Form 6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER

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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2019

Commission File Number: 000-53445

KB Financial Group Inc.

(Translation of registrant’s name into English)

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

(Address of principal executive office)

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

Form 20-F ☒ Form 40-F ☐

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

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

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

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

Audit Report of Kookmin Bank for Fiscal Year 2018

On March 12, 2019, KB Financial Group Inc. disclosed audit reports of Kookmin Bank, its wholly-owned subsidiary, for fiscal year 2018 based on the International Financial Reporting Standards as adopted by the Republic of Korea (including the consolidated and separate financial statements of Kookmin Bank as of and for the years ended December 31, 2018 and 2017 and related notes) received from Samil PricewaterhouseCoopers, its independent auditor. The financial statements in such reports have not been approved by the shareholders of Kookmin Bank and remain subject to change.

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

Exhibit 99.1: An English-language translation of the Consolidated Audit Report of Kookmin Bank for FY 2018.

Exhibit 99.2: An English-language translation of the Separate Audit Report of Kookmin Bank for FY 2018.

SIGNATURES

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


	KB Financial Group Inc.
	(Registrant)

Date: March 12, 2019	By:	/s/ Ki-Hwan Kim
		(Signature)

	Name: Ki-Hwan Kim
	Title: Deputy President and Chief Finance Officer

Exhibit 99.1

Kookmin Bank and Subsidiaries

Consolidated Financial Statements

December 31, 2018 and 2017

Kookmin Bank and Subsidiaries

Index

December 31, 2018 and 2017


	Page(s)
Independent Auditor’s Report		1~3

Consolidated Financial Statements

Consolidated Statements of Financial Position		4

Consolidated Statements of Comprehensive Income		5

Consolidated Statements of Changes in Equity		6

Consolidated Statements of Cash Flows		7

Notes to the Consolidated Financial Statements		8~196

Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Board of Directors and Shareholder of Kookmin Bank

Opinion

We have audited the accompanying consolidated financial statements of Kookmin Bank and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017 and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS)

Basis for Opinion

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

Other Matter

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

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

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

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations.

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

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

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

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

•

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

•

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

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

•

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

•

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

•

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

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

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

March 11, 2019

This report is effective as of March 11, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

Kookmin Bank and Subsidiaries

Consolidated Statements of Financial Position

Years Ended December 31, 2018 and 2017


(In millions of Korean won)	Notes		2018¹		2017
Assets
Cash and due from financial institutions		4,6,7,36		14,889,010		15,646,318
Financial assets at fair value through profit or loss (Under Korean IFRS 1039)		4,6,12		—		8,408,730
Financial assets at fair value through profit or loss		4,6,8,12		12,257,005		—
Derivative financial assets		4,6,9		1,613,970		2,607,659
Loans at amortized cost		4,6,8,10,11		276,944,202		251,710,605
Financial investments		4,6,8,12		42,723,480		40,815,674
Investments in associates		13		506,664		345,892
Property and equipment		14		3,127,666		3,015,594
Investment property		8,14		257,924		337,500
Intangible assets		15		224,208		217,608
Current income tax assets		32		4,638		3,209
Deferred income tax assets		16,32		3,131		2,050
Assets held for sale		18		16,952		155,506
Other assets		4,6,17		4,390,408		6,499,582

Total assets				356,959,258		329,765,927

Liabilities
Financial liabilities at fair value through profit or loss (Under Korean IFRS 1039)		4,6		—		74,191
Financial liabilities at fair value through profit or loss		4,6		87,168		—
Derivative financial liabilities		4,6,9		1,642,409		2,608,820
Deposits		4,6,19		272,484,528		252,478,931
Debts		4,6,20		17,496,055		15,810,753
Debentures		4,6,21		23,163,585		19,183,798
Provisions		22		308,374		358,192
Net defined benefit liabilities		23		166,605		8,568
Current income tax liabilities		32		5,737		3,543
Deferred income tax liabilities		16,32		120,867		172,131
Other liabilities		4,6,24,30		14,816,064		13,743,566

Total liabilities				330,291,392		304,442,493

Equity
Capital stock		25		2,021,896		2,021,896
Capital surplus		25		5,218,788		5,219,693
Accumulated other comprehensive income		25, 34		115,784		678,094
Retained earnings		25, 33		19,311,398		17,403,751
(Provision of regulatory reserve for credit losses
December 31, 2018 : W2,150,772 million
December 31, 2017 : W2,001,063 million)
(Amounts estimated to be appropriated
December 31, 2018 : W140,247 million
December 31, 2017 : W149,709 million)

Equity attributable to the shareholder of the Parent Company				26,667,866		25,323,434
Non-controlling interest equity				—		—

Total equity				26,667,866		25,323,434

Total liabilities and equity				356,959,258		329,765,927

The consolidated statement of financial position as at December 31, 2018 is prepared applying Korean IFRS 1109, and the comparative consolidated statement of financial position as at December 31, 2017 has not been restated retrospectively as permitted by the transitional provisions of Korean IFRS 1109.

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

Kookmin Bank and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2018 and 2017


(In millions of Korean won)	Notes		2018¹			2017
Interest income				10,019,888			8,508,893
Interest income from financial instruments at fair value through other comprehensive income and amortized cost				9,797,583			—
Interest income from financial instruments at fair value through profit or loss				222,305			—
Interest income from loans and receivables				—			8,338,424
Interest income from financial instruments at fair value through profit or loss (Under Korean IFRS 1039)				—			170,469
Interest expense				(3,919,166	)		(2,944,109	)

Net interest income		26		6,100,722			5,564,784

Fee and commission income				1,422,791			1,471,480
Fee and commission expense				(300,043	)		(246,791	)

Net fee and commission income		27		1,122,748			1,224,689

Net losses on financial instruments at fair value through profit or loss (Under Korean IFRS 1039)		28		—			(71,207	)

Net gains on financial instruments at fair value through profit or loss		28		326,395			—

Net other operating expenses		29		(696,486	)		(288,087	)

General and administrative expenses		14,15,23,30,40		(3,766,995	)		(3,665,822	)

Operating profit before provision for credit losses				3,086,384			2,764,357

Provision for credit losses		7,11,12,17,22		(93,916	)		(115,166	)

Operating profit				2,992,468			2,649,191
Share of profit of associates		13		49,698			37,571
Net other non-operating income		31		44,172			(73,467	)

Net non-operating profit				93,870			(35,896	)

Profit before income tax expense				3,086,338			2,613,295
Income tax expense		32		(827,140	)		(438,590	)

Profit for the year				2,259,198			2,174,705

(Adjusted profit after provision of regulatory reserve for credit losses		25
2018 : W 2,011,991 million
2017 : W 2,024,996 million
Items that will not be reclassified to profit or loss:
Remeasurements of net defined benefit liabilities		23		(95,796	)		14,177
Net losses on equity instruments at fair value through other comprehensive income				(36,013	)		—
Items that may be subsequently reclassified to profit or loss:
Currency translation adjustments				27,383			(67,106	)
Gains on valuation of financial investments				—			110,188
Net gains on debt instruments at fair value through other comprehensive income				57,188			—
Share of other comprehensive income(loss) of associates				(3,383	)		91,839
Gains (losses) on hedging instruments of net investments in foreign operations				(25,386	)		26,719
Gains on cash flow hedging instruments				3,788			7,414

Other comprehensive income for the year, net of tax		34		(72,219	)		183,231

Total comprehensive income for the year				2,186,979			2,357,936

Profit attributable to:
Shareholder of the Parent Company				2,259,198			2,174,705
Non-controlling interests				—			—

				2,259,198			2,174,705

Total comprehensive income for the year attributable to:
Shareholder of the Parent Company				2,186,979			2,357,936
Non-controlling interests				—			—

				2,186,979			2,357,936

The consolidated statements of comprehensive income for the year ended December 31, 2018 are prepared applying Korean IFRS 1109, and the comparative consolidated statements of comprehensive income for the year ended December 31, 2017 have not been restated retrospectively as permitted by transitional provisions of Korean IFRS 1109.

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

Kookmin Bank and Subsidiaries

Consolidated Statements of Changes in Equity

Years Ended December 31, 2018 and 2017


			Attributable to the shareholder of the Parent Company
(In millions of Korean won)	Notes		Capital Stock		Capital Surplus			Accumulated Other Comprehensive Income			Retained Earnings			Non-controlling interests		Total Equity
Balance at January 1, 2017				2,021,896		5,219,704			494,863			15,588,539			—		23,325,002

Comprehensive income for the year
Profit for the year				—		—			—			2,174,705			—		2,174,705
Remeasurements of net defined benefit liabilities				—		—			14,177			—			—		14,177
Currency translation adjustments				—		—			(67,106	)		—			—		(67,106	)
Gains on valuation of financial investments				—		—			110,188			—			—		110,188
Share of other comprehensive income of associates				—		—			91,839			—			—		91,839
Gains on hedging instruments of a net investment in a foreign operation				—		—			26,719			—			—		26,719
Gains on cash flow hedging instruments				—		—			7,414			—			—		7,414

Total comprehensive income for the year				—		—			183,231			2,174,705			—		2,357,936

Transactions with the shareholder
Dividends				—		—			—			(359,493	)		—		(359,493	)
Changes in ownership of subsidiaries				—		(11	)		—			—			—		(11	)

Total transactions with the shareholder				—		(11	)		—			(359,493	)		—		(359,504	)

Balance at December 31, 2017				2,021,896		5,219,693			678,094			17,403,751			—		25,323,434

Balance at January 1, 2018				2,021,896		5,219,693			678,094			17,403,751			—		25,323,434

The effect of changes in accounting policies		42		—		—			(490,091	)		274,943			—		(215,148	)
Balance after reflecting the change of accounting policies				2,021,896		5,219,693			188,003			17,678,694			—		25,108,286
Comprehensive income for the year
Profit for the year				—		—			—			2,259,198			—		2,259,198
Remeasurements of net defined benefit liabilities				—		—			(95,796	)		—			—		(95,796	)
Net gains on equity instruments at fair value through other comprehensive income				—		—			(36,013	)		13,638			—		(22,375	)
Currency translation adjustments				—		—			27,383			—			—		27,383
Net gains on debt instruments at fair value through other comprehensive income				—		—			57,188			—			—		57,188
Share of other comprehensive loss of associates				—		—			(3,383	)		—			—		(3,383	)
Losses on hedging instruments of net investments in foreign operations				—		—			(25,386	)		—			—		(25,386	)
Gains on cash flow hedging instruments				—		—			3,788			—			—		3,788

Total comprehensive income for the year				—		—			(72,219	)		2,272,836			—		2,200,617

Transactions with the shareholder
Dividends				—		—			—			(640,132	)		—		(640,132	)
Changes in ownership of subsidiaries				—		(905	)		—			—			—		(905	)

Total transactions with the shareholder				—		(905	)		—			(640,132	)		—		(641,037	)

Balance at December 31, 2018				2,021,896		5,218,788			115,784			19,311,398			—		26,667,866

The consolidated statement of changes in equity for the year ended December 31, 2018 is prepared applying Korean IFRS 1109, and the comparative consolidated statement of changes in equity for the year ended December 31, 2017 has not been restated retrospectively as permitted by transitional provisions of Korean IFRS 1109.

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

Kookmin Bank and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2017 and 2016


(In millions of Korean won)	Notes	2018¹			2017
Cash flows from operating activities
Profit for the year			2,259,198			2,174,705

Adjustment for non-cash items
Net losses on financial assets/liabilities at fair value through profit or loss (Under Korean IFRS 1039)			—			39,455
Net gains on financial assets/liabilities at fair value through profit or loss			(56,385	)		—
Net losses (gains) on derivative financial investments for hedging purposes			41,522			(17,327	)
Adjustment of fair value of derivative financial instruments			410			(1,000	)
Provision for credit losses			93,916			115,166
Net losses (gains) on financial investments			(88,079	)		69,390
Share of profit of associates and subsidiaries			(49,698	)		(37,570	)
Depreciation and amortization expense			246,488			236,436
Other net losses (gains) on property and equipment/intangible assets			(139,092	)		15,258
Share-based payment			4,051			33,148
Post-employment benefits			140,877			147,470
Net interest expense			250,854			274,832
Gains on foreign currency translation			(9,004	)		(301,414	)
Other expense			16,356			47,666

			452,216			621,510

Changes in operating assets and liabilities
Financial assets at fair value through profit or loss (Under Korean IFRS 1039)			—			(623,731	)
Financial assets at fair value through profit or loss			(2,983,784	)		—
Derivative financial instrument			(9,867	)		(2,785	)
Loans at amortized cost			(25,553,376	)		(16,964,006	)
Current income tax assets			(1,416	)		8,728
Deferred income tax assets			(649	)		44,807
Other assets			1,622,046			(2,439,559	)
Financial liabilities at fair value through profit or loss (Under Korean IFRS 1039)			—			953
Financial liabilities at fair value through profit or loss			10,419			—
Deposits			19,633,557			17,722,080
Deferred income tax liabilities			56,200			83,671
Other liabilities			975,835			(1,360,225	)

			(6,251,035	)		(3,530,067	)

Net cash outflow from operating activities			(3,539,621	)		(733,852	)

Cash flows from investing activities
Net cash flows from derivative financial instrument for hedging purposes			(14,918	)		(23,490	)
Disposal of financial assets at fair value through profit or loss			8,303,648			—
Acquisition of financial assets at fair value through profit or loss			(6,220,238	)		—
Disposal of financial investments			53,180,839			33,006,057
Acquisition of financial investments			(57,553,020	)		(38,243,965	)
Disposal of investments in associates			44,865			87,443
Acquisition of investments in associates			(159,320	)		(23,540	)
Disposal of property and equipment			1,724			(58	)
Acquisition of property and equipment			(333,949	)		(218,080	)
Acquisition of investment property			(179	)		(262	)
Disposal of investment property			139,639			—
Disposal of intangible assets			1,425			487
Acquisition of intangible assets			(53,057	)		(51,398	)
Net cash flows from changes in ownership of subsidiaries			14,280			158,858
Others			301,012			210,834

Net cash outflow from investing activities			(2,347,249	)		(5,097,114	)

Cash flows from financing activities
Net cash flows from derivative financial instrument for hedging purposes			(17,698	)		5,804
Net increase in debts			1,517,015			746,719
Increase in debentures			14,209,940			13,594,668
Decrease in debentures			(10,414,512	)		(9,026,842	)
Payment of dividends			(640,132	)		(359,493	)
Net increase(decrease) in other payables from trust accounts			267,076			587,523
Others			(220,618	)		215,662

Net cash inflow from financing activities			4,701,071			5,764,041

Exchange gains (losses) on cash and cash equivalents			(35,660	)		(193,279	)

Net decrease in cash and cash equivalents			(1,221,459	)		(260,204	)
Cash and cash equivalents at the beginning of the year	36		6,077,954			6,338,158

Cash and cash equivalents at the end of the year	36		4,856,495			6,077,954

The consolidated statement of cash flows for the year ended December 31, 2018 is prepared applying Korean IFRS 1109, and the comparative consolidated statement of cash flows for the year ended December 31, 2017 has not been restated retrospectively as permitted by transitional provisions of Korean IFRS 1109.

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

1. The Bank

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

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

The Bank listed its shares on the Stock Market Division of the Korea Exchange (“KRX,” formerly Korea Stock Exchange) in September 1994. As a result of the merger with H&CB, the shareholder of the former Kookmin Bank and H&CB received new common shares of the Bank which were relisted on the KRX on November 9, 2001. In addition, H&CB listed its American Depositary Shares (“ADS”) on the New York Stock Exchange (“NYSE”) on October 3, 2000, prior to the merger. Following the merger with H&CB, the Bank listed its ADS on the NYSE on November 1, 2001. The Bank became a wholly owned subsidiary of KB Financial Group Inc. through a comprehensive stock transfer on September 29, 2008. Subsequently, the Bank’s shares and its ADS, each listed on the KRX and the NYSE, were delisted on October 10, 2008 and September 26, 2008, respectively. As at December 31, 2018, the Bank’s paid-in capital is W2,021,896 million.

The Bank engages in the banking business in accordance with the Banking Act, trust business in accordance with the Financial Investment Services and Capital Markets Act, and other relevant businesses. As at December 31, 2018, the Bank operates 1,057 domestic branches and offices, and six overseas branches (excluding four subsidiaries and three offices).

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2. Basis of Preparation

2.1 Application of Korean IFRS

The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with Korean IFRS. The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

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

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

The Group newly applied the following amended and enacted standards and interpretations from January 1, 2018, and these applications do not have any material impact on the consolidated financial statements, except for the adoption of Korean IFRS 1109 Financial Instruments.

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Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

When an investment in an associate or a joint venture is held by, or it held indirectly through, an entity that is a venture capital organization, or a mutual fund and similar entities, the entity may elect to measure that investment at fair value through profit or loss. The amendments clarify that an entity shall make this election separately for each associate of joint venture, at initial recognition of the associate or joint venture.

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Amendments to Korean IFRS 1040 Transfers of Investment Property

Paragraph 57 of Korean IFRS 1040 clarifies that a transfer to, or from, investment property, including property under construction, can only be made if there has been a change in use that is supported by evidence, and provides a list of circumstances as examples.

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Amendments to Korean IFRS 1102 Share-based Payment

The amendments clarify accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled and also, clarifies that the measurement approach should treat the terms and conditions of a cash-settled award in the same way as for an equity-settled award.

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Enactment of Interpretation 2122 Foreign Currency Transactions and Advance Consideration

According to the enactment, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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Amendments to Korean IFRS 1109 Financial Instruments

The Group adopted Korean IFRS 1109 Financial Instruments with a date of initial application of January 1, 2018. As permitted by the transitional provisions of Korean IFRS 1109, comparative periods have not been restated. The Group recognized the difference between the previous carrying amount and the carrying amount at the date of initial application in equity as at January 1, 2018.

For the detail impacts of the adoption of Korean IFRS 1109, see Note 42.

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Enactment of Korean IFRS 1115 Revenue from Contracts with Customers

The Group has adopted Korean IFRS 1115, Revenue from Contracts with Customers from January 1, 2018. The new standard for revenue recognition replaced Korean IFRS 1018 Revenue, Korean IFRS 1011 Construction Contracts, Interpretation 2031 Revenue-Barter Transactions Involving Advertising Services, Interpretation 2113 Customer Loyalty Programs, Interpretation 2115 Agreements for the Construction of Real Estate and Interpretation 2118 Transfers of Assets from Customers.

The Group has changed the following accounting policy for the period beginning on January 1, 2018.

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Presentation of interest income arising from financial assets at fair value through profit or loss

The Group previously recognized interest income arising from financial assets at fair value through profit or loss (under Korean IFRS 1039) as net gains (losses) of financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039) in the statement of comprehensive income. From January 1, 2018, the Group changed the accounting policy and corresponding interest income is presented as a part of interest income in the statement of comprehensive income. The Group believes the change in accounting policy provides more relevant information. The statements of comprehensive income for the year ended December 31, 2017 have been restated by adjusting classification of interest income.

This change in accounting policy does not have any impact on the statements of financial position as at December 31, 2018 and 2017 and profit for the years ended December 31, 2018 and 2017. The impacts on the statements of comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


(in millions of Korean won)	2018			2017
Increase in interest income		222,305			170,469
Decrease in net gains on financial instruments at fair value through profit or loss (under Korean IFRS 1109)		(222,305	)		—
Decrease in net gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)		—			(170,469	)

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Certain new accounting standards and interpretations that have been published but are not mandatory for the reporting period commencing January 1, 2018 and have not been early adopted by the Group are set out below.

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Korean IFRS 1116 Leases

Korean IFRS 1116 Leases issued on May 22, 2017 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. This standard will replace Korean IFRS 1017 Leases, Interpretation 2104 Determining whether an Arrangement contains a Lease, Interpretation 2015 Operating Leases-Incentives, and Interpretation 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract, the Group shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the Group shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the Group may not need to reassess all contracts with applying the practical expedient that can be applied to contracts entered before the date of initial application. On the basis of the date of initial application, the Group will assess whether the contract is , or contains, a lease.

For a contract that is, or contains, a lease, the Group shall account for each lease component within the contract as a lease separately from non-lease components of the contract. In addition, as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. For the all (or partial) contracts that are, or contain, a lease, the Group plans to apply the practical expedient to account for each lease component and any associated non-lease components as a single lease component.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. The lessee may elect not to apply the requirements to short-term lease (a lease term of 12 months or less at the commencement date) and low value assets (e.g. underlying assets below $ 5,000). The Group plans to apply the recognition exemption for the short-term contracts of leasing realty for training purposes (a lease term of 12 months or less at the commencement date) and leases for which the underlying asset is of low value (e.g. underlying assets below \5,000,000 or $5,000). For sale and leaseback transactions, an entity (the seller-lessee) shall apply the requirements for determining when a performance obligation is satisfied in Korean IFRS 1115 Revenue from Contracts with Customers to determine whether the transfer of an asset is accounted for as a sale of that asset. The entity shall not reassess sale and leaseback transactions entered into before the date of initial application.

The accounting treatment as a lessor did not change significantly from the one under Korean IFRS 1017 Leases. The Group expects the effect on the financial statements applying the new standard will not be significant as accounting for the Group, as a lessor, will not significantly change.

A lessee shall apply this standard to its leases either (a) retrospectively to each prior reporting period presented applying Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors (Full retrospective application); or (b) with the cumulative effect of initially applying the standard being recognized at the date of initial application.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The Group plans to apply Korean IFRS 1116 retrospectively with the cumulative effect of initially applying the standard and as such will not restate any comparative information.

The Group performed an impact assessment to identify potential financial effects of applying Korean IFRS 1116. The assessment was performed based on available information as at December 31, 2018 to identify effects on 2019 financial statements.

The total minimum lease payment expected to be paid by the Group in relation to operating leases before discounted to their present value is \ 344,297 million. When the payment is discounted at incremental borrowing rate of the lessee, the total minimum lease payment amounts to \ 330,644 million. Based on the impact assessment, the Group expects the underlying leased asset and a lease liability as at December 31, 2018 to be increased by \ 363,869 million and \ 330,644 million, respectively. The difference between the right-of-use asset and the lease liability is arising from the adjustments made at the right-of-use asset for the lease contracts entered before the date of the adoption of this standard.

The impact assessment may change due to additional information that the Group may obtain after the assessment.

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Korean IFRS 1109 Financial Instruments

The narrow-scope amendments made to Korean IFRS 1109 Financial Instruments enable entities to measure certain prepayable financial assets with negative compensation at amortized cost. When a modification of a financial liability measured at amortized cost that does not result in the derecognition, a modification gain or loss shall be recognized in profit or loss. These amendments will be applied for annual periods beginning on or after January 1, 2019, with early adoption permitted.

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Amendments to Korean IFRS 1019 Employee Benefits

The amendments require that an entity shall calculate current service cost and net interest for the remainder of the reporting period after a plan amendment, curtailment or settlement based on updated actuarial assumptions from the date of the change. The amendments also require that a reduction in a surplus must be recognized in profit or loss even if that surplus was not previously recognized because of the impact of the asset ceiling. The amendments are effective for plan amendments, curtailments and settlements occurring in reporting periods that begin on or after 1 January 2019.

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Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

The amendments clarify that an entity shall apply Korean IFRS 1109 to financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. The amendments clarify that an entity shall apply Korean IFRS 1109 to other interests in an associate or joint venture to which the equity method is not applied. In addition, the entity shall apply the impairment requirements in Korean IFRS 1109 first to its other long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture. These amendments will be applied for annual periods beginning on or after January 1, 2019, with early adoption permitted. In accordance with the transitional provisions in Korean IFRS 1109, the restatement of the comparative information is not required and the cumulative effects of initially applying the amendments retrospectively should be recognized in the beginning balance of retained earnings (or other components of equity, as appropriate) at the date of initial application.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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Enactment to Interpretation of Korean IFRS 2123 Uncertainty over Income Tax Treatments

The Interpretation explains how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment, and includes guidance on how to determine whether each uncertain tax treatment is considered separately or together. It also presents examples of circumstances where a judgement or estimate is required to be reassessed. This Interpretation will be applied for annual periods beginning on or after January 1, 2019, and an entity can either restate the comparative financial statements retrospectively or recognize the cumulative effect of initially applying the Interpretation as an adjustment in the beginning balance at the date of initial application.

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Annual Improvements to Korean IFRS 2015 – 2017 Cycle:

(a) Korean IFRS 1103 Business Combination

The amendments clarify that when a party to a joint arrangement obtains control of a business that is a joint operation, and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. In such cases, the acquirer shall remeasure its entire previously held interest in the joint operation. These amendments will be applied to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early adoption permitted.

(b) Korean IFRS 1111 Joint Agreements

The amendments clarify that when a party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the join operation constitutes a business. In such cases, previously held interests in the joint operation are not remeasured. These amendments will be applied to transactions in which an entity obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early adoption permitted.

The amendment is applied to all the income tax consequences of dividends and requires an entity to recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. These amendments will be applied for annual reporting periods beginning on or after January 1, 2019, with early adoption permitted.

(d) Korean IFRS 1023 Borrowing Costs

The amendments clarify that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use (or sale), it becomes part of general borrowings. These amendments will be applied to borrowing costs incurred on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early adoption permitted.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2.2 Measurement Basis

The consolidated financial statements have been prepared under the historical cost convention unless otherwise specified.

2.3 Functional and Presentation Currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Korean won, which is the Parent Company’s functional and presentation currency. Refer to Notes 3.2.

2.4 Critical Accounting Estimates

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

Estimates and assumptions are continually evaluated and any change in an accounting estimate is recognized prospectively by including it in profit or loss in the period of the change, if the change affects that period only. Alternatively if the change in accounting estimate affects both the period of change and future periods, that change is recognized in the profit or loss of all those periods.

Uncertainty in estimates and assumptions with significant risk that may result in material adjustment to the consolidated financial statements are as follows:

2.4.1 Income Taxes

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

If certain portion of the taxable income is not used for investments, increase in wages, and others in accordance with the Tax Law for Promotion of investment and Collaborative Cooperation (Recirculation of Corporate Income), the Group is liable to pay additional income tax calculated based on the tax laws. The new tax law is effective for three years from 2018 and measurement of current and deferred income tax is affected. As the Group’s income tax is dependent on the investments, increase in wages, and others, there exists uncertainty with regard to measuring the final tax effects.

2.4.2 Fair Value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Refer to Note 6 for details on valuation techniques and inputs used to determine the fair value of financial instruments.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2.4.3 Provisions for Credit Losses (allowances for loan losses, provisions for acceptances and guarantees, and unused loan commitments)

The Group determines and recognizes allowances for losses on financial assets at amortized cost and fair value through other comprehensive income through impairment test and recognizes provisions for acceptances and guarantees, and unused loan commitments. The accuracy of provisions for credit losses is determined by the methodology and assumptions used for the estimation of expected cash flows of the borrower for individually assessed allowances of loans, collectively assessed allowances for groups of loans, acceptances and guarantees, and unused loan commitments.

2.4.4 Net Defined Benefit Liability

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions(Note 23).

2.4.5 Estimated Impairment of Goodwill

The Group tests annually whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations.(Note 15).

3. Significant Accounting Policies

The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. The items related to financial instruments on the financial statements are accounted for applying Koreans IFRS 1109 for the current period, and Korean IFRS 1039 for the comparative prior period, respectively.

Comparative financial statements are not restated retrospectively and the described accounting policies on financial instruments are applied for the financial statements for the current period. Except for the changes in accounting policies related to financial instruments, these policies have been consistently applied to all periods presented.

3.1 Consolidation

3.1.1 Subsidiaries

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

If a subsidiary uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to make the subsidiary’s accounting policies conform to those of the Group when the subsidiary’s financial statements are used by the Group in preparing the consolidated financial statements.

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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

When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

3.1.2 Associates

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

Under the equity method, investments in associates are initially recognized at cost and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the investee and changes in the investee’s equity after the date of acquisition. The Group’s share of the profit or loss of the investee is recognized in the Group’s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Profit and loss resulting from ‘upstream’ and ‘downstream’ transactions between the Group and associates are eliminated to the extent at the Group’s interest in associates. Unrealized losses are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.

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

After the carrying amount of the investment is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee.

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.1.3 Structured Entity

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

3.1.4 Trusts and Funds

The Group provides management services for trust assets, collective investment and other funds. These trusts and funds are not consolidated in the Group’s consolidated financial statements, except for trusts and funds over which the Group has control.

3.1.5 Intra-group Transactions

All intra-group balances and transactions, and any unrealized gains arising on intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.

3.2 Foreign Currency

3.2.1 Foreign Currency Transactions and Balances

A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate which is the spot exchange rate at the end of the reporting period. Non-monetary items that are measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise, except for exchange differences arising on net investments in a foreign operation and financial liability designated as a hedge of the net investment. When gains or losses on a non-monetary item are recognized in other comprehensive income, any exchange component of those gains or losses are also recognized in other comprehensive income. Conversely, when gains or losses on a non-monetary item are recognized in profit or loss, any exchange component of those gains or losses are also recognized in profit or loss.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.2.2 Foreign Operations

The financial performance and financial position of all foreign operations, whose functional currencies differ from the Group’s presentation currency, are translated into the Group’s presentation currency using the following procedures.

Assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the reporting period. Income and expenses in the statement of comprehensive income presented are translated at average exchange rates for the period. All resulting exchange differences are recognized in other comprehensive income.

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

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

3.3 Recognition and Measurement of Financial Instruments

3.3.1 Initial Recognition

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

The Group classifies financial assets as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income or financial assets at amortized cost. The Group classifies financial liabilities as financial liabilities at fair value through profit or loss, or other financial liabilities. The classification depends on the Group’s business model for managing financial instruments and the contractual cash flow characteristics of the financial instruments at initial recognition.

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.3.2 Subsequent Measurement

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

Amortized cost

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition and adjusted to reflect principal repayments, cumulative amortization using the effective interest method and any reduction (directly or through the use of an allowance account) for impairment or uncollectibility.

Fair value

Fair values, which the Group primarily uses for the measurement of financial instruments, are the published price quotations based on market prices or dealer price quotations of financial instruments traded in an active market where available. These are the best evidence of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, an entity in the same industry, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

If the market for a financial instrument is not active, fair value is determined either by using a valuation technique or independent third-party valuation service. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, referencing to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models.

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

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

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with economic methodologies applied for pricing financial instruments. Periodically, the Group calibrates the valuation technique and tests its validity using prices of observable current market transactions of the same instrument or based on other relevant observable market data.

3.3.3 Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the statement of financial position. The Group derecognizes a financial asset or a financial liability when, and only when:

Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the financial assets expire or the financial assets have been transferred and substantially all the risks and rewards of ownership of the financial assets are also transferred, or all the risks and rewards of ownership of the financial assets are neither substantially transferred nor retained and the Group has not retained control. If the Group neither transfers nor disposes of substantially all the risks and rewards of ownership of the financial assets, the Group continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

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

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

Derecognition of financial liabilities

Financial liabilities are derecognized from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired.

3.3.4 Offsetting

Financial assets and financial liabilities are offset and the net amount are presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.4 Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, foreign currency, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

3.5 Non-derivative Financial Assets

3.5.1 Financial Assets at Fair Value through Profit or Loss

Financial assets classified as held for trading, financial assets designated by the Group as at fair value through profit or loss upon initial recognition, and financial assets that are required to be mandatorily measured at fair value through profit or loss are classified as financial assets at fair value through profit or loss.

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

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

3.5.2 Financial Assets at Fair Value through Other Comprehensive Income

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

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

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Equity instruments that are not held for trading with the objective of generating a profit from short-term fluctuations in price or dealer’s margin, designated as financial assets at fair value through other comprehensive income

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

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Financial assets at fair value through other comprehensive income denominated in foreign currencies are translated at the closing rate. Fair value differences resulting from exchange differences on the amortized cost are recognized in profit or loss, and other changes are recognized as equity.

3.5.3 Financial Assets at Amortized Cost

These financial assets are subsequently carried at amortized cost using the effective interest method after initial recognition and interest income is recognized using the effective interest method.

The carrying amount of financial assets at amortized cost is presented by deducting allowance for doubtful accounts, and the measurement method is described in Note 3.6.

3.6 Expected Credit Loss of Financial Assets (Debt Instruments)

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

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

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

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General approach: for financial assets not subject to the below approach and unused loan commitments on off-balance sheet

•

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

Application of general approach is differentiated depending on whether credit risk has increased significantly after initial recognition. After initial recognition, loss allowances for the assets without significant increase in credit risk are measured at the amount of 12 month expected credit losses, whereas the loss allowances for the assets with significant increase in credit risk are measured at the amount of lifetime expected credit losses. Lifetime is presumed to be a period to the contractual maturity date of financial assets (the expected life of financial assets).

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

•

More than 30 days past due

•

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

•

Subsequent managing ratings below certain level in the early warning system

•

Debt restructuring (except for impaired financial assets) and

•

Credit delinquency information on Korea Federation of Banks, and etc.

If one or more of the following items are met, it is generally deemed as credit-impaired:

•

90 days or more past due

•

Legal proceedings related to collection

•

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

•

A corporate borrower with the credit rating C or D

•

Refinancing or

•

Debt restructuring, and etc.

3.6.1 Forward-looking Information

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

The Group assumes the risk components have a certain correlation with the economic cycle, and uses statistical methodologies to estimate the relation between key macroeconomic variables and risk components for expected credit losses. The Group has derived a correlation between the time series data of more than 8 years and the key macroeconomic variables, and calculates the expected credit losses by reflecting the results of the correlation on the risk component. The correlation between the major macroeconomic variables and the credit risk is as follows;


Key macroeconomic variables	Correlation between the major macroeconomic variables and the credit risk
Domestic GDP growth rate		(-	)
Composite stock index		(-	)
Construction investment change rate		(-	)
Housing transaction price index		(-	)
Consumer price index		(+	)
Unemployment rate		(+	)

Forward-looking information used in calculation of expected credit losses is based on the macroeconomic forecasts utilized by the management of Bank for its business plan taking into account reliable external agency’s forecasts and others. The forward-looking information is generated by KB Research under KB Financial Group with comprehensive approach to capture the possibility of various economic forecast scenarios that are derived from the internal and external viewpoints of the macroeconomic situation.

3.6.2 Measuring Expected Credit Losses on Financial Assets at Amortized Cost

The expected credit losses on financial assets at amortized cost are measured as the difference between the asset’s contractual terms of cash flow and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The Group estimates expected future cash flows for financial assets that are individually significant (individual assessment of impairment).

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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

Individual assessment of impairment

Individual assessment of impairment losses are calculated by discounting the expected future cash flows of a loan at its original effective interest rate and comparing the resultant present value with the loan’s current carrying amount. This process normally encompasses management’s best estimate, such as operating cash flow of the borrower and net realizable value of any collateral held.

Collective assessment of impairment

Collective assessment of impairment is performed by using a methodology based on historical loss experience and reflecting forward-looking information. Such methodology applies factors such as type of collateral, product and borrowers, credit rating, portfolio size, recovery period, probability of default estimated for each group of assets and loss given default by type of recovery method. Also, consistent assumptions are applied to form a formula-based model in estimating expected credit loss and to determine factors on the basis of historical loss experience and forward-looking information. The methodology and assumptions used for collective assessment of impairment are reviewed regularly to reduce any differences between estimated and actual losses.

Lifetime expected credit loss is measured by applying Probability of Default (“PD”) and adjusted Loss Given Default (“LGD”) reflecting the changes in carrying amount to the carrying amount as at the end of the reporting period deducted by expected repayment of principals.

3.6.3 Measuring Expected Credit Losses on Financial Assets at Fair Value through Other Comprehensive Income

Measuring method of expected credit losses on financial assets at fair value through other comprehensive income is equal to the method of financial assets at amortized cost. However, the loss allowance shall be recognized in other comprehensive income. Upon disposal or repayment of financial assets at fair value through other comprehensive income, the amount of loss allowances is reclassified from other comprehensive income to profit or loss.

3.7 Derivative Financial Instruments

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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

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

See Note 9 for changes in fair value of the hedging instruments and changes in other comprehensive income related to derivatives held for cash flow hedging.

The Group applies hedge accounting for risk management activities aligned with the requirements and qualifying criteria for hedge accounting of Korean IFRS 1109.

3.7.1 Derivative Financial Instruments Held for Trading

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

3.7.2 Fair Value Hedges

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

Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Group revokes the designation. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is amortized to profit or loss by the maturity of the financial instrument using the effective interest method.

3.7.3 Cash Flow Hedges

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.7.4 Hedge of Net Investment

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

3.7.5 Risk Management Strategy

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

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

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

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

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

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

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.7.6 Embedded Derivatives

An embedded derivative is separated from the host contract and accounted for as a derivative if, and only if, 1) the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, 2) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and, 3) the hybrid contract contains a host that is not a financial asset and is not designated as at fair value through profit or loss. Gains or losses arising from a change in the fair value of an embedded derivative separated from the host contract are recognized in profit or loss as part of net gains or losses on financial instruments at fair value through profit or loss.

3.7.7 Day One Gain and Loss

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

3.8 Property and Equipment

3.8.1 Recognition and Measurement

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

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

Subsequent expenditures are capitalized only when they prolong the useful life or enhance values of the assets but the costs of the day-to-day servicing of the assets such as repair and maintenance costs are recognized in profit or loss as incurred.

3.8.2 Depreciation

Land is not depreciated whereas other property and equipment are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The depreciable amount of an asset is determined after deducting its residual value. As for leased assets, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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


Property and equipment	Depreciation method	Estimated useful lives
Buildings and structures	Straight-line	40 years
Leasehold improvements	Declining-balance	4 years
Equipment and vehicles	Declining-balance	4 years

The residual value, the useful life and the depreciation method applied to an asset are reviewed at least at each financial year end and, if expectations differ from previous estimates or if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the changes are accounted for as a change in an accounting estimate.

3.9 Investment Properties

3.9.1 Recognition and Measurement

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

3.9.2 Depreciation

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

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


Investment properties	Depreciation method	Estimated useful lives
Buildings	Straight-line	40 years

3.10 Intangible Assets

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

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


Intangible assets	Amortization method	Estimated useful lives
Industrial property rights	Straight-line	5 years
Software	Straight-line	4 ~ 5 years
Others	Straight-line	1 ~ 10 years

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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

3.10.1 Goodwill

Recognition and measurement

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

Goodwill acquired from business combinations after January 1, 2010, is initially measured as the excess of the aggregate of the consideration transferred, fair value of non-controlling interest and the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the business acquired, the difference is recognized in profit or loss.

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

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

Additional acquisitions of non-controlling interest

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

Subsequent measurement

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

3.10.2 Subsequent Expenditure

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.11 Leases

3.11.1 Finance Lease

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. At the commencement of the lease term, the Group recognizes finance leases as assets and liabilities in its statements of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs of the lessee are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Group adopts for depreciable assets that are owned. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is fully depreciated over the shorter of the lease term and its useful life.

3.11.2 Operating Lease

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Leases in the financial statements of lessees

Lease payments under an operating lease (net of any incentives received from the lessor) are recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the asset’s benefit.

Leases in the financial statements of lessors

Lease income from operating leases are recognized in income on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished. Initial direct costs incurred by the lessors in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.12 Greenhouse Gas Emission Rights and Liabilities

The Group measured at zero the emission rights received free of charge from the government following the Enforcement of Allocation and Trading of Greenhouse Gas Emissions Allowances. Emission rights purchased are measured initially at cost and subsequently carried at their costs less any accumulated impairment losses. Emission liabilities are measured as the sum of the carrying amount of emission allowances held by the Group and best estimate of the expenditure required to settle the obligation for any excess emissions at the end of reporting period. The emission rights and liabilities are classified as ‘intangible assets’ and ‘provisions’, respectively, in the consolidated statement of financial position.

The emission rights held for trading are measured at fair value and the changes in fair value are recognized in profit or loss. The changes in fair value and gain or loss on disposal are classified as non-operating income and expenses.

3.13 Impairment of Non-Financial Assets

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

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

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

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.14 Non-Current Assets Held for Sale

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

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

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

3.15 Financial Liabilities

The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.

The Group recognizes financial liabilities in the statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

3.15.1 Financial Liabilities at Fair Value through Profit or Loss

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

In relation to securities lending or borrowing transactions, the Group records transaction using memorandum value when it borrows securities from Korea Securities Depository and others. The borrowed securities are treated as financial liabilities at fair value through profit or loss when they are sold. Changes in fair value at the end of the reporting period and difference between carrying amount at redemption and purchased amount is recognized as profit or loss.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.15.2 Other Financial Liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. Other financial liabilities include deposits, debts, debentures and others. Upon of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

In case an asset is sold under repurchase agreement, the Group does not derecognize the asset while the amount sold is accounted for as financial liabilities.

The Group derecognizes a financial liability from the consolidated statement of financial position only when the obligation specified in the contract is discharged, cancelled or expired.

3.16 Provisions

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

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

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

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

When an onerous contract is occurred, the present obligation under the contract is recognized and measured as provisions.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.17 Financial Guarantee Contracts

A financial guarantee contract is a contract that requires the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due according to the original or modified terms of a debt instrument.

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

•

Provisions measured in accordance with Korean IFRS 1109 Financial Instruments and

•

The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with Korean IFRS 1115 Revenue from Contracts with Customers.

3.18 Equity Instrument Issued by the Group

An equity instrument is any contract or agreement that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are deducted, net of tax, from the equity.

3.19 Revenue Recognition

The Group recognizes revenues in accordance with the following steps determined in accordance with Korean IFRS 1115 Revenue from Contracts with Customers.

•

Step 1: Identify the contract with a customer.

•

Step 2: Identify the performance obligations in the contract.

•

Step 3: Determine the transaction price.

•

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

•

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

3.19.1 Interest Income and Expense

Interest income and expense from debt securities at fair value through profit or loss (excluding beneficiary certificates, equity investments, other debt securities and derivative-linked securities), loans, financial instruments at amortized cost and debt securities at fair value through other comprehensive income, are recognized in statement of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or groups of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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

3.19.2 Fee and Commission Income

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

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

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

Fees related to performance obligations in the contract satisfied over time

As control over related goods and services of fees and commission income of performance obligation contracts transfer over time, commission income is recognized over the period of performance obligations. Fees and commission income, including asset management fees and commission fees are recognized as the related services are rendered.

Fees earned at a point in time

Fees earned at a point in time are recognized when a customer obtains controls of a promised asset and the Group satisfies a performance obligation.

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

A syndication fee that arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants) is compensation for the service of syndication. Such a fee is recognized as revenue when the syndication has been completed.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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

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

•

Gain or loss from financial instruments at fair value through profit or loss, excluding interest income calculated by the effective interest rate

•

Gain or loss from derivatives for trading, including derivatives for hedging that does not meet the criteria for hedge accounting

3.19.4 Dividend Income

Dividend income is recognized as profit or loss when the right to receive payment is established. Dividend income is recognized as relevant profit or loss on the statement of comprehensive income depending on the classification of equity securities.

3.20 Employee Compensation and Benefits

3.20.1 Post-employment Benefits:

Defined benefit plans

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

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

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

Past service cost is the change in the present value of the defined benefit obligation, which arises when the Group introduces a defined benefit plan or changes the benefits of an existing defined benefit plan. Such past service cost is immediately recognized as an expense for the period.

Defined contribution plans

The contributions are recognized as employee benefit expense when they are due.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.20.2 Short-term Employee Benefits

Short-term employee benefits are employee benefits(other than termination benefits) that are due to be settled within 12 months after the end of the period in which the employees render the related service. The undiscounted amount of short-term employee benefits expected to be paid in exchange for that service is recognized as a liability(accrued expense), after deducting any amount already paid.

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

3.20.3 Share-based Payment

The Group has share grant and mileage stock programs to directors and employees of the Group. The Group has a choice of whether to settle share grant in cash or by issuing equity instruments of KB Financial Group Inc., the ultimate parent company, at the date of settlement, while the Group shall settle the mileage stock in cash based on the stock price.

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

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

3.20.4 Termination Benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group shall recognize a liability and expense for termination benefits at the earlier of the following dates: when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring that is within the scope of Korean IFRS 1037 and involves the payment of termination benefits. Termination benefits are measured by considering the number of employees expected to accept the offer in the case of a voluntary early retirement. Termination benefits over 12 months after the reporting period are discounted to present value.

3.21 Income Tax Expenses

Income tax expense comprises current tax expense and deferred income tax expense. Current and deferred income tax are recognized as income or expense for the period, except to the extent that the tax arises from a transaction or an event which is recognized, in the same or a different period outside profit or loss, either in other comprehensive income or directly in equity and a business combination. Income tax expense for the period is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.21.1 Current income tax

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

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

3.21.2 Deferred Income Tax

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

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, and associates, except for deferred income tax liabilities for which the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

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

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

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

3.21.3 Uncertain Tax Positions

Uncertain tax positions arise from tax treatments applied by the Group which may be challenged by the tax authorities due to the complexity of the transaction or different interpretation of the tax laws, a claim for rectification brought by the Group, an appeal for a refund claimed from the tax authorities related to additional assessments or a tax investigation processed by the tax authorities. The Group recognizes its uncertain tax positions in the consolidated financial statements based on the guidance in Korean IFRS 1012. The income tax asset is recognized if a tax refund is probable for taxes paid and levied by the tax authority, and the amount to be paid as a result of the tax investigation and others is recognized as the current tax payable. However, interest and penalties related to income taxes are recognized in accordance with Korean IFRS 1037 as its economic substances.

3.22 Transactions with the Trust Accounts

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

3.23 Operating Segments

Operating segments are components of the Group where separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

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

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of Financial Risk Management Policy

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

The note regarding financial risk management provides information about the risks that the Group is exposed to, including the objectives, policies and processes for managing the risks, the methods used to measure the risks, and capital management. Additional quantitative information is disclosed throughout the consolidated financial statements.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The Group’s risk management system focuses on increasing transparency, developing the risk management environment, preventing transmission of risk to other risk types, and the preemptive response to risk due to rapid changes in the financial environment to support The Group’s long-term strategy and business decisions efficiently. Credit risk, market risk, liquidity risk, and operational risk have been recognized as The Group’s key risks. These risks are measured and managed in Internal Capital or VaR (Value at Risk) using a statistical method.

4.1.2 Risk Management Organization

Risk Management Committee

The Risk Management Committee establishes risk management strategies in accordance with the directives of the Board of Directors and determines the Group’s target risk appetite approves significant risk matters and reviews the level of risks that the Group is exposed to and the appropriateness of the Group’s risk management operations as an ultimate decision-making authority.

Risk Management Council

The Risk Management Council is a consultative group which reviews and makes decisions on matters delegated by the Risk Management Committee and discusses the detailed issues relating to the Group’s risk management.

Risk Management Subcommittee

The Risk Management Subcommittee enforces decisions made by Risk Management Council, and makes practical decisions to implement risk management policies and procedures.

•

Credit Risk Management Subcommittee

The Credit Risk Management Subcommittee approves exotic and hybrid products accompanying credit risk and reviews newly developed products accompanying credit risk. Also, it reviews and approves the exposure limits by industry.

•

Market Risk Management Subcommittee

The Market Risk Management Subcommittee reviews and makes decisions on setting risk limits and approving the standard for investments in newly developed standard, exotic and hybrid products.

•

Operational Risk Management Subcommittee

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

Risk Management Group

The Risk Management Group is responsible for managing specific policies, procedures and work processes relating to the Group’s risk management.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.2 Credit Risk

4.2.1 Overview of Credit Risk

Credit risk is the risk of possible losses in an asset portfolio in the event of a counterparty’s default, breach of contract and deterioration in the credit quality of the counterparty. For risk management reporting purposes, the individual borrower’s default risk, country risk, specific risks and other credit risk exposure components are considered as a whole. The Group uses definition of default as defined and applied in the calculation of Capital Adequacy Ratio (Basel III) in accordance with the new Basel Accord.

4.2.2 Credit Risk Management

The Group measures expected losses and internal capital on assets that are subject to credit risk management whether on- or off-balance sheet items and uses expected losses and internal capital as a management indicator. The Group manages credit risk by allocating credit risk internal capital limits.

In addition, the Group controls the credit concentration risk exposure by applying and managing total exposure limits to prevent an excessive risk concentration to each industry and borrower.

The Group has organized a credit risk management group that focuses on credit risk management in accordance with the Group’s credit risk management policy. The Group’s credit group, customer service group and SME/SOHO group, which are independent from the sales department, are responsible for loan policy, loan limit, loan review, credit evaluation, restructuring and subsequent events. The credit risk management group is also responsible for planning risk management policy, applying limits of credit lines, measuring the credit risk internal capital, adjusting credit limits, reviewing credit and verifying credit evaluation models.

4.2.3 Maximum Exposure to Credit Risk

The Group’s maximum exposures of financial instruments excluding equity securities to credit risk without consideration of collateral values as at December 31, 2018 are as follows:


(In millions of Korean won)	2018
Financial assets
Due from financial institutions¹		11,831,688
Financial assets at fair value through profit or loss
Securities		11,883,025
Loans		212,596
Financial instruments indexed to gold		78,808
Derivatives		1,613,970
Loans at amortized cost ¹		276,944,202
Financial investments
Securities at fair value through other comprehensive income		27,682,463
Securities at amortized cost ¹		12,792,526
Loans at fair value through other comprehensive income		349,547
Other financial assets ¹		4,199,197

		347,588,022

Off-balance sheet items ²
Acceptances and guarantees contracts		7,277,136
Financial guarantee contracts		3,135,589
Commitments		81,278,583

		91,691,308

		439,279,330

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

¹Due from financial institutions, loans at amortized cost, securities at amortized cost and other financial assets are presented net of allowance.

²For details of relevant provisions, see Note 22.

The Group’s maximum exposures of financial instruments excluding equity securities and beneficiary certificates, to credit risk without consideration of collateral values as at December 31, 2017 are as follows:


(In millions of Korean won)	2017
Financial assets
Due from financial institutions		13,048,893
Financial assets at fair value through profit or loss (under Korean IFRS 1039)
Financial assets held for trading ¹		7,974,469
Financial assets designated at fair value through profit or loss		95,357
Derivatives		2,607,659
Loans ²		251,710,605
Financial investments
Available-for-sale financial assets		27,605,761
Held-to-maturity financial assets		8,737,150
Other financial assets ²		6,341,463

		318,121,357

Off-balance sheet items
Acceptances and guarantees contracts		6,977,468
Financial guarantee contracts		2,968,354
Commitments		50,851,024

		60,796,846

		378,918,203

¹The amounts of W73,856 million as at December 31, 2017, related to financial instruments indexed to the price of gold are included.

²Loans and other financial assets are presented net of allowance for loan losses.

4.2.4 Credit Risk of Loans

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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

Credit risk exposure

Loans as at December 31, 2018, are classified as follows:


(In millions of Korean won)			2018
	Financial instruments applying 12- month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
			Non- impaired		Impaired		Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
Financial assets at amortized cost
Corporate
Grade 1		69,619,761		1,451,514		1,573		—		—		71,072,848
Grade 2		54,119,274		4,073,167		1,610		—		—		58,194,051
Grade 3		2,698,199		1,691,008		6,566		—		—		4,395,773
Grade 4		395,707		903,215		40,043		—		—		1,338,965
Grade 5		26,019		342,477		935,447		—		—		1,303,943

		126,858,960		8,461,381		985,239		—		—		136,305,580

Retail
Grade 1		124,212,610		4,387,477		8,836		—		—		128,608,923
Grade 2		4,171,518		7,058,259		6,218		—		—		11,235,995
Grade 3		140,074		881,415		4,158		—		—		1,025,647
Grade 4		478,701		154,535		5,103		—		—		638,339
Grade 5		8,478		296,087		379,555		—		—		684,120

		129,011,381		12,777,773		403,870		—		—		142,193,024

		255,870,341		21,239,154		1,389,109		—		—		278,498,604

Financial assets at fair value through other comprehensive income
Corporate
Grade 1		149,226		25,731		—		—		—		174,957
Grade 2		128,712		45,878		—		—		—		174,590
Grade 3		—		—		—		—		—		—
Grade 4		—		—		—		—		—		—
Grade 5		—		—		—		—		—		—

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	277,938	71,609	—	—	—	349,547

Retail
Grade 1	—	—	—	—	—	—
Grade 2	—	—	—	—	—	—
Grade 3	—	—	—	—	—	—
Grade 4	—	—	—	—	—	—
Grade 5	—	—	—	—	—	—

	—	—	—	—	—	—

	277,938	71,609	—	—	—	349,547

	256,148,279	21,310,763	1,389,109	—	—	278,848,151

¹ Before netting of allowance.


