Form 6-K Amendment
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 6-K/A

 


 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of August 2004

 


 

Kookmin Bank

(Translation of registrant’s name into English)

 


 

9-1, 2-Ga, Namdaemun-Ro, Jung-Gu, Seoul, Korea 100-703

(Address of principal executive office)

 


 

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

 

Form 20-F      X            Form 40-F              

 

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

 

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

 

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

 

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

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes                      No      X    

 



Table of Contents

Summary of Semi-Annual Business Report – Amended

 

TABLE OF CONTENTS

 

Summary of Semi-Annual Business Report – Amended    3

1.

        Introduction to the Bank    4
     1.1.    Business Purposes    4
     1.2.    History    4
     1.3.    Capital Structure    5
     1.4.    Employee Stock Ownership Association    10
     1.5.    Dividend    10

2.

        Business    11
     2.1.    Sources and Uses of Fund    11
     2.2.    Principal Banking Activities    13
     2.3.    Branch Networks    17
     2.4.    Other Information for Investment Decision    18

3.

        Financial Information    20
     3.1.    Non-Consolidated Condensed Financial Statements    20
     3.2.    Other Financial Information    20

4.

        Independent Accountant Fees and Services    21
     4.1.    Audit & Review Fees    21
     4.2.    Non-Audit Services    21

5.

        Corporate Governance and Affiliated Companies    22
     5.1.    Board of Directors & Committees under the Board    22
     5.2.    Audit Committee    22
     5.3.    Compensation to Directors    23
     5.4.    Voting Rights of Shareholders    23
     5.5.    Share Ownership    23
     5.6.    Affiliated Companies    24

6.

        Directors, Senior Management and Employees    25
     6.1.    Executive Directors    25
     6.2.    Non-Executive Directors    25
     6.3.    Senior Management    26
     6.4.    Compensation to Directors and Senior Management    26
     6.5.    Employees    26

7.

        Related Party Transaction    27
     7.1.    Transactions with the Largest Shareholders or Affiliates    27
     7.2.    Transactions with Other than the Largest Shareholders or Affiliates    28

 

2


Table of Contents

Summary of Semi-Annual Business Report – Amended

 

On August 13, 2004, Kookmin Bank filed its business report for the first half of 2004 (the “Business Report”) with the Financial Supervisory Commission of Korea pursuant to the Securities and Exchange Act of Korea. This is the summary of the Business Report translated into English.

 

All references to “Kookmin Bank” mean Kookmin Bank on a non-consolidated basis, and all references to “we”, “us” or “the Bank” mean Kookmin Bank and, as the context may require, its subsidiaries. In addition, all references to “Won” or “W” in this document are to the currency of the Republic of Korea.

 

3


Table of Contents

1. Introduction to the Bank

 

1.1. Business Purposes

 

The business purpose of the Bank is to engage in the following business activities:

 

  The banking business as prescribed by the Bank Act,

 

  The trust business as prescribed by the Banking Trust Act,

 

  The credit card business as prescribed by the Non-Banking Financing Act, and

 

  The other businesses permitted by the Bank Act or other relevant Korea laws and regulations

 

1.2. History

 

  November 1, 2001

Incorporated and Listed on the New York Stock Exchange

 

  November 9, 2001

Listed on the Korea Stock Exchange

 

  September 23, 2002

Integrated two brand operations onto a single information technology platform

 

  December 4, 2002

Entered into a strategic alliance agreement with ING Bank N.V., which replaced the prior investment agreement with H&CB

 

  May 30, 2003

Entered into a merger agreement with Kookmin Credit Card, one of our major subsidiaries, and officially submitted Merger Statement to Financial Supervisory Service

 

  September 30, 2003

Completed small-scale merger with Kookmin Credit Card

 

  December 16, 2003

Completed strategic investment in Bank Internasional Indonesia (BII) through the Consortium of Sorak Financial Holdings, of which we hold 25% stake

 

  December 19, 2003

Fully privatized through the entire disposition of Korean government’s stake in Kookmin Bank

 

  April 29, 2004

Established a subsidiary, KB Life Co. Ltd., to engage in insurance business

 

4


Table of Contents

1.3. Capital Structure

 

1.3.1. Common Shares

 

Kookmin Bank has authority to issue a total of 1,000,000,000 shares of capital stock according to its Articles of Incorporation. Kookmin Bank’s Articles of Incorporation also provide that it is authorized to issue shares of preferred stock up to one-half of all of the issued and outstanding shares of common stock. On completion of the merger between Former Kookmin Bank and H&CB, Kookmin Bank issued 299,697,462 common shares.

 

Upon the resolution of shareholders’ meeting held on March 22, 2002, Kookmin Bank issued additional 17,979,954 common shares in connection with stock dividend of 6 percent.

 

On November 25, 2002 Goldman Sachs Capital Koryo, L.P. converted all of its convertible bonds into common shares. According to this conversion on November 30, 2002, Kookmin Bank issued 10,581,269 common shares and distributed them to Goldman Sachs Capital Koryo, L.P.

 

With regard to the merger between Kookmin Bank and Kookmin Credit Card on September 30, 2003, Kookmin Bank issued additional 8,120,431 shares on October 1, 2003. Accordingly, as of June 30, 2004, total 336,379,116 shares were issued with 1,681,896 million Won of paid-in capital.

 

1.3.2. Treasury Stock

 

The following table shows the acquisition and disposition of our treasury stock as of June 30, 2004

 

(Unit: in thousands of Won unless otherwise indicated)

Date


  

Transaction


  

Number of

share


  

Acquisition/

Disposition
amount


  

Average cost

per one share

(Won)


November 15, 2001

   Acquisition of fractional shares in the course of the merger    41,548    1,794,885    43,200

December 24, 2001

   Disposition due to exercise of stock option by a grantee    10,000    432,003    43,200

April 3, 2002

   Acquisition of fractional shares due to stock dividend    36,089    2,071,557    57,400

May 14, 2002

   Disposition pursuant to the Bank Act of Korea    31,548    1,601,944    50,788

July 30 ~ October 23, 2002

   Acquisition pursuant to the Securities and Exchange Act of Korea    3,000,000    147,632,489    49,210

December 24, 2002

   Disposition due to exercise of stock option by a grantee    10,000    492,294    49,229

January 15, 2003

   Disposition due to exercise of stock option by a grantee    10,000    492,294    49,229

September 4 ~ 9, 2003

   Acquisition pursuant to the Securities and Exchange Act of Korea    650,000    29,094,064    44,760

October 16, 2003

   Acquisition of fractional shares due to the Merger with Kookmin Credit Card    5,095    214,254    42,050

4th quarter, 2003

   Disposition due to exercise of stock option by grantees    78,322    3,792,977    48,428

December 17, 2003

   Acquisition from the sale of Korean government shares of the Bank    27,423,761    1,198,568,158    43,700

December 26, 2003

   Disposition due to contribution to ESOP account    1,000,000    44,252,000    44,252

1st quarter, 2004

   Disposition due to exercise of stock option by grantees    30,855    1,365,396    44,252

2nd quarter, 2004

   Disposition due to exercise of stock option by grantees    55,593    2,460,101    44,252
         
  
  

Total

   —      29,930,175    1,324,486,398    —  
         
  
  

 

5


Table of Contents

1.3.3. Stock Option

 

The following table is the breakdown of stock options Kookmin Bank has granted to the directors and employees.

 

(As of June 30, 2004, Units: in Won, shares)

Grant date


 

Name of the grantee


 

Position when granted


  Exercise period

 

Exercise

price


 

Number of

granted

options*


 

Number of

exercised

options


 

Number of

exercisable

options


      From

  To

       

31-Oct-98

  Jung Tae Kim   Chairman, Presidnet&CEO   01-Nov-01   31-Oct-04   5,000   400,000   390,000   10,000

27-Feb-99

  Choul Ju Lee   Auditor&Executive Director   28-Feb-02   27-Feb-05   13,900   30,000   30,000   0

27-Feb-99

  Seung Dong Kim   Executive Vice President   28-Feb-02   27-Feb-05   13,900   20,054   20,054   0

27-Feb-99

  Young Jo Joo   Executive Vice President   28-Feb-02   27-Feb-05   13,900   30,000   30,000   0

27-Feb-99

  Seok Il Cho   Executive Vice President   28-Feb-02   27-Feb-05   13,900   20,054   20,054   0

27-Feb-99

  Hong Shik Chung   Executive Vice President   28-Feb-02   27-Feb-05   13,900   20,000   20,000   0

27-Feb-99

  Bong Hwan Cho   Executive Vice President   28-Feb-02   27-Feb-05   13,900   30,000   30,000   0

27-Feb-99

  Sun Joo Kim   Executive Vice President   28-Feb-02   27-Feb-05   13,900   10,000   10,000   0

27-Feb-99

  Je Hyung Jo   Executive Vice President   28-Feb-02   27-Feb-05   13,900   30,000   30,000   0

27-Feb-99

  Ho Gi Baek   Executive Vice President   28-Feb-02   27-Feb-05   13,900   20,000   20,000   0

27-Feb-99

  Bruce G. Willison   Non Executive Director   28-Feb-02   27-Feb-05   13,900   10,000   10,000   0

28-Feb-00

  Jan Op de Beeck   Director&Executive Vice President   01-Mar-03   28-Feb-06   27,600   22,490   0   22,490

28-Feb-00

  Sung Chul Kim   Executive Vice President   01-Mar-03   28-Feb-06   27,600   30,000   0   30,000

28-Feb-00

  Woo Jung Lee   Executive Vice President   01-Mar-03   28-Feb-06   27,600   30,000   0   30,000

28-Feb-00

  Kuk Ju Kwon   Non Executive Director   01-Mar-03   28-Feb-06   27,600   4,800   0   4,800

28-Feb-00

  Sun Jin Kim   Non Executive Director   01-Mar-03   28-Feb-06   27,600   7,000   1,100   5,900

28-Feb-00

  Joon Park   Non Executive Director   01-Mar-03   28-Feb-06   27,600   4,800   0   4,800

28-Feb-00

  Moon Soul Chung   Non Executive Director   01-Mar-03   28-Feb-06   27,600   7,000   0   7,000

28-Feb-00

  Ju Hyun Yoon   Non Executive Director   01-Mar-03   28-Feb-06   27,600   4,800   4,800   0

28-Feb-00

  Heung Hoon Chang   Non Executive Director   01-Mar-03   28-Feb-06   27,600   2,486   0   2,486

28-Feb-00

  In Joon Kang   Non Executive Director   01-Mar-03   28-Feb-06   27,600   2,486   0   2,486

28-Feb-00

  Sung Hee Jwa   Non Executive Director   01-Mar-03   28-Feb-06   27,600   4,800   0   4,800

28-Feb-00

  Seung Woo Nam   Non Executive Director   01-Mar-03   28-Feb-06   27,600   1,928   0   1,928

28-Feb-00

  Woon Youl Choi   Non Executive Director   01-Mar-03   28-Feb-06   27,600   4,909   4,909   0

28-Feb-00

  Kyung Hee Yoon   Non Executive Director   01-Mar-03   28-Feb-06   27,600   7,000   0   7,000

28-Feb-00

  Sung Cheon Hong & 9 others   Employees   01-Mar-03   28-Feb-06   27,600   67,283   24,154   43,129

24-Mar-01

  Young Il Kim   Executive Vice President   25-Mar-04   24-Mar-07   25,100   30,000   0   30,000

24-Mar-01

  Jong In Park   Executive Vice President   25-Mar-04   24-Mar-07   25,100   19,333   0   19,333

24-Mar-01

  Won Bae Yoon   Non Executive Director   25-Mar-04   24-Mar-07   25,100   2,318   0   2,318

24-Mar-01

  Jae Kyu Lee   Non Executive Director   25-Mar-04   24-Mar-07   25,100   2,318   0   2,318

24-Mar-01

  Chul Soo Ahn   Non Executive Director   25-Mar-04   24-Mar-07   25,100   1,916   0   1,916

24-Mar-01

  Jae Han Kim & 2 others   Employees   25-Mar-04   24-Mar-07   25,100   16,491   10,216   6,275

18-Mar-00

  Sang Hoon Kim   Chairman&CEO   19-Mar-03   18-Mar-05   23,469   41,460   1,300   40,160

18-Mar-00

  Jong Min Lee   Auditor&Executive Director   19-Mar-03   18-Mar-05   23,469   14,807   14,807   0

18-Mar-00

  Se Jong Oh   Non Executive Director   19-Mar-03   18-Mar-05   23,469   2,961   0   2,961

18-Mar-00

  In Kie Kim   Non Executive Director   19-Mar-03   18-Mar-05   23,469   2,961   0   2,961

18-Mar-00

  Ji Hong Kim   Non Executive Director   19-Mar-03   18-Mar-05   23,469   2,961   2,961   0

18-Mar-00

  Jin Ho Hwang   Non Executive Director   19-Mar-03   18-Mar-05   23,469   2,961   0   2,961

18-Mar-00

  Hyung Jin Chang   Non Executive Director   19-Mar-03   18-Mar-05   23,469   2,961   2,961   0

18-Mar-00

  Ik Rae Kim   Non Executive Director   19-Mar-03   18-Mar-05   23,469   2,961   2,961   0

18-Mar-00

  Bong Ho Paick   Non Executive Director   19-Mar-03   18-Mar-05   23,469   2,961   0   2,961

18-Mar-00

  Bock Woan Kim   Executive Vice President   19-Mar-03   18-Mar-05   23,469   11,845   11,845   0

* Some numbers of the granted options have been adjusted due to the merger and the early retirement of the grantees

 

6


Table of Contents

Grant date


 

Name of the grantee


 

Position when granted


  Exercise period

 

Exercise

price


 

Number of

granted

options*


 

Number of

exercised

options


 

Number of

exercisable

options


      From

  To

       

18-Mar-00

  Yoo Hwan Kim   Executive Vice President   19-Mar-03   18-Mar-05   23,469   11,845   5,845   6,000

18-Mar-00

  Duk Hyun Kim   Executive Vice President   19-Mar-03   18-Mar-05   23,469   11,845   0   11,845

15-Mar-01

  Sang Hoon Kim   Chairman&CEO   16-Mar-04   15-Mar-09   28,027   29,614   0   29,614

15-Mar-01

  Jong Min Lee   Auditor&Executive Director   16-Mar-04   15-Mar-09   28,027   14,807   0   14,807

15-Mar-01

  In Kie Kim   Non Executive Director   16-Mar-04   15-Mar-09   28,027   2,961   0   2,961

15-Mar-01

  Hyung Jin Chang   Non Executive Director   16-Mar-04   15-Mar-09   28,027   2,961   2,961   0

15-Mar-01

  Ji Hong Kim   Non Executive Director   16-Mar-04   15-Mar-09   28,027   2,961   0   2,961

15-Mar-01

  Bong Ho Paick   Non Executive Director   16-Mar-04   15-Mar-09   28,027   1,870   0   1,870

15-Mar-01

  Ik Rae Kim   Non Executive Director   16-Mar-04   15-Mar-09   28,027   2,961   0   2,961

15-Mar-01

  Seung Heon Han   Non Executive Director   16-Mar-04   15-Mar-09   28,027   1,870   0   1,870

15-Mar-01

  Young Seok Kim   Non Executive Director   16-Mar-04   15-Mar-09   28,027   1,870   0   1,870

15-Mar-01

  Se Woong Lee   Non Executive Director   16-Mar-04   15-Mar-09   28,027   2,961   0   2,961

15-Mar-01

  Chang Ki Min   Non Executive Director   16-Mar-04   15-Mar-09   28,027   2,961   2,961   0

15-Mar-01

  Bock Woan Kim   Executive Vice President   16-Mar-04   15-Mar-09   28,027   11,845   0   11,845

15-Mar-01

  Yoo Hwan Kim   Executive Vice President   16-Mar-04   15-Mar-09   28,027   11,845   0   11,845

15-Mar-01

  Duk Hyun Kim   Executive Vice President   16-Mar-04   15-Mar-09   28,027   11,845   0   11,845

15-Mar-01

  Yoon Ok Hyun   Executive Vice President   16-Mar-04   15-Mar-09   28,027   11,845   0   11,845

15-Mar-01

  Tai Gon Kim   Executive Vice President   16-Mar-04   15-Mar-09   28,027   11,845   4,845   7,000

15-Mar-01

  Byung Sang Kim   Executive Vice President   16-Mar-04   15-Mar-09   28,027   11,845   0   11,845

15-Mar-01

  Byung Jin Kim   Executive Vice President   16-Mar-04   15-Mar-09   28,027   11,845   0   11,845

15-Mar-01

  Ji Han Koo & 46 others   Employees   16-Mar-04   15-Mar-09   28,027   47,381   9,105   38,276
                   
           

16-Nov-01

  Jung Tae Kim   President&CEO   17-Nov-04   16-Nov-09       500,000   0   500,000

16-Nov-01

  Jung Tae Kim   President&CEO   17-Nov-04   16-Nov-09   X1   200,0002   0   200,000

16-Nov-01

  Sang Hoon Kim   Chairman   17-Nov-04   16-Nov-09       150,000   0   150,000
                   
           

22-Mar-02

  Choul Ju Lee   Auditor&Executive Director   23-Mar-05   22-Mar-10       9,963   0   9,963

22-Mar-02

  Henry Cornell   Non Executive Director   23-Mar-05   22-Mar-10       3,321   0   3,321

22-Mar-02

  Keun Shik Oh   Non Executive Director   23-Mar-05   22-Mar-10       3,321   0   3,321

22-Mar-02

  Dong Soo Chung   Non Executive Director   23-Mar-05   22-Mar-10       10,000   0   10,000

22-Mar-02

  Ji Hong Kim   Non Executive Director   23-Mar-05   22-Mar-10   Y3   3,321   0   3,321

22-Mar-02

  Timothy Hartman   Non Executive Director   23-Mar-05   22-Mar-10       3,321   0   3,321

22-Mar-02

  Sun Jin Kim   Non Executive Director   23-Mar-05   22-Mar-10       3,000   0   3,000

22-Mar-02

  Moon Soul Chung   Non Executive Director   23-Mar-05   22-Mar-10       3,000   0   3,000

22-Mar-02

  Kyung Hee Yoon   Non Executive Director   23-Mar-05   22-Mar-10       3,000   0   3,000
                   
           

22-Mar-02

  Jong Kyoo Yoon   Executive Vice President   23-Mar-05   22-Mar-10   57,100   30,000   0   30,000

22-Mar-02

  Bong Hwan Cho   Executive Vice President   23-Mar-05   22-Mar-10   57,100   9,498   0   9,498

22-Mar-02

  Bum Soo Choi   Executive Vice President   23-Mar-05   22-Mar-10   57,100   13,339   0   13,339

22-Mar-02

  Bock Woan Kim   Executive Vice President   23-Mar-05   22-Mar-10   57,100   13,339   0   13,339

22-Mar-02

  Ki Taek Hong   Executive Vice President   23-Mar-05   22-Mar-10   57,100   19,525   0   19,525

1. Exercise price = 51,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4) / 100. The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - 207.25) / 207.25 x 100.
2. Conditional options up to 200,000: Additional shares shall be granted if the average closing price of Kookmin Bank's stock from August 17, 2004 to November 16, 2004 (or for the three months prior to his resignation, if he resigns earlier than his original tenure) is higher than the stock prices of any other bank listed on the Korea Stock Exchange. The number of options to be granted shall be based on total score, which calculated by the earned total scores of both ROE and market capitalization on November 17, 2004 (or on the date of his resignation, if he resigns earlier than his original tenure). The additional shares will not be exercisable if the CEO works less than 18 months or the earned total score is less than 80 points.
3. Exercise price = 57,100 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

7


Table of Contents

Grant date


 

Name of the grantee


 

Position when granted


  Exercise period

 

Exercise

price


 

Number of

granted

options*


 

Number of

exercised

options


 

Number of

exercisable

options


      From

  To

       

22-Mar-02

  Sung Hyun Chung   Executive Vice President   23-Mar-05   22-Mar-10   57,100   19,525   0   19,525

22-Mar-02

  Ki Sup Shin   Executive Vice President   23-Mar-05   22-Mar-10   57,100   30,000   0   30,000

22-Mar-02

  Seong Kyu Lee   Executive Vice President   23-Mar-05   22-Mar-10   57,100   30,000   0   30,000

22-Mar-02

  Byung Sang Kim   Executive Vice President   23-Mar-05   22-Mar-10   57,100   9,498   0   9,498

22-Mar-02

  Jong Young Yoon & 15 others   Employees   23-Mar-05   22-Mar-10   57,100   148,810   0   148,810

26-Jul-02

  Donald H. MacKenzie   Executive Vice President   27-Jul-05   26-Jul-10   58,800   30,000   0   30,000
                   
           

21-Mar-03

  Sung Nam Lee   Auditor & Executive Director   22-Mar-06   21-Mar-11       30,000   0   30,000

21-Mar-03

  Moon Soul Chung   Non Executive director   22-Mar-06   21-Mar-11       10,000   0   10,000

21-Mar-03

  Sun Jin Kim   Non Executive director   22-Mar-06   21-Mar-11       10,000   0   10,000

21-Mar-03

  Richard Elliott Lint   Non Executive director   22-Mar-06   21-Mar-11       10,000   0   10,000

21-Mar-03

  Kyung Hee Yoon   Non Executive director   22-Mar-06   21-Mar-11       10,000   0   10,000

21-Mar-03

  Seoung Woo Nam   Non Executive director   22-Mar-06   21-Mar-11   Y1   10,000   0   10,000

21-Mar-03

  Suk Yong Cha   Non Executive director   22-Mar-06   21-Mar-11       10,000   0   10,000

21-Mar-03

  Bernard S. Black   Non Executive director   22-Mar-06   21-Mar-11       10,000   0   10,000

21-Mar-03

  Ki Hong Kim   Non Executive director   22-Mar-06   21-Mar-11       10,000   0   10,000

21-Mar-03

  Eun Joo Park   Non Executive director   22-Mar-06   21-Mar-11       3,351   0   3,351

21-Mar-03

  Cheol Soo Ahn   Non Executive director   22-Mar-06   21-Mar-11       3,351   0   3,351

21-Mar-03

  Kyung Bae Suh   Non Executive director   22-Mar-06   21-Mar-11       3,351   0   3,351
                   
           

21-Mar-03

  Sung Chul Kim   Executive Vice President   22-Mar-06   21-Mar-11   35,500   9,443   0   9,443

21-Mar-03

  Woo Jung Lee   Executive Vice President   22-Mar-06   21-Mar-11   35,500   9,443   0   9,443

21-Mar-03

  See Young Lee   Executive Vice President   22-Mar-06   21-Mar-11   35,000   7,024   0   7,024

21-Mar-03

  Won Suk Oh & 6 others   Employees   22-Mar-06   21-Mar-11   35,500   90,000   0   90,000

27-Aug-03

  Jin Baek Cheong   Executive Vice President   28-Aug-03   27-Aug-11   40,500   5,091   0   5,091
   
                           

22-Mar-01

  Han Kyoung Lee3   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   6,644   0   6,644

22-Mar-01

  Jun Chae Song   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   6,644   0   6,644

22-Mar-01

  Cheol Ho Kim   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   4,429   0   4,429

22-Mar-01

  Myoung Woo Lee   Former KCC Officer   23-Mar-04   22-Mar-11   71,538   4,429   0   4,429
                   
           

29-Mar-02

  Boung Hak Kim   Former KCC Officer   30-Mar-04   29-Mar-11       3,330   0   3,330

29-Mar-02

  Sun Lee   Former KCC Officer   30-Mar-04   29-Mar-11   Y2   3,330   0   3,330

29-Mar-02

  Jang Ok Kim   Former KCC Officer   30-Mar-04   29-Mar-11       3,330   0   3,330
   
             
           

09-Feb-04

  Young Il Kim   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   10,000   0   10,000

09-Feb-04

  Jeung Lak Lee   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   10,000   0   10,000

09-Feb-04

  Sang Jin Lee   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   10,000   0   10,000

1 Exercise price = 35,500 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.
2 Exercise price = 129,100 Won x (1 + the increase rate of Comparative Industry Index x 0.4).

