Export Import Bank Of Korea S-B Registration of securities for foreign governments

As filed with the Securities and Exchange Commission on August 8, 2006

Registration Statement No. 333-                

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

REGISTRATION STATEMENT*

UNDER

SCHEDULE B

OF

THE SECURITIES ACT OF 1933

THE EXPORT-IMPORT BANK OF KOREA

(Name of Registrant)

THE REPUBLIC OF KOREA

(Co-Signatory)

Names and Addresses of Authorized Representatives:

Joo-shik Kong Or Kyu-yeol Cho Duly Authorized Representatives in the United States of the Export-Import Bank of Korea 460 Park Avenue, 8th Floor New York, New York 10022		In Kang Cho Duly Authorized Representative in the United States of The Republic of Korea 335 East 45th Street New York, New York 10017
	Copies to: Jinduk Han, Esq. Cleary Gottlieb Steen & Hamilton LLP 39th Floor, Bank of China Tower One Garden Road Hong Kong

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

The securities registered hereby will be offered on a delayed or continuous basis pursuant to the procedures set forth in Securities Act Release Nos. 33-6240 and 33-6424.

CALCULATION OF REGISTRATION FEE

Title of each class of securities being registered	Amount to be registered(1)		Amount of registration fee
Debt securities with or without warrants to purchase debt securities	US$	4,000,000,000	US$	428,000

(1) Or an equivalent amount in another currency or currencies or in composite currencies or as determined by reference to an index or, if the debt securities are to be offered at a discount, the approximate proceeds to the Registrant. Includes the maximum principal amount of the obligations to be guaranteed by the Registrant under the guarantees registered hereby.

Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus contained in this Registration Statement and supplements to such Prospectus will also be used in connection with US$760,000,000 of debt securities with or without warrants to purchase debt securities registered under Registration Statement No. 333-9564.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

* This Registration Statement also constitutes Post-Effective Amendment No. 8 to Registration Statement No. 333-9564.

EXPLANATORY NOTE

This registration statement relates to US$4,000,000,000 aggregate amount of debt securities (with or without warrants) of The Export-Import Bank of Korea to be offered from time to time as separate issues on terms and in the manner to be specified in a prospectus supplement to be delivered in connection with each such offering. The prospectus constituting a part of this registration statement relates to the debt securities (with or without warrants) registered hereunder and US$760,000,000 aggregate principal amount of debt securities (with or without warrants) registered under Registration Statement No. 333-9564 (including an aggregate principal amount of US$640,000,000 of debt securities that may be sold by us from time to time in a continuous offering designated Medium-Term Notes, Series A, Due Not Less Than Nine Months From Date of Issue (the “MTNs”)).

This registration statement contains a form of prospectus supplement filed as Exhibit K to this registration statement to be used in connection with the sale by us of the MTNs in a continuous offering.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED AUGUST 8, 2006

PROSPECTUS

The Export-Import Bank of Korea

$4,000,000,000

Debt Securities

Warrants to Purchase Debt Securities

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                 , 2006

TABLE OF CONTENTS

	Page
Certain Defined Terms And Conventions	1
Use Of Proceeds	2
The Export-Import Bank of Korea	3
Overview	3
Capitalization	4
Business	5
Selected Financial Statement Data	8
Operations	10
Description of Assets and Liabilities	15
Credit Policies, Credit Approval and Risk Management	27
Capital Adequacy	28
Overseas Operations	29
Property	30
Management and Employees	30
Financial Statements and the Auditors	31
The Republic Of Korea	83
Land and History	83
Government and Politics	84
The Economy	87
The Financial System	101
Monetary Policy	106
Balance of Payments and Foreign Trade	110
Government Finance	115
Debt	117
Tables and Supplementary Information	119
Description Of The Securities	122
Description of Debt Securities	122
Description of Warrants	129
Terms Applicable to Debt Securities and Warrants	129
Limitations On Issuance Of Bearer Debt Securities And Bearer Warrants	131
Taxation	132
Korean Taxation	132
United States Tax Considerations	134
Plan Of Distribution	142
Legal Matters	143
Authorized Representatives In The United States	143
Official Statements And Documents	143
Experts	143
Forward-Looking Statements	143
Further Information	145

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CERTAIN DEFINED TERMS AND CONVENTIONS

All references to “Korea” or the “Republic” contained in this prospectus mean The Republic of Korea. All references to the “Government” mean the government of Korea. All references to the “Bank” mean The Export-Import Bank 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”, “$” or “US$” are to the currency of the United States of America, references to “Euro” or “ €” are to the currency of the European Union and references to “Yen” or “¥” are to the currency of Japan.

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

Our principal financial statements are our non-consolidated financial statements. Unless specified otherwise, our financial and other information is presented on a non-consolidated basis and does not include such information with respect to our subsidiaries.

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USE OF PROCEEDS

Unless otherwise specified in the applicable prospectus supplement, we will use the net proceeds from the sale of the securities for our general operations.

2

THE EXPORT-IMPORT BANK OF KOREA

Overview

We were established in 1976 as a special governmental financial institution pursuant to the Export-Import Bank of Korea Act, as amended (the “KEXIM Act”). Since our establishment, we have been promoting the export and competitiveness of Korean goods and services in international markets. To this end, we have introduced financing facilities and implemented lending policies that are responsive to the needs of Korean exporters.

Our primary purpose, as stated in the KEXIM Act, is to “promote the sound development of the national economy and economic cooperation with foreign countries by extending the financial aid required for export and import transactions, overseas investment and the development of natural resources abroad.” Over the years, we have developed financing facilities and lending policies that are consistent with the Government’s overall economic planning. In the latter part of the 1980s, as a result of changing trade conditions and the increased internationalization of the Korean economy, overseas investment credits and import credits were promoted and began to constitute a significant portion of our business.

As of December 31, 2005, we had (Won)12,189 billion of outstanding loans, including (Won)8,065 billion of outstanding export credit loans, (Won)2,227 billion of outstanding overseas investment credit loans and (Won)1,195 billion of outstanding import credit loans, as compared to (Won)10,127 billion of outstanding loans, including (Won)6,471 billion of outstanding export credit loans, (Won)1,490 billion of outstanding overseas investment credit loans and (Won)1,110 billion of outstanding import credit loans as of December 31, 2004.

Our operations are subject to the close supervision of the Government. The Government’s determination each fiscal year regarding the amount of financial support to extend to us, in the form of loans, contributions to capital or transfers of our income to reserves, plays an important role in determining our lending capacity. The Government has the power to appoint or dismiss our President, Deputy President, Executive Directors and Auditor. Moreover, the Minister of Finance and Economy of the Republic has, on behalf of the Republic, signed the registration statement of which this Prospectus forms a part.

The Government supports our operations pursuant to Article 37 of the KEXIM Act. Article 37 of the KEXIM Act provides that “the annual net losses of the Export-Import Bank of Korea shall be offset each year by the reserve, and if the reserve be insufficient, the Government shall provide funds to cover the deficit.” As a result of the KEXIM Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserves, consisting of our surplus and capital surplus items, are insufficient to cover any of our annual net losses. In light of the above, if we have insufficient funds to make any payment under any of our obligations, including the debt securities 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 37 do not, however, constitute a direct guarantee by the Government of our obligations, and the provisions of the KEXIM Act, including Article 37, may be amended at any time by action of the National Assembly.

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Capitalization

As of December 31, 2005, our authorized capital was (Won)4,000 billion and capitalization was as follows:

	December 31, 2005(1)
	(billions of Won)
Long-Term Debt(2)(3)(4)(5) :
Borrowings in Korean Won	(Won)	—
Borrowings in Foreign Currencies		25.8
Export-Import Financing Debentures		6,448.3
Total Long-term Debt		6,474.1
Capital and Reserves:
Paid-in Capital(6)		3,295.8
Legal Reserve(7)		131.7
Voluntary Reserve(7)		330.8
Unappropriated Retained Earnings		224.5
Capital Adjustments		895.6
Total Capital and Reserve	(Won)	4,878.4
Total Capitalization(7)	(Won)	11,352.5

(1) Except as described in this prospectus, since December 31, 2005, there has been no material adverse change in our capitalization.

(2) We have translated borrowings in foreign currencies into Won at the rate of (Won)1,013.0 to US$1.00, which was the market average exchange rate, as announced by the Seoul Monetary Brokerage Services Ltd., on December 31, 2005.

(3) As of December 31, 2005, we had contingent liabilities totaling (Won)36,538 billion, which consisted of (Won)20,116 billion under outstanding guarantees and acceptances and (Won)16,423 billion under contingent guarantees and acceptances issued on behalf of our clients. For further information relating to our contingent liabilities under outstanding guarantees as of December 31, 2005, see “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 12”. See also “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Notes 15” for a description of our commitments and contingencies as of December 31, 2005.

(4) As of December 31, 2005, we had entered into 47 interest rate related derivative contracts with an aggregate notional amount of (Won)5,051 billion and 20 currency related derivative contracts with an aggregate notional amount of (Won)1,198 billion in accordance with our policy to hedge interest rate and currency risks. See “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 15”.

(5) See “Sources of Funding” for an explanation of these sources of funds. All the borrowings of the Bank, whether domestic or international, are unsecured and unguaranteed.

(6) Authorized ordinary share capital is (Won)4,000 billion and issued fully-paid ordinary share capital is (Won)3,296 billion. See “Government Support and Supervision—Government Support”.

(7) See “Government Support and Supervision” for a description of the manner in which annual net income is transferred to the legal reserve and may be transferred to the voluntary reserve.

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Business

Purpose and Authority

We were established in 1976 as a special governmental financial institution pursuant to the KEXIM Act. The KEXIM Act, the Enforcement Decree of the KEXIM Act (the “KEXIM Decree”) and our Articles of Incorporation (the “By-laws”) define and regulate our powers and authority. We are treated as a special juridical entity under Korean law and are not subject to certain of the laws regulating activities of commercial banks.

We were established, as stated in the KEXIM Act, to “promote the sound development of the national economy and economic cooperation with foreign countries by extending the financial aid required for export and import transactions, overseas investment and the development of natural resources abroad.” As an instrument in serving the Government’s public policy objectives, we do not seek to maximize our profits. We do, however, strive to maintain a level of profitability to strengthen our equity base in order to support the growth in the volume of our business.

Our primary purpose has been the provision of loans to facilitate Korean exports of capital goods and technical services. Most of our activities have been carried out pursuant to this authority and we characterize such loans as export credits. In September 1998, the Government amended the KEXIM Act and KEXIM Decree to expand the types of goods eligible for export credits that we may extend to include non-capital goods and to permit us to provide certain trade financing for transactions that require less than six months for completion.

We have the authority to undertake a range of other financial activities. These fall into three principal categories:

• overseas investment credits;

• import credits; and

• guarantee facilities.

Overseas investment credits consist of loans to finance Korean overseas investments and projects. Import credits include the extension of loans to finance Korean imports of essential materials and natural resources. Guarantee facilities are made available to support the obligations of Korean exporters and importers.

We also have the authority to administer, on behalf of the Government, the Government’s Economic Development Cooperation Fund and the Inter-Korea Cooperation Fund, formerly known as South and North Korea Co-operation Fund.

We may also undertake other business activities incidental to the foregoing, including currency and interest rate swap transactions. We have engaged in such swap transactions for hedging purposes only.

Government Support and Supervision

The Government’s determination each fiscal year, regarding the amount of financial support to extend to us, plays an important role in determining our lending capacity. Such support has included loans, contributions to capital and transfers of our income to reserves.

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In 1986, the National Assembly amended the KEXIM Act, increasing our authorized capital from (Won)500 billion to (Won)1,000 billion. In January 1998, as a result of an amendment of the KEXIM Act by the National Assembly, our authorized capital was further increased to (Won)2,000 billion. The Government increased our authorized capital further to (Won)4,000 billion in September 1998. In June 2003, the Government contributed (Won)20 billion in cash to our capital. In December 2003, the Government contributed (Won)20 billion in cash to our capital. In August 2004, the Government contributed (Won)10 billion in cash to our capital. In addition, in April 2005, the Government contributed (Won)500 billion in the form of shares of common stock of Korea Highway Corporation owned by the Government and (Won)20 billion in cash to our capital to further support our lending to Korean manufacturers and exporters, in accordance with the Government policy to promote the Republic’s exports by providing such entities with the funds required for the construction and export of capital goods (such as industrial plants, industrial machinery, natural resource development, information infrastructure and overseas construction projects). Taking into account these capital contributions, as of December 31, 2005, our total paid-in capital was (Won)3,296 billion, compared to (Won)2,776 billion as of December 31, 2004. Pursuant to the KEXIM Act, only the Government, The Bank of Korea, the Korea Development Bank, certain designated domestic banking institutions, exporters’ associations and international financial organizations may contribute to our paid-in capital. As of December 31, 2005, the Government directly owned 60.0% of our paid-in capital and indirectly owned, through The Bank of Korea and the Korea Development Bank, 35.3% and 4.7%, respectively, of our paid-in capital. See “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 14”.

In addition to contributions to our capital, the Government provides funding for our financing activities. The Government, directly and through The Bank of Korea and the Korea Development Bank, has made loans available to us for our lending activities.

The Government also supports our operation pursuant to Articles 36 and 37 of the KEXIM Act. Article 36 of the KEXIM Act and our Articles provide that we shall apply our net income earned during each fiscal year, after deduction of depreciation expense for such fiscal year, in the following manner and in order of priority:

• first, 20% of such net income is transferred to our legal reserve until the total amount of our legal reserve equals the total amount of our paid-in capital;

• second, if the Minister of Finance and Economy approves such distribution, the balance of any such net income, after such transfer to the legal reserve, is distributed to the institutions, other than the Government, that have contributed to our capital (up to a maximum 15% annual dividend rate); and

• third, the remaining balance of any such net income is distributed in whatever manner our Operations Committee determines and the Minister of Finance and Economy approves, such as additions to our voluntary reserve. As of December 31, 2005, we had a legal reserve of (Won)132 billion and a voluntary reserve of (Won)331 billion.

Article 37 of the KEXIM Act provides that “the annual net losses of the Export-Import Bank of Korea shall be offset each year by the reserve, and if the reserve be insufficient, the Government shall provide funds to cover the deficit.” As a result of the KEXIM Act, the Government is generally responsible for our operations and is legally obligated to replenish any deficit that arises if our reserves are insufficient to cover any of our annual net losses. In light of this provision, if we have insufficient funds to make any payment under any of our obligations, the Government would take appropriate steps by making a capital contribution, by allocating funds or by taking other action to enable us to make

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such payment when due. The provisions of Article 37 do not, however, constitute a direct guarantee by the Government of our obligations, and the provisions of the KEXIM Act, including Article 37, may be amended at any time by action of the National Assembly.

The Government closely supervises our operations including in the following ways:

• the President of the Republic appoints our President upon the recommendation of the Minister of Finance and Economy;

• the Minister of Finance and Economy appoints our Deputy President and Executive Directors upon the recommendation of our President;

• one month prior to the beginning of each fiscal year, we must submit our proposed program of operations and budget for the fiscal year to the Minister of Finance and Economy for his approval;

• the Minister of Finance and Economy must approve our operating manual, which sets out guidelines for all principal operating matters, including the range of permitted financings;

• the Board of Audit and Inspection, a Government department, examines our settlement of accounts annually;

• each of the Minister of Finance and Economy and the Financial Supervisory 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 Minister of Finance and Economy may issue any orders it deems necessary to enforce the KEXIM Act or delegate examinations to the Financial Supervisory Commission;

• the Financial Supervisory Commission may supervise our operations to ensure managerial soundness based upon the KEXIM Decree and the Bank Supervisory Regulations of the Financial Supervisory Commission and may issue orders deemed necessary for such supervision;

• we must submit our annual report to the Ministry of Finance and Economy within two months after the end of each fiscal year and to the National Assembly within nine months after the end of each fiscal year outlining our operations and analyzing our activities during the relevant fiscal year; and

• we may amend our By-laws and operating manual only with the approval of the Minister of Finance and Economy.

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Selected Financial Statement Data

You should read the following financial statement data together with our financial statements and notes included in this prospectus:

	Year Ended December 31,
	2001		2002			2003			2004			2005
	(billions of Won)
Income Statement Data
Total Interest Income	(Won)	598.0	(Won)	447.6		(Won)	370.6		(Won)	411.1		(Won)	492.7
Total Interest Expense		476.3		299.1			260.0			319.3			392.3
Net Interest Income		121.7		148.5			110.6			91.9			100.4
Total Revenues		783.2		641.7			693.3			849.9			1,224.0
Total Expenses		773.8		570.8			631.8			743.6			917.7
Income before Income Taxes		9.4		70.9			61.5			106.3			306.3
Income Tax Benefit (expense)		0.4		(16.6	)		(17.4	)		(28.8	)		(81.8	)
Net Income		9.8		54.3			44.1			77.5			224.5
	As of December 31,
	2001		2002			2003			2004			2005
	(billions of Won)
Balance Sheet Data
Total Loans(1)	(Won)	9,250.8	(Won)	9,281.7		(Won)	9,779.9		(Won)	10,127.2		(Won)	12,188.8
Total Borrowings(2)		7,583.9		7,318.0			7,740.9			7,842.6			9,221.8
Total Assets		11,070.9		10,606.5			11,281.6			12,170.6			15,155.8
Total Liabilities		8,300.9		7,796.9			8,103.1			8,626.5			10,277.4
Total Shareholders’ Equity(3)		2,770.0		2,809.6			3,178.5			3,544.1			4,878.4

(1) Includes bills bought, foreign exchange bought, call loans, inter-bank loans in foreign currency and others.

(2) Includes debentures.

(3) Includes unappropriated retained earnings.

2005

We had net income of (Won)224.5 billion in 2005 compared to net income of (Won)77.5 billion in 2004.

The principal factors for the increase in net income in 2005 compared to 2004 included:

• an increase in gains on disposal of available-for-sale securities to (Won)261 billion in 2005 from (Won)10 billion in 2004, primarily due to gain from the sale of our equity interest in Industrial Bank of Korea; and

• net gain on foreign currency transactions of (Won)80 billion in 2005 compared to net loss on foreign currency transactions of (Won)66 billion in 2004, primarily due to gains on Euro and Yen currency transactions resulting from the appreciation of the Dollar against the Euro and Yen.

The above factors were partially offset by new provision for loan losses of (Won)140 billion in 2005.

As of December 31, 2005, our total assets increased by 24.5% to (Won)15,156 billion from (Won)12,171 billion as of December 31, 2004, primarily due to a 20.4% increase in loans to (Won)12,189 billion as of December 31, 2005 from (Won)10,127 billion as of December 31, 2004.

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As of December 31, 2005, our total liabilities increased by 19.1% to (Won)10,277 billion from (Won)8,627 billion as of December 31, 2004. The increase in liabilities was primarily due to a 27.1% increase in debentures to (Won)8,571 billion as of December 31, 2005 from (Won)6,744 billion as of December 31, 2004, which was partially offset by a 40.8% decrease in borrowings to (Won)651 billion as of December 31, 2005 from (Won)1,099 billion as of December 31, 2004.

The increase in assets and liabilities is primarily due to an increase in the volume of loans and debt. The appreciation of the Won against the Dollar in 2005 compared to 2004 partially offset the effect of the increase in the volume of loans and debt, as a majority of our assets and liabilities consisted of foreign currency loans and debt.

As of December 31, 2005, our total shareholders’ equity increased by 37.6% to (Won)4,878 billion from (Won)3,544 billion as of December 31, 2004 due to an increase in paid-in capital as a result of the Government’s (Won)520 billion capital injection and an increase in retained earnings by (Won)223 billion as well as an increase in valuation gains on available-for-sale securities and securities under equity method by (Won)591 billion.

2004

We had net income of (Won)77.5 billion in 2004 compared to net income of (Won)44.1 billion in 2003.

The principal factors for the increase in net income in 2004 compared to 2003 included:

• reversals of (Won)57 billion of loan loss provisions with respect to our credit exposures in 2004 compared to additional loan loss provisions of (Won)54 billion in 2003; these reversals primarily reflected enhanced asset quality; and

• an increase in fees and commissions to (Won)149 billion in 2004 from (Won)103 billion in 2003, primarily due to increased guarantee fees resulting from an increase in guarantees and acceptances; this increase in guarantees and acceptances was primarily attributable to heightened demand for advance payment guarantees and performance guarantees due to increased activities in the shipbuilding and construction sectors.

The above factors were partially offset by an increase in reserves in respect of guarantees to (Won)181 billion in 2004 from (Won)91 billion in 2003, primarily due to an increase in guarantees and the establishment of reserves for guarantees extended to companies classified as normal and precautionary at higher rates than the minimum required rates, based on more conservative internal reserve policies for guarantees in 2004 comparing to in 2003.

As of December 31, 2004, our total assets increased by 7.9% to (Won)12,171 billion from (Won)11,282 billion as of December 31, 2003 primarily due to an 8.2% increase in loans in Won and foreign currencies to (Won)8,822 billion as of December 31, 2004 from (Won)8,150 billion as of December 31, 2003 and a 17.9% increase in available-for-sale securities to (Won)1,836 billion as of December 31, 2004 from (Won)1,557 billion as of December 31, 2003, which were partially offset by a 20.5% decrease in call loans to (Won)620 billion as of December 31, 2004 from (Won)780 billion as of December 31, 2003.

As of December 31, 2004, our total liabilities increased by 6.5% to (Won)8,627 billion from (Won)8,103 billion as of December 31, 2003. The increase in liabilities was primarily due to a 57.6% increase in debentures to (Won)6,744 billion as of December 31, 2004 from (Won)4,280 billion as of December 31, 2003,

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which was partially offset by a 68.2% decrease in borrowings to (Won)1,099 billion as of December 31, 2004 from (Won)3,461 billion as of December 31, 2003.

The increase in assets and liabilities was primarily due to an increase in the volume of loans and debt. The appreciation of the Won against the Dollar in 2004 compared to 2003 partially offset the effect of the increase in the volume of loans and debts, as a majority of our assets and liabilities consisted of foreign currency loans and debt.

As of December 31, 2004, our total shareholders’ equity increased by 11.5% to (Won)3,544 billion from (Won)3,179 billion as of December 31, 2003, due to an increase in paid-in-capital as a result of the Government’s (Won)10 billion capital injection and an increase in retained earnings of (Won)77 billion, as well as an increase in valuation gains on available-for-sale securities and securities under equity method of (Won)264 billion.

Operations

Loan Operations

Our primary objective since our establishment has been to promote the export and competitiveness of Korean goods and services in international markets. To this end, we have introduced financing facilities and implemented lending policies that are responsive to the needs of Korean exporters. Over the years, we have also developed financing facilities and lending policies that are consistent with the Government’s overall economic planning. In the latter part of the 1980s, as a result of changing trade conditions and the increased internationalization of the Korean economy, overseas investment credits and import credits were promoted and began to constitute a significant portion of our business.

Before approving a credit, we consider:

• economic benefits to the Republic;

• the industry’s rank in the order of priorities established by the Government’s export-import policy;

• credit risk associated with the loans to be extended; and

• the goal of diversifying our lending activities.

The KEXIM Act and the By-laws provide that we may extend credit only where repayment “is considered probable.” Accordingly, we carefully investigate the financial position of each prospective borrower and the technical and financial aspects of the project to be financed, and a loan is made only if we believe there is reasonable assurance of repayment. See “Credit Policies, Credit Approval and Risk Management—Credit Approval”.

We are currently required by the KEXIM Act and the KEXIM Decree to make loans with original maturities of not more than 25 years. The overall average life of our loans is approximately 2 years.

In 2005, we provided total loans of (Won)15,071 billion, an increase of 30.6% from the previous year, while our loan commitments amounted to (Won)17,183 billion, an increase of 10.6% from the previous year. The increase in loan disbursements was attributable mainly to increases in disbursements of export credits, which increased by 29.9% from the previous year. The increase in disbursements of export credits was due to the growth of plant and ship construction by Korean firms in 2005.

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The following table sets out the total amounts of our outstanding loans, categorized by type of credit:

	As of December 31,
	2003		2004		2005		As % of 2005 Total
	(billions of Won)
Export Credits(1)
Ships	(Won)	1,188.1	(Won)	1,259.5	(Won)	1,989.1	16.3	%
Industrial Plants		1,642.3		1,706.5		1,714.6	14.1
Machinery		469.2		306.5		280.4	2.4
Foreign Exchange Bought		360.5		384.4		637.7	5.2
Trade Bill Rediscount		489.9		632.6		565.4	4.6
Others(2)		1,991.3		2,181.8		2,877.7	23.6
Sub-total		6,141.3		6,471.3		8,064.9	66.2
Overseas Investment Credits		1,228.0		1,489.8		2,226.9	18.3
Import Credits		687.9		1,110.2		1,194.5	9.8
Others(3)		462.7		369.6		351.6	2.9
Call Loans and Inter-bank Loans in Foreign Currency		1,260.0		686.3		350.9	2.8
Total	(Won)	9,779.9	(Won)	10,127.2	(Won)	12,188.8	100.0	%

(1) Includes bills bought.

(2) Includes relending facility, offshore loans, etc.

(3) Includes domestic usance, loans for debt-equity swap, advances for customers, etc.

Source: Internal accounting records

The following table sets out our new loan commitments, categorized by type of credit:

New Loan Commitments by Type of Credit

	As of December 31,
	2003		2004		2005		As % of 2005 Total
	(billions of Won)
Export Credits(1)
Ships	(Won)	2,377.1	(Won)	4,775.8	(Won)	2,920.8	17.0
Industrial Plants		725.0		870.8		1,595.0	9.3
Machinery		1,996.3		1,045.7		714.7	4.2
Foreign Exchange Bought		776.0		1,280.9		2,156.0	12.5
Trade Bill Rediscount		1,585.5		1,759.8		1,844.1	10.7
Others(2)		2,693.6		2,942.6		4,466.7	26.0
Sub-total		10,153.3		12,675.6		13,697.3	79.7
Overseas Investment Credits		806.4		1,387.3		1,937.8	11.3
Import Credits		934.8		1,467.4		1,548.3	9.0
Total	(Won)	11,894.5	(Won)	15,530.3	(Won)	17,183.4	100.0	%

(1) Includes bills bought.

(2) Includes relending facility, offshore loans, etc.

Source: Internal accounting records

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Export Credits

We offer export credits to either domestic suppliers or foreign buyers to finance export transactions. Such financing programs for domestic suppliers include export loans, technical service credits, small business export credits, rediscount on trade bills, relending facilities and project finance. Export credits to foreign buyers include direct loans and project finance. As of December 31, 2005, export credits in the amount of (Won)8,064.9 billion represented 66.2% of our total outstanding loans.

Our new commitments for export credits in 2005 amounted to (Won)13,697.3 billion, an increase of 8.1% from (Won)12,675.6 billion in 2004. This increase in new commitments for export credits was due to an increase in demand for loan financing from export companies.

We offer export credits to Korean manufacturers and exporters in order to provide them with the funds required for the construction and export of Korean capital goods and technical services designated in our operating manual. Capital goods eligible for export credit financings currently include ships, industrial plants, industrial machinery and overseas construction projects. With respect to eligible items supported by our export credits, ships have traditionally had the largest share of our export credit operations. In September 1998, the Government amended the KEXIM Act to expand the types of goods eligible for our export credits to include non-capital goods.

We offer export loans and technical service credits to domestic suppliers at fixed (no less than the Commercial Interest Reference Rate) or floating rates of interest with maturities of up to twelve years for ships and maturities of varying terms, from two to fifteen years, for financings of other eligible items. We typically require a minimum down payment of 20% of the contract amount for ship export financings and a minimum down payment of 15% for financings of other eligible items. When the credit rating of a prospective borrower does not meet our internal rating criteria, these export credits are secured by promissory notes issued in connection with the relevant transaction, or letters of guarantees or letters of credit issued or confirmed by a creditworthy international bank or the importer’s government or central bank. Other terms and conditions under such export credit facilities must be in accordance with the Arrangement on Guidelines for Officially Supported Export Credits by the Organization for Economic Cooperation and Development. We offer direct loans to foreign buyers under similar terms and conditions as export credit financings to domestic suppliers. We offer relending facilities to overseas banks to facilitate the import by foreign importers of Korean manufactured goods. We offer relending facilities at fixed rates of interest with maturities of up to ten years.

Overseas Investment Credits

We extend overseas investment credits to either Korean companies or foreign companies in which a Korean company has an equity share, to finance investments in eligible overseas businesses and projects. Such financing programs include:

• overseas operation credits to foreign companies in which a Korean company has an equity share in the form of funds for purchasing equipment or working capital;

• overseas investment credits to Korean companies that invest overseas in the form of equity participation or long-term loans;

• overseas project credits to Korean companies engaged in overseas business to procure materials required for installing, expanding or operating equipment or facilities; and

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• major resources development credits to Korean companies that explore natural resources and acquire overseas mining rights.

As of December 31, 2005, overseas investment credits amounted to (Won)2,226.9 billion, representing 18.3% of our total outstanding loans.

Our disbursements and commitments of overseas investment credits in 2005 increased by 49.4% to (Won)1,349.1 billion and by 39.7% to (Won)1,937.8 billion, respectively, over the previous year. Most of the overseas investment credits were loans to foreign companies in which a Korean company has an equity share.

Proposals for overseas investment credits to finance the acquisition of important materials or the development of natural resources for the Korean economy, as determined by the Government, are given priority, together with projects that promote the export of Korean goods and services. As a result, projects financed by our overseas investment credit program have been mainly in the fields of manufacturing or development of natural resources.

We offer overseas investment credits financed in Won at either fixed or floating rates of interest. If such financing is in a foreign currency, we offer fixed or floating rates of interest with maturities up to 25 years (with a maximum five-year grace period on repayment). Such facilities may require security in the form of a bank guarantee, pledge or mortgage on the borrower’s local assets. Depending upon the size of the borrower, we will provide up to 100% of the financing required for the overseas investment project.

Import Credits

We offer import credits to Korean companies that directly import essential materials and natural resources whose stable and timely supply is required for the national economy, or to Korean companies that import such items after developing them overseas. Import credits are extended for importation of eligible items, including nuclear fuels, mineral ores, crude oil, lumber, wood pulp, grains, cotton, sugar, and equipment and machinery for research and development, and for use in advanced technological industries.

As of December 31, 2005, import credits in the amount of (Won)1,194.5 billion represented 9.8% of our total outstanding loans. New commitments and disbursements of import credits amounted to (Won)1,548.3 billion and (Won)1,661.2 billion, respectively, in 2005, an increase of 9.0% and 22.8%, respectively, over the previous year, which was mainly due to the increased demand in financing for raw materials used for export and domestic consumption. Our efforts to improve the import credit program also contributed to the increase in new commitments and disbursements of import credits, as we expanded the eligible items for import credits and launched a revolving line of credit program.

We offer import credits at either fixed or floating rates of interest with maturities up to ten years for equipment and machinery and shorter maturities of up to two years for other items, which may require security in the form of a bank guarantee, pledge or mortgage on the borrower’s local assets. Depending upon the size of the borrower, we will provide up to 90% of the import contract amount.

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Guarantee Operations

We provide guarantees in favor of Korean commercial banks and foreign banks or foreign importers in respect of the obligations of Korean exporters in order to facilitate export and import financings. Such guarantee programs for Korean exporters and importers include (1) financial guarantees to co-financing banks that provide loans for transactions that satisfy our eligibility requirements and (2) project-related guarantees to foreign importers for the performance of Korean exporters on eligible projects in the form of bid bonds, advance payment bonds, performance bonds and retention bonds. Guarantee commitments as of December 31, 2005 amounted to (Won)36,538.4 billion, an increase of 20.4% over the previous year. Guarantees we confirmed as of December 31, 2005 totaled (Won)20,115.5 billion, an increase of 8.7% over the previous year.

We mainly issue project-related guarantees, which include:

• advanced payment guarantees that are issued to overseas importers of Korean goods and services to support obligations to refund down payments made to Korean exporters in the event of a failure to deliver the goods to be exported; and

• performance guarantees that are issued to foreign importers to support the performance by Korean exporters of their contractual obligations.

