Industrial Bank of Korea and Subsidiarieseng.ibk.co.kr/upload/all/bspl/IBK_1706_Consolidated...Industrial Bank of Korea and Subsidiaries Consolidated Interim Statements of Financial

Industrial Bank of Korea and SubsidiariesConsolidated Interim Financial StatementsJune 30, 2017 and 2016

Industrial Bank of Korea and SubsidiariesIndexJune 30, 2017 and 2016

Page(s)

Report on Review of Interim Financial Statements......................................................... 1-2

Consolidated Interim Financial Statements

Consolidated Interim Statements of Financial Position ........................................................... 3

Consolidated Interim Statements of Comprehensive Income ................................................. 4

Consolidated Interim Statements of Changes in Equity .......................................................... 5

Consolidated Interim Statements of Cash Flows .................................................................... 6

Notes to the Consolidated Interim Financial Statements.................................................. 7-114

Report on Review of Interim Financial Statements

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors ofIndustrial Bank of Korea

Reviewed Financial StatementsWe have reviewed the accompanying consolidated interim financial statements ofIndustrial Bank of Korea (the Bank) and its subsidiaries (collectively referred to as the“Group”). These financial statements consist of the consolidated interim statement offinancial position of the Group as at June 30, 2016, and the related consolidatedinterim statements of comprehensive income for the three-month and six-monthperiods ended June 30, 2017 and 2016, and consolidated interim statements ofchanges in equity and cash flows for the six-month periods ended June 30, 2017 and2016, and a summary of significant accounting policies and other explanatory notes,expressed in Korean won.

Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of theseconsolidated interim financial statements in accordance with International FinancialReporting Standards as adopted by the Republic of Korea (Korean IFRS) 1034 InterimFinancial Reporting, and for such internal control as management determines isnecessary to enable the preparation of consolidated interim financial statements thatare free from material misstatement, whether due to fraud or error.

Auditor's ResponsibilityOur responsibility is to issue a report on these consolidated interim financialstatements based on our review.

We conducted our review in accordance with quarterly or semi-annual reviewstandards established by the Securities and Futures Commission of the Republic ofKorea. A review of interim financial information consists of making inquiries, primarilyof persons responsible for financial and accounting matters, and applying analyticaland other review procedures. A review is substantially less in scope than an auditconducted in accordance with Korean Standards on Auditing and consequently doesnot enable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express an auditopinion.

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ConclusionBased on our review, nothing has come to our attention that causes us to believe theaccompanying consolidated interim financial statements are not presented fairly, in allmaterial respects, in accordance with Korean IFRS 1034 Interim Financial Reporting

Other MattersWe have audited the consolidated statement of financial position of the Group as atDecember 31, 2016, and the related consolidated statements of comprehensiveincome, changes in equity and cash flows for the year then ended, in accordance withKorean Standards on Auditing. We expressed an unqualified opinion on those financialstatements, not presented herein, in our audit report dated March 10, 2017. Theconsolidated statement of financial position as at December 31, 2016, presentedherein for comparative purposes, is consistent, in all material respects, with the aboveaudited statement of financial position as at December 31, 2016.

Review standards and their application in practice vary among countries. Theprocedures and practices used in the Republic of Korea to review such financialstatements may differ from those generally accepted and applied in other countries.

Seoul, KoreaAugust 14, 2017

This report is effective as of August 14, 2017, the review report date. Certainsubsequent events or circumstances, which may occur between the review report dateand the time of reading this report, could have a material impact on the accompanyingconsolidated interim financial statements and notes thereto. Accordingly, the readersof the review report should understand that there is a possibility that the above reviewreport may have to be revised to reflect the impact of such subsequent events orcircumstances, if any.

Industrial Bank of Korea and SubsidiariesConsolidated Interim Statements of Financial Position

June 30, 2017 and December 31, 2016

(in millions of Korean won) Notes

Assets

Cash and due from banks 23,43 ₩ 15,072,354 ₩ 11,699,220

Financial assets held for trading 4,23 7,970,600 8,313,556Financial assets designated at fair value through profit

and loss 4,23 511,339 478,908

Available-for-sale financial assets 5,23 14,903,505 16,770,997

Held-to-maturity financial assets 6,23 19,402,846 14,133,675

Loans receivable 7,23 199,140,358 193,037,313

Derivative financial assets for hedge accounting 8,23 152,345 174,147

Investments in associates 9 126,783 98,223

Investment properties 10,21 67,735 88,503

Property and equipment 11,21 1,831,196 1,820,899

Intangible assets 12 240,496 258,427

Deferred tax assets 13 6,534 7,684

Other assets 14,23,36 7,464,192 9,969,828

Total assets ₩ 266,890,283 ₩ 256,851,380

Liabilities

Financial liabilities held for trading 4,23 ₩ 2,074,134 ₩ 2,620,960Financial liabilities designated at fair value through

profit 4,23 1,361,783 1,233,788

Deposit liabilities 15,23 106,979,062 103,984,113

Debts 16,23 28,027,393 26,670,496

Debentures 17,23 93,201,559 90,863,125

Derivative financial liabilities for hedge accounting 8,23 248,097 354,174

Net defined benefit liabilities 18 46,360 25,090

Provisions 19 398,590 390,453

Deferred tax liabilities 13 220,702 158,091

Other liabilities 20,23,36 15,391,884 12,503,682

Total liabilities 247,949,564 238,803,972

Equity

Equity attributable to owners of the Parent Company

Share capital 24 3,289,756 3,289,756

Hybrid capital instruments 24 1,697,760 1,398,240

Reserves 24 558,047 553,889

Accumulated other comprehensive income 24 802,232 666,596

Retained earnings 25 12,492,126 12,041,487

(Regulatory reserve for credit loss

June 30, 2017 : \ 2,219,478 million

December 31, 2016 : \ 1,922,153 million)

(Regulatory reserve for credit loss estimated to be

appropriated

June 30, 2017 : \ 204,575 million

December 31, 2016 : \ 297,325 million)

18,839,921 17,949,968

Non-controlling interest 100,798 97,440

Total equity 18,940,719 18,047,408

Total liabilities and equity ₩ 266,890,283 ₩ 256,851,380

June 30, 2017 December 31, 2016

(Unaudited)

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

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Industrial Bank of Korea and SubsidiariesConsolidated Interim Statements of Comprehensive IncomeThree-Month and Six-Month Periods Ended June 30, 2017 and 2016

(in millions of Korean won) Notes

Interest income ₩ 1,987,418 ₩ 3,921,288 ₩ 1,947,977 ₩ 3,894,866

Interest expense (696,608) (1,376,996) (748,110) (1,512,359)

Net interest income 26, 41 1,290,810 2,544,292 1,199,867 2,382,507

Fee and commission income 235,321 438,891 195,660 380,430

Fee and commission expense (107,269) (218,615) (99,739) (189,290)

Net fee and commission income 27, 41 128,052 220,276 95,921 191,140

Net gains (losses) on financial assets/liabilities held for trading 28 66,255 (59,335) 90,935 98,678

28 (13,742) (23,914) (12,245) (13,166)

Net gains (losses) on derivative financial instruments for hedge accounting 8 49,065 76,653 (57,601) (29,923)

Other net gains from financial instruments 29 14,507 181,676 76,694 212,363

Insurance loss 36 (12,364) (24,956) (11,042) (21,959)

Net gains (losses) on foreign currency transactions (60,911) 126,157 20,603 23,246

Gross operating profit 1,461,672 3,040,849 1,403,132 2,842,886

Impairment loss on financial assets 5, 7 ,41 (287,028) (643,591) (268,147) (639,624)

Net operating profit 1,174,644 2,397,258 1,134,985 2,203,262

General and administrative expenses 30 (589,475) (1,093,653) (582,639) (1,051,468)

Other operating income 31 76,513 88,667 34,525 69,946

Other operating expenses 32 (186,593) (339,082) (194,870) (348,487)

Operating profit 475,089 1,053,190 392,001 873,253

Non-operating expenses 33 (5,037) (10,887) (6,727) (6,806)

Profit before income tax 470,052 1,042,303 385,274 866,447

Income tax expense 13 (109,917) (242,814) (95,677) (199,127)

Profit for the period 360,135 799,489 289,597 667,320

(Adjusted profit after provision of regulatory reserve for credit losses 25

June 30, 2017 : \ 594,914 million

June 30, 2016 : \ 422,429 million)

Items that will not be reclassified to profit or loss:

Remeasurements of net defined benefit liabilities 18, 24 (1,507) (2,749) (999) (2,091)

Items that may be subsequently reclassified to profit or loss:

Changes in the fair value of available-for-sale financial assets 5, 24 178,969 161,699 224,493 270,247

Shares of other comprehensive income of associates 9, 24 (358) (699) 4,781 4,344

Exchange differences on translation of foreign operations 24 21,193 (34,110) (4,275) (18,237)

Cash flow hedges 24 (23) (2) 6 (21)

8, 24(4,010) 11,479 (463) 6,377

Other comprehensive income for the period, net of tax 194,264 135,618 223,543 260,619

Total comprehensive income for the period ₩ 554,399 ₩ 935,107 ₩ 513,140 ₩ 927,939

Profit is attributable to:

Owners of the Parent Company ₩ 357,643 ₩ 795,907 ₩ 286,593 ₩ 663,281

Non-controlling interest 2,492 3,582 3,004 4,039

₩ 360,135 ₩ 799,489 ₩ 289,597 ₩ 667,320

Total comprehensive income for the period is attributable to:

Owners of the Parent Company ₩ 551,924 ₩ 931,543 ₩ 510,216 ₩ 923,987

Non-controlling interest 2,475 3,564 2,924 3,952

₩ 554,399 ₩ 935,107 ₩ 513,140 ₩ 927,939

Earnings per share (in Korean won) 37

Basic earnings per share ₩ 519 ₩ 1,164 ₩ 408 ₩ 955

Diluted earnings per share ₩ 519 ₩ 1,164 ₩ 408 ₩ 955

Period Ended June 30

Net losses on financial assets/liabilities

designated at fair value through profit and loss

Changes in valuation of hedges of

a net investment in a foreign operation

Three months Six months

2017

(Unaudited)

2016

(Unaudited)

Three months Six months

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

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Industrial Bank of Korea and SubsidiariesConsolidated Interim Statements of Changes in Equity

Six-Month Periods Ended June 30, 2017 and 2016

Accumulated

Other

(in millions of Korean won) Notes Share Hybrid Capital Comprehensive Retained Non-controlling Total

Capital Instruments Reserves Income Earnings interest Equity

Balance at January 1, 2016 ₩ 3,271,871 1,399,200 530,583 747,676 11,253,700 90,760 17,293,790

Comprehensive income

Profit for the period - - - - 663,281 4,039 667,320

Other comprehensive income for the period

Change in the fair value of available-for-sale financial

assets - - - 270,329 - (82) 270,247

Shares of other comprehensive income of associates - - - 4,344 - - 4,344

Exchange differences on translation of foreign operations - - - (18,237) - - (18,237)

Cash flow hedges - - - (16) - (5) (21)

Changes in valuation of

hedges of a net investment in a foreign operation - - - 6,377 - - 6,377

Remeasurements of net defined benefit liabilities - - - (2,091) - - (2,091)

Total comprehensive income for the period ₩ - ₩ - ₩ - ₩ 260,706 ₩ 663,281 ₩ 3,952 ₩ 927,939

Transactions with owners

Cash dividends 38 - - - - (294,469) (206) (294,675)

Dividends for hybrid capital instruments 38 - - - - (36,372) - (36,372)

Issuance of shares 24 17,885 - 22,018 - - - 39,903

Others - - 631 - 63 - 694

Total transactions with owners 17,885 - 22,649 - (330,778) (206) (290,450)

Balance at June 30, 2016 (Unaudited) 3,289,756 1,399,200 553,232 1,008,382 11,586,203 94,506 17,931,279

Balance at January 1, 2017 ₩ 3,289,756 1,398,240 553,889 666,596 12,041,487 97,440 18,047,408

Comprehensive income

Profit for the period - - - - 795,907 3,582 799,489

Other comprehensive income for the period

Change in the fair value of available-for-sale financial

assets - - - 161,717 - (18) 161,699

Shares of other comprehensive income of associates - - - (699) - - (699)

Exchange differences on translation of foreign operations - - - (34,110) - - (34,110)

Cash flow hedges - - - (2) - - (2)

Changes in valuation of

hedges of a net investment in a foreign operation - - - 11,479 - - 11,479

Remeasurements of net defined benefit liabilities - - - (2,749) - - (2,749)

Total comprehensive income - - - 135,636 795,907 3,564 935,107

Transactions with owners

Cash dividends 38 - - - - (315,817) (206) (316,023)

Dividends for hybrid capital instruments 38 - - - - (30,231) - (30,231)

Issuance of hybrid capital instruments 24 - 299,520 - - - - 299,520

Others - - 4,158 - 780 - 4,938

Total transactions with owners - 299,520 4,158 - (345,268) (206) (41,796)

Balance at June 30, 2017 (Unaudited) ₩ 3,289,756 ₩ 1,697,760 ₩ 558,047 ₩ 802,232 ₩ 12,492,126 ₩ 100,798 ₩ 18,940,719

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

Attributable to owners of the Parent Company

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Industrial Bank of Korea and SubsidiariesConsolidated Interim Statements of Cash Flows

Six-Month Periods Ended June 30, 2017 and 2016

(in millions of Korean won) Notes 2017 2016

(Unaudited) (Unaudited)

Cash flows from operating activities

Profit for the period ₩ 799,489 ₩ 667,320

Adjustments of expenses and revenues 43 (1,726,509) (1,642,505)

Changes in operating assets and liabilities 43 (2,102,970) (7,130,382)

Cash used in operations (3,029,990) (8,105,567)

Interests received 3,865,683 3,779,849

Interests paid (1,448,751) (1,608,989)

Dividends received 90,623 80,784

Income taxes paid (228,083) (95,773)

Net cash outflow from operating activities (750,518) (5,949,696)

Cash flows from investing activities

Net decrease in available-for-sale financial assets 2,165,353 322,118

Net decrease (increase) in held-to-maturity financial assets (5,269,171) 167,340

Disposal of investments in associates 10,699 45,684

Acquisition of investments in associates (43,635) (18,863)

Disposal of property and equipment, and investment properties 416 1,506

Acquisition of property and equipment, and investment properties (31,743) (23,800)

Disposal of intangible assets 377 1,444

Acquisition of intangible assets (23,803) (9,811)

Net cash inflow (outflow) from investing activities (3,191,507) 485,618

Cash flows from financing activities

Net increase in deposit liabilities 1,372,042 764,686

Net increase in debentures 2,354,796 4,538,303

Issuance of shares - 39,903

Issuance of hybrid capital instruments 299,520 -

Dividends for hybrid capital instruments (30,231) (36,372)

Dividends paid (316,023) (294,675)

Net cash inflow from financing activities 3,680,104 5,011,845

Effects of exchange rate changes on cash and cash equivalents (15,712) 37,343

Net decrease in cash and cash equivalents (277,633) (414,890)

Cash and cash equivalents at the beginning of the period 2,863,839 2,689,559

Cash and cash equivalents at the end of the period 43 ₩ 2,586,206 ₩ 2,274,669

Six-Month Period Ended June 30

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

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Industrial Bank of Korea and Subsidiaries Notes to the Consolidated Interim Financial Statements June 30, 2017 and 2016 (Unaudited), and December 31, 2016

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1. The Bank The Industrial Bank of Korea (the Bank) was established in 1961 under the Industrial Bank of Korea Act to promote independent economic activities of small and medium-sized companies. On May 15, 1992, the Bank converted its equity into shares in accordance with the Industrial Bank of Korea Act, as amended on December 31, 1991. On November 30, 1994, the Bank’s ordinary shares were listed on KOSDAQ. On December 24, 2003, however, the Bank moved to the domestic securities market through a public offering of its ordinary shares. The Bank and its subsidiaries (collectively referred to as the “Group”) are mainly involved in offering banking businesses and related financial services to individuals and corporate customers. The Bank also listed 48.53 million shares of Global Depositary Shares on December 19, 2003, and additionally 26.20 million shares of ordinary shares were issued on April 22, 2014, on the Luxembourg Stock Exchange.

As at June 30, 2017, the Bank’s ordinary shares and preferred shares amounted to ￦ 2,800 billion

and ￦ 490 billion, respectively. The Korean government owns 50.91% of the Bank’s ordinary and

preferred shares. The head office of the Bank is located at 79, Euljiro, Jung-gu, Seoul, Korea. The

Bank has 572 branches, 44 depositary offices in Korea and 11 overseas offices.

2. Scope of Consolidation and Basis of Preparation 2.1 Scope of Consolidation

Subsidiaries of the Group as at June 30, 2017 and December 31, 2016, are as follows:

Name of entity Industry Location

Ownership interest held

by the Group (%) Closing date

June 30,

2017

December

31, 2016

IBK Capital Corporation Financial services Korea 100.00 100.00 December 31

IBK Asset Management Co., Ltd. Asset management Korea 100.00 100.00 December 31

IBK Credit Information Corp. Credit information

services Korea 100.00 100.00 December 31

IBK Securities Co., Ltd. Securities

investments Korea 83.86 83.86 December 31

IBK System Co., Ltd. Financial system

management Korea 55.63 55.63 December 31

Industrial Bank of Korea (China) Limited Financial services China 100.00 100.00 December 31

IBK Insurance Co., Ltd. Life insurance

(Pension) Korea 100.00 100.00 December 31

IBK Savings Bank Co., Ltd. Mutual Savings Bank Korea 100.00 100.00 December 31

IBK Capital Myanmar Co., Ltd. Microfinancing Myanmar 99.99 99.99 March 31

IBK Private Equity Fund No.3 Investment

association Korea 88.89 88.89 December 31

IBK-SKS Private Equity Fund No.4 Investment


IBK Recovery Private Equity Fund Investment



8

IBK-AJU Star Seekers No.1 Private

Equity Fund

Investment


IBK SKS Private Equity Fund 2012 Investment


IBK POSCO TRUBEN Recovery Private

Equity Fund No.1

Investment


IBK NH Small Giant Private Equity Fund Investment


No.1 Technology Financing Private

Equity Fund

Investment


Value Brand Korea No.1 Private Equity

Fund

Investment


IBK-EUM Private Equity Fund No.1 Investment

association Korea 52.63 - December 31

IBK KIP Growth Stepstone Private Equity

Fund

Investment


IBKC IBKC-TONGYANG Growth 2013

Private Equity Fund

Investment


IBKC-INNOBIZ Material Special

Investment Association

Investment


IBK Small Business Coexistence

Investment Association No.1

Investment




Investment


IBK Cultural Contents Cooperative


Investment


IBKC-STI Pre-IPO Investment

Association No.1

Investment


IBK Group Mutual Growth Fund Investment


IBK Group Contents IP Investment Fund Investment


IBK Group IP Value-up Fund Investment


Banks Foundation for young

Entrepreneurs IBKC Pioneer Fund

Investment


Gyeonggi-IBKC-STI Job Creation Fund Investment


IBK Group KONEX Fund Investment


IBKC-Solidus Future Creation Fund Investment


IDV-IP Fishery Intellectual Property

Specialty Fund

Investment


IBK Group IP Creation Fund Investment



9

IBKC-STI New Growth Investment Fund

Ⅰ

Investment


IBK Finance Group Union Contents

Investment Fund

Investment


IBKC-JNT Secondary Fund Investment


2015 KIF-IBKC/SBI Secondary IT

Venture Fund

Investment


IBKC-SBI Bio Fund No.1 Investment


IBKGroup Crowdfunding Matching Fund Investment


IBKGroup Future Growth Engine Fund Investment


IBK Capital Contents Investment Fund Investment


IBKC-Medici Secondary Fund Investment


IBKGroup IP Value-up Fund No.2 Investment


IBKC-GMB New Growth Industry Investment Fund

Investment


IBKC-MGI New Economic Growth Pre-IPO Fund

Investment


GMB-IBKC Biotech Investment Fund

Investment


IBKC-UNION Secondary Mezzanine Fund

Investment


KB Haeorum Private Securities 69 Bond, 8 investment funds

Investment


KTB Confidence Investment Trust No. 31 Investment


Heungkuk High-class Private Securities

Investment Fund No.6

Investment


Mireaasset Deoksong-Naegak

Expressway Private Equity Fund

Investment


Trust with repayment guarantees of

principal Trust Korea - - December 31

Trust with repayment guarantees of

principal and interest Trust Korea - - December 31

Myungdong City Maintenance Business

and 1 other

City maintenance

business Korea

55.00 ~

57.26

55.00 ~

57.26

December 31


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2.2 Summary of Subsidiaries (1) IBK Capital Corporation IBK Capital Corporation (IBK Capital) was established on November 1, 1986, to provide services to small start-up companies. On November 6, 1986, the Bank, in accordance with Support for Small and Medium Enterprise Establishment Act, was listed as a small startup business investment organization. However on May 29, 2002, IBK Capital, in accordance with the Specialized Credit Financial Business Act, was engaged in installment financing business and venture capital

business. IBK Capital’s ordinary share as at June 30, 2017, amounts to \ 165,452 million.

(2) IBK Asset Management Co., Ltd. IBK Asset Management Co., Ltd. was established on October 26, 2004, to engage in investment trust asset management and consultation, entrusted investment, and future funds management, in accordance with the Capital Market and Financial Investment Business Act. IBK Asset Management

Co., Ltd.’s ordinary share as at June 30, 2017, is \ 20,000 million.

(3) IBK Credit Information Corp. IBK Credit Information Corp. (IBK Credit Information) was established on January 18, 2000, to engage in services such as loan collection and credit research. IBK Credit Information’s ordinary

share as at June 30, 2017, amounts to \ 3,000 million.

(4) IBK Securities Co., Ltd. IBK Securities Co., Ltd. (IBK Securities) was established on May 29, 2008, to engage in trading of

security and futures. IBK Securities’ ordinary share as at June 30, 2017, amounts to \ 477,000

million.

(5) IBK System Co., Ltd. IBK Systems, Co., Ltd. (IBK System) was established on March 22, 1991, to engage in information system development and its sales, and advisory services including consulting on introduction and implementation of computer system. IBK System’s ordinary share as at June 30, 2017, amounts to

\ 3,100 million.

(6) Industrial Bank of Korea (China) Limited

Industrial Bank of Korea (China) Limited was established on June 22, 2009, with five local branches in China. Industrial Bank of Korea (China) Limited’s ordinary share as at June 30, 2017, amounts to

\ 322,467 million.

(7) IBK Insurance Co., Ltd. IBK Insurance Co., Ltd. was established on July 9, 2010, to engage in retirement insurance and pension contracts, annuity insurance contracts and others, in accordance with the Guarantee of Workers’ Retirement Benefits Act and the Insurance Business Act. IBK Insurance Co., Ltd.’s ordinary

share as at June 30, 2017, is \ 190,000 million.

(8) IBK Savings Bank Co., Ltd. IBK Savings Bank Co., Ltd. was incorporated on October 11, 2011, for important business purposes such as protecting depositors in accordance with Depositor Protection Act, maintaining safety of financial system, working on credit business approved by Financial Services Commission, etc. The Bank has acquired 100% of shares on July 15, 2013, and obtained control. The ordinary share as at

June 30, 2017, amounts to \ 106,610 million.

(9) IBK Capital Myanmar Co., Ltd. IBK Capital Myanmar Co., Ltd. was established on December 23, 2015, to engage in microfinancing.

IBK Capital Myanmar Co., Ltd.’s ordinary share as at June 30, 2017, amounts to \ 9,197 million, and

IBK Capital Corporation holds 99.99% of the shares.


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(10) IBK Private Equity Fund No.3 IBK Private Equity Fund No.3 was established in accordance with the Capital Market and Financial Investment Business Act for investment purposes. IBK Private Equity Fund No.3’s ordinary share as

at June 30, 2017, is \ 11,229 million. The Bank is a general manager of these private equity funds.

(11) IBK-SKS Private Equity Fund No.4 IBK-SKS Private Equity Fund No.4 was established in accordance with the Capital Market and Financial Investment Business Act to participate in the investees’ management and others. The Bank is a joint general partner and also the majority of seats in the Investment Committee, granting the

Bank the ability to control the entity. The ordinary share as at June 30, 2017, is \ 2,174 million.

(12) IBK Recovery Private Equity Fund IBK Recovery Private Equity Fund was established in accordance with the Capital Market and Financial Investment Business Act to participate in the investees’ management and others. IBK

recovery private equity fund’s ordinary share as at June 30, 2017, is \ 33,505 million. The Bank and

IBK Securities hold 79.86%, 19.96% of the shares as joint general partners, respectively, and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity.

(13) IBK-AJU Star Seekers No. 1 Private Equity Fund IBK-AJU Star Seekers No. 1 Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on October 25, 2012, as an investment management entity by operating and investing in equity stakes in other companies. The Bank holds 35.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the

Bank the ability to control the entity. The ordinary share as at June 30, 2017, is \ 47,024 million.

(14) IBK SKS Private Equity Fund 2012 IBK SKS Private Equity Fund 2012, in accordance with Financial Investment Services and Capital Markets Act, was established on January 7, 2013, as an investment management entity by operating and investing in equity stakes in other companies. The Bank holds 44.79% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the

ability to control the entity. The ordinary share as at June 30, 2017, is \ 164,280 million.

(15) IBK POSCO TRUBEN Recovery Private Equity Fund No.1 IBK POSCO TRUBEN Recovery Private Equity Fund No.1, in accordance with Financial Investment Services and Capital Markets Act, was established on May 27, 2013, as an investment management entity by operating and investing in equity stakes in other companies. The Bank holds 49.50% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting

the Bank the ability to control the entity. The ordinary share as at June 30, 2017, is \ 74,044 million.

(16) IBK NH Small Giant Private Equity Fund IBK NH Small Giant Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on August 9, 2013, as an investment management entity by operating and investing in equity stakes in other companies. The Bank holds 50.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank

the ability to control the entity. The ordinary share as at June 30, 2017, is \ 11,520 million.

(17) No.1 Technology Financing Private Equity Fund No.1 Technology Financing Private Equity Fund was established on January 7, 2015, in accordance with the Capital Market and Financial Investment Business Act for investment purposes. The Bank holds 30.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at June 30, 2017,

is \ 59,756 million.


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(18) Value Brand Korea No.1 Private Equity Fund Value Brand Korea No.1 Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on August 22, 2016, as an investment management entity by operating and investing in equity stakes in other companies. The Bank holds 50.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank

the ability to control the entity. The ordinary share as at June 30, 2017, is \ 33,984 million.

