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KB KB Financial

Filed: 9 Mar 21, 12:06pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2021

Commission File Number: 000-53445

 

 

KB Financial Group Inc.

(Translation of registrant’s name into English)

 

 

26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea

(Address of principal executive office)

 

 

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

Form 20-F  ☒             Form 40-F  

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

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

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

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

 

 

 


Audit Report of Kookmin Bank for Fiscal Year 2020

On March 9, 2021, KB Financial Group Inc. disclosed audit reports of Kookmin Bank, its wholly-owned subsidiary, for fiscal year 2020 based on the International Financial Reporting Standards as adopted by the Republic of Korea (including the consolidated and separate financial statements of Kookmin Bank as of and for the years ended December 31, 2020 and 2019 and related notes) received from KPMG Samjong Accounting Corp., its independent auditor. The financial statements in such reports have not been approved by the shareholders of Kookmin Bank and remain subject to change.

KB Financial Group Inc. is furnishing the following documents as exhibits to this Form 6-K filing:

Exhibit 99.1: An English-language translation of the Consolidated Audit Report of Kookmin Bank for FY 2020.

Exhibit 99.2: An English-language translation of the Separate Audit Report of Kookmin Bank for FY 2020.


SIGNATURES

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

 

  

KB Financial Group Inc.

  (Registrant)
Date: March 9, 2021  By: 

/s/ Hwan-Ju Lee

   (Signature)
  Name: Hwan-Ju Lee
  Title:   Senior Executive Vice President and Chief Finance Officer


Exhibit 99.1

Kookmin Bank and Subsidiaries

Consolidated Financial Statements

December 31, 2020 and 2019



Independent Auditors’ Report

Based on a report originally issued in Korean

To the Shareholder and Board of Directors

Kookmin Bank

Opinion

We have audited the consolidated financial statements of Kookmin Bank and its subsidiaries (collectively the “Group”), which comprise the statement of financial position as of December 31, 2020, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2020, and its financial performance and its cash flows for the year then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing (KSAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter

As described in note 37.6 (b) to the consolidated financial statements, the ongoing COVID-19 pandemic has a negative impact on the global economy and increased uncertainty in estimation of the Group’s expected credit losses on certain portfolios and potential impairment on assets, which might adversely affect the Group’s ability to generate revenue. Our opinion is not modified in respect of this matter.

Other Matters

The consolidated financial statements of the Group for the year ended December 31, 2019 were audited by another auditor who expressed an unmodified opinion on those statements on March 5, 2020.

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

 

1


Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

  

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

  

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

 

  

Evaluate the appropriateness of accounting policies used in the preparation of the consolidated financial statements and the reasonableness of accounting estimates and related disclosures made by management.

 

  

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

  

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

  

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

March 8, 2021

 

 

This report is effective as of March 8, 2021, 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 consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

 

2


Kookmin Bank and Subsidiaries

Consolidated Statements of Financial Position

December 31, 2020 and 2019

 

(In millions of Korean won)  Notes   2020   2019 

Assets

      

Cash and due from financial institutions

   4,6,7,36    19,972,269    14,481,309 

Financial assets at fair value through profit or loss

   4,6,8,12    16,042,357    13,866,303 

Derivative financial assets

   4,6,9    4,456,668    2,317,425 

Loans measured at amortized cost

   4,6,8,10,11    327,332,495    293,531,433 

Financial investments

   4,6,8,12    58,286,482    52,419,293 

Investments in associates

   13    441,325    564,711 

Property and equipment

   8,14    4,041,894    3,784,374 

Investment property

   14    318,101    475,968 

Intangible assets

   15    962,654    268,731 

Current income tax assets

   32    47,847    13,904 

Deferred income tax assets

   16,32    58,339    2,263 

Assets held for sale

   17    197,727    6,941 

Other assets

   4,6,18    6,285,956    5,692,383 
    

 

 

   

 

 

 

Total assets

     438,444,114    387,425,038 
    

 

 

   

 

 

 

Liabilities

      

Financial liabilities at fair value through profit or loss

   4,6    141,277    80,235 

Derivative financial liabilities

   4,6,9    4,282,364    2,168,982 

Deposits

   4,6,19    330,352,491    300,917,482 

Borrowings

   4,6,20    26,870,831    19,141,262 

Debentures

   4,6,21    26,969,584    18,739,992 

Provisions

   22    388,014    311,140 

Net defined benefit liabilities

   23    165,402    179,110 

Current income tax liabilities

   32    37,481    8,338 

Deferred income tax liabilities

   16,32    346,850    248,652 

Other liabilities

   4,6,24,30    18,481,746    16,625,612 
    

 

 

   

 

 

 

Total liabilities

     408,036,040    358,420,805 
    

 

 

   

 

 

 

Equity

      

Capital stock

   25    2,021,896    2,021,896 

Hybrid securities

   25    574,523    574,523 

Capital surplus

   25    4,808,482    5,219,704 

Accumulated other comprehensive income

   25,34    494,445    123,334 

Retained earnings

   25,33,34    22,243,552    21,064,776 

(Provision of regulatory reserve for credit losses

      

December 31, 2020 :W 2,441,875 million

      

December 31, 2019 :W 2,291,019 million)

      

(Amounts estimated to be appropriated

      

December 31, 2020 :W 92,526 million

      

December 31, 2019 :W 150,856 million)

      
    

 

 

   

 

 

 

Equity attributable to the shareholder of the Parent Company

 

   30,142,898    29,004,233 

Non-controlling interests

 

   265,176    —   
    

 

 

   

 

 

 

Total equity

     30,408,074    29,004,233 
    

 

 

   

 

 

 

Total liabilities and equity

     438,444,114    387,425,038 
    

 

 

   

 

 

 

The above consolidated statements of financial position should be read in conjunction with the accompanying notes.

 

3


Kookmin Bank and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2020 and 2019

 

(In millions of Korean won)  Notes   2020  2019 

Interest income

     10,456,165   10,779,948 

Interest income from financial instruments at fair value through other comprehensive income and amortized cost

     10,265,173   10,568,018 

Interest income from financial instruments at fair value through profit or loss

     190,992   211,930 

Interest expense

     (3,701,399  (4,416,161
    

 

 

  

 

 

 

Net interest income

   26    6,754,766   6,363,787 
    

 

 

  

 

 

 

Fee and commission income

     1,449,687   1,483,362 

Fee and commission expense

     (381,765  (350,066
    

 

 

  

 

 

 

Net fee and commission income

   27    1,067,922   1,133,296 
    

 

 

  

 

 

 

Net gains on financial instrument at fair value through profit or loss

   28    244,183   422,624 
    

 

 

  

 

 

 

Net other operating expenses

   29    (230,206  (600,639
    

 

 

  

 

 

 

General and administrative expenses

   14,15,23,30,40    (4,201,346  (3,887,419
    

 

 

  

 

 

 

Operating profit before provision for credit losses

     3,635,319   3,431,649 
    

 

 

  

 

 

 

Provision for credit losses

   7,11,12,18,22    (484,182  (103,530
    

 

 

  

 

 

 

Operating profit

     3,151,137   3,328,119 

Share of profit (loss) of investments in associates

   13    (48,158  29,240 

Net other non-operating income (expenses)

   31    28,844   (38,887
    

 

 

  

 

 

 

Net non-operating expenses

     (19,314  (9,647
    

 

 

  

 

 

 

Profit before income tax expense

     3,131,823   3,318,472 

Income tax expense

   32    (812,304  (879,393
    

 

 

  

 

 

 

Profit for the period

     2,319,519   2,439,079 
    

 

 

  

 

 

 

(Adjusted profit after provision of regulatory reserve for credit losses

   25    

2020 :W 2,205,669 million

     

2019 :W 2,288,223 million)

     

Items that will not be reclassified to profit or loss:

     

Remeasurements of net defined benefit liabilities

   23    (4,166  (40,369

Net gains (losses) on equity instruments at fair value through other comprehensive income

     666,641   (17,151

Items that may be reclassified subsequently to profit or loss:

     

Exchange differences on translating foreign operations

     (154,972  26,271 

Net gains on debt instruments at fair value through other comprehensive income

     30,750   34,275 

Share of other comprehensive income (loss) of associates

     (6,978  7,546 

Gains (Losses) on hedging instruments of net investments in foreign operations

   9    61,329   (6,267

Gains (Losses) on cash flow hedging instruments

   9    (6,382  (15,230
    

 

 

  

 

 

 

Other comprehensive income(loss) for the period, net of tax

   34    586,222   (10,925
    

 

 

  

 

 

 

Total comprehensive income for the period

     2,905,741   2,428,154 
    

 

 

  

 

 

 

Profit attributable to:

     

Shareholder of the Parent Company

     2,298,195   2,439,079 

Non-controlling interests

     21,324   —   
    

 

 

  

 

 

 
     2,319,519   2,439,079 
    

 

 

  

 

 

 

Total comprehensive income for the period attributable to:

     

Shareholder of the Parent Company

     2,905,953   2,428,154 

Non-controlling interests

     (212  —   
    

 

 

  

 

 

 
     2,905,741   2,428,154 
    

 

 

  

 

 

 

The above consolidated statements of comprehensive income should be read in conjunction with the accompanying notes.

 

4


Kookmin Bank and Subsidiaries

Consolidated Statements of Changes in Equity

Years Ended December 31, 2020 and 2019

 

     Attributable to the shareholder of the Parent Company       
(In millions of Korean won) Notes  Capital
Stock
  Hybrid
Securities
  Capital
Surplus
  Accumulated
Other
Comprehensive
Income
  Retained
Earnings
  Non-controlling
Interests
  Total Equity 

Balance at January 1, 2019

   2,021,896   —     5,218,788   115,784   19,311,398   —     26,667,866 

Comprehensive income for the period

        

Profit for the period

   —     —     —     —     2,439,079   —     2,439,079 

Remeasurements of net defined benefit liabilities

   —     —     —     (40,369  —     —     (40,369

Net losses on equity instruments at fair value through other comprehensive income

   —     —     —     1,324   (18,475  —     (17,151

Exchange differences on translating foreign operations

   —     —     —     26,271   —     —     26,271 

Net gains on debt instruments at fair value through other comprehensive income

   —     —     —     34,275   —     —     34,275 

Share of other comprehensive income of associates

   —     —     —     7,546   —     —     7,546 

Losses on hedging instruments of net investments in foreign operations

   —     —     —     (6,267  —     —     (6,267

Losses on cash flow hedging instruments

   —     —     —     (15,230  —     —     (15,230
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income for the period

   —     —     —     7,550   2,420,604   —     2,428,154 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Transactions with the shareholder

        

Annual dividends

   —     —     —     —     (667,226  —     (667,226

Issuance of hybrid securities

   —     574,523   —     —       574,523 

Changes in ownership of subsidiaries

   —     —     916   —     —     —     916 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total transactions with the shareholder

   —     574,523   916   —     (667,226  —     (91,787
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2019

   2,021,896   574,523   5,219,704   123,334   21,064,776   —     29,004,233 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at January 1, 2020

   2,021,896   574,523   5,219,704   123,334   21,064,776   —     29,004,233 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Comprehensive income for the period

        

Profit for the period

   —     —     —     —     2,298,195   21,324   2,319,519 

Remeasurements of net defined benefit liabilities

   —     —     —     (4,111  —     (55  (4,166

Net gains on equity instruments at fair value through other comprehensive income

   —     —     —     429,994   236,647   —     666,641 

Exchange differences on translating foreign operations

   —     —     —     (134,469  —     (20,503  (154,972

Net gains on debt instruments at fair value through other comprehensive income

   —     —     —     31,728   —     (978  30,750 

Share of other comprehensive loss of associates

   —     —     —     (6,978  —     —     (6,978

Gains on hedging instruments of net investments in foreign operations

   —     —     —     61,329   —     —     61,329 

Losses on cash flow hedging instruments

   —     —     —     (6,382  —     —     (6,382
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive income for the period

   —     —     —     371,111   2,534,842   (212  2,905,741 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Transactions with the shareholder

        

Annual dividends

   —     —     —     —     (731,926  —     (731,926

Interim dividends

   —     —     —     —     (598,481  —     (598,481

Issuance of hybrid securities

   —     —     —     —     —     —     —   

Interest (dividends) on hybrid securities

   —     —     —     —     (25,659  —     (25,659

Others

  42   —     —     (411,222  —     —     265,388   (145,834
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total transactions with the shareholder

   —     —     (411,222  —     (1,356,066  265,388   (1,501,900
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2020

   2,021,896   574,523   4,808,482   494,445   22,243,552   265,176   30,408,074 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

 

5


Kookmin Bank and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2020 and 2019

 

(In millions of Korean won)  

Notes

  2020   2019 

Cash flows from operating activities

      

Profit for the period

     2,319,519    2,439,079 
    

 

 

   

 

 

 

Adjustment for non-cash items

      

Net gains on financial instruments at fair value through profit or loss

     (217,768   (201,982

Net losses (gains) on derivative financial instrument for hedging purposes

     8,168    (110,405

Adjustment of fair value of derivative financial instruments

     (3,198   282 

Provision for credit losses

     484,257    103,170 

Net gains on financial investments

     (179,941   (95,524

Share of loss (profit) of associates

     48,157    (29,240

Depreciation and amortization expense

     569,721    509,346 

Other net losses (gains) on property and equipment/intangible assets

     (77,011   1,518 

Share-based payment

     13,364    15,173 

Post-employment benefits

     159,393    157,946 

Net interest expense

     559,070    236,930 

Gains on foreign currency translation

     (155,831   (100,131

Other expense (income)

     (14,318   60,496 
    

 

 

   

 

 

 
     1,194,063    547,579 
    

 

 

   

 

 

 

Changes in operating assets and liabilities

      

Financial assets at fair value through profit or loss

     (1,405,459   (1,497,738

Derivative financial instrument

     42,804    (7,944

Loans measured at amortized cost

     (28,338,718   (16,595,592

Current income tax assets

     (24,211   (9,265

Deferred income tax assets

     (58,957   1,110 

Other assets

     (3,478,528   (905,137

Financial liabilities at fair value through profit or loss

     49,648    (23,165

Deposits

     23,689,107    28,107,474 

Deferred income tax liabilities

     (174,090   137,700 

Other liabilities

     (1,139,460   1,176,035 
    

 

 

   

 

 

 
     (10,837,864   10,383,478 
    

 

 

   

 

 

 

Net cash inflow (outflow) from operating activities

     (7,324,282   13,370,136 
    

 

 

   

 

 

 

Cash flows from investing activities

      

Net cash flows from derivative financial instrument for hedging purposes

   8,983    7,120 

Disposal of financial assets at fair value through profit or loss

   6,729,781    7,807,186 

Acquisition of financial assets at fair value through profit or loss

   (7,477,327   (7,817,304

Disposal of financial investments

   72,170,571    59,540,128 

Acquisition of financial investments

   (76,954,130   (68,825,567

Disposal of investments in associates

   187,181    30,354 

Acquisition of investments in associates

   (200,023   (69,005

Disposal of property and equipment

   1,913    60 

Acquisition of property and equipment

   (340,477   (525,605

Acquisition of investment property

   (125   (230,584

Disposal of investment property

   267,836    —   

Disposal of intangible assets

   4,260    7,126 

Acquisition of intangible assets

   (77,960   (73,726

Net cash flows from changes in subsidiaries

   (388,621   212,279 

Others

   33,219    (59,809
    

 

 

   

 

 

 

Net cash outflow from investing activities

     (6,034,919   (9,997,347
    

 

 

   

 

 

 

Cash flows from financing activities

      

Net cash flows from derivative financial instrument for hedging purposes

   (16,182   (28,631

Net increase in borrowings

   6,332,405    1,290,505 

Increase in debentures

   19,952,932    9,543,968 

Decrease in debentures

   (11,653,980   (14,105,629

Payment of dividends

   (1,330,407   (667,226

Net increase (decrease) in other payables to trust accounts

   2,326,495    (68,647

Issuance of hybrid securities

   —      574,523 

Others

   (60,866   (66,498
    

 

 

   

 

 

 

Net cash inflow (outflow) from financing activities

     15,550,397    (3,527,635
    

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (266,209   177,663 
    

 

 

   

 

 

 

Net increase in cash and cash equivalents

     1,924,987    22,817 

Cash and cash equivalents at the beginning of the period

  36   4,879,312    4,856,495 
    

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

  36   6,804,299    4,879,312 
    

 

 

   

 

 

 

The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.

 

6


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

1. The Bank

Kookmin Bank (the “Bank” or the “Parent Company”) was incorporated in 1963 under the Citizens National Bank Act to provide banking services to the general public and to small and medium-sized enterprises. Pursuant to the Repeal Act of the Citizens National Bank Act, effective January 5, 1995, the Bank’s status changed to a financial institution which operates under the Banking Act and Commercial Act.

The Bank merged with Korea Long Term Credit Bank on December 31, 1998, and with its subsidiaries, Daegu, Busan, Jeonnam Kookmin Mutual Savings & Finance Co., Ltd., on August 22, 1999. Pursuant to the directive from the Financial Services Commission related to the Structural Improvement of the Financial Industry Act, the Bank acquired certain assets, including performing loans, and assumed most of the liabilities of Daedong Bank on June 29, 1998. Also, the Bank completed the merger with Housing and Commercial Bank (“H&CB”) on October 31, 2001, and merged with Kookmin Credit Card Co., Ltd., a majority-owned subsidiary, on September 30, 2003. Meanwhile, the Bank spun off its credit card business segment on February 28, 2011, and KB Kookmin Card Co., Ltd. became a subsidiary of KB Financial Group Inc.

The Bank listed its shares on the Stock Market Division of the Korea Exchange (“KRX,”) in September 1994. As a result of the merger with H&CB, the shareholders of the former Kookmin Bank and H&CB received new common shares of the Bank which were relisted on the KRX on November 9, 2001. In addition, H&CB listed its American Depositary Shares (“ADS”) on the New York Stock Exchange (“NYSE”) on October 3, 2000, prior to the merger. Following the merger with H&CB, the Bank listed its ADS on the NYSE on November 1, 2001. The Bank became a wholly owned subsidiary of KB Financial Group Inc. through a comprehensive stock transfer on September 29, 2008. Subsequently, the Bank’s shares and its ADS, each listed on the KRX and the NYSE, were delisted on October 10, 2008 and September 26, 2008, respectively. As of December 31, 2020, the Bank’s paid-in capital isW 2,021,896 million.

The Bank engages in the banking business in accordance with the Banking Act, trust business in accordance with the Financial Investment Services and Capital Markets Act, mobile virtual network business in accordance with Special Act on Support for Financial Innovation, and other relevant businesses. As of December 31, 2020, the Bank operates its Seoul headquarters and 972 domestic branches, and eight overseas branches (excluding six subsidiaries and one office).

2. Basis of Preparation

2.1 Application of Korean IFRS

The Bank and its subsidiaries (collectively the “Group”) maintains its accounting records in Korean won and prepares statutory consolidated financial statements in the Korean language in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”). The accompanying consolidated financial statements have been translated into English from the Korean language consolidated financial statements.

The consolidated financial statements of the Group have been prepared in accordance with Korean IFRS. These are the standards and related interpretations issued by the International Accounting Standards Board (“IASB”) that have been adopted by the Republic of Korea.

The preparation of the consolidated financial statements requires the use of certain critical accounting estimates. Management also needs to exercise judgment in applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 2.4.

 

7


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

2.1.1 The Group has applied the following amended standards for the first time for its annual reporting period commencing January 1, 2020.

 

  

Amendments to Korean IFRS No.1001 Presentation of Financial Statements and Korean IFRS No.1008 Accounting policies, changes in accounting estimates and errors – Definition of Material

The amendments clarify the definition of material. Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general-purpose financial statements make on the basis of those financial statements. These amendments do not have a significant impact on the consolidated financial statements.

 

  

Amendments to Korean IFRS No.1103 Business Combination – Definition of a Business

The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and the definition of output excludes the returns in the form of lower costs and other economic benefits. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, an entity may elect to apply an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. These amendments do not have a significant impact on the consolidated financial statements.

2.1.2 The Group has early adopted the following amended standards.

 

  

Amendments to Korean IFRS No.1107 Financial Instruments: Disclosure, Korean IFRS No.1109 Financial Instruments – Interest Rate Benchmark Reform

These amendments provide exceptions applying hedge accounting even though interest rate benchmark reform gives rise to uncertainties. In the hedging relationship, an entity shall assume that the interest rate benchmark on which the hedge cash flows are based is not altered as a result of interest rate benchmark reform when determining whether a forecast transaction is highly probable and prospectively assessing hedging effectiveness. For a hedge of a non-contractually specified benchmark component of interest rate risk, an entity shall apply the requirement that the risk component shall be separately identifiable only at the inception of the hedging relationship. The application of this exception is ceased either when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedge item, or when the hedging relationship that the hedge item is part of is discontinued. The Group early adopted these amendments since 2019 as the amendments allow the early adoption.

The significant benchmark interest rate indicators for the hedge relationship are LIBOR and CD, and those affected by these amendments should be referred to Note 9.

 

8


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

2.1.3 The following amended standards have been published that are not mandatory for December 31, 2020 reporting periods and have not been early adopted by the Group.