	Corporate	Retail
Grade 1	AAA ~ BBB+	1 ~ 5 grade
Grade 2	BBB ~ BB	6 ~ 8 grade
Grade 3	BB- ~ B	9 ~ 10 grade
Grade 4	B- ~ CCC	11 grade
Grade 5	CC or under	12 grade or under

Loans as at December 31, 2017, are classified as follows:

(In millions of Korean won)


	2017
Loans	Retail					Corporate					Total
Loans	Amount			%		Amount			%		Amount			%
Neither past due nor impaired		129,231,082			99.04		121,257,211			98.88		250,488,293			98.96
Past due but not impaired		865,485			0.66		198,270			0.16		1,063,755			0.42
Impaired		389,552			0.30		1,182,726			0.96		1,572,278			0.62

		130,486,119			100.00		122,638,207			100.00		253,124,326			100.00

Allowances		(318,533	)		0.24		(1,095,188	)		0.89		(1,413,721	)		0.56

Carrying amount		130,167,586					121,543,019					251,710,605

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Credit qualities of loans that are neither past due nor impaired as at December 31, 2017 are as follows:

(In millions of Korean won)


	2017
	Retail		Corporate		Total
Grade 1		115,311,505		62,287,457		177,598,962
Grade 2		12,537,698		52,057,018		64,594,716
Grade 3		804,042		5,341,955		6,145,997
Grade 4		398,177		1,253,960		1,652,137
Grade 5		179,660		316,821		496,481

		129,231,082		121,257,211		250,488,293

Credit qualities of loans graded according to internal credit ratings as at December 31, 2017 are as follows:


	Retail	Corporate
Grade 1	1 ~ 5 grade	AAA ~ BBB+
Grade 2	6 ~ 8 grade	BBB ~ BB
Grade 3	9 ~ 10 grade	BB- ~ B
Grade 4	11 grade	B- ~ CCC
Grade 5	12 grade or under	CC or under

Loans that are past due but not impaired as at December 31, 2017 are as follows:

(In millions of Korean won)


	2017
	1 ~ 29 days		30 ~ 59 days		60 ~ 89 days		Total
Retail		736,264		87,901		41,320		865,485
Corporate		154,706		26,654		16,910		198,270

		890,970		114,555		58,230		1,063,755

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Impaired loans as at December 31, 2017 are as follows:

(In millions of Korean won)


	2017
	Retail			Corporate			Total
Loans		389,552			1,182,726			1,572,278
Allowances		(126,691	)		(771,131	)		(897,822	)
Individual		—			(684,377	)		(684,377	)
Collective		(126,691	)		(86,754	)		(213,445	)

		262,861			411,595			674,456

Credit risk mitigation by collateral

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk as at December 31, 2018 is as follows:

(In millions of Korean won)


	2018
	Financial instruments applying 12- month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
			Non-impaired		Impaired		Financial instruments applying credit impaired approach				Total
Guarantees		60,020,814		5,864,526		146,818		—		—		66,032,158
Deposits and savings		1,372,286		76,960		5,265		—		—		1,454,511
Property and equipment		2,540,384		97,807		2,461		—		—		2,640,652
Real estate		145,155,068		12,512,423		388,109		—		—		158,055,600

		209,088,552		18,551,716		542,653		—		—		228,182,921

A quantification of the extent to which collateral and other credit enhancements mitigate credit risk as at December 31, 2017, is as follows:

(In millions of Korean won)


	2017
	Impaired Loans				Non-impaired Loans				Total
	Individual		Collective		Past due		Not past due		Total
Guarantees		17,257		107,610		198,379		57,399,810		57,723,056
Deposits and savings		10,501		5,375		23,126		1,576,897		1,615,899
Property and equipment		125		456		43		2,091,917		2,092,541
Real estate		96,010		271,937		638,044		145,583,507		146,589,498

		123,893		385,378		859,592		206,652,131		208,020,994

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.2.5 Credit Quality of Securities

The credit quality of financial investments excluding equity securities that are exposed to credit risk as at December 31, 2018, are as follows:


	2018
	Financial instruments applying 12- month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
(In millions of Korean won)			Non- impaired		Impaired		Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
Securities at amortized cost
Grade 1		12,769,605		—		—		—		—		12,769,605
Grade 2		9,569		—		—		—		—		9,569
Grade 3		14,649		—		—		—		—		14,649
Grade 4		—		—		—		—		—		—
Grade 5		—		—		—		—		—		—

		12,793,823		—		—		—		—		12,793,823

Securities at fair value through other comprehensive income
Grade 1		27,120,098		—		—		—		—		27,120,098
Grade 2		559,855		—		—		—		—		559,855
Grade 3		—		—		—		—		—		—
Grade 4		2,510		—		—		—		—		2,510
Grade 5		—		—		—		—		—		—

		27,682,463		—		—		—		—		27,682,463

		40,476,286		—		—		—		—		40,476,286

¹	Before netting of allowance.

The credit qualities of securities, excluding equity securities according to the credit ratings by external rating agencies as at December 31, 2018, are as follows:

Domestic

Foreign

Credit

quality

KIS

NICE P&I

FnPricing Inc.

S&P

Fitch-IBCA

Moody’s

Grade 1

AA0 to AAA

A- to AAA

A3 to Aaa

Grade 2

A- to AA-

BBB- to BBB+

Baa3 to Baa1

Grade 3

BBB0 to BBB+

BB to BB+

Ba2 to Ba1

Grade 4

BB0 to BBB-

B+ to BB-

B1 to Ba3

Grade 5

BB- or under

B or under

B2 or under

Debt securities’ credit qualities denominated in Korean won are based on the lowest credit rating by the three domestic credit rating agencies above, and those denominated in foreign currencies are based on the lowest credit ratings by the three foreign credit rating agencies above.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Financial assets at fair value through profit or loss and financial investments, excluding equity securities and beneficiary certificates, that are exposed to credit risk as at December 31, 2017 are as follows:


(In millions of Korean won)	2017
Securities that are neither past due nor impaired		44,338,881
Impaired securities		—

		44,338,881

The credit quality of securities, excluding equity securities and beneficiary certificates, that are neither past due nor impaired as at December 31, 2017, is as follows:


	2017
(In millions of Korean won)	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5		Total
Financial assets held for trading		6,525,798		1,304,926		44,157		25,732		—		7,900,613
Financial assets designated at fair value through profit or loss		95,357		—		—		—		—		95,357
Available-for-sale financial assets		27,433,166		144,312		25,762		2,521		—		27,605,761
Held-to-maturity financial assets		8,737,150		—		—		—		—		8,737,150

		42,791,471		1,449,238		69,919		28,253		—		44,338,881

The credit qualities of securities, excluding equity securities and beneficiary certificates, according to the credit ratings by external rating agencies as at December 31, 2017, are as follows:

Domestic

Foreign

Credit

quality

KIS

NICE P&I

FnPricing Inc.

S&P

Fitch-IBCA

Moody’s

Grade 1

AA0 to AAA

A- to AAA

A3 to Aaa

Grade 2

A- to AA-

BBB- to BBB+

Baa3 to Baa1

Grade 3

BBB0 to BBB+

BB to BB+

Ba2 to Ba1

Grade 4

BB0 to BBB-

B+ to BB-

B1 to Ba3

Grade 5

BB- or under

B or under

B2 or under

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.2.6 Credit Risk of Due from Financial Institutions

The credit quality of due from financial institutions as at December 31, 2018, is classified as follows:


	2018
(In millions of Korean won)	Financial instruments applying 12- month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Total
(In millions of Korean won)			Non-impaired		Impaired		Financial instruments applying credit impaired approach		Total
Due from financial institutions at amortized cost
Grade 1		11,035,800		—		—		—		11,035,800
Grade 2		167,900		—		—		—		167,900
Grade 3		608,314		—		—		—		608,314
Grade 4		19,531		—		—		—		19,531
Grade 5		1,691		—		—		—		1,691

		11,833,236		—		—		—		11,833,236

¹	Before netting of allowance.

The classification criteria of the credit quality for due from financial institutions are the same as the criteria for securities (excluding equity securities).

4.2.7 Credit Risk Mitigation of Derivative Financial Instruments

The quantification of the extent to which collateral mitigates credit risk of derivative financial instruments as at December 31, 2018 and 2017, is as follows:


(In millions of Korean won)	2018		2017
Deposits and savings, securities and others		381,959		1,198,373

4.2.8 Credit Risk Concentration Analysis

Details of the Group’s loans by country as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Retail		Corporate¹		Total		%		Allowances			Carrying amount
Korea		142,003,442		132,576,712		274,580,154		98.40		(1,524,099	)		273,056,055
China		—		2,278,545		2,278,545		0.82		(20,586	)		2,257,959
Japan		106		333,918		334,024		0.12		(1,865	)		332,159
United States		—		892,958		892,958		0.32		(5,165	)		887,793
Europe		—		348,336		348,336		0.12		(498	)		347,838
Others		189,476		437,254		626,730		0.22		(2,189	)		624,541

		142,193,024		136,867,723		279,060,747		100.00		(1,554,402	)		277,506,345

¹	Expected credit loss of loans at fair value through other comprehensive income is W 1,307 million.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Retail		Corporate		Total		%		Allowances			Carrying amount
Korea		130,390,627		119,273,608		249,664,235		98.63		(1,369,907	)		248,294,328
China		—		1,867,380		1,867,380		0.74		(30,720	)		1,836,660
Japan		539		127,009		127,548		0.05		(6,268	)		121,280
United States		—		866,867		866,867		0.34		(1,599	)		865,268
Europe		—		192,980		192,980		0.08		(2,326	)		190,654
Others		94,953		310,363		405,316		0.16		(2,901	)		402,415

		130,486,119		122,638,207		253,124,326		100.00		(1,413,721	)		251,710,605

Details of the Group’s corporate loans by industry as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Financial institutions		11,118,159		8.12		(5,798	)		11,112,361
Manufacturing		42,063,832		30.73		(448,644	)		41,615,188
Service		59,278,536		43.31		(249,776	)		59,028,760
Wholesale and retail		16,284,464		11.90		(93,091	)		16,191,373
Construction		2,640,614		1.93		(283,768	)		2,356,846
Public		821,317		0.60		(3,286	)		818,031
Others		4,660,801		3.41		(24,512	)		4,636,289

		136,867,723		100.00		(1,108,875	)		135,758,848


	2017
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Financial institutions		9,041,823		7.38		(6,265	)		9,035,558
Manufacturing		39,127,515		31.90		(434,349	)		38,693,166
Service		52,794,807		43.05		(281,847	)		52,512,960
Wholesale and retail		14,620,777		11.92		(85,972	)		14,534,805
Construction		2,538,256		2.07		(269,185	)		2,269,071
Public		834,687		0.68		(2,911	)		831,776
Others		3,680,342		3.00		(14,659	)		3,665,683

		122,638,207		100.00		(1,095,188	)		121,543,019

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of the Group’s retail loans by type as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Housing purpose		70,178,328		49.35		(28,940	)		70,149,388
General purpose		72,014,696		50.65		(416,587	)		71,598,109

		142,193,024		100.00		(445,527	)		141,747,497


	2017
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Housing purpose		62,319,992		47.76		(14,914	)		62,305,078
General purpose		68,166,127		52.24		(303,619	)		67,862,508

		130,486,119		100.00		(318,533	)		130,167,586

Details of the Group’s mortgage loans¹ as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Group1		6,671,012		7.11		(3,296	)		6,667,716
Group2		18,911,235		20.16		(8,322	)		18,902,913
Group3		35,580,948		37.94		(8,753	)		35,572,195
Group4		32,256,160		34.39		(12,338	)		32,243,822
Group5		356,892		0.38		(737	)		356,155
Group6		16,776		0.02		(35	)		16,741

		93,793,023		100.00		(33,481	)		93,759,542

¹	Retail loans for general purpose with the real estate as collateral are included.


		Ranges
Group1		LTV 0% to less than 20%
Group2		LTV 20% to less than 40%
Group3		LTV 40% to less than 60%
Group4		LTV 60% to less than 80%
Group5		LTV 80% to less than 100%
Group6		LTV over 100%

¹	LTV: Loan to Value ratio

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Credit risk by industry of due from financial institutions, securities and derivative financial instruments

Details of the Group’s credit risk concentration of due from financial institutions, securities excluding equity securities and derivative financial instruments as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Amount		%		Allowances			Carrying amount
Due from financial institutions at amortized cost
Finance and insurance		11,833,236		100.00		(1,548	)		11,831,688

		11,833,236		100.00		(1,548	)		11,831,688

Securities at fair value through profit or loss¹
Government and government funded institutions		2,755,250		23.19		—			2,755,250
Finance and insurance		7,523,708		63.31		—			7,523,708
Others		1,604,067		13.50		—			1,604,067

		11,883,025		100.00		—			11,883,025

Derivatives
Government and government funded institutions		39,290		2.43		—			39,290
Finance and insurance		1,485,912		92.07		—			1,485,912
Others		88,768		5.50		—			88,768

		1,613,970		100.00		—			1,613,970

Securities at fair value through other comprehensive income²
Government and government funded institutions		7,844,258		28.34		—			7,844,258
Finance and insurance		17,770,112		64.19		—			17,770,112
Others		2,068,093		7.47		—			2,068,093

		27,682,463		100.00		—			27,682,463

Securities at amortized cost
Government and government funded institutions		1,937,657		15.15		(4	)		1,937,653
Finance and insurance		10,826,102		84.62		(1,287	)		10,824,815
Others		30,064		0.23		(6	)		30,058

		12,793,823		100.00		(1,297	)		12,792,526

		65,806,517				(2,845	)		65,803,672

¹	Collective investment securities included in securities at fair value through profit or loss are classified as finance and insurance.

²	Expected credit loss of securities at fair value through other comprehensive income is W 1,348 million.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of the Group’s credit risk of securities, excluding equity securities and beneficiary certificates, and derivative financial instruments by industry as at December 31, 2017, are as follows:


	2017
(In millions of Korean won)	Amount		%
Financial assets held for trading
Government and government funded institutions		2,408,760		30.49
Finance and Insurance		3,876,344		49.06
Others		1,615,509		20.45

		7,900,613		100.00

Financial assets designated at fair value through profit or loss
Finance and Insurance		95,357		100.00

		95,357		100.00

Derivative financial assets
Government and government funded institutions		12,099		0.47
Finance and Insurance		2,464,286		94.50
Others		131,274		5.03

		2,607,659		100.00

Available-for-sale financial assets
Government and government funded institutions		8,188,744		29.67
Finance and Insurance		18,044,307		65.36
Others		1,372,710		4.97

		27,605,761		100.00

Held-to-maturity financial assets
Government and government funded institutions		2,563,480		29.34
Finance and Insurance		6,073,478		69.51
Others		100,192		1.15

		8,737,150		100.00

		46,946,540

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of the Group’s credit risk of due from financial institutions, securities, excluding equity securities, and derivative financial instruments by country as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Amount		%		Allowances			Carrying amount¹
Due from financial institutions at amortized cost
Korea		9,478,190		80.10		—			9,478,190
United States		667,139		5.64		(6	)		667,133
Others		1,687,907		14.26		(1,542	)		1,686,365

		11,833,236		100.00		(1,548	)		11,831,688

Securities at fair value through profit or loss
Korea		10,524,924		88.57		—			10,524,924
United States		726,271		6.11		—			726,271
Others		631,830		5.32		—			631,830

		11,883,025		100.00		—			11,883,025

Derivatives
Korea		752,028		46.59		—			752,028
United States		285,460		17.69		—			285,460
France		222,905		13.81		—			222,905
Others		353,577		21.91		—			353,577

		1,613,970		100.00		—			1,613,970

Securities at fair value through other comprehensive income¹
Korea		26,139,297		94.43		—			26,139,297
United States		711,946		2.57		—			711,946
Others		831,220		3.00		—			831,220

		27,682,463		100.00		—			27,682,463

Securities at amortized cost
Korea		11,805,442		92.27		(945	)		11,804,497
United States		155,417		1.21		(32	)		155,385
United Kingdom		705,790		5.52		(247	)		705,543
Others		127,174		1.00		(73	)		127,101

		12,793,823		100.00		(1,297	)		12,792,526

		65,806,517				(2,845	)		65,803,672

¹	Expected credit loss of securities at fair value through other comprehensive income is W 1,348 million.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of the Group’s credit risk of securities, excluding equity securities and beneficiary certificates, and derivative financial instruments by country as at December 31, 2017, are as follows:


	2017
(In millions of Korean won)	Amount		%
Financial assets held for trading
Korea		7,021,083		88.87
Others		879,530		11.13

		7,900,613		100.00

Financial assets designated at fair value through profit or loss
Korea		95,357		100.00

		95,357		100.00

Derivative financial assets
Korea		1,266,612		48.57
United States		303,283		11.63
United Kingdom		52,781		2.02
France		303,883		11.65
Others		681,100		26.13

		2,607,659		100.00

Available-for-sale financial assets
Korea		27,006,817		97.83
Others		598,944		2.17

		27,605,761		100.00

Held-to-maturity financial assets
Korea		7,647,772		87.53
Others		1,089,378		12.47

		8,737,150		100.00

		46,946,540

The counterparties to the financial assets under due from financial institutions and financial instruments indexed to the price of gold within financial assets measured at fair value through profit or loss and derivatives are in the financial and insurance industries which have high credit ratings.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.3 Liquidity risk

4.3.1 Overview of Liquidity Risk

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

4.3.2. Liquidity Risk Management and Indicator

The liquidity risk is managed by ALM (‘Asset Liability Management’) and related guidelines which are applied to the risk management policies and procedures that addresses all the possible risks that arise from the overall business of the Group.

The Group has to establish the liquidity risk management strategy including the objectives of liquidity risk management, management policies and internal control system, and obtain approval from Risk Management Committee. Risk Management Committee operates the Risk Management Council for the purpose of efficient risk management, monitors establishment and enforcement of policies based on risk management strategy.

For the purpose of liquidity management, the liquidity gap ratio, liquidity ratio, maturity gap ratio and the results of the stress testing related to liquidity risk on transactions affecting the inflows and outflows of funds and transactions of off-balance sheet items are measured, managed and reported to the Risk Management Committee and Risk Management Council on a regular basis.

4.3.3. Analysis of Remaining Contractual Maturity of Financial Assets and Liabilities

Cash flows disclosed below are undiscounted contractual principal and interest to be received (paid) and, thus, differ from the amounts in the financial statements which are based on the present value of expected cash flows. The amount of interest to be received or paid on floating rate assets and liabilities is measured on the assumption that the current interest rate would be the same through maturity.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The remaining contractual maturity of financial assets and liabilities, excluding derivatives held for cash flow hedging, as at December 31, 2018 and 2017, is as follows:


	2018
(In millions of Korean won)	On demand		Up to 1 month		1-3 months			3-12 months			1-5 years		Over 5 years		Total
Financial assets
Cash and due from financial institutions ¹		4,727,159		339,350		178,406			458,164			—		—		5,703,079
Financial assets at fair value through profit or loss ²		12,043,909		230		7,182			184,881			5,542		90,736		12,332,480
Derivatives held for trading ²		1,533,650		—		—			—			—		—		1,533,650
Derivatives held for hedging ³		—		2,289		1,364			16,251			20,025		40,830		80,759
Loans at amortized cost		—		18,705,807		27,929,002			107,831,857			71,668,732		95,363,933		321,499,331
Financial investments ⁴		1,898,944		2,176,313		3,646,572			13,634,982			20,703,303		2,454,592		44,514,706
Financial assets at fair value through other comprehensive income		1,898,944		1,418,537		2,278,547			9,765,281			14,987,787		191,966		30,541,062
Securities at amortized cost		—		757,776		1,368,025			3,869,701			5,715,516		2,262,626		13,973,644
Other financial assets		285		2,449,979		520			1,020,442			—		—		3,471,226

		20,203,947		23,673,968		31,763,046			123,146,577			92,397,602		97,950,091		389,135,231

Financial liabilities
Financial liabilities at fair value through profit or loss ²		87,168		—		—			—			—		—		87,168
Derivatives held for trading ²		1,553,858		—		—			—			—		—		1,553,858
Derivatives held for hedging ³		—		4,091		(4,249	)		(14,415	)		15,660		31		1,118
Deposits ⁵		123,264,494		16,840,316		27,895,787			94,902,004			11,164,154		2,780,594		276,847,349
Debts		872		2,683,213		3,317,577			6,830,511			4,348,308		669,151		17,849,632
Debentures		30,160		702,704		2,368,679			8,329,923			12,113,285		673,863		24,218,614
Other financial liabilities		—		10,451,177		2,206			76,647			60,145		—		10,590,175

		124,936,552		30,681,501		33,580,000			110,124,670			27,701,552		4,123,639		331,147,914

Off-balance sheet items
Commitments ⁶		81,278,583		—		—			—			—		—		81,278,583
Payment guarantee agreement		7,277,136		—		—			—			—		—		7,277,136
Financial guarantee contracts ⁷		3,135,590		—		—			—			—		—		3,135,590

		91,691,309		—		—			—			—		—		91,691,309

¹	The amounts of W 9,203,969 million which are restricted amount due from the financial institutions as at December 31, 2018 are excluded.

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

³	Cash flows of derivative instruments held for hedging are shown at net amounts of cash inflows and outflows by remaining contractual maturity.

⁴

Equity securities designated as financial assets at fair value through other comprehensive income included in the ‘On demand’ category as most are available for sale at any time. However, in the case of equity investments which are restricted for sale, these will be classified to its respective maturity when the restriction on disposal is released.

⁵	Deposits that are contractually repayable on demand or on short notice are included under the ‘On demand’ category.

⁶	Unused lines of credit within commitments are included under the ‘On demand’ category as payments can be required upon request.

⁷	Financial guarantee contracts are included under the ‘On demand’ category as payments can be required upon request.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	On demand		Up to 1 month		1-3 months			3-12 months			1-5 years			Over 5 years		Total
Financial assets
Cash and due from financial institutions ¹		5,716,586		399,460		140,676			159,353			—			—		6,416,075
Financial assets held for trading ²		8,313,373		—		—			—			—			—		8,313,373
Financial assets designated at fair value through profit or loss ²		95,357		—		—			—			—			—		95,357
Derivatives held for trading ²		2,509,930		—		—			—			—			—		2,509,930
Derivatives held for hedging ³		—		21,489		2,722			2,647			(5,017	)		52,698		74,539
Loans		—		14,978,083		26,503,526			96,536,587			62,850,146			89,830,481		290,698,823
Available-for-sale financial assets ⁴		6,056,352		1,486,656		2,111,060			9,396,840			15,050,896			791,200		34,893,004
Held-to-maturity financial assets		—		584,825		388,928			2,608,727			4,343,586			1,986,169		9,912,235
Other financial assets		291		4,604,953		—			1,042,830			—			—		5,648,074

		22,691,889		22,075,466		29,146,912			109,746,984			82,239,611			92,660,548		358,561,410

Financial liabilities
Financial liabilities held for trading ²		74,191		—		—			—			—			—		74,191
Derivatives held for trading ²		2,558,786		—		—			—			—			—		2,558,786
Derivatives held for hedging ³		—		4,176		(4,715	)		(19,705	)		(7,144	)		244		(27,144	)
Deposits ⁵		124,342,154		12,319,041		23,092,872			82,158,996			11,320,759			2,801,348		256,035,170
Debts		936		3,843,258		1,871,117			5,325,664			4,462,359			573,088		16,076,422
Debentures		40,655		540,471		1,218,396			5,425,995			11,524,310			1,536,151		20,285,978
Other financial liabilities		—		10,055,251		774			74,577			6,794			218,097		10,355,493

		127,016,722		26,762,197		26,178,444			92,965,527			27,307,078			5,128,928		305,358,896

Off-balance sheet items
Commitments ⁶		50,851,024		—		—			—			—			—		50,851,024
Financial guarantee contracts ⁷		2,968,354		—		—			—			—			—		2,968,354

		53,819,378		—		—			—			—			—		53,819,378

¹	The amounts of W 9,240,008 million which are restricted amount due from the financial institutions as at December 31, 2017 are excluded.

Financial assets held for trading, financial assets designated at fair value through profit or loss, financial liabilities held for trading and derivatives held for trading are not managed by contractual maturity because they are held for trading or redemption before maturity. Therefore, the carrying amounts are included in the ‘On demand’ category. However, the cash flows of the embedded derivatives (e.g. conversion options and others) which are separated from their host contracts, are included in the cash flows of the host contracts.

³	Cash flows of derivative instruments held for hedging are shown at net amounts of cash inflows and outflows by remaining contractual maturity.

⁴

Equity investments in financial assets classified as available-for-sale are generally included in the ‘On demand’ category as most are available for sale at any time. However, in the case of equity investments which are restricted for sale, these will be classified to its respective maturity when the restriction on disposal is released.

⁵	Deposits that are contractually repayable on demand or on short notice are included under the ‘On demand’ category.

⁶	Unused lines of credit within commitments are included under the ‘On demand’ category as payments can be required upon request.

⁷	Financial guarantee contracts are included under the ‘On demand’ category as payments can be required upon request.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The remaining contractual cash flows of derivatives held for cash flow hedging as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
Cash flow to be received of net settlement derivatives		251		2,548		4,871		11,642		—		19,312
Cash flow to be paid of net settlement derivatives		197		129		493		79		—		898


	2017
(In millions of Korean won)	Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
Cash flow to be received of net settlement derivatives		2		198		488		104		—		792
Cash flow to be paid of net settlement derivatives		94		536		1,444		5,852		—		7,926

4.4 Market Risk

4.4.1 Concept

Market risk is the risk of possible losses which arise from changes in market factors, such as interest rate, stock price, foreign exchange rate and other market factors, and incurred in securities, derivatives and others. The most significant risks associated with trading positions are interest rate risks and currency risks, and other risks include stock price risks. In addition, the Group is exposed to interest rate risks associated with non-trading positions. The Group classifies exposures to market risk into either trading or non-trading positions for managerial purpose.

4.4.2 Risk Management

The Group sets internal capital limits for market risk and interest rate risk and monitors the risks to manage the risk of trading and non-trading positions. The Group maintains risk management systems and procedures, such as trading policies and procedures, market risk management guidelines for trading positions and ALM risk management guidelines for non-trading positions in order to manage market risk efficiently. The procedures mentioned are implemented with approval from the Risk Management Committee and Risk Management Council.

The Group establishes market risk management policy, sets position limits, loss limits and VaR limits of each business group and approves newly developed products through its Risk Management Council. The Market Risk Management Subcommittee, which is chaired by the Chief Risk Officer (CRO), is the decision maker and sets position limits, loss limits, VaR limits, sensitivity limits and scenario loss limits for each division, at the level of each individual business department.

The Asset-Liability Management Committee (ALCO) determines the operational standards of interest and commission, the details of establishment and prosecution of the Asset Liability Management (ALM) policies and enacts and amends relevant guidelines. The Risk Management Council monitors the establishment and enforcement of ALM risk management policies and enact and amend ALM risk management guidelines. The interest rate risk limit is set based on the future assets/liabilities position and interest rate volatility estimation reflects the annual work plan. The Financial Planning Department and Risk Management Department measure and monitor the interest risk status and limits on a regular basis. The status and limits of interest rate risks, such as interest rate EaR, duration gap and interest rate VaR, are reported to the ALCO and Risk Management Council on a monthly basis and to the Risk Management Committee on a quarterly basis. To ensure adequacy of interest rate and liquidity risk management, the Risk Management Department assigns the limits, monitors and reviews the risk management procedures and tasks conducted by the Financial Planning Department. Also, the Risk Management Department independently reports related information to management.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.4.3 Trading Position

Definition of a trading position

Trading positions subject to market risk management are interest rate, stock price positions for short-term profit-taking and others. Also, they include all foreign exchange rate positions. The basic requirements of trading positions are defined under the Trading Policy and Guideline, are as follows:

•

The trading position is not restricted for purchase and sale, is measured daily at fair value, and its significant inherent risks are able to be hedged in the market.

•

The criteria for classification as a trading position are clearly defined in the Trading Policy and guideline, and separately managed by the trading department.

•

The trading position is operated in accordance with the documented trading strategy and managed through position limits.

•

The operating department or professional dealers have an authority to enforce a deal on the trading position within predetermined limits without pre-approval.

•

The trading position is reported periodically to management for the purpose of the Group’s risk management.

Observation method on market risk arising from trading positions

The Group calculates VaR to measure the market risk by using market risk management systems on the entire trading portfolio. Generally, the Group manages market risk on the trading portfolio. In addition, the Group controls and manages the risk of derivative trading based on the regulations and guidelines formulated by the Financial Supervisory Service.

Value at Risk (VaR)

i. Value at Risk (VaR)

The Group uses the Value-at-Risk methodology to measure the market risk of trading positions.

The Group now uses the ten-day VaR, which estimates the maximum amount of loss that could occur in ten days under an historical simulation model which is considered to be a full valuation method. The distributions of portfolio’s value changes are estimated based on the data over the previous 250 business days, and ten-day VaR is calculated by subtracting net present market value from the value measured at a 99% confident level of portfolio’s value distribution results.

VaR is a commonly used market risk measurement technique. However, the method has some shortcomings. VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movements are, however, not necessarily a good indicator of future events, as there may be conditions and circumstances in the future that the model does not anticipate. As a result, the timing and magnitude of the actual losses may vary depending on the assumptions made at the time of the calculation. In addition, the time periods used for the model, generally one or ten days, are assumed to be a sufficient holding period before liquidating the relevant underlying positions. If these holding periods are not sufficient, or too long, the VaR results may understate or overstate the potential loss.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The Group uses an internal model (VaR) to measure general risk, and a standard method to measure each individual risk. When the internal model is not permitted for certain market risk, the Group uses the standard method. Therefore, the market risk VaR may not reflect the market risk of each individual risk and some specific positions.

ii. Back-Testing

Back-testing is conducted on a daily basis to validate the adequacy of the VaR model. In back- testing, the Group compares both the actual and hypothetical profit or loss with the VaR calculations.

iii. Stress Testing

Stress testing is carried out to analyze the impact of abnormal market situations on the trading and available-for-sale portfolio. It reflects changes in interest rates, stock prices, foreign exchange rates, implied volatilities of options and other risk factors that have significant influence on the value of the portfolio. The Group uses historical scenarios and hypothetical scenarios for the analysis of abnormal market situations. Stress testing is performed at least once every quarter.

The units that analyze total VaR can be categorized as follows: ① by product: interest rate products (debt securities in Korean won and foreign currencies, etc.), foreign currency products (spots, futures, and CRS, etc.), equity securities (equities, ELS, etc.), ② by risk factors: interest rates (government bond interest rate in Korean won and foreign currencies, corporate bond interest rate, etc.), exchange rates (USD/KRW, USD/JPY, etc.), and stock market indexes (KOSPI, S&P 500, etc.); the Group previously assesses VaR by product considering timeliness and efficiency.

However, as the amount of investment property in foreign currencies increases, products evaluated as multiple risk factors (i.e. for foreign currency bonds, ① by product: interest rate product ② by risk factor: interest rate and foreign exchange rate) had a tendency that dispersion effect is excessive due to not reflecting the actual hedge position by products in detail; to prevent which, the Group has decided to use VaR by risk factor from 2018.

VaR at a 99%, excluding Stressed Value at Risks, confidence level of interest rate, stock price and foreign exchange rate risk for trading positions with a ten-day holding period as at December 31, 2018 and 2017, are as follows:

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2018
(In millions of Korean won)	Average		Minimum		Maximum		Ending
Interest rate risk		12,513		6,044		18,684		7,074
Stock price risk		2,995		1,253		4,831		3,348
Foreign exchange rate risk		9,443		5,033		16,453		16,453
Deduction of diversification effect								(11,939	)

Total VaR		16,221		11,653		23,078		14,936


	2017
(In millions of Korean won)	Average		Minimum		Maximum		Ending
Interest rate risk		22,682		14,313		42,155		23,758
Stock price risk		1,002		757		1,345		1,255
Foreign exchange rate risk		32,709		12,405		44,322		24,315
Deduction of diversification effect								(29,727	)

Total VaR		23,312		16,498		30,247		19,601

The required equity capital using the standard method related to the positions which are not measured by VaR as at December 31, 2018 and 2017, is as follows:


(In millions of Korean won)	2018		2017
Interest rate risk		112,153		98,235
Stock price risk		19,756		1,646
Foreign exchange rate risk		1,339		810

		133,248		100,691

Details of risk factors

i. Interest rate risk

Trading position interest rate risk usually arises from debt securities denominated in Korean won. The Group’s trading strategy is to benefit from short-term movements in the prices of debt securities arising from changes in interest rates. The Group manages interest rate risk on major trading portfolios using market value-based tools such as VaR and sensitivity analysis (Price Value of a Basis Point: PVBP).

ii. Stock price risk

Stock price risk only arises from trading securities denominated in Korean won as the Group does not have any trading exposure to shares denominated in foreign currencies. The trading securities portfolios in Korean won are composed of exchange-traded stocks and derivative instruments linked to stock with strict limits on diversification.

iii. Foreign exchange rate risk

Foreign exchange rate risk arises from holding assets and liabilities denominated in foreign currency and foreign currency derivatives. Net foreign currency exposure mostly occurs from the foreign assets and liabilities which are denominated in US dollars and Chinese yuan. The Group sets both loss limits and net foreign currency exposure limits and manages comprehensive net foreign exchange exposures which consider both trading and non-trading portfolios.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.4.4 Non-trading Position

i. Definition of non-trading position

Managed interest rate risk in non-trading position includes on or off-balance sheet assets, liabilities and derivatives that are sensitive to interest rate, except trading position for market risk. The interest rate sensitive assets and liabilities are interest-bearing assets and liabilities that create interest income and expenses.

ii. Observation method on market risk arising from non-trading position

Interest rate risk occurs due to mismatches on maturities and interest rate reset periods between interest-bearing assets and liabilities. The Group manages the risk through measuring and managing interest rate VaR and EaR that are maximum expected decreases in net asset value (NPV) and net interest income (NII) for one year, respectively, arising from unfavorable changes in market interest rate.

iii. Interest Rate VaR

Interest rate VaR is the maximum possible loss due to interest rate risk under a normal distribution at a 99.90% confidence level. The measurement results of risk as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Interest Rate VaR		168,282		350,178

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.4.5 Financial Assets and Liabilities in Foreign Currencies

Financial assets and liabilities in foreign currencies as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	USD		JPY		EUR		GBP		CNY		Others		Total
Financial assets
Cash and due from financial institutions		1,374,423		307,580		188,508		24,536		1,088,299		362,727		3,346,073
Financial assets at fair value through profit or loss		1,756,048		44,175		69,728		—		—		17,773		1,887,724
Derivatives held for trading		98,101		—		—		—		4,643		—		102,744
Derivatives held for hedging		32,996		—		—		—		—		—		32,996
Loans at amortized cost		12,155,429		333,848		571,077		5,993		990,705		396,228		14,453,280
Financial assets at fair value through other comprehensive income		2,999,581		36,538		5,134		—		125,571		3,699		3,170,523
Financial assets at amortized cost		949,227		—		—		—		38,802		—		988,029
Other financial assets		942,708		297,430		17,184		21,447		251,725		24,149		1,554,643

		20,308,513		1,019,571		851,631		51,976		2,499,745		804,576		25,536,012

Financial liabilities
Derivatives held for trading		103,451		14		42		—		4,062		—		107,569
Derivatives held for hedging		88,367		—		—		—		—		—		88,367
Deposits		8,948,057		616,551		491,628		48,264		1,263,562		450,340		11,818,402
Debts		8,984,548		90,778		184,173		—		11,393		24,057		9,294,949
Debentures		3,960,312		—		31,979		—		—		42,240		4,034,531
Other financial liabilities		898,222		103,395		130,282		3,566		265,080		41,853		1,442,398

		22,982,957		810,738		838,104		51,830		1,544,097		558,490		26,786,216

Off-balance sheet items		13,573,398		32,619		1,262		—		270,018		7,552		13,884,849

	2017
(In millions of Korean won)	USD		JPY		EUR		GBP		CNY		Others		Total
Financial assets
Cash and due from financial institutions		1,509,387		250,933		131,100		19,779		815,014		236,570		2,962,783
Financial assets held for trading		1,044,336		83,716		81,394		8,922		—		18,145		1,236,513
Derivatives held for trading		78,769		441		52		—		96		202		79,560
Derivatives held for hedging		29,489		—		—		—		—		—		29,489
Loans		10,605,408		228,747		1,503,493		9,548		795,302		220,859		13,363,357
Available-for-sale financial assets		2,189,461		76,185		38,936		—		38,606		20,666		2,363,854
Held-to-maturity financial assets		1,084,474		—		—		—		4,905		—		1,089,379
Other financial assets		1,509,793		452,446		406,009		13,101		199,422		201,173		2,781,944

		18,051,117		1,092,468		2,160,984		51,350		1,853,345		697,615		23,906,879

Financial liabilities
Derivatives held for trading		56,598		—		35		—		3,563		—		60,196
Derivatives held for hedging		49,962		—		—		—		—		—		49,962
Deposits		8,343,862		757,704		437,881		39,990		1,096,430		573,326		11,249,193
Debts		7,130,892		44,885		77,604		737		—		10,483		7,264,601
Debentures		2,940,251		—		—		—		—		—		2,940,251
Other financial liabilities		2,183,242		43,671		887,197		3,338		198,043		28,647		3,344,138

		20,704,807		846,260		1,402,717		44,065		1,298,036		612,456		24,908,341

Off-balance sheet items		11,304,709		705		2,404		—		257,940		12,823		11,578,581

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

4.5 Operational Risk

4.5.1 Concept

The Group defines operational risk as risk of loss resulting from inadequate or failed internal processes, people, systems and external events. The operational risk includes financial and non-financial risks.

4.5.2 Risk Management

The purpose of operational risk management is not only to comply with requirements of regulatory authorities but is also to establish an integrated system to cultivate enterprise culture that values importance of risk management, strengthen internal controls, improve processes and provide with timely feedback to management so that eventually mitigate operational risk of the Group. In addition, the Group established Business Continuity Planning (BCP) to ensure critical business functions can be maintained, or restored, in the event of material disruptions arising from internal or external events. It has constructed replacement facilities as well as has carried out full scale test for head office and IT departments to test its BCPs.

4.6 Capital Management

The Group complies with the capital adequacy standard established by the Financial Services Commission. The capital adequacy standard is based on Basel III revised by Basel Committee on Banking Supervision in Bank for International Settlements in June 2011, and was implemented in Korea in December 2013. The Group is required to maintain a minimum Common Equity Tier 1 ratio of at least 4.5%, a minimum Tier 1 ratio of 6.0% and a minimum Total Regulatory Capital of 8.0% as at December 31, 2018. Capital Conservation Buffer of 1.875% and Capital Requirement of Domestic Systemically Important Bank (D-SIB) of 0.75% are additionally applied. Therefore, the Group is required to maintain a capital ratio including a minimum capital ratio and additional capital requirements (a Common Equity Tier 1 Ratio of 7.125% (December 31, 2017 : 6.25%), a Tier 1 Ratio of 8.625% (December 31, 2017 : 7.75%), and a Total Regulatory Capital Ratio of 10.625% (December 31, 2017 : 9.75%)).

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

•

Common Equity Tier 1 Capital: Common Equity Tier 1 Capital represents the issued capital that takes the first and proportionately greatest share of any losses and represents the most subordinated claim in liquidation of the Group, and not repaid outside of liquidation. It includes common shares issued, capital surplus, retained earnings, non-controlling interests of consolidated subsidiaries, accumulated other comprehensive income, other capital surplus and others.

•

Additional Tier 1 Capital: Additional Tier 1 Capital includes perpetual instruments issued by the Group that meet the criteria for inclusion in Additional Tier 1 capital, and stock surplus resulting from the issue of instruments included in Additional Tier 1 capital and others.

•

Tier 2 Capital: Tier 2 Capital represents the capital that takes the proportionate share of losses in the liquidation of the Group. Tier 2 Capital includes a fund raised by issuing subordinated debentures maturing in not less than 5 years that meet the criteria for inclusion in Tier 2 capital, and the allowance for loan losses which are accumulated for assets classified as normal or precautionary in accordance with Regulations on Supervision of Banking Business and others.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Risk-weighted asset means the assets weighted according to the inherent risks in the total assets and the possible losses resulting from the errors of internal process and external events which the Group should cover. The Group calculates risk-weighted asset by each risk (credit risk, market risk and operational risk) based on Detailed Regulations on Supervision of Banking Business and uses it for its capital ratio calculation. The Group complied with external capital adequacy requirements as at December 31, 2018 and 2017.

In addition to the capital ratio, the Group assesses its adequacy of capital by using the internal assessment and management policy of the capital adequacy. The assessment of the capital adequacy is conducted by comparing available capital (actual amount of available capital) and internal capital (amount of capital enough to cover all significant risks under target credit rate set by the Group). The Group monitors the soundness of finance and provides risk adjusted basis for performance review using the assessment of the capital adequacy. The internal capital is calculated by adding the stress testing results and other required items to the total internal capitals which are calculated for each risk.

The Risk Management Council of the Group determines the Group’s risk appetite and allocates internal capital by risk type and business group. Each business group efficiently operates its capital within range of granted internal capital. The Risk Management Department of the Group monitors a management of the limit on internal capital and reports the results to management and the Risk Management Council. The Group maintains the adequacy of capital through proactive review and approval of the Risk Management Committee when the internal capital is expected to exceed the limits.

Details of the Group’s capital adequacy calculation in line with Basel III requirements as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Equity Capital		27,694,178		25,913,677
Tier I Capital		25,567,995		24,040,408
Common Equity Tier 1 Capital		25,567,995		24,040,408
Tier II Capital		2,126,183		1,873,269
Risk-weighted assets:		178,433,263		161,824,686
Credit risk¹		163,693,288		145,958,874
Market risk²		4,747,989		5,746,686
Operational risk³		9,991,986		10,119,126
Equity Capital (%):		15.52		16.01
Tier I Capital (%)		14.33		14.86
Common Equity Tier 1 Capital (%)		14.33		14.86

¹	Credit risk-weighted assets are measured using the Internal Rating-Based Approach and Standardized Approach.

²	Market risk-weighted assets are measured using the Internal Model-Based Approach and Standardized Approach.

³	Operational risk-weighted assets are measured using the Advanced Measurement Approach.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

5. Segment Information

5.1 Overall Segment Information and Business Segments

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

•

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

•

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

•

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

Financial information by business segment for the year ended December 31, 2018 is as follows:


	2018
(In millions of Korean won)	Corporate Banking			Retail Banking			Others			Intra-group Adjustment			Total
Operating revenues from external customers		2,386,035			2,989,240			1,478,104			—			6,853,379
Segment operating revenues(expenses)		27,687			—			(39,343	)		11,656			—

		2,413,722			2,989,240			1,438,761			11,656			6,853,379
Net interest income		2,753,928			2,960,598			386,407			(211	)		6,100,722
Interest income		4,267,675			4,547,615			1,227,614			(23,016	)		10,019,888
Interest expense		(1,513,747	)		(1,587,017	)		(841,207	)		22,805			(3,919,166	)
Net fee and commission income		287,978			490,447			362,846			(18,523	)		1,122,748
Fee and commission income		381,481			583,213			486,034			(27,937	)		1,422,791
Fee and commission expense		(93,503	)		(92,766	)		(123,188	)		9,414			(300,043	)
Net gains (losses) on financial assets/ liabilities at fair value through profit or loss		13,933			—			297,938			14,524			326,395
Net other operating income (expense)		(642,117	)		(461,805	)		391,570			15,866			(696,486	)
General and administrative expenses		(1,091,556	)		(1,970,409	)		(706,164	)		1,134			(3,766,995	)
Operating profit before provision for credit losses		1,322,166			1,018,831			732,597			12,790			3,086,384
Provision (Reversal) for credit losses		77,224			(179,229	)		(273	)		8,362			(93,916	)
Operating profit		1,399,390			839,602			732,324			21,152			2,992,468
Share of profit of associates		—			—			49,698			—			49,698
Net other non-operating income (expense)		(65	)		—			123,936			(79,699	)		44,172
Segment profit before income tax expense		1,399,325			839,602			905,958			(58,547	)		3,086,338
Income tax profit (expense)		(386,764	)		(230,891	)		(208,403	)		(1,082	)		(827,140	)
Profit for the year		1,012,561			608,711			697,555			(59,629	)		2,259,198
Profit attributable to the shareholder of the Parent Company		1,012,561			608,711			697,555			(59,629	)		2,259,198
Profit attributable to non-controlling interests		—			—			—			—			—
Total assets ¹		131,303,734			140,814,393			88,399,951			(3,558,820	)		356,959,258
Total liabilities ¹		123,880,329			152,173,062			55,478,601			(1,240,600	)		330,291,392

¹	Amounts as at December 31, 2018 before intra-segment transaction adjustment.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Financial information by business segment for the year ended December 31, 2017 is as follows:


	2017
(In millions of Korean won)	Corporate Banking			Retail Banking			Others			Intra-group Adjustment			Total
Operating revenues from external customers		2,080,531			2,710,798			1,638,850			—			6,430,179
Segment operating revenues(expenses)		29,935			—			6,409			(36,344	)		—

		2,110,466			2,710,798			1,645,259			(36,344	)		6,430,179
Net interest income		2,555,780			2,647,768			361,058			178			5,564,784
Interest income		3,584,021			3,935,895			1,002,738			(13,761	)		8,508,893
Interest expense		(1,028,241	)		(1,288,127	)		(641,680	)		13,939			(2,944,109	)
Net fee and commission income		235,210			595,322			406,141			(11,984	)		1,224,689
Fee and commission income		315,994			668,227			506,331			(19,072	)		1,471,480
Fee and commission expense		(80,784	)		(72,905	)		(100,190	)		7,088			(246,791	)
Net losses on financial assets/ liabilities at fair value through profit or loss (under Korean IFRS 1039)		(1,750	)		—			(59,852	)		(9,605	)		(71,207	)
Net other operating income(expenses)		(678,774	)		(532,292	)		937,912			(14,933	)		(288,087	)
General and administrative expenses		(974,096	)		(1,946,640	)		(747,783	)		2,697			(3,665,822	)
Operating profit before provision for credit losses		1,136,370			764,158			897,476			(33,647	)		2,764,357
Reversal (Provision) for credit losses		6,918			(122,107	)		(466	)		489			(115,166	)
Operating profit		1,143,288			642,051			897,010			(33,158	)		2,649,191
Share of profit of associates		—			—			37,571			—			37,571
Net other non-operating income		1,873			—			145,889			(221,229	)		(73,467	)
Segment profit before income tax expense		1,145,161			642,051			1,080,470			(254,387	)		2,613,295
Income tax profit (expense)		(276,388	)		(155,377	)		2,989			(9,814	)		(438,590	)
Profit for the period		868,773			486,674			1,083,459			(264,201	)		2,174,705
Profit attributable to the shareholder of the Parent Company		868,773			486,674			1,083,459			(264,201	)		2,174,705
Profit attributable to non-controlling interests		—			—			—			—			—
Total assets¹		117,904,269			129,438,168			86,034,586			(3,611,096	)		329,765,927
Total liabilities¹		102,224,405			147,870,309			55,552,078			(1,204,299	)		304,442,493

¹	Amounts as at December 31, 2017 before intra-segment transaction adjustment.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

5.2 Services and Geographical Segments

5.2.1 Services Information

Operating revenues from external customers by services for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Corporate banking service		2,386,035		2,080,531
Retail banking service		2,989,240		2,710,798
Other service		1,478,104		1,638,850

		6,853,379		6,430,179

5.2.2 Geographical Information

Geographical operating revenues from external customers for the years ended December 31, 2018 and 2017, and major non-current assets as at December 31, 2018 and 2017, are as follows:


	2018				2017
(In millions of Korean won)	Revenues from external customers		Major non-current assets		Revenues from external customers		Major non-current assets
Domestic		6,721,355		3,600,570		6,339,930		3,562,722
United States		11,727		144		9,889		161
New Zealand		6,213		72		5,855		57
China		81,620		3,623		44,989		3,432
Japan		4,166		1,210		4,425		1,377
Myanmar		2,675		707		593		653
Vietnam		7,655		239		5,474		228
Cambodia		9,849		2,696		7,476		1,753
United Kingdom		8,119		537		11,548		319

		6,853,379		3,609,798		6,430,179		3,570,702

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

6. Financial Assets and Financial Liabilities

6.1 Classification and Fair Value

Carrying amount and fair values of financial assets and liabilities as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Carrying amount		Fair value
Financial assets
Cash and due from financial institutions		14,889,010		14,885,511
Financial assets at fair value through profit or loss		12,257,005		12,257,005
Debt securities		11,883,025		11,883,025
Equity securities		82,576		82,576
Loans		212,596		212,596
Others		78,808		78,808
Derivatives held for trading		1,533,650		1,533,650
Derivatives held for hedging		80,321		80,321
Loans at amortized cost		276,944,202		276,957,040
Financial assets at fair value through other comprehensive income		29,930,955		29,930,955
Debt securities		27,682,464		27,682,464
Equity securities		1,898,944		1,898,944
Loans		349,547		349,547
Securities at amortized cost		12,792,526		12,823,961
Others		4,199,197		4,199,197

		352,626,866		352,667,640

Financial liabilities
Financial liabilities at fair value through profit or loss		87,168		87,168
Derivatives held for trading		1,553,858		1,553,858
Derivatives held for hedging		88,551		88,551
Deposits		272,484,528		273,131,227
Debts		17,496,056		17,523,408
Debentures		23,163,585		23,445,303
Other financial liabilities		13,297,404		13,297,394

		328,171,150		329,126,909

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Carrying amount		Fair value
Financial assets
Cash and due from financial institutions		15,646,318		15,646,654
Financial assets held for trading		8,313,373		8,313,373
Debt securities		7,900,613		7,900,613
Equity securities		338,904		338,904
Others		73,856		73,856
Financial assets designated at fair value through profit or loss		95,357		95,357
Derivative-linked securities		95,357		95,357
Derivatives held for trading		2,527,190		2,527,190
Derivatives held for hedging		80,469		80,469
Loans		251,710,605		251,173,805
Available-for-sale financial assets		32,078,524		32,078,524
Debt securities		27,605,761		27,605,761
Equity securities		4,472,263		4,472,263
Others		500		500
Held-to-maturity financial assets		8,737,150		8,774,918
Other financial assets		6,341,463		6,341,463

		325,530,449		325,031,753

Financial liabilities
Financial liabilities held for trading		74,191		74,191
Derivatives held for trading		2,558,788		2,558,788
Derivatives held for hedging		50,032		50,032
Deposits		252,478,931		252,901,505
Debts		15,810,753		15,808,759
Debentures		19,183,798		19,409,286
Other financial liabilities		12,733,354		12,733,360

		302,889,847		303,535,921

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

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

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


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

Investment securities		The fair value of financial instruments that are quoted in active markets is determined using the quoted prices. Fair value is determined through the use of independent third-party pricing services where quoted prices are not available. Pricing services use one or more of the following valuation techniques including DCF Model, FCFE (Free Cash Flow to Equity Model), Comparable Company Analysis, Dividend Discount Model, Risk Adjusted Discount Rate Method, and Net Asset Value Method.

Loans		The fair value of loans is determined through DCF Model and the use of independent third-party pricing services. Fair value measured by DCF Model is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at appropriate discount rate. Fair value of the other loans that is not determined through DCF model is determined by independent third-party pricing services using Tree Model.

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

Deposits		The carrying amount of demand deposits is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of time deposits is determined using a DCF model. Fair value is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at an appropriate discount rate.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017



Debts		The carrying amount of overdraft in foreign currency is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of other debts is determined using a DCF model discounting contractual future cash flows at an appropriate discount rate.

Debentures		Fair value is determined by using the valuations (DCF Model) of independent third-party pricing services, which are calculated using market inputs.

Other financial assets and other financial liabilities		The carrying amounts are reasonable approximation of fair values. These financial instruments are temporary accounts used for other various transactions and their maturities are relatively short or not defined. However, fair value of finance lease liabilities is measured using a DCF model.

Fair value hierarchy

The Group believes that valuation methods used for measuring the fair values of financial instruments are reasonable and that the fair values recognized in the statements of financial position are appropriate. However, the fair values of the financial instruments recognized in the statements of financial position may be different if other valuation methods or assumptions are used. Additionally, as there is a variety of valuation techniques and assumptions used in measuring fair value, it may be difficult to reasonably compare the fair value with that of other financial institutions.

The Group classifies and discloses the fair value of the financial instruments into the following three-level hierarchy:

Level 1: The fair values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2: The fair values except for quoted prices included within Level 1 are based on inputs that are observable for the asset or liability, either directly or indirectly.

