.S. holder using the accrual method of tax accounting and some cash method holders, including banks, securities dealers, regulated investment companies and certain trust funds, generally will be required to include original issue discount on a short-term debt security in gross income on a current basis. Original issue discount will be treated as accruing for these purposes on a ratable basis or, at the election of the holder, on a constant yield basis based on daily compounding.
Second, regardless of whether you are a cash- or accrual-basis holder, if you are the holder of a short-term debt security you can elect to accrue any “acquisition discount” with respect to the debt security on a current basis. Acquisition discount is the excess of the remaining redemption amount of the debt security at the time of acquisition over the purchase price. Acquisition discount will be treated as accruing ratably or, at the election of the holder, under a constant yield method based on daily compounding. If you elect to accrue acquisition discount, the original issue discount rules will not apply.
Finally, the market discount rules described below will not apply to short-term debt securities.
As described above, certain of the debt securities may be subject to special redemption features. These features may affect the determination of whether a debt security has a maturity of one year or less and thus is a short-term debt security. If you purchase debt securities with these features, you should carefully examine the prospectus supplement and consult your tax adviser about these features.
Premium and Market Discount
If you purchase a debt security at a cost greater than the debt security’s remaining redemption amount, you will be considered to have purchased the debt security at a premium, and you may elect to amortize the premium as an offset to interest income, using a constant yield method, over the remaining term of the debt security. If you make this election, it generally will apply to all debt instruments that you hold at the time of the election, as well as any debt instruments that you subsequently acquire. In addition, you may not revoke the election without the consent of the Internal Revenue Service. If you elect to amortize the premium you will be required to reduce your tax basis in the debt security by the amount of the premium amortized during your holding period. Original Issue Discount Debt Securities purchased at a premium will not be subject to the original issue discount rules described above. In the case of premium on a foreign currency debt security, you should calculate the amortization of the premium in the foreign currency. Amortization deductions attributable to a period reduce interest payments in respect of that period, and therefore are translated into U.S. dollars at the rate that you use for those interest payments. Exchange gain or loss will be realized with respect to amortized premium on a foreign currency debt security based on the difference between the exchange rate computed on the date or dates the premium is amortized against interest payments on the debt security and the exchange rate on the date when the holder acquired the debt security. For a U.S. holder that does not elect to amortize premium, the amount of premium will be included in your tax basis when the debt security matures or is disposed of. Therefore, if you do not elect to amortize premium and you hold the debt security to maturity, you generally will be required to treat the premium as capital loss when the debt security matures.
If you purchase a debt security at a price that is lower than the debt security’s remaining redemption amount, or in the case of an Original Issue Discount Debt Security, the debt security’s adjusted issue price, by 0.25% or more of the remaining redemption amount, or adjusted issue price, multiplied by the number of remaining whole years to maturity, the debt security will be considered to bear “market discount” in your hands.
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In this case, any gain that you realize on the disposition of the debt security generally will be treated as ordinary interest income to the extent of the market discount that accrued on the debt security during your holding period. In addition, you could be required to defer the deduction of a portion of the interest paid on any indebtedness that you incurred or continued to purchase or carry the debt security. In general, market discount will be treated as accruing ratably over the term of the debt security, or, at your election, under a constant yield method. You must accrue market discount on a foreign currency debt security in the specified currency. The amount that you will be required to include in income in respect of accrued market discount will be the U.S. dollar value of the accrued amount, generally calculated at the exchange rate in effect on the date that you dispose of the debt security.
You may elect to include market discount in gross income currently as it accrues (on either a ratable or constant yield basis), in lieu of treating a portion of any gain realized on a sale of the debt security as ordinary income. If you elect to include market discount on a current basis, the interest deduction deferral rule described above will not apply. If you do make such an election, it will apply to all market discount debt instruments that you acquire on or after the first day of the first taxable year to which the election applies. The election may not be revoked without the consent of the Internal Revenue Service. Any accrued market discount on a foreign currency debt security that is currently includible in income will be translated into U.S. dollars at the average exchange rate for the accrual period (or portion thereof within the holder’s taxable year).