 

  

Amendments to Korean IFRS No.1116 Leases – Practical expedient for COVID-19-Related Rent Exemption, Concessions, Suspension

As a practical expedient, a lessee may elect not to assess whether a rent concession occurring as a direct consequence of the COVID-19 pandemic is a lease modification, and the amounts recognized in profit or loss as a result of applying this exemption should be disclosed. The amendments should be applied for annual periods beginning on or after June 1, 2020, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

  

Amendments to Korean IFRS No.1109 Financial Instruments, Korean IFRS No.1039 Financial Instruments: Recognition and Measurement, Korean IFRS No.1107 Financial Instruments: Disclosure, Korean IFRS No.1104 Insurance Contracts and Korean IFRS No.1116 Lease – Interest Rate Benchmark Reform

In relation to interest rate benchmark reform, the amendments provide a practical expedient allowing entities to change the effective interest rate instead of changing the carrying amount and apply hedge accounting without discontinuance although the interest rate benchmark is replaced in hedging relationship. The amendments should be applied for annual periods beginning on or after January 1, 2021, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

  

Amendments to Korean IFRS No.1103 Business Combination – Reference to the Conceptual Framework

The amendments update a reference of definition of assets and liabilities to qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition of liabilities and contingent liabilities within the scope of Korean IFRS No.1037 Provisions, Contingent Liabilities and Contingent Assets, and Korean IFRS No.2121 Levies. The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

  

Amendments to Korean IFRS No.1016 Property, Plant and Equipment - Proceeds before intended use

The amendments prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, as profit or loss. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

  

Amendments to Korean IFRS No.1037 Provisions, Contingent Liabilities and Contingent Assets - Onerous Contracts: Cost of Fulfilling a Contract

The amendments clarify that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts when assessing whether the contract is onerous. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

9


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

  

Annual improvements to Korean IFRS 2018-2020

Annual improvements of Korean IFRS 2018-2020 Cycle should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

 

  

Korean IFRS No.1101 First time Adoption of Korean International Financial Reporting Standards – Subsidiaries that are first-time adopters

 

  

Korean IFRS No.1109 Financial Instruments – Fees related to the 10% test for derecognition of financial liabilities

 

  

Korean IFRS No.1116 Leases – Lease incentives

 

  

Korean IFRS No.1041 Agriculture – Measuring fair value

 

  

Amendments to Korean IFRS No.1001 Presentation of Financial Statements - Classification of Liabilities as Current or Non-current

The amendments clarify that liabilities are classified as either current or non-current, depending on the substantive rights that exist at the end of the reporting period. Classification is unaffected by the likelihood that an entity will exercise right to defer settlement of the liability or the management’s expectations thereof. Also, the settlement of liability includes the transfer of the entity’s own equity instruments; however, it would be excluded if an option to settle the liability by the transfer of the entity’s own equity instruments is recognized separately from the liability as an equity component of a compound financial instrument. The amendments should be applied for annual periods beginning on or after January 1, 2023, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

2.2 Measurement Basis

The consolidated financial statements have been prepared based on the historical cost accounting model unless otherwise specified.

2.3 Functional and Presentation Currency

Items included in the financial statements of each entity of the Group are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency.

2.4 Critical Accounting Estimates

The preparation of the consolidated financial statements requires the application of accounting policies, certain critical accounting estimates and assumptions that may have a significant impact on the assets (liabilities) and incomes (expenses). Management’s estimates of outcomes may differ from actual outcomes if management’s estimates and assumptions based on management’s best judgment at the reporting date are different from the actual environment.

Estimates and underlying assumptions are continually evaluated, and changes in accounting estimates are recognized in the period in which the estimates are changed and in any future periods affected.

Uncertainties in estimates and assumptions with significant risks that may result in material adjustments to the consolidated financial statements are as follows:

 

10


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

2.4.1 Income taxes

The Group is operating in numerous countries and the income generated from these operations is subject to income taxes based on tax laws and interpretations of tax authorities in numerous jurisdictions. There are many transactions and calculations for which the ultimate tax determination is uncertain.

If certain portion of the taxable income is not used for investments, wages, etc. in accordance with the Korean regulation called ‘Special Taxation for Facilitation of Investment and Mutually-beneficial Cooperation’, the Group is liable to pay additional income tax calculated based on the tax laws. Therefore, the effect of recirculation of corporate income should be reflected in current and deferred income tax. As the Group’s income tax is dependent on the actual investments, wages, etc. per each year, there are uncertainties with regard to measuring the final tax effects during the period when the tax law is applied.

2.4.2 Fair value of financial instruments

The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available is determined by using valuation techniques. Financial instruments, which are not actively traded in the market and those with less transparent market prices, will have less objective fair values and require broad judgment on liquidity, concentration, uncertainty in market factors and assumptions in fair value determination and other risks.

As described in the significant accounting policies in Note 3.3, ‘Recognition and Measurement of Financial Instruments’, diverse valuation techniques are used to determine the fair value of financial instruments, from generally accepted market valuation models to internally developed valuation models that incorporate various types of assumptions and variables

2.4.3 Allowances and provisions for credit losses

The Group recognizes and measures allowances for credit losses of debt instruments measured at amortized cost and debt instruments measured at fair value through other comprehensive income. Also, the Group recognizes and measures provisions for credit losses of acceptances and guarantees, and unused loan commitments. Accuracy of allowances and provisions for credit losses is dependent upon estimation of expected cash flows of the borrower for individually assessed loans, and upon assumptions and methodology used for collectively assessed groups of loans, acceptances and guarantees and unused loan commitments.

2.4.4 Net defined benefit liability

The present value of the net defined benefit liability is affected by changes in the various factors determined by the actuarial method.

2.4.5 Impairment of goodwill

The recoverable amounts of cash-generating units are determined based on value-in-use calculations to test whether impairment of goodwill has occurred.

 

11


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

2.4.6 Assessment of expected credit losses of financial instruments related to COVID-19

The proliferation of COVID-19 in 2020 negatively affected the global economy, despite of various forms of government support policy. Accordingly, the Group was provided with various economic forecasting scenarios from KB Research, assuming macroeconomic changes due to the level of COVID-19 pandemic. The Group reviewed the possibilities of each scenario comprehensively, updated the forward-looking information, and reflected its effect on expected credit losses through the statistical method. In order to reflect additional credit risk for financial assets whose industries are highly affected by COVID-19, the Group measured expected credit losses using a conservative scenario comparing to the forecasted forward-looking information and proactively responded to the credit risk to be increased in the future by expanding the scope of loans subject to lifetime expected credit losses (non-impaired) and expanding the scope of loans subject to individual assessment. The Group will continue to monitor the impact of COVID-19 on the expected credit losses by comprehensively considering the duration of the impact on the entire economy and the government’s policies.

 

12


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3. Significant Accounting Policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

3.1 Consolidation

3.1.1 Subsidiaries

Subsidiaries are companies that are controlled by the Group. The Group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Also, the existence and effects of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls the investee. Subsidiaries are fully consolidated from the date when control is transferred to the Group and de-consolidated from the date when control is lost.

If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that subsidiary’s financial statements in preparing the consolidated financial statements to ensure conformity with the Group’s accounting policies.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Parent Company and to the non-controlling interests, if any. Total comprehensive income is attributed to the owners of the Parent Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners). The difference between fair value of any consideration paid and carrying amount of the subsidiary’s net assets attributable to the additional interests acquired, is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

When the Group loses control, any investment retained in the former subsidiary is recognized at its fair value at the date when control is lost, with the resulting difference recognized in profit or loss. This fair value will be the fair value on initial recognition of a financial asset in accordance with Korean IFRS No.9 or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture. In addition, all amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted on the same basis as would be required if the Group had directly disposed of the related assets or liabilities. Therefore, amounts previously recognized in other comprehensive income are reclassified to profit or loss.

The Group accounts for each business combination by applying the acquisition method. The consideration transferred is measured at fair value, and identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are initially measured at acquisition-date fair values. For each business combination, the Group measures non-controlling interests in the acquiree that entitle their holders to a proportionate share of the acquiree’s net assets in the event of liquidation at either (a) fair value or (b) the proportionate share in the recognized amounts of the acquiree’s identifiable net assets. Acquisition-related costs are expensed in the periods in which the costs are incurred.

 

13


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

In a business combination achieved in stages, the Group shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the Group may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be reclassified as profit or loss, or retained earnings, on the same basis as would be required if the Group had disposed directly of the previously held equity interest.

The Group applies the book amount method to account for business combinations of entities under a common control. Identifiable assets acquired and liabilities assumed in a business combination are measured at their book amounts on the consolidated financial statements of the Group. In addition, the difference between (a) the sum of consolidated net book amounts of the assets and liabilities transferred and accumulated other comprehensive income and (b) the consideration paid is recognized as capital surplus.

3.1.2 Associates

Associates are entities over which the Group has significant influence over the financial and operating policy decisions. Generally, if the Group holds 20% or more of the voting power of the investee, it is presumed that the Group has significant influence.

Investments in associates and joint ventures are initially recognized at cost and equity method is applied after initial recognition. The carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the investee and changes in the investee’s equity after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment. Unrealized gains and losses resulting from transactions between the Group and associates are eliminated to the extent of the Group’s share in associates. If unrealized losses are indication of an impairment loss that which should be recognized in the consolidated financial statements, those losses are recognized for the period.

If associates use accounting policies other than those of the Group for like transactions and events in similar circumstances, if necessary, adjustments shall be made to make the associates’ accounting policies conform to those of the Group when the associates’ financial statements are used by the Group in applying the equity method.

If the Group’s share of losses of associates equals or exceeds its interest in the associates (including long-term interests that, in substance, form part of the Group’s net investment in the associates), the Group discontinues recognizing its share of further losses. After the Group’s interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associates.

The Group determines at each reporting period whether there is any objective evidence that the investments in the associates are impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associates and its carrying value and recognizes the amount as non-operating income (expenses) in the consolidated statement of comprehensive income.

3.1.3 Structured entity

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. When the Group decides whether it has power over the structured entities in which the Group has interests, it considers factors such as the purpose, the form, the substantive ability to direct the relevant activities of a structured entity, the nature of its relationship with a structured entity and the amount of exposure to variable returns.

 

14


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.1.4 Funds management

The Group manages and operates trust assets, collective investment and other funds on behalf of investors. These trusts and funds are not consolidated, except for trusts and funds over which the Group has control.

3.1.5 Intragroup transactions

Intragroup balances, income, expenses and any unrealized gains and losses resulting from intragroup transactions are eliminated in full, in preparing the consolidated financial statements. If unrealized losses are indication of an impairment loss which should be recognized in the consolidated financial statements, those losses are recognized for the period.

3.2 Foreign Currency

3.2.1 Foreign currency transactions

A foreign currency transaction is recorded, at initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate which is the spot exchange rate at the end of the reporting period. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was measured and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Except for the exchange difference for the net investment in a foreign operation and the financial liability designated as a hedging instrument of net investment, exchange differences arising on the settlement of monetary items or on translating monetary items is recognized in profit or loss. When gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income, conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

3.2.2 Foreign operations

The results and financial position of a foreign operation, whose functional currency differs from the Group’s presentation currency, are translated into the Group’s presentation currency based on the following procedures.

If the functional currency of a foreign operation is not the currency of a hyperinflationary economy, assets and liabilities for each statement of financial position presented (including comparatives) are translated at the closing rate at the end of the reporting period, income and expenses for each statement of comprehensive income presented (including comparatives) are translated using the average exchange rates for the period. All resulting exchange differences are recognized in other comprehensive income.

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

 

15


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, is reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognized. On the partial disposal of a subsidiary that includes a foreign operation, the Group re-attributes the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income to the non-controlling interests in that foreign operation. In any other partial disposal of a foreign operation, the Group reclassifies to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income.

3.2.3 Translation of the net investment in a foreign operation

A monetary item that is receivable from or payable to a foreign operation, for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the Group’s net investment in that foreign operation, then foreign currency difference arising from that monetary item is recognized in the other comprehensive income and shall be reclassified to profit or loss on disposal of the net investment.

3.3 Recognition and Measurement of Financial Instruments

3.3.1 Initial recognition

The Group recognizes a financial asset or a financial liability in its consolidated statement of financial position when the Group becomes party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets (a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned) is recognized and derecognized using trade date accounting.

For financial reporting purpose, the Group classifies (a) financial assets as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, or financial assets at amortized cost and (b) financial liabilities as financial liabilities at fair value through profit or loss, or other financial liabilities. These classifications are based on business model for managing financial instruments and the contractual cash flow characteristics of the financial instrument at initial recognition.

At initial recognition, a financial asset or financial liability is measured at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value of a financial instrument on initial recognition is normally the transaction price (that is, the fair value of the consideration given or received) in an arm’s length transaction.

3.3.2 Subsequent measurement

After initial recognition, financial instruments are measured at amortized cost or fair value based on classification at initial recognition.

3.3.2.1 Amortized cost

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.

 

16


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.3.2.2 Fair value

The Group uses quoted price in active market which is based on listed market price or dealer price quotations of financial instruments traded in active market as best estimate of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

If there is no active market for a financial instrument, fair value is determined either by using a valuation technique or independent third-party valuation service. Valuation techniques include using recent arm’s length market transactions between knowledgeable and willing parties, if available, referencing to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

The Group uses valuation models that are commonly used by market participants and customized for the Group to determine fair values of common over-the-counter (“OTC”) derivatives such as options, interest rate swaps and currency swaps which are based on the inputs observable in markets. For more complex instruments, the Group uses internally developed models, which are usually based on valuation methods and techniques generally used within the industry, or a value measured by an independent external valuation institution as the fair values if all or some of the inputs to the valuation models are not observable in market and therefore it is necessary to estimate fair value based on certain assumptions.

In addition, the fair value information recognized in the consolidated statement of financial position is classified into the following fair value hierarchy, reflecting the significance of the input variables used in the fair value measurement.

Level 1 : Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date

Level 2 : Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3 : Unobservable inputs for the asset or liability

The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.

If a fair value measurement uses observable inputs that require significant adjustment using unobservable inputs, that measurement is a Level 3 measurement.

The Group’s Fair Value Evaluation Committee, which consists of the risk management department, trading department and accounting department, reviews the appropriateness of internally developed valuation models, and approves the selection and changing of the external valuation institution and other considerations related to fair value measurement. The review results on the fair valuation models are reported to the Market Risk Management Subcommittee on a regular basis.

If the valuation technique does not reflect all factors which market participants would consider in pricing the asset or liability, the fair value is adjusted to reflect those factors. Those factors include counterparty credit risk, bid-ask spread, liquidity risk and others.

 

17


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

The Group uses valuation technique which maximizes the use of market inputs and minimizes the use of entity-specific inputs. It incorporates all factors that market participants would consider in pricing the asset or liability and is consistent with economic methodologies applied for pricing financial instruments. Periodically, the Group calibrates the valuation technique and tests its validity using prices of observable current market transactions of the same instrument or based on other relevant observable market data.

3.3.3 Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the consolidated statement of financial position. The derecognition criteria for financial assets and financial liabilities are as follows:

3.3.3.1 Derecognition of financial assets

A financial asset is derecognized when the contractual rights to the cash flows from the financial assets expire or the Group transfers substantially all the risks and rewards of ownership of the financial asset, or the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset and the Group has not retained control. Therefore, if the Group does not transfer substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

If the Group transfers the contractual rights to receive the cash flows of the financial asset but retains substantially all the risks and rewards of ownership of the financial asset, the Group continues to recognize the transferred asset in its entirety and recognize a financial liability for the consideration received.

The Group writes off a financial asset when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. In general, the Group considers write-off when it is determined that the debtor does not have sufficient funds or income to cover the principal and interest. The write-off decision is made in accordance with internal regulations. After the write-off, the Group can collect the written-off loans continuously according to the internal policy. Recovered amounts from financial assets previously written-off are recognized in profit or loss.

3.3.3.2 Derecognition of financial liabilities

A financial liability is derecognized from the consolidated statement of financial position when it is extinguished (i.e. the obligation specified in the contract is discharged, cancelled or expires).

3.3.4 Offsetting

A financial asset and a financial liability is offset and the net amount is presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on a future event and must be legally enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Group and all of the counterparties.

 

18


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.4 Cash and Due from Financial Institutions

Cash and due from financial institutions include cash on hand, foreign currency, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and due from financial institutions. Cash and due from financial institutions are measured at amortized cost.

3.5 Non-derivative Financial Assets

3.5.1 Financial assets at fair value through profit or loss

Financial assets are classified as financial assets at fair value through profit or loss unless they are classified as financial assets at amortized cost or at fair value through other comprehensive income.

The Group may designate certain financial assets upon initial recognition as at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.

After initial recognition, a financial asset at fair value through profit or loss is measured at fair value and gains or losses arising from a change in fair value are recognized in profit or loss. Interest income using the effective interest method and dividend income from financial asset at fair value through profit or loss are also recognized in profit or loss.

3.5.2 Financial assets at fair value through other comprehensive income

The Group classifies below financial assets as financial assets at fair value through other comprehensive income;

 

  

Debt instruments that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding and;

 

  

Equity instruments that are not held for short-term trading but held for strategic investment, and designated as financial assets at fair value through other comprehensive income

After initial recognition, a financial asset at fair value through other comprehensive income is measured at fair value. Gains or losses arising from a change in fair value, other than dividend income, interest income calculated using the effective interest method and exchange differences arising on monetary items which are recognized directly in profit or loss, are recognized as other comprehensive income in equity.

When the financial assets at fair value through other comprehensive income is disposed, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. However, cumulative gain or loss of equity instrument designated as fair value through other comprehensive income is reclassified to retained earnings not to profit or loss at disposal.

A financial asset at fair value through other comprehensive income denominated in foreign currency is translated at the closing rate. Exchange difference resulting from change in amortized cost is recognized in profit or loss, and other changes are recognized in equity.

 

19


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.5.3 Financial assets at amortized cost

A financial asset, which is held within the business model whose objective is achieved by collecting contractual cash flows, and where the assets’ cash flows represent solely payments of principal and interest on the principal amount outstanding, is classified as a financial asset at amortized cost. After initial recognition, a financial asset at amortized cost is measured at amortized cost using the effective interest method and interest income is calculated using the effective interest method.

3.6 Expected Credit Loss of Financial Assets (Debt Instruments)

The Group recognizes a loss allowance for expected credit losses at the end of the reporting period for financial assets at amortized cost and fair value through other comprehensive income except for financial asset at fair value through profit or loss.

Expected credit losses are estimated at present value of probability-weighted amount that is determined by evaluating a range of possible outcomes. The Group measures expected credit losses by reflecting all reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

The approaches of measuring expected credit losses in accordance with Korean IFRS are as follows:

 

  

General approach: for financial assets and unused loan commitments not subject to the below approach

 

  

Credit-impaired approach: for financial assets that are credit-impaired at the time of acquisition

Application of general approach is differentiated depending on whether credit risk has increased significantly after initial recognition. If the credit risk on a financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses, whereas if the credit risk on a financial instrument has increased significantly since initial recognition, the Group measures the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses. Lifetime is presumed to be a period to the contractual maturity date of financial assets (the expected life of financial assets).

The Group assesses whether the credit risk has increased significantly using the following information, and if one or more of the following conditions are met, it is deemed as significant increase in credit risk. Information of more than 30 days overdue is applied to all subsidiaries, and other information is applied selectively considering specific indicators of each subsidiary or additionally considering specific indicators of each subsidiary. If the contractual cash flows on a financial asset have been renegotiated or modified, the Group assesses whether the credit risk has increased significantly using the same following information.

 

  

More than 30 days past due

 

  

Decline in credit rating at period end by more than certain notches as compared to that at initial recognition

 

  

Subsequent managing ratings below certain level in the early warning system

 

  

Debt restructuring (except for impaired financial assets) and

 

  

Credit delinquency information of Korea Federation of Banks, etc.

 

20


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

The Group generally considers the loan to be credit-impaired if one or more of the following conditions are met:

 

  

90 days or more past due

 

  

Legal proceedings related to collection

 

  

A borrower registered on the credit management list of Korea Federation of Banks

 

  

A corporate borrower with the credit rating C or D

 

  

Refinancing

 

  

Debt restructuring, etc.

3.6.1 Forward-looking information

The Group uses forward-looking information, when it assesses whether the credit risk has increased significantly and measures the expected credit losses.

The Group assumes the risk components have a certain correlation with the economic cycle and uses statistical methodologies to estimate the relation between key macroeconomic variables and risk components for the expected credit losses. The Group has derived a correlation between the time series data of more than 11 years and the key macroeconomic variables and calculates the expected credit losses by reflecting the results of the correlation on the risk component.

The correlation between the major macroeconomic variables and the credit risk are as follows:

 

Key macroeconomic variables  Correlation between the major
macroeconomic variables and the credit risk
 

Domestic GDP growth rate

   (-

Composite stock index

   (-

Construction investment change rate

   (-

Rate of change in housing transaction price index

   (-

Interest rate spread

   (+

Private consumption growth rate

   (-

Forward-looking information used in calculation of expected credit losses is based on the macroeconomic forecasts utilized by the management of the Group for its business plan considering reliable external agency’s forecasts and others. The forward-looking information is generated by KB Research with comprehensive approach to capture the possibility of various economic forecast scenarios that are derived from the internal and external viewpoints of the macroeconomic situation. The Group determines the macroeconomic variables to be used in forecasting future condition of the economy, considering the direction of the forecast scenario and the significant relationship between macroeconomic variables and time series data. And there are some changes compared to the macroeconomic variables used in the previous year.

In order to reflect additional credit risk for financial assets whose industries are highly affected by COVID-19, the Bank measures expected credit losses using a conservative scenario comparing to the forecasted forward-looking information.

3.6.2 Measuring expected credit losses on financial assets at amortized cost

The expected credit losses of financial assets at amortized cost are measured as present value of the difference between the contractual cash flows that are due to the Group under the contract and the cash flows that the Group expects to receive. The Group estimates expected future cash flows for financial assets that are individually significant (individual assessment of impairment).

 

21


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

For financial assets that are not individually significant, the Group collectively estimates expected credit loss by grouping loans with homogeneous credit risk profile (collective assessment of impairment).

3.6.2.1 Individual assessment of impairment

Individual assessment of impairment losses is calculated using management’s best estimate on present value of expected future cash flows. The Group uses all the available information including financial condition of the borrower such as operating cash flow and net realizable value of any collateral held.

3.6.2.2 Collective assessment of impairment

Collective assessment of impairment losses is performed by using a methodology based on historical loss experience and reflecting forward-looking information. Such process incorporates factors such as type of collateral, product and borrowers, credit rating, size of portfolio and recovery period and applies Probability of Default (“PD”) on a group of assets and Loss Given Default (“LGD”) by type of recovery method. Also, the expected credit loss model involves certain assumptions to determine input based on loss experience and forward-looking information. These models and assumptions are periodically reviewed to reduce gap between loss estimate and actual loss experience.

The lifetime expected credit loss is measured by applying the PD to the carrying amount calculated by deducting the expected principal repayment amount from the carrying amount as of the reporting date and the LGD adjusted to reflect changes in the carrying amount.

3.6.3 Measuring expected credit losses on financial assets at fair value through other comprehensive income

The Group measures expected credit losses on financial assets at fair value through other comprehensive income in a manner that is consistent with the requirements that are applicable to financial assets measured at amortized cost. However, the loss allowance is recognized in other comprehensive income. Upon disposal or repayment of financial assets at fair value through other comprehensive income, the amount of the loss allowance is reclassified from other comprehensive income to profit or loss.