Level 3: The fair values are based on unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Fair value hierarchy of financial assets and liabilities at fair value in the statements of financial position

The fair value hierarchy of financial assets and liabilities at fair value in the statements of financial position as at December 31, 2018 and 2017, are as follows:


	2018
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Financial assets at fair value through profit or loss
Debt securities		2,298,811		8,103,073		1,481,141		11,883,025
Equity securities		43,088		—		39,488		82,576
Loans		—		—		212,596		212,596
Others		78,808		—		—		78,808

		2,420,707		8,103,073		1,733,225		12,257,005

Derivatives held for trading		—		1,533,572		78		1,533,650
Derivatives held for hedging		—		80,321		—		80,321
Financial assets through other comprehensive income
Debt securities		8,998,246		18,684,218		—		27,682,464
Equity securities		971,367		—		927,577		1,898,944

Loans		—		349,547		—		349,547

		9,969,613		19,033,765		927,577		29,930,955

		12,390,320		28,750,731		2,660,880		43,801,931

Financial liabilities
Financial liabilities at fair value through profit or loss		87,168		—		—		87,168
Derivatives held for trading		—		1,553,072		786		1,553,858
Derivatives held for hedging		—		88,551		—		88,551

		87,168		1,641,623		786		1,729,577

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Financial assets held for trading
Debt securities		2,276,513		5,624,100		—		7,900,613
Equity securities		299,564		39,340		—		338,904
Others		73,856		—		—		73,856

		2,649,933		5,663,440		—		8,313,373

Financial assets designated at fair value through profit or loss
Derivative linked securities		—		—		95,357		95,357

		—		—		95,357		95,357

Derivatives held for trading		—		2,509,871		17,319		2,527,190
Derivatives held for hedging		—		79,694		775		80,469
Available-for-sale financial assets
Debt securities		9,384,598		18,221,163		—		27,605,761
Equity securities¹		1,303,011		1,237,456		1,931,796		4,472,263
Others		—		500		—		500

		10,687,609		19,459,119		1,931,796		32,078,524

		13,337,542		27,712,124		2,045,247		43,094,913

Financial liabilities
Financial liabilities held for trading		74,191		—		—		74,191
Derivatives held for trading		—		2,557,895		893		2,558,788
Derivatives held for hedging		—		49,962		70		50,032

		74,191		2,607,857		963		2,683,011

The amounts of equity securities carried at cost in “Level 3” which do not have a quoted market price in an active market and cannot be measured reliably at fair value are W 104,148 million as at December 31, 2017. These equity securities are carried at cost because it is practically difficult to quantify the intrinsic values of the equity securities issued by unlisted public and non-profit entities. In addition, due to significant fluctuations in estimated cash flows arising from entities being in its initial stages, which further results in varying and unpredictable probabilities, an online bank, unlisted equity securities issued by project financing cannot be reliably and reasonably assessed. Therefore, these equity securities are carried at cost. The Group has no plan to dispose of the financial instruments in the near future.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Valuation techniques and the inputs used in the fair value measurement of financial assets and liabilities classified as Level 2

Valuation techniques and inputs of financial assets and liabilities at fair value in the statements of financial position and classified as Level 2 as at December 31, 2018 and 2017, are as follows:



	Fair value		Valuation techniques	Inputs
(In millions of Korean won)	2018		Valuation techniques	Inputs
Financial assets
Financial assets at fair value through profit or loss
Debt securities		8,103,073	DCF Model, Net Asset Value	Discount rate, prices of underlying assets(debt securities, stocks, etc.)

		8,103,073

Derivatives held for trading		1,533,572	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		80,321	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others
Financial assets at fair value through other comprehensive income
Debt securities		18,684,218	DCF Model	Discount rate
Loans		349,547	DCF Model	Discount rate

		19,033,765

		28,750,731

Financial liabilities
Derivatives held for trading		1,553,072	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		88,551	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others

		1,641,623

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017



	Fair value		Valuation techniques	Inputs
(In millions of Korean won)	2017		Valuation techniques	Inputs
Financial assets
Financial assets held for trading
Debt securities		5,624,100	DCF Model	Discount rate
Equity securities		39,340	Net Asset Value	Prices of underlying assets(debt securities, stock, etc.)

		5,663,440

Derivatives held for trading		2,509,871	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		79,694	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others
Available-for-sale financial assets
Debt securities		18,221,163	DCF Model	Discount rate
Equity securities		1,237,456	Net Asset Value	Prices of underlying assets(debt securities, stock, etc.)
Others		500	DCF Model	Discount rate

		19,459,119

		27,712,124

Financial liabilities
Derivatives held for trading		2,557,895	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		49,962	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others

		2,607,857

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Fair value hierarchy of financial assets and liabilities whose fair value is disclosed

The fair value hierarchy of financial assets and liabilities whose fair value is disclosed as at December 31, 2018 and 2017, is as follows:


	2018
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Cash and due from financial institutions¹		3,057,323		10,827,281		1,000,908		14,885,512
Loans at amortized cost		—		—		276,957,040		276,957,040
Securities at amortized cost		4,126,591		8,697,370		—		12,823,961
Other financial assets²		—		—		4,199,197		4,199,197

		7,183,914		19,524,651		282,157,145		308,865,710

Financial liabilities
Deposits¹		—		123,778,718		149,352,509		273,131,227
Debts¹		—		38,403		17,485,005		17,523,408
Debentures		—		23,445,303		—		23,445,303
Other financial liabilities³		—		—		13,297,394		13,297,394

(In millions of Korean won)		—		147,262,424		180,134,908		327,397,332

¹	The amounts included in Level 2 are the carrying amounts which are reasonable approximation of the fair values.

²	The amounts of other financial assets included in Level 3 are the carrying amounts which are reasonable approximation of the fair values as at December 31, 2018.

³	The \ 13,289,339 million of other financial liabilities included in Level 3 are the carrying amounts which are reasonable approximation of fair values as at December 31, 2018.


	2017
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Cash and due from financial institutions¹		2,597,423		12,223,212		826,019		15,646,654
Loans		—		—		251,173,805		251,173,805
Held-to-maturity financial assets		1,197,738		7,577,180		—		8,774,918
Other financial assets²		—		—		6,341,463		6,341,463

		3,795,161		19,800,392		258,341,287		281,936,840

Financial liabilities
Deposits¹		—		122,498,859		130,402,646		252,901,505
Debts¹		—		19,820		15,788,939		15,808,759
Debentures		—		19,409,286		—		19,409,286
Other financial liabilities³		—		—		12,733,360		12,733,360

		—		141,927,965		158,924,945		300,852,910

¹	The amounts included in Level 2 are the carrying amounts which are reasonable approximation of the fair values.

²	The amounts of other financial assets included in Level 3 are the carrying amounts which are reasonable approximation of the fair values as at December 31, 2017.

³	The \12,731,712 million of other financial liabilities included in Level 3 are the carrying amounts which are reasonable approximation of fair values as at December 31, 2017.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Valuation techniques and inputs used in the fair value measurement

Valuation techniques and inputs of financial assets and liabilities which are disclosed by the carrying amounts because it is a reasonable approximation of fair value are not subject to be disclosed.

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 2 as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Fair value

Valuation
technique

Inputs

Financial assets

Securities at amortized cost

8,697,370

DCF Model

Discount rate

Financial liabilities

Debentures

23,445,303

DCF Model

Discount rate

2017

(In millions of Korean won)

Fair value

Valuation
technique

Inputs

Financial assets

Held-to-maturity financial assets

7,577,180

DCF Model

Discount rate

Financial liabilities

Debentures

19,409,286

DCF Model

Discount rate

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 3 as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Fair value		Valuation technique	Inputs	Unobservable inputs
Financial assets
Cash and due from financial institutions		1,000,908	DCF Model	Credit spread, other spread, interest rates	Credit spread, other spread
Loans at amortized cost		276,957,040	DCF Model	Credit spread, other spread, prepayment rate, interest rate	Credit spread, other spread, prepayment rate

		277,957,948

Financial liabilities
Deposits		149,352,509	DCF Model	Other spread, prepayment rate, interest rates	Other spread, prepayment rate
Debts		17,485,005	DCF Model	Other spread, interest rates	Other spread
Other financial liabilities		8,055	DCF Model	Other spread, interest rates	Other spread

		166,845,569

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2017

(In millions of Korean won)

Fair value

Valuation
technique

Inputs

Unobservable inputs

Financial assets

Cash and due from financial institutions

826,019

DCF Model

Credit spread, other spread, interest rates

Credit spread, other spread

Loans

251,173,805

DCF Model

Credit spread, other spread, prepayment rate, interest rates

Credit spread, other spread, prepayment rate

251,999,824

Financial liabilities

Deposits

130,402,646

DCF Model

Other spread, prepayment rate, interest rates

Other spread, prepayment rate

Debts

15,788,939

DCF Model

Other spread, interest rates

Other spread

Other financial liabilities

1,648

DCF Model

Other spread, interest rates

Other spread

146,193,233

6.2 Level 3 of the Fair Value Hierarchy Disclosure

6.2.1 Valuation Policy and Process of Level 3 Fair Value

The Group uses external, independent and qualified third-party valuation service in addition to internal valuation models to determine the fair value of the Group’s assets at the end of every reporting period.

Where a reclassification between the levels of the fair value hierarchy occurs for a financial asset or liability, the Group’s policy is to recognize such transfers as having occurred at the beginning of the reporting period.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

6.2.2 Changes in Fair Value (Level 3) Measured using Valuation Technique based on Unobservable Inputs in Market

Changes in Level 3 of the fair value hierarchy for the year ended December 31 2018 and 2017, are as follows:


	2018
	Financial assets at fair value through profit or loss						Financial investments			Net derivatives financial instruments
(In millions of Korean won)	Securities at fair value through profit or loss			Loans at fair value through profit or loss			Equity securities at fair value through other comprehensive income			Derivatives held for trading			Derivatives held for hedging
Beginning balance¹		1,277,304			132,722			750,036			(771	)		704
Total gains or losses
- Profit or loss		19,789			4,347			—			4,295			(116	)
- Other comprehensive income		—			—			124,633			—			—
Purchases		460,309			184,655			53,388			—			—
Sales		(236,705	)		(109,128	)		(480	)		—			—
Settlements		—			—			—			(1,220	)		(588	)
Transfers into Level 3²		—			—			—			(3,012	)		—
Transferred from Level 3²		(66	)		—			—			—			—

Ending balance		1,520,631			212,596			927,577			(708	)		—

¹	Restated based on Korean IFRS 1109.

²	Transfers between in levels for the financial instruments have occurred due to the change in the availability of observable market data.


	2017
	Financial assets at fair value through profit or loss			Financial investments			Net derivatives financial instruments
(In millions of Korean won)				Available-for-sale financial assets			Derivatives held for trading			Derivatives held for hedging
(In millions of Korean won)				Equity securities			Derivatives held for trading			Derivatives held for hedging
Beginning balance		129,535			1,845,455			9,825			1,277
Total gains or losses
- Profit or loss		5,638			5,946			(3,543	)		(408	)
- Other comprehensive-income (expenses)		—			(27,332	)		—			—
Purchases		225,000			334,436			16,452			—
Sales		—			(226,709	)		—			—
Settlements		(264,816	)		—			(5,666	)		(164	)
Transferred from Level 3 ¹		—			—			(642	)		—

Ending balance		95,357			1,931,796			16,426			705

¹	Transfers between in levels for the financial instruments have occurred due to the change in the availability of observable market data.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the period, and total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period in the statements of comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Net losses from financial instruments at fair value through profit or loss		Other operating income			Net interest income
Total gains or losses included in profit or loss for the period		28,103		(405	)		617
Total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period		22,187		(289	)		43


	2017
(In millions of Korean won)	Net gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)		Other operating income
Total gains or losses included in profit or loss for the period		2,095		5,538
Total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period		1,573		(2,023	)

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

6.2.3 Sensitivity Analysis of Changes in Unobservable Inputs

Information about fair value measurements using unobservable inputs as at December 31, 2018, is as follows:

(In millions of Korean won)

2018

Fair
value

Valuation

techniques

Inputs

Unobservable

inputs

Range of
unobservable
inputs (%)

Relationship of
unobservable inputs to
fair value

Financial assets

Financial assets at fair value through profit or loss

Debt securities

1,481,141

Monte Carlo Simulation, Net Asset Value, DCF Model

Price of underlying asset, interest rate, dividend yield, volatilities and correlation of underlying asset, discount rate, liquidation value, volatility of the real estate price

Volatilities of the underlying asset

19.61 ~ 27.62

Higher the volatility, higher the fair value fluctuation

Correlation of underlying asset

24.57 ~ 69.18

Higher the correlation, higher the fair value fluctuation

Discount rate

1.95 ~ 4.82

Lower the discount rate, higher the fair value

Liquidation value

0.00

Higher the liquidation value, higher the fair value fluctuation

Volatility of the real estate price

0.00

Higher real estate price, higher the fair value

Equity securities

39,488

DCF Model, Comparable Company Analysis, Adjusted discount rate method

Growth rate, discount rate

Growth rate

0.00

Higher the growth rate, higher the fair value

Discount rate

7.58 ~ 14.14

Lower the discount rate, higher the fair value

Loans

212,596

Tree Model

Stock price, volatility of the stock price

Volatility of the stock price

17.66 ~ 49.28

Higher the volatility, higher the fair value fluctuation

Derivatives held for trading

Stock and index

Tree Model

Stock price, volatility of the stock price, dividend yield

Volatility of the stock price

25.29

Higher the volatility, higher the fair value fluctuation

Currency

—

DCF Model

Interest rate, foreign exchange rate, loss given default

Loss given default

100

Higher the loss given default, lower the fair value

Financial assets at fair value through other comprehensive income

Equity securities

927,577

DCF Model, Comparable Company Analysis, Adjusted discount rate method

Growth rate, discount rate

Growth rate

0.00

Higher the growth rate, higher the fair value

Discount rate

3.87 ~ 17.40

Lower the discount rate,
higher the fair

value

2,660,880

Financial liabilities

Derivatives held for trading

Others

786

Monte Carlo Simulation, DCF

Model

Stock price, interest rate, volatility of the stock price, volatility of the interest rate, discount rate

Volatility of the stock price

20.85

Higher the volatility, higher the fair value fluctuation

Volatility of the interest rate

0.69

Higher the volatility, higher the fair value fluctuation

Discount rate

2.19 ~ 2.26

Higher the discount rate, lower the fair value

786

Information about fair value measurements using unobservable inputs as at December 31, 2017, is as follows:

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2017

(In millions of Korean won)

Fair value

Valuation

techniques

Inputs

Unobservable

inputs

Range of
unobservable
inputs (%)

Relationship of
unobservable inputs
to fair value

Financial assets

Financial assets designated at fair value through profit or loss

Derivative linked securities

95,357

MonteCarlo Simulation

Price of the
underlying asset,
interest rate,
dividend yield,
volatility and
correlation of
the underlying
asset

Volatility of the underlying asset

15.93 ~ 18.35

Higher the volatility, higher the fair value fluctuation

Correlation of the underlying assets

20.18 ~ 57.10

Higher the correlation, higher the fair value fluctuation

Derivatives held for trading

Stock and index

307

Tree model

Stock price,
volatility of the
stock price,
dividend yield

Volatility of the underlying asset

12.15 ~ 17.12

Higher the volatility higher the fair value fluctuation

Interest rate

DCF model

Interest rate,
loss given
default

Loss given default

0.56

Higher the loss rate, lower the fair value

Others

16,953

MonteCarlo Simulation, Tree model

Stock price,
interest rate,
volatility of the
stock price,
volatility of the
interest rate

Volatility of the stock price

12.16 ~ 29.72

Higher the volatility, higher the fair value fluctuation

Volatility of the interest rate

0.47

Higher the volatility, higher the fair value fluctuation

Derivatives held for hedging

Interest rate

775

DCF model, Closed Form, Monte Carlo Simulation, FDM

Price of the
underlying asset,
interest rate,
volatility of the
underlying asset

Volatility of the underlying asset

3.02

Higher the volatility, higher the fair value fluctuation

Available-for-sale financial assets

Equity securities

1,931,796

DCF Model, Comparable Company Analysis, Risk Adjusted Discount Rate Method

Growth rate,
discount rate

Growth rate

0.00 ~ 0.50

Higher the growth rate, higher the fair value

Discount rate

1.98 ~ 20.51

Lower the discount rate, higher the fair value

2,045,247

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Financial liabilities

Derivatives held for trading

893

MonteCarlo
Simulation,
DCF Model

Stock price, interest rate, volatility of the stock price, volatility of the interest rate, discount rate

Volatility of the stock price

15.84

Higher the volatility, higher the fair value fluctuation

Others

Volatility of the interest rate

0.47

Higher the volatility, higher the fair value fluctuation

Discount rate

2.57 ~ 2.69

Higher the discount rate, lower the fair value

Derivatives held for hedging

Interest rate

DCF
model,
Closed
Form,
FDM,
MonteCarlo
Simulation,
Tree model

Price of the underlying asset, interest rate, volatility of the underlying asset

Volatility of the underlying asset

2.64

Higher the volatility, higher the fair value fluctuation

963

Sensitivity analysis of changes in unobservable inputs

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable

changes in the fair value of financial instruments which are affected by unobservable parameters, using a statistical technique. When the fair value is affected by more than two input parameters, the amounts represent the most favorable or unfavorable. Amongst Level 3 financial instruments subject to sensitivity analysis, there are debt securities, loans, equity-related derivatives, currency-related derivatives, interest rate-related derivatives and other derivatives whose fair value changes are recognized in profit or loss as well as equity securities and beneficiary certificates whose fair value changes are recognized in profit or loss or other comprehensive income or loss.

Sensitivity analysis by type of instrument as a result of varying input parameters are as follows:


	2018
	Recognition in profit or loss					Other comprehensive income
(In millions of Korean won)	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
Financial assets
Financial assets at fair value through profit or loss
Debt securities ^{1, 2, 6}		4,231		(4,311	)		—		—
Equity securities ³		5,299		(2,794	)		—		—
Loans ⁴		129		(46	)		—		—
Derivatives held for trading ⁵		20		(1	)		—		—
Financial assets at fair value through other comprehensive income
Equity securities ³		—		—			140,516		(70,691	)

		9,679		(7,152	)		140,516		(70,691	)

Financial liabilities
Derivatives held for trading ⁵		88		(124	)		—		—

		88		(124	)		—		—

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
	Recognition in profit or loss					Other comprehensive income
(In millions of Korean won)	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
Financial assets
Financial assets designated at fair value through profit or loss
Derivative linked securities ¹		54		(112	)		—		—
Derivatives held for trading⁵		112		(94	)		—		—
Available-for-sale financial assets^{2, 3}		—		—			100,653		(54,892	)

		166		(206	)		100,653		(54,892	)

Financial liabilities
Derivatives held for trading⁵		86		(92	)		—		—
Derivatives held for hedging⁵		2		(2	)		—		—

		88		(94	)		—		—

¹	For derivative linked securities, the changes in fair value are calculated by shifting principal unobservable input parameters such as the volatility of the underlying asset and the correlation of the underlying assets by ± 10%.

For beneficiary certificates, it is difficult to measure the sensitivity amounts per changes in input factor for practical reasons; only for those consisted with real properties, the sensitivity amounts are calculated by increasing and decreasing the correlations between the discount rates (-1~1%), and the rate of increase in property disposal price (-1~1%). For equity investments, the sensitivity amounts are calculated by increasing and decreasing the correlations between the liquidation value (-1~1%) and the discount rates (-1~1%). There were no significant correlation among major unobservable inputs.

³	For equity securities, the changes in fair value are calculated by shifting principal unobservable input parameters such as discount rate (-1~1%) and growth rate (0~0.5%).

⁴	For loans, the changes in fair value are calculated by shifting principal unobservable input parameters such as stock prices and volatilities of stock prices by ± 10%

⁵	For derivatives, the changes in fair value are calculated by shifting principal unobservable input parameters such as the price of the underlying asset and the volatility by ± 10%, the loss given default ratio by ± 1%, or discount rate by ± 1%.

⁶	The amounts of \ 1,437,513 million and \ 1,192,054 million of financial assets classified as level 3 as at December 31, 2018 and 2017, respectively, are excluded because it is impracticable to calculate sensitivity amounts.

6.2.4 Day One Gain or Loss

If the Group uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there could be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the fair value of financial instruments is recognized as the transaction price and the difference is deferred and not recognized in profit or loss, and is amortized by using the straight-line method over the life of the financial instrument. If the fair value of the financial instruments is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The aggregate deferred differences yet to be recognized in profit or loss at the beginning and end of the periods and changes in the balances of these differences are as follows:


(In millions of Korean won)	2018			2017
Balance at the beginning of the period (A)		(4,054	)		(3,494	)
New transactions (B)		—			(1,574	)
Amounts recognized in profit or loss during the period (C= a+b)		1,138			1,014
a.Amortization		1,138			1,014
b.Settlement		—			—

Balance at the end of the period (A+B+C)		(2,916	)		(4,054	)

6.3 Carrying Amounts of Financial Instruments by Category

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of financial assets and liabilities by category as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Financial instruments at fair value through profit or loss		Financial instruments measured at fair value through other comprehensive income		Financial instruments designated at fair value through other comprehensive income		Financial instruments at amortized cost		Derivatives held for hedging		Total
Financial assets
Cash and due from financial institutions		—		—		—		14,889,010		—		14,889,010
Financial assets at fair value through profit or loss		12,257,005		—		—		—		—		12,257,005
Derivatives		1,533,650		—		—		—		80,320		1,613,970
Loans at amortized cost		—		—		—		276,944,202		—		276,944,202
Financial investments		—		28,032,010		1,898,944		12,792,526		—		42,723,480
Other financial assets		—		—		—		4,199,197		—		4,199,197

		13,790,655		28,032,010		1,898,944		308,824,935		80,320		352,626,864

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2018
(In millions of Korean won)	Financial instruments at fair value through profit or loss		Financial instruments at amortized cost		Derivatives held for hedging		Total
Financial liabilities
Financial liabilities at fair value through profit or loss		87,168		—		—		87,168
Derivatives		1,553,858		—		88,551		1,642,409
Deposits		—		272,484,528		—		272,484,528
Debts		—		17,496,055		—		17,496,055
Debentures		—		23,163,585		—		23,163,585
Other financial liabilities		—		13,297,404		—		13,297,404

		1,641,026		326,441,572		88,551		328,171,149


	2017
	Financial assets at fair value through profit or loss (under Korean IFRS 1039)				Loans and receivables		Available- for-sale financial assets		Held-to- maturity financial assets		Derivatives held for hedging		Total
(In millions of Korean won)	Held for trading		Financial assets designated at fair value through profit or loss		Loans and receivables		Available- for-sale financial assets		Held-to- maturity financial assets		Derivatives held for hedging		Total
Financial assets
Cash and due from financial institutions		—		—		15,646,318		—		—		—		15,646,318
Financial assets at fair value through profit or loss		8,313,373		95,357		—		—		—		—		8,408,730
Derivatives		2,527,190		—		—		—		—		80,469		2,607,659
Loans		—		—		251,710,605		—		—		—		251,710,605
Financial investments		—		—		—		32,078,524		8,737,150		—		40,815,674
Other financial assets		—		—		6,341,463		—		—		—		6,341,463

		10,840,563		95,357		273,698,386		32,078,524		8,737,150		80,469		325,530,449

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Financial liabilities at fair value through profit or loss Held for trading		Financial liability at amortized cost		Derivatives held for hedging		Total
Financial liabilities
Financial liabilities at fair value through profit or loss		74,191		—		—		74,191
Derivatives		2,558,788		—		50,032		2,608,820
Deposits		—		252,478,931		—		252,478,931
Debts		—		15,810,753		—		15,810,753
Debentures		—		19,183,798		—		19,183,798
Other financial liabilities		—		12,733,354		—		12,733,354

		2,632,979		300,206,836		50,032		302,889,847

6.4 Transfer of Financial Assets

6.4.1 Transferred Financial Assets that are Derecognized in Their Entirety

The Group transferred loans and other financial assets that are derecognized in their entirety to SPEs, while the maximum exposure to loss (carrying amount) from its continuing involvement in the derecognized financial assets as at December 31, 2018 and 2017, are as follows :


			2018
(In millions of Korean won)	Type of continuing involvement		Classification of financial instruments	Carrying amount of continuing involvement in statement of financial position	Fair value of continuing involvement in statement of financial position
Discovery 2nd Securitization Specialty Co., Ltd.		Subordinated debt	Financial assets at fair value through profit or loss	6,205	6,205
FK 1411 ABS Ltd.		Subordinated debt	Financial assets at fair value through profit or loss	8,883	8,883
AP 3B ABS Ltd.		Subordinated debt	Financial assets at fair value through profit or loss	5,512	5,512
AP 4D ABS Ltd.		Subordinated debt	Financial assets at fair value through profit or loss	13,494	13,494

				34,094	34,094

¹	The recovered portion in excess of the consideration paid attributable to adjustments based on the agreement with the National Happiness Fund for non-performing loans amounts to W 13,731 million as at December 31, 2018.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

2017

(In millions of Korean won)

Type of continuing
involvement

Classification of
financial

instruments

Carrying amount of
continuing involvement
in statement of
financial position

Fair value of continuing
involvement in statement
of financial position

Discovery 2nd Securitization Specialty Co., Ltd.

Subordinated debt

Available-for-sale financial assets

6,022

EAK 2nd Securitization Specialty Co., Ltd.

Subordinated debt

Available-for-sale financial assets

5,339

FK 1411 ABS Ltd.

Subordinated debt

Available-for-sale financial assets

9,601

AP 3B ABS Ltd.

Subordinated debt

Available-for-sale financial assets

9,902

AP 4D ABS Ltd.1

Senior debt

Loans and receivables

2,248

2,251

Subordinated debt

Available-for-sale financial assets

14,160

47,272

47,275

¹ The recovered portion in excess of the consideration paid attributable to adjustments based on the agreement with the National Happiness Fund for non-performing loans amounts to W 2,989 million as at December 31, 2017.

6.4.2 Securities under Repurchase Agreements and Loaned Securities

The Group continues to recognize the financial assets related to repurchase agreements and securities lending transactions on the statements of financial position since those transactions are not qualified for derecognition even though the Group transfers the financial assets. A financial asset is sold under a reverse repurchase agreement to repurchase the same asset at a fixed price, or loaned under a securities lending agreement to be returned as the same asset. Thus, the Group substantially retains all the risks and rewards of ownership of the financial asset. The amounts of transferred assets and related liabilities as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Carrying amount of transferred assets		Carrying amount of related liabilities
Securities under repurchase agreements		452,487		436,471
Loaned securities		674,431		—
Government and public bonds		674,431		—

		1,126,918		436,471

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Carrying amount of transferred assets		Carrying amount of related liabilities
Securities under repurchase agreements		740,618		700,466
Loaned securities		109,379		—
Government and public bonds		109,379		—

		849,997		700,466

6.5 Offsetting Financial Assets and Financial Liabilities

The Group enters into International Swaps and Derivatives Association (“ISDA”) master netting agreements and other similar netting arrangements with the Group’s derivative and spot exchange counterparties. Similar netting agreements are also entered into with the Group’s reverse repurchase, securities and others. Pursuant to these agreements, in the event of default by one party, contracts are to be terminated and receivables and payables are to be offset. Further, as the law allows for the right to offset, domestic uncollected receivables balances and domestic accrued liabilities balances are shown in its net settlement balance in the statement of financial position. Account receivables and account payables related to listed securities and derivatives or OTC derivatives settled by the central counterparty are included in the other financial instruments. As the Group has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis, the net amounts of the other financial instruments balances are presented in the statement of financial position.

Details of financial assets subject to offsetting, enforceable master netting arrangements or similar agreements as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Gross amounts of recognized financial assets		Gross amounts of recognized financial liabilities offset in the statement of financial position			Net amounts of financial assets presented in the statement of financial position		Related amounts not offset in the statement of financial position						Net amount
(In millions of Korean won)	Gross amounts of recognized financial assets							Financial instruments			Cash collateral			Net amount
Derivatives held for trading		1,533,572		—			1,533,572		(1,128,951	)		(5,101	)		399,520
Derivatives held for hedging		80,321		—			80,321		(41,634	)		—			38,687
Receivable spot exchange		1,879,572		—			1,879,572		(1,876,844	)		—			2,728
Reverse repurchase		3,021,400		—			3,021,400		(3,021,400	)		—			—
Domestic exchange settlement debits		27,413,384		(26,937,034	)		476,350		—			—			476,350
Other financial instruments		3,261		(2,098	)		1,163		—			—			1,163

		33,931,510		(26,939,132	)		6,992,378		(6,068,829	)		(5,101	)		918,448

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Gross amounts of recognized financial assets		Gross amounts of recognized financial liabilities offset in the statement of financial position			Net amounts of financial assets presented in the statement of financial position		Related amounts not offset in the statement of financial position						Net amount
(In millions of Korean won)	Gross amounts of recognized financial assets							Financial instruments			Cash collateral			Net amount
Derivatives held for trading		2,509,930		—			2,509,930		(1,888,558	)		(191,349	)		430,023
Derivatives held for hedging		80,469		—			80,469		(17,840	)		(21,830	)		40,799
Receivable spot exchange		3,447,424		—			3,447,424		(3,447,048	)		—			376
Reverse repurchase		2,579,900		—			2,579,900		(2,579,900	)		—			—
Domestic exchange settlement debits		30,904,611		(29,959,914	)		944,697		—			—			944,697
Other financial instruments		1,580		(1,578	)		2		—			—			2

		39,523,914		(29,961,492	)		9,562,422		(7,933,346	)		(213,179	)		1,415,897

Details of financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreements as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets offset in the statement of financial position			Net amounts of financial liabilities presented in the statement of financial position		Related amounts not offset in the statement of financial position						Net amount
(In millions of Korean won)								Financial instruments			Cash collateral			Net amount
Derivatives held for trading		1,553,072		—			1,553,072		(1,075,427	)		(46,768	)		430,877
Derivatives held for hedging		88,551		—			88,551		(37,564	)		(977	)		50,010
Payable spot exchange		1,877,400		—			1,877,400		(1,876,844	)		—			556
Repurchase¹		445,724		—			445,724		(445,724	)		—			—
Domestic exchange settlement credits		28,616,949		(26,937,034	)		1,679,915		(1,679,915	)		—			—
Other financial instruments		5,154		(2,098	)		3,056		—			—			3,056

		32,586,850		(26,939,132	)		5,647,718		(5,115,474	)		(47,745	)		484,499

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets offset in the statement of financial position			Net amounts of financial liabilities		Related amounts not offset in the statement of financial position						Net amount
(In millions of Korean won)						presented in the statement of financial position		Financial instruments			Cash collateral			Net amount
Derivatives held for trading		2,557,702		—			2,557,702		(1,051,514	)		(32,585	)		1,473,603
Derivatives held for hedging		50,032		—			50,032		(7,287	)		(9,139	)		33,606
Payable spot exchange		3,448,848		—			3,448,848		(3,447,048	)		—			1,800
Repurchase¹		700,466		—			700,466		(700,466	)		—			—
Domestic exchange settlement credits		29,999,359		(29,959,914	)		39,445		(39,445	)		—			—
Other financial instruments		1,871		(1,578	)		293		(194	)		—			99

	36,758,278		(29,961,492)			6,796,786		(5,245,954)			(41,724)			1,509,108

¹	Includes repurchase agreements sold to customers.

7. Due from Financial Institutions

Details of due from financial institutions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		Financial Institution	Interest rate (%)		2018		2017
Due from financial institutions in Korean won	Due from Bank of Korea	Bank of Korea		0.00 ~ 1.78		8,723,761		8,511,295
	Due from banking institutions	KEB Hana Bank and others		0.00 ~ 1.87		268,222		111,396
	Due from others	NH Securities Co., Ltd. and others		—		5,618		1,917,633

						8,997,601		10,540,324

Due from financial institutions in foreign currencies	Due from banks in foreign currencies	Wells Fargo Bank, N.A and others		—		1,733,095		1,670,111
	Time deposits in foreign currencies	Bank of Shanghai, Beijing Branch and others		1.05 ~ 4.10		876,596		711,347
	Due from others	Morganstanley Bank International and others		—		225,944		127,111
						2,835,635		2,508,569

						11,833,236		13,048,893

¹	Before netting of allowance

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Restricted due from financial institutions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		Financial Institution	2018		2017		Reason for restriction
Due from financial institutions in Korean won	Due from Bank of Korea	Bank of Korea		8,723,761		8,511,295	Bank of Korea Act
	Due from others	NH Securities Co., Ltd. and others		5,618		9,564	Derivatives margin account

				8,729,379		8,520,859

Due from financial institutions in foreign currencies	Due from banks in foreign currencies	Bank of Korea and others		375,130		619,130	Bank of Korea Act and others
	Time deposits in foreign currencies	China Construction Bank NY Branch and others		22,362		21,428	New York State Banking Law
	Due from others	Societe Generale and others		76,930		78,396	Derivatives margin account

				474,422		718,954

				9,203,801		9,239,813

Changes in the allowances for due from financial institutions losses

Changes in the allowances for due from financial institutions losses for the year ended December 31, 2018, are as follows:


	2018
	Financial instruments applying 12-month expected credit losses		Financial instruments applying lifetime expected credit losses
(In millions of Korean won)			Non-impaired		Impaired
Beginning¹		1,530		—		—
Transfer between stages		—		—		—
Provision (reversal) for loan losses		10		—		—
Others (Change of currencies and others)		8		—		—

Ending		1,548		—		—

¹	Restated based on Korean IFRS 1109.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

8. Assets Pledged as Collaterals

Details of assets pledged as collaterals as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018
Assets pledged	Pledgee	Carrying amount		Reason for the pledge
Securities at fair value through profit or loss	Korea Exchange and others		210,345	Repurchase agreements
	Korea Securities Finance Corp and others		50,806	Securities lending transactions
	Samsung Futures Inc. and others		20,535	Derivatives transactions

			281,686

Securities at fair value through other comprehensive income	Bank of Korea		49,948	Borrowings from Bank of Korea
	Bank of Korea		479,784	Settlement risk of Bank of Korea
	Korea Development Bank and others		337,315	Derivatives transactions

			867,047

Securities at amortized cost	Meritz Securities and others		276,688	Repurchase agreements
	Bank of Korea		1,911,160	Borrowings from Bank of Korea
	Bank of Korea		1,474,529	Settlement risk of Bank of Korea
	Samsung Futures Inc. and others		194,258	Derivatives transactions
	Others		156,150	Others

			4,012,785

Mortgage loans	Others		4,060,863	Covered Bond
Building / Land	Samsung Life Insurance Co., Ltd. and others		209,459	Others

			9,431,840

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)		2017
Assets pledged	Pledgee	Carrying amount		Reason for the pledge
Financial assets held for trading	KB Securities Co., Ltd.		29,508	Derivatives transactions

			29,508

Available-for-sale financial assets	Mizuho Bank, Ltd. and others		740,132	Repurchase agreements
	Bank of Korea		651,284	Borrowings from Bank of Korea
	Bank of Korea		750,254	Settlement risk of Bank of Korea
	Deutsche Bank. AG		58,524	Derivatives transactions
	Others		19,985	Others

			2,220,179

Held-to-maturity financial assets	Korea Securities Depository and others		35,026	Repurchase agreements
	Bank of Korea		1,326,558	Borrowings from Bank of Korea
	Bank of Korea		1,204,990	Settlement risk of Bank of Korea
	KB Securities Co., Ltd. and others		236,681	Derivatives transactions
	Others		133,389	Others

			2,936,644

Mortgage loans	Others		4,950,490	Covered Bond

Building / Land	Samsung Life Insurance Co., Ltd. and others		319,064	Others

			10,455,885

The fair value of collateral available to sell or repledge regardless of debtor’s default as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Fair value of collateral		Fair value of collateral sold or repledged
Securities		3,131,496		—


	2017
(In millions of Korean won)	Fair value of collateral		Fair value of collateral sold or repledged
Securities		2,640,078		—

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

9. Derivative Financial Instruments and Hedge Accounting

The Group engages in derivative trading activities to hedge the interest rate and foreign currency risk exposures arising from the Group’s own assets and liabilities.

In particular, the Group applies fair value hedge accounting to interest rate swaps that hedge the risk of changes in fair values due to the changes in interest rates of debentures, structured deposits denominated in foreign currencies and debt securities at fair value through other comprehensive income. Also, the Group applies cash flow hedge accounting to interest rate swaps to hedge cash flow risk of floating rate notes denominated in Korean won and borrowings denominated in foreign currencies. In addition, the Group applies net investment hedge accounting by designating debentures denominated in foreign currencies and spot components of the currency forward as hedging instruments that hedge foreign exchange risks on net investments in foreign operations.

Details of derivative financial instruments for trading as at December 31, 2018 and 2017, are as follows:


	2018						2017
(In millions of Korean won)	Notional amount		Assets		Liabilities		Notional amount		Assets		Liabilities
Interest rate
Futures¹		857,748		—		—		1,194,766		—		—
Swaps		126,608,935		370,004		351,607		107,934,385		389,926		328,072
Options		13,259,000		158,295		252,243		12,615,000		130,013		226,931

		140,725,683		528,299		603,850		121,744,151		519,939		555,003

Currency
Forwards		65,534,154		533,435		481,187		62,354,931		1,142,066		1,228,052
Futures¹		419,802		—		—		440,903		—		—
Swaps		35,977,216		465,774		454,216		28,386,919		843,854		767,344
Options		2,450,186		6,064		13,608		695,848		4,071		6,998

		104,381,358		1,005,273		949,011		91,878,601		1,989,991		2,002,394

Stock and index
Futures¹		2,006		—		—		23,458		—		—
Options		51,282		78		211		84,742		307		498

		53,288		78		211		108,200		307		498

Others		745,160		—		786		1,073,316		16,953		893

		245,905,489		1,533,650		1,553,858		214,804,268		2,527,190		2,558,788

¹	Gains or losses arising from daily mark-to-market futures are reflected in the margin accounts.

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The average hedge ratio for future nominal cash flows by type of hedge accounting as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	1 year		2 years		3 years		4 years		5 years		Over 5 years		Total
Fair value hedge
The nominal amount of the hedged item		59,134		696,513		1,347,597		567,030		195,392		979,889		3,845,555
The nominal amount of the hedging instrument		69,134		686,513		1,347,597		567,030		195,392		979,889		3,845,555
Average ratio of hedging		116.91		98.56		100.00		100.00		100.00		100.00		100.00
Cash flow hedge
The nominal amount of the hedged item		2,167,227		491,964		—		503,145		—		—		3,162,336
The nominal amount of the hedging instrument		2,167,227		491,964		—		503,145		—		—		3,162,336
Average ratio of hedging		100.00		100.00		—		100.00		—		—		100.00
Net investment in a foreign operation hedges
The nominal amount of the hedged item		461,104		—		—		—		—		—		461,104
The nominal amount of the hedging instrument		461,104		—		—		—		—		—		461,104
Average ratio of hedging		100.00		—		—		—		—		—		100.00

Fair value hedge

Details of fair value hedged items as at December 31, 2018, are as follows:


		2018
		Carrying amount				Accumulated adjusted amount						Changes in the fair value
(In millions of Korean won)		Assets		Liabilities		Assets			Liabilities			Changes in the fair value
Interest rate	Debt securities in Korean won		465,213		—		1,214			—			6,001
	Debt securities in foreign currencies		702,727		—		(9,790	)		—			(1,233	)
	Deposits in foreign currencies		—		805,215		—			(89,265	)		38,232
	Debts in Korean won		—		349,252		—			19,252			(2,308	)
	Debts in foreign currencies		—		1,429,457		—			(24,073	)		(1,868	)


			1,167,940		2,583,924		(8,576	)		(94,086	)		38,824

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of derivative instruments designated as fair value hedge as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Notional amount

Assets

Liabilities

Changes in
the fair value

Interest rate

Swaps

3,845,555

58,934

88,017

(37,637

)


	2017
(In millions of Korean won)	Notional amount		Assets		Liabilities
Interest rate
Swaps		2,919,935		47,856		49,962
Other		50,000		775		70

		2,969,935		48,631		50,032

The fair value of non-derivative financial instruments designated as hedging instruments as at December 31, 2018 and 2017 are as follows:


(In millions of Korean won)	2018		2017
Deposit in foreign currencies		—		32,051

Details of the ineffective portion of changes in fair value of derivatives recognized in profit or loss for the year ended December 3`, 2018, are as follows:


	2018
(In millions of Korean won)	Hedge ineffectiveness recognized in profit or loss
Interest rate		1,186

Gains and losses from fair value hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Gains (losses) on hedging instruments		(41,472	)		16,195
Gains (losses) on the hedged item attributable to the hedged risk		37,305			(16,368	)

		(4,167	)		(173	)

Cash flow hedge

Details of cash flow hedged items as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Changes in fair value			Other comprehensive income for cash flow hedge
Interest rate risk		(7,031	)		11,539

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The fair value of derivative financial instruments designated as hedging instruments as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Notional amount

Assets

Liabilities

Changes in
fair value

Interest rate

Swaps

3,162,336

17,022

534

6,961

2017

(In millions of Korean won)

Notional amount

Assets

Liabilities

Interest rate

Swaps

1,660,670

10,440

—

Gains and losses from cash flow hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Gains on hedging instruments		6,961			10,694
Effective gains from cash flow hedging instruments (recognized in other comprehensive income or loss)		6,980			10,691
Ineffective gains from cash flow hedging instruments (recognized in profit or loss)		(19	)		3

Amounts recognized in other comprehensive income and reclassified from equity to profit or loss for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Other comprehensive income or loss		6,980			10,691
Reclassification to profit or loss		(1,755	)		(444	)
Income tax effect		(1,437	)		(2,833	)

		3,788			7,414

As at December 31, 2018, the hedged items subject to cash flow hedge are exposed to the risk of changes in cash flows until June 9, 2022.

Hedges of a net investment in a foreign operation

Details of net investment in a foreign operation as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Changes in fair value		Other comprehensive income (loss) for hedges of a net investment in a foreign operation
Currency (foreign currency risk)		22,787		(30,960	)

100

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of derivative financial instruments designated as hedging instruments in hedge of net investment in a foreign operation as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Notional amount		Assets		Liabilities		Changes in the fair value
Forward exchange contract		461,104		4,365		—		(19,466	)
Debentures in foreign currencies		89,448		—		89,109		(3,321	)

		550,552		4,365		89,109		(22,787	)

2017

(In millions of Korean won)

Notional amount

Assets

Liabilities

Forward exchange contract

471,416

21,398

—

The fair value of non-derivative financial instruments designated as hedging instruments as at December 31, 2018 and 2017, is as follows:


(In millions of Korean won)	2018		2017
Debentures in foreign currencies		88,785		99,994

Gains or losses from hedging instruments in hedge of net investment in a foreign operation and hedged items attributable to the hedged risk for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Gains (losses) on hedging instruments		(35,015	)		36,044
Effective gains (losses) from cash flow hedging instruments (recognized in other comprehensive income or loss)		(35,015	)		34,915
Ineffective gains (losses) from cash flow hedging instruments (recognized in profit or loss)		—			1,129

Gains or losses on the hedging instruments relating to the effective portion of the hedge recognized in other comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Other comprehensive income (loss)		(35,015	)		34,915
Income tax effect		9,629			(8,196	)

Other comprehensive income (loss) after tax		(25,386	)		26,719

101

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

10. Loans at Amortized Cost

Loans as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Loans		277,916,607			252,572,981
Deferred loan origination fees and costs		581,997			551,345
Allowances		(1,554,402	)		(1,413,721	)

Carrying amount		276,944,202			251,710,605

Loans to banks as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Loans		3,484,211			5,314,577
Allowances		(620	)		(77	)

Carrying amount		3,483,591			5,314,500

Loans to customers other than banks as at December 31, 2018 and 2017 are as follows:


	2018
(In millions of Korean won)	Retail			Corporate			Total
Loans in Korean won		142,003,442			116,673,099			258,676,541
Loans in foreign currencies		189,582			4,238,278			4,427,860
Domestic import usance bills		—			2,817,174			2,817,174
Off-shore funding loans		—			899,741			899,741
Call loans		—			1,473,397			1,473,397
Bills bought in Korean won		—			3,057			3,057
Bills bought in foreign currencies		—			3,427,368			3,427,368
Guarantee payments under payment guarantee		—			4,104			4,104
Reverse repurchase agreements		—			2,951,400			2,951,400
Privately placed bonds		—			333,751			333,751

		142,193,024			132,821,369			275,014,393
Proportion (%)		51.70			48.30			100.00

Allowances		(445,527	)		(1,108,255	)		(1,553,782	)

		141,747,497			131,713,114			273,460,611

102

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Retail			Corporate			Total
Loans in Korean won		130,390,627			105,300,767			235,691,394
Loans in foreign currencies		95,492			3,042,565			3,138,057
Domestic import usance bills		—			2,128,868			2,128,868
Off-shore funding loans		—			750,102			750,102
Call loans		—			335,000			335,000
Bills bought in Korean won		—			4,168			4,168
Bills bought in foreign currencies		—			3,875,550			3,875,550
Guarantee payments under payment guarantee		—			6,373			6,373
Reverse repurchase agreements		—			1,159,900			1,159,900
Privately placed bonds		—			720,337			720,337

		130,486,119			117,323,630			247,809,749
Proportion (%)		52.66			47.34			100.00

Allowances		(318,533	)		(1,095,111	)		(1,413,644	)

		130,167,586			116,228,519			246,396,105

Changes in deferred loan origination fees and costs for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning¹		Increase		Decrease			Other		Ending
Deferred loan origination costs
Loans in Korean won		562,425		333,833		(304,083	)		—		592,175
Other origination costs		456		528		(499	)		1		486

		562,881		334,361		(304,582	)		1		592,661

Deferred loan origination fees
Loans in Korean won		6,793		2,271		(2,742	)		—		6,322
Other origination fees		4,749		832		(1,240	)		1		4,342

		11,542		3,103		(3,982	)		1		10,664

		551,339		331,258		(300,600	)		—		581,997

¹	Restated based on Korean IFRS 1109.

103

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Beginning		Increase		Decrease			Other			Ending
Deferred loan origination costs
Loans in Korean won		582,479		267,116		(287,170	)		—			562,425
Other origination costs		295		497		(328	)		(2	)		462

		582,774		267,613		(287,498	)		(2	)		562,887

Deferred loan origination fees
Loans in Korean won		9,968		1,776		(4,951	)		—			6,793
Other origination fees		2,356		3,672		(1,269	)		(10	)		4,749

		12,324		5,448		(6,220	)		(10	)		11,542

		570,450		262,165		(281,278	)		8			551,345

11. Allowances for Loan Losses

Changes in the allowances for loan losses for the years ended December 31, 2018 and 2017, are as follows:


	2018
	Retails											Corporates
	Financial instruments applying 12- month expected credit losses			Financial instruments applying lifetime expected credit losses						Financial instruments applying credit impaired approach		Financial instruments applying 12- month expected credit losses			Financial instruments applying lifetime expected credit losses						Financial instruments applying credit impaired approach
(In millions of Korean won)				Non-impaired			Impaired			Financial instruments applying credit impaired approach					Non-impaired			Impaired			Financial instruments applying credit impaired approach
Beginning¹		162,111			155,623			133,002			—		193,359			263,721			759,367			—
Transfer between stages
Transfer to 12-month expected credit losses		101,441			(101,375	)		(66	)		—		37,149			(36,251	)		(897	)		—
Transfer to lifetime expected credit losses (Non-impaired)		(90,045	)		102,159			(12,114	)		—		(34,450	)		44,741			(10,291	)		—
Transfer to lifetime expected credit losses (Impaired)		(753	)		(43,126	)		43,880			—		(2,289	)		(30,694	)		32,982			—
Write-offs		—			(2	)		(297,228	)		—		—			(5	)		(228,900	)		—
Disposal		(248	)		(5	)		(1,003	)		—		(73	)		—			(14,172	)		—
Provision (reversal) for loan losses^2,3		(2,075	)		43,621			250,848			—		3,438			53,762			51,051			—
Others (change of currency ratio, etc.)		140			319			423			—		732			654			25,941			—

Ending		170,571			157,214			117,742			—		197,866			295,928			615,081			—

¹	Restated based on Korean IFRS 1109.

Provision for credit losses in statement of comprehensive income also includes provision (reversal) for unused commitments and guarantees (Note 22), provision (reversal) for financial guarantee contracts (Note 22), provision (reversal) of allowance for other financial assets (Note 17), provision (reversal) of allowance for due from financial institutions (Note 7) and provision (reversal) of allowance for debt securities (Note 12).

³	Recovery of written-off loans amounting to \ 284,493 million is included.

104

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017

(In millions of Korean won)	Retail			Corporate			Total
Beginning		333,269			1,262,342			1,595,611
Written-off		(274,714	)		(375,705	)		(650,419	)
Recoveries from written-off loans		136,765			272,979			409,744
Sale		(682	)		(17,560	)		(18,242	)
Other changes		1,769			(88,835	)		(87,066	)
Provision¹		122,126			41,967			164,093

Ending		318,533			1,095,188			1,413,721

The loan and receivables which were written-off but the claims has not been forfeited (i.e. its extinctive prescription did not occur, and that are not collected) amounts to \ 9,712,704 million as at December 31, 2018.

Changes in the gross carrying amounts of loans

Changes in the gross carrying amounts of loans that significantly affect allowances for loan losses for the year ended December 31, 2018, are as follows:


	2018
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses						Financial instruments applying credit impaired approach
(In millions of Korean won)				Non-impaired			Impaired			Financial instruments applying credit impaired approach
Beginning¹		229,155,046			22,264,683			1,536,734			—
Transfer between stages
Transfer to 12-month expected credit losses		7,505,305			(7,465,523	)		(39,782	)		—
Transfer to lifetime expected credit losses (Non-impaired)		(10,092,301	)		10,144,226			(51,926	)		—
Transfer to lifetime expected credit losses (Impaired)		(638,686	)		(761,893	)		1,400,579			—
Write-offs		—			(7	)		(526,127	)		—
Sale		(484,646	)		(3,817	)		(190,401	)		—
Net increase(decrease) (Execution, repayment and others)		30,425,623			(2,938,516	)		(739,967	)		—

Ending		255,870,341			21,239,153			1,389,110			—

¹	Restated based on Korean IFRS 1109.

105

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

12. Financial Assets at Fair Value through Profit or Loss and Financial Investments

Details of financial assets at fair value through profit or loss and financial investments as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Financial assets at fair value through profit or loss
Debt securities
Government and public bonds		1,948,984
Financial bonds		4,933,859
Corporate bonds		1,897,070
Asset-backed securities		59,807
Beneficiary certificates		2,341,301
Equity investments		164,777
Derivative-linked securities		126,417
Other debt securities		410,810
Equity securities
Stocks		82,576
Loans
Private placed corporate bonds		179,714
Other loans		32,882
Others
Financial instruments indexed to the price of gold		78,808

		12,257,005

Financial Investments
Financial assets at fair value through other comprehensive income
Debt securities
Government and public bonds		2,941,069
Financial bonds		16,902,114
Corporate bonds		6,971,282
Asset-backed securities		867,998
Equity securities
Stocks		1,861,901
Equity investments		37,043
Loans
Private placed corporate bonds		349,547
		29,930,954

Financial assets at amortized cost
Debt securities
Government and public bonds		544,926
Financial bonds		6,245,768
Corporate bonds		1,413,022
Asset-backed securities		4,590,107
Allowance		(1,297	)

		12,792,526

		42,723,480

106

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017
Financial assets held for trading
Debt securities
Government and public bonds		1,639,136
Financial bonds		3,727,349
Corporate bonds		2,025,492
Asset-backed securities		148,995
Others		359,641
Equity securities
Stocks		121,949
Beneficiary certificates		216,955
Others		73,856

		8,313,373

Financial assets designated at fair value through profit or loss
Derivative linked securities		95,357

		8,408,730

Available-for-sale financial assets
Debt securities
Government and public bonds		2,820,398
Financial bonds		15,838,948
Corporate bonds		6,741,055
Asset-backed securities		2,205,360
Equity securities
Stocks		1,923,152
Equity investments		143,685
Beneficiary certificates		2,405,426
Others		500

		32,078,524

Held-to-maturity financial assets
Debt securities
Government and public bonds		1,302,836
Financial bonds		1,878,005
Corporate bonds		1,360,836
Asset-backed securities		4,195,473

		8,737,150

		40,815,674

Dividend incomes from the equity securities designated at fair value through other comprehensive income for the year ended December 31, 2018 are as follows:


	2018
(In millions of Korean won)	From the financial asset derecognized		From the holding financial asset
Stocks Listed		—		22,173
Unlisted		—		14,508
Equity investments		—		2,256

		—		38,937

107

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The derecognized equity securities at fair value through other comprehensive income for the year ended December 31, 2018, are as follows:


		2018
(In millions of Korean won)		Disposal price		Accumulated OCI as at disposal date
Stocks	Listed		26,877		18,330
	Unlisted		480		480

			27,357		18,810

¹	In accordance with joint resolution along with the stock price increase, the Group disposed of stocks acquired by a debt to equity swap.