In 2005, we issued project related confirmed guarantees in the amount of (Won)12,775.5 billion, an increase of 8.2% over the previous year, which was mainly due to an increased need for advance payment guarantees arising from the increasingly active shipbuilding sector.

We also issue letters of credit to foreign exporters to assist in the financing of projects approved in connection with import credit loans, and to Korean exporters to assist in the financing of projects approved in connection with export credit loans.

For further information regarding our guarantee and letter of credit operations, see “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 12”.

Government Account Operations

Economic Development Co-operation Fund

In 1987, the Government established the Economic Development Co-operation Fund (the “EDCF”) to provide loans, at concessional interest rates, to governments or agencies of developing countries for projects that contribute to industrial development or economic stabilization of such countries. We administer the EDCF on behalf of the Government and are responsible for project appraisal, documentation and administrative work relating to the EDCF Loans. The EDCF business accounts are maintained separately from our own account on behalf of the Government, and we derive no separate income or expenditures from our operation of the EDCF business. Government contributions constitute the primary funding source of the EDCF. Loan disbursements by the EDCF in 2005 amounted to (Won)164 billion for 27 projects in 16 countries, an increase of 5.8% from the previous year. As of December 31, 2005, the total outstanding loans extended by the EDCF was (Won)1,315.9 billion, an increase of 11.9% from the previous year.

Inter-Korea Co-operation Fund

In 1991, the Government established the Inter-Korea Cooperation Fund (the “IKCF”), formerly known as South and North Korea Co-operation Fund, to promote mutual exchanges and co-operation

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between the Republic and North Korea by engaging in funding and financing activities to support exchange of home visits, cultural activities, sports, academic co-operation, trade and economic co-operation between the two countries. We administer the IKCF under the initiative and policy direction of the Ministry of Unification. The IKCF business accounts are maintained separately from our own account. Government contributions constitute the primary funding source of the IKCF. The IKCF disbursements during 2005 amounted to (Won)674 billion for 167 projects, and cumulative total disbursements as of December 31, 2005 were (Won)3,992 billion, an increase of 20.3% from (Won)3,318 billion as of December 31, 2004.

Other Operations

We engage in various other activities related to our financing activities.

Activities in which we currently engage include:

• country information services performed by the Overseas Economic Research Institute, which conducts country studies and country risk evaluation to assist in the efficient utilization of our financial resources;

• export credit advisory services, which are aimed at bringing about a larger share of overseas bidding by giving Korean exporters a wide range of knowledge on the country, industry, market and financial situation of the importing country in the early stage of the tendering process or contract negotiations;

• consulting services by in-house lawyers who consult on international transactions; and

• management of Korea’s foreign direct investment database.

Description of Assets and Liabilities

Except where expressly indicated otherwise, loans in Won and loans in foreign currencies are collectively referred to as the “Loans”. Bills bought, foreign exchange bought and advances for customers are collectively referred to as the “Other Loans”. Loans and Other Loans are collectively referred to as the “Loan Credits”. Loan Credits and guarantees are collectively referred to as the “Credit Exposure”.

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Total Credit Exposure

We extend credits to support export and import transactions, overseas investment projects and other relevant products in various forms including loans and guarantees.

The following table sets out our Credit Exposure as of December 31, 2003, 2004 and 2005, categorized by type of exposure extended:

	As of December 31,
	2003					2004					2005
	(billions of Won, except for percentages)
A    Loans in Won	(Won)	1,475		5.5	%	(Won)	1,818		6.5	%	(Won)	2,479		7.8	%
B    Loans in Foreign Currencies		6,194		23.1			6,937		24.6			8,554		27.0
C    Loans (A+B)		7,670		28.6			8,755		31.1			11,034		34.8
D    Other Loans		850		3.2			686		2.4			804		2.5
E     Call Loans and Inter-bank Loans in     Foreign Currency		1,260		4.7			686		2.4			351		1.1
F     Loan Credits (C+D+E)		9,780		36.5			10,127		35.9			12,189		38.4
G    Allowances for Possible Loan     Losses		(467	)	(1.7	)		(396	)	(1.4	)		(518	)	(1.6	)
H    Present Value Discount (PVD)		(21	)	(0.1	)		(61	)	(0.2	)		(52	)	(0.2	)
I      Loan Credits including PVD     (F-G-H)		9,293		34.7			9,670		34.3			11,619		36.6
J      Guarantees		17,528		65.4			18,508		65.7			20,116		63.4
K    Credit Exposure (I+J)		26,821		100.0			28,178		100.0			31,735		100.0

Loan Credits by Geographic Area

The following table sets out the total amount of our outstanding Loan Credits (excluding call loans and inter-bank loans in foreign currency) as of December 31, 2003, 2004 and 2005, categorized by geographic area⁽¹⁾:

	As of December 31(1)(2),
	2003		2004		2005		As % of 2005 Total
	(billions of Won)
Asia	(Won)	3,272	(Won)	3,982	(Won)	5,194	43.9
Europe		1,317		1,484		2,466	20.8
Middle East		952		1,246		1,698	14.3
Central and South America		1,102		831		748	6.3
North America		1,555		1,785		1,586	13.4
Africa		209		11		10	0.2
Others		113		102		136	1.1
Total	(Won)	8,520	(Won)	9,441	(Won)	11,838	100.0	%

(1) For purposes of this table, export credits have been allocated to the geographic areas in which the foreign buyers of Korean exports are located; overseas investment credits have been allocated to the geographic areas in which the overseas investments being financed are located; and import credits have been allocated to the geographic areas in which the sellers of the imported goods are located.

(2) Excludes call loans, inter-bank loans in foreign currency, and loan value adjustments.

Source: Internal accounting records.

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Individual Exposure

The KEXIM Decree imposes limits on our aggregate credits extended to a single person or business group. As of the date hereof, we are in compliance with such requirements.

As of December 31, 2005, our largest Credit Exposure was to Hyundai Heavy Industries Group Companies in the amount of (Won)8,784 billion.

As of December 31, 2005, our second largest and third largest Credit Exposures were to Samsung Group companies in the amount of (Won)4,346 billion and to Daewoo Shipbuilding & Marine Engineering in the amount of (Won)2,512 billion.

The following table sets out our five largest Credit Exposures as of December 31, 2005⁽¹⁾:

Rank	Name of Borrower	Loans		Guarantees		Total
		(billions of Won)
1	Hyundai Heavy Industries	(Won)	81	(Won)	8,703	(Won)	8,784
2	Samsung		204		4,142		4,346
3	Daewoo Shipbuilding & Marine Engineering				2,512		2,512
4	Hanjin		30		1,230		1,260
5	SK		429		508		937

(1) Includes loans and guarantees extended to affiliates.

Source: Internal accounting records.

In October 2003, SK Networks and its principal creditors agreed to a restructuring plan which, among other things, allowed foreign creditors to cash out their debts at a buyout rate of 43% of the face value of the outstanding debt owed to them. In accordance with the decision of the creditor financial institution committee of SK Networks, (Won)201 billion of our loans to SK Networks was exchanged for equity of SK Networks, consisting of (Won)80.2 billion in common shares, (Won)85.0 billion in callable preferred shares and (Won)35.8 billion in convertible bonds.

As of December 31, 2005, our Credit Exposure to SK Networks and its subsidiaries amounted to (Won)413 billion and was classified as precautionary. Provisioning for such Credit Exposure was at 15% as of December 31, 2005.

The following table sets out our exposure to SK Networks as of December 31, 2005⁽¹⁾:

Classification	Outstanding loans		Securities		Total
	(billions of Won)
Normal		—		—		—
Precautionary	(Won)	214.1		198.9	(Won)	413.0
Substandard		—		—		—
Doubtful		—		—		—
Estimated Loss		—		—		—
Total	(Won)	214.1	(Won)	198.9	(Won)	413.0

(1) Includes exposures to SK Networks’ overseas subsidiaries.

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In the early 1990’s, at the direction of the Government, we extended a commodity loan in the aggregate amount of US$466 million to Vnesheconombank, the Bank for Foreign Economic Affairs of the former Soviet Union, which was guaranteed by the government of the former Soviet Union, as part of the Government’s policy to enhance economic cooperation between the two countries. Since the dissolution of the Soviet Union, the Government has been negotiating repayment terms with the government of the Russian Federation, which has agreed to assume the guarantee of the former Soviet Union in respect of the obligations of Vnesheconombank under such loan. In 1995, the two governments came to an agreement on a repayment schedule in respect of approximately half of the loan. Since the agreement was made, US$229 million of the principal has been repaid.

In June 2003, the two governments reached an agreement as to the rescheduling of the remaining portion of the loan and the change of the borrower from Vnesheconombank to the government of the Russian Federation. As a result, in September 2003, we upgraded the classification of the outstanding (Won)258 billion (including accrued and unpaid interest) of our exposure to the government of the Russian Federation from estimated loss to doubtful in terms of asset quality and established a 70% provisioning level for that credit exposure. In June 2004, we further upgraded the classification of the outstanding (Won)258 billion of our exposure to the government of the Russian Federation from doubtful to precautionary in terms of asset quality, following the continued repayment of the loan by the government of the Russian Federation in accordance with the agreed payment schedule, and established a 19% provisioning level for that credit exposure.

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Asset Quality

The Financial Supervisory Commission requires banks, including us, to analyze and classify their credits into one of five categories by taking into account a number of factors including the financial position, profitability, transaction history of the relevant borrower and the value of any collateral or guarantee taken as security for the extension of credit.

Financial Supervisory Commission guidelines classify loans into five categories; provisions are made in accordance with ratios applicable to each category. Effective December 31, 1999, the Financial Supervisory Commission adopted more stringent definitions for the relevant loan categories which more closely follow international standards. Under the revised definitions, loans are categorized as follows:

Normal	Credits extended to customers which, in consideration of their business and operations, financial conditions and future cash flows, do not raise concerns regarding their ability to repay the credits. 0.5% or more reserves required.
Precautionary	Credits extended to customers (1) which, in consideration of their business and operations, financial conditions and future cash flows, are judged to have potential risks with respect to their ability to repay the credits in the future, although there have not occurred any immediate risks of default in repayment; or (2) which are in arrears for one month or more but less than three months. 2.0% or more reserves required.
Substandard	(1) Credits extended to customers, which in consideration of their business and operations, financial conditions and future cash flows, are judged to have incurred considerable risks for default in repayment as the customers’ ability to repay has deteriorated; or (2) that portion which is expected to be collected of total credits (a) extended to customers which have been in arrears for three months or more, (b) extended to customers which are judged to have incurred serious risks due to the occurrence of final refusal to pay their promissory notes, liquidation or bankruptcy proceedings, or closure of their businesses or (c) of “Doubtful Customers” or “Estimated-loss Customers” (each as defined below). 20% or more reserves required.
Doubtful	That portion of credits in excess of the amount expected to be collected of total credits extended to (1) customers (“Doubtful Customers”) which, in consideration of their business and operations, financial conditions and future cash flows, are judged to have incurred serious risks of default in repayment due to noticeable deterioration in their ability to repay; or (2) customers which have been

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in arrears for three months or more but less than twelve months. 50% or more reserves required.

Estimated Loss

That portion of credits in excess of the amount expected to be collected of total credits extended to (1) customers (“Estimated-loss Customers”), which, in consideration of their business and operations, financial conditions and future cash flows, are judged to have to be accounted as a loss as the inability to repay became certain due to serious deterioration in their ability to repay; (2) customers which have been in arrears for twelve months or more; or (3) customers which are judged to have incurred serious risks of default in repayment due to the occurrence of final refusal to pay their promissory notes, liquidation or bankruptcy proceedings, or closure of their businesses. 100% reserves required.

In November 2004, the Financial Supervisory Commission announced that it will implement new loan loss provisioning guidelines for banks, which they will be required to follow from the second half of 2006. These guidelines include a new requirement that banks take into account “expected loss” based on their own “historical loss” with respect to credits in establishing their allowance for loan losses, instead of establishing such allowances based on the classification of credits under the current asset classification criteria. As a result, we are required to establish and maintain our allowance for loan losses based on an evaluation of “expected losses” on individual credits or credit portfolio.

Under the new guideline, all Korean banks were required to establish systems to calculate their “historical losses” and “expected losses” during 2005. The Financial Supervisory Commission also announced that Korean banks may voluntarily comply with the new loan loss provisioning guidelines commencing in 2005. Specifically, in the second half of 2005, banks that have implemented a credible internal system for evaluating “historical losses” may establish their allowance for loan losses based on such historical losses, so long as the total allowance for loan losses established exceeds the levels required under the current asset classification-based provisioning guidelines. Similarly, in the first half of 2006, banks that have implemented a credible system for evaluating “expected loss” may establish their allowance for loan losses based on such expected losses, so long as the total allowance established exceeds currently required levels.

Based on the new guidelines, we established new loan loss provisioning levels taking into account a borrower’s industry risk, individual credit risk and financial risk based on our system for evaluating “expected loss”. In 2005, we also modified our loan loss provisioning methodology with respect to normal loans. Loans classified as normal were categorized either as domestic loans or overseas loans. Domestic loans were further subdivided as (i) small-sized business loans, (ii) medium-sized business loans or (iii) big enterprise loans. Our loan loss provisioning level for domestic loans was established based on a basic loan loss provisioning rate and default risk level according to the term of such loan (i.e., the year of maturity). The basic loan loss provisioning rate for small and medium-sized business loans was calculated based on our system for evaluating “historical loss”. With respect to the basic loan loss provisioning rate for big enterprise loans, we did not have enough statistical data for historical loan losses with respect to such loans so we applied an average rate of other Korean banks’ provisioning levels for normal loans. Our loan loss allowance for overseas normal loans was calculated based on sovereign credit ratings and on whether a borrower was a public or private enterprise. In

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addition, we changed our reserve policies for confirmed acceptances and guarantees pursuant to the amended Supervisory Regulation of Banking Business. We have also established reserves for unconfirmed acceptances and guarantees since January 1, 2005. For more detailed information on modifications with respect to loan loss provisioning, see “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 2”.

Asset Classifications

The following table provides information on our loan loss reserves:

	As of December 31, 2004						As of December 31, 2005
	Loan Amount(1)		Minimum Reserve Ratio		Loan Loss Reserve(2)		Loan Amount(1)		Minimum Reserve Ratio		Loan Loss Reserve(2)
	(in billions of Won, except percentages)
Normal	(Won)	38,848.3	0.5	%	(Won)	364.7	(Won)	47,555.3	0.5	%	(Won)	594.5
Precautionary		610.1	2.0	%		152.3		750.4	2.0	%		144.4
Sub-standard		249.1	20.0	%		121.5		36.0	20.0	%		25.8
Doubtful		55.8	50.0	%		52.6		26.9	50.0	%		25.4
Estimated Loss		15.1	100.0	%		15.1		7.7	100.0	%		7.7
Total	(Won)	39,778.4			(Won)	706.2	(Won)	48,376.3			(Won)	797.8

(1) These figures include loans (excluding interbank loans and call loans), domestic usance, bills bought, foreign exchange bought, advances for customers, confirmed and unconfirmed acceptances and guarantees.

(2) These figures include present value discount.

Reserves for Credit Losses

The following table sets out our 10 largest non-performing Credit Exposures as of December 31, 2005:

Borrower	Loans		Guarantees	Total
	(billions of Won)
Daewoo Corporation	(Won)	74.7	—	(Won)	74.7
Government of the Russian Federation		21.5	—		21.5
Choongnam Vietnam Textile Co., Ltd		7.6	—		7.6
Nahichevan Telecom		5.1	—		5.1
I-Texfil Ltd.		4.1	—		4.1
Pioneer (Cayman) Co., Ltd.		3.0	—		3.0
Lookatyouth Co., Ltd.		2.6	—		2.6
Daewoo Electronics DE Mexico S.A.		2.3	—		2.3
Choongnam Textile Co., Ltd.		1.9	—		1.9
Daekwang Co., Ltd.		0.8	—		0.8
Total	(Won)	123.6	—	(Won)	123.6

In connection with our Credit Exposure of US$73.7 million to Daewoo Corporation, we filed three lawsuits against three Korean banks relating to their obligations to honor guarantees that they issued with respect to debt owed to us by Daewoo Corporation. In 2003, the Seoul District Court ruled

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in our favor in all three lawsuits. The banks appealed these rulings, and the appellate court and the Supreme Court ruled in our favor with respect to the first and second lawsuits. Since the defendants of these lawsuits did not repay the guaranteed amount, we filed new lawsuits against them in the Seoul District Court in April 2005 to enforce the Supreme Court decision. The third lawsuit is currently at the Supreme Court level. We expect to prevail in all three lawsuits. Our outstanding Credit Exposure to Daewoo Corporation is currently classified as normal in terms of asset quality. We plan to wait until we receive final rulings with respect to these lawsuits prior to agreeing to any repayment plan in connection with the debt of Daewoo Corporation.

We cannot provide any assurance that our current level of exposure to non-performing assets will continue in the future or that any of its borrowers (including its largest borrowers as described above) is not currently facing, or in the future will not face, material financial difficulties.

As of December 31, 2005, the amount of our non-performing assets was (Won)125 billion, a decrease of 35.6% from (Won)194 billion as of December 31, 2004, which was mainly due to the enhanced asset quality of our assets.

The following table sets forth our reserves for possible credit losses as of December 31, 2004 and 2005:

	As of December 31,
	2004			2005
	(billions of Won, except for percentages)
Loan Loss Reserve (A)	(Won)	706.2		(Won)	797.8
NPA (B)(1)		194.2			125.4
Total Equity (C)		3,544.1			4,878.4
Reserve to NPA (A/B)		363.6	%		636.2	%
Equity at Risk [(B-A)/C]		—			—

(1) Non-performing assets, which are defined as (a) assets classified as doubtful and estimated loss, (b) assets in delinquency of repayments of principles or interests more than 3 months or (c) assets exempted from interest payments due to restructuring or rescheduling.

Source: Internal accounting records.

The following table sets forth our actual loan loss reserve ratios under the Financial Supervisory Commission guidelines as of December 31, 2004 and 2005:

Classification of Loans	Financial Supervisory Commission Guidelines	Actual Reserve Coverage (as of December 31, 2004)		Actual Reserve Coverage (as of December 31, 2005)
Normal	More than 0.5%	1.4	%	3.4	%
Precautionary	More than 2.0%	16.9	%	16.8	%
Substandard	More than 20%	48.8	%	43.4	%
Doubtful	More than 50%	94.1	%	94.2	%
Estimated Loss	100%	100.00	%	100.00	%

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Investments

Under the KEXIM Decree, we are not allowed to hold stocks or securities of more than three years’ maturity in excess of 60% of our equity capital. However, investment in the following securities is not subject to this restriction:

• Government bonds;

• BOK currency stabilization bonds;

• securities acquired via Government investment; and

• securities acquired through investment approved by the Government, for research related to our operations or our financing.

As of December 31, 2005, our total investment in securities amounted to (Won)3,215 billion, representing 21.2% of our total assets. Our securities portfolio consists primarily of available-for-sale securities. Available-for-sale securities mainly comprise equity securities in Korea Exchange Bank and Industrial Bank of Korea which were recapitalized by the Government through us and equity securities in Korea Highway Corporation which were in-kind contributions made by the Government to us. In October 2005, we sold 32,000,000 shares of common stock, which represented 79.0% of our holding of common stock in Industrial Bank of Korea, for (Won)420.6 billion.

The following table sets out the composition of our securities as of December 31, 2005:

Type of Investment Securities	Amount		%
	(billions of Won)
Available-for-sale Securities	(Won)	3,119.3	97.0	%
Securities held-to-maturity		8.1	0.3	%
Investments in Associates		87.5	2.7	%
Total	(Won)	3,214.9	100.0	%

For further information relating to the classification guidelines and methods of valuation for unrealized gains and losses on our securities, see “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 2”.

Guarantees and Acceptances and Contingent Liabilities

We have credit risk concentrations that are not reflected on the balance sheet, which include risks associated with guarantees and acceptances. Guarantees and acceptances do not appear on the balance sheet, but rather are recorded as an off-balance sheet item in the notes to the financial statements. Guarantees and acceptances include financial guarantees, project related guarantees, such as bid bond, advance payment bond, performance bond or retention bond, and acceptances and advances relating to trade financings such as letters of credit or import freight. Contingent liabilities, for which the guaranteed amounts were not finalized, appear as unconfirmed guarantees and acceptance items in the notes to the financial statements as off-balance sheet items.

As of December 31, 2005, we issued a total amount of (Won)20,115.5 billion in confirmed guarantees and acceptances, of which (Won)19,958.0 billion, representing 99.2% of the total amount, were classified as normal and (Won)157.5 billion, representing 0.8% of the total amount, were classified as precautionary.

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Derivatives

The objective in our strategy and policies on derivatives is to actively manage and minimize our foreign exchange and interest rate risks. We do not take proprietary derivative positions. It is our policy to hedge all currency and interest rate risks wherever possible (taking into consideration the cost of hedging). We use various hedging instruments, including foreign exchange forwards and options, interest rate swaps, and cross currency swaps.

Under our internal trading rules that have been submitted to the Financial Supervisory Service, our policy is to engage in derivative transactions mainly for hedging our own position. As part of our total exposure management system, we monitor our exposure to derivatives and may make real-time inquiries, which enables our Risk Management Department to check our exposure on a regular basis. Under the guidelines set by the Financial Supervisory Service, we are required to submit reports on our derivatives exposure to the Financial Supervisory Service on a quarterly basis. As a measure to reduce the risk of intentional manipulation or error, we have separated responsibility for different functions such as initiation, authorization, approval, recording, monitoring and reporting to the Financial Supervisory Service. The Risk Management Department conducts regular reviews of derivative transactions to monitor any breach of compliance with the relevant regulatory requirements.

As of December 31, 2005, our outstanding loans made at floating rates of interest totaled approximately (Won)8,159 billion, whereas our outstanding borrowings made at floating rates of interest totaled approximately (Won)5,329 billion, including those raised in Japanese yen, Singapore dollars, Hong Kong dollars, Euros and Australian dollars and swapped into U.S. dollar floating rate borrowings. As a result, we are exposed to possible interest rate risks to the extent that the amount of our loans made at floating rates of interest exceeds the amount of our borrowings made at floating rates of interest. Foreign exchange risk arises because a majority of our assets and liabilities is denominated in non-Won currencies. In order to match our currency and interest rate structure, we generally enter into swap transactions. As of December 31, 2005, we had entered into 20 currency related derivative contracts with a notional amount of (Won)1,198 billion and valuation for BIS capital ratio purposes of (Won)66 billion and had entered into 47 interest rate related derivative contracts with a notional amount of (Won)5,051 billion and valuation for BIS capital ratio purposes of (Won)210 billion. See “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 15”.

Sources of Funding

We obtain funds primarily through borrowings from the Government or governmental agencies, the issuance of bonds in both domestic and international capital markets, borrowings from domestic and foreign financial institutions, capital contributions and internally generated funds. Internally generated funds result from various activities we carried on and include principal and interest payments on our loans, fees from guarantee operations and other services, and income from marketable securities we hold.

We raised a net total of (Won)15,384 billion (new borrowings plus loan repayments by our clients less repayment of our existing debt) during 2005, a 27.2% increase compared with the previous year’s (Won)12,096 billion. The total loan repayments, including prepayments by our clients, during 2005 amounted to (Won)12,361 billion, an increase of 26.4% from (Won)9,783 billion during 2004.

Since our establishment, borrowings from the Government have provided a substantial portion of our financial resources. As of December 31, 2003, the outstanding amount of our borrowings from the

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Government was (Won)1,188 billion, which consisted of (Won)110 billion in Won and (Won)1,078 billion in foreign currencies. In 2004, we repaid all of the amounts borrowed from the Government and as of December 31, 2004 and 2005, we had no outstanding borrowings from the Government. Instead, we issued Won-denominated domestic bonds in the aggregate amount of (Won)500 billion during 2005.

We have diversified our funding sources by borrowing from various overseas sources and issuing long-term floating-rate notes and fixed-rate debentures in the international capital markets. These issues were in foreign currencies, including Dollars, Japanese Yen, and Euro, and have original maturities ranging from one to ten years. During 2005, we issued eurobonds in the aggregate principal amount of US$693 million in various types of currencies under our existing Euro medium term notes program (“EMTN Program”), a 59.7% decrease compared with the previous year’s US$1,721 million. These bond issues consisted of offerings of US$80 million, HK$1,632 million, ¥17,000 million, Singapore $373 million, British Pound 13 million and Euro 29 million. In addition, we issued global bonds during 2005 in the aggregate amount of US$1,500 million under our U.S. shelf registration statement (the “U.S. Shelf Program”), a 200% increase compared with the previous year’s US$500 million. As of December 31, 2005, the outstanding amounts of such notes and debentures were US$7,427 million, ¥9 billion, Euro 454 million, British Pound 13 million, Singapore $498 million, Australian $30 million and HK$1,919 million. In February 2006, we issued global bonds in the aggregate principal amount of US$600 million and Euro 325 million pursuant to the U.S. Shelf Program.

We also borrow from foreign financial institutions in the form of loans that are principally made by syndicates of commercial banks at floating or fixed interest rates and in foreign currencies, with original maturities ranging from one to ten years. As of December 31, 2005, the outstanding amount of such borrowings from foreign financial institutions decreased to (Won)153 billion from (Won)300 billion as of December 31, 2004.

Our paid-in capital has increased from time to time since our establishment. From April 1997 to December 2005, the Government contributed (Won)2,815 billion to our capital. As of December 31, 2005, our total paid-in capital amounted to (Won)3,296 billion, and the Government, The Bank of Korea and the Korea Development Bank owned 60.0%, 35.3% and 4.7%, respectively, of our paid-in capital.

In connection with our fund raising activities, we have from time to time sold third parties promissory notes, including related guarantees, acquired as collateral in connection with export credit financings.

The KEXIM Act provides that the aggregate outstanding principal amount of all of our borrowings, including the total outstanding export-import financing debentures we issued in accordance with the KEXIM Decree, may not exceed an amount equal to thirty times the sum of our paid-in capital plus our reserves. As of December 31, 2005, the aggregate outstanding principal amount of our borrowings (including export-import financing debentures), (Won)9,222 billion, was equal to 7.7% of the authorized amount of (Won)119,483 billion.

We are not permitted to accept demand or time deposits.

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Each year we must submit to the Government for its approval an operating plan which includes our target levels for different types of funding. The following table is the part of the operating plan dealing with fund-raising for 2006:

Sources of Fund	(billions of Won)
Capital Contribution	(Won)	10
Borrowings		3,900
Collection of Loans		13,900
Repayment of Debts		2,130
Net Collection of Loans		11,770
Others		320
Total	(Won)	16,000

Debt

Debt Repayment Schedule

The following table sets out the principal repayment schedule for our debt outstanding as of December 31, 2005:

Debt Principal Repayment Schedule

	Maturing on or before December 31,
Currency(1)	2006	2007	2008	2009	Thereafter
	(billions of won)
Won	500	—	—	—	—
Foreign	2,358	2,083	557	1,642	2,229
Total Won Equivalent	2,858	2,083	557	1,642	2,229

(1) Borrowings in foreign currency have been translated into Won at the market average exchange rates on December 31, 2005, as announced by the Seoul Money Brokerage Services Ltd.

Normally we determine the level of our foreign currency reserves based upon an estimate, at any given time, of aggregate loan disbursements to be made over the next two to three months. Our average foreign currency reserves in 2004 and 2005 were approximately US$656 million and US$388 million, respectively. Although we currently believe that such reserves, together with additional borrowings available under our uncommitted short-term backup credit facilities, will be sufficient to repay our outstanding debt as it becomes due, there can be no assurance that we will continue to be able to borrow under such credit facilities, or that the devaluation of the Won will not adversely affect our ability to access funds sufficient to repay our foreign currency denominated indebtedness in the future. In addition to maintaining sufficient foreign currency reserves, we monitor the maturity profile of our foreign currency assets and liabilities to ensure that there are sufficient maturing assets to meet our liabilities as they become due. As of December 31, 2005, our foreign currency assets maturing within three months, six months and one year exceeded our foreign currency liabilities coming due within such periods by US$413 million, US$1,429 million and US$1,480 million, respectively. As of December 31, 2005, our total foreign currency liabilities exceeded our total foreign currency assets by US$93 million.

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Debt Record

We have never defaulted in the payment of principal of, or interest on, any of our obligations.

Credit Policies, Credit Approval and Risk Management

Credit Policies

The Credit Policy Department functions as our centralized policy-making and planning division with respect to our lending activities. The Credit Policy Department formulates and revises our internal regulations on loan programs, sets basic lending guidelines on a country basis and gathers data from our various operating groups and produces various internal and external reports.

Credit Approval

We have multiple levels of loan approval authority, depending on the loan amount and other factors such as the nature of the credit, the conditions of the transaction, and whether the loan is secured. Our Executive Board of Directors can approve loans of any amount. The Credit Committee, Loan Officer Committee, Director Generals and Directors (Team Heads) each have authority to approve loans up to a specified amount. The amount differs depending on the type of loan and certain other factors, for example, whether a loan is collateralized or guaranteed.

At each level of authority, loan applications are reviewed on the basis of the feasibility of the project from a technical, financial and economic point of view in addition to evaluating the probability of recovery. In conducting such a review, the following factors are considered:

• eligibility of the transaction under our financing criteria;

• country risk of the country of the borrower and the country in which the related project is located;

• credit risk of the borrower;

• a supplier’s ability to perform under the related supply contract;

• legal disputes over the related project and supply contract; and

• availability of collateral.

When the credit rating of a prospective borrower does not meet our internal rating criteria, our policy is to ensure that the loans are either guaranteed by leading international banks or governments or made on a partially or fully secured basis. Guarantees are required if the credit rating of a prospective borrower does not meet our internal rating criteria. As of December 31, 2005, approximately 21% of our total outstanding loans were guaranteed by banks or governments and made on a partially or fully secured basis.

Risk Management

Our overall risk management policy is set by the Risk Management Committee, which meets on a quarterly basis and from time to time to establish tolerance limits for various exposures, whereas the overall risk management is overseen by the Risk Management Department, which is responsible for monitoring risk exposure.

The Risk Management Department reports our loan portfolio to the Financial Supervisory Service on a quarterly basis. The Risk Management Department also monitors our operating groups’

27

compliance with internal guidelines and procedures. To manage liquidity risk, we review the strategy for the sources and uses of funds, with each division submitting projected sources and uses to the Treasury Department. The Risk Management Department and the Treasury Department continually monitor our overall liquidity and the Treasury Department prepares both weekly and monthly cashflow forecasts. Our policy is to maintain a liquidity level, which can cover loan disbursements for a period of two to three months going forward. We protect ourselves from potential liquidity squeezes by maintaining sufficient amount of liquid assets with additional back-up of short-term credit lines.

Our core lending activities expose us to market risk, mostly in the form of interest rate and foreign currency risks. The Risk Management Department reports six-month projections of our interest rate and foreign exchange gap positions to the Risk Management Committee on a quarterly basis. We also monitor changes in, and matches of, foreign currency assets and liabilities in order to reduce exposure to currency fluctuations.

One of the key components of our risk management policy, which also affects our fund-raising efforts, is to monitor matches of asset maturities and liability maturities. The average maturity as of December 31, 2005 for our Won- and foreign currency-denominated loans was seven months and 32 months, respectively, and for Won- and foreign currency-denominated liabilities was three months and 38 months, respectively.

We follow an overall risk management process where we:

• determine the risk management objectives;

• identify key exposures;

• measure key risks; and

• monitor risk management results.

Our risk management system is a continuous system that is frequently evaluated and updated on an ongoing basis.

Capital Adequacy

Under the Financial Supervisory Service’s guidelines on risk-adjusted capital which were introduced in consideration of the standards we set for International Settlement, all banks in Korea, including us, are required to maintain a capital adequacy ratio (Tier I and Tier II) of at least 8% on a consolidated basis. To the extent that we fail to maintain this ratio, the Korean regulatory authorities may require corrective measures ranging from management improvement recommendations to emergency measures such as disposal of assets. As of December 31, 2005, our capital adequacy ratio was 13.87%, an increase from 12.86% as of December 31, 2004, primarily as a result of increases in paid-in capital and retained earnings.