3.7 Derivative Financial Instruments

The Group enters into numerous derivative financial instrument contracts such as currency forwards, interest rate swaps, currency swaps and others for trading purposes or to manage its exposures to fluctuations in interest rates and currency exchange, amongst others. The Group’s derivative operations focus on addressing the needs of the Group’s corporate clients to hedge their risk exposure and to hedge the Group’s risk exposure that results from such client contracts. These derivative financial instruments are presented as derivative financial instruments in the consolidated financial statements irrespective of transaction purpose and subsequent measurement requirement.

The Group designates certain derivatives as hedging instruments to hedge the risk of changes in fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge) and the risk of changes in cash flow (cash flow hedge). The Group designates certain derivatives and non-derivatives as hedging instruments to hedge the risk of foreign exchange of the net investment in a foreign operation (hedge of net investment).

 

22


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

At the inception of the hedging relationship, there is formal designation and documentation of the hedging relationship and the Group’s risk management objective and strategy for undertaking the hedge. This documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged, the inception date of hedging relationship and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.

Derivatives are initially recognized at fair value. After initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

3.7.1 Derivative financial instruments held for trading

All derivative financial instruments, except for derivatives that are designated and qualify for hedge accounting, are measured at fair value. Gains or losses arising from changes in fair value are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

3.7.2 Derivative financial instruments for fair value hedges

If derivatives are designated and qualify for a fair value hedge, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in profit or loss as part of other operating income and expenses. If the hedged items are equity instruments for which the Group has elected to present changes in fair value in other comprehensive income, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in other comprehensive income.

Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is amortized to profit or loss by the maturity of the financial instrument using the effective interest method.

3.7.3 Derivative financial instruments for cash flow hedges

The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income, limited to the cumulative change in fair value (present value) of the hedged item (the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge. The ineffective portion is recognized in profit or loss as other operating income or expense. The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss (other operating income or expense) as a reclassification adjustment in the same period or periods during which the hedged forecast cash flows affect profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. When the cash flow hedge accounting is discontinued, the cumulative gains or losses on the hedging instrument that have been recognized in other comprehensive income are reclassified to profit or loss over the period in which the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses that have been recognized in other comprehensive income are immediately reclassified to profit or loss.

 

23


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.7.4 Derivative and non-derivative financial instruments designated for net investments hedges

If derivatives and non-derivatives are designated and qualify for the net investment hedge, the effective portion of changes in fair value of hedging instrument is recognized in other comprehensive income and the ineffective portion is recognized in profit or loss as other operating income and expense. The cumulative gain or loss on the hedging instrument relating to the effective portion of the hedge that has been accumulated in other comprehensive income will be reclassified from other comprehensive income to profit or loss as a reclassification adjustment on the disposal or partial disposal of the foreign operation.

3.7.5 Risk management strategy

Interest rate risk arises from changes in fair value resulting from changes in the discount rate of fixed rate financial instruments, and changes in cash flows resulting from changes in the nominal interest rate of floating rate financial instruments. Foreign currencies risk arises from the net investment in a foreign operation, whose functional currency differs from the Group’s functional currency.

While the Group hedges the interest rate risk in its entirety, the Group hedges the foreign currencies risk only the proportional part of the notional amount.

At inception of the hedge relationship, the Group reviews the hedge effectiveness; and periodically reviews the effectiveness in order to confirm that economic relationship between the hedged item and the hedging instrument exists. The requirement that an economic relationship exists means that the hedging instrument and the hedged item have values that generally move in the opposite direction due to the same risk, which is the hedged risk. The Group designates the exposure of hedged item opposite to the exposure of hedging instruments in order to meet economic relationship requirement.

The Group designates hedge relationship at one-on-one ratio between the nominal amount of hedging instrument and to the nominal amount of hedged item.

Ineffectiveness could arise because of differences in the underlying parameters (acquisition date, credit risk or liquidity and others) or other differences between the hedging instrument and the hedged item that the Group accepts in order to achieve a cost-effective hedging relationship.

The Group avoids the cash flow variability of its floating rate debt securities by using interest rate swaps. Both are linked to the same interest rate; however, the paid amount of the floating rate may be set on different dates. Even if the variability of interest rate related cash flows (as a risk factor) are designated as a hedged item, the difference in set-up dates creates a hedge ineffectiveness.

The Group avoids the variability of fair values of its fixed rate debt securities by using interest rate swaps. The calculating method of the number of the dates for paying fixed-rate interest amount can be different between hedging instruments and hedged items. Even if the variability of the fair value due to the benchmark interest rate (as a risk factor) are designated as a hedged item, the difference in calculating method of the number of the dates creates a hedge ineffectiveness.

 

24


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.7.6 Embedded derivatives

An embedded derivative is separated from the host contract and accounted for as a derivative if, and only if, (a) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and (c) the hybrid contract contains a host that is not a financial asset and is not designated as at fair value through profit or loss. Gains or losses arising from a change in fair value of an embedded derivative separated from the host contract are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

3.7.7 Day one gains or losses

If the Group uses a valuation technique that incorporates unobservable inputs for the fair value of the OTC derivatives at initial recognition, there may be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the difference is not recognized in profit or loss but deferred and amortized using the straight-line method over the life of the financial instrument. If the fair value is subsequently determined using observable inputs, the remaining deferred amount is recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss or other operating income and expenses.

3.8 Property and Equipment

3.8.1 Recognition and measurement

All property and equipment that qualify for recognition as an asset are measured at cost and subsequently carried at its cost less any accumulated depreciation and any accumulated impairment losses.

The cost of property and equipment includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent expenditures are capitalized only when they prolong the useful life or enhance values of the assets but the costs of the day-to-day servicing of the assets such as repair and maintenance costs are recognized in profit or loss as incurred. When part of an item of property and equipment has a useful life different from that of the entire asset, it is recognized as a separate asset.

3.8.2 Depreciation

Land is not depreciated, whereas other property and equipment are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value.

Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The depreciation methods and estimated useful lives of property and equipment are as follows:

 

Property and equipment

  Depreciation method  Estimated useful lives

Buildings and structures

  Straight-line  20 ~ 40 years

Leasehold improvements

  Declining-balance  4 years

Equipment and vehicles

  Declining-balance  4 years

 

25


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

The residual value, the useful life and the depreciation method applied to an asset are reviewed at each financial year-end and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.

3.9 Investment Properties

3.9.1 Recognition and measurement

Properties held to earn rentals or for capital appreciation or both are classified as investment properties. Investment properties are measured initially at their cost and subsequently the cost model is used.

3.9.2 Depreciation

Land is not depreciated, whereas other investment properties are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value.

The depreciation method and estimated useful lives of investment properties are as follows:

 

Investment properties

  Depreciation method  Estimated useful lives

Buildings

  Straight-line  40 years

The residual value, the useful life and the depreciation method applied to an asset are reviewed at each financial year-end and, if expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate.

3.10 Intangible Assets

Intangible assets are measured initially at cost and subsequently carried at their cost less any accumulated amortization and any accumulated impairment losses.

Intangible assets, except for goodwill and membership rights, are amortized using the straight-line method or the declining-balance method with no residual value over their estimated useful economic life since the asset is available for use.

 

Intangible assets

  Amortization method  Estimated useful lives

Industrial property rights

  Straight-line  5 years

Software

  Straight-line  4 ~ 5 years

Others

  Straight-line / Declining-balance  1 ~ 13 years

The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Where an intangible asset is not being amortized because its useful life is indefinite, the Group carries out a review in each accounting period to confirm whether events and circumstances still support an indefinite useful life assessment. If they do not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate.

 

26


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.10.1 Goodwill

3.10.1.1 Recognition and measurement

Goodwill related to business combinations before January 1, 2010, is stated at its carrying amount, which was recognized under the Group’s previous accounting policy, prior to the transition to Korean IFRS.

Goodwill acquired from business combinations after January 1, 2010, is initially measured as the excess of cost of the business combination over the fair value of net identifiable assets acquired and liabilities assumed. If the fair value of net identifiable assets acquired and liabilities assumed exceeds cost of business combination, the difference is recognized in profit or loss.

For each business combination, the Group decides at the acquisition date whether the non-controlling interests in the acquiree is initially measured at fair value or at the non-controlling interests’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets.

Acquisition-related costs incurred to effect a business combination are charged to expenses in the periods in which the costs are incurred and the services are received, except for the costs to issue debt or equity securities.

3.10.1.2 Additional acquisitions of non-controlling interests

Additional acquisitions of non-controlling interests are accounted for as equity transactions. Therefore, no additional goodwill is recognized.

3.10.1.3 Subsequent measurement

Goodwill is not amortized and is stated at cost less accumulated impairment losses. However, goodwill that forms part of the carrying amount of an investment in associates is not separately recognized and an impairment loss recognized is not allocated to any asset, including goodwill, which forms part of the carrying amount of the investment in the associates.

3.10.2 Subsequent expenditure

Subsequent expenditure is capitalized only when it enhances values of the assets. Internally generated intangible assets, such as goodwill and trade name, are not recognized as assets but expensed as incurred.

3.11 Impairment of Non-financial Assets

The Group assesses at the end of each reporting period whether there is any indication that a non-financial asset, except for (a) deferred income tax assets, (b) assets arising from employee benefits and (c) non-current assets (or group of assets to be sold) classified as held for sale, may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset. However, irrespective of whether there is any indication of impairment, the Group tests (a) goodwill acquired in a business combination, (b) intangible assets with an indefinite useful life and (c) intangible assets not yet available for use for impairment annually by comparing their carrying amount with their recoverable amount.

 

27


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

The recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit that are discounted by a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss and recognized immediately in profit or loss. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units that is expected to benefit from the synergies of the combination. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.

An impairment loss recognized for goodwill is not reversed in a subsequent period. The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset, other than goodwill, may no longer exist or may have decreased, and an impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss cannot exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years.

3.12 Non-current Assets Held for Sale

A non-current asset or disposal group is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition and its sale must be highly probable. A non-current asset (or disposal group) classified as held for sale is measured at the lower of (a) its carrying amount measured in accordance with the applicable Korean IFRS, immediately before the initial classification of the asset (or disposal group) as held for sale and (b) fair value less costs to sell.

A non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale is not depreciated (or amortized).

Impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. Gain is recognized for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized.

3.13 Financial Liabilities

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

 

28


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.13.1 Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such at initial recognition. After initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. At initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

In relation to securities lending or borrowing transactions, when the Group borrows securities from the Korea Securities Depository and others, these transactions are managed as off-balance sheet items. The borrowed securities are treated as financial liabilities at fair value through profit or loss when they are sold. Changes in fair value at the end of the reporting period and difference between carrying amount at redemption and purchased amount are recognized as profit or loss.

3.13.2 Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. Other financial liabilities include deposits, borrowings, debentures and others. At initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. After initial recognition, other financial liabilities are measured at amortized cost, and its interest expense is recognized, using the effective interest method.

In case an asset is sold under repurchase agreement, the Group continues to recognize the asset with the amount sold being accounted for as borrowing. The Group derecognizes a financial liability from the consolidated statement of financial position only when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

3.14 Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of provisions, and where the effect of the time value of money is material, the amount of provisions is the present value of the expenditures expected to be required to settle the obligation.

Provisions for confirmed and unconfirmed acceptances and guarantees, and unused credit lines of consumer and corporate loans are recognized using a valuation model that applies the credit conversion factor, probability of default, and loss given default.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provisions are reversed.

An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it. If the Group has a contract that is onerous, the present obligation under the contract is recognized and measured as provisions.

 

29


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.15 Financial Guarantee Contracts

A financial guarantee contract requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts are initially recognized at fair value and classified as other liabilities and are amortized over the contractual term. After initial recognition, financial guarantee contracts are measured at the higher of:

 

  

The amount determined in accordance with Korean IFRS No.1109 Financial Instruments and

 

  

The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with Korean IFRS No.1115 Revenue from Contracts with Customers.

3.16 Equity Instrument Issued by the Group

An equity instrument is any contract or agreement that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

3.16.1 Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or the exercise of stock option are deducted from the equity, net of any tax effects.

3.16.2 Hybrid securities

The financial instruments can be classified as either financial liabilities or equity in accordance with the terms of the contract. The Group classifies hybrid securities as an equity if the Group has the unconditional right to avoid any contractual obligation to deliver financial assets such as cash in relation to the financial instruments. However, hybrid securities issued by subsidiaries are classified as non-controlling interests, dividends are recognized in the consolidated statement of comprehensive income as profit attributable to non-controlling interests.

3.16.3 Compound financial instruments

A compound financial instrument is classified as a financial liability or an equity instrument depending on the substance of the contractual arrangement of such financial instrument. The liability component of the compound financial instrument is measured at fair value of the similar liability without conversion option at initial recognition and subsequently measured at amortized cost using effective interest method until it is extinguished by conversion or matured. Equity component is initially measured at fair value of compound financial instrument in its entirety less fair value of liability component net of tax effect and it is not remeasured subsequently.

 

30


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.17 Revenue Recognition

The Group recognizes revenues in accordance with the following steps determined in accordance with Korean IFRS No.1115 Revenue from Contracts with Customers.

 

  

Step 1: Identify the contract with a customer.

 

  

Step 2: Identify the performance obligations in the contract.

 

  

Step 3: Determine the transaction price.

 

  

Step 4: Allocate the transaction price to the performance obligations in the contract.

 

  

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

3.17.1 Interest income and expense

Interest income and expense on debt securities at fair value through profit or loss (excluding beneficiary certificates, equity investments and other debt instruments), loans, financial instruments at amortized cost and debt securities at fair value through other comprehensive income, are recognized in the consolidated statement of comprehensive income using the effective interest method in accordance with Korean IFRS No.1109 Financial Instruments. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and allocating the interest income or interest expense over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period, to the gross carrying amount of a financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Group estimates expected cash flows by considering all contractual terms of the financial instrument but does not consider expected credit losses. The calculation includes all fees and points paid (main components of effective interest rate only) or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows and the expected life of a financial instrument, the Group uses the contractual cash flows over the full contractual term of the financial instrument.

Interest income on impaired financial assets is recognized using the rate of interest used to discount the expected cash flows for the purpose of measuring the impairment loss. Interest income on debt securities at fair value through profit or loss is also classified as interest income in the consolidated statement of comprehensive income.

3.17.2 Fee and commission income

The Group recognizes financial service fees in accordance with the purpose of charging the fees and the accounting standards of the financial instrument related to the fees earned.

3.17.2.1 Fees that are an integral part of the effective interest of a financial instrument

Such fees are generally treated as adjustments of effective interest. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents and closing the transaction and origination fees received on issuing financial liabilities at amortized cost. However, fees relating to the creation or acquisition of a financial instrument at fair value through profit or loss are recognized as revenue immediately.

 

31


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.17.2.2 Fees related to performance obligations satisfied over time

The Group transfers control of a good or service over time, therefore, recognizes revenue related to performance obligations satisfied over the period of performance obligations. Fees which can be earned through the certain periods, including asset management fees, consignment business fees, etc. are recognized over the period of performance obligations.

3.17.2.3 Fees related to performance obligations satisfied at a point in time

Fees earned at a point in time are recognized as revenue when a customer obtains controls of a promised good or service and the Group satisfies a performance obligation.

Commission on negotiation or participation in negotiation for the third party such as trading stocks or other securities, arranging merger and acquisition of business, is recognized as revenue when the transaction has been completed.

A syndication arrangement fees recognized as revenue when the syndication has been completed, if the Group arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants).

3.17.3 Net gains or losses on financial instruments at fair value through profit or loss

Net gains or losses on financial instruments at fair value through profit or loss (including changes in fair value, dividends, and gains or losses from foreign currency translation) include gains and losses from following financial instruments:

 

  

Gains or losses relating to financial instruments at fair value through profit or loss (excluding interest income using the effective interest rate)

 

  

Gains or losses relating to derivatives for trading (including derivatives for hedging purpose but do not qualify for hedge accounting)

3.17.4 Dividend income

Dividend income is recognized in profit or loss when the right to receive payment is established. Dividend income is recognized as net gains or losses on financial instruments at fair value through profit or loss or other operating income depending on the classification of equity securities.

3.18 Employee Compensation and Benefits

3.18.1 Post-employment benefits:

3.18.1.1 Defined contribution plans

When an employee has rendered service to the Group during a period, the Group recognizes the contribution payable to a defined contribution plan in exchange for that service as post-employment benefits for the period.

3.18.1.2 Defined benefit plans

All post-employment benefits, other than defined contribution plans, are classified as defined benefit plans. The amount recognized as a net defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets at the end of the reporting period.

 

32


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

The present value of the defined benefit obligation is calculated annually by independent actuaries using the Projected Unit Credit method. The rate used to discount post-employment benefit obligations is determined by reference to market yields at the end of the reporting period on high quality corporate bonds. The currency and term of the corporate bonds are consistent with the currency and estimated term of the post-employment benefit obligations. Actuarial gains and losses resulted from changes in actuarial assumptions and experience adjustments are recognized in other comprehensive income.

When the total of the present value of the defined benefit obligation minus the fair value of plan assets results in an asset, it is recognized to the extent of the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Past service cost is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting from the introduction or changes to a defined benefit plan. Such past service cost is immediately recognized as an expense for the period.

3.18.2 Short-term employee benefits

Short-term employee benefits are employee benefits that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. When an employee has rendered service to the Group during an accounting period, the Group recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as an expense for the period.

The expected cost of profit-sharing and bonus payments is recognized as liabilities when the Group has a present legal or constructive obligation to make payments as a result of past events, such as service rendered by employees, and a reliable estimate of the obligation can be made.

3.18.3 Share-based payment

The Group has provided its directors and employees with stock grants and mileage stocks programs. When stock grants are exercised, the Group can either select to distribute issued stock of KB Financial Group Inc., the Parent Company or compensate in cash based on the share price. When mileage stocks are exercised, the Group pays the amount equivalent to share price of KB Financial Group Inc. in cash.

For a share-based payment transaction in which the terms of the arrangement provide the Group with the choice of whether to settle in cash or by issuing equity instruments, the Group accounts for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions because the Group determines that it has a present obligation to settle in cash because the Group has a past practice and a stated policy of settling in cash. Therefore, the Group measures the liability incurred as consideration for the service, at fair value and recognizes related expense and accrued expense over the vesting periods. For mileage stocks, the Group accounts for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions, which are recognized as expense and accrued expenses at the time of vesting.

Until the liability is settled, the Group remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss as share-based payments.

 

33


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

3.18.4 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. The Group recognizes a liability and expense for termination benefits at the earlier of the following dates; when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring that is within the scope of Korean IFRS No.1037 and involves the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, then the termination benefits are discounted to present value.

3.19 Income Tax Expenses

Income tax expense comprises current tax expense and deferred income tax expense. Current and deferred income tax are recognized as income or expense and included in profit or loss for the period, except to the extent that the tax arises from (a) a transaction or event which is recognized, in the same or a different period, outside profit or loss, either in other comprehensive income or directly in equity and (b) a business combination.

3.19.1 Current income tax

Current income tax is the amount of income tax payable in respect of the taxable profit (loss) for the period. A difference between the taxable profit and accounting profit may arise when income or expense is included in accounting profit in one period but is included in taxable profit in a different period. Differences may also arise if there is revenue that is exempt from taxation, or expense that is not deductible in determining taxable profit (loss). Current income tax liabilities for the current and prior periods are measured using the tax rates that have been enacted or substantively enacted by the end of the reporting period.

The Group offsets current income tax assets and current income tax liabilities if, and only if, the Group (a) has a legally enforceable right to set off the recognized amounts and (b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

3.19.2 Deferred income tax

Deferred income tax is recognized, using the asset-liability method, on temporary differences arising between the tax-based amount of assets and liabilities and their carrying amount in the financial statements. Deferred income tax liabilities are recognized for all taxable temporary differences and deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. However, deferred income tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax assets and liabilities are not recognized if they arise from the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting nor taxable profit or loss.

The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and associates, except to the extent that the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future.

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

 

34


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

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

The Group offsets deferred income tax assets and deferred income tax liabilities if, and only if the Group has a legally enforceable right to set off current income tax assets against current income tax liabilities and the deferred income tax assets and the deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current income tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred income tax liabilities or assets are expected to be settled or recovered.

3.19.3 Uncertain tax positions

Uncertain tax positions arise from tax treatments applied by the Group which may be challenged by the tax authorities due to the complexity of the transaction or different interpretation of the tax laws, a claim for rectification brought by the Group, an appeal for a refund claimed from the tax authorities related to additional assessments or a tax investigation by the tax authorities. The Group recognizes its uncertain tax positions in the consolidated financial statements in accordance with Korean IFRS No.1012 and Interpretation of Korean IFRS No.2123. The income tax asset is recognized if a tax refund is probable for taxes paid and levied by the tax authority, and the amount to be paid as a result of the tax investigation and others is recognized as the current tax payable. However, additional dues on tax paid or refund are recognized in accordance with Korean IFRS No.1037 because those are, in substance, interest and penalty.

3.20 Transactions with the Trust Accounts

The Group accounts for trust assets separately from its own assets in accordance with the Financial Investment Services and Capital Markets Act. The borrowings from trust accounts represent transfer of funds in trust accounts into banking accounts. Such borrowings from trust accounts are recorded as receivables from the banking accounts in the trust accounts and as borrowings from trust accounts in the banking accounts. The Group earns trust fees from the trust accounts for its management of trust assets and operations. The reserves for future profits and losses are set up in the trust accounts for profits and losses related to those trust funds with a guarantee of the principal or of the principal and a certain minimum rate of return in accordance with the relevant laws and regulations applicable to trust operations. The reserves are used to provide for the losses on such trust funds and, if the losses incurred are in excess of the reserves, the excess losses are compensation paid as a loss on trust management in other operating expenses and the trust accounts recognize the corresponding compensation as compensation from banking accounts.

3.21 Lease

The Group as a lessor recognizes lease payments from operating leases as income on a straight-line basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset and recognized as expense over the lease term on the same basis as lease income. The respective leased assets are included in the consolidated statement of financial position based on their nature.

A lessee is required to recognize a right-of-use asset (lease assets) representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. Assets and liabilities arising from a lease are initially measured at the present value.