If negative index produced, the factor is not to be considered.

The increase rate of Comparative Industry Index = (B-A)/A

A : KOSPI as of the grant date x 0.5 + KOSPI Banking Industry Index as of the grant date x 0.5

B : KOSPI as of the exercise date x 0.5 + KOSPI Banking Industry Index as of the exercise date x 0.5

3 The 7 people in the above stock option table were granted Kookmin Bank stock option retroactively on the indicated dates. Those were originally granted by Kookmin Credit Card(KCC) when they were in office, and due to the Merger between Kookmin Bank and Kookmin Credit Card, those options were converted into stock options of the Bank.

 

8


Table of Contents

Grant date


 

Name of the

grantee


 

Position when

granted


 

Exercise

period


  Exercise
price


  Number of
granted
options*


  Number of
exercised
options


  Number of
exercisable
options


     

From


 

To


       

09-Feb-04

  Yun Keun Jung   Senior Executive Vice President   10-Feb-07   09-Feb-12   46,100   5,000   0   5,000

09-Feb-04

 

Kuk Shin

Kang & 9 others

  Employees   10-Feb-07   09-Feb-12   46,100   50,000   0   50,000

23-Mar-04

  Dong Soo Chung  

Non Executive

Director

  24-Mar-07   23-Mar-12       5.000   0   5,000

23-Mar-04

  Woon Youl Choi  

Non Executive

Director

  24-Mar-07   23-Mar-12       5.000   0   5,000

23-Mar-04

  Wang Ha Cho  

Non Executive

Director

  24-Mar-07   23-Mar-12   Y1   5.000   0   5,000

23-Mar-04

  Young Soon Cheon  

Non Executive

Director

  24-Mar-07   23-Mar-12       5.000   0   5,000

23-Mar-04

  Jung Young Kang  

Senior Executive

Vice President

  24-Mar-07   23-Mar-12   47,200   10,000   0   10,000
                       
 
 
        Total               2,838,859   717,839   2,121,020
                       
 
 

1 Exercise price = 47,200 Won x (1 + the increase rate of KOSPI Banking Industry Index x 0.4). The increase rate of KOSPI Banking Industry Index = (KOSPI Banking Industry Index as of the starting date of exercise period - KOSPI Banking Industry Index as of the grant date) / KOSPI Banking Industry Index as of the grant date.

 

9


Table of Contents

1.4. Employee Stock Ownership Association

 

     Beginning
balance


   Increase

   Decrease

  

Ending

Balance

(June 30, 2004)


  

Remarks


Registered common stock

   1,000,000    —      16,863    983,137    Due to distribution upon ERP
    
  
  
  
    

Total

   1,000,000    —      16,863    983,137    —  
    
  
  
  
    

 

1.5. Dividend

 

The following table shows dividend policy and the related information for the last three years. The Board of Directors of Kookmin Bank made a resolution not to pay dividend for the fiscal year of 2003, and shareholders of Kookmin Bank approved of no dividend payout for the year at the general shareholders’ meeting held on March 23, 2004

 

(Units: in millions of Won unless indicated otherwise)

     2003

    2002

  2001

Net (loss) income for the period

   (753,348 )   1,310,291   740,565

Basic (loss) earnings per share (Won)

   (2,311 )   4,1231   3,706

Maximum amount available for dividend

   133,369     1,192,6432   604,984

Total dividend amount

   —       325,232   119,866

Dividend payout ratio (%)

   —       24.823   16.19

Cash dividend per common share (Won)

   —       1,000   100

Stock dividend per common share (%)

   —       —     6

Dividend per preferred share (Won)

   —       —     —  

Dividend yield ratio (%)

   —       2.384   0.80

Net asset value per common share (Won)

   25,672     30,6145   29,742

Ordinary income per common share (Won)

   (2,311 )   4,123   3,706
                

1. Earnings per share = net income (1,310,291,195,314 Won) / weighted average number of shares (317,786,872 shares)
2. Maximum amount available for dividend = retained earnings before appropriations (1,319,970 millions of Won) + transferred from prior years’ reserves (5,417 millions of Won) – appropriated amount pursuant to the relevant rules and regulations (132,744 millions of Won)
3. Dividend payout ratio = total dividend amount for common shares (325,232,596,000 Won) / net income (1,310,291,195,314 Won).
4. Dividend yield ratio = dividend per share (1,000 Won) / market closing price of December 31, 2002 (42,000 Won)
5. Net asset value per common share = total shareholders’ equity (10,049,396 millions of Won) / total issued shares as of December 31, 2002 (328,258,685 shares).

 

10


Table of Contents

2. Business

 

2.1. Sources and Uses of Fund

 

2.1.1. Sources of Fund

 

(Unit: in millions of Won)

          June 30, 2004

   December 31, 2003

   December 31, 2002

          Average
balance


  

Interest

rate (%)


   Average
balance


  

Interest

rate (%)


   Average
balance


  

Interest

rate (%)


Won currency

                                  
     Deposits    120,119,634    3.35    117,045,837    3.69    113,157,719    4.21
     Certificate of deposit    5,788,913    4.17    4,068,327    4.45    2,119,900    4.82
     Borrowings    3,189,166    3.55    3,625,926    3.89    4,568,873    4.45
     Call money    1,494,968    3.62    1,315,639    3.93    1,039,249    4.02
     Other    22,089,425    5.81    23,311,299    5.91    14,254,281    6.70
         
  
  
  
  
  

Subtotal

        152,682,106    3.74    149,367,028    4.06    135,140,022    4.49
         
  
  
  
  
  

Foreign currency

                                  
     Deposits    1,531,606    0.61    1,276,952    0.84    1,096,544    1.28
     Borrowings    3,033,233    0.85    3,462,883    1.01    2,269,774    2.45
     Call money    185,702    1.19    150,609    1.07    293,151    1.65
     Finance debentures issued    866,279    2.07    773,840    2.11    1,071,848    3.57
     Other    37,393    0.01    26,491    —      23,087    —  
         
  
  
  
  
  

Subtotal

        5,654,213    0.98    5,690,775    1.12    4,754,404    2.67
         
  
  
  
  
  

Other

                                  
     Total Shareholders Equity    9,361,275    —      12,053,112    —      14,586,550    —  
     Allowances    509,089    —      98,422    —      63,039    —  
     Other    13,261,836    —      9,509,283    —      3,717,379    —  
         
  
  
  
  
  

Subtotal

        23,132,200    —      21,660,817    —      18,366,968    —  
         
  
  
  
  
  

Total

        181,468,519    3.18    176,718,620    3.47    158,261,394    3.92
         
  
  
  
  
  

 

11


Table of Contents

2.1.2. Uses of Fund

 

(Unit: in millions of Won)

         June 30, 2004

   December 31, 2003

   December 31, 2002

         Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


   Average
balance


   Interest
rate (%)


Won currency

                                 
    Due from banks    164,443    0.94    165,358    1.37    1,041,865    4.62
    Securities    23,731,562    5.14    30,069,922    7.26    30,180,305    6.32
    Loans    125,625,510    6.72    121,725,298    7.10    105,188,481    7.79
    Advances for customers    92,197    1.31    96,547    5.79    91,583    4.35
    Call loan    1,516,837    3.90    685,953    3.92    736,571    4.36
    Private placement corporate bonds    1,472,449    6.47    1,287,623    10.26    1,631,524    7.32
    Credit card accounts    10,599,504    10.27    6,698,954    10.44    5,719,359    10.25
    Other    212,731    —      298,858    —      374,718    —  
    Allowance for credit losses (-)    3,559,711    —      1,823,976    —      1,437,960    —  
        
  
  
  
  
  

Subtotal

       159,855,522    6.90    159,204,537    7.41    143,526,446    7.66
        
  
  
  
  
  

Foreign currency

                                 
    Due from banks    587,604    1.14    612,862    1.33    253,390    1.35
    Securities    1,293,818    3.17    1,269,538    5.23    1,302,214    7.97
    Loans    2,679,283    4.51    2,785,091    3.11    3,216,042    3.39
    Call loan    84,063    1.15    84,803    1.28    188,465    1.98
    Bills bought    1,808,563    1.72    1,983,368    1.83    835,356    4.71
    Other    6,904    —      12,391    —      15,739    —  
    Allowance for credit losses (-)    78,989    —      132,105    —      267,194    —  
        
  
  
  
  
  

Subtotal

       6,381,246    3.17    6,615,948    3.03    5,544,012    4.95
        
  
  
  
  
  

Other

                                 
    Cash    982,439    —      968,815    —      914,639    —  
    Fixed assets held for business    3,057,456    —      3,210,463    —      3,126,812    —  
    Other    11,191,856    —      6,718,857    —      5,149,485    —  
        
  
  
  
  
  

Subtotal

       15,231,751    —      10,898,135    —      9,190,936    —  
        
  
  
  
  
  

Total

       181,468,519    6.19    176,718,620    6.79    158,261,394    7.12
        
  
  
  
  
  

 

12


Table of Contents

2.2. Principal Banking Activities

 

2.2.1. Deposits

 

The following table shows the average balances of our deposits for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

        June 30, 2004

  December 31, 2003

  December 31, 2002

        Average
balance


  Ending
balance


  Average
balance


  Ending
balance


  Average
balance


   Ending
balance


Deposits in Won

                            
    Demand deposits   13,087,353   13,727,133   12,192,971   14,110,288   10,654,651    12,987,742
    Time & savings deposits   98,586,310   95,653,542   96,668,084   97,616,747   93,347,999    93,630,423
    Mutual installment deposits   6,860,103   6,728,736   6,958,043   7,054,752   8,058,664    7,491,115
    Mutual installment for housing   5,513,682   5,537,464   5,161,535   5,423,853   4,463,601    4,872,637
    Certificates of deposits   5,788,913   6,371,087   4,068,327   6,499,258   2,119,900    3,044,089
       
 
 
 
 
  

Subtotal

      129,836,361   128,017,962   125,048,960   130,704,898   118,644,815    122,026,006
       
 
 
 
 
  

Deposits in foreign currency

  1,514,789   1,900,982   1,276,952   1,475,374   1,096,544    1,083,647
       
 
 
 
 
  

Trust deposits

                            
    Money trust   8,136,774   7,567,983   13,064,749   10,278,357   17,214,936    15,356,285
    Property trust   18,836,553   16,024,160   24,512,746   21,453,761   16,783,690    26,852,684
       
 
 
 
 
  

Subtotal

      26,973,327   23,592,143   37,577,495   31,732,118   33,998,626    42,208,969
       
 
 
 
 
  

Total

      158,324,477   153,511,087   163,903,407   163,912,390   153,739,985    165,318,622
       
 
 
 
 
  

 

2.2.2. Average Deposit per Domestic Branch

 

The following table shows the average balances of our deposits per domestic branch as of the dates indicated.

 

(Unit: in millions of Won)

     June 30, 2004

   December 31, 2003

   December 31, 2002

Deposits

   126,090    119,593    121,137

Deposits in Won

   124,976    118,756    120,336

 

13


Table of Contents

2.2.3. Average Deposit per Employee

 

The following table shows the average balances of our deposits per employee as of the dates indicated.

 

(Unit: in millions of Won)

     June 30, 2004

   December 31, 2003

   December 31, 2002

Deposits

   7,317    7,487    7,256

Deposits in Won

   7,252    7,434    7,208

 

2.2.4. Loan Balances

 

The following table shows the average balances of our loans for the periods ended and ending balances as of the dates indicated.

 

(Unit: in millions of Won)

     June 30, 2004

   December 31, 2003

   December 31, 2002

     Average
balance


   Ending
balance


   Average
balance


   Ending
balance


   Average
balance


   Ending
balance


Loans in Won

   125,616,836    125,823,004    121,705,493    123,715,244    105,117,047    116,441,303

Loans in foreign currency

   3,935,941    3,976,529    4,160,185    4,019,929    3,228,857    4,417,176

Advances to customers

   96,627    61,583    107,091    89,665    106,380    52,430

Subtotal

   129,649,404    129,861,116    125,972,769    127,824,838    108,452,284    120,910,909

Trust account loans

   456,659    435,427    531,500    489,788    789,614    575,412
    
  
  
  
  
  

Total

   130,106,063    130,296,543    126,504,269    128,314,626    109,241,898    121,486,321
    
  
  
  
  
  

 

2.2.5. Loan Balances as of June 30, 2004 by Remaining Years to Maturities

 

(Unit: in millions of Won)

     Less than 1 year

  

More than 1 year~

less than 3 years


  

More than 3 years~

less than 5 years


   More than 5 years

   Total

Loans in Won

   69,230,707    40,287,930    5,464,291    10,840,076    125,823,004

Loans in foreign currencies

   2,769,561    531,536    376,804    298,628    3,976,529

 

14


Table of Contents

2.2.6. Loan Balances by Types

 

The following table shows the banking account balances of our loans in Won by uses as of the dates indicated.

 

          (Unit: in millions of Won)
          June 30, 2004

   December 31, 2003

   December 31, 2002

Loans to enterprise

                   
     Loans for operations    35,023,952    35,351,506    35,369,066
     Loans for facility    6,522,031    6,631,703    5,963,631

Loans to households

        43,079,968    42,884,305    40,477,483

Loans to public sector & others

                   
     Loans for operations    612,590    526,227    738,632
     Loans for facility    41,872    42,473    39,414

Loans on property formation savings

        12,741    62,963    95,252

Loans for housing

        40,517,033    38,199,290    33,731,435

Inter-bank loans

        9,452    12,815    20,941

Others

        3,365    3,962    5,449
         
  
  

Total

        125,823,004    123,715,244    116,441,303
         
  
  

 

2.2.7. Loan to Deposit Ratio

 

The following table shows loan to deposit ratio as of indicated dates.

 

    

(Units: in millions of Won, %)

     June 30, 2004

   December 31, 2003

   December 31, 2002

Loans1 (A)

   125,616,836    121,705,493    105,106,146

Deposits2 (B)

   129,836,362    125,048,960    118,644,815
    
  
  

Loan to deposit ratio (A/B)

   96.75    97.33    88.59
    
  
  

 

2.2.8. Acceptances and Guarantees

 

     (Unit: in millions of Won)
     June 30, 2004

   December 31, 2003

   December 31, 2002

Determined

   693,864    800,297    1,031,698

Contingent

   1,255,115    1,281,518    1,306,878
    
  
  

Total

   1,948,979    2,081,815    2,338,576
    
  
  

1. Average balance of loans in each indicated date
2. Average balance of deposits in each indicated date. The balances include certificate of deposits

 

15


Table of Contents

2.2.9. Breakdown of Securities Investment

 

The following table shows the average balances of our securities for the periods ended and ending balances as of the indicated dates.

 

           

(Unit: in millions of Won)

        June 30, 2004

  December 31, 2003

  December 31, 2002

        Average
balance


  Ending
balance


  Average
balance


  Ending
balance


  Average
balance


   Ending
balance


Securities in Won (Banking account)

                            
    Monetary
stabilization
bonds
  6,268,456   6,929,757   4,343,978   5,540,598   2,834,534    3,269,269
    Government
and public
bonds
  5,013,583   4,572,689   5,630,422   5,885,595   4,272,946    5,252,321
    Debentures   6,100,300   5,740,146   11,028,217   7,149,089   13,154,258    12,378,717
    Stocks   968,806   974,539   1,380,254   877,013   2,146,149    1,661,682
    Others   5,380,418   5,087,489   7,687,051   7,299,404   7,809,012    7,162,134
       
 
 
 
 
  

Subtotal

      23,731,563   23,304,620   30,069,922   26,751,699   30,216,899    29,724,123
       
 
 
 
 
  

Securities in Won (Trust account)

                            
    Monetary
stabilization
bonds
  1,294,271   1,316,630   984,380   878,077   1,309,515    583,379
    Government
and public
bonds
  772,443   1,080,039   1,182,165   1,252,419   2,023,503    1,323,195
    Debentures   2,513,939   2,206,600   5,876,064   4,080,362   8,035,960    7,600,794
    Stocks   599,027   540,768   763,277   592,379   904,921    924,514
    Others   1,938,599   2,067,226   3,208,160   2,106,262   3,945,649    3,821,884
       
 
 
 
 
  

Securities in foreign currency (Trust Account)

  740,683   683,073   868,819   767,675   559,964    747,253
       
 
 
 
 
  

Subtotal

      7,858,962   7,894,336   12,882,865   9,677,174   16,779,512    15,001,019
       
 
 
 
 
  

Securities in foreign currency (Banking account)

                            
    Foreign
securities
  962,949   961,881   1,066,595   992,408   945,199    960,749
    Off-shore
foreign
securities
  327,201   280,310   306,376   355,737   320,423    255,878
       
 
 
 
 
  

Subtotal

      1,290,150   1,242,191   1,372,971   1,350,145   1,265,622    1,216,627
       
 
 
 
 
  

Total

      32,880,675   32,441,147   44,325,758   37,779,018   48,262,033    45,941,769
       
 
 
 
 
  

 

2.2.10. Trust Account

 

         

(Unit: in millions of Won)

     June 30, 2004

   December 31, 2003

   December 31, 2002

     Total amount
trusted


   Trust
fees


   Total amount
trusted


   Trust
fees


   Total amount
trusted


   Trust
fees


Return-guaranteed trust

   368    312    559    45,682    1,528    59,530

Performance trust

   23,591,775    50,960    37,576,936    186,851    33,997,098    241,444
    
  
  
  
  
  

Total

   23,592,143    51,272    37,577,495    232,533    33,998,626    300,974
    
  
  
  
  
  

 

16


Table of Contents

2.2.11. Credit Card

 

(Unit: in millions of Won unless indicated otherwise)

          As of or for the years ended of indicated dates

          June 30, 2004

   December 31, 2003

   December 31, 2002

Number of card holders (Person)

                   
     Corporate    133,867    147,813    153,425
     Individual    10,271,855    10,990,703    11,638,968
         
  
  

Number of merchants

        1,521,364    1,528,872    1,589,015
         
  
  

Profit

   Sales1    33,227,100    92,535,500    111,076,680
     Fee revenue    1,495,830    4,012,017    3,482,289

 

2.3. Branch Networks

 

As of June 30, 2004, we had 1,085 branches and 46 sub-branches in Korea, the largest number of branches among Korean commercial banks. Approximately 41.9% of our branches and sub-branches are located in Seoul.

 

We also have three overseas branches in Tokyo, New York and Auckland, and 1 overseas office in Guangzhou in China


1. Includes credit card receivables and cash advances.

 

17


Table of Contents

2.4. Other Information for Investment Decision

 

2.4.1. BIS Risk-adjusted Capital Ratios

 

(Units: in millions of Won, %)

     June 30, 2004

  December 31, 2003

   December 31, 2002

Risk-adjusted capital (A)

   12,951,312   12,739,857    14,439,313

Risk-weighted assets (B)

   124,863,630   127,397,339    138,703,021
    
 
  

BIS ratios (A/B)

   10.371   10.00    10.41
    
 
  

 

2.4.2. Non-Performing Loans2

 

(Units: in millions of Won unless indicated otherwise)

June 30, 2004


 

December 31, 2003


 

Change


Amount


 

NPL to total loans


 

Amount


 

NPL to total loans


 

Amount


 

NPL to total loans


4,320,117

  3.06%   4,202,254   2.99%   117,863   0.07%p

 

2.4.3. Loan Loss Allowances

 

The following table shows the balance of our loan losses allowances as of the dates indicated.

 

(Units: in millions of Won)

          June 30, 2004

   December 31, 2003

   December 31, 2002

Loan losses allowance

                   
     Loans in Won    2,668,535    2,271,198    1,905,065
     Loans in foreign currencies    57,279    68,045    103,838
     Credit card    896,135    1,187,616    284,491
     Others    211,549    163,482    85,302
         
  
  
     Total    3,833,498    3,690,341    2,378,696
         
  
  

Write-offs for the Period

   2,414,274    4,509,979    1,527,311
         
  
  

1 Tentative ratio
2. Non-performing loans are defined as those loans that are past due more than 90 days or that are placed non-accrual status according to the Financial Supervisory Service’s guidelines.

 

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Table of Contents

2.4.4. Changes of Loan Loss Allowances for Recent Three Years

 

(Unit: in millions of Won)

     June 30, 20041

    December 31, 2003

   December 31, 2002

 

Beginning balance

   3,905,342     2,378,696    2,271,179  

Net Write-Off(-)

   2,234,379     2,728,891    1,485,962  

Write-Off

   2,414,274     4,509,979    1,527,311  

Recovery

   272,065     767,718    269,533  

Other

   (92,170 )   1,013,370    (228,184 )
    

 
  

Provision for loan losses

   2,162,535     4,040,536    1,593,479  
    

 
  

Ending balance

   3,833,498     3,690,341    2,378,696  
    

 
  


1 Available-for-sale subordinated retained interest is reclassified into credit card receivables and its related allowances for loans losses have been added to the beginning balance.

 

19


Table of Contents

3. Financial Information

 

3.1. Non-Consolidated Condensed Financial Statements

 

(Unit: in millions of Won)

 
     As of or for the years ended of indicated dates

 
     June 30, 2004

    December 31, 2003

 

Cash and due from banks

   7,824,992     6,526,345  

Securities

   24,546,809     26,908,462  

Loans

   139,887,993     141,143,674  

Fixed assets

   2,944,831     3,019,556  

Other assets

   9,549,898     6,484,239  
    

 

Total assets

   184,754,523     184,082,276  
    

 

Deposits

   129,918,944     132,180,272  

Borrowings

   11,375,873     10,902,800  

Debentures

   19,668,297     19,192,581  

Other liabilities

   14,969,653     13,392,109  
    

 

Total Liabilities

   175,932,767     175,667,762  
    

 

Common stocks

   1,681,896     1,681,896  

Capital surplus

   6,230,738     6,230,738  

Retained earnings

   1,971,342     1,662,119  

Capital adjustments

   (1,062,220 )   (1,160,239 )
    

 

Total shareholders’ equity

   8,821,756     8,414,514  
    

 

Liabilities and Shareholders’ Equity

   184,754,523     184,082,276  
    

 

Operating revenue

   9,600,767     15,584,501  

Operating income

   350,550     76,084  

Continuing (loss) income before income taxes

   447,364     (1,146,444 )
    

 

Net (loss) income

   307,561     (753,348 )
    

 

 

3.2. Other Financial Information

 

See Exhibit 99.1, Kookmin Bank Non-Consolidated Interim Report by our independent auditors for our full financial statements and relevant notes. The Report is also available at our website www.kbstar.com.

 

20


Table of Contents

4. Independent Accountant Fees and Services

 

4.1. Audit & Review Fees

 

Our financial statements for the first quarter of 2004 have been reviewed by Samil Accounting Corporation, a Korean member firm of PRICEWATERHOUSECOOPERS. The aggregate contract fee for the audit and review fees for the fiscal year 2004 is 1,200 million Won.