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The following table sets forth our capital base and capital adequacy ratios reported as of December 31, 2003, 2004 and 2005:

	2003			2004			2005
	(millions of Won, except for percentages)
Tier I	(Won)	3,066,186		(Won)	3,070,729		(Won)	3,979,959
Paid-in Capital		2,765,755			2,775,755			3,295,755
Retained Earnings		392,579			465,838			689,189
Deductions from Tier I Capital		92,148			170,864			4,984
Capital Adjustments		—			—			—
Deferred Tax Asset		(86,080	)		(165,349	)		(98	)
Others		(6,068	)		(5,515	)		(4,886	)
Tier II (General Loan Loss Reserves)		206,294			482,261			841,633
Deductions from all capital		—			—			—
Total Capital		3,272,480			3,552,990			4,821,592
Risk Adjusted Assets		22,707,326			27,628,275			34,750,728
Capital Adequacy Ratios
Tier I		13.50	%		11.11	%		11.45	%
Tier I and Tier II		14.41	%		12.86	%		13.87	%

Source: Internal accounting records.

Overseas Operations

We maintain an international presence through 12 overseas representative offices, which are located in New York, Tokyo, Beijing, Sâo Paolo, Frankfurt, Paris, Washington D.C., Shanghai, New Delhi, Dubai, Moscow and Mexico City.

We also has three wholly-owned subsidiaries, KEXIM Bank (UK) Ltd., London, KEXIM (Asia) Ltd., Hong Kong, and KEXIM Vietnam Leasing Co., Ltd., Ho Chi Minh City. These subsidiaries are engaged in the merchant banking and lease financing businesses, and assist us in raising overseas financing. We also own 85.0% of P.T. Koexim Mandiri Finance, a subsidiary in Jakarta, which is primarily engaged in the business of lease financing.

The table below sets forth brief details of our subsidiaries as of December 31, 2005:

	Principal Place of Business	Type of Business	Book Value		Bank’s Holding
			(billions of Won)		(%)
Kexim Bank (UK) Ltd.	United Kingdom	Commercial Banking	(Won)	39.6	100.0	%
KEXIM (Asia) Ltd.	Hong Kong	Commercial Banking		30.4	100.0
P.T. Koexim Mandiri Finance	Indonesia	Leasing and Factoring		10.3	85.0
Kexim Vietnam Leasing Co., Ltd.	Vietnam	Leasing and Guarantees		7.1	100.0

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Property

Our head office is located at 16-1 Yoido-Dong, Youngdeungpo-Gu, Seoul 150-996, Korea, a 34,820 square meter building completed in 1985 on a site of 9,110 square meters and owned by us. In addition to the head office, we own a staff training center located near Seoul on a site of 47,881 square meters. We also maintain 11 branches in Seoul, Pusan, Kwangju, Taegu, Changwon, Daejeon, Suwon, Inchon, Ulsan, Chungju and Jeonju. Our domestic branch offices and overseas representative offices are located in facilities held under long-term leases.

Management and Employees

Management

Our governance and management is the responsibility of our Board of Executive Directors, which has authority to decide important matters relating to our business. All of the members of the Board of Executive Directors are full-time executives of KEXIM. The Board of Executive Directors is chaired by our President and is comprised of seven Executive Directors consisting of the President, the Deputy President and five other Executive Directors. The President of Korea appoints our President upon the recommendation of the Minister of Finance and Economy. The Minister of Finance and Economy appoints the Deputy President and all the other Executive Directors upon the recommendation of our President. All Board members serve for three years and are eligible for re-appointment for successive terms of office.

The members of the Board of Executive Directors are as follows:

Name	Age	Executive Director Since	Position
Dong-Kyu Shin	54	September 4, 2003	Chairman and President
Jin-Ho Kim	58	April 1, 2005	Deputy President
Joong-Ouk Shin	57	December 22, 2004	Executive Director
Jung-Jun Kim	56	April 1, 2005	Executive Director
Sung-Uk Hong	56	May 20, 2005	Executive Director
Tae-Sung Chung	55	May 20, 2005	Executive Director
Yong-An Choi	55	May 20, 2005	Executive Director

Our basic policy guidelines for activities are established by the Operations Committee. According to the By-laws, the Operations Committee is composed of officials nominated as follows:

• President of KEXIM;

• official of the Ministry of Finance and Economy, nominated by the Minister of Finance and Economy;

• official of the Ministry of Foreign Affairs and Trade, nominated by the Minister of Foreign Affairs and Trade;

• official of the Ministry of Commerce, Industry and Energy, nominated by the Minister of Commerce, Industry and Energy;

• official of the Ministry of Construction and Transportation, nominated by the Minister of Construction and Transportation;

• official of the Financial Supervisory Commission, nominated by the Chairman of the Financial Supervisory Commission;

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• executive director of The Bank of Korea, nominated by the Governor of The Bank of Korea;

• executive director of the Korea Federation of Banks, nominated by the Chairman of the Korea Federation of Banks;

• representative of an exporters’ association (Korea International Trade Association), nominated by the Minister of Finance and Economy after consultation with the Minister of Commerce, Industry and Energy; and

• executive director of the Korea Export Insurance Corporation established under the Export Insurance Act, nominated by the Chairman and President of the Korea Export Insurance Corporation.

The members of the Operations Committee are currently as follows:

Name	Age	Member Since	Position
Dong-Kyu Shin	54	September 4, 2003	Chairman and President of KEXIM
Sung-Jin Kim	55	September 1, 2005	Deputy Minister, Ministry of Finance and Economy
Jung-Keun Kim	54	October 24, 2005	Deputy Minister, Ministry of Foreign Affairs and Trade
Jun-Seok Chung	54	March 6, 2006	Deputy Minister, Minister of Commerce, Industry and Energy
Jae-Woo Moon	50	December 27, 2005	Standing Commissioner, Financial Supervisory Commission
Han-Keun Yoon	53	May 8, 2006	Assistant Governor, The Bank of Korea
Jang-Soo Kim	61	February 27, 2006	Vice Chairman, The Korea Federation of Banks
Chang-Moo Yoo	55	May 11, 2006	Executive Vice Chairman, Korea International Trade Association
Sung-Bum Park	56	May 31, 2004	Deputy President, Korea Export Insurance Corporation

Employees

As of December 31, 2005, we had 597 employees. As of December 31, 2005, 333 employees were members of our labor union. We have never experienced a work stoppage of a serious nature. Every year during the fourth quarter, the management and union negotiate and enter into a collective bargaining agreement that has a one-year duration. The most recent collective bargaining agreement was entered into in December 2005.

Financial Statements and the Auditors

The Minister of Finance and Economy appoints our Auditor who is responsible for examining our financial operations and auditing our financial statements and records. The present Auditor is Jeong-Sang Choi, who was appointed for a three-year term on April 13, 2005.

We prepare our financial statements annually for submission to the Minister of Finance and Economy, accompanied by an opinion of the Auditor. Although we are not legally required to have financial statements audited by external auditors, an independent public accounting firm has audited

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our non-consolidated financial statements commencing with such non-consolidated financial statements as of and for the year ended December 31, 1983 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 auditor is Deloitte Anjin LLC (member of Deloitte Touche Tohmatsu), located at 14F, Hanwha Securities Bldg., 23-5 Yoido-Dong, Youngdeungpo-Gu, Seoul, Korea, who has audited our financial statements as of and for the year ended December 31, 2005 included in this prospectus. Our financial statements as of and for the year ended December 31, 2004 included in this prospectus have been audited by Samil PricewaterhouseCoopers.

Our financial statements appearing in this prospectus were prepared in conformity with Korean law and in accordance with generally accepted accounting principles in the Republic, summarized in “Notes to Non-Consolidated Financial Statements of December 31, 2005 and 2004—Note 2”. These principles and procedures differ in certain material respects from generally accepted accounting principles in the United States.

We recognize interest income on loans and debt securities on an accrual basis. However, interest income on delinquent and dishonored loans and debt securities, other than those collateralized with security deposits or guaranteed by financial institutions, is recognized on a cash basis. Interest expense is recorded on an accrual basis.

We classify securities that are actively and frequently bought and sold as trading securities. We classify debt securities with fixed or determinable payments and fixed maturities, and which we intend to hold to maturity, as held-to-maturity securities. We classify investments that are categorized as neither trading securities nor held-to-maturity securities as available-for-sale securities. We record our trading and available-for-sale securities, except for non-marketable equity securities classified as available-for-sale securities, at market value. We record our non-marketable equity securities classified as available-for-sale securities at the cost of acquisition. We record held-to-maturity securities at amortized cost. We recognize impairment losses on securities in current operations when the recoverable amounts are less than the acquisition cost of equity securities or amortized cost of debt securities.

We record debenture issuance costs as discounts on debentures and amortize them over the maturity period of the debentures using the effective interest method.

We record our equity investments in companies in which we exercise significant control or influence by using the equity method, pursuant to which we account for adjustments in the value of our investments resulting from changes to the investee’s net asset value.

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 Finance and Economy approved the revaluation in accordance with applicable Korean law. We value additions to premises and equipment since such date at cost.

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INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board of Directors of

The Export-Import Bank of Korea:

We have audited the accompanying non-consolidated balance sheet of The Export-Import Bank of Korea (the “Bank”) as of December 31, 2005, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended, all expressed in Korean Won. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The accompanying non-consolidated balance sheet as of December 31, 2004 and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the year then ended were audited by other auditors, and on their report dated January 21, 2005, they expressed an unqualified opinion on those financial statements.

We conducted our audit 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 financial statements are free of material misstatements. 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2005 non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of December 31, 2005, and the result of its operations, changes in its retained earnings and cash flows for the year then ended, in conformity with accounting principles generally accepted in the Republic of Korea (See Note 2).

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

Deloitte Anjin LLC

Seoul, Korea

January 20, 2006

Notice to Readers

This report is effective as of January 20, 2006, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying financial statements and may result in modifications to the auditors’ report.

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INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

The Export-Import Bank of Korea

We have audited the accompanying non-consolidated balance sheets of the Export-Import Bank of Korea (“the Bank”) as of December 31, 2004 and 2003, and the related non-consolidated statements of income, appropriations of retained earnings and cash flows for the years then ended, expressed in Korean Won. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 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 financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Export-Import Bank of Korea as of December 31, 2004 and 2003, and the results of its operations, the changes in its retained earnings and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea.

Without qualifying our opinion, we draw your attention to the following matters.

As discussed in Note 2 to the financial statements, the Bank determined that the increase in volume and duration of loans and guarantees and acceptances expose the Bank to larger risks and accordingly modified its rates for allowances for loan losses and allowances for losses on guarantees and acceptances.

	Classification	Allowance rates before modification	Allowance rates after modification
			Duration	Allowance rates
Loans	Normal	0.75%	Due in 1 year or less	1.50%
		(Small companies 1.90%)	Due after 1 year through 3 years	1.75%
			Due after 3 years	1.90%
			Small companies	1.90%
	Precautionary	10.0% or more		15.0% or more
Guarantees and acceptances outstanding	Normal	0.5% or more	Due in 1 year or less Due after 1 year through 3 years Due after 3 years	0.75% 1.50% 1.75%
	Precautionary	2% or more		15.0%

This accounting change was accounted for prospectively, and as a result of the additional allowances for loan losses and the allowances for losses on guarantees and acceptances of (Won)75,522 million and (Won)153,206 million, respectively, the current year’s net income before income tax expenses decreased (Won)228,728 million.

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As discussed in Note 15 to the financial statements, the Bank sold 30,865,792 shares of Korean Exchange Bank (“KEB”) common stocks to LSF-KEB Holdings, SCA (“LSF”) on October 30, 2003 at 5,400 KRW per share. According to the call option written by the Bank in the course of the transaction, LSF has the right to purchase the Bank’s remaining interest in KEB of 49,134,208 shares within 3 years from the transaction date at a formula-determined price. The ultimate effect of this agreement on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying non-consolidated financial statements.

Additionally, upon sale of KEB shares by LSF after two years from the transaction date, the Bank and LSF may, with other conditions to the sale satisfied, exercise its rights against the other party to sell or cause to sell any of the Bank’s remaining interest in KEB shares under the same conditions as LSF. Under the mutual agreement between the Bank and LSF, the KEB shares held by the Bank are restricted from sale until October 31, 2005.

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

Samil PricewaterhouseCoopers

Seoul, Korea

January 21, 2005

This report is effective as of January 21, 2005, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying non-consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

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THE EXPORT-IMPORT BANK OF KOREA

NON-CONSOLIDATED BALANCE SHEETS

As of December 31, 2005 and 2004

	Korean Won
	2005			2004
	(In millions)
Assets
Due from banks (Notes 3, 16, 20, 21 and 22)	(Won)	44,047		(Won)	69,504
Securities (Notes 4, 16 and 20)		3,214,932			2,006,050
Loans (Notes 5, 6, 16, 20 and 21)		12,188,754			10,127,203
Adjustment on loans in foreign currencies (Note 5)		(7,313	)		20,410
Allowance for possible loan losses (Note 6)		(570,161	)		(456,945	)
Fixed assets (Note 7)		45,263			47,110
Other assets (Notes 8, 15 and 19)		240,243			357,291
	(Won)	15,155,765		(Won)	12,170,623
Liabilities and Shareholders’ Equity
Liabilities:
Borrowings (Notes 9, 16, 20 and 21)	(Won)	651,249		(Won)	1,098,591
Debentures (Notes 10, 16, 20 and 21)		8,570,536			6,744,001
Other liabilities (Notes 2, 11, 12, 13, 15 and 19)		1,055,592			783,951
		10,277,377			8,626,543
Shareholders’ Equity (Notes 4 and 14):
Capital		3,295,755			2,775,755
Retained earnings
(Net income of (Won)224,491 million in 2005 and (Won)77,476 million in 2004)		687,027			464,086
Capital adjustments (Note 4)		895,606			304,239
		4,878,388			3,544,080
	(Won)	15,155,765		(Won)	12,170,623

See accompanying notes to non-consolidated financial statements.

36

THE EXPORT-IMPORT BANK OF KOREA

NON-CONSOLIDATED STATEMENTS OF INCOME

For the years ended of December 31, 2005 and 2004

	Korean Won
	2005		2004
	(In millions)
Operating revenues:
Interest income (Notes 16 and 21):
Interest on due from banks	(Won)	1,949	(Won)	2,145
Interest on available-for-sale securities		834		1,367
Interest on held-to-maturity securities		1,177		1,236
Interest on loans		488,789		406,399
		492,749		411,147
Commission income (Note 21)		145,550		149,445
Other operating income:
Dividends on available-for-sale securities		6,382		9,830
Foreign exchange trading income		94,397		10,202
Gain on financial derivatives trading (Note 15)		59,626		81,216
Gain on valuation of financial derivatives		70,329		50,094
Gain on valuation of fair value hedged items		53,182		46,750
Reversal of loan loss (Note 6)		—		57,057
Reversal of acceptance and guarantee losses (Note 12)		11,366		—
Other operating income		67		271
		295,349		255,420
Total operating revenues		933,648		816,012
Operating expenses:
Interest expenses (Notes 16 and 21):
Interest on borrowings		13,532		35,532
Interest on call money		11,146		4,283
Interest on debentures		367,651		279,464
		392,329		319,279
Commission expense		1,625		3,078
Other operating expenses:
Provision for possible loan losses (Note 6)		140,374		—
Provision for acceptance and guarantee losses (Note 12)		—		181,034
Provision for other allowance (Note 12)		27,597		—
Foreign exchange trading losses		13,960		75,767
Loss on financial derivatives trading (Note 15)		77,551		24,445
Loss on valuation of financial derivatives		138,521		44,331
Loss on valuation of fair value hedged items		24,997		1,427
Other operating expenses		17		74
		423,017		327,078
General and administrative expenses (Notes 7 and 17)		99,583		83,130
Total operating expenses		916,554		732,565
Operating income		17,094		83,447
Non-operating income (Notes 4 and 18)		290,316		33,886
Non-operating expenses (Notes 4 and 18)		1,135		11,037
Ordinary income		306,275		106,296
Extraordinary item		—		—
Net income before income tax		306,275		106,296
Income tax expense (Note 19)		81,784		28,820
Net income	(Won)	224,491	(Won)	77,476

See accompanying notes to non-consolidated financial statements.

37

THE EXPORT-IMPORT BANK OF KOREA

NON-CONSOLIDATED STATEMENTS OF APPROPRIATIONS OF RETAINED EARNINGS

For the years ended December 31, 2005 and 2004

	Korean Won
	2005		2004
	(In millions)
Retained earnings before appropriations:
Retained earnings carried over from prior year	(Won)	—	(Won)	—
Net income		224,491		77,476
		224,491		77,476
Appropriations:
Legal reserve		44,898		15,495
Voluntary reserve		165,822		60,431
Dividends (Note 14)		13,771		1,550
		224,491		77,476
Unappropriated retained earnings to be carried forward to subsequent year	(Won)	—	(Won)	—

See accompanying notes to non-consolidated financial statements.

38

THE EXPORT-IMPORT BANK OF KOREA

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended of December 31, 2005 and 2004

	Korean Won
	2005			2004
	(In millions)
Cash flows from operating activities:
Net income	(Won)	224,491		(Won)	77,476
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses		140,374			—
Provision for acceptance and guarantee losses		—			181,034
Provision for other allowance		27,597			—
Foreign exchange trading losses		13,960			75,767
Loss on financial derivatives trading		77,551			24,445
Loss on valuation of financial derivatives		138,521			44,331
Loss on valuation of fair value hedged items		24,997			1,427
Depreciation		4,045			3,643
Amortization		1,656			1,469
Provision for severance benefits		6,900			5,801
Amortization of bond discounts		91,309			35
Loss on disposal of tangible assets		73			688
Loss on disposal of available-for-sale securities		—			660
Loss on valuation of securities using the equity method		—			183
Other non-operating expenses		—			2,587
Foreign exchange trading income		(94,397	)		(10,202	)
Gain on financial derivatives trading		(59,626	)		(81,216	)
Gain on valuation of financial derivatives		(70,329	)		(50,094	)
Gain on valuation of fair value hedged items		(53,182	)		(46,750	)
Reversal of loan loss		—			(57,057	)
Reversal of acceptance and guarantee losses		(11,366	)		—
Amortization of bond premium		(1,184	)		(1,824	)
Gain on disposal of tangible assets		(21	)		(158	)
Gain on disposal of available-for-sale securities		(260,689	)		(10,238	)
Gain on valuation of securities using the equity method		(3,656	)		—
Amortization of present value discount		(8,467	)		(8,917	)
		(35,934	)		75,614
Changes in assets and liabilities resulting from operations:
Net increase in accrued income	(Won)	(40,269	)	(Won)	(36,376	)
Net increase in deferred income tax assets		(17,897	)		(78,174	)
Net increase in payables		67,286			8,707
Net increase in accrued expenses		44,962			46,854
Net increase in deferred revenue		33,387			30,761
Payment of severance benefits		(2,329	)		(1,230	)
Net increase (decrease) in unpaid foreign exchange liabilities		(83,943	)		143,525
Others, net		(31,903	)		(890	)
		(30,706	)		113,177
Net cash provided by operating activities		157,851			266,267
Cash flows from investing activities:
Net increase in loans		(2,052,519	)		(425,041	)
Net decrease in available-for-sale securities		408,398			38,639
Net decrease (increase) in held-to-maturity securities		70,514			(54,632	)
Net decrease (increase) in securities using the equity method		7,632			(36,961	)
Net decrease in financial derivatives		11,289			45,703
Net increase in other assets		(6,289	)		(11,290	)
Net cash used in investing activities		(1,560,975	)		(443,582	)
Cash flows from financing activities:
Net decrease in foreign borrowings		(344,514	)		(2,767,228	)
Net increase (decrease) in call money		(102,828	)		406,594
Net increase in debentures		481,515			—
Net increase in foreign debentures		1,325,044			2,489,125
Net increase in capital		20,000			10,000
Payment of dividends		(1,550	)		—
Net cash provided by financing activities		1,377,667			138,491
Net decrease in due from banks		(25,457	)		(38,824	)
Due from banks, beginning of the year		69,504			108,328
Due from banks, end of the year (note 22)	(Won)	44,047		(Won)	69,504

See accompanying notes to non-consolidated financial statements.

39

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2005 and 2004

1. General:

The Export-Import Bank of Korea (the “Bank”) was established in 1976 as a special financial institution under the Export-Import Bank of Korea Act (the “EXIM Bank Act”) to engage in facilitating export and import transactions, overseas investments and overseas resources development through the extension of loans and other financial facilities. The Bank has eleven domestic branches, four overseas subsidiaries and twelve overseas offices as of December 31, 2005.

The Bank has (Won)4,000,000 million of authorized capital and as of December 31, 2005, its paid-in capital is (Won)3,295,755 million through several capital increases. The Bank is owned by the Government of the Republic of Korea (the “Government”), the Bank of Korea (“BOK”) and Korea Development Bank with 60%, 35.3% and 4.7% shareholding, respectively, as of December 31, 2005.

The Bank, as an agent of the Government, has managed The Economic Development Cooperation Fund and the Inter-Korean Cooperation Fund (the “Funds”) since June 1987 and March 1991, respectively. The Funds are managed under separate accounts from the Bank’s own accounts and not included in the accompanying non-consolidated financial statements. The related management commissions are received from the Government.

2. Summary of Significant Accounting Policies:

Basis of Non-consolidated Financial Statement Presentation

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

The significant accounting policies followed by the Bank in preparing the accompanying financial statements are summarized below.

Interest Income Recognition

The Bank applies the accrual basis in recognizing interest income related to deposits, loans and securities, except for non-secured uncollectible receivables. Interest on loans, whose principal or interest is past due at the balance sheet date, is generally not accrued, with the exception of interest on certain loans secured by guarantee of governments or government agencies, or collateralized by bank deposits. When a loan is placed on non-accrual status, previously accrued interest is generally reversed

40

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

and deducted from current interest income; and future interest income is recognized on cash basis in accordance with the accounting standards of the banking industry. As of December 31, 2005 and 2004, the accrued interest income not recognized in the accompanying financial statements based on the above criteria, amounted to (Won)7,342 million and (Won)6,529 million, respectively.

Classification of Securities

At acquisition, the Bank classifies securities into one of the following categories: trading, available-for-sale, held-to-maturity and securities using the equity method, depending on marketability, acquisition purpose and ability to hold. Debt and equity securities that are bought and held for the purpose of selling them in the near term and actively traded over-the-counter are classified as trading securities. Debt securities with fixed and determinable payments and fixed maturity that an enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Securities that should be valuated with the equity method are classified as securities using the equity method. Debt and equity securities not classified as the above are categorized as available-for-sale securities.

If the objective and ability to hold securities of the Bank change, available-for-sale securities can be reclassified as held-to-maturity securities and vice-versa. However, if the Bank sells held-to-maturity securities or requires the issuer to redeem the securities early in the current year and the proceeding two years, or if it reclassifies held-to-maturity securities as available-for-sale securities, all debt securities that are owned or purchased cannot be classified as held-to-maturity securities. On the other hand, trading securities cannot be re-categorized as available-for-sale or held-to-maturity securities and the other categories cannot be reclassified as trading securities. Nevertheless, trading securities can be reclassified as available-for-sale securities only when the fair value of the trading securities cannot be readily determinable.

Valuation of Securities

(1) Valuation of Trading Securities

Trading equity and debt securities are initially recognized at acquisition cost plus incidental expenses determined by the individual moving average method or individual method. When the face value of trading debt securities differs from its acquisition cost, the effective interest method is applied to amortize the difference over the remaining term of the securities. After initial recognition, trading securities are valued at fair value if the fair value of trading securities differs from its acquisition cost. The carrying value is adjusted to the fair value and the resulting valuation gain or loss is charged to current operations.

(2) Valuation of Held-to-maturity Securities

Held-to-maturity securities are initially recognized at acquisition cost plus incidental expenses, determined by the individual method. After initial recognition, held-to-maturity securities are valued at amortized cost. The effective interest method is applied to amortize the difference between the face value and the acquisition cost over the remaining term of the

41

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

securities. If collectible value is below the acquisition cost and pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss is charged to current operations.

(3) Valuation of Available-for-sale Securities

Available-for-sale securities are initially recognized at acquisition cost plus incidental expenses, determined by the individual moving average method or individual method. After initial recognition, the effective interest method is applied to amortize the difference between the face value and the acquisition cost over the remaining term of the available-for-sale debt security. Available-for-sale equity securities are valued at fair value, and the net unrealized gain or loss is presented as gain or loss on valuation of available-for-sale securities in capital adjustments. Accumulated capital adjustment of securities is charged to current operations in lump sum at the time of disposal or impairment recognition. Non-marketable equity securities are stated at acquisition cost on the accompanying financial statements if the fair value of the securities is not credibly determinable.

For available-for sale equity securities, if the decline in the fair value of equity securities is below the acquisition cost and pervasive evidence of impairment exists, the carrying value is adjusted to fair value and the resulting valuation loss is charged to current operations. For available-for-sale debt securities, if the decline in the collectible value of debt securities is below the amortized cost and pervasive evidence of impairment exists, the carrying value is adjusted to collectible value and the resulting valuation loss is charged to current operations. With respect to impaired securities, any unrealized valuation gain or loss of securities previously included in the capital adjustment account is reversed.

(4) Valuation of Securities Using the Equity Method

Investments in equity securities of the investee of which the Bank is able to exercise significant influence over by participating in the financial and operating policy decisions of the investee are accounted for using the equity method. The Bank’s share of the profit or the loss of the investees is recognized in the Bank’s profit or loss. If the changes in the investee’s retained earnings are generated from the investee’s correction of significant errors, of which impact on the Bank’s financial statements is not significant, the changes are reflected as gain or loss on valuation of securities using the equity method in current operations. In addition, if the changes in the investee’s retained earnings are generated from the investee’s accounting changes, the changes are reflected as positive or negative changes in retained earnings from the application of the equity method in the retained earnings of the Bank. Changes in the capital surplus or other capital accounts of the investee are reflected as positive or negative changes in capital from the application of the equity method in the capital adjustment of the Bank.

(5) Recovery of Loss on Impairment of Available-for-Sale Securities and Held-to-Maturity Securities

For available-for-sale securities, the recovery is recorded in non-operating income up to the amount of the previously recognized impairment loss as recovery of loss on impairment of

42

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

available-for-sale securities and any excess is included in the capital adjustment account as gain on valuation of available-for-sale securities. However, if increase in the fair value of the impaired securities is not regarded as the recovery of the impairment, the increase in the fair value is recorded as gain or loss on valuation of available-for-sale securities in capital adjustments. For non-marketable equity securities, which were impaired based on the net asset fair value, the recovery is recorded up to their acquisition cost. For held-to-maturity securities, the recovery is recorded in non-operating income up to the amount of the previously recognized impairment loss as recovery of loss on impairment of held-to-maturity securities.

(6) Reclassification of Securities

When held-to-maturity securities are reclassified as available-for-sale securities, those securities are stated at the fair value on the reclassification date and the difference between the fair value and book value are accounted on the capital adjustment account as gain or loss on valuation of available-for-sale securities. When available-for-sale securities are reclassified as held-to-maturity securities, gain or loss on valuation of available-for-sale securities, which had been recorded until the reclassification date, continue to be stated on the capital adjustment account and is amortized using the effective interest rate and charged to interest income upon maturity. The difference between the fair value on the reclassification date and face value of the securities reclassified as held-to-maturity securities is amortized using the effective interest rate and charged to interest income.

Allowance for Loan Losses

The Supervisory Regulation of Banking Business (the “Supervisory Regulation”) legislated by the Financial Supervisory Commission (FSC) requires the Bank to classify all credits into five categories as normal, precautionary, substandard, doubtful, or estimated loss based on borrowers’ repayment capability using Forward Looking Criteria (the “FLC”) as well as past due period and status of any bankruptcy proceedings. The Supervisory Regulation also requires the Bank to provide the minimum rate of loan loss provision for each category balance using the prescribed minimum percentages. Based on the standards, the Bank generates the credit ratings considering the borrowers’ industry risk, individual credit risk and financial risk based on the FLC as follows:

Classification	Credit ratings	Provision Rates
Normal	P1~P6	0.71% or more
Precautionary	SM	15% or more
Substandard	S	40% or more
Doubtful	D	90% or more
Estimated loss	F	100%

Provisions are applied to all loans excluding call loans and inter-bank loans, which are classified as “normal”.

The Bank modified the provision method for normal loans in the current year. Loans classified as normal have been subdivided into domestic loans and overseas loans. The former was again subdivided

43

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

into small and medium-sized business loans and big enterprise loans. The allowance was assessed based on the rate of basic provision and default risk by maturity (the variation of accumulated average bankruptcy rates for periods assessed by domestic credit rating agencies). The rate of basic allowance for small and medium-sized business loans was computed using the historical loss experience rate based on the loss experience for the past seven years. However, the domestic banks’ average provision rate for normal loans is applied to the allowance for big enterprise loans due to the lack of statistical significance of the difference between the historical loss experience rate and actual rate of losses on credits. The allowance for overseas normal loans is assessed based on the sovereign credit ratings and type of borrowers (public or private). The provisions are the differences between the discounted value of the sovereign loans and the present value of the risk-free loan with the same conditions. The applied rate for private business is one grade lower than the rate for the public business with the same credit risk. In addition, the Bank provided additional allowance for the top 5 businesses loan and for the 5 sovereign loans in terms of its balance whose credit ratings are lower than D+ in regards with sovereignty considering the credit centralization risk in terms of borrowers’ sovereignty and business.

Pursuant to the amended Supervisory Regulation Banking Business, the Bank changed the provision method of allowance for loan losses on the confirmed acceptance and guarantee. The Bank additionally provided allowance for unconfirmed acceptance and guarantee, and for unused credit line of loan commitments since January 1, 2005.

The changes of the Bank’s provisioning method and rates for allowance provision are as follows:

	Allowance rates prior to modification		Allowance rate after modification
	Classification	Rates	Classification	Rates	Add-on
Loans	Due in 1 year or less	1.50%	Domestic small and Medium-sized business	1.81%~4.26%	0.3%~5.0%
	Due after 1 year through 3 years	1.75%	Domestic big enterprises	0.71%~3.16%
	Due after 3 years	1.90%	Overseas public institutions	0.71%~9.23%
	Small and medium-sized business	1.90%	Overseas private sectors	0.71%~9.23%
Acceptances and guarantees outstanding	Confirmed	0.75%~1.75%	Based on loan classification after applying 20~50% of the credit conversion rate
	Unconfirmed	—	Normal: the same rate as of those due in 1 year or less after applying 20~50% of the credit conversion rate Precautionary: the same as loan classification rate
Loan agreement		—	Based on loan classification after applying the credit conversion rate of 20~50%

Due to the aforementioned changes, allowance for loan losses and other allowances increased by (Won)186,852 million and (Won)27,597 million, respectively and allowance for loan losses on confirmed and unconfirmed acceptances and guarantees decreased by (Won)40,607 million as of December 31, 2005, and income before income tax decreased by (Won)173,842 million in 2005.

44

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

Restructuring of Loans

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

Valuation of Receivables and Payables at Present Value

Receivables and payables incurred through long-term installment transactions, long-term borrowing and lending transactions, and other similar transactions are stated at the present value of expected future cash flows, unless the difference between nominal value and present value is immaterial. Present value discount or premium is amortized using the effective interest rate method and credited or charged to interest income or interest expense.

Valuation and Depreciation of Tangible Assets

Tangible assets included in fixed assets are stated at acquisition cost or production cost including the incidental expenses and capital expenditures, except for assets revalued upward in accordance with the Asset Revaluation Law of Korea. Routine maintenance and repairs are expensed as incurred. Expenditures that result in the enhancement of the value or extension of the useful lives of the facilities involved are capitalized as additions to tangible assets.