 

35


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

Lease liabilities include the net present value of the following lease payments:

 

  

Fixed payments (including in-substance fixed payments), less any lease incentives receivable

 

  

Variable lease payment that are depend on an index or a rate

 

  

Amounts expected to be payable by the lessee under residual value guarantees

 

  

The exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

 

  

Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease

The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee’s incremental borrowing rate is used, which is the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

Right-of-use assets are measured at cost comprising the following:

 

  

The amount of the initial measurement of the lease liability

 

  

Any lease payments made at or before the commencement date, less any lease incentives received

 

  

Any initial direct costs incurred by the lessee, and

 

  

An estimate of restoration costs

However, the Group can elect not to apply the requirements of Korean IFRS No.1116 to short-term lease (lease that, at the commencement date, has a lease term of 12 months or less) and leases for which the underlying asset is of low value (for example, underlying leased asset under $ 5,000). The Group applies the exemption of the standard for one time lease of real estate (for training purpose) and leases of low-value assets (underlying assets less thanW 5 million and $ 5,000).

The right-of-use asset is depreciated from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

For sale and leaseback transactions, the Group applies the requirements of Korean IFRS No.1115 Revenue from Contracts with Customers, to determine whether the transfer of an asset is accounted for as a sale of that asset.

3.22 Operating Segments

The Group identifies its operating segments based on internal reports which are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

Segment information includes items which are directly attributable and reasonably allocated to the segment.

 

36


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of financial risk management policy

The financial risks that the Group is exposed to are credit risk, market risk, liquidity risk, operational risk and others.

This note regarding financial risk management provides information about the risks that the Group is exposed to and about its objectives, policies, risk assessment and management procedures, and capital management. Additional quantitative information is disclosed throughout the consolidated financial statements.

The Group’s risk management system focuses on efficiently supporting long-term strategy and management decisions of each business group through increased risk transparency, spread of risk management culture, prevention of risk transition between risk types, and preemptive response to rapidly changing financial environments. Credit risk, market risk, liquidity risk, and operational risk are recognized as the Group’s significant risks and measured and managed by quantifying them in the form of Internal Capital or Value at Risk (“VaR”) using statistical methods.

4.1.2 Risk management organization

4.1.2.1 Risk Management Committee

The Risk Management Committee, as the ultimate decision-making body, approves risk-related issues, such as establishing risk management strategies in accordance with the strategic direction determined by the Board of Directors, determining the affordable level of risk appetite, and reviewing the level of risk and the status of risk management activities.

4.1.2.2 Risk Management Council

The Risk Management Council deliberates on and resolve matters delegated by the Risk Management Committee and discusses the details of risk management of the Group.

4.1.2.3 Risk Management Subcommittees

The Risk Management Subcommittee implements decisions made by the Risk Management Council and makes practical decisions regarding the implementation of risk management policies and procedures.

 

  

Credit Risk Management Subcommittee

The Credit Risk Management Subcommittee conducts deliberation and resolution on new approval of non-standard and compound instruments with embedded credit risks, reviews credit risks for new products with credit risks, and establishment of exposure limits by industry.

 

  

Market Risk Management Subcommittee

The Market Risk Management Subcommittee conducts deliberation and resolution on market risk-related matters, such as setting limits on market risk and approving detailed investment standards for new standard, non-standard and compound products.

 

37


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

  

Operational Risk Management Subcommittee

The Operational Risk Management Subcommittee reviews the issues that have a significant effect on the Group’s operational risk such as establishment, amendment and abolition of major system, process and others.

4.1.2.4 Risk Management Group

The Risk Management Group manages risk management detailed policies, procedures, and business processes.

4.2 Credit Risk

4.2.1 Overview of credit risk

Credit risk is the risk of loss from the portfolio of assets held due to the counterparty’s default, breach of contract and deterioration of credit quality. For risk management reporting purposes, the Group considers all factors of credit risk exposure, such as default risk of individual borrowers, country risk and risk of specific sectors. The Group defines default as the definition applied to the calculation of Capital Adequacy Ratio under the new Basel Accord (Basel III).

4.2.2 Credit risk management

The Group measures the expected loss and economic capital for the assets subject to credit risk management, including on-balance and off-balance assets, and uses them as management indicators. The Group allocates and manages credit risk internal capital limits.

In addition, to prevent excessive concentration of exposures by borrower and industry, the total exposure limit at the Group level is introduced, applied, and managed to control the credit concentration risk.

In order to establish a credit risk management system, the Group manages credit risk by forming a separate risk management organization. In particular, independent of the Sales Group, the Credit Group, Retail Customer Group and SME/SOHO Customer Group are in charge of loan policy, loan system, credit rating, credit analysis, follow-up management and corporate restructuring. The Risk Management Group is responsible for establishing policies on credit risk management, measuring and limiting internal capital of credit risk, setting credit limits, credit review, and verification of credit rating models.

 

38


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.3 Maximum exposure to credit risk

The Group’s maximum exposures of financial instruments other than equity securities, to credit risk without consideration of collateral values as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31,
2020
   December 31,
2019
 

Financial assets

    

Due from financial institutions 1

   17,085,898    11,786,957 

Financial assets at fair value through profit or loss

    

Securities measured at fair value through profit or loss

   15,707,842    13,446,838 

Loans measured at fair value through profit or loss

   38,756    188,133 

Due from financial institutions measured at fair value through profit or loss

   89,965    79,805 

Derivatives

   4,456,668    2,317,425 

Loans measured at amortized cost 1

   327,332,495    293,531,433 

Financial investments

    

Securities measured at fair value through other comprehensive income

   39,960,675    36,116,988 

Securities measured at amortized cost 1

   15,588,413    13,964,339 

Loans measured at fair value through other comprehensive income

   234,780    344,292 

Other financial assets 1

   5,986,686    5,464,704 
  

 

 

   

 

 

 
   426,482,178    377,240,914 
  

 

 

   

 

 

 

Off-balance sheet items 2

    

Acceptances and guarantees contracts

   8,560,896    8,327,494 

Financial guarantee contracts

   4,354,919    3,305,051 

Commitments

   91,738,296    87,866,225 
  

 

 

   

 

 

 
   104,654,111    99,498,770 
  

 

 

   

 

 

 
   531,136,289    476,739,684 
  

 

 

   

 

 

 

 

1

After netting of allowance

2

For details of relevant provisions, see Note 22.

4.2.4 Credit risk of loans

The Group maintains an allowance for loan losses associated with credit risk of loans to manage its credit risk.

The Group assesses expected credit losses and recognizes loss allowances of financial assets at amortized cost and financial assets at fair value through other comprehensive income (debt instruments). Financial assets at fair value through profit or loss are excluded. Expected credit losses are a probability-weighted estimate of possible credit losses occurred in a certain range by reflecting reasonable and supportable information that is reasonably available at the reporting date without undue cost or effort, including information about past events, current conditions and forecasts of future economic conditions. The Group measures the expected credit losses on loans classified as financial assets at amortized cost, by deducting allowances for credit losses. The expected credit losses of loans classified as financial assets at fair value through other comprehensive income are presented in other comprehensive income in the consolidated financial statements.

 

39


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.4.1 Credit risk exposure

Credit qualities of loans as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31, 2020 
  12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Not
applying
expected
credit
losses
   Total 
  Non-impaired   Impaired 

Loans measured at amortized cost *

 

Corporate

 

Grade 1

   85,802,797    4,470,806    6,545    —      —      90,280,148 

Grade 2

   58,494,076    6,777,700    1,119    —      —      65,272,895 

Grade 3

   2,228,426    2,436,658    3,042    —      —      4,668,126 

Grade 4

   487,038    1,003,942    7,878    —      —      1,498,858 

Grade 5

   17,941    384,014    2,101,014    —      —      2,502,969 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   147,030,278    15,073,120    2,119,598    —      —      164,222,996 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Retail

 

Grade 1

   151,410,177    3,439,344    5,987    —      —      154,855,508 

Grade 2

   3,947,198    3,913,432    6,160    —      —      7,866,790 

Grade 3

   230,361    1,157,224    6,971    —      —      1,394,556 

Grade 4

   19,077    124,562    3,269    —      —      146,908 

Grade 5

   25,369    400,181    546,039    —      —      971,589 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   155,632,182    9,034,743    568,426    —      —      165,235,351 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Credit card

 

Grade 1

   —      —      —      —      —      —   

Grade 2

   37,053    —      —      —      —      37,053 

Grade 3

   1,467    —      —      —      —      1,467 

Grade 4

   —      —      —      —      —      —   

Grade 5

   —      —      22,439    —      —      22,439 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   38,520    —      22,439    —      —      60,959 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   302,700,980    24,107,863    2,710,463    —      —      329,519,306 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans measured at fair value through other comprehensive income

 

Corporate

 

Grade 1

   176,840    —      —      —      —      176,840 

Grade 2

   57,940    —      —      —      —      57,940 

Grade 3

   —      —      —      —      —      —   

Grade 4

   —      —      —      —      —      —   

Grade 5

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   234,780    —      —      —      —      234,780 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   234,780    —      —      —      —      234,780 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   302,935,760    24,107,863    2,710,463    —      —      329,754,086 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

40


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

(In millions of Korean won)  December 31, 2019 
  12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Not
applying
expected
credit
losses
   Total 
  Non-impaired   Impaired 

Loans measured at amortized cost *

 

Corporate

 

Grade 1

   77,685,587    1,722,935    837    —      —      79,409,359 

Grade 2

   55,097,112    4,512,631    6,397    —      —      59,616,140 

Grade 3

   2,486,531    2,135,130    4,188    —      —      4,625,849 

Grade 4

   423,926    796,468    4,185    —      —      1,224,579 

Grade 5

   16,648    344,920    744,335    —      —      1,105,903 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   135,709,804    9,512,084    759,942    —      —      145,981,830 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Retail

 

Grade 1

   135,445,215    3,556,937    7,560    —      —      139,009,712 

Grade 2

   3,125,163    4,249,881    8,278    —      —      7,383,322 

Grade 3

   158,769    1,305,097    8,312    —      —      1,472,178 

Grade 4

   9,468    151,552    2,575    —      —      163,595 

Grade 5

   8,666    423,127    424,964    —      —      856,757 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   138,747,281    9,686,594    451,689    —      —      148,885,564 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   274,457,085    19,198,678    1,211,631    —      —      294,867,394 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans measured at fair value through other comprehensive income

 

Corporate

 

Grade 1

   210,718    —      —      —      —      210,718 

Grade 2

   133,574    —      —      —      —      133,574 

Grade 3

   —      —      —      —      —      —   

Grade 4

   —      —      —      —      —      —   

Grade 5

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   344,292    —      —      —      —      344,292 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   344,292    —      —      —      —      344,292 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   274,801,377    19,198,678    1,211,631    —      —      295,211,686 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Before netting of allowance

Credit qualities of loans graded according to internal credit ratings as of December 31, 2020 and 2019, are as follows:

 

   Corporate  Retail

Grade 1

  AAA ~ BBB+  1 ~ 5 grade

Grade 2

  BBB ~ BB  6 ~ 8 grade

Grade 3

  BB- ~ B  9 ~ 10 grade

Grade 4

  B- ~ CCC  11 grade

Grade 5

  CC or under  12 grade or under

 

41


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.4.2 Credit risk mitigation by collateral

Quantification of the extent to which collateral and other credit enhancements mitigate credit risk of loans as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31, 2020 
   12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Not
applying
expected
credit losses
   Total 
  Non-impaired   Impaired 

Guarantees

   78,510,868    5,708,138    184,422    —      —      84,403,428 

Deposits and savings

   1,424,757    149,745    64,355    —      —      1,638,857 

Property and equipment

   3,883,931    471,313    71,021    —      —      4,426,265 

Real estate

   166,812,667    12,453,807    1,792,642    —      —      181,059,116 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   250,632,223    18,783,003    2,112,440    —      —      271,527,666 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of Korean won)  December 31, 2019 
   12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Not
applying
expected
credit losses
   Total 
  Non-impaired   Impaired 

Guarantees

   69,711,057    3,834,566    177,047    —      —      73,722,670 

Deposits and savings

   1,376,045    118,204    6,156    —      —      1,500,405 

Property and equipment

   3,169,212    314,236    1,123    —      —      3,484,571 

Real estate

   152,887,321    10,508,403    382,471    —      —      163,778,195 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   227,143,635    14,775,409    566,797    —      —      242,485,841 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

42


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.5 Credit risk of securities

Credit qualities of securities other than equity securities that are exposed to credit risk as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31, 2020 
   12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Not
applying
expected
credit losses
   Total 
   Non-impaired   Impaired 

Securities measured at amortized cost *

 

Grade 1

   15,076,443    —      —      —      —      15,076,443 

Grade 2

   468,773    —      —      —      —      468,773 

Grade 3

   38,454    7,061    —      —      —      45,515 

Grade 4

   —      —      —      —      —      —   

Grade 5

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   15,583,670    7,061    —      —      —      15,590,731 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through other comprehensive income

 

Grade 1

   38,289,525    —      —      —      —      38,289,525 

Grade 2

   1,584,293    —      —      —      —      1,584,293 

Grade 3

   79,336    —      —      —      —      79,336 

Grade 4

   7,521    —      —      —      —      7,521 

Grade 5

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   39,960,675    —      —      —      —      39,960,675 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   55,544,345    7,061    —      —      —      55,551,406 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of Korean won)  December 31, 2019 
   12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Not
applying
expected
credit losses
   Total 
   Non-impaired   Impaired 

Securities measured at amortized cost *

 

Grade 1

   13,894,203    —      —      —      —      13,894,203 

Grade 2

   33,148    —      —      —      —      33,148 

Grade 3

   38,230    —      —      —      —      38,230 

Grade 4

   —      —      —      —      —      —   

Grade 5

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   13,965,581    —      —      —      —      13,965,581 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through other comprehensive income

 

Grade 1

   34,841,376    —      —      —      —      34,841,376 

Grade 2

   1,273,007    —      —      —      —      1,273,007 

Grade 3

   2,606    —      —      —      —      2,606 

Grade 4

   —      —      —      —      —      —   

Grade 5

   —      —      —      —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   36,116,989    —      —      —      —      36,116,989 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   50,082,570    —      —      —      —      50,082,570 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Before netting of allowance

 

43


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

Credit qualities of securities other than equity securities, according to the credit ratings by external rating agencies as of December 31, 2020 and 2019, are as follows:

 

   

Domestic

  

Foreign

Credit

quality

  

KIS

  

NICE P&I

  

FnPricing Inc.

  

S&P

  

Fitch-IBCA

  

Moody’s

Grade 1

  AA0 to AAA  AA0 to AAA  AA0 to AAA  A- to AAA  A- to AAA  A3 to Aaa

Grade 2

  A- to AA-  A- to AA-  A- to AA-  BBB-to BBB+  BBB-to BBB+  Baa3 to Baa1

Grade 3

  BBB0 to BBB+  BBB0 to BBB+  BBB0 to BBB+  BB to BB+  BB to BB+  Ba2 to Ba1

Grade 4

  BB0 to BBB-  BB0 to BBB-  BB0 to BBB-  B+ to BB-  B+ to BB-  B1 to Ba3

Grade 5

  BB- or under  BB- or under  BB- or under  B or under  B or under  B2 or under

Credit qualities of debt securities denominated in Korean won are based on the lowest credit rating by the domestic agencies above, and those denominated in foreign currencies are based on the lowest credit rating by the foreign agencies above.

4.2.6 Credit risk of due from financial institutions

Credit qualities of due from financial institutions as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Total 
  Non-impaired   Impaired 

Due from financial institutions measured at amortized cost *

 

Grade 1

   15,802,294    —      —      —      15,802,294 

Grade 2

   334,207    —      —      —      334,207 

Grade 3

   445,732    13,099    —      —      458,831 

Grade 4

   479,143    —      —      —      479,143 

Grade 5

   13,520    —      282    —      13,802 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   17,074,896    13,099    282    —      17,088,277 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  12-month
expected
credit losses
   Lifetime expected
credit losses
   Credit
impaired
approach
   Total 
  Non-impaired   Impaired 

Due from financial institutions measured at amortized cost *

 

Grade 1

   10,936,300    —      —      —      10,936,300 

Grade 2

   149,927    —      —      —      149,927 

Grade 3

   677,249    —      —      —      677,249 

Grade 4

   —      —      —      —      —   

Grade 5

   13,990    13,179    360    —      27,529 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   11,777,466    13,179    360    —      11,791,005 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Before netting of allowance

The classification criteria of the credit qualities of due from financial institutions as of December 31, 2020 and 2019, is the same as the criteria for securities other than equity securities.

 

44


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.7 Credit risk mitigation of derivative financial instruments

Quantification of the extent to which collateral mitigates credit risk of derivative financial instruments as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31,
2020
   December 31,
2019
 

Deposits and savings, securities and others

   1,264,017    496,294 

4.2.8 Credit risk concentration analysis

4.2.8.1 Details of loans by country as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Retail   Corporate *   Credit
card
   Total   %   Allowances  Carrying
amount
 

Korea

   162,521,943    149,253,281    —      311,775,224    94.55    (1,362,777  310,412,447 

Japan

   94    960,604    —      960,698    0.29    (1,258  959,440 

United States

   —      1,690,540    —      1,690,540    0.51    (19,011  1,671,529 

China

   —      4,518,737    —      4,518,737    1.37    (20,485  4,498,252 

Cambodia

   1,302,850    2,272,777    —      3,575,627    1.08    (84,713  3,490,914 

Indonesia

   1,221,257    3,636,434    60,959    4,918,650    1.49    (689,408  4,229,242 

Others

   189,207    2,164,159    —      2,353,366    0.71    (9,159  2,344,207 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
   165,235,351    164,496,532    60,959    329,792,842    100.00    (2,186,811  327,606,031 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  Retail   Corporate *   Total   %   Allowances  Carrying
amount
 

Korea

   148,609,480    139,599,908    288,209,388    97.58    (1,303,099  286,906,289 

Japan

   101    629,717    629,818    0.21    (547  629,271 

United States

   —      1,838,883    1,838,883    0.62    (5,421  1,833,462 

China

   —      3,135,501    3,135,501    1.06    (20,652  3,114,849 

Others

   275,983    1,310,246    1,586,229    0.53    (6,242  1,579,987 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
   148,885,564    146,514,255    295,399,819    100.00    (1,335,961  294,063,858 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

 

*

Expected credit losses of loans measured at fair value through other comprehensive income as of December 31, 2020 and 2019, areW 395 million andW 582 million, respectively.

 

45


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.8.2 Details of corporate loans by industry as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Loans *   %   Allowances   Carrying
amount
 

Financial institutions

   12,807,603    7.78    (7,802   12,799,801 

Manufacturing

   45,229,743    27.49    (467,605   44,762,138 

Service

   71,466,009    43.45    (349,419   71,116,590 

Wholesale and retail

   22,414,994    13.63    (234,360   22,180,634 

Construction

   3,609,505    2.19    (164,845   3,444,660 

Public sector

   1,358,422    0.83    (74,717   1,283,705 

Others

   7,610,256    4.63    (266,134   7,344,122 
  

 

 

   

 

 

   

 

 

   

 

 

 
   164,496,532    100.00    (1,564,882   162,931,650 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  Loans *   %   Allowances   Carrying
amount
 

Financial institutions

   13,564,347    9.26    (5,091   13,559,256 

Manufacturing

   42,707,287    29.15    (389,602   42,317,685 

Service

   62,713,574    42.80    (178,869   62,534,705 

Wholesale and retail

   17,900,225    12.22    (97,238   17,802,987 

Construction

   2,833,544    1.93    (163,791   2,669,753 

Public sector

   1,170,823    0.80    (2,005   1,168,818 

Others

   5,624,455    3.84    (24,794   5,599,661 
  

 

 

   

 

 

   

 

 

   

 

 

 
   146,514,255    100.00    (861,390   145,652,865 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Expected credit losses of loans measured at fair value through other comprehensive income as of December 31, 2020 and 2019, areW 395 million andW 582 million, respectively.

4.2.8.3 Details of retail loans and credit card receivables as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Loans   %   Allowances   Carrying
amount
 

Housing purpose

   86,848,079    52.54    (59,059   86,789,020 

General purpose

   78,387,272    47.42    (559,772   77,827,500 

Credit card

   60,959    0.04    (3,098   57,861 
  

 

 

   

 

 

   

 

 

   

 

 

 
   165,296,310    100    (621,929   164,674,381 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  Loans   %   Allowances   Carrying
amount
 

Housing purpose

   77,523,389    52.07    (33,536   77,489,853 

General purpose

   71,362,175    47.93    (441,035   70,921,140 
  

 

 

   

 

 

   

 

 

   

 

 

 
   148,885,564    100.00    (474,571   148,410,993 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

46


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.8.4 Details of domestic mortgage loans as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Loans *   %   Allowances   Carrying
amount
 

Group1

   13,721,317    14.22    (8,252   13,713,065 

Group2

   26,749,535    27.74    (6,001   26,743,534 

Group3

   35,831,558    37.16    (9,458   35,822,100 

Group4

   19,706,942    20.44    (13,319   19,693,623 

Group5

   401,295    0.42    (1,413   399,882 

Group6

   15,962    0.02    (147   15,815 
  

 

 

   

 

 

   

 

 

   

 

 

 
   96,426,609    100.00    (38,590   96,388,019 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  Loans *   %   Allowances   Carrying
amount
 

Group1

   9,410,202    9.99    (4,634   9,405,568 

Group2

   19,269,533    20.48    (6,270   19,263,263 

Group3

   33,500,810    35.61    (7,304   33,493,506 

Group4

   30,517,828    32.44    (13,244   30,504,584 

Group5

   1,364,155    1.45    (2,389   1,361,766 

Group6

   25,763    0.03    (128   25,635 
  

 

 

   

 

 

   

 

 

   

 

 

 
   94,088,291    100.00    (33,969   94,054,322 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Retail loans for general purpose with the real estate as collateral are included.