 

4.2. Non-Audit Services

 

The following is a description of non-audit services rendered by our independent auditor for the recent three years.

 

(Units: in millions of Won unless indicated otherwise)

Year


  

Service description


  

Amount of payment


2004

   -    —  

2003

         
     - US GAAP conversion for 2003    US$3,950 thousand
     - US GAAP conversion for 2002    US$3,800 thousand
     - Due Diligence on Kookmin Credit Card    250
     - SEC Filing regarding the proposed merger with Kookmin Credit Card    US$30 thousand

2002

         
     - Project for improving the accounting process    690
     - Advisory service for the conversion process in US GAAP    1,450

 

21


Table of Contents

5. Corporate Governance and Affiliated Companies

 

5.1. Board of Directors & Committees under the Board

 

The board of directors holds regular meetings every quarter. The board of directors consists of directors and resolves each following matter:

 

  matters relating to business objectives and performance evaluation;

 

  matters relating to amendments of the Articles of Incorporation;

 

  matters relating to budget and accounting including salaries of directors and employees;

 

  matters relating to major organizational changes such as dissolution, business transfer and merger;

 

  matters relating to internal control standards; or

 

  other matters determined by law and the board of directors regulations.

 

We currently have six management committees that serve under the board:

 

  the Board Steering Committee;

 

  the Management Strategy Committee;

 

  the Risk Management Committee;

 

  the Audit Committee;

 

  the Compensation Committee; and

 

  the Non Executive Director Nominating Committee.

 

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of stockholders. For list of our directors, see 6. Directors, Senior Management and Employees / 6.1. Executive Directors and 6.2. Non-Executive Directors.

 

5.2. Audit Committee

 

Audit Committee oversees our financial reporting and approves the appointment of and interaction with our independent auditors, compliance officers, management personnel and other committee advisors. The committee also reviews our financial information, auditor’s examinations, key financial statement issues and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors to each general meeting of stockholders. The committee holds regular meetings every quarter and as-needed basis.

 

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Table of Contents

5.3. Compensation to Directors

 

For the 6 months period ended June 30, 2004, the aggregate of the remuneration paid by us to 1 President & CEO and our other executive directors and 2) our non-executive directors was 2,265 million Won, 325 million Won, respectively. The following table shows the breakdown of the remuneration.

 

(Units: in millions of Won)
     The aggregate
remuneration paid


   Limit for the remuneration
resolved by shareholders’
meeting


   Average amount of the
payment per person


1) Executive Directors

   2,265    8,000    492

2) Non Executive Directors

   325         24
    
  
  

Total

   2,590    8,000    148
    
  
  

 

As part of remuneration, Kookmin Bank also granted stock options to directors. See 1.3.3. Stock Option.

 

5.4. Voting Rights of Shareholders

 

Each outstanding share of our common stock is entitled to one vote per share. If the method of written resolution at the general meeting of shareholders is adopted by resolution of the board of directors, at which the convening of the general meeting of shareholders is determined, the shareholders may exercise their voting rights in writing without participating the meeting in person. In this case, the Bank is required to send the documents and references necessary for exercise of voting rights, together with the convening notice. If a shareholder intends to exercise his/her voting rights in writing, the shareholder is required to fill in a certain form and submit it to the Bank one day before the date set for the general meeting of shareholders.

 

5.5. Share Ownership

 

The following table presents information regarding the selected major ownership of our shares as of December 31, 2003, the latest record date.

 

(Unit: Shares, %)

Name


   Number of Shares of Common Stock

   Percentage of Total Issued Shares

The Bank of New York1

   35,000,566    10.41

Kookmin Bank2

   30,016,623    8.92

ING Bank N.V.

   12,716,691    3.78

Euro-Pacific Growth Fund

   10,682,290    3.18

Emerging Markets Growth

   10,125,055    3.01

National Pension Fund

   7,496,146    2.23

Goldman Sachs Capital SH

   3,831,151    1.14

1 Depositary of ADRs
2 Treasury stocks with no voting right

 

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Table of Contents

5.6. Affiliated Companies

 

5.6.1. List of Affiliates1

 

As of June 30, 2004, we have following affiliates.

 

  KB Investment Co., Ltd.

 

  KB Asset Management Co., Ltd.

 

  KB Real Estate Trust Co., Ltd.

 

  KB Credit Information Co., Ltd.

 

  KB Data Systems Corporation

 

  KB Futures Co., Ltd.

 

  KB Life Co., Ltd.

 

  ING Life Korea Ltd.

 

  Kookmin Bank Luxemburg. S.A.

 

  Kookmin Bank International (London) Ltd.

 

  Kookmin Finance Hong Kong Ltd.

 

  Sorak Financial Holdings

 

5.6.2. Operating Results of Affiliates

 

          (Unit: in millions of Won)  
          Operating results of the latest fiscal year

 

Company name


   Closing date

   Total
Assets


   Total
Liabilities


   Total
Equities


   Sales

  

Net

Income


 

KB Investment

   December 31, 2003    95,555    18,194    77,361    19,227    5,300  

KB Asset Management

   March 31, 2004    61,432    4,113    57,319    24,401    9,711  

KB Real Estate Trust

   December 31, 2003    257,724    159,595    98,129    56,613    10,402  

KB Credit Information

   December 31, 2003    25,177    7,385    17,792    43,717    3,841  

KB Data Systems Corp.

   December 31, 2003    17,898    3,244    14,654    37,389    1,035  

KB Futures

   March 31, 2004    35,791    9,973    25,818    8,691    1,056  

KB Life2

   June 30, 2004    127,177    9,329    29,671    5,615    (329 )

ING Life Korea

   March 31, 2004    3,461,826    3,228,415    233,411    1,865,503    103,088  

Kookmin Bank Luxemburg

   June 30, 2004    7,592    3,057    4,535    1,026    6  

Kookmin Bank International (London)

   June 30, 2004    310,655    255,546    310,655    4,909    1,090  

Kookmin Finance HK

   June 30, 2004    443,679    376,692    66,987    6,206    3,814  

Sorak Financial Holdings

   June 30, 2004    319,538    45,923    273,615    —      (14 )

1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures.
2 Since its establishment (i.e. April 29 ~ June 30, 2004)

 

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Table of Contents

6. Directors, Senior Management and Employees

 

As of August 13, 2004, our board of directors, which consists of 3 executive directors and 11 non-executive directors, has the ultimate responsibility for the management of our affairs.

 

6.1. Executive Directors

 

Our 3 executive directors consist of President & CEO and two executive vice presidents.

 

The names and positions of our directors with Kookmin Bank’s common stocks owned are set forth below.

 

Name


   Date of Birth

  

Position


   Common Stocks Owned

Jung Tae Kim

   08/15/1947    President & CEO    126,581

Seong Kyu Lee

   10/25/1059    Executive Director & EVP    —  

Donald H. MacKenzie

   12/20/1948    Executive Director & EVP    —  

 

6.2. Non-Executive Directors

 

Our non-executive directors are selected based on the candidates’ talents and skills in diverse areas, such as law, finance, economy, management and accounting. As of August 13, 2004, 11 non-executive directors are in office.

 

Our current non-executive directors with Kookmin Bank’s shares owned are as follows.

 

Name


   Date of Birth

  

Position


   Common Stocks Owned

Moon Soul Chung

   03/07/1938    Non-Executive Director    4,851

Richard Elliott Lint

   01/04/1946    Non-Executive Director    910

Sun Jin Kim

   06/08/1942    Non-Executive Director    3,935

Dong Soo Chung

   09/24/1945    Non-Executive Director    860

Kyung Hee Yoon

   01/05/1947    Non-Executive Director    —  

Suk Yong Cha

   06/09/1953    Non-Executive Director    1,240

Bernard S. Black

   11/13/1953    Non-Executive Director    900

Ki Hong Kim

   01/10/1957    Non-Executive Director    1,360

Woon Youl Choi

   04/02/1950    Non-Executive Director    9,049

Wang Ha Cho

   09/18/1953    Non-Executive Director    361

Young Soon Cheon

   02/01/1961    Non-Executive Director    290

 

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Table of Contents

6.3. Senior Management

 

In addition to the executive directors who are also our executive officers, we currently have the following 7 executive officers as of August 13, 2004.

 

Name


   Date of Birth

  

Position


   Common Shares Owned

Jong Kyoo Yoon

   10/13/1955    Senior Executive Vice President    3,300

Jeung Lak Lee

   06/13/1958    Senior Executive Vice President    —  

Sang Jin Lee

   05/21/1955    Senior Executive Vice President    1,078

Yun Keun Jung

   07/01/1951    Senior Executive Vice President    2,416

Jung Young Kang

   01/29/1951    Senior Executive Vice President    —  

Young Il Kim

   07/06/1953    Senior Executive Vice President    3,327

Ki Sup Shin

   10/29/1955    Senior Executive Vice President    280

 

6.4. Compensation to Directors and Senior Management

 

The total compensation to both directors and senior management for the first half of 2004, excluding grant of stock options, is 5,121,164,583 Won, and the average compensation amount per person is 150,622,483 Won. During the 6 months, we had 20 directors and 14 executive vice presidents.

 

6.5. Employees

 

The following table shows the breakdown of our employees as of June 30, 2004.

 

(Unit: in millions of Won)

     Number of Employees

   Average Tenure
of the Full-time
Employees


   Total Payment for
the 1st half of 2004


  

Average Monthly
Payment

per Person


     Full-time

   Contractual

   Total

        

Male

   14,108    1,232    15,340    16.13    414,204    4.5

Female

   4,945    7,880    12,825    13.41    216,175    2.8

Total

   19,053    9,112    28,165    15.43    630,379    3.7

 

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Table of Contents

7. Related Party Transaction

 

A number of banking transactions are entered into with related parties in the ordinary course of business. Generally, these transactions include loans, deposits, debt securities and other arms-length transactions relating to our banking business. These transactions are carried out on commercial terms and conditions and at market rates.

 

7.1. Transactions with the Largest Shareholders or Affiliates

 

7.1.1. Investments in Affiliates1

 

(Unit: in millions of Won)

Name


  

Relation

with the

Bank


  

Account


  

Par

Value


  

Beginning

Balance

(January 1, 2004)


   Increase

   Decrease

  

Ending

Balance

(June 30, 2004)


KB Real Estate Trust    Affiliate    Equity Securities of Affiliate    79,999    79,999    —      —      79,999
KB Investment    Affiliate    Equity Securities of Affiliate    44,708    44,708    —      —      44,708
KB Asset Management    Affiliate    Equity Securities of Affiliate    30,670    30,670    —      —      30,670
KB Futures    Affiliate    Equity Securities of Affiliate    19,996    19,996    —      —      19,996
KB Data Systems Corp.    Affiliate    Equity Securities of Affiliate    7,998    7,998    —      —      7,998
KB Credit Information    Affiliate    Equity Securities of Affiliate    4,154    4,154    —      —      4,154
KB Life    Affiliate    Equity Securities of Affiliate    30,000    0    30,000    —      30,000
ING Life Korea    Affiliate    Equity Securities of Affiliate    14,000    14,000    —      —      14,000
KOMOCO    Affiliate    Equity Securities of Affiliate    30,000    30,000    —      30,000    0
              
  
  
  
  

Total

             261,525    231,525    30,000    30,000    231,525
              
  
  
  
  

1 Excluding Jooeun Industry and Jangeun Securities which have been under liquidation procedures

 

27


Table of Contents

7.1.2. Real Estate Transactions with Affiliates

 

 

(Unit: in millions of Won)

Name


  

Relation with

the Bank


  

Type


  

Account


  

The Number

of Contracts


   Deposits

   Rent Fee

KB Credit Information

   Affiliate    Building    Rental Income    20    4,610.96    11.73

KB Real Estate Trust

   Affiliate    Building    Rental Income    2    1,738.00    3.56

KB Data Systems Corp.

   Affiliate    Building    Rental Income    1    2,484.31    —  

KB Futures

   Affiliate    Building    Rental Income    1    1,363.36    —  

KB Life

   Affiliate    Building    Rental Income    1    1,839.20    —  
              
  
  
  

Total

   —      —      —      25    12,035.83    15.29
              
  
  
  

 

7.2. Transactions with Other than the Largest Shareholders or Affiliates

 

7.2.1. Loans and Guarantees

 

(Unit: in millions of Won)  

Name


  

Relation with

the Bank


  

Account


  

Beginning Balance

(January 1, 2004, or

on the date of

appointment)


  

Ending Balance

(June 30, 2004)


  

Increase /

(Decrease) for the

period


 

DSME Co.

  

Related party of

Non executive director,

Dong Soo Chung

   Payment guarantee    625    656    31  
                            

Kolon Co.

  

Related party of

Non executive director, Wang Ha Cho

   Overdraft    30,000    0    378
(30,378
 
)
                            

Kolon

Construction

  

Related party of

Non executive director, Wang Ha Cho

   Overdraft    0    0    77
(77
 
)
                            

Hankyoreh Plus

  

Related party of

Senior executive vice president,

Seong Kyu Lee

   Loans for working capital    6,915    6,394    945
(1,466
 
)
              
  
  

Total

             37,540    7,127    (30,413 )
              
  
  

 

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Table of Contents

7.2.2. Real Estate Transaction

 

(Unit: in millions of Won)

Name


 

Relation with

Kookmin Bank


  

Type


  

Account


   Deposits

   Rent Fee

Haitai

Confectionary &

Foods

 

Related party of

Non executive director, Suk Yong Cha

   Building    Rental Deposit    150    —  

DSME Co.

 

Related party of

Non executive director, Dong Soo Chung

   Building    Rental Deposit    —      11.04
                  
  

Total

                 150    11.04
                  
  

 

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Table of Contents

SIGNATURES

 

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

 

 

   

Kookmin Bank

   

(Registrant)

Date: August 23, 2004

 

By:

 

/s/ Ki Sup Shin


       

(Signature)

   

Name:

 

Ki Sup Shin

   

Title:

 

Senior Executive Vice President &

       

Chief Financial Officer

 

30


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Kookmin Bank

Non-Consolidated Interim Financial Statements

June 30, 2004 and 2003


Table of Contents

Kookmin Bank

Index

June 30, 2004 and 2003, and December 31, 2003


 

     Page(s)

Report of Independent Accountants

   1–2

Non-Consolidated Interim Financial Statements

    

Balance Sheets

   3

Statements of Operations

   4

Statements of Cash Flows

   5–6

Notes to Non-Consolidated Interim Financial Statements

   7–55


Table of Contents
LOGO        LOGO
         Samil PricewaterhouseCoopers
Kukje Center Building
191 Hankangro 2ga, Yongsanku
Seoul 140-702, KOREA
(Yongsan P.O. Box 266, 140-
600)

 

Report of Independent Accountants

 

To the Board of Directors and Shareholders of

Kookmin Bank

 

We have reviewed the accompanying non-consolidated balance sheet of Kookmin Bank (“the Bank”) as of June 30, 2004, and the related non-consolidated statements of operations and cash flows for the three-month and six-month periods ended June 30, 2004 and 2003, expressed in Korean Won. These interim financial statements are the responsibility of the Bank’s management. Our responsibility is to issue a report on these interim financial statements based on our review.

 

We conducted our reviews in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. These standards require that we plan and perform our review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of the Bank’s personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

Based on our reviews, nothing has come to our attention that causes us to believe that the non-consolidated interim financial statements referred to above are not presented fairly, in all material respects, in accordance with accounting principles generally accepted in the Republic of Korea.

 

We have audited the non-consolidated balance sheet of Kookmin Bank as of December 31, 2003 and the related non-consolidated statements of operations, appropriation of retained earnings and cash flows for the year then ended, in accordance with auditing standards generally accepted in the Republic of Korea. We expressed an unqualified opinion on those financial statements in our audit report dated March 3, 2004. These financial statements are not included in this review report. The non-consolidated balance sheet as of December 31, 2003, presented herein for comparative purposes, is consistent, in all material respects, with the above audited balance sheet as of December 31, 2003.

 

Samil PricewaterhouseCoopers is the Korean member firm of the PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.


Table of Contents

LOGO

 

As discussed in Note 33 to the non-consolidated financial statements, on May 30, 2003, the Bank obtained approval from the Board of Directors to enter into a merger agreement with Kookmin Credit Card Co., Ltd. (the “Subsidiary”), its majority-owned subsidiary. According to the resolution of the Board of Directors, the Bank merged with the Subsidiary on September 30, 2003. The merger was effected through an exchange of shares with the minority shareholders of the Subsidiary as of July 24, 2003, who received 0.442983 share of the Bank’s common stock for each share of the Subsidiary.

 

As discussed in Note 20 to the non-consolidated financial statements, in accordance with the resolution of the Board of Directors on December 17, 2003, the Bank acquired 27,423,761 of its own shares previously owned by the Korean government at (Won)43,700 per share through public bidding and intends to sell these shares of treasury stock depending on certain market conditions. As of June 30, 2004, the Bank holds 8.90% of the total common stock issued as treasury stock.

 

As discussed in Note 4 to the non-consolidated financial statements, as a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) on April 29, 2004, to acquire a 100% ownership of KB Life Insurance Co., Ltd., which was founded to acquire the assets and the liabilities of Hanil Life Insurance Co., Ltd.

 

As discussed in Note 16 and 34 to the non-consolidated financial statements, the Bank’s total exposure (including loans and securities) to LG Card Co., Ltd., which is under the joint control of financial institutions as it is currently experiencing a financial crisis, amounts to (Won)715,249 million as of June 30, 2004. And a second debt-equity swap amounting to (Won)362,250 million was executed in July 28, 2004. In addition, the Bank holds securities issued by credit card companies and capital companies, which are experiencing liquidity problems, amounting to (Won)263,289 million as of June 30, 2004. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying financial statements.

 

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

 

Seoul, Korea

July 15, 2004

 

This report is effective as of July 15, 2004, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

2


Table of Contents

Kookmin Bank

Non-Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

(Unaudited)


 

(in millions of Korean Won)    2004

    2003

 

Assets

                

Cash and due from banks (Note 3)

   (Won) 7,824,992     (Won) 6,526,345  

Securities (Note 4)

     24,546,809       26,908,462  

Loans (Notes 5 and 6)

     139,887,993       141,143,674  

Fixed assets (Note 7)

     2,944,831       3,019,556  

Other assets (Note 8)

     9,549,898       6,484,239  
    


 


Total assets

   (Won) 184,754,523     (Won) 184,082,276  
    


 


Liabilities and Shareholders’ Equity

                

Deposits (Note 9)

   (Won) 129,918,944     (Won) 132,180,272  

Borrowings (Note 10)

     11,375,873       10,902,800  

Debentures (Note 11)

     19,668,297       19,192,581  

Other liabilities (Note 13)

     14,969,653       13,392,109  
    


 


Total liabilities

     175,932,767       175,667,762  
    


 


Commitments and contingencies (Notes 14 and 16)

                

Common stock ((Won)5,000 par value per share, 1 billion shares authorized and 336,379,116 shares outstanding in 2004) (Notes 1 and 17)

     1,681,896       1,681,896  

Capital surplus (Note 18)

     6,230,738       6,230,738  

Retained earnings (Note 19)

     1,971,342       1,662,119  

Capital adjustments (Note 20)

     (1,062,220 )     (1,160,239 )
    


 


Total shareholders’ equity

     8,821,756       8,414,514  
    


 


Total liabilities and shareholders’ equity

   (Won) 184,754,523     (Won) 184,082,276  
    


 


 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

3


Table of Contents

Kookmin Bank

Non-Consolidated Statements of Operations

Three-Month and Six-Month Periods Ended June 30, 2004 and 2003

(Unaudited)


 

(in millions of Korean Won, except per share amounts)    Three-month period

    Six-month period

 
     2004

   2003

    2004

   2003

 

Interest income

                              

Interest on due from banks

   (Won) 2,265    (Won) 1,388     (Won) 4,138    (Won) 5,167  

Interest on trading securities

     40,035      27,296       79,686      51,818  

Interest on available-for-sale securities

     107,440      176,792       262,864      344,469  

Interest on held-to-maturity securities

     91,207      175,238       185,960      363,497  

Interest on loans

     2,600,955      2,413,620       5,286,060      4,791,321  

Other interest income

     25,934      26,616       50,698      49,382  
    

  


 

  


       2,867,836      2,820,950       5,869,406      5,605,654  
    

  


 

  


Interest expenses

                              

Interest on deposits

     976,330      1,079,533       2,018,923      2,183,020  

Interest on borrowings

     98,690      105,782       179,322      214,312  

Interest on debentures

     265,476      280,770       530,500      564,021  

Other interest expenses

     15,791      20,016       38,281      32,722  
    

  


 

  


       1,356,287      1,486,101       2,767,026      2,994,075  
    

  


 

  


Net interest income

     1,511,549      1,334,849       3,102,380      2,611,579  

Provision for loan losses (Note 6)

     1,062,339      1,026,698       2,162,535      1,685,764  
    

  


 

  


Net interest income after provision for loan losses

     449,210      308,151       939,845      925,815  
    

  


 

  


Non-interest income

                              

Fees & commission income

     565,053      344,963       1,112,470      681,829  

Dividends on trading securities

     249      —         2,965      1,514  

Dividends on available-for-sale securities

     3,544      2,622       7,614      5,288  

Gain on foreign currency transactions

     71,564      35,210       121,769      165,926  

Gain on derivatives transactions (Note 15)

     642,805      498,267       1,459,391      1,240,561  

Others (Note 22)

     657,050      500,401       1,027,152      546,430  
    

  


 

  


       1,940,265      1,381,463       3,731,361      2,641,548  
    

  


 

  


Non-interest expenses

                              

Fees and commission expenses

     119,005      43,143       252,368      92,378  

General and administrative expenses (Note 23)

     652,549      628,663       1,315,626      1,210,779  

Loss on foreign currency transactions

     33,804      46,213       79,894      129,016  

Loss on derivatives transactions (Note 15)

     606,002      465,014       1,418,054      1,214,154  

Others (Note 22)

     839,025      574,745       1,254,714      624,648  
    

  


 

  


       2,250,385      1,757,778       4,320,656      3,270,975  
    

  


 

  


Operating income (loss)

     139,090      (68,164 )     350,550      296,388  

Non-operating income (expenses), net (Note 24)

     79,757      (117,275 )     96,814      (334,712 )
    

  


 

  


Net income (loss) before income tax expense

     218,847      (185,439 )     447,364      (38,324 )

Income tax expense (benefit) (Note 25)

     62,544      (70,838 )     139,803      2,344  
    

  


 

  


Net income (loss)

   (Won) 156,303    (Won) (114,601 )   (Won) 307,561    (Won) (40,668 )
    

  


 

  


Basic earnings (loss) per share (In Won) (Note 26)

                  (Won) 1,004    (Won) (125 )
                   

  


 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

4


Table of Contents

Kookmin Bank

Non-Consolidated Statements of Cash Flows

Three-Month and Six-Month Periods Ended June 30, 2004 and 2003

(Unaudited)


 

(in millions of Korean Won)    Three-month period

    Six-month period

 
     2004

    2003

    2004

    2003

 

Cash flows from operating activities

                                

Net income (loss)

   (Won) 156,303     (Won) (114,601 )   (Won) 307,561     (Won) (40,668 )
    


 


 


 


Adjustments to reconcile net income (loss) to net cash provided by operating activities

                                

Realized loss (gain) on trading securities, net

     19,733       (15,417 )     (30,451 )     (42,500 )