Depreciation is computed using the declining-balance method (straight-line method for buildings purchased since January 1, 1995 and leasehold improvements) based on the estimated useful lives of the assets as prescribed by the Corporate Income Tax Law of Korea as follows:

	Years
Buildings	10~60
Vehicles	4
Furniture and fixtures	4~20

Valuation and Amortization of Intangible Assets

Intangible assets included in fixed assets are recorded at the production cost or purchase cost, plus incidental expenses and capital expenditures, and deducted by purchase discount, if any. Expenditures incurred in conjunction with the development of new products or technology and others, in which the

45

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

elements of costs can be individually identified and future economic benefits expected, are capitalized as development costs under intangible assets. Intangible assets are amortized using the reasonable amortization method over the reasonable useful life under 5 years for development costs and other intangible assets.

Recognition of Asset Impairment

When the book value of assets (except for trading securities, available for securities and assets valued at present value) exceeds the recoverable value of the assets due to obsolescence, physical damage or a sharp decrease in market value and the difference is material, those assets are adjusted to recoverable value in the balance sheet and the resulting impairment loss is charged to current operations. If the recoverable value of the assets increases in subsequent years, the increase in value is credited to operations as a gain until the recoverable value equals the book value of the assets before the impairment loss was recognized.

Amortization of Discount (Premium) on Debentures

Discount or premium on debentures issued is amortized over the period from issuance to maturity using the effective interest rate method. Amortization of discount or premium is recognized as interest expense or interest income on the debentures.

Accrued Severance Benefits

Employees and directors with more than one year of employment are entitled to receive a lump-sum payment upon termination of their employment with the Bank, based on their length of employment and rate of pay at the time of termination. The accrued severance benefits that would be payable assuming all eligible employees and directors were to resign amount to (Won)22,950 million and (Won)18,379 million as of December 31, 2005 and 2004, respectively. The accrued severance benefits are included in other liabilities.

The Bank had deposited the partial amount of future estimated severance benefits in National Pension Fund in accordance with the former National Pension Law. These are recorded as contra accounts of accrued severance benefits of the Bank.

Accounting for Financial Derivative Instruments

The Bank accounts for financial derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70 on accounting for financial derivative instruments. Financial derivative instruments are classified as used for trading activities or for hedging activities according to their transaction purpose. All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or a liability. If the derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current operations.

The accounting for derivative transactions that are part of a qualified hedge based both on the purpose of the transaction and on meeting the specified criteria for hedge accounting differs depending

46

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

on whether the transaction is a fair value hedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. The gain or loss both on the hedging derivative instruments and on the hedged item attributable to the hedged risk is reflected in current operations. Cash flow hedge accounting is applied to a derivative instrument designated as hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recorded in current operations. The effective portion of gain or loss recorded as a capital adjustment is reclassified to current earnings in the same period during which the hedged forecasted transaction affects earnings.

Income Tax Expense

Income tax expense is the amount currently payable for the period added to or deducted from the changes in deferred income taxes. However, deferred income tax assets are recognized only if the future tax benefits from accumulated temporary differences and any tax loss carryforwards are realizable. The difference between the amount currently payable for the period and income tax expense is accounted for as deferred income tax assets or liabilities, which will be charged or credited to income tax expense in the period each temporary difference reverses in the future. Deferred income tax assets or liabilities are calculated based on the expected tax rate to be applied at the reversal period of the related assets or liabilities. Tax payable and deferred income tax assets or liabilities with regards to certain items are charged or credited directly to related components of shareholders’ equity.

Accounting for Foreign Currency Transactions and Translation

The Bank maintains its accounts in Korean Won. Transactions in foreign currencies are recorded in Korean Won based on the prevailing rate of exchange on the transaction date. The Korean Won equivalent of assets and liabilities denominated in foreign currencies are translated in these financial statements based on the basic rate ((Won)1,013.00 to USD 1.00 at December 31, 2005) announced by Seoul Money Brokerage Service, Ltd. or cross rates for other currencies other than U.S. Dollars at the balance sheet dates. Translation gains and losses are credited or charged to operations. Financial statements of overseas branches are translated based on the basic rate at December 31, 2005.

Application of the Statement of Korea Accounting Standards

The Korea Accounting Standard Board (KASB) under the Korea Accounting Institute (KAI) issued Statements of Korea Accounting Standards (SKAS) for achieving a set of Korean accounting standards that are internationally acceptable and comparable. The Bank has implemented SKAS No.1 (Accounting Changes and Correction of Errors) through No.15 (Investments in Associates) (excluding No.11 and No.14) since January 1, 2002. Also, the Bank has additionally implemented SKAS No.16 (Income Taxes) and No.17 (Provisions, Contingent Liabilities and Contingent Assets) prospectively since January 1, 2005.

47

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

Earning Per Share

Earning per share is not computed because the capital of the Bank does not stem from stock issuance.

Reclassification

Certain accounts of the prior period were reclassified to conform to the current period’s presentation for comparative purposes; however, reclassifications had no effect on the previously reported prior period net income or shareholders’ equity of the Bank.

3. Due from Banks:

(1) Due from banks in local currency and foreign currencies as of December 31, 2005 and 2004 were as follows (Won in millions):

	Financial institution	Interest (%)	2005		2004
Local currency
Due from BOK	BOK	—	(Won)	12	(Won)	7
Current deposits	KEB and others	—		882		1,074
Others	Woori Bank	3.10		5,000		4,300
				5,894		5,381
Foreign currency
Current deposits	KEB	—		7,976		24,746
Demand deposits	Mizuho Corporate Bank, Tokyo and others	3.75		28,923		36,867
Off-shore due from banks on demand	JP Morgan Chase Bank, N.A., New York and others	3.65		1,254		2,510
				38,153		64,123
			(Won)	44,047	(Won)	69,504

(2) No due from banks are restricted as of December 31, 2005 and 2004.

(3) Due from banks by financial institution as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005						2004
	Local currency		Foreign currencies		Total		Local currency		Foreign currencies		Total
BOK	(Won)	12	(Won)	—	(Won)	12	(Won)	7	(Won)	—	(Won)	7
Banks		5,882		38,153		44,035		5,374		63,407		68,781
Others		—		—		—		—		716		716
	(Won)	5,894	(Won)	38,153	(Won)	44,047	(Won)	5,381	(Won)	64,123	(Won)	69,504

(4) The maturities of due from banks as of December 31, 2005 are less than three months.

48

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

4. Securities:

(1) Securities as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Available-for-sale securities:
Marketable equity securities	(Won)	2,049,572	(Won)	1,327,506
Unlisted equity securities		1,055,641		495,168
Equity investment		1,276		656
Government and public bonds		1		1
Securities in foreign currencies		11,469		12,425
Beneficiary certificates		1,366		—
		3,119,325		1,835,756
Held-to-maturity securities:
Securities in local currency		—		63,300
Securities in foreign currencies		8,104		15,317
		8,104		78,617
Securities using the equity method		87,503		91,677
	(Won)	3,214,932	(Won)	2,006,050

(2) Marketable equity securities as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	No. of shares	Ownership (%)	Book value before adjustment		Fair value (Book value)
KEB	89,448,595	13.87	(Won)	769,258	(Won)	1,261,225
Daewoo International Corporation (*1)	10,996,400	11.58		114,363		420,612
Industrial Bank of Korea	8,501,153	2.10		61,718		149,195
SK Networks Co., Ltd. (*1)	12,891,100	5.44		86,834		131,206
SK Networks Co., Ltd. (Preferred stock) (*1)	1,077,804	9.70		59,562		67,705
Hyundai Corporation (*1)	3,094,800	4.62		2,746		18,940
Daewoo Precision Industries Co., Ltd.	23,100	0.24		398		431
Others	38,079	—		185		258
			(Won)	1,095,064	(Won)	2,049,572

(*1) The securities were restricted to sale as of December 31, 2005.

49

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

In 2005, 32,000,000 shares of Industrial Bank of Korea were disposed for (Won)420,608 million ((Won)13,144 per share) and its gain on disposal of available-for-sale securities amounting to (Won)260,608 million was recorded in non-operating income.

2004	No. of shares	Ownership (%)	Book value before adjustment		Fair value (Book value)
KEB	89,448,595	13.87	(Won)	565,315	(Won)	769,258
Industrial Bank of Korea	40,501,153	10.00		267,307		294,038
Daewoo International Corporation (*1)	10,996,400	11.58		80,274		114,363
SK Networks Co., Ltd. (*1)	12,891,100	5.48		54,783		86,834
SK Networks Co., Ltd. (Preferred stock) (*1)	1,077,804	9.70		50,478		59,562
Hyundai Corporation (*1)	798,200	4.62		2,410		2,746
Daewoo Precision Industries Co., Ltd.	23,100	0.24		358		398
Others	50,873	—		15,042		307
			(Won)	1,035,967	(Won)	1,327,506

(*1) The securities were restricted to sale as of December 31, 2004.

(3) Unlisted equity securities as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	No. of shares	Ownership (%)	Book value before adjustment		Fair value (Book value)
Korea Highway Corp.	95,000,000	5.20	(Won)	950,000	(Won)	950,000
Industrial Bank of Korea (Preferred stock)	6,210,000	11.70		42,830		103,539
Korea Ship Finance	254,000	14.99		1,270		1,270
Daewoo Electronics Corp.	224,580	0.21		1,024		791
Daewoo Precision Industries Co., Ltd. (Preferred stock)	7,700	0.28		39		39
Others	41,753	—		2		2
			(Won)	995,165	(Won)	1,055,641

50

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

As of December 31, 2005, the Bank valuated the shares of Industrial Bank of Korea (Preferred stock) and Daewoo Electronics Corp. at fair value based on the report of external evaluation agencies. The remaining shares were recorded at acquisition costs since the fair value was difficult to assess. The 50,000,000 shares of Korea Highway Corp. invested by the Government were recorded at the higher of the face value ((Won)10,000 per share) or the fair value at the investment date in accordance with article 4.6 of the Investment in Kind of National Property Act. The shares of Daewoo Electronics Corp. are restricted to sale as of December 31, 2005.

2004	No. of shares	Ownership (%)	Book value before adjustment		Fair value (Book value)
Korea Highway Corp.	45,000,000	2.65	(Won)	450,000	(Won)	450,000
Industrial Bank of Korea (Preferred stock)	6,210,000	11.70		40,986		42,830
Korea Ship Finance	254,000	14.99		—		1,270
Daewoo electronics Corp.	224,580	0.21		791		1,024
Daewoo Precision Industries Co., Ltd. (Preferred stock)	7,700	0.28		39		39
KDS	27,323	0.27		13		5
Others	—	—		400		—
			(Won)	492,229	(Won)	495,168

As of December 31, 2004, the Bank valuated the shares of Industrial Bank of Korea (Preferred stock) and Daewoo Electronics Corp. at fair value based on the report of external evaluation agencies. The remaining shares were recorded at acquisition costs since the fair value was difficult to assess. The shares of Korea Highway Corp. invested by the Government were recorded at the higher of the face value ((Won)10,000 per share) or the fair value at the investment date in accordance with article 4.6 of the Investment in Kind of National Property Act. The shares of Daewoo Electronics Corp. are restricted to sale as of December 31, 2004.

(4) Equity investment as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	Ownership (%)	Book value before adjustment		Fair value (Book value)
Korea Asset Management Corporation	0.50	(Won)	1,220	(Won)	1,220
Korea Money Broker Corporation	0.56		56		56
		(Won)	1,276	(Won)	1,276

2004	Ownership (%)	Book value before adjustment		Fair value (Book value)
Korea Asset Management Corporation	0.43	(Won)	600	(Won)	600
Korea Money Broker Corp.	0.56		56		56
		(Won)	656	(Won)	656

51

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(5) Government and public bond in debt securities as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	Acquisition cost		Fair value		Book value
Government and public bond	(Won)	1	(Won)	1	(Won)	1

2004	Acquisition cost		Fair value		Book value
Government and public bond	(Won)	1	(Won)	1	(Won)	1

(6) Securities in foreign currencies in debt securities as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005				2004
	Acquisition cost		Book value		Acquisition cost		Book value
Foreign securities	(Won)	10,442	(Won)	11,469	(Won)	10,759	(Won)	12,425

(7) Beneficiary certificates as of December 31, 2005 were as follows (Won in millions):

	Face value		Fair value (Book value)
Daewoo Motor Co., Ltd.	(Won)	1,351	(Won)	1,351
Daewoo Commercial Vehicles., Ltd.		15		15
	(Won)	1,366	(Won)	1,366

(8) Held-to-maturity securities as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	Acquisition cost		Adjusted by effective interest rate method		Book Value
Securities in foreign currencies	(Won)	8,102	(Won)	8,104	(Won)	8,104

2004	Acquisition cost		Adjusted by effective interest rate method		Book Value
Securities in local currency	(Won)	63,300	(Won)	63,300	(Won)	63,300
Securities in foreign currencies		15,316		15,317		15,317
	(Won)	78,616	(Won)	78,617	(Won)	78,617

52

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(9) Securities using the equity method as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	Balance sheet date	Ownership (%)	Acquisition cost		Net asset value		Book value
KEXIM Bank UK Limited	2005.12.31	100.00	(Won)	34,935	(Won)	39,639	(Won)	39,639
KEXIM Vietnam Leasing Co.	2005.12.31	100.00		13,169		7,140		7,140
PT. KOEXIM Mandiri Finance	2005.12.31	85.00		4,557		10,636		10,348
KEXIM Asia Limited	2005.12.31	100.00		30,390		30,368		30,376
			(Won)	83,051	(Won)	87,783	(Won)	87,503

As of December 31, 2005, (Won)3,656 million of the valuation gain on securities using the equity method and (Won)198 million of the change in securities using the equity method incurred from changes in the capital accounts of the investees to be adjusted in capital adjustment were reflected to the book value of securities using the equity method in foreign currencies. The difference between the book value of the securities using the equity method and the net asset value of PT. KOEXIM Mandiri Finance, amounting to (Won)(288) million is the outstanding balance of negative goodwill as of December 31, 2005. The difference between the book value of the securities using the equity method and the net asset value of KEXIM Asia Limited amounted to (Won)8 million, which was unrealized gain from inter-company transactions as of December 31, 2005.

2004	Balance sheet date	Ownership (%)	Acquisition cost		Net asset value		Book value
KEXIM Bank UK Limited	2004.12.31	100.00	(Won)	40,180	(Won)	44,045	(Won)	44,045
KEXIM Vietnam Leasing Co.	2004.12.31	100.00		13,562		7,035		7,035
PT. KOEXIM Mandiri Finance	2004.12.31	85.00		4,950		9,936		9,545
KEXIM Asia Limited	2004.12.31	100.00		31,296		31,052		31,052
			(Won)	89,988	(Won)	92,068	(Won)	91,677

As of December 31, 2004, (Won)183 million of the valuation loss on securities using the equity method and (Won)170 million of the change in securities using the equity method incurred from changes in the capital accounts of the investees to be adjusted in capital adjustment were reflected to the book value of securities using the equity method in foreign currencies. The difference between the book value of the securities using the equity method and the net asset value of PT. KOEXIM Mandiri Finance amounting to (Won)391 million is the outstanding balance of negative goodwill as of December 31, 2004.

(10) Available-for-sale securities not recorded at fair value as of December 31, 2005 were as follows (Won in millions):

	Book value		Reason
Unlisted equity securities	(Won)	951,311	Difficulty in calculation of the fair value
Equity investment		1,276	Difficulty in calculation of the fair value
	(Won)	952,587

53

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(11) The securities portfolio, by county, as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	Available-for-sale securities		Held-to- maturity		Securities using the equity method		Total		Ratio (%)
Securities in local currency
Korea	(Won)	3,107,856	(Won)	—	(Won)	—	(Won)	3,107,856	96.67
Securities in foreign currencies
UK		—		—		39,639		39,639	1.24
Hong Kong		3,128		—		30,376		33,504	1.04
Indonesia		—		—		10,348		10,348	0.32
Vietnam		—		—		7,140		7,140	0.22
Korea		3,140		3,039		—		6,179	0.19
India		5,201		—		—		5,201	0.16
Malaysia		—		5,065		—		5,065	0.16
		11,469		8,104		87,503		107,076	3.33
	(Won)	3,119,325	(Won)	8,104	(Won)	87,503	(Won)	3,214,932	100.00
2004	Available-for-sale securities		Held-to- maturity		Securities using the equity method		Total		Ratio (%)
Securities in local currency
Korea	(Won)	1,823,330	(Won)	63,300	(Won)	—	(Won)	1,886,630	94.05
Securities in foreign currencies
UK		—		—		44,045		44,045	2.19
Hong Kong		3,367		—		31,052		34,419	1.72
Korea		3,388		9,394		—		12,782	0.64
Indonesia		—		—		9,545		9,545	0.48
Vietnam		—		—		7,035		7,035	0.35
Malaysia		—		5,923		—		5,923	0.29
India		5,671		—		—		5,671	0.28
		12,426		15,317		91,677		119,420	5.95
	(Won)	1,835,756	(Won)	78,617	(Won)	91,677	(Won)	2,006,050	100.00

(12) Securities as of December 31, 2005 and 2004 were classified as follows (Won in millions):

2005	Available-for-sale securities		Held-to- maturity		Securities using the equity method		Total		Ratio (%)
Stock and equity investment	(Won)	3,106,489	(Won)	—	(Won)	87,503	(Won)	3,193,992	99.35
Fixed interest rate bonds		11,470		5,065		—		16,535	0.51
Floating interest rate bonds		—		3,039		—		3,039	0.10
Others		1,366		—		—		1,366	0.04
	(Won)	3,119,325	(Won)	8,104	(Won)	87,503	(Won)	3,214,932	100.00

54

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

2004	Available-for-sale securities		Held-to- maturity		Securities using the equity method		Total		Ratio (%)
Stock and equity investment	(Won)	1,823,330	(Won)	—	(Won)	91,677	(Won)	1,915,007	95.46
Fixed interest rate bonds		12,426		71,650		—		84,076	4.19
Floating interest rate bonds		—		6,967		—		6,967	0.35
	(Won)	1,835,756	(Won)	78,617	(Won)	91,677	(Won)	2,006,050	100.00

(13) Term structure of debt securities among available-for-sale securities as of December 31, 2005 was as follows (Won in millions):

Due in 1 years or less	Due after 1 year to 5 years	Due after 5 year to 10 years	Due after 10 years	Total
(Won)—	(Won)11,470	(Won)—	(Won)—	(Won)11,470

(14) Changes in valuation gain (loss) on available-for-sale securities and securities using the equity method were as follows (Won in millions):

	Beginning balance		Increase (decrease)			Disposition			Ending balance
Securities using the equity method	(Won)	170	(Won)	(198	)	(Won)	—		(Won)	(28	)
Available-for-sale securities
Equity securities		302,765		854,778			(262,435	)		895,108
Debt securities		1,304		(778	)		—			526
		304,069		854,000			(262,435	)		895,634
	(Won)	304,239	(Won)	853,802		(Won)	(262,435	)	(Won)	895,606

55

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

5. Loans:

(1) Loans as of December 31, 2005 and 2004 were as follows (Won in millions):

		2005			2004
Loans in local currency:	Loans for export	(Won)	1,670,065		(Won)	1,089,989
	Loans for overseas investment		40,694			17,172
	Loans for import		549,414			474,313
	Others		216,982			216,983
	Privately placed bonds		1,801			7,770
	Debt for equity swap (*1)		469			11,952
			2,479,425			1,818,179
Loans in foreign currencies:	Loans for export		4,454,952			3,540,519
	Loans for overseas investment		2,201,779			1,494,029
	Trading note rediscount loans		565,399			632,570
	Loans for import		645,087			635,935
	Overseas funding loans		538,448			484,521
	Domestic usance bills		112,825			95,847
	Privately placed bonds		35,455			41,752
	Inter-bank loans		62,299			66,726
	Others		238			11,887
			8,616,482			7,003,786
	Valuation adjustment of loans in foreign currencies (*2)		(7,313	)		20,410
			8,609,169			7,024,196
Bills bought in local currency			165,699			300,432
Bills bought in foreign currencies			637,663			384,368
Advances for customers			924			869
Call loans	Call loans in local currency		128,000			100,800
	Call loans in foreign currencies		160,561			518,769
			288,561			619,569
		(Won)	12,181,441		(Won)	10,147,613

(*1) Loans are expected to be swapped for equity based on the agreement of related parties. The loans are recognized at the lower of the book value of the loans or the fair value of the equities to be converted, and the difference in the values is recognized as allowances for loan losses.

(*2) Interest rate swap was contracted to hedge the changes in the fair value of loan commitment in foreign currencies resulting from the volatility in the interest rate. The loss on valuation of loan commitment, which was confirmed, was recognized as valuation adjustment of loans in foreign currencies.

56

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) Loans in local currency and foreign currencies, by customer, as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	Loans in local currency		Loans in foreign currencies		Total		Ratio (%)
Large corporations	(Won)	1,781,687	(Won)	3,540,135	(Won)	5,321,822	47.96
Small and med-sizes company (*)		697,738		628,954		1,326,692	11.96
Public and others		—		4,447,393		4,447,393	40.08
	(Won)	2,479,425	(Won)	8,616,482	(Won)	11,095,907	100.00
	Loans in local currency		Loans in foreign currencies		Total		Ratio (%)
Large corporations	(Won)	1,352,844	(Won)	1,775,456	(Won)	3,128,300	35.46
Small and medium corporations (*)		463,198		406,885		870,083	9.86
Public and others		2,137		4,821,445		4,823,582	54.68
	(Won)	1,818,179	(Won)	7,003,786	(Won)	8,821,965	100.00

(*) Small and medium-sized company is described in Paragraph. 1 of Article 2 of the Small and Medium-sized Company Law.

The amount of loans in local currency and foreign currencies excluded valuation adjustment of loans in foreign currencies.

(3) Loans, by industry, as of December 31, 2005 and 2004 were as follows (Won in millions):

2005	Loans in local currency		Loans in foreign currencies		Others		Total		Ratio (%)
Manufacturing	(Won)	2,151,138	(Won)	2,488,263	(Won)	324,275	(Won)	4,963,676	40.72
Finance and insurance		1,801		1,674,443		163,506		1,839,750	15.09
Transportation		100		2,152,187		77,125		2,229,412	18.29
Wholesale and retail		242,506		452,891		37,540		732,937	6.01
Construction		—		242,537		—		242,537	2.00
Real estate, renting and the related business		—		59,693		—		59,693	0.49
Public and others		83,880		1,546,468		490,401		2,120,749	17.40
	(Won)	2,479,425	(Won)	8,616,482	(Won)	1,092,847	(Won)	12,188,754	100.00
2004	Loans in local currency		Loans in foreign currencies		Others		Total		Ratio (%)
Manufacturing	(Won)	1,562,958	(Won)	2,605,389	(Won)	291,506	(Won)	4,459,853	44.04
Finance and insurance		1,801		1,640,405		757,624		2,399,830	23.70
Transportation		—		1,151,039		195,714		1,346,753	13.30
Wholesale and retail		250,630		400,337		29,993		680,960	6.72
Construction		—		213,604		—		213,604	2.11
Real estate, renting and the related business		—		227,398		—		227,398	2.24
Public and others		2,790		765,614		30,401		798,805	7.89
	(Won)	1,818,179	(Won)	7,003,786	(Won)	1,305,238	(Won)	10,127,203	100.00

57

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

The amount of loans in local currency and foreign currencies excluded valuation adjustment of loans in foreign currencies.

(4) Loans, by country of borrower, as of December 31, 2005 and 2004 were as follows (Won in millions):

2005		Loans in local currency		Loans in foreign currencies		Others		Total		Ratio (%)
Asia:	Korea	(Won)	2,479,425	(Won)	2,892,254	(Won)	412,250	(Won)	5,783,929	47.45
	Iran		—		687,867		217,811		905,678	7.43
	China		—		607,959		87,642		695,601	5.71
	Indonesia		—		468,173		1,477		469,650	3.85
	India		—		165,725		740		166,465	1.37
	Vietnam		—		138,756		13,735		152,491	1.25
	Japan		—		19,778		2,495		22,273	0.18
	Others		—		431,810		195,569		627,379	5.15
			2,479,425		5,412,322		931,719		8,823,466	72.39
Europe:	Russia		—		321,820		3,728		325,548	2.67
	UK		—		182,676		21,225		203,901	1.67
	Germany		—		19,189		63		19,252	0.16
	Greece		—		—		408		408	0.01
	Others		—		1,177,546		110,120		1,287,666	10.56
			—		1,701,231		135,544		1,836,775	15.07
America:	USA		—		428,420		21,397		449,817	3.69
	Mexico		—		237,216		706		237,922	1.95
	Canada		—		19,199		57		19,256	0.16
	Others		—		320,839		364		321,203	2.64
			—		1,005,674		22,524		1,028,198	8.44
Africa:	South Africa		—		2,533		254		2,787	0.02
	Others		—		219,077		860		219,937	1.80
			—		221,610		1,114		222,724	1.82
Oceania:	Australia and others		—		275,645		1,946		277,591	2.28
		(Won)	2,479,425	(Won)	8,616,482	(Won)	1,092,847	(Won)	12,188,754	100.00

58

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

2004		Loans in local currency		Loans in foreign currencies		Others		Total		Ratio (%)
Asia:	Korea	(Won)	1,818,179	(Won)	2,745,951	(Won)	692,558	(Won)	5,256,688	51.91
	Iran		—		449,291		259,238		708,529	7.00
	China		—		499,660		100,346		600,006	5.92
	Indonesia		—		309,586		4,603		314,189	3.10
	Vietnam		—		153,076		18,179		171,255	1.69
	India		—		75,281		614		75,895	0.75
	Japan		—		10,121		—		10,121	0.10
	Others		—		234,025		89,403		323,428	3.19
			1,818,179		4,476,991		1,164,941		7,460,111	73.66
Europe:	Russia		—		296,187		—		296,187	2.92
	UK		—		106,491		125,256		231,747	2.29
	Greece		—		—		1,982		1,982	0.02
	Others		—		1,112,367		8,543		1,120,910	11.07
			—		1,515,045		135,781		1,650,826	16.30
America:	Mexico		—		475,522		71		475,593	4.70
	USA		—		166,134		285		166,419	1.64
	Canada		—		2,080		—		2,080	0.02
	Others		—		223,889		70		223,959	2.21
			—		867,625		426		868,051	8.57
Africa:	South Africa		—		7,307		—		7,307	0.07
	Others		—		76,480		821		77,301	0.77
			—		83,787		821		84,608	0.84
Oceania:	Australia and others		—		60,338		3,269		63,607	0.63
		(Won)	1,818,179	(Won)	7,003,786	(Won)	1,305,238	(Won)	10,127,203	100.00

The amount of loans in local currency and foreign currencies excluded valuation adjustment of loans in foreign currencies.

(5) The loans that were restructured due to court receiverships and compositions as of December 31, 2005 were as follows (Won in millions):

	Company	Amount		Allowances
Court receiverships and composition	Choongnam Spinning Co., Ltd and 1 other company	(Won)	7,229	(Won)	6,109
Individual agreements	Financial loan to Russia and 3 other companies		286,793		44,176
		(Won)	294,022	(Won)	50,285

59

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(6) Changes in the present value discounts relating to the restructured loans for the year ended December 31, 2005 were as follows (Won in millions):

	Discount rate (%)	Term (year)	Beginning balance		Increase		Decrease		Ending balance
Court receiverships and composition	2.00	7	(Won)	1,259	(Won)	—	(Won)	461	(Won)	798
Workout plan	—	—		44		—		44		—
Individual agreements (*1)	4.12~5.30	1~20		59,590		—		7,955		51,635
			(Won)	60,893	(Won)	—	(Won)	8,460	(Won)	52,433

(*1) The overdue financial loans to Russia amounted to USD 422 million (the principal and interest amounting to USD 262 million and USD 160 million, respectively). In accordance with the bilateral agreement between the Government and Russia, the Bank restructured the remaining loans of USD 247 million, after collecting USD 52 million of the loans and exempting the interest of relevant loans amounting to USD 123 million. As of December 31, 2005, the amounts of restructured financial loans to Russia and their present value discounts were USD 225,385 million and USD 41,293 million, respectively.

(7) Term structure of loans as of December 31, 2005 were as follows (Won in millions):

	Loans in local currency		Loans in foreign currencies		Others		Total		Ratio (%)
Due in 3 months or less	(Won)	664,840	(Won)	1,157,258	(Won)	754,010	(Won)	2,576,108	21.14
Due after 3 months to 6 months		796,671		847,875		105,208		1,749,754	14.36
Due after 6 months to 1 year		635,363		824,969		72,722		1,533,054	12.58
Due after 1 year to 2 years		22,907		820,966		12,044		855,917	7.02
Due after 2 years to 3 years		289,581		553,532		11,888		855,001	7.01
Due after 3 years to 4 years		61,512		463,749		65,237		590,498	4.84
Due after 4 years to 5 years		8,551		242,223		—		250,774	2.06
Due after 5 years		—		3,705,910		71,738		3,777,648	30.99
	(Won)	2,479,425	(Won)	8,616,482	(Won)	1,092,847	(Won)	12,188,754	100.00

6. Allowances for Loan Losses:

(1) The allowances for loan losses as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Loans in local currency	(Won)	73,049	(Won)	160,324
Loans in foreign currencies		451,649		252,403
Bills bought in local currency and foreign currencies		45,376		44,204
Advances for customers		87		13
Suspense payment on credit		—		1
	(Won)	570,161	(Won)	456,945

60

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) As of December 31, 2005, loan balances and allowances for loan losses by credit risk classification were as follows (Won in millions):

	Loan balance classification
2005	Normal		Pre-cautionary		Substandard		Doubtful		Estimated loss		Total
Loans in local currency	(Won)	2,245,400	(Won)	228,158	(Won)	712	(Won)	4,437	(Won)	718	(Won)	2,479,425
Loans in foreign currencies		8,203,641		306,719		19,598		17,303		6,922		8,554,183
Bills bought in local currency and foreign currencies		724,598		57,922		15,703		5,139		—		803,362
Advances for customers		843		—		—		—		81		924
	(Won)	11,174,482	(Won)	592,799	(Won)	36,013	(Won)	26,879	(Won)	7,721	(Won)	11,837,894

The present value discounts were not reflected to the amount of loans stated above. Inter-bank loans of (Won)62,299 million and call loans of (Won)288,561 million were excluded because these were classified as normal. The valuation adjustment of loans in foreign currencies of (Won)(7,313) million was also excluded.

	Allowance for loan losses classification
	Normal		Pre-cautionary		Substandard		Doubtful		Estimated loss		Total
Loans in local currency	(Won)	33,187	(Won)	34,648	(Won)	285	(Won)	4,211	(Won)	718	(Won)	73,049
Loans in foreign currencies		330,910		89,331		8,165		16,321		6,922		451,649
Bills bought in local currency and foreign currencies		14,995		8,136		17,399		4,846		—		45,376
Advances for customers		6		—		—		—		81		87
	(Won)	379,098	(Won)	132,115	(Won)	25,849	(Won)	25,378	(Won)	7,721	(Won)	570,161

61

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

	Loan balance classification
2004	Normal		Pre-cautionary		Substandard		Doubtful		Estimated loss		Total
Loans in local currency	(Won)	1,561,883	(Won)	7,222	(Won)	225,145	(Won)	15,130	(Won)	8,799	(Won)	1,818,179
Loans in foreign currencies		6,579,667		308,955		6,807		40,650		981		6,937,060
Bills bought in local currency and foreign currencies		602,593		59,683		17,229		—		5,295		684,800
Advances for customers		869		—		—		—		—		869
Suspense payment on credit		—		—		—		—		1		1
	(Won)	8,745,012	(Won)	375,860	(Won)	249,181	(Won)	55,780	(Won)	15,076	(Won)	9,440,909

The present value discounts were not reflected to the amount of loans stated above. Inter-bank loans of (Won)66,726 million and call loans of (Won)619,569 million were excluded because these were classified as normal. The valuation adjustment of loans in foreign currencies of (Won)20,410 million was also excluded.