 

   Ranges

Group1

  LTV 0% to less than 20%

Group2

  LTV 20% to less than 40%

Group3

  LTV 40% to less than 60%

Group4

  LTV 60% to less than 80%

Group5

  LTV 80% to less than 100%

Group6

  LTV over 100%

 

*

LTV: Loan to Value ratio

 

47


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.8.5 Details of credit risk of due from financial institutions, securities other than equity securities and derivative financial assets by industry as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Amount   %   Allowances   Carrying
amount
 

Due from financial institutions measured at amortized cost

 

Finance and Insurance

   17,088,277    100.00    (2,379   17,085,898 
  

 

 

   

 

 

   

 

 

   

 

 

 
   17,088,277    100.00    (2,379   17,085,898 
  

 

 

   

 

 

   

 

��

   

 

 

 

Securities measured at fair value through profit or loss

 

Government and government funded institutions

   3,856,785    24.55    —      3,856,785 

Finance and Insurance 1

   10,382,964    66.10    —      10,382,964 

Others

   1,468,093    9.35    —      1,468,093 
  

 

 

   

 

 

   

 

 

   

 

 

 
   15,707,842    100.00    —      15,707,842 
  

 

 

   

 

 

   

 

 

   

 

 

 

Derivative financial assets

 

Government and government funded institutions

   44,670    1.00   —      44,670 

Finance and Insurance 1

   3,829,897    85.94   —      3,829,897 

Others

   582,101    13.06   —      582,101 
  

 

 

   

 

 

   

 

 

   

 

 

 
   4,456,668    100.00   —      4,456,668 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through other comprehensive income 2

 

Government and government funded institutions

   14,625,964    36.60    —      14,625,964 

Finance and Insurance

   21,175,736    52.99    —      21,175,736 

Others

   4,158,975    10.41    —      4,158,975 
  

 

 

   

 

 

   

 

 

   

 

 

 
   39,960,675    100.00    —      39,960,675 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at amortized cost

 

Government and government funded institutions

   5,162,860    33.11    —      5,162,860 

Finance and Insurance

   10,378,899    66.57    (2,300   10,376,599 

Others

   48,972    0.32    (18   48,954 
  

 

 

   

 

 

   

 

 

   

 

 

 
   15,590,731    100.00    (2,318   15,588,413 
  

 

 

   

 

 

   

 

 

   

 

 

 
   92,804,193      (4,697   92,799,496 
  

 

 

     

 

 

   

 

 

 

 

48


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2019 
(In millions of Korean won)  Amount   %   Allowances   Carrying
amount
 

Due from financial institutions measured at amortized cost

 

Finance and Insurance

   11,791,005    100.00    (4,048   11,786,957 
  

 

 

   

 

 

   

 

 

   

 

 

 
   11,791,005    100.00    (4,048   11,786,957 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through profit or loss

 

Government and government funded institutions

   2,810,692    20.90    —      2,810,692 

Finance and Insurance 1

   9,033,080    67.18    —      9,033,080 

Others

   1,603,067    11.92    —      1,603,067 
  

 

 

   

 

 

   

 

 

   

 

 

 
   13,446,839    100.00    —      13,446,839 
  

 

 

   

 

 

   

 

 

   

 

 

 

Derivative financial assets

 

Government and government funded institutions

   7,330    0.32    —      7,330 

Finance and Insurance 1

   2,146,545    92.62    —      2,146,545 

Others

   163,551    7.06    —      163,551 
  

 

 

   

 

 

   

 

 

   

 

 

 
   2,317,426    100.00    —      2,317,426 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through other comprehensive income 2

 

Government and government funded institutions

   13,852,627    38.35    —      13,852,627 

Finance and Insurance

   18,726,118    51.85    —      18,726,118 

Others

   3,538,244    9.80    —      3,538,244 
  

 

 

   

 

 

   

 

 

   

 

 

 
   36,116,989    100.00    —      36,116,989 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at amortized cost

 

Government and government funded institutions

   2,317,794    16.60    (15   2,317,779 

Finance and Insurance

   11,637,772    83.33    (1,225   11,636,547 

Others

   10,015    0.07    (2   10,013 
  

 

 

   

 

 

   

 

 

   

 

 

 
   13,965,581    100.00    (1,242   13,964,339 
  

 

 

   

 

 

   

 

 

   

 

 

 
   77,637,840      (5,290   77,632,550 
  

 

 

     

 

 

   

 

 

 

 

1 

Collective investment securities are classified as finance and insurance.

2 

Expected credit losses of securities measured at fair value through other comprehensive income as of December 31, 2020 and 2019, areW 4,312 million andW 2,028 million, respectively.

 

49


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.2.8.6 Details of credit risk of due from financial institutions, securities other than equity securities and derivative financial assets by country as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31, 2020 
  Amount   %   Allowances   Carrying
amount
 

Due from financial institutions measured at amortized cost

 

Korea

   12,131,470    70.99   —      12,131,470 

United States

   1,952,700    11.43   (282   1,952,418 

Others

   3,004,107    17.58   (2,097   3,002,010 
  

 

 

   

 

 

   

 

 

   

 

 

 
   17,088,277    100.00   (2,379   17,085,898 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through profit or loss

 

Korea

   13,886,018    88.40    —      13,886,018 

United States

   1,132,332    7.21    —      1,132,332 

Others

   689,492    4.39    —      689,492 
  

 

 

   

 

 

   

 

 

   

 

 

 
   15,707,842    100.00    —      15,707,842 
  

 

 

   

 

 

   

 

 

   

 

 

 

Derivative financial assets

 

Korea

   2,120,424    47.58    —      2,120,424 

United States

   612,878    13.75    —      612,878 

France

   399,942    8.97    —      399,942 

Others

   1,323,424    29.70    —      1,323,424 
  

 

 

   

 

 

   

 

 

   

 

 

 
   4,456,668    100.00    —      4,456,668 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through other comprehensive income *

 

Korea

   37,158,763    92.99    —      37,158,763 

United States

   223,750    0.56    —      223,750 

Others

   2,578,162    6.45    —      2,578,162 
  

 

 

   

 

 

   

 

 

   

 

 

 
   39,960,675    100.00    —      39,960,675 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at amortized cost

 

Korea

   14,757,644    94.66    (2,015   14,755,629 

United States

   5,473    0.04    (4   5,469 

United Kingdom

   272,511    1.75    (103   272,408 

Others

   555,103    3.55    (196   554,907 
  

 

 

   

 

 

   

 

 

   

 

 

 
   15,590,731    100.00    (2,318   15,588,413 
  

 

 

   

 

 

   

 

 

   

 

 

 
   92,804,193      (4,697   92,799,496 
  

 

 

     

 

 

   

 

 

 

 

50


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

(In millions of Korean won)  December 31, 2019 
  Amount   %   Allowances   Carrying
amount
 

Due from financial institutions measured at amortized cost

 

Korea

   8,765,109    74.34    —      8,765,109 

United States

   1,244,220    10.55    —      1,244,220 

Others

   1,781,676    15.11    (4,048   1,777,628 
  

 

 

   

 

 

   

 

 

   

 

 

 
   11,791,005    100.00    (4,048   11,786,957 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through profit or loss

 

Korea

   12,460,493    92.66    —      12,460,493 

United States

   626,596    4.66    —      626,596 

Others

   359,750    2.68    —      359,750 
  

 

 

   

 

 

   

 

 

   

 

 

 
   13,446,839    100.00    —      13,446,839 
  

 

 

   

 

 

   

 

 

   

 

 

 

Derivative financial assets

 

Korea

   938,971    40.52    —      938,971 

United States

   461,145    19.90    —      461,145 

France

   299,491    12.92    —      299,491 

Others

   617,819    26.66    —      617,819 
  

 

 

   

 

 

   

 

 

   

 

 

 
   2,317,426    100.00    —      2,317,426 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at fair value through other comprehensive income *

 

Korea

   33,895,666    93.85    —      33,895,666 

United States

   423,145    1.17    —      423,145 

Others

   1,798,178    4.98    —      1,798,178 
  

 

 

   

 

 

   

 

 

   

 

 

 
   36,116,989    100.00    —      36,116,989 
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities measured at amortized cost

 

Korea

   12,841,002    91.95    (833   12,840,169 

United States

   165,745    1.19    (34   165,711 

United Kingdom

   765,438    5.48    (237   765,201 

Others

   193,396    1.38    (138   193,258 
  

 

 

   

 

 

   

 

 

   

 

 

 
   13,965,581    100.00    (1,242   13,964,339 
  

 

 

   

 

 

   

 

 

   

 

 

 
   77,637,840      (5,290   77,632,550 
  

 

 

     

 

 

   

 

 

 

 

*

Expected credit loss of securities measured at fair value through other comprehensive income as of December 31, 2020 and 2019, areW 4,312 million andW 2,028 million, respectively.

Due from financial institutions, financial assets at fair value through profit or loss that linked to gold price and derivatives are mostly related to finance and insurance industry with high credit ratings.

 

51


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.3 Liquidity risk

4.3.1 Overview of liquidity risk

Liquidity risk is a risk that the Group becomes insolvent due to the mismatch between the inflow and outflow of funds, unexpected cash outflows, or a risk of loss due to financing funds at a high interest rate or disposing of securities at an unfavorable price due to lack of available funds. The Group manages its liquidity risk through analysis of the contractual maturity of interest-bearing assets and liabilities, assets and liabilities related to the other inflows and outflows of funds, and off-balance sheet items related to the inflows and outflows of funds such as currency derivative instruments and others.

4.3.2 Liquidity risk management and indicator

The liquidity risk is managed by comprehensive risk management policies and Asset Liability Management (“ALM”) risk management guidelines set forth in these policies applied to all risk management policies and procedures that may arise throughout the overall business of the Group.

The Group establishes a liquidity risk management strategy, including objectives of liquidity risk management, management policies, and internal control systems, and obtains a resolution from the Risk Management Committee. The Risk Management Committee establishes the Risk Management Council for efficient risk management to supervise the establishment and implementation of policies according to risk management strategies.

The Group calculates and manages Liquidity Coverage Ratio (“LCR”), Net Stable Funding Ratio (“NSFR”), liquidity ratio, maturity mismatch ratio and liquidity stress testing result for all transactions and off-balance transactions, that affect the cashflows in Korean won and foreign currency funds raised and operated for the management of liquidity risks and periodically reports them to the Risk Management Council and the Risk Management Committee.

4.3.3 Analysis of remaining contractual maturity of financial assets and liabilities

The cash flows disclosed in the maturity analysis are undiscounted contractual amounts including principal and future interest receivables and payments; as such, the table below do not match with the amounts in the consolidated statement of financial position which are based on discounted cash flows. The future interest receipts and payments for floating-rate assets and liabilities are calculated on the assumption that the current interest rate is the same until maturity.

 

52


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.3.3.1 Remaining contractual maturity of financial assets and liabilities other than derivatives held for cash flow hedge as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31, 2020 
  On demand   Up to
1 month
   1-3
months
   3-12
months
   1-5
years
   Over 5
years
   Total 

Financial assets

              

Cash and due from financial institutions 1

   6,164,904    572,208    263,484    207,089    —      —      7,207,685 

Financial assets at fair value through profit or loss 2

   16,003,078    —      —      —      24    87,445    16,090,547 

Derivatives held for trading 2

   4,291,829    —      —      —      —      —      4,291,829 

Derivatives held for hedging 3

   —      4,005    16,152    18,781    65,748    88,462    193,148 

Loans measured at amortized cost

   —      19,240,947    31,073,680    125,491,348    97,541,818    95,557,255    368,905,048 

Financial investments

   2,368,280    1,679,898    3,741,760    10,421,399    36,732,572    5,391,958    60,335,867 

Financial assets at fair value through other comprehensive income 4

   2,368,280    716,568    1,125,721    8,258,114    30,450,764    738,642    43,658,089 

Securities measured at amortized cost

   —      963,330    2,616,039    2,163,285    6,281,808    4,653,316    16,677,778 

Other financial assets

   —      4,276,790    —      931,385    466    —      5,208,641 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   28,828,091    25,773,848    35,095,076    137,070,002    134,340,628    101,125,120    462,232,765 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

 

            

Financial liabilities at fair value through profit or loss 2

   141,277    —      —      —      —      —      141,277 

Derivatives held for trading 2

   4,215,097    —      —      —      —      —      4,215,097 

Derivatives held for hedging 3

   —      2,807    3,556    14,545    32,981    109    53,998 

Deposits 5

   175,037,700    17,146,967    28,299,527    98,963,384    11,965,747    1,825,797    333,239,122 

Borrowings

   47,502    8,899,500    3,586,809    7,380,706    6,360,442    836,792    27,111,751 

Debentures

   17,783    1,184,565    4,136,912    7,550,002    11,299,725    4,038,300    28,227,287 

Lease liabilities

   205    16,362    29,955    111,734    214,008    27,970    400,234 

Other financial liabilities

   —      13,611,041    1,075    124,707    50,993    1,060    13,788,876 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   179,459,564    40,861,242    36,057,834    114,145,078    29,923,896    6,730,028    407,177,642 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-balance sheet items

 

        

Commitments 6

   91,738,296    —      —      —      —      —      91,738,296 

Acceptances and guarantees contracts

   8,560,896    —      —      —      —      —      8,560,896 

Financial guarantee contracts 7

   4,354,919    —      —      —      —      —      4,354,919 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   104,654,111    —      —      —      —      —      104,654,111 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

53


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

(In millions of Korean won)  December 31, 2019 
  On demand   Up to
1 month
   1-3
months
   3-12
months
  1-5
years
   Over 5
years
   Total 

Financial assets

             

Cash and due from financial institutions 1

   4,738,842    283,601    233,046    487,877   —      —      5,743,366 

Financial assets at fair value through profit or loss 2

   13,677,669    251    17,846    134,012   —      87,445    13,917,223 

Derivatives held for trading 2

   2,184,099    —      —      —     —      —      2,184,099 

Derivatives held for hedging 3

   —      4,306    17,145    24,016   39,693    66,176    151,336 

Loans measured at amortized cost

   —      22,455,411    28,091,644    115,979,519   78,654,724    89,601,437    334,782,735 

Financial investments

   1,893,179    1,253,141    3,045,348    10,727,300   35,015,283    2,859,162    54,793,413 

Financial assets at fair value through other comprehensive income 4

   1,893,179    310,261    1,122,554    5,499,868   30,502,706    456,250    39,784,818 

Securities measured at amortized cost

   —      942,880    1,922,794    5,227,432   4,512,577    2,402,912    15,008,595 

Other financial assets

   —      3,672,079    —      996,994   —      —      4,669,073 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
   22,493,789    27,668,789    31,405,029    128,349,718   113,709,700    92,614,220    416,241,245 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Financial liabilities

             

Financial liabilities at fair value through profit or loss 2

   80,235    —      —      —     —      —      80,235 

Derivatives held for trading 2

   2,132,771    —      —      —     —      —      2,132,771 

Derivatives held for hedging 3

   —      5,973    696    (4,529  11,575    129    13,844 

Deposits 5

   137,848,626    17,156,280    27,200,257    109,833,508   10,608,833    2,538,473    305,185,977 

Borrowings

   1,407    5,218,386    2,484,905    6,541,727   4,473,295    753,997    19,473,717 

Debentures

   22,285    1,014,596    1,870,767    5,668,559   9,593,393    1,633,467    19,803,067 

Lease liabilities

   520    14,196    27,962    101,976   198,415    13,885    356,954 

Other financial liabilities

   —      12,130,281    773    77,688   88,594    —      12,297,336 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
   140,085,844    35,539,712    31,585,360    122,218,929   24,974,105    4,939,951    359,343,901 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Off-balance sheet items

             

Commitments 6

   87,866,225    —      —      —     —      —      87,866,225 

Acceptances and guarantees contracts

   8,327,494    —      —      —     —      —      8,327,494 

Financial guarantee contracts 7

   3,305,051    —      —      —     —      —      3,305,051 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 
   99,498,770    —      —      —     —      —      99,498,770 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

 

1

Restricted due from financial instruments amounting toW 12,773,080 million andW 8,759,558 million are excluded as of December 31, 2020 and 2019, respectively.

2

Financial liabilities at fair value through profit or loss, derivatives held for trading and financial assets at fair value through profit or loss (excluding loans) are not managed by contractual maturity because they are expected to be traded or redeemed before maturity. Therefore, the carrying amounts of those financial instruments are included in the ‘On demand’ category.

3

Cash flows of derivative instruments held for hedging are shown at net amounts of cash inflows and outflows by remaining contractual maturity.

4

Equity securities designated as financial assets at fair value through other comprehensive income are included in the ‘On demand’ category because most are available for sale at any time. However, equity securities restricted from sale, are included in the category corresponding to the date on which the restriction is lifted.

5

Deposits that are contractually repayable on demand or on short notice are included in the ‘On demand’ category.

6

Unused lines of credit within commitments are included in the ‘On demand’ category because payments can be requested at any time.

7

Cash flows under financial guarantee contracts are classified based on the earliest period that the contract can be executed.

 

54


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.3.3.2 Contractual cash flows of derivatives held for cash flow hedge as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Up to
1 month
   1-3
months
   3-12
months
   1-5
years
   Over
5 years
   Total 

Cash flow to be received of net-settled derivatives

   69    91    350    30    —      540 

Cash flow to be paid of net-settled derivatives

   124    3,673    7,406    4,043    —      15,246 
   December 31, 2019 
(In millions of Korean won)  Up to
1 month
   1-3
months
   3-12
months
   1-5
years
   Over
5 years
   Total 

Cash flow to be received of net-settled derivatives

   38    357    1,015    564    —      1,974 

Cash flow to be paid of net-settled derivatives

   191    1,340    2,001    342    —      3,874 

4.4 Market Risk

4.4.1 Concept

Market risk refers to risks that can result in losses due to changes in market factors such as interest rates, stock prices, and exchange rates etc., which arise from securities and derivatives and others. The most significant risks associated with trading position are interest rate risk and currency risk, and additional risks include stock price risk. The non-trading position is also exposed to interest rate risk. The Group manages the market risks by dividing them into those arising from the trading position and those arising from the non-trading position.

4.4.2 Risk management

The Group sets and monitors internal capital limits for market and interest rate risk to manage the risks of trading and non-trading positions. In order to manage market risk efficiently, the Group maintains risk management systems and procedures such as trading policies and procedures, market risk management guidelines for trading positions, and ALM risk management guidelines for non-trading positions. The entire process is carried out through the approval of the Risk Management Council and the Risk Management Committee of the Group.

The Group’s Risk Management Council establishes and enforces overall market risk management policies for market risk management and decides to establish position limits, loss limits, VaR limits, and approves non-standard new products. In addition, the Market Risk Management Committee, chaired by Chief Risk Officer (“CRO”), is a practical decision-making body for market risk management and determines position limits, loss limits, VaR limits, sensitivity limits, and scenario loss limits for each department of business group.

The Asset-Liability Management Committee (“ALCO”) determines interest rate and commission operating standards and ALM operation policies and enacts and revises relevant guidelines. The Risk Management Council monitors the establishment and enforcement of ALM risk management policies and enacts and revises ALM risk management guidelines. Interest rate risk limits are set based on future asset and liability positions and expected interest rate volatility, which reflect annual business plans. The ALM Department and the Risk Management Department regularly measure and monitor interest rate risks and report the status and limit of interest rate risk including changes in Economic Value of Equity (“DEVE”), changes in Net Interest Income (“DNII”) and duration gap to the ALCO and the Risk Management Council on a monthly basis, and to the Risk Management Committee on a quarterly basis. To ensure the adequacy of interest rate and liquidity risk management, the Risk Management Department assigns the limits, monitors and reviews the procedures and tasks of ALM operations conducted by the ALM department, and reports to the management independently.

 

55


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

The Group is closely monitoring the outputs of various industry groups and markets that manage the transition to new interest rate, including announcements by Inter-Bank Offered Rate (“IBOR”) regulation authority. Regulation authority has made it clear that as of December 31, 2021, they will no longer persuade or force banks to submit IBORs. In response to these announcements, the Group established an IBOR transition program and plan consisting of major business areas such as finance, accounting, tax, legal, IT, and risk. The program is under the control of the CFO and reports matters to the board of directors and to a council with senior management members. The purpose of the program is to understand where exposure to IBOR occurs within the business and prepare and implement an action plan to facilitate the transition to alternative interest rate. The Group aims to complete the transition and alternative plan by the year-end of 2021. In addition, for CD interest rates, interest rates are being reformed by the relevant institutions that calculate, announce and manage the interest rates, and related institutions such as the Bank of Korea and the financial authorities. The Group continues its efforts as a market participant to actively express opinions so that the index interest rate reform can be carried out in the direction of minimizing the financial and non-financial impacts and operational risks on the Group and minimizing confusion among stakeholders.

4.4.3 Trading position

4.4.3.1 Definition of a trading position

The trading position, which is subject to market risk management, includes interest rates and stock positions held for short-term trading profit. The Group also includes and manages all foreign currency positions in our trading positions. The trading position subject to market risk management is the trading position defined in “Trading Policy and Guidelines” and the basic requirements for the trading position are as follows:

 

  

The target position has no restrictions on the sale, and the daily fair value assessment should be made and the embedded significant risk can be hedged in the market.

 

  

The trading position classification criteria should be clearly defined in the Trading Policy and Guidelines, and the trading position should be managed by a separate trading department.

 

  

The target position must be operated according to the documented trading strategy and the position’s limit management must be carried out.

 

  

The specialized dealer or operating department shall have the authority to execute the transaction without prior approval from the Risk Management Department, etc. within the pre-determined limits of the target position.

 

  

Target positions should be periodically reported to management for risk management of the Group.

4.4.3.2 Observation method of market risk arising from trading positions

The Group measures market risk by calculating VaR through the market risk management system for all trading positions. Generally, the Group manages market risks arising from trading positions at the portfolio level. In addition, the Group controls and manages the risk of derivative financial instrument transactions in accordance with the Financial Supervisory Service regulations and guidelines.

 

56


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.4.3.3 VaR

(a) VaR

The Group uses the risk-based valuation method (VaR) to measure the market risk of the trading position.

The Group uses the 10-day VaR, which represents the maximum amount of possible loss of 10 business days based on the historical simulation model of the full valuation method. The distribution of value changes in the portfolio is estimated based on data from the past 250 business days, and 10-day VaR is calculated by the difference between the value of the portfolio at a 99% confident level of distribution of value changes in the portfolio and the current market value.

VaR is a commonly used market risk measurement technique. However, this approach has some limitations. VaR estimates possible losses under certain confidence level based on historical market change data. However, since past market changes cannot reflect all future conditions and circumstances, the timing and magnitude of actual losses may vary depending on assumptions in the calculation process. If one day or ten days of the holding period which is generally used for normal period of liquidating the position, is not sufficient or too long, the VaR result may underestimate or overestimate the potential loss.

When the Group measures market risk for trading position, it uses an internal model (VaR) for general risk and a standard method for individual risks. Standard method is used if internal model is not authorized for certain market risk. Therefore, disclosed market risk VaR does not reflect the market risk for individual risks and for some positions.

(b) Back-Testing

To verify the appropriateness of the VaR model, back-testing is performed by comparing actual and hypothetical gains and losses with the VaR calculation results.