Indexed Notes and Other Notes Providing for Contingent Payments
The contingent payment regulations generally require accrual of interest income on a constant yield basis in respect of contingent debt obligations at a yield determined at the time of issuance of the obligation, and may require adjustments to these accruals when any contingent payments are made. In addition, special rules may apply to floating rate debt securities if the interest payable on the debt securities is based on more than one interest index. We will provide a detailed description of the tax considerations relevant to U.S. holders of any debt securities that are subject to the special rules discussed in this paragraph in the relevant prospectus supplement.
Information Reporting and Backup Withholding
The paying agent must file information returns with the United States Internal Revenue Service in connection with debt security payments made to certain United States persons. If you are a United States person, you generally will not be subject to United States backup withholding tax on such payments if you provide your taxpayer identification number to the paying agent. You may also be subject to information reporting and backup withholding tax requirements with respect to the proceeds from a sale of the debt securities. If you are not a United States person, in order to avoid information reporting and backup withholding tax requirements you may have to comply with certification procedures to establish that you are not a United States person.
In addition, a U.S. holder should be aware that recently enacted legislation imposes new reporting requirements with respect to the holding of certain foreign financial assets, including debt of foreign issuers, if the aggregate value of all of such assets exceeds US$50,000. A U.S. holder should consult its own tax advisor regarding the application of the information reporting rules to our debt securities and the application of the recently enacted legislation to its particular situation.
Warrants
A description of the tax consequences of an investment in warrants will be provided in the applicable prospectus supplement.
Guarantees
A description of the tax consequences of an investment in guarantees will be provided in the applicable prospectus supplement.
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We and the Republic, if a guarantee by the Republic is furnished, may sell or issue the debt securities, warrants or guarantees in any of three ways:
• | through underwriters or dealers; |
• | directly to one or more purchasers; or |
• | through agents. |
The prospectus supplement relating to a particular series of debt securities, warrants or guarantees will state:
• | the names of any underwriters; |
• | the purchase price of the securities; |
• | the proceeds to us from the sale; |
• | any underwriting discounts and other compensation; |
• | the initial public offering price; |
• | any discounts or concessions allowed or paid to dealers; and |
• | any securities exchanges on which the securities will be listed. |
Any underwriter involved in the sale of securities will acquire the securities for its own account. The underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices to be determined at the time of sale. The securities may be offered to the public either by underwriting syndicates represented by managing underwriters or by underwriters without a syndicate. Unless the prospectus supplement states otherwise, certain conditions must be satisfied before the underwriters become obligated to purchase securities from us and the Republic, if applicable, and they will be obligated to purchase all of the securities if any are purchased. The underwriters may change any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers.
If we and the Republic, if a guarantee by the Republic is furnished, sell any securities through agents, the prospectus supplement will identify the agent and indicate any commissions payable by us and the Republic, if applicable. Unless the prospectus supplement states otherwise, all agents will act on a best efforts basis and will not acquire the securities for their own account.
We and the Republic, if a guarantee by the Republic is furnished, may authorize agents, underwriters or dealers to solicit offers by certain specified entities to purchase the securities from us and the Republic, if applicable, at the public offering price set forth in a prospectus supplement pursuant to delayed delivery contracts. The prospectus supplement will set out the conditions of the delayed delivery contracts and the commission receivable by the agents, underwriters or dealers for soliciting the contracts.
We and the Republic, if a guarantee by the Republic is furnished, may offer debt securities as consideration for the purchase of other of our debt securities, either in connection with a publicly announced tender offer or in privately negotiated transactions. The offer may be in addition to or in lieu of sales of debt securities directly or through underwriters or agents. We may offer guarantees as consideration for transactions involving securities of other issuers.
Agents and underwriters may be entitled to indemnification by us against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribution from us with respect to certain payments which the agents or underwriters may be required to make. Agents and underwriters may be customers of, engage in transactions with, or perform services (including commercial and investment banking services) for us and the Republic in the ordinary course of business.
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The validity of any particular series of debt securities or warrants issued with debt securities or any guarantees will be passed upon for us and any underwriters or agents by United States and Korean counsel identified in the related prospectus supplement.
AUTHORIZED REPRESENTATIVES IN THE UNITED STATES
Our authorized agents in the United States are Mr. Joo Yung Sung, General Manager of our New York Branch, or Mr. Jong Kug Yoon, Senior Deputy General Manager of our New York Branch. The address of our New York Branch is 320 Park Avenue, 32nd Floor, New York, New York 10022. The authorized representative of the Republic in the United States is Mr. Byeong Sun Song, Financial Attache, Korean Consulate General in New York, located at 335 East 45th Street, New York, New York 10017.