(19) IBK-EUM Private Equity Fund No.1 IBK-EUM Private Equity Fund No.1, in accordance with Financial Investment Services and Capital Markets Act, was established on June 5, 2017, as an investment management entity by operating and investing in equity stakes in other companies. There are no ordinary shares issued as at June 30, 2017. The Bank has entered into an agreement to invest into 42.11% of the shares as a joint general partner, while IBK Capital is to invest into 10.52% of the shares as a limited partner.

(20) IBK KIP Growth Stepstone Private Equity Fund IBK KIP Growth Stepstone Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on June 30, 2017, as an investment management entity by operating and investing in equity stakes in other companies. There are no ordinary shares issued as at June 30, 2017. The Bank has entered into an agreement to invest into 50.00% of the shares as a joint general partner.

(21) IBKC-TONGYANG Growth 2013 Private Equity Fund IBKC-TONGYANG Growth 2013 Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on August 18, 2014, as an investment management entity by operating and investing in equity stakes in other companies. IBK Capital holds

35.71% of the shares as a general partner. The ordinary share as at June 30, 2017, is \ 17,444

million.

(22) IBKC-INNOBIZ Material Special Investment Association

IBKC-INNOBIZ Material Special Investment Association, in accordance with the Specialized Credit Financial Business Act, was established on November 20, 2008, to invest more than 60% of the aggregate capital commitments in material special corporations as defined under the Special Measures Law for the Development of Components Related to the Components & Materials Industry, for the purpose of efficient operation, management and distribution of its properties. IBKC-INNOBIZ Material Special Investment Association’s contributed capital as at June 30, 2017, is

\ 6,300 million. The Bank holds 16.67% of the shares as a limited partner, while IBK Capital holds

43.33% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to 40% of the equity holds.

(23) IBK Small Business Coexistence Investment Association No.1 IBK Small Business Coexistence Investment Association No.1, in accordance with the Specialized Credit Financial Business Act, was established on March 17, 2009, for the purpose of efficient operation, management and distribution of its capital. As at June 30, 2017, the Bank holds 50.00% of the shares as a limited partner, while IBK Capital holds 50.00% of the shares as a general

partner. The Association’s contributed capital as at June 30, 2017, is \ 1,200 million. IBK Capital is

obligated to cover for the loss up to total management fees received upon liquidation.

(24) IBK Small Business Coexistence Investment Association No.2 IBK Small Business Coexistence Investment Association No.2, in accordance with the Specialized Credit Financial Business Act, was established on April 16, 2012, for the purpose of efficient operation, management and distribution of its capital. As at June 30, 2017, the Bank holds 50.00% of the shares as a limited partner, while IBK Capital holds 50.00% of the shares as a general

partner. The Association’s contributed capital June 30, 2017, is \ 5,400 million.


13

(25) IBK Cultural Contents Cooperative Investment Association IBK Cultural Contents Cooperative Investment Association was established on April 19, 2012, in accordance with the Specialized Credit Financial Business Act, for the purpose of efficient operation, management and asset allocation as a new technology venture capital firm. As at June 30, 2017, total

contributed capital is \ 1,200 million; the Bank holds 33.33% of the shares as a limited partner, and

IBK Capital, a subsidiary of the Bank, holds 33.34% of the shares as a general partner.

(26) IBKC-STI Pre-IPO Investment Association No.1 IBKC-STI Pre-IPO Investment Association No.1, in accordance with the Specialized Credit Financial Business Act, was established on February 21, 2012, as a technology venture capital investment association that allocates and manages investment in order to promote small businesses. Total

contributed capital as at June 30, 2017, is \ 5,450 million and IBK Capital and Seoul Venture

Investment Corporation act as joint general partners and IBK Capital holds 90.00% of the entity.

(27) IBK Group Mutual Growth Fund IBK Group Mutual Growth Fund, in accordance with the Specialized Credit Financial Business Act, was established on February 7, 2013, for the purpose of efficient operation, management and asset allocation as a new technology venture capital firm. As at June 30, 2017, total contributed capital is

\ 10,400 million; the Bank holds 50.00% of the shares as a limited partner, and IBK Capital, a

subsidiary of the Bank, holds 50.00% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to total management fees received upon liquidation.

(28) IBK Group Contents IP Investment Fund IBK Group Contents IP Investment Fund, in accordance with the Specialized Credit Financial Business Act, was established on April 5, 2013, for the purpose of efficient operation, management and asset allocation as a new technology venture capital firm. As at June 30, 2017, total contributed

capital is \ 5,000 million; the Bank holds 45.00% of the shares as a limited partner, and IBK Capital,

a subsidiary of the Bank, holds 45.00% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to total management fees received upon liquidation.

(29) IBK Group IP Value-up Fund IBK Group IP Value-up Fund, in accordance with the Specialized Credit Financial Business Act, was established on April 4, 2013, for the purpose of efficient operation, management and asset allocation

as a new technology venture capital firm. As at June 30, 2017, total contributed capital is \ 21,400

million; the Bank holds 50.00% of the shares as a limited partner, and IBK Capital, a subsidiary of the Bank, holds 50.00% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to total management fees received upon liquidation.

(30) Banks Foundation for young Entrepreneurs IBKC Pioneer Fund Banks Foundation for young Entrepreneurs IBKC Pioneer Fund, a subsidiary, was founded on September 6, 2013, for the effective management and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to

\ 16,500 million as at June 30, 2017, and IBK Capital owns 50.00% of shares as a general partner.

Meanwhile, IBK Capital is obligated to cover for the loss up to total management fees received upon liquidation.

(31) Gyeonggi-IBKC-STI Job Creation Fund Gyeonggi-IBKC-STI Job Creation Fund, a subsidiary, was established on September 30, 2013, for the effective management and capital distribution of venture investment under the Support for Small and

Medium Enterprise Establishment Act. Total contributed capital amounts to \ 30,000 million as at

June 30, 2017, and IBK Capital owns 50.00% of shares as a general partner. Meanwhile, IBK Capital is obligated to cover for the loss up to total stated fee in the agreement.


14

(32) IBK Group KONEX Fund IBK Group KONEX Fund, a subsidiary, was founded on October 30, 2013, for the effective management and capital distribution of the new technology investment association under the Credit

Finance Business Act. Total contributed capital amounts to \ 20,100 million as at June 30, 2017. The

Bank and IBK Securities own 50.00%, 11.67% of shares as joint limited partners and IBK Capital owns 38.33% of shares as a general partner. Meanwhile, IBK Capital is obligated to cover for the loss up to total management fees received upon liquidation.

(33) IBKC-Solidus Future Creation Fund IBKC-Solidus Future Creation Fund, as a subsidiary, was founded on December 27, 2013, for the effective management and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. IBKC-Solidus Future Creation Fund invests its capital to improve the value of superior venture businesses, and ultimately to

maximize the value of its investees. Total contributed capital amounts to \ 18,000 million as at June

30, 2017, and IBK Capital owns 50.00% of shares as a general partner.

(34) IDV-IP Fishery Intellectual Property Specialty Fund IDV-IP Fishery Intellectual Property Specialty Fund, as a subsidiary was founded on July 9, 2013, for

the effective management and capital distribution of Agricultural, Fisheries and Food Investment

Funds under the Act on Formation and Operation of Agricultural, Fisheries and Food Investment

Funds. Total contributed capital amounts to \ 13,500 million as at June 30, 2017, and IBK Capital

owns 40.00% of shares as a joint general partner. IBK Capital is obligated to cover for the loss up to 5%

of the equity held.

(35) IBK Group IP Creation Fund IBK Group IP Creation Fund, a subsidiary, was founded on July 11, 2014, for the effective

management and capital distribution of new technology investment association under the Credit


Bank owns 33.33% of shares as joint limited partner and IBK Capital owns 33.34% of shares as a

general partner. Meanwhile, IBK Capital is obligated to cover for the loss up to total management fees

received upon liquidation.

(36) IBKC-STI New Growth Investment Fund I IBKC-STI New Growth Fund No.1, a subsidiary, was founded on April 17, 2015, for the effective management and capital distribution of new technology investment association under the Credit

Finance Business Act. Total contributed capital amounts to \ 9,000 million as at June 30, 2017. IBK

Capital owns 89.67% of shares as a general partner.

(37) IBK Finance Group Union Contents Investment Fund IBK Finance Group Union Contents Investment Fund, a subsidiary, was established on July 24, 2015, for the effective management and capital distribution of venture investment under the Support for

Small and Medium Enterprise Establishment Act. Total contributed capital amounts to \ 10,000

million as at June 30, 2017, and the Bank owns 30.00% of shares as a limited partner. Meanwhile, IBK Capital owns 40.00% of shares as a general partner.

(38) IBKC-JNT Secondary Fund IBKC-JNT Secondary Fund, as a subsidiary, was founded on January 11, 2016, for the effective management and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. IBKC-JNT Secondary Fund invests its capital to improve the value of superior venture businesses, and ultimately to maximize the value of

its investees. Total contributed capital amounts to \ 5,000 million as at June 30, 2017, and IBK



15

(39) 2015 KIF-IBKC/SBI Secondary IT Venture Fund 2015 KIF-IBKC/SBI Secondary IT Venture Fund, as a subsidiary, was founded on February 2, 2016, for the effective management and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. 2015 KIF-IBKC/SBI Secondary IT Venture Fund invests its capital to improve the value of superior venture businesses,

and ultimately to maximize the value of its investees. Total contributed capital amounts to \ 17,000

million as at June 30, 2017, and IBK Capital owns 42.86% of shares as a general partner.

(40) IBKC-SBI Bio Fund No.1 IBKC-SBI Bio Fund No.1, a subsidiary, was established on March 8, 2016, for the effective management and capital distribution of venture investment under the Support for Small and Medium

Enterprise Establishment Act. Total contributed capital amounts to \ 27,150 million as at June 30,

2017, and IBK Capital owns 50.00% of shares as a general partner.

(41) IBKGroup Crowdfunding Matching Fund IBKGroup Crowdfunding Matching Fund, a subsidiary, was founded on March 31, 2016, for the

effective management and capital distribution of new technology investment association under the

Credit Finance Business Act. Total contributed capital amounts to \ 6,000 million as at June 30,

2017. The Bank own 50.00% of shares as joint limited partner and IBK Capital owns 50.00% of

shares as a general partner.

(42) IBKGroup Future Growth Engine Fund IBKGroup Future Growth Engine Fund, a subsidiary, was founded on April 7, 2016, for the effective



Bank own 50.00% of shares as joint limited partner and IBK Capital owns 50.00% of shares as a

general partner.

(43) IBK Capital Contents Investment Fund IBK Capital Contents Investment Fund, a subsidiary, was founded on June 14, 2016, for the effective


Finance Business Act. Total contributed capital amounts to \ 6,000 million as at June 30, 2017, and

IBK Capital owns 50.00% of shares as a general partner.

(44) IBKC-Medici Secondary Fund IBKC-Medici Secondary Fund, as a subsidiary, was founded on July 20, 2016, for the effective management and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. IBKC-Medici Secondary Fund invests its capital to improve the value of superior venture businesses, and ultimately to maximize the value of

its investees. Total contributed capital amounts to \ 12,810 million as at June 30, 2017, and IBK


(45) IBKGroup IP Value-up Fund No.2 IBKGroup IP Value-up Fund No.2, a subsidiary, was founded on October 27, 2016, for the effective



Bank own 25.00% of shares as joint limited partner and IBK Capital owns 25.00% of shares as a

general partner.

(46) IBKC-GMB New Growth Industry Investment Fund IBKC-GMB New Growth Industry Investment Fund, a subsidiary, was founded on January 5, 2017, for

the effective management and capital distribution of new technology investment association under the

Credit Finance Business Act. Total contributed capital amounts to \ 9,900 million as at June 30,

2017, and IBK Capital owns 50.00% of shares as a general partner.


16

(47) IBKC-MGI New Economic Growth Pre-IPO Fund IBKC-MGI New Economic Growth Pre-IPO Fund, a subsidiary, was established on March 17, 2017, for the effective management and capital distribution of venture investment under the Support for

Small and Medium Enterprise Establishment Act. Total contributed capital amounts to \ 10,000

million as at June 30, 2017, and IBK Capital owns 50.00% of shares as a general partner.

(48) GMB-IBKC Biotech Investment Fund GMB-IBKC Biotech Investment Fund, a subsidiary, was founded on June 23, 2017, for the effective management and capital distribution of new technology investment association under the Credit

Finance Business Act. Total contributed capital amounts to \ 22,100 million as at June 30, 2017, and

IBK Capital owns 49.77% of shares as a general partner.

(49) IBKC-UNION Secondary Mezzanine Fund IBKC-UNION Secondary Mezzanine Fund, a subsidiary, was founded on June 2, 2017, for the effective management and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. Total contributed capital amounts

to \ 3,000 million as at June 30, 2017, and IBK Capital owns 50.00% of shares as a general partner.

(50) Other subsidiaries These consist of private equity funds, whose shares the Bank holds more than 50% of, special purpose companies and trust with repayment guarantees of principal and interest. There are seven subsidiaries, including IBKC-GMB New Growth Industry Investment Fund, that were consolidated during the six-month period ended June 30, 2017. In addition, there are two subsidiaries, including Samsung Plus Alpha Private Bond Balanced 2, that were liquidated during the six-month period ended June 30, 2017. The financial information of subsidiaries as at and for the six-month period ended June 30, 2017, and as at December 31, 2016 and for the six-month period ended June 30, 2016, follows:

(In millions of Korean won) June 30, 2017

Total

assets

Total

liabilities

Total

equity

Operating

income

Profit (loss)

for the

period

IBK Capital Corporation 5,130,465 4,479,820 650,645 131,618 40,069

IBK Asset Management Co., Ltd. 51,990 2,493 49,497 8,272 2,977

IBK Credit Information Corp. 23,411 2,951 20,460 12,952 867

IBK Securities Co., Ltd 5,072,134 4,497,739 574,395 526,963 21,824

IBK System Co., Ltd. 54,678 23,310 31,368 56,257 708

Industrial Bank of Korea (China) Limited 3,866,135 3,480,113 386,022 119,238 7,446

IBK Insurance Co., Ltd. 4,617,739 4,307,149 310,590 648,319 22,984

IBK Savings Bank Co., Ltd. 878,669 779,701 98,968 27,415 3,486

IBK Capital Myanmar Co., Ltd. 8,626 194 8,432 253 (212)

IBK Private Equity Fund No.3 583 - 583 41 35

IBK-SKS Private Equity Fund No.4 29,148 - 29,148 10,090 2,582

IBK Recovery Private Equity Fund 26,053 957 25,096 823 (5,093)

IBK-AJU Star Seekers No.1 Private Equity

Fund 42,874 179 42,695 168 (22)

IBK SKS Private Equity Fund 2012 232,989 984 232,005 10,468 9,392


Equity Fund No.1 57,334 476 56,858 200 (829)

IBK NH Small Giant Private Equity Fund 9,946 297 9,649 - (309)


17


Total

assets

Total

liabilities

Total

equity

Operating

income

Profit (loss)

for the

period

No.1 Technology Financing Private Equity

Fund

56,281 763 55,518 54 (790)

Value Brand Korea No.1 Private Equity Fund 32,975 457 32,518 33 (1,129)

IBK-EUM Private Equity Fund No.1 - 94 (94) - (94)

IBK KIP Growth Stepstone Private Equity

Fund - 4 (4) - (4)


Private Equity Fund

16,548 286 16,262 1,909 1,294

IBKC-INNOBIZ Material Special Investment

Association

2,977 194 2,783 27 (593)



1,571 - 1,571 - (4)



9,537 257 9,280 58 (318)



1,343 - 1,343 48 (36)

IBKC-STI Pre-IPO Investment Association

No.1

5,795 - 5,795 111 40

IBK Group Mutual Growth Fund 11,436 229 11,207 288 (664)

IBK Group Contents IP Investment Fund 4,898 29 4,869 20 (331)

IBK Group IP Value-up Fund 24,004 1,072 22,932 681 -

Banks Foundation for young Entrepreneurs

IBKC Pioneer Fund 17,715 170 17,545 75 246

Gyeonggi-IBKC-STI Job Creation Fund 28,315 155 28,160 1,549 (627)

IBK Group KONEX Fund 19,882 697 19,185 71 (1,285)

IBKC-Solidus Future Creation Fund 19,157 156 19,001 58 (107)

IDV-IP Fishery Intellectual Property Specialty

Fund 12,727 - 12,727 94 (52)

IBK Group IP Creation Fund 29,404 - 29,404 61 (587)

IBKC-STI New Growth Investment Fund Ⅰ 7,585 - 7,585 19 (362)


Investment Fund 10,531 - 10,531 935 829

IBKC-JNT Secondary Fund 4,235 - 4,235 4 (124)

2015 KIF-IBKC/SBI Secondary IT Venture

Fund 15,823 338 15,485 2,662 (264)

IBKC-SBI Bio Fund No.1 29,124 209 28,915 398 179

IBKGroup Crowdfunding Matching Fund 5,610 99 5,511 1 (111)

IBKGroup Future Growth Engine Fund 8,662 298 8,364 56 (244)

IBK Capital Contents Investment Fund 5,895 149 5,746 5 (146)

IBKC-Medici Secondary Fund 12,508 - 12,508 4 (353)

IBKGroup IP Value-up Fund No.2 3,790 124 3,666 4 (245)

IBKC-GMB New Growth Industry Investment

Fund 9,901 210 9,691 6 (209)

IBKC-MGI New Economic Growth Pre-IPO

Fund 9,916 - 9,916 6 (84)

GMB-IBKC Biotech Investment Fund 22,364 - 22,364 266 264

IBKC-UNION Secondary Mezzanine Fund 2,989 - 2,989 - (11)


18


Total

assets

Total

liabilities

Total

equity

Operating

income

Profit (loss)

for the

period

KB Haeorum Private Securities 69 Bond,

8 investment funds

803,933 55,760 748,173 21,832 11,455

KTB Confidence Investment Trust No. 31 4,478 5 4,473 13 12


Investment Fund No.6 306 - 306 - -

Mireaasset Deoksong-Naegak Expressway Private Equity Fund 67,879 17 67,862 362 362

Trust with repayment guarantees of principal

and interest

556,730 530,884 25,846 5,280 89

Trust with repayment guarantees of principal 1,269 1,265 4 19 -


and 1 other

33,298 67,341 (34,043) 22,254 315

(In millions of Korean won) December 31, 2016 and June 30, 2016

Total

assets

Total

liabilities

Total

equity

Operating

income

Profit (loss)

for the

period

IBK Capital Corporation 4,635,471 4,019,513 615,958 141,191 51,843

IBK Asset Management Co., Ltd. 50,362 2,893 47,469 7,279 2,192

IBK Credit Information Corp. 23,069 2,756 20,313 12,088 1,138

IBK Securities Co., Ltd 3,927,654 3,374,970 552,684 389,582 20,462

IBK System Co., Ltd. 47,975 16,850 31,125 53,856 2,212

Industrial Bank of Korea (China) Limited 3,508,242 3,117,455 390,787 109,869 10,191

IBK Insurance Co., Ltd. 4,053,879 3,769,397 284,482 423,946 17,233

IBK Savings Bank Co., Ltd. 791,088 695,657 95,431 25,467 9,174

IBK Capital Myanmar Co., Ltd. 3,137 26 3,111 - -

IBK Private Equity Fund No.3 567 - 567 2,129 2,118

IBK-SKS Private Equity Fund No.4 34,875 - 34,875 54,961 56,594

IBK Recovery Private Equity Fund 29,092 916 28,176 3,182 65

IBK-AJU Star Seekers No.1 Private Equity

Fund 54,361 358 54,003 880 408

IBK SKS Private Equity Fund 2012 231,767 1,022 230,745 1,969 842


Equity Fund No.1 45,175 566 44,609 143 (12,167)

IBK NH Small Giant Private Equity Fund - 1,252 (1,252) - (249)

No.1 Technology Financing Private Equity

Fund 58,719 - 58,719 158 (703)

Value Brand Korea No.1 Private Equity Fund 3,030 318 2,712 - -


Private Equity Fund 20,286 1,818 18,468 100 (508)

IBKC-INNOBIZ Material Special Investment

Association 3,498 167 3,331 4 (949)


Investment Association No.1 1,540 9 1,531 778 260


Investment Association No.2 9,841 445 9,396 6,203 4,805


Investment Association 1,649 270 1,379 994 (85)


19

(In millions of Korean won) December 31, 2016 and June 30, 2016

Total

assets

Total

liabilities

Total

equity

Operating

income

Profit (loss)

for the

period

IBKC-STI Pre-IPO Investment Association

No.1 5,797 42 5,755 1,619 1,024

IBK Group Mutual Growth Fund 12,878 310 12,568 1,197 1,089

IBK Group Contents IP Investment Fund 5,273 72 5,201 31 (143)

IBK Group IP Value-up Fund 29,129 1,461 27,668 1,134 875

Banks Foundation for young Entrepreneurs

IBKC Pioneer Fund 19,397 98 19,299 46 (750)

Gyeonggi-IBKC-STI Job Creation Fund 28,869 81 28,788 80 (242)

IBK Group KONEX Fund 23,577 564 23,013 946 779

IBKC-Solidus Future Creation Fund 19,110 3 19,107 1,304 914

IDV-IP Fishery Intellectual Property Specialty

Fund 12,779 - 12,779 111 (81)

IBK Group IP Creation Fund 23,461 140 23,321 270 (122)

IBKC-STI New Growth Investment Fund Ⅰ 8,136 189 7,947 10 (367)


Investment Fund 9,753 52 9,701 9 (94)

IBKC-JNT Secondary Fund 4,422 63 4,359 2 (105)

2015 KIF-IBKC/SBI Secondary IT Venture

Fund 13,103 354 12,749 14 (555)

IBKC-SBI Bio Fund No.1 28,844 108 28,736 22 (157)

IBKGroup Crowdfunding Matching Fund 6,002 151 5,851 2 (49)

IBKGroup Future Growth Engine Fund 2,997 443 2,554 4 (136)

IBK Capital Contents Investment Fund 2,002 110 1,892 - (9)

IBKC-Medici Secondary Fund 6,036 176 5,860 - -

IBKGroup IP Value-up Fund No.2 2,001 90 1,911 - -

IBK Panorama Balanced No. 52, 9

investment funds 804,058 26,955 777,103 21,201 5,305

KTB Confidence Investment Trust No. 31 4,466 - 4,466 15 7


Investment Fund No.6 306 - 306 - (490)

IBK Davos Global High-Dividends Master

Fund [Equity] 6,240 125 6,115 - 79

Trust with repayment guarantees of principal

and interest 549,456 523,699 25,757 8,015 82

Trust with repayment guarantees of principal 1,218 1,214 4 29 -


and 1 other 34,219 68,841 (34,622) 29,075 (1,666)

Total assets, liabilities and equity represent the amount as at December 31, 2016. Operating income

and profit (loss) for the period are for the six-month period ended June 30, 2016.


20

2.3 Basis of Preparation 2.3.1 Application of Korean IFRS The Group maintains its accounting records in Korean won and prepares statutory financial

statements in the Korean language (Hangul) in accordance with the International Financial Reporting

Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying consolidated

interim financial statements have been condensed, restructured and translated into English from the

Korean language financial statements.

The Group’s condensed consolidated interim financial statements for the six-month period ended June 30, 2017, have been prepared in accordance with Korean IFRS 1034 Interim Financial Reporting. These condensed consolidated interim financial statements have been prepared in accordance with Korean IFRS which is effective or early adopted as at June 30, 2017.

2.3.2 Changes in Accounting Policies and Disclosures

(a) New and amended standards adopted by the Group The Group has applied the following standards and amendments for the first time for their annual

reporting period commencing January 1, 2017. The adoption of these amendments did not have any

impact on the current period or any prior period and is not likely to affect future periods.

- Amendments to Korean IFRS 1007 Statement of Cash Flows

Amendments to Korean IFRS 1007 Statement of Cash flows require to provide disclosures that

enable users of interim financial statements to evaluate changes in liabilities arising from financing

activities, including both changes arising from cash flows and non-cash flows.

- Amendments to Korean IFRS 1012 Income Tax

Amendments to Korean IFRS 1012 clarify how to account for deferred tax assets related to debt

instruments measured at fair value. Korean IFRS 1012 provides requirements on the recognition and

measurement of current or deferred tax liabilities or assets. The amendments issued clarify the

requirements on recognition of deferred tax assets for unrealized losses, to address diversity in

practice.

- Amendments to Korean IFRS 1112 Disclosures of Interests in Other Entities

Amendments to Korean IFRS 1112 clarify when an entity’s interest in a subsidiary, a joint venture or an associate is classified as held for sales in accordance with Korean IFRS 1105, the entity is required to disclose other information except for summarized financial information in accordance with Korean IFRS 1112. (b) New standards and interpretations not yet adopted by the Group Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2017 and have not been early adopted by the Group are set out below.


21

- Korean IFRS 1109 Financial Instruments The new standard for financial instruments issued on September 25, 2015 are effective for annual periods beginning on or after January 1, 2018 with early application permitted. This standard will replace Korean IFRS 1039 Financial Instruments: Recognition and Measurement. The Group will apply the standards for annual periods beginning on or after January 1, 2018. The standard requires retrospective application with some exceptions. For example, an entity is not required to restate prior period in relation to classification and measurement (including impairment) of financial instruments. The standard requires prospective application of its hedge accounting requirements for all hedging relationships except the accounting for time value of options and other exceptions. Korean IFRS 1109 Financial Instruments requires all financial assets to be classified and measured on the basis of the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. A new impairment model, an expected credit loss model, is introduced and any subsequent changes in expected credit losses will be recognized in profit or loss. Also, hedge accounting rules amended to extend the hedging relationship, which consists only of eligible hedging instruments and hedged items, qualifies for hedge accounting. An effective implementation of Korean IFRS 1109 requires preparation processes including financial impact assessment, accounting policy establishment, accounting system development and the system stabilization. The impact on the Group’s interim financial statements due to the application of the standard is dependent on judgements made in applying the standard, financial instruments held by the Group and macroeconomic variables.

With the implementation of Korean IFRS 1109, the Group is preparing for internal management process and is beginning to adjust accounting system for financial instruments reporting. Also, the Group is analyzing the financial effects of applying the standard. The Group performed an impact assessment to identify potential financial effects of applying Korean IFRS 1109. The assessment was performed based on retainable information as at December 31, 2016. The Group plans to perform more detailed analysis on financial effects base on additional information in the future; therefore, the results of the assessment may change due to additional information that the Group may obtain after the assessment. Meanwhile, the following areas are likely to be affected in general. (a) Classification and Measurement of Financial Assets When implementing Korean IFRS 1109, the classification of financial assets will be driven by the Group’s business model for managing the financial assets and contractual terms of cash flow. The following table shows the classification of financial assets measured subsequently at amortized cost, at fair value through other comprehensive income and at fair value through profit or loss. If a hybrid contract contains a host that is a financial asset, the classification of the hybrid contract shall be determined for the entire contract without separating the embedded derivative.