	Allowance for loan losses classification
	Normal		Pre-cautionary			Substandard		Doubtful		Estimated loss		Total
Loans in local currency	(Won)	25,892	(Won)	1,350		(Won)	110,208	(Won)	14,075	(Won)	8,799	(Won)	160,324
Loans in foreign currencies		114,502		95,518	��		2,887		38,515		981		252,403
Bills bought in local currency and foreign currencies		10,128		20,339			8,442		—		5,295		44,204
Advances for customers		13		—			—		—		—		13
Suspense payment on credit		—		—			—		—		1		1
	(Won)	150,535	(Won)	117,207		(Won)	121,537	(Won)	52,590	(Won)	15,076	(Won)	456,945

62

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(3) Changes in allowances for loan losses for the year ended December 31, 2005 and 2004 were as follows (Won in millions):

	2005			2004
Beginning balance	(Won)	456,945		(Won)	487,259
Bad debts expenses		140,374			—
Reversal of loan losses		—			(57,057	)
Write-off		(12,948	)		—
Debt for equity swap		(3,641	)		(17,560	)
Increase in present value discounts		—			49,259
Decrease in present value discounts		(8,460	)		(8,917	)
Changes in exchange rates and others (*)		(2,109	)		3,961
Ending balance	(Won)	570,161		(Won)	456,945

(*) Changes in exchange rates and others were mainly derived from the movements in foreign currency translation on allowances for loan losses and recovery of written-off loans.

(4) Percentage of the allowance for loan losses to loans subject to allowance for loan losses for the previous 3 years were as follows (Won in millions):

	2005		2004		2003
Loans subject to allowance for possible loan losses	(Won)	11,837,894	(Won)	9,440,909	(Won)	8,519,910
Allowances for loan losses		570,161		456,945		487,229
Percentage (%)		4.82		4.84		5.72

7. Fixed Assets:

(1) Tangible assets and the related accumulated depreciation as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005						2004
	Acquisition cost		Accumulated depreciation		Book value		Acquisition cost		Accumulated depreciation		Book value
Land	(Won)	4,484	(Won)	—	(Won)	4,484	(Won)	4,484	(Won)	—	(Won)	4,484
Buildings		42,976		11,300		31,676		42,998		10,081		32,917
Vehicles		1,571		1,028		543		1,289		727		562
Equipments		12,901		9,034		3,867		11,052		7,613		3,439
	(Won)	61,932	(Won)	21,362	(Won)	40,570	(Won)	59,823	(Won)	18,421	(Won)	41,402

(2) The published value of land was (Won)69,060 million and (Won)58,888 million as of December 31, 2005 and 2004, respectively, based on the Laws on Disclosure of Land Price and Valuation of Land.

63

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(3) Changes in book value of tangible assets for the year ended December 31, 2005 were as follows (Won in millions):

	Beginning balance		Acquisition		Disposal		Depreciation		Ending balance
Land	(Won)	4,484	(Won)	—	(Won)	—	(Won)	—	(Won)	4,484
Buildings		32,917		282		28		1,495		31,676
Vehicles		562		376		—		395		543
Equipments		3,439		2,598		15		2,155		3,867
	(Won)	41,402	(Won)	3,256	(Won)	43	(Won)	4,045	(Won)	40,570

(4) Tangible assets, which have been insured as of December 31, 2005 and 2004, were as follows (Won in millions):

		2005				2004
	Insurance company	Book value		Insured amount		Book value		Insured amount
Buildings	LG Fire & Marine Insurance Co., Ltd. & others	(Won)	31,676	(Won)	28,711	(Won)	32,917	(Won)	31,684
Equipments	LG Fire & Marine Insurance Co., Ltd. & others		3,867		2,996		3,439		2,514
		(Won)	35,543	(Won)	31,707	(Won)	36,356	(Won)	34,198

In addition, the Bank’s head office building and the Global Human Resource Center are covered by gas insurance policy ((Won)60 million per employee and a maximum coverage of (Won)300 million per accident) and all vehicles are covered by the comprehensive auto insurances.

(5) Intangible assets as of December 31, 2005 were as follows (Won in millions):

	Development cost		Software		Total
Acquisition cost	(Won)	8,082	(Won)	605	(Won)	8,687
Accumulated amortization		3,897		97		3,994
	(Won)	4,185	(Won)	508	(Won)	4,693

(6) Changes in intangible assets for the year ended December 31, 2005 were as follows (Won in millions):

	Development cost		Software		Total
Beginning balance	(Won)	5,455	(Won)	253	(Won)	5,708
Increase		316		325		641
Amortization		1,586		70		1,656
Ending balance	(Won)	4,185	(Won)	508	(Won)	4,693

64

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

8. Other Assets:

(1) Other assets as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Guarantee deposits	(Won)	20,360	(Won)	17,945
Accounts receivable		567		583
Accrued income		139,915		99,646
Prepaid expenses		46		50
Deferred income tax assets (Note 19)		—		164,254
Financial derivative instruments (Note 15)		58,114		60,469
Sundry assets		21,241		14,344
	(Won)	240,243	(Won)	357,291

(2) Sundry assets as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Open account from swap transaction	(Won)	8,603	(Won)	2,335
Other loans		7,941		7,478
Other suspense payments		679		485
Suspense payments on credit		7		1
Others		4,011		4,045
	(Won)	21,241	(Won)	14,344

9. Borrowings:

(1) Borrowings as of December 31, 2005 and 2004 were as follows (Won in millions):

	Financial institution	Interest rate (%)	2005			2004
Foreign currencies:
Borrowings from banks	The Bank of Tokyo-Mitsubishi, Ltd and others	Libor + 0.315~0.48	(Won)	101,300		(Won)	501,191
CP	UBS AG	2.49		80,356			—
Off-shore borrowings	Sumitomo Mitsui Banking and others	2.88~3.0		51,594			91,086
Other borrowings	Overseas banks	0.15~0.2		112,825			95,847
				346,075			688,124
Gain on valuation of fair value hedged items (current year portion)				(9,433	)		(2,116	)
Loss on valuation of fair value hedged items (prior year portion)				10,841			5,989
				347,483			691,997
Call money
Local currency	Woori Bank and others	3.15~3.35		—			300,000
Foreign currencies	KEB and others	2.48~4.74		303,766			106,594
				303,766			406,594
			(Won)	651,249		(Won)	1,098,591

65

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) Borrowings from financial institutions as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005						2004
	Foreign currencies		Call money		Total		Foreign currencies		Call money		Total
Banks	(Won)	265,719	(Won)	303,766	(Won)	569,485	(Won)	688,124	(Won)	200,000	(Won)	888,124
Others		80,356		—		80,356		—		206,594		206,594
	(Won)	346,075	(Won)	303,766	(Won)	649,841	(Won)	688,124	(Won)	406,594	(Won)	1,094,718

(3) Term structure of borrowings as of December 31, 2005 were as follows (Won in millions):

	Due in 3 months or less		Due after 3 months to 6 months		Due after 6 months to 1 year		Due after 1 year to 3 years		Total
Borrowings in foreign currencies	(Won)	163,749	(Won)	20,482	(Won)	136,047	(Won)	25,797	(Won)	346,075
Call money in foreign currencies		303,766		—		—		—		303,766
	(Won)	467,515	(Won)	20,482	(Won)	136,047	(Won)	25,797	(Won)	649,841

10. Debentures:

(1) Debentures as of December 31, 2005 and 2004 were as follows (Won in millions):

	Interest rate (%)	2005			2004
Local currency:
Fixed rate debentures in local currency	3.69~3.92	(Won)	500,000		(Won)	—
Discount on debentures			(4,674	)		—
			495,326			—
Foreign currencies:
Floating rates debentures in foreign currencies	0.19~4.60		1,556,881			1,011,994
Fixed rates debentures in foreign currencies	2.37~4.63		6,662,773			5,827,649
			8,219,654			6,839,643
Gain on valuation of fair value hedged items (current year portion)			(49,760	)		(22,925	)
Gain on valuation of fair value hedged items (prior year portion)			(41,823	)		(16,655	)
			8,128,071			6,800,063
Premiums on debentures			2,152			3,336
Discounts on debentures			(55,013	)		(59,398	)
			8,075,210			6,744,001
		(Won)	8,570,536		(Won)	6,744,001

66

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) Term structure of debentures as of December 31, 2005 were as follows (Won in millions):

	Due in 3 months or less		Due after 3 months to 6 months		Due after 6 months to 1 year		Due after 1 year to 3 years		��	Due after 3 years		Total
Debentures in local currency	(Won)	260,000	(Won)	240,000	(Won)	—	(Won)	—		(Won)	—	(Won)	500,000
Debentures in foreign currencies		606,762		335,482		829,130		2,603,724			3,844,556		8,219,654
	(Won)	866,762	(Won)	575,482	(Won)	829,130	(Won)	2,603,724		(Won)	3,844,556	(Won)	8,719,654

11. Other Liabilities:

(1) Other liabilities as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005			2004
Accrued severance benefits (Notes 2 and 13)	(Won)	22,950		(Won)	18,379
Less: Transfer to National Pension (Note 13)		(10	)		(13	)
Allowance for possible losses on acceptances and guarantees (Note 12)		227,670			249,260
Other allowances (Note 12)		27,597			27,565
Foreign exchange settlement account-credit		99,225			183,168
Accounts payable		89,493			22,207
Accrued expenses		157,806			112,844
Deferred income tax liabilities (Note 19)		157,562			—
Unearned revenues		123,454			90,067
Guarantees deposits received		100			100
Financial derivatives liabilities (Note 15)		137,735			70,869
Sundry liabilities		12,010			9,505
	(Won)	1,055,592		(Won)	783,951

(2) Sundry liabilities as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Suspense receipts	(Won)	7,902	(Won)	4,998
Taxes withheld		1,419		1,920
Option Premium (*1)		2,588		2,587
Others		101		—
	(Won)	12,010	(Won)	9,505

(*1) The Bank made contract call option with LSF-KEB Holding, SCA at the disposition of shares of Korea Exchange Bank, whose fair value was recognized as other liability at the date of disposition.

67

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

12. Acceptances and Guarantees and Allowance for Possible Losses:

(1) Acceptances and guarantees as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Confirmed acceptances and guarantees
Local currency:
Guarantees for performance of contracts	(Won)	15,982	(Won)	16,997
Guarantees for repayment of advances		17,001		17,577
Others		3,264		3,880
		36,247		38,454
Foreign currencies:
Guarantees for performance of contracts		2,216,338		2,062,103
Guarantees for repayment of advances		16,904,151		15,554,008
Acceptances for letters of guarantee for importers letter		5,691		12,510
Acceptances on import credit memorandum		105,153		26,023
Others		847,950		814,996
		20,079,283		18,469,640
		20,115,530		18,508,094
Unconfirmed acceptances and guarantees
Letters of credit		67,535		172,159
Others		16,355,357		11,657,266
		16,422,892		11,829,425
	(Won)	36,538,422	(Won)	30,337,519

68

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) Confirmed and unconfirmed acceptances and guarantees by classification and allowances for possible losses on confirmed and unconfirmed acceptances and guarantees as of December 31, 2005 and 2004 were as follows (Won in millions):

	2005					2004
	Acceptances and guarantees		Allowance		Ratio (%)	Acceptances and guarantees		Allowance		Ratio (%)
Confirmed acceptances and guarantees:
Normal	(Won)	19,958,032	(Won)	156,991	0.79	(Won)	18,273,879	(Won)	214,128	1.17
Precautionary		157,498		12,295	7.81		234,215		35,132	15.00
		20,115,530		169,286	0.84		18,508,094		249,260	1.35
Unconfirmed acceptances and guarantees (*):
Normal		16,422,812		58,376	0.36		—		—	—
Precautionary		80		8	10.00		—		—	—
		16,422,892		58,384	0.36		—		—	—
	(Won)	36,538,422	(Won)	227,670	0.62	(Won)	18,508,094	(Won)	249,260	1.35

(*) In 2005, the Bank started to provide allowance for possible losses on unconfirmed acceptances and guarantees at the same rate of allowance for loan losses applicable to the related borrowers, also considering the credit adjustment rates to off-balance sheet items announced by FSS (See Note 2 (4)).

(3) Changes in allowances for possible losses on confirmed and unconfirmed acceptances and guarantees for the years ended December 31, 2005 and 2004 were as follows (Won in millions):

	2005			2004
Beginning balance	(Won)	249,260		(Won)	91,430
Provision (reversal) of allowance for possible losses		(11,366	)		181,034
Changes in foreign exchange rates, etc.		(10,224	)		(23,204	)
Ending balance	(Won)	227,670		(Won)	249,260

69

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(4) Acceptances and guarantees, by industry, as of December 31, 2005 and 2004 were as follows (Won in millions):

	Confirmed			Unconfirmed			Total
2005	Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)
Manufacturing	(Won)	15,621,818	77.66	(Won)	13,043,186	79.42	(Won)	28,665,004	78.45
Construction		1,290,057	6.41		22,525	0.14		1,312,582	3.59
Finance and insurance		272,632	1.36		104,110	0.63		376,742	1.03
Wholesale and retail		108,603	0.54		14,477	0.09		123,080	0.34
Services		110,722	0.55		4,333	0.03		115,055	0.31
Others		2,711,698	13.48		3,234,261	19.69		5,945,959	16.28
	(Won)	20,115,530	100.00	(Won)	16,422,892	100.00	(Won)	36,538,422	100.00
	Confirmed			Unconfirmed			Total
2004	Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)
Manufacturing	(Won)	16,641,239	89.91	(Won)	11,438,431	96.69	(Won)	28,079,670	92.56
Construction		1,247,231	6.74		82,491	0.70		1,329,722	4.38
Wholesale and retail		317,202	1.71		23,137	0.20		340,339	1.12
Services		130,668	0.71		—	—		130,668	0.43
Finance and insurance		162,793	0.88		97,112	0.82		259,905	0.86
Others		8,961	0.05		188,254	1.59		197,215	0.65
	(Won)	18,508,094	100.00	(Won)	11,829,425	100.00	(Won)	30,337,519	100.00

70

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(5) Acceptances and guarantees, by country of borrower, as of December 31, 2005 and 2004 were as follows (Won in millions):

		Confirmed			Unconfirmed			Total
2005		Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)
Asia:	Korea	(Won)	19,676,749	97.82	(Won)	16,164,790	98.43	(Won)	35,841,539	98.09
	India		25,436	0.12		153,992	0.94		179,428	0.49
	Iran		49,836	0.25		737	—		50,573	0.14
	Japan		25,534	0.13		—	—		25,534	0.07
	Vietnam		—	—		2,628	0.02		2,628	0.01
	Russia		2,139	0.01		—	—		2,139	0.01
			19,779,694	98.33		16,322,147	99.39		36,101,841	98.81
America:	Mexico		110,475	0.55		—	—		110,475	0.30
	USA		51,691	0.26		55,692	0.34		107,383	0.29
	Dominica		5,798	0.03		—	—		5,798	0.02
			167,964	0.84		55,692	0.34		223,656	0.61
Europe:	UK		128,761	0.64		11,652	0.07		140,413	0.38
	France		14,670	0.07		33,401	0.20		48,071	0.13
	Germany		24,441	0.12		—	—		24,441	0.07
			167,872	0.83		45,053	0.27		212,925	0.58
		(Won)	20,115,530	100.00	(Won)	16,422,892	100.00	(Won)	36,538,422	100.00
		Confirmed			Unconfirmed			Total
2004		Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)	Acceptances and guarantees		Ratio (%)
Asia:	Korea	(Won)	18,151,468	98.07	(Won)	11,541,756	97.57	(Won)	29,693,224	97.88
	India		—	—		184,884	1.56		184,884	0.61
	Japan		25,411	0.14		58,088	0.49		83,499	0.28
	Iran		43,440	0.23		8,671	0.07		52,111	0.17
	Vietnam		—	—		489	0.01		489	—
	Others		857	0.01		—	—		857	—
			18,221,176	98.45		11,793,888	99.70		30,015,064	98.94
America:	Mexico		161,324	0.87		—	—		161,324	0.53
	Dominica		8,960	0.05		—	—		8,960	0.03
			170,284	0.92		—	—		170,284	0.56
Europe:	UK		93,942	0.51		29,864	0.25		123,806	0.41
	Poland		22,692	0.12		5,673	0.05		28,365	0.09
			116,634	0.63		35,537	0.30		152,171	0.50
		(Won)	18,508,094	100.00	(Won)	11,829,425	100.00	(Won)	30,337,519	100.00

71

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(6) Percentages of allowances for possible losses to acceptances and guarantees subject to allowances for possible losses for the previous 3 years were as follows (Won in millions):

	2005		2004		2003
Acceptances and guarantees subject to allowances for possible losses	(Won)	36,538,422	(Won)	18,508,094	(Won)	17,527,992
Allowances		227,670		249,260		91,430
Percentage (%)		0.62		1.35		0.52

(*) The Bank did not provide allowances for possible losses on unconfirmed acceptances and guarantees up to 2004. Accordingly, those balances as of December 31, 2004 and 2003 were not included in the above table.

(7) Unused credit line of loan commitments and other allowances for on credit line of loan commitments as of December 31, 2005 were as follows (Won in millions):

Unused credit line of loan commitments	Other allowances		Ratio (%)
(Won)7,536,144	(Won)	27,597	0.37

The Bank started to apply the rate of allowances for possible losses on loans, which is classified as normal and of which maturity is less than 1 year to unused credit line of loan commitments pursuant to the guideline of allowances for possible losses to off-balance sheets items in 2005. The allowances for possible losses were recognized considering the credit adjustment rates to off-balance sheet items announced by FSS and recorded as other allowances as of December 31, 2005 (See Note 2 (4)).

13. Accrued Severance Benefits:

Changes in accrued severance benefits for the years ended December 31, 2005 and 2004 were as follows (Won in millions):

2005	Beginning balance			Provision		Payment			Ending balance
Accrued severance benefits	(Won)	18,379		(Won)	6,900	(Won)	2,329		(Won)	22,950
National Pension		(13	)		—		(3	)		(10	)
	(Won)	18,366		(Won)	6,900	(Won)	2,326		(Won)	22,940
2004	Beginning balance			Provision		Payment			Ending balance
Accrued severance benefits	(Won)	13,810		(Won)	5,801	(Won)	1,232		(Won)	18,379
National Pension		(15	)		—		(2	)		(13	)
	(Won)	13,795		(Won)	5,801	(Won)	1,230		(Won)	18,366

72

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

14. Shareholders’ Equity:

(1) Capital stock

The authorized capital stock of the Bank as of December 31, 2005 was (Won)4,000,000 million and the capital stock amounted to (Won)3,295,755 million and (Won)2,775,755 million as of December 31, 2005 and 2004, respectively. The Bank increased the capital stock by (Won)10,000 million, (Won)500,000 million and (Won)10,000 million from the Government on April 4, April 25 and September 27, 2005, respectively. The Bank does not issue share certificates.

(2) Retained earnings

1) Legal reserve

In accordance with the EXIM Bank Act, the Bank reserves 20 percent of unappropriated retained earnings as the legal reserve, until the accumulated reserve equals to its capital stock.

2) Voluntary reserve

The Bank appropriates the remaining balance, net of legal reserve and dividend payments, to voluntary reserve.

3) Cash dividends

Cash dividends to shareholders were declared for the years ended December 31, 2005 and 2004 as follows (Won in millions):

	2005		2004
The Government	(Won)	7,969	(Won)	812
The Bank of Korea		5,126		652
The Korea Development Bank		676		86
	(Won)	13,771	(Won)	1,550

The rate of cash dividends to net income is 6.13% for the year ended December 31, 2005. The cash dividends are calculated on the basis of average balances of investments by shareholders for the year ended December 31, 2005 and 2004.

15. Contingencies And Commitments:

(1) Other commitments as of December 31, 2005 were as follows (Won in millions):

	Amount
Unused credit line of loan commitments	(Won)	7,536,144
Written-off loans		154,127
	(Won)	7,690,271

73

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) Pending litigations.

As of December 31, 2005, the number of lawsuits filed by the Bank were seven, with an aggregate claims of (Won)99,771 million. On the other hand, the Bank also faced 1 pending legal action as defendant involving aggregate damages of (Won)1,075 million. The Bank believes that the actions against the Bank are without merit and that the ultimate liability, if any, will not materially affect the Bank’s financial position.

The pending litigation relating to disposition of proprietorship and the disclaimer of credit of Glowin Co., Ltd. was filed by the bankruptcy trustee of Glowin Co., Ltd. (The decision on the first trial was in favor to the Bank and is currently on the second trial).

(3) The Bank sold 30,865,792 shares of Korea Exchange Bank (“KEB”) to LSF-KEB Holdings, SCA (“LSF”) on October 30, 2003 at (Won)5,400 per share. According to the call option contract derived from the disposition of the shares, LSF has the right to purchase 49,134,208 shares additionally from the Bank’s remaining shares of KEB within 3 years from the transaction date at a determined price. The effect of the call option on the financial statements of the Bank cannot be presently determined and accordingly, no adjustments related to such uncertainties were recorded in the accompanying financial statements as of December 31, 2005.

In addition, after two years from the disposition date, if LSF sell its shares of KEB with certain conditions of mutual agreements were satisfied, both LSF and the Bank may have the rights and obligations to purchase and sell the shares of KEB on same conditions to each others, respectively.

(4) Details of transactions of derivatives instruments were as follows as of and for the years ended December 31, 2005 and 2004 (Won in millions):

	Outstanding contract amount				Gain (loss) on valuation (S/O)						Gain (loss) on Valuation (B/S)
2005	Trading		Hedging		Trading			Hedging
Currency forwards	(Won)	109,493	(Won)	—	(Won)	1,350		(Won)	—		(Won)	1,350
Currency swaps		1,036,953		51,594		(33,933	)		(9,685	)		9,816
Interest rate swaps		1,140,025		3,911,002		609			(26,533	)		(90,787	)
	(Won)	2,286,471	(Won)	3,962,596	(Won)	(31,974	)	(Won)	(36,218	)	(Won)	(79,621	)
	Outstanding contract amount				Gain (loss) on valuation (S/O)						Gain (loss) on Valuation (B/S)
2004	Trading		Hedging		Trading			Hedging
Currency swaps	(Won)	943,500	(Won)	192,293	(Won)	46,297		(Won)	1,952		(Won)	57,145
Interest rate swaps		822,514		4,626,917		(3,005	)		(39,481	)		(67,545	)
	(Won)	1,766,014	(Won)	4,819,210	(Won)	43,292		(Won)	(37,529	)	(Won)	(10,400	)

The Bank holds derivative instruments for its trading activities and hedging activities, to manage the interest rate risk and foreign currencies exchange risk derived from loans, debentures and

74

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

borrowings. Outstanding contractual amount and gain or loss on valuation for hedging purposes included in the table resulted from both derivative instruments accounted for using hedge accounting methods pursuant to the Interpretations on financial Accounting Standards 53-70.

Hedged items, to which fair value hedge accounting is applied, consist of loans, debentures and borrowings. Resulting from valuation of hedged items accounted for using fair value hedge accounting, loss on hedging relating to loans of (Won)23,504 million and gain on hedging relating to debentures of (Won)49,760 million and relating to borrowings of (Won)9,433 million were recognized for the year ended December 31, 2005.

16. Interest Income and Interest Expenses:

The average balance of the interest bearing assets and liabilities, and the related interest income and expenses as of and for the years ended December 31, 2005 and 2004 were as follows (Won in millions):

	2005				2004
	Average balance		Interest incomes/expenses		Average balance		Interest incomes/expenses
Interest incomes bearing assets
Loans	(Won)	11,314,592	(Won)	488,789	(Won)	10,618,758	(Won)	406,399
Due from banks		41,555		1,949		91,703		2,145
Securities		48,157		2,011		55,545		2,603
	(Won)	11,404,304	(Won)	492,749	(Won)	10,766,006	(Won)	411,147
Interest expenses bearing liabilities
Borrowings	(Won)	975,153	(Won)	24,678	(Won)	2,285,251	(Won)	39,815
Debentures		8,222,874		367,651		6,155,018		279,464
	(Won)	9,198,027	(Won)	392,329	(Won)	8,440,269	(Won)	319,279

Loans included call loans and borrowings included call money.

75

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

17. General and Administrative Expenses:

General and administrative expenses for the years ended December 31 2005 and 2004 were as follows (Won in millions):

	2005		2004
Financial management expenses:
Salaries and wages	(Won)	53,154	(Won)	46,945
Others		25,968		23,641
		79,122		70,586
Economic cooperation management expenses		684		694
Other general and administrative expenses:
Severance benefits (Note 13)		6,900		5,801
Depreciation (Note 7)		4,045		3,643
Amortization expense of intangible assets (Note 7)		1,656		1,469
Taxes and dues		3,452		937
Fund contributions		3,724		—
		19,777		11,850
	(Won)	99,583	(Won)	83,130

18. Non-operating Income and Expenses:

Non-operating income and expenses for the years ended December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Non-operating income:
Gain on disposal of tangible assets	(Won)	21	(Won)	158
Rental income		19		10
Gain on disposal of available-for-sale securities (Note 4)		260,689		10,238
Gain on valuation of securities using the equity method (Note 4)		3,656		—
Others		25,931		23,480
	(Won)	290,316	(Won)	33,886
Non-operating expenses:
Loss on disposal of tangible assets	(Won)	73	(Won)	688
Loss on disposal of available-for-sale securities		—		660
Loss on valuation of securities using the equity method (Note 4)		—		183
Others		1,062		9,506
	(Won)	1,135	(Won)	11,037

76

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

19. Income Tax Expense:

(1) The differences between net income before income tax and taxable income pursuant to Korean Corporate Income Tax Law for the year ended December 31, 2005 were as follows (Won in millions):

	Amount
I. Net income before income tax	(Won)	306,275
II. Non temporary differences:
(1) Entertainment expenses		78
(2) Taxes and dues		2,496
(3) Interest paid		200
(4) Dividend earned		(1,807	)
(5) Others		(4,215	)
		(3,248	)
III. Temporary differences:
1. Additions:
(1) Loss (gain) on fair value hedges		56,116
(2) Gain on valuation of derivative instruments (prior period)		60,469
(3) Loss on valuation of derivative instruments (current period)		137,735
(4) Allowance for loan losses (current period)		279,814
(5) Allowance for possible losses of confirmed and unconfirmed acceptances and guarantees (current period)		227,726
(6) Other allowances (current period)		27,597
(7) Allowance for severance benefits		2,745
(8) Depreciation		360
(9) Long-term unearned income		4,776
(10) Others		182
		797,520
2. Deductions:
(1) Gain (loss) on fair value hedges		82,863
(2) Loss on valuation of derivative instruments (prior period)		70,869
(3) Gain on valuation of derivative instruments (current period)		58,114
(4) Allowance for loan losses (prior period)		207,234
(5) Allowance for possible losses of confirmed acceptances and guarantees (prior period)		249,260
(6) Other allowances (prior period)		27,565
(7) Long-term unearned income		4,463
(8) Gain on valuation of securities using the equity method		3,656
(9) Depreciation		247
(10) Others		367
		704,638
IV. Taxable income	(Won)	395,909

77

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) Changes in accumulated temporary difference for the year ended December 31, 2005 were as follows (Won in millions):

	Beginning(*)			Decrease			Increase			Ending
Loss(gain) on fair value hedges	(Won)	(56,116	)	(Won)	(56,116	)	(Won)	(82,863	)	(Won)	(82,863	)
Allowance for severance benefits		11,015			—			2,745			13,760
Depreciation		1,110			247			360			1,223
Allowance for loan losses		207,234			207,234			279,814			279,814
Gain on valuation of securities using the equity method		(10,456	)		—			(3,656	)		(14,112	)
Loss on valuation of derivative instruments		70,869			70,869			137,735			137,735
Gain on valuation of derivative instruments		(60,469	)		(60,469	)		(58,114	)		(58,114	)
Convertible stock		109,630			—			—			109,630
Allowance for possible losses of confirmed and unconfirmed acceptances and guarantees		249,260			249,260			227,726			227,726
Long-term unearned income		8,860			4,463			4,776			9,173
Other allowances		27,565			27,565			27,597			27,597
Others		10,982			367			182			10,797
		569,484		(Won)	443,420		(Won)	536,302			662,366
Statutory tax rate		27.5	%								27.5	%
Tax effect		156,608									182,151
Tax reconciliation effect for prior period		7,646									—
Deferred tax effect from available-for-sale securities		—									(339,713	)
Deferred tax assets (liabilities)	(Won)	164,254								(Won)	(157,562	)

Difference between closing statements and statement of tax reconciliation in 2004 was reflected on the current period. The beginning balance of accumulated temporary difference was adjusted on the prior-period final income tax.

(3) Income tax expense for the years ended December 31, 2005 and 2004 was as follows (Won in millions):

	2005			2004
Income tax currently payable	(Won)	108,831		(Won)	86,477
Changes in deferred tax assets(liabilities)		321,816			(57,657	)
Changes due to adjustment for the prior-period final income tax		(7,646	)		—
Changes due to claim for income tax return		(1,504	)		—
Income tax expense charged to capital		(339,713	)		—
	(Won)	81,784		(Won)	28,820

78

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(4) The statutory income tax rates applicable to the Bank are 27.5% and 29.7% for the years ended December 31, 2005 and 2004, respectively. However, due to tax adjustments, the effective tax rates for the years ended December 31, 2005 and 2004 were 26.7% and 27.1%, respectively.

20. Assets and Liabilities Denominated in Foreign Currencies:

(1) Significant assets denominated in foreign currencies as of December 31, 2005 and 2004 were as follows:

	2005			2004
	USD in thousands	Korean won in millions		USD in thousands	Korean won in millions
Due from banks	USD 37,663	(Won)	38,153	USD 61,432	(Won)	64,123
Available-for-sale securities	11,322		11,469	11,904		12,425
Held-to-maturity securities	8,000		8,104	14,674		15,317
Securities using the equity method	86,379		87,503	87,830		91,677
Loans	8,505,905		8,616,482	6,709,893		7,003,786
Bills bought in foreign currencies	629,480		637,663	368,239		384,368
Advance for customers	912		924	832		869
Call loans	158,500		160,561	497,000		518,769
	USD 9,438,161	(Won)	9,560,859	USD 7,751,804	(Won)	8,091,334

(2) Significant liabilities denominated in foreign currencies as of December 31, 2005 and 2004 were as follows:

	2005			2004
	USD in thousands	Korean won in millions		USD in thousands	Korean won in millions
Borrowings	USD 341,634	(Won)	346,075	USD 659,248	(Won)	688,124
Call money	299,868		303,766	102,121		106,594
Debentures	8,114,170		8,219,654	6,552,637		6,839,643
	USD 8,755,672	(Won)	8,869,495	USD 7,314,006	(Won)	7,634,361

Foreign currencies, other than U.S. Dollar, were translated into U.S. dollar amounts at the exchange rates announced by Seoul Money Brokerage Services, Ltd. at December 31, 2005.