(c) Stress Testing

The Group carries out a stress testing of the trading and available-for-sale portfolio to reflect changes in individual risk factors such as interest rates, stock prices, exchange rates, and implied volatility of options that have a significant impact on portfolio value in a crisis. The Group carries out a stress testing through historical and hypothetical scenarios. This stress testing is carried out more than once a quarter.

VaR at a 99% confidence level of interest rate, stock price and foreign exchange rate risk for trading positions with a ten-day holding period, excluding Stressed VaR, for the years ended December 31, 2020 and 2019, are as follows:

 

   2020 
(In millions of Korean won)  Average   Minimum   Maximum   Dec. 31, 2020 

Interest rate risk

   59,147    9,588    105,983    50,795 

Stock price risk

   15,379    3,787    24,821    24,821 

Foreign exchange rate risk

   36,281    5,302    67,766    49,338 

Deduction of diversification effect

         (7,320
  

 

 

   

 

 

   

 

 

   

 

 

 

Total VaR

   105,428    14,225    158,798    117,634 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

57


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   2019 
(In millions of Korean won)  Average   Minimum   Maximum   Dec. 31, 2019 

Interest rate risk

   11,190    1,725    20,467    16,628 

Stock price risk

   3,434    2,402    4,310    3,914 

Foreign exchange rate risk

   15,760    11,416    20,704    13,081 

Deduction of diversification effect

         (13,246
  

 

 

   

 

 

   

 

 

   

 

 

 

Total VaR

   17,545    13,641    24,849    20,377 
  

 

 

   

 

 

   

 

 

   

 

 

 

The required equity capital using the standard method related to the positions which are not measured by VaR as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31, 2020   December 31, 2019 

Interest rate risk

   40,290    83,731 

Stock price risk

   7,088    1,954 

Foreign exchange rate risk

   23,938    1,850 
  

 

 

   

 

 

 
   71,316    87,535 
  

 

 

   

 

 

 

4.4.3.4 Details of risk factors

(a) Interest rate risk

The interest rate risk for trading positions usually arises from debt securities denominated in Korean won. The Group’s trading strategy is to gain short-term trading gains from interest rate fluctuations. The Group manages interest rate risks associated with trading portfolios using VaR and sensitivity analysis (Price Value of a Basis Point: PVBP).

(b) Stock price risk

Stock price risk arises mainly from stock positions held by principal guaranteed trust and derivatives linked to stocks positions in the Capital Markets Department. This stock price risk is managed through VaR, sensitivity limits, etc.

(c) Foreign exchange rate risk

Foreign exchange rate risk arises from holding assets, liabilities and currency-related derivatives which are denominated in foreign currency. Most of the net foreign currency exposures occur in the US dollars and the Chinese Yuan. The Group also manages net foreign exchange exposures across trading and non-trading portfolios by setting a net foreign currency exposure limit at the same time setting a loss limit.

4.4.4 Non-trading position (Interest Rate Risk of Banking Book (“IRRBB”))

4.4.4.1 Definition of IRRBB

IRRBB is a change in equity and profit due to the changes in value of interest-sensitive assets, liabilities, etc., and is measured by DEVE and DNII.

 

58


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.4.4.2 Bank’s overall interest rate risk management and mitigation strategy

The Risk Management Committee approves policies, procedures and limits for managing interest rate risk, and the management department regularly reports on interest rate risk levels of DEVE, DNII and changes of market condition etc., as compared to the set limit. To measure the sensitivity of a bank’s economic value and earnings-based measure as interest rates change, the Bank calculates monthly interest rate gap and duration gap for assets and liabilities. In addition, the management department conducts an interest rate risk crisis analysis at least once a quarter assuming abnormal interest rate fluctuations and reports the results to the Risk Management Council. Independent internal and external audits regularly check the process of identifying, measuring and monitoring interest rate risks. The interest rate risk model adequacy test is carried out regularly at least once a year by verification department independent of the management department.

4.4.4.3 Main modeling assumption used for the Bank’s interest rate risk measurement system for internal management

The Bank separately calculates D EVE for internal management of interest rate risk, assuming a historical-simulation based on interest rate volatility in the past financial crisis (FY08-FY09), distribution of assets/liabilities portfolio, and 27 interest rate gaps considering management strategy.

4.4.4.4 The Bank’s interest rate risk hedging methodology and related accounting

The Bank hedges interest rate risk through back-to-back interest rate swap transactions, which are the same as interest payment cash flows. The Bank officially documents and manages the risk management strategy for hedge accounting, risk management objectives, hedging relationship, and assessment method for hedge effectiveness.

4.4.4.5 Main assumptions used for calculating DEVE, DNII

The Bank calculates interest rate risk, including all cash flow of interest-sensitive assets, liabilities, and off-balance items in the banking book. DEVE assumes a run-off balance sheet where the existing bank account positions are amortized and not replaced by new businesses. In addition, the contractual interest rate, including commercial margins and other interest rate components, is applied to generate cash flows. In case of discounting cash flow, DEVE is calculated by applying risk-free interest rates that do not include commercial margins and other interest components.

DNII assumes a constant balance sheet in which cash flows that mature or interest rates are revised during the target management period are replaced by new cash flows that have the same characteristics. The interest rate risk is calculated for the interest rate shock scenario by adding up only if the risk is a loss for each currency. The average interest rate revision maturity of demand deposits is determined by dividing them into retail transactional, retail non-transactional and wholesale based on customer and regular transactions and taking into account the core deposit rates and the upper average maturity limit for each category. The average interest rate revision maturity for demand deposits is 2.5 years for core deposits, 1 day for non-core deposits, and the longest interest rate revision maturity is five years. The prepayment rate of fixed-rate loan and early redemption rate of term deposit are estimated by dividing the amount of prepayment amount and early redemption amount during the previous month by the balance at the end of the previous month, respectively.

 

59


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.4.4.6 DEVE, DNII

The Bank calculates DEVE by applying six interest rate shocks and stress scenarios, and DNII by applying parallel shock up and down scenarios. The results as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020   December 31, 2019 
(In millions of Korean won)  Changes in the
Economic Value of
Equity Capital
(
DEVE)
   Changes in net
interest income

(DNII)
   Changes in the
Economic Value of
Equity Capital
(
DEVE)
   Changes in net
interest income

(DNII)
 

Scenario 1 (Parallel rise)

   544,087    415,339    483,207    152,013 

Scenario 2 (Parallel decline)

   —      —      31,718    9,717 

Scenario 3 (Short-term decline, long-term rise)

   245,337      257,756   

Scenario 4 (Short-term rise, long-term decline)

   423,673      411,237   

Scenario 5 (Short-term rise)

   466,220      378,380   

Scenario 6 (Short-term decline)

   480,246      492,047   

Maximum of 6 scenarios

   544,087    415,339    492,047    152,013 

Basic capital

   28,234,310    —      27,609,684    —   

 

60


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.4.5 Financial assets and liabilities denominated in foreign currencies

Details of financial instruments denominated in foreign currencies and translated into Korean won as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  USD   JPY   EUR   GBP   CNY   Others   Total 

Financial assets

              

Cash and due from financial institutions

   3,765,956    528,056    211,266    57,386    815,865    819,591    6,198,120 

Financial assets at fair value through profit or loss

   1,494,702    449    198,613    627    —      87,780    1,782,171 

Derivatives held for trading

   190,110    —      —      —      4,344    203    194,657 

Derivatives held for hedging

   112,431    —      —      —      —      —      112,431 

Loans measured at amortized cost

   18,055,973    550,793    1,097,069    221,880    1,617,715    5,222,701    26,766,131 

Financial assets at fair value through other comprehensive income

   4,353,660    5,271    9,438    —      342,804    203,469    4,914,642 

Financial assets at amortized cost

   317,662    —      —      —      108,594    408,590    834,846 

Other financial assets

   1,776,965    49,660    200,083    5,504    103,064    272,851    2,408,127 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   30,067,459    1,134,229    1,716,469    285,397    2,992,386    7,015,185    43,211,125 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

              

Derivatives held for trading

   334,938    65    109    —      42,023    8,733    385,868 

Derivatives held for hedging

   66,305    —      —      —      —      —      66,305 

Deposits

   15,927,312    923,353    917,479    66,372    1,750,298    4,305,293    23,890,107 

Borrowings

   9,241,832    485,618    321,705    218,578    439    1,231,359    11,499,531 

Debentures

   4,798,724    —      666,873    —      —      308,675    5,774,272 

Other financial liabilities

   2,625,818    38,752    93,949    9,491    34,716    195,272    2,997,998 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   32,994,929    1,447,788    2,000,115    294,441    1,827,476    6,049,332    44,614,081 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-balance sheet items

   13,295,571    32,200    254,222    741    253,472    575,914    14,412,120 

 

   December 31, 2019 
(In millions of Korean won)  USD   JPY   EUR   GBP   CNY   Others   Total 

Financial assets

              

Cash and due from financial institutions

   1,914,554    254,502    145,066    33,239    1,148,375    490,021    3,985,757 

Financial assets at fair value through profit or loss

   1,700,956    3,387    165,330    3,373    —      23,355    1,896,401 

Derivatives held for trading

   98,786    —      —      —      6,786    —      105,572 

Derivatives held for hedging

   83,610    —      —      —      —      —      83,610 

Loans measured at amortized cost

   14,070,820    465,849    593,530    137,585    1,205,297    613,780    17,086,861 

Financial assets at fair value through other comprehensive income

   3,953,899    21,267    5,192    —      282,390    37,977    4,300,725 

Financial assets at amortized cost

   1,026,325    —      —      —      97,844    —      1,124,169 

Other financial assets

   1,193,680    230,223    289,187    5,178    167,525    87,967    1,973,760 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   24,042,630    975,228    1,198,305    179,375    2,908,217    1,253,100    30,556,855 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

              

Derivatives held for trading

   212,569    6    53    —      7,806    —      220,434 

Derivatives held for hedging

   35,538    —      —      —      —      —      35,538 

Deposits

   11,939,600    731,178    761,897    45,340    1,471,566    530,990    15,480,571 

Borrowings

   8,576,321    125,096    340,530    118,848    15,092    73,640    9,249,527 

Debentures

   4,083,040    —      —      —      —      101,967    4,185,007 

Other financial liabilities

   2,111,089    59,761    97,325    21,583    173,480    163,990    2,627,228 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   26,958,157    916,041    1,199,805    185,771    1,667,944    870,587    31,798,305 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Off-balance sheet items

   16,745,727    32,694    191,210    —      252,369    37,195    17,259,195 

 

61


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

4.5 Operational Risk

4.5.1 Concept

The Group defines operational risks broadly as all financial and non-financial risks from operating activities that negatively affect capital.

4.5.2 Risk management

The purpose of operational risk management is not only to comply with supervisory and regulatory requirements, but also to spread risk management culture, strengthen internal control, improve processes and provide timely feedback to management and all employees. The Group established a Business Continuity Planning (BCP) to carry out continuous work in emergency situations and established alternative facilities. The Group conducts simulation training for headquarters and IT departments to check the business continuity framework.

4.6 Capital Management

The Group complies with the capital adequacy standard established by the Financial Services Commission. This capital adequacy standard is based on Basel III revised by Basel Committee on Banking Supervision in Bank for International Settlements in June 2011 and was implemented in Korea in December 2013.

The Group is required to maintain a minimum Common Equity Tier 1 ratio of at least 4.5%, a minimum Tier 1 ratio of 6.0% and a minimum Total Regulatory Capital of 8.0% as of December 31, 2020. Capital Conservation Buffer of 2.5% and Capital Requirement of Domestic Systemically Important Bank (D-SIB) of 1.0% are additionally applied. Therefore, the Group is required to maintain a capital ratio including a minimum capital ratio and additional capital requirements (a Common Equity Tier 1 Ratio of 8.0% (December 31, 2019: 8.0%), a Tier 1 Ratio of 9.5% (December 31, 2019: 9.5%), and a Total Regulatory Capital Ratio of 11.5% (December 31, 2019: 11.5%)).

The Group’s equity capital is classified into three categories in accordance with Detailed Supervisory Regulations on Banking Business:

 

  

Common Equity Tier 1 Capital: Common equity Tier 1 Capital is the first to take losses in the Group and is the last to be compensated in liquidation of the Group and not repaid except for liquidation. It includes capital, capital surplus, retained earnings, non-controlling interests of the consolidated subsidiaries, accumulated other comprehensive income and other capital surplus etc.

 

  

Additional Tier 1 Capital: Additional Tier 1 Capital includes capital, capital surplus, etc. related to the issuance of capital securities of a permanent nature that meets the conditional capital securities requirements.

 

  

Tier 2 Capital: Tier 2 Capital means capital that can compensate for losses of the Group upon liquidation, including (a) the amount of subordinated bonds with maturity of not less than 5 years that meet the conditional capital securities requirements, and (b) the allowance for credit losses accumulated on the loans which are classified as normal or precautionary in accordance with Regulation on Supervision of Financial Holding Companies and others.

The risk-weighted assets are the magnitude of the amount of risk inherent in the total asset held by the Group. The Group calculates risk-weighted assets by each risk (credit risk, market risk, and operational risk) based on the Supervisory Regulations and Detailed Supervisory Regulations on Financial Holding Companies and uses them to calculate BIS ratio. The Group complied with external capital adequacy requirements as of December 31, 2020 and 2019.

 

62


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

Apart from the BIS ratio, the Group evaluates and manages capital adequacy through internal policies. The valuation of capital adequacy compares the size of available capital (the amount of capital actually available) to the size of internal capital (the amount of capital required to cover all the significant risks faced by the Group under its target credit rating), which monitors financial soundness and provides a risk-adjusted performance measurement basis. The internal capital for capital adequacy assessment is calculated by adding the results of a stress test and other additional capital requirements to the internal capital calculated for each individual risk.

The Risk Management Committee of the Group determines the risk appetite of the Group, allocates internal capital by risk type and business group, and each business group operates capital efficiently within the range of the allocated internal capital. The Risk Management Department of the Group monitors internal capital limit management and reports it to the management and the Risk Management Committee. If the limit of internal capital is expected to be exceeded, the Group’s capital adequacy management is carried out through review and approval by the Risk Management Committee in advance.

Details of the Group’s capital adequacy calculation in accordance with Basel III requirements as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  December 31, 2020   December 31, 2019 

Equity Capital

   32,554,705    29,809,730 

Tier I Capital

   28,234,310    27,609,684 

Common Equity Tier 1 Capital

   27,659,787    27,035,161 

Additional Tier 1 Capital

   574,523    574,523 

Tier II Capital

   4,320,395    2,200,046 

Risk-weighted assets:

   183,148,273    188,075,177 

Credit risk 1

   160,817,395    172,985,173 

Market risk 2

   11,372,840    5,150,641 

Operational risk 3

   10,958,038    9,939,363 

Equity Capital (%):

   17.78    15.85 

Tier I Capital (%)

   15.42    14.68 

Common Equity Tier 1 Capital (%)

   15.10    14.37 

 

1

Credit risk weighted assets are measured using the Internal Rating-Based Approach and Standardized Approach.

2

Market risk weighted assets are measured using the Internal Model-Based Approach and Standardized Approach.

3

Operational risk weighted assets are measured using the Advanced Measurement Approach.

 

63


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

5. Segment Information

5.1 Overall Segment Information and Business Segments

The Group is organized into Corporate Banking, Retail Banking and Other Activities. These segments are based on the nature of the products and services provided, the type or class of customer, and the Group’s management organization.

 

  

Corporate banking: The activities within this segment include providing credit, deposit products and other related financial services to large, small and medium-sized enterprises and SOHOs and foreign subsidiaries-related works.

 

  

Retail banking: The activities within this segment include providing credit, deposit products and other related financial services to individuals and households.

 

  

Other activities: The activities within this segment include trading activities in securities and derivatives, funding, trust and other activities.

Financial information by business segment for the years ended December 31, 2020 and 2019, are as follows:

 

   2020 
(In millions of Korean won)  Corporate
banking
  Retail
banking
  Others  Consolidation
adjustment
  Total 

Operating revenues from external customers

   2,930,827   2,918,826   1,987,012   —     7,836,665 

Intersegment operating revenues (expenses)

   80,973   —     50,516   (131,489  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   3,011,800   2,918,826   2,037,528   (131,489  7,836,665 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net interest income

   3,238,002   3,178,280   344,078   (5,594  6,754,766 

Interest income

   4,899,943   4,519,579   1,062,698   (26,055  10,456,165 

Interest expense

   (1,661,941  (1,341,299  (718,620  20,461   (3,701,399

Net fee and commission income

   363,459   406,603   323,135   (25,275  1,067,922 

Fee and commission income

   480,190   529,178   468,101   (27,782  1,449,687 

Fee and commission expense

   (116,731  (122,575  (144,966  2,507   (381,765

Net gains (losses) on financial instruments at fair value through profit or loss

   (52,493  —     408,464   (111,788  244,183 

Net other operating income (expense)

   (537,168  (666,057  961,851   11,168   (230,206

General and administrative expenses

   (1,555,090  (2,072,515  (574,073  332   (4,201,346

Operating profit before provision for credit losses

   1,456,710   846,311   1,463,455   (131,157  3,635,319 

Provision for credit losses

   (204,302  (264,943  (15,267  330   (484,182

Operating profit

   1,252,408   581,368   1,448,188   (130,827  3,151,137 

Share of loss of associates

   —     —     (48,158  —     (48,158

Net other non-operating income (expenses)

   5,490   —     82,731   (59,377  28,844 

Segment profit before income tax expense

   1,257,898   581,368   1,482,761   (190,204  3,131,823 

Income tax expense

   (339,728  (159,876  (347,199  34,499   (812,304
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Profit for the year

   918,170   421,492   1,135,562   (155,705  2,319,519 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Profit attributable to the shareholder of the Parent Company

   917,955   421,492   1,135,562   (176,814  2,298,195 

Profit attributable to non-controlling interests

   215   —     —     21,109   21,324 

Total assets *

   164,323,181   161,330,053   119,529,291   (6,738,411  438,444,114 

Total liabilities *

   167,236,387   176,571,944   66,577,810   (2,350,101  408,036,040 

 

64


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   2019 
(In millions of Korean won)  Corporate
banking
  Retail
banking
  Others  Consolidation
adjustment
  Total 

Operating revenues from external customers

   2,557,438   2,979,503   1,782,127   —     7,319,068 

Intersegment operating revenues (expenses)

   22,838   —     24,382   (47,220  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   2,580,276   2,979,503   1,806,509   (47,220  7,319,068 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net interest income

   2,844,881   3,148,061   370,603   242   6,363,787 

Interest income

   4,642,555   4,872,937   1,302,085   (37,629  10,779,948 

Interest expense

   (1,797,674  (1,724,876  (931,482  37,871   (4,416,161

Net fee and commission income

   349,393   471,869   329,432   (17,398  1,133,296 

Fee and commission income

   459,879   577,845   473,637   (27,999  1,483,362 

Fee and commission expense

   (110,486  (105,976  (144,205  10,601   (350,066

Net gains (losses) on financial instruments at fair value through profit or loss

   (2,527  —     474,420   (49,269  422,624 

Net other operating income (expenses)

   (611,471  (640,427  632,054   19,205   (600,639

General and administrative expenses

   (1,241,721  (1,982,375  (663,618  295   (3,887,419

Operating profit before provision for credit losses

   1,338,555   997,128   1,142,891   (46,925  3,431,649 

Reversal (provision) for credit losses

   125,919   (235,995  7,582   (1,036  (103,530

Operating profit

   1,464,474   761,133   1,150,473   (47,961  3,328,119 

Share of profit of associates

   —     —     29,240   —     29,240 

Net other non-operating expenses

   (263  —     (19,741  (18,883  (38,887

Segment profit before income tax expense

   1,464,211   761,133   1,159,972   (66,844  3,318,472 

Income tax expense

   (404,425  (209,311  (265,190  (467  (879,393
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Profit for the year

   1,059,786   551,822   894,782   (67,311  2,439,079 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Profit attributable to the shareholder of the Parent Company

   1,059,786   551,822   894,782   (67,311  2,439,079 

Profit attributable to non-controlling interests

   —     —     —     —     —   

Total assets *

   139,496,394   147,468,173   104,297,056   (3,836,585  387,425,038 

Total liabilities *

   142,063,121   161,834,984   56,127,857   (1,605,157  358,420,805 

 

*

Assets and liabilities of the reporting segments are amounts before intersegment transactions.