Unrealized gain on trading securities, net

     (750 )     (39,005 )     (18,005 )     (56,625 )

(Gain) loss on foreign currency transactions, net

     (37,760 )     11,003       (41,875 )     (36,910 )

Provision for loan losses

     1,062,339       1,026,698       2,162,535       1,685,764  

Reversal of losses from guarantees and acceptances

     3       122,950       219       122,746  

Gain on derivative transactions, net

     (36,803 )     (33,253 )     (41,337 )     (26,407 )

Loss (gain) on valuation of derivatives, net

     34,069       (11,652 )     22,424       (13,224 )

(Gain) loss on fair value hedged items, net

     (21,962 )     6,671       (12,263 )     8,076  

Retirement benefits

     25,846       22,040       55,163       45,990  

Stock compensation expense

     2,478       —         4,250       —    

Depreciation and amortization

     104,765       109,440       201,978       210,912  

Loss (gain) on disposal of fixed assets, net

     122       32,188       (151 )     33,553  

Realized gain on available-for-sale securities, net

     (24,972 )     (46,843 )     (77,524 )     (86,530 )

Impairment loss on available-for-sale securities, net

     49,374       46,397       59,759       38,627  

Realized gain on held-to-maturity securities

     (33 )     (475 )     (1,509 )     (1,268 )

Unrealized (gain) loss on investment in associates, net

     (5,358 )     91,990       (16,479 )     349,642  

(Gain) loss on sale of loans, net

     (66,425 )     420       (66,655 )     1,633  

Provision for other allowances

     192,445       —         252,136       —    

Others, net

     (142,782 )     (6,454 )     (144,928 )     (12,796 )

Changes in assets and liabilities resulting from operations

                                

Accrued income

     10,056       (61,502 )     53,106       24,382  

Prepaid expenses

     (39,803 )     3,206       162,773       (29,166 )

Deferred tax assets

     (16,347 )     3,771       62,606       (167,223 )

Other assets

     (1,769 )     (251 )     (464 )     3,168  

Accrued expenses

     28,043       (200,965 )     (96,165 )     (174,510 )

Unearned income

     (6,625 )     (8,230 )     (2,818 )     (9,163 )

Withholding taxes

     (16,222 )     9,236       (42,985 )     12,214  

Other liabilities

     (35,626 )     (67,749 )     (106,450 )     275,557  

Payment of retirement benefits

     (4,031 )     (3,953 )     (30,174 )     (7,225 )

Retirement pension funds

     615       183,484       14,448       (10,752 )

Account for agency business

     6,777       —         (51,685 )     —    

Stock compensation expense

     —         3,805       —         (2,683 )
    


 


 


 


Net cash provided by operating activities

     1,235,700       1,062,949       2,577,040       2,094,614  
    


 


 


 


 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

5


Table of Contents

Kookmin Bank

Non-Consolidated Statements of Cash Flows

Three-Month and Six-Month Periods Ended June 30, 2004 and 2003

(Unaudited)


 

(in millions of Korean Won)    Three-month period

   

Six-month period


 
     2004

    2003

    2004

    2003

 

Cash flows from investing activities

                                

(Increase) decrease in due from banks

   (Won) (2,922,799 )   (Won) 974,688     (Won) (1,621,484 )   (Won) (699,744 )

Decrease in trading securities

     1,380,423       573,215       246,950       876,918  

Decrease (increase) in available-for-sale securities

     1,006,174       (66,010 )     2,036,918       (4,089,009 )

(Increase) decrease in held-to-maturity securities

     (102,848 )     462,681       385,906       1,492,244  

Acquisition of investment in associates

     15,185       —         2,932       —    

Increase in loans granted, net

     (1,285,573 )     (3,359,993 )     (1,020,915 )     (6,736,889 )

Proceeds from disposal of fixed assets

     1,234       126,525       3,897       133,742  

Acquisition of fixed assets

     (58,029 )     (114,917 )     (86,556 )     (173,845 )

Acquisition of intangible assets

     (528 )     (70 )     (759 )     (340 )

Proceeds from disposal of foreclosed assets

     168       248       199       279  

Decrease (increase) in guarantee deposits

     18,084       (13,989 )     53,360       (21,046 )

Decrease (increase) in other accounts receivable

     37,031       (1,742,280 )     (3,453,043 )     (1,692,171 )

Decrease (increase) in payments in advance

     4,643       (13,284 )     4,038       (27,683 )

Decrease (increase) in derivative assets, net

     101,867       (20,065 )     68,540       64,537  

Decrease in collection of domestic exchange receivables

     355,273       328,534       198,936       764,687  

Collection of loans to trust accounts

     —         29,869       —         36,748  
    


 


 


 


Net cash used in investing activities

     (1,449,695 )     (2,834,848 )     (3,181,081 )     (10,071,572 )
    


 


 


 


Cash flows from financing activities

                                

(Decrease) increase in deposits, net

     (718,795 )     3,281,589       (2,261,326 )     4,592,498  

(Decrease) increase in borrowings, net

     (2,529,260 )     (415,760 )     473,073       2,637,463  

Increase (decrease) in debentures, net

     3,211,377       (2,024,557 )     475,716       (493,759 )

(Decrease) increase in borrowings from trust accounts

     (216,632 )     192,924       (2,687,207 )     734,550  

Increase in other accounts payable

     410,643       1,702,214       3,610,823       1,536,531  

Increase in advances received from customers

     191,665       483,570       272,337       1,169,615  

(Decrease) increase in guarantee deposits received

     (1,022 )     2,161       (13,666 )     (7,229 )

Increase in domestic exchange payables

     409,113       239,705       174,792       (191,352 )

(Decrease) increase in liabilities incurred by agency relationships

     (558,375 )     (887,284 )     229,331       (50,079 )

Stock options exercised

     —         —         —         (35 )

Sale of treasury stock

     1,441       —         2,234       50  

Decrease in dividend payable

     —         (3 )     —         (325,183 )
    


 


 


 


Net cash provided by financing activities

     200,155       2,574,559       276,107       9,603,070  
    


 


 


 


Net (decrease) increase in cash and cash equivalents

     (13,840 )     802,660       (327,934 )     1,626,112  

Cash and due from banks, beginning of period

     3,457,663       3,924,033       3,771,757       3,100,581  
    


 


 


 


Cash and due from banks, end of period(Note 34)

     3,443,823       4,726,693       3,443,823       4,726,693  
    


 


 


 


 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

6


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

1. The Bank

 

Kookmin Bank (“the Bank”) was established in 1963 under the Citizens National Bank Act to provide and administer funds for financing the general public and small businesses. Pursuant to the repeal of the Citizens National Bank Act, effective January 5, 1995, the Bank has conducted its operations in accordance with the provisions of the General Banking Act.

 

The Bank merged with Korea Long Term Credit Bank (“KLB”) on December 31, 1998 and with Daegu, Busan, Jeonnam Kookmin Mutual Savings & Finance Co., Ltd. on August 22, 1999. Also, under the decision of the Financial Supervisory Commission in accordance with the Structural Improvement of the Financial Industry Act, the Bank purchased certain assets, including loans classified as normal or precautionary, and assumed most of the liabilities of Daedong Bank as of June 29, 1998. Also, the Bank completed the legal consolidation with Housing and Commercial Bank (“H&CB”) as of October 31, 2001 (Note 32) and merged with Kookmin Credit Card Co., Ltd. (the “Subsidiary”), its majority-owned subsidiary, on September 30, 2003 (Note 33).

 

The Bank has its shares listed on the Korea Stock Exchange since September 1994. As a result of the business combination with H&CB, the former shareholders of the Bank and H&CB received new common shares of the Bank on the basis of a pre-determined ratio. The new common shares of the Bank were relisted on the Korea Stock Exchange on November 9, 2001. As of June 30, 2004, the Bank’s paid-in capital amounts to (Won)1,681,896 million and 39,723,137 shares of the Bank are listed on the New York Stock Exchange as American Depositary Shares (“ADSs”).

 

The Bank engages in the banking and trust businesses according to the provisions of the General Banking Act and the Trust Business Act, and operates through 1,131 domestic branches and offices (excluding ATMs) and three overseas branches as of June 30, 2004.

 

2. Summary of Significant Accounting Policies

 

The significant accounting policies followed by the Bank in the preparation of its non-consolidated financial statements are summarized below.

 

Basis of Financial Statement Presentation

 

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

 

Application of the Statements of Korean Financial Accounting Standards

 

The Bank has adopted Statements of Korean Financial Accounting Standards (“SKFAS”) No. 1~10, No.12 and No.13 (SKFAS No.10, No.12 and No.13 have been effective as of January 1, 2004) in the preparation of its financial statements. Except for the adoption of these SKFAS, the same accounting policies are applied for the financial statements as of and for the six-month period ended June 30, 2004 and as of and for the year ended December 31, 2003.

 

Accounting Estimates

 

The preparation of the non-consolidated financial statements requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management’s best knowledge of current events and actions that the Bank may undertake in the future, actual results may differ from those estimates.

 

See Report of Independent Accountants

 

7


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Recognition of Interest Income

 

The Bank recognizes interest income on loans and debt securities on an accrual basis. However, interest income on delinquent and dishonored loans and debt securities, other than those collateralized with security deposits or guaranteed by financial institutions, is recognized on a cash basis. As of June 30, 2004, the Bank has non-accrual loans and securities of (Won)9,994,965 million and (Won)583,068 million, respectively, with related foregone interest of (Won)528,671 million and (Won)170,185 million, respectively.

 

Securities

 

Securities that are bought and held principally for the purpose of generating profits on short-term differences in price, and which are actively and frequently bought and sold, are classified as trading securities. Debt securities with fixed or determinable payments and fixed maturity, and which the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities. Investments neither classified as trading securities nor held-to-maturity securities are classified as available-for-sale securities.

 

Securities are recognized initially at their fair value plus transaction costs that are directly attributable to the acquisition. The Bank uses the moving average method and specific identification method for determining the carrying value of equity securities and debt securities, respectively.

 

Trading and available-for-sale debt securities are carried at fair value using the average of quoted prices provided by bond pricing service institutions. Held-to-maturity debt securities are carried at amortized cost.

 

Marketable equity securities are carried at market prices and beneficiary certificates are carried at quoted prices provided by the beneficiary certificate dealers. However, non-marketable equity securities are carried at fair value only if the fair value is reasonably measurable. Otherwise, they are carried at cost.

 

Unrealized holding gains or losses on trading securities are charged to current operations and those resulting from available-for-sale securities are recorded as capital adjustments. Premiums and discounts on debt securities are amortized over the maturity period of the debt securities using the effective interest method. Impairment losses are recognized in the current operations when there is evidence of impairment and recoverable amounts of available-for-sale securities or held-to-maturity securities are less than either the acquisition cost of equity securities or the amortized cost of debt securities. Unrealized holding gains or losses on available-for-sale or held-to-maturity securities that had not been recognized through income are realized when the related securities are disposed of.

 

The wholly owned beneficiary certificates are each classified based on the Bank’s intention for acquiring the certificates. The fund assets of these wholly owned beneficiary certificates are comprised of deposits, call loans and securities, and the fund income is comprised of interest income, realized gains and losses, and valuation gains and losses. The Bank recorded all gains and losses from these wholly owned beneficiary certificates as income from beneficiary certificates. Accounting policies of these funds that are different from those of the Bank include application of the moving average method for determining the cost of debt securities and amortization of discounts/premiums on debt securities using the straight line method.

 

See Report of Independent Accountants

 

8


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Investments in Associates

 

Investments in associates, over which the Bank exercises significant control or influence, are accounted for using the equity method. Under the equity method, the Bank records changes in its proportionate ownership of the associate in the current operations as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investment in associate.

 

The Bank discontinues the equity method of accounting for investments in associates when the Bank’s share of accumulated losses of the associates equals the costs of the investments and until the subsequent cumulative changes in its proportionate net income of the associate equal its cumulative proportionate net losses not recognized during the periods when the equity method was suspended.

 

Differences between the initial purchase price and the Bank’s initial proportionate ownership of the net book value of the associate are amortized or accreted using an appropriate method and the resulting amortization is charged to current operations.

 

Gains and losses recorded by the Bank from inter-company transactions with associates are fully eliminated. Gains and losses recorded by the associates from these transactions are proportionately eliminated, based on the Bank’s percentage of ownership.

 

Deferred Loan Origination Fees and Costs

 

The Bank defers loan origination fees associated with originating loans and loan origination costs that have future economic benefits. Loan balances are reported net of these loan origination fees and costs. The deferred loan origination fees and costs are amortized using the effective interest method with the amortization recognized as adjustments to other interest income.

 

Allowances for Loan Losses

 

The Bank applies its internal credit rating system, the Forward Looking Criteria (“FLC”), to corporate loans in order to classify the borrowers and to determine the allowances for loan losses. The credit rating criteria are divided into 12 categories (AAA, AA, A, BBB, BB, BB-, B, B-, CCC, CC, C, D) with consideration of the credit risk of corporate borrowers, which is evaluated based on financial and non-financial risks, and the loan type, collateral and/or guarantees.

 

Allowances are determined by applying at minimum the following rates to the outstanding balances under each credit risk classification:

 

Credit Risk Classification


   Credit Ratings

   Allowance Rates

 

Normal

   AAA~B    0.50 %

Precautionary

   B-~CCC    2.00 %

Sub-standard

   CC    20.00 %

Doubtful

   C    50.00 %

Estimated loss

   D    100.00 %

 

See Report of Independent Accountants

 

9


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

However, the Bank classifies small-sized corporate loans, consumer loans, and credit card loans by considering the recoverable amounts of loans including delinquencies, bankruptcies and collateral value. The rates used for determining the allowances for losses from corporate loans, consumer loans and credit card loans are as follows:

 

Credit Risk Classification


   Allowance Rates

 
   Small-sized corporate

    Consumer

    Credit Card

 

Normal

   0.50 %   0.75 %   1.00 %

Precautionary

   2.00 %   8.00 %   12.00 %

Sub-standard

   20.00 %   20.00 %   20.00 %

Doubtful

   50.00 %   55.00 %   60.00 %

Estimated loss

   100.00 %   100.00 %   100.00 %

 

The Bank applies the credit risk classification used for loans to outstanding guarantees and acceptances, and provides allowances for losses of 20 %, 50 % and 100 % of the outstanding guarantees and acceptances classified as sub-standard, doubtful, and estimated loss, respectively.

 

Troubled Debt Structuring

 

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

 

Before the adoption of SKFAS No. 13, Troubled Debt Structuring, the difference between the nominal value and the present value of loan under troubled debt structuring agreements was recorded as present value discounts and was presented separately as a deduction from the loan nominal value. However, in accordance with the Bank’s adoption of SKFAS No. 13, unamortized present value discounts as of the beginning of the current period are classified as allowances for loan losses.

 

Fixed Assets and Related Depreciation

 

Tangible assets are recorded at cost, except for upward revaluation of certain assets in accordance with the Korean Asset Revaluation Law. Depreciation is calculated based on the estimated average useful lives of the assets and the accumulated depreciation is presented as a contra account of tangible assets in the financial statements. In addition, impairment loss is recognized based on the difference between the recoverable amount and the book value. The accumulated impairment loss is presented as a contra account of tangible assets in the financial statements.

 

See Report of Independent Accountants

 

10


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The estimated useful lives and depreciation methods of the tangible assets are as follows:

 

Tangible Assets


 

Depreciation Method


 

Estimated Useful Life


Buildings and structures

  Straight-line method   40 years

Leasehold improvements

  Declining balance method   4-5 years

Equipment and vehicles

  Declining balance method   4-5 years

 

Expenditures that enhance the value or extend the useful life of the related assets are capitalized as additions to tangible assets. Routine maintenance and repairs are recognized as expenses when incurred.

 

Foreclosed assets acquired through, or in lieu of, loan redemption are stated at cost and are not depreciated. A valuation allowance is recorded when the latest bidding price at a public auction is below the book value, and is presented as a contra account of foreclosed assets in the financial statements.

 

Intangible assets are amortized based on the following estimated average useful lives and are presented in the financial statements net of accumulated amortization:

 

Intangible assets


 

Amortization Method


 

Estimated Useful Life


Goodwill   Straight-line method   9 years
Development costs   Straight-line method   5 years
Trademarks   Straight-line method   1-10 years
Others   Straight-line method   5-30 years

 

The Bank estimates the useful life of endowment assets, that are beneficial upon usage and are classified under other intangible assets, to be 30 years based on the term of the contract. The Bank records goodwill as a result of the merger with H&CB as the cost of the merger exceeded the fair value of the net assets acquired.

 

Development costs directly related to new technology or new products, including costs related to software development, are capitalized as intangible assets to the extent that the estimated future benefits are probable.

 

The Bank adjusts the book value of a fixed asset to its recoverable amount and recognizes the difference as an impairment loss when the recoverable amount is significantly below the book value due to obsolescence or decline in market value. The subsequent increase in recoverable amount in excess of the impaired book value is recognized, to the extent of the original book value before impairment, as a reversal of fixed asset impairment losses.

 

Stock Issuance Costs and Debenture Issuance Costs

 

Stock issuance costs are deducted from paid-in capital in excess of par value. Debenture issuance costs are recorded as discounts on debentures and amortized over the maturity period of the debentures using the effective interest method.

 

Accrued Retirement Benefits

 

Employees and directors with more than one year of service and temporary employees with at least a one-year contract, as of June 30, 2004, are entitled to receive a lump-sum payment upon termination of their employment with the Bank, based on their length of service and rate of pay at the time of termination.

 

Additionally, the Bank records the contributions to pension funds, which grant the payment rights to its employees, as contra accounts of accrued retirement benefits.

 

See Report of Independent Accountants

 

11


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Deferred Income Taxes

 

The Bank records the future tax effects of temporary differences between the financial and tax bases of assets and liabilities as deferred income tax assets or liabilities. The tax effects of temporary differences arising from the cumulative effects of accounting changes are adjusted in retained earnings.

 

Bonds under Repurchase/Resale Agreements

 

Securities bought under resale agreements are recorded under loans as bonds purchased under resale agreements. Securities sold under repurchase agreements are recorded under borrowings as bonds sold under repurchase agreements. Interest from bonds purchased under resale agreements and bonds sold under repurchase agreements are recognized as interest income on loans and interest expense on borrowings, respectively.

 

Derivative Instruments

 

Derivative instruments for trading or hedging purpose are recorded at fair value and the resulting unrealized gains and losses are recognized in the current operations, except for the effective portion of derivative transactions entered into for the purpose of cash-flow hedges, which is recorded as an adjustment to shareholders’ equity.

 

Fair value hedge accounting is applied to a derivative instrument with the purpose of hedging the exposure to changes in the fair value of an asset or a liability or a firm commitment that is attributable to a particular risk. The gain or loss, both on the hedging derivative instrument and on the hedged item attributable to the hedged risk, is reflected in the current operations.

 

Cash flow hedge accounting is applied to a derivative instrument with the purpose of hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recognized in the current operations. The effective portion of the gain or loss recorded as a capital adjustment is reclassified to current operations in the same period during which the hedged forecasted transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the gain or loss recognized as a capital adjustment is added to or deducted from the asset or the liability.

 

Stock Options

 

Compensation costs for stock options granted to employees and executives are recognized using the fair value method. Under the fair value method, compensation costs for stock option plans are determined using an option-pricing model and are recognized over the vesting period (Note 21).

 

National Housing Fund

 

The Bank, as designated by the Korean Government under the Housing Construction Promotion Law, manages the sources and uses of funds of the National Housing Fund (the “NHF”) and records the related NHF account in other liabilities. In addition, the Bank pays NHF the interest, which is computed by multiplying the average balance of the NHF account by the passbook deposit interest rate.

 

Gains and Losses on Trust Management

 

The Bank’s trust accounts (“the Trust Accounts”) recognize as an expense the trust commissions paid to the banking accounts, which is equivalent to the total trust revenue less total trust expenses and trustee benefits, including the guaranteed principal and minimum rate of return. The Bank recognizes these trust commissions as a gain on trust management in other operating income. The trust fees on money trusts consist of base fees of 0.5 ~ 2.0 % (depending on trust fund types) and special fees applied to the invested capital.

 

Under the Trust Business Act, reserves for future losses are set up in the trust accounts for losses related to those trust funds with a guarantee of the principal or of a certain minimum rate of return. The reserves are used to provide for the losses on such trust funds and, if the losses incurred are in excess of the reserves for future losses, the excess losses are compensated by the Bank. Accordingly, the banking accounts recognize the compensation paid as a loss on trust management in other operating expenses and the trust accounts recognize the corresponding compensation as compensation from banking accounts. There were no compensations paid for the six-month period ended June 30, 2004.

 

See Report of Independent Accountants

 

12


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Foreign Currency Translation

 

All assets and liabilities denominated in foreign currencies are translated into Korean Won at the rates in effect as of the balance sheet dates (June 30, 2004: (Won)1,152.5:US$1, December 31, 2003: (Won)1,197.8:US$1), and resulting translation gains and losses are recognized in the current period.

 

Accounting records of the overseas branches are maintained in the foreign currency prevailing in their respective countries. For the purpose of presentation in the accompanying financial statements, the financial statements of the branches have been translated into Korean Won, using exchange rates published by Seoul Money Brokerage Services, Ltd. as of the balance sheet dates.

 

Statement of Cash Flows

 

In the preparation of the statement of cash flows, the Bank has presented net amounts of cash inflows and cash outflows for items where the turnover is quick and the amounts are large.

 

Restatement of Prior Period Financial Statements

 

During the current period, the Bank reclassified the subordinated retained interests earned from securitization transactions from available-for-sale securities to loans. Such reclassification has no effect on prior periods’ net income nor the prior periods’ net assets. The prior period financial statements presented herein for comparative purposes were also reclassified to conform to the current period financial statement presentation.

 

See Report of Independent Accountants

 

13


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

3. Cash and Due from Banks

 

Cash and due from banks as of June 30, 2004 and December 31, 2003 consist of:

 

(in millions of Korean Won)         2004

    2003

 

Cash on hand

                     

Cash in Won

        (Won) 2,600,621     (Won) 2,945,921  

Cash in foreign currencies

          174,415       228,153  
         


 


            2,775,036       3,174,074  
         


 


Due from banks in Won

                     

Bank of Korea

  

Reserve deposits in the Bank of Korea

     4,181,282       2,612,248  
         


 


Other banks

  

Time deposits

     154       810  
    

Passbook deposits

     5,857       8,185  
         


 


            6,011       8,995  
         


 


Other financial institutions

   Deposits at Hansol Mutual Savings & Finance Co., Ltd.      140,000       140,000  
         


 


Others

   Futures margin accounts      23,091       1,560  
     Market participation margin      463       454  
    

KOSPI futures margin accounts

     —         200  
         


 


            23,554       2,214  
         


 


            4,350,847       2,763,457  
    

Present value discounts 1*

     (7,713 )     (12,810 )
         


 


            4,343,134       2,750,647  
         


 


Due from banks in foreign currencies

                     

Bank of Korea

   Demand deposits      44,677       12,415  
         


 


Other banks

   Demand deposits      53,203       71,879  
         


 


Others

   Other deposits      2,767       3,354  
         


 


Off-shore

   Demand deposits      606,175       513,976  
         


 


            706,822       601,624  
         


 


          (Won) 7,824,992     (Won) 6,526,345  
         


 



1* Present value discounts are related to the (Won)140,000 million of time deposits (1% interest, scheduled in installments by the end of 2005) placed with Hansol Mutual Savings & Finance Co., Ltd.(previously, Bukook Mutual Savings & Finance Co., Ltd.).