21. Related Party Transactions:

(1) Related parties as of December 31, 2005 were as follows (Won in millions):

	Capital	No. of shares	Ownership (%)
KEXIM Bank UK Limited	34,935	149,999	100.00
KEXIM Vietnam Leasing Co.	13,169	400,000	100.00
PT. KOEXIM Mandiri Finance	4,557	Limited company	85.00
KEXIM Asia Limited	30,390	Limited company	100.00

79

THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(2) Significant balances of assets and liabilities, and incomes and expenses from significant transactions with related parties as of and for the year ended December 31, 2005 were as follows (Won in millions):

(Assets)	Loans in foreign currencies		Call loans		Total
KEXIM Bank UK Limited	(Won)	91,170	(Won)	15,195	(Won)	106,365
KEXIM Vietnam Leasing Co.		50,650		—		50,650
PT. KOEXIM Mandiri Finance		81,040		—		81,040
KEXIM Asia Limited		11,650		4,559		16,209
	(Won)	234,510	(Won)	19,754	(Won)	254,264

(Liabilities)	Debentures in foreign currencies
KEXIM Bank UK Limited	(Won)	50,650

(Transactions)	Interest income		Interest expenses		Commission income
KEXIM Bank UK Limited	(Won)	3,604	(Won)	400	(Won)	—
KEXIM Vietnam Leasing Co.		1,778		—		12
PT. KOEXIM Mandiri Finance		2,912		—		—
KEXIM Asia Limited		1,403		—		—
	(Won)	9,697	(Won)	400	(Won)	12

(3) Related parties as of December 31, 2004 were as follows (Won in millions):

Related parties	Capital	No. of shares	Ownership (%)
KEXIM Bank UK Limited	34,935	149,999	100.00
KEXIM Vietnam Leasing Co.	13,169	400,000	100.00
PT. KOEXIM Mandiri Finance	4,557	Limited company	85.00
KEXIM Asia Limited	30,390	Limited company	100.00

(4) Significant balances of assets and liabilities, and incomes and expenses from significant transactions with related parties as of and for the year ended December 31, 2004 were as follows (Won in millions):

(Assets)	Due from banks in foreign currencies		Loans in foreign currencies		Call loans		Total
KEXIM Bank UK Limited	(Won)	71,945	(Won)	20,876	(Won)	58	(Won)	92,879
KEXIM Vietnam Leasing Co.		44,883		—		—		44,883
PT. KOEXIM Mandiri Finance		73,066		—		533		73,599
KEXIM Asia Limited		5,219		25,051		40		30,310
	(Won)	195,113	(Won)	45,927	(Won)	631	(Won)	241,671

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THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

(Liabilities)	Borrowings in foreign currencies
KEXIM Bank UK Limited	(Won)	5,060

(Transactions)	Interest income		Interest expenses
KEXIM Bank UK Limited	(Won)	562	(Won)	172
KEXIM Vietnam Leasing Co.		873		—
PT. KOEXIM Mandiri Finance		1,319		—
KEXIM Asia Limited		37		—
	(Won)	2,791	(Won)	172

22. Statements of Cash Flows:

(1) The statements of cash flows for the Bank are presented by the indirect method. Cash flows from the Bank’s major business including loans on credit and security transactions are classified as cash flows from investing activities and those from the receipts and borrowings are classified as cash flows from financing activities. Other cash flows are included in cash flows from operating activities.

(2) Due from banks in the statements of cash flows for the years ended December 31, 2005 and 2004 were as follows (won in millions):

	2005		2004
Due from banks in local currency	(Won)	5,894	(Won)	5,381
Due from banks in foreign currencies		38,153		64,123
	(Won)	44,047	(Won)	69,504

(3) Significant transactions not involving cash inflows and outflows for the years ended December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Increase (decrease) in gain on valuation of available-for-sale securities	(Won)	591,565	(Won)	263,766
Increase in capital from investment in kind		500,000		—
Increase in available-for-sale securities resulting from the debt for equity swap		12,193		45,185
	(Won)	1,103,758	(Won)	308,951

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THE EXPORT-IMPORT BANK OF KOREA

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2005 and 2004

23. Employee Welfare:

The Bank extends housing loans and operates in-house cafeteria, scholarship, medical insurance, workmen’s compensation, physical training facilities and recreational facilities, in order to enhance the employee welfare. Employee welfare expenses for the years ended December 31, 2005 and 2004 were as follows (Won in millions):

	2005		2004
Meal expenses	(Won)	76	(Won)	96
Medical expenses		233		172
Fringe benefits		4,161		3,600
Healthcare expenses		330		342
	(Won)	4,800	(Won)	4,210

24. Computation of Value Added:

Amounts required for computation of value added were as follows (Won in millions):

	2005		2004
Ordinary income	(Won)	306,275	(Won)	106,296
Salaries and wages		53,154		46,945
Rental fees		429		392
Depreciation		4,045		3,643
Amortization expense of intangible assets		1,656		1,469
Taxes and dues		3,452		937
	(Won)	369,011	(Won)	159,682

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THE REPUBLIC OF KOREA

Land and History

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.

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 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 began his term on February 25, 2003. The Roh administration announced that its key policy priorities would include:

• pursuing a flexible macroeconomic policy mix to ensure stable economic growth through balanced growth in domestic demand and exports;

• nurturing emerging industries, encouraging research and development, and improving logistical infrastructure to maximize economic growth potential;

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• expanding the economic participation of women and the elderly, while establishing a sustainable social welfare system that is consistent with recent socio-economic progress;

• continuing structural reforms that will result in a transparent, market-driven economy;

• continuing with inter-Korean cooperation; and

• continuing with efforts to resolve the North Korea nuclear issue peacefully through various diplomatic channels.

President Roh and his supporters left the Millennium Democratic Party in 2003 and a new party, the Uri Party, was formed.

Government and Politics

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.

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 and Election Malpractice Prevention Act provide for the direct election of about 81% 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.

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Administratively, the Republic comprises nine provinces and seven cities with provincial status: Seoul, Busan, Daegu, Inchon, 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 17th legislative general election was held on April 15, 2004 to elect 299 National Assembly members. The Uri Party, which is the current ruling party, held a majority in the National Assembly following the April 2004 elections until June 2005. Currently, there are two major political parties, the Uri Party and the Grand National Party (“GNP”).

As of July 31, 2006, the parties controlled the following number of seats in the National Assembly:

	Uri	GNP	Others	Total
Number of Seats	142	126	31	299

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 approximately 690,000 regular troops and almost 3.1 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. According to the plan’s second phase, the United States would remove 5,000 troops by the end of 2006. In the final phase, another 2,500 U.S. troops would be deployed by the end of 2008.

Over the last few years, relations between the Republic and North Korea have generally improved, despite occasional difficult periods, such as the June 1999 and June 2002 incidents during which several North Korean naval ships intruded on the northern boundary of the Republic’s territorial waters, resulting in a series of hostile naval clashes, and the events relating to North Korea’s nuclear program described below. The Government believes that the general improvement in relations between the Republic and North Korea in the last several years has stemmed from expectations of increased economic cooperation. Trade between the two Koreas, which totaled US$287 million in 1995, increased to US$724 million in 2003. In November 1998, the Hyundai Group began operating tours for South Koreans to visit the Mount Kumgang region of North Korea after reaching an agreement for such tours with the North Korean government. In June 2000, then-President Kim Dae Jung met with North Korea’s leader Kim Jong-Il in Pyongyang, North Korea. This was the first summit meeting between the leaders of the Republic and North Korea since the nation was divided in 1945. After four

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rounds of discussions, the summit meeting resulted in the joint announcement by then-President Kim Dae Jung and North Korea’s leader Kim Jong-Il that the two nations had reached an accord to promote: (1) the autonomous pursuit of unification; (2) the reunion of separated families; (3) the promotion of economic cooperation and exchange in various fields; and (4) the continuation of dialogue to implement the accord. Since the summit, 14 rounds of ministerial talks have been held through July 2004.

The level of tension between the two Koreas, as well as between North Korea and the United States, has increased as a result of North Korea’s admission to the maintenance of a nuclear weapons program in breach of the peace accord executed in October 1994, in response to which the United States, Japan, the Republic and the European Union (which became party to the 1994 accord in November 2002) decided to suspend shipments of oil to North Korea called for by the 1994 accord and reiterated their demands for the dismantling of North Korea’s nuclear weapons program. Following the suspension of oil shipments, North Korea removed seals and surveillance equipment from its main nuclear complex, the Yongbyon nuclear power plant, and evicted nuclear inspectors from the United Nations International Atomic Energy Agency, or the IAEA, in December 2002, and has reportedly reactivated a reactor at its Yongbyon nuclear power plant. In January 2003, North Korea announced its intention to withdraw from the Nuclear Non-Proliferation Treaty, refusing to abandon its nuclear power and arms program unless the United States was to execute a non-aggression pact. In February 2003, the IAEA referred the nuclear issue to the United Nations Security Council.

In an effort to secure a peaceful negotiated resolution to these events, the two Koreas continue to hold ministerial talks. In April 2003, the United States, North Korea and China held tripartite discussions in an effort to resolve issues relating to North Korea’s nuclear weapons program, during which North Korea reportedly admitted that it had already successfully developed nuclear weapons. In August 2003, representatives of the Republic, the United States, North Korea, China, Japan and Russia held multilateral talks in an effort to resolve issues relating to North Korea’s nuclear weapons program. While the talks concluded without resolution, participants in the August meeting indicated a further round of negotiations may take place in the future and, in February 2004, six-party talks resumed in Beijing, China. Again, the talks concluded without resolution, but the six-parties promised to push ahead the peace forum, agreeing in principle to hold the third round of talks in Beijing and to set up a working group in preparation for the plenary meeting. In June 2004, the third round of the six-party talks was held in Beijing which ended with an agreement by the parties to hold further talks by the end of September 2004.

In February 2005, North Korea declared that it had developed and is in possession of nuclear weapons. It also announced withdrawal from the six-party talks on its nuclear program. A two-phased fourth round of six party talks was held in Beijing, China during the summer and fall of 2005. In a joint statement released following the conclusion of this fourth round of talks in September 2005, North Korea agreed to abandon all nuclear weapons and programs and rejoin the Nuclear Non-Proliferation treaty at an early date. In return, the other five nations participating in the talks, China, Japan, the Republic, Russia and the United States, expressed a willingness to provide North Korea with energy assistance and other economic support. However, one day after the joint statement was released, North Korea announced that it would not dismantle its nuclear weapons program unless the United States agreed to provide civilian nuclear reactors in return, a demand that the United States rejected. In November 2005, representatives of the six nations reconvened in Beijing for the first phase of the fifth round of six party talks, which concluded without further progress with respect to the implementation of the joint statement. In July 2006, North Korea test fired seven missiles, which increased tensions in

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the region and raised strong objections from Japan and the United States. In response, the United Nations Security Council passed a resolution condemning such missile test and banning any United Nations member state from conducting transactions with North Korea in connection with material or technology related to missile development or weapons of mass destruction.

There can be no assurance that the level of tension will not escalate and that such escalation will not have a material adverse impact on the Republic’s economy or its ability to obtain future funding.

Over the longer term, reunification of the two Koreas could occur. Reunification may entail a significant economic commitment by the Republic.

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 after 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;

• 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.

The Economy

Economic Developments since 1997

In 1997 and 1998, Korean companies, banks and other financial institutions experienced financial difficulties brought on by a number of factors, including among others, excessive investment and high

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levels of foreign currency and Won currency debt incurred by Korean companies. The economic difficulties of certain Southeast Asian countries beginning in 1997 also adversely affected the Korean economy. The Korean economy, however, has recovered since 1998, as the Government implemented comprehensive programs for economic reform and recovery aimed at rectifying the causes of the economic and financial difficulties it experienced in 1997 and 1998.

The following table sets forth information regarding certain of the Republic’s key economic indicators for the periods indicated.

	As of or for the year ended December 31,
	1997			1998			1999			2000			2001			2002			2003			2004			2005
	(billions of dollars and trillions of won, except percentages)
GDP Growth(1)		4.7	%		(6.9	)%		9.5	%		8.5	%		3.8	%		7.0	%		3.1	%		4.7	%		4.0	%(2)
Inflation		4.4	%		7.5	%		0.8	%		2.3	%		4.1	%		2.7	%		3.6	%		3.6	%		2.7	%(2)
Unemployment(3)		2.6	%		7.0	%		6.3	%		4.4	%		4.0	%		3.3	%		3.6	%		3.7	%		3.7	%(2)
Trade Surplus	$	(8.5	)	$	39.0		$	23.9		$	11.8		$	9.3		$	10.3		$	15.0		$	29.4		$	23.2	(2)
Foreign Currency Reserves	$	20.4		$	52.0		$	74.1		$	96.2		$	102.8		$	121.4		$	155.4		$	199.1		$	210.4
External Liabilities(4)	$	174.2		$	163.8		$	152.9		$	148.5		$	130.4		$	143.0		$	161.6		$	177.6		$	N/A	(5)
Fiscal Balance	(Won)	(7.0	)	(Won)	(18.8	)	(Won)	(13.1	)	(Won)	6.5		(Won)	7.3		(Won)	22.7		(Won)	8.1		(Won)	5.6		(Won)	5.1

(1) At constant market prices.

(2) Preliminary.

(3) Average for year.

(4) Starting from June 2003, the total external liabilities of the Republic are calculated under criteria published in a compilation by nine international organizations including the IMF and the World Bank in 2003. Prior to June 2003, the Republic had calculated its total external debt using criteria agreed with the IMF during the financial crisis at the end of 1997. See “—Debt—External Debt” for a description of the changes in the criteria.

(5) Not available.

Source: The Bank of Korea.

The Republic’s economic and financial difficulties in 1997 and 1998 and its subsequent recovery and reforms included the following:

• Financial condition of Korean companies.    A significant number of Korean companies, including member companies of the conglomerates known as “chaebols” that dominate the Korean economy, struggled financially due to excessive investment in some industries, weak export performances and high levels of debt and foreign currency exposure. Many of these Korean companies failed beginning in early 1997, including the Hanbo Group, the Sammi Group, the Kia Group and the Jinro Group. Following the series of corporate failures in the late 1990s, other Korean companies underwent corporate restructuring, including Daewoo Group, Hynix Semiconductor, SK Networks and LG Card.

• Financial condition of Korean banks and other financial institutions.    The capital adequacy and liquidity of most Korean banks and other financial institutions have been adversely affected by the financial difficulties of corporate borrowers, high levels of short-term foreign currency borrowings from foreign financial institutions and consideration of non-market oriented factors in making lending decisions. Since December 1997, the Government has been restructuring and recapitalizing troubled financial institutions, including closing insolvent financial institutions and those failing to carry out rehabilitation plans within specified periods. Through recapitalization, the Government became the controlling shareholder of Korea First Bank, Seoul Bank, Woori Bank and Chohung Bank. The Government subsequently sold its controlling interest in Korea First Bank, Seoul Bank and Chohung Bank, each of which was later merged into or sold to other banks. Korean financial institutions have also voluntarily pursued mergers and acquisitions.

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• Foreign currency reserves.    The Republic’s foreign currency reserves fell to US$20.4 billion as of December 31, 1997 from US$33.2 billion as of December 31, 1996, due mainly to repatriations by foreign investors of their investments in Korea and reduced availability of credit from foreign sources. Since the end of 1997, however, the Government’s foreign currency reserves have continued to increase, reaching US$224.7 billion as of May 31, 2006, due primarily to continued trade surpluses and capital inflows.

• Credit rating changes.    From October 1997 to January 1998, the rating agencies downgraded the Republic’s credit ratings, with Moody’s Investor Service, Inc. downgrading the Republic’s foreign currency rating on bond obligations from A1 to Ba1, Standard & Poor’s Ratings Services downgrading the Republic’s long-term foreign currency rating from AA- to B+ and Fitch International Banking Credit Agency downgrading the Republic’s long-term currency rating from AA- to B-. Since that time, the rating agencies have raised the country’s ratings significantly, with Moody’s upgrading the Republic’s long-term foreign currency rating to A3, Standard and Poor’s to A- and Fitch to A in 2002. In 2003, Moody’s changed its outlook on the long-term foreign currency rating of Korea to negative from positive due primarily to the heightened security concerns stemming from North Korea’s nuclear weapons program. In 2004, Moody’s changed its outlook on the long-term foreign currency rating of Korea to stable from negative due primarily to the Republic’s continued stability in its public-sector debt position. In July 2005, Standard & Poor’s upgraded the Republic’s long-term foreign currency rating from A- to A. In October 2005, Fitch raised the Republic’s long-term foreign currency rating from A to A+. In April, 2006, Moody’s changed its outlook on the long-term foreign currency rating of Korea to positive from stable.

• Interest rate fluctuations.    In late 1997 and 1998, interest rates payable by Korean borrowers increased substantially, both domestically and internationally, due to adverse economic conditions and the depreciation of the Won. Since the fourth quarter of 1998, however, interest rates have fallen significantly, primarily driven by improved economic conditions and The Bank of Korea interest rate policy. Internationally, the spreads over United States treasury bonds on benchmark dollar-denominated bonds issued by the Republic and Korean financial institutions and companies have improved since the second half of 1998. If interest rates were to rise significantly in the future, the debt service costs of Korean borrowers and the possibility of defaults on debt repayments may increase.

• Exchange rate fluctuations.    Due to adverse economic conditions and reduced liquidity, the value of the Won relative to the U.S. dollar and other major foreign currencies declined substantially in 1997. Due to improved economic conditions and continued trade surpluses, however, the Won has generally appreciated against the U.S. dollar since the end of 1997. Won depreciation substantially increases the amount of Won revenue needed by Korean companies to repay foreign currency-denominated debt, increases the possibility of defaults and results in higher prices for imports, including key raw materials such as oil, sugar and flour. On the other hand, Won appreciation generally has an adverse effect on exports by Korean companies.

• Stock market volatility.    The Korea Composite Stock Price Index declined by over 56% from 647.1 on September 30, 1997 to 280.0 on June 16, 1998. The index recovered to 1,289.5 on August 7, 2006, which represented a more than three-fold increase since June 16, 1998. Significant sales of Korean securities by foreign investors and the repatriation of the sales proceeds could drive down the value of the Won, reduce the foreign currency reserves held by financial institutions in the Republic and hinder the ability of Korean companies to raise capital.

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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 and constant market prices. GDP at current market prices values a country’s output using the actual prices of each year and GDP at constant market prices values output using the prices from a base year, thereby eliminating the distorting effects of inflation or deflation.

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The following table sets out the composition of the Republic’s GDP at current and constant 2000 market prices and the annual average increase in the Republic’s GDP.

Gross Domestic Product⁽¹⁾

	2001		2002		2003		2004		2005(2)		As % of GDP 2005(2)
	(billions of won)
Gross Domestic Product at Current Market Prices:
Private	343,416.6		381,063.0		389,177.2		401,468.8		424,629.7		52.6
Government	80,298.2		88,512.2		96,203.2		105,519.9		113,772.9		14.1
Gross Capital Formation	182,477.4		199,006.0		217,099.0		230,216.6		236,443.6		29.3
Change in Inventories	(1,314.6	)	(41.5	)	291.9		6,430.1		6,211.5		0.8
Exports of Goods and Services	235,187.3		241,209.0		274,995.1		342,865.5		342,800.3		42.5
Less Imports of Goods and Services	(220,914.3	)	(231,764.7	)	(257,727.7	)	(309,647.4	)	(322,567.2	)	40.0
Statistical Discrepancy	1,657.4		6,237.9		4,928.2		2,529.9		5,331.1		0.7
Expenditures on Gross Domestic Product	622,122.6		684,263.5		724,675.0		779,380.5		806,621.9		100.0
Net Factor Income from the Rest of the World	(1,094.8	)	805.6		1,009.9		1,793.7		(736.1	)	(0.1	)
Gross National Product(1)	621,027.9		685,069.0		725,420.3		781,174.2		805,885.8		99.9
Gross Domestic Product at Constant 2000 Market Prices:
Private	327,684.5		353,560.3		349,200.2		348,067.2		359,272.9		49.8
Government	73,507.0		77,923.9		80,876.8		83,895.2		87,529.1		12.1
Gross Capital Formation	179,333.8		189,897.7		194,578.9		203,187.9		207,827.9		28.8
Change in Inventories	(242.5	)	(1,566.9	)	(4,469.0	)	671.1		(1,195.7	)	(0.2	)
Exports of Goods and Services	229,764.0		260,220.9		300,824.3		359,709.5		390,417.6		54.1
Less Imports of Goods and Services	(208,898.7	)	(240,665.1	)	(264,929.7	)	(301,718.5	)	(322,530.9	)	(44.7	)
Statistical Discrepancy	(524.6	)	1,810.4		2,104.3		183.1		170.5		0.0
Expenditures on Gross Domestic Product	600,865.9		642,748.1		662,654.8		693,995.5		721,491.4		100.0
Net Factor Income from the Rest of the World in the Terms of Trade	(1,052.4	)	(715.6	)	642.7		1,513.8		(633.9	)	(0.1	)
Trading Gains and Losses from Changes	(7,405.0	)	(9,621.6	)	(17,510.0	)	(24,471.6	)	(46,307.6	)	(6.4	)
Gross National Income(3)	592,408.5		663,842.1		645,787.6		671,037.7		674,549.9		93.5
Percentage Increase (Decrease) of GDP over Previous Year At Current Prices	7.5		10.0		5.9		7.5		3.5
At Constant 2000 Market Prices	3.8		7.0		3.1		4.7		4.0

(1) GDP plus net factor income from the rest of the world is equal to the Republic’s gross national product.

(2) Preliminary.

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(3) GDP plus net factor income from the rest of the world and trading gains and losses from changes in the terms of trade is equal to the Republic’s gross national income.

Source: National Accounts Year 2005; The Bank of Korea.

The following tables set out the Republic’s GDP by economic sector at current and constant 2000 market prices:

Gross Domestic Product by Economic Sector

(at current market prices)

	2001		2002	2003	2004	2005(1)		As % of GDP 2005(1)
	(billions of won)
Industrial Sectors:
Agriculture, Forestry and Fisheries	24,806.2		24,654.9	24,166.1	26,246.2	24,035.7		3.0
Mining and Manufacturing	153,786.7		164,003.4	171,208.0	200,830.8	206,688.2		25.6
Mining and Quarrying	2,020.7		2,051.4	2,062.6	2,276.5	2,449.0		0.3
Manufacturing	151,766.0		161,952.0	169,145.4	198,554.3	204,239.2		25.3
Electricity, Gas and Water	14,648.6		15,929.4	17,011.2	16,732.6	16,888.6		2.1
Construction	47,181.9		51,541.7	61,329.8	64,772.5	66,031.5		8.2
Services:	309,584.7		345,962.6	366,046.6	385,735.2	404,387.8		50.1
Wholesale and Retail Trade, Restaurants and Hotels	59,212.3		62,656.7	63,583.6	65,531.9	67,918.5		8.4
Transportation, Storage and Communication	41,190.5		45,133.8	47,787.0	50,969.0	52,055.5		6.5
Financial Intermediation	42,423.3		54,844.4	56,690.8	57,266.2	60,486.8		7.5
Real Estate, Renting and Business Activities	70,049.3		76,822.4	81,804.7	86,027.8	89,592.4		11.1
Public Administration and Defense: Compulsory Social Security	32,207.4		35,557.2	38,700.9	42,209.6	45,185.9		5.6
Education	28,803.6		32,296.7	35,760.7	39,194.9	41,313.8		5.1
Health and Social Work	16,771.1		17,432.4	19,012.7	20,847.5	22,865.8		2.8
Other Service Activities	18,927.2		21,219.0	22,706.2	23,688.3	24,969.1		3.1
Taxes less subsidies on products	72,114.5		82,171.6	84,913.1	85,063.0	88,590.2		11.0
Gross Domestic Product at Current Prices	622,122.6		684,263.5	724,675.0	779,380.5	806,621.9		100.0
Net Factor Income from the Rest of the World	(1,094.8	)	805.6	745.3	1,793.7	(736.1	)	(0.1	)
Gross National Income at Current Price	621,027.9		685,069.0	725,420.3	781,174.2	805,885.8		99.9

(1) Preliminary.

Source: National Accounts Year 2005; The Bank of Korea.

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Gross Domestic Product by Economic Sector

(at constant 2000 market prices)

	2001	2002	2003	2004	2005(1)	As % of GDP 2005(1)
	(billions of won)
Industrial Sectors:
Agriculture, Forestry and Fisheries	25,309.2	24,422.2	23,138.3	25,258.5	25,223.1	3.5
Mining and Manufacturing	156,538.3	168,121.6	177,311.9	196,832.1	210,435.9	29.2
Mining and Quarrying	2,035.1	1,878.7	1,894.9	1,946.5	1,917.2	0.3
Manufacturing	154,503.3	166,242.9	175,417.0	194,885.6	208,518.7	28.9
Electricity, Gas and Water	14,169.1	15,258.0	15,981.3	17,035.3	18,390.4	2.5
Construction	45,279.0	46,529.4	50,548.7	51,459.1	51,522.0	7.1
Services:	293,128.9	316,104.8	321,011.9	327,166.7	337,052.5	46.7
Wholesale and Retail Trade, Restaurants and Hotels	58,137.7	61,301.0	59,563.9	59,471.4	60,751.9	8.4
Transportation, Storage and Communication	41,524.7	45,328.6	47,486.1	50,808.6	52,892.6	7.3
Financial Intermediation	38,234.5	46,641.6	46,855.5	46,211.5	48,332.2	6.7
Real Estate, Renting and Business Activities	68,376.8	71,725.5	73,291.6	74,690.0	76,574.9	10.6
Public Administration and Defense: Compulsory Social Security	29,618.4	30,393.6	31,189.9	31,838.1	32,662.1	4.5
Education	26,942.9	28,123.2	29,169.8	29,813.6	30,146.7	4.2
Health and Social Work	11,977.7	12,654.1	13,298.7	13,965.2	14,796.4	2.1
Other Service Activities	18,316.2	19,937.2	20,156.4	20,368.3	20,895.7	2.9
Taxes less subsidies on products	66,441.4	72,312.0	74,662.7	76,243.6	78,867.6	10.9
Gross Domestic Product at Market Prices	600,865.9	642,748.1	662,654.8	693,995.5	721,491.4	100.0

(1) Preliminary.

Source: National Accounts Year 2005; The Bank of Korea.

In 2001, GDP growth was 3.8% at constant market prices, as aggregate private and general government consumption expenditures increased by 4.9% and gross domestic fixed capital formation was declined by 0.2%.

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GDP growth in 2002 was 7.0% at constant market prices, as aggregate private and general government consumption expenditures increased by 7.6% and gross domestic fixed capital formation increased by 6.6%.

GDP growth in 2003 was 3.1% at constant market prices, as aggregate private and general government consumption expenditures decreased by 0.3% and gross domestic fixed capital formation increased by 4.0%, each compared with 2002.

GDP growth in 2004 was 4.7% at constant market prices, as aggregate private and general government consumption expenditures increased by 0.4% and gross domestic fixed capital formation increased by 2.1%, each compared with 2003.

Based on preliminary data, GDP growth in 2005 was 4.0% at constant market prices, as aggregate private and general government consumption expenditures increased by 3.4% and gross domestic fixed capital formation increased by 2.3%, each compared with 2004.

Based on preliminary data, GDP growth in the first quarter of 2006 was 1.3% at constant market prices, as aggregate private and general government consumption expenditure increased by 1.3% and gross domestic fixed capital formation increased by 0.3%, each compared with the same period in 2005.

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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

	2000 Index Weight(1)	2000	2001	2002	2003	2004	2005(2)
Mining	36.2	100.0	99.9	103.9	103.1	100.0	93.8
Coal	4.7	100.0	94.0	83.4	84.3	86.1	88.5
Metal Ores	0.8	100.0	58.1	96.7	84.5	111.0	107.1
Others	30.7	100.0	101.9	107.2	106.5	101.9	94.2
Manufacturing	9,362.9	100.0	100.2	108.4	113.8	126.2	134.0
Food Products and Beverages	658.8	100.0	105.7	108.6	106.7	108.9	108.3
Tobacco Products	53.4	100.0	99.6	99.9	130.3	140.9	113.5
Textiles	472.7	100.0	90.1	84.6	76.5	70.8	63.5
Apparel and Fur Articles	210.3	100.0	91.6	98.0	82.5	82.4	86.6
Tanning and Dressing of Leather	97.6	100.0	94.4	87.6	75.5	65.1	58.8
Wood and Wood and Cork Products	62.2	100.0	107.2	112.8	113.9	109.1	104.4
Pulp, Paper and Paper Products	193.2	100.0	99.4	105.3	105.4	108.7	109.3
Publishing, Printing and Reproduction of Record Media	226.8	100.0	102.8	109.3	101.2	98.3	92.6
Coke, Refined Petroleum Products and Nuclear Fuel	309.9	100.0	96.3	88.2	91.1	94.1	97.0
Chemicals and Chemical Products	856.9	100.0	102.7	109.2	113.4	119.0	122.7
Rubber and Plastic Products	429.9	100.0	102.5	109.2	112.0	115.7	118.0
Non-Metallic Mineral Products	331.5	100.0	102.0	104.2	110.1	108.4	101.3
Basic Metals	566.2	100.0	101.3	106.4	111.9	117.6	118.0
Fabricated Metal Products	414.8	100.0	92.6	95.6	97.4	99.9	98.4
Machinery and Equipment	812.5	100.0	96.9	104.5	109.0	119.7	123.0
Office, Accounting and Computing Machinery	330.8	100.0	100.6	111.4	97.4	85.4	78.0
Electrical Machinery and Apparatus and Others	379.8	100.0	96.1	104.2	107.2	116.0	120.1
Radio, Television and Communication Equipment	1,481.0	100.0	102.4	131.6	158.7	214.9	258.1
Medical Precision and Optical Instrument, Watches	105.0	100.0	101.6	100.9	102.8	104.4	98.9
Motor Vehicles, Trailers and Semitrailers	916.1	100.0	98.9	107.3	114.3	127.6	138.3
Other Transport Equipment	274.6	100.0	121.8	119.4	127.5	145.2	156.3
Furniture and Other Manufactured Goods	178.9	100.0	95.4	94.6	87.3	83.0	78.0
Electricity and Gas	600.9	100.0	106.9	115.0	121.3	128.4	137.5
All Items	10,000.0	100.0	100.7	108.8	114.2	126.2	134.1
Percentage Increase (Decrease) of All Items Over Previous Year		16.8	0.7	8.0	5.0	10.5	6.3

(1) Index weights were established on the basis of an industrial census in 2000 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.

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Industrial production growth was only 0.7% in 2001 because exports decreased while domestic consumption growth slowed. Industrial production increased by 8.0% in 2002 primarily due to strong domestic consumption and increased exports. Industrial production increased by 5.0% in 2003 primarily due to increased exports and construction investment growth although domestic consumption was sluggish during 2003. Industrial production increased by 10.4% in 2004 primarily due to increased exports and domestic consumption recovery. Based on preliminary data, industrial production increased by 6.3% in 2005 primarily due to strong exports and increased domestic consumption.

Manufacturing

In 2001, the manufacturing sector increased production by 2.2%, and in 2002, the manufacturing sector increased production by 7.6%. In 2003, the manufacturing sector increased production by 5.5%. In 2004, the manufacturing sector increased production by 11.1%. In 2005, the manufacturing sector increased production by 7.0%. Light industries did not fare as well as the heavy and chemical industries segment as the economic boom of the early- and mid-1990s favored the large companies involved in the heavy and chemical industries. In 2001, light industry recorded a 0.6% decline due to the decreased production of textile, apparel and leather products. In 2002, light industry recorded a 0.1% increase due to increased production of food products. In 2003, light industry recorded a 4.4% decline due to the decreased production of textile, apparel, publishing and printing and food products and beverages. In 2004, light industry recorded a 0.7% decrease due to decreased production of food products, textile, apparel and furniture. Based on preliminary data, in 2005, light industry recorded a 2.0% decrease due to decreased production of textile, wood products, publishing and printing, furniture and non-metallic mineral products.

Automobiles.    In 2001, automobile production decreased by 5.4% compared to 2000. In 2001, domestic sales recorded an increase of 1.5% and exports recorded a decrease of 10.4%, each compared with 2000. In 2002, automobile production increased by 6.9%, domestic sales recorded an increase of 11.8% and exports recorded an increase of 0.6%, each compared with 2001. In 2003, automobile production increased by 1.0%, domestic sales recorded a decrease of 18.7% and exports recorded an increase of 20.2%, each compared with 2002. In 2004, automobile production increased by 9.2%, domestic sales recorded a decrease of 17.0% and exports recorded an increase of 31.1%, compared with 2003. Based on preliminary data, in 2005, automobile production increased by 6.6%, domestic sales recorded an increase of 4.3% and exports recorded an increase of 8.7%, compared with 2004.