22

Business model for the contractual cash flows

characteristics

Solely represent payments of principal and interest

All other

Hold the financial asset for the collection of the contractual cash flows

Measured at amortized cost1

Recognized at fair value through profit or loss2

Hold the financial asset for the collection of the contractual cash flows and trading

Recognized at fair value through other comprehensive income1

Hold for trading Recognized at fair value through profit or loss

1 A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable). 2 Equity investments not held for trading can be recorded in other comprehensive income (irrevocable). With the implementation of Korean IFRS 1109, the criteria to classify the financial assets at amortized cost or at fair value through other comprehensive income are more strictly applied than the criteria applied with Korean IFRS 1039. Accordingly, the financial assets at fair value through profit or loss may increase by implementing Korean IFRS 1109 and may result an extended fluctuation in profit or loss. According to Korean IFRS 1109, debt instruments those contractual cash flows do not represent solely payments of principal and interest and held for trading, and equity instruments that are not designated as instruments measured at fair value through other comprehensive income are measured at fair value through profit or loss. As at December 31, 2016, the Group holds debt and equity instruments classified as financial assets at fair value through profit or loss that amount to

\ 5,444,274 million and \ 303,504 million, respectively.

Based on results from the impact assessment, if the Group applies Korean IFRS 1109 to the financial assets held for trading as at December 31, 2016, the application will not have a material impact on the financial statements because the majority of the financial assets will still be classified as at fair value through profit or loss.

According to Korean IFRS 1109, a debt instrument is measured at fair value through other comprehensive income if the objective of the business model is achieved both by collecting contractual cash flows and selling financial assets; and the contractual cash flows represents solely payments of principal and interest on a specific date under contract terms. Also, equity instruments that are not held for trading, the Group can make an irrevocable election at initial recognition to classify the instruments as assets measured at fair value through other comprehensive income, which all subsequent changes in fair value being recognized in other comprehensive income and not recycled to profit or loss. As at December 31, 2016, the Group holds debt instruments of

\ 11,800,977 million and equity instruments of \ 4,970,020 million classified as financial assets

available-for-sale. Based on results from the impact assessment of Korean IFRS 1109, if Korean IFRS 1109 is applied for the above debt instruments classified as financial assets available-for-sale, the Group expects the majority of the financial assets to be measured at fair value through other comprehensive income. In addition, the Group plans to designate the majority of the equity instruments that are not held for trading as assets measured at fair through other comprehensive income and therefore, the application of the new standard does not have a material impact on the Group’s financial statements. Meanwhile,

the financial assets contain beneficiary securities amounting \ 1,938,944 million and equity

investments amounting to \ 324,248 million, and these assets do not meet the criteria of the

contractual cash flows under the instrument solely represent payments of principal and interest on the


23

principal amount. The financial assets that do not meet the criteria are measured at fair value through profit or loss and as a result volatility in profit or loss may increase.

According to Korean IFRS 1109, a debt instrument is measured at amortized cost if: a) the objective of the business model is to hold the financial asset for the collection of the contractual cash flows, and b) the contractual cash flows under the instrument solely represent payments of principal and interest.

As at December 31, 2016, the Group measured loans receivable of \ 195,236,300 million and

financial assets held-to-maturity of \ 14,133,675 million at amortized costs.

Based on results from the impact assessment of Korean IFRS 1109, the application of the new standard as at December 31, 2016, does not have a material impact on the Group’s financial statements. This is because the Group holds the majority of financial assets measured at amortized cost that meets the both criteria: a) the contractual terms of the financial assets that the Group holds give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding on a specified date, and b) the Group holds the financial assets in order to collect contractual cash flow.

(b) Classification and Measurement of Financial Liabilities Korean IFRS 1109 requires the amount of the change in the liability’s fair value attributable to changes in the credit risk to be recognized in other comprehensive income, unless this treatment of the credit risk component creates or enlarges a measurement mismatch. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss. Under Korean IFRS 1039, all financial liabilities designated at fair value through profit or loss recognized their fair value movements in profit or loss. However, under Korean IFRS 1109, certain fair value movements will be recognized in other comprehensive income and as a result profit or loss from fair value movements may change.

As at December 31, 2016, total financial liabilities, \ 233,942,819 million of which \ 1,233,788

million are designated at fair value through profit or loss, and during 2016, the Group recognized

changes in credit risk of \ 37 million as loss for the period for the financial liabilities measured at fair

value through profit or loss. Based on results from the impact assessment, the financial liabilities in applying Korean IFRS 1109 may not be expected to have a material impact on the financial statements because the majority of financial liabilities designated as at fair value through profit or loss as at December 31, 2016 have short maturities and insignificant fluctuations in their credit risks. (c) Impairment: Financial Assets and Contract Assets Korean IFRS 1109 sets out a new forward looking ‘expected loss’ impairment model which replaces the incurred loss model under Korean IFRS 1039 that impaired assets if there is an objective evidence and applies to:

Financial assets measured at amortized cost

Debt investments measured at fair value through other comprehensive income, and

Certain loan commitments and financial guaranteed contracts.

Under Korean IFRS 1109 ‘expected loss’ model, a credit event (or impairment ‘trigger’) no longer has to occur before credit losses are recognized. The Group will always recognize (at a minimum) 12-month expected credit losses in profit or loss. Lifetime expected losses will be recognized on assets for which there is a significant increase in credit risk after initial recognition.


24

Stage Loss allowance

1 No significant increase in credit

risk after initial recognition1

12-month expected credit losses (expected credit losses that result from those default events on the financial

instrument that are possible within 12 months after the reporting date)

2 Significant increase in credit risk

after initial recognition Lifetime expected credit losses (expected credit losses that result from all possible default events over the life of

the financial instrument) 3 Credit-impaired

1 If the financial instrument has low credit risk at the reporting date, the Group may assume that the credit risk has not increased significantly since initial recognition.

Under Korean IFRS 1109, the asset that is credit-impaired at initial recognition would recognize all changes in lifetime expected credit losses since the initial recognition as a loss allowance with any changes recognized in profit or loss. For loans receivable, the Group measures the loss allowance at an amount equal to lifetime expected credit losses at initial recognition. The Group performed an impact assessment using the simplified approach with an assumption that the credit risk has not increased significantly since initial recognition because the financial instrument has a low credit risk at the end of the reporting period. As

a result of the impact assessment, the Group expected the loss allowance to be \ 2,929 billion as at

December 31, 2016 that is a \ 260 billion increase comparing to applying the current standard. BIS

capital ratio of 13.13% in applying the current standard will not materially change after applying the new standard. (d) Hedge Accounting Hedge accounting mechanics (fair value hedges, cash flow hedges and hedge of net investments in a foreign operation) required by Korean IFRS 1039 remains unchanged in Korean IFRS 1109, however, the new hedge accounting rules will align the accounting for hedging instruments more closely with the Group’s risk management practices. As a general rule, more hedge relationships might be eligible for hedge accounting, as the standard introduces a more principles-based approach. Korean IFRS 1109 allows more hedging instruments and hedged items to qualify for hedge accounting, and relaxes the hedge accounting requirement by removing two hedge effectiveness tests that are a prospective test to ensure that the hedging relationship is expected to be highly effective and a quantitative retrospective test (within range of 80-125%) to ensure that the hedging relationship has been highly effective throughout the reporting period. With implementation of Korean IFRS 1109, volatility in profit or loss may be reduced as some items that were not eligible as hedged items or hedging instruments under Korean IFRS 1039 are now eligible under Korean IFRS 1109. Furthermore, when the Group first applies Korean IFRS 1109, it may choose as its accounting policy choice to continue to apply all of the hedge accounting requirements of Korean IFRS 1039 instead of the requirements of Korean IFRS 1109. As at December 31, 2016, the Group applies the hedge

accounting to financial statement items that amount to \ 5,257,319 million. With applying the hedge

accounting, the Group recognized the fair value changes of fair value hedging instruments for

\ 54,628 million in profit or loss.

- Korean IFRS 1115 Revenue from Contracts with Customers The new standard for the recognition of revenue issued in December 2015 will replace Korean IFRS


25

1018 Revenue, Korean IFRS 1011 Construction Contracts, and related Interpretations. Korean IFRS 1115 Revenue from Contracts with Customers will replace the risk-and-reward model under the current standards and is based on the principle that revenue is recognized when control of goods or services transfer to the customer by applying the five-step process. Key changes to current practices include guidance on separate recognition of distinct goods or services in any bundled arrangement, constraint on recognizing variable consideration, criteria on recognizing revenue over time, and increased disclosures. The new standard is effective for annual reporting beginning on or after January 1, 2018, but early application is permitted. The Group is in the process of determining the effects resulting from the adoption of the new standard.

- Amendments to Korean IFRS 1102 Share-based Payment

Amendments to Korean IFRS 1102 clarify accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Amendments also clarify that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award. This amendment will be effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Group does not expect the amendments to have a significant impact on the consolidated financial statements. 2.3.3 Accounting Policies

Significant accounting policies and method of computation used in the preparation of the condensed

consolidated interim financial statements are consistent with those of the consolidated financial

statements for the year ended December 31, 2016, except for the changes due to the application of

amendment and enactments of standards described in Note 2.3.2 New and amended standards

adopted by the Group, and the one described below.

2.3.4 Income tax expense

Income tax expense for the interim period is recognized based on management’s best estimate of the

weighted average annual income tax rate expected for the full financial year. The estimated average

annual tax rate is applied to the pre-tax income.

3. Critical accounting estimates and assumptions The preparation of financial statements requires the Group to make estimates and assumptions concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. Significant accounting estimates and assumptions applied in the preparation of these condensed consolidated interim financial statements are the same as those that applied to the consolidated financial statements for the year ended December 31, 2016, except for the estimates used to determine income tax expense.


26

4. Financial Assets and Liabilities Held for Trading Details of financial assets held for trading as at June 30, 2017 and December 31, 2016, are as follows: (In millions of Korean won)

June 30,

2017 December 31,

2016

Equity securities 313,463 303,504

Government and public bonds 2,621,997 1,945,179

Bank bonds 1,805,303 1,829,640

Corporate bonds in Korean won 1,251,772 1,198,959

Corporate bonds in foreign currencies 567,357 470,496

Foreign government bonds in foreign currencies 5,092 -

Derivatives 1,405,616 2,565,778

7,970,600 8,313,556

Details of securities included in financial assets held for trading as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017

(In millions of Korean won) Par value Acquisition cost Amortized cost

Fair value

(Book amount)

Equity securities - 308,090 - 313,463

Government and public

bonds 2,649,452 2,633,256 2,626,780 2,621,997

Bank bonds 1,882,473 1,881,532 1,881,260 1,805,303

Corporate bonds in Korean

won 1,251,699 1,252,630 1,251,967 1,251,772

Corporate bonds in foreign

currencies 565,489 576,479 576,472 567,357

Foreign government bonds

in foreign currencies 5,088 5,088 5,088 5,092

6,354,201 6,657,075 6,341,567 6,564,984

December 31, 2016

(In millions of Korean won) Par value Acquisition cost Amortized cost

Fair value

(Book amount)

Equity securities - 302,239 - 303,504


bonds 1,971,843 1,967,448 1,962,228 1,945,179

Bank bonds 1,890,008 1,887,778 1,887,308 1,829,640

Corporate bonds in Korean

won 1,198,806 1,202,214 1,191,419 1,198,959


27

Corporate bonds in foreign

currencies 473,946 467,078 466,648 470,496

5,534,603 5,826,757 5,507,603 5,747,778

Details of financial liabilities held for trading as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017

(In millions of Korean won) Maturity Interest rate

(%) Par value Acquisition

cost

Fair value (Book

amount)

Securities sold 2019.06.10 ~

2047.03.10 1.25 ~ 4.25

568,000 559,946 560,092

Derivatives - - 68,752,938 - 1,514,042

69,320,938 559,946 2,074,134

December 31, 2016

(In millions of Korean won) Maturity Interest rate

(%) Par value Acquisition

cost

Fair value (Book

amount)

Securities sold 2019.12.10 ~

2046.03.10 1.25 ~ 4.25

118,007 110,596 110,107

Derivatives - - 66,078,552 - 2,510,853

66,196,559 110,596 2,620,960

Details of derivative transactions classified as financial assets and liabilities held for trading as at June 30, 2017 and December 31, 2016, are as follows: June 30, 2017

(In millions of

Korean won)

Assets

Liabilities

Nominal1

Valuation gains

Valuation losses

Interest rate forwards 5,195 - 50,000 1,248 -

Interest rate futures - - 1,159,861 2,785 3,180

Interest rate swaps

481,178 517,432 78,448,013 190,670 180,819

Interest rate options

(buy) 15,265 - 567,280 927 1,395


(sell) - 36,658 600,000 2,819 169

501,638 554,090 80,825,154 198,449 185,563

Currency forwards 465,923 453,705 62,745,093 757,190 768,079

Currency futures - - 5,366 39 102

Currency swaps

308,656 276,178 19,160,614 485,516 459,728


28

774,579 729,883 81,911,073 1,242,745 1,227,909

Stock price index

futures - - 1,275,519 54,578 2,559

Stock swap

628 9,022 173,131 3,053 6,242

Stock options (buy)

73,609 - 1,275,462 3,745 10,222

Stock options (sell)

- 66,218 945,392 1,843 -

Stock price index

options (buy) 31,067 - 1,912,513 17,441 21,530

Stock price index

options (sell) - 142,899 2,258,125 11,358 97,306

105,304 218,139 7,840,142 92,018 137,859

Credit swaps

21,750 1,571 1,551,655 10,378 7,090

Others 2,881 430 134,174 3,087 7,600

Day 1 P&L

-536 9,929 - - -

1,405,616 1,514,042 172,262,198 1,546,677 1,566,021

December 31, 2016

(In millions of

Korean won)

Assets

Liabilities

Nominal1

Valuation gains

Valuation losses

Interest rate forwards 3,947 - 50,000 3,947 -

Interest rate futures - - 1,136,354 - -

Interest rate swaps

554,706 615,022 74,764,899 266,924 274,386


(buy) 26,969 - 657,000 4,745 1,588


(sell) - 50,545 860,000 1,834 4,188

585,622 665,567 77,468,253 277,450 280,162

Currency forwards 1,197,107 1,146,968 60,707,237 1,168,078 1,139,652

Currency futures - - 3,617 - -

Currency swaps

634,378 587,056 20,334,849 323,459 298,343

Currency options

(buy)

343 - 69,342 - 1,647

Currency options

(sell) - 343 69,342 1,708 -

1,831,828 1,734,367 81,184,387 1,493,245 1,439,642

Stock price index

futures - - 222,147 14,730 15,178


29

Stock swap

1,197 3,672 188,263 5,605 305

Stock options (buy)

77,054 - 363,595 25,542 10,231

Stock options (sell)

- 54,486 113,373 2,374 2,714

Stock price index

options (buy) 42,014 - 1,020,284 15,509 21,073

Stock price index

options (sell) - 37,938 1,351,165 21,450 8,346

120,265 96,096 3,258,827 85,210 57,847

Credit swaps

17,315 517 1,192,773 9,356 5,356

Others 3,530 256 173,036 15,902 5,248

Day 1 P&L

7,218 14,050 - - -

2,565,778 2,510,853 163,277,276 1,881,163 1,788,255

1 Nominal amount that is shown as the gross amount is the standard which the value change of derivatives is measured upon. Nominal amounts as at June 30, 2017 and December 31, 2016, do not indicate any market risk or credit risk. In the case that the Group values derivative financial instruments using inputs not based on observable market data, and the fair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is recognized as the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instrument. However, in the case where inputs of the valuation techniques become observable in markets, the remaining deferred difference is immediately recognized in full as profit or loss for the period. Details and changes in total deferred difference for the six-month periods ended June 30, 2017 and 2016, are as follows: (In millions of Korean won) June 30, 2017 June 30, 2016

Balance at the beginning of the period (6,832) (6,617)

New transactions 1,134 (1,136) The amount reflected in the consolidated interim

statements of comprehensive income (4,767) 1,935

Balance at the end of the period (10,465) (5,818)

In the fair value measurement of the derivatives, the bid/ask price adjustment amounted to \ 638

million (December 31, 2016: \ 775 million) and the credit risk adjustment amounted to \ 1,226

million (December 31, 2016: \ 1,450 million) as at June 30, 2017 are recognized to reflect the

bid/ask price effect and the credit risk of the counterparty.

Details of loaned securities out of financial assets held for trading as at June 30, 2017 and December

31, 2016, are as follows:

(In millions of Korean won) June 30, 2017 December 31, 2016


bonds

Korea Securities Finance

Corporation 10,014 -


30

Details of financial assets designated at fair value through profit or loss as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017 December 31, 2016

(In millions of Korean won) Acquisition

cost Book amount Acquisition

cost Book amount

Equity securities1 22,252 19,949 28,829 29,152

Debt securities1 487,776 491,390 439,701 449,756

510,028 511,339 468,530 478,908

1 Book amount reflects its Day 1 P&L.

Above equity securities designated at fair value through profit or loss include compound derivatives of

\ 311,406 million (December 31, 2016: \ 314,285 million) and financial assets managed and

valuated under fair value standards. Other financial assets at fair value through profit and loss were

designated as they were carried at fair value as at the reporting period and their performances are

monitored and internally circulated. Details of financial liabilities designated at fair value through profit or loss as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017 December 31, 2016

(In millions of Korean won) Acquisition

cost Book amount

Acquisition

cost Book amount

Equity linked securities (sell)1 1,340,835 1,361,783 1,209,257 1,233,788

1 Book amount reflects its Day 1 P&L.

Above financial liabilities designated at fair value through profit or loss are structured contracts

including embedded derivatives that are designated as fair value through profit or loss.

5. Available-for-Sale Financial Assets Details of available-for-sale financial assets as at June 30, 2017 and December 31, 2016, are as follows: June 30, 2017

(In millions of Korean won) Par value

Acquisition

cost

Amortized

cost

Fair value

(Book amount)

Equity securities - 3,558,071 - 4,696,698

Government and public bonds 2,341,316 2,411,411 2,392,222 2,403,202

Bank bonds 2,530,000 2,536,259 2,532,917 2,531,317 Corporate bonds in Korean

won 2,027,500 2,059,099 2,047,704 2,039,465 Corporate bonds in foreign

currencies 1,254,543 1,266,213 1,260,224 1,265,117

Asset-backed securities 1,954,400 1,957,114 1,955,823 1,954,895


31

Government bonds in foreign currencies 13,038 12,704 12,814 12,811

10,120,797 13,800,871 10,201,704 14,903,505

December 31, 2016


Acquisition

cost

Amortized

cost

Fair value

(Book amount)

Equity securities - 4,105,307 - 4,970,020




currencies 1,151,480 1,171,430 1,159,822 1,160,472

Asset-backed securities 2,133,300 2,135,996 2,135,366 2,132,721 Government bonds in foreign

currencies 6,804 6,485 6,558 6,562

11,705,665 15,983,434 11,822,997 16,770,997

Impairment loss and reversal of impairment loss on available-for-sale financial assets for the six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017 June 30, 2016

(In millions of Korean won)

Impairment

loss Reversal

Impairment

loss Reversal

Available-for-sale financial assets 19,977 - 24,952 -

Details of equity securities as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017

(In millions of Korean won) Acquisition cost

Book amount

Securities Marketable securities 467,803 1,420,256

Nonmarketable securities1 1,211,866 1,382,310

1,679,669 2,802,566

Equity investments Equity investments2 375,098 367,335

Beneficiary securities Beneficiary securities 1,503,304 1,526,797

3,558,071 4,696,698

December 31, 2016

(In millions of Korean won) Acquisition cost

Book amount

Securities Marketable securities 705,905 1,403,561


32

Nonmarketable securities1 1,126,987 1,303,267

1,832,892 2,706,828

Equity investments Equity investments2 345,391 324,248

Beneficiary securities Beneficiary securities 1,927,024 1,938,944

4,105,307 4,970,020

1 Securities amounting to \ 110,874 million as at June 30, 2017 (December 31, 2016: \ 104,197

million), were valued at acquisition costs due to unavailability of reliable valuation sources. These equity securities are carried at cost because it is practically difficult to quantify the intrinsic values of the equity securities issued by unlisted public and non-profit entities. In addition, probabilities and range of estimated cash flows of the unlisted equity securities, which are issued by project financing companies, are cannot be reasonably assessed. Therefore, these equity securities are carried at cost. The Group has no plan to sell these instruments in the near future, and is expected to measure their fair value upon the privatization of invested companies or upon further progress of the projects. 2 The \ 41,721 million of equity investments as at June 30, 2017 (December 31, 2016: \ 32,845

million), were valued at cost due to unavailability of reliable valuation sources. Changes in the fair value of available-for-sale financial assets recognized as accumulated other comprehensive income for the six-month periods ended June 30, 2017 and 2016, are as follows:


Beginning

Recognized

in other

comprehen-

sive income

Reclassified

to profit or

loss Tax effect Ending

Equity securities 773,927 238,868 (39,128) (48,337) 925,330

Debt securities in Korean

won (12,967) 13,091 (5,056) (1,945) (6,877)

Debt securities in foreign

currencies (4,902) 7,006 (1,434) (1,348) (678)

756,058 258,965 (45,618) (51,630) 917,775


Beginning

Recognized

in other

comprehen-

sive income

Reclassified

to profit or

loss Tax effect Ending

Equity securities 773,472 373,913 (53,546) (77,529) 1,016,310

Debt securities in Korean

won 42,005 50,294 (31,293) (4,598) 56,408

Debt securities in foreign

currencies (5,951) 11,075 6,191 (4,178) 7,137

809,526 435,282 (78,648) (86,305) 1,079,855


33

Details of loaned securities from available-for-sale financial assets as at June 30, 2017 and December 31, 2016, are as follows:


June 30,

2017

December 31,

2016


bonds

Korea Securities Finance

Corporation 10,229 100,233

6. Held-to-Maturity Financial Assets Details of held-to-maturity financial assets as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017


Acquisition

cost

Amortized cost

(Book amount) Fair value




currencies 814,516 816,322 815,474 796,898


19,387,938 19,440,051 19,402,846 19,523,339

December 31, 2016


Acquisition

cost

Amortized cost

(Book amount) Fair value




currencies 557,595 560,615 581,494 556,374


14,093,626 14,164,281 14,133,675 14,279,878

Details of loaned securities from held-to-maturity financial assets as at June 30, 2017 and December 31, 2016, are as follows:

(In millions of Korean won) June 30,

2017 December 31,

2016 Government and public bonds

Korea Securities Finance Corporation 85,018 131,416

Bank bonds Korea Securities Finance

Corporation 10,000 -

95,018 131,416


34

7. Loans Receivable Details of loans receivable as at June 30, 2017 and December 31, 2016, are as follows:


Loans in Korean won 183,277,042 177,564,256

Loans in foreign currencies 3,771,926 3,795,033

Bills bought in Korean won 124,595 65,223

Bills bought in foreign currencies 1,727,385 1,734,050

Bonds purchased under repurchase agreements 1,982,445 2,056,629

Interbank loans 1,959,134 787,470

Domestic import usance bills 2,941,241 3,104,821

Payment on guarantees 33,283 38,005

Credit card receivables 2,662,129 2,569,484

Call loan 1,708,387 2,661,416

Privately placed bonds 484,528 509,909

Others 371,880 350,004

201,043,975 195,236,300

Deferred loan origination fees and costs 324,943 300,726

Less : Present value discount (16,194) (9,454)

Less : Provision for impairment (2,212,366) (2,490,259)

Book amount 199,140,358 193,037,313

Details of individually assessed provision for impairment and collectively assessed provision for impairment for loans receivable for the six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017


Individually

assessed

provision for

impairment

Collectively

assessed

provision for

impairment Total

Beginning 654,271 1,835,988 2,490,259

Impairment loss 233,461 404,609 638,070

Sale (60,524) (96,735) (157,259)

Collection of previously written-

off loans 1,738 44,881 46,619

Loans written-off (201,643) (575,105) (776,748)

Unwinding effect (10,966) (6,046) (17,012)

Foreign exchange translation 1,343 (12,906) (11,563)


35

Ending 617,680 1,594,686 2,212,366

June 30, 2016


Individually

assessed

provision for

impairment

Collectively

assessed

provision for

impairment Total

Beginning 649,449 1,859,643 2,509,092

Impairment loss 192,634 422,408 615,042

Sale (88,185) (76,377) (164,562)

Collection of previously written-

off loans 9,063 44,427 53,490

Loans written-off (52,748) (434,718) (487,466)

Unwinding effect (11,467) (7,447) (18,914)

Foreign exchange translation 314 1,013 1,327

Ending 699,060 1,808,949 2,508,009

Changes in deferred loan origination fees and costs for the six-month periods ended June 30, 2017 and 2016, are as follows: June 30, 2017

(In millions of Korean won) Beginning Increase Decrease Ending

Deferred loan origination fees (24,330) (11,131) 11,305 (24,156)

Deferred loan origination costs 325,056 113,769 (89,726) 349,099

300,726 102,638 (78,421) 324,943

June 30, 2016

(In millions of Korean won) Beginning Increase Decrease Ending

Deferred loan origination fees (23,665) (9,109) 8,432 (24,342)

Deferred loan origination costs 283,545 99,549 (75,610) 307,484

259,880 90,440 (67,178) 283,142


36

8. Hedge Accounting

Details of derivative financial assets and liabilities for hedge accounting as at June 30, 2017 and

December 31, 2016, are as follows:


June 30, 2017 December 31, 2016

Asset Liability Nominal1 Asset Liability Nominal1

Fair value hedge

Interest rate swap 48,763 80,739 3,964,601 58,518 65,723 3,688,502

Currency swap 102,993 134,920 1,471,889 115,629 255,198 1,440,856

Stock option - 32,438 10,000 - 33,253 10,000

151,756 248,097 5,446,490 174,147 354,174 5,139,358

Cash flow hedge

Currency swap 589 - 30,000 - - -

589 - 30,000 - - -

152,345 248,097 5,476,490 174,147 354,174 5,139,358

1 Nominal amount that is shown as the gross amount is the standard which the value change of

derivatives is measured upon. Nominal amounts as at June 30, 2017 and December 31, 2016, do

not indicate any market risk or credit risk. Valuation gain or loss of derivatives as hedging instruments of fair value hedge for the six-month periods ended June 30, 2017 and 2016, are as follows: June 30, 2017

(In millions of

Korean won)

Valuation

gain

Valuation

loss Gain on sale Loss on sale

Net gain

(loss)

Interest rate Swap 4,657 27,164 87 1,475 (23,895)

Currency Swap 86,709 16,362 2,563 - 72,910

Stock Option 815 - - - 815

92,181 43,526 2,650 1,475 49,830

June 30, 2016

(In millions of

Korean won)

Valuation

gain

Valuation


Net gain

(loss)

Interest rate Swap 47,705 13,620 12,513 4,143 42,455

Currency Swap 36,795 41,580 - - (4,785)

Stock Option 1,931 - - - 1,931

86,431 55,200 12,513 4,143 39,601

Fair value hedge is applied for the purpose of hedging fair value changes of financial instruments due to changes in foreign currency, interest rate changes and volatility of stock price. A currency swap is used as a hedging instrument for identified currency risk; an interest rate swap is used as a hedging instrument for interest rate risk; and a stock option is used as a hedging instrument for volatility of


37

stock price. Gains and losses from fair value items attributable to the hedge risk for the six-month periods ended June 30, 2017 and 2016, are as follows: June 30, 2017

(In millions of

Korean won)

Valuation

gain

Valuation


Net gain

(loss)

Available-for-sale

financial assets 794 1,338 - - (544)

Debentures in foreign

currencies 8,965 7,963 - 53 949 Debentures in Korean won 24,825 - 968 - 25,793

34,584 9,301 968 53 26,198

June 30, 2016

(In millions of

Korean won)

Valuation

gain

Valuation


Net gain

(loss)

Available-for-sale

financial assets 6,789 4,150 - - 2,639

Debentures in foreign

currencies 4,978 34,851 3 1,451 (31,321) Debentures in Korean won 2,471 27,148 2,387 19,312 (41,602)

14,238 66,149 2,390 20,763 (70,284)

Total gains and losses from hedging instruments and hedged items for the six-month periods ended June 30, 2017 and 2016, are as follows:

(In millions of Korean won) June 30, 2017 June 30, 2016

Total gains and losses from hedging instruments 49,830 39,601

Total gains and losses from hedged items 26,198 (70,284) Total gains and losses from hedged items related to

exchange rate risk1 (70,619) 14,326

5,409 (16,357)

1 Included in gain (loss) on foreign currency transactions.

Fair value and valuation gain or loss of derivatives as cash flow hedge instruments for the six-month periods ended June 30, 2017 and 2016, are as follows: June 30, 2017


Valuation

gain

Valuation

loss

Gain on

sale

Loss on

sale Net gain

Other

comprehen-

sive income

Currency Swap 592 - 33 - 625 (4)


38

June 30, 2016


Valuation

gain

Valuation

loss

Gain on

sale

Loss on

sale Net gain

Other

comprehen-

sive income

Currency Forward - - 760 - 760 (44) Cash flow hedge is applied for the purpose of hedging cash flow changes of financial instruments due to changes in foreign currency. Financial instruments that are to be hedged in relation to foreign currency risks are negotiable certificates of deposit in foreign currencies and bonds purchased under repurchase agreements in foreign currencies. Currency swap and currency forward are used as hedging instrument for identified currency risk. Hedges of a net investment in a Foreign Operation The effective portion of gain (loss) on hedging instruments recognized in other comprehensive income for the six-month periods ended June 30, 2017 and 2016, is as follows:


Other comprehensive income 15,144 8,413

Tax effect (3,665) (2,036)

Other comprehensive income, net of tax 11,479 6,377

Fair value of non-derivative financial instruments designated as hedging instruments as at June 30, 2017 and December 31, 2016, is as follows:


Debentures in foreign currencies 257,469 272,613


39

9. Investments in Associates and Non-Consolidated Structured Entities Details of investments in associates as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017

(In millions of Korean won,

except for percentage)

Ownership

(%)

Acquisition

value

Net asset

value

Book

amount Primary business Location Closing date

Korea Machinery Auction & Exchange

29.41 5,000 3,436 3,764 Brokerage service of

machinery Korea December 31

Joong-ang Special Industry Co., Ltd.