Provision, and reversal for the allowance of financial investments for the year ended December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Impairment losses			Reversal of impairment		Total
Debt instruments at fair value through other comprehensive income		(877	)		342		(535	)

Loans at fair value through other comprehensive income		(905	)		825		(80	)
Securities at amortized cost		(202	)		282		80

		(1,984	)		1,449		(535	)

The impairment losses and the reversal of impairment losses in financial investments for the year ended December 31, 2017, are as follows:


	2017
(In millions of Korean won)	Impairment			Reversal		Net
Available-for-sale financial assets		(12,405	)		—		(12,405	)

108

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in the allowances for financial investments for the year ended December 31, 2018, are as follows:


(In millions of Korean won)	2018
	Financial instruments applying 12- month expected credit losses			Financial instruments applying lifetime expected credit losses
				Non-impaired			Impaired
Beginning¹		3,042			482			—
Transfer between stages
Transfer to 12-month expected credit losses		125			(125	)		—
Transfer to lifetime expected credit losses		—			—			—
Disposal		(171	)		—			—
Provision (reversal) for loan losses		715			(180	)		—
Others (change of currency ratio, etc.)		48			16			—

Ending		3,759			193			—

¹	Prepared in accordance with Korean IFRS 1109.

13. Investments in Associates

Investments in associates as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
Korea Credit Bureau Co., Ltd.¹		9.00		4,500		5,941			5,941	Credit information	Korea
Balhae Infrastructure Fund¹		12.61		104,621		108,050			108,050	Investment finance	Korea
KB GwS Private Securities Investment Trust		20.93		89,124		106,613			106,613	Investment finance	Korea
Incheon Bridge Co., Ltd.¹		14.99		9,159		(16,689	)		—	Operation of highways and related facilities	Korea
KB Digital innovation & Growth New Technology Business Investment Fund¹		45.00		1,125		1,079			1,079	Discovery of and investment in promising FinTech-business venture	Korea
KB12-1 Venture Investment Partnership²		80.00		17,400		49,912			49,912	Investment finance	Korea
Future Planning KB Start-up Creation Fund²		50.00		14,300		18,069			18,069	Investment finance	Korea
KoFC KBIC Frontier Champ 2010-5(PEF)		30.00		90		140			140	Investment finance	Korea
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		20.00		10,376		11,681			11,681	Investment finance	Korea

109

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


KB High-tech Company Investment Fund²	50.00	20,300	22,563		22,563	Investment finance	Korea
Aju Good Technology Venture Fund	38.46	18,038	18,134		18,134	Investment finance	Korea
KB-KDBC New Technology Business Investment Fund²	33.33	7,500	7,297		7,297	Investment finance	Korea
KBTS Technology Venture Private Equity Fund²	30.00	7,620	7,381		7,381	Investment finance	Korea
KB IP Investment Fund II²	37.50	3,000	2,942		2,942	Investment finance	Korea
KB Digital Innovation Investment Fund Limited partnership²	25.74	7,700	7,617		7,617	Investment finance	Korea
KB-Brain KOSDAQ Scale-up Fund²	21.28	4,000	3,966		3,966	Investment finance	Korea
KB Star office private real estate Investment Trust No.1	21.05	20,000	20,252		20,252	Investment finance	Korea
Shinla Construction Co., Ltd.³	20.17	—	(551	)	—	Specialty construction	Korea
Terra Corporation³	24.06	—	2		—	Manufacture of fabricated and processed metal products	Korea
MJT&I Corp. ³	22.89	—	(606	)	122	Wholesale of other merchandise	Korea
Jungdong Steel Co., Ltd. ³	42.65	—	(433	)	—	Wholesale of primary metal	Korea
Doosung Metal Co., Ltd³	26.49	—	(16	)	—	Manufacture of metal door, windows, shutter and relevant products	Korea
Shinhwa Underwear Co., Ltd.³	26.05	—	(57	)	182	Manufacture of underwear and sleepwear	Korea
DPAPS Co., Ltd. ³	38.62	—	14		—	Wholesale of paper	Korea
Jaeyang Industry Co., Ltd. ³	20.86	—	(552	)	—	Manufacture of pouches, cases, and bags	Korea
Kendae Co., Ltd. ³	41.01	—	(252	)	98	Screen Printing	Korea
Jinseung Tech Co., Ltd. ³	30.04	—	(176	)	—	Manufacture of other general-purpose machinery n.e.c.	Korea
Dongjo Co., Ltd. ³	29.29	—	806		115	Wholesale of agricultural and forestry machinery and equipment	Korea
Korea NM Tech Co., Ltd. ³	22.41	—	552		—	Manufacture of motor vehicles, trailers and semitrailers	Korea
Jungdo Co., Ltd. ³	25.34	—	1,492		—	Office, commercial and institutional building construction	Korea
Dae-A Leisure Co., Ltd. ³	49.36	—	1,613		578	Earth works	Korea
Chong Il Machine & Tools Co., Ltd. ³	20.40	—	(107	)	—	Wholesale machinery and equipment	Korea
Imt Technology Co., Ltd. ³	25.29	—	18		—	Computer Peripherals distribution	Korea
Iwon Alloy Co., Ltd. ³	23.20	—	394		—	Manufacture of smelting, refining and alloys	Korea
Carlife Co., Ltd. ³	24.39	—	(75	)	—	Publishing of magazines and periodicals (publishing industry)	Korea

110

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Computerlife Co., Ltd. ³	45.71	—	(329	)	—	Publishing of magazines and periodicals (publishing industry)	Korea
SKYDIGITAL INC.³	20.40	—	(142	)	—	Manufacture of multimedia and video devices	Korea
Jo Yang Industrial Co., Ltd.³	22.77	—	75		—	Manufacture of special glass	Korea
PT Bank Bukopin TBK^4,5	22.00	116,422	106,484		113,932	Banking	Indonesia

		455,275	483,102		506,664


	2017
(In millions of Korean won)	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
Balhae Infrastructure Fund¹		12.61		101,794		105,190			105,190	Investment finance		Korea
Korea Credit Bureau Co., Ltd.¹		9.00		4,500		5,056			5,056	Credit information		Korea
KB12-1 Venture Investment Partnership²		80.00		22,800		37,239			37,239	Investment finance		Korea
KoFC KBIC Frontier Champ 2010-5(PEF)		30.00		3,891		4,504			4,137	Investment finance		Korea
KB GwS Private Securities Investment Trust		20.93		89,124		105,567			104,310	Investment finance		Korea
Incheon Bridge Co., Ltd.¹		14.99		9,159		(16,202	)		—	Operation of highways and related facilities		Korea
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		20.00		10,376		13,770			13,770	Investment finance		Korea
Future Planning KB Start-up Creation Fund²		50.00		14,700		18,093			18,093	Investment finance		Korea
KB-KDBC New Technology Business Investment Fund²		33.33		2,500		2,486			2,486	Investment finance		Korea
Shinla Construction Co., Ltd.³		20.17		—		(551	)		—	Specialty construction		Korea
Terra Corporation³		24.06		—		36			20	Manufacture of fabricated and processed metal products		Korea
MJT&I Corp.³		22.89		—		(601	)		127	Wholesale of other merchandise		Korea
Jungdong Steel Co., Ltd.³		42.65		—		(433	)		—	Wholesale of primary metal		Korea
Doosung Metal Co., Ltd.³		26.49		—		(20	)		—	Manufacture of metal door, windows, shutter and relevant products		Korea
Shinhwa Underwear Co., Ltd.³		26.05		—		(102	)		138	Manufacture of underwear and sleepwear		Korea
DPAPS Co., Ltd.³		38.62		—		155			—	Wholesale of paper		Korea
Jaeyang Industry Co., Ltd.³		20.86		—		(522	)		—	Manufacture of luggage and other protective cases		Korea
Keundae Printing Co., Ltd.³		41.01		—		(223	)		127	Screen Printing		Korea
Jinseung Tech Co., Ltd.³		30.04		—		(173	)		—	Manufacture of other general-purpose machinery n.e.c.		Korea
Dong Jo Co., Ltd.³		29.29		—		691			—	Wholesale of agricultural and forestry machinery and equipment		Korea
Korea NM Tech Co., Ltd.³		22.41		—		580			—	Manufacture of motor vehicles, trailers and semitrailers		Korea

111

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Jungdo Co., Ltd.³	25.34	—	1,652	—	Office, commercial and institutional building construction	Korea
Dae-A Leisure Co., Ltd.³	49.36	—	1,017	—	Earth works	Korea
Daesang Techlon Co., Ltd.³	47.73	—	96	—	Manufacture of Plastic, Teflon etc.	Korea
KB High-tech Company Investment Fund²	50.00	25,000	26,847	26,847	Investment finance	Korea
Aju Good Technology Venture Fund	38.46	8,230	7,856	8,230	Investment finance	Korea
KB Star office private real estate Investment Trust No.1	21.05	20,000	20,122	20,122	Investment finance	Korea

		312,074	332,130	345,892

¹	As at December 31, 2018 and 2017, the Group is represented in the governing bodies of its associates. Therefore, the Group has significant influence over the decision-making process relating to their financial and business policies.

²	As at December 31, 2018 and 2017, the Group is a partner in a limited partnership and does not have the right to control over these entities.

³	The investment in associates was reclassified from financial instruments at fair value through other comprehensive income (available-for-sale financial assets) due to termination of rehabilitation procedures.

⁴

The Group has entered into an agreement with PT Bosowa Corporindo, the major shareholder of PT Bank Bukopin TBK. Under this agreement, both partiesin have a right of first refusal, a tag-along right and a drag-along right. The Group additionally has the drag-along right can be exercised for the duration of two years after three-years from acquisition date, subject to the occurrence of certain situations as defined in the agreement.

⁵	The fair value of PT Bank Bukopin TBK’s common stock based on its quoted market price is \ 53,540 million as at December 31, 2018.

Summarized financial information on the main associates, the carrying amount of the Group’s interest in the main associates and dividends received from the main associates is as follows:


	2018¹
(In millions of Korean won)	Total assets		Total liabilities		Paid-in capital		Equity			Share of net asset amount			Unrealized gains and losses and others		Carrying amount
Korea Credit Bureau Co., Ltd.		88,797		22,788		10,000		66,009			5,941			—		5,941
Balhae Infrastructure Fund		859,040		1,843		829,995		857,197			108,050			—		108,050
KB GwS Private Securities Investment Trust		516,115		741		425,814		515,374			106,613			—		106,613
Incheon Bridge Co., Ltd.		617,560		728,896		61,096		(111,336	)		(16,689	)		16,689		—
KB Digital Innovation & Growth New Technology Business Investment Fund		2,398		—		2,500		2,398			1,079			—		1,079
KB12-1 Venture Investment Partnership		63,628		1,238		21,750		62,390			49,912			—		49,912
Future Planning KB Start-up Creation Fund		38,889		2,751		28,600		36,138			18,069			—		18,069
KoFC KBIC Frontier Champ 2010-5(PEF)		469		3		300		466			140			—		140
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		59,464		1,061		51,880		58,403			11,681			—		11,681

112

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


KB High-tech Company Investment Fund	45,402	276	40,600	45,126	22,563	—	22,563
Aju Good Technology Venture Fund	47,216	66	46,900	47,150	18,134	—	18,134
KB-KDBC New Technology Business Investment Fund	22,492	602	22,500	21,890	7,297	—	7,297
KBTS Technology Venture Private Equity Fund	24,810	208	25,400	24,602	7,381	—	7,381
KB IP Investment Fund II	7,848	3	8,000	7,845	2,942	—	2,942
KB Digital Innovation Investment Fund Limited partnership	29,601	3	29,920	29,598	7,617	—	7,617
KB-Brain KOSDAQ Scale-up Fund	18,820	181	18,800	18,639	3,966	—	3,966
KB Star office private real estate Investment Trust No.1	218,025	121,828	95,000	96,197	20,252	—	20,252
PT Bank Bukopin TBK²	7,195,249	6,711,233	106,536	484,016	106,484	7,448	113,932


	2018¹
(In millions of Korean won)	Operating revenues		Profit (Loss)			Other comprehensive income			Comprehensive income (loss)			Dividends
Korea Credit Bureau Co., Ltd.		78,018		9,901			—			9,901			113
Balhae Infrastructure Fund		61,525		54,241			—			54,241			6,804
KB GwS Private Securities Investment Trust		42,502		41,524			—			41,524			6,385
Incheon Bridge Co., Ltd.		94,373		(2,757	)		—			(2,757	)		—
KB Digital Innovation & Growth New Technology Business Investment Fund		7		(82	)		(21	)		(103	)		—
KB12-1 Venture Investment Partnership		38,942		35,556			—			35,556			10,640
Future Planning KB Start-up Creation Fund		6,826		5,467			—			5,467			2,600
KoFC KBIC Frontier Champ 2010-5(PEF)		1,460		1,453			—			1,453			999
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		2,401		(12,313	)		—			(12,313	)		—
KB High-tech Company Investment Fund		5,025		86			—			86			—
Aju Good Technology Venture Fund		2,491		1,356			—			1,356			—
KB-KDBC New Technology Business Investment Fund		39		(568	)		—			(568	)		—
KBTS Technology Venture Private Equity Fund		—		(798	)		—			(798	)		—
KB IP Investment Fund II		9		(155	)		—			(155	)		—
KB Digital Innovation Investment Fund Limited partnership		24		(322	)		—			(322	)		—
KB-Brain KOSDAQ Scale-up Fund		20		(161	)		—			(161	)		—
KB Star office private real estate Investment Trust No.1		14,092		6,135			—			6,135			1,162
PT Bank Bukopin TBK		148,793		(8,843	)		(2,325	)		(11,168	)		—

¹	The amounts included in the financial information of the associates are adjusted to reflect adjustments made by the Group, such as fair value adjustments made at the time of acquisition and adjustments for differences in accounting policies.

²	The goodwill of PT Bank Bukopin TBK amounts to \ 4,101 million.

113

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017¹
(In millions of Korean won)	Total assets		Total liabilities		Paid-in capital		Equity			Share of net asset amount			Unrealized gains and losses and others			Carrying amount
Balhae Infrastructure Fund		836,309		1,800		807,567		834,509			105,190			—			105,190
Korea Credit Bureau Co., Ltd.		75,504		19,323		10,000		56,181			5,056			—			5,056
KB12-1 Venture Investment Partnership		47,454		905		28,500		46,549			37,239			—			37,239
KoFC KBIC Frontier Champ 2010-5(PEF)		15,017		4		12,970		15,013			4,504			(367	)		4,137
KB GwS Private Securities Investment Trust		505,115		741		425,814		504,374			105,567			(1,257	)		104,310
Incheon Bridge Co., Ltd.		646,811		754,900		61,096		(108,089	)		(16,202	)		16,202			—
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		70,166		1,315		51,880		68,851			13,770			—			13,770
Future Planning KB Start-up Creation Fund		37,730		1,544		29,400		36,186			18,093			—			18,093
KB High-tech Company Investment Fund		53,949		255		50,000		53,694			26,847			—			26,847
Aju Good Technology Venture Fund		20,676		250		21,400		20,426			7,856			374			8,230
KB-KDBC Pre-IPO New Technology Business Investment Fund		7,503		45		7,500		7,458			2,486			—			2,486
KB Star office private real estate Investment Trust No.1		216,041		120,462		95,000		95,579			20,122			—			20,122


	2017¹
(In millions of Korean won)	Operating revenues		Profit (Loss)			Other comprehensive income			Comprehensive income(loss)			Dividends
Balhae Infrastructure Fund		113,441		104,942			—			104,942			12,842
Korea Credit Bureau Co., Ltd.		68,750		3,580			—			3,580			149
KB12-1 Venture Investment Partnership		4,762		(774	)		4,326			3,552			—
KoFC KBIC Frontier Champ 2010-5(PEF)		2,728		(294	)		142			(152	)		—
KB GwS Private Securities Investment Trust		35,002		34,004				—		34,004			5,753
Incheon Bridge Co., Ltd.		90,691		(8,719	)			—		(8,719	)		—
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		21,916		8,624				129		8,753			—
Future Planning KB Start-up Creation Fund		1,298		(2,221	)			4		(2,217	)		—
KB High-tech Company Investment Fund		4,408		1,978				1,437		3,415			—
Aju Good Technology Venture Fund		660		(841	)			—		(841	)		—
KB-KDBC Pre-IPO New Technology Business Investment Fund		3		(42	)			—		(42	)		—
KB Star office private real estate Investment Trust No.1		13,071		5,684				—		5,684			1,295

¹	The amounts included in the financial information of the associates are adjusted to reflect adjustments made by the Group, such as fair value adjustments made at the time of acquisition and adjustments for differences in accounting policies.

114

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in investments in associates for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning¹		Acquisition and others		Disposal and others			Dividends			Gains (losses) from using equity method			Other comprehensive income			Ending
Korea Credit Bureau Co., Ltd.		5,056		—		—			(113	)		998			—			5,941
Balhae Infrastructure Fund		105,190		4,645		(1,818	)		(6,804	)		6,837			—			108,050
KB GwS Private Securities Investment Trust		104,310		—		—			(6,386	)		8,689			—			106,613
KB Digital Innovation & Growth New Technology Business Investment Fund		—		1,125		—			—			(37	)		(9	)		1,079
KB12-1 Venture Investment Partnership		37,507		—		(5,400	)		(10,640	)		28,445			—			49,912
Future Planning KB Start-up Creation Fund		18,336		—		(400	)		(2,600	)		2,733			—			18,069
KoFC KBIC Frontier Champ 2010-5(PEF)		4,137		—		(3,138	)		(999	)		140			—			140
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		14,171		—		—			—			(1,498	)		(992	)		11,681
KB High-tech Company Investment Fund		27,220		—		(4,700	)		—			43			—			22,563
Aju Good Technology Venture Fund		8,230		9,808		—			—			96			—			18,134
KB-KDBC New Technology Business Investment Fund		2,486		5,000		—			—			(189	)		—			7,297
KBTS Technology Venture Private Equity Fund		—		7,620		—			—			(239	)		—			7,381
KB IP Investment Fund II		—		3,000		—			—			(58	)		—			2,942
KB Digital Innovation Investment Fund Limited Partnership		—		7,700		—			—			(83	)		—			7,617
KB-Brain KOSDAQ Scale-up Fund		—		4,000		—			—			(34	)		—			3,966
KB Star office private real estate Investment Trust No.1		20,122		—		—			(1,162	)		1,292			—			20,252
Terra Corporation		20		—		—			—			(20	)		—			—
MJT&I Corp.		127		—		—			—			(5	)		—			122
Shinhwa Underwear Co., Ltd.		138		—		—			—			44			—			182
Kendae Co.,Ltd.		127		—		—			—			(29	)		—			98
Dongjo Co., Ltd.		—		—		—			—			115			—			115
Dae-A Leisure Co., Ltd.		—		—		—			—			3,698			(3,120	)		578
PT Bank Bukopin TBK		—		116,422		—			—			(1,946	)		(544	)		113,932

		347,177		159,320		(15,456	)		(28,704	)		48,992			(4,665	)		506,664

¹	Restated based on Korean IFRS 1109.

115

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Beginning		Acquisition and others		Disposal and others			Dividends			Gains (losses) from using equity method			Other comprehensive income		Ending
Balhae Infrastructure Fund		133,200		807		(29,202	)		(12,842	)		13,227			—		105,190
Korea Credit Bureau Co., Ltd.		4,853		—		—			(149	)		352			—		5,056
KB12-1 Venture Investment Partnership		38,797		—		(4,400	)		—			(619	)		3,461		37,239
KoFC KBIC Frontier Champ 2010-5(PEF)		14,696		—		(10,500	)		—			(102	)		43		4,137
KB GwS Private Securities Investment Trust		102,949		—		—			(5,753	)		7,114			—		104,310
Incheon Bridge Co., Ltd.		728		—		(728	)		—			—			—		—
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		19,831		—		(7,784	)		—			1,698			25		13,770
Future Planning KB Start-up Creation Fund		15,202		4,000		—			—			(1,110	)		1		18,093
KB-KDBC Pre-IPO New Technology Business Investment Fund		—		2,500		—			—			(14	)		—		2,486
Terra Corporation		28		—		—			—			(8	)		—		20
MJT&I Corp.		232		—		—			—			(105	)		—		127
Shinhwa Underwear Co., Ltd.		103		—		—			—			35			—		138
Kendae Co.,Ltd.		—		—		—			—			127			—		127
KB High-tech Company Investment Fund		15,140		10,000		—			—			988			719		26,847
Aju Good Technology Venture Fund		1,997		6,233		—			—			—			—		8,230
KB Star office private real estate Investment Trust No.1		20,220		—		—			(1,295	)		1,197			—		20,122

		367,976		23,540		(52,614	)		(20,039	)		22,780			4,249		345,892

116

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The tables below provide unrecognized share of losses of associates, both for the reporting period and cumulatively, because the Group has stopped recognizing its share of losses of associates when applying the equity method.


	2018					2017
(In millions of Korean won)	Unrecognized loss (gain)			Accumulated unrecognized loss		Unrecognized loss (gain)			Accumulated unrecognized loss
Incheon Bridge Co., Ltd.		487			16,689		16,202			16,202
Shinla Construction Co., Ltd.		—			183		7			183
Doosung Metal Co., Ltd		(4	)		19		(31	)		23
Jungdong Steel Co., Ltd		—			487		13			487
DPAPS Co., Ltd.		141			325		(4	)		184
Jinseung Tech Co., Ltd.		3			3		—			—
Korea NM Tech Co., Ltd.		28			28		—			—
Jungdo Co., Ltd.		160			160		—			—
Jaeyang Industry Co., Ltd.		30			30		—			—
Terra Corporation		14			14		—			—
EJADE Co., Ltd.¹		—			—		(1,112	)		—
JSC Bank CenterCredit¹		—			—		(108,761	)		—

¹	Disposal of an investment in an associate was completed during the year ended December 31, 2017.

14. Property and Equipment, and Investment Properties

Details of property and equipment as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
Land		1,979,811		—			(1,018	)		1,978,793
Buildings		1,256,234		(442,318	)		(5,859	)		808,057
Leasehold improvements		794,814		(700,046	)		—			94,768
Equipment and vehicles		1,147,644		(993,785	)		—			153,859
Construction in-progress		81,268		—			—			81,268
Finance lease assets		32,709		(21,788	)		—			10,921

		5,292,480		(2,157,937	)		(6,877	)		3,127,666

117

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
Land		1,973,230		—			(1,018	)		1,972,212
Buildings		1,223,088		(416,165	)		(5,859	)		801,064
Leasehold improvements		715,631		(639,555	)		—			76,076
Equipment and vehicles		1,161,199		(1,012,373	)		—			148,826
Construction in-progress		12,187		—			—			12,187
Finance lease assets		23,069		(17,840	)		—			5,229

		5,108,404		(2,085,933	)		(6,877	)		3,015,594

Changes in property and equipment for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Acquisition		Transfers¹			Disposal			Depreciation			Others		Ending
Land		1,972,212		124		7,129			(691	)		—			19		1,978,793
Buildings		801,064		—		40,956			(4,079	)		(29,928	)		44		808,057
Leasehold improvements		76,076		1,086		69,646			(242	)		(62,035	)		10,237		94,768
Equipment and vehicles		148,826		102,974		246			(795	)		(97,423	)		31		153,859
Construction in-progress		12,187		229,765		(160,684	)		—			—			—		81,268
Finance lease assets		5,229		9,640		—			—			(3,948	)		—		10,921

		3,015,594		343,589		(42,707	)		(5,807	)		(193,334	)		10,331		3,127,666


	2017
(In millions of Korean won)	Beginning		Acquisition		Transfers¹			Disposal			Depreciation			Others			Ending
Land		2,059,956		16,647		(104,345	)		(19	)		—			(27	)		1,972,212
Buildings		825,958		—		5,838			(1,023	)		(29,647	)		(62	)		801,064
Leasehold improvements		63,656		586		57,548			(757	)		(57,896	)		12,939			76,076
Equipment and vehicles		155,847		90,502		—			(170	)		(97,134	)		(219	)		148,826
Construction in-progress		4,013		110,345		(102,160	)		—			—			(11	)		12,187
Finance lease assets		7,961		678		—			—			(3,410	)		—			5,229

		3,117,391		218,758		(143,119	)		(1,969	)		(188,087	)		12,620			3,015,594

¹	Including transfers from investment properties and assets held for sale.

118

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in accumulated impairment losses of property and equipment for the years ended December 31, 2018 and 2017, are as follows:

(In millions of Korean won)


2018
Beginning	Impairment		Reversal		Others		Ending
(6,877)		—		—		—		(6,877	)

(In millions of Korean won)


2018
Beginning	Impairment		Reversal		Others		Ending
(6,877)		—		—		—		(6,877	)

Details of investment properties as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Carrying amount
Land		166,737		—			166,737
Buildings		107,554		(16,367	)		91,187

		274,291		(16,367	)		257,924


	2017
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Carrying amount
Land		205,723		—			205,723
Buildings		152,841		(21,064	)		131,777

		358,564		(21,064	)		337,500

The valuation technique and input variables that are used to measure the fair value of investment property as at December 31, 2018, are as follows:


(In millions of Korean won)	2018
	Fair Value		Valuation technique	Inputs
Land and Buildings		57,025	Cost approach value	- Price per square meter - Replacement cost
		229,450	Income approach	- Discount rate - Capitalization rate - Vacancy rate

As at December 31, 2018 and 2017, fair values of the investment properties amount to W 286,475 million and W 366,811 million, respectively. The investment properties were measured by qualified independent appraisers with experience in valuing similar properties in the same area. In addition, per the fair value hierarchy on Note 6.1, the fair value hierarchy of all investment properties has been categorized and classified as Level 3.

119

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Rental income from the above investment properties for the years ended December 31, 2018 and 2017, amounts to W 18,162 million and W 17,714 million, respectively.

Changes in investment properties for the years ended December 31, 2018 and 2017, are as follows:


			2018
(In millions of Korean won)	Beginning		Acquisitions		Transfers		Disposal			Depreciation			Ending
Land		205,723		—		17,069		(56,055	)		—			166,737
Buildings		131,777		179		13,349		(50,872	)		(3,246	)		91,187

		337,500		179		30,418		(106,927	)		(3,246	)		257,924


	2017
(In millions of Korean won)	Beginning		Acquisitions		Transfers			Depreciation			Ending
Land		230,254		—		(24,531	)		—			205,723
Buildings		142,626		262		(6,326	)		(4,785	)		131,777

		372,880		262		(30,857	)		(4,785	)		337,500

15. Intangible Assets

Details of intangible assets as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Goodwill		66,490		—			(1,202	)		65,288
Other intangible assets		935,208		(771,182	)		(5,106	)		158,920

		1,001,698		(771,182	)		(6,308	)		224,208


	2017
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Goodwill		66,490		—			(1,202	)		65,288
Other intangible assets		878,285		(722,368	)		(3,597	)		152,320

		944,775		(722,368	)		(4,799	)		217,608

Details of goodwill as at December 31, 2018 and 2017, are as follows:


	2018				2017
(In millions of Korean won)	Acquisition cost		Carrying amount		Acquisition cost		Carrying amount
Housing & Commercial Bank		65,288		65,288		65,288		65,288
KB Cambodia Bank		1,202		—		1,202		—

		66,490		65,288		66,490		65,288

120

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in goodwill for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Acquisition		Disposal		Impairment loss		Ending
Housing & Commercial Bank		65,288		—		—		—		65,288

		65,288		—		—		—		65,288


	2017
(In millions of Korean won)	Beginning		Acquisition		Disposal		Impairment loss			Ending
Housing & Commercial Bank		65,288		—		—		—			65,288
KB Cambodia Bank		1,202		—		—		(1,202	)		—

		66,490		—		—		—			65,288

Changes in accumulated impairment losses for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning			Impairment		Reversal		Others		Ending
Accumulated impairment losses on other intangible assets		(1,202	)		—		—		—		(1,202	)


(In millions of Korean won)	2017
	Beginning		Impairment			Reversal		Others		Ending
Accumulated impairment losses on other intangible assets		—		(1,202	)		—		—		(1,202	)

Details of allocation of goodwill to cash-generating units and related information for impairment testing as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Retail Banking		Corporate Banking		Total
Carrying amounts		49,315		15,973		65,288
Recoverable amount exceeded carrying amount		4,281,676		2,875,939		7,157,615
Discount rate (%)		15.51		15.74
Permanent growth rate (%)		1.00		1.00

121

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the combination for impairment testing, and cash-generating units consist of an operating segment or units which are not larger than an operating segment. The Group recognized the amount of W 65,288 million related to goodwill acquired in the merger of Housing & Commercial Bank. Of this amount, the amounts of W 49,315 million and W 15,973 million were allocated to the Retail Banking and Corporate Banking, respectively. Cash-generating units, to which goodwill has been allocated, is tested for impairment annually and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit.

The recoverable amount of a cash-generating unit is measured at the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell is the amount obtainable from the sale in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. If it is difficult to measure the amount obtainable from the sale of the cash-generating unit, the Group measures the fair value less costs to sell by reflecting the characteristics of the measured cash-generating unit. If it is not possible to obtain the reliable information to measure the fair value less costs to sell, the Group uses the asset’s value in use as its recoverable amount. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. The projections of the future cash flows are based on the most recent financial budget approved by management and generally cover a period of five years. The future cash flows after projection period are estimated on the assumption that the future cash flows will increase by 1.0% annually for Retail Banking, Corporate Banking. The key assumptions used for the estimation of the future cash flows are the market size and the Group’s market share. The discount rate is a pre-tax rate that reflects assumptions regarding risk-free interest rate, market risk premium and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

Details of intangible assets, excluding goodwill, as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Industrial property rights		1,858		(1,608	)		—			250
Software		769,244		(673,475	)		—			95,769
Other intangible assets		129,975		(77,129	)		(5,106	)		47,740
Finance leases assets		34,131		(18,970	)		—			15,161

		935,208		(771,182	)		(5,106	)		158,920


	2017
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Industrial property rights		1,784		(1,503	)		—			281
Software		713,034		(624,399	)		—			88,635
Other intangible assets		137,361		(82,899	)		(3,597	)		50,865
Finance leases assets		26,106		(13,567	)		—			12,539

		878,285		(722,368	)		(3,597	)		152,320

122

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in intangible assets, excluding goodwill, for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Acquisition		Disposal			Amortization			Others			Ending
Industrial property rights		281		58		—			(89	)		—			250
Software		88,635		45,839		—			(38,707	)		2			95,769
Other intangible assets		50,865		7,160		(2,825	)		(5,710	)		(1,750	)		47,740
Finance leases assets		12,539		8,024		—			(5,402	)		—			15,161

		152,320		61,081		(2,825	)		(49,908	)		(1,748	)		158,920


	2017
(In millions of Korean won)	Beginning		Acquisition		Disposal			Amortization			Others			Ending
Industrial property rights		136		244		(8	)		(103	)		12			281
Software		83,761		37,725		—			(32,779	)		(72	)		88,635
Other intangible assets		43,998		13,429		(306	)		(6,099	)		(157	)		50,865
Finance leases assets		16,329		793		—			(4,583	)		—			12,539

		144,224		52,191		(314	)		(43,564	)		(217	)		152,320

Changes in accumulated impairment losses on other intangible assets for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning			Impairment			Reversal		Others		Ending
Accumulated impairment losses on other intangible assets		(3,597	)		(1,806	)		31		266		(5,106	)


	2017
(In millions of Korean won)	Beginning			Impairment		Reversal		Others		Ending
Accumulated impairment losses on other intangible assets		(4,179	)		—		35		547		(3,597	)

From 2018, the Group has to pay the fine, if the actual emission exceeds the targeted emission amount; therefore, the emission rights (intangible asset) do not occur even if it is below the targeted emission amount.

123

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in emission rights for the year ended December 31, 2017, are as follows:


	Applicable under 2016					Applicable under 2017					Total
(KAU, in millions of Korean won)	Quantity			Carrying amount		Quantity			Carrying amount		Quantity			Carrying amount
Beginning		99,283			—		104,920			—		204,203			—
Additional allocation		578			—		17,046			—		17,624			—
Borrowings of emission permits		18,306			—		(18,306	)		—		—			—
Surrender of emission permits		(117,484	)		—		—			—		(117,484	)		—
Revocation of allocation		(683	)		—		(398	)		—		(1,081	)		—

Ending		—			—		103,262			—		103,262			—

16. Deferred Income Tax Assets and Liabilities

Details of deferred income tax assets and liabilities as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Assets			Liabilities			Net amount
Other provisions		62,179			—			62,179
Impairment losses on property and equipment		4,132			—			4,132
Share-based payments		11,868			—			11,868
Provisions for guarantees		20,298			—			20,298
Gains on valuation of derivatives		—			(13,188	)		(13,188	)
Present value discount		—			(34	)		(34	)
Losses on fair value hedged item		—			(25,873	)		(25,873	)
Accrued interest		—			(41,687	)		(41,687	)
Deferred loan origination fees and costs		—			(139,697	)		(139,697	)
Gains on revaluation		—			(286,739	)		(286,739	)
Investments in subsidiaries and associates		29,410			(67,358	)		(37,948	)
Gains on valuation of security investment		—			(53,384	)		(53,384	)
Defined benefit liabilities		387,667			—			387,667
Accrued expenses		202,220			—			202,220
Retirement insurance expense		—			(343,176	)		(343,176	)
Adjustments to the prepaid contributions		—			(19,033	)		(19,033	)
Others		183,561			(28,902	)		154,659

		901,335			(1,019,071	)		(117,736	)
Offsetting of deferred income tax assets and liabilities		(898,204	)		898,204			—

		3,131			(120,867	)		(117,736	)

124

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Assets			Liabilities			Net amount
Other provisions		71,870			—			71,870
Impairment losses on property and equipment		5,411			—			5,411
Interest on equity index-linked deposits		43			—			43
Share-based payments		17,014			—			17,014
Provisions for guarantees		24,341			—			24,341
Gains on valuation of derivatives		—			(19,239	)		(19,239	)
Present value discount		—			(58	)		(58	)
Losses on fair value hedged item		—			(15,698	)		(15,698	)
Accrued interest		—			(43,328	)		(43,328	)
Deferred loan origination fees and costs		—			(131,911	)		(131,911	)
Gains on revaluation		—			(306,344	)		(306,344	)
Investments in subsidiaries and associates		16,697			(100,238	)		(83,541	)
Gains on valuation of security investment		21,483			—			21,483
Defined benefit liabilities		332,930			—			332,930
Accrued expenses		128,700			—			128,700
Retirement insurance expense		—			(301,261	)		(301,261	)
Adjustments to the prepaid contributions		—			(16,236	)		(16,236	)
Others		164,322			(18,579	)		145,743

		782,811			(952,892	)		(170,081	)
Offsetting of deferred income tax assets and liabilities		(780,761	)		780,761			—

		2,050			(172,131	)		(170,081	)

Unrecognized deferred income tax liabilities

No deferred income tax liabilities have been recognized for the taxable temporary difference of

W 42,404 million associated with investments in subsidiaries and associates as at December 31, 2018, due to the following reasons:

- The Group is able to control the timing of the reversal of the temporary difference.

- It is probable that the temporary difference will not be reversed in the foreseeable future.

As at December 31, 2018, no deferred income tax liabilities have been recognized for the taxable temporary difference of W 65,288 million arising from the initial recognition of goodwill from the merger of Housing and Commercial Bank as in 2001.

Unrecognized deferred income tax assets

No deferred income tax assets have been recognized for the deductible temporary difference of

W 8,938 million associated with investments in subsidiaries and associates as at December 31, 2018, because it is not probable that the temporary differences will be reversed in the foreseeable future.

No deferred income tax assets have been recognized for deductible temporary differences of

W 363 million and W 15,029 million associated with accrued expenses and others, respectively, as at December 31, 2018, due to the uncertainty that these will be realized in the future.

125

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in cumulative temporary differences for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning¹		Decrease		Increase		Ending
Deductible temporary differences
Other provisions		256,282		256,282		226,103		226,103
Impairment losses on property and equipment		19,678		19,678		15,027		15,027
Interest on equity index-linked deposits		155		155		—		—
Share-based payments		61,870		61,870		43,156		43,156
Provisions for guarantees		98,294		98,294		73,809		73,809
Loss on SPE repurchase		80,204		80,204		—		—
Investment in subsidiaries and associates		81,336		13,835		48,382		115,883
Gains on valuation of security investment		75,642		75,642		—		—
Defined benefit liabilities		1,210,654		114,562		313,608		1,409,700
Accrued expenses		467,999		467,999		735,712		735,712
Others		881,600		353,386		154,307		682,521

		3,233,714		1,541,907		1,610,104		3,301,911

Unrecognized deferred income tax assets
Accrued expenses		—						363
Loss on SPE repurchase		80,204						—
Investment in subsidiaries and associates		18,084						8,938
Others		12,500						15,030

		3,122,926						3,277,580
Tax rate (%)²		27.50						27.50

Total deferred income tax assets from deductible temporary differences		858,805						901,335

126

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2018
(In millions of Korean won)	Beginning¹			Decrease			Increase			Ending
Taxable temporary differences
Losses from fair value hedge		(57,083	)		(57,083	)		(94,085	)		(94,085	)
Accrued interest		(157,556	)		(116,532	)		(110,564	)		(151,588	)
Deferred loan origination fees and costs		(479,671	)		(479,671	)		(507,988	)		(507,988	)
Gains on valuation of derivatives		(52,764	)		(52,764	)		(47,956	)		(47,956	)
Present value discount		(209	)		(209	)		(124	)		(124	)
Goodwill from merger		(65,288	)		—			—			(65,288	)
Gains on revaluation		(1,113,979	)		(71,292	)		—			(1,042,687	)
Investment in subsidiaries and associates		(370,348	)		(130,476	)		(47,472	)		(287,344	)
Gains on valuation of security investment		—			—			(194,124	)		(194,124	)
Retirement insurance expense		(1,095,495	)		(82,468	)		(234,884	)		(1,247,911	)
Adjustments to the prepaid contributions		(59,040	)		(59,040	)		(69,212	)		(69,212	)
Others		(72,737	)		(12,708	)		(45,069	)		(105,098	)

		(3,524,170	)		(1,062,243	)		(1,351,478	)		(3,813,405	)

Unrecognized deferred income tax liabilities
Goodwill from merger		(65,288	)								(65,288	)
Investments in subsidiaries and associates		(4,901	)								(42,404	)

		(3,453,981	)								(3,705,713	)
Tax rate (%) ²		27.50									27.50

Total deferred income tax liabilities from taxable temporary differences		(949,845	)								(1,019,071	)

¹	Restated based on Korean IFRS 1109.

²	As the corporate tax rate was changed due to the revision of the tax law at the end of 2017, deferred tax assets (liabilities) expected to be realized after 2018 are calculated using 27.5%.

127

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Beginning		Decrease		Increase		Ending
Deductible temporary differences
Other provisions		291,350		291,350		261,346		261,346
Impairment losses on property and equipment		20,812		20,812		19,678		19,678
Interest on equity index-linked deposits		168		168		155		155
Share-based payments		43,008		43,008		61,870		61,870
Provisions for guarantees		126,319		126,319		88,512		88,512
Loss on SPE repurchase		80,204		—		—		80,204
Investment in subsidiaries and associates		814,685		801,876		64,499		77,308
Gains on valuation of security investment		282,872		282,872		78,120		78,120
Defined benefit liabilities		1,239,914		205,084		175,824		1,210,654
Accrued expenses		959,532		959,532		467,999		467,999
Others		759,606		219,134		70,541		611,013

		4,618,470		2,950,155		1,288,544		2,956,859

Unrecognized deferred income tax assets
Loss on SPE repurchase		80,204						80,204
Investment in subsidiaries and associates		788,196						18,084
Others		21,797						12,500
		3,728,273						2,846,071
Tax rate (%)		24.20						27.50

Total deferred income tax assets from deductible temporary differences		903,002						782,811

128

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Beginning			Decrease			Increase			Ending
Taxable temporary differences
Losses from fair value hedge		(59,235	)		(59,235	)		(57,083	)		(57,083	)
Accrued interest		(181,165	)		(136,158	)		(112,549	)		(157,556	)
Deferred loan origination fees and costs		(497,149	)		(497,149	)		(479,677	)		(479,677	)
Gains on valuation of derivatives		(42,294	)		(42,294	)		(69,960	)		(69,960	)
Present value discount		(92	)		(92	)		(209	)		(209	)
Goodwill from merger		(65,288	)		—			—			(65,288	)
Gains on revaluation		(1,119,379	)		(5,399	)		—			(1,113,980	)
Investment in subsidiaries and associates		(387,268	)		(71,768	)		(52,887	)		(368,387	)
Retirement insurance expense		(1,119,041	)		(170,469	)		(146,923	)		(1,095,495	)
Adjustments to the prepaid contributions		(62,569	)		(61,034	)		(57,505	)		(59,040	)
Others		(84,577	)		(28,893	)		(11,898	)		(67,582	)

		(3,618,057	)		(1,072,491	)		(988,691	)		(3,534,257	)

Unrecognized deferred income tax liabilities
Goodwill from merger		(65,288	)								(65,288	)
Investments in subsidiaries and associates		(17,205	)								(4,901	)

		(3,535,564	)								(3,464,068	)
Tax rate (%)		24.20									27.50

Total deferred income tax liabilities from taxable temporary differences		(855,330	)								(952,892	)

129

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

17. Other Assets

Details of other assets as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Other financial assets
Other receivables		1,921,593			3,570,556
Accrued income		793,340			777,629
Guarantee deposits		1,019,169			1,041,519
Domestic exchange settlement debits		476,349			944,697
Others		11,843			59,294
Allowances for loan losses		(21,775	)		(50,823	)
Present value discount		(1,322	)		(1,409	)

		4,199,197			6,341,463

Other non-financial assets
Other receivables		61			49
Prepaid expenses		130,432			108,685
Guarantee deposits		3,061			3,131
Others		74,649			68,829
Allowances on other assets		(16,992	)		(22,575	)

		191,211			158,119

		4,390,408			6,499,582

Changes in allowances for loan losses on other assets for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Other financial assets			Other non- financial assets			Total
Beginning¹		54,190			22,575			76,765
Provision		1,179			(3,720	)		(2,541	)
Written-off		(34,773	)		(1,863	)		(36,636	)
Others		1,179			—			1,179

Ending		21,775			16,992			38,767

¹	Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Other financial assets			Other non- financial assets			Total
Beginning		60,062			23,305			83,367
Provision		2,042			1,239			3,281
Written-off		(12,413	)		(1,969	)		(14,382	)
Others		1,132			—			1,132

Ending		50,823			22,575			73,398

130

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

18. Assets Held for Sale

Details of assets held for sale as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost¹		Accumulated impairment losses			Carrying amount		Fair value less costs to sell
Land		16,048		(3,442	)		12,606		16,552
Buildings		9,054		(4,708	)		4,346		4,403

		25,102		(8,150	)		16,952		20,955


	2017
(In millions of Korean won)	Acquisition cost¹		Accumulated impairment losses			Carrying amount		Fair value less costs to sell
Land		133,445		(1,492	)		131,953		251,520
Buildings		34,862		(11,309	)		23,553		24,548

		168,307		(12,801	)		155,506		276,068

¹	Acquisition cost of buildings held for sale is net of accumulated depreciation before classified as assets held for sale.

The valuation technique and input variables that are used to measure the fair value of assets held for sale as at December 31, 2018, are as follows:

2018

(In millions of Korean won)

Fair value

Valuation technique¹

Unobservable
inputs²

Estimated
range of
unobservable
inputs(%)

Effect of
unobservable
inputs on fair
value

Adjustment index

0.30 ~ 1.08

Fair value increases
as the adjustment
index rises

Fair value

Land and

buildings

20,955

Market comparison
approach model
and others

Adjustment ratio

-20.00 ~ 0.00

decreases as the
absolute value of
adjustment ratio
rises

¹	The appraisal value is adjusted by the adjustment ratio in the event the public sale is unsuccessful.

²	Adjustment index is calculated using the real estate index, the producer price index, or land price volatility.

The fair values of assets held for sale were measured by qualified independent appraisers with experience in valuing similar properties in the same area. In addition, per the fair value hierarchy on Note 6.1, the fair value hierarchy of all investment properties has been categorized and classified as Level 3.

131

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in accumulated impairment losses of assets held for sale for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)
2018
Beginning	Provision			Reversal		Others		Ending
(12,801)		(5,281	)		286		9,646		(8,150	)


(In millions of Korean won)
2018
Beginning	Provision			Reversal		Others		Ending
(13,935)		(16,994	)		5,138		12,990		(12,801	)

As at December 31, 2018, assets held for sale consist of eight real estates of closed offices, which were committed to sell by the management, but not yet sold as at December 31, 2018. Negotiation with buyers is in process for the two assets and the remaining six assets are also being actively marketed.

19. Deposits

Details of deposits as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Demand deposits
Demand deposits in Korean won		112,746,957			111,232,743
Demand deposits in foreign currencies		6,242,996			6,677,710

		118,989,953			117,910,453

Time deposits
Time deposits in Korean won		144,387,450			126,778,455
Time deposits in foreign currencies		5,664,671			4,622,516
Fair value adjustments on fair value hedged time deposits in foreign currencies		(89,265	)		(51,033	)

		5,575,406			4,571,483

		149,962,856			131,349,938

Certificates of deposits		3,531,719			3,218,540

		272,484,528			252,478,931

132

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

20. Debts

Details of debts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Borrowings		16,689,574		14,114,645
Bonds sold under repurchase agreements and others		444,066		710,370
Call money		362,415		985,738

		17,496,055		15,810,753

Details of borrowings as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		Lenders	Annual interest rate (%)		2018		2017
Borrowings in Korean won	Borrowings from the Bank of Korea	Bank of Korea		0.50 ~ 0.75		1,672,714		1,888,880
	Borrowings from the government	SEMAS and others		0.00 ~ 3.00		1,745,939		1,726,543
	Borrowings from non- banking financial institutions	Korea Development Bank		0.22 ~ 2.70		372,853		342,376
	Other borrowings	Korea Development Bank and others		0.00 ~ 3.90		3,965,534		3,300,884

						7,757,040		7,258,683

Borrowings in foreign currencies	Due to banks	Bank of America N.A. and others		—		13,353		19,820
	Borrowings from banking institutions	Central Bank of Uzbekistan and others		0.00 ~ 3.53		7,110,028		5,463,262
	Borrowings from other financial institutions	Export Import Bank of Korea and others		3.20 ~ 3.94		18,725		76,134
	Other borrowings in foreign currencies	Standard Chartered Bank and others		—		1,790,428		1,296,746

						8,932,534		6,855,962

						16,689,574		14,114,645

Details of bonds sold under repurchase agreements and others as at December 31, 2018 and 2017, are as follows:

(In millions of Korean won)

Lenders

Annual
interest rate
(%)

2018

2017

Bonds sold under repurchase agreements

Individuals, groups, corporations

1.23~1.73

436,471

700,466

Bills sold

Counter sale

0.10~1.20

7,595

9,904

444,066

710,370

133

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of call money as at December 31, 2018 and 2017, are as follows:



(In millions of Korean won)	Lenders		Annual interest rate (%)		2018		2017
Call money in Korean		—		—		—		577,100
won Call money in foreign currencies		Standard Chartered Bank and others		2.42~4.70		362,415		408,638

						362,415		985,738

21. Debentures

Details of debentures as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	Annual interest rate (%)		2018			2017
Debentures in Korean won
Structured debentures		5.65 ~ 5.86		34,320			135,800
Subordinated fixed rate debentures		2.96 ~ 4.35		3,422,729			2,888,411
Fixed rate debentures		1.48 ~ 2.44		15,024,545			13,236,365
Floating rate debentures		1.72 ~ 1.77		640,000			—

				19,121,594			16,260,576

Fair value adjustments on fair value hedged debentures in Korean won				19,252			19,891
Discount on debentures in Korean won				(11,792	)		(36,920	)

				19,129,054			16,243,547

Debentures in foreign currencies
Floating rate debentures		0.00 ~ 3.72		1,344,628			835,692
Fixed rate debentures		1.63 ~ 3.63		2,725,700			2,142,800

				4,070,328			2,978,492

Fair value adjustments on fair value hedged debentures in foreign currencies				(24,073	)		(25,941	)
Discount on debentures in foreign currencies				(11,724	)		(12,300	)

				4,034,531			2,940,251

				23,163,585			19,183,798

134

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in debentures based on face value for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Issues		Repayments			Others		Ending
Debentures in Korean won
Structured debentures		135,800		—		(101,480	)		—		34,320
Subordinated fixed rate debentures		2,888,411		600,000		(65,682	)		—		3,422,729
Fixed rate debentures		13,236,365		11,761,400		(9,973,220	)		—		15,024,545
Floating rate debentures		—		640,000		—			—		640,000

		16,260,576		13,001,400		(10,140,382	)		—		19,121,594

Debentures in foreign currencies
Floating rate debentures		835,692		725,638		(274,130	)		57,428		1,344,628
Fixed rate debentures		2,142,800		493,022		—			89,877		2,725,699

		2,978,492		1,218,660		(274,130	)		147,305		4,070,327

		19,239,068		14,220,060		(10,414,512	)		147,305		23,191,921


	2017
(In millions of Korean won)	Beginning		Issues		Repayments			Others			Ending
Debentures in Korean won
Structured debentures		337,500		—		(201,700	)		—			135,800
Subordinated fixed rate debentures		3,196,993		—		(308,582	)		—			2,888,411
Fixed rate debentures		7,259,095		12,198,200		(6,220,930	)		—			13,236,365
Floating rate debentures		680,000		—		(680,000	)		—			—

		11,473,588		12,198,200		(7,411,212	)		—			16,260,576

Debentures in foreign currencies
Floating rate debentures		700,930		884,239		(670,236	)		(79,241	)		835,692
Fixed rate debentures		2,803,721		568,150		(945,394	)		(283,677	)		2,142,800

		3,504,651		1,452,389		(1,615,630	)		(362,918	)		2,978,492

		14,978,239		13,650,589		(9,026,842	)		(362,918	)		19,239,068

135

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

22. Provisions

Details of provisions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Provisions for unused loan commitments		103,882		106,963
Provisions for acceptances and guarantees		73,897		88,808
Provisions for asset retirement obligation		95,396		85,575
Others		35,199		76,846

		308,374		358,192

Changes in provisions for unused loan commitments, acceptances and guarantees for the years ended December 31, 2018 and 2017, are as follows:


	2018
	Provisions for unused loan commitments									Provisions for acceptances and guarantees
	12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses
(In millions of Korean won)	12-month expected credit losses			Non- impaired			Impaired			12-month expected credit losses			Non- impaired			Impaired
Beginning¹		74,885			27,178			—			40,277			39,628			18,744
Transfer between stages
Transfer to 12-month expected credit losses		10,001			(9,935	)		(66	)		661			(661	)		—
Transfer to lifetime expected credit losses		(7,701	)		7,784			(83	)		(534	)		676			(142	)
Impairment		(201	)		(667	)		867			(6	)		(87	)		93
Provision (reversal) for loan losses		(2,204	)		4,377			(718	)		(14,515	)		(10,174	)		(898	)
Others (effects of changes in foreign exchange rate, etc.)		207			158			—			408			243			184

Ending		74,987			28,895			—			26,291			29,625			17,981

¹ Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Provisions for unused loan commitments			Provisions for acceptances and guarantees			Total
Beginning		124,991			126,428			251,419
Effects of changes in foreign exchange rate		(1,317	)		(3,370	)		(4,687	)
Reversal		(16,711	)		(34,250	)		(50,961	)

Ending		106,963			88,808			195,771

136

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Changes in provisions for asset retirement obligation for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Beginning		85,575			77,810
Increase		1,780			2,778
Reversal		(154	)		(336	)
Used		(2,534	)		(6,712	)
Unwinding of discount		2,305			1,746
Effects of changes in foreign exchange rate		8,424			10,289

Ending		95,396			85,575

Provisions for asset retirement obligation are present value of estimated costs to be incurred for restoration of the leased properties. Actual expenses are expected to be incurred at the end of each lease contract. Three-year historical data of expired leases were used to estimate the average lease year. Also, the average restoration expense based on actual three-year historical data and the three-year historical average inflation rate were used to estimate the present value of estimated costs.

Changes in other provisions for the years ended December 31, 2018 and 2017, are as follows:



2018
(In millions of Korean won)	Membership rewards program			Dormant accounts			Litigations			Financial guarantee liabilities¹		Greenhouse Gas Emission liabilities			Others			Total
Beginning		138			5,050			7,482			2,218		177			62,137			77,202
Provision (Reversal)		111			2,657			184			173		(177	)		(10,620	)		(7,672	)
Used and Others		(188	)		(3,332	)		(1,188	)		—		—			(29,623	)		(34,331	)

Ending		61			4,375			6,478			2,391		—			21,894			35,199

¹	Restated based on Korean IFRS 1109.


2017
(In millions of Korean won)	Membership rewards program			Dormant accounts			Litigations			Financial guarantee liabilities			Greenhouse Gas Emission liabilities¹			Others			Total
Beginning		115			50,396			8,537			1,870			358			34,779			96,055
Provision (Reversal)		185			5,133			1,390			(8	)		(181	)		27,781			34,300
Used and Others		(162	)		(50,479	)		(2,445	)		—			—			(423	)		(53,509	)

Ending		138			5,050			7,482			1,862			177			62,137			76,846

¹	As at December 31, 2017, the estimated greenhouse gas emission is 112,121 tons.