 

65


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

5.2 Services and Geographical Segments

5.2.1 Services information

Operating revenues from external customers by services for the years ended December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  2020   2019 

Corporate banking service

   2,930,827    2,557,438 

Retail banking service

   2,918,826    2,979,503 

Other service

   1,987,012    1,782,127 
  

 

 

   

 

 

 
   7,836,665    7,319,068 
  

 

 

   

 

 

 

5.2.2 Geographical information

Geographical operating revenues from external customers for the years ended December 31, 2020 and 2019, and major non-current assets as of December 31, 2020 and 2019, are as follows:

 

 

   Revenues from
external customers
   Major non-current assets 
(In millions of Korean won)  2020   2019   December 31,
2020
   December 31,
2019
 

Domestic

   7,416,339    7,156,642    4,462,857    4,488,801 

United States

   3,071    13,971    8,206    9,452 

New Zealand

   3,554    6,946    2,385    3,516 

China

   67,064    92,475    12,230    12,946 

Japan

   7,933    6,692    2,607    3,480 

Myanmar

   6,646    4,002    4,309    1,570 

Vietnam

   38,983    10,449    2,167    1,938 

Cambodia

   238,045    14,764    28,709    3,944 

United Kingdom

   27,092    9,958    1,250    1,893 

Indonesia

   13,995    —      360,202    —   

India

   13,943    3,169    1,155    1,533 

Consolidation adjustments

   —      —      436,572    —   
  

 

 

   

 

 

   

 

 

   

 

 

 
   7,836,665    7,319,068    5,322,649    4,529,073 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

66


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6. Financial Assets and Financial Liabilities

6.1 Classification and Fair Value

6.1.1 Carrying amount and fair value of financial assets and liabilities by category as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Carrying amount   Fair value 

Financial assets

    

Cash and due from financial institutions

   19,972,269    19,974,488 

Financial assets at fair value through profit or loss

   16,042,357    16,042,357 

Debt securities

   15,707,842    15,707,842 

Equity securities

   205,794    205,794 

Loans

   38,756    38,756 

Others

   89,965    89,965 

Derivatives held for trading

   4,291,829    4,291,829 

Derivatives held for hedging

   164,839    164,839 

Loans measured at amortized cost

   327,332,495    328,145,460 

Financial assets at fair value through other comprehensive income

   42,698,069    42,698,069 

Debt securities

   39,960,675    39,960,675 

Equity securities

   2,502,614    2,502,614 

Loans

   234,780    234,780 

Securities measured at amortized cost

   15,588,413    15,655,381 

Other financial assets

   5,986,686    5,986,686 
  

 

 

   

 

 

 
   432,076,957    432,959,109 
  

 

 

   

 

 

 

Financial liabilities

    

Financial liabilities at fair value through profit or loss

   141,277    141,277 

Derivatives held for trading

   4,215,097    4,215,097 

Derivatives held for hedging

   67,267    67,267 

Deposits

   330,352,491    330,601,366 

Borrowings

   26,870,831    26,878,476 

Debentures

   26,969,584    27,131,418 

Other financial liabilities

   16,976,326    16,976,326 
  

 

 

   

 

 

 
   405,592,873    406,011,227 
  

 

 

   

 

 

 

 

67


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2019 
(In millions of Korean won)  Carrying amount   Fair value 

Financial assets

    

Cash and due from financial institutions

   14,481,309    14,478,216 

Financial assets at fair value through profit or loss

   13,866,303    13,866,303 

Debt securities

   13,446,838    13,446,838 

Equity securities

   151,527    151,527 

Loans

   188,133    188,133 

Others

   79,805    79,805 

Derivatives held for trading

   2,184,099    2,184,099 

Derivatives held for hedging

   133,326    133,326 

Loans measured at amortized cost

   293,531,433    293,767,751 

Financial assets at fair value through other comprehensive income

   38,454,954    38,454,954 

Debt securities

   36,116,988    36,116,988 

Equity securities

   1,993,674    1,993,674 

Loans

   344,292    344,292 

Securities measured at amortized cost

   13,964,339    14,056,395 

Other financial assets

   5,464,704    5,464,704 
  

 

 

   

 

 

 
   382,080,467    382,405,748 
  

 

 

   

 

 

 

Financial liabilities

    

Financial liabilities at fair value through profit or loss

   80,235    80,235 

Derivatives held for trading

   2,132,770    2,132,770 

Derivatives held for hedging

   36,212    36,212 

Deposits

   300,917,482    301,409,018 

Borrowings

   19,141,262    19,141,682 

Debentures

   18,739,992    18,959,416 

Other financial liabilities

   15,446,504    15,446,504 
  

 

 

   

 

 

 
   356,494,457    357,205,837 
  

 

 

   

 

 

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Group discloses the fair value of each class of assets and liabilities in a way that permits it to be compared with its carrying amount at the end of each reporting period. The best evidence of fair value of financial instruments is a quoted price in an active market.

 

68


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

Methods of determining fair value of financial instruments are as follows:

 

Cash and due from financial institutions

  The carrying amounts of cash and demand due from financial institutions and payment due from financial institutions are reasonable approximation of fair values. These financial instruments do not have a fixed maturity and are receivable on demand. Fair value of ordinary due from financial institutions is measured using DCF model (Discounted Cash Flow Model).

Securities

 

Due from financial institutions and deposits indexed to gold price

  Fair value of securities and due from financial institutions and deposits indexed to gold price that are quoted in active markets is determined using the quoted prices. If there is no quoted price, fair value is determined using external professional valuation institution. The institutions use one or more of the following valuation techniques including DCF Model, MonteCarlo Simulation, FCFE (Free Cash Flow to Equity Model), Comparable Company Analysis, Dividend Discount Model, Risk Adjusted Discount Rate Method, and Net Asset Value Method, deemed suitable considering the characteristics of the financial instruments.

Loans

  The fair value of loans is determined using DCF Model and independent external professional valuation institution. Fair value measured by DCF Model is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at an appropriate discount rate. Fair value of the other loans is determined by external professional valuation institution using Tree Model.

Derivatives

  For exchange traded derivatives, quoted price in an active market is used to determine fair value and for OTC derivatives, fair value is determined using valuation techniques. The Group uses internally developed valuation models that are widely used by market participants to determine fair values of plain vanilla OTC derivatives including options, interest rate swaps, and currency swaps, based on observable market parameters. However, some complex financial instruments are valued using appropriate models developed from generally accepted market valuation models including the Finite Difference Method (“FDM”), the MonteCarlo Simulation and the Tree model or valuation results from independent external professional valuation institution. For OTC derivatives, the credit risk of counterparty and the Group’s own credit risk are applied through Credit Valuation Adjustment (“CVA”).

Deposits

  The carrying amount of demand deposits is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of time deposits is determined using a DCF model. Fair value is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at an appropriate discount rate.

Borrowings

  The carrying amount of overdraft in foreign currency is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of other borrowings is determined using a DCF model discounting contractual future cash flows at an appropriate discount rate.

 

69


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

Debentures  Fair value is determined by using the valuation results (DCF Model) of external professional valuation institution, which are calculated using market inputs.

Other financial assets and other financial liabilities

  The carrying amounts are reasonable approximation of fair values. These financial instruments are temporary accounts used for other various transactions and their maturities are relatively short or not defined.

6.1.2 Fair value hierarchy

The Group believes that valuation methods used for measuring the fair values of financial instruments are reasonable and that the fair values recognized in the consolidated statement of financial position are appropriate. However, the fair values of the financial instruments recognized in the consolidated statement of financial position may be different if other valuation methods or assumptions are used. Additionally, as there is a variety of valuation techniques and assumptions used in measuring fair value, it may be difficult to reasonably compare the fair value with that of other financial institutions.

The Group classifies and discloses fair value of the financial instruments into the three-level hierarchy as follows:

Level 1: The fair values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2: The fair values are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: The fair values are based on unobservable inputs for the asset or liability.

The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. If an observable input requires an adjustment using an unobservable input and that adjustment results in a significantly higher or lower fair value measurement, the resulting measurement would be categorized within Level 3 of the fair value hierarchy.

 

70


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.1.2.1 Fair value hierarchy of financial assets and liabilities at fair value in the consolidated statements of financial position

Fair value hierarchy of financial assets and liabilities at fair value in the consolidated statements of financial position as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
   Fair value hierarchy     
(In millions of Korean won)  Level 1   Level 2   Level 3   Total 

Financial assets

        

Financial assets at fair value through profit or loss

   4,587,921    9,182,082    2,272,354    16,042,357 

Debt securities

   4,344,334    9,182,082    2,181,426    15,707,842 

Equity securities

   153,622    —      52,172    205,794 

Loans

   —      —      38,756    38,756 

Others

   89,965    —      —      89,965 

Derivatives held for trading

   —      4,291,785    44    4,291,829 

Derivatives held for hedging

   —      164,839    —      164,839 

Financial assets at fair value through other comprehensive income

   9,918,763    30,861,326    1,917,980    42,698,069 

Debt securities

   9,334,129    30,626,546    —      39,960,675 

Equity securities

   584,634    —      1,917,980    2,502,614 

Loans

   —      234,780    —      234,780 
  

 

 

   

 

 

   

 

 

   

 

 

 
   14,506,684    44,500,032    4,190,378    63,197,094 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Financial liabilities at fair value through profit or loss

   141,277    —      —      141,277 

Derivatives held for trading

   —      4,214,990    107    4,215,097 

Derivatives held for hedging

   —      67,267    —      67,267 
  

 

 

   

 

 

   

 

 

   

 

 

 
   141,277    4,282,257    107    4,423,641 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

71


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2019 
   Fair value hierarchy   Total 
(In millions of Korean won)  Level 1   Level 2   Level 3 

Financial assets

        

Financial assets at fair value through profit or loss

   3,147,511    8,633,172    2,085,620    13,866,303 

Debt securities

   2,960,226    8,633,172    1,853,440    13,446,838 

Equity securities

   107,480    —      44,047    151,527 

Loans

   —      —      188,133    188,133 

Others

   79,805    —      —      79,805 

Derivatives held for trading

   —      2,184,029    70    2,184,099 

Derivatives held for hedging

   —      133,326    —      133,326 

Financial assets at fair value through other comprehensive income

   13,849,323    23,564,384    1,041,247    38,454,954 

Debt securities

   12,896,896    23,220,092    —      36,116,988 

Equity securities

   952,427    —      1,041,247    1,993,674 

Loans

   —      344,292    —      344,292 
  

 

 

   

 

 

   

 

 

   

 

 

 
   16,996,834    34,514,911    3,126,937    54,638,682 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Financial liabilities at fair value through profit or loss

   80,235    —      —      80,235 

Derivatives held for trading

   —      2,132,286    484    2,132,770 

Derivatives held for hedging

   —      36,212    —      36,212 
  

 

 

   

 

 

   

 

 

   

 

 

 
   80,235    2,168,498    484    2,249,217 
  

 

 

   

 

 

   

 

 

   

 

 

 

Valuation techniques and inputs of financial assets and liabilities classified as Level 2 and measured at fair value in the consolidated statements of financial position as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020
(In millions of Korean won)  Fair value   

Valuation techniques

  

Inputs

Financial assets

      

Financial assets at fair value through profit or loss

   9,182,082     

Debt securities

   9,182,082   

DCF Model, MonteCarlo Simulation, Net Asset Value

  

Discount rate, interest rate, prices of underlying assets (debt securities, stocks, etc.)

Derivatives held for trading

   4,291,785   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate, stock price and others

Derivatives held for hedging

   164,839   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate and others

Financial assets at fair value through other comprehensive income

   30,861,326     

Debt securities

   30,626,546   

DCF Model

  

Discount rate

Loans

   234,780   

DCF Model

  

Discount rate

  

 

 

     
   44,500,032     
  

 

 

     

Financial liabilities

      

Derivatives held for trading

   4,214,990   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate, stock price and others

Derivatives held for hedging

   67,267   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate and others

  

 

 

     
   4,282,257     
  

 

 

     

 

72


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2019
(In millions of Korean won)  Fair value   

Valuation techniques

  

Inputs

Financial assets

      

Financial assets at fair value through profit or loss

   8,633,172     

Debt securities

   8,633,172   

DCF Model, MonteCarlo Simulation, Net Asset Value

  

Discount rate, interest rate, prices of underlying assets (debt securities, stocks, etc.)

Derivatives held for trading

   2,184,029   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate, stock price and others

Derivatives held for hedging

   133,326   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate and others

Financial assets at fair value through other comprehensive income

   23,564,384     

Debt securities

   23,220,092   

DCF Model

  

Discount rate

Loans

   344,292   

DCF Model

  

Discount rate

  

 

 

     
   34,514,911     
  

 

 

     

Financial liabilities

      

Derivatives held for trading

   2,132,286   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate, stock price and others

Derivatives held for hedging

   36,212   

DCF Model, Closed Form, FDM

  

Discount rate, volatility, foreign exchange rate and others

  

 

 

     
   2,168,498     
  

 

 

     

 

73


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.1.2.2 Fair value hierarchy of financial assets and liabilities whose fair value is disclosed

Fair value hierarchy of financial assets and liabilities whose fair value is disclosed as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
   Fair value hierarchy     
(In millions of Korean won)  Level 1   Level 2   Level 3   Total 

Financial assets

        

Cash and due from financial institutions 1

   2,884,215    15,878,268    1,212,005    19,974,488 

Loans measured at amortized cost

   —      —      328,145,460    328,145,460 

Securities measured at amortized cost

   4,125,052    11,530,329    —      15,655,381 

Other financial assets 2

   —      —      5,986,686    5,986,686 
  

 

 

   

 

 

   

 

 

   

 

 

 
   7,009,267    27,408,597    335,344,151    369,762,015 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Deposits 1

   —      174,488,438    156,112,928    330,601,366 

Borrowings 1

   —      295    26,878,181    26,878,476 

Debentures

   —      27,131,418    —      27,131,418 

Other financial liabilities 2

   —      —      16,976,326    16,976,326 
  

 

 

   

 

 

   

 

 

   

 

 

 
   —      201,620,151    199,967,435    401,587,586 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

   December 31, 2019 
   Fair value hierarchy     
(In millions of Korean won)  Level 1   Level 2   Level 3   Total 

Financial assets

        

Cash and due from financial institutions 1

   2,694,352    10,695,432    1,088,432    14,478,216 

Loans measured at amortized cost

   —      —      293,767,751    293,767,751 

Securities measured at amortized cost

   4,372,712    9,683,683    —      14,056,395 

Other financial assets 2

   —      —      5,464,704    5,464,704 
  

 

 

   

 

 

   

 

 

   

 

 

 
   7,067,064    20,379,115    300,320,887    327,767,066 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Deposits 1

   —      138,097,349    163,311,669    301,409,018 

Borrowings 1

   —      4,685    19,136,997    19,141,682 

Debentures

   —      18,959,416    —      18,959,416 

Other financial liabilities 2

   —      —      15,446,504    15,446,504 
  

 

 

   

 

 

   

 

 

   

 

 

 
   —      157,061,450    197,895,170    354,956,620 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1

The amounts included in Level 2 are the carrying amounts which are reasonable approximation of the fair value.

2

Other financial assets and other financial liabilities included in Level 3 are the carrying amounts which are reasonable approximation of fair value.

 

74


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

For financial assets and liabilities whose carrying amount is a reasonable approximation of fair value, valuation techniques and inputs are not disclosed.

Valuation techniques and inputs of financial assets and liabilities classified as Level 2, and whose fair value is disclosed as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Fair value   Valuation
techniques
   Inputs 

Financial assets

      

Securities measured at amortized cost

   11,530,329    

DCF Model,
MonteCarlo
Simulation
 
 
 
   
Discount rate,
interest rate
 
 

Financial liabilities

      

Debentures

   27,131,418    DCF Model    Discount rate 

 

   December 31, 2019 
(In millions of Korean won)  Fair value   Valuation
techniques
   Inputs 

Financial assets

      

Securities measured at amortized cost

   9,683,683    

DCF Model,
MonteCarlo
Simulation
 
 
 
   
Discount rate,
interest rate
 
 

Financial liabilities

      

Debentures

   18,959,416    DCF Model    Discount rate 

Valuation techniques and inputs of financial assets and liabilities classified as Level 3 and, whose fair value is disclosed and as of December 31, 2020 and 2019, are as follows:

 

 

   December 31, 2020
(In millions of Korean won)  Fair value   

Valuation
techniques

  

Inputs

  

Unobservable inputs

Financial assets

        

Cash and due from financial institutions

   1,212,005   DCF Model  

Credit spread, other spread, interest rate

  

Credit spread, other spread

Loans measured at amortized cost

   328,145,460   DCF Model  

Credit spread, other spread, prepayment rate, interest rate

  

Credit spread, other spread, prepayment rate

  

 

 

       
   329,357,465       
  

 

 

       

Financial liabilities

        

Deposits

   156,112,928   DCF Model  

Other spread, prepayment rate, interest rate

  

Other spread, prepayment rate

Borrowings

   26,878,181   DCF Model  

Other spread, interest rate

  

Other spread

  

 

 

       
   182,991,109       
  

 

 

       

 

75


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2019
(In millions of Korean won)  Fair value   

Valuation
techniques

  

Inputs

  

Unobservable inputs

Financial assets

        

Cash and due from financial institutions

   1,088,432   DCF Model  

Credit spread, other spread, interest rate

  

Credit spread, other spread

Loans measured at amortized cost

   293,767,751   DCF Model  

Credit spread, other spread, prepayment rate, interest rate

  

Credit spread, other spread, prepayment rate

  

 

 

       
   294,856,183       
  

 

 

       

Financial liabilities

        

Deposits

   163,311,669   DCF Model  

Other spread, prepayment rate, Interest rate

  

Other spread, prepayment rate

Borrowings

   19,136,997   DCF Model  

Other spread, interest rate

  

Other spread

  

 

 

       
   182,448,666       
  

 

 

       

 

76


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.2 Disclosure of Fair Value Hierarchy Level 3

6.2.1 Valuation policy and process of Level 3 fair value

The Group uses external, independent and qualified valuation service in addition to internal valuation models to determine the fair value of the Group’s assets at the end of every reporting period.

Where a reclassification between the levels of the fair value hierarchy occurs for a financial asset or liability, the Group’s policy is to recognize such transfers as having occurred at the beginning of the reporting period.

6.2.2 Changes in Fair Value (Level 3) Measured using Valuation Technique based on Unobservable Inputs in the Market

6.2.2.1 Changes in financial instruments classified as Level 3 of the fair value hierarchy for the years ended December 31, 2020 and 2019, are as follows:

 

   2020 
   Financial assets at fair
value through profit or loss
  Financial
investments
  Net derivatives financial
instruments
 
(In millions of Korean won)  Securities
measured
at fair
value
through
profit or
loss
  Loans
measured
at fair
value
through
profit or
loss
  Equity
securities
measured at
fair value
through other
comprehensive
income
  Derivatives
held for
trading
  Derivatives
held for
hedging
 

Beginning

   1,897,487   188,133   1,041,246   (416  —   

Total gains or losses

 

- Profit or loss

   62,611   627   —     171   —   

- Other comprehensive income

   —     —     784,051   —     —   

Purchases

   703,320   —     92,699   3   —   

Sales

   (429,820  (150,004  (16  —     —   

Transfers into Level 3

   —     —     —     179   —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

   2,233,598   38,756   1,917,980   (63  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

77


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   2019 
   Financial assets at fair
value through profit or loss
  Financial
investments
  Net derivatives financial
instruments
 
(In millions of Korean won)  Securities
measured
at fair
value
through
profit or
loss
  Loans
measured
at fair
value
through
profit or
loss
  Equity securities
measured at fair
value through
other
comprehensive
income
  Derivatives
held for
trading
  Derivatives
held for
hedging
 

Beginning

   1,520,631   212,596   927,577   (708  —   

Total gains or losses

 

- Profit or loss

   35,553   10,412   —     3,233   —   

- Other comprehensive income

   —     —     36,714   —     —   

Purchases

   617,814   154,005   78,626   —     —   

Sales

   (276,511  (188,880  (1,671  —     —   

Settlements

   —     —     —     (2,941  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Ending

   1,897,487   188,133   1,041,246   (416  —   
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

6.2.2.2 In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the year, and total gains or losses recognized in profit or loss from financial instruments held at the end of the reporting period for the years ended December 31, 2020 and 2019, are as follows:

 

   2020 
(In millions of Korean won)  Net gains on
financial instruments
at fair value through
profit or loss
   Other
operating
expenses
   Net
interest
income
 

Total gains (losses) recognized in profit or loss for the year

   79,025    (15,616   —   

Total gains (losses) recognized in profit or loss from financial instruments held at the end of the reporting year

   74,955    (15,616   —   

 

   2019 
(In millions of Korean won)  Net gains on
financial instruments
at fair value through
profit or loss
   Other
operating
income
   Net
interest
income
 

Total gains recognized in profit or loss for the year

   47,801    1,375    22 

Total gains recognized in profit or loss from financial instruments held at the end of the reporting year

   39,472    1,319    —   

 

78


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.2.3 Sensitivity analysis of changes in unobservable inputs

6.2.3.1 Information about fair value measurements using unobservable inputs as of December 31, 2020 and 2019, are as follows:

 

 
   December 31, 2020
(In millions of
Korean won)
  Fair
value
   

Valuation

techniques

  

Inputs

  

Unobservable

inputs

  Range of
unobservable
inputs (%)
   

Relationship of
unobservable inputs

to fair value

Financial assets

            
Financial assets at fair value through profit or loss      

Debt securities

   2,181,426   MonteCarlo Simulation, Net Asset Value, DCF Model  Price of underlying asset, interest rate, dividend yield, volatilities and correlation of underlying asset, discount rate, liquidation value, volatility of the real estate price  Volatilities of the underlying asset   5.47 ~ 26.70   Higher the volatility, higher the fair value fluctuation
        Correlation of underlying asset   14.83 ~ 100.00   Higher the correlation, higher the fair value fluctuation
        Discount rate   8.63 ~ 21.37   Lower the discount rate, higher the fair value
        Liquidation value   0.00   Higher the liquidation value, higher the fair value
        Volatility of the real estate price   0.00   Higher the sale price, higher the fair value

Equity securities

   52,172   DCF Model, Comparable Company Analysis, Risk Adjusted Discount Rate Method  Growth rate, discount rate  Growth rate   0.00   Higher the growth rate, higher the fair value
  Discount rate   7.64 ~ 18.67   Lower the discount rate, higher the fair value

Loans

   38,756   DCF Model  Discount rate  Discount rate   7.86  Lower the discount rate, higher the fair value

Derivatives held for trading

Stock and index

   44   Tree Model  Price of underlying asset, volatility of underlying asset  Volatility of the underlying asset   22.11 ~ 26.24   Higher the volatility, higher the fair value fluctuation

Currency

   —     DCF Model  Interest rate, foreign exchange rate, loss given default ratio  Loss given default ratio   0.00   Higher the loss given default ratio, lower the fair value

Financial assets at fair value through other comprehensive income

    

Equity securities

   1,917,980   DCF Model, Comparable Company Analysis, Risk Adjusted Discount Rate Method, Tree model  Growth rate, discount rate, stock price, volatility of the stock price  Growth rate   0.00   Higher the growth rate, higher the fair value
        Discount rate   9.90 ~ 19.67   Lower the discount rate, higher the fair value
        Volatility of the stock price   22.11 ~ 24.16   Higher the volatility, higher the fair value fluctuation
  

 

 

           
   4,190,378           
  

 

 

           

Financial liabilities

Derivatives held for trading

Others

   107   DCF Model  Interest rate, discount rate  Discount rate   1.15 ~ 1.29   Higher the discount rate, lower the fair value
  

 

 

           
   107           
  

 

 

           

 

79


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2019
(In millions of
Korean won)
  Fair
value
   

Valuation
techniques

  

Inputs

  

Unobservable
inputs

  Range of
unobservable
inputs (%)
   

Relationship of
unobservable inputs to
fair value

Financial assets

            

Financial assets at fair value through profit or loss

      

Debt securities

   1,853,440   

MonteCarlo

Simulation, Net Asset Value, DCF Model

  Price of underlying asset, interest rate, dividend yield, volatilities and correlation of underlying asset, discount rate, liquidation value, volatility of the real estate price  Volatilities of the underlying asset   16.80 ~ 30.55   Higher the volatility, higher the fair value fluctuation
        Correlation of underlying asset   3.11 ~ 95.67   Higher the correlation, higher the fair value fluctuation
        Discount rate   7.47   Lower the discount rate, higher the fair value
        Liquidation value   0.00   Higher the liquidation value, higher the fair value
        Volatility of the real estate price   0.00   Higher the sale price, higher the fair value

Equity securities

   44,047   DCF Model, Comparable Company Analysis  Growth rate, discount rate  Growth rate   0.00   Higher the growth rate, higher the fair value
        Discount rate   5.89 ~ 16.15   Lower the discount rate, higher the fair value

Loans

   188,133   Tree Model, DCF Model  Stock price, volatility of the stock price, discount rate  Volatility of the stock price   12.91 ~ 48.28   Higher the volatility, higher the fair value fluctuation
        Discount rate   10.81   Lower the discount rate, higher the fair value

Derivatives held for trading

            

Stock and index

   70   Tree Model  Price of underlying asset, interest rate, volatility of underlying asset, dividend yield  Volatility of the underlying asset   21.85   Higher the volatility, higher the fair value fluctuation

Financial assets at fair value through other comprehensive income

    

Equity securities

   1,041,247   DCF Model, Comparable Company Analysis, Tree Model  Growth rate, discount rate, stock price, volatility of the stock price  Growth rate   0.00   Higher the growth rate, higher the fair value
        Discount rate   3.04 ~ 16.37   Lower the discount rate, higher the fair value
        Volatility of the stock price   20.97 ~ 22.19   Higher the volatility, higher the fair value fluctuation
  

 

 

           
   3,126,937           
  

 

 

           

Financial liabilities

Derivatives held for trading

Others

   484   MonteCarlo Simulation, DCF Model  Stock price, interest rate, volatility of the stock price, volatility of the interest rate, discount rate  Volatility of the stock price   16.28   Higher the volatility, higher the fair value fluctuation
      
  Volatility of the interest rate   0.52   Higher the volatility, higher the fair value fluctuation
        Discount rate   1.94 ~ 2.00   Higher the discount rate, lower the fair value
  

 

 

           
   484           
  

 

 

           

 

80


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.2.3.2 Sensitivity analysis of changes in unobservable inputs

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable changes in fair value of financial instruments which are affected by unobservable parameters, using a statistical technique. When the fair value is affected by more than one input parameter, the amounts represent the most favorable or most unfavorable outcome. Level 3 financial instruments subject to sensitivity analysis are debt securities, loans, equity-related derivatives, currency-related derivatives, interest rate-related derivatives and other derivatives whose fair value changes are recognized in profit or loss as well as equity securities whose fair value changes are recognized in profit or loss or other comprehensive income or loss.