32.86 2,336 701 700 Manufacturing Korea December 31

Shin Kwang Co., Ltd. 20.00 470 469 745 Manufacturing Korea December 31

Changwoo Textile Co., Ltd. 20.00 500 1,044 1,410 Manufacturing Korea December 31

Mirae Asset AGRO Project Fund

25.00 2,364 3,008 3,008 Investment asset

management Korea December 31

Private Investment Special Company for Global SW Firm Fostering



IBK-OCTUS Green Industry Growth Private Equity Fund

28.93 19,577 337 282 Investment asset


KoFC IBK Hi Investment Hyundai Heavy Industries Shared Growth No.1. PEF



KoFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund1



KoFC IBKS KEISTONE Corporate Recovery Private Equity Fund1

- - - 400 Investment asset


Korea Global Infra Recovery Private Equity Fund1 2.42 4,000 3,930 -

Investment asset management

Korea December 31

IBK-Daesung Contents Small Giant Fund



IBKC-IDV IP Private Equity Fund No. 1



KT Music contents Fund 1 20.00 1,800 1,724 1,724 Investment asset


IBK-KTB Contents IP Fund 22.50 3,025 3,398 3,399 Investment asset


IBKC-GNTECH Second Fund2 60.00 4,080 8,043 8,043 Investment asset


IBK-DAEKYO Contents Fund 37.50 3,000 3,502 3,502 Investment asset


SM New Technology Fund No.1



CCVC Culture-ICT Convergence Fund



KDBC-EUM Corporate's Financial Stabilization Private Equity Fund NO.4



KEPS Calista Private Equity Fund



Credian Healthcare Private

Equity Fund Ⅱ 24.44 2,976 2,929 2,929


Korea December 31

E&F Moorim Birdie New Technology Business Investment Fund




40

IBK-Daesung Majestic Contents Small Giant Korea Fund



IBK-ISU Contents Fund 35.00 1,750 1,717 1,717 Investment asset


KTBN Media Contents Fund 35.00 1,750 1,704 1,704 Investment asset


The Value-up SME Specialized Solution New Technology Business Investment Fund 1



KAI-KSM Crowd Seeding Fund 31.25 656 626 626 Investment asset


Presto Private Equity Fund No. 4

24.59 3,000 2,987 2,987 Investment asset management

Korea December 31

Platformpartners Active Mezzanine PEF 7


Korea December 31

Deoksong-Naegak Expressway Co.,Ltd.

50.00 17,500 13,502 17,500 Service Korea December 31

IBK Davos Global High-Dividends Master Fund(Equity)


Korea December 31

EN Growth Investment No.5 20.27 3,000 2,730 2,730 Investment asset


KT-IBKC Future Investment Fund 1



PoscoPlutus Project Fund 20.53 1,000 922 922 Investment asset


QCP-IBKC Contents Investment Fund



AION ASTER Private Trust Fund For Specialized Investment



Smart Private Equity Fund No.2



Shinyoung Private Equity Fund No.2



The IBKS SSI New Technology Business Investment Fund 11

16.67 250 248 246 Investment asset


IBK PSEP Private Equity Fund3 2.38 1,000 1,046 1,044 Investment asset


IBKS Special Purpose Acquisition Company No.33 0.22 10 19 19

Corporate acquisition

Korea December 31



Korea December 31

IBKS Special Purpose Acquisition Company No.63

4.76 15 15 15 Corporate

acquisition Korea December 31

IBKS Special Purpose Acquisition Company GMB3 0.28 15 29 29


Korea December 31

133,676 125,360 126,783


41

December 31, 2016

(In millions of Korean won,

except for percentage)

Ownership

(%)

Acquisition

value

Net asset

value

Book

amount Primary business Location Closing date


29.41 5,000 3,536 3,864 Brokerage service of

machinery Korea December 31

GUMAN Heavy Ind. Co., Ltd. 25.00 176 (269) - Manufacturing Korea December 31

GUMAN Co., LTD. 22.73 73 (324) - Manufacturing Korea December 31


32.86 2,336 937 935 Manufacturing Korea December 31

Shin Kwang Co., Ltd. 20.00 470 603 470 Manufacturing Korea December 31

Changwoo Textile Co., Ltd. 20.00 500 1,071 500 Manufacturing Korea December 31













KoFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund1



KoFC IBKS KEISTONE Corporate Recovery Private Equity Fund1

- - - 400 Investment asset


Korea Global Infra Recovery Private Equity Fund1 2.40 4,000 3,966 4,288


Korea December 31







KT Music contents Fund 1 20.00 2,100 2,009 2,009 Investment asset


IBK-KTB Contents IP Fund 22.50 3,025 3,734 3,735 Investment asset


IBKC-GNTECH Second Fund2 60.00 5,880 10,047 10,047 Investment asset


IBK-DAEKYO Contents Fund 37.50 3,000 3,721 3,721 Investment asset















Equity Fund Ⅱ 24.44 2,976 2,922 2,922


Korea December 31




IBK-Daesung Majestic Contents Small Giant Korea




42

Fund

IBK-ISU Contents Fund 35.00 1,750 1,739 1,739 Investment asset


KTBN Media Contents Fund 35.00 875 869 869 Investment asset





KAI-KSM Crowd Seeding Fund 31.25 656 656 656 Investment asset


EN Growth Investment No.5 20.27 3,000 2,894 2,894 Investment asset





PoscoPlutus Project Fund 20.53 1,000 1,007 1,007 Investment asset





IBK PSEP Private Equity Fund3 2.38 1,000 993 994 Investment asset




Korea December 31



Korea December 31

IBKS Special Purpose Acquisition Company GMB3 4.76 15 25 15


Korea December 31

103,099 97,452 98,223

1 Although the Group holds less than 20% of the equity shares, the Group has significant influence over financial policy and operation policy as a joint general partner. 2 The Group does not have control of funds as the joint limited partner with IBK-KTAC that performs asset management. 3 Although the Group holds less than 20% of the equity shares, these entities are classified as associates as the Group has right to appoint or dismiss their Board of Directors.


43

Changes in investments in associates for the six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017


Beginning Acquisition (disposal) Dividends

Share of profit

(loss) of associat-

es

Accumulated other

comprehen-sive income

Impairme-nt loss

Ending


3,864 - - (100) - - 3,764


935 - - (235) - - 700

Shin Kwang Co., Ltd. 470 - - - 275 - 745

Changwoo Textile Co., Ltd. 500 - (25) - 935 - 1,410


3,736 (800) - 72 - - 3,008


1,285 (129) - 60 - - 1,216


2,549 - - (2,267) - - 282


7,047 (266) - 51 (391) - 6,441

KoFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund

1,684 (1,020) - (595) 251 - 320

KoFC IBKS KEISTONE Corporate Recovery Private Equity Fund

400 - - - - - 400

Korea Global Infra Recovery Private Equity Fund

4,288 - - - - (4,288) -


5,352 (648) - 107 (275) - 4,536


2,421 (165) - 124 - - 2,380

KT Music Contents Fund 1 2,009 (300) - (28) 43 - 1,724

IBK-KTB Contents IP Fund 3,735 - - (423) 87 - 3,399

IBKC-GNTECH Second Fund

10,047 (1,800) - 980 (1,184) - 8,043

IBK-DAEKYO Contents Fund

3,721 - - (219) - - 3,502


1,954 - - 2 (27) - 1,929


457 500 - (24) (16) - 917


10,685 (5,064) (132) 1,875 - - 7,364


10,737 - - (25) (144) - 10,568


Equity Fund Ⅱ 2,922 - - 7 - - 2,929

EN Growth Investment No. 5

2,959 - - (19) - - 2,940


1,174 900 - (29) (13) - 2,032


44

IBK-ISU Contents Fund 1,739 - - (22) - - 1,717

KTBN Media Contents Fund

869 875 - (40) - - 1,704


1,350 - - - - - 1,350

KAI-KSM Crowd Seeding Fund

656 - - (30) - - 626


- 3,000 - (13) - - 2,987


- 3,000 - 10 387 - 3,397


- 17,500 - - - - 17,500


- 3,314 - 102 - - 3,416

EN Growth Investment No.5 2,894 - - (92) (72) - 2,730


3,479 7,500 - (304) - - 10,675

PoscoPlutus Project Fund 1,007 - - (12) (73) - 922


- 1,000 - (91) - - 909


- 1,000 - - - - 1,000


- 3,000 - (47) 41 - 2,994


- 2,000 - 917 - - 2,917


250 - (2) (2) - - 246

IBK PSEP Private Equity Fund

994 - - 50 - - 1,044


19 - - - - - 19


20 17 - - - - 37


- 15 - - - - 15

IBKS Special Purpose Acquisition Company GMB

15 14 - - - - 29

98,223 33,443 (159) (260) (176) (4,288) 126,783


45

June 30, 2016 (In millions of

Korean won)

Beginning Acquisition (disposal) Dividends

Share of profit

(loss) of associat-

es

Accumulated other

comprehensive income Ending

United Asset Management Corp.

130,881 (105,675) (26,961) 1,758 (3) -


4,628 - - (388) - 4,240


1,642 - - (421) - 1,221

Shin Kwang Co., Ltd. - 470 - - - 470

Changwoo Textile Co., Ltd. - 500 - - - 500


3,294 - - 98 (56) 3,336


828 - - 377 80 1,285


5,999 (3,743) - 248 (410) 2,094


7,375 - - (40) (284) 7,051

KoFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund

7,444 (3,640) - (1,144) 65 2,725

KoFC IBKS KEISTONE Corporate Recovery Private Equity Fund

400 - - - - 400


4,000 - - 192 - 4,192


8,182 (3,420) - 460 748 5,970


3,005 (595) (714) 775 59 2,530

KT Music Contents Fund 1 2,023 - - (68) (35) 1,920

IBK-KTB Contents IP Fund 5,512 - - 876 (1,111) 5,277

IBKC-GNTECH Second Fund

18,484 (3,960) (3,060) (895) 756 11,325

SHC-EN Fund 3,234 (2,366) - 542 - 1,410

IBK-DAEKYO Contents Fund

3,105 - - 45 - 3,150


1,932 - - (18) - 1,914


496 - - (19) - 477


- 10,000 - 1,398 - 11,398


- 3,760 - - 8,812 12,572


Equity Fund Ⅱ - 2,976 - (47) - 2,929

IBK PSEP Private Equity Fund4

- 1,000 - - - 1,000

IBKS Special Purpose 45 - - - - 45


46

Acquisition Company No.2


10 9 - - - 19


10 8 - - - 18

212,529 (104,676) (30,735) 3,729 8,621 89,468

Major financial information of the Group’s associates as at June 30, 2017 and December 31, 2016, are as follows: June 30, 2017


Total

assets

Total

liabilities

Total

equity

Operating

income1

Profit

(loss) for

the

period1


12,287 605 11,682 659 (341)


15,658 13,525 2,133 7,559 (716)

Shin Kwang Co., Ltd. 8,717 6,371 2,346 - -

Changwoo Textile Co., Ltd. 12,464 7,242 5,222 - -

Mirae Asset AGRO Project Fund 13,089 1,058 12,031 521 286


3,303 - 3,303 - 167


10,436 9,271 1,165 33 23

KoFC IBK Hi Investment Hyundai Heavy Industries Shared Growth No.1 PEF

29,361 161 29,200 392 231

KOFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund

5,426 88 5,338 1,374 (9,944)

KOFC IBKS KEISTONE Corporate Recovery Private Equity Fund

388,014 4,425 383,589 - (177)


164,972 345 164,627 6,413 6,080


12,697 97 12,600 396 297

IBKC-IDV IP Private Equity Fund 4,860 32 4,828 285 250

KT Music Contents Fund 1 9,522 903 8,619 16 (143)

IBK-KTB Contents IP Fund 16,364 1,261 15,103 1,641 (1,879)

IBKC-GNTECH Second Fund 13,529 123 13,406 1,891 1,633

IBK-DAEKYO Contents Fund 9,338 - 9,338 461 (584)

SM New Technology Fund No.1 5,306 - 5,306 70 6


4,583 - 4,583 3 (120)


29,723 84 29,639 7,741 7,546

KEPS Calista Private Equity Fund 36,582 1 36,581 - (86)


47

Credian Healthcare Private Equity

FundⅡ 12,031 47 11,984 125 29


12,300 - 12,300 60 (78)


10,232 75 10,157 5 (147)

IBK-ISU Contents Fund 4,943 37 4,906 14 (64)

KTBN Media Contents Fund 4,871 1 4,870 - (112)


2,705 - 2,705 9 6

KAI-KSM Crowd Seeding Fund 2,005 - 2,005 2 (95)

Presto Private Equity Fund No. 4 12,172 24 12,148 60 (52)


7,891 - 7,891 26 22


231,767 196,767 35,000 - -


9,575 18 9,557 - 499

EN Growth Investment No.5 13,471 - 13,471 891 (452)


21,350 - 21,350 66 (609)

PoscoPlutus Project Fund 4,490 - 4,490 - (56)


2,105 - 2,105 - (210)


4,310 9 4,301 10 1

Smart Private Equity Fund No.2 15,019 51 14,968 1 (237)


14,589 2 14,587 4,741 4,587


1,490 - 1,490 - (5)

IBK PSEP Private Equity Fund 44,284 346 43,938 519 428


9,941 1,473 8,468 - 8


9,659 1,245 8,414 - (3)


315 1 314 - -


11,843 1,540 10,303 - 3


48

December 31, 2016


Total

assets

Total

liabilities

Total

equity

Operating

income1

Profit

(loss) for

the

period1

Korea Machinery Auction & Exchange 12,637 614 12,023 248 (1,600)

GUMAN Heavy Ind. Co., Ltd. 13,641 14,717 (1,076) - (569)

GUMAN Co., LTD. 6,890 8,314 (1,424) - (1,182) Joong-ang Special Industry Co., Ltd. 15,188 12,340 2,848 2,043 (969)

Shin Kwang Co., Ltd. 7,589 4,572 3,017 - -

Changwoo Textile Co., Ltd. 11,227 5,873 5,354 - -

Mirae Asset AGRO Project Fund 15,941 996 14,945 548 392 Private Investment Special Company for Global SW Firm Fostering 3,496 - 3,496 - 1,050

IBK-OCTUS Green Industry Growth Private Equity Fund 10,667 1,667 9,000 876 857

KoFC IBK Hi Investment Hyundai Heavy Industries Shared Growth No.1 PEF 32,126 170 31,956 - (181)

KOFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund 28,267 146 28,121 14,281 (19,109)

KOFC IBKS KEISTONE Corporate Recovery Private Equity Fund 388,020 4,387 383,633 194,190 217,081

Korea Global Infra Recovery Private Equity Fund 165,603 333 165,270 8,977 8,648

IBK-Daesung Contents Small Giant Fund 15,117 251 14,866 1,412 1,278

IBKC-IDV IP Private Equity Fund 4,913 2 4,911 1,762 1,569

KT Music Contents Fund 1 10,377 331 10,046 12 (339)

IBK-KTB Contents IP Fund 17,935 1,342 16,593 4,439 3,894

IBKC-GNTECH Second Fund 16,903 157 16,746 1,482 (1,492)

IBK-DAEKYO Contents Fund 9,957 35 9,922 193 122

SM New Technology Fund No.1 5,374 - 5,374 11 (50) CCVC Culture-ICT Convergence Fund 2,335 50 2,285 7 (97)

KDBC-EUM Corporate's Financial Stabilization Private Equity Fund NO.4 43,090 85 43,005 5,937 5,627

KEPS Calista Private Equity Fund 37,168 - 37,168 - (486) Credian Healthcare Private Equity

Fund Ⅱ 12,002 47 11,955 - - E&F Moorim Birdie New Technology Business Investment Fund 12,377 - 12,377 - -

IBK-Daesung Majestic Contents Small Giant Korea Fund 5,948 78 5,870 - -


49

IBK-ISU Contents Fund 5,008 38 4,970 - -

KTBN Media Contents Fund 2,502 20 2,482 - - The Value-up SME Specialized Solution New Technology Business Investment Fund 1 2,700 1 2,699 - -

KAI-KSM Crowd Seeding Fund 2,100 - 2,100 - -

EN Growth Investment No. 5 14,279 2 14,277 - -

KT-IBKC Future Investment Fund 7,110 151 6,959 - -

PoscoPlutus Project Fund 4,906 - 4,906 - - The IBKS SSI New Technology Business Investment Fund 1 1,498 3 1,495 - -

IBK PSEP Private Equity Fund 41,830 103 41,727 85 (190) IBKS Special Purpose Acquisition Company No.3 9,916 1,457 8,459 - 10

IBKS Special Purpose Acquisition Company No.5 1,797 1,221 576 - -

IBKS Special Purpose Acquisition Company GMB 2,011 1,495 516 - -

1 Operating income and profit (loss) for the period amounts are for the six-month period ended June

30, 2017 and 2016. Major commitments with investments in associates as at June 30, 2017 and December 31, 2016, are as follows: June 30, 2017


Committed

contribution

Contribution

amount

Executory

Contribution

Mirae Asset AGRO Project Fund 5,000 4,000 1,000

Private Investment Special Company for Global SW Firm Fostering1

14,964 14,964 -

IBK-OCTUS Green Industry Growth Private Equity Fund2

33,486 33,486 -


12,426 12,426 -

KOFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund3,4

20,000 19,290 710

KOFC IBKS KEISTONE Corporate Recovery Private Equity Fund1

3,000 3,000 -


4,000 4,000 -

IBK-Daesung Contents Small Giant Fund 7,200 7,200 -

IBKC-IDV IP Private Equity Fund3,5 7,000 4,200 2,800

KT Music Contents Fund 1 3,000 2,100 900

IBK-KTB Contents IP Fund 4,500 4,500 -

IBKC-GNTECH Second Fund3 18,000 18,000 -

IBK-DAEKYO Contents Fund 3,000 3,000 -

SM New Technology Fund No.1 2,000 2,000 -

CCVC Culture-ICT Convergence Fund 2,000 1,000 1,000

KDBC-EUM Corporate's Financial Stabilization 10,000 10,000 -


50

Private Equity Fund NO.4

KEPS Calista Private Equity Fund 3,900 3,900 -

Credian Healthcare Private Equity Fund Ⅱ 3,300 2,976 324


3,000 3,000 -


3,000 2,100 900

IBK-ISU Contents Fund 3,500 1,750 1,750

KTBN Media Contents Fund 3,500 1,750 1,750


4,500 1,350 3,150

KAI-KSM Crowd Seeding Fund 2,500 656 1,844

Presto Private Equity Fund No. 4 3,000 3,000 -

Platformpartners Active Mezzanine PEF 7 3,000 3,000 -

Deoksong-Naegak Expressway Co.,Ltd. 55,000 17,500 37,500

EN Growth Investment No. 5 3,000 3,000 -

KT-IBKC Future Investment Fund 1 15,000 11,250 3,750

PoscoPlutus Project Fund 1,000 1,000 -

QCP-IBKC Contents Investment Fund 10,000 1,000 9,000


1,000 1,000 -

Smart Private Equity Fund No.2 3,000 3,000 -

Shinyoung Private Equity Fund No.2 2,000 2,000 -


250 250 -

IBK PSEP Private Equity Fund 1,000 1,000 -


10 10 -


20 20 -


15 15 -


15 15 -

274,086 207,708 66,378


51

December 31, 2016


Committed

contribution

Contribution

amount

Executory

Contribution

Mirae Asset AGRO Project Fund 5,000 4,000 1,000

Private Investment Special Company for Global SW Firm Fostering1

14,964 14,964 -

IBK-OCTUS Green Industry Growth Private Equity Fund2

33,486 33,486 -


12,426 12,426 -

KOFC-QCP-IBKC Frontier Champ 2010- 2 Private Equity Fund3,4

20,000 19,290 710

KOFC IBKS KEISTONE Corporate Recovery Private Equity Fund1

3,000 3,000 -


4,000 4,000 -

IBK-Daesung Contents Small Giant Fund 7,200 7,200 -

IBKC-IDV IP Private Equity Fund3,5 7,000 4,200 2,800

KT Music Contents Fund 1 3,000 2,100 900

IBK-KTB Contents IP Fund 4,500 4,500 -

IBKC-GNTECH Second Fund 3 18,000 18,000 -

IBK-DAEKYO Contents Fund 3,000 3,000 -

SM New Technology Fund No.1 2,000 2,000 -

CCVC Culture-ICT Convergence Fund 2,000 500 1,500


10,000 10,000 -

KEPS Calista Private Equity Fund 3,900 3,900 -

Credian Healthcare Private Equity Fund Ⅱ 3,300 2,976 324


3,000 3,000 -


3,000 1,200 1,800

IBK-ISU Contents Fund 3,500 1,750 1,750

KTBN Media Contents Fund 3,500 875 2,625


4,500 1,350 3,150

KAI-KSM Crowd Seeding Fund 2,500 656 1,844

EN Growth Investment No. 5 3,000 3,000 -

KT-IBKC Future Investment Fund 1 15,000 3,750 11,250

PoscoPlutus Project Fund 1,000 1,000 -


250 250 -

IBK PSEP Private Equity Fund 1,000 1,000 -


10 10 -


20 20 -


52


15 15 -

197,071 167,418 29,653

1 The Group is obligated to cover for the loss up to the total management fees received upon liquidation. As at June 30, 2017, the Group does not expect any priority funding liability. 2 In case the respective associate is liquidated and as part of the liquidation process if funds required

for distribution and refunds to partners are insufficient, general partners are required to allocate \ 3

billion of contractual investment for distribution and refunds. As at June 30, 2017, such expected

priority funding liability amounts to \ 3 billion. 3 The Group committed to refund a portion of the management fees if the accumulated amount of investment is less than the certain ratio of aggregated committed contribution. 4 In case funds required for distribution and refunds to partners are insufficient during liquidation, the

general partners are required to allocate up to \ 5 billion from the contractual investment amount of

IBK Capital Corporation. 5 In case the funds required for distribution and refunds to partners are insufficient during liquidation, general partners are required to allocate up to the amount invested by the limited liability partners from the amount reserved for management fees of IBK Capital Corporation and task force for co-operation.

Investments in non-consolidated structured entities as at June 30, 2017 and December 31, 2016, are as follows: (a) Summary of non-consolidated structured entities Purpose and character, financing methods, and total assets of non-consolidated structured entities that has no influence owned by the Group as at June 30, 2017 and December 31, 2016, are as follows:

(In millions of Korean won) Purpose and

character

Financing

methods

Total assets1

June 30, 2017

December 31,

2016

Beneficiary securities and

others

Investments and

distributions Equity stakes

14,902,785 11,827,386

SPCs

Asset securitization,

real estate development

and others

ABL, ABCP

and

Borrowing 93,551,494 81,534,747

108,454,279 93,362,133

1 The \ 17,039,928 million (December 31, 2016: \19,385,740 million) of the total assets are based

on unaudited financial statements.