137

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

23. Net Defined Benefit Liabilities

Defined benefit plan

The Group operates defined benefit plans which have the following characteristics:

- The Group has the obligation to pay the agreed benefits to all its current and former employees.

- Actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the Group.

The net defined benefit liability recognized in the statements of financial position is calculated in accordance with actuarial valuation methods. Data such as discount rates, future salary growth rates, and mortality rates based on market data and historical data are used. Actuarial assumptions may differ from actual results, due to changes in the market, economic trends and mortality trends.

Changes in the net defined benefit liabilities for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
Beginning		1,318,665			(1,310,097	)		8,568
Current service cost		136,279			—			136,279
Past service cost¹		26,663			—			26,663
Interest expense (income)		37,568			(37,327	)		241
Remeasurements :
-Actuarial loss arising from experience adjustment		26,780			—			26,780
—Actuarial loss arising from changes in demographic assumptions		9,775			—			9,775
—Actuarial loss arising from changes in financial assumptions		77,611			—			77,611
-Return on plan assets (excluding amounts included in interest income)		—			17,967			17,967
Contributions		—			(133,000	)		(133,000	)
Payments from plans (benefit payments)		(77,785	)		77,785			—
Payments from the Group		(4,476	)		—			(4,476	)
Transfer in		2,677			(2,497	)		180
Transfer out		(4,682	)		4,682			—
Effects of changes in foreign exchange rate		17			—			17

Ending		1,549,092			(1,382,487	)		166,605

¹	The amount of W22,306 million was transferred from other provisions as at December 31, 2017.

138

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
Beginning		1,380,236			(1,309,069	)		71,167
Current service cost		141,486			—			141,486
Past service cost		4,185			—			4,185
Interest expense (income)		30,159			(28,360	)		1,799
Remeasurements :
-Actuarial loss arising from experience adjustment		11,520			—			11,520
—Actuarial gain arising from changes in financial assumptions		(42,579	)		—			(42,579	)
-Return on plan assets (excluding amounts included in interest income)		—			12,356			12,356
Contributions		—			(187,500	)		(187,500	)
Payments from plans (benefit payments)		(199,522	)		199,522			—
Payments from the Group		(3,978	)		—			(3,978	)
Transfer in		2,744			(2,608	)		136
Transfer out		(5,562	)		5,562			—
Effects of changes in foreign exchange rate		(24	)		—			(24	)

Ending		1,318,665			(1,310,097	)		8,568

Details of the net defined benefit liabilities as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Present value of defined benefit obligation		1,549,092			1,318,665
Fair value of plan assets		(1,382,487	)		(1,310,097	)

Net defined benefit liabilities		166,605			8,568

Details of post-employment benefits recognized in profit or loss as employee compensation and benefits for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Current service cost		136,279		141,486
Past service cost		4,357		4,185
Interest expenses of net defined benefit liabilities		241		1,799

Total		140,877		147,470

139

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Remeasurements of net defined benefit liabilities recognized as other comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Remeasurements:
- Actuarial gain arising from changes in demographic assumptions		(9,775	)		—
- Actuarial loss arising from experience adjustment		(26,780	)		(11,520	)
- Actuarial gain arising from changes in financial assumptions		(77,611	)		42,579
- Return on plan assets (excluding amounts included in interest income)		(17,967	)		(12,356	)
Income tax effects		36,336			(4,526	)

Remeasurements after income tax		(95,797	)		14,177

Details of fair value of plan assets as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Assets quoted
in an active market

Assets not quoted
in an active market

Total

Time deposits

—

1,382,487

2017

(In millions of Korean won)

Assets quoted
in an active market

Assets not quoted
in an active market

Total

Time deposits

—

1,310,097

Key actuarial assumptions used as at December 31, 2018 and 2017, are as follows:


	Ratio (%)
	2018		2017
Discount rate		2.30		2.90
Salary growth rate		3.75		3.75
Turnover		1.00		1.00

Mortality assumptions are based on the 8th experience-based mortality table of Korea Insurance Development Institute of 2015.

The sensitivity of the defined benefit obligation to changes in the principal assumptions as at December 31, 2018, is as follows:

Effect on defined benefit obligation

Changes in principal
assumption

Increase in principal
assumption

Decrease in principal
assumption

Discount rate

0.5% p

4.18% decrease

4.49% increase

Salary growth rate

0.5% p

4.12% increase

3.89% decrease

Turnover

0.5% p

0.39% decrease

0.41% increase

140

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The sensitivity of the defined benefit obligation to significant actuarial assumptions is calculated using the projected unit credit method which is used to calculate the defined benefit obligation.

Expected maturity analysis of undiscounted pension benefits as at December 31, 2018, is as follows:


(In millions of Korean won)	Less than 1 year		Between 1 and 2 years		Between 2 and 5 years		Between 5 and 10 years		Over 10 years		Total
Pension benefits		34,207		83,204		465,152		937,292		2,708,298		4,228,153

The weighted average duration of the defined benefit obligations is 8.86 years.

Expected contributions to plan assets for the period after December 31, 2018, are estimated to be approximately W 150,000 million.

24. Other Liabilities

Details of other liabilities as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Other financial liabilities
Other payables		2,253,535		4,006,412
Prepaid card and debit cards		2,351		2,018
Accrued expenses		2,679,685		2,356,270
Financial guarantee liabilities		29,867		24,337
Deposits for letter of guarantees and others		156,364		351,455
Domestic exchange settlement credits		1,679,914		39,445
Foreign exchanges settlement credits		102,187		124,728
Borrowings from other business accounts		13,166		5,408
Payables to trust accounts		5,285,108		5,018,031
Liabilities incurred from agency relationship		605,076		518,955
Account for agency businesses		460,949		257,760
Others		29,202		28,535

		13,297,404		12,733,354

Other non-financial liabilities
Other payables		847,347		384,875
Unearned revenue		48,188		50,139
Accrued expenses		450,493		324,694
Withholding taxes		93,856		145,921
Others		78,776		104,583

		1,518,660		1,010,212

		14,816,064		13,743,566

141

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

25. Equity

25.1 Capital Stock

Details of outstanding shares as at December 31, 2018 and 2017, are as follows:


	Ordinary shares
	2018		2017
Number of shares authorized		1,000,000,000		1,000,000,000
Face value per share (in Korean won)		5,000		5,000
Number of shares		404,379,116		404,379,116
Capital stock¹		2,021,896		2,021,896

¹	In millions of Korean won.

25.2 Capital Surplus

Details of capital surplus as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Paid-in capital in excess of face value		4,604,417		4,604,417
Gain on business combination		397,669		397,669
Revaluation increment		177,229		177,229
Other capital surplus		39,473		40,378

		5,218,788		5,219,693

The gain on business combination is a gain from a bargain purchase related to the merger with Korea Long Term Credit Bank on December 31, 1998, in accordance with previous Korean GAAP.

25.3 Accumulated Other Comprehensive Income

Details of accumulated other comprehensive income as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Remeasurements of net defined benefit liabilities		(175,698	)
Currency translation differences		(10,328	)
Net losses on debt instruments at fair value through other comprehensive income		22,475
Net gains on equity instruments at fair value through other comprehensive income		302,014
Share of other comprehensive income of associates		(3,259	)
Gains on cash flow hedging instruments		11,539
Losses on hedges of a net investment in a foreign operations		(30,959	)

		115,784

142

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017
Remeasurements of net defined benefit liabilities		(79,902	)
Currency translation differences		(39,597	)
Gains on valuation of available-for-sale financial assets		791,153
Share of other comprehensive income of associates		4,262
Gains on cash flow hedging instruments		7,751
Losses on hedges of a net investment in a foreign operations		(5,573	)

		678,094

25.4 Retained Earnings

Retained earnings as at December 31, 2018 and 2017, consist of:


(In millions of Korean won)	2018		2017
Legal reserves		2,034,015		2,033,716
Regulatory reserve for credit losses		2,150,772		2,001,063
Voluntary reserves		12,522,628		11,044,972
Retained earnings before appropriation		2,603,983		2,324,000

		19,311,398		17,403,751

With respect to the allocation of net profit earned in a fiscal term, the Bank must set aside in its legal reserve an amount equal to at least 10% of its net income after tax as reported in the statement of comprehensive income each time it pays dividends on its net profits earned until its legal reserve reaches at least the aggregate amount of its paid-in capital in accordance with Article 40 of the Banking Act. The reserves can only be transferred to capital stock or be used to reduce deficit. With respect to the Group’s branches overseas, a portion of the branch’s net income is appropriated into legal reserves, in line with the financial legislation of the country where the overseas branch is located.

Regulatory Reserve for Credit Losses

Measurement and Disclosure of Regulatory Reserve for Credit Losses are required in accordance with Articles 29.1 through 29.2 of Regulation on Supervision of Banking Business.

Details of the regulatory reserve for credit losses as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Beginning		2,150,772		2,001,063
Amounts estimated to be appropriated		140,247		149,709

Ending		2,291,019		2,150,772

143

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Adjustments to the regulatory reserve for credit losses for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Provision of regulatory reserve for credit losses¹		247,207		149,709
Adjusted profit after provision of regulatory reserve for credit losses²		2,011,991		2,024,996

¹	The amount expected to be appropriated is the amount required to reserve for credit losses, calculated based on the beginning balance of regulatory reserve for credit losses (including unearned reserves) that reflects the effect of adoption of Korean IFRS 1109 retrospectively.

Adjusted profit after provision of regulatory reserve for credit losses is calculated on the assumption that expected provision of regulatory reserve for credit losses which is measured in accordance with Banking Supervision Regulations would be reflected in net profit for the periods without consideration of income tax effect.

26. Interest Income and Expense

Details of interest income, expense, and net interest income for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Interest income
Securities at fair value through profit or loss		214,455
Loans at fair value through profit or loss		7,850
Securities at fair value through other comprehensive income		502,093
Loans at fair value through other comprehensive income		2,138
Due from financial institutions at amortized cost		68,029
Securities at amortized cost		320,361
Loans at amortized cost		8,798,656
Others		106,306

		10,019,888

Interest expense
Deposits		3,019,866
Debts		319,017
Debentures		501,892
Others		78,391

		3,919,166

Net interest income		6,100,722

144

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017¹
Interest income
Due from financial institutions		72,959
Loans		7,503,022
Financial assets at fair value through profit or loss (under Korean IFRS 1039)		170,469
Financial investments
Available-for-sale financial assets		389,570
Held-to-maturity financial assets		276,756
Others		96,117

		8,508,893

Interest expense
Deposits		2,300,198
Debts		219,743
Debentures		369,224
Others		54,944

		2,944,109

Net interest income		5,564,784

¹	Interest income for the year ended December 31, 2017 has been restated according to changes in accounting policy concerning interest income reclassification.

Interest income recognized on impaired loans is W 23,355 million (December 31, 2017: W 30,886 million) for the years ended December 31, 2018.

27. Net Fee and Commission Income

Details of fee and commission income, and fee and commission expense for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Fee and commission income
Banking activity fees		209,499		194,624
Lending activity fees		73,005		73,549
Credit card related fees		1,030		1,279
Debit card related fees and commissions		554		649
Agent activity fees		312,497		350,037
Trust and other fiduciary fees		287,385		305,989
Guarantee fees		32,423		29,419
Foreign currency related fees		92,140		93,096
Security activity commissions		146,883		176,209
Other business account commission on consignment		36,947		33,793
Others		230,428		212,836

		1,422,791		1,471,480

Fee and commission expense
Trading activity related fees¹		12,427		13,277
Lending activity fees		30,661		27,510
Credit card related fees		18,478		1,888

145

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Outsourcing related fees	78,986	60,753
Foreign currency related fees	21,402	19,410
Management fees of written-off loans	12,680	10,359
Contributions to external institutions	23,949	25,037
Others	101,460	88,557

	300,043	246,791

Net fee and commission income	1,122,748	1,224,689

¹	Fees from financial assets/liabilities at fair value through profit or loss.

28. Net Gains or Losses from Financial Assets/Liabilities at Fair Value through Profit or Loss

28.1 Net Gains or Losses from Financial Assets/Liabilities at Fair Value through Profit or Loss

Net gains or losses from financial assets/liabilities at fair value through profit or loss are composed of dividend income and gains or losses arising from changes in the fair values, sales and redemptions.

Details for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Revenue from financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt instruments		249,860
Equity instruments		31,327

		281,187

Derivatives held for trading
Interest rate		1,509,811
Currency		3,463,934
Stock or stock index		7,048
Others		987

		4,981,780

Financial liabilities at fair value through profit or loss		377
Other financial instruments		22

		5,263,366

Expense from financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt instruments		169,248
Equity instruments		37,844

		207,092

Derivatives held for trading
Interest rate		1,554,325
Currency		3,169,608
Stock or stock index		4,473
Others		1,210

		4,729,616

Financial liabilities at fair value through profit or loss		203
Other financial instruments		60

		4,936,971

Net gains or losses from financial assets/liabilities at fair value through profit or loss		326,395

146

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017¹
Gains related to financial instruments held for trading
Financial assets held for trading
Debt instruments		27,652
Equity instruments		24,142
		51,794

Derivatives held for trading
Interest rate		1,203,802
Currency		5,494,382
Stock or stock index		496
Others		1,658

		6,700,338

Financial liabilities held for trading		78
Other financial instruments		109

		6,752,319

Losses related to financial instruments held for trading
Financial assets held for trading
Debt instruments		79,391
Equity instruments		6,396

		85,787

Derivatives held for trading
Interest rate		1,163,749
Currency		5,573,651
Stock or stock index		3,088
Others		2,647

		6,743,135

Financial liabilities held for trading		125
Other financial instruments		117

		6,829,164

Net gains or losses from financial instruments held for trading		(76,845	)

¹	Interest income for the year ended December 31, 2017 has been restated according to changes in accounting policy concerning interest income reclassification.

147

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

28.2 Net Gains or Losses on Financial Instruments Designated at Fair Value through Profit or Loss

Net gain or loss from financial instruments designated at fair value through profit or loss includes dividend income and gains or losses arising from changes in the fair values, sales and redemptions.

There is no financial instruments designated at fair value through profit or loss for the year ended December 31, 2018.

Details of net gains or losses on financial instruments designated at fair value through profit or loss for the year ended December 31, 2017 are as follows:


(In millions of Korean won)	2017
Gains from financial assets designated at fair value through profit or loss
Financial assets designated at fair value through profit or loss		6,022
Losses from financial assets designated at fair value through profit or loss
Financial assets designated at fair value through profit or loss		384
Net gains or losses from financial assets designated at fair value through profit or loss		5,638

29. Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Other operating income
Revenue related to financial assets at fair value through other comprehensive income
Gains on redemption of the securities at fair value through other comprehensive income		230
Gains on sale of the securities at fair value through other comprehensive income		94,984

		95,214

Revenue related to financial assets at amortized cost Gains on sale of loans at amortized cost		15,691

		15,691

Gains on foreign exchange transactions		1,147,691
Dividend income		38,937
Others		86,307

		1,383,840

Other operating expense
Expenses related to financial assets at fair value through other comprehensive income
Losses on sale of the securities at fair value through other comprehensive income		7,135

		7,135

Expenses related to financial assets at amortized cost Losses on sale of loans at amortized cost		6,674

		6,674

Losses on foreign exchanges transactions		1,211,920
Others		854,597

		2,080,326

Net other operating expense		(696,486	)

148

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017
Other operating income
Revenue related to available-for-sale financial assets
Gains on redemption of available-for-sale financial assets		5
Gains on sale of available-for-sale financial assets		90,568

		90,573
Gains on foreign exchange transactions		2,257,371
Dividend income		112,781

Others		91,854

		2,552,579

Other operating expense
Expense related to available-for-sale financial assets
Losses on sale of available-for-sale financial assets		147,558

Impairment losses on available-for-sale financial assets		12,405

		159,963

Losses on foreign exchange transactions		1,909,984

Others		770,719

		2,840,666

Net other operating expense		(288,087	)

149

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

30. General and Administrative Expenses

30.1 General and Administrative Expenses

Details of general and administrative expenses for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Employee Benefits
Salaries and short-term employee benefits - salaries		1,522,003		1,531,078
Salaries and short-term employee benefits - welfare expense		652,781		644,881
Post-employment benefits - defined benefit plans		140,877		147,470
Post-employment benefits - defined contribution plans		6,719		3,594
Termination benefits		209,737		151,172
Share-based payments		4,051		33,148

		2,536,168		2,511,343

Depreciation and amortization		246,488		236,436

Other general and administrative expenses
Rental expense		259,194		233,780
Tax and dues		108,389		97,786
Communication		23,163		22,281
Electricity and utilities		21,641		22,093
Publication		9,771		11,338
Repairs and maintenance		11,263		11,193
Vehicle		7,367		7,074
Travel		4,096		4,307
Training		17,521		16,764
Service fees		107,678		92,478
Others		414,256		398,949

		984,339		918,043

		3,766,995		3,665,822

150

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

30.2 Share-based Payments

30.2.1 Share Grants

The Group changed the scheme of share-based payment from share option to share grants in November 2007. The share grant award program is an incentive plan that sets, on grant date, the maximum number of shares that can be awarded. Actual shares to be granted is determined in accordance with achievement of performance targets over the vesting period.

Details of the share grants as at December 31, 2018, are as follows:


(In number of shares)
Share grants	Grant date		Number of granted shares^{1, 2}		Vesting conditions
Series 69		2017.01.01		173,030	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Series 71		2017.08.26		4,372	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Series 72		2017.08.28		5,601	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Series 73		2017.11.21		27,786	Service provision, TSR 30~50%, EPS and Asset Quality 50~70%
Series 74		2018.01.01		190,536	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Deferred grant in 2015		—		33,050
Deferred grant in 2016		—		110,967
Deferred grant in 2017		—		139,697

				685,039

¹	Granted shares in relation to Series 69, 71 ~ 74 represent the total number of shares granted to directors and employees but not vested at the end of reporting period. The number of deferred grants represents residual shares that have been vested at the end of reporting period.

²	Certain percentages among the granted shares are deferred for over three years to five years from the time of initial exercising.

Details of share grants linked to short-term performance as at December 31, 2018, are as follows:


Share grants¹	Grant date		Number of vested shares		Vesting conditions
Granted shares for 2015		2015.01.01		58,366	Vested
Granted shares for 2016		2016.01.01		83,794	Vested
Granted shares for 2017		2017.01.01		80,331	Vested
Granted shares for 2018		2018.01.01		109,871	Proportion to service period

¹	Options are given to the executives and employees during the year for deferred payment schedule (after the retirement date), payment proportion and payment period. Due to these given options, the deferred payment period might be a maximum of five years after the retirement date.

151

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Share grants are measured at fair value using the Monte Carlo Simulation Model and assumptions used in determining the fair value as at December 31, 2018, are as follows:

(In Korean won)

Expected
exercise period
(Years)

Risk free rate
(%)

Fair value
(Market
performance
condition)

Fair value
(Non-market
performance
condition)

Linked to long-term performance

Series 69

0.00~5.00

1.75

40,224~47,153

Series 71

1.00~4.00

1.75

41,473~45,236

Series 72

1.00~4.00

1.75

41,473~45,236

Series 73

0.89~3.89

1.75

41,614~45,382

Series 74

1.00~6.00

1.75

38,510~44,580

39,077~45,236

Grant deferred in 2015

0.00~3.00

1.75

—

42,682~47,153

Grant deferred in 2016

0.00~5.00

1.75

—

40,224~47,153

Grant deferred in 2017

0.00~4.00

1.75

—

41,473~47,153

Linked to short-term performance

Share granted in 2015

0.00~5.00

1.75

—

40,224~47,153

Share granted in 2016

0.00~6.00

1.75

—

39,077~47,153

Share granted in 2017

0.00~6.00

1.75

—

39,077~47,153

Share granted in 2018

1.00~6.00

1.75

—

39,077~45,236

Expected volatility is based on the historical volatility of the share price over the most recent period that is generally commensurate with the expected term of the grant and the current stock price as at December 31, 2018, was used for the underlying asset price. Also, the average three-year historical dividend rate was used as the expected dividend rate.

As at December 31, 2018 and 2017, the accrued expenses related to share-based payments, including share grants, amounted to W 40,873 million and W 58,897 million, respectively, and the compensation costs from share grants amounting to W 4,051 million and W 33,148 million were incurred during the years ended December 31, 2018 and 2017, respectively.

152

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

30.2.2 Mileage Stock

Details of Mileage Stock as at December 31, 2018, are as follows:


(In number of shares)	Grant date		Number of granted shares¹		Expected exercise period (Years)¹		Number of exercisable shares²
Share granted in 2016		2016.01.23		33,829		0.00~0.06		12,334
		2016.04.29		60		0.00~0.33		21
		2016.07.07		280		0.00~0.52		62
		2016.07.18		767		0.00~0.55		—
		2016.08.03		107		0.00~0.59		38
		2016.08.17		51		0.00~0.63		23
		2016.08.30		256		0.00~0.66		168
		2016.09.06		206		0.00~0.68		103
		2016.10.07		105		0.00~0.77		69
		2016.11.01		118		0.00~0.84		24
		2016.12.07		211		0.00~0.93		96
		2016.12.08		43		0.00~0.94		32
		2016.12.15		12		0.00~0.96		12
		2016.12.20		309		0.00~0.97		169
		2016.12.28		76		0.00~0.99		40
		2016.12.30		210		0.00~1.00		79
Share granted in 2017		2017.01.09		28,925		0.00~1.02		13,198
		2017.02.03		43		0.00~1.09		28
		2017.04.03		82		0.00~1.25		61
		2017.05.22		20		0.00~1.39		20
		2017.07.03		52		0.00~1.50		52
		2017.08.07		29		0.00~1.60		19
		2017.08.08		5		0.00~1.60		2
		2017.08.16		204		0.00~1.62		166
		2017.08.17		40		0.00~1.63		32
		2017.08.24		387		0.00~1.65		323
		2017.09.08		82		0.00~1.69		73
		2017.10.20		9		0.00~1.80		—
		2017.11.01		120		0.00~1.84		103
		2017.11.06		106		0.00~1.85		106
		2017.12.06		105		0.00~1.93		91
		2017.12.26		254		0.00~1.99		215
		2017.12.29		114		0.00~1.99		98
Share granted in 2018		2018.01.10		19,197		0.00~2.03		18,663
		2018.02.12		9		0.00~2.12		9
		2018.04.02		115		0.00~2.25		115
		2018.04.30		86		0.00~2.33		86
		2018.05.08		170		0.00~2.35		166
		2018.06.01		140		0.00~2.42		140
		2018.07.02		180		0.00~2.50		180
		2018.08.07		194		0.00~2.60		194
		2018.08.09		47		0.00~2.61		47
		2018.08.14		30		0.00~2.62		30
		2018.08.16		130		0.00~2.62		130
		2018.09.07		106		0.00~2.68		106

153

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


2018.10.04	129	0.00~2.76	129
2018.11.01	258	0.00~2.84	258
2018.11.06	236	0.00~2.85	236
2018.12.04	21	0.00~2.93	21
2018.12.07	91	0.00~2.93	91
2018.12.03	132	0.00~2.92	132
2018.12.12	64	0.00~2.95	64
2018.12.18	271	0.00~2.96	271
2018.12.19	42	0.00~2.97	42
2018.12.31	127	0.00~3.00	127

	88,992		49,094

¹Mileage stock is exercisable for two years after one year from the grant date. When the mileage stock is exercised, the closing price of prior month is applied. However, in case of transfer or retirement during the vesting period, mileage stock is exercisable at the closing price of the last month prior to transfer or retirement.

²The exercisable shares are assessed based on the stock price as at December 31, 2018. These shares are vested immediately at grant date.

The accrued expenses for share-based payments in regard to mileage stock as at December 31, 2018 and 2017, are W 2,283 million and W 2,973 million, respectively. The compensation costs amounting to W 1,350 million and W 2,378 million were recognized as an expense for the years ended December 31, 2018 and 2017, respectively.

31. Non-operating Income and Expenses

Details of non-operating income and expenses for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Non-operating income
Gains on disposal in property and equipment and assets held for sale		152,852		3,597
Rental income		26,429		25,063
Others		17,515		42,203

		196,796		70,863

Non-operating expenses
Losses on disposal in property and equipment and assets held for sale		5,590		6,006
Donation		91,943		39,752
Restoration cost		1,854		3,323
Others		53,237		95,249

		152,624		144,330

Net non-operating income (expenses)		44,172		(73,467	)

154

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

32. Income Tax Expense

Income tax expense for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Tax payable
Current tax expense		806,618
Adjustments recognized in the period for current tax of prior years		(4,856	)

		801,762

Changes in deferred income tax assets (liabilities)		26,696
Income tax expense of overseas branches		6,863
Income tax recognized directly in equity
Net losses on equity instruments at fair value through other comprehensive income		13,660
Net losses on debt instruments at fair value through other comprehensive income		(21,703	)
Exchange difference in foreign operation		(9,346	)
Remeasurements of net defined benefit liabilities		36,336
Gain on hedges of a net investment in a foreign operations		9,629
Loss on cash flow hedging instruments		(1,437	)
Share of other comprehensive income of associates		1,283

		28,422

Reclassification of sale of securities at fair value through other comprehensive income		(5,172	)
Consolidated tax effect		(31,431	)

Tax expense		827,140


(In millions of Korean won)	2017
Tax payable
Current tax expense		342,256
Adjustments recognized in the period for current tax of prior years		(19,160	)

		323,096

Changes in deferred income tax assets (liabilities)		217,754
Income tax expense of overseas branches		4,721
Income tax recognized directly in equity
Changes in value of available-for-sale financial assets		(82,670	)
Exchange difference in foreign operation		11,835
Changes in remeasurements of net defined benefit liabilities		(4,526	)
Loss on hedging investment of a net investment in a foreign operation		(8,196	)
Loss on cash flow hedging instruments		(2,833	)
Share of other comprehensive loss of associates		(1,245	)

		(87,635	)

Consolidated tax effect		(19,346	)

Tax expense		438,590

¹The Group did not recognize deferred income tax assets regarding the loss on valuation of JSC Bank Center Credit’s shares due to the low possibility of the disposal of its shares. Notwithstanding, the Group recognized W 158,264 million as the reduction of income tax expenses since the sale of its shares was completed during the year ended December 31, 2017.

155

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

An analysis of the net profit before income tax and income tax expense for the years ended December 31, 2018 and 2017, follows:


(In millions of Korean won)	2018			2017
Profit before income tax		3,086,338			2,613,295

Tax at the applicable tax rate¹		838,381			631,955
Non-taxable income		(2,967	)		(189,687	)
Non-deductible expense		12,964			8,991
Tax credit and tax exemption		(275	)		(296	)
Temporary difference for which no deferred tax is recognized		1,112			1,166
Tax supplementary pay (rebate) for tax of prior years		(2,771	)		(8,334	)
Income tax expense of overseas branch		6,863			4,721
Tax effect of investments in subsidiaries		1,878			21,167
Foreign subsidiary tax rate difference effect		(1,470	)		589
Consolidated tax effect		(31,431	)		(19,347	)
Change in tax rates effect		—			(14,299	)
Others		4,856			1,964

Tax expense		827,140			438,590

Tax expense / Profit before income tax (%)		26.80			16.78

Applicable income tax rate for W200 million and below is 11%, for over W200 million to W20 billion is 22%, and for over W20 billion to W300 billion is 24.2%, for over W300 billion is 27.5% as at December 31, 2018 and W200 million and below is 11%, for over W200 million to W20 billion is 22%, and for over W20 billion is 24.2% as at December 31, 2017.

Details of current tax liabilities (income tax payables) and current tax assets (income tax refund receivables) before offsetting, as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Tax payables after offsetting^{1, 2}		623,867			232,423
Adjustment on consolidated tax payable and others³		(31,431	)		(19,347	)
Accounts payables⁴		(586,699	)		(209,533	)

Current tax payable		5,737			3,543

¹	Excludes current tax assets of W 486 million (December 31, 2017: W 486 million) from uncertain tax position, which do not qualify for offsetting.

²	Includes income tax payable of W 5,736 million (December 31, 2017: W 3,543 million) under current tax liabilities as at December 31, 2018, which are not to be offset against any income tax refund receivables, such as those of overseas branches.

156

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

³	Tax expense reduced due to the adoption of consolidated tax return was recognized as tax benefit.

⁴	The amount of income tax payable by the Bank is reclassified as accounts payable, not to the tax authority, but to KB Financial Group Inc. due to the adoption of consolidated tax return.

33. Dividends

The dividend to the shareholder of the Bank in respect of the year ended December 31, 2018, of W1,650 per share, amounting to total dividends of W667,226 million, is to be proposed at the annual general shareholder’s meeting on March 21, 2019. The Group’s financial statements as at December 31, 2018, do not reflect this dividend payable.

157

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

34. Accumulated Other Comprehensive Income

Details of accumulated other comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	Beginning¹			Changes (excluding reclassification)			Reclassification to profit or loss			Tax effect			Transfer to retained earnings			Ending
Remeasurements of net defined benefit liabilities		(79,902	)		(132,132	)		—			36,336			—			(175,698	)
Currency translation differences		(37,711	)		21,672			15,057			(9,346	)		—			(10,328	)
Net gains (losses) on debt instruments at fair value through other comprehensive income		(34,713	)		72,415			6,476			(21,703	)		—			22,475
Net gains (losses) on equity instruments at fair value through other comprehensive income		338,027			(30,863	)		—			13,660			(18,810	)		302,014
Share of other comprehensive income of associates		124			(4,666	)		—			1,283			—			(3,259	)
Gains(losses) on cash flow hedging instruments		7,751			6,980			(1,755	)		(1,437	)		—			11,539
Gains (losses) on hedges of a net investment in a foreign operations		(5,573	)		(22,685	)		(12,330	)		9,629			—			(30,959	)

		188,003			(89,279	)		7,448			28,422			(18,810	)		115,784

¹	Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Beginning			Changes (excluding reclassification)			Reclassification to profit or loss			Tax effect			Classified as assets held for sale			Ending
Remeasurements of net defined benefit liabilities		(94,079	)		18,703			—			(4,526	)		—			(79,902	)
Currency translation differences		27,509			(78,941	)		—			11,835			—			(39,597	)
Gains (losses) on valuation of available-for-sale financial assets		680,965			146,757			46,101			(82,670	)		—			791,153
Share of other comprehensive income of associates		(87,577	)		4,249			—			20,253			67,337			4,262
Gains (losses) on cash flow hedging instruments		337			10,691			(444	)		(2,833	)		—			7,751
Gains (losses) on hedges of a net investment in a foreign operations		(32,292	)		34,915			—			(8,196	)		—			(5,573	)
Accumulated other comprehensive income related to held for sale		—			—			88,835			(21,498	)		(67,337	)		—

		494,863			136,374			134,492			(87,635	)		—			678,094

158

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

35. Trust Accounts

Financial information of the trust segments the Group manages as at December 31, 2018 and 2017, and for the years ended December 31, 2018 and 2017, are as follows:


	Total assets				Operating revenues
(In millions of Korean won)	2018		2017		2018		2017
Consolidated		4,259,441		4,148,600		127,994		110,487
Unconsolidated		47,644,193		43,256,371		1,609,587		2,590,728

		51,903,634		47,404,971		1,737,581		2,701,215

¹Financial information of the trust accounts are not based on Korean IFRS; it has been prepared in accordance with the Statement of Korea Accounting Standard 5004, Trust Accounts and enforcement regulations of Financial Investment Services under the Financial Investment Services and Capital Markets Act.

Significant receivables and payables related to the Group’s trust accounts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Trust	Assets
Segment	Accrued trust fees		36,172		30,030
	Other accrued income		23,658		21,250

			59,830		51,280

	Liabilities
	Due to trust accounts		1,160,152		1,156,354
	Accrued interest on due to trust accounts		6,267		4,224
	Deposits		345,873		385,596
	Accrued interest on deposits		24,867		25,543

			1,537,159		1,571,717

Custody	Assets
Segment	Accrued trust fees		5,549		4,982

	Liabilities
	Due to trust accounts		4,124,955		3,861,677
	Accrued interest on due to trust accounts		4,280		3,408

			4,129,235		3,865,085

159

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Significant revenue and expenses related to the Group’s trust accounts for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Trust	Revenues
Segment	Fees and commissions from trust accounts		259,170		280,727
	Management fees and commissions from retirement pension		25,321		24,590
	Commissions from early termination in trust accounts		88		92

			284,579		305,409

	Expenses
	Interest expenses on due to trust accounts		17,842		15,440
	Interest expenses on deposits		21,389		29,005

			39,231		44,445

Custody	Revenues
Segment	Fees and commissions from trust accounts		28,215		25,261
	Commissions from early termination in trust accounts		—		—
			28,215		25,261

	Expenses
	Interest expenses on due to trust accounts		43,612		28,504

36. Supplemental Cash Flow Information

Cash and cash equivalents as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Cash		2,185,156			2,167,172
Checks with other banks		872,166			430,253
Due from Bank of Korea		8,911,607			8,981,665
Due from other financial institutions		2,920,081			4,067,228

		14,889,010			15,646,318

Restricted due from financial institutions		(9,203,801	)		(9,239,813	)
Due from financial institutions with original maturities over three months		(828,714	)		(328,551	)

		(10,032,515	)		(9,568,364	)

		4,856,495			6,077,954

160

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Significant non-cash transactions for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Decrease in loans due to the write-offs		526,134			650,419
Changes in accumulated other comprehensive income due to gains and losses on debt instruments at fair value through other comprehensive income		57,188			—
Changes in accumulated other comprehensive income due to valuation of financial investments		—			110,188
Changes in accumulated other comprehensive income due to investment in associates		(4,665	)		3,004
Changes in financial investments due to debt-for-equity swap		22,286			10,250

Cash inflows and outflows from income tax, interest and dividends for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	Activities		2018		2017
Income tax paid		Operating		396,072		401,530
Interest received		Operating		10,162,987		8,766,970
Interest paid		Operating		3,483,064		2,937,348
Dividends received		Operating		97,440		102,328
Dividends paid		Financing		640,132		359,493

Changes in liabilities arising from financial activities for the year ended December 31, 2018 are as follows:


(In millions of Korean won)	Derivative financial instrument for hedging purposes¹			Debts			Debentures		Payables to trust accounts		Finance lease liabilities			Deposits for letter of guarantees and others			Other payable			Total
Beginning		(3,659	)		15,810,753			19,183,798		5,018,031		1,642			351,455			144,636			40,506,656
Cash flow		(17,698	)		1,517,014			3,795,428		267,076		(11,242	)		(205,302	)		(3,170	)		5,342,106
Lease newly acquired		—			—			—		—		17,555			—			—			17,555
Exchange differences		—			169,122			147,306		—		—			—			—			316,428
Changes in fair values		30,679			—			4,019		—		—			—			—			34,698
Changes from business combination		—			—			—		—		—			—			(48,711	)		(48,711	)
Other changes from non-cash transactions		5,321			(833	)		33,034		—		110			10,211			11,429			59,272

Ending		14,643			17,496,056			23,163,585		5,285,107		8,065			156,364			104,184			46,228,004

¹	Derivative financial instruments held for hedging are shown at net amounts of liabilities and assets.

161

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

37. Contingent Liabilities and Commitments

Acceptances and guarantees as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Confirmed acceptances and guarantees
Confirmed acceptances and guarantees in Korean won
Acceptances and guarantees for KB purchasing loan		196,517		252,817
Others		597,636		530,272

		794,153		783,089

Confirmed acceptances and guarantees in foreign currencies
Acceptances of letter of credit		208,926		147,987
Letter of guarantees		53,210		60,853
Bid bond		51,528		46,984
Performance bond		604,311		563,506
Refund guarantees		592,925		778,779
Others		2,539,900		1,960,769

		4,050,800		3,558,878

Financial guarantees
Acceptances and guarantees for mortgage		50,497		57,445
Overseas debt guarantees		311,796		285,577
International financing guarantees in foreign currencies		110,070		46,953
Others		270,000		270,000

		742,363		659,975

		5,587,316		5,001,942

Unconfirmed acceptances and guarantees
Guarantees of letter of credit		1,745,340		2,250,543
Refund guarantees		686,843		384,958

		2,432,183		2,635,501

		8,019,499		7,637,443

162

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Guarantee exposure by credit ratings

The credit quality of the guarantees exposure as at December 31, 2018 can be categorized as follows:


	2018
(In millions of Korean won)	Financial instruments applying 12-month expected credit losses		Financial instruments applying lifetime expected credit losses				Total
			Non-impaired		Impaired		Total
Confirmed acceptances and guarantees
Grade 1		3,726,259		179		—		3,726,438
Grade 2		1,571,258		29,034		—		1,600,292
Grade 3		84,251		13,585		—		97,836
Grade 4		30,443		117,166		420		148,029
Grade 5		—		171		14,550		14,721

		5,412,211		160,135		14,970		5,587,316

Unconfirmed acceptances and guarantees
Grade 1		1,102,478		1,747		—		1,104,225
Grade 2		1,180,137		17,795		—		1,197,932
Grade 3		25,749		16,225		—		41,974
Grade 4		9,627		66,186		—		75,813
Grade 5		—		219		12,020		12,239

		2,317,991		102,172		12,020		2,432,183

		7,730,202		262,307		26,990		8,019,499

¹	Applied same criteria as the credit quality classification of loans.

Acceptances and guarantees by counterparty as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Large companies		4,775,838		1,901,951		6,677,789		83.27
Small and medium sized companies		617,458		423,947		1,041,405		12.99
Public and others		194,020		106,285		300,305		3.74

		5,587,316		2,432,183		8,019,499		100.00

163

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Large companies		4,185,975		1,913,114		6,099,089		79.86
Small and medium sized companies		621,835		492,369		1,114,204		14.59
Public and others		194,132		230,018		424,150		5.55

		5,001,942		2,635,501		7,637,443		100.00

Acceptances and guarantees by industry as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Financial institutions		72,071		3,736		75,807		0.95
Manufacturing		2,981,245		1,451,657		4,432,902		55.27
Service		931,680		84,586		1,016,266		12.67
Wholesale and retail		998,333		723,367		1,721,700		21.47
Construction		280,146		40,988		321,134		4.00
Public		165,571		36,256		201,827		2.52
Others		158,270		91,593		249,863		3.12

		5,587,316		2,432,183		8,019,499		100.00


	2017
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Financial institutions		23,317		7,353		30,670		0.40
Manufacturing		2,799,593		1,270,721		4,070,314		53.29
Service		655,057		100,004		755,061		9.89
Wholesale and retail		935,647		837,230		1,772,877		23.21
Construction		335,156		198,996		534,152		6.99
Public		165,249		129,944		295,193		3.87
Others		87,923		91,253		179,176		2.35

		5,001,942		2,635,501		7,637,443		100.00

164

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Commitments as at December 31, 2018 and 2017, are as follows:



(In millions of Korean won)	2018		2017
Commitments
Corporate loan commitments		36,929,404		32,786,234
Retail loan commitments		41,283,734		15,935,382
Other acceptance and guarantees in Korean won		1,300,000		1,000,000
Purchase of securities		1,765,445		1,129,408

		81,278,583		50,851,024

Financial Guarantees
Credit line		1,956,426		1,953,579
Purchase of securities		436,800		354,800

		2,393,226		2,308,379

		83,671,809		53,159,403

Other Matters (including litigation)

The Group has filed 50 lawsuits (excluding minor lawsuits in relation to the collection or management of loans), as the plaintiff, involving aggregate claims of W 361,685 million, and faces 93 lawsuits as the defendant (excluding minor lawsuits in relation to the collection or management of loans) involving aggregate damages of W 205,557 million, which arose in the normal course of the business and are still pending as at December 31, 2018.

b)	As at December 31, 2018, the Group has entered into construction contracts amounting to W 151,280 million related to the construction of integrated headquarters building and payments made up to December 31, 2018 amount to W 7,605 million.

c)	As at December 31, 2018, the Group has entered into construction contracts amounting to W 116,563 million related to the construction of integrated IT center, and payments made up to December 31, 2018 amount to W 42,857 million.

d)	The face values of the securities sold to general customers through tellers’ sale amount to W 372 million and W 372 million as at December 31, 2018 and 2017, respectively.

165

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

38. Subsidiaries

Details of subsidiaries as at December 31, 2018, are as follows:


Investor	Investee	Ownership (%)		Location	Industry
Kookmin Bank	Kookmin Bank Int’l Ltd.(London)¹		100.00	United Kingdom	Banking and foreign exchange transaction
Kookmin Bank	Kookmin Bank Cambodia PLC.		100.00	Cambodia	Banking and foreign exchange transaction
Kookmin Bank	Kookmin Bank (China) Ltd.		100.00	China	Banking and foreign exchange transaction
Kookmin Bank	KB Microfinance Myanmar Co., Ltd		100.00	Myanmar	Micro finance services
Kookmin Bank	Personal pension trust and 10 others²		—	Korea	Trust
Kookmin Bank	KL the 1st L.L.C. and 33 others³		—	Korea	Asset-backed Securitization and others
Kookmin Bank	KB Wise Star Private Real Estate Feeder Fund 1⁴		86.00	Korea	Investment Trust
KB Wise Star Private Real Estate Feeder Fund 1	KB Star Office Private Real Estate Master Fund 2³		44.44	Korea	Investment Trust
Kookmin Bank	KB Multi-Asset Private Securities Fund S-1⁴		99.96	Korea	Investment Trust
Kookmin Bank	KB Multi-Asset Private Securities Fund P-1⁴		99.96	Korea	Investment Trust
KB Multi-Asset Private Securities Fund P-1(Bond Mixed)	KB Multi-Asset Private Securities Fund P-1(Bond Mixed)		100.00	Korea	Investment Trust
Kookmin Bank	Samsung KODEX 10Y F-LKTB Inverse ETF(Bond-Derivatives)⁴		88.74	Korea	Investment Trust
Kookmin Bank	KB Haeorum Private Securities 83⁴		99.95	Korea	Investment Trust
Kookmin Bank	KB KBSTAR KTB 3Y Futures Inverse ETF⁴		61.56	Korea	Investment Trust
Kookmin Bank	Kiwoom Frontier Private placement fund 10[Bond]⁴		99.85	Korea	Investment Trust
Kookmin Bank	Tong Yang Safe Plus Qualified Private Trust S-8(Bond)⁴		99.93	Korea	Investment Trust
Kookmin Bank	Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1⁴		99.92	Korea	Investment Trust
Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1	Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1		100.00	Korea	Investment Trust
Kookmin Bank	NH-Amundi Global Private Securities Investment Trust 1(BOND)⁴		83.31	Korea	Investment Trust
Kookmin Bank	Meritz Private Real Estate fund No.9-2⁴		99.98	Korea	Investment Trust
Kookmin Bank	AIP US Red Private Real Estate Trust NO.10⁴		99.97	Korea	Investment Trust

The Group converted Kookmin Bank Int’l Ltd.(London) into a London branch as at May 16, 2018, which is considered to be a merger transaction between subsidiaries under common control. The Group accounted for the transaction by applying carrying amount method and measured the transferred assets and liabilities at carrying amounts included in the consolidated financial statements. The amounts of the transferred assets and liabilities resulting from the business combination were W 480,161 million and W 480,023 million, respectively as at the acquisition date.

166

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

²	The Group controls the trust because it has power that determines the management performance over the trust, and is exposed to variable returns to absorb losses through the guarantees of payment of principal or, payment of principal and fixed rate of return.

³	The Group controls these investees because it is exposed to variable returns from its involvement with the investees, and has ability to affect those returns through its power, even though it holds less than a majority of the voting rights of the investees.

⁴	The Group controls these investees because it is exposed to variable returns from its involvement with the investees, and has ability to affect those returns through its power.

The condensed financial information of major subsidiaries as at December 31, 2018 and 2017, and for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Assets		Liabilities		Equity		Operating revenue		Profit (loss) for the period
Kookmin Bank Int’l Ltd.(London)		35,923		940		34,983		7,330		1,331
Kookmin Bank Hongkong Ltd.¹		—		—		—		5,716		5,434
Kookmin Bank Cambodia PLC.		197,135		104,328		92,807		10,307		1,621
Kookmin Bank (China) Ltd.		2,605,033		2,192,469		412,564		138,453		14,819
KB Microfinance Myanmar Co., Ltd		20,941		879		20,062		2,783		538
Personal pension trust and 10 others		4,284,440		4,173,488		110,952		144,767		3,966

¹ Liquidation was completed during the year ended December 31, 2018.


(In millions of Korean won)	2017
(In millions of Korean won)	Assets		Liabilities		Equity		Operating revenue		Profit (loss) for the period
Kookmin Bank Int’l Ltd.(London)		506,474		423,252		83,222		15,931		3,022
Kookmin Bank Hongkong Ltd.		22,866		—		22,866		—		(1,953	)
Kookmin Bank Cambodia PLC.		133,133		76,680		56,453		8,267		984
Kookmin Bank (China) Ltd.		2,007,154		1,606,434		400,720		70,142		1,118
KB Microfinance Myanmar Co., Ltd		10,372		400		9,972		623		(664	)
Personal pension trust and 10 others		4,162,200		4,055,204		106,996		111,187		4,825

167

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Nature of the risks associated with interests in consolidated structured entities

Terms of contractual arrangements that provide financial support to a consolidated structured entity are as follows:

- The Group provides the capital commitments of W 172,000 million to KB Wise Star Private Real Estate Feeder Fund 1st, of which W 56,717 million has not been utilized and of W 55,894 million to Meritz Private Real Estate fund No.9-2, of which W 36,243 million has not been utilized. Based on the investment agreement, the Group is subject to increase its investment upon the request of the asset management company or agreement among existing investors.

- The Group has provided purchase commitment and grant of credit to the structured entities that are considered as subsidiaries. The Group should purchase unsold commercial paper securities if there is a shortage of the investors for the commercial paper securities issued by the structured entity. If events causing the cessation of the issuance of commercial paper securities occur or if the structured entities become insolvent, the Group should provide loans to the structured entities under certain conditions.


(In millions of Korean won)	2018
KL the 1st L.L.C.		50,132
KH the 2nd L.L.C.		40,988
KL the International 1st L.L.C.		30,280
Silver Investment 2nd Inc.		50,000
KL the 3rd L.L.C.		30,155
KH the 3rd L.L.C.		70,100
KBM the 1st L.L.C.		50,289
KY the 1st L.L.C.		24,035
KBC the 1st L.L.C.		35,104
KH the 4th L.L.C.		25,130
KDL the 1st L.L.C.		32,828
KB INO 1st L.L.C.		10,200
KBH the 1st L.L.C.		14,070
KBH the 2nd L.L.C.		20,187
LIIV FOR RENTAL 1st L.L.C.		32,200
HLD the 3rd L.L.C.		108,500
KB HUB the 1st L.L.C.		30,123
Leecheon Albatros L.L.C.		20,200
KBH the 3rd L.L.C.		40,167
KBC the 2nd L.L.C.		50,141
KLD the 1st L.L.C.		9,100
LOG the 3rd L.L.C.		24,300
KB Green 1st L.L.C.		52,672
KBL Incheon 1st L.L.C.		100,968
KB DTower 1st L.L.C.		50,017
KB Display 1st L.L.C.		100,382
KBL CC 1st L.L.C.		90,207
KB Alminium 1st L.L.C.		50,208
KB First Park L.L.C.		62,919
KB INO 2nd L.L.C.		50,049

168

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

- The Group provides the guarantees of payment of principal or principal and fixed rate of return, in case the operating results of the trusts are less than the guaranteed principal or principal and a fixed rate of return.

Changes in subsidiaries

Kiwoom Frontier Private placement fund 10(Bond) and fourteen other subsidiaries were newly included in the consolidation scope, and Kookmin Bank Hong Kong Ltd. and six other subsidiaries were excluded from the scope of consolidation due to liquidation and resale during the year ended December 31, 2018.

Net cash flow from change in subsidiaries

The net cash inflow from subsidiaries newly consolidated and de-consolidated is amounting to W26,125 million and W40,405 million, respectively for the year ended December 31, 2018.

39. Unconsolidated Structured Entity

The nature, purpose and activities of the unconsolidated structured entities and how the structured entities are financed, are as follows:


Nature	Purpose	Activities	Methods of Financing
Asset—backed securitization	Early cash generation through transfer of securitization assets Fees earned as services to SPC, such as providing lines of credit and ABCP purchase commitments	Fulfillment of Asset-backed securitization plan Purchase and collection securitization assets Issuance and repayment of ABS and ABCP	Issuance of ABS and ABCP based on securitization assets

Project financing	Granting PF loans related to SOC and real property Granting loans to ships/aircrafts SPC	Construction of SOC and real property Building ships/ Construction and purchase of aircrafts	Loan commitments through Credit Line, providing lines of credit and investment agreements

Investment funds	Investment in beneficiary certificates Investment in PEF and partnerships	Management of fund assets Payment of fund fees and allocation of fund profits	Sales of beneficiary certificate instruments Investment of general partners and limited partners

169

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

As at December 31, 2018 and 2017, the size of the unconsolidated structured entities and the risks associated with its interests in unconsolidated structured entities are as follows:


	2018
(In millions of Korean won)	Asset-backed securitization		Project financing		Investment funds		Others		Total
Total assets of the unconsolidated structured entities		86,639,696		20,660,605		28,470,016		3,878,221		139,648,538

Carrying amount on financial statements
Assets
Financial assets at fair value through profit or loss		213,279		2,270		2,241,304		17,715		2,474,568
Derivative financial assets		4,034		—		22,250		—		26,284
Loans at amortized cost		416,246		1,764,707		—		336,294		2,517,247
Financial investments		5,458,105		—		—		—		5,458,105
Investments in associates		—		—		277,645		—		277,645
Other assets		—		—		—		—		—

		6,091,664		1,766,977		2,541,199		354,009		10,753,849

Liabilities
Deposits		526,274		728,324		62,319		7,757		1,324,674
Derivative financial liabilities		331		—		—		—		331
Other liabilities		981		1,112		58		—		2,151

		527,586		729,436		62,377		7,757		1,327,156

Maximum exposure to loss
Asset¹		6,091,664		1,766,977		2,541,199		354,009		10,753,849
Purchase and capital commitments		—		20,000		1,664,461		—		1,684,461
Unused providing lines of credit		1,956,427		—		—		—		1,956,427
Acceptances and guarantees and Loan commitments		889,315		1,193,261		—		—		2,082,576

		8,937,406		2,980,238		4,205,660		354,009		16,477,313

Methods of determining the maximum exposure to loss		Providing lines of credit / Purchase commitments/ Acceptances and guarantees and Loan commitments		Loan commitments / Capital commitments / Purchase commitments and Acceptances and guarantees		Capital commitments		Loan commitments

170

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017



	2017
(In millions of Korean won)	Asset-backed securitization		Project Financing		Investment funds		Others		Total
Total assets of the unconsolidated structured entities		99,835,410		21,636,792		25,929,064		4,890,100		152,291,366

Carrying amount on financial statements
Assets
Financial assets at fair value through profit or loss		168,647		—		—		—		168,647
Derivative financial assets		268		—		—		—		268
Loans		239,894		2,021,225		—		327,875		2,588,994
Financial investments		6,400,833		7,867		2,309,361		17,055		8,735,116
Investments in associates		—		—		235,234		—		235,234
Other assets		—		710		—		—		710

		6,809,642		2,029,802		2,544,595		344,930		11,728,969

Liabilities
Deposits		484,890		755,242		50,832		3,985		1,294,949
Derivative financial liabilities		229		—		—		—		229
Other liabilities		—		29		45		—		74

		485,119		755,271		50,877		3,985		1,295,252

Maximum exposure to loss
Asset¹		6,809,642		2,029,802		2,544,595		344,930		11,728,969
Purchase and capital commitments		20,000		—		1,178,462		—		1,198,462
Unused providing lines of credit		2,082,736		—		—		—		2,082,736
Acceptances and guarantees and Loan commitments		382,300		1,385,722		—		—		1,768,022

		9,294,678		3,415,524		3,723,057		344,930		16,778,189


Methods of determining the maximum exposure to loss		Providing lines of credit / Purchase commitments / Acceptances and guarantees and Loan commitments		Loan commitments / capital commitments / purchase commitments and Acceptances and guarantees		Capital commitments		Loan commitments

¹	Maximum exposure to loss includes the asset amounts, after deducting loss (provision for assets, impairment losses and others), recognized in the consolidated financial statements of the Group.