Results of the sensitivity analysis of changes in inputs as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
   Profit or loss   Other comprehensive Income (loss) 
(In millions of Korean won)  Favorable
changes
   Unfavorable
changes
   Favorable
changes
   Unfavorable
changes
 

Financial assets

        

Financial assets at fair value through profit or loss

        

Debt securities 3, 5

   8,051    (6,604   —      —   

Equity securities 2, 5

   8,112    (4,545   —      —   

Loans 4

   3,316    (2,952   —      —   

Derivatives held for trading 1

   8    (8   —      —   

Financial assets at fair value through other comprehensive income

        

Equity securities 2, 5, 6

   —      —      94,084    (55,297
  

 

 

   

 

 

   

 

 

   

 

 

 
   19,487    (14,109   94,084    (55,297
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Derivatives held for trading 1

   3    (3   —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 
   3    (3   —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

81


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2019 
   Profit or loss   Other comprehensive Income (loss) 
(In millions of Korean won)  Favorable
changes
   Unfavorable
changes
   Favorable
changes
   Unfavorable
changes
 

Financial assets

        

Financial assets at fair value through profit or loss

        

Debt securities 3, 5

   3,374    (3,429   —      —   

Equity securities 2, 5

   10,906    (3,858   —      —   

Loans 4

   6,362    (4,344   —      —   

Derivatives held for trading 1

   1    (1   —      —   

Financial assets at fair value through other comprehensive income

        

Equity securities 2, 5, 6

   —      —      188,090    (94,201
  

 

 

   

 

 

   

 

 

   

 

 

 
   20,643    (11,632   188,090    (94,201
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities

        

Derivatives held for trading 1

   17    (17   —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 
   17    (17   —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1

For derivative financial instruments, changes in fair value are calculated by shifting principal unobservable input parameters; such as the price and the volatility of the underlying asset by ± 10%, and the loss given default ratio by ± 1% for some derivatives as of December 31, 2019.

2

For equity securities, changes in fair value are calculated by shifting principal unobservable input parameters such as discount rate (-1~1%) and growth rate (0~0.5%).

3

For beneficiary certificates, it is practically impossible to analyze sensitivity of changes in unobservable inputs. But only for beneficiary certificates whose underlying assets are real estates, changes in fair value are calculated by shifting volatility of real estate price (-1~1%). For equity investments, changes in fair value are calculated by shifting the liquidation value (-1~1%) and the discount rates (-1~1%). There was no significant correlation among major unobservable inputs.

4 

For loans, changes in fair value are calculated by shifting principal unobservable input parameters such as stock prices, and volatility of stock prices (-10~10%) and discount rate (-1~1%).

5 

The amounts ofW 2,992,304 million andW 1,634,734 million of financial assets classified as level 3 as of December 31, 2020 and 2019, respectively, are excluded because it is practically impossible to analyze sensitivity of changes in unobservable inputs.

6 

For some equity securities, changes in fair value are calculated by shifting principal unobservable input parameters such as stock prices and volatilities of stock prices by ± 10%.

 

82


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.2.4 Day one gains or losses

If the Group uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there could be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the fair value of financial instruments is recognized as the transaction price and the difference is not recognized in profit or loss but deferred and amortized using the straight-line method over the life of the financial instrument. When the fair value of the financial instruments is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss.

Changes in aggregate deferred differences for the years ended December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  2020   2019 

Balance at the beginning of the year (A)

   (1,778   (2,916

New transactions (B)

   —      —   

Amounts recognized in profit or loss (C=a+b)

   1,141    1,138 

a. Amortization

   1,141    1,138 

b. Settlement

   —      —   
  

 

 

   

 

 

 

Balance at the end of the year (A+B+C)

   (637   (1,778
  

 

 

   

 

 

 

6.3 Carrying Amounts of Financial Instruments by Category

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of financial assets and liabilities by category as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Financial
instruments
at fair value
through profit
or loss
   Financial
instruments at
fair value
through other
comprehensive
income
   Financial
instruments
designated at
fair value
through other
comprehensive
income
   Financial
instruments at
amortized cost
   Derivatives
held for
hedging
   Total 

Financial assets

            

Cash and due from financial institutions

   —      —      —      19,972,269    —      19,972,269 

Financial assets at fair value through profit or loss

   16,042,357    —      —      —      —      16,042,357 

Derivatives

   4,291,829    —      —      —      164,839    4,456,668 

Loans measured at amortized cost

   —      —      —      327,332,495    —      327,332,495 

Financial investments

   —      40,195,455    2,502,614    15,588,413    —      58,286,482 

Other financial assets

   —      —      —      5,986,686    —      5,986,686 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   20,334,186    40,195,455    2,502,614    368,879,863    164,839    432,076,957 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

83


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

   December 31, 2020 
(In millions of Korean won)  Financial instruments
at fair value through
profit or loss
   Financial instruments
at amortized cost
   Derivatives held
for hedging
   Total 

Financial liabilities

        

Financial liabilities at fair value through profit or loss

   141,277    —      —      141,277 

Derivatives

   4,215,097    —      67,267    4,282,364 

Deposits

   —      330,352,491    —      330,352,491 

Borrowings

   —      26,870,831    —      26,870,831 

Debentures

   —      26,969,584    —      26,969,584 

Other financial liabilities

   —      16,976,326    —      16,976,326 
  

 

 

   

 

 

   

 

 

   

 

 

 
   4,356,374    401,169,232    67,267    405,592,873 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  
   December 31, 2019 
(In millions of Korean won)  Financial instruments
at fair value
through profit
or loss
   Financial
instruments at
fair value
through other
comprehensive
income
   Financial
instruments
designated at fair
value through
other comprehensive
income
   Financial
instruments at
amortized cost
   Derivatives
held for
hedging
   Total 

Financial assets

            

Cash and due from financial institutions

   —      —      —      14,481,309    —      14,481,309 

Financial assets at fair value through profit or loss

   13,866,303    —      —      —      —      13,866,303 

Derivatives

   2,184,099    —      —      —      133,326    2,317,425 

Loans measured at amortized cost

   —      —      —      293,531,433    —      293,531,433 

Financial investments

   —      36,461,280    1,993,674    13,964,339    —      52,419,293 

Other financial assets

   —      —      —      5,464,704    —      5,464,704 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   16,050,402    36,461,280    1,993,674    327,441,785    133,326    382,080,467 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  Financial instruments
at fair value through
profit or loss
   Financial instruments
at amortized cost
   Derivatives held
for hedging
   Total 

Financial liabilities

        

Financial liabilities at fair value through profit or loss

   80,235    —      —      80,235 

Derivatives

   2,132,771    —      36,211    2,168,982 

Deposits

   —      300,917,482    —      300,917,482 

Borrowings

   —      19,141,262    —      19,141,262 

Debentures

   —      18,739,992    —      18,739,992 

Other financial liabilities

   —      15,446,504    —      15,446,504 
  

 

 

   

 

 

   

 

 

   

 

 

 
   2,213,006    354,245,240    36,211    356,494,457 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

84


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.4 Transfer of Financial Assets

6.4.1 Transferred financial assets that are derecognized in their entirety

The Group transferred loans and other financial assets that are derecognized in their entirety, to SPEs (special purpose entities), while the maximum exposure to loss (carrying amount) from its continuing involvement and fair value of its continuing involvement of the derecognized financial assets as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Type of continuing
involvement
   

Classification
of financial instruments

  Carrying amount of
continuing involvement
   Fair value of continuing
involvement
 

Discovery 2nd Securitization Specialty Co., Ltd.

   Subordinated debt   

Financial assets at fair value through profit or loss

   5,190    5,190 

FK 1411 ABS Ltd.

   Subordinated debt   

Financial assets at fair value through profit or loss

   1,062    1,062 

AP 3B ABS Ltd.

   Subordinated debt   

Financial assets at fair value through profit or loss

   646    646 

AP 4D ABS Ltd.

   Subordinated debt   

Financial assets at fair value through profit or loss

   6,304    6,304 
      

 

 

   

 

 

 
       13,202    13,202 
      

 

 

   

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  Type of continuing
involvement
  

Classification
of financial instruments

  Carrying amount of
continuing involvement
   Fair value of continuing
involvement
 

Discovery 2nd Securitization Specialty Co., Ltd.

  Subordinated debt  

Financial assets at fair value through profit or loss

   5,596    5,596 

FK 1411 ABS Ltd.

  Subordinated debt  

Financial assets at fair value through profit or loss

   5,428    5,428 

AP 3B ABS Ltd.

  Subordinated debt  

Financial assets at fair value through profit or loss

   3,205    3,205 

AP 4D ABS Ltd.

  Subordinated debt  

Financial assets at fair value through profit or loss

   6,175    6,175 
      

 

 

   

 

 

 
       20,404    20,404 
      

 

 

   

 

 

 

 

85


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.4.2 Bonds sold under repurchase agreements and loaned securities

The Group continues to recognize the financial assets related to bonds sold under repurchase agreements and securities lending transactions in the consolidated statement of financial position since those transactions are not qualified for derecognition even though the Group transfers the financial assets. Bonds sold under repurchase agreements are sold on the condition that they will be repurchased at a fixed price and loaned securities will be returned at the expiration of the loan period. Thus, the Group retains substantially all the risks and rewards of ownership of the financial assets. The carrying amount of transferred assets and related liabilities as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Carrying amount of
transferred assets
   Carrying amount of
related liabilities
 

Bonds sold under repurchase agreements

   1,354,289    1,313,483 

Loaned securities

   741,804    —   

Government and public bonds

   741,804    —   
  

 

 

   

 

 

 
   2,096,093    1,313,483 
  

 

 

   

 

 

 

 

   December 31, 2019 
(In millions of Korean won)  Carrying amount of
transferred assets *
   Carrying amount of
related liabilities
 

Bonds sold under repurchase agreements

   871,929    825,710 

Loaned securities

   788,790    —   

Government and public bonds

   788,790    —   
  

 

 

   

 

 

 
   1,660,719    825,710 
  

 

 

   

 

 

 

 

*

Includes borrowed securities amounting toW 44,988 million, as of December 31, 2019.

6.5 Offsetting Financial Assets and Financial Liabilities

The Group enters into International Swaps and Derivatives Association (“ISDA”) master netting agreements and other similar netting arrangements with the Group’s OTC derivative and spot exchange counterparties. Similar netting agreements are also entered into with the Group’s (a) sales or purchase of bonds under repurchase agreements and (b) securities lending and borrowing transactions, etc. Pursuant to these agreements, in the event of default by one party, contracts are to be terminated and receivables and payables are to be offset. Further, as the law allows for the right to offset, domestic exchange settlement debits and domestic exchange settlement credits are shown in its net settlement balance in the consolidated statement of financial position. Account receivables and account payables related to listed securities and derivatives or OTC derivatives settled by the central clearing house are included in the other financial instruments. As the Group has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis, the net amounts of the other financial instrument balances are presented in the consolidated statement of financial position.

 

86


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.5.1 Details of financial assets subject to offsetting, enforceable master netting arrangements or similar agreements as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
(In millions of Korean won)  Gross assets   Gross
liabilities
offset
  Net amount in
the statement
of financial
position
   Non-offsetting amount  Net amount 
  Financial
instruments
  Cash
collateral
 

Derivatives held for trading

   4,173,489    —     4,173,489    (3,175,203  (274  1,162,851 

Derivatives held for hedging

   164,839    —     164,839     

Receivable spot exchange

   3,104,233    —     3,104,233    (3,102,431  —     1,802 

Bonds purchased under repurchase agreements

   2,808,380    —     2,808,380    (2,808,380  —     —   

Domestic exchange settlement debits

   37,442,464    (36,726,449  716,015    —     —     716,015 

Other financial instruments

   20,093    (19,757  336    —     —     336 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
   47,713,498    (36,746,206  10,967,292    (9,086,014  (274  1,881,004 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

 

   December 31, 2019 
  Gross assets   Gross
liabilities
offset
  Net amount in
the statement
of financial
position
   Non-offsetting amount  Net amount 
(In millions of Korean won)  Financial
instruments
  Cash
collateral
 

Derivatives held for trading

   2,184,029    —     2,184,029    (1,734,044  (1,210  582,102 

Derivatives held for hedging

   133,327    —     133,327     

Receivable spot exchange

   3,003,910    —     3,003,910    (3,002,566  —     1,344 

Bonds purchased under repurchase agreements

   6,173,038    —     6,173,038    (6,173,038  —     —   

Domestic exchange settlement debits

   31,256,658    (30,733,476  523,182    —     —     523,182 

Other financial instruments

   14,827    (6,347  8,480    —     —     8,480 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 
   42,765,789    (30,739,823  12,025,966    (10,909,648  (1,210  1,115,108 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

 

 

 

 

87


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

6.5.2 Details of financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreements as of December 31, 2020 and 2019, are as follows:

 

   December 31, 2020 
  Gross
liabilities
   Gross
assets
offset
  Net amount in
the statement
of financial
position
   Non-offsetting amount   Net
amount
 
(In millions of Korean won)  Financial
instruments
  Cash
collateral
 

Derivatives held for trading

   4,148,295    —     4,148,295    (2,395,773  —      1,819,789 

Derivatives held for hedging

   67,267    —     67,267      

Payable spot exchange

   3,103,095    —     3,103,095    (3,102,431  —      664 

Bonds sold under repurchase agreements *

   1,363,543    —     1,363,543    (1,363,543  —      —   

Domestic exchange settlement credits

   37,659,778    (36,726,449  933,329    (933,329  —      —   

Other financial instruments

   22,824    (19,757  3,067    —     —      3,067 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 
   46,364,802    (36,746,206  9,618,596    (7,795,076  —      1,823,520 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

 

   December 31, 2019 
  Gross
liabilities
   Gross
assets
offset
  Net amount in
the statement
of financial
position
   Non-offsetting amount   Net
amount
 
(In millions of Korean won)  Financial
instruments
  Cash
collateral
 

Derivatives held for trading

   2,132,286    —     2,132,286    (1,566,026  —      602,472 

Derivatives held for hedging

   36,212    —     36,212      

Payable spot exchange

   3,003,464    —     3,003,464    (3,002,566  —      898 

Bonds sold under repurchase agreements *

   825,710    —     825,710    (825,710  —      —   

Domestic exchange settlement credits

   32,806,739    (30,733,476  2,073,263    (2,073,263  —      —   

Other financial instruments

   6,535    (6,347  188    —     —      188 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 
   38,810,946    (30,739,823  8,071,123    (7,467,565  —      603,558 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

   

 

 

 

 

*

Includes bonds sold under repurchase agreements to customers.

 

88


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

7. Due from Financial Institutions

7.1 Details of due from financial institutions as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)  

Financial institutions

  

Interest
rate (%)

  December 31,
2020
   December 31,
2019
 

Due from financial institutions in Korean won

  Due from the Bank of Korea  The Bank of Korea  —     11,242,803    8,117,840 
  Due from banking institutions  Hana Bank and others  0.00 ~ 1.90   259,339    187,638 
  Due from others  NH Investment & Securities Co., Ltd. and others  0.00 ~ 1.63   14,050    9,608 
        

 

 

   

 

 

 
         11,516,192    8,315,086 
        

 

 

   

 

 

 

Due from financial institutions in foreign currencies

  Due from banks in foreign currencies  Wells Fargo Bank N.A. and others  0.00 ~ 3.50   4,161,788    2,346,580 
  Time deposits in foreign currencies  Bank of Shanghai, Beijing Branch and others  0.00 ~ 7.05   630,156    920,240 
  Due from others  Societe Generale (Paris) and others  0.00 ~ 1.93   780,141    209,099 
        

 

 

   

 

 

 
         5,572,085    3,475,919 
        

 

 

   

 

 

 
         17,088,277    11,791,005 
        

 

 

   

 

 

 

 

*

Before netting of allowance

7.2 Details of restricted due from financial institutions as of December 31, 2020 and 2019, are as follows:

 

(In millions of Korean won)   Financial institutions  December 31,
2020
   December 31,
2019
   Reasons of restriction 

Due from financial institutions in
Korean won

   Due from the Bank of Korea    The Bank of Korea   11,242,803    8,117,840    Bank of Korea Act 
   Due from others    


NH Investment &
Securities Co.,
Ltd. and
others
 
 
 
 
  14,049    9,609    
Derivatives
margin account
 
 
     

 

 

   

 

 

   
      11,256,853    8,127,449   
     

 

 

   

 

 

   

Due from financial institutions in
foreign currencies

   
Due from banks in foreign
currencies
 
 
   

People’s Bank of
China and
others
 
 
 
  1,097,674    490,013    
Cambodian law,
etc.
 
 
   
Time deposits in foreign
currencies
 
 
   


Bank of
Communication
Co., Ltd. New
York Branch
 
 
 
 
  38,080    23,156    
New York State
Banking Law
 
 
   Due from others    

Societe Generale
(Paris) and
others
 
 
 
  380,432    118,814    
Derivatives
margin account
 
 
     

 

 

   

 

 

   
      1,516,186    631,983   
     

 

 

   

 

 

   
      12,773,039    8,759,432   
     

 

 

   

 

 

   

 

89


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

7.3 Changes in allowances for credit losses of due from financial institutions for the years ended December 31, 2020 and 2019, are as follows:

 

   2020 
   12-month
expected
credit
losses
   Lifetime expected credit losses 
(In millions of Korean won)  Non-impaired   Impaired 

Beginning

   2,502    1,186    360 

Transfer between stages

   —      —      —   

Reversal of credit losses

   (598   (1,127   —   

Business combination

   138    —      —   

Others (exchange differences, etc.)

   21    (25   (78
  

 

 

   

 

 

   

 

 

 

Ending

   2,063    34    282 
  

 

 

   

 

 

   

 

 

 
   2019 
   12-month
expected
credit
losses
   Lifetime expected credit losses 
(In millions of Korean won)  Non-impaired   Impaired 

Beginning

   1,548    —      —   

Transfer between stages

   —      —      —   

Provision for credit losses

   924    1,210    360 

Others (exchange differences, etc.)

   30    (24   —   
  

 

 

   

 

 

   

 

 

 

Ending

   2,502    1,186    360 
  

 

 

   

 

 

   

 

 

 

8. Assets Pledged as Collateral

8.1 Details of assets pledged as collateral as of December 31, 2020 and 2019, are as follows:

 

(In millions of
Korean won)
     December 31, 2020
Assets pledged  

Pledgee

  Carrying amount   

Reasons of pledge

Securities measured at fair value through profit or loss

  The Korea Exchange and others   210,171   Repurchase agreements
  Korea Securities Finance Corporation   52,842   Securities borrowing transactions
  Samsung Futures and others   11,225   Derivatives transactions
    

 

 

   
     274,238   
    

 

 

   

Securities measured at fair value through other comprehensive income

  CITI Bank   149,633   Repurchase agreements
  The Bank of Korea   2,837,453   Borrowings from the Bank of Korea
     1,610,691   Settlement risk of the Bank of Korea
  JP Morgan Chase Bank and others   156,300   Derivatives transactions
  Others   4,036   Others
    

 

 

   
     4,758,113   
    

 

 

   

Securities measured at amortized cost

  Meritz Securities and others   1,030,078   Repurchase agreements
  

The Bank of Korea

   4,295,149   

Borrowings from the Bank of Korea

     3,677,922   

Settlement risk of the Bank of Korea

  

KB Securities Co., Ltd. and others

   126,199   

Derivatives transactions

  

KB Insurance Co., Ltd. and others

   151,796   

Others

    

 

 

   
     9,281,144   
    

 

 

   

Mortgage loans

  Others   10,699,720   Covered bond

Building / Land

  Hanwha Life Insurance Co., Ltd. and others   228,995   Others
    

 

 

   
     25,242,210   
    

 

 

   

 

90


Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2020 and 2019

 

 

(In millions of Korean won)     December 31, 2019
Assets pledged