53

(b) Investments and maximum exposures Details of the Group’s shares of non-consolidated structured entities and related risk as at June 30, 2017 and December 31, 2016, are as follows: June 30, 2017

(In millions of Korean won) Assets

Securities

Loans receivable Others Total

Beneficiary securities and others 1,750,889 - - 1,750,889

SPCs 92,293 5,048,349 1,583 5,142,225

1,843,182 5,048,349 1,583 6,893,114

(In millions of Korean won) Liabilities Maximum

exposures1 Provisions Others Total

Beneficiary securities and others - - - 1,946,011

SPCs 927 10,364 11,291 10,556,417

927 10,364 11,291 12,502,428

December 31, 2016

(In millions of Korean won) Assets

Securities

Loans receivable Others Total

Beneficiary securities and others 1,798,312 - 12,483 1,810,795

SPCs 82,107 5,073,939 2,662 5,158,708

1,880,419 5,073,939 15,145 6,969,503

(In millions of Korean won) Liabilities Maximum

exposures1 Provisions Others Total

Beneficiary securities and others - 725 725 1,971,293

SPCs 1,250 658,273 659,523 10,046,404

1,250 658,998 660,248 12,017,697

1 Maximum exposure includes the amount probable to be finalized when certain conditions are met in the future through commitments including investment assets, purchase commitments, providing lines of credit and others recognized in the financial statements.


54

10. Investment Properties Changes in investment properties for the six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017

(In millions of Korean won) Land Buildings Total

Acquisition cost

January 1, 2017 66,480 36,520 103,000

Acquisition - 238 238

Transfers (19,067) (2,106) (21,173)

June 30, 2017 47,413 34,652 82,065

Accumulated depreciation

and impairment loss

January 1, 2017 - 14,497 14,497

Depreciation - 381 381

Transfers - (548) (548)

June 30, 2017 - 14,330 14,330

Net book amount

January 1, 2017 66,480 22,023 88,503

June 30, 2017 47,413 20,322 67,735

June 30, 2016

(In millions of Korean won) Land Buildings Total

Acquisition cost

January 1, 2016 67,960 38,439 106,399

Acquisition - 88 88

Transfers (1,256) (2,109) (3,365)

June 30, 2016 66,704 36,418 103,122

Accumulated depreciation

and impairment loss

January 1, 2016 - 14,489 14,489

Depreciation - 410 410

Transfers - (729) (729)

June 30, 2016 - 14,170 14,170

Net book amount

January 1, 2016 67,960 23,950 91,910

June 30, 2016 66,704 22,248 88,952


55

Methodology and inputs used to valuate investment properties as at June 30, 2017, are as follows:

The fair value of investment properties as at June 30, 2017 and December 31, 2016, is \ 97,760

million and \ 121,574 million, respectively, and the fair value was determined by a certified

independent valuation company. As for the land, it is valuated using an officially assessed price for a comparable property as well as considering the price trend analysis and other objective factors. Buildings are valuated using the cost method along with considering other relevant factors such as infrastructure, raw materials, and progress of the construction and others. Fair value of investment properties is classified as level 3 investment in accordance with the standards disclosed in Note 23.2, Fair Value Hierarchy. Rental income recognized from investment properties for the six-month periods ended June 30, 2017

and 2016, are \ 690 million and \ 727 million, respectively.

11. Property and Equipment Changes in property and equipment for the six-month periods ended June 30, 2017 and 2016, are as follows: June 30, 2017


Type Fair value Valuation method Inputs

Land and Buildings 97,760 Cost method

Officially assessed price,

price change trends,

transaction history

(In millions of

Korean won) Land Buildings

Leasehold

improvements

Equipment

and

vehicles Others Total

Acquisition cost

January 1, 2017 822,861 1,120,085 153,431 749,217 10,105 2,855,699

Acquisition 352 6,432 5,132 13,559 6,083 31,558

Disposal (275) (765) (541) (5,691) - (7,272)

Transfers 24,340 2,477 - 507 (6,151) 21,173

Foreign exchange

translation (18) (24) (515) (641) - (1,198)

June 30, 2017 847,260 1,128,205 157,507 756,951 10,037 2,899,960

Accumulated

depreciation and

impairment loss

January 1, 2017 1,178 252,950 130,688 649,984 - 1,034,800

Depreciation - 11,832 6,618 23,037 - 41,487

Disposal (216) (764) (621) (5,550) - (7,151)

Transfers - 548 - - - 548


56

June 30, 2016

Foreign exchange

translation - (17) (419) (484) - (920)

June 30, 2017 962 264,549 136,266 666,987 - 1,068,764

Net book amount

January 1, 2017 821,683 867,135 22,743 99,233 10,105 1,820,899

June 30, 2017 846,298 863,656 21,241 89,964 10,037 1,831,196

(In millions of

Korean won) Land Buildings

Leasehold

improvements

Equipment

and

vehicles Others Total

Acquisition cost

January 1, 2016 621,210 954,979 143,815 742,161 1,642 2,463,807

Acquisition 74 1,953 3,200 11,708 6,812 23,747

Disposal (39) (396) (441) (10,313) - (11,189)

Transfers 1,413 2,603 - - (651) 3,365

Foreign exchange

translation (2) (2) (562) (740) - (1,306)

June 30, 2016 622,656 959,137 146,012 742,816 7,803 2,478,424

Accumulated

depreciation and

impairment loss

January 1, 2016 1,178 239,121 114,264 624,860 - 979,423

Depreciation - 10,457 7,980 26,812 - 45,249

Disposal - (101) (305) (10,121) - (10,527)

Transfers - 729 - - - 729

Foreign exchange

translation - (2) (339) (402) - (743)

June 30, 2016 1,178 250,204 121,600 641,149 - 1,014,131

Net book amount

January 1, 2016 620,032 715,858 29,551 117,301 1,642 1,484,384

June 30, 2016 621,478 708,933 24,412 101,667 7,803 1,464,293


57

12. Intangible Assets Changes in intangible assets for the six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017

(In millions of

Korean won)

Development

costs Software

Intangible

assets under

development

Member-

ships Others Total

Acquisition cost

January 1, 2017 351,404 199,993 2,451 32,511 84,765 671,124

Acquisition 986 1,446 7,990 2,894 10,487 23,803

Disposal (439) (391) - (256) - (1,086)

Transfers 3,119 - (3,119) - - -

Foreign

exchange

translation - (189) - (52) - (241)

June 30, 2017 355,070 200,859 7,322 35,097 95,252 693,600

Accumulated

amortization

and impairment

losses

January 1, 2017 214,481 134,710 - 3,349 60,157 412,697

Amortization 24,664 12,186 - - 4,447 41,297

Disposal (439) (349) - - - (788)

Foreign

exchange

translation - (149) - 47 - (102)

June 30, 2017 238,706 146,398 - 3,396 64,604 453,104

Net book amount

January 1, 2017 136,923 65,283 2,451 29,162 24,608 258,427

June 30, 2017 116,364 54,461 7,322 31,701 30,648 240,496


58

June 30, 2016

13. Income Tax Expense Details of income tax expense for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017 June 30, 2016


Three

months

Six

months

Three

months

Six

months

Current tax expense 78,245 260,285 84,819 263,468 Adjustments recognized in the current year in relation to the current tax of prior years 95 (27,038) (70) (13,510)

Change in deferred tax assets and liabilities

Adjusting beginning deferred tax expenses (15) 21,930 75 (21,249)

(In millions of

Korean won)

Development

costs Software

Intangible

assets under

development

Member-

ships Others Total

Acquisition cost

January 1, 2016 342,829 185,080 1,334 32,056 79,230 640,529

Acquisition 3,236 1,557 1,999 2,502 518 9,812

Disposal - (61) - (1,426) - (1,487)

Foreign

exchange

translation - (371) - 72 - (299)

June 30, 2016 346,065 186,205 3,333 33,204 79,748 648,555

Accumulated

amortization

and impairment

losses

January 1, 2016 175,525 111,136 - 3,472 47,877 338,010

Amortization 24,462 12,121 - - 4,311 40,894

Impairment

loss - - - 12 - 12

Disposal - (33) - (1) - (34)

Foreign

exchange

translation - (172) - (3) - (175)

June 30, 2016 199,987 123,052 - 3,480 52,188 378,707

Net book amount

January 1, 2016 167,304 73,944 1,334 28,584 31,353 302,519

June 30, 2016 146,078 63,153 3,333 29,724 27,560 269,848


59

Deferred tax expenses due to temporary

differences 86,853 41,831 83,612 59,473

Tax expense recognized directly in equity Changes in the fair value of available-for-sale

financial assets (57,142) (51,630) (71,698) (86,305)

Other components 1,881 (2,564) (1,061) (2,750)

Tax expense 109,917 242,814 95,677 199,127

The relationship between profit before income tax and tax expense for the three-month and six-month periods ended June 30, 2017 and 2016, follows:

June 30, 2017 June 30, 2016


Three

months

Six

months

Three

months

Six

months

Profit before income tax expense 470,052 1,042,303 385,274 866,447

Tax rate1

Tax expense calculated by applicable tax rate 113,637 252,006 93,121 209,449

Adjustments Unrecognized temporary differences and

others (3,815) 17,846 2,626 3,188

Refunds 95 (27,038) (70) (13,510)

Income tax expense 109,917 242,814 95,677 199,127

Effective tax rate 23.38% 23.30% 24.83% 22.98%

1 Tax rates applied are as follows: 24.2% for \ 20,000 million and above, 22% for less than \ 20,000

million but more than \ 200 million, and 11% applies to less than \ 200 million.

Temporary differences and changes in deferred tax assets and liabilities as at and for the three-month and six-month period ended June 30, 2017 and as at and for the year ended December 31, 2016, are as follows:

June 30, 2017

Three-month period

(In millions of Korean won) Beginning

Increase (decrease)

Ending

Financial assets held for trading 22,061 (3,514) 18,547

Available-for-sale financial assets (573,689) (241,245) (814,934)

Provision for impairment 11,541 (3,924) 7,617

Investments in associates (197,316) 9,771 (187,545)

Derivatives 194,065 (117,987) 76,078 Property and equipment, investment properties (158,026) (1,363) (159,389)

Prepaid expenses (310,985) (22,708) (333,693)

Accrued income (296,128) (26,865) (322,993)

Provisions 405,722 (9,206) 396,516

Post-employment benefit obligations 229,506 (13,030) 216,476


60

Unearned revenue 41,621 (4,043) 37,578

Accrued expenses 8,949 (4,726) 4,223

Other financial liabilities 8,985 1,075 10,060

Others 87,540 78,926 166,466

(526,154) (358,839) (884,993)

Tax loss carryforwards 12,214 (2,842) 9,372

(513,940) (361,681) (875,621)

Average tax rate 24.20% 24.20%

Total deferred tax liabilities effect (124,373) (211,900) Temporary differences not recognized as deferred tax assets 2,957 2,268

(127,330) (214,168)

Deferred tax assets 8,983 6,534

Deferred tax liabilities (136,313) (220,702)

June 30, 2017

Six-month period

(In millions of Korean won) Beginning Adjustment1

Beginning after

adjustments

Increase (decrease)

Ending

Financial assets held for trading 30,365 - 30,365 (11,818) 18,547

Available-for-sale financial assets (509,468) (2,824) (512,292) (302,642) (814,934)

Provision for impairment (13,108) - (13,108) 20,725 7,617

Investments in associates (190,725) - (190,725) 3,180 (187,545)

Derivatives 63,084 (758) 62,326 13,752 76,078 Property and equipment, investment properties (156,951) - (156,951) (2,438) (159,389)

Prepaid expenses (308,068) - (308,068) (25,625) (333,693)

Accrued income (305,233) - (305,233) (17,760) (322,993)

Provisions 388,657 57 388,714 7,802 396,516 Post-employment benefit obligations 198,342 - 198,342 18,134 216,476

Unearned revenue 42,685 - 42,685 (5,107) 37,578

Accrued expenses 7,392 14 7,406 (3,183) 4,223

Other financial liabilities 5,688 - 5,688 4,372 10,060

Others 125,824 (87,111) 38,713 127,753 166,466

(621,516) (90,622) (712,138) (172,855) (884,993)

Tax loss carryforwards 15,869 - 15,869 (6,497) 9,372

(605,647) (90,622) (696,269) (179,352) (875,621)


Total deferred tax liabilities effect (146,567) (211,900)

Temporary differences not recognized as deferred tax assets 3,840 2,268

(150,407) (214,168)



61


December 31, 2016

(In millions of Korean won) Beginning Adjustment1

Beginning after

adjustments

Increase (decrease)

Ending

Financial assets held for trading (10,748) - (10,748) 41,113 30,365

Available-for-sale financial assets (601,444) (59,936) (661,380) 151,912 (509,468)

Provision for impairment (12,045) - (12,045) (1,063) (13,108)

Investments in associates (178,243) - (178,243) (12,482) (190,725)

Derivatives 23,447 (26) 23,421 39,663 63,084 Property and equipment, investment properties (150,889) 1 (150,888) (6,063) (156,951)

Prepaid expenses (274,110) - (274,110) (33,958) (308,068)

Accrued income (386,346) 102,326 (284,020) (21,213) (305,233)

Provisions 330,051 16 330,067 58,590 388,657 Post-employment benefit obligations 80,615 (546) 80,069 118,273 198,342

Unearned revenue 40,166 - 40,166 2,519 42,685

Accrued expenses 12,296 (3,291) 9,005 (1,613) 7,392

Other financial liabilities 10,793 - 10,793 (5,105) 5,688

Others 102,871 49,265 152,136 (26,312) 125,824

(1,013,586) 87,809 (925,777) 304,261 (621,516)

Tax loss carryforwards 33,259 - 33,259 (17,390) 15,869

(980,327) 87,809 (892,518) 286,871 (605,647)


Total deferred tax liabilities effect (237,239) (146,567)

Temporary differences not recognized as deferred tax assets 8,111 3,840

(245,350) (150,407)



1 Adjustments were made at the final tax return. As at June 30, 2017, total amounts of tax loss carryforwards where deferred tax assets were not

recognized are \ 9,372 million (December 31, 2016: \ 15,869 million).


62

14. Other Assets Details of other assets as at June 30, 2017 and December 31, 2016, are as follows:


June 30, 2017 December 31, 2016

Other financial assets

Unsettled accounts receivable 910,509 4,552,732

Other receivables 527,834 100,410

Unsettled spot exchange receivables 2,957,262 2,431,092

Leasehold deposits provided 831,812 830,472

Accrued income 870,419 844,070

Present value discounts (14,939) (12,772) Provision for impairment of other financial

instruments

(13,868) (28,446)

Others 10,285 9,906

6,079,314 8,727,464

Other assets

Prepaid expenses 161,347 127,239

Petty cash 15,393 13,505

Stationery 5,489 3,927

Special account asset 1,120,261 1,018,456

Other 82,388 79,237

1,384,878 1,242,364

7,464,192 9,969,828

15. Deposit Liabilities Details of deposit liabilities as at June 30, 2017 and December 31, 2016, are as follows:


June 30, 2017 December 31, 2016

Demand deposits in Korean won 35,529,906 34,263,717

Demand deposits in foreign currencies 7,405,402 7,095,687

42,935,308 41,359,404

Time & savings deposits in Korean won 49,194,825 48,096,258

Time & savings deposits in foreign currencies 4,823,009 3,911,360

54,017,834 52,007,618

Negotiable certificates of deposit 6,555,806 7,398,067

Others 3,470,114 3,219,024

106,979,062 103,984,113


63

16. Debts Debts as at June 30, 2017 and December 31, 2016, are as follows:


Lender Interest

rate (%) June 30, 2017

December 31,

2016

Borrowings in Korean won

Borrowings in Korean

won from BOK

Bank of Korea 0.50 ~ 0.75

5,502,698 5,482,649


won from funds

Small & Medium

Business Corporation

and others

0.00 ~ 4.10

11,830,884 10,896,004


won from the

government

Ministry of Strategy and

Finance and others 0.00 ~ 4.00

1,972,749 2,015,381


won from deposit banks

Woori Bank and others 2.63 ~ 2.66

40,000 50,000

Other borrowings in

Korean won

Samsung Electronics

Co., Ltd. and others

1.47 ~ 2.23

3,049,300 2,966,830

22,395,631 21,410,864

Borrowings in foreign

currencies

Overdraft due to banks

in foreign currencies

JP Morgan & Chase

Bank and others

-

249,862 173,393

Borrowings from bank

in foreign currencies

World Bank and others

0.00 ~ 1.77

1,179,461 1,085,594

Other borrowings in

foreign currencies

The Bank of New York

Mellon and others

0.00 ~ 2.43

1,249,095 1,204,872

2,678,418 2,463,859

Bills sold Counter sale 0.75 ~ 2.19 146,304 174,994

Call money

Call money in Korean

won

Woori Bank

1.27

300,000 -

Call money in foreign

currencies

CHINATRUST,HONG

KONG and others

1.22 ~ 1.55

736,666 761,082

1,036,666 761,082

Bonds sold under

repurchase agreements

Repurchase agreements

sold to customers

0.75 ~ 5.20

1,763,707 1,859,697

Others National IT Industry

Promotion Agency

-

6,667 -

28,027,393 26,670,496


64

Details of debts from financial institutions as at June 30, 2017 and December 31, 2016, are as follows: (In millions of Korean won) June 30, 2017 December 31, 2016

Bank of Korea

5,502,698 5,482,649

Others

6,608,439 6,173,378

12,111,137 11,656,027

17. Debentures Details of debentures as at June 30, 2017 and December 31, 2016, are as follows:


Debentures in Korean won

86,081,635 84,704,785

Debentures in foreign currencies

3,108,797 2,775,199

Other debentures

4,049,435 3,430,915

Less : Discount on debentures

(38,308) (47,774)

93,201,559 90,863,125

Details of debentures in Korean won and in foreign currencies as at June 30, 2017 and December 31, 2016, are as follows: Debentures in Korean won

(In millions of Korean won) Interest rate

(%) June 30, 2017 December 31, 2016

Small and Medium Industry (SMI) finance bonds

Counter 1.00 ~ 7.77 59,303,435 54,120,933

Market 1.26 ~ 5.75 21,702,341 25,732,151

Subordinated SMI finance bonds 2.37 ~ 4.67 5,100,010 4,850,010

86,105,786 84,703,094

Unissued SMI finance bonds 11 60

Gain on valuation of fair market value risk hedge (current period)

(24,825) (50,505)

Loss on valuation of fair market value risk hedge (prior periods)

663 52,136

(24,162) 1,631

86,081,635 84,704,785


65

Debentures in foreign currencies

(In millions of Korean won) Interest rate

(%) June 30, 2017 December 31, 2016

Debentures in foreign currencies 0.01 ~ 4.80 3,028,927 2,760,038

Offshore finance bonds issued 2.25 65,273 -

3,094,200 2,760,038

Gain on valuation of fair market value risk hedge (current period)

(1,002) (9,103)

Loss on valuation of fair market value risk hedge (prior periods)

15,599 24,264

14,597 15,161

3,108,797 2,775,199

18. Net Defined Benefit Liabilities Changes in the net defined benefit liabilities recognized in relation to the defined benefit plan for the six-month periods ended June 30, 2017 and 2016, are as follows: June 30, 2017

June 30, 2016


Present value of defined benefit

obligation

Fair value of plan assets

Net defined

benefit liabilities

Beginning balance 647,607 (622,517) 25,090

Current service cost 59,245 - 59,245

Interest expenses (income) 9,043 (8,502) 541

Paid in plan assets - (41,390) (41,390)

Benefits paid (7,766) 7,001 (765)

Remeasurements:

Return on plan assets - 3,639 3,639

Ending balance 708,129 (661,769) 46,360


Present value of defined benefit

obligation

Fair value of plan assets

Net defined

benefit liabilities

Beginning balance 533,398 (430,555) 102,843

Current service cost 56,807 - 56,807

Interest expenses (income) 7,552 (6,199) 1,353

Paid in plan assets - (70,000) (70,000)

Benefits paid (18,487) 10,338 (8,149)

Remeasurements:

Return on plan assets - 2,742 2,742

Change in financial assumptions 36 - 36

Ending balance 579,306 (493,674) 85,632


66

Expenses recognized related to the defined benefit plans for the six-month periods ended June 30, 2017 and 2016, are as follows:


June 30, 2017

June 30, 2016

Current service cost

59,245 56,807

Interest expenses of net defined benefit liabilities

541 1,353

59,786 58,160

The significant actuarial assumptions as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017 December 31, 2016

Discount rate (%)

2.58 ~ 3.43 2.58~3.43

Future salary growth rate (%)

2.09 ~ 3.41 2.09~3.41 Plan assets as at June 30, 2017 and December 31, 2016, consist of:


June 30, 2017 December 31, 2016

Quoted price

Unquoted

price

Quoted price

Unquoted

price

Cash and cash equivalents - 661,769 - 622,517

The sensitivity of the defined benefit obligation to changes in the principal assumptions as at June 30,

2017 and December 31, 2016, are as follows:

June 30, 2017

December 31, 2016

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. The sensitivity of the defined benefit obligation to changes in principal actuarial assumptions is calculated using the projected unit credit method, the same method applied when calculating the defined benefit obligations recognized on the statement of financial position. The Group is exposed to various risks through the defined benefit plans and the most significant risk is as below: Decrease in earning rate of prime-rate bonds: Decrease in earning rate of prime-rate bonds may bring an increase in a certain portion of financial assets’ value as an offset effect. However, as a result, the defined benefit obligation will be increased.


Change in

assumption Increase in

assumption Decrease in

assumption

Discount rate 1.00% (71,325) 84,854

Future salary growth rate 1.00% 84,117 (72,067)


Change in

assumption Increase in

assumption Decrease in

assumption

Discount rate 1.00% (72,913) 88,463

Future salary growth rate 1.00% 87,294 (73,375)


67

The expected maturity analysis of undiscounted pension benefits as at June 30, 2017 and December 31, 2016, is as follows:


December 31, 2016

Within 10 years 250,113 227,608

10 years ~ within 20 years 252,444 237,854

20 years ~ within 30 years 533,527 508,027

30 years and longer 56,621 56,163

1,092,705 1,029,652

The Group's best estimate of expected contributions for the six-month period ended June 30, 2017

are \ 104,190 million and weighted average duration of the defined benefit liability is 16.3 years.

The Group recognized expense related to the defined contribution plans for the six-month periods

ended June 30, 2017 and 2016 amounts to \ 1,160 million and \ 615 million, respectively.

For the certain employees who have worked for more than 20 years, liabilities are recorded using actuarial methods for the pension to be paid to employees who would voluntarily retire prior to their legal retirement date. Pension liabilities recorded as at June 30, 2017 and December 31, 2016, are

\ 94,734 million and \ 91,511 million, respectively.

19. Provisions Details and changes in provisions for other liabilities and charges for the six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017

(In millions of Korean won) Beginning Increase Reversal Others Ending Payment guarantees outstanding 50,940 - (5,964) (84) 44,892

Unused ceiling 93,048 - (11,680) (187) 81,181

Provision for litigation 1,692 9,801 - - 11,493

Provision for restoration 10,276 57 (30) (100) 10,203

Provision for award credits 3,273 - (356) - 2,917

Others 231,224 16,656 - 24 247,904

390,453 26,514 (18,030) (347) 398,590


68

June 30, 2016

(In millions of Korean won) Beginning Increase Reversal Others Ending Payment guarantees outstanding 50,551 1,023 - 15 51,589

Unused ceiling 106,795 - (9,480) 1 97,316

Provision for litigation 1,715 - (823) - 892

Provision for restoration 9,653 80 - 113 9,846

Provision for award credits 3,380 48 - - 3,428

Others 159,689 41,278 - 97 201,064

331,783 42,429 (10,303) 226 364,135

Payment guarantees and unused loan commitments The Group recognizes the estimated amount based on loss incurred from the payment guarantees and unused loan commitment as provisions. Details of provisions for payment guarantees as at June 30, 2017 and December 31, 2016, are as follows:

Details of provisions for unused loan commitments as at June 30, 2017 and December 31, 2016, are as follows:

(In millions of

Korean won) June 30, 2017 December 31, 2016

Payment

guarantees Provision

Ratio

(%)

Payment

guarantees Provision

Ratio

(%)

Confirmed payment

guarantees in Korean

won

695,379 6,369 0.92 715,890 6,990 0.98

Confirmed payment

guarantees in foreign

currencies

2,172,400 23,335 1.07 2,028,269 23,038 1.14

Unconfirmed payment

guarantees 1,829,291 15,188 0.83 2,050,103 20,911 1.02

Bills endorsed - - - 110 1 0.91

4,697,070 44,892 0.96 4,794,372 50,940 1.06

(In millions of


Commitment

outstanding1 Provision

Ratio

(%)

Commitment

outstanding1 Provision

Ratio

(%)

Corporate loan

commitment 33,568,470 57,898 0.17 35,214,584 69,372 0.20

Retail loan commitment 2,165,942 2,245 0.10 2,096,454 2,234 0.11

Credit line on credit

cards 10,615,521 21,038 0.20 9,988,442 21,442 0.21

46,349,933 81,181 0.18 47,299,480 93,048 0.20


69

1 Excludes commitments that are not required to set up provisions for unused loan commitments. Litigation Details of lawsuits the Group has filed and is facing as at June 30, 2017 and December 31, 2016, are as follows:


December 31, 2016

Plaintiff No. of lawsuits 399 502

Claims 483,785 557,465

Defendant No. of lawsuits 169 134

Claims 147,030 131,701

The Group establishes provisions considering the probability of the outcome of the lawsuit. Provision for restoration The Group recognizes a provision to the extent that the Group is obliged to rectify damage already caused, and the present value valuation is applied if the rent is long-term and present value is material. Provisions for general wages The Bank estimated the expected future payable amount in relation to the claims for the additional payments of employees’ wages (or severance payments) and recognized the best estimate as a provision. The Bank lost in the first trial on May 26, 2016 and won in the second trial on May 12, 2017. The Bank’s intention of appeal to the Supreme Court and outcome of the lawsuit cannot be reasonably predicted as at June 30, 2017.

20. Other Liabilities Details of other liabilities as at June 30, 2017 and December 31, 2016, are as follows:


June 30, 2017

December 31, 2016

Other financial liabilities

Financial guarantee liabilities

54,051 46,308

Borrowings from trust accounts

1,807,869 1,541,576

Borrowing from other business account

397,428 980,056

Guaranteed deposits

174,939 222,336

Unsettled inter-office account in foreign currencies

1,901,753 864,454

Dividends payable

5,782 5,296

Other payables

552,989 212,149

Unsettled spot exchange

2,957,535 2,439,067

Accrued expenses

1,341,264 1,282,684

Agencies

768,973 246,244

Others

479,488 375,993


70

10,442,071 8,216,163

Other liabilities

Income tax payable

210,091 208,160

Unearned revenue

182,254 173,280

Insurance liabilities

2,994,898 2,592,368

Special accounts

1,169,174 1,017,557

Others

393,396 296,154

4,949,813 4,287,519

15,391,884 12,503,682

21. Lease Finance lease – the Group as a lessor The Group has finance lease contracts as a lessor on various types of assets, and the details of assets held under a finance lease as at June 30, 2017 and December 31, 2016, are as follows:

The accumulated provision for impairment for assets held under a finance lease as at June 30, 2017

and December 31, 2016, are \ 13,538 million and \ 14,607 million, respectively.