 

The maturities of the due from banks as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Due from Banks
in Won


   Due from Banks in
Foreign Currencies


   Total

Due in 3 months or less

   (Won) 4,210,847    (Won) 571,002    (Won) 4,781,849

Due after 3 months through 6 months

     50,000      119,860      169,860

Due after 6 months through 1 year

     45,000      15,960      60,960

Due after 1 year through 2 years

     45,000      —        45,000
    

  

  

     (Won) 4,350,847    (Won) 706,822    (Won) 5,057,669
    

  

  

 

See Report of Independent Accountants

 

14


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Included in cash and due from banks as of June 30, 2004 are the following restricted deposits:

 

(in millions of Korean Won)    Amount

    Restrictions

Reserve deposits in the Bank of Korea

   (Won) 4,181,282     General Banking Act

Deposits at Hansol Mutual Savings & Finance Co., Ltd.

     140,000     Withdrawal at maturity

Due from banks in foreign currency

     44,677     General Banking Act

Other deposits

     22,923     Futures guarantee deposits
    


   
       4,388,882      

Present value discounts

     (7,713 )    
    


   
     (Won) 4,381,169      
    


   

 

4. Securities

 

Securities as of June 30, 2004 and December 31, 2003 consist of:

 

(in millions of Korean Won)    2004

   2003

Trading

   (Won) 4,422,054    (Won) 4,482,948

Available-for-sale

     13,962,139      15,894,974

Held-to-maturity

     5,594,944      5,979,341

Investment in associates

     567,672      551,199
    

  

     (Won) 24,546,809    (Won) 26,908,462
    

  

 

Trading, available-for-sale, and held-to-maturity securities as of June 30, 2004 and December 31, 2003 consist of:

 

(in millions of Korean Won)    Unrealized

   Book Value

Trading


   Gain

   Loss

   2004

   2003

Equity securities

   (Won) 5,302    (Won) 1,591    (Won) 125,300    (Won) 113,171

Beneficiary certificates

     36      373      569,458      1,686,754

Government and municipal bonds

     5,767      42      1,319,551      1,076,427

Corporate bonds

     9,002      418      2,308,554      1,365,060

Asset-backed securities

     322      —        99,191      241,536
    

  

  

  

     (Won) 20,429    (Won) 2,424    (Won) 4,422,054    (Won) 4,482,948
    

  

  

  

 

(in millions of Korean Won)    Impairment

   Capital Adjustments

   Book Value

Available-for-Sale


   Reversal

   Loss

   Gain

   Loss

   2004

   20031*

Equity securities

   (Won) —      (Won) 22,230    (Won) 145,616    (Won) 10,068    (Won) 531,443    (Won) 439,791

Investment in funds

     —        2      3,153      —        4,663      30,872

Beneficiary certificates

     —        —        30,255      41      4,476,604      4,375,817

Government and municipal bonds

     —        —        7,616      613      784,294      2,322,889

Foreign government bonds

     —        —        1,719      148      26,122      28,153

Corporate bonds

     —        2,077      53,805      3,482      7,542,268      8,228,640

Asset-backed securities

     —        35,450      1,206      —        596,723      468,669

Other debt securities

     —        —        —        —        22      143
    

  

  

  

  

  

     (Won) —      (Won) 59,759    (Won) 243,370    (Won) 14,352    (Won) 13,962,139    (Won) 15,894,974
    

  

  

  

  

  

 

See Report of Independent Accountants

 

15


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

(in millions of Korean Won)    Impairment

   Unrealized Holding

   Book Value

Held-to-Maturity    Reversal of

   Loss

   Gain

   Loss

   2004

   2003

Government and municipal bonds

   (Won) —      (Won) —      (Won) 98,160    (Won) 1,172    (Won) 2,472,319    (Won) 2,489,998

Corporate bonds

     —        —        72,838      537      2,840,269      3,163,020

Asset-backed securities

     —        —        6,928      —        263,199      326,323

Other securities

     —        —        —        7      19,157      —  
    

  

  

  

  

  

     (Won) —      (Won) —      (Won) 177,926    (Won) 1,716    (Won) 5,594,944    (Won) 5,979,341
    

  

  

  

  

  


1* Subordinated retained interest received from securitization transaction amounting to (Won)1,193,383 million has been reclassified from beneficiary certificates in securities to credit card receivables in loans. (Note 2)

 

As of June 30, 2004 and December 31, 2003, investments in associates include:

 

(in millions of Korean Won)   

Owner-

ship (%)


  

Acquisition
Cost


  

Beginning
Balance1*


   Equity Method2*

    Book Value

Domestic Associates             N/I

    R/E

    C/A

    2004

   2003

KB Investment Co., Ltd. 3*

   99.89    (Won) 155,311    (Won) 75,932    (Won) (1,453 )   (Won) —       (Won) (273 )   (Won) 74,206    (Won) 77,273

KB Data Systems Co., Ltd.4*

   99.98      7,998      14,247      280       —         (3 )     14,524      14,647

KB Futures Co., Ltd. 5*

   99.98      19,996      25,521      486       —         —         26,007      25,521

KLB Securities

   36.41      10,316      —        —         —         —         —        —  

KB Asset Management 6*

   80.00      39,015      38,917      3,175       —         (13 )     42,079      45,051

Jooeun Industrial

   99.99      23,994      —        —         —         —         —        —  

KB Real Estate Trust

   99.99      76,103      98,129      1,591       (336 )     336       99,720      98,129

KB Credit Information

   66.34      8,444      11,447      1,105       —         —         12,552      11,863

ING Life Korea

   20.00      21,769      43,845      9,676       —         293       53,814      43,845

Korea Mortgage 8*

   —        30,629      —        —         —         —         —        35,788

KICO No. 2 Venture Investment Partnership 2*

   55.56      —        —        207       —         —         207      —  

KICO No. 3 Venture Investment Partnership 2*

   69.23      —        —        143       —         —         143      —  

Pacific IT Investment Partnership2*

   50.00      7,000      7,000      (113 )     —         —         6,887      —  

NPC02-4 Kookmin Venture Fund 2*

   33.33      10,000      10,000      348       —         —         10,348      —  

KB Life Insurance Co., Ltd.

   100.00      30,246      30,246      (575 )     —         —         29,671      —  
         

  

  


 


 


 

  

            440,821      355,284      14,870       (336 )     340       370,158      352,117
         

  

  


 


 


 

  

Foreign Associates

                                                        

KB Int’l Ltd. (London)

   100.00      41,678      55,546      (239 )     —         —         55,307      56,755

KB Luxembourg S.A

   100.00      24,171      5,300      (765 )     —         —         4,535      5,950

Kookmin Singapore Ltd.

   100.00      23,105      2,001      —         —         —         2,001      2,080

Kookmin Finance Asia Ltd. (HK)

   100.00      8,068      275      2       —         —         277      286

Kookmin Bank HK Ltd. 7*

   100.00      23,050      60,344      3,873       2,830       (59 )     66,988      62,716

Sorak Financial Holdings

   25.00      69,668      69,668      (1,262 )     —         —         68,406      71,295
         

  

  


 


 


 

  

            189,740      193,134      1,609       2,830       (59 )     197,514      199,082
         

  

  


 


 


 

  

          (Won) 630,561    (Won) 548,418    (Won) 16,479     (Won) 2,494     (Won) 281     (Won) 567,672    (Won) 551,199
         

  

  


 


 


 

  

 

See Report of Independent Accountants

 

16


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 


1* The beginning balance is the prior year’s book value adjusted by dividends, changes in foreign exchange rates, and all the transactions during current year.
2* The investments in funds which had been classified as available-for-sale for the prior years are reclassified as investments in associates as of January 1, 2004.
3* Kookmin Investment Co., Ltd. has changed its name to KB Investment Co., Ltd. on April 30, 2004.
4* Kookmin Data Systems Corp. has changed its name to KB Data Systems Co., Ltd., on April 30, 2004.
5* Kookmin Futures Co., Ltd. has changed its name to KB Futures Co., Ltd., on April 30, 2004.
6* KB Investment Trust Management has changed its name to KB Asset Management, on April 29, 2004.
7* Kookmin Finance HK Ltd. has changed its name to Kookmin Bank HK Ltd., on January 1, 2004.
8* All equity securities of Korea Mortgage have been sold on June 4, 2004.

 

KLB Securities Co., Ltd., Jooeun Industrial Co., Ltd., KICO No. 2 Venture Investment Partnership, KICO No.3 Venture Investment Partnership, Kookmin Singapore, Ltd. and Kookmin Finance Asia, Ltd. (HK), KB Luxembourg S.A are all in the process of liquidation. Consequently, accounting under the equity method is no longer applied to investments in KLB Securities Co., Ltd. and Jooeun Industrial Co., Ltd. due to accumulated deficits resulting to a decrease of the investment value below zero. Accordingly, the total accumulative estimated loss that has not been recognized by the Bank arising from the securities amounts to (Won)50,636 million.

 

The Bank applies the equity method accounting to subsidiaries based on unaudited financial statements as of June 30, 2004. In the case of ING Life Korea Co., Ltd., the Bank applies the equity method based on the most recent available audited financial statements that are adjusted for changes in net assets for the period ending June 30, 2004, including adjustment for income tax expenses of (Won)10,726 million.

 

As a means to venture into the insurance business for diversification of revenues, the Bank invested (Won)30,246 million (including acquisition costs) on April 29, 2004, to acquire a 100% ownership of KB Life Insurance Co., Ltd., which was founded to acquire the assets and the liabilities of Hanil Life Insurance Co., Ltd.

 

The maturities of the available-for-sale and held-to-maturity debt securities as of June 30, 2004 are summarized as follows:

 

(in millions of Korean Won)    Available-for-sale

   Held-to-maturity

Maturities


   Book Value

   Fair value

   Book Value

   Fair value

Due in 1 year or less

   (Won) 8,769,337    (Won) 8,769,337    (Won) 1,733,910    (Won) 1,755,312

Due after 1 year through 5 years

     4,370,576      4,370,576      3,598,269      3,731,371

Due after 5 years through 10 years

     272,026      272,026      262,765      284,471

Thereafter

     14,094      14,094      —        —  
    

  

  

  

     (Won) 13,426,033    (Won) 13,426,033    (Won) 5,594,944    (Won) 5,771,154
    

  

  

  

 

Investment securities risk concentrations as of June 30, 2004 are as follows:

 

(in millions of Korean Won)          

By Country


   Book Value

   Ratio (%)

Korea

   (Won) 24,320,217    99.08

Singapore

     76,117    0.31

USA

     56,381    0.23

Indonesia

     21,452    0.09

Philippines

     17,290    0.07

Mexico

     13,170    0.05

Others

     42,182    0.17
    

  
     (Won) 24,546,809    100.00
    

  

See Report of Independent Accountants

 

17


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

(in millions of Korean Won)          

By Type


   Book Value

   Ratio (%)

Fixed rate bonds

   (Won) 14,975,805    61.01

Floating rate bonds

     2,096,052    8.54

Subordinated bonds

     879,771    3.58

Convertible bonds

     318,519    1.30

Beneficiary certificates

     5,046,062    20.56

Equity securities

     1,206,830    4.91

Others

     23,770    0.10
    

  
     (Won) 24,546,809    100.00
    

  

 

(in millions of Korean Won)          

By Industry


   Book Value

   Ratio (%)

Government and municipalities

   (Won) 8,061,393    32.84

Financial institutions

     15,273,506    62.22

Manufacturing industries

     483,898    1.97

Others

     728,012    2.97
    

  
     (Won) 24,546,809    100.00
    

  

 

See Report of Independent Accountants

 

18


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Available-for-sale equity securities of which the fair value cannot be reasonably measured as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Acquisition Cost

   Net Asset Value 1*

   Book Value

Daewoo Electronics Co., Ltd.

   (Won) 23,800    (Won) —      (Won) —  

Asia Credit

     11,525      11,759      7,711

Daehan Investment Trust Securities Co., Ltd.

     10,000      1,604      —  

Mastercard, Inc. Korea

     8,722      6,496      8,722

Korea Asset Management Corp.

     7,827      12,783      7,827

Samsung Life Insurance Co., Ltd.

     7,479      11,304      7,479

Korea Highway Corp.

     6,248      5,903      6,248

Baring Communications Equity

     5,376      2,161      2,161

Bad Bank Harmony

     3,967      6,389      3,967

KOHAP Corporation

     3,440      —        —  

Pan Asia Paper

     3,305      1,728      1,728

Asia Finance and Investment Corp.

     2,881      1,170      291

Seoul Smart Card

     2,505      1,025      2,505

Nanjing Kumho Tire Co., Ltd.

     2,452      3,487      2,452

Kyobo Investment Trust Management Co., Ltd.

     2,100      3,574      2,100

Integra Telecom Co., Ltd.

     2,000      —        —  

KOCES Co., Ltd.

     1,402      736      631

Harex Info Tech Inc.

     1,365      64      64

Korea Money Broker Corp.

     1,291      2,514      1,291

A-Cash Inc.

     1,275      139      139

Mondex Korea.

     1,250      —        —  

MYbi Co., Ltd.

     1,200      192      192

Tianjin Samsung Opto Electronics

     1,126      1,370      1,126

Digital World Corp.

     1,080      147      114

Bo Go Corp.

     1,026      —        —  

Linux One Inc.

     1,000      144      144

Others

     26,635      57,493      16,858
    

  

  

     (Won) 142,277    (Won) 132,182    (Won) 73,750
    

  

  


1* Net asset values are calculated using the unaudited financial statements of the investees as of June 30, 2004 when available. Otherwise, the most recent financial information is used.

 

See Report of Independent Accountants

 

19


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

As of June 30, 2004, the following investment securities are pledged at various institutions:

 

Restrictions


   Restricted securities

Related Transactions


  

Placed with


   Amount

   Book Value

   Pledge Value

Bonds sold under REPO agreements    Customers    (Won) 3,616,385    (Won) 6,024,268    (Won) 4,064,190
Leased securities    KCFC             750      730
Borrowings from the Bank of Korea    Bank of Korea      942,933      2,143,235      1,170,000
Bank of Korea settlements    Bank of Korea      (balance limits)      254,698      170,200
Derivative transactions    Samsung Futures,      (balance limits)              
     others             449,824      124,500
Other    Standard Chartered Bank             39,749      20,000
                

  

                 (Won) 8,912,524    (Won) 5,549,620
                

  

 

See Report of Independent Accountants

 

20


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

5. Loans

 

Loans as of June 30, 2004 and December 31, 2003 are summarized as follows:

 

(in millions of Korean Won)         2004

    2003

 

Loans in Won

                     

Corporate loans

  

Operation loans

                
    

General operation loans

   (Won) 28,378,040     (Won) 28,884,554  
    

Notes discounted

     1,229,180       1,415,445  
    

Overdraft accounts

     596,561       447,992  
    

Trading notes

     837,097       809,921  
    

Other operation loans

     3,983,074       3,793,594  
         


 


            35,023,952       35,351,506  
         


 


    

Facility loans

                
    

General facility loans

     5,365,939       5,413,333  
    

Other facility loans

     1,156,092       1,218,370  
         


 


            6,522,031       6,631,703  
         


 


            41,545,983       41,983,209  
         


 


Consumer loans

  

General consumer loans

     42,167,484       41,951,219  
    

Consumer housing loans

     40,517,033       38,199,290  
    

Remunerations on mutual installment savings

     306,441       297,868  
    

Other consumer loans

     606,043       635,218  
         


 


            83,597,001       81,083,595  
         


 


Public loans

  

Public operation loans

     612,590       526,227  
    

Public facility loans

     41,872       42,473  
         


 


            654,462       568,700  
         


 


Other loans

  

Property formation loans

     12,741       62,963  
    

Inter-bank loans

     9,452       12,815  
    

Others

     3,365       3,962  
         


 


            25,558       79,740  
         


 


            125,823,004       123,715,244  
         


 


Loans in foreign currencies

  

Domestic funding loans

     1,082,840       1,165,988  
    

Overseas funding loans

     626,065       887,018  
    

Inter-bank loans

     865,865       767,884  
    

Domestic usance bills

     1,400,931       1,197,563  
    

Government funding loans

     828       1,477  
         


 


            3,976,529       4,019,930  
         


 


Call loans

  

In Won

     1,790,000       1,640,000  
    

In foreign currencies

     115,429       5,351  
    

Inter-bank reconciliation funds

     719,320       —    
         


 


            2,624,749       1,645,351  
         


 


Privately placed debentures

     1,125,989       1,787,131  
         


 


Other loans

     10,144,961       13,872,793  
         


 


Allowances for loan losses (Note 6)

     (3,833,498 )     (3,905,342 )
         


 


Net deferred loan origination fees and costs

     26,259       8,567  
         


 


          (Won) 139,887,993     (Won) 141,143,674  
         


 


 

See Report of Independent Accountants

 

21


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

As of June 30, 2004, restructured debts due to workout plans or other similar restructuring programs are as follows:

 

(in millions of Korean Won)    Workout

   Court
Receivership


   Court
Mediation


   Others1*

   Total

Period (in years)

     1~8      5~8      3~10      3~6       

Adjusted interest rate (%)

     6.05~22.22      10.50~12.12      6.10~15.41      9.5       

Balances Before Restructuring

   (Won) 112,449    (Won) 11,425    (Won) 34,027    (Won) 583,104    (Won) 741,005

Loans swapped to equity

     3,700      11      —        145,950      149,661

Swapped equity securities

     —        —        —        265,393      265,393

Swapped convertible debt securities

     —        —        —        —        —  

Debts to be restructured

     108,749      11,414      34,027      171,761      325,951

Balances after restructuring

     104,230      8,153      32,359      164,094      308,836

Allowances for loan losses (present value discounts)

     4,519      3,261      1,668      7,667      17,115

1* Loans swapped to equities of LG Card Co., Ltd. amounting to (Won)145,950 million are included. However, the second portion to be swapped to equity amounting to (Won)362,250 which is scheduled on July 2004 are not included in the above.

 

The loans, or portions thereof, that are approved for debt restructuring by issuance or grant of equity are separately classified as loans due for equity conversion as of the agreement date. The loans due for equity conversion are stated at the lower of nominal amount or the fair value of the to-be-converted equity interest. The difference between the nominal amount and the fair value of the equity interest is adjusted in the related allowance for loan losses.

 

The movements in allowance for loan losses from present value discounts and deferred loan incidental income for the six month periods ended June 30, 2004 are as follows :

 

(in millions of Korean Won)    Beginning Balance

   Increase

   Decrease

   Ending Balance

Allowance for loan losses (present value discounts)

   (Won) 22,780    (Won) 1,601    (Won) 7,266    (Won) 17,115

Deferred loan incidental income

     8,567      19,818      2,126      26,259

 

See Report of Independent Accountants

 

22


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The maturities of loans as of June 30, 2004 are as follows:

 

(in millions of

Korean Won)

  

Loans in

Won


   Loans in
Foreign
Currencies


  

Bills

Bought


  

Credit

Card


  

Call

Loans


   Privately
placed
Debentures


   Others

   Total

Due in 3 months or less

   (Won) 16,109,926    (Won) 995,476    (Won) 618,645    (Won) 5,824,591    (Won) 2,624,749    (Won) 139,239    (Won) 359,784    (Won) 26,672,410

Due after 3 months through 6 months

     18,722,538      1,225,958      65,895      1,062,311      —        158,483      63      21,235,248

Due after 6 months through 1 year

     34,398,243      548,127      10,092      713,975      —        255,500      —        35,925,937

Due after 1 year through 2 years

     24,186,157      175,148      6,554      648,256      —        527,217      2,051      25,545,383

Due after 2 years through 3 years

     16,101,773      356,388      2,979      333,025      —        44,900      —        16,839,065

Due after 3 years through 4 years

     2,756,383      292,562      —        319,281      —        650      —        3,368,876

Due after 4 years through 5 years

     2,707,908      84,242      —        155,907      —        —        —        2,948,057

Thereafter

     10,840,076      298,628      —        21,552      —        —        —        11,160,256
    

  

  

  

  

  

  

  

     (Won) 125,823,004    (Won) 3,976,529    (Won) 704,165    (Won) 9,078,898    (Won) 2,624,749    (Won) 1,125,989    (Won) 361,898    (Won) 143,695,232
    

  

  

  

  

  

  

  

 

Loan risk concentrations by country as of June 30, 2004 are as follows:

 

(in millions of

Korean Won)

   Loans in Won

   Loans in Foreign
Currencies


   Others

   Total

   Percentage (%)

 

Korea

   (Won) 125,823,004    (Won) 3,135,900    (Won) 13,766,186    (Won) 142,725,090    99.32 %

Southeast Asia

     —        445,982      114,423      560,405    0.39 %

Central and South America

     —        82,602      2,156      84,758    0.06 %

China

     —        40,803      —        40,803    0.03 %

Japan

     —        267,652      2      267,654    0.19 %

Others

     —        3,590      12,932      16,522    0.01 %
    

  

  

  

  

     (Won) 125,823,004    (Won) 3,976,529    (Won) 13,895,699    (Won) 143,695,232    100.00 %
    

  

  

  

  

 

Loan risk concentrations by industry as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Loans in Won

   Loans in Foreign
Currencies


   Others

   Total

   Percentage (%)

 

Industrial loans

                                  

Financial institutions

   (Won) 955,366    (Won) 906,851    (Won) 3,085,960    (Won) 4,948,177    3.45 %

Manufacturing companies

     13,969,792      1,378,892      1,192,993      16,541,677    11.51 %

Service companies

     22,625,009      1,007,665      491,018      24,123,692    16.79 %

Others

     4,304,548      161,883      1,211,702      5,678,133    3.95 %
    

  

  

  

  

       41,854,715      3,455,291      5,981,673      51,291,679    35.70 %
    

  

  

  

  

Household loans

     83,613,107      486,163      7,911,382      92,010,652    64.03 %
    

  

  

  

  

Public and other loans

     355,182      35,075      2,644      392,901    0.27 %
    

  

  

  

  

     (Won) 125,823,004    (Won) 3,976,529    (Won) 13,895,699    (Won) 143,695,232    100.00 %
    

  

  

  

  

 

As of Jun 30, 2004, the credit card accounts amounting to (Won)979,036 million are provided as collateral for asset-backed securities transactions.