171

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

40. Finance and Operating Leases

40.1 Finance Lease

The future minimum lease payments as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Net carrying amount of finance lease assets		26,083		17,768

Minimum lease payments
Within 1 year		5,824		1,660
1-5 years		2,406		—

		8,230		1,660

Present value of minimum lease payments
Within 1 year		5,716		1,642
1-5 years		2,349		—

		8,065		1,642

40.2 Operating Lease

40.2.1 The Group as an Operating Lessee

The future minimum lease payments arising from the non-cancellable lease contracts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Minimum lease payments
Within 1 year		135,474			123,869
1-5 years		192,148			138,666
Over 5 years		16,675			34,129

		344,297			296,664

Minimum sublease payments		(2,323	)		(2,461	)

The lease payments reflected in profit or loss for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Lease payments reflected in profit or loss
Minimum lease payments		161,936			159,413
Sublease payments		(1,769	)		(1,177	)

		160,167			158,236

172

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

40.2.2 The Group as an Operating Lessor

The future minimum lease receipts arising from the non-cancellable lease contracts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Minimum lease receipts
Within 1 year		17,376		17,430
1-5 years		23,984		34,079

		41,360		51,509

41. Related Party Transactions

Profit or loss arising from transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent
KB Financial Group Inc.	Fee and commission income		4,644		2,961
	Other operating income		—		110
	Other non-operating income		808		778
	Interest expense		5,178		3,151
	General and administrative expenses		778		671
Parent’s subsidiaries
KB Asset Management Co., Ltd.	Fee and commission income		1,085		1,125
	Other non-operating income		4		3
	Interest expense		95		272
	Fee and commission expense		3,157		1,488
	General and administrative expenses		458		—
KB Real Estate Trust Co., Ltd.	Fee and commission income		134		114
	Other non-operating income		42		44
	Interest expense		197		160
	Fee and commission expense		2,282		1,577
KB Investment Co., Ltd.	Fee and commission income		23		36
	Interest expense		376		270
KB Credit Information Co., Ltd.	Fee and commission income		58		67
	Other non-operating income		205		231
	Interest expense		85		90
	Fee and commission expense		16,780		13,995
	General and administrative expenses		—		365
KB Data System Co., Ltd.	Fee and commission income		202		131
	Other non-operating income		98		95
	Interest expense		250		173
	General and administrative expenses		50,803		45,517

173

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


KB Life Insurance Co., Ltd.	Fee and commission income	12,471	14,418
	Gains on financial instruments at fair value through profit or loss	14,064	—
	Gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	1,302
	Other non-operating income	4,284	4,223
	Interest expense	983	968
	Fee and commission expense	12	5
	Losses on financial instruments at fair value through profit or loss	3,421	—
	Losses on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	10,779
	General and administrative expenses	1,582	1,793
KB Kookmin Card Co., Ltd.	Interest income	3,855	3,549
	Fee and commission income	211,328	236,355
	Gains on financial instruments at fair value through profit or loss	2,730	—
	Gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	263
	Reversal of credit losses	7	—
	Other non-operating income	983	1,003
	Interest expense	870	1,289
	Fee and commission expense	1,587	777
	Losses on financial instruments at fair value through profit or loss	400	—
	Losses on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	6,825
	Provision for credit losses	4	292
	General and administrative expenses	216	279
KB Savings Bank Co., Ltd.	Fee and commission income	379	273
	Other non-operating income	44	47
	Interest expense	2	7
	Fee and commission expense	24	—

174

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


KB Capital Co., Ltd.	Interest income	1,989	89
	Fee and commission income	2,311	1,264
	Other non-operating income	208	156
	Interest expense	1,138	247
	Fee and commission expense	61	—
	Other operating expense	5	—
	Provision for credit losses	163	105
	General and administrative expenses	16	—
KB Insurance Co., Ltd.	Interest income	45	53
	Fee and commission income	22,948	22,856
	Gains on financial instruments at fair value through profit or loss	24,999	—
	Gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	3,345
	Other non-operating income	363	280
	Interest expense	2,112	2,268
	Fee and commission expense	967	—
	Losses on financial instruments at fair value through profit or loss	4,328	—
	Losses on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	53,165
	Other operating expense	16	—
	General and administrative expenses	15,667	14,663

175

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


KB Securities Co., Ltd.	Interest income	459	56
	Fee and commission income	15,770	13,511
	Gains on financial instruments at fair value through profit or loss	8,583	—
	Gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	3,295
	Reversal of credit losses	—	123
	Other non-operating income	10,371	7,339
	Interest expense	3,771	2,914
	Fee and commission expense	1,079	397
	Losses on financial instruments at fair value through profit or loss	8,448	—
	Losses on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	7,237
	Provision for credit losses	21	—
	General and administrative expenses	8,361	803
Hanbando BTL Private Special Asset Fund	Fee and commission income	160	170
KB Senior Loan Private Fund No.1	Fee and commission income	20	31
KB Evergreen Private Securities Fund 98(Bond)	Fee and commission income	5	—
KB AMP Infra Private Special Asset Fund 1 (FoFs)	Fee and commission income	5	10
KB Onkookmin 2020 TDF Fund (FoFs) ¹	Fee and commission income	1	1
KB Onkookmin 2025 TDF Fund (FoFs)¹	Fee and commission income	1	1
KB Onkookmin 2030 TDF Fund (FoFs)¹	Fee and commission income	1	1
KB Onkookmin 2035 TDF Fund (FoFs)	Fee and commission income	2	1
KB Onkookmin 2040 TDF Fund (FoFs)¹	Fee and commission income	1	1
KB Onkookmin 2045 TDF Fund (FoFs)	Fee and commission income	1	1
KB Onkookmin 2050 TDF Fund (FoFs)¹	Fee and commission income	1	1
KB Muni bond Private Securities Fund 1 (USD)(bond)	Fee and commission income	10	2
KB Global Private Real Estate Debt Fund 1	Fee and commission income	5	—
KB Na Compass Energy Private Special Asset Fund	Fee and commission income	5	—
KB Star Office Private Real Estate Investment Trust No.3	Interest income	433	—
	Interest expense	48	—
KB Star Office Private Real Estate Investment Trust No.4	Interest income	396	—
	Fee and commission income	10	—
	Interest expense	13	—
KB Korea Short Term Premium Private Securities 5(USD)(Bond)	Fee and commission income	2	—
KB Global Core Bond Securities Master Fund(Bond)	Fee and commission income	2	—
Associates
Korea Credit Bureau Co., Ltd.	Fee and commission income	4	4
	Interest expense	127	132
	Fee and commission expense	1,486	1,439
Incheon Bridge Co., Ltd.	Interest income	9,426	25,511
	Fee and commission income	9	—
	Reversal of credit losses	—	43
	Interest expense	296	292
	Fee and commission expense	2	—
	Provision for credit losses	1	—

176

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Jaeyang Industry Co., Ltd.	Interest income	—	98
	Reversal of credit losses	—	6
Dongjo Co., Ltd.	Reversal of credit losses	31	2
Dae-A Leisure Co., Ltd.	Interest expense	9	1
KB12-1 Venture Investment Partnership	Interest expense	24	18
Future Planning KB Start-up Creation Fund	Interest expense	18	—
KB High-tech Company Investment Fund	Interest expense	27	65
Aju Good Technology Venture Fund	Interest expense	30	14
KB-KDBC New Technology Business Investment Fund	Interest expense	39	4
KB Digital Innovation & Growth New Technology Business Investment Fund	Interest expense	7	—
KB-Brain KOSDAQ Scale-up Fund	Interest expense	21	—
Paroman Corporation	Reversal of credit losses	—	345
KB Star Office Private Real Estate Investment Trust No.1	Interest expense	93	63
Associates of parent’s subsidiaries
SY Auto Capital Co., Ltd.	Interest income	189	102
	Fee and commission income	1	—
	Reversal of credit losses	—	32
	Interest expense	—	22
	Provision for credit losses	14	—
KB No.8 Special Purpose Acquisition Company ¹	Interest expense	17	36
KB No.9 Special Purpose Acquisition Company	Interest expense	43	33
KB No.10 Special Purpose Acquisition Company	Interest expense	30	24
KB No.11 Special Purpose Acquisition Company	Interest expense	12	—
RAND Bio Science Co., Ltd.	Interest expense	3	16
Wise Asset Management Co., Ltd.	Interest expense	9	5
Food Factory Co., Ltd.	Interest income	9	1
	Fee and commission expense	1	—
	Provision for credit losses	1	—
APRO CO.,LTD.	Interest expense	1	—
Rainist Co., Ltd.	Interest expense	2	—
Spark Biopharma Inc.	Interest expense	25	—
KB Pre IPO Secondary Venture Fund 1st	Interest expense	27	60
POSCO-KB Shipbuilding Fund	Interest expense	81	3
Kyobo 7 Special Purpose Acquisition Co., Ltd.¹	Interest expense	—	1
Inno Lending Co., Ltd. ¹	Fee and commission income	1	3
	Interest expense	—	1
Other
Retirement pension	Fee and commission income	876	795
	Interest expense	3	3

¹	Excluded from the Group’s related party as of December 31, 2018.

177

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Details of receivables and payables, and related allowances for loan losses arising from the related party transactions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent
KB Financial Group Inc.	Other assets		4,545		2,837
	Deposits		69,621		46,062
	Other liabilities		643,010		283,610
Parent’s subsidiaries
KB Asset Management Co., Ltd.	Other assets		209		231
	Deposits		3,284		8,958
	Other liabilities		316		327
KB Real Estate Trust Co., Ltd.	Deposits		27,321		16,187
	Other liabilities		350		347
KB Investment Co., Ltd.	Deposits		20,784		19,816
	Other liabilities		17		62
KB Credit Information Co., Ltd.	Deposits		4,240		4,444
	Other liabilities		5,659		5,714
KB Data System Co., Ltd.	Other assets		322		319
	Deposits		18,059		15,036
	Other liabilities		4,397		4,788
KB Life Insurance Co., Ltd.	Derivative financial assets		270		—
	Other assets		1,827		562
	Derivative financial liabilities		1,197		6,580
	Deposits		1,576		372
	Debts		25,000		25,000
	Other liabilities		3,169		3,171
KB Kookmin Card Co., Ltd.	Loans at amortized cost (Gross amount)		3,354		6,806
	Allowances		2		—
	Other assets		24,582		25,454
	Derivative financial liabilities		612		3,298
	Deposits		84,089		85,091
	Provisions		298		777
	Other liabilities		59,748		48,073
KB Savings Bank Co., Ltd.	Other assets		2		2
	Other liabilities		391		391

178

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


KB Capital Co., Ltd.	Loans at amortized cost (Gross amount)	54,787	19,285
	Allowances	227	105
	Other assets	574	89
	Deposits	64,283	73,906
	Other liabilities	57	45
KB Insurance Co., Ltd.	Derivative financial assets	7,034	—
	Other assets	12,143	7,183
	Derivative financial liabilities	5,265	22,818
	Deposits	5,188	7,034
	Debts	20,000	20,000
	Debentures	30,002	49,981
	Other liabilities	2,017	2,720
KB Securities Co., Ltd.	Cash and due from financial institutions	5,286	622
	Derivative financial assets	3,935	1,095
	Loans at amortized cost (Gross amount)	25,617	4,346
	Allowances	21	—
	Other assets	8,644	2,267
	Derivative financial liabilities	1,412	1,481
	Deposits	334,470	436,508
	Provisions	37	97
	Other liabilities	20,372	15,387
Hanbando BTL Private Special Asset Fund	Other assets	39	42
KB Senior Loan Private Fund No.1	Other assets	3	6
KB AMP Infra Private Special Asset Fund 1 (FoFs)		1	—
KB Onkookmin 2025 TDF Fund(FoFs) ¹	Other assets	—	1
KB Onkookmin 2030 TDF Fund(FoFs) ¹	Other assets	—	1
KB Muni bond Private Securities Fund 1(USD)(bond)	Other assets	2	2
KB Global Private Real Estate Debt Fund 1	Other assets	2	—
KB Na Compass Energy Private Special Asset Fund	Other assets	1	—
KB Star Office Private Real Estate Investment Trust No.3	Loans at amortized cost (Gross amount)	24,000	—
	Other assets	12	—
	Deposits	5,361	—
	Other liabilities	48	—
KB Star Office Private Real Estate Investment Trust No.4	Loans at amortized cost (Gross amount)	20,000	—
	Other assets	13	—
	Deposits	1,629	—
	Other liabilities	13	—

179

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


KB Korea Short Term Premium Private Securities 5(USD)(Bond)	Other assets	2	—
KB Global Core Bond Securities Master Fund(Bond)	Other assets	2	—
Associates
Korea Credit Bureau Co., Ltd.	Deposits	15,674	25,513
	Other liabilities	33	111
Incheon Bridge Co., Ltd.	Financial assets at fair value through profit or loss	32,882	—
	Loans at amortized cost (Gross amount)	158,200	200,400
	Allowances	14	287
	Other assets	736	710
	Deposits	43,666	48,795
	Provisions	7	—
	Other liabilities	24	29
Terra Co., Ltd.	Deposits	—	10
Jungdong Steel Co., Ltd.	Deposits	—	3
Doosung Metal Co., Ltd.	Deposits	3	—
Jungdo Co., Ltd.	Deposits	4	4
Dongjo Co., Ltd.	Loans at amortized cost (Gross amount)	—	116
	Allowances	—	1
Dae-A Leisure Co., Ltd.	Deposits	1,229	466
	Other liabilities	7	14
Daesang Techlon Co., Ltd.¹	Deposits	—	2
Carlife Co., Ltd.	Deposits	2	—
Computerlife Co., Ltd.	Deposits	1	—
Skydigital INC.	Deposits	16	—
KB12-1 Venture Investment Partnership	Deposits	245	4,963
	Other liabilities	1	2
KB High-tech Company Investment Fund	Deposits	275	7,212
	Other liabilities	—	5
Aju Good Technology Venture Fund	Deposits	6,439	2,771
	Other liabilities	2	1
KB-KDBC New Technology Business Investment Fund	Deposits	7,088	7,500
	Other liabilities	3	4
KB Digital Innovation & Growth New Technology Business Investment Fund	Deposits	618	—
KB-Brain KOSDAQ Scale-up Fund	Deposits	18,813	—
	Other liabilities	7	—
KB Star Office Private Real Estate Investment Trust No.1	Deposits	7,946	6,962
	Other liabilities	58	45
Associates of parent’s subsidiaries

180

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


SY Auto Capital Co., Ltd.	Loans at amortized cost (Gross amount)	8,300		—
	Allowances	18		—
	Other assets	9		—
	Deposits	5		6
	Provisions	11		29
	Other liabilities	2		—
KB No.8 Special Purpose Acquisition Company ¹	Deposits	—		2,339
	Other liabilities	—		19
KB No.9 Special Purpose Acquisition Company	Deposits	2,275		2,309
	Other liabilities	42		38
KB No.10 Special Purpose Acquisition Company	Deposits	1,666		1,698
	Other liabilities	11		10
KB No.11 Special Purpose Acquisition Company	Deposits	658		530
	Other liabilities	2		—
RAND Bio Science Co., Ltd.	Deposits	232		1,032
	Other liabilities	—		4
Wise Asset Management Co., Ltd.	Deposits	696		340
	Other liabilities	2		1
Built On Co., Ltd.	Deposits	7		26
Food Factory Co., Ltd.	Loans at amortized cost (Gross amount)	200		200
	Allowances	1		—
	Other assets	1		1
	Deposits	68		1
Acts Co., Ltd.	Deposits	29		4
Paycoms Co., Ltd.	Deposits	1		—
Big Dipper Co., Ltd.	Deposits	182		473
APRO CO.,LTD.	Deposits	2,201		—
Rainist Co., Ltd.	Deposits	1		—
Spark Biopharma Inc.	Deposits	2,630		—
	Other liabilities	19		—
KB IGen Private Equity Fund No.1	Deposits	148		—
KB Pre IPO Secondary Venture Fund 1st	Deposits	1,115		2,690
	Other liabilities	1		6
Inno Lending Co., Ltd.¹	Deposits	—		41
Key management	Loans at amortized cost (Gross amount)	2,218		1,619
	Other assets	2		2
	Deposits	9,771		8,042
Other liabilities		165	121
Other
Retirement pension	Other assets	331		348
	Other liabilities	16,388		4,286

¹	Excluded from the Group’s related party as of December 31, 2018.

181

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Notional amount of derivative assets and liabilities arising from the related party transactions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent’s subsidiaries
KB Life Insurance Co., Ltd.	Notional amount of Derivative financial instruments		252,213		155,567
KB Kookmin Card Co., Ltd.	Notional amount of Derivative financial instruments		62,611		79,106
KB Insurance Co., Ltd.	Notional amount of Derivative financial instruments		1,127,722		491,133
KB Securities Co., Ltd.	Notional amount of Derivative financial instruments		393,515		151,204

In accordance with Korean IFRS 1024, the Group includes the Parent, the Parent’s subsidiaries, associates, associates of the Parent’s subsidiaries, key management (including family members), and post-employment benefit plans of the Group and entities regarded as its related parties in the scope of its related parties. Additionally, the Group discloses balances (receivables and payables) and other amounts arising from the related party transactions in the notes to the consolidated financial statements. Refer to Note 13 for details on investments in associates.

Key management includes the directors of the Bank and the executive directors (vice presidents and above) of the Bank and companies where the directors and /or their close family members have control or joint control.

Significant loan transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:


	2018¹
(In millions of Korean won)	Beginning		Loans		Repayments		Others		Ending
Parent’s subsidiaries
KB Securities Co., Ltd.		4,346		1,369,958		1,348,687		—		25,617
KB Kookmin Card Co., Ltd.		6,806		164,635		168,087		—		3,354
KB Capital Co., Ltd.		19,285		33,711		—		1,791		54,787
KB Star Office Private Real Estate Master Fund 3		—		24,000		—		—		24,000
KB Star Office Private Real Estate Master Fund 4		—		20,000		—		—		20,000
Associate
Incheon Bridge Co., Ltd.		203,126		—		14,700		2,656		191,082
Dongjo Co., Ltd		116		—		116		—		—
Associate of parent’s subsidiaries
SY Auto Capital Co., Ltd.		—		50,053		41,753		—		8,300
Food Factory Co., Ltd.		200		—		—		—		200
Key management^2,3		1,619		108		836		1,327		2,218

182

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017¹
(In millions of Korean won)	Beginning		Loans		Repayments		Others			Ending
Parent’s subsidiaries
KB Securities Co., Ltd.		—		1,534,202		1,529,856		—			4,346
KB Kookmin Card Co., Ltd.		—		157,871		151,065		—			6,806
KB Capital Co., Ltd.		—		19,285		—		—			19,285
Associate
Incheon Bridge Co., Ltd.		209,094		202,500		211,194		—			200,400
Dongjo Co., Ltd²		—		—		130		246			116
Jaeyang Industry Co., Ltd.		303		—		290		(13	)		—
Associate of parent’s subsidiaries
SY Auto Capital Co., Ltd.		10,000		24,031		34,031		—			—
Food Factory Co., Ltd.		—		200		—		—			200

¹	Transactions between related parties, such as settlements arising from operating activities and deposits that can deposit and withdraw frequently, are presented in net amounts.

²	Includes details of loan transactions that occurred before they became related parties..

³	Represents the transactions that have started occurring since the current year.

Significant borrowing transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018
(In millions of Korean won)		Beginning		Increase		Decrease		Others¹			Ending
Parent
KB Financial Group Inc..	Deposits		46,062		1,555,000		1,495,000		(36,441	)		69,621
Parent’s subsidiaries
KB Asset Management Co., Ltd.	Deposits		8,958		—		—		(5,674	)		3,284
KB Real Estate Trust Co., Ltd.	Deposits		16,187		—		—		11,134			27,321
KB Investment Co., Ltd.	Deposits		19,816		56,200		68,200		12,968			20,784
KB Credit Information Co., Ltd.	Deposits		4,444		1,569		1,409		(364	)		4,240
KB Data System Co., Ltd.	Deposits		15,036		11,500		10,700		2,223			18,059
KB Life Insurance Co., Ltd.	Deposits		372		—		—		1,204			1,576
	Debts		25,000		—		—		—			25,000
KB Kookmin Card Co., Ltd.	Deposits		85,091		22,000		22,000		(1,002	)		84,089
KB Capital Co., Ltd.	Deposits		73,906		—		—		(9,623	)		64,283
KB Insurance Co., Ltd.	Deposits		7,034		—		1,650		(196	)		5,188
	Debts		20,000		—		—		—			20,000
	Debentures		49,981		—		—		(19,979	)		30,002
KB Securities Co., Ltd.	Deposits		436,508		111,996		82,512		(131,522	)		334,470
KB Star Office Private Real Estate Master Fund 3	Deposits		—		5,361		—		—			5,361
KB Star Office Private Real Estate Master Fund 4	Deposits		—		1,629		—		—			1,629

183

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Associates
Korea Credit Bureau Co., Ltd.	Deposits	25,513	8,000	16,000	(1,839	)	15,674
Incheon Bridge Co., Ltd.	Deposits	48,795	1,260	1,270	(5,119	)	43,666
Terra Co., Ltd.	Deposits	10	—	—	(10	)	—
Jungdong Steel Co., Ltd.	Deposits	3	—	—	(3	)	—
Doosung Metal Co., Ltd.	Deposits	—	—	—	3		3
Jungdo Co., Ltd.	Deposits	4	—	—	—		4
Dae-A Leisure Co., Ltd.	Deposits	466	479	466	750		1,229
Daesang Techlon Co., Ltd.²	Deposits	2	—	—	(2	)	—
Carlife Co., Ltd.	Deposits	—	—	—	2		2
Computerlife Co., Ltd.	Deposits	—	—	—	1		1
Skydigital INC.	Deposits	—	—	—	16		16
KB12-1 Venture Investment Partnership	Deposits	4,963	—	—	(4,718	)	245
Future Planning KB Start-up Creation Fund	Deposits	—	9,000	9,000	—		—
KB High-tech Company Investment Fund	Deposits	7,212	—	—	(6,937	)	275
Aju Good Technology Venture Fund	Deposits	2,771	—	—	3,668		6,439
KB-KDBC New Technology Business Investment Fund	Deposits	7,500	—	—	(412	)	7,088
KB Digital Innovation & Growth New Technology Business Investment Fund	Deposits	—	—	—	618		618
KB-Brain KOSDAQ Scale-up Fund	Deposits	—	—	—	18,813		18,813
KB Star Office Private Real Estate Master Fund 1		6,962	351	—	633		7,946
Associates of parent’s subsidiaries
SY Auto Capital Co., Ltd.	Deposits	6	—	—	(1	)	5
KB No.8 Special Purpose Acquisition Company 1²	Deposits	2,339	—	2,300	(39	)	—
KB No.9 Special Purpose Acquisition Company	Deposits	2,309	2,266	2,234	(66	)	2,275
KB No.10 Special Purpose Acquisition Company	Deposits	1,698	1,618	1,618	(32	)	1,666
KB No.11 Special Purpose Acquisition Company	Deposits	530	530	530	128		658
RAND Bio Science Co., Ltd.	Deposits	1,032	—	500	(300	)	232

184

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Wise Asset Management Co., Ltd.	Deposits		340		2,366		2,008		(2	)		696
Built On Co., Ltd.	Deposits		26		—		—		(19	)		7
Food Factory Co., Ltd.	Deposits		1		—		—		67			68
Acts Co., Ltd.	Deposits		4		—		—		25			29
Paycoms Co., Ltd.	Deposits		—		—		—		1			1
Big Dipper Co., Ltd.	Deposits		473		—		—		(291	)		182
APRO CO.,LTD.	Deposits		—		—		—		2,201			2,201
Rainist Co., Ltd.	Deposits		—		—		—		1			1
Spark Biopharma Inc.	Deposits		—		4,300		3,300		1,630			2,630
KB IGen Private Equity Fund No. 1	Deposits		—		—		—		148			148
KB Pre IPO Secondary Venture Fund 1st	Deposits		2,690		2,000		4,000		425			1,115
POSCO-KB Shipbuilding Fund	Deposits		—		32,800		32,800		—			—
Inno Lending Co., Ltd.²	Deposits		41		—		—		(41	)		—
Key management³	Deposits		8,042		6,605		5,140		264			9,771

		2017
(In millions of Korean won)		Beginning		Increase		Decrease		Others¹			Ending
Parent
KB Financial Group Inc..	Deposits		57,967		—		—		(11,905	)		46,062
Parent’s subsidiaries
KB Asset Management Co., Ltd.	Deposits		73,279		—		65,000		679			8,958
KB Real Estate Trust Co., Ltd.	Deposits		21,211		—		10,000		4,976			16,187
KB Investment Co., Ltd.	Deposits		23,954		49,000		48,537		(4,601	)		19,816
KB Credit Information Co., Ltd.	Deposits		3,465		1,819		2,399		1,559			4,444
KB Data System Co., Ltd.	Deposits		10,926		10,700		7,000		410			15,036
KB Life Insurance Co., Ltd.	Deposits		700		—		—		(328	)		372
	Debts		25,000		—		—		—			25,000
KB Kookmin Card Co., Ltd.	Deposits		160,002		22,000		22,000		(74,911	)		85,091
KB Capital Co., Ltd.	Deposits		9,075		—		—		64,831			73,906
KB Insurance Co., Ltd.	Deposits		9,883		—		—		(2,849	)		7,034
	Debts		20,000		—		—		—			20,000
	Debentures		—		—		—		49,981			49,981
KB Securities Co., Ltd.	Deposits		116,893		242,085		135,000		212,530			436,508
	Debentures		300		—		—		(300	)		—
Associates
Korea Credit Bureau Co., Ltd.	Deposits		26,827		11,000		6,000		(6,314	)		25,513
Incheon Bridge Co., Ltd.	Deposits		38,556		1,270		21,270		30,239			48,795
Terra Co., Ltd.	Deposits		—		—		—		10			10
Jungdong Steel Co., Ltd.	Deposits		3		—		—		—			3
Jungdo Co., Ltd.	Deposits		—		—		—		4			4
Dae-A Leisure Co., Ltd.	Deposits		—		—		—		466			466

185

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Daesang Techlon Co., Ltd.²	Deposits	—	—	—	2		2
KB12-1 Venture Investment Partnership	Deposits	4,562	4,000	4,000	401		4,963
KB High-tech Company Investment Fund	Deposits	4,643	3,000	3,000	2,569		7,212
Aju Good Technology Venture Fund	Deposits	1,201	—	—	1,570		2,771
KB-KDBC New Technology Business Investment Fund	Deposits	—	—	—	7,500		7,500
EJADE Co., Ltd.²	Deposits	2	—	—	(2	)	—
Associate of Subsidiary
KB Star Office Private Real Estate Investment Trust No.1	Deposits	6,682	303	—	(23	)	6,962
Associates of parent’s subsidiaries
KB No.8 Special Purpose Acquisition Company 1²	Deposits	2,342	2,300	2,300	(3	)	2,339
KB No.9 Special Purpose Acquisition Company	Deposits	2,399	—	100	10		2,309
KB No.10 Special Purpose Acquisition Company	Deposits	1,754	1,618	1,600	(74	)	1,698
KB No.11 Special Purpose Acquisition Company	Deposits	—	530	—	—		530
SY Auto Capital Co., Ltd.	Deposits	3,997	2,000	2,000	(3,991	)	6
RAND Bio Science Co., Ltd.	Deposits	2,356	1,000	2,500	176		1,032
Wise Asset Management Co., Ltd.	Deposits	—	1,346	1,475	469		340
Built On Co., Ltd.	Deposits	—	—	—	26		26
Food Factory Co., Ltd.	Deposits	—	—	—	1		1
Acts Co., Ltd.	Deposits	—	—	—	4		4
Big Dipper Co., Ltd.	Deposits	—	—	—	473		473
KB Pre IPO Secondary Venture Fund 1st	Deposits	—	13,000	11,000	690		2,690
POSCO-KB Shipbuilding Fund	Deposits	—	3,000	3,000	—		—
Inno Lending Co., Ltd.²	Deposits	1,902	—	—	(1,861	)	41
KB IC 3rd Private Equity Fund ²	Deposits	700	—	700	—		—

¹	Transactions between related parties, such as settlements arising from operating activities and deposits, are excluded.

²	Not considered to be the Bank’s related party as at December 31, 2018.

³	Represents the transactions that have started occurring since the current year.

186

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Significant contribution and collection arising from transactions with related parties for the year ended December 31, 2018, are as follows:


(In millions of Korean won)	2018
(In millions of Korean won)	Contribution		Collection and others
Parent’s subsidiaries
KB IP Investment Fund		—		120
Hanbando BTL Private Special Asset Fund		—		20,257
Hope Sharing BTL Private Special Asset Fund		—		1,675
KB Mezzanine Private Security Investment Trust No.2		—		29,280
KB Senior Loan Private Fund No.1		—		31,305
KB Haeoreum private securities investment trust 70(Bond)¹		—		51,100
KB KBSTAR Short Term KTB Active ETF¹		—		30,377
KB Star Office Private Real Estate Master Fund 4		50,000		1,196
KB Star Office Private Real Estate Master Fund 4		43,500		916
KB Korea Short Term Premium Private Securities 5(USD)(Bond)		113,220		—
KB Global Core Bond Securities Master Fund(Bond)		50,000		—
KB Haeoreum private securities investment trust 96		50,000		—
KB Korea Short Term Premium Private Securities 4(USD)(Bond)		44,872		—
Associates
Korea Credit Bureau Co., Ltd.		—		113
Balhae Infrastructure Fund		4,645		8,623
Daesang Techlon Co., Ltd.¹		—		42
PT Bank Bukopin TBK		116,422		—
KoFC KBIC Frontier Champ 2010-5 (PEF)		—		4,800
KB GwS Private Securities Investment Trust		—		6,386
KB12-1 Venture Investment Partnership		—		16,040
Future Planning KB Start-up Creation Fund		—		2,876
KB High-tech Company Investment Fund		—		4,700
Aju Good Technology Venture Fund		9,808		—
KB-KDBC New Technology Business Investment Fund		5,000		—
KBTS Technology Venture Private Equity Fund		7,620		—
KB Digital Innovation & Growth New Technology Business Investment Fund		1,125		—
KB IP Investment Fund II		3,000		—
KB Digital Innovation Investment Fund Limited partnership		7,700		—
KB-Brain KOSDAQ Scale-up Fund		4,000		—
KB Star Office Private Real Estate Investment Trust No.1		—		1,162

¹	Not considered to be the Bank’s related party as at December 31, 2018.

187

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Acceptances and guarantees and unused commitments provided to related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent’s subsidiaries
KB Investment Co., Ltd.	Loss sharing agreements		1,000		1,000
KB Kookmin Card Co., Ltd.	Loan commitment in Korean won		820,000		813,194
	Loan commitment in foreign currency		5,591		—
	Other commitments in Korean won		1,300,000		1,000,000
KB Securities Co., Ltd.	Loan commitment in Korean won		137,509		135,653
KB Mezzanine Private Security Investment Trust No.2	Purchase of securities		11,141		11,141
KB Senior Loan Private Fund No.1	Purchase of securities		3,770		3,770
Associates
Balhae Infrastructure Fund	Purchase of securities		10,453		12,564
Incheon Bridge Co., Ltd.	Loan commitment in Korean won		20,000		20,000
KoFC KBIC Frontier Champ 2010-5 (PEF)	Purchase of securities		1,290		1,290
KB GwS Private Securities Investment Trust	Purchase of securities		876		876
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund	Purchase of securities		10,040		10,040
Aju Good Technology Venture Fund	Purchase of securities		1,960		11,768
KB-KDBC New Technology Business Investment Fund	Purchase of securities		2,500		7,500
KBTS Technology Venture Private Equity Fund	Purchase of securities		7,380		—
KB Digital Innovation & Growth New Technology Business Investment Fund	Purchase of securities		3,375		—
KB IP Investment Fund	Purchase of securities		12,000		—
KB Digital Innovation & Growth New Technology Business Investment Fund	Purchase of securities		27,300		—
KB-Brain KOSDAQ Scale-up Fund	Purchase of securities		16,000		—
Associates of parent’s subsidiaries
SY Auto Capital Co., Ltd.	Loan commitment in Korean won		6,700		10,000
Key management	Loan commitment in Korean won		894		458

188

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Acceptances and guarantees and unused commitments received from related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent’s subsidiaries
KB Investment Co., Ltd.	Loss sharing agreements		14,474		12,117
KB Real Estate Trust Co., Ltd.	Purchase of securities		1,319		4,319
KB Life Insurance Co., Ltd.	Purchase of securities		6,595		21,595
KB Securities Co., Ltd.	Purchase of securities		1,319		4,319
KB Kookmin Card Co., Ltd.	Loan commitment in Korean won		87,922		85,114

Compensation to key management for the years ended December 31, 2018 and 2017, consists of:


(In millions of Korean won)	2018
(In millions of Korean won)	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
Registered directors (executive)		1,278		51		1,022		2,351
Registered directors (non-executive)		337		—		—		337
Non-registered directors		4,807		183		3,217		8,207

		6,422		234		4,239		10,895


(In millions of Korean won)	2017
(In millions of Korean won)	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
Registered directors (executive)		1,270		60		1,831		3,161
Registered directors (non-executive)		315		—		—		315
Non-registered directors		4,990		178		7,966		13,134

		6,575		238		9,797		16,610

Significant operating transactions occurring between the Group and related parties include the establishment of deposit accounts, issuance of general purpose loans, loans on business transactions and trade receivables, and overdraft credit accounts arising from net settlement agreement between the Bank and KB Kookmin Card Co., Ltd.

Collateral offered to related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018				2017
(In millions of Korean won)	Assets pledged	Carrying amount		Collateralized amount		Carrying amount		Collateralized amount
Parent’s subsidiaries
KB Securities Co., Ltd.	Securities		62,006		62,000		75,990		76,000
KB Life Insurance Co., Ltd.	Securities		26,055		25,000		26,128		25,000
	Building/ Land		209,459		32,500		229,023		32,500
KB Insurance Co., Ltd.	Securities		50,000		50,000		50,000		50,000
	Building/ Land		209,459		26,000		229,023		26,000

¹	Collaterals related to lease contracts arising from operating activities between related parties are excluded.

189

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

Collateral received from related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent’s subsidiaries
KB Securities Co., Ltd.	Time deposits/ Beneficiary right certificate		178,178		167,000
	Securities		20,000		20,000
KB Life Insurance Co., Ltd.	Securities		10,000		10,000
KB Kookmin Card Co., Ltd.	Time deposits		22,000		22,000
KB Insurance Co., Ltd.	Securities		66,500		58,000
KB Credit Information Co., Ltd.	Time deposits and others		1,425		1,265
KB Star Office Private Real Estate Master Fund 3	Real estate		28,800		—
KB Star Office Private Real Estate Master Fund 4	Real estate		24,000		—
Key management	Time deposits and others		401		388
	Real estate		3,182		2,287

¹	Collaterals related to lease contracts arising from operating activities between related parties are excluded.

As at December 31, 2018, Incheon Bridge Co., Ltd., a related party, provides fund management account, civil engineering completed risk insurance, and management rights as senior collateral amounting to W 611,000 million to a financial syndicate that consists of the Group and five other institutions, and as subordinated collateral amounting to W 384,800 million to subordinated debt holders that consist of the Group and two other institutions. Also, it provides certificate of credit guarantee amounting to W 400,000 million as collateral to a financial syndicate consisting of the Group and five other institutions.

The amounts of receivables purchased from KB securities Co., Ltd. are W 7,920,050 million and W 4,168,048 million for the years ended December 31, 2018 and 2017 respectively, and the amounts of receivables sold to KB securities Co., Ltd. are W 3,835,245 million and W 2,204,346 million for the years ended December 31, 2018 and 2017 respectively.

The amounts of intangible assets purchased through KB Data System Co., Ltd. are W 17,831 million and W 12,532 million for the years ended December 31, 2018 and 2017, respectively.

The Bank and KB Kookmin Card Co., Ltd. are jointly and severally liable for the payables of the Bank before the spin-off date.

190

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

42. Adoption of Korean IFRS 1109 Financial Instruments

The Group adopted Korean IFRS 1109 Financial Instruments, which was issued on September 25, 2015, on January 1, 2018. The application of Korean IFRS 1109 has following impacts on the financial statements.

On the date of initial application, January 1, 2018, the measurement category of the financial assets in accordance with Korean IFRS 1039 and 1109, are as follows:


(In millions of Korean won)
Measurement categories		Carrying amounts
December 31, 2017 (Korean IFRS 1039)	January 1, 2018 (Korean IFRS 1109)	Korean IFRS 1039 ¹		Reclassification			Remeasurement			Korean IFRS 1109 ¹
Cash and due from financial institutions	Financial assets at amortized cost		15,646,318		(1,908,070	)		(1,530	)		13,736,718
	Financial assets at fair value through profit or loss ²		—		1,908,070			—			1,908,070

			15,646,318		—			(1,530	)		15,644,788

Financial assets at fair value through profit or loss (under Korean IFRS 1039)
Financial assets held for trading: debt securities	Financial assets at fair value through profit or loss		7,900,613		312,312			—			8,212,925
Financial assets held for trading: equity securities			338,904		(216,955	)		—			121,949
Financial assets held for trading: others			73,856		—			—			73,856
Financial assets designated at fair value through profit or loss			95,357		(95,357	)		—			—

			8,408,730		—			—			8,408,730

Derivative financial assets held for trading	Derivative financial assets held for trading		2,527,190		(17,197	)		—			2,509,993
Derivative financial assets held for hedging	Derivative financial assets held for hedging		80,469		—			—			80,469

			2,607,659		(17,197	)		—			2,590,462

Loans	Financial assets at amortized cost		251,710,605		(132,255	)		(289,070	)		251,289,280
	Financial assets at fair value through profit or loss ³		—		130,032			2,690			132,722

			251,710,605		(2,223	)		(286,380	)		251,422,002

191

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017


Financial investments
Available-for-sale financial assets: debt securities	Financial assets at fair value through other comprehensive income	27,605,761	(2,835,591	)	—		24,770,170
	Financial assets at fair value through profit or loss ⁴	—	2,549,706		—		2,549,706
	Financial assets at amortized cost⁵	—	2,835,591		4,118		2,839,709
Available-for-sale financial assets: equity securities	Financial assets at fair value through other comprehensive income	4,472,263	(2,587,853	)	276		1,884,686
	Financial assets at fair value through profit or loss ⁶	—	38,147		(89	)	38,058
Available-for-sale financial assets: others	Financial assets at fair value through other comprehensive income	500	(500	)	—		—
	Financial assets at fair value through profit or loss ⁷	—	500		—		500
Held-to-maturity financial assets	Financial assets at amortized cost	8,737,150	(214,280	)	(1,202	)	8,521,668

	Financial assets at fair value through profit or loss ⁸	—	214,280		(2,004	)	212,276

		40,815,674	—		1,099		40,816,773

Other financial assets	Financial assets at amortized cost	6,341,463	(1,624	)	(3,368	)	6,336,471

		325,530,449	(21,044	)	(290,179	)	325,219,226

¹	Net of allowance.

The deposits amounting to W 1,908,070 million classified as loans and receivables in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss because those financial assets did not meet the Solely Payments of Principal and Interest (“SPPI”) condition.

³	The loans amounting to W 132,255 million classified as loans and receivables in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss because those financial assets did not meet the SPPI condition.

⁴	The equity securities amounting to W 2,549,706 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as debt securities (financial assets at fair value through profit or loss) because those financial assets did not meet SPPI condition.

⁵

The debt securities amounting to W 2,835,591 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at amortized cost because those financial assets met the business model condition which the Group holds the financial asset for the collection of the contractual cash flows, and SPPI condition.

⁶

The equity securities amounting to W 38,147 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss as the Group did not designate those equity securities as financial assets at fair value through other comprehensive income.

⁷	Other securities amounting to W 500 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss because those financial assets did not meet SPPI condition.

⁸	The structured debt securities amounting to W 214,280 million classified as held-to-maturity financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss because those financial assets did not meet SPPI condition.

192

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the measurement category of the financial liabilities in accordance with Korean IFRS 1039 and 1109, are as follows:


(In millions of Korean won)
Measurement categories		Carrying amounts
December 31, 2017 (Korean IFRS 1039)	January 1, 2018 (Korean IFRS 1109)	Korean IFRS 1039		Reclassification			Remeasurement		Korean IFRS 1109
Financial liabilities held for trading	Financial liabilities at fair value through profit or loss		74,191		—			—		74,191
Derivative financial liabilities held for trading	Derivative financial liabilities held for trading		2,558,788		—			—		2,558,788
Derivative financial liabilities held for hedging	Derivative financial liabilities held for hedging		50,032		—			—		50,032
Deposits	Financial liabilities at amortized cost		252,478,931		—			—		252,478,931
Debts	Financial liabilities at amortized cost		15,810,753		—			—		15,810,753
Debentures	Financial liabilities at amortized cost		19,183,798		—			—		19,183,798
Other financial liabilities	Financial liabilities at amortized cost		12,733,354		(21,044	)		—		12,712,310

			302,889,847		(21,044	)		—		302,868,803

On the date of initial application, January 1, 2018, the classification of the financial assets by category in accordance with Korean IFRS 1109, are as follows:



	January 1, 2018
(In millions of Korean won)	Financial assets at fair value through profit or loss		Debt securities at fair value through other comprehensive income		Equity securities at fair value through other comprehensive income		Financial assets at amortized cost¹		Derivative financial instruments held for hedging		Total
Cash and due from financial institutions		—		—		—		13,736,718		—		13,736,718
Financial assets at fair value through profit or loss		13,250,062		—		—		—		—		13,250,062
Derivative financial asset held for trading		2,509,993		—		—		—		—		2,509,993
Derivative financial asset held for hedging		—		—		—		—		80,469		80,469
Loans at amortized cost		—		—		—		251,289,280		—		251,289,280
Financial investments		—		24,770,170		1,884,686		11,361,377		—		38,016,233
Other financial assets		—		—		—		6,336,471		—		6,336,471

		15,760,055		24,770,170		1,884,686		282,723,846		80,469		325,219,226

¹	Net of allowance.

193

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the reclassification from financial assets at fair value through profit or loss to financial assets at amortized cost or financial assets at fair value through other comprehensive income, does not exist.

On the date of initial application, January 1, 2018, the reclassification from certain financial assets, other than financial assets at amortized cost to financial assets at amortized cost, are as follows:


(In millions of Korean won)	Measurement categories before reclassification		Fair value		Recognizable valuation gain or loss if not reclassified
Currency stabilization bond		Available-for-sale		1,975,001		(248	)
Asset backed securities		Available-for-sale		860,590		(4,046	)

				2,835,591		(4,294	)

On the date of initial application, January 1, 2018, the adjustments from the allowances/provision in accordance with Korean IFRS 1039 to the allowances/provision in accordance with Korean IFRS 1109, are as follows:


Measurement categories		Allowances/Provision
December 31, 2017 (Korean IFRS 1039)	January 1, 2018 (Korean IFRS 1109)	Korean IFRS 1039		Reclassification			Remeasurement		Korean IFRS1109
Loans and receivables
Due from financial institutions	Financial assets at amortized cost		—		—			1,530		1,530
Loans	Financial assets at amortized cost		1,378,113		—			289,070		1,667,183
	Financial assets at fair value through profit or loss		35,608		(35,608	)		—		—
Other financial assets	Financial assets at amortized cost		49,722		—			3,368		53,090
Available-for-sale
Debts securities	Financial assets at fair value through other comprehensive income		—		—			2,145		2,145
	Financial assets at amortized cost		—		—			176		176
Held-to-maturity securities
Debts securities	Financial assets at amortized cost		—		—			1,202		1,202

			1,463,443		(35,608	)		297,491		1,725,326

Unused commitment and guarantee
Non-financial guarantee and unused commitment			195,772		—			4,940		200,712

			195,772		—			4,940		200,712

Financial guarantee			1,862		—			356		2,218

			1,862		—			356		2,218

194

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the impacts on accumulated other comprehensive income due to financial assets at fair value through other comprehensive income and others, are as follows:


(In millions of Korean won)	Impact of application
December 31, 2017 (before adoption of Korean IFRS 1109)		678,094
Change of subsequent Measurement category: available-for-sale financial assets to financial assets at amortized cost		4,294
Change of subsequent Measurement category: available-for-sale financial assets to financial assets at fair value through profit or loss		(64,987	)
Recognition of expected credit losses on debt securities at fair value through other comprehensive income		2,145
Reversal of impairment on equity securities at fair value through other comprehensive income		(612,647	)
Valuation of fair value of equity securities accounted for under cost method		276
Change of gains (losses) from using equity method of associates and joint ventures		(5,709	)
Change of gain/loss from foreign currency translation of foreign operations		1,932
Tax effect		184,605

January 1, 2018 (after adoption of Korean IFRS 1109)		188,003

195

Kookmin Bank and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the impacts on retained earnings, are as follows:


(In millions of Korean won)	Impact of application
December 31, 2017 (before adoption of Korean IFRS 1109)		17,403,751
Change of subsequent Measurement category: available-for-sale financial assets to financial assets at fair value through profit or loss		64,987
Change of subsequent Measurement category: held-to-maturity financial assets to financial assets at fair value through profit or loss		(2,004	)
Change of subsequent Measurement category: loans and receivables to financial assets at fair value through profit or loss		2,690
Recognition of expected credit losses on debt securities at fair value through other comprehensive income		(2,145	)
Reversal of impairment on equity securities at fair value through other comprehensive income		612,647
Application of expected credit losses on financial assets at amortized cost		(295,346	)
Application of expected credit losses on provisions		(5,296	)
Valuation of fair value of equity securities accounted for under cost method		(89	)
Change of gains (losses) from using equity method of associates and joint ventures		6,994
Change of gain/loss from foreign currency translation of foreign operations		(1,932	)
Tax effect		(105,563	)

January 1, 2018 (after adoption of Korean IFRS 1109)		17,678,694

43. Approval of Issuance of the Financial Statements

The issuance of the Group’s consolidated financial statements as at and for the year ended December 31, 2018, was originally approved by the Board of Directors on February 7, 2019, and was re-approved with revision on February 28, 2019.

196

Exhibit 99.2

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Separate Financial Statements

December 31, 2018 and 2017

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Index

December 31, 2018 and 2017


	Page(s)
Independent Auditor’s Report		1~3
Separate Financial Statements
Separate Statements of Financial Position		4
Separate Statements of Comprehensive Income		5
Separate Statements of Changes in Equity		6
Separate Statements of Cash Flows		7
Notes to the Separate Financial Statements		8~191
Report of Independent Auditor’s Review of Internal Control over Financial Reporting		192~193
Report on the Effectiveness of the Internal Control over Financial Reporting		194

Independent Auditor’s Report

(English Translation of a Report Originally Issued in Korean)

To the Board of Directors and Shareholder of Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Opinion

We have audited the accompanying separate financial statements of Kookmin Bank (the Bank), which comprise the separate statements of financial position as at December 31, 2018 and 2017 and the separate statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the separate financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of Kookmin Bank as at December 31, 2018 and 2017, and its separate financial performance and cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS)

Basis for Opinion

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

Other Matter

Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.

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

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

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations.

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

Auditor’s Responsibilities for the Audit of the Financial Statements

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

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

•

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

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

•

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

•

report. However, future events or conditions may cause the Company to cease to continue as a going concern.

•

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

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

March 11, 2019

This report is effective as of March 11, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Separate Statements of Financial Position

December 31, 2018 and 2017


(In millions of Korean won)	Notes		2018¹		2017
Assets
Cash and due from financial institutions		4,6,7,36		13,413,780		14,628,439
Financial assets at fair value through profit or loss (Under Korean IFRS 1039)		4,6,12		—		3,147,115
Financial assets at fair value through profit or loss		4,6,8,12		8,612,864		—
Derivative financial assets		4,6,9		1,611,295		2,590,960
Loans at amortized cost		4,6,8,10,11		274,985,803		250,119,240
Financial investments		4,6,8,12		42,559,078		42,208,334
Investments in associates and subsidiaries		13,38		997,389		867,073
Property and equipment		14		3,123,612		2,974,656
Investment property		14		48,466		56,438
Intangible assets		15		221,756		214,952
Current income tax assets		32		2,633		1,388
Assets held for sale		18		16,952		155,506
Other assets		4,6,17		4,384,063		6,455,060

Total assets				349,977,691		323,419,161

Liabilities
Financial liabilities at fair value through profit or loss (Under Korean IFRS 1039)		4,6		—		74,191
Financial liabilities at fair value through profit or loss		4,6		87,168		—
Derivative financial liabilities		4,6,9		1,638,795		2,622,912
Deposits		4,6,19		267,525,970		247,712,788
Debts		4,6,20		17,411,985		15,854,911
Debentures		4,6,21		21,799,085		18,167,498
Provisions		22		307,379		357,488
Net defined benefit liabilities		23		166,525		8,568
Current income tax liabilities		32		4,026		2,503
Deferred income tax liabilities		16,32		78,067		128,915
Other liabilities		4,6,24,30		14,387,972		13,248,665

Total liabilities				323,406,972		298,178,439

Equity
Capital stock		25		2,021,896		2,021,896
Capital surplus		25		5,220,031		5,220,031
Accumulated other comprehensive income		25,34		176,414		745,856
Retained earnings		25,33		19,152,378		17,252,939
(Provision of regulatory reserve for credit losses
December 31, 2018 : W2,137,264 million
December 31, 2017 : W1,989,616 million)
(Amounts estimated to be appropriated (reveresd)
December 31, 2018 : W132,861 million
December 31, 2017 : W147,648 million)

Total equity				26,570,719		25,240,722

Total liabilities and equity				349,977,691		323,419,161

The separate statement of financial position for year ended December 31, 2018 is prepared applying Korean IFRS 1109, and the comparative separate statement of financial position for the year ended December 31, 2017 has not been restated retrospectively as permitted by transitional provisions of Korean IFRS 1109.

The accompanying notes are an integral part of these separate financial statements.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Separate Statements of Comprehensive Income

Years Ended December 31, 2018 and 2017


(In millions of Korean won)	Notes		2018¹			2017
Interest income				9,737,156			8,296,544
Interest income from financial instruments at fair value through other comprehensive income and amortized cost				9,648,150			—
Interest income from financial instruments at fair value through profit or loss				89,006			—
Interest income from loans and receivables				—			8,235,425
Interest income from financial instruments at fair value through profit or loss (Under Korean IFRS 1039)				—			61,119
Interest expense				(3,749,069)			(2,842,282)

Net interest income		26		5,988,087			5,454,262

Fee and commission income				1,443,839			1,482,130
Fee and commission expense				(284,139	)		(235,313	)

Net fee and commission income		27		1,159,700			1,246,817

Net losses on financial assets/liabilities at fair value through profit or loss (Under Korean IFRS 1039)		28		—			(71,742	)

Net gains on financial assets/liabilities at fair value through profit or loss		28		357,580			—

Net other operating expense		29		(654,763	)		(239,020	)

General and administrative expenses		14,15,23,30,40		(3,733,708	)		(3,632,546)

Operating profit before provision for credit losses				3,116,896			2,757,771

Provision for credit losses		7,11,12,17,22		(99,802	)		(112,985	)

Operating profit				3,017,094			2,644,786
Net non-operating profit		31		41,367			45,765

Profit before income tax expense				3,058,461			2,690,551
Income tax expense		32		(819,144	)		(427,635	)

Profit for the year				2,239,317			2,262,916

(Adjusted profit after provision of regulatory reserve for credit losses		25
2018 : W1,999,344 million
2017 : W2,115,268 million
Items that will not be reclassified to profit or loss:
Remeasurements of net defined benefit liabilities		23		(95,796	)		14,177
Net losses on equity instruments at fair value through other comprehensive income				(36,013	)		—
Items that may be subsequently reclassified to profit or loss:
Currency translation differences				856			(2,886	)
Gains on valuation of financial investments				—			126,314
Net gains on debt instruments at fair value through other comprehensive income				56,992			—
Gains on cash flow hedging instruments				3,788			7,414
Other comprehensive income for the year, net of tax		34		(70,173	)		145,019

Total comprehensive income for the year				2,169,144			2,407,935

The separate statement of comprehensive income for year ended December 31, 2018 is prepared applying Korean IFRS 1109, and the comparative separate statement of comprehensive income for the year ended December 31, 2017 has not been restated retrospectively as permitted by transitional provisions of Korean IFRS 1109.