Operating lease – the Group as a lessee The Group has lease contracts with companies regarding car and printer rentals, and others. The future minimum lease payments arising from the non-cancellable lease contracts as at June 30, 2017 and December 31, 2016, are as follows:


Within 1 year 57,939 65,210

Between 1 and 5 years 44,774 46,547

102,713 111,757

(In millions of


Minimum

lease

receipts

Unrealized

interests

income

Present

value

Minimum

lease

receipts

Unrealized

interests

income

Present

value

Within 1 year 76,840 2,220 74,620 85,680 3,072 82,608 Between 1 and 5 years

290,297 21,897 268,400 254,199 17,241 236,958

Over 5 years 17,420 561 16,859 17,281 863 16,418

384,557 24,678 359,879 357,160 21,176 335,984


71

Operating lease – the Group as a lessor The Group has multiple operating lease contracts for land and buildings classified as investment properties. Remaining years on these operating leases are less than five years, and all operating lease receipts are subject to increase annually depending on the market conditions. The future minimum lease receipts arising from the non-cancellable lease contracts as at June 30, 2017 and December 31, 2016, are as follows:


Within 1 year 539 444

Between 1 and 5 years 446 395

985 839

22. Contingent Liabilities and Commitments

Details of payment guarantees and endorsed bills as at June 30, 2017 and December 31, 2016, are

as follows:


December 31,

2016

Confirmed payment guarantees in Korean won

Financial guarantee contracts 1,669,598 1,650,389

Others 695,379 715,890

2,364,977 2,366,279

Confirmed payment guarantees in foreign currencies

Financial guarantee contracts 522,389 606,777

Letters of guarantees for importers 101,982 118,950

Others 2,070,418 1,909,319

2,694,789 2,635,046

Unconfirmed payment guarantees

Customer’s liability on letters of credit 1,828,782 2,049,585

Others 509 518

1,829,291 2,050,103

Bills endorsed

Bills endorsed with recourse - 110

- 110

6,889,057 7,051,538


72

Details of commitments as at June 30, 2017 and December 31, 2016, are as follows:


June 30, 2017

December 31,

2016

Commitments on loans in Korean won 37,600,396 37,947,719

Commitments on loans in foreign currencies 8,775,672 9,707,178

Others 5,564,674 6,155,831

51,940,742 53,810,728

Credit offering commitments consist of loan commitments and revolving credit commitments. Generally, there is a term of validity or other expiration clauses in a commitment. There could be commitments that are not fully used. Therefore, the notional amount may not be equal to the future cash consumed. However, most credit offering commitments require customers to maintain certain credit levels. Thus, the potential credit loss should be less than total used commitment. In general, as longer commitments entail higher credit risk, the Group monitors the commitments throughout their maturity.

Trust Accounts

(1) Composition of the Group’s trust accounts as at June 30, 2017 and December 31, 2016, and for

the six-month periods ended June 30, 2017 and 2016, are as follows:

1 Financial information of the trust accounts has been prepared in accordance with Korean Accounting Standard 5004 Trust Accounts, and enforcement regulations of Financial Investment Services under the Financial Investment Services and Capital Markets Act.

(2) Major transactions between the Group and the Trust Accounts for the six-month periods ended

June 30, 2017 and 2016, are as follows:

(In millions of Korean

won)

Type June 30, 2017

December 31, 2016 /

June 30, 2016

Income Trust operation income 33,456

29,443

Expense Interest expense 11,611

20,000

Receivable Operation fees receivables 1,168

1,119

Fees receivable 26,580

25,574

27,748

26,693

Payable Trust accounts 1,807,869

1,541,576

Interest payable 365

367

1,808,234 1,541,943

Others (1) As at June 30, 2017, the Bank owns export trade receivables (USD 84,458,900) from Moneual, Inc., which is guaranteed by the Korea Trade Insurance Corporation. The Bank made a claim to the Korea Trade Insurance Corporation for payment of the uncollected insurance and the guarantee obligation arising from the bankruptcy of Moneual, Inc. However, the Bank received a notification of

(In millions of Korean won) Total assets Operating income

June 30, 2017

December 31,

2016 June 30, 2017 June 30, 2016

Unconsolidated1 52,904,073

52,408,491 128,195

126,206


73

payment refusal from the Korea Trade Insurance Corporation on May 19, 2015. The Bank filed a lawsuit against Korea Trade Insurance Corporation on August 3, 2015. The Bank partially won the lawsuit at the first trial on February 17, 2017, however, the Bank appealed against it, and the second trial is in process. As at June 30, 2017, financial impact in relation to the outcome of the civil suit is not predictable. (2) The Bank provides settlement services in Korean won for the transactions between Korea and Iran, and an internal investigation is in progress as requested by the U.S. Attorney’s Office and New York State Attorney General's Office to confirm if the services are in compliance with the legal restrictive measures imposed by the U.S. government against transactions conducted with certain countries or institutions, and the relevant documents have been submitted to U.S. authorities. In January 2013, the Korean Prosecutors previously concluded that the Bank and its executives and staff were not guilty for the fake transaction of “A” Corporation, which utilized the settlement service of the Group. As at June 30, 2017, the outcome of the investigation and subsequent impact are not predictable or measurable.

23. Financial Assets and Financial Liabilities - Fair Value There are no significant changes in business or economic environment that would result in material effects on fair value of financial assets and liabilities during the six-month period ended June 30, 2017.

23.1 Book Amount and Fair Value of Financial Instruments Book amount and fair value of financial instruments as at June 30, 2017 and December 31, 2016, are

as follows:


Book amount Fair value Book amount Fair value

Assets

Cash and due from banks 15,072,354 15,072,335 11,699,220 11,699,208

Financial assets held for trading 7,970,600 7,970,600 8,313,556 8,313,556

Financial assets designated at fair value

through profit or loss 511,339 511,339 478,908 478,908

Available-for-sale financial assets 14,903,505 14,903,505 16,770,997 16,770,997

Held-to-maturity financial assets 19,402,846 19,523,339 14,133,675 14,279,878

Loans receivable

Loans in Korean won 183,277,042 182,745,658 177,564,256 177,318,879

Loans in foreign currencies 3,771,926 3,773,881 3,795,033 3,796,039

Interbank loans in foreign currencies 1,959,134 1,959,134 787,470 787,470

Domestic import usance bills 2,941,241 2,941,241 3,104,821 3,101,462

Call loan 1,708,387 1,708,387 2,661,416 2,661,416

Bills bought in Korean won / bills

bought in foreign currencies 1,851,980 1,850,870 1,799,273 1,793,146

Payment on guarantees 33,283 33,283 38,005 38,005

Credit card receivable 2,662,129 2,662,129 2,569,484 2,569,803

Bonds purchased under repurchase 1,982,445 1,982,445 2,056,629 2,056,629


74

agreements

Others 856,408 915,651 859,913 862,774

Provision for impairment (2,212,366) (2,212,366) (2,490,259) (2,490,259)

Present value discount (16,194) (16,194) (9,454) (9,454)

Loan origination cost 324,943 324,943 300,726 300,726

199,140,358 198,669,062 193,037,313 192,786,636

Derivatives assets for hedge accounting 152,345 152,345 174,147 174,147

Other assets 6,079,314 6,080,640 8,727,464 8,730,247

263,232,661 262,883,165 253,335,280 253,233,577

Liabilities

Financial liabilities held for trading 2,074,134 2,074,134 2,620,960 2,620,960

Financial liabilities designated at fair

value through profit or loss 1,361,783 1,361,783 1,233,788 1,233,788

Deposit liabilities

Deposits in Korean won 88,192,973 88,107,957 85,576,772 85,554,840

Negotiable certificates of deposit 6,555,806 6,525,500 7,398,067 7,397,691

Deposits in foreign currencies 12,230,283 12,230,192 11,009,274 11,007,985

106,979,062 106,863,649 103,984,113 103,960,516

Debts

Borrowings in Korean won 22,395,631 22,395,659 21,410,864 21,410,864

Borrowings in foreign currencies 2,678,418 2,678,362 2,463,859 2,425,756

Bills sold 146,304 146,054 174,994 174,991

Foundation fund 6,667 6,667 - -

Call money 1,036,666 1,036,666 761,082 761,082

Bonds sold under repurchase

agreements 1,763,707 1,763,359 1,859,697 1,859,700

28,027,393 28,026,767 26,670,496 26,632,393

Debentures

Trading SME Industry finance

debentures 86,053,868 85,511,263 84,667,552 84,990,608

Debentures issued in foreign

currencies 3,101,249 3,108,779 2,767,204 2,775,199

Others 4,046,442 4,047,048 3,428,369 3,428,369

93,201,559 92,667,090 90,863,125 91,194,176

Derivatives liabilities for hedge

accounting 248,097 248,097 354,174 354,174

Other liabilities 10,442,071 10,434,007 8,216,163 8,214,679

242,334,099 241,675,527 233,942,819 234,210,686


75

Standards applied in measuring the fair value of financial instruments are as follows: - Cash and due from banks: Book amount of cash is considered to be the fair value. In addition, as

demand deposits and deposits for settlements are liquid in nature and do not have a fixed maturity, their book amounts are also considered to approximate the fair value. Fair value of due from bank is calculated using discounted cash flow model. However, for deposits that are on demand and whose contractual maturity / interest rate change cycle is less than three months, book amount is considered to be the fair value.

- Marketable securities: For a listed security, fair value is measured at its quoted market price in its

active market, and when such price is not available, fair value is measured by third party valuation experts. Third party experts apply one of the following valuation techniques by considering case-specific factors: Discounted Cash Flow Model, Imputed Market Value Model, and Free Cash Flow to Equity Model, Dividend Discount Model, Risk-adjusted Valuation Model, and Net Asset Value Method.

- Loans receivable: For loans that are on demand and whose contractual maturity / interest rate

change cycle is less than three months, book value is considered to be the fair value. Fair value of a loan is calculated by discounting the future cash flows by the interest rate where market risk and other risks are reflected, less allowance for loan loss.

- Derivatives: Derivative instruments that are traded in active markets are measured at fair value by

using quoted prices, if available. Derivatives that are not traded in active market are measured at fair value by using valuation techniques. Widespread derivatives not traded in active markets, such as Interest rate swaps and foreign currency swaps, are measured by using valuation technique that are based on observable inputs. However, in some cases, determining appropriate valuation techniques and when there are no observable inputs to measure the fair value of some complex derivative instruments could be difficult. In those cases, they are measured by the independent valuation experts.

- Other financial assets and liabilities: For other financial assets and liabilities that are on demand in

nature whose contractual maturity / interest rate change cycle is less than three months, book amount is considered to be the fair value. Fair value of other financial assets and liabilities is calculated by discounting the future cash flows by the interest rate where market risk and other risks are reflected.

- Deposit liabilities: For deposits that are on demand and whose contractual maturity / interest rate

change cycle is less than three months, book amount is considered to be the fair value. Fair value of a deposit is calculated using the future cash flows by interest rate where market risk and other risks are reflected.

- Debts: For borrowings that are on demand and whose contractual maturity / interest rate change

cycle is less than three months, book amount is considered to be the fair value. Fair value of a borrowing is calculated by discounting the future cash flows by the interest rate where market risk and other risks are reflected.

- Debentures: Fair value of debentures is fair value provided by external credit rating companies less

accrued interest payables. For debentures whose fair value cannot be provided by external credit rating companies, the fair value is calculated by discounting the future cash flows by the interest rate where market risk and other risks are reflected.


76

23.2 Fair Value Hierarchy Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at

fair value as at June 30, 2017 and December 31, 2016, are as follows:


Level 1 Level 2 Level 3 Total

Financial assets

Financial assets held for trading 2,277,483 5,526,085 167,032 7,970,600 Financial assets designated at fair value through profit or loss - 200,711 310,628 511,339

Available-for-sale financial assets1 2,891,261 9,186,346 2,825,898 14,903,505 Derivatives assets for hedge accounting - 152,345 - 152,345

5,168,744 15,065,487 3,303,558 23,537,789

Financial liabilities

Financial liabilities held for trading 525,975 1,363,506 184,653 2,074,134 Financial liabilities designated at fair value through profit or loss - 313,158 1,048,625 1,361,783

Derivatives liabilities for hedge accounting - 215,659 32,438 248,097

525,975 1,892,323 1,265,716 3,684,014

(In millions of Korean won) December 31, 2016

Level 1 Level 2 Level 3 Total

Financial assets

Financial assets held for trading 1,652,992 6,489,506 171,058 8,313,556 Financial assets designated at fair value through profit or loss - 227,933 250,975 478,908

Available-for-sale financial assets1 3,974,418 10,199,071 2,597,508 16,770,997 Derivatives assets for hedge accounting - 174,147 - 174,147

5,627,410 17,090,657 3,019,541 25,737,608


Financial liabilities held for trading 122,626 2,304,207 194,127 2,620,960 Financial liabilities designated at fair value through profit or loss - 239,973 993,815 1,233,788

Derivatives liabilities for hedge accounting - 320,921 33,253 354,174

122,626 2,865,101 1,221,195 4,208,922

1 From available-for-sale financial assets, unlisted equity securities amounting to \ 152,595 million as

at June 30, 2017 (December 31, 2016: \ 137,042 million), were measured at cost as their fair value

could not be measured reliably and hence has been categorized as Level 3. Equity instruments carried at cost include unlisted securities of public entities or non-profit entities whose economic values are difficult to be quantified. Also, unlisted equity instruments invested in project financing funds are valued at cost since their future cash flows are difficult to be projected in a reliable manner. The Group has no plan to sell these securities in the near future.

Fair value hierarchy classifications of the financial assets and financial liabilities whose fair values are

disclosed as at June 30, 2017 and December 31, 2016, are as follows:


77

June 30, 2017

(In millions of Korean won) Level 1 Level 2 Level 3 Total

Financial assets

Cash and due from banks 643,602 13,717,895 710,838 15,072,335

Held-to-maturity financial assets 4,589,211 14,934,128 - 19,523,339

Loans receivable - - 198,669,062 198,669,062

Other financial assets - - 6,080,640 6,080,640

5,232,813 28,652,023 205,460,540 239,345,376


Deposit liabilities - 42,956,731 63,906,918 106,863,649

Debts - - 28,026,767 28,026,767

Debentures - 5,084,113 87,582,977 92,667,090

Other financial liabilities - - 10,434,007 10,434,007

- 48,040,844 189,950,669 237,991,513

December 31, 2016

(In millions of Korean won) Level 1 Level 2 Level 3 Total

Financial assets

Cash and due from banks 1,288,006 9,542,500 868,702 11,699,208

Held-to-maturity financial assets 3,024,633 11,255,245 - 14,279,878

Loans receivable - - 192,786,636 192,786,636

Other financial assets - - 8,730,247 8,730,247

4,312,639 20,797,745 202,385,585 227,495,969


Deposit liabilities - 41,359,339 62,601,177 103,960,516

Debts - - 26,632,393 26,632,393

Debentures - 28,446,330 62,747,846 91,194,176

Other financial liabilities - - 8,214,679 8,214,679

- 69,805,669 160,196,095 230,001,764

Items that are measured at fair value or for which the fair value is disclosed are categorized by the fair value hierarchy levels, and the defined levels are as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). All inputs other than quoted prices included in level 1 that are observable (either directly

that is, prices, or indirectly that is, derived from prices) for the asset or liability (Level 2). Unobservable inputs for the asset or liability (Level 3).

Fair value hierarchy disclosure is applicable to assets and liabilities that are measured or disclosed at

fair value.

The Group recognizes transfers between levels on the actual date of the event or change in

circumstances causing the transfer.

23.3 Transfers between Fair Value Hierarchy Levels of Recurring Fair Value


78

Measurements

Changes in Level 3 of the fair value hierarchy for the six-month periods ended June 30, 2017, and

2016, are as follows:

June 30, 2017


Financial

assets held for

trading

Financial assets

designated at fair

value through profit

or loss

Available-for-sale

financial assets

Total financial

assets

Beginning balance 171,058 250,975 2,597,508 3,019,541

Purchases 13,137 78,610 290,882 382,629

Sales (26,150) (22,608) (72,723) (121,481)

Settlements 2,849 - - 2,849

Transfer out of level 3 - - (7,460) (7,460)

Profit or loss 6,138 3,651 (14,717) (4,928)

Other comprehensive

income - - 32,408 32,408

Ending balance 167,032 310,628 2,825,898 3,303,558


Financial

liabilities held

for trading


designated at fair

value through

profit or loss

Derivative

liabilities for hedge

accounting

Total financial

liabilities

Beginning balance 194,127 993,815 33,253 1,221,195

Purchases 4,609 380,887 - 385,496

Sales (9,631) (344,215) - (353,846)

Settlements 148 - - 148

Transfer out of level 3 - - - -

Profit or loss (4,600) 18,138 (815) 12,723

Other comprehensive

income - - - -

Ending balance 184,653 1,048,625 32,438 1,265,716


79

June 30, 2016


Financial

assets held for

trading

Financial assets

designated at fair

value through profit

or loss

Available-for-sale

financial assets

Total financial

assets

Beginning balance 98,851 212,572 2,129,995 2,441,418

Purchases 17,244 62,804 334,579 414,627

Sales (46,666) (58,156) (92,549) (197,371)

Settlements (1,504) - - (1,504)

Transfer out of level 3 - - 3,047 3,047

Profit or loss 88,782 5,000 (5,844) 87,938

Other comprehensive

income - - 64,843 64,843

Ending balance 156,707 222,220 2,434,071 2,812,998


Financial

liabilities held

for trading


designated at fair

value through

profit or loss

Derivative

liabilities for hedge

accounting

Total financial

liabilities

Beginning balance 55,102 810,422 45,749 911,273

Purchases 26,740 117,683 - 144,423

Sales (14,207) (187,173) - (201,380)

Settlements 85 - 5,825 5,910

Transfer out of level 3 - - - -

Profit or loss 47,690 12,996 (18,761) 41,925

Other comprehensive

income - - - -

Ending balance 115,410 753,928 32,813 902,151

1 Transferred from Level 3 to level 2 when inputs have been observable and transferred from Level 2

to level 3 when inputs have been unobservable. The Group recognizes transfer between levels on the

date of the event or change in circumstances that caused the transfer.


80

23.4 Profit or Loss in Level 3 of the Fair Value Hierarchy

Profit or loss in Level 3 of the fair value hierarchy for the six-month periods ended June 30, 2017, and

2016, are as follows:


Total profit or loss

Profit or loss related to

instruments held

Total profit or

loss

Profit or loss related to

instruments held

Financial assets

Financial assets held for trading 6,138

14,143

88,782

15,387 Financial assets designated at fair value through profit or loss 3,651

1,652

5,000

4,874

Available-for-sale financial assets (14,717)

(18,103)

(5,844)

(9,919)

(4,928)

(2,308)

87,938

10,342


Financial liabilities held for trading 4,600

(2,183)

(47,690)

(56,674) Financial liabilities designated at fair value through profit or loss (18,138)

(15,548)

(12,996)

(14,271) Derivative financial liabilities for hedge accounting 815

815

18,761

3,609

(12,723)

(16,916)

(41,925)

(67,336)

Profit or loss incurred in Level 3 of the fair value hierarchy is recognized as ‘net gains (losses) on financial assets/liabilities held for trading’, ‘net gains (losses) on financial assets/liabilities designated at fair value through profit or loss’, ‘net gains (losses) on hedge accounting’ and ‘other gains (losses) from financial instruments’ in the consolidated statements of comprehensive income.

23.5 Sensitivity analysis for Recurring Fair Value Measurements Categorized as Level 3

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable

changes in the fair value of financial instruments which are affected by the unobservable parameters,

using a statistical technique. When the fair value is affected by more than two input parameters, the

most favorable or most unfavorable amounts are presented. Financial instruments within Level 3 that

are subject to the sensitivity analysis are derivative instruments related to interest rates and stocks

whose changes in fair value are recognized in the profit or loss for the period, and equity and

beneficiary securities whose changes in fair value are recognized in the profit or loss for the period or

other comprehensive income.


81

The results of the sensitivity analysis for the effect on profit or loss from changes in inputs for each

financial instrument for the six-month periods ended June 30, 2017 and 2016, is as follows:


Favorable Unfavorable

Profit for the

period

Other comprehensive

income

Profit (loss) for the period

Other

comprehensive income

Financial assets

Financial assets designated at fair

value through profit or loss1 1,091

-

(1,091)

-

Derivatives financial assets 1 1,456

-

(1,453)

-

Available-for-sale financial assets2 -

24,811

-

(24,810)

2,547

24,811

(2,544)

(24,810)

Financial liabilities Financial liabilities designated at fair


-

(1,142)

-

Derivatives financial liabilities 1 767

-

(770)

-

1,909

-

(1,912)

-


Favorable Unfavorable

Profit for the

period

Other comprehensive

income

Profit (loss) for the period

Other

comprehensive income

Financial assets

Financial assets designated at fair value through profit or loss1 677

-

(677)

-

Derivatives financial assets 1 1,328

-

(1,324)

-

Available-for-sale financial assets2 -

19,729

-

(19,728)

2,005

19,729

(2,001)

(19,728)

Financial liabilities Financial liabilities designated at fair


-

(1,112)

-

Derivatives financial liabilities 1 230

-

(241)

-

1,342

-

(1,353)

-

1 For other derivative instruments related to shares, changes in their fair value are calculated by increasing or decreasing the volatilities, which are significant unobservable inputs, by 100bp. For derivative instruments related to interest rates, changes in fair value are calculated by increasing or decreasing the correlation coefficient between interests or volatility of the underlying assets, which are significant unobservable inputs, by 10%. 2 Among equity securities, for redeemable convertible preference shares, changes in their fair value are calculated by increasing or decreasing the value of ordinary shares and its volatilities by 10%. And for other equity securities, changes in their fair value are calculated by increasing or decreasing the correlation between growth ratio (0~1%) and discount rate (1%) or liquidation value (1%) and


82

discount rate, which are significant unobservable inputs. For beneficiary certificates, their sensitivity from changes in inputs cannot be analyzed as a practical expedient. However, in case that it consists only of physical real estate, the sensitivity is calculated by changes from the correlation between discount rate on cash flows from rent (1%) and change rate in real estate sale price (1%).

23.6 Valuation Techniques and Inputs As at June 30, 2017 and December 31, 2016, the Group uses the following valuation techniques and inputs used to develop the fair value measurements for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis and categorized within Level 2 and Level 3 of the fair value hierarchy.

June 30, 2017


Fair value Level Valuation technique

Level 3 inputs

Unobservable

inputs

Range of unobservable

inputs (%)

Relationship of unobservable

inputs to fair value Financial assets

Cash and due from banks

13,717,895 2 DCF Model N/A N/A N/A N/A

710,838 3 DCF Model Other spreads Other spreads 1

The higher the other spreads, the lower

the fair value

Financial assets held for trading

5,526,085

2

DCF Model, Implied forward

rates, Black-Scholes

Model

N/A N/A N/A N/A

167,032

3

DCF Model, Black-Scholes

Model, Binomial trees,

Hull-White Model

Index volatility,

Volatility of individual stock

Volatility of underlying asset,

Interest rates correlation

coefficient and others

Index volatility 16.27 ~ 19.51

The higher the index volatility, the higher

the fair value

fluctuation

Volatility of individual

share 8.60 ~ 83.93

The higher the volatility of individual stock, the higher the fair value fluctuation

Volatility of underlying

asset

0.51

The higher the volatility of

underlying asset, the higher the fair value

fluctuation

Financial assets designated at fair value through profit and loss

200,711 2


rates N/A N/A N/A N/A

310,628

3

DCF Model, Binomial trees,

Monte Carlo simulation

Index volatility, Volatility of

individual stock, Discount rate and

others



the fair value

fluctuation


stock 1.40 ~ 33.21


Discount rate 1.01 ~ 20.17

The lower the discount rate, the

higher the fair value

Available-for-sale financial assets


2,825,898

3 DCF Model,

FCFE Model, Net Asset Value

Growth rate

Growth rate 0.00 ~6.24 The higher the growth rate, the





83


Held-to-maturity financial assets

14,934,128

2 DCF Model N/A N/A N/A N/A

Loans receivable

198,669,062

3

DCF Model

Counterparty Credit risk,

Other spreads and others

Counterparty

Credit risk 1

The higher the counterparty credit risk, the lower the

fair value

Other spreads 1 The higher the other spreads, the lower

the fair value Derivative assets for hedge accounting

152,345

2 DCF Model,

Implied forward rates

N/A N/A N/A N/A


6,080,640

3 DCF Model Other spreads Other spreads 1


the fair value

252,481,608


Financial liabilities held for trading

1,363,506

2



Model

N/A N/A N/A N/A

184,653

3



Hull-White Model

Index volatility,

Volatility of individual stock

Volatility of underlying asset,





the fair value fluctuation


stock 1.40 ~ 83.93



asset

0.51



fluctuation

Financial liabilities designated at fair value through profit and loss

313,158

2



1,048,625

3 Monte Carlo simulation

Index volatility and

others Index volatility 16.27 ~ 19.51



Deposit liabilities


63,906,918



the fair value

Debts

28,026,767

3 DCF Model Other spreads Other spreads 1 The higher the other spreads, the lower

the fair value

Debentures


87,582,977



the fair value

Derivative liabilities for

215,659

2




84

hedge accounting

32,438

3 Hull-White Model

Underlying asset price,

Interest rate, Volatility of

underlying asset and others,



Volatility of

underlying

asset

0.51

The higher the

volatility of

underlying asset, the


fluctuation


10,434,007



the fair value

241,149,552

December 31, 2016


Fair value Level Valuation technique

Level 3 inputs

Unobservable

inputs

Range of unobservable

inputs (%)

Relationship of unobservable

inputs to fair value Financial assets

Cash and due from banks


868,702 3 DCF Model Other spreads Other spreads 1


the fair value


6,489,506 2



Model

N/A N/A N/A N/A

171,058

3



Hull-White Model


individual stock Volatility of

underlying asset



the fair value

fluctuation


stock 6.49 ~ 83.93



asset 0.54



fluctuation

Financial assets designated at fair value through profit and loss

227,933 2



250,975

3

DCF Model, Binomial trees,

Monte Carlo simulation


individual stock, Discount rate and

others



the fair value

fluctuation


stock 6.49 ~ 58.35






10,199,071 2 DCF Model N/A N/A N/A

2,597,508 3

DCF Model, FCFE Model,

Growth rate,

Discount rate and Growth rate 0.00 ~11.85

The higher the growth rate, the


85

Net Asset Value, Binomial trees, Asset-based

approach, Discount

Dividend Model

others higher the fair value

Discount rate 4.05 ~ 23.65 The lower the

discount rate, the higher the fair value

Held-to-maturity financial assets

11,255,245

2 DCF Model N/A N/A N/A N/A

Loans receivable

192,786,636

3

DCF Model

Counterparty Credit risk,

Other spreads and others

Counterparty

Credit risk 1

The higher the counterparty credit risk, the lower the

fair value

Other spreads 1 The higher the other spreads, the lower

the fair value Derivative assets for hedge accounting

174,147

2 DCF Model,

Implied forward rates

N/A N/A N/A N/A


8,730,247



the fair value

243,293,528



2,304,207

2



Model

N/A N/A N/A N/A

194,127

3



Hull-White Model


individual stock, Volatility of

underlying asset





stock 6.49 ~ 83.93



asset 0.54



fluctuation

Financial liabilities designated at fair value through profit and loss

239,973

2



993,815

3 Monte Carlo simulation

Index volatility and

others Index volatility 16.27 ~ 19.51



Deposit liabilities


62,601,177



the fair value

Debts

26,632,393

3 DCF Model Other spreads Other spreads 1 The higher the other spreads, the lower

the fair value

Debentures


62,747,846




86

the fair value

Derivative liabilities for hedge accounting

320,921

2



33,253

3 Hull-White Model

Underlying asset price,

Interest rate, Volatility of

underlying asset


asset 0.54



fluctuation


8,214,679



the fair value

234,088,060

1 Ranges of inputs for assets and liabilities carried at fair value are not disclosed.

23.7 Investments Valuation Process The Bank organized a Valuation Committee comprised of Risk Management, Trading, and Accounting Departments in order to review the accuracy and appropriateness of valuation techniques. The Committee also discusses and approves other relevant matters such as selecting external professionals or changing the expertise. The Bank maintains a separate team designated to measure the fair value and review the financial instruments measured by the internal valuation model on a regular basis. Results of the regular reviews are reported to the head of Risk Management. As for subsidiaries, valuation techniques and the results are reported to the Director of Finance of each subsidiary and communicated to the Accounting Department at the Bank on a regular basis.