 

See Report of Independent Accountants

 

23


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

6. Allowances for Loan Losses

 

As of June 30, 2004, allowances for loan losses are as follows:

 

(in millions of Korean Won)    2004

Loans in Won

   (Won) 2,668,535

Loans in foreign currencies

     57,279

Bills bought in Won and foreign currencies

     10,763

Payments on guarantees

     31,894

Factoring receivable

     4,887

Credit card accounts

     896,135

Privately placed debentures

     10,189

Loans due for equity conversion

     130,043

Suspense receivables

     17,399

Others

     6,374
    

     (Won) 3,833,498
    

 

See Report of Independent Accountants

 

24


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

As of June 30, 2004, allowances for loan losses by credit risk classification are as follows:

 

(in millions of

Korean Won)

        Normal

   Pre-cautionary

   Substandard

   Doubtful

   Estimated Loss

   Total

Loans in Won

                                              
     Balance    (Won) 116,454,308    (Won) 5,512,761    (Won) 2,208,758    (Won) 1,256,955    (Won) 390,222    (Won) 125,823,004
     Allowances      793,648      325,287      482,145      677,233      390,222      2,668,535
         

  

  

  

  

  

     Ratio (%)      0.68      5.90      21.83      53.88      100.00      2.12
         

  

  

  

  

  

Loans in foreign currencies

                                              
     Balance      3,691,732      229,437      31,781      22,779      800      3,976,529
     Allowances      14,508      16,249      13,146      12,576      800      57,279
         

  

  

  

  

  

     Ratio (%)      0.39      7.08      41.36      55.21      100.00      1.44
         

  

  

  

  

  

Bills bought

                                              
     Balance      677,200      17,081      4,376      1,333      4,175      704,165
     Allowances      3,386      1,584      952      666      4,175      10,763
         

  

  

  

  

  

     Ratio (%)      0.50      9.27      21.76      49.96      100.00      1.53
         

  

  

  

  

  

Payments on guarantees

                                              
     Balance      13,425      6,171      6,679      10,784      24,524      61,583
     Allowances      67      574      1,336      5,393      24,524      31,894
         

  

  

  

  

  

     Ratio (%)      0.50      9.30      20.00      50.01      100.00      51.79
         

  

  

  

  

  

Credit card accounts

                                              
     Balance      6,961,477      1,037,385      204      992,987      86,845      9,078,898
     Allowances      69,615      124,486      41      615,148      86,845      896,135
         

  

  

  

  

  

     Ratio (%)      1.00      12.00      20.10      61.95      100.00      9.87
         

  

  

  

  

  

Call loans

                                              
     Balance      2,624,749      —        —        —        —        2,624,749
     Allowances      —        —        —        —        —        —  
         

  

  

  

  

  

     Ratio (%)      0.00      0.00      0.00      0.00      0.00      0.00
         

  

  

  

  

  

Privately placed debentures

                                              
     Balance      1,114,861      1,475      2,822      6,763      68      1,125,989
     Allowances      5,574      48      1,117      3,382      68      10,189
         

  

  

  

  

  

     Ratio (%)      0.50      3.25      39.58      50.01      100.00      0.90
         

  

  

  

  

  

Factoring receivables

                                              
     Balance      30,802      —        —        238      3,882      34,922
     Allowances      886      —        —        119      3,882      4,887
         

  

  

  

  

  

     Ratio (%)      2.88      0.00      0.00      50.00      100.00      13.99
         

  

  

  

  

  

Loans due for equity conversion

                                              
     Balance      —        265,393      —        —        —        265,393
     Allowances      —        130,043      —        —        —        130,043
         

  

  

  

  

  

     Ratio (%)      0.00      49.00      0.00      0.00      0.00      49.00
         

  

  

  

  

  

Total

                                              
     Balance    (Won) 131,568,554    (Won) 7,069,703    (Won) 2,254,620    (Won) 2,291,839    (Won) 510,516    (Won) 143,695,232
    

Allowances1*

     887,684      598,271      498,737      1,314,517      510,516      3,809,725
         

  

  

  

  

  

     Ratio (%)      0.67      8.46      22.12      57.36      100.00      2.65
         

  

  

  

  

  


1* The above amounts of allowances for loan losses do not include the allowances for suspense receivables and other allowances.

 

See Report of Independent Accountants

 

25


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

For the six-month period ended June 30, 2004, the movements in allowances for loan losses are as follows:

 

(in millions of Korean Won)    Amount

 

Beginning balance 1*

   (Won) 3,905,342  

Provision for loan losses

     2,162,535  

Reclassification from other allowances 2*

     235,818  

Collection of written-off loans

     272,065  

Repurchase of loans sold

     15,425  

Sale of loans

     (188,927 )

Write-off of loans

     (2,414,274 )

Conversion of loans into equity securities

     (145,461 )

Exemption of loans

     (14,218 )

Changes in exchange rates and others

     5,193  
    


Ending balance

   (Won) 3,833,498  
    



1* Available-for-sale subordinated retained interest is reclassified into credit card receivables and its related allowances for loans losses have been added to the beginning balance.
2* Other allowances for loans receivable from LG Card Co., Ltd. amounting to (Won)221,377 million that had been recorded as of December 31, 2003 were transferred to allowances for loan losses. Also, other allowances on credit lines to Kookmin Credit Card 16th ABS Specialty Co., Ltd. amounting to (Won)14,441 million that had been recorded as of December 31, 2003 were transferred to allowances for loans loss.

 

See Report of Independent Accountants

 

26


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

7. Fixed Assets

 

Fixed assets as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean Won)    2004

   2003

Tangible assets

   (Won) 2,394,368    (Won) 2,469,353

Intangible assets

     549,918      549,427

Foreclosed and other properties

     545      776
    

  

     (Won) 2,944,831    (Won) 3,019,556
    

  

 

Movements in tangible assets for the six-month period ended June 30, 2004 are as follows:

 

(in millions of

Korean Won)

   Land

    Buildings and
structures


    Leasehold
improvement


    Equipment
and vehicle


    Construction-
in-progress


    Total

 

Acquisition cost

                                                

Beginning balances

   (Won) 1,105,869     (Won) 963,295     (Won) 157,231     (Won) 1,449,062     (Won) 12,325     (Won) 3,687,782  

Acquisition

     —         39       —         39,353       47,164       86,556  

Transfer

     —         8,961       15,539       —         (24,500 )     —    

Disposal

     (29 )     (131 )     (3,341 )     (38,182 )     —         (41,683 )
    


 


 


 


 


 


Ending balances

     1,105,840       972,164       169,429       1,450,233       34,989       3,732,655  
    


 


 


 


 


 


Accumulated depreciation

                                                

Beginning balances

     —         142,103       90,808       963,290       —         1,196,201  

Depreciation expense

     —         10,327       18,842       128,482       —         157,651  

Disposal

     —         (22 )     (2,370 )     (35,401 )     —         (37,793 )
    


 


 


 


 


 


Ending balances

     —         152,408       107,280       1,056,371       —         1,316,059  
    


 


 


 


 


 


Impairment

     12,674       9,554       —         —         —         22,228  
    


 


 


 


 


 


Book Value

   (Won) 1,093,166     (Won) 810,202     (Won) 62,149     (Won) 393,862     (Won) 34,989     (Won) 2,394,368  
    


 


 


 


 


 


 

Tangible assets covered by insurance policies as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Amount Insured

  

Insurance Company


  

Type of Insurance


Buildings and structures

   (Won) 661,791    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Leasehold improvement

     60,312    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Equipment and vehicles

     267,132    Samsung Fire & Marine Insurance Co., Ltd    General property insurance

Construction-in-progress

     16,931    Samsung Fire & Marine Insurance Co., Ltd    General property insurance
     (Won) 1,006,166          

 

See Report of Independent Accountants

 

27


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Movements in intangible assets for the six-month period ended June 30, 2004 are as follows:

 

(in millions of

Korean Won)

   Goodwill

   Development
Costs


   Rights to
Income on
Donated Asset


   Store
Possessory
Right


   Trademarks

   Others

   Total

Beginning balances

   (Won) 579,418    (Won) 12,762    (Won) 102    (Won) 139    (Won) 150    (Won) 914    (Won) 593,485

Acquisition

     —        —        —        —        8      752      760

Amortization

     42,396      1,744      4      11      27      145      44,327
    

  

  

  

  

  

  

Ending balances

   (Won) 537,022    (Won) 11,018    (Won) 98    (Won) 128    (Won) 131    (Won) 1,521    (Won) 549,918
    

  

  

  

  

  

  

 

The Bank recorded (Won)61,459 million of current development costs under general and administrative expenses for the six-month period ended June 30, 2004.

 

The total government-posted prices of land, used for tax imposition and compensation for confiscation, as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Book Value

   Appraisal Value

Lands included in tangible assets

   (Won) 1,105,840    (Won) 904,684

Lands included in foreclosed assets

     1,203      494
    

  

     (Won) 1,107,043    (Won) 905,178
    

  

 

8. Other Assets

 

Other assets as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean Won)    2004

   2003

Guarantee deposits paid

   (Won) 1,283,279    (Won) 1,336,639

Accounts receivable

     5,168,143      1,715,100

Accrued income

     1,026,951      1,080,057

Payments in advance

     88,179      92,217

Prepaid expenses

     144,381      307,154

Deferred tax assets (Note 25)

     445,286      552,636

Derivative assets (Note 15)

     942,967      751,252

Unsettled domestic exchange assets

     413,656      612,592

Others

     37,056      36,592
    

  

     (Won) 9,549,898    (Won) 6,484,239
    

  

 

See Report of Independent Accountants

 

28


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

9. Deposits

 

Deposits as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean Won)

Deposits in Won


  

Annual Interest (%)

June 30, 2004


   2004

   2003

Demand deposits

                  

Checking deposits

   —      (Won) 83,146    (Won) 125,533

Household checking deposits

   0.10      427,275      476,132

Passbook deposits

   0.10      9,984,509      10,001,043

Temporary deposits

   —        3,015,927      3,292,770

Public fund deposits

   0.10      175,936      190,593

Others

   0.10      40,340      24,218
         

  

            13,727,133      14,110,289
         

  

Time deposits and savings deposits

                  

Time deposits

   2.70 ~ 4.20      61,344,847      62,247,870

Installment savings deposits

   3.30 ~ 4.00      1,293,233      1,306,793

Property formation savings

   8.50      1,645      1,870

Time and savings deposits of non residents in Won

   2.70 ~ 4.20      289,174      340,388

General savings deposits

   0.15 ~ 3.10      20,055,118      21,644,066

Corporate savings deposits

   0.10 ~ 3.00      8,763,952      7,800,122

Long-term savings deposits for workers

   8.77      54,692      69,031

Long-term housing savings deposits

   4.60      1,273,229      983,684

Long-term savings for households

   2.73      41,207      494,606

Worker’s preferential savings deposits

   5.35      2,536,385      2,728,236

Worker’s savings for housing

   2.83      60      81

Mutual installment deposits

   3.90 ~ 4.00      6,728,736      7,054,752

Mutual installment for housing

   2.65 ~ 3.90      5,537,464      5,423,853
         

  

            107,919,742      110,095,352
         

  

Total deposits in Won

          121,646,875      124,205,641
         

  

Deposits in foreign currencies

                  

Demand deposits

                  

Checking deposits

   0.00 ~ 0.89      41,933      40,778

Passbook deposits

   0.09      829,550      787,798

Notice deposits

   0.00 ~ 0.17      11,000      410

Temporary deposits

   —        1,884      1,049
         

  

            884,367      830,035
         

  

Time deposits and savings deposits

                  

Time deposits

   1.10      1,014,103      642,039

Others

   0.00 ~ 4.45      2,512      3,299
         

  

            1,016,615      645,338
         

  

Total deposits in foreign currencies

          1,900,982      1,475,373
         

  

Certificates of deposit

   3.45 ~ 3.90      6,371,087      6,499,258
         

  

          (Won) 129,918,944    (Won) 132,180,272
         

  

 

See Report of Independent Accountants

 

29


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The maturities of deposits as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Deposits in Won

   Deposits in
Foreign Currencies


   Certificates of
Deposit


   Total

Due in 3 months or less

   (Won) 65,340,773    (Won) 1,519,222    (Won) 3,310,500    (Won) 70,170,495

Due after 3 months through 6 months

     13,190,171      273,965      2,117,999      15,582,135

Due after 6 months through 1 year

     31,660,808      61,457      942,588      32,664,853

Due after 1 year through 2 years

     7,212,894      44,974      —        7,257,868

Due after 2 years through 3 years

     2,545,759      1,364      —        2,547,123

Due after 3 years through 4 years

     580,394      —        —        580,394

Due after 4 years through 5 years

     252,444      —        —        252,444

Thereafter

     863,632      —        —        863,632
    

  

  

  

     (Won) 121,646,875    (Won) 1,900,982    (Won) 6,371,087    (Won) 129,918,944
    

  

  

  

 

10. Borrowings

 

Borrowings as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean Won)   

Annual Interest (%)

June 30, 2004


   2004

   2003

Borrowings in Won

                  

Borrowings from the Bank of Korea

   2.50    (Won) 942,933    (Won) 992,433

Borrowings from the government

   0.00 ~ 8.00      770,123      920,589

Borrowings from banking institutions

   3.83 ~ 6.00      179,683      253,822

Borrowings from National Housing Fund

   8.00      3,622      8,553

Borrowings from other financial institutions

   2.00 ~ 4.00      5,862      5,688

Other borrowings

   2.00 ~ 7.00      1,126,347      1,173,284
         

  

            3,028,570      3,354,369
         

  

Borrowings in foreign currencies

                  

Due to banks

   —        47,199      189,976

Borrowings from domestic banks

   0.06 ~ 5.80      2,119,246      2,360,652

Borrowings from other financial institutions

   1.00      17,039      19,486

Borrowings from foreign banks

   —        781,386      752,803
         

  

            2,964,870      3,322,917
         

  

Bonds sold under repurchase agreements

                  

In Won

   2.50 ~ 4.00      3,616,385      3,613,505

In foreign currencies

   —        —        9,651
         

  

            3,616,385      3,623,156
         

  

Bills sold

   3.40 ~ 3.75      48,682      44,239
         

  

Due to the Bank of Korea in foreign currencies

   —        4,441      12,608
         

  

Call money

                  

In Won

   3.25 ~ 3.65      1,620,300      55,800

In foreign currencies

   0.75 ~ 5.35      92,625      193,700

Inter-bank borrowings

   3.40 ~ 3.90      —        296,011
         

  

            1,712,925      545,511
         

  

          (Won) 11,375,873    (Won) 10,902,800
         

  

 

See Report of Independent Accountants

 

30


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The maturities of borrowings as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Borrowings in
Won


   Borrowings in
Foreign
Currencies


   Others

   Total

Due in 3 months or less

   (Won) 1,016,003    (Won) 945,724    (Won) 4,433,439    (Won) 6,395,166

Due after 3 months through 6 months

     78,578      635,798      545,557      1,259,933

Due after 6 months through 1 year

     170,315      762,789      403,437      1,336,541

Due after 1 year through 2 years

     372,397      491,440      —        863,837

Due after 2 years through 3 years

     365,748      42,476      —        408,224

Due after 3 years through 4 years

     325,947      27,043      —        352,990

Due after 3 years through 4 years

     253,858      59,600      —        313,458

Thereafter

     445,724      —        —        445,724
    

  

  

  

     (Won) 3,028,570    (Won) 2,964,870    (Won) 5,382,433    (Won) 11,375,873
    

  

  

  

 

11. Debentures

 

Debentures as of June 30, 2004 and December 31, 2003 include:

 

(in millions of Korean Won)   

Annual Interest
(%)

June 30, 2004


   2004

    2003

 

In Won

  

Hybrid debentures1*

   6.00 ~ 7.00    (Won) 903,668     (Won) 903,668  
    

Subordinated fixed rate debentures

   5.18 ~ 15.66      5,275,327       4,896,072  
    

KCC2* subordinated fixed rate debentures

   7.10 ~ 8.00      205,000       205,000  
    

KCC2* fixed rate debentures

   4.58 ~ 8.00      1,517,500       2,895,000  
    

KCC2* floating rate debentures

   1.97 ~ 8.00      820,000       870,000  
    

Floating rates debentures

   3.92 ~ 8.71      10,289,086       8,609,663  
              


 


                 19,010,581       18,379,403  
    

Discounts on debentures

          (177,610 )     (83,443 )
              


 


                 18,832,971       18,295,960  
              


 


In foreign currencies

  

Floating rates debentures

   0.60 ~ 1.99      174,651       196,211  
    

Fixed rates debentures

   1.08 ~ 4.63      577,964       613,549  
          2.46 ~ 2.56      75,719       78,695  
              


 


                 828,334       888,455  
    

Premiums on debentures

          8,147       9,639  
    

Discounts on debentures

          (1,155 )     (1,473 )
              


 


                 835,326       896,621  
              


 


               (Won)  19,668,297     (Won)  19,192,581  
              


 



1* The hybrid debenture are perpetual type debts in which the Bank retains the early redemption option after 5 years from issuance date and the term extending option on maturity date. Hybrid debentures are senior to common stock but subordinate to other subordinated debentures.
2* Kookmin Credit Card Co., Ltd.

 

See Report of Independent Accountants

 

31


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

As of June 30, 2004, subordinated debentures and hybrid debentures consist of the following:

 

(in millions of Korean Won)

Type


   Issue Date

   Amount

   Annual Interest (%)

   Maturity

Subordinated fixed rate debentures

   98.01.27 ~ 98.11.15    (Won) 149,493    12.87 ~ 15.66    03.01.27 ~ 09.11.15
     2000.03.27      200,000    9.65    2005.03.27
     2000.06.28      253,975    9.04 ~ 9.10    2006.01.28
     2000.09.27      300,000    8.99    2006.01.27
     2000.09.28      150,000    8.79 ~ 8.85    2006.01.28
     2000.11.28      100,000    8.65 ~ 8.71    2006.02.28
     2000.11.28      150,921    9.57 ~ 9.65    2010.11.28
     2000.11.28      11,130    9.65    2010.12.28
     2000.12.27      200,000    8.71    2006.01.27
     2001.05.28      200,000    7.60 ~ 7.65    2007.02.28
     2001.06.27      160,000    7.68    2008.03.27
     2001.06.27      217,529    7.86    2009.03.27
     2001.08.28      100,000    6.69 ~ 6.73    2007.08.28
     2001.09.28      150,000    6.69 ~ 6.73    2008.03.28
     2002.03.27      241,684    7.06 ~ 7.10    2008.01.27
     2002.07.27      302,399    6.96 ~ 7.00    2008.01.27
     2002.09.27      257,363    6.27 ~ 6.30    2008.03.27
     2002.09.27      150,000    6.51 ~ 6.55    2010.03.27
     2002.09.27      92,637    6.66 ~ 6.70    2013.03.27
     2002.11.27      400,673    6.07 ~ 6.10    2008.05.27
     2002.11.27      57,846    6.27 ~ 6.30    2010.05.27
     2002.11.27      100,256    6.51 ~ 6.55    2013.05.27
     2002.12.18      110,000    8.00    2008.01.18
     2002.12.27      10,000    6.20    2008.06.27
     2002.12.27      90,000    6.40    2010.06.27
     2002.12.27      50,000    6.65    2013.06.27
     2002.12.27      30,370    6.55    2014.12.27
     2003.01.21      50,000    7.65    2008.02.21
     2003.03.10      45,000    7.10    2008.04.10
     2003.10.27      356,561    5.18 ~ 5.20    2009.01.27
     2003.10.27      88,769    5.33 ~ 5.35    2011.01.27
     2003.10.27      3,721    5.58 ~ 5.60    2014.01.27
     2004.02.27      636,798    5.65 ~ 5.68    2009.08.27
     2004.02.27      22,895    5.84 ~ 5.87    2011.08.27
     2004.02.27      40,307    6.13 ~ 6.16    2014.08.27
         

         
            5,480,327          
         

         

Hybrid debentures

   2003.06.27      105,145    6.00    2033.06.27
     2003.08.27      533,355    7.00    2033.08.27
     2003.10.27      265,168    6.80    2033.10.27
         

         
            903,668          
         

         
          (Won) 6,383,995          
         

         

 

See Report of Independent Accountants

 

32


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

 

The maturities of debentures as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    In Won

   In Foreign
Currencies


   Total

Due in 3 months or less

   (Won)  2,114,556    (Won)  68,044    (Won) 2,182,600

Due after 3 months through 6 months

     1,863,207      9,220      1,872,427

Due after 6 months through 1 year

     5,931,890      17,731      5,949,621

Due after 1 year through 2 years

     3,601,947      66,499      3,668,446

Due after 2 years through 3 years

     279,492      67,970      347,462

Due after 3 years through 4 years

     2,173,535      562,522      2,736,057

Due after 4 years through 5 years

     609,736      36,348      646,084

Thereafter

     2,436,218      —        2,436,218
    

  

  

     (Won)  19,010,581    (Won)  828,334    (Won)  19,838,915
    

  

  

 

12. Accrued Retirement Benefits

 

The movements in accrued retirement benefits for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)    Beginning
Balance


    Amounts
Provided


   Amounts
Paid Out


   

Ending

Balance


 

Accrued retirement benefits

   (Won) 71,083     (Won)  55,163    (Won)  15,725     (Won)  110,521  

Contributed retirement benefits

     163,349       —        14,449       148,900  
    


 

  


 


Total accrued retirement benefits

     234,432       55,163      30,174       259,421  

Contribution to pension funds

     (163,349 )     —        (14,449 )     (148,900 )
    


 

  


 


     (Won) 71,083     (Won)  55,163    (Won) 15,725     (Won) 110,521  
    


 

  


 


 

As of June 30, 2004, approximately 57.40% of total accrued retirement benefits is contributed to pension funds, over which the Bank’s employees hold the right of payment and is placed at two insurance companies, including Korea Life Insurance Co., Ltd. The total retirement benefits paid for the six-month period ended June 30, 2004 amounts to (Won)80,203 million, including the additional early retirement benefits paid in February 2004 to 459 employees amounting to (Won)50,029 million.