The accompanying notes are an integral part of these separate financial statements.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Separate Statements of Changes in Equity

Years Ended December 31, 2018 and 2017


(In millions of Korean won)	Notes		Capital Stock		Capital Surplus		Accumulated Other Comprehensive Income			Retained Earnings			Total Equity
Balance at January 1, 2017				2,021,896		5,220,031		600,837			15,349,516			23,192,280

Comprehensive income for the year
Profit for the year				—		—		—			2,262,916			2,262,916
Remeasurements of net defined benefit liabilities				—		—		14,177			—			14,177
Currency translation differences				—		—		(2,886	)		—			(2,886	)
Gains on valuation of financial investments				—		—		126,314			—			126,314
Gains on cash flow hedging instruments				—		—		7,414			—			7,414

Total comprehensive income for the year				—		—		145,019			2,262,916			2,407,935

Transactions with the shareholder
Dividends				—		—		—			(359,493	)		(359,493	)

Total transactions with the shareholder				—		—		—			(359,493	)		(359,493	)

Balance at December 31, 2017				2,021,896		5,220,031		745,856			17,252,939			25,240,722

Balance at January 1, 2018				2,021,896		5,220,031		745,856			17,252,939			25,240,722

The effect of changing of accounting policies		41		—		—		(499,269	)		286,616			(212,653	)
Balance after reflecting the change of accounting policies				2,021,896		5,220,031		246,587			17,539,555			25,028,069
Comprehensive income for the year
Profit for the year				—		—		—			2,239,317			2,239,317
Remeasurements of net defined benefit liabilities				—		—		(95,796	)		—			(95,796	)
Net gains on equity instruments at fair value through other comprehensive income				—		—		(36,013	)		13,638			(22,375	)
Currency translation differences				—		—		856			—			856
Net gains on debt instruments at fair value through other comprehensive income				—		—		56,992			—			56,992
Gains on cash flow hedging instruments				—		—		3,788			—			3,788

Total comprehensive income for the year				—		—		(70,173	)		2,252,955			2,182,782

Transactions with the shareholder
Dividends				—		—		—			(640,132	)		(640,132	)

Total transactions with the shareholder				—		—		—			(640,132	)		(640,132	)

Balance at December 31, 2018¹				2,021,896		5,220,031		176,414			19,152,378			26,570,719

The separate statement of changes in equity for year ended December 31, 2018 is prepared applying Korean IFRS 1109, and the comparative separate statement of changes in equity for the year ended December 31, 2017 has not been restated retrospectively as permitted by transitional provisions of Korean IFRS 1109.

The accompanying notes are an integral part of these separate financial statements.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Separate Statements of Cash Flows

Years Ended December 31, 2018 and 2017


(in millions of Korean won)	Notes		2018¹			2017
Cash flows from operating activities
Profit for the year				2,239,317			2,262,916

Adjustment for non-cash items
Net losses on financial assets/liabilities at fair value through profit or loss (Under Korean IFRS 1039)				—			26,875
Net gains on financial assets/liabilities at fair value through profit or loss				(40,016	)		—
Net losses(gains) on derivative financial investments for hedging purposes				41,491			(16,198	)
Adjustment of fair value of derivative financial instruments				410			(1,000	)
Provision for credit losses				99,802			112,985
Net losses(gains) on financial investments				(86,994	)		62,394
Net losses on associates and subsidiaries				31,263			82,956
Depreciation and amortization expense				241,400			229,890
Other net gains on property and equipment/intangible assets				(106,376	)		(44,366	)
Share-based payment				4,051			33,148
Post-employment benefits				140,790			147,469
Net interest expense				248,356			261,895
Losses on foreign currency translation				(10,120	)		(298,333	)
Other expense				19,117			47,666

				583,174			645,381

Changes in operating assets and liabilities
Financial assets at fair value through profit or loss (Under Korean IFRS 1039)				—			531,540
Financial assets at fair value through profit or loss				(3,066,415	)		—
Derivative financial instrument				(11,166	)		(2,809	)
Loans at amortized cost				(25,022,135	)		(16,559,476	)
Current income tax assets				(1,245	)		10,730
Deffered income tax assets				449			84,257
Other assets				2,250,031			(2,714,221	)
Financial liabilities at fair value through profit or loss (Under Korean IFRS 1039)				—			953
Financial liabilities at fair value through profit or loss				10,419			—
Deposits				19,411,037			17,399,162
Deferred income tax liabilities				55,218			32,194
Other liabilities				544,622			(1,336,412	)

				(5,829,185	)		(2,554,082	)

Net cash outflow from operating activities				(3,006,694	)		354,215

Cash flows from investing activities
Net cash flows from derivative financial instrument for hedging purposes				3,065			(3,222	)
Disposal of financial assets at fair value through profit or loss				11,093,020			—
Acquisition of financial assets at fair value through profit or loss				(8,901,732	)		—
Disposal of financial investments				53,147,788			33,834,099
Acquisition of financial investments				(57,399,854	)		(39,976,314	)
Disposal of investments in associates and subsidiaries				39,772			67,406
Acquisition of investments in associates and subsidiaries				(201,348	)		(34,968	)
Disposal of property and equipment				1,722			(58	)
Acquisition of property and equipment				(330,618	)		(215,674	)
Disposal of intangible assets				1,425			233
Acquisition of intangible assets				(52,719	)		(50,575	)
Net cash flows due to conversion of a subsidiary into a branch				32,903			10,245
Others				301,954			209,866

Net cash outflow from investing activities				(2,264,622	)		(6,158,962	)

Cash flows from financing activities
Net cash flows from derivative financial instrument for hedging purposes				(17,698	)		5,804
Net increase in debts				1,346,037			834,750
Increase in debentures				9,308,540			9,696,468
Decrease in debentures				(5,861,362	)		(5,395,942	)
Payment of dividends				(640,132	)		(359,493	)
Net increase in other payables from trust accounts				276,446			540,071
Others				(212,475	)		148,314

Net cash inflow from financing activities				4,199,356			5,469,972

Exchange losses on cash and cash equivalents				(29,310	)		(192,893	)

Net decrease in cash and cash equivalents				(1,101,270	)		(527,668	)
Cash and cash equivalents at the beginning of the year		36		5,509,846			6,037,514

Cash and cash equivalents at the end of the year		36		4,408,576			5,509,846

The separate statement of cash flows for the year ended December 31, 2018 is prepared applying Korean IFRS 1109, and the comparative separate statement of cash flows for the year ended December 31, 2017 has not been restated retrospectively as permitted by transitional provisions of Korean IFRS 1109.

The accompanying notes are an integral part of these separate financial statements.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

1. The Bank

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

2. Basis of Preparation

2.1 Application of Korean IFRS

The Bank maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with Korean IFRS. The accompanying separate financial statements have been condensed, restructured and translated into English from the Korean language financial statements.

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

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

The Bank has prepared the separate financial statements in accordance with Korean IFRS 1027 Separate Financial Statements.

The Bank newly applied the following amended and enacted standards and interpretations from January 1, 2018, and these applications do not have a material impact on the separate financial statements, except for the adoption of Korean IFRS 1109 Financial Instruments.

•

Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

•

Amendments to Korean IFRS 1040 Transfers of Investment Property

•

Amendments to Korean IFRS 1102 Share-based Payment

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

•

Enactment of Interpretation 2122 Foreign Currency Transactions and Advance Consideration

•

Amendments to Korean IFRS 1109 Financial Instruments

The Bank adopted Korean IFRS 1109 Financial Instruments with a date of initial application of January 1, 2018. As permitted by the transitional provisions of Korean IFRS 1109, comparative periods have not been restated. The Bank recognized the difference between the previous carrying amount and the carrying amount at the date of initial application in equity as at January 1, 2018.

For the details about impacts of the adoption of this Korean IFRS 1109, see Note 41.

•

Amendments to Korean IFRS 1115 Revenue from Contracts with Customers

The Bank has adopted Korean IFRS 1115, Revenue from Contracts with Customers from January 1, 2018. The new standard for revenue recognition replaced Korean IFRS 1018 Revenue, Korean IFRS 1011 Construction Contracts, Interpretation 2031 Revenue-Barter Transactions Involving Advertising Services, Interpretation 2113 Customer Loyalty Programs, Interpretation 2115 Agreements for the Construction of Real Estate and Interpretation 2118 Transfers of Assets from Customers.

The Bank has changed the following accounting policy for the period beginning on January 1, 2018.

•

Presentation of interest income arising from financial assets at fair value through profit or loss

The Bank previously recognized interest income arising from financial assets at fair value through profit or loss (under Korean IFRS 1039) as net gains (losses) of financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039) in the statement of comprehensive income. From January 1, 2018, the Bank changed the accounting policy and corresponding interest income was presented as a part of interest income in the statement of comprehensive income. The Bank believes the change in accounting policy provides more relevant information. The statement of comprehensive income for the year ended December 31, 2017 has been restated by adjusting classification of interest income.

This change in accounting policy does not have any impact on the statements of financial position as at December 31, 2018 and 2017, and profit for the years ended December 31, 2018 and 2017. The impacts on the statements of comprehensive income for 2018 and 2017, are as follows:


(in millions of Korean won)	2018			2017
Increase in interest income		89,006			61,119
Decrease in net gains on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1109)		(89,006	)		—
Decrease in net gains on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)		—			(61,119	)

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Certain new accounting standards and interpretations that have been published but are not mandatory for annual reporting period commencing January 1, 2018 and have not been early adopted by the Bank are set out below.

•

Korean IFRS 1116 Leases

Korean IFRS 1116 Leases issued on May 22, 2017 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. This standard will replace Korean IFRS 1017 Leases, Interpretation 2104 Determining whether an Arrangement contains a Lease, Interpretation 2015 Operating Leases-Incentives, and Interpretation 2027 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

At inception of a contract, the Bank shall assess whether the contract is, or contains, a lease. Also, at the date of initial application, the Bank shall assess whether the contract is, or contains, a lease in accordance with the standard. However, the Bank may not need to reassess all contracts with applying the practical expedient that can be applied to contracts entered before the date of initial application. On the basis of the date of initial application, the Bank will assess whether the contract is , or contains, a lease.

For a contract that is, or contains, a lease, the Bank shall account for each lease component within the contract as a lease separately from non-lease components of the contract. In addition, as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. For the all (or partial) contracts that are, or contain, a lease, the Bank plans to apply the practical expedient to account for each lease component and any associated non-lease components as a single lease component.

For sale and leaseback transactions, an entity (the seller-lessee) shall apply the requirements for determining when a performance obligation is satisfied in Korean IFRS 1115 Revenue from Contracts with Customers to determine whether the transfer of an asset is accounted for as a sale of that asset. The entity shall not reassess sale and leaseback transactions entered into before the date of initial application.

From a lessor’s accounting perspective, Korean IFRS 1116 will not significantly change in comparison to Korean IFRS 1017. For the lease accounting as the lessor from the Bank’s point of view, the Bank expects the impact to the financial statements applying Korean IFRS 1116 will not be significant.

A lessee shall apply this standard to its leases either (a) retrospectively to each prior reporting period presented applying Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors (Full retrospective application); or (b) with the cumulative effect of initially applying the standard being recognized at the date of initial application.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The Bank plans to apply Korean IFRS 1116 retrospectively with the cumulative effect of initially applying the standard and as such will not restate any comparative information.

The Bank performed an impact assessment to identify potential financial effects of applying Korean IFRS 1116. The assessment was performed based on available information as at December 31, 2018 to identify effects on 2019 financial statements.

The total minimum lease payment expected to be paid by the Bank in relation to operating leases before discounted to their present value is W 330,758 million. When the payment is discounted at incremental borrowing rate of the lessee, the total minimum lease payment amounts to W 317,665 million. Based on the impact assessment, the Bank expects the underlying leased asset and a lease liability as at December 31, 2018 to be increased by W 350,803 million and W 317,665 million, respectively. The difference between the right-of-use asset and the lease liability is arising from the adjustments made at the right-of-use asset for the lease contracts entered before the date of the adoption of this standard.

The impact assessment may change due to additional information that the Bank may obtain after the assessment.

•

Korean IFRS 1109 Financial Instruments

•

Amendments to Korean IFRS 1019 Employee Benefits

•

Amendments to Korean IFRS 1028 Investments in Associates and Joint Ventures

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

•

Enactment to Interpretation of Korean IFRS 2123 Uncertainty over Income Tax Treatments

•

Annual Improvements to Korean IFRS 2015 – 2017 Cycle:

(a) Korean IFRS 1103 Business Combination

(b) Korean IFRS 1111 Joint Agreements

(d) Korean IFRS 1023 Borrowing Costs

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

2.2 Measurement Basis

The separate financial statements have been prepared under the historical cost convention unless otherwise specified.

2.3 Functional and Presentation Currency

Items included in the financial statements of the Bank are measured using the currency of the primary economic environment in which the Bank operates (the “functional currency”). The separate financial statements are presented in Korean won, which is the Bank’s functional and presentation currency. Refer to Notes 3.2.

2.4 Critical Accounting Estimates

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

Uncertainty in estimates and assumptions with significant risk that may result in material adjustment to the separate financial statements are as follows:

2.4.1 Income Taxes

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

If certain portion of the taxable income is not used for investments, increase in wages, and others in accordance with the Tax Law for Promotion of investment and Collaborative Cooperation (Recirculation of Corporate Income), the Bank is liable to pay additional income tax calculated based on the tax laws. The new tax law is effective for three years from 2018 and measurement of current and deferred income tax is affected. As the Bank’s income tax is dependent on the investments, increase in wages, and others, there exists uncertainty with regard to measuring the final tax effects.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

2.4.2 Fair Value of Financial Instruments

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Bank uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Refer to Note 6 for details on valuation techniques and inputs used to determine the fair value of financial instruments.

2.4.3 Provisions for Credit Losses (allowances for loan losses, provisions for acceptances and guarantees, and unused loan commitments)

The Bank determines and recognizes allowances for losses on financial assets at amortized cost and fair value through other comprehensive income through impairment test and recognizes provisions for acceptances and guarantees, and unused loan commitments. The accuracy of provisions for credit losses is determined by the methodology and assumptions used for the estimation of expected cash flows of the borrower for individually assessed allowances of loans, collectively assessed allowances for groups of loans, acceptances and guarantees, and unused loan commitments.

2.4.4 Net Defined Benefit Liability

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions(Note 23).

2.4.5 Estimated Impairment of Goodwill

The recoverable amounts of cash-generating units, to determine whether goodwill is impaired, have been determined based on value-in-use calculations(Note 15).

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3. Significant Accounting Policies

The significant accounting policies applied in the preparation of these separate financial statements are set out below. The items related to financial instruments on the financial statements are accounted for applying Korean IFRS 1109 for the current period, and Korean IFRS 1039 for the comparative prior period, respectively.

3.1 Investments in Associates and Subsidiaries

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

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

Investments in associates and subsidiaries are accounted for at cost in accordance with Korean IFRS 1027. Beneficiary certificates in private equity fund which is consolidated is classified as financial assets at fair value through profit or loss in accordance with Korean IFRS 1109, and measured at fair value in accordance with Korean IFRS 1113.

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

3.2 Foreign Currency

3.2.1 Foreign Currency Transactions and Balances

A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period foreign currency monetary items are translated using the closing rate which is the spot exchange rate at the end of the reporting period. Non-monetary items that are measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined and non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise. When gains or losses on a non-monetary item are recognized in other comprehensive income, any exchange component of those gains or losses are also recognized in other comprehensive income. Conversely, when gains or losses on a non-monetary item are recognized in profit or loss, any exchange component of those gains or losses are also recognized in profit or loss.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.2.2 Foreign Operations

The financial performance and financial position of all foreign operations, whose functional currencies differ from the Bank’s presentation currency, are translated into the Bank’s presentation currency using the following procedures.

3.3 Recognition and Measurement of Financial Instruments

3.3.1 Initial Recognition

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

The Bank classifies financial assets as financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income or financial assets at amortized cost. The Bank classifies financial liabilities as financial liabilities at fair value through profit or loss, or other financial liabilities. The classification depends on the Bank’s business model for managing financial instruments and the contractual cash flow characteristics of the financial instruments at initial recognition.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.3.2 Subsequent Measurement

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

Amortized cost

Fair value

Fair values, which the Bank primarily uses for the measurement of financial instruments, are the published price quotations based on market prices or dealer price quotations of financial instruments traded in an active market where available. These are the best evidence of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, an entity in the same industry, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

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

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with economic methodologies applied for pricing financial instruments. Periodically, the Bank calibrates the valuation technique and tests its validity using prices of observable current market transactions of the same instrument or based on other relevant observable market data.

3.3.3 Derecognition

Derecognition is the removal of a previously recognized financial asset or financial liability from the statement of financial position. The Bank derecognizes a financial asset or a financial liability when, and only when:

Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the financial assets expire or the financial assets have been transferred and substantially all the risks and rewards of ownership of the financial assets are also transferred, or all the risks and rewards of ownership of the financial assets are neither substantially transferred nor retained and the Bank has not retained control. If the Bank neither transfers nor disposes of substantially all the risks and rewards of ownership of the financial assets, the Bank continues to recognize the financial asset to the extent of its continuing involvement in the financial asset.

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

The Bank writes off the carrying amount and allowance of financial assets in its entirety or to a portion thereof when the principal and interest are determined to be no longer recoverable. In general, the Bank considers write-off when it is determined that the debtor does not have sufficient resources or income to cover the principal and interest, and this write-off decision is made in accordance with internal regulations. After the write-off, the Bank can collect the written-off loans continuously according to the internal policy. Recovered amounts from written-off financial assets are recognized in profit or loss.

Derecognition of financial liabilities

Financial liabilities are derecognized from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired.

3.3.4 Offsetting

Financial assets and financial liabilities are offset and the net amount are presented in the statement of financial position when, and only when, the Bank currently has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.4 Cash and Cash Equivalents

3.5 Non-derivative Financial Assets

3.5.1 Financial Assets at Fair Value through Profit or Loss

Financial assets classified as held for trading, financial assets designated by the Bank as at fair value through profit or loss upon initial recognition, and financial assets that are required to be mandatorily measured at fair value through profit or loss are classified as financial assets at fair value through profit or loss.

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

3.5.2 Financial Assets at Fair Value through Other Comprehensive Income

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

•

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

•

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.5.3 Financial Assets at Amortized Cost

A financial asset, which are held within the business model whose objective is to hold assets in order to collect contractual cash flows and consistent with representing solely payments of principal and interest on the principal amount outstanding, are classified as a financial asset at amortized cost. These financial assets are subsequently carried at amortized cost using the effective interest method after initial recognition and interest income is recognized using the effective interest method. The carrying amount of financial assets at amortized cost is presented by deducting allowance for doubtful accounts, and the measurement method is described in Note 3.6.

3.6 Expected Credit Loss of Financial Assets (Debt Instruments)

The Bank measures expected credit loss and recognizes loss allowance at the end of the reporting period for financial assets at amortized cost and fair value through other comprehensive income with the exception of financial asset at fair value through profit or loss.

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

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

•

General approach: for financial assets not subject to the below approach and unused loan commitments on off-balance sheet

•

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

The Bank determines whether the credit risk has increased significantly using the following information, and if one or more of the following items are met, it is deemed as significant increase in credit risk. When the contractual cash flows of a financial asset are renegotiated or otherwise modified, the Bank determines whether the credit risk has increased significantly using the same following information.

•

More than 30 days past due

•

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

•

Subsequent managing ratings below certain level in the early warning system

•

Debt restructuring (except for impaired financial assets) and

•

Credit delinquency information on Korea Federation of Banks, and etc.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

If one or more of the following items are met, it is generally deemed as credit-impaired:

•

90 days or more past due

•

Legal proceedings related to collection

•

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

•

A corporate borrower with the credit rating C or D

•

Refinancing or

•

Debt restructuring, and etc.

3.6.1 Forward-looking Information

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

The Bank assumes the risk components have a certain correlation with the economic cycle, and uses statistical methodologies to estimate the relation between key macroeconomic variables and risk components for the expected credit losses. The Bank has derived a correlation between the time series data of more than 8 years and the key macroeconomic variables, and calculates the expected credit losses by reflecting the results of the correlation on the risk component. The correlation between the major macroeconomic variables and the credit risk is as follows;


Key macroeconomic variables	Correlation between the major macroeconomic variables and the credit risk
Domestic GDP growth rate		(-	)
Composite stock index		(-	)
Construction investment change rate		(-	)
Housing transaction price index		(-	)
Consumer price index		(+	)
Unemployment rate		(+	)

Forward-looking information used in calculation of expected credit losses is based on the macroeconomic forecasts utilized by the management of the Bank for its business plan taking into account reliable external agency’s forecasts and others. The forward-looking information is generated by KB Research under KB Financial Group with comprehensive approach to capture the possibility of various economic forecast scenarios that are derived from the internal and external viewpoints of the macroeconomic situation.

3.6.2 Measuring Expected Credit Losses on Financial at Amortized Cost

The expected credit losses on financial assets at amortized cost are measured as the difference between the asset’s contractual terms of cash flow and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The Bank estimates expected future cash flows for financial assets that are individually significant (individual assessment of impairment).

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

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

Individual assessment of impairment

Collective assessment of impairment

3.6.3 Measuring Expected Credit Losses on Financial Assets at Fair Value through Other Comprehensive Income

3.7 Derivative Financial Instruments

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

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

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

See Note 9 for changes in fair value of the hedging instruments and changes in other comprehensive income related to derivatives held for cash flow hedging.

The Bank applies hedge accounting for risk management activities aligned with the requirements and qualifying criteria for hedge accounting of Korean IFRS 1109.

3.7.1 Derivative Financial Instruments Held for Trading

3.7.2 Fair Value Hedges

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

Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting or the Bank revokes the designation. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is amortized to profit or loss by the maturity of the financial instrument using the effective interest method.

3.7.3 Cash Flow Hedges

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.7.4 Risk management strategy

The Bank entirely hedges the interest rate risk.

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

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

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

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

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

3.7.5 Embedded Derivatives

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.7.6 Day One Gain and Loss

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

3.8 Property and Equipment

3.8.1 Recognition and Measurement

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

3.8.2 Depreciation

Land is not depreciated whereas other property and equipment are depreciated using the method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Bank. The depreciable amount of an asset is determined after deducting its residual value. As for leased assets, if there is no reasonable certainty that the Bank will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.

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


Property and equipment	Depreciation method	Estimated useful lives
Buildings and structures	Straight-line	40 years
Leasehold improvements	Declining-balance	4 years
Equipment and vehicles	Declining-balance	4 years

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.9 Investment Properties

3.9.1 Recognition and Measurement

3.9.2 Depreciation

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

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


Investment Properties	Depreciation method	Estimated useful lives
Buildings	Straight-line	40 years

3.10 Intangible Assets

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


Intangible assets	Amortization method	Estimated useful lives
Industrial property rights	Straight-line	5 years
Software	Straight-line	4~5 years
Others	Straight-line	1~10 years

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.10.1 Goodwill

Recognition and measurement

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

Subsequent measurement

3.10.2 Subsequent Expenditure

3.11 Leases

3.11.1 Finance Lease

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. At the commencement of the lease term, the Bank recognizes finance leases as assets and liabilities in its statements of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs of the lessee are added to the amount recognized as an asset.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Bank adopts for depreciable assets that are owned. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is fully depreciated over the shorter of the lease term and its useful life.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.11.2 Operating Lease

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Leases in the financial statements of lessees

Leases in the financial statements of lessors

3.12 Greenhouse Gas Emission Rights and Liabilities

The Bank measured at zero the emission rights received free of charge from the government following the Enforcement of Allocation and Trading of Greenhouse Gas Emissions Allowances. Emission rights purchased are measured initially at cost and subsequently carried at their costs less any accumulated impairment losses. Emission liabilities are measured as the sum of the carrying amount of emission allowances held by the Bank and best estimate of the expenditure required to settle the obligation for any excess emissions at the end of reporting period. The emission rights and liabilities are classified as ‘intangible assets’ and ‘provisions’, respectively, in the separate statement of financial position.

3.13 Impairment of Non-Financial Assets

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

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

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

3.14 Non-Current Assets Held for Sale

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.15 Financial Liabilities

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

3.15.1 Liabilities at Fair Value through Profit or Loss

In relation to securities lending or borrowing transactions, the Bank records transaction using memorandum value when it borrows securities from Korea Securities Depository and others. The borrowed securities are treated as financial liabilities at fair value through profit or loss when they are sold. Changes in fair value at the end of the reporting period and difference between carrying amount at redemption and purchased amount is recognized as profit or loss.

3.15.2 Other Financial Liabilities

In case an asset is sold under repurchase agreement, the Bank continues to recognize the asset with the amount sold being accounted for as borrowing. The Bank derecognizes a financial liability from the separate statement of financial position only when the obligation specified in the contract is discharged, cancelled or expired.

3.16 Provisions

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

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

When an onerous contract is occurred, the present obligation under the contract is recognized and measured as provisions.

3.17 Financial Guarantee Contracts

A financial guarantee contract is a contract that requires the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due according to the original or modified terms of a debt instrument.

•

Provisions measured in accordance with Korean IFRS 1109 Financial Instruments and

•

The initial amount recognized, less, when appropriate, cumulative amortization recognized in accordance with Korean IFRS 1115, Revenue from Contracts with Customers.

3.18 Equity Instrument Issued by the Bank

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

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are deducted, net of tax, from the equity.

3.19 Revenue Recognition

The Bank recognizes revenues in accordance with the following steps determined in accordance with Korean IFRS 1115 Revenue from Contracts with Customers.

•

Step 1: Identify the contract with a customer.

•

Step 2: Identify the performance obligations in the contract.

•

Step 3: Determine the transaction price.

•

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

•

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.19.1 Interest Income and Expense

Interest income of debt instruments at fair value through profit or loss (excluding beneficiary certificates, equity investments and other debt instruments), loans, financial instruments at amortized cost and debt instruments at fair value through other comprehensive income, and interest expense are recognized in statements of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or groups of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.

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

3.19.2 Fee and Commission Income

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

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

Fees related to performance obligations in the contract satisfied over time

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Fees earned at a point in time

Fees earned at a point in time are recognized when a customer obtains controls of a promised asset and the Bank satisfies a performance obligation.

3.19.3 Net Gains/Losses on Financial Instruments at Fair Value through Profit or Loss

•

Gain or loss from financial instruments at fair value through profit or loss, excluding interest income calculated by the effective interest rate

•

Gain or loss from derivatives for trading, including derivatives for hedging that does not meet the criteria for hedge accounting

3.19.4 Dividend Income

Dividend income is recognized as profit or loss when the right to receive payment is established. Dividend income is recognized as relevant profit or loss on the statement of comprehensive income in depending of the classification of equity securities.

3.20 Employee Compensation and Benefits

3.20.1 Post-employment Benefits:

Defined benefit plans

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Past service cost is the change in the present value of the defined benefit obligation, which arises when the Bank introduces a defined benefit plan or changes the benefits of an existing defined benefit plan. Such past service cost is immediately recognized as an expense for the period.

Defined contribution plans

The contributions are recognized as employee benefit expense when they are due.

3.20.2 Short-term Employee Benefits

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

3.20.3 Share-based Payment

The Bank has share grant and mileage stock programs to directors and employees of the Bank. The Bank has a choice of whether to settle share grant in cash or by issuing equity instruments of KB Financial Group Inc., the ultimate parent company, at the date of settlement, while the Bank shall settle the mileage stock in cash based on the stock price.

For a share-based payment transaction in which the terms of the arrangement provide the Bank with the choice of whether to settle in cash or by issuing equity instruments, the Bank determines that it has a present obligation to settle in cash because the Bank has a past practice and a stated policy of settling in cash. Therefore, the fair value of the employee service is recognized as expense and accrued expenses over the vesting period. Also, the Bank accounts for the mileage stock in accordance with the requirements of cash-settled share-based payment transactions, and recognizes the corresponding liability and expenses at the vesting period.

Until the liability is settled, the Bank remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.

3.20.4 Termination Benefits

Termination benefits are payable when employment is terminated by the Bank before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Bank shall recognize a liability and expense for termination benefits at the earlier of the following dates: when the Bank can no longer withdraw the offer of those benefits and when the Bank recognizes costs for a restructuring that is within the scope of Korean IFRS 1037 and involves the payment of termination benefits. Termination benefits are measured by considering the number of employees expected to accept the offer in the case of a voluntary early retirement. Termination benefits over 12 months after the reporting period are discounted to present value.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

3.21 Income Tax Expenses

3.21.1 Current income tax

3.21.2 Deferred Income Tax

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

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

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

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

3.21.3 Uncertain Tax Positions

Uncertain tax positions arise from tax treatments applied by the Bank which may be challenged by the tax authorities due to the complexity of the transaction or different interpretation of the tax laws, a claim for rectification brought by the Bank, an appeal for a refund claimed from the tax authorities related to additional assessments or a tax investigation processed by the tax authorities. The Bank recognizes its uncertain tax positions in the separate financial statements based on the guidance in Korean IFRS 1012. The income tax asset is recognized if a tax refund is probable for taxes paid and levied by the tax authority, and the amount to be paid as a result of the tax investigation and others is recognized as the current tax payable. However, interest and penalties related to income taxes are recognized in accordance with Korean IFRS 1037 as its economic substances.

3.22 Transactions with the Trust Accounts

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

3.23 Operating Segments

Operating segments are components of the Bank where separate financial information is available and is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of Financial Risk Management Policy

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

The note regarding financial risk management provides information about the risks that the Bank is exposed to, including the objectives, policies and processes for managing the risks, the methods used to measure the risks, and capital management. Additional quantitative information is disclosed throughout the separate financial statements.

The Bank’s risk management system focuses on increasing transparency, developing the risk management environment, preventing transmission of risk to other risk types, and the preemptive response to risk due to rapid changes in the financial environment to support the Bank’s long-term strategy and business decisions efficiently. Credit risk, market risk, liquidity risk, and operational risk have been recognized as the Bank’s key risks. These risks are measured and managed in Internal Capital or VaR (Value at Risk) using a statistical method.

4.1.2 Risk Management Organization

Risk Management Committee

The Risk Management Committee establishes risk management strategies in accordance with the directives of the Board of Directors and determines the Bank’s target risk appetite, approves significant risk matters and reviews the level of risks that the Bank is exposed to and the appropriateness of the Bank’s risk management operations as an ultimate decision-making authority.

Risk Management Council

Risk Management Subcommittee

The Risk Management Subcommittee enforces decisions made by Risk Management Council, and makes practical decisions to implement risk management policies and procedures.

•

Credit Risk Management Subcommittee

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

•

Market Risk Management Subcommittee

The Market Risk Management Subcommittee reviews and makes decisions on setting risk limits and approving the standard for investments in newly developed standard, exotic and hybrid products.

•

Operational Risk Management Subcommittee

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

Risk Management Group

The Risk Management Group is responsible for managing specific policies, procedures and work processes relating to the Bank’s risk management.

4.2 Credit Risk

4.2.1 Overview of Credit Risk

Credit risk is the risk of possible losses in an asset portfolio in the event of a counterparty’s default, breach of contract and deterioration in the credit quality of the counterparty. For risk management reporting purposes, the individual borrower’s default risk, country risk, specific risks and other credit risk exposure components are considered as a whole. The Bank uses definition of default as defined and applied in the calculation of Capital Adequacy Ratio (Basel III) in accordance with the new Basel Accord.

4.2.2 Credit Risk Management

The Bank measures expected losses and internal capital on assets that are subject to credit risk management whether on- or off-balance sheet items and uses expected losses and internal capital as a management indicator. The Bank manages credit risk by allocating credit risk internal capital limits.

In addition, the Bank controls the credit concentration risk exposure by applying and managing total exposure limits to prevent an excessive risk concentration to each industry and borrower.

The Bank has organized a credit risk management group that focuses on credit risk management in accordance with the Bank’s credit risk management policy. The Bank’s credit group, customer service group and SME/SOHO group, which are independent from the sales department, are responsible for loan policy, loan limit, loan review, credit evaluation, restructuring and subsequent events. The credit risk management group is also responsible for planning risk management policy, applying limits of credit lines, measuring the credit risk internal capital, adjusting credit limits, reviewing credit and verifying credit evaluation models.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

4.2.3 Maximum Exposure to Credit Risk

The Bank’s maximum exposures of financial instruments excluding equity securities to credit risk without consideration of collateral values as at December 31, 2018 are as follows:


(In millions of Korean won)	2018
Financial assets
Due from financial institutions¹		10,362,359
Financial assets at fair value through profit or loss
Securities		8,299,293
Loans		212,596
Financial instruments indexed to gold		78,808
Derivatives		1,611,295
Loans at amortized cost ¹		274,985,803
Financial investments
Securities at fair value through other comprehensive income		27,556,891
Securities at amortized cost ¹		12,753,724
Loans at fair value through other comprehensive income		349,547
Other financial assets ¹		4,197,708

		340,408,024

Off-balance sheet items ²
Acceptances and guarantees contracts		7,250,061
Financial guarantee contracts		4,636,538
Commitments		81,137,779
		93,024,378

		433,432,402

¹	Due from financial institutions, loans at amortized cost, securities at amortized cost and other financial assets are presented net of allowance.

²	For details of relevant provisions, see Note 22.

The Bank’s maximum exposures of financial instruments, excluding equity securities and beneficiary certificates, to credit risk without consideration of collateral values as at December 31, 2017 are as follows:


(In millions of Korean won)	2017
Financial assets
Due from financial institutions		12,034,350
Financial assets at fair value through profit or loss (under Korean IFRS 1039)
Financial assets held for trading ¹		3,117,864
Derivatives		2,590,960
Loans ²		250,119,240
Financial investments
Available-for-sale financial assets		27,417,640
Held-to-maturity financial assets		8,732,246
Other financial assets ²		6,303,303

		310,315,603

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Off-balance sheet items
Acceptances and guarantees contracts			6,965,502
Financial guarantee contracts			4,135,402
Commitments			50,785,020

			61,885,924

			372,201,527

¹	Including financial instruments indexed to gold amounting to W 73,856 million.

²	Loans and other financial assets are presented net of allowance.

4.2.4 Credit Risk of Loans

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

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Credit risk exposure

Loans as at December 31, 2018, are classified as follows:


	2018
	Financial instruments applying 12-month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
(In millions of Korean won)			Non-impaired		Impaired		Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
Financial assets at amortized cost
Corporate
Grade 1		68,474,730		1,406,552		1,573		—		—		69,882,855
Grade 2		53,896,127		4,065,708		1,610		—		—		57,963,445
Grade 3		2,472,873		1,677,369		6,566		—		—		4,156,808
Grade 4		395,335		902,790		40,043		—		—		1,338,168
Grade 5		20,648		342,216		920,190		—		—		1,283,054

		125,259,713		8,394,635		969,982		—		—		134,624,330

Retail
Grade 1		123,963,709		4,387,477		8,836		—		—		128,360,022
Grade 2		4,171,518		7,058,259		6,218		—		—		11,235,995
Grade 3		140,074		881,415		4,158		—		—		1,025,647
Grade 4		431,480		154,506		2,582		—		—		588,568
Grade 5		8,426		296,087		379,555		—		—		684,068

		128,715,207		12,777,744		401,349		—		—		141,894,300

		253,974,920		21,172,379		1,371,331		—		—		276,518,630

Financial assets at fair value through other comprehensive income
Corporate
Grade 1		149,226		25,731		—		—		—		174,957
Grade 2		128,712		45,878		—		—		—		174,590
Grade 3		—		—		—		—		—		—
Grade 4		—		—		—		—		—		—
Grade 5		—		—		—		—		—		—

		277,938		71,609		—		—		—		349,547

Retail
Grade 1		—		—		—		—		—		—
Grade 2		—		—		—		—		—		—
Grade 3		—		—		—		—		—		—
Grade 4		—		—		—		—		—		—
Grade 5		—		—		—		—		—		—

		—		—		—		—		—		—

		277,938		71,609		—		—		—		349,547

		254,252,858		21,243,988		1,371,331		—		—		276,868,177

¹	Before netting of allowance.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	Corporate	Retail
Grade 1	AAA ~ BBB+	1 ~ 5 grade
Grade 2	BBB ~ BB	6 ~ 8 grade
Grade 3	BB- ~ B	9 ~ 10 grade
Grade 4	B- ~ CCC	11 grade
Grade 5	CC or under	12 grade or under

Loans as at December 31, 2017, are classified as follows:


	2017
(In millions of Korean won)	Retail					Corporate					Total
(In millions of Korean won)	Amount			%		Amount			%		Amount			%
Loans
Neither past due nor impaired		129,053,465			99.04		119,839,745			98.88		248,893,210			98.96
Past due but not impaired		863,389			0.66		197,918			0.16		1,061,307			0.42
Impaired		386,240			0.30		1,166,549			0.96		1,552,789			0.62

		130,303,094			100.00		121,204,212			100.00		251,507,306			100.00

Allowances		(318,138	)		0.24		(1,069,928	)		0.88		(1,388,066	)		0.55

Carrying amount		129,984,956					120,134,284					250,119,240

Credit quality of loans that are neither past due nor impaired as at December 31, 2017, are as follows:


	2017
(In millions of Korean won)	Retail		Corporate		Total
Grade 1		115,146,823		61,524,809		176,671,632
Grade 2		12,537,698		51,891,363		64,429,061
Grade 3		804,043		4,852,801		5,656,844
Grade 4		385,241		1,253,960		1,639,201
Grade 5		179,660		316,812		496,472

		129,053,465		119,839,745		248,893,210

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Credit quality of loans graded according to internal credit ratings as at December 31, 2017, are as follows:


	Corporate	Retail
Grade 1	AAA ~ BBB+	1 ~ 5 grade
Grade 2	BBB ~ BB	6 ~ 8 grade
Grade 3	BB- ~ B	9 ~ 10 grade
Grade 4	B- ~ CCC	11 grade
Grade 5	CC or under	12 grade or under

Loans that are past due but not impaired as at December 31, 2017, are as follows:


	2017
(In millions of Korean won)	1 ~ 29 days		30 ~ 59 days		60 ~ 89 days		Total
Retail		734,224		87,845		41,320		863,389
Corporate		154,706		26,654		16,558		197,918

		888,930		114,499		57,878		1,061,307

Impaired loans as at December 31, 2017, are as follows:


(In millions of Korean won)	2017
(In millions of Korean won)	Retail			Corporate			Total
Loans		386,240			1,166,549			1,552,789
Allowances		(126,439	)		(756,664	)		(883,103	)
Individual		—			(670,956	)		(670,956	)
Collective		(126,439	)		(85,708	)		(212,147	)

		259,801			409,885			669,686

Credit risk mitigation by collateral

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk as at December 31, 2018, are as follows:


(In millions of Korean won)	2018
	Financial instruments applying 12-month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
			Non-impaired		Impaired		Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
Guarantees		59,710,931		5,864,526		146,818		—		—		65,722,275
Deposits and savings		1,354,807		76,960		5,265		—		—		1,437,032
Property and equipment		2,411,077		72,326		2,461		—		—		2,485,864
Real estate		145,007,035		12,494,029		385,562		—		—		157,886,626

		208,483,850		18,507,841		540,106		—		—		227,531,797

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The quantification of the extent to which collateral and other credit enhancements mitigate credit risk as at December 31, 2017, are as follows:


(In millions of Korean won)	2017
	Impaired Loans				Non-impaired Loans				Total
	Individual		Collective		Past due		Not past due		Total
Guarantees		17,257		107,610		198,379		57,326,035		57,649,281
Deposits and savings		10,000		5,375		21,549		1,398,796		1,435,720
Property and equipment		125		456		43		1,931,149		1,931,773
Real estate		96,008		269,021		636,835		145,474,803		146,476,667

		123,390		382,462		856,806		206,130,783		207,493,441

4.2.5 Credit Quality of Securities

The credit quality of financial investments excluding equity securities that are exposed to credit risk as at December 31, 2018, are as follows:


	2018
	Financial instruments applying 12-month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
(In millions of Korean won)			Non-impaired		Impaired		Financial instruments applying credit impaired approach		Financial instruments not applying expected credit losses		Total
Securities at amortized cost
Grade 1		12,754,979		—		—		—		—		12,754,979
Grade 2		—		—		—		—		—		—
Grade 3		—		—		—		—		—		—
Grade 4		—		—		—		—		—		—
Grade 5		—		—		—		—		—		—

		12,754,979		—		—		—		—		12,754,979
Securities at fair value through other comprehensive income
Grade 1		27,028,610		—		—		—		—		27,028,610
Grade 2		525,772		—		—		—		—		525,772
Grade 3		—		—		—		—		—		—
Grade 4		2,509		—		—		—		—		2,509
Grade 5		—		—		—		—		—		—

		27,556,891		—		—		—		—		27,556,891

		40,311,870		—		—		—		—		40,311,870

¹	Before netting of allowance

The credit qualities of securities, excluding equity securities according to the credit ratings by external rating agencies as at December 31, 2018, are as follows:

Credit

Domestic

Foreign

quality

KIS

NICE P&I

FnPricing Inc.

S&P

Fitch-IBCA

Moody’s

Grade 1

AA0 to AAA

A- to AAA

A3 to Aaa

Grade 2

A- to AA-

BBB- to BBB+

Baa3 to Baa1

Grade 3

BBB0 to BBB+

BB to BB+

Ba2 to Ba1

Grade 4

BB0 to BBB-

B+ to BB-

B1 to Ba3

Grade 5

BB- or under

B or under

B2 or under

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017
Securities that are neither past due nor impaired		39,193,894
Impaired securities		—

		39,193,894

The credit quality of securities, excluding equity securities and beneficiary certificates that are neither past due nor impaired as at December 31, 2017, is as follows:

(In millions of Korean won)


	2017
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5		Total
Financial assets held for trading		2,937,846		106,162		—		—		—		3,044,008
Available-for-sale financial assets		27,284,952		126,939		3,228		2,521		—		27,417,640
Held-to-maturity financial assets		8,732,246		—		—		—		—		8,732,246

		38,955,044		233,101		3,228		2,521		—		39,193,894

The credit qualities of securities, excluding equity securities and beneficiary certificates, according to the credit ratings by external rating agencies as at December 31, 2017, are as follows:

Credit

Domestic

Foreign

quality

KIS

NICE P&I

FnPricing Inc.

S&P

Fitch-IBCA

Moody’s

Grade 1

AA0 to AAA

A- to AAA

A3 to Aaa

Grade 2

A- to AA-

BBB- to BBB+

Baa3 to Baa1

Grade 3

BBB0 to BBB+

BB to BB+

Ba2 to Ba1

Grade 4

BB0 to BBB-

B+ to BB-

B1 to Ba3

Grade 5

BB- or under

B or under

B2 or under

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

4.2.6 Credit Risk of Due from Financial Institutions

The credit quality of due from financial institutions as at December 31, 2018, is classified as follows:


	2018
(In millions of Korean won)	Financial instruments applying 12-month expected credit losses		Financial instruments applying lifetime expected credit losses				Financial instruments applying credit impaired approach		Total
(In millions of Korean won)			Non-impaired		Impaired		Financial instruments applying credit impaired approach		Total
Due from financial institutions at amortized cost
Grade 1		10,362,365		—		—		—		10,362,365
Grade 2		—		—		—		—		—
Grade 3		—		—		—		—		—
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—

		10,362,365		—		—		—		10,362,365

¹	Before netting of allowance.

The classification criteria of the credit quality for due from financial institutions are the same as the criteria for securities (excluding equity securities).

4.2.7 Credit Risk Mitigation of Derivative Financial Instruments

The quantification of the extent to which collateral mitigates credit risk of derivative financial instruments as at December 31, 2018 and 2017, is as follows:


(In millions of Korean won)	2018		2017
Deposits and savings, securities and others		381,959		1,198,373

4.2.8 Credit Risk Concentration Analysis

Details of the Bank’s loans by jurisdiction as at December 31, 2018 and 2017, are as follows:


	2018
	Retail		Corporate¹		Total		%		Allowances			Carrying amount
Korea		141,754,541		132,231,620		273,986,161		98.89		(1,521,921	)		272,464,240
Japan		106		333,918		334,024		0.12		(1,865	)		332,159
United States		—		839,620		839,620		0.30		(4,795	)		834,825
China		—		1,111,453		1,111,453		0.40		(2,507	)		1,108,946
Others		139,653		669,862		809,515		0.29		(1,739	)		807,776

		141,894,300		135,186,473		277,080,773		100.00		(1,532,827	)		275,547,946

¹	Expected credit loss of loans at fair value through other comprehensive income is W 1,307 million.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Retail		Corporate		Total		%		Allowances			Carrying amount
Korea		130,223,811		119,079,878		249,303,689		99.13		(1,367,933	)		247,935,756
Japan		539		127,009		127,548		0.05		(6,268	)		121,280
United States		—		866,867		866,867		0.34		(1,599	)		865,268
China		—		904,660		904,660		0.36		(9,928	)		894,732
Others		78,744		225,798		304,542		0.12		(2,338	)		302,204

		130,303,094		121,204,212		251,507,306		100.00		(1,388,066	)		250,119,240

Details of the Bank’s corporate loans by industry as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
(In millions of Korean won)	Loans¹		%		Allowances			Carrying amount
Financial institutions		11,356,143		8.40		(4,667	)		11,351,476
Manufacturing		40,971,041		30.31		(444,637	)		40,526,404
Service		58,908,168		43.58		(235,936	)		58,672,232
Wholesale and retail		16,012,121		11.84		(92,275	)		15,919,846
Construction		2,628,180		1.94		(283,620	)		2,344,560
Public		820,832		0.61		(3,285	)		817,547
Others		4,489,988		3.32		(23,443	)		4,466,545

		135,186,473		100.00		(1,087,863	)		134,098,610

¹	Expected credit loss of loans at fair value through other comprehensive income is W 1,307 million.


(In millions of Korean won)	2017
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Financial institutions		9,464,449		7.81		(5,816	)		9,458,633
Manufacturing		38,075,952		31.41		(426,074	)		37,649,878
Service		52,524,954		43.34		(266,685	)		52,258,269
Wholesale and retail		14,123,858		11.65		(84,864	)		14,038,994
Construction		2,526,078		2.08		(269,167	)		2,256,911
Public		817,377		0.68		(2,902	)		814,475
Others		3,671,544		3.03		(14,420	)		3,657,124

		121,204,212		100.00		(1,069,928	)		120,134,284

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of the Bank’s retail as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Housing purpose		70,178,329		49.46		(28,940	)		70,149,389
General purpose		71,715,971		50.54		(416,024	)		71,299,947

		141,894,300		100.00		(444,964	)		141,449,336


(In millions of Korean won)	2017
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Housing purpose		62,319,990		47.83		(14,914	)		62,305,076
General purpose		67,983,104		52.17		(303,224	)		67,679,880

		130,303,094		100.00		(318,138	)		129,984,956

Details of the Bank’s mortgage loans¹ as at December 31, 2018 are as follows:


(In millions of Korean won)	2018
(In millions of Korean won)	Loans		%		Allowances			Carrying amount
Group1		6,671,012		7.11		(3,296	)		6,667,716
Group2		18,911,235		20.16		(8,322	)		18,902,913
Group3		35,580,948		37.94		(8,753	)		35,572,195
Group4		32,256,160		34.39		(12,338	)		32,243,822
Group5		356,892		0.38		(737	)		356,155
Group6		16,776		0.02		(35	)		16,741

		93,793,023		100.00		(33,481	)		93,759,542

¹	Retail loans for general purpose with the real estate as collateral are included.


		Ranges
Group 1		LTV 0% to less than 20%
Group 2		LTV 20% to less than 40%
Group 3		LTV 40% to less than 60%
Group 4		LTV 60% to less than 80%
Group 5		LTV 80% to less than 100%
Group 6		LTV over 100%

¹	LTV: Loan to Value ratio

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Credit risk by industry of due from financial institutions, securities and derivative financial instruments

Details of the Bank’s credit risk of due from financial institutions, securities excluding equity securities and derivative financial instruments by industry as at December 31, 2018, are as follows:


(In millions of Korean won)	2018
(In millions of Korean won)	Amount		%		Allowances			Carrying amount
Due from financial institutions at amortized cost
Finance and Insurance		10,362,364		100.00		(5	)		10,362,359

		10,362,364		100.00		(5	)		10,362,359

Securities at fair value through profit or loss¹
Government and government funded institutions		1,175,311		14.16		—			1,175,311
Finance and Insurance		6,632,430		79.92		—			6,632,430
Others		491,552		5.92		—			491,552

		8,299,293		100.00		—			8,299,293

Derivatives
Government and government funded institutions		39,290		2.44		—			39,290
Finance and Insurance		1,476,717		91.65		—			1,476,717
Others		95,288		5.91		—			95,288

		1,611,295		100.00		—			1,611,295

Securities at fair value through other comprehensive income²
Government and government funded institutions		7,844,258		28.47		—			7,844,258
Finance and Insurance		17,706,660		64.25		—			17,706,660
Others		2,005,973		7.28		—			2,005,973

		27,556,891		100.00		—			27,556,891

Securities at amortized cost
Government and government funded institutions		1,927,884		15.11		—			1,927,884
Finance and Insurance		10,797,031		84.65		(1,249	)		10,795,782
Others		30,064		0.24		(6	)		30,058

		12,754,979		100.00		(1,255	)		12,753,724

		60,584,822				(1,260	)		60,583,562

¹	Collective investment securities included in securities at fair value through profit or loss are classified as finance and insurance.

²	Expected credit loss of securities at fair value through other comprehensive income is W 1,299 million.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of the Bank’s credit risk of securities, excluding equity securities and beneficiary certificates, and derivative financial instruments by industry as at December 31, 2017, are as follows:


(In millions of Korean won)	2017
(In millions of Korean won)	Amount		%
Financial assets held for trading
Government and government funded institutions		1,108,919		36.43
Finance and Insurance		1,765,827		58.01
Others		169,262		5.56

		3,044,008		100.00

Derivative financial assets
Government and government funded institutions		12,099		0.47
Finance and Insurance		2,447,524		94.46
Others		131,337		5.07

		2,590,960		100.00

Available-for-sale financial assets
Government and government funded institutions		8,188,744		29.87
Finance and Insurance		17,963,474		65.52
Others		1,265,422		4.61

		27,417,640		100.00

Held-to-maturity financial assets
Government and government funded institutions		2,563,480		29.36
Finance and Insurance		6,068,574		69.50
Others		100,192		1.14

		8,732,246		100.00

		41,784,854

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of the Bank’s credit risk of due from financial institutions, securities, excluding equity securities and derivative financial instruments by country as at December 31, 2018, are as follows:


(In millions of Korean won)	2018
(In millions of Korean won)	Amount		%		Allowances			Carrying amount
Due from financial institutions at amortized cost
Korea		9,172,142		88.51		—			9,172,142
United States		564,594		5.45		(5	)		564,589
Others		625,628		6.04		—			625,628

		10,362,364		100.00		(5	)		10,362,359

Securities at fair value through profit or loss
Korea		7,648,895		92.16		—			7,648,895
United States		105,541		1.27		—			105,541
Others		544,857		6.57		—			544,857

		8,299,293		100.00		—			8,299,293

Derivatives
Korea		756,248		46.92		—			756,248
United States		285,460		17.72		—			285,460
France		222,905		13.83		—			222,905
Others		346,682		21.53		—			346,682

		1,611,295		100.00		—			1,611,295

Securities at fair value through other comprehensive income ¹
Korea		26,139,297		94.86		—			26,139,297
United States		711,946		2.58		—			711,946
Others		705,648		2.56		—			705,648

		27,556,891		100.00		—			27,556,891

Securities at amortized cost
Korea		11,805,442		92.56		(945	)		11,804,497
United States		155,417		1.22		(32	)		155,385
United Kingdom		705,790		5.53		(247	)		705,543
Others		88,330		0.69		(31	)		88,299

		12,754,979		100.00		(1,255	)		12,753,724

		60,584,822				(1,260	)		60,583,562

¹	Expected credit loss of securities at fair value through other comprehensive income is W 1,299 million.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of the Bank’s credit risk of securities, excluding equity securities and beneficiary certificates, and derivative financial instruments by country as at December 31, 2017, are as follows:


(In millions of Korean won)	2017
(In millions of Korean won)	Amount		%
Financial assets held for trading
Korea		2,668,545		87.67
Others		375,463		12.33

		3,044,008		100.00

Derivative financial assets
Korea		1,261,943		48.71
United States		291,307		11.24
United Kingdom		52,781		2.04
France		303,883		11.73
Others		681,046		26.28

		2,590,960		100.00

Available-for-sale financial assets
Korea		26,875,524		98.02
Others		542,116		1.98

		27,417,640		100.00

Held-to-maturity financial assets
Korea		7,647,772		87.58
Others		1,084,474		12.42

		8,732,246		100.00

		41,784,854

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

4.3 Liquidity risk

4.3.1 Overview of Liquidity Risk

Liquidity risk is the risk of insolvency or loss due to a disparity between the inflow and outflow of funds, unexpected outflow of funds, and obtaining funds at a high price or disposing of securities at an unfavorable price due to lack of available funds. The Bank manages its liquidity risk through analysis of the contractual maturity of interest-bearing assets and liabilities, assets and liabilities related to the other in and outflows, and off-balance sheet items related to the inflows and outflows of currency derivative instruments and others.

4.3.2 Liquidity Risk Management and Indicator

The Bank has to establish the liquidity risk management strategy including the objectives of liquidity risk management, management policies and internal control system, and obtain approval from Risk Management Committee. Risk Management Committee operates the Risk Management Council for the purpose of efficient risk management, monitors establishment and enforcement of policies based on risk management strategy.