23.8 Book Amounts of Financial Instruments by Category Book amounts of financial assets and liabilities as at June 30, 2017 and December 31, 2016, are as follows: June 30, 2017




value through profit or loss

Loans and receivables

Available-for-sale financial

assets

Financial assets

Cash and due from banks - - 15,072,354 -

Marketable securities 6,564,984 511,339 - 14,903,505

Loans receivable - - 199,140,358 -

Derivatives 1,405,616 - - -

Other financial assets - - 6,079,314 -

7,970,600 511,339 220,292,026 14,903,505

(In millions of Korean won) Held-to-maturity financial assets

Derivatives for

hedge accounting Total

Financial assets

Cash and due from banks - - 15,072,354

Marketable securities 19,402,846 - 41,382,674

Loans receivable - - 199,140,358

Derivatives - 152,345 1,557,961


87

Other financial assets - - 6,079,314

19,402,846 152,345 263,232,661




designated at fair value

through profit or loss

Financial liability at amortized

cost

Derivatives for hedge

accounting Total


Financial liabilities held for trading 560,092 1,361,783 - - 1,921,875

Deposit liabilities - - 106,979,062 - 106,979,062

Debts - - 28,027,393 - 28,027,393

Debentures - - 93,201,559 - 93,201,559

Derivatives 1,514,042 - - 248,097 1,762,139

Other financial liabilities - - 10,442,071 - 10,442,071

2,074,134 1,361,783 238,650,085 248,097 242,334,099

December 31, 2016




value through profit or loss

Loans and receivables

Available-for-sale financial

assets

Financial assets

Cash and due from banks - - 11,699,220 -

Marketable securities 5,747,778 478,908 - 16,770,997

Loans receivable - - 193,037,313 -

Derivatives 2,565,778 - - -

Other financial assets - - 8,727,464 -

8,313,556 478,908 213,463,997 16,770,997

(In millions of Korean won) Held-to-maturity financial assets

Derivatives for

hedge accounting Total

Financial assets

Cash and due from banks - - 11,699,220

Marketable securities 14,133,675 - 37,131,358

Loans receivable - - 193,037,313

Derivatives - 174,147 2,739,925

Other financial assets - - 8,727,464

14,133,675 174,147 253,335,280




designated at fair value

through profit or loss

Financial liability at amortized

cost

Derivatives for hedge

accounting Total


Financial liabilities held for 110,107 1,233,788 - - 1,343,895


88

trading

Deposit liabilities - - 103,984,113 - 103,984,113

Debts - - 26,670,496 - 26,670,496

Debentures - - 90,863,125 - 90,863,125

Derivatives 2,510,853 - - 354,174 2,865,027

Other financial liabilities - - 8,216,163 - 8,216,163

2,620,960 1,233,788 229,733,897 354,174 233,942,819

24. Equity Share capital

The Group is authorized to issue two billion shares with a par value of \ 5,000 per share, and the

details of outstanding shares as at June 30, 2017 and December 31, 2016, are as follows: June 30, 2017 (In millions of Korean won and number of shares)

Ordinary shares Convertible

preferred shares1 Preferred shares Total

Number of shares 559,978,815 53,125,282 44,847,038 657,951,135

Book amount 2,799,895 265,626 224,235 3,289,756

December 31, 2016 (In millions of Korean won and number of shares)

Ordinary shares Convertible

preferred shares1 Preferred shares Total

Number of shares 559,978,815 53,125,282 44,847,038 657,951,135

Book amount 2,799,895 265,626 224,235 3,289,756

1 One convertible preferred share can be converted into one ordinary share and is participating, non-cumulative preferred share.

Hybrid capital instruments Details of hybrid capital instruments as at June 30, 2017 and December 31, 2016, are as follows:


Issuance date Maturity date

Annual

Interest

rate (%)

June 30, 2017 December 31,

2016

Hybrid capital 2013.10.23 2043.10.23 5.25 200,000 200,000

instruments in

Korean won 2015.03.10

2045.03.10

3.84

70,000 70,000

2015.03.10 2045.03.10 4.33 330,000 330,000

2015.09.14 2045.09.14 3.77 200,000 200,000

2016.09.20 - 3.16 290,000 290,000

2016.09.20 - 2.80 10,000 10,000


89

2016.11.04 - 3.27 250,000 250,000

2016.11.04 - 2.88 50,000 50,000

2017.03.10 - 3.87 150,000 -

2017.03.10 - 3.36 150,000 -

Issuance costs (2,240) (1,760)

1,697,760 1,398,240

The Bank is entitled to exercise call options five or ten years after the date of issuance and if not exercised, the interest rate is to be adjusted. The Bank has the option to renew the maturity without changing any conditions. Reserves Details of reserves as at June 30, 2017 and December 31, 2016, are as follows:


Share premium 532,767 532,766

Gain on sale of treasury shares 12,262 12,262

Other reserves 13,018 8,861

558,047 553,889

Accumulated other comprehensive income Changes of accumulated other comprehensive income for the six-month periods ended June 30, 2017 and 2016, are as follows: June 30, 2017


Changes in the fair value of

available-for-sale financial assets

Share of other

comprehensi-ve income of associates

Exchange differences

on translation of foreign operations

Cash flow hedge

Changes in valuation of hedge of a

net investment in a foreign operation

Remeasure- ments of net

defined benefit

liabilities Total

Beginning balance 756,058 7,183 (5,343) - (8,400) (82,902) 666,596 Available-for-sale financial assets - Reclassification of AFS to profit or loss (45,618) - - - - - (45,618)

- The changes in the fair value 258,965 - - - - - 258,965

- Tax effect (51,630) - - - - - (51,630)

161,717 - - - - - 161,717

Investments in associates

- Share of other comprehensive income of associates - (922) - - - - (922)

- Tax effect - 223 - - - - 223

- (699) - - - - (699)

Exchange difference - - (34,110) - - - (34,110)

Cash flow hedge


90

- Changes in cash flow hedge - - - (2) - - (2)

- Tax effect - - - - - - -

- - - (2) - - (2)

Hedge of a net investment in a foreign operation

- Gain or loss of valuation - - - - 15,144 - 15,144

- Tax effect - - - - (3,665) - (3,665)

- - - - 11,479 - 11,479

Net defined benefit liabilities

- Remeasurements - - - - - (3,627) (3,627)

- Tax effect - - - - - 878 878

- - - - - (2,749) (2,749)

Ending balance 917,775 6,484 (39,453) (2) 3,079 (85,651) 802,232

June 30, 2016


Changes in the fair value of

available-for-sale financial assets

Share of other

comprehensi-ve income of associates

Exchange differences

on translation of foreign operations

Cash flow hedge

Changes in valuation of hedge of a

net investment in a foreign operation

Remeasure- ments of net

defined benefit

liabilities Total

Beginning balance 809,526 4,326 14,905 16 (8,295) (72,802) 747,676 Available-for-sale financial assets

- Reclassification of AFS to profit or loss (78,648) - - - - - (78,648)

- The changes in the fair value 435,282 - - - - - 435,282

- Tax effect (86,305) - - - - - (86,305)

270,329 - - - - - 270,329

Investments in associates

- Share of other comprehensive income of associates - 5,731 - - - - 5,731

- Tax effect - (1,387) - - - - (1,387)

- 4,344 - - - - 4,344

Exchange difference - - (18,237) - - - (18,237)

Cash flow hedge

- Changes in cash flow hedge - - - (21) - - (21)

- Tax effect - - - 5 - - 5

- - - (16) - - (16)

Hedge of a net investment in a foreign operation

- Gain or loss of valuation - - - - 8,413 - 8,413

- Tax effect - - - - (2,036) - (2,036)

- - - - 6,377 - 6,377

Net defined benefit liabilities

- Remeasurements - - - - - (2,759) (2,759)


91

- Tax effect - - - - - 668 668

- - - - - (2,091) (2,091)

Ending balance 1,079,855 8,670 (3,332) - (1,918) (74,893) 1,008,382

The Group recognizes the changes in fair value of available-for-sale financial assets as accumulated other comprehensive income. The Group recognizes the changes in the ownership of the investor in other comprehensive income of the investee as share of other comprehensive income of associates. The Group recognizes the exchange differences caused by translating the financial statements of overseas subsidiaries into the presentation currency as the exchange differences on foreign exchange translation of foreign operations. For cash flow hedges, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognized directly in equity as the accumulated other comprehensive income. The Group has non-derivatives designated as hedging instruments to hedge an investment in foreign operation and the effective portion of hedging investments is recognized in other comprehensive income. The Group recognizes the remeasurements of net defined benefit liabilities as accumulated other comprehensive income.

25. Retained Earnings

Retained earnings as at June 30, 2017 and December 31, 2016, consist of:


Legal reserves1 3,364,142 3,294,597

Reserve for credit losses 2,219,478 1,922,153

Voluntary reserve other than recapitalization 5,776,299 5,511,399

Retained earnings carried over from prior year 1,132,207 1,313,338

12,492,126 12,041,487

1 Pursuant to Article 42 of the Medium and Small Sized Entity Banking Act, the Bank appropriates no less than 25% of profit for the period until the reserve reaches the total amount of the share capital. Also, in accordance with Commercial Code of the Republic of Korea, the Group’s subsidiaries appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued share capital. The reserve is not available for cash dividends payment, but may be transferred to share capital or used to reduce accumulated deficit. When the accumulated legal reserves (the sum of capital reserves and earned profit reserves) are greater than 1.5 times the paid-in capital amount, the excess legal reserves may be distributed (in accordance with a resolution of the shareholders’ meeting). Other reserves reserved by the Bank’s Tokyo, and Ho Chi Minh City, Hanoi and New Delhi branches in accordance with the local banking laws, respectively, are included.

Reserve for Credit Losses

The reserve for credit losses is calculated in accordance with the Supervisory Regulations on Banking Business Article 29 (1) and (2), and is disclosed in the notes to the consolidated financial statements.


92

Details of reserve for credit losses as at June 30, 2017 and December 31, 2016, are as follows:


Beginning

2,219,478 1,922,153

Estimated

204,575 297,325

Ending

2,424,053 2,219,478

Details of adjusted earnings per share and others for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Provision of reserve for credit losses 65,660 204,575 119,211 244,891 Adjusted profit with reserve for credit losses1

294,475 594,914 170,386 422,429

Adjusted profit attributable to owners of the Bank1

291,983 591,332 167,382 418,390

Adjusted earnings per share (in Korean won)

419 853 227 584

1 Consolidated adjusted profit with reserve for credit losses and adjusted profit attributable to owners of the Bank reflected is not an amount in accordance with Korean IFRS, but a pre-tax amount assuming the reversal of reserve for credit losses is reflected in consolidated profit for the period and profit attributable to owners of the Parent Company.

26. Net Interest Income and Expenses Details of interest income and expenses for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Interest income

Cash and due from banks 16,645 31,978 11,957 25,158

Financial assets held for trading 30,612 58,878 31,790 64,058 Financial assets designated at fair value through profit or loss

915 1,832 952 1,896

Available-for-sale financial assets 45,273 94,800 62,148 129,442

Held-to-maturity financial assets 92,937 177,144 82,937 169,256

Loans receivable 1,771,216 3,497,541 1,729,875 3,447,085

Others 29,820 59,115 28,318 57,971

1,987,418 3,921,288 1,947,977 3,894,866

Interest expenses

Financial liabilities held for trading 2,177 4,129 2,194 4,558

Deposit liabilities 188,854 375,094 195,633 401,849

Debentures 411,074 810,499 438,677 882,384


93

Debts 84,488 167,907 98,094 196,401

Others 10,015 19,367 13,512 27,167

696,608 1,376,996 748,110 1,512,359

Net interest income 1,290,810 2,544,292 1,199,867 2,382,507

Interest income for impaired financial assets for the six-month periods ended June 30, 2017 and 2016,

amounts to \ 17,133 million and \ 18,937 million, respectively.

27. Net Fee and Commission Income and Expenses Details of fee and commission income and expenses for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Fees and commission income

Commission income in Korean won 140,043 251,328 110,462 213,328

Commission income in foreign currencies 37,568 74,403 37,187 72,429 Commissions income related to credit card

45,805 89,864 36,799 72,492

Guarantee fees 11,905 23,296 11,212 22,181

235,321 438,891 195,660 380,430

Fees and commission expenses

Commissions paid in Korean won 17,546 49,655 21,745 37,400

Commissions paid in foreign currencies 3,601 6,606 3,372 6,402

Commissions paid related to credit card 86,122 162,354 74,622 145,488

107,269 218,615 99,739 189,290

Net fees and commission income 128,052 220,276 95,921 191,140

28. Net Gain or Loss from Financial Instruments Held for Trading and Designated at Fair Value through Profit or Loss Net gain or loss from financial instruments held for trading and from financial instruments designated at fair value through profit or loss for the six-month periods ended June 30, 2017 and 2016, are as follows:

Financial instruments held for trading June 30, 2017

(In millions of Korean won) Dividends

Valuation gain

Valuation

loss

Gain on sale

Loss on

sale Net gain

(loss)

Equity securities 2,550 2,520 390 7,606 1,369 10,917

Debt securities - 7,696 7,266 22,917 22,491 856

Derivatives - 1,546,677 1,566,021 2,174,746 2,234,107 (78,705)


94

June 30, 2016

Financial instruments designated at fair value through profit or loss June 30, 2017

June 30, 2016

29. Other Gain or Loss from Financial Instruments Other gain or loss from financial instruments for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months Six

months

Three months

Six months


Dividends income 18,903 82,737 17,636 83,007

Gain on sale 37,223 111,277 68,887 134,234

Loss on sale (934) (6,218) - (11,790)

Loans receivable

Gain on sale 2,307 34,745 16,790 32,637

Loss on sale (45,890) (47,131) (28,742) (29,396)

Others 2,898 6,266 2,123 3,671

Securities sold - 506 290 878 303 791

Others - 3,309 634 6,204 2,073 6,806

2,550 1,560,708 1,574,601 2,212,351 2,260,343 (59,335)


Valuation gain

Valuation

loss

Gain on sale

Loss on

sale Net gain

(loss)

Equity securities 2,927 933 535 2,068 1,227 4,166

Debt securities - 39,964 2,159 54,098 27,747 64,156

Derivatives - 1,047,592 1,025,022 1,906,923 1,901,808 27,685

Securities sold - 307 2,615 771 464 (2,001)

Others - 1,043 80 4,796 1,087 4,672

2,927 1,089,839 1,030,411 1,968,656 1,932,333 98,678


Valuation gain

Valuation

loss

Gain on sale

Loss on

sale Net loss

Financial instruments designated at fair value through profit or loss

50 26,877 34,267 7,093 23,667 (23,914)


Valuation gain

Valuation

loss

Gain on sale

Loss on

sale Net loss

Financial instruments designated at fair value through profit or loss

33 20,103 31,344 4,164 6,122 (13,166)


95


14,507 181,676 76,694 212,363

30. General and Administrative Expenses General and administrative expenses for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Employee-related expenses

Salaries 329,685 573,190 316,486 552,692

Employee benefits 2,589 3,309 2,541 3,297 Post-employment benefits – Defined benefit plans

28,721 58,603 28,996 57,037

Post-employment benefits – Defined contribution plans

444 1,123 302 551

Special post-employment benefits - 1,176 14,460 32,179

361,439 637,401 362,785 645,756

Other general administrative expenses

Rental expenses 25,525 50,168 25,396 50,002

Taxes and dues 32,198 55,913 33,338 58,045

Advertising expenses 18,098 32,659 22,159 33,044

Depreciation on investment properties 187 381 192 409

Depreciation on property and equipment 21,296 41,058 22,800 44,599

Amortization 20,689 41,254 20,541 40,875

Payment commissions 30,917 54,848 25,714 50,879

Awards expense 494 1,036 433 972

Others 78,632 178,935 69,281 126,887

228,036 456,252 219,854 405,712

589,475 1,093,653 582,639 1,051,468

31. Other Operating Income Other operating income for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Reversal of provision for payment guarantee 3,755 5,964 - -

Reversal of provision for financial guarantees - - 1,253 619

Reversal of provision for unused commitments 6,994 11,680 1,778 9,480

Reversal of provision for litigation - - 1,207 823

Reversal of provision for restoration (2) 30 9 -

Reversal of provision for award credits 233 356 - -


96


Others 65,533 70,637 30,278 59,024

76,513 88,667 34,525 69,946

32. Other Operating Expenses Other operating expenses for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Contribution expenses 79,321 161,389 83,244 166,533

Provision for payment guarantee - - 2,092 1,023

Provision for financial guarantees 570 4,104 - -

Provision for restoration - - - 10

Provision for litigation 410 9,801 - -

Provision for award credits - - 13 48

Provision for others 1,739 16,656 41,271 41,278

Others 104,553 147,132 68,250 139,595

186,593 339,082 194,870 348,487

33. Non-operating Income and Expenses Non-operating income and expenses for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Non-operating income

Share of profit of associates 2,229 3,300 3,279 5,862

Gain on disposal of investments in associates 38 617 173 275

Gain on disposal of property and equipment 99 491 1,219 1,221

Gain on disposal of intangible assets - 82 - -

Rent income 475 884 533 966

Other gains 10,776 16,873 20,240 32,320

13,617 22,247 25,444 40,644

Non-operating expenses

Share of loss of associates 796 3,560 1,540 2,133

Loss on disposal of investments in associates 13 268 3,190 3,190

Impairment loss on investments in associates 4,288 4,288 - -

Loss on disposal of property and equipment 113 143 3 25

Loss on retirement of property and equipment 4 53 5 353

Loss on disposal of intangible assets 3 3 8 8

Return on dormant deposits 2,999 6,386 1,480 2,959


97


Donation 5,305 7,534 4,043 8,595

Impairment loss on intangible assets - - 12 12

Other loss 5,133 10,899 21,890 30,175

18,654 33,134 32,171 47,450

(5,037) (10,887) (6,727) (6,806)

34. Transferable or Transferred Financial Assets Transferable or transferred financial assets that are not completely derecognized as at June 30, 2017 and December 31, 2016, are as follows:


Book amount

Repurchase agreement sold1

Loaned securities Asset-backed

securities2

Financial

assets held

for trading

Available-for-

sale financial

assets

Held-to-

maturity

financial

assets

Financial

assets held

for trading

Available-for-

sale financial

assets

Held-to-

maturity

financial

assets

Financial

assets

designated at

fair value

through profit

and loss

June 30, 2017 1,540,718 53,100 184,870 10,014 10,229 95,018

10,364

December 31,

2016 1,479,962 - 457,229 - 100,233 131,416

10,413

1 Assets that were not derecognized are restricted, and \ 1,763,707 million and \ 1,859,697 million

were reported as borrowings related to bonds sold under repurchase agreements as at June 30, 2017 and December 31, 2016, respectively. 2 The Group transferred the Group’s holding hybrid capital instruments via contract with a securitization company during the six-month period ended June 30, 2017 and the year ended December 31, 2016. This transaction is accounted for as direct holding hybrid capital instruments since the Group assumes obligations when the securitization company issues asset-backed securities based on the hybrid capital instruments. Assets that were not derecognized are restricted

on the use such as disposals and others, and \ 10,364 million and \ 10,413 million were reported

as other liabilities related to hybrid capital instruments as at June 30, 2017 and December 31, 2016, respectively.


98

35. Offsetting of Financial Assets and Liabilities

The Group’s financial instruments including derivatives, repurchase agreements, securities lending

transactions and others are subject to a viable master netting agreement or similar agreements

including derivative clearing agreements, global master repurchase agreements, global master

securities lending agreements, and financial collateral.

Details of the Group’s recognized financial assets subject to enforceable master netting arrangements

or similar agreements as at June 30, 2017 and December 31, 2016, are as follows:

(In millions of

Korean won)

June 30, 2017

Amount not offset

Total

assets

Offset

liabilities

Net book

amount

Financial

instruments

Cash

collateral Net amount

Derivative assets 1,603,633 - 1,603,633 1,336,100 1,881 265,652

Bonds purchased

under repurchase

agreements 1,980,000 - 1,980,000 1,980,000 - -

Loaned securities 115,261 - 115,261 115,261 - -

Unsettled spot

exchange receivable 2,783,053 - 2,783,053 2,763,881 - 19,172

Other 13,848,227 12,891,285 956,942 - - 956,942

20,330,174 12,891,285 7,438,889 6,195,242 1,881 1,241,766

(In millions of

Korean won)

December 31, 2016

Amount not offset

Total

assets

Offset

liabilities

Net book

amount

Financial

instruments

Cash


Derivative assets 2,872,404 - 2,872,404 2,282,243 5,130 585,031

Bonds purchased

under repurchase

agreements 2,035,000 - 2,035,000 2,035,000 - -

Loaned securities 231,649 - 231,649 231,649 - -

Unsettled spot

exchange receivable 2,122,135 - 2,122,135 2,121,802 - 333

Other 17,320,367 12,766,027 4,554,340 - - 4,554,340

24,581,555 12,766,027 11,815,528 6,670,694 5,130 5,139,704

Financial liabilities that are subject to a legally enforceable master netting or similar agreements as at June 30, 2017 and December 31, 2016, are as follows:

(In millions of

Korean won)

June 30, 2017

Amount not offset

Total

liabilities

Offset

assets

Net book

amount

Financial

instruments

Cash


Derivative liability 2,321,117 - 2,321,117 1,822,482 68,946 429,689

Repurchase

agreements sold 475,890 - 475,890 475,890 - -

Securities sold 560,092 - 560,092 560,092 - -


99

Unsettled spot

exchange payables 2,783,771 - 2,783,771 2,763,881 - 19,890

Other 14,837,406 12,891,285 1,946,121 1,823,740 - 122,381

20,978,276 12,891,285 8,086,991 7,446,085 68,946 571,960

(In millions of

Korean won)

December 31, 2016

Amount not offset

Total

liabilities

Offset

assets

Net book

amount

Financial

instruments

Cash


Derivative liability 3,307,346 - 3,307,346 2,275,249 124,407 907,690

Repurchase

agreements sold 467,400 - 467,400 467,400 - -

Securities sold 108,183 - 108,183 108,183 - -

Unsettled spot

exchange payables 2,130,081 - 2,130,081 2,121,801 - 8,280

Other 13,628,111 12,766,027 862,084 859,146 - 2,938

19,641,121 12,766,027 6,875,094 5,831,779 124,407 918,908

36. Insurance Contracts

36.1 Insurance Liabilities Details of insurance liabilities that are included in other liabilities as at June 30, 2017 and December 31, 2016, are as follows:


Pension Premium reserve 2,969,251 2,566,755 Reserve for outstanding claims 20,612 20,945 Guarantee reserve 1,304 1,882 Reserve for policyholders’ profit

dividends

2,363 1,700 Reserve for policyholders’ dividends 358 360 Reserve for losses on dividend

insurance contract

1,010 726

2,994,898 2,592,368

Changes in insurance liabilities for the six-month periods ended June 30, 2017 and 2016, are as follows:

June 30, 2017

(In millions of

Korean won)

Premium

reserve

Reserve for

outstanding

claims

Guarantee

reserve

Reserve for

policy-

holders’

profit

dividends

Reserve for

policy-

holders’

dividends

Reserve for

losses on

dividend

insurance

contract Total

Beginning 2,566,755 20,945 1,882 1,700 360 726 2,592,368

Increase

(Decrease) 402,496 (333) (578) 663 (2) 284 402,530

Ending 2,969,251 20,612 1,304 2,363 358 1,010 2,994,898


100

June 30, 2016

(In millions of

Korean won)

Premium

reserve

Reserve for

outstanding

claims

Guarantee

reserve

Reserve for

policy-

holders’

profit

dividends

Reserve for

policy-

holders’

dividends

Reserve for

losses on

dividend

insurance

contract Total

Beginning 2,048,388 20,604 2,266 435 177 189 2,072,059

Increase 242,497 1,218 70 568 (2) 243 244,594

Ending 2,290,885 21,822 2,336 1,003 175 432 2,316,653

36.2 Insurance related Assets Details of insurance related assets that are included in other assets as at June 30, 2017 and December 31, 2016, are as follows:


June 30, 2017 December 31, 2016

Unamortized acquisition cost

51,529 49,603 Changes in unamortized acquisition cost for the six-month periods ended June 30, 2017 and 2016, are as follows:


June 30, 2017 June 30, 2016

Beginning

49,603 45,335

Increase

10,790 13,733

Amortization

(8,864) (7,556)

Ending

51,529 51,512

Details of insurance revenues for the six-month periods ended June 30, 2017 and 2016, are as follows:


June 30, 2017 June 30, 2016

Insurance fee

524,765 342,252

Pension fee

5 6

524,770 342,258

Details of insurance expenses for the six-month periods ended June 30, 2017 and 2016, are as follows:


June 30, 2017 June 30, 2016

Refunds

122,709 99,174

Reserves

402,365 244,421

525,074 343,595

Business expenses related to insurance expenses for the six-month periods ended June 30, 2017

and 2016, are \ 24,652 million and \ 20,622 million, respectively.