 

See Report of Independent Accounts

 

33


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

 

13. Other Liabilities

 

Other liabilities as of June 30, 2004 and 2003 consist of:

 

(in millions of Korean Won)    2004

   2003

Account              

Accrued retirement benefits (Note 12)

   (Won) 110,521    (Won) 71,083

Allowance for losses on guarantees and acceptances (Note 14)

     1,259      1,074

Due to trust accounts

     1,296,088      3,983,295

Accounts payable

     5,497,269      1,886,446

Accrued expenses

     4,322,775      4,418,940

Advances from customers

     382,012      109,675

Unearned income

     127,960      130,778

Withholding taxes

     80,470      123,455

Guarantee deposits received

     106,771      120,437

Derivative liabilities (Note 15)

     915,350      686,271

Unsettled domestic exchange liabilities

     575,237      400,445

Accounts for agency business

     285,939      337,624

Other allowances1*

     538,304      677,163

Liabilities incurred by agency relationship

     544,572      315,241

Others

     185,126      130,182
    

  

     (Won)  14,969,653    (Won)  13,392,109
    

  


1* Other allowances are as follows:

 

 

(in millions of Korean Won)   
  

Allowances for


  

Amounts


  

Remarks


Suspense receivables

   (Won) 8,650   

Allowances for frauds/accidents and litigation fee

Loss on branch closure

   258   

Allowances for closure of the Buenos Aires branch

Uncollected leasehold deposits

   10,518   

Allowances for uncollected leasehold deposits

Credit card receivables

   43,249   

Allowances for unused cash advance credit lines

Mileage rewards

   46,375   

Allowances for mileage on credit cards and currency exchange rates

Claimed assets

   23,248   

Allowances for credit card claimed assets

Credit commitments to SPC

   351,375   

Allowances for the credit line commitment to SPC (Note 16)

Securitization allowances

   2,068   

Allowances for repurchase obligations from asset securitization (Note 16)

KAMCO loans sold

   602   

Allowances for loans under repurchase agreements to KAMCO (Note 16)

Allowances for tax deficiencies

   458   

Allowances for tax deficiencies (Note 16)

Master Card share agreement

   3,001   

Allowances for the share settlement provision for Master Card shares

Others

   48,502   

Allowance for time deposits of Hansol Mutual Savings & Finance Co., Ltd. amounting to (Won)50 billion and allowance for LG Card

    
    
     (Won) 538,304     
    
    

 

See Report of Independent Accounts

 

34


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

14. Guarantees and Acceptances

 

Guarantees and acceptances as of June 30, 2004 are summarized as follows:

 

(in millions of Korean Won)    Amount

Guarantees and acceptances outstanding in

      

Won

      

Guarantees on debentures

   (Won) 423

Guarantees on loan collateral

     40,297

Others

     245,852
    

       286,572
    

Foreign Currencies

      

Acceptances on letters of credit

     109,239

Acceptances for letters of guarantee for importers

     57,314

Guarantees for performance of contracts

     22,866

Guarantees for bids

     1,754

Guarantees for borrowings

     30,992

Guarantees for repayment of advances

     26,269

Others

     158,858
    

       407,292
    

       693,864
    

Contingent guarantees and acceptances

      

Letters of credit

     1,255,115
    

     (Won)  1,948,979
    

 

As of June 30, 2004, the allowances for losses on guarantees and acceptances outstanding according to credit risk classifications are as follows:

 

 

(in millions of Korean Won)                                   

Guarantees and
Acceptances
Outstanding in


        Normal

   Precautionary

   Sub-standard

   Doubtful

   Estimated
loss


   Total

Won                                               
     Balance    (Won)  272,787    (Won)  11,730    (Won)  1,978    (Won) 77    (Won) —      (Won)  286,572
     Allowance      —        —        396      38      —        434
         

  

  

  

  

  

     Ratio (%)      —        —        20.00      50.00      —        0.15
         

  

  

  

  

  

Foreign currencies                                               
     Balance      347,124      58,487      1,536      139      6      407,292
     Allowance      —        —        749      70      6      825
         

  

  

  

  

  

     Ratio (%)      —        —        48.78      50.00      100.00      0.20
         

  

  

  

  

  

Total                                               
     Balance    (Won)  619,911    (Won)  70,217    (Won)  3,514    (Won) 216    (Won) 6    (Won)  693,864
     Allowance      —        —        1,145      108      6      1,259
         

  

  

  

  

  

     Ratio (%)      —        —        32.58      50.00      100.00      0.18
         

  

  

  

  

  

 

See Report of Independent Accounts

 

35


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

For the six-month period ended June 30, 2004, the changes in allowances for losses on guarantees and acceptances outstanding are as follows:

 

(in millions of Korean Won)       

Beginning balance

   (Won)  1,074  

Reversal of losses from guarantees and acceptances

     219  

Changes in foreign exchange rates

     (34 )
    


Ending balance

   (Won)  1,259  
    


 

The guarantees and acceptances risk concentration by country as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Guarantees and Acceptances
Outstanding


  

Contingent

Guarantees and Acceptances


   Total

     Balance

   Percentage (%)

   Balance

   Percentage (%)

   Balance

   Percentage (%)

Korea

   (Won)  641,594    92.47    (Won)  1,253,722    99.89    (Won)  1,895,316    97.25

USA

     52,270    7.53      1,393    0.11      53,663    2.75
    

  
  

  
  

  
     (Won)  693,864    100.00    (Won)  1,255,115    100.00    (Won)  1,948,979    100.00
    

  
  

  
  

  

 

The guarantees and acceptances risk concentration by industry as of June 30, 2004 are as follows:

 

(in millions of Korean Won)    Guarantees and Acceptances
Outstanding


  

Contingent

Guarantees and Acceptances


   Total

     Balance

   Percentage (%)

   Balance

   Percentage (%)

   Balance

   Percentage (%)

Manufacturing

   (Won)  353,159    50.90    (Won) 788,989    62.86    (Won)  1,142,148    58.60

Service

     269,101    38.78      396,840    31.62      665,941    34.17

Finance

     55,100    7.94      —      —        55,100    2.83

Others

     16,504    2.38      69,286    5.52      85,790    4.40
    

  
  

  
  

  
     (Won)  693,864    100.00    (Won)  1,255,115    100.00    (Won)  1,948,979    100.00
    

  
  

  
  

  

 

15. Derivatives

 

The Bank’s derivative instruments are divided into hedge derivatives and trading derivatives, based on the nature of the transaction. The Bank enters into hedge transactions mainly for purposes of hedging fair value risks related to its assets and liabilities.

 

Trading derivatives include future contracts, forward contracts, swaps, and options entered into by the Bank to meet the financing needs of its customers and to gain profit from arbitrage transactions between customers and other banks. The Bank also uses derivative instruments in managing its own trading and asset-liability management exposures to fluctuations in interest rates and foreign exchange risks.

 

Hedge derivatives mainly consist of interest rate swaps to hedge the fair value changes of debentures arising from the interest rate fluctuations. Some hedging transactions do not qualify for hedge accounting and are thus accounted for as trading derivatives. These transactions include the hedge relationships where the hedged item is an asset or liability that is re-measured with the changes in fair value attributable to the hedged risk reported in the current operations, or where the hedged item cannot be specifically identified.

 

See Report of Independent Accounts

 

36


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The notional amounts outstanding for derivative contracts as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of

Korean Won)

   2004

   2003

     Trading

   Hedge

   Total

   Trading

   Hedge

   Total

Interest related

                                         

Future

   (Won) 602,863    (Won) —      (Won) 602,863    (Won) 519,665    (Won) —      (Won) 519,665

Swap

     28,470,392      576,250      29,046,642      26,773,100      598,900      27,372,000

Option

     1,424,000      —        1,424,000      2,340,000      —        2,340,000
    

  

  

  

  

  

       30,497,255      576,250      31,073,505      29,632,765      598,900      30,231,665
    

  

  

  

  

  

Currency related

                                         

Forward

     60,021,108      —        60,021,108      25,870,850      —        25,870,850

Future

     2,035,430      —        2,035,430      967,823      —        967,823

Swap

     4,591,013      —        4,591,013      4,136,776      —        4,136,776

Option bought

     106,925      —        106,925      28,148      —        28,148

Option sold

     49,558      —        49,558      81,450      —        81,450
    

  

  

  

  

  

       66,804,034      —        66,804,034      31,085,047      —        31,085,047
    

  

  

  

  

  

Stock related

                                         

Option bought

     2,162,719      —        2,162,719      1,964,870      —        1,964,870

Option sold

     2,126,852      —        2,126,852      1,954,093      —        1,954,093
    

  

  

  

  

  

       4,289,571      —        4,289,571      3,918,963      —        3,918,963
    

  

  

  

  

  

     (Won)  101,590,860    (Won)  576,250    (Won)  102,167,110    (Won)  64,636,775    (Won)  598,900    (Won)  65,235,675
    

  

  

  

  

  

 

Gains and losses on derivatives as of and for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)     

Gain on derivatives

      

Gain on derivative transactions

   (Won)  1,459,391

Gain on valuation of derivatives

     677,777

Gain on fair value hedged items

     12,263
    

     (Won) 2,149,431
    

Loss on derivatives

      

Loss on derivative transactions

   (Won) 1,418,054

Loss on valuation of derivatives

     700,201

Loss on fair value hedged items

     —  
    

     (Won) 2,118,255
    

 

See Report of Independent Accounts

 

37


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Gains and losses on derivatives as of and for the six-month period ended June 30, 2004 are as follows:

 

(in millions of

Korean Won)

   Valuation Gains (P/L)

   Valuation Losses (P/L)

   Fair Value (B/S)

     Trading

   Hedge

   Total

   Trading

   Hedge

   Total

   Asset

   Liability

Interest related

                                                       

-Option

   (Won) 3,566    (Won) —      (Won) 3,566    (Won) 4,415    (Won) —      (Won) 4,415    (Won) 4,356    (Won) 11,893

-Swap

     117,925      —        117,925      92,193      12,263      104,456      150,807      223,052
    

  

  

  

  

  

  

  

       121,491      —        121,491      96,608      12,263      108,871      155,163      234,945
    

  

  

  

  

  

  

  

Currency related

                                                       

-Forward

     428,226      —        428,226      473,538      —        473,538      412,612      473,919

-Option bought

     467      —        467      1,389      —        1,389      468      1,389

-Option sold

     434      —        434      75      —        75      229      265

-Swap

     95,485      —        95,485      75,278      —        75,278      294,356      128,021
    

  

  

  

  

  

  

  

       524,612      —        524,612      550,280      —        550,280      707,665      603,594
    

  

  

  

  

  

  

  

Stock related

                                                       

-Option bought

     879      —        879      39,987      —        39,987      80,139      —  

-Option sold

     30,795      —        30,795      1,063      —        1,063      —        76,811
    

  

  

  

  

  

  

  

       31,674      —        31,674      41,050      —        41,050      80,139      76,811
    

  

  

  

  

  

  

  

     (Won) 677,777    (Won) —      (Won) 677,777    (Won) 687,938    (Won) 12,263    (Won) 700,201    (Won) 942,967    (Won) 915,350
    

  

  

  

  

  

  

  

 

16. Commitments and Contingencies

 

As of June 30, 2004, the Bank faces 187 pending legal actions involving aggregate amount of damages of (Won)308,503 million. On the other hand, the Bank also filed 221 lawsuits, which are still pending with an aggregate amount of claims of (Won)103,526 million. Management believes that the actions against the Bank are without merit and that the ultimate liability, if any, will not materially affect the Bank’s financial position.

 

Details of the pending material legal actions charged against the Bank are as follows:

 

(in millions of Korean Won)         Results

Details


   Exposure to
possible loss


   1st trial

    2nd trial

    3rd trial

Cancellation of a registered mortgage (3 cases)

   (Won) 8,263    in progress            

Cancellation of rental fee

     1,500    in progress            

Confirmation of obligations

     20,319    closed 1 *   closed1 *   in progress

Indemnification for damage etc.

     11,718    closed 1 *   in progress      

1* The Bank (partially) won the case.

 

The Bank, under the Mutual Savings & Finance Company Act, is liable for the payment of the deposits of Orange Mutual Savings & Finance Co., Ltd. (previously, Kookmin Mutual Savings & Finance Co., Ltd.) and Hansol Mutual Savings & Finance Co., Ltd. (previously, Bukook Mutual Savings & Finance Co., Ltd.), previously the Bank’s subsidiaries but were sold in 1999, if they declare bankruptcy within three years of sale. Orange Mutual Savings & Finance Co., Ltd. is currently undergoing bankruptcy procedures due to the disapproval of its business by the Financial Supervisory Commission. Korea Deposit Insurance Corporation (KDIC) has paid for the deposit money subject to the Depositor Protection Act. As of June 30, 2004, despite the fact that Resolution and Finance Corp., a subsidiary of KDIC, has filed a lawsuit against the Bank for the recovery of the repayment, such lawsuit is not expected to cause losses that would materially affect the Bank’s financial position.

 

See Report of Independent Accounts

 

38


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

As of June 30, 2004, the Bank has entered into commitments to provide a credit line of (Won)5,970,660 million, and to purchase commercial papers amounting to (Won)704,000 million, with SPC. Commitments to provide a credit line and to purchase commercial paper with a one year term amounted to (Won)123,500 million and (Won)718,000 million, respectively. Under these commitments, the Bank provides money, in case of a temporary fund shortage, for the principal and interest repayment of these companies’ senior bonds and subordinated bonds within the contracted term and amounts.

 

As of June 30, 2004, loans outstanding under the credit line commitment amounted to (Won)133,036 million, and there is no outstanding balance for commercial papers under the purchase commitment. The Bank has arranged various methods to compensate for losses on these credit line commitments including payment guarantees, repurchase contracts, surety certificate guarantees, and cash reserves. As of June 30, 2004, the Bank provided (Won)351,375 million in other allowances for its expected losses related to these commitments.

 

Pursuant to its asset securitization plans, the Bank has an outstanding obligation to indemnify for losses on the loans sold to Jooeun 2nd-ABS Specialty Co., Ltd. with a ceiling of (Won)36,957 million. As of June 30, 2004, the Bank provided (Won)2,068 million in other allowances for its expected losses related to the commitments to Jooeun 2nd-ABS Specialty Co., Ltd.

 

As of June 30, 2004, post settlements on the loan sales transaction with Korea Asset Management Corporation (“KAMCO”) have been completed and the Bank has provided allowances of (Won)602 million for losses from possible future repurchase of loans from KAMCO under the repurchase agreement on loans amounting (Won)3,181 million .

 

The Bank has an off-shore loan commitment, limited to USD 11,133 thousand. The loan balance under the commitment as of June 30, 2004 is USD 8,799 thousand.

 

As of December 31, 2003, the Bank provided (Won)142,021 million as allowances for tax deficiencies resulting from the tax investigations by the National Tax Administration (“NTA”) for the fiscal years 1998 to 2001. In the current period, the NTA assessed the Bank (Won)123,310 million in tax deficiencies, wherein the Bank actually paid (Won)122,852 million and subsequently recording the difference between the accrued assessment and the actual assessment paid of (Won)18,711 million as non-operating income. The unpaid tax deficiencies of (Won)458 million still remain under other allowances.

 

As of June 30, 2004, the Bank still holds (Won)4,564,671 million in unexpired rights to claim from borrowers or guarantors for loans in accordance with the relevant law. This amount, however, has been written off. Also, as of June 30, 2004, the Bank holds endorsed bills amounting to (Won)11,127 million.

 

As of June 30, 2004, the Bank recorded receivables amounting to (Won)2,500,950 million, and payables amounting to (Won)2,914,462 million for unsettled foreign currency spot transactions.

 

The Bank entered into an alliance with Koram Bank, Woori Credit Card, Citibank, The Fisheries Cooperative Union and Nonghyup for the operation of a credit card business. Accordingly, the Bank shares the related revenue from such business operation.

 

As of June 30, 2004, the Bank has provided one blank promissory note to Korea Securities Finance Corporation as collateral for borrowings and other obligations.

 

In accordance with the November 24, 2003 agreement with the creditors’ committee of LG Card Co., Ltd., which is experiencing a financial crisis, the Bank provided the said company loans totaling (Won)437,000 million. And on January 9, 2004, the Bank agreed to also provide additional loans of (Won) 205,900, a debt-equity swap of (Won) 518,600 million, and an extension of maturities of loans maturing in 2004. On February 13, 2004, the Bank executed a debt-equity swap with LG Card for (Won)156,350 million for loans amounting to (Won)145,950 million and corporate debt securities amounting to (Won)10,400 million. After the capital reduction in May 2004 at a rate of 43.4:1, a second debt-equity swap was executed in July 28, 2004 amounting to (Won)362,250 million for loans of (Won)348,364 million and corporate debt securities of (Won)13,886 million (Note 36). As of June 30, 2004, the Bank’s total exposure related to LG Card Co., Ltd. includes loans, debt securities and debt-equity swapped equity securities amounting to (Won)702,394 million, (Won)11,104 million, and (Won) 1,751 million, respectively. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying non-consolidated financial statements.

 

See Report of Independent Accountants

 

39


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

In common with certain other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices including corporate governance. The Bank may be either directly or indirectly affected by these volatile economic conditions and the reform program described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Bank. Actual results may differ materially from management’s current assessment.

 

As of June 30, 2004, the Banks holds debt securities issued by domestic credit card companies and capital companies and asset-backed securities related to these assets amounting to (Won)13,886 million and (Won)249,403 million, respectively. Currently, debt securities issued by domestic credit card companies and capital companies, which are experiencing liquidity problems, are not widely traded in the bond market. The ultimate effect of these circumstances on the financial position of the Bank as of the balance sheet date cannot be presently determined, and accordingly, no adjustments related to such uncertainties have been recorded in the accompanying financial statements.

 

17. Capital

 

As of June 30, 2004, the Bank has 1 billion common shares authorized with a par value per share of (Won)5,000 and 336,379,116 shares issued. ING Insurance International B.V. owns 3.78% of the total issued shares. As of June 30, 2004,.39,723,137 common shares, equivalent to 11.81% of the total issued shares, are listed on the New York Stock Exchange as ADSs and are managed by the Bank of New York, the trustee of the Bank.

 

As a result of the legal consolidation with H&CB, the registered shareholders of both the Bank and H&CB, as of October 31, 2001, received 179,775,233 shares and 119,922,229 shares, respectively. The new shares were distributed based on an exchange ratio of one new Bank share each for 1.688346 old Bank shares, and one new Bank share for an H&CB share. The new shares were listed on the Korea Stock Exchange as of November 9, 2001. Further, as a result of the merger with Kookmin Credit Co., Ltd., the Bank issued 8,120,431 shares.

 

Under the General Banking Act, if a single entity, other than the government or a foreign investor, owns more than 4% of total outstanding voting shares, that entity’s voting rights are limited to 4% shareholding.

 

The Bank is authorized to issue to non-shareholders convertible bonds and bonds with stock purchase warrants up to total par value amounts of (Won)2,500 billion and (Won)500 billion, respectively.

 

See Report of Independent Accountants

 

40


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

18. Capital Surplus

 

The movements in capital surplus for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)    Beginning Balance

   Changes

   Ending Balance

Paid-in capital in excess of par value

   (Won)  5,655,840    (Won)  —      (Won)  5,655,840

Gain on business combination

     397,669      —        397,669

Revaluation increment

     177,229      —        177,229
    

  

  

     (Won)  6,230,738    (Won)  —      (Won)  6,230,738
    

  

  

 

The gain on business combination is due to the difference between the business combination consideration and the net asset value acquired from the merger with KLB on December 31, 1998.

 

19. Retained Earnings

 

The General Banking Act requires the Bank to appropriate as a legal reserve a minimum of 10% of annual net income until the legal reserve equals paid in capital. This reserve is not available for the payment of cash dividends but may be transferred to capital stock by an appropriate resolution of the Bank’s Board of Directors or used to reduce accumulated deficit, if any, by an appropriate approval of the Bank’s shareholders.

 

Under the guidance provided by Financial Supervisory Services, the Company is required to appropriate, as a reserve for improvement of financial structure, a minimum of 10% of its annual income less carried over accumulated deficit, until its capital adequacy ratio equals 5.5%. As of June 30, 2004, the Bank has no reserve for improvement of financial structure.

 

Pursuant to the Tax Exemption and Reduction Control Law, the Bank was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. However, as of January 1, 2002, the requirement was no longer effective.

 

The Bank, at its own option, also appropriated a portion of retained earnings as other reserves for the operations of overseas branches.

 

20. Capital Adjustments

 

The movements in capital adjustments for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)    Beginning Balance

    Increase/Decrease

    Disposal/Realization 1*

    Ending Balance

 

Treasury stock

   (Won)  (1,328,312 )   (Won) —       (Won)  (3,826 )   (Won)  (1,324,486 )

Unrealized gain on available-for-sale securities

     137,987       155,594       64,563       229,018  

Unrealized gain on investment in associates

     4,624       281       (71 )     4,976  

Stock options

     26,211       4,250       1,180       29,281  

Loss on disposal of treasury stock

     (749 )     (260 )     —         (1,009 )
    


 


 


 


     (Won)  (1,160,239 )   (Won)  159,865     (Won)  61,846     (Won)  (1,062,220 )
    


 


 


 



1* Changes in foreign exchange rates from capital adjustments are included.

 

The Bank, with the approval of the Board of Directors on July 26, 2002, established an employee stock option plan for the welfare of the employees and purchased 3 million shares of treasury stock under the plan. On December 26, 2003, the Bank contributed 1 million shares to the Employee Stock Ownership Association.

 

See Report of Independent Accountants

 

41


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

In accordance with the resolution of the Board of Directors on December 17, 2003, the Bank acquired 27,423,761of its own shares previously owned by the Korean government at (Won)43,700 per share through public bidding and intends to sell these shares depending on certain market conditions. As a result of the acquisition, the Bank holds 8.90% the total common stock issued as treasury stock as of June 30, 2004.

 

21. Employee Stock Options

 

As of June 30, 2004, the stock options granted to the Bank’s executives and chief executive officer are as follows:

 

Series


   Grant Date

  

Shares

Granted


   Forfeiture

  

Shares

Exercised


  

Shares

Outstanding


   Exercise Price

   Exercise Period

Series 1

   00.03.18    233,940    121,411    42,680    69,849    (Won) 23,469    03.03.19 - 05.03.18

Series 2

   01.03.15    214,975    16,882    19,872    178,221      28,027    04.03.16 - 09.03.15

Series 3

   98.10.31    400,000    —      390,000    10,000      5,000    01.11.01 - 04.10.31

Series 4

   99.02.27    280,000    59,892    220,108    —        13,900    02.02.28 - 05.02.27

Series 5

   00.02.28    267,000    65,218    34,963    166,819      27,600    03.03.01 - 06.02.28

Series 6

   01.03.24    111,000    38,624    10,216    62,160      25,100    04.03.25 - 07.03.24

Series 71*2*

   01.11.16    850,000    —      —      850,000      51,200    04.11.17 - 09.11.16

Series 8-12*

   02.03.22    132,000    89,753    —      42,247      57,100    05.03.23 - 10.03.22

Series 8-13*

   02.03.22    490,000    166,466    —      323,534      57,100    05.03.23 - 10.03.22

Series 93*

   02.07.26    30,000    —      —      30,000      58,800    05.07.27 - 10.07.26

Series 10-12*

   03.03.21    140,000    19,947    —      120,053      41,200    06.03.22 - 11.03.21

Series 10-13*

   03.03.21    180,000    64,090    —      115,910      35,500    06.03.22 - 11.03.21

Series 113*

   03.08.27    30,000    24,909    —      5,091      40,500    06.08.28 - 11.08.27

Series 123*

   04.02.09    85,000    —      —      85,000      46,100    07.02.10 - 12.02.09

Series 13-12*

   04.03.23    20,000    —      —      20,000      47,200    07.03.22 - 12.03.23

Series 13-13*

   04.03.23    10,000    —      —      10,000      47,200    07.03.22 - 12.03.23

Increase due to merger-14*

   01.03.22    22,146    —      —      22,146      71,538    04.03.23 - 11.03.22

Increase due to merger-22*4*

   02.03.29    9,990    —      —      9,990      129,100    04.03.30 - 11.03.29

1* The stock options include the 200,000 shares which are to be additionally granted if the three-month weighted average stock price of the Bank prior to the exercise period is higher than that of any other listed banks and the Bank achieves total market value and ROE target.
2* The exercise prices are based on the increase rate of the stock price index in the banking industry.
3* The number of shares to be granted will be determined by the results of the evaluation of the grantees after 3 years from grant date. The number of shares is calculated under the assumption that the performance-based stock options have been fully granted.
4* The Bank took over the stock options granted by Kookmin Credit Card Co., Ltd. of which the exercise prices and number of shares have been adjusted in proportion to the merger ratio.