Electronics.    In 2001, electronics production decreased by 14.1% and exports decreased by 23.7% compared to 2000 primarily due to weak personal computer market in the world. In 2001, export sales of semiconductor memory chips constituted approximately 9.5% of the Republic’s total exports. In 2002, electronics production increased by 15.0% and exports increased by 18.5%, each compared with 2001 primarily due to the growth in global information technology products demand. In 2002, export sales of semiconductor memory chips constituted approximately 10.2% of the Republic’s total exports. In 2003, electronics production increased by 9.8% and exports increased by 21.5%, each compared with 2002 primarily due to the continued growth in global information technology products demand. In 2003, export sales of semiconductor memory chips constituted approximately 10.1% of the Republic’s total exports. In 2004, electronics production increased by 20.0% and exports increased by 28.7%, each compared with 2003 primarily due to growth in exports of semiconductor memory chips and global information technology products. In 2004, export sales of semiconductor memory chips constituted approximately 10.5% of the Republic’s total exports. Based on preliminary data, in 2005, electronics production increased by 4.5% and exports increased by 0.6%, each compared with 2004

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primarily due to continued growth in exports of semiconductor memory chips and global information technology products. Based on preliminary data, in 2005, export sales of semiconductor memory chips constituted approximately 10.5% of the Republic’s total exports.

Iron and Steel.    In 2001, crude steel production totaled 43.9 million tons, an increase of 1.7% from 2000. Domestic sales increased by 0.6% and exports decreased by 11.9% due to the oversupply of steel products in the domestic and world markets. In 2002, crude steel production totaled 45.4 million tons, an increase of 3.5% from 2001. Domestic sales increased by 14.9% due to the recovery of the domestic economy and exports increased by 2.0%. In 2003, crude steel production totaled 46.3 million tons, an increase of 2.0% from 2002. Domestic sales increased by 3.8% and exports increased by 31.4%. In 2004, crude steel production totaled 47.5 million tons, an increase of 2.6% from 2003. Domestic sales increased by 3.6% and exports increased by 44.2% due to increased demand in China. Based on preliminary data, in 2005, crude steel production totaled 47.8 million tons, an increase of 0.5% from 2004. Domestic sales decreased by 1.0% due to slightly decreased domestic demand arising from a slow construction industry and exports increased by 24.9% due to continued strong demand in China.

Shipbuilding.    In 2001, the Republic’s shipbuilding orders amounted to 6.4 million gross tons, a decrease of 38.4% compared to 2000. In 2002, the Republic’s shipbuilding orders amounted to 7.6 million gross tons, an increase of 18.8% compared to 2001. In 2003, the Republic’s shipbuilding orders amounted to 16.7 million gross tons, an increase of 119.7% compared to 2002. In 2004, the Republic’s shipbuilding orders amounted to 16.3 million gross tons, a decrease of 2.4% compared to 2003, Based on preliminary data, in 2005, the Republic’s shipbuilding orders amounted to 12.0 million gross tons, a decrease of 26.4% compared to 2004.

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 2001, the production of rice, the largest agricultural product in Korea, increased to 5.5 million tons, a 4.2% increase compared to 2000. In 2002, rice production decreased 10.7% from 2001 to 4.9 million tons. In 2003, rice production decreased 9.7% from 2002 to 4.5 million tons. Based on preliminary data, in 2004, rice production increased 12.3% from 2003 to 5.0 million tons. Due to limited crop yields resulting from geographical and physical constraints, the Republic depends on imports for certain basic foodstuffs. The Republic’s self-sufficiency ratio further decreased from 58.0% in 1997 to 57.6% in 1998 and 54.2% in 1999. In 2000, the Republic’s self sufficiency ratio slightly

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increased to 55.6%. In 2001, 2002 and 2003, the Republic’s self sufficiency ratio was 56.8%, 58.3% and 53.3%, respectively. Based on preliminary data, in 2004, the Republic’s self sufficiency ratio was 50.3%.

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.

The contribution of the agriculture, forestry and fisheries subsector to GDP declined, at constant 2000 market prices, from 6.7% in 1994 to 4.9% in 2000 as a result of industrialization. In 2001, the agriculture, forestry and fisheries industry increased by 1.1% compared to 2000 due to increased production of rice, fruits and corns, as well as an increase in fishing catch. In 2002, the agriculture, forestry and fisheries industry, which decreased by 3.5% compared to 2001, was affected by unusually unfavorable weather conditions, including a severe typhoon during the month of September. In 2003, the agriculture, forestry and fisheries industry decreased by 5.3% compared to 2002 primarily due to unfavorable weather conditions. In 2004, the agriculture, forestry and fisheries industry increased by 9.2% compared to 2003 primarily due to increased production of rice, fruits and vegetables, as well as an increase in fishing catch. Based on preliminary data, in 2005, the agriculture, forestry and fisheries industry decreased by 0.1% compared to 2004 primarily due to slightly decreased production of rice, fruits and corns.

Construction

In 2001, the construction industry increased by 6.0% compared with 2000 due to the expansion of residential, commercial and educational construction and the steady increase of government investments in infrastructure. In 2002, the construction industry increased by 5.3% compared to 2001 due to the expansion of residential and commercial construction. In 2003, the construction industry increased by 7.9% compared to 2002, mainly driven by a surge in building construction, notably of commercial and residential buildings. In 2004, the construction industry increased by 1.8% compared to 2003 primarily due to a steady increase in residential and commercial construction. Based on preliminary data, in 2005, the construction industry increased by 0.1% compared to 2004 primarily due to a slight increase in residential and commercial construction.

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)
2001	198.4	193.1	97.3
2002	208.6	202.7	97.1
2003	215.1	208.5	96.9
2004	220.2	213.2	96.6
2005	229.3	221.1	96.4

Source: Korea Energy Economics Institute.

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Korea has 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.

Consumption of Energy by Source

	Coal		Petroleum		Nuclear		Others		Total
	Quantity	%	Quantity	%	Quantity	%	Quantity	%	Quantity	%
	(millions of tons of oil equivalents, except percentages)
2001	45.7	23.0	100.4	50.6	28.0	14.1	24.3	12.2	198.4	100.0
2002	49.1	23.5	102.4	49.1	29.8	14.3	27.3	13.2	208.6	100.0
2003	51.1	23.7	102.5	47.6	32.4	15.1	29.2	13.6	215.2	100.0
2004	53.1	24.0	100.8	45.7	32.7	14.8	34.2	15.5	220.8	100.0
2005	55.0	24.0	101.3	44.2	36.7	16.0	36.3	15.8	229.3	100.0

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 17,715 megawatts as of December 31, 2005.

Services Sector

In 2001, the transportation, storage and communications sector increased by 14.9% compared with 2000. In 2002, the transportation, storage and communications sector increased by 9.2% compared with 2001. In 2003, the transportation, storage and communications sector increased by 4.8% compared with 2002. In 2004, the transportation, storage and communications sector increased by 7.0%. Based on preliminary data, in 2005, the transportation, storage and communications sector increased by 4.1%. In 2001, the financing, insurance, real estate and business service subsector increased by 3.9% compared with 2000. In 2002, the financing, insurance, real estate and business service subsector increased by 8.3% compared with 2001. In 2003, the financing, insurance, real estate and business service subsector increased by 2.1% compared with 2002. In 2004, the financing, real estate and business service subsector increased by 1.4% compared to 2003. Based on preliminary data, in 2005, the financing, real estate and business service subsector increased by 3.0% compared to 2004.

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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)
	(2000=100)	(%)		(2000=100)	(%)	(2000=100)		(%)		(%)
2001	99.5	(0.5	)	104.1	4.1	105.6		5.1		4.0
2002	99.2	(0.3	)	106.9	2.7	116.8		11.2		3.3
2003	101.4	2.2		110.7	3.6	127.6		9.2		3.6
2004	107.6	6.1		114.7	3.6	135.2		6.0		3.7
2005	109.9	2.1		117.8	2.7	N/A	(4)	N/A	(4)	3.7

(1) Average for year.

(2) Nominal wage index of earnings in all industries.

(3) Expressed as a percentage of the economically active population.

(4) Not available.

Source: The Bank of Korea; Korea National Statistical Office.

The Government’s economic policy has helped keep inflation low. The inflation rate stood at 4.1% in 2001, 2.7% in 2002 and 3.6% in 2003. In 2004, the inflation rate was 3.6%. Based on preliminary data, in 2005, the inflation rate was 2.7%. Based on preliminary data, in the first quarter of 2006, the inflation rate was 2.3%.

The economic events in 1997 and 1998 led to an increase in unemployment from 2.6% in 1997 to 6.3% in 1999, but unemployment has since decreased to 4.4% in 2000, 4.0% in 2001 and 3.3% in 2002. In 2003, the unemployment rate was 3.6%. In 2004, the unemployment rate was 3.7%. Based on preliminary data, in 2005, the unemployment rate was 3.7%. Based on preliminary data, in the first quarter of 2006, the unemployment rate was 3.9%.

From 1992 to 2005, the economically active population of the Republic increased by 21.5% to 23.7 million, while the number of employees increased by 21.2% to 22.9 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 July 1, 2004, Korea 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 are expected to adopt the five-day workweek by July of 2007 and those with over 20 by July 2008.

Approximately 10.8% of the Republic’s workers were unionized as of December 31, 2003. In the early 2000s, the labor unions of several of the Republic’s largest commercial banks, including Kookmin Bank, Chohung Bank and 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

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staged strikes demanding a higher wage increase. 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, currently controls nine seats in the National Assembly.

The Financial System

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:

• securities institutions;

• 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.

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 Korea since 1967 but provide a relatively small proportion of the country’s banking services. As of December 31, 2005, commercial banks consisted of eight nationwide banks, all of which have branch networks throughout Korea, six regional banks and 62 branches of 40 foreign banks operated in the country. Nationwide and regional banks had, in the aggregate, 6,590 domestic branches and offices, 65 overseas branches, 21 overseas representative offices and 27 overseas subsidiaries as of December 31, 2005.

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;

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• The Export-Import Bank of Korea;

• The Industrial Bank of Korea;

• National Agricultural Cooperatives Federation (which merged with the National Livestock Cooperatives Federation in July 2000); and

• National Federation of Fisheries Cooperatives.

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 Supervisory 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, 2001	379.1	12.6	3.3
December 31, 2002	464.6	11.3	2.4
December 31, 2003	499.5	13.7	2.7
December 31, 2004	512.3	10.1	2.0
December 31, 2005	548.0	7.0	1.3

Source: Banking Statistics, February 2006; Financial Supervisory Service.

Most of the growth in total loans since the end of 2001 has been attributable to loans to the retail sector, accounting for 55.0% of total loans as of December 31, 2004, compared to 34.3% as of December 31, 1999.

A group of the Republic’s banks, including eight nationwide commercial banks, six regional commercial banks and five special banks, posted an aggregate net profit of (Won)1.7 trillion in 2003, compared to an aggregate net profit of (Won)5.0 trillion in 2002, primarily due to increased loan loss provisions for SK Networks and credit card companies. In 2004, these banks posted an aggregate net profit of (Won)8.8 trillion compared to an aggregate net profit of (Won)1.7 trillion in 2003, primarily due to decreased loan loss provisions and increased investment income. In 2005, these banks posted an aggregate net profit of (Won)13.6 trillion primarily due to decreased loan loss provisions and increased commissions and foreign exchange revenues.

Non-Bank Financial Institutions

Non-bank financial institutions include:

• investment institutions, including merchant banks, asset management companies and the Korea Securities Finance Corporation;

• 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.

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As of December 31, 2005, two merchant banks were operating in the country. As of December 31, 2005, the total assets of Korea’s merchant banks amounted to an aggregate of (Won)1,051.1 billion.

As of December 31, 2005, 46 asset management companies, which manage trust assets and/or assets held by investment companies under the Indirect Investment Asset Management Business Act, with assets totaling approximately (Won)202.8 trillion, were operating in Korea.

The Korean Bank Act permits banks to provide trust account management services under the Trust Business Act, as well as asset management services under the Indirect Investment Asset Management Business Act, effective January 5, 2004, with the approval of the Financial Supervisory Commission. In this regard, pursuant to an addendum to the Indirect Investment Asset Management Business Act, banks already engaged in trust account management services for money trust products (excluding products that are managed under specified investment policies) under the Trust Business Act are permitted to continue offering such services, provided they qualified as an asset management company under the Indirect Investment Asset Management Business Act before July 5, 2004. In addition, banks that failed to qualify as an asset management company before July 5, 2004, may apply for qualification pursuant to separate procedures under the Indirect Investment Asset Management Business Act. Banks segregate trust assets and cannot use them to satisfy claims of depositors or other creditors. Accordingly, trust accounts appear separately from banking accounts in the banks’ financial statements. As of December 31, 2005, assets of trust accounts of all banks providing trust account management services totaled (Won)109.8 trillion.

The country had 111 mutual savings banks as of December 31, 2005, with assets totaling (Won)41,662.3 billion.

As of December 31, 2005, 12 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)234.8 trillion as of December 31, 2005, were operating in the Republic.

As of December 31, 2005, six credit card companies operated in the country with loans totaling approximately (Won)33.8 trillion, of which 5.9% were classified as non-performing loans.

Money Markets

In Korea, 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

As of December 31, 2005, 39 domestic securities companies (including joint venture securities companies) and 15 branches of foreign securities companies operated in Korea.

The Korea Stock Exchange, a non-profit corporation wholly owned by its member firms began operations in 1956 as Korea’s only stock exchange. It had a single trading floor located in Seoul. The exchange imposed daily limits on share price movements to avoid excessive fluctuation. The Korea Composite Stock Price Index was comprised of all equities listed on the exchange. The exchange opened a stock index futures market in May 1996 and an options market in July 1997.

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In addition to the Korea Stock Exchange, Korea has two over-the-counter stock markets. The KOSDAQ Stock Market was established in July 1996, and the OTC Bulletin Board Market was launched in March 2000 for trading of shares not listed on either the Korea Stock Exchange or the KOSDAQ. Pursuant to the Korea Securities and Futures Exchange Act promulgated in January 2004, the Korea Stock Exchange, the KOSDAQ and the Korea Futures Exchange were merged into a single exchange known as the Korea Exchange in January 2005. Following this merger, the Korea Stock Exchange, the KOSDAQ and the Korea Futures Exchange were organized into the Stock Market Division of the Korea Exchange, the KOSDAQ Market Division of the Korea Exchange and the Futures Market Division of the Korea Exchange, respectively.

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The following table shows the value of the Korea Composite Stock Price Index as of the dates indicated:

December 26, 2000	504.6
December 28, 2001	693.7
December 30, 2002	627.6
January 30, 2003	591.9
February 28, 2003	575.4
March 31, 2003	535.7
April 30, 2003	599.4
May 30, 2003	633.4
June 30, 2003	669.9
July 31, 2003	713.5
August 29, 2003	759.5
September 30, 2003	697.5
October 31, 2003	782.4
November 28, 2003	796.2
December 30, 2003	810.7
January 30, 2004	848.5
February 27, 2004	883.4
March 31, 2004	880.5
April 30, 2004	862.8
May 31, 2004	803.8
June 30, 2004	785.8
July 31, 2004	735.3
August 31, 2004	803.6
September 30, 2004	835.1
October 29, 2004	834.8
November 30, 2004	878.1
December 30, 2004	895.9
January 31, 2005	932.7
February 28, 2005	1,011.4
March 31, 2005	965.7
April 30, 2005	911.3
May 31, 2005	970.2
June 30, 2005	1,008.2
July 29, 2005	1,111.3
August 31, 2005	1,083.3
September 30, 2005	1,221.0
October 31, 2005	1,158.1
November 30, 2005	1,297.4
December 29, 2005	1,379.4
January 31, 2006	1,381.8
February 28, 2006	1,371.6
March 31, 2006	1,359.6
April 28, 2006	1,419.7
May 30, 2006	1,317.7
June 30, 2006	1,295.2
July 31, 2006	1,297.8

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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 rose to 1,028.1 on December 28, 1999, but has since been volatile. The index was 1,289.5 on August 7, 2006.

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 Supervisory Commission. The Financial Supervisory Commission acts as the executive body over the Financial Supervisory Service. The Financial Supervisory Commission reports to, but operates independently of, the Prime Minister’s office.

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 regardless of the amount deposited.

The Government recently 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 increased the insurance premiums payable by insured financial institutions.

Monetary Policy

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.

The core inflation rate, which is the consumer price index adjusted to remove the non-cereal agriculture and petroleum components, 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 its overnight call rate target on a monthly basis. 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 July 10, 2003, the Bank of Korea cut its target for the benchmark call rate (uncollaterized overnight rate) to 3.75% from 4.00%, which was further lowered to 3.5% on August 12, 2004 and

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3.25% on November 11, 2004. On October 11, 2005, the Bank of Korea raised the benchmark call rate to 3.5%, which was further raised to 3.75% on December 8, 2005, to 4.0% on February 9, 2006 and to 4.25% on June 8, 2006 primarily due to the economy recovery and persistently high oil prices. As of the end of 2003, all deposit and lending rates had been deregulated with the exception of those on demand deposits. In February 2004, the Bank of Korea removed the 1% per annum deposit interest rate ceiling on demand deposits.

Money Supply

The following table shows the volume of the Republic’s money supply:

Money Supply

	December 31,
	2001		2002		2003		2004		2005
	(billions of won)
Money Supply (M1)(1)	246,720.5		283,580.8		298,952.9		320,399.5		359,116.5
Quasi-money(2)	518,258.8		588,494.8		599,116.5		624,709.5		648,151.9
Money Supply (M2)	764,979.3		872,075.6		898,069.4		945,109.0		1,007,268.4
Percentage Increase Over Previous Year	8.1	%	14.0	%	3.0	%	5.2	%	6.6	%

(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.

Source: The Bank of Korea.

Exchange Controls

Authorized foreign exchange banks, as approved by the Ministry of Finance and Economy, 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 the approval of, or a report to, either the Ministry of Finance and Economy, 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.

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In September 1998 the National Assembly passed the Foreign Exchange Transaction Act, which became effective in April 1999 and was subsequently amended in December 2000. 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 Finance and Economy 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 made 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. These reporting requirements are also scheduled to be largely eliminated as of January 1, 2009.

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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 29, 2000	1,259.7
December 31, 2001	1,326.1
December 31, 2002	1,200.4
January 30, 2003	1,170.5
February 28, 2003	1,186.8
March 31, 2003	1,252.9
April 30, 2003	1,213.1
May 31, 2003	1,205.3
June 30, 2003	1,193.1
July 31, 2003	1,180.0
August 30, 2003	1,178.5
September 30, 2003	1,150.2
October 31, 2003	1,177.3
November 29, 2003	1,203.6
December 31, 2003	1,197.8
January 31, 2004	1,173.7
February 27, 2004	1,176.2
March 31, 2004	1,146.6
April 30, 2004	1,167.7
May 31, 2004	1,165.7
June 30, 2004	1,152.5
July 31, 2004	1,171.3
August 31, 2004	1,153.8
September, 30, 2004	1,147.9
October 30, 2004	1,122.3
November 30, 2004	1,047.9
December 31, 2004	1,043.8
January 31, 2005	1,026.4
February 28, 2005	1,008.1
March 31, 2005	1,024.3
April 30, 2005	1,001.8
May 31, 2005	1,007.7
June 30, 2005	1,024.4
July 30, 2005	1,025.7
August 31, 2005	1,031.0
September 30, 2005	1,038.0
October 31, 2005	1,042.7
November 30, 2005	1,036.3
December 30, 2005	1,013.0
January 31, 2006	971.0
February 28, 2006	969.0
March 31, 2006	975.9
April 28, 2006	945.7
May 30, 2006	947.4
June 30, 2006	960.3
July 31, 2006	955.2

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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. The market average exchange rate was (Won)964.4 to US$1.00 on August 7, 2006.

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

	December 31,
Classification	2001		2002		2003		2004		2005(3)
	(millions of dollars)
Current Account	8,032.6		5,393.9		11,949.5		28,173.5		16,558.5
Goods	13,488.0		14,777.4		21,952.0		37,568.8		33,473.0
Exports(1)	151,478.3		163,414.0		197,289.2		257,710.1		288,995.6
Imports(1)	137,990.3		148,636.6		175,337.2		220,141.3		255,522.6
Services	(3,872.1	)	(8,197.5	)	(7,424.2	)	(8,046.1	)	(13,092.2	)
Income	(1,198.1	)	432.3		326.3		1,082.8		(1,320.1	)
Current Transfers	(385.2	)	(1,618.3	)	(2,904.6	)	(2,432.0	)	(2,502.2	)
Capital and Financial Account	(3,390.8	)	6,251.5		13,909.4		7,598.8		490.5
Financial Account(2)	(2,659.8	)	7,338.3		15,307.8		9,351.6		2,803.5
Capital Account	(731.0	)	(1,086.8	)	(1,398.4	)	(1,752.8	)	(2,313.0	)
Changes in Reserve Assets	(7,575.8	)	(11,799.4	)	(25,849.4	)	(38,710.5	)	(19,806.3	)
Net Errors and Omissions	2,934.0		154.0		(9.5	)	2,938.2		2,757.3

(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) Includes borrowings from the IMF, syndicated bank loans and short-term borrowings.

(3) Preliminary.

Source: Monthly Bulletin, March 2006; The Bank of Korea.

The figures for 2005 indicate a current account surplus of approximately US$16.6 billion. The current account surplus in 2005 decreased in comparison with the current account surplus in 2004, primarily due to an increase in deficit from the services account and a decrease in surplus from the goods account.

Based on preliminary data, the Republic recorded a current account deficit of US$1.1 billion in the first three months of 2006 compared with a current account surplus of US$5.9 billion in the same period of 2005, primarily due to a decrease in surplus from the goods account from US$9.1 billion to US$5.2 billion and an increase in deficit from the services account from US$3.0 billion to US$5.0 billion.

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.

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The following table summarizes the Republic’s trade balance for the periods indicated:

Trade Balance

	Exports(1)	Imports(1)	Balance of Trade	Exports as % of Imports
	(millions of dollars, except percentages)
2001	150,439.1	141,097.8	9,341.3	106.6
2002	162,470.5	152,126.2	10,344.4	106.8
2003	193,817.4	178,826.7	14,990.7	108.4
2004	253,844.7	224,462.7	29,382.0	113.1
2005(2)	284,418.7	261,238.3	23,180.4	108.9

(1) 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.

(2) Preliminary

Source: Principal Economic Indicators, March 2006; The Bank of Korea.

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.

The following tables give information regarding the Republic’s exports and imports by major commodity groups:

Exports by Major Commodity Groups (C.I.F.)⁽¹⁾

	2001	As % of Total	2002	As % of Total	2003	As % of Total	2004	As % of Total	2005(2)	As % of Total
	(millions of dollars, except percentages)
Foods & Consumer Goods	2,646.2	1.8	2,634.7	1.6	2,792.3	1.4	3,122.7	1.2	3.174.4	1.1
Raw Materials and Fuels	9,999.5	6.6	8,498.1	5.2	9,048.4	4.7	13,061.4	5.1	18,650.9	6.6
Light Industrial Products	26,316.2	17.5	25,479.5	15.7	27,306.4	14.1	29,625.7	11.7	26,346.4	9.3
Textile Material	12,572.0	8.4	11,950.8	7.4	11,291.8	5.9	10,975.5	4.3	9,709.9	3.4
Tires and Tubes	1,425.7	0.9	1,516.7	0.9	1,715.1	0.9	2,093.9	0.8	2,439.3	0.9
Heavy & Chemical Industrial Products	111,477.2	74.1	125,858.3	77.5	154,670.4	79.8	208,034.8	82.0	236,247.0	83.0
Chemical Manufacturing Products	10,826.7	7.2	11,845.3	7.3	14,781.6	7.6	20,540.7	8.1	24,753.1	8.7
Metal Goods	10,031.4	6.7	10,312.1	6.4	13,089.8	6.8	18,614.3	7.3	22,474.1	7.9
Machinery	11,640.4	7.7	12,824.6	7.9	16,007.6	8.3	22,605.4	8.9	32.033.1	11.3
Electronics	47,359.7	31.5	56,116.5	34.5	68,189.1	35.2	87,769.7	34.6	88,268.9	31.0
Passenger Cars	11,450.8	7.6	13,322.3	8.2	17,479.8	9.0	24,576.9	9.7	27,180.4	9.6
Ship	9,699.2	6.4	10,672.2	6.6	11,103.9	5.7	15,321.3	6.0	17,231.5	6.0
Total	150,439.1	100.0	162,470.5	100.0	193,817.4	100.0	253,844.7	100.0	284,418.7	100.0

(1) These entries are derived from customs clearance statistics. C.I.F. means that the price of goods include insurance and freight costs.

(2) Preliminary

Source: Monthly Bulletin, March 2006; The Bank of Korea.

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Imports by Major Commodity Groups (C.I.F.)⁽¹⁾

	2001	As % of Total	2002	As % of Total	2003	As % of Total	2004	As % of Total	2005(2)	As % of Total
	(millions of dollars, except percentages)
Foods & Consumer Goods	16,630.7	11.8	20,250.9	13.3	23,595.2	13.2	26,497.4	11.8	26,818.4	10.3
Grain	2,528.8	1.8	2,665.0	1.8	2,993.9	1.6	3,716.5	1.7	3,365.0	1.3
Direct Consumption Goods	4,786.5	3.4	5,707.7	3.8	6,161.0	3.4	6,326.3	2.8	7,154.5	2.7
Durable Goods	6,216.8	4.4	7,759.7	5.1	9,922.0	5.5	11,585.3	5.2	10,856.8	4.2
Nondurable Goods	3,091.2	2.2	4,112.3	2.7	4,574.5	2.6	4,867.6	2.2	5,440.4	2.1
Industrial Materials and Fuels	71,929.3	51.0	73,891.4	48.6	86,407.2	48.3	113,837.9	50.7	141,377.8	54.1
Crude Oil	21,367.8	15.1	19,200.3	12.6	23,081.6	12.9	29,917.2	13.3	42,605.8	16.3
Raw Material for Light Industry	4,408.8	3.1	5,320.4	3.5	5,363.8	3.0	7,762.2	3.5	8,596.8	3.3
Chemical Products	11,274.5	8.0	12,269.2	8.1	14,443.1	8.1	18,233.6	8.1	21,530.6	8.2
Steel Products	5,029.7	3.6	6,267.8	4.1	8,204.8	4.6	13,251.2	5.9	16,407.8	6.3
Capital Goods	52,537.8	37.2	57,983.8	38.1	68,824.3	38.5	84,127.4	37.5	93,042.1	35.6
Machinery	15,264.2	10.8	17,998.9	11.8	21,704.2	12.1	28,223.8	12.6	31,924.7	12.2
Electronic Products	33,839.2	24.0	35,996.6	23.7	42,528.5	23.8	49,996.9	22.3	54,483.1	20.9
Transport Equipment	2,648.4	1.9	3,082.5	2.0	3,379.6	1.9	4,498.1	2.0	5,195.3	2.0
Total	141,097.8	100.0	152,126.2	100.0	178,826.7	100.0	224,462.7	100.0	261,238.3	100.0

(1) These entries are derived from customs clearance statistics. C.I.F. means that the price of goods include insurance and freight costs.

(2) Preliminary

Source: Monthly Bulletin, March 2006; The Bank of Korea.

In 2001, the Republic recorded a trade surplus of US$9.3 billion. Exports decreased by 12.7% primarily due to weaker sales of computer products and imports decreased by 12.1% primarily due to decreased demand for raw materials and capital goods.

In 2002, the Republic recorded a trade surplus of US$10.3 billion. Exports increased by 8.0% primarily due to an increase in sales of semiconductors, automobiles and wireless telecommunication devices and an increase in trade volume with China and imports increased by 7.8% primarily due to an increase in purchases of raw materials and machinery.

The Republic recorded a trade surplus of US$15.0 billion in 2003. Exports increased by 19.3% and imports increased by 17.6% compared to 2002.

In 2004, the Republic recorded a trade surplus of US$29.4 billion. Exports increased by 31.0% to US$253.8 billion and imports increased by 25.5% to US$224.5 billion from US$193.8 billion of exports and US$178.8 billion of imports, respectively, in 2003.

Based on preliminary data, the Republic recorded a trade surplus of US$23.2 billion in 2005. Exports increased by 12.0% to US$284.4 billion and imports increased by 16.4% to US$261.2 billion from US$253.8 billion of exports and US$224.5 billion of imports, respectively, in 2004.

Based on preliminary data, the Republic recorded a trade surplus of US$1.9 billion in the first quarter of 2006. Exports increased by 10.7% to US$74.0 billion and imports increased by 18.9% to US$72.1 billion from US$66.8 billion of exports and US$60.6 billion of imports, respectively, in the first quarter of 2005.

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The Republic’s largest trading partners, the United States, Japan and China accounted for the following percentages of the country’s imports and exports:

	2001		2002		2003		2004		2005
	Exports	Imports	Exports	Imports	Exports	Imports	Exports	Imports	Exports	Imports
	(percentages of total imports or exports)
United States	20.7	15.8	20.2	15.1	17.7	13.9	16.9	12.8	14.5	11.7
Japan	11.0	18.9	9.3	19.6	8.9	20.3	8.5	20.6	8.4	18.5
China(1)	18.4	10.3	20.9	12.6	25.7	13.8	26.7	14.7	27.2	15.6

(1) Includes Hong Kong.

Source: Ministry of Commerce, Industry and Energy.

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 of economic prospects for affected countries in particular, as well as world economic prospects in general. The avian influenza carried by migrating wild birds has recently spread to several Asian countries, Russia, Romania and Turkey. In response to these recent outbreaks of avian influenza, the Government issued an advisory on disease prevention as of October 14, 2005 and plans to conduct special monitoring of poultry farms. In addition, the Government will continue 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.

Non-Commodities Trade Balance

In 2001, the Republic recorded a non-commodities trade deficit in its current account of approximately US$5.1 billion. The non-commodities trade deficit increased to US$7.8 billion in 2002 but decreased to US$7.1 billion in 2003 and US$7.0 billion in 2004. Based on preliminary data, in 2005, the non-commodities trade deficit increased to US$14.4 billion.

Foreign Currency Reserves

The following table shows the Republic’s total official foreign currency reserves:

Total Official Reserves

	December 31,
	2001		2002		2003		2004		2005
	(millions of dollars)
Gold(1)	$	68.3	$	69.2	$	70.9	$	72.3	$	73.6
Foreign Exchange		102,487.5		120,811.4		154,508.8		198,175.3		209,967.7
Total Gold and Foreign Exchange		102,555.8		120,880.6		154,579.7		198,247.6		210,041.6
Reserve Position at IMF		262.2		520.2		751.6		785.4		305.8
Special Drawing Rights		3.3		11.8		21.0		32.7		43.3
Total Official Reserves	$	102,821.4	$	121,412.5	$	155,352.3	$	199,066.1	$	210,390.7

(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.

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The Government’s foreign currency reserves increased to US$224.7 billion as of May 31, 2006 from US$8.9 billion as of December 31, 1997, primarily due to continued balance of trade surpluses and capital inflows.

Government Finance

The Ministry of Planning and Budget prepares the Government budget, and the Ministry of Finance and Economy administers the Government’s finances.

The Government’s fiscal year commences on January 1. The Ministry of Planning and Budget must submit the budget 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.