101

36.3 Insurance Risk 36.3.1 Overview of insurance risk Insurance risk is the risk of loss arising from the actual risk at the time of claims exceeding the estimated risk at the time of underwriting. Insurance risk is classified by insurance price risk and policy reserve risk. 36.3.2 Characteristic and exposure of insurance price risk Insurance price risk is the risk of loss arising from differences between premiums from policyholders and actual claims paid. As the Group sells annuity products, there is no insurance price risk for the Group. 36.3.3 Characteristic and exposure of policy reserve risk Policy reserve risk is the risk of loss arising from differences between policy reserves the Group holds and actual claims to be paid. As the Group sells annuity products, there is no policy reserve risk for the Group. 36.3.4 Overview of interest rate risk The interest rate risk is the risk that arises due to the difference in value changes between assets and liabilities when market interest rate changes, and is referred to as ALM (Asset Liability Management) risk. As the risk for the price of endowment such as refunds of annuity is closely related to the difference between expected interest rate and the yield, it is measured in the interest rate risk.

37. Earnings per Share Attributable to Owners of the Parent Company Details of profit attributable to owners of the Parent Company for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Profit attributable to the owners of the Parent

Company

357,643 795,907 286,593 663,281

Profit attributable to preferred shares 66,973 144,244 58,100 129,971

Profit attributable to the ordinary owners of the

Parent Company

290,670 651,663 228,493 533,310

Profit attributable to convertible preferred

share

27,576 61,823 21,677 50,754

Diluted profit attributable to the ordinary

owners of the Parent Company

318,246 713,486 250,170 584,064


102

The weighted average number of ordinary shares outstanding for the three-month six-month periods ended June 30, 2017 and 2016, is as follows:

(In thousand shares) June 30, 2017 June 30, 2016

Three

months

Six

months

Three

months

Six

months Weighted average number of ordinary share

(excluding treasury share)

559,979 559,979 559,979 558,230

Dilutive effect of convertible preferred share 53,125 53,125 53,125 53,125

Adjusted weighted average number of ordinary shares (excluding treasury share)

613,104 613,104 613,104 611,355

Basic earnings per share and diluted earnings per share attributable to owners of the Parent Company for the three-month and six-month periods ended June 30, 2017 and 2016, are as follows:

(In Korean won) June 30, 2016 June 30, 2015

Three

months

Six

months

Three

months

Six

months

Basic earnings per share 519 1,164 408 955

Diluted earnings per share 519 1,164 408 955

38. Dividends Details of dividends for the periods ended December 31, 2016 and 2015, are as follows:


Dividends to be

approved Ordinary share Preferred share Total

December 31, 2016 ₩ 480 per share 268,790 47,027 315,817

December 31, 2015 ₩ 450 per share 250,381 44,088 294,469 Dividends for hybrid capital instruments for the six-month periods ended June 30, 2017 and 2016, are

₩ 30,231 million and ₩ 36,372 million, respectively.

39. Restricted and Pledged Assets Details of restricted and pledged assets as at June 30, 2017 and December 31, 2016, are as follows: (In millions of Korean won)

Assets(book value) Lender June 30, 2017

December 31, 2016

Remarks

Restricted assets

Reserve deposits in Korean won

Bank of Korea

9,514,677 6,517,446

Act of Bank of Korea

Reserve deposits in Korean won

Korea Federation of Savings Banks

10,000 10,000

Act of Savings Banks

Due from banks in Korean won


10,000 10,000

Checking deposits

Reserve deposits in foreign currencies

People's Bank of China

268,906 235,259

Act of People's Bank of China

Due from banks in SG NEWEDGE UK 129,509 124,407

Derivative


103

foreign currencies LIMITED and others instruments

Due from banks in foreign currencies

Agricultural Bank of China and others

- 46,243

Deposit collateral

Due from other banks in foreign currencies

Bank of Korea

1,076,654 695,181

Act of Bank of Korea

Due from banks in foreign currencies

JP Morgan Chase

3,726 3,323

Asset collateral

Deposit The Korea Securities Finance Corporation and others

76,546

21,792

Deposits for beneficiary securities and others

Government and public bonds, others

The Korea Securities Finance Corporation and others

115,000

232,000

Loaned securities

11,205,018 7,895,651

Pledged assets1

Government and public bonds, and others

Bank of Korea

6,408,710 5,901,138

Collateral pledged for borrowings


Customers and others

1,818,333

2,013,687

Bonds sold under repurchase agreement


Bank of Korea

1,692,000 2,132,000

Overnight sweep accounts


Bank of Korea

1,820,800 1,860,800

Settlement risk of Bank of Korea


KTB Investment & Securities and others

53,800

89,300

Substitute securities


Korea Securities Depository and others

872,167

916,265

Derivatives transactions


Korea Securities Finance Corporation

657,023

547,497

Deposits for stock lending transactions



3,853 3,860

Act of Savings Banks

13,326,686 13,464,547

1 The assets are pledged as collaterals. As at June 30, 2017, the total amount of pledged assets

amounts to \ 13,375,044 million (December 31, 2016: \ 13,527,890 million).

From collaterals obtained, even if there is no default of the owner, those that can be sold by the Group at will and those that can be designated as pledged assets as at June 30, 2017 and December 31, 2016, are as follows: (In millions of Korean won)

Collaterals obtained Provided to June 30, 2017 December 31,

2016 Remarks


bonds, others Bank of Korea 1,978,908 2,108,587

Bonds purchased

under repurchase

agreements


104

40. Related Party Transactions Related parties of the Group as at June 30, 2017 and December 31, 2016, are as follows:

June 30, 2017 December 31, 2016

The Ultimate Parent Company

The Government of the Republic of Korea The Government of the Republic of Korea

Associates Korea Machinery Auction & Exchange Korea Machinery Auction & Exchange

- GUMAN Heavy Ind. Co., Ltd.

- GUMAN Co., LTD.

Joong-ang Special Industry Co., Ltd. Joong-ang Special Industry Co., Ltd.

Shinkwang Co., Ltd. Shinkwang Co., Ltd.

Changwoo Textile Co., Ltd. Changwoo Textile Co., Ltd.

Mirae Asset AGRO Project Fund Mirae Asset AGRO Project Fund

Private Investment Special Company for

Global SW Firm Fostering

Private Investment Special Company for

Global SW Firm Fostering

IBK-OCTUS Green Industry Growth

Private Equity Fund

IBK-OCTUS Green Industry Growth

Private Equity Fund

KoFC IBK Hi Investment Hyundai Heavy

Industries Shared Growth No. 1 PEF

KoFC IBK Hi Investment Hyundai Heavy

Industries Shared Growth No. 1 PEF

KoFC-QCP-IBKC Frontier Champ 2010-2

Private Equity Fund

KoFC-QCP-IBKC Frontier Champ 2010-2

Private Equity Fund

KoFC IBKS KEISTONE Corporate Recovery

Private Equity Fund

KoFC IBKS KEISTONE Corporate Recovery

Private Equity Fund

Korea Global Infra Recovery Private Equity

Fund

Korea Global Infra Recovery Private Equity

Fund

IBK-Daesung Contents Small Giant Fund IBK-Daesung Contents Small Giant Fund

IBKC-IDV IP Private Equity Fund No. 1 IBKC-IDV IP Private Equity Fund No. 1

KT Music Contents Fund 1 KT Music Contents Fund 1

IBK-KTB Contents IP Fund IBK-KTB Contents IP Fund

IBK-GNTECH Secondary Fund IBK-GNTECH Secondary Fund

IBK-DAEKYO Contents Fund IBK-DAEKYO Contents Fund

SM New Technology Fund No.1 SM New Technology Fund No.1

CCVC Culture-ICT Convergence Fund CCVC Culture-ICT Convergence Fund

KDBC-EUM Corporate's Financial

Stabilization Private Equity Fund NO.4

KDBC-EUM Corporate's Financial Stabilization

Private Equity Fund NO.4

KEPS Calista Private Equity Fund KEPS Calista Private Equity Fund

Credian Healthcare Private Equity Fund Ⅱ Credian Healthcare Private Equity Fund Ⅱ

E&F Moorim Birdie New Technology

Business Investment Fund

E&F Moorim Birdie New Technology Business

Investment Fund

IBK-Daesung Majestic Contents Small Giant

Korea Fund

IBK-Daesung Majestic Contents Small Giant

Korea Fund

IBK-ISU Contents Fund IBK-ISU Contents Fund

KTBN Media Contents Fund KTBN Media Contents Fund


105

June 30, 2017 December 31, 2016

The Value-up SME Specialized Solution

New Technology Business Investment

Fund 1

The Value-up SME Specialized Solution New

Technology Business Investment Fund 1

KAI-KSM Crowd Seeding Fund KAI-KSM Crowd Seeding Fund

Presto Private Equity Fund No. 4 -

Platformpartners Active Mezzanine PEF 7 -

Deoksong-Naegak Expressway Co.,Ltd. -

IBK Davos Global High-Dividends Master

Fund [Equity] -

EN Growth Investment No. 5 EN Growth Investment No. 5

KT-IBKC Future Investment Fund 1 KT-IBKC Future Investment Fund 1

PoscoPlutus Project Fund PoscoPlutus Project Fund

QCP-IBKC Contents Investment Fund -

AION ASTER Private Trust Fund For

Specialized Investment -

Smart Private Equity Fund No.2 -

Shinyoung Private Equity Fund No.2 -

The IBKS SSI New Technology Business

Investment Fund 1 The IBKS SSI New Technology Business

Investment Fund 1

IBK PSEP Private Equity Fund IBK PSEP Private Equity Fund

IBKS No.3 Special Purpose Acquisition

Company


Company


Company


Company


Company -

IBKSGMB Special Purpose Acquisition

Company

IBKSGMB Special Purpose Acquisition

Company Additional related parties are as follows:

40.1 Controlling Party of the Group Controlling party of the Group is the Government of the Republic of Korea which holds 50.91% of the shares (including convertible preferred share) of the Bank as at June 30, 2017.

40.2 Government-associated Organizations under the same control The Group has borrowings from government-associated organizations, such as Small & Medium Business Corporation and others, for policy purposes.


106

40.3 Key Management The Group defines members of the Board of Directors, auditors and executives of the Bank as key management.

Details of transactions by each related party for the six-month periods ended June 30, 2017 and 2016,

are as follows:

(In millions of Korean won) June 30, 2017 June 30, 2016 Associates Korea Machinery Auction &

Exchange Interest expense

1 -

GUMAN Heavy Ind. Co., Ltd. Interest income - 45

GUMAN Co., LTD. Interest income - 31


Interest income 145 101

Other income 2 3

Shin Kwang Co., Ltd. Interest income 68 69

Other income 1 1

Changwoo Textile Co., Ltd. Interest income 60 58

Interest expense 1 -

Other income 25 1

Mirae Asset AGRO Project Fund Interest expense 8 9


Interest expense

33 13

KoFC IBK Hi Investment Hyundai Heavy Industries Shared Growth

No. 1 PEF Interest expense

4 -

KoFC-QCP-IBKC Frontier Champ 2010-2 Private Equity Fund

Interest expense

14 27

SHC-EN Fund Interest expense - 4

IBKC-IDV IP Private Equity Fund

No. 1 Interest expense

1 -

KT Music Contents Fund 1 Interest expense 1 -

SM New Technology Fund No.1 Interest expense - 1

IBK-ISU Contents Fund Interest expense 3 -

KTBN Media Contents Fund Interest expense 6 -

KAI-KSM Crowd Seeding Fund Interest expense 3 -

Deoksong-Naegak Expressway

Co.,Ltd. Interest income 738 -

Interest expense 15 -

Other income 775 -


Interest expense 3

-

Other income 2 -

Smart Private Equity Fund No.2 Interest expense 1 -

IBKS No.2 Special Purpose Acquisition Company

Interest expense

- 10


107

Due to the nature of the industry, fund transactions including fund loan and borrowing transactions

with related parties take place frequently. Outstanding balances arising from sales / purchases of

goods and services as at June 30, 2017 and December 31, 2016, are as follows:

(In millions of Korean won) June 30, 2017 December 31, 2016 Associates


Deposit liabilities

320 54

Other liabilities 1 -

GUMAN Heavy Ind. Co., Ltd. Loans - 6,292

GUMAN Co., LTD. Loans - 4,172


Loans 6,218 6,036

Deposit liabilities

7 7

Shinkwang Co., Ltd. Loans 4,321 3,722

Deposit liabilities

51 112


Changwoo Textile Co., Ltd. Loans 4,458 4,463

Deposit liabilities

918 1,128


Deposit liabilities

1,251 4,426

Other liabilities 3 3


Deposit liabilities

9,855 10,090

Other liabilities 2 2

KoFC IBK Hi Investment Hyundai Heavy Industries Shared Growth No. 1 PEF

Deposit liabilities

841 729

KOFC-QCP-IBKC Frontier Champ 2010-2 Private Equity Fund

Deposit liabilities

332 65


Deposit liabilities

408 741

KT Music Contents Fund 1

Deposit liabilities

1,013 -



Deposit liabilities

26 78

IBK-ISU Contents Fund

Deposit liabilities

1,243 1,006

KTBN Media Contents Fund

Deposit liabilities

969 2,501


Deposit liabilities

200 50

KAI-KSM Crowd Seeding Fund

Deposit liabilities

573 2,100


Deposit liabilities

135 -


Loans 2 -

Deposit liabilities

13,328 -


108

(In millions of Korean won) June 30, 2017 December 31, 2016 Other liabilities 2 -


Deposit liabilities

7,641 5,392


Deposit liabilities

35 -


Deposit liabilities

1,288 -

Details of unused commitments provided to related parties by the Group as at June 30, 2017 and

December 31, 2016, are as follows:


Associates Joong-ang Special Industry Co., Ltd. 18 200

Shinkwang Co., Ltd. 344 183

Changwoo Textile Co., Ltd. 45 41

Deoksong-Naegak Expressway Co.,Ltd. 23 -

Provision for impairment for loan losses of related party receivables and impairment loss (reversals)

as at and for the six-month period ended June 30, 2017 and as at December 31, 2016 and for the six-

month period ended June 30, 2016, are as follows: (In millions of Korean won)

June 30, 2017 December 31, 20161

Provision for impairment

Reversal of

impairment loss

Provision for impairment

Impairment loss

Associates 819 (4,672) 5,491 548

1 Provision for impairment is amount as at December 31, 2016, and impairment loss is amount for the

six-month period ended June 30, 2016.

No payment guarantees are provided by the Group for the funding sources of the related parties, and

no collaterals and payment guarantees are provided by the related parties as at June 30, 2017 and

December 31, 2016.

Compensation paid to the key management1 for the three-month and six-month periods ended June

30, 2017 and 2016, are as follows:


Three

months

Six

months

Three

months

Six

months

Short-term employee benefits2 608 1,218 578 1,172

Post-employment benefits - 172 - -

608 1,390 578 1,172

1 The Group defines members of the Board of Directors, auditors and executives of the Bank as key

management. 2 Other than short-term employee benefits above, the Group paid performance bonuses of \ 1,788

million as a result of management assessment from a government-run bank for the six-month period

ended June 30, 2017.


109

41. Segment Information

Each segment is a strategic business unit that offers different products and services, and is managed

separately because each business has different risks and opportunities requiring different technology

and marketing strategies. The Group consists of the following seven operating segments: - Retail banking: The retail banking segment’s assets and liabilities are mainly with individuals and

households. This segment handles private customer current accounts, savings, deposits, retail loans and mortgage loans.

- Corporate banking: The corporate banking segment’s assets and liabilities are mainly with private

and public enterprises. The activities within this segment include loans, overdrafts, other credit facilities, and import/exports.

- Money market: The activities within this segment include foreign currency, treasury and investments. - IB: The activities within this segment include overseas business and investments. - Credit card operations: The credit card segment’s assets and liabilities are mainly with individuals or

corporate cardholders and card merchants, and it handles domestic as well as overseas credit and debit card operations.

- Foreign exchange: The activities within this segment include FX and imports/exports.

- Others: This refers to the segments not listed above.

The Group monitors the performance of the operating segments for the purpose of resource allocation

and performance review. Performance of each operating segment is measured by operating gain or

loss that differs from that recognized in financial statements. Financing of the Group and corporate

income tax are managed at the Group level and are not allocated to segments. Besides, the transfer

price among segments is determined at fair price based upon the arm’s length transaction that is

similar in form to a transaction with a third party.

Assets and other accounts by segment as at June 30, 2017 and December 31, 2016, and for the six-

month periods ended June 30, 2017 and 2016, are as follows:


Retail Corporate Money market

IB Credit card

Assets 31,926,654 142,486,855 50,903,726 7,199,925 2,688,549

Interest income 661,649 2,456,494 459,219 99,719 277,293

Interest expenses 324,488 979,352 365,219 74,831 20,052

Net interest income 337,161 1,477,142 94,000 24,888 257,241

Fees and commission income 65,450 73,054 12,815 24,430 89,920

Fees and commission expenses 8,906 8,239 3,741 45 180,375 Net fees and commission income (expenses) 56,544 64,815 9,074 24,385 (90,455)

Impairment loss (reversal) on financial assets 19,685 645,936 (1,568) (11,453) 41,651

Profit (loss) for the period (107,147) 568,851 180,223 60,908 89,475


110


Foreign exchange

Others Adjustments Total

Assets 4,368,506 26,894,844 421,224 266,890,283

Interest income 99,560 (115,804) (16,842) 3,921,288

Interest expenses 25,101 (412,047) - 1,376,996

Net interest income 74,459 296,243 (16,842) 2,544,292

Fees and commission income 63,294 109,822 106 438,891

Fees and commission expenses 1,952 14,527 830 218,615 Net fees and commission income (expenses) 61,342 95,295 (724) 220,276

Impairment loss (reversal) on financial assets 13,559 40,026 (104,245) 643,591

Profit (loss) for the period 90,387 (63,466) (19,742) 799,489

(In millions of Korean won) June 30, 2016 / December 31, 2016

Retail Corporate Money market

IB Credit card

Assets 31,564,532 138,265,618 45,666,838 6,691,900 2,589,974

Interest income 664,001 2,429,864 516,735 91,891 247,284

Interest expenses 352,282 1,044,176 405,740 67,048 19,151

Net interest income 311,719 1,385,688 110,995 24,843 228,133

Fees and commission income 60,230 66,604 13,774 20,383 72,547

Fees and commission expenses 9,131 9,279 4,083 45 160,334 Net fees and commission

income (expenses) 51,099 57,325 9,691 20,338 (87,787) Impairment loss (reversal) on financial assets 28,885 597,275 5,351 (6,676) 34,912

Profit (loss) for the period (117,549) 481,219 138,957 101,854 55,616


Foreign exchange

Others Adjustments Total

Assets1 4,387,686 27,658,315 26,517 256,851,380

Interest income 59,993 (102,046) (12,856) 3,894,866

Interest expenses 10,746 (386,784) - 1,512,359

Net interest income 49,247 284,738 (12,856) 2,382,507

Fees and commission income 60,270 86,487 135 380,430

Fees and commission expenses 1,670 8,951 (4,203) 189,290 Net fees and commission income (expenses) 58,600 77,536 4,338 191,140

Impairment loss (reversal) on financial assets 32,305 21,063 (73,491) 639,624

Profit (loss) for the period 53,197 (38,564) (7,410) 667,320 1 Total assets are amounts as at December 31, 2016, and interest income and others are amounts for

the six-month period ended June 30, 2016. Also, intercompany transactions between operating

segments are eliminated during consolidation.

Non-current assets and income (interest income and fees and commission income) from external


111

customers by location as at June 30, 2017 and December 31, 2016, and for the six-month periods

ended June 30, 2017 and 2016, are as follows:


Korea

Overseas offices

Total

Non-current assets 2,126,836

12,591 2,139,427

Interest income 3,797,281

124,007 3,921,288

Fees and commission income 422,200

16,691 438,891


Korea

Overseas offices

Total

Non-current assets1 2,153,536

14,293 2,167,829

Interest income 3,788,072

106,794 3,894,866

Fees and commission income 363,466

16,964 380,430 1 Non-current assets are amounts as at December 31, 2016, and interest income and others are

amounts for the six-month period ended June 30, 2016.

42. Information for Non-controlling Interests

The profit or loss allocated to non-controlling interests and accumulated non-controlling interests of

subsidiaries that are material to the Group for the six-month periods ended June 30, 2017 and 2016,

is as follows:

(In millions of June 30, 2017

Korean won) Non-

controlling interest rate (%)

Accumulated non-controlling interests at the

beginning of the period

Profit or loss allocated to

non-controlling interests

Dividends paid to non-controlling interests Others


end of the period

IBK Securities Co., Ltd.

16.14

89,217 3,523 - (18) 92,722

IBK System Co., Ltd.

44.37

8,223 314 (206) (255) 8,076

97,440 3,837 (206) (273) 100,798

(In millions of June 30, 2016

Korean won) Non-

controlling interest rate (%)


beginning of the period

Profit or loss allocated to

non-controlling interests

Dividends paid to non-controlling interests Others


end of the period

IBK Securities Co., Ltd.

16.14

84,147 3,303 - (87) 87,363

IBK System Co., Ltd.

44.37

6,613 981 (206) (245) 7,143

90,760 4,284 (206) (332) 94,506


112

The summarized financial information for each subsidiary with non-controlling interests that are

material to the Group before inter-company eliminations is described in Note 2.2. There is no effect on

equity attributable to the Group due to the transaction with non-controlling interests.

43. Supplemental Cash Flow Information Adjustments in expenses and revenues for the six-month periods ended June 30, 2017 and 2016, are as follows:


June 30, 2017

June 30, 2016

Loss on translation of cash and cash equivalents in foreign currency

15,712 -

Loss on valuation of financial assets held for trading

1,574,601 1,030,411

Loss on valuation of financial assets designated at fair value through profit or loss

34,267 31,344

Loss on disposal of available-for-sale financial assets

6,218 11,790

Impairment loss on available-for-sale financial assets

19,977 24,952

Impairment loss on loans receivables

638,070 615,042

Loss on valuation of derivatives held for hedging

52,827 121,349

Impairment loss on investments in associates 4,288 -

Loss on disposal of investments in associates

268 3,190

Share of loss (profit) of associates, net 260 (3,729)

Interest expense

1,376,996 1,512,359

Income tax expense

242,814 199,127

Depreciation of property and equipment & investment properties

41,868 45,659

Loss on disposal of property and equipment

143 25

Loss on retirement of property and equipment

53 353

Amortization

41,297 40,894

Loss on disposal of intangible assets 3 8

Impairment loss on intangible assets - 12

Post-employment benefits

59,786 58,160

Contribution to provisions

26,457 42,357

Provision for financial guarantee contracts 4,104 -

Gain on translation of cash and cash equivalents in foreign currencies

- (37,343)

Gain on valuation of financial assets held for trading

(1,560,708) (1,089,839)

Gain on valuation of financial assets designated at fair value through profit or loss

(26,877) (20,103)

Gain on disposal of available-for-sale financial assets

(111,277) (134,234)

Gain on valuation of derivatives held for hedging (127,357) (100,669)

Gain on disposal of investments in associates

(616) (275)

Interest income

(3,921,288) (3,894,866)

Dividend income

(85,337) (85,967)

Gain on disposal of property and equipment

(491) (1,221)

Gain on disposal of intangible assets

(82) -

Reversal of provision for impairment of other financial assets

(14,455) (369)

Reversal of provisions (18,030) (10,303)


113


June 30, 2017

June 30, 2016

Reversal of provision for financial guarantee contracts

- (619)

(1,726,509) (1,642,505)

Changes in operating assets and liabilities for the six-month periods ended June 30, 2017 and 2016, are as follows:


June 30, 2017

June 30, 2016

Changes in financial assets held for trading (217,762) (298,249)

Changes in financial assets designated at fair value through profit or loss 88,175 (302,974)

Changes in loans receivable (6,688,203) (8,572,815)

Changes in due from banks (3,650,768) (101,155)

Changes in derivatives held for hedging (35,030) (8,675)

Changes in other assets 2,483,677 (2,044,765)

Changes in deposit liabilities 2,994,949 (92,393)

Changes in provisions (347) 226

Payment of severance benefits (750) (1,857)

Changes in plan assets (41,390) (70,000)

Changes in other liabilities 2,964,479 4,362,275

(2,102,970) (7,130,382)

Details of cash and cash equivalents as at June 30, 2017 and December 31, 2016, are as follows:


December 31, 2016

Currency in Korean won

879,130 1,031,814

Foreign currencies

265,097 256,193

Due from banks

13,928,127 10,411,213

15,072,354 11,699,220

Less : Restricted due from banks and others

(12,486,148) (8,835,381)

Cash and cash equivalents in the statements of cash flows

2,586,206 2,863,839

Significant non-cash activities for the six-month periods ended June 30, 2017 and 2016, are as

follows:


June 30, 2017

June 30, 2016

Reclassified from investment properties to property and

equipment 20,625 (2,636)

Write-off of loans receivable 776,748 487,466

Changes in the fair value of available-for-sale financial

assets 213,347 356,634

Tax effects on changes in the fair value of available-

for-sale financial assets (51,630) (86,305)


114

Share of other comprehensive income of associates

(922) 5,731

Tax effects on share of other comprehensive income of

associates 223 (1,387)

Exchange differences (34,110) (18,237)

Cash flow hedge

(2) (21)

Tax effect on cash flow hedge

- 5

Changes in hedges of a net investments in a foreign

operation 15,144 8,413

Tax effect on changes in fair value of hedges of net

investments in a foreign operation (3,665) (2,036)

Remeasurements of net defined benefit liabilities

(3,627) (2,759)

Tax effect on remeasurements of net defined benefit liabilities

878 668

Documents

Industrial Bank of Korea and Subsidiarieseng.ibk.co.kr/upload/all/bspl/IBK_1706_Consolidated...Industrial Bank of Korea and Subsidiaries Consolidated Interim Statements of Financial