 

See Report of Independent Accountants

 

42


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

Compensation costs for stock options granted to employees and executives are recognized on the basis of fair value. Assumptions used under the fair value basis method are summarized as follows:

 

Series


   Stock price as of grant
date (Won)


   Risk free interest
rate 1* (%)


   Expected exercise
period (years) 2*


   Volatility of
underlying stock
price 3* (%)


   Expected dividend
rate 4* (%)


  

Compensation

cost (Won)


Series 1

   (Won)  21,441    9.32    4.00    71.14    2.25    (Won)  12,638

Series 2

     25,156    6.06    5.50    70.30    2.47      15,987

Series 3

     5,430    9.74    3.00    59.06    1.14      1,395

Series 45*

     33,750    4.74    0.33    73.30    1.93      19,850

Series 55*

     33,750    4.74    1.33    73.30    1.93      13,320

Series 65*

     33,750    4.74    2.42    73.30    1.93      17,117

Series 7

     45,800    4.91    3.00    58.90    —        18,364

Series 8-1

     58,000    6.14    3.00    53.56    —        24,496

Series 8-2

     58,000    6.14    3.00    53.56    —        24,496

Series 9

     53,900    5.73    3.00    43.09    —        17,333

Series 10-1

     36,500    4.74    3.00    48.77    —        12,204

Series 10-2

     36,500    4.74    3.00    48.77    —        14,073

Series 11

     41,100    5.75    3.00    44.48    —        15,098

Series 12

     47,000    4.90    3.00    42.74    —        16,430

Series 13-1

     45,900    4.67    3.00    42.74    —        15,121

Series 13-2

     45,900    4.67    3.00    42.74    —        15,121

Increase due to merger-1

     27,200    5.17    3.00    46.02    —        8,447

Increase due to merger-2

     55,900    6.39    2.00    49.24    20      6,536

1* Interest rate of government bonds as of grant date.
2* The average of vesting period and exercise period was applied for series 1 and 2. Vesting period was applied for series 3-11 and stock options succeeded from Kookmin Credit Card Co., Ltd.
3* Annualized stock volatility for the past one-year period before the grant date was applied for series 1-2, and the average of stock volatility of banking industries and the Bank was applied for series 3-11 and stock options succeeded from Kookmin Credit Card Co., Ltd.
4* Average historical dividend rate for the past period from grant date that equals the expected exercise period, were assumed.
5* Compensation costs were recalculated to reflect the effects of merger with H&CB.

 

See Report of Independent Accountants

 

43


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The compensation costs to be recognized in the future as of June 30, 2004, are as follows:

 

     Compensation cost recognized

   Compensation cost to be recognized

  

Total
compensation
cost


Series


   Prior period
compensation
cost


   Current period
compensation
cost


    Accumulated
compensation
cost


   Within 1
year


   More than 1
year to 2
years


   More than 2
years to 3
years


   Total

  

Series 1

   (Won) 883    (Won) —       (Won) 883    (Won) —      (Won) —      (Won)  —      (Won) —      (Won) 883

Series 2

     2,612      237       2,849      —        —        —        —        2,849

Series 3

     14      —         14      —        —        —        —        14

Series 5

     2,222      —         2,222      —        —        —        —        2,222

Series 6

     975      89       1,064      —        —        —        —        1,064

Series 7

     10,840      2,602       13,442      2,168      —        —        2,168      15,610

Series 8-1

     604      172       776      259      —        —        259      1,035

Series 8-2

     5,297      647       5,944      1,981      —        —        1,981      7,925

Series 9

     246      87       333      173      14      —        187      520

Series 10-1

     427      182       609      487      366      —        853      1,462

Series 10-2

     633      46       679      544      408      —        952      1,631

Series 11

     50      (29 )     21      26      26      4      56      77

Series 12

     —        155       155      466      466      310      1,242      1,397

Series 13-1

     —        25       25      101      101      76      278      303

Series 13-2

     —        13       13      50      50      38      138      151

Increase due to merger-1

     171      16       187      —        —        —        —        187

Increase due to merger-2

     57      8       65      —        —        —        —        65
    

  


 

  

  

  

  

  

     (Won)  25,031    (Won)  4,250     (Won)  29,281    (Won)  6,255    (Won)  1,431    (Won)  428    (Won)  8,114    (Won)  37,395
    

  


 

  

  

  

  

  

 

As of June 30, 2004, the weighted average exercise price per stock option granted is (Won)45,494 and the weighted average compensation cost per stock option granted is (Won)17,630.

 

See Report of Independent Accounts

 

44


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

22. Other Non-Interest Income (Expenses)

 

Other non-interest income (expenses) for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)    Amount

Other non-interest income

      

- Realized gain on trading securities

   (Won) 79,056

- Unrealized gain on trading securities

     18,005

- Income from beneficiary certificates

     137,600

- Gain on trust management

     58,974

- Gain on valuation of derivatives

     677,777

- Gain on fair value hedged items

     12,263

- Others

     43,477
    

     (Won)  1,027,152
    

Other non-interest expenses

      

- Realized loss on trading securities

   (Won) 48,605

- Contributions to special funds

     90,253

- Provision for allowance

     219

- Loss on valuation of derivatives

     700,201

- Others

     415,436
    

     (Won)  1,254,714
    

 

23. General and Administrative Expenses

 

General and administrative expenses for the six-month period June 30, 2004 are as follows:

 

(in millions of Korean Won)    Amount

Salaries and wages

   (Won) 575,691

Retirement benefits (Note 12)

     55,163

Other employee benefits

     164,335

Rent

     36,949

Depreciation

     157,651

Amortization

     44,327

Taxes and dues

     60,150

Advertising

     16,835

Ordinary Research and Development

     61,459

Fees and commissions

     44,331

Others

     98,735
    

     (Won)  1,315,626
    

 

See Report of Independent Accounts

 

45


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

24. Non-Operating Income (Expenses)

 

Non-operating income (expenses) for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)    Amount

Non-operating income

      

- Gain on disposal of fixed assets

   (Won) 1,688

- Rent income

     1,456

- Unrealized gain on investment in associates

     16,479

- Realized gain on available-for-sale securities

     87,417

- Realized gain on held-to-maturity securities

     1,509

- Realized gain on investment in associates

     79

- Reversal of impairment loss on available-for-sale securities

     —  

- Gain on sale of loans

     66,810

- Others

     98,841
    

       274,279
    

Non-operating expenses

      

- Loss on disposal of fixed assets

     1,537

- Loss on investment in associates

     —  

- Realized loss on available-for-sale securities

     9,893

- Realized loss on held-to-maturity securities

     —  

- Impairment loss on available-for-sale securities

     59,759

- Early retirement benefits

     50,029

- Loss on sale of loans

     155

- Others

     56,092
    

       177,465
    

     (Won) 96,814
    

 

25. Income Tax Expense

 

Income tax expense for the six-month period ended June 30, 2004 is as follows:

 

(in millions of Korean Won)    2004

 

Income tax payable

   (Won) 57,308  

Deferred income taxes from temporary differences

     83,071  

Retained earnings and other capital surplus adjustments 1*

     (576 )
    


Income tax expense

   (Won)  139,803  
    



1* Income tax effect from the change in retained earnings from loss on disposal of treasury stock.

 

See Report of Independent Accounts

 

46


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The statutory income tax rate applicable to the Bank, including resident tax surcharges, is 29.7% for the years ended December 31, 2002 and 2003. However, due to tax adjustments, the effective tax rate for the period ended June 30, 2004 is 31.26%. The statutory income tax rate of 29.7% is applied for deferred income tax assets (liabilities) that will be realized before 2005 while the statutory income tax rate of 27.5% is applied for deferred income tax assets (liabilities) that will be realized after 2005, reflecting the 2% corporate tax rate cut from 2005. The basis for calculating the effective tax rate is as follows:

 

(in millions of Korean Won)    2004

 

Net income (loss) before income taxes

   (Won)  447,364  

Income tax expense based on the effective tax rate

     132,867  

Tax effects on adjustments

        

Adjustments to increase taxable income

     64,931  

Adjustments to decrease taxable income

     (66,642 )

Discount effect

     8,647  
    


Income tax benefit per statements of operations

   (Won)  139,803  
    


 

The significant changes in accumulated temporary differences and deferred income taxes for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)    Beginning
balance


    Increase

    Decrease

    Ending balance

    Deferred tax asset
(liability)


 

Allowance for loan losses

   (Won) 299,023     445,087     227,577     516,533     (Won)  146,901  

Accrued interest

     (349,435 )   (230,313 )   (308,068 )   (271,680 )     (74,712 )

Unrealized loss on securities

     762,266     89,471     201,208     650,529       178,896  

Unrealized loss on derivatives

     (35,045 )   24,498     (23,924 )   13,377       3,679  

Present value discounts

     14,774     8,118     14,773     8,119       2,233  

Allowance for losses on guarantees and acceptances

     1,074     1,259     1,074     1,259       346  

Accrued severance benefits

     —       6,704     —       6,704       1,843  

Stock options

     26,211     29,281     26,211     29,281       8,052  

Loss on fair value hedges

     (1,502 )   (12,262 )   1     (13,765 )     (3,785 )

Accumulated depreciation

     8,313     (33 )   2,104     6,176       1,698  

Other allowances

     505,372     537,846     505,371     537,847       147,908  

Others

     104,471     (4,293 )   (17,011 )   117,189       32,227  

Net operating loss carry-forward

     567,825     (291,881 )   275,944     —         —    
    


 

 

 

 


     (Won)  1,903,347     603,482     905,260     1,601,569     (Won)  445,286  
    


 

 

 

 


 

See Report of Independent Accounts

 

47


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

26. Earnings Per Share

 

The weighted average number of common shares outstanding for the six-month period ended June 30 and three-month period ended March 31, 2004 are calculated as follows:

 

     2004.6.30

    2004.3.31

 

Number of common shares outstanding-beginning balance

   336,379,116     336,379,116  

Weighted average number of shares of treasury stock

   (29,977,371 )   (30,002,382 )
    

 

Weighted average number of common shares outstanding

   306,401,745     306,376,734  
    

 

 

Details of the computation of the basic earnings per share (“EPS”) and basic ordinary income per share for the six-month period ended June 30 and three-month period ended March 31, 2004 are shown below.

 

     2004.6.30

   2004.3.31

Net income (in millions of Korean Won)

   (Won) 307,561    (Won) 151,258

Weighted average number of common shares outstanding

     306,401,745      306,376,734
    

  

Basic earnings per share and basic ordinary income per share (in Won)

   (Won) 1,004    (Won) 494
    

  

 

Details of the computation of the diluted EPS and diluted ordinary income per share for the six-month period ended June 30 and three-month period ended March 31, 2004 are shown below.

 

     2004.6.30

   2004.3.31

Net income (in millions of Korean Won)

   (Won) 307,561    (Won) 151,258

Weighted average number of common shares outstanding

     306,518,191      306,376,734
    

  

Diluted earnings per share and ordinary income per share (in Won)

   (Won) 1,003    (Won) 494
    

  

 

Potential common shares as of June 30, 2004 are as follows:

 

   

Exercise Period


 

Shares Outstanding


 

Exercise Price


Stock options

  2001.11.01 - 2012.03.23   2,121,020   (Won)5,000 – (Won)129,100

 

Net loss and basic loss per share for the year ended December 31, 2003 were (Won)753,348 million and (Won)2,311, respectively.

 

See Report of Independent Accounts

 

48


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

27. Assets and Liabilities Denominated in Foreign Currencies:

 

Significant assets and liabilities denominated in foreign currencies as of June 30, 2004 are the following :

 

 

     Total Balances

   Major Denomination Currencies

     Millions of
Korean Won


   Thousands
of US
Dollars1*


   Thousands of
US Dollars


   Thousands of
EC Euro


  

Thousands of

Japanese Yen


Assets

                                  

Cash

   (Won) 174,415    $ 151,336    $ 65,398    19,941    ¥ 5,460,463

Due from banks

     706,822      613,295      567,356      3,899      4,453,010

Securities

     1,242,191      1,077,823      922,297      3,254      3,684,055

Loans in foreign currencies

     3,976,529      3,450,351      2,305,361      100,982      103,007,629

Bills bought

     670,278      581,586      551,614      17,826      710,727

Advances payments on acceptances and guarantees

     2,051      1,779      1,779      —        —  

Call loans

     115,429      100,156      95,000      3,500      100,000

Liabilities

                                  

Deposits

     1,900,982      1,649,442      827,440      22,311      75,136,305

Borrowings

     2,964,870      2,572,556      1,942,704      63,048      53,186,684

Due to BOK

     4,441      3,853      3,853      —        —  

Call money

     92,625      80,369      63,600      4,600      —  

Debentures

     828,334      718,728      593,788      —        —  

Unsettled foreign exchange liabilities

     41,906      36,361      19,127      209      220,778

1* Foreign currencies other than US dollars are converted into US dollar amounts using the exchange rates provided by Seoul Money Brokerage Services, Ltd. at the balance sheet date.

 

See Report of Independent Accounts

 

49


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

28. Related Party Transactions

 

Significant transactions with related parties for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)        Amount

 
    Account

   Balances

   Transactions

 
                     

KB Investment Co., Ltd.

  Deposits    (Won) 10,222    (Won) (193 )
    Other liabilities      272      —    

KB Data Systems Co., Ltd.

  Deposits      10,366      (202 )
    Other assets      30      —    
    Other liabilities      2,712      (7,383 )

KB Futures Co., Ltd.

  Due from banks      75      1  
    Other assets      69      —    
    Deposits      5,514      (218 )
    Borrowings      5,000      (18 )
    Other liabilities      1,500      —    
    Rent      —        41  
    Commissions income      —        5  
    Commissions
expenses
     —        (130 )

KB Luxembourg S.A.

  Due from banks      2,541      70  
    Loans      —        181  
    Borrowings      5,575      (145 )
    Other liabilities      1      —    

KB International Ltd.(London)

  Due from banks      643      29  
    Loans      213,213      1,016  
    Other assets      349      637  
    Borrowings      208,703      (22 )
    Other liabilities      534      (1,490 )
    Commissions
expenses
     —        (1,140 )

Kookmin Finance H.K. Ltd.

  Due from banks      48,022      49  
    Loans      272,180      1,845  
    Other assets      564      —    
    Borrowings      228,696      (1 )
    Commissions
expenses
     —        (1,113 )

KB Asset Management

  Deposits      17,922      (531 )
    Other liabilities      137      —    

KB Real Estate Co., Ltd.

  Loans      25,022      1,005  
    Deposits      1,744      (32 )
    Other liabilities      1,755      —    
    Other assets      7      —    
    Rent      —        62  

Jooeun Industrial Co., Ltd.

  Loans      124,949      —    

KB Credit Information Co., Ltd.

  Deposits      11,441      (167 )
    Other liabilities      7,899      —    
    Commissions
expenses
     —        (16,405 )
    Rent      —        70  

 

See Report of Independent Accounts

 

50


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

(in millions of Korean Won)    Account

   Amount

        Balances

   Transactions

KB Life Insurance Co., Ltd.

   Other assets    (Won) 1,678    (Won) —  
     Deposits      164      —  
     Other
liabilities
     2,010      —  
     Commissions
income
     —        1,649

 

29. Transactions with Financial Institutions

 

The assets and liabilities arising from transactions with financial institutions for the six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)   

Description


   Bank of Korea

   Other Banks

   Other Financial
Institutions


   Total

Cash and due from banks

   In Won    (Won) 4,181,282    (Won) 6,011    (Won) 140,000    (Won) 4,327,293
     In foreign currencies      44,677      659,378      2,767      706,822
         

  

  

  

            4,225,959      665,389      142,767      5,034,115
         

  

  

  

Loans

   In Won      —        9,452      945,914      955,366
     In foreign currencies      —        888,915      17,936      906,851
     Others      —        2,456,909      629,051      3,085,960
         

  

  

  

            —        3,355,276      1,592,901      4,948,177
         

  

  

  

Deposits

   In Won      —        1,430,502      1,435,662      2,866,164
     In foreign currencies      —        —        850,000      850,000
         

  

  

  

            —        1,430,502      2,285,662      3,716,164
         

  

  

  

Borrowings

   In Won      942,933      179,683      5,862      1,128,478
     In foreign currencies      —        2,166,445      17,039      2,183,484
     Others      4,441      92,625      1,620,300      1,717,366
         

  

  

  

            947,374      2,438,753      1,643,201      5,029,328
         

  

  

  

Debentures

   In Won      —        —        146,900      146,900
     In foreign currencies      —        828,334      —        828,334
         

  

  

  

            —        828,334      146,900      975,234
         

  

  

  

 

See Report of Independent Accountants

 

51


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

30. Interest Bearing Assets and Liabilities

 

Interest bearing assets and liabilities as of June 30, 2004 and the related interest income and interest expenses for the six-month period then ended are as follows:

 

(in millions of Korean Won)    Average Balance

   Interest Income

   Average Yield (%)

Assets

                  

Due from banks

   (Won) 3,648,676    (Won) 4,138    0.23

Securities

     23,705,431      528,510    4.48

Loans

     140,422,167      5,286,060    7.57
    

  

    
     (Won) 167,776,274    (Won) 5,818,708     
    

  

    

Liabilities

                  

Deposits

   (Won) 131,367,968    (Won) 2,018,923    3.09

Borrowings

     11,761,810      179,322    3.07

Debentures

     17,308,415      530,500    6.16
    

  

    
     (Won) 160,438,193    (Won) 2,728,745     
    

  

    

 

31. Operations of the Trust Accounts

 

The summarized statement of assets and liabilities of the trust accounts as of June 30, 2004 are categorized into principal or dividend guaranteed money trusts, performance money trusts and property trusts, as follows:

 

(in millions of Korean Won)    Guaranteed
Money Trusts


    Performance
Money Trusts


    Property
Trusts


   Total

 

Securities

   (Won) 2,856,922     (Won) 4,173,974     (Won) 863,440    (Won) 7,894,336  

Loans

     182,187       253,240       —        435,427  

Receivables

     —         —         13,857,442      13,857,442  

Due from banking accounts

     220,414       301,823       128,221      650,458  

Present value discounts

     (500 )     —         —        (500 )

Allowance for loan losses

     (54,988 )     (44,365 )     —        (99,353 )

Other assets

     190,307       152,360       1,188,442      1,531,109  
    


 


 

  


Total assets

   (Won)
 
 
3,394,342
 
 
  (Won) 4,837,032     (Won) 16,037,545    (Won) 24,268,919  
    


 


 

  


Trusts

   (Won)
 
 
3,011,931
 
 
  (Won) 4,556,053     (Won) 16,024,160    (Won) 23,592,144  

Reserves for future losses

     51,576       2,825       —        54,401  

Other liabilities

     330,835       278,154       13,385      622,374  
    


 


 

  


Total liabilities

   (Won) 3,394,342     (Won) 4,837,032     (Won) 16,037,545    (Won) 24,268,919  
    


 


 

  


 

The Bank is liable as of June 30, 2004 for the following portion of the difference between the book value and fair value of principal and/or dividend guaranteed money trusts:

 

(in millions of Korean Won)    Book Value

   Fair Value

   Liability

Principal guaranteed money trusts

   (Won) 3,287,010    (Won) 3,303,014    (Won) —  

Principal and dividend guaranteed money trusts

     107,332      114,249      —  
    

  

  

     (Won) 3,394,342    (Won) 3,417,263    (Won) —  
    

  

  

 

See Report of Independent Accountants

 

52


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The key results of operations from transactions between bank accounts and trust accounts, excluding securities investment trust, for six-month period ended June 30, 2004 are as follows:

 

(in millions of Korean Won)    Trust Account
Related Income


        Trust Account
Related Expenses


Gain on trust management

   (Won) 51,221   

Interest expense on borrowings from trust accounts

   (Won) 24,506

Early withdrawal penalties

     51            
    

       

     (Won) 51,272         (Won) 24,506
    

       

 

32. Business Combination with H&CB

 

The Bank entered into a business combination contract (“the Contract”) with H&CB on April 23, 2001 and obtained approval from the shareholders for such combination on September 29, 2001. In accordance with the Contract, the Bank completed the legal consolidation with H&CB as of October 31, 2001. Under the Contract, the shareholders of the Bank and H&CB received 1 new common share of the Bank for every 1.688346 old shares of the Bank and 1 share of H&CB. The new common shares of the Bank were listed on the Korea Stock Exchange on November 9, 2001. Despite the legal form of consolidation, the business combination was accounted for as an acquisition with the Bank as acquirer of H&CB’s total assets of (Won)67,742,958 million and liabilities of (Won)64,381,185 million.

 

The Bank’s registration statement with the Securities and Exchange Commission of the United States of America was declared effective on September 10, 2001, and the new shares of the Bank are listed on the New York Stock Exchange as ADSs since November 1, 2001.

 

33. Merger with Kookmin Credit Card Co., Ltd.

 

The Bank obtained approval from its Board of Directors on May 30, 2003 to merge with Kookmin Credit Card Co., Ltd., (the “Subsidiary”) of which the Bank previously owned 74.27%, and merged with the Subsidiary on September 30, 2003.

 

The merger was effected through the issuance of 8,120,431 common shares by the Bank to the shareholders of the Subsidiary as of July 24, 2003, at a ratio of 0.442983 share of the Bank’s common stock for each share of the Subsidiary. The newly issued common shares due to this transaction constituted 2.4% of total outstanding shares of the Bank as of September 30, 2003.

 

See Report of Independent Accountants

 

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Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

34. Statement of Cash Flows

 

Cash and cash equivalents as of June 30, 2004 as presented in the non-consolidated statements of cash flows are as follows:

 

(in millions of Korean Won)    Amount

 

Cash on hand

   (Won) 2,600,621  

Cash in foreign currencies

     174,415  

Due from banks in Won

     4,350,847  

Due from banks in foreign currencies

     706,822  
    


       7,832,705  

Restricted deposits

     (4,388,882 )
    


     (Won) 3,443,823  
    


 

Major transactions that do not involve cash inflows and cash outflows for the six-month period ended June 30, 2004 are presented as follows:

 

(in millions of Korean Won)    Amount

Unrealized gains on investment securities

   (Won) 91,031

Write-off of loans

     2,428,492

Increase in loan loss provision due to sales and repurchase of non-performing loans

     173,502

Conversion of loans into equity securities

     3,626

 

35. Business Segments

 

The following table shows the distribution of the Bank’s operations by business segment as of and for the six-month period ended June 30, 2004:

 

(in millions of Korean Won)                              
Account    Retail Banking

  

Corporate
Banking


  

Capital Markets
Activities


  

Credit Card
Operations


  

Others


  

Total


Loans

   (Won) 81,804,641    (Won) 44,703,039    (Won) 4,246,824    (Won) 8,373,359    (Won) 760,130    (Won) 139,887,993

Securities

     —        81,660      23,828,500      145,885      490,764      24,546,809

Fixed assets

     1,665,343      382,035      86,756      352,287      458,410      2,944,831

Other assets

     1,682,856      420,291      12,864,422      162,234      2,245,087      17,374,890
                                           

Total assets

   (Won) 85,152,840    (Won) 45,587,025    (Won) 41,026,502    (Won) 9,033,765    (Won) 3,954,391    (Won) 184,754,523
    

  

  

  

  

  

Operating revenue

   (Won) 3,067,507    (Won) 1,688,287    (Won) 2,994,947    (Won) 1,519,961    (Won) 330,065    (Won) 9,600,767
    

  

  

  

  

  

 

See Report of Independent Accountants

 

54


Table of Contents

Kookmin Bank

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)


 

The following table shows the distribution of the Bank’s operations by geographical market as of and for the six-month period ended June 30, 2004:

 

(in millions of Korean Won)    Domestic

   Overseas

   Total

Loans

   (Won) 139,434,453    (Won) 453,540    (Won) 139,887,993

Securities

     24,544,149      2,660      24,546,809

Fixed assets

     2,941,740      3,091      2,944,831

Other assets

     16,697,173      677,717      17,374,890
    

  

  

Total assets

   (Won) 183,617,515    (Won) 1,137,008    (Won) 184,754,523
    

  

  

Operating revenue

   (Won) 9,574,969    (Won) 25,798    (Won) 9,600,767
    

  

  

 

36. Subsequent Event

 

The Bank executed a second debt-equity swap of (Won)362,250 million (loans amounting to (Won)348,364 million, corporate debt securities amounting to (Won)13,886 million) in July 28, 2004. As a result, the Bank acquired 72,450,000 registered common shares, with a par value per share of (Won)5,000 in LG Card Co., Ltd.

 

See Report of Independent Accountants

 

55