The following table shows consolidated Government revenues and expenditures:

Consolidated Central Government Revenues and Expenditures

	2001	2002	2003		2004	2005(1)
	(billions of won)
Total Revenues	144,033	158,712	171,945		178,784	191,488
Current Revenues	142,709	157,226	170,486		177,453	190,206
Total Tax Revenues	95,793	103,967	114,664		117,796	152,347
Income Profits and Capital Gains	35,638	38,404	46,420		48,112	54,456
Tax on Property	2,920	2,894	2,921		2,996	4,683
Tax on Goods and Services	43,818	48,047	50,906		51,800	53,401
Customs Duties	5,923	6,601	6,847		6,796	6,318
Others	7,494	8,021	7,570		8,090	10,244
Social Security Contribution	17,538	19,723	20,703		22,848	24,882
Non-Tax Revenues	29,378	33,536	35,119		34,629	36,224
Capital Revenues	1,324	1,486	1,459		1,331	1,281
Total Expenditures and Net Lending	136,765	136,046	164,303		173,189	186,398
Total Expenditures	126,688	135,610	166,812		171,800	183,370
Current Expenditures	101,744	106,255	136,212		144,805	158,721
Goods and Services	26,223	28,629	29,827		33,910	36,166
Interest Payments	7,198	6,846	6,598		8,312	10,094
Subsidies and Other Transfers(2)	66,540	68,929	96,498		98,801	109,894
Subsidies	534	768	424		748	779
Other Transfers(2)	66,006	68,161	96,074		98,053	109,115
Non-Financial Public Enterprises Expenditures	1,783	1,851	3,289		3,031	2,566
Capital Expenditures	24,944	29,355	30,600		26,997	24,649
Net Lending	10,077	436	(2,509	)	1,389	3,028

(1) Preliminary.

(2) Includes transfers to local governments, non-profit institutions, households and abroad.

Source: Ministry of Finance and Economy; Korea National Statistical Office.

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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. 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 2000, revenues increased by approximately 25.8%, which represented 23.4% of the Republic’s GDP principally due to higher tax and non-tax revenues. Tax revenues increased significantly while expenditures increased slightly due to the country’s economic recovery. Principal factors for the tax revenue increase included:

• increase of corporate tax revenues due to increase of corporate profits;

• expansion of the tax base;

• increase of securities trading tax due to increase of trading volume; and

• increase of customs duties due to increase of imports.

The Republic had a fiscal surplus of 1.1% in 2000.

For 2001, revenues increased by approximately 6.1%, which represented 23.9% of the Republic’s GDP principally due to higher tax and non-tax revenues. Tax revenues increased due to the country’s economic growth and the accompanying increase in the overall compensation of workers in Korea. Non-tax revenues increased due to the sale by the Government of the shares it owns in Korean companies such as KT Corporation (formerly known as Korea Telecom Corp.) and Korea Tobacco & Ginseng Corporation as part of the Government’s privatization plans. The Republic had a fiscal surplus of 1.2% in 2001.

For 2002, revenues increased by approximately 10.2%, which represented 24.6% of the Republic’s GDP principally due to higher tax and non-tax revenues. Tax revenues increased due to the country’s economic growth and the accompanying increase in the overall compensation of workers in Korea. Non-tax revenues increased due to an increase in surplus amounts transferred from The Bank of Korea. The Republic had a fiscal surplus of 3.5% in 2002.

For 2003, revenues increased by approximately 8.2%, which represented 25.9% 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 1.1% in 2003.

For 2004, revenues increased by approximately 4.0%, which represented 25.8% 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 W5.6 trillion in 2004.

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Based on preliminary data, for 2005, revenues increased by approximately 7.1%, which represented 26.5% 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 W5.1 trillion in 2005.

Debt

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, 2004:

Direct External Debt of the Government

	Amount in Original Currency		Equivalent Amount in U.S. Dollars(1)
	(millions)
US$	US$	12,761.9	US$	9,877.8
German Mark (DM)	DM	34.1		28.9
Japanese Yen (¥)	¥	40,012.5		494.4
Total			US$	13,173.6

(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, 2004.

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)
2000	75,847.6
2001	87,327.5
2002	103,341.3
2003	141,395.2
2004	183,201.5

The following table sets out all guarantees by the Government of indebtedness of others:

	December 31,
	2002	2003	2004
	(billions of won)
Domestic	100,753.7	79,131.7	65,350.5
External(1)	1,717.7	1,458.5	699.3
Total	102,471.4	80,590.2	66,049.8

(1) Converted to Won at foreign exchange banks’ telegraphed transfer selling rates to customers 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.”

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External Debt

The following tables set out certain information regarding the Republic’s external debt calculated under the criteria published in a compilation by nine international organizations including the IMF and the World Bank in 2003. Prior to June 2003, the Republic had calculated its total external debt using criteria agreed with the IMF during the financial crisis at the end of 1997. Starting from June 2003, in particular, the Republic’s total external debt calculation under the new criteria excludes offshore borrowings by overseas branches and subsidiaries of Korean banks but includes Won-denominated liabilities such as bank deposits by nonresidents and also includes international finance lease liabilities.

	December 31,
	2000	2001	2002	2003	2004
	(billions of dollars)
Foreign Currencies	144.0	125.7	136.4	152.9	166.6
Korean Won	4.5	4.7	6.6	8.7	11.0
Total External Liabilities	148.5	130.4	143.0	161.6	177.6
Long-term Debt	99.1	88.4	93.3	106.8	117.6
General Government	19.2	18.3	17.6	11.6	10.4
Monetary Authorities	10.2	3.0	2.9	3.2	4.0
Banks	24.1	21.1	20.3	26.9	30.0
Other Sectors	45.6	46.0	52.5	65.1	73.2
Short-term Debt	49.4	42.0	49.7	54.8	60.0
Monetary Authorities	1.1	1.9	2.0	2.1	2.0
Banks	37.7	31.9	39.7	44.8	48.5
Other Sectors	10.6	8.2	8.0	7.9	9.5
Total External Liabilities	148.5	130.4	143.0	161.6	177.6

Source: Ministry of Finance and Economy.

Under the old criteria, the total external liabilities of the Republic were as follows as of the dates indicated:

	December 31,
	1997	1998	1999	2000	2001	2002
	(billions of dollars)
External Liabilities	159.2	148.7	137.1	131.7	118.8	131.0

Source: The Bank of Korea.

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.

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Tables and Supplementary Information

A.    External Debt of the Government

Currency of Borrowings	Range of Interest Rates	Range of Years of Issue	Range of Years of Original Maturity	Principal Amounts Outstanding as of December 31, 2004
	(%)			(millions of units)
US$	0.75-6.25/Floating	1960-2003	1982-2023	US$	12,761.9
Japanese Yen (¥)	3.25-5	1980-1990	2004-2015	¥	40,012.5
German Mark (DM)	2-4.5	1973-1985	2003-2021		DM34.1
Total External Funded Debt(1)				US$	13,173.6

(1) Amounts expressed in currencies other than US$ are converted to US$ at the arbitrage rate between foreign currencies announced by the Seoul Money Brokerage Services, Ltd. in effect on December 31, 2004.

B.    External Guaranteed Debt of the Government

Name	Interest Rates	Years of Issue	Years of Maturity	Principal Amounts Outstanding as of December 31, 2004
	(%)			(millions of dollars)
1.    Bonds
Total Bonds				None
2.    Borrowings
The Korea Development Bank	Floating	1999	2008	80.2
Industrial Bank of Korea	Floating	1999	2008	583.3
Total Borrowings(1)				663.5
Total External Guaranteed Debt(1)				663.5

(1) Amounts expressed in currencies other than US$ are converted to US$ at the arbitrage rate between foreign currencies announced by the Seoul Money Brokerage Services, Ltd. in effect on December 31, 2004.

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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, 2004
	(%)			(billions of won)
1.    Bonds
Foreign Exchange Stabilization Bonds	4.50-9.75	1999-2003	2004-2008	22,199.9
Interest-Bearing Treasury Bond for Treasury Bond Management Fund	4.40-11.26	1995-2004	2005-2014	123,061.3
Interest-Bearing Treasury Bond for National Housing I	5.0	1993-2004	1998-2009	29,317.5
Interest-Bearing Treasury Bond for National Housing II	3.0	1983-1999	2003-2019	3,071.6
Non-interest-Bearing Treasury Bond for Contribution(1)	—	1967-1985	—	11.3
Total Bonds				177,661.6
2.    Borrowings
Borrowings from The Bank of Korea				830.0
Borrowings from the Sports Promotion Fund				50.0
Borrowings from the Civil Servant Pension Fund				650.0
Borrowings from the Export Insurance Fund				510.0
Authorized Government Debt beyond Budget Limit				2500.0
Sub-Total				4,540.0
Total Internal Funded Debt				182,201.5

(1) Interest Rates and Years of Maturity not applicable.

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D.    Internal Guaranteed Debt of the Government

Name	Range of Interest Rates		Range of Years of Issue	Range of Years of Original Maturity	Principal Amounts Outstanding as of December 31, 2004
	(%)				(billions of won)
1.    Bonds of Government-Affiliated Corporations
The Korea Development Bank	Floating		1992-1994	2002-2004	0.8
Korea Container Terminal Authority	6.0	%	1993-1996	2002-2006	30.0
Korea Asset Management Corporation	4.26-5.05 /Floating	%	1997-2003	2002-2008	4,000.0
Korea Deposit Insurance Corporation	5.0-10.4		1998-2004	2003-2009	61,114.6	(1)
Total Bonds					65,145.3
2.    Borrowings of Government-Affiliated Corporations
Rural Development Corporation and Federation of Farmland	5.5	%	1967	2000-2024	205.1
Total Borrowings					205.1

(1) Over four years beginning in 2003, (Won)49 trillion of such debt will be converted into direct debt of the government.

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DESCRIPTION OF THE SECURITIES

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 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; and

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• 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 Korea 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.

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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.

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,

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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.

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 Long-Term External Indebtedness or guarantees issued by us, unless the security interest also secures our obligations under the debt securities. “Long-Term 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 and which has a final maturity of one year or more from its date of issuance.

We may, however, create or permit a security interest:

• in favor of the Government or The Bank of Korea or any other agency or instrumentality of or controlled by the Government;

• arising from, or any deposit or other arrangement made or entered into in connection with, the sale, assignment or other disposition or the discounting of any of our notes or receivables, or any other transaction in the ordinary course of our business; 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.

Events of Default

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

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• 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, except in any such case where such External Indebtedness or guarantee is being contested in good faith by appropriate proceedings.

4. Moratorium/Default:

• we declare a general moratorium on the payment of our External Indebtedness, including obligations under guarantees;

• 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.

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. Failure of Support:    the Republic fails to provide financial support for us as required under Article 37 of the KEXIM Act as of the date of the debt securities of such series.

7. Control of Assets:    the Republic ceases to control us (directly or indirectly).

8. IMF Membership/World Bank Membership:    the Republic ceases to be a member of the IMF or the International Bank for Reconstruction and Development (World Bank).

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.

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.

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.

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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.

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.

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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.

Description of Warrants

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.

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 the Securities—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;

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• 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

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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 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 has informed us that there is doubt 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 Chief Representative of our New York Representative Office, Mr. Joo-shik Kong, and the Senior Deputy General Representative of our New York Representative Office, Mr. Kyu-yeol Cho, 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 Representative Office is located at 460 Park Avenue, 8^th 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.

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

The Minister of Finance and Economy of Korea must receive a notification with respect to the issuance by us of debt securities before we may issue debt securities outside the Republic. After issuance of debt securities outside the Republic, we are required to notify the Minister of Finance and Economy of such issuance. No further approval or authorization is required for us to pay principal of or interest on the debt securities.

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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 of 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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TAXATION

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 now in effect, which may change. Any 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.

Korean Taxation

The following summary of Korean tax consideration applies to you so long as you are not:

• a resident of Korea;

• a corporation organized under Korean law; or

• engaging in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected.

Tax on Interest Payments

Under the Special Tax Treatment Control Law (the “STTCL”), when we make payments of interest to you on the debt securities, 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; provided that the debt securities are deemed to be foreign currency denominated bonds for the purpose of the STTCL.

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 a debt security, provided that the disposition does not involve a transfer of the debt security to a resident of Korea (or the Korean permanent establishment of a non-resident). In addition, the STTCL exempts you from Korean taxation on any capital gains that you earn from the transfer of the debt securities outside of Korea; provided that the offering of the debt securities is deemed to be an overseas issuance for the purpose of the STTCL. If you sell or otherwise dispose of debt securities to a Korean resident or such disposition or sale is made within Korea, any gain realized on the transaction will be taxable at ordinary Korean withholding tax rates at the lower of 27.5% of net gain (subject to the production of satisfactory evidence of the acquisition costs and certain direct transaction costs) 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 a debt security, regardless of whether the disposition is to a Korean resident. For more information regarding tax treaties, please refer to the heading “Tax Treaties” below.

With respect to computing the above-mentioned 27.5% withholding taxes on net gain, please note that there is no provision under relevant Korean law for offsetting gains and losses or otherwise

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aggregating transactions for the purpose of computing the net gain attributable to sales of the debt securities. The purchaser of the debt securities or, in the case of the sale of the debt securities through a securities company in Korea, the securities company through which such sale is effected, is required under Korean law to withhold the applicable amount of Korean tax and make payment thereof to the relevant Korean tax authority. Unless you, as the seller, can claim the benefit of an exemption or a reduced rate of tax under an applicable tax treaty or in the absence of producing satisfactory evidence of your acquisition cost and certain direct transaction cost in relation to the debt securities being sold, the purchaser or the securities company, as applicable, must withhold an amount equal to 11% of the gross sale proceeds. Any withheld tax must be paid no later than the tenth day of the month following the month in which the payment for the purchase of the relevant debt securities occurred. Failure to timely transmit the withheld tax to the Korean tax authorities technically subjects the purchaser or the securities company to penalties under Korean tax laws.

Inheritance Tax and Gift Tax

If you die while domiciled in Korea, Korean inheritance tax will be imposed upon the transfer by succession of any of the debt securities, wherever located, that you own at the time of death. Furthermore, regardless of where you are domiciled when you die, Korean inheritance tax will be imposed upon the transfer by succession of any of the debt securities you own that are located in Korea at the time of death. Similarly, if you give the debt securities as a gift to any other person, the donee will be subject to Korean gift tax, based on where you are domiciled or where the debt securities are located at the time that you make the gift. The amount, if any, of the applicable inheritance or gift tax imposed in specific cases depends on the value of the debt securities (or other property) and the identities of the parties involved.

Under Korean inheritance and gift tax laws, debt securities issued by Korean corporations are deemed to be located in Korea irrespective of where they are physically located or by whom they are owned.

Stamp Duty

You will not be subject to any Korean 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

Any payments by us under our guarantee on the debt securities issued by a third-party Korean issuer, except payments made in respect of the principal amount of such guaranteed debt securities (or the issue price if the debt securities were originally issued at a discount), may be subject to withholding tax at the rate of 27.5% (including resident surtax) or such lower rate as may be available under an applicable tax treaty, if any, between Korea and the country of incorporation or residence of the non-resident holder of the debt securities who receives our guarantee payments, unless otherwise exempt under such applicable tax treaty or Korean tax law. Further details of the tax consequences of the holders of 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, China, Czech Republic, Denmark, Egypt, Finland,

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France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Luxembourg, Malaysia, Mexico, Mongolia, the Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Republic of Fiji, Romania, 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 15%, and the tax on capital gains is often eliminated.

With respect to any gains subject to Korean withholding tax, as described under the heading “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 through which the transfer of the debt securities is effected, 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 normal rates.

In addition, subject to certain exceptions, in order to receive the benefit of a tax exemption available under any applicable tax treaty, you may also be required to submit to the payer of such Korean source income an application for tax exemption under a tax treaty, together with a certificate as to your country of residence. The payer of such Korean source income, in turn, will be required to submit such exemption application to the relevant district tax office in Korea by the ninth day of the month following the date of the first payment of such income.

At present, Korea has not entered into any tax treaties regarding inheritance or gift tax.

United States Tax Considerations

Any U.S. federal tax advice included in this communication was not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal tax penalties.

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;

• 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.

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If you are not a U.S. holder, consult the discussions under the captions “Non-U.S. Persons” and “Information Reporting and Backup Withholding” below; the remainder of this summary does not discuss the treatment of persons that are not U.S. holders.

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.

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 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

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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 debt security in respect of foreign-currency-denominated 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 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. The Code provides preferential treatment under certain circumstances for net long-term capital gains recognized by individual investors. Net long-term capital gain recognized by an individual U.S. holder generally will be subject to a maximum tax rate of 15% for debt securities held for more than one year. The ability of U.S. holders to offset capital losses against ordinary income is limited.

Despite the foregoing, 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

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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.

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. 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

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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 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 the caption “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.

Certain of the Original Issue Discount 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 pricing 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 pricing

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supplement and consult your tax adviser about their treatment since the tax consequences of 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 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 pricing 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

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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. 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).

Warrants

A description of the tax consequences of an investment in warrants will be provided in the applicable pricing supplement.

Indexed Notes and Other Notes Providing for Contingent Payments

Special rules govern the tax treatment of debt obligations that provide for contingent payments (“contingent debt obligations”). These rules generally require accrual of interest income on a constant

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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 pricing supplement.

Non-U.S. Persons

The following summary applies to you if you are not a United States person for U.S. federal income tax purposes.

If you are not a United States person, the interest income and gains that you derive in respect of the debt securities generally will be exempt from United States federal income taxes, including withholding tax. However, to receive this exemption you may be required to satisfy certain certification requirements of the United States Internal Revenue Service to establish that you are not a United States person. See “Information Reporting and Backup Withholding” below.

Even if you are not a United States person, you may still be subject to United States federal income taxes on any interest income you derive in respect of the debt securities if:

• you are an insurance company carrying on a United States insurance business, within the meaning of the Code; or

• you have an office or other fixed place of business in the United States that receives the interest and you earn the interest in the course of operating (i) a banking, financing or similar business in the United States or (ii) a corporation the principal business of which is trading in stock or securities for its own account, and certain other conditions exist.

If you are not a United States person, any gain you realize on a sale or exchange of debt securities generally will be exempt from United States federal income tax, including withholding tax, unless:

• your gain is effectively connected with your conduct of a trade or business in the United States; or

• you are an individual holder and are present in the United States for 183 days or more in the taxable year of the sale, and either (i) your gain is attributable to an office or other fixed place of business that you maintain in the United States or (ii) you have a tax home in the United States.

A debt security held by an individual holder who at the time of death is a non-resident alien will not be subject to United States federal estate tax.

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.

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PLAN OF DISTRIBUTION

We may sell or issue the debt securities or warrants 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 or warrants 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 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 sell any securities through agents, the prospectus supplement will identify the agent and indicate any commissions payable by us. 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 may authorize agents, underwriters or dealers to solicit offers by certain specified entities to purchase the securities from us 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.

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 in the ordinary course of business.

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LEGAL MATTERS

The validity of any particular series of debt securities or warrants issued with debt securities 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-shik Kong, Chief Representative of our New York Representative Office, or Mr. Kyu-yeol Cho, Senior Deputy Representative of our New York Representative Office. The address of our New York Representative Office is 460 Park Avenue, 8^th Floor, New York, New York 10022. The authorized representative of the Republic in the United States is Mr. In-kang Cho, Financial Attache, Korean Consulate General in New York, located at 335 East 45th Street, New York, New York 10017.

OFFICIAL STATEMENTS AND DOCUMENTS

Our Chairman and President, in his official capacity, has supplied the information set forth under “The Export-Import Bank of Korea” (except for the information set out under “The Export-Import Bank of Korea—Business—Government Support and Supervision”). Such information is stated on his authority.

The Minister of Finance and Economy of The Republic of Korea, in his official capacity, has supplied the information set out under “The Export-Import Bank of Korea—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.

EXPERTS

Our financial statements as of and for the year ended December 31, 2005 included in this prospectus have been so included in reliance on the report of Deloitte Anjin LLC (member of Deloitte Touche Tohmatsu), independent accountants, given on the authority of said firm as experts in auditing and accounting.

Our financial statements as of and for the year ended December 31, 2004 included in this prospectus have been so included in reliance on the report of Samil PricewaterhouseCoopers, independent accountants, given on the authority of said firm as experts in auditing and accounting.

FORWARD-LOOKING STATEMENTS

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

143

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:

• financial problems relating to chaebols (Korean conglomerates), or their suppliers, and their potential adverse impact on the Korean economy, including as a result of recent investigations relating to unlawful political contributions by chaebols;

• failure or lack of progress in restructuring of chaebols, the financial industry and other large troubled companies, including credit card companies;

• loss of investor confidence arising from corporate accounting irregularities and corporate governance issues at certain chaebols;

• a slowdown in consumer spending or the overall economy;

• adverse changes or volatility in foreign currency reserve levels, commodity prices (including an increase in oil prices), exchange rates, interest rates or stock markets;

• deterioration of economic or market conditions in other emerging markets;

• 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 that could result in a loss of confidence in the Korean economy;

• the continued emergence of China, 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 Korean government’s expenditures for unemployment compensation and other social programs that, together, would lead to an increased government budget deficit;

• geo-political uncertainly and risk of further attacks by terrorist groups around the world;

• the recurrence of SARS or avian influenza in Asia and other parts of the world;

• political uncertainly or increasing strife among or within political parties in the Republic;

• deterioration in economic or diplomatic relations between the Republic and its trading partners or allies, including such deterioration resulting from trade disputes or disagreements in foreign policy;

• hostilities involving oil producing countries in the Middle East and any material disruption in the supply of oil or increase in the price of oil resulting from those hostilities; and

• an increase in the level of tensions or an outbreak of hostilities between North Korea and the Republic and/or the United States.

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FURTHER INFORMATION

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 Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549.

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PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 11. Estimated Expenses.*

It is estimated that our expenses in connection with the sale of the debt securities, warrants and guarantees hereunder, exclusive of compensation payable to underwriters and agents, will be as follows:

SEC Registration Fee	US$	885,000
Printing Costs		200,000
Legal Fees and Expenses		450,000
Fiscal Agent Fees and Expenses		50,000
Blue Sky Fees and Expenses		50,000
Rating Agencies’ Fees		350,000
Miscellaneous (including amounts to be paid to underwriters in lieu of reimbursement of certain expenses)		400,000
Total	US$	2,385,000

* Based on three underwritten offerings of the debt securities.

UNDERTAKINGS

The Registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereto) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement; and

(iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement;

(b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and

(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(d) That, for purposes of determining liability under the Securities Act of 1933 to any purchaser:

each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no

II-1

statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(e) That, for the purpose of determining any liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser;

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

II-2

CONTENTS

This Registration Statement is comprised of:

(1) Facing Sheet.

(2) Explanatory Note.

(3) Part I, consisting of the Prospectus.

(4) Part II, consisting of pages II-1 to II-9.

(5) The following Exhibits:

A-1	—	Form of Underwriting Agreement Standard Terms, incorporated herein by reference to Exhibit A-1 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
B-1	—	Form of Fiscal Agency Agreement, including forms of Debt Securities, incorporated herein by reference to Exhibit B-1 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
B-2	—	Form of global Debt Security that bears interest at a fixed rate, incorporated herein by reference to Exhibit B-2 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
B-3	—	Letter of successor Fiscal Agent, incorporated herein by reference to Exhibit B-3 to the Registration Statement of The Export-Import Bank of Korea (No. 333-5954).
B-4	—	Letter of 2nd successor Fiscal Agent, incorporated herein by reference to Exhibit B-4 to the Registration Statement of The Export-Import Bank of Korea (No. 333-9564).
C	—	Form of Warrant Agreement, including form of Warrants.*
D-1	—	Consent of the Chairman and President of The Export-Import Bank of Korea (included on page II-5).
D-2	—	Power of Attorney of the Chairman and President of The Export-Import Bank of Korea.
E-1	—	Consent of the Minister of Finance and Economy of The Republic of Korea (included on Page II-6).
E-2	—	Power of Attorney of the Minister of Finance and Economy of The Republic of Korea, incorporated herein by reference to Exhibit E-2 to the Registration Statement of The Export-Import Bank of Korea (No. 333-9564)
F-1	—	Consent of Deloitte Anjin LLC (member of Deloitte Touche Tohmatsu).
F-2	—	Consent of Samil PricewaterhouseCoopers.
G-1	—	Letter appointing certain persons as authorized agents of The Export-Import Bank of Korea in the United States.
G-2	—	Letter appointing Authorized Agents of The Republic of Korea in the United States (included in Exhibit E-2).
H	—	The Export-Import Bank of Korea Act.

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I	—	The Enforcement Decree of The Export-Import Bank of Korea Act.
J	—	The Articles of Incorporation of The Export-Import Bank of Korea, incorporated herein by reference to Exhibit J to the Registration Statement of The Export-Import Bank of Korea.
K	—	Form of Prospectus Supplement relating to The Export-Import Bank of Korea’s Medium-Term Notes, Series A, Due Not Less Than Nine Months From Date of Issue (the “MTNs”), incorporated herein by reference to Exhibit K to the Registration Statement of The Export-Import Bank of Korea (No.33-41654).
L	—	Form of Distribution Agreement between The Export-Import Bank of Korea and the Agents named therein relating to the offer an sale from time to time of the MTNs, incorporated herein by reference to Exhibit L to the Registration Statement of The Export-Import Bank of Korea (No.33-41654).
M-1	—	Opinion (including consent) of Cleary Gottlieb Steen & Hamilton LLP, 39th Floor, Bank of China Tower, One Garden Road, Hong Kong, United States counsel to the Bank, in respect of the legality the Debt Securities (with or without Warrants).
M-2	—	Opinion (including consent) of Shin & Kim, Ace Tower, 4th Floor, 1-1/0 Soonhwa-dong, Chung-ku, Seoul 100-712, The Republic of Korea, Korean counsel to the Bank, in respect of the legality the Debt Securities (with or without Warrants).
N-1	—	Form of the MTNs that bears interest at a fixed rate, incorporated herein by reference to Exhibit N-1 to the Registration Statement of The Export-Import Bank of Korea (No.33-41654).
N-2	—	Form of the MTNs that bears interest at a floating rate, incorporated herein by reference to Exhibit N-2 to the Registration Statement of The Export-Import Bank of Korea (No.33-41654).
O	—	Form of Calculation Agency Agreement between The Export-Import Bank of Korea and the calculation agent named therein relating to the MTNs that bear interest at a floating rate, incorporated herein by reference to Exhibit O to the Registration Statement of The Export-Import Bank of Korea (No.33-41654).

* May be filed by amendment.

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SIGNATURE OF THE EXPORT-IMPORT BANK OF KOREA

Pursuant to the requirements of the Securities Act of 1933, as amended, The Export-Import Bank of Korea has duly caused this Registration Statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in The City of New York, New York, on the 8th day of August, 2006.

THE EXPORT-IMPORT BANK OF KOREA
By:	Dong-Kyu Shin*†
	Chairman and President
†By:	/s/ Seoung-chull Kim
	Seoung-chull Kim (Attorney-in-fact)

* Consent is hereby given to use of his name in connection with the information specified in this Registration Statement or amendment thereto to have been supplied by him and stated on his authority.

II-5

SIGNATURE OF THE REPUBLIC OF KOREA

Pursuant to the requirements of the Securities Act of 1933, as amended, The Republic of Korea has duly caused this Registration Statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in The City of New York, New York, on the 8th day of August, 2006.

THE REPUBLIC OF KOREA
By:	O-Kyu Kwon*†
	Minister of Finance and Economy
†By:	/s/ In-kang Cho
	In-kang Cho (Attorney-in-fact)

* Consent is hereby given to use of his name in connection with the information specified in this Registration Statement or amendment thereto to have been supplied by him and stated on his authority.

II-6

SIGNATURE OF AUTHORIZED REPRESENTATIVE

OF THE EXPORT-IMPORT BANK OF KOREA

Pursuant to the Securities Act of 1933, as amended, the undersigned, a duly authorized representative in the United States of The Export-Import Bank of Korea, has signed this Registration Statement or amendment thereto in The City of New York, New York, on the 8th day of August, 2006.

†By:	/s/ Joo-shik Kong
	Joo-shik Kong New York Representative Office The Export-Import Bank of Korea

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SIGNATURE OF AUTHORIZED REPRESENTATIVE

OF THE EXPORT-IMPORT BANK OF KOREA

Pursuant to the Securities Act of 1933, as amended, the undersigned, a duly authorized representative in the United States of The Export-Import Bank of Korea, has signed this Registration Statement or amendment thereto in The City of New York, New York, on the 8th day of August, 2006.

†By:	/s/ Kyu-yeol Cho
	Kyu-yeol Cho New York Representative Office The Export-Import Bank of Korea

II-8

SIGNATURE OF AUTHORIZED REPRESENTATIVE

OF THE REPUBLIC OF KOREA

Pursuant to the Securities Act of 1933, as amended, the undersigned, a duly authorized representative in the United States of The Republic of Korea, has signed this Registration Statement or amendment thereto in The City of New York, New York, on the 8th day of August, 2006.

†By:	/s/ In-kang Cho
	In-kang Cho Financial Attaché Korean Consulate General in New York

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EXHIBIT INDEX

Exhibit			Page
A-1	-	Form of Underwriting Agreement Standard Terms, incorporated herein by reference to Exhibit A-1 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
B-1	-	Form of Fiscal Agency Agreement, including forms of Debt Securities, incorporated herein by reference to Exhibit B-1 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
B-2	-	Form of global Debt Security that bears interest at a fixed rate, incorporated herein by reference to Exhibit B-2 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
B-3	-	Letter of successor Fiscal Agent, incorporated herein by reference to Exhibit B-3 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
B-4	-	Letter of 2nd successor Fiscal Agent, incorporated herein by reference to Exhibit B-4 to the Registration Statement of The Export-Import Bank of Korea (No. 333-9564).
C	-	Form of Warrant Agreement, including form of Warrants.*
D-1	-	Consent of the Chairman and President of The Export-Import Bank of Korea (included on page II-5).
D-2	-	Power of Attorney of the Chairman and President of The Export-Import Bank of Korea.
E-1	-	Consent of the Minister of Finance and Economy of The Republic of Korea (included on Page II-6).
E-2	-	Power of Attorney of the Minister of Finance and Economy of The Republic of Korea, incorporated herein by reference to Exhibit E-2 to the Registration Statement of The Export-Import Bank of Korea (No. 333-9564).
F-1	-	Consent of Deloitte Anjin LLC (member of Deloitte Touche Tohmatsu).
F-2	-	Consent of Samil PricewaterhouseCoopers.
G-1	-	Letter appointing certain persons as authorized agents of The Export-Import Bank of Korea in the United States.
G-2	-	Letter appointing Authorized Agents of The Republic of Korea in the United States (included in Exhibit E-2).
H	-	The Export-Import Bank of Korea Act.
I	-	The Enforcement Decree of The Export-Import Bank of Korea Act.
J	-	The Articles of Incorporation of The Export-Import Bank of Korea, incorporated herein by reference to Exhibit J to the Registration Statement of The Export-Import Bank of Korea.
K	-	Form of Prospectus Supplement relating to The Export-Import Bank of Korea’s Medium-Term Notes, Series A, Due Not Less Than Nine Months From Date of Issue (the “MTNs”), incorporated herein by reference to Exhibit K to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).

Exhibit			Page
L	-	Form of Distribution Agreement between The Export-Import Bank of Korea and the Agents named therein relating to the offer an sale from time to time of the MTNs, incorporated herein by reference to Exhibit L to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
M-1	-	Opinion (including consent) of Cleary Gottlieb Steen & Hamilton LLP, 39th Floor, Bank of China Tower, One Garden Road, Hong Kong, United States counsel to the Export-Import Bank of Korea, in respect of the legality the Debt Securities (with or without Warrants).
M-2	-	Opinion (including consent) of Shin & Kim, Ace Tower, 4th Floor, 1-1/0 Soonhwa-dong, Chung-ku, Seoul 100-712, The Republic of Korea, Korean counsel to the Export-Import Bank of Korea, in respect of the legality the Debt Securities (with or without Warrants).
N-1	-	Form of the MTNs that bears interest at a fixed rate, incorporated herein by reference to Exhibit N-1 to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).
N-2	-	Form of the MTNs that bears interest at a floating rate, incorporated herein by reference to Exhibit N-2 to the Registration Statement of The Export-Import Bank of Korea (No. 333-41654).
O	-	Form of Calculation Agency Agreement between The Export-Import Bank of Korea and the calculation agent named therein relating to the MTNs that bear interest at a floating rate, incorporated herein by reference to Exhibit O to the Registration Statement of The Export-Import Bank of Korea (No. 33-41654).

* May be filed by amendment.