OFFICIAL STATEMENTS AND DOCUMENTS
Our President and Chairman of the Board of Directors, in his official capacity, has supplied the information set forth under “The Korea Development Bank” (except for the information set out under “The Korea Development Bank—Business—Government Support and Supervision”). Such information is stated on his authority.
The Minister of Strategy and Finance of The Republic of Korea, in his official capacity, has supplied the information set out under “The Korea Development Bank—Business—Government Support and Supervision” and “The Republic of Korea.” Such information is stated on his authority. The documents identified in the portion of this prospectus captioned “The Republic of Korea” as the sources of financial or statistical data are official public documents of the Republic or its agencies and instrumentalities.
Our separate financial statements as of December 31, 2011 and 2010 and for the years ended December 31, 2011 and 2010, appearing in this prospectus, have been audited by Ernst & Young Han Young, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
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This prospectus includes future expectations, projections or “forward-looking statements”, as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe”, “expect”, “anticipate”, “estimate”, “project” and similar words identify forward-looking statements. In addition, all statements other than statements of historical facts included in this prospectus are forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove correct. This prospectus discloses important factors that could cause actual results to differ materially from our expectations (“Cautionary Statements”). All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.
Factors that could adversely affect the future performance of the Korean economy include:
• | difficulties in the housing and financial sectors in the United States and elsewhere and increased sovereign default risks in selected countries and the resulting adverse effects on the global financial markets; |
• | adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates and stock markets; |
• | substantial decreases in the market prices of Korean real estate; |
• | increasing delinquencies and credit defaults by consumer and small and medium sized enterprise borrowers; |
• | declines in consumer confidence and a slowdown in consumer spending; |
• | adverse developments in the economies of countries that are important export markets for the Republic, such as the United States, Japan and China, or in emerging market economies in Asia or elsewhere; |
• | the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from the Republic to China); |
• | social and labor unrest; |
• | a decrease in tax revenues and a substantial increase in the Government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased government budget deficit; |
• | financial problems or lack of progress in the restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector; |
• | loss of investor confidence arising from corporate accounting irregularities and corporate governance issues at certain Korean conglomerates; |
• | the economic impact of any pending or future free trade agreements; |
• | geo-political uncertainty and risk of further attacks by terrorist groups around the world; |
• | the recurrence of severe acute respiratory syndrome, or SARS, or an outbreak of swine or avian flu in Asia and other parts of the world; |
• | deterioration in economic or diplomatic relations between the Republic and its trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy; |
• | political uncertainty or increasing strife among or within political parties in the Republic; |
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• | hostilities or unrest involving oil producing countries in the Middle East and Northern Africa and any material disruption in the supply of oil or increase in the price of oil; |
• | the occurrence of severe earthquakes, tsunamis or other natural disasters in Korea and other parts of the world, particularly in trading partners (such as the March 2011 earthquake in Japan, which also resulted in the release of radioactive materials from a nuclear plant that had been damaged by the earthquake); and |
• | an increase in the level of tension or an outbreak of hostilities between North Korea and the Republic or the United States. |
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We filed a registration statement with respect to the securities with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and its related rules and regulations. You can find additional information concerning ourselves and the securities in the registration statement and any pre- or post-effective amendment, including its various exhibits, which may be inspected at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. These filings are also available to the public from the Securities and Exchange Commission’s website at http://www.sec.gov.
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HEAD OFFICE OF THE BANK
16-3, Youido-dong,
Youngdeungpo-gu, Seoul 150-973
The Republic of Korea
FISCAL AGENT AND PRINCIPAL PAYING AGENT
The Bank of New York Mellon
101 Barclay Street, 21st Floor West
New York, NY 10286
United States of America
LEGAL ADVISORS TO THE BANK
as to Korean law | as to U.S. law | |
Jipyong & Jisung 10F Seodaemoon Tower, 60 Choongjung-ro, Seodaemun-gu, Seoul, Korea 120-020 | 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 THE BANK
Ernst & Young
3rd to 8th 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
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