4.3.3 Analysis of Remaining Contractual Maturity of Financial Assets and Liabilities

Cash flows disclosed below are undiscounted contractual principal and interest to be received (paid) and, thus, differ from the amounts in financial statements which are based on the present value of expected cash flows. The amount of interest to be received or paid on floating rate assets and liabilities is measured on the assumption that the current interest rate would be the same through maturity.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The remaining contractual maturity of financial assets and liabilities, excluding derivatives held for cash flow hedging, as at December 31, 2018 and 2017, is as follows:


	2018
(In millions of Korean won)	On demand		Up to 1 month			1-3 months			3-12 months			1-5 years		Over 5 years		Total
Financial assets
Cash and due from financial institutions ¹		4,408,582		—			—			—			—		—		4,408,582
Financial assets at fair value through profit or loss ²		8,399,768		230			7,182			184,881			5,542		90,736		8,688,339
Derivatives held for trading ²		1,535,339		—			—			—			—		—		1,535,339
Derivatives held for hedging ³		—		(1,332	)		620			16,251			20,025		40,830		76,394
Loans at amortized cost		—		18,547,767			27,835,144			106,859,411			70,884,404		95,290,607		319,417,333
Financial investments		1,898,915		2,170,613			3,630,644			13,611,640			20,571,067		2,454,592		44,337,471
Financial assets at fair value through other comprehensive income ⁴		1,898,915		1,412,984			2,262,619			9,748,141			14,891,941		191,966		30,406,566
Securities at amortized cost		—		757,629			1,368,025			3,863,499			5,679,126		2,262,626		13,930,905
Other financial assets		—		2,441,445			—			1,019,223			—		—		3,460,668

		16,242,604		23,158,723			31,473,590			121,691,406			91,481,038		97,876,765		381,924,126

Financial liabilities
Financial liabilities at fair value through profit or loss ²		87,168		—			—			—			—		—		87,168
Derivatives held for trading ²		1,550,244		—			—			—			—		—		1,550,244
Derivatives held for hedging ³		—		4,091			(4,249	)		(14,415	)		15,660		31		1,118
Deposits ⁵		122,933,103		15,956,422			27,749,492			94,043,792			9,911,549		1,279,935		271,874,293
Debts		602		2,799,623			3,255,685			6,790,902			4,216,642		669,151		17,732,605
Debentures		30,160		331,604			1,385,279			8,319,923			12,113,285		673,863		22,854,114
Other financial liabilities		—		10,456,755			2,203			76,647			2,406		—		10,538,011

		124,601,277		29,548,495			32,388,410			109,216,849			26,259,542		2,622,980		324,637,553

Off-balance sheet items
Commitments ⁶		81,137,779		—			—			—			—		—		81,137,779
Payment guarantee agreement		7,250,059		—			—			—			—		—		7,250,059
Financial guarantee contracts ⁷		4,636,540		—			—			—			—		—		4,636,540

		93,024,378		—			—			—			—		—		93,024,378

¹	The amounts of W 9,005,372 million which are restricted amount due from the financial institutions as at December 31, 2018 are excluded.

³	Cash flows of derivative instruments held for hedging are shown at net amounts of cash inflows and outflows by remaining contractual maturity.

⁴

⁵	Deposits that are contractually repayable on demand or on short notice are included under the ‘On demand’ category.

⁶	Unused lines of credit within commitments are included under the ‘On demand’ category as payments can be required upon request.

⁷	Financial guarantee contracts are included under the ‘On demand’ category as payments can be required upon request.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	On demand		Up to 1 month		1-3 months			3-12 months			1-5 years			Over 5 years		Total
Financial assets
Cash and due from financial institutions ¹		5,488,396		36,400		—			19,688			—			—		5,544,484
Financial assets held for trading ²		3,147,115		—		—			—			—			—		3,147,115
Derivatives held for trading ²		2,514,629		—		—			—			—			—		2,514,629
Derivatives held for fair value hedging ³		—		92		2,722			2,647			(5,017	)		52,698		53,142
Loans		—		14,711,695		26,500,812			96,096,742			61,941,240			89,761,518		289,012,007
Available-for-sale financial assets ⁴		5,969,230		1,477,300		2,106,359			9,333,028			14,935,314			786,078		34,607,309
Held-to-maturity financial assets		—		584,825		388,928			2,603,641			4,343,586			1,986,169		9,907,149
Other financial assets		—		4,585,981		—			1,042,579			—			—		5,628,560

		17,119,370		21,396,293		28,998,821			109,098,325			81,215,123			92,586,463		350,414,395

Financial liabilities
Financial liabilities held for trading ²		74,191		—		—			—			—			—		74,191
Derivatives held for trading ²		2,572,878		—		—			—			—			—		2,572,878
Derivatives held for fair value hedging ³		—		4,176		(4,715	)		(19,705	)		(7,144	)		244		(27,144	)
Deposits ⁵		124,002,566		11,384,493		23,011,715			81,477,161			10,134,028			1,249,739		251,259,702
Debts		906		4,113,185		1,848,033			5,230,578			4,328,538			573,088		16,094,328
Debentures		40,655		342,371		400,196			5,425,995			11,524,310			1,536,151		19,269,678
Other financial liabilities		—		10,136,964		774			74,577			—			—		10,212,315

		126,691,196		25,981,189		25,256,003			92,188,606			25,979,732			3,359,222		299,455,948

Off-balance sheet items
Commitments ⁶		50,785,020		—		—			—			—			—		50,785,020
Financial guarantee contracts ⁷		4,135,402		—		—			—			—			—		4,135,402

		54,920,422		—		—			—			—			—		54,920,422

¹	The amounts of W 9,084,335 million, which are restricted amount due from the financial institutions as at December 31, 2017 are excluded.

³	Cash flows of derivative instruments held for fair value hedging are shown at net amounts of cash inflows and outflows by remaining contractual maturity.

⁴

Equity investments in financial assets classified as financial instruments at fair value through other comprehensive income included in the ‘On demand’ category as most are available for sale at any time. However, in the case of equity investments which are restricted for sale, these will be classified to its respective maturity when the restriction on disposal is released.

⁵	Deposits that are contractually repayable on demand or on short notice are included under the ‘On demand’ category.

⁶	Unused lines of credit within commitments are included under the ‘On demand’ category as payments can be required upon request.

⁷	Financial guarantee contracts are included under the ‘On demand’ category as payments can be required upon request.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The remaining contractual cash flows of derivatives held for cash flow hedging as at and December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
(In millions of Korean won)	Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
Cash flow to be received of net settlement derivatives		251		2,548		4,871		11,642		—		19,312
Cash flow to be paid of net settlement derivatives		197		129		493		79		—		898


(In millions of Korean won)	2017
(In millions of Korean won)	Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
Cash flow to be received of net settlement derivatives		2		198		488		104		—		792
Cash flow to be paid of net settlement derivatives		94		536		1,444		5,852		—		7,926

4.4 Market Risk

4.4.1 Concept

Market risk is the risk of possible losses which arise from changes in market factors, such as interest rate, stock price, foreign exchange rate and other market factors, and incurred in securities, derivatives and others. The most significant risks associated with trading positions are interest rate risks and currency risks, and other risks include stock price risks. In addition, the Bank is exposed to interest rate risks associated with non-trading positions. The Bank classifies exposures to market risk into either trading or non-trading positions for managerial purpose.

4.4.2 Risk Management

The Bank sets internal capital limits for market risk and interest rate risk and monitors the risks to manage the risk of trading and non-trading positions. The Bank maintains risk management systems and procedures, such as trading policies and procedures, market risk management guidelines for trading positions and ALM risk management guidelines for non-trading positions in order to manage market risk efficiently. The procedures mentioned are implemented with approval from the Risk Management Committee and Risk Management Council.

The Bank establishes market risk management policy, sets position limits, loss limits and VaR limits of each business group and approves newly developed products through its Risk Management Council. The Market Risk Management Subcommittee, which is chaired by the Chief Risk Officer (CRO), is the decision maker and sets position limits, loss limits, VaR limits, sensitivity limits and scenario loss limits for each division, at the level of each individual business department.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The Asset-Liability Management Committee (ALCO) determines the operational standards of interest and commission, the details of establishment and prosecution of the Asset Liability Management (ALM) policies, and enacts and amends relevant guidelines. The Risk Management Council monitors the establishment and enforcement of ALM risk management policies and enact and amend ALM risk management guidelines. The interest rate risk limit is set based on the future assets/liabilities position and interest rate volatility estimation reflects the annual work plan. The Financial Planning Department and Risk Management Department measure and monitor the interest risk status and limits on a regular basis. The status and limits of interest rate risks, such as interest rate EaR, duration gap and interest rate VaR, are reported to the ALCO and Risk Management Council on a monthly basis and to the Risk Management Committee on a quarterly basis. To ensure adequacy of interest rate and liquidity risk management, the Risk Management Department assigns the limits, monitors and reviews the risk management procedures and tasks conducted by the Financial Planning Department. Also, the Risk Management Department independently reports related information to management.

4.4.3 Trading Position

Definition of a trading position

•

The trading position is not restricted for purchase and sale, is measured daily at fair value, and its significant inherent risks are able to be hedged in the market.

•

The criteria for classification as a trading position are clearly defined in the Trading Policy and guideline, and separately managed by the trading department.

•

The trading position is operated in accordance with the documented trading strategy and managed through position limits.

•

The operating department or professional dealers have an authority to enforce a deal on the trading position within predetermined limits without pre-approval.

•

The trading position is reported periodically to management for the purpose of the Bank’s risk management.

Observation method on market risk arising from trading positions

The Bank calculates VaR to measure the market risk by using market risk management systems on the entire trading portfolio. Generally, the Bank manages market risk on the trading portfolio. In addition, the Bank controls and manages the risk of derivative trading based on the regulations and guidelines formulated by the Financial Supervisory Service.

Value at Risk (VaR)

i. Value at Risk (VaR)

The Bank uses the Value-at-Risk methodology to measure the market risk of trading positions.

The Bank now uses the ten-day VaR, which estimates the maximum amount of loss that could occur in ten days under an historical simulation model which is considered to be a full valuation method. The distributions of portfolio’s value changes are estimated based on the data over the previous 250 business days, and ten-day VaR is calculated by subtracting net present market value from the value measured at a 99% confident level of portfolio’s value distribution results.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The Bank uses an internal model (VaR) to measure general risk, and a standard method to measure each individual risk. When the internal model is not permitted for certain market risk, the Bank uses the standard method. Therefore, the market risk VaR may not reflect the market risk of each individual risk and some specific positions.

ii. Back-Testing

Back-testing is conducted on a daily basis to validate the adequacy of the VaR model. In back- testing, the Bank compares both the actual and hypothetical profit or loss with the VaR calculations.

iii. Stress Testing

Stress testing is carried out to analyze the impact of abnormal market situations on the trading and available-for-sale portfolio. It reflects changes in interest rates, stock prices, foreign exchange rates, implied volatilities of options and other risk factors that have significant influence on the value of the portfolio. The Bank uses historical scenarios and hypothetical scenarios for the analysis of abnormal market situations. Stress testing is performed at least once every quarter.

The units that analyze total VaR can be categorized as follows: ① by product: interest rate products (debt securities in Korean won and foreign currencies, etc.), foreign currency products (spots, futures, and CRS, etc.), equity securities (equities, ELS, etc.), ② by risk factors: interest rates (government bond interest rate in Korean won and foreign currencies, corporate bond interest rate, etc.), exchange rates (USD/KRW, USD/JPY, etc.), and stock market indexes (KOSPI, S&P 500, etc.); the Bank previously assesses VaR by product considering timeliness and efficiency.

However, as the amount of investment property in foreign currencies increases, products evaluated as multiple risk factors (i.e. for foreign currency bonds, ① by product: interest rate product ② by risk factor: interest rate and foreign exchange rate) had a tendency that dispersion effect is excessive due to not reflecting the actual hedge position by products in detail; to prevent which, the Bank has decided to use VaR by risk factor from 2018.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2018
(In millions of Korean won)	Average		Minimum		Maximum		Ending
Interest rate risk		6,004		3,189		9,287		5,775
Stock price risk		188		34		484		63
Foreign exchange rate risk		11,558		5,198		23,761		22,392
Deduction of diversification effect								(5,738	)

Total VaR		13,336		3,860		25,013		22,492


	2017
(In millions of Korean won)	Average		Minimum		Maximum		Ending
Interest rate risk		26,075		13,495		37,553		26,927
Stock price risk		56		6		187		187
Foreign exchange rate risk		32,950		12,405		45,318		25,211
Deduction of diversification effect								(44,464	)

Total VaR		8,293		5,365		15,812		7,861

The required equity capital using the standard method related to the positions which are not measured by VaR as at December 31, 2018 and 2017, is as follows:


(In millions of Korean won)	2018		2017
Interest rate risk		3,032		107
Stock price risk		—		769

		3,032		876

Details of risk factors

i. Interest rate risk

Trading position interest rate risk usually arises from debt securities denominated in Korean won. The Bank’s trading strategy is to benefit from short-term movements in the prices of debt securities arising from changes in interest rates. The Bank manages interest rate risk on major trading portfolios using market value-based tools such as VaR and sensitivity analysis (Price Value of a Basis Point: PVBP).

ii. Stock price risk

Stock price risk only arises from trading securities denominated in Korean won as the Bank does not have any trading exposure to shares denominated in foreign currencies. The trading securities portfolios in Korean won are composed of exchange-traded stocks and derivative instruments linked to stock with strict limits on diversification.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

iii. Foreign exchange rate risk

Foreign exchange rate risk arises from holding assets and liabilities denominated in foreign currency and foreign currency derivatives. Net foreign currency exposure mostly occurs from the foreign assets and liabilities which are denominated in US Dollars and Chinese Yuan. The Bank sets both loss limits and net foreign currency exposure limits and manages comprehensive net foreign exchange exposures which consider both trading and non-trading portfolios.

4.4.4 Non-trading Position

i. Definition of non-trading position

ii. Observation method on market risk arising from non-trading position

Interest rate risk occurs due to mismatches on maturities and interest rate reset periods between interest-bearing assets and liabilities. The Bank manages the risk through measuring and managing interest rate VaR and EaR that are maximum expected decreases in net asset value (NPV) and net interest income (NII) for one year, respectively, arising from unfavorable changes in market interest rate.

iii. Interest Rate VaR


(In millions of Korean won)	2018		2017
Interest Rate VaR		185,612		337,465

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

4.4.5 Financial Assets and Liabilities in Foreign Currencies

Financial assets and liabilities in foreign currencies as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	USD		JPY		EUR		GBP		CNY		Others		Total
Financial assets
Cash and due from financial institutions		1,055,982		305,814		187,715		24,464		212,207		358,040		2,144,222
Financial assets at fair value through profit or loss		1,255,498		—		69,728		—		—		17,773		1,342,999
Derivatives held for trading		91,406		—		—		—		—		—		91,406
Derivatives held for hedging		31,082		—		—		—		—		—		31,082
Loans at amortized cost		12,705,015		333,848		571,077		5,993		8,659		378,946		14,003,538
Financial assets at fair value through other comprehensive income		2,999,553		36,538		5,134		—		—		3,699		3,044,924
Financial assets at amortized cost		949,227		—		—		—		—		—		949,227
Other financial assets		938,944		297,430		17,184		21,447		236,979		21,337		1,533,321

		20,026,707		973,630		850,838		51,904		457,845		779,795		23,140,719

Financial liabilities
Derivatives held for trading		100,635		14		42		—		—		—		100,691
Derivatives held for hedging		88,367		—		—		—		—		—		88,367
Deposits		8,820,671		612,001		491,628		48,264		200,664		449,726		10,622,954
Debts		9,113,898		90,778		184,173		—		5,107		22,901		9,416,857
Debentures		3,960,312		—		31,979		—		—		42,240		4,034,531
Other financial liabilities		897,366		103,395		130,282		3,407		253,069		39,033		1,426,552

		22,981,249		806,188		838,104		51,671		458,840		553,900		25,689,952

Off-balance sheet items		13,608,120		31,148		1,262		—		184,545		7,552		13,832,627

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	USD		JPY		EUR		GBP		CNY		Others		Total
Financial assets
Cash and due from financial institutions		1,342,405		250,808		125,644		17,770		98,121		230,836		2,065,584
Financial assets held for trading		495,988		38,179		10,670		—		—		—		544,837
Derivatives held for trading		59,434		—		—		—		—		—		59,434
Derivatives held for hedging		17,697		—		—		—		—		—		17,697
Loans		11,005,658		228,747		1,549,986		9,548		10,065		215,740		13,019,744
Available-for-sale financial assets		2,045,064		76,185		33,790		—		—		20,666		2,175,705
Held-to-maturity financial assets		1,084,474		—		—		—		—		—		1,084,474
Other financial assets		1,499,198		452,446		405,661		13,100		183,113		192,479		2,745,997

		17,549,918		1,046,365		2,125,751		40,418		291,299		659,721		21,713,472

Financial liabilities
Derivatives held for trading		55,813		—		35		—		—		—		55,848
Derivatives held for hedging		49,962		—		—		—		—		—		49,962
Deposits		8,286,679		753,426		437,873		37,516		102,049		573,275		10,190,818
Debts		7,312,646		44,885		118,248		1,012		4,304		10,183		7,491,278
Debentures		2,940,251		—		—		—		—		—		2,940,251
Other financial liabilities		2,174,652		43,670		887,197		2,918		185,392		20,063		3,313,892

		20,820,003		841,981		1,443,353		41,446		291,745		603,521		24,042,049

Off-balance sheet items		11,350,107		705		10,028		—		115,579		12,823		11,489,242

4.5 Operational Risk

4.5.1 Concept

The Bank defines operational risk as risk of loss resulting from inadequate or failed internal processes, people, systems and external events. The operational risk includes financial and non-financial risks.

4.5.2 Risk Management

The purpose of operational risk management is not only to comply with requirements of regulatory authorities but is also to establish an integrated system to cultivate enterprise culture that values importance of risk management, strengthen internal controls, improve processes and provide with timely feedback to management so that eventually mitigate operational risk of the Bank. In addition, the Bank established Business Continuity Planning (BCP) to ensure critical business functions can be maintained, or restored, in the event of material disruptions arising from internal or external events. It has constructed replacement facilities as well as has carried out full scale test for head office and IT departments to test its BCPs.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

4.6 Capital Management

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

The Bank is required to maintain a minimum Common Equity Tier 1 ratio of at least 4.5%, a minimum Tier 1 ratio of 6.0% and a minimum Total Regulatory Capital of 8.0% as at December 31, 2018. Capital Conservation Buffer of 1.875% and Capital Requirement of Domestic Systemically Important Bank (D-SIB) of 0.75% are additionally applied. Therefore, the Bank is required to maintain a capital ratio including a minimum capital ratio and additional capital requirements (a Common Equity Tier 1 Ratio of 7.125% (December 31, 2017: 6.25%), a Tier 1 Ratio of 8.625% (December 31, 2017: 7.75%), and a Total Regulatory Capital Ratio of 10.625% (December 31, 2017: 9.75%)).

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

•

Common Equity Tier 1 Capital: Common Equity Tier 1 Capital represents the issued capital that takes the first and proportionately greatest share of any losses and represents the most subordinated claim in liquidation of the Bank, and not repaid outside of liquidation. It includes common shares issued, capital surplus, retained earnings, non-controlling interests of consolidated subsidiaries, accumulated other comprehensive income, other capital surplus and others.

•

Additional Tier 1 Capital: Additional Tier 1 Capital includes perpetual instruments issued by the Bank that meet the criteria for inclusion in Additional Tier 1 capital, and stock surplus resulting from the issue of instruments included in Additional Tier 1 capital and others.

•

Tier 2 Capital: Tier 2 Capital represents the capital that takes the proportionate share of losses in the liquidation of the Bank. Tier 2 Capital includes a fund raised by issuing subordinated debentures maturing in not less than 5 years that meet the criteria for inclusion in Tier 2 capital, and the allowance for loan losses which are accumulated for assets classified as normal or precautionary in accordance with Regulations on Supervision of Banking Business and others.

Risk weighted asset means the assets weighted according to the inherent risks in the total assets and the possible losses resulting from the errors of internal process and external events which the Bank should cover. The Bank calculates risk weighted asset by each risk (credit risk, market risk and operational risk) based on Detailed Regulations on Supervision of Banking Business and uses it for its capital ratio calculation. The Bank and its subsidiaries complied with external capital adequacy requirements as at December 31, 2018 and 2017.

In addition to the capital ratio, the Bank assesses its adequacy of capital by using the internal assessment and management policy of the capital adequacy. The assessment of the capital adequacy is conducted by comparing available capital (actual amount of available capital) and internal capital (amount of capital enough to cover all significant risks under target credit rate set by the Bank). The Bank monitors the soundness of finance and provides risk adjusted basis for performance review using the assessment of the capital adequacy. The internal capital is calculated by adding the stress testing results and other required items to the total internal capitals which are calculated for each risk.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The Risk Management Council of the Bank determines the Bank’s risk appetite and allocates internal capital by risk type and business group. Each business group efficiently operates its capital within range of granted internal capital. The Risk Management Department of the Bank monitors a management of the limit on internal capital and reports the results to management and the Risk Management Council. The Bank maintains the adequacy of capital through proactive review and approval of the Risk Management Committee when the internal capital is expected to exceed the limits.

Details of the Bank’s capital adequacy calculation in line with Basel III requirements as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Equity Capital		27,694,178		25,913,677
Tier I Capital		25,567,995		24,040,408
Common Equity Tier 1 Capital		25,567,995		24,040,408
Tier II Capital		2,126,183		1,873,269
Risk-weighted assets:		178,433,263		161,824,686
Credit risk¹		163,693,288		145,958,874
Market risk²		4,747,989		5,746,686
Operational risk³		9,991,986		10,119,126
Equity Capital (%):		15.52		16.01
Tier I Capital (%)		14.33		14.86
Common Equity Tier 1 Capital (%)		14.33		14.86

¹	Credit risk weighted assets are measured using the Internal Rating-Based Approach and Standardized Approach.

²	Market risk weighted assets are measured using the Internal Model-Based Approach and Standardized Approach.

³	Operational risk weighted assets are measured using the Advanced Measurement Approach.

5. Segment Information

5.1 Overall Segment Information and Business Segments

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

•

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

•

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

•

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Financial information by business segment as at and for the year ended December 31, 2018 is as follows:


	2018
(In millions of Korean won)	Corporate Banking			Retail Banking			Others			Total
Operating revenues from external customers		2,362,581			2,989,240			1,498,783			6,850,604
Net interest income		2,689,712			2,960,598			337,777			5,988,087
Interest income		4,121,160			4,547,615			1,068,381			9,737,156
Interest expense		(1,431,448	)		(1,587,017	)		(730,604	)		(3,749,069	)
Net fee and commission income		292,799			490,447			376,454			1,159,700
Fee and commission income		374,598			583,213			486,028			1,443,839
Fee and commission expense		(81,799	)		(92,766	)		(109,574	)		(284,139	)
Net gains on financial assets/ liabilities at fair value through profit or loss		—			—			357,580			357,580
Net other operating income(expense)		(619,930	)		(461,805	)		426,972			(654,763	)
General and administrative expenses		(1,060,674	)		(1,970,409	)		(702,625	)		(3,733,708	)
Operating profit before provision for credit losses		1,301,907			1,018,831			796,158			3,116,896
Reversal (provision) for credit losses		79,451			(179,229	)		(24	)		(99,802	)
Operating profit		1,381,358			839,602			796,134			3,017,094
Net other non-operating income (expense)		(78	)		—			41,445			41,367
Segment profit before income tax expense		1,381,280			839,602			837,579			3,058,461
Income tax income		(379,851	)		(230,891	)		(208,402	)		(819,144	)
Profit for the period		1,001,429			608,711			629,177			2,239,317
Total assets¹		127,071,039			140,814,393			82,092,259			349,977,691
Total liabilities¹		120,196,957			152,173,062			51,036,953			323,406,972

¹	Amounts as at December 31, 2018 before intra-segment transaction adjustment.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Financial information by business segment as at and for the year ended December 31, 2017 are as follows:


	2017
(In millions of Korean won)	Corporate Banking			Retail Banking			Others			Total
Operating revenues from external customers		2,069,080			2,710,798			1,610,439			6,390,317

Net interest income		2,504,648			2,647,768			301,846			5,454,262
Interest income		3,477,291			3,935,895			883,358			8,296,544
Interest expense		(972,643	)		(1,288,127	)		(581,512	)		(2,842,282	)
Net fee and commission income		237,626			595,322			413,869			1,246,817
Fee and commission income		307,593			668,227			506,310			1,482,130
Fee and commission expense		(69,967	)		(72,905	)		(92,441	)		(235,313	)
Net losses on financial assets/ liabilities at fair value through profit or loss		—			—			(71,742	)		(71,742	)
Net other operating income (expenses)		(673,194	)		(532,292	)		966,466			(239,020	)
General and administrative expenses		(943,225	)		(1,946,640	)		(742,681	)		(3,632,546	)
Operating profit before provision for credit losses		1,125,855			764,158			867,758			2,757,771
Reversal (provision) for credit losses		9,808			(122,107	)		(686	)		(112,985	)
Operating profit		1,135,663			642,051			867,072			2,644,786
Net other non-operating income		1,727			—			44,038			45,765
Segment profit before income tax expense		1,137,390			642,051			911,110			2,690,551
Income tax income(expense)		(275,248	)		(155,377	)		2,990			(427,635	)
Profit for the period		862,142			486,674			914,100			2,262,916
Total assets¹		114,192,346			129,438,168			79,788,647			323,419,161
Total liabilities¹		99,086,160			147,870,309			51,221,970			298,178,439

¹	Amounts as at December 31, 2017 before intra-segment transaction adjustment.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

5.2 Services and Geographical Segments

5.2.1 Services Information

Operating revenues from external customers by services for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Corporate banking service		2,362,581		2,069,080
Retail banking service		2,989,240		2,710,798
Other service		1,498,783		1,610,439

		6,850,604		6,390,317

5.2.2 Geographical Information

Geographical operating revenues from external customers for the years ended December 31, 2018 and 2017, and major non-current assets as at December 31, 2018 and 2017, are as follows:


	2018				2017¹
(In millions of Korean won)	Revenues from external customers		Major non-current assets		Revenues from external customers		Major non-current assets
Domestic		6,800,844		3,391,111		6,351,117		3,243,659
China		16,544		521		13,557		564
United States		11,727		144		9,889		161
New Zealand		6,213		72		5,855		57
Japan		4,166		1,210		4,425		1,377
United Kingdom		3,455		537		—		—
Vietnam		7,655		239		5,474		228

		6,850,604		3,393,834		6,390,317		3,246,046

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

6. Financial Assets and Financial Liabilities

6.1 Classification and Fair Value

Carrying amount and fair values of financial assets and liabilities as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Carrying amount		Fair value
Financial assets
Cash and due from financial institutions		13,413,780		13,413,780
Financial assets at fair value through profit or loss		8,612,864		8,612,864
Debt securities		8,299,293		8,299,293
Equity securities		22,167		22,167
Loans		212,596		212,596
Others		78,808		78,808
Derivatives held for trading		1,535,339		1,535,339
Derivatives held for hedging		75,956		75,956
Loans at amortized cost		274,985,803		275,009,503
Financial assets at fair value through other comprehensive income		29,805,354		29,805,355
Debt securities		27,556,893		27,556,893
Equity securities		1,898,914		1,898,915
Loans		349,547		349,547
Securities at amortized cost		12,753,724		12,785,117
Others		4,197,709		4,197,709

		345,380,529		345,435,623

Financial liabilities
Financial liabilities at fair value through profit or loss		87,168		87,168
Derivatives held for trading		1,550,244		1,550,244
Derivatives held for hedging		88,551		88,551
Deposits		267,525,970		268,178,880
Debts		17,411,985		17,436,422
Debentures		21,799,085		22,080,803
Other financial liabilities		12,887,455		12,887,445

		321,350,458		322,309,513

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Carrying amount		Fair value
Financial assets
Cash and due from financial institutions		14,628,439		14,628,510
Financial assets held for trading		3,147,115		3,147,115
Debt securities		3,044,008		3,044,008
Equity securities		29,251		29,251
Others		73,856		73,856
Derivatives held for trading		2,531,889		2,531,889
Derivatives held for hedging		59,071		59,071
Loans		250,119,240		249,591,832
Available-for-sale financial assets		33,476,088		33,476,088
Debt securities		27,417,640		27,417,640
Equity securities		6,057,948		6,057,948
Others		500		500
Held-to-maturity financial assets		8,732,246		8,770,014
Other financial assets		6,303,303		6,303,303

		318,997,391		318,507,822

Financial liabilities
Financial liabilities held for trading		74,191		74,191
Derivatives held for trading		2,572,880		2,572,880
Derivatives held for hedging		50,032		50,032
Deposits		247,712,788		248,136,414
Debts		15,854,911		15,848,511
Debentures		18,167,498		18,392,986
Other financial liabilities		12,261,378		12,261,382

		296,693,678		297,336,396

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

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

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


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

Investment securities		The fair value of financial instruments that are quoted in active markets is determined using the quoted prices. Fair value is determined through the use of independent third-party pricing services where quoted prices are not available. Pricing services use one or more of the following valuation techniques including DCF Model, FCFE (Free Cash Flow to Equity Model), Comparable Company Analysis, Dividend Discount Model, Risk Adjusted Discount Rate Method, and Net Asset Value Method.

Loans		The fair value of loans is determined through DCF Model and the use of independent third-party pricing services. Fair value measured by DCF Model is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at appropriate discount rate. Fair value of the other loans that is not determined through DCF model is determined by independent third-party pricing services using Tree Model.

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

Deposits		The carrying amount of demand deposits is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of time deposits is determined using a DCF model. Fair value is determined by discounting the expected cash flows, which are contractual cash flows adjusted by the expected prepayment rate, at an appropriate discount rate.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Debts		The carrying amount of overdraft in foreign currency is regarded as representative of fair value because they do not have a fixed maturity and are payable on demand. Fair value of other debts is determined using a DCF model discounting contractual future cash flows at an appropriate discount rate.

Debentures		Fair value is determined by using the valuations (DCF Model) of independent third-party pricing services, which are calculated using market inputs.

Other financial assets and other financial liabilities		The carrying amounts are reasonable approximation of fair values. These financial instruments are temporary accounts used for other various transactions and their maturities are relatively short or not defined. However, fair value of finance lease liabilities is measured using a DCF model.

Fair value hierarchy

The Bank believes that valuation methods used for measuring the fair values of financial instruments are reasonable and that the fair values recognized in the statements of financial position are appropriate. However, the fair values of the financial instruments recognized in the statements of financial position may be different if other valuation methods or assumptions are used. Additionally, as there is a variety of valuation techniques and assumptions used in measuring fair value, it may be difficult to reasonably compare the fair value with that of other financial institutions.

The Bank classifies and discloses the fair value of the financial instruments into the following three-level hierarchy:

Level 1: The fair values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2: The fair values except for quoted prices included within Level 1 are based on inputs that are observable for the asset or liability, either directly or indirectly.

Level 3: The fair values are based on unobservable inputs for the asset or liability.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Fair value hierarchy of financial assets and liabilities at fair value in the statements of financial position

The fair value hierarchy of financial assets and liabilities at fair value in the statements of financial position as at December 31, 2018 and 2017, are as follows:


	2018
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Financial assets at fair value through profit or loss
Debt securities		1,504,344		5,405,005		1,389,944		8,299,293
Equity securities		145		—		22,022		22,167
Loans		—		—		212,596		212,596
Others		78,808		—		—		78,808

		1,583,297		5,405,005		1,624,562		8,612,864

Derivatives held for trading		—		1,535,261		78		1,535,339
Derivatives held for hedging		—		75,956		—		75,956
Financial assets at fair value through other comprehensive income
Debt securities		8,998,246		18,558,647		—		27,556,893
Equity securities		971,367		—		927,548		1,898,915
Loans		—		349,547		—		349,547

		9,969,613		18,908,194		927,548		29,805,355

		11,552,910		25,924,416		2,552,188		40,029,514

Financial liabilities
Financial liabilities at fair value through profit or loss		87,168		—		—		87,168
Derivatives held for trading		—		1,550,178		66		1,550,244
Derivatives held for hedging		—		88,551		—		88,551

		87,168		1,638,729		66		1,725,963

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Financial assets held for trading
Debt securities		1,630,126		1,413,882		—		3,044,008
Equity securities		—		29,251		—		29,251
Others		73,856		—		—		73,856

		1,703,982		1,443,133		—		3,147,115

Derivatives held for trading		—		2,514,570		17,319		2,531,889
Derivatives held for hedging		—		58,296		775		59,071
Available-for-sale financial assets
Debt securities		9,384,597		18,033,043		—		27,417,640
Equity securities¹		1,602,397		2,534,947		1,920,604		6,057,948
Others		—		500		—		500

		10,986,994		20,568,490		1,920,604		33,476,088

		12,690,976		24,584,489		1,938,698		39,214,163

Financial liabilities
Financial liabilities held for trading		74,191		—		—		74,191
Derivatives held for trading		—		2,572,878		2		2,572,880
Derivatives held for hedging		—		49,962		70		50,032

		74,191		2,622,840		72		2,697,103

The amounts of equity securities carried at cost in “Level 3” which do not have a quoted market price in an active market and cannot be measured reliably at fair value are W 104,121 million as at December 31, 2017. These equity securities are carried at cost because it is practically difficult to quantify the intrinsic values of the equity securities issued by unlisted public and non-profit entities. In addition, due to significant fluctuations in estimated cash flows arising from entities being in its initial stages, which further results in varying and unpredictable probabilities, an online bank, unlisted equity securities issued by project financing cannot be reliably and reasonably assessed. Therefore, these equity securities are carried at cost. The Bank has no plan to dispose of the financial instruments in the near future.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Valuation techniques and the inputs used in the fair value measurement of financial assets and liabilities classified as Level 2

Valuation techniques and inputs of financial assets and liabilities at fair value in the statements of financial position and classified as Level 2 as at December 31, 2018 and 2017, are as follows:



	Fair value		Valuation techniques	Inputs
(In millions of Korean won)	2018		Valuation techniques	Inputs
Financial assets
Financial assets at fair value through profit or loss
Debt securities		5,405,005	DCF Model, Net Asset Value	Discount rate, prices of underlying assets(debt securities, stocks, etc.)

		5,405,005

Derivatives held for trading		1,535,261	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		75,956	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others
Financial assets at fair value through other comprehensive income
Debt securities		18,558,647	DCF Model	Discount rate
Loans		349,547	DCF Model	Discount rate

		18,908,194

		25,924,416

Financial liabilities
Derivatives held for trading		1,550,178	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		88,551	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others

		1,638,729

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017



	Fair value		Valuation techniques	Inputs
(In millions of Korean won)	2017		Valuation techniques	Inputs
Financial assets
Financial assets held for trading
Debt securities		1,413,882	DCF Model	Discount rate
Equity securities		29,251	Net Asset Value	Prices of underlying assets(debt securities, stocks, etc.)

		1,443,133

Derivatives held for trading		2,514,570	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		58,296	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others
Available-for-sale financial assets
Debt securities		18,033,043	DCF Model	Discount rate
Equity securities		2,534,947	Net Asset Value	Prices of underlying assets (debt securities, stocks, etc.)
Others		500	DCF Model	Discount rate

		20,568,490

		24,584,489

Financial liabilities
Derivatives held for trading		2,572,878	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate, stock price and others
Derivatives held for hedging		49,962	DCF Model, Closed Form, FDM	Discount rate, volatility, foreign exchange rate and others

		2,622,840

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Fair value hierarchy of financial assets and liabilities whose fair value is disclosed

The fair value hierarchy of financial assets and liabilities whose fair value is disclosed as at December 31, 2018 and 2017, is as follows:


	2018
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Cash and due from financial institutions ¹		3,051,421		10,210,779		151,581		13,413,781
Loans at amortized cost		—		—		275,009,503		275,009,503
Securities at amortized cost		4,126,591		8,658,526		—		12,785,117
Other financial assets ²		—		—		4,197,709		4,197,709

		7,178,012		18,869,305		279,358,793		305,406,110

Financial liabilities
Deposits ¹		—		119,650,955		148,527,925		268,178,880
Debts ¹		—		38,403		17,398,019		17,436,422
Debentures		—		22,080,803		—		22,080,803
Other financial liabilities ³		—		—		12,887,445		12,887,445

		—		141,770,161		178,813,389		320,583,550

¹	The amounts included in Level 2 are the carrying amounts which are reasonable approximation of the fair values.

²	The amounts of other financial assets included in Level 3 are the carrying amounts which are reasonable approximation of the fair values as at December 31, 2018.

³	The W 12,879,390 million of other financial liabilities included in Level 3 are the carrying amounts which are reasonable approximation of fair values as at December 31, 2018.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
	Fair value hierarchy
(In millions of Korean won)	Level 1		Level 2		Level 3		Total
Financial assets
Cash and due from financial institutions ¹		2,594,088		11,850,752		183,670		14,628,510
Loans		—		—		249,591,832		249,591,832
Held-to-maturity financial assets		1,197,739		7,572,275		—		8,770,014
Other financial assets ²		—		—		6,303,303		6,303,303

		3,791,827		19,423,027		256,078,805		279,293,659

Financial liabilities
Deposits ¹		—		118,449,580		129,686,834		248,136,414
Debts ¹		—		19,820		15,828,691		15,848,511
Debentures		—		18,392,986		—		18,392,986
Other financial liabilities ³		—		—		12,261,382		12,261,382

		—		136,862,386		157,776,907		294,639,293

¹	The amounts included in Level 2 are the carrying amounts which are reasonable approximation of the fair values.

²	The amount of amounts of other financial assets included in Level 3 are the carrying amounts which are reasonable approximation of the fair values as at December 31, 2017.

³	The W 12,259,734 million of other financial liabilities included in Level 3 are the carrying amounts which are reasonable approximation of fair values as at December 31, 2017.

Valuation techniques and inputs used in the fair value measurement

Valuation techniques and inputs of financial assets and liabilities which are disclosed by the carrying amounts because it is a reasonable approximation of fair value are not subject to be disclosed.

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 2 as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Fair value

Valuation
technique

Inputs

Financial assets

Securities at amortized cost

8,658,526

DCF Model

Discount rate

Financial liabilities

Debentures

22,080,803

DCF Model

Discount rate

2017

(In millions of Korean won)

Fair value

Valuation
technique

Inputs

Financial assets

Held-to-maturity financial assets

7,572,275

DCF Model

Discount rate

Financial liabilities

Debentures

18,392,986

DCF Model

Discount rate

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Valuation techniques and inputs of financial assets and liabilities whose fair values are disclosed and classified as Level 3 as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Fair value

Valuation
techniques

Inputs

Unobservable inputs

Financial assets

Cash and due from financial institutions

151,581

DCF Model

Credit spread, other spread, interest rates

Credit spread, other spread

Loans at amortized cost

275,009,503

DCF Model

Credit spread, other spread, prepayment rate, interest rate

Credit spread, other spread, prepayment rate

275,161,084

Financial liabilities

Deposits

148,527,925

DCF Model

Other spread, prepayment irate, Interest rates

Other spread, prepayment rate

Debts

17,398,019

DCF Model

Other spread, interest rates

Other spread

Other financial liabilities

8,055

DCF Model

Other spread, interest rates

Other spread

165,933,999

2017

(In millions of Korean won)

Fair value

Valuation
techniques

Inputs

Unobservable inputs

Financial assets

Cash and due from financial institutions

183,670

DCF Model

Credit spread, other spread, interest rates

Credit spread, other spread, interest rate

Loans

249,591,832

DCF Model

Credit spread, other spread, prepayment rate, interest rates

Credit spread, other spread, prepayment rate

249,775,502

Financial liabilities

Deposits

129,686,834

DCF Model

Other spread, prepayment rate, interest rates

Other spread, prepayment rate

Debts

15,828,691

DCF Model

Other spread, interest rates

Other spread

Other financial liabilities

1,648

DCF Model

Other spread, interest rates

Other spread

145,517,173

6.2 Level 3 of the Fair Value Hierarchy Disclosure

6.2.1 Valuation Policy and Process of Level 3 Fair Value

The Bank uses external, independent and qualified third-party valuation service in addition to internal valuation models to determine the fair value of the Bank’s assets at the end of every reporting period.

Where a reclassification between the levels of the fair value hierarchy occurs for a financial asset or liability, the Bank’s policy is to recognize such transfers as having occurred at the beginning of the reporting period.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

6.2.2 Changes in Fair Value (Level 3) Measured using Valuation Technique based on Unobservable Inputs in Market

Changes in Level 3 of the fair value hierarchy for the years ended December 31, 2018 and 2017, are as follows:


	2018
	Financial assets at fair value through profit or loss						Financial investments			Net derivatives financial instruments
(In millions of Korean won)	Securities at fair value through profit or loss			Loans at fair value through profit or loss			Equity securities at fair value through other comprehensive income			Derivatives held for trading			Derivatives held for hedging
Beginning balance¹		1,170,782			132,722			750,009			121			704
Total gains or losses
- Profit or loss		37,092			4,347			—			4,124			(115	)
- Other comprehensive income		—			—			124,632			—			—
Purchases		376,276			184,656			53,388			—			—
Sales		(172,118	)		(109,129	)		(480	)		—			—
Settlements		—			—			—			(1,221	)		(589	)
Transfers into Level 3²		—			—			—			(3,012	)		—
Transferred from Level 3²		(66	)		—			—			—			—

Ending balance		1,411,966			212,596			927,549			12			—

¹	Restated based on Korean IFRS 1109.

²	Transfers between levels for the financial instruments have occurred due to the change in the availability of observable market data.


	2017
	Financial investments			Net derivatives financial instruments
(In millions of Korean won)	Available-for-sale financial assets			Derivatives held for trading			Derivatives held for hedging
(In millions of Korean won)	Equity securities			Derivatives held for trading			Derivatives held for hedging
Beginning balance		1,853,047			9,904			1,277
Total gains or losses
- Profit or loss		5,946			(2,731	)		(408	)
- Other comprehensive income		(21,816	)		—			—
Purchases		310,136			16,452			—
Sales		(226,709	)		—			—
Settlements		—			(5,666	)		(164	)
Transferred from Level 3¹		—			(642	)		—

Ending balance		1,920,604			17,317			705

¹	Transfers between levels for the financial instruments have occurred due to the change in the availability of observable market data.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2018
(In millions of Korean won)	Net gains on financial instruments at fair value through profit or loss		Other operating income			Net interest income
Total gains or losses included in profit or loss for the period		45,016		(185	)		617
Total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period		39,099		(70	)		43


	2017
(In millions of Korean won)	Net gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)			Other operating Income (loss)
Total gains or losses included in profit or loss for the period		(2,731	)		5,538
Total gains or losses for the period included in profit or loss for financial instruments held at the end of the reporting period		(2,787	)		(2,023	)

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

6.2.3 Sensitivity Analysis of Changes in Unobservable Inputs

Information about fair value measurements using unobservable inputs as at December 31, 2018 and 2017, is as follows:

2018

(In millions of Korean won)

Fair value

Valuation techniques

Inputs

Unobservable inputs

Range of
unobservable
inputs (%)

Relationship of unobservable
inputs to fair value

Financial assets

Financial assets at fair value through profit or loss

Volatilities of real estate price

0.00

Higher the sale price, higher the fair value

Discount rate

1.95 ~ 4.82

Lower the discount rate, higher the fair value

Debt securities

1,389,944

Net Asset Value, DCF Model

Volatilities of real estate price, discount rate, liquidation value

Liquidation value

0.00

Higher the liquidation value, higher the fair value

DCF Model, Comparable Company

Growth rate

0.00

Higher the growth rate, higher the fair value

Equity securities

22,022

Analysis, Adjusted discount rate method

Growth rate, discount rate

Discount rate

7.58 ~ 14.14

Lower the discount rate, higher the fair value

Loans

212,596

Tree Model

Stock price, volatility of the stock price

Volatility of the stock price

17.66 ~ 49.28

Higher the volatility, higher the fair value fluctuation

Derivatives held for trading

Stock and index

Tree Model

Stock price and volatility of the stock price, dividend rate

Volatility of the stock price

25.29

Higher the volatility, higher the fair value fluctuation

Currency

—

DCF Model

Interest rate, foreign exchange rate, loss given default

Loss given default

100

Higher the loss given default, lower the fair value

Financial assets at fair value through other comprehensive income

DCF Model, Comparable Company

Growth rate, discount rate

Growth rate

0.00

Higher the growth rate, higher the fair value

Equity securities

927,549

Analysis, Adjusted discount rate method

Discount rate

3.87 ~ 17.40

Lower the discount rate, higher the fair value

2,552,188

Financial liabilities

Derivatives held for trading

Others

Monte Carlo Simulation

Stock price, interest rate, volatility of the stock price, volatility of the interest rate

Volatility of the stock price

20.85

Higher the volatility, higher the fair value fluctuation

Volatility of the interest rate

0.69

Higher the volatility, higher the fair value fluctuation

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

2017

(In millions of Korean won)

Fair
value

Valuation
techniques

Inputs

Unobservable
inputs

Range of
unobservable
inputs (%)

Relationship of unobservable
inputs to fair value

Financial assets

Derivatives held for trading

Stock and index

307

Tree Model

Stock price and volatility of the stock price, dividend rate

Volatility
of the
stock
price

12.15 ~ 17.12

Higher the volatility, higher the fair value fluctuation

Interest rate

DCF Model

Interest rate,

loss given default

Loss
given
default

0.56

Higher the loss given default, lower the fair value

Others

Stock price, interest rate, volatility of the stock price,

Volatility
of the
stock
price

12.16 ~ 29.72

Higher the volatility, higher the fair value fluctuation

16,953

Monte Carlo Simulation

volatility of the interest rate

Volatility
of the
interest
rate

0.47

Higher the volatility, higher the fair value

fluctuation

Derivatives held for hedging

Interest

775

DCF model, Closed Form, FDM, Monte Carlo Simulation

Price of underlying asset,

volatility of the underlying asset,

interest rate,

Volatility
of
the

underlying
asset

3.02

Higher the volatility, higher the fair value fluctuation

Available-for-sale

Equity securities

1,920,604

DCF Model, comparable company analysis, adjusted discount rate method

Growth rate, discount rate, volatility of the real estate asset

Growth
rate

0.00 ~ 0.50

Higher the growth rate, higher the fair value

Discount
rate

1.98 ~ 20.51

Lower the discount rate, higher the fair value

Volatility
of the
real
estate
price

0.00

Higher real estate price, higher the fair value

1,938,698

Financial liabilities

Derivatives held for trading

Others

Monte Carlo Simulation

Stock price, interest rate,

volatility of the stock price,

volatility of the interest rate

Volatility
of the
stock
price

15.84

Higher the volatility, higher the fair value fluctuation

Volatility
of the
interest
rate

0.47

Higher the volatility, higher the fair value fluctuation

Derivatives held for hedging

Interest

DCF model, Closed Form, FDM,

Monte Carlo Simulation

Price of the underlying asset, interest rate, volatility of the underlying asset

Volatility
of the
underlying
asset

2.64

Higher the volatility, higher the fair value fluctuation

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Sensitivity analysis of changes in unobservable inputs

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable changes in the fair value of financial instruments which are affected by unobservable parameters, using a statistical technique. When the fair value is affected by more than two input parameters, the amounts represent the most favorable or unfavorable. Amongst Level 3 financial instruments subject to sensitivity analysis, there are debt instruments, loans, equity-related derivatives, currency-related derivatives, interest rate-related derivatives and other derivatives whose fair value changes are recognized in profit or loss as well as equity securities whose fair value changes are recognized in profit or loss or other comprehensive income or loss.

Sensitivity analysis by type of instrument as a result of varying input parameters are as follows:


	2018
	Recognition in profit or loss					Other comprehensive income
.(In millions of Korean won)	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
Financial assets
Financial assets at fair value through profit or loss
Debt securities^{3, 5}		2,714		(2,688	)		—		—
Equity securities^{2, 5}		1,225		(742	)		—		—
Loans⁴		129		(46	)		—		—
Derivatives held for trading¹		20		(1	)		—		—
Financial assets at fair value through other comprehensive income
Equity securities^{2, 5}		—		—			140,516		(70,691	)

		4,088		(3,477	)		140,516		(70,691	)

Financial liabilities
Derivatives held for trading¹		42		(77	)		—		—

		42		(77	)		—		—


	2017
	Recognition in profit or loss					Other comprehensive income
(In millions of Korean won)	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
Financial assets
Derivatives held for trading¹		112		(94	)		—		—
Available-for-sale financial assets^{2, 3, 5}		—		—			98,015		(53,508	)

		112		(94	)		98,015		(53,508	)

Financial liabilities
Derivatives held for trading¹		2		(5	)		—		—
Derivatives held for hedging¹		2		(2	)		—		—

		4		(7	)		—		—

¹	For derivatives, the changes in fair value are calculated by shifting principal unobservable input parameters such as the price and the volatility of the underlying asset by ± 10% or the loss given default ratio by ± 1%.

²	For equity securities, the changes in fair value are calculated by shifting principal unobservable input parameters such as discount rate (-1~1%) and growth rate (0~0.5%).

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

⁴	For loans, the changes in fair value are calculated by shifting principal unobservable input parameters such as stock prices and volatilities of stock prices by ± 10%.

⁵	The amounts of W 1,417,179 million and W 1,174,569 million of financial assets classified as level 3 as at December 31, 2018 and 2017, respectively, are excluded because it is impracticable to calculate the sensitivity amounts.

6.2.4 Day One Gain or Loss

If the Bank uses a valuation technique that incorporates data not obtained from observable markets for the fair value at initial recognition of financial instruments, there could be a difference between the transaction price and the amount determined using that valuation technique. In these circumstances, the fair value of financial instruments is recognized as the transaction price and the difference is deferred and not recognized in profit or loss, and is amortized by using the straight-line method over the life of the financial instrument. If the fair value of the financial instruments is subsequently determined using observable market inputs, the remaining deferred amount is recognized in profit or loss.

The aggregate deferred difference yet to be recognized in profit or loss at the beginning and end of the periods and a reconciliation of changes in the balance of these differences are not existed, as at for years ended December 31, 2018 and 2017.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

6.3 Carrying Amounts of Financial Instruments by Category

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of financial assets and liabilities by category as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Financial instruments at fair value through profit or loss		Financial instruments mandatorily measured at fair value through other comprehensive income		Financial instruments designated at fair value through other comprehensive income		Financial instruments at amortized cost		Derivatives held for hedging		Total
Financial assets
Cash and due from financial institutions		—		—		—		13,413,780		—		13,413,780
Financial assets at fair value through profit or loss		8,612,864		—		—		—		—		8,612,864
Derivatives		1,535,339		—		—		—		75,956		1,611,295
Loans at amortized cost		—		—		—		274,985,803		—		274,985,803
Financial investments		—		27,906,440		1,898,915		12,753,723		—		42,559,078
Other financial assets		—		—		—		4,197,709		—		4,197,709

		10,148,203		27,906,440		1,898,915		305,351,015		75,956		345,380,529


	2018
(In millions of Korean won)	Financial instruments at fair value through profit or loss		Financial instruments at amortized cost		Derivatives held for hedging		Total
Financial liabilities
Financial liabilities at fair value through profit or loss		87,168		—		—		87,168
Derivatives		1,550,244		—		88,551		1,638,795
Deposits		—		267,525,970		—		267,525,970
Debts		—		17,411,985		—		17,411,985
Debentures		—		21,799,085		—		21,799,085
Other financial liabilities		—		12,887,455		—		12,887,455

		1,637,412		319,624,495		88,551		321,350,458

The carrying amounts of financial assets and liabilities by category as at December 31, 2017, are as follows:

2017

(In millions of Korean won)

Financial assets at
fair value through
profit or loss
(under Korean
IFRS 1039)

Loans and
receivables

Available-
for-sale
financial
assets

Held-to-
maturity
financial
assets

Derivatives
held for
hedging

Total

Held for trading

Financial assets

Cash and due from financial institutions

—

14,628,439

—

14,628,439

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Financial assets at fair value through profit or loss	3,147,115	—	—	—	—	3,147,115
Derivatives	2,531,889	—	—	—	59,071	2,590,960
Loans	—	250,119,240	—	—	—	250,119,240
Financial investments	—	—	33,476,088	8,732,246	—	42,208,334
Other financial assets	—	6,303,303	—	—	—	6,303,303

	5,679,004	271,050,982	33,476,088	8,732,246	59,071	318,997,391


	2017
(In millions of Korean won)	Financial liabilities at fair value through profit or loss		Financial liability at amortized cost		Derivatives held for hedging		Total
(In millions of Korean won)	Held for trading		Financial liability at amortized cost		Derivatives held for hedging		Total
Financial liabilities
Financial liabilities at fair value through profit or loss		74,191		—		—		74,191
Derivatives		2,572,880		—		50,032		2,622,912
Deposits		—		247,712,788		—		247,712,788
Debts		—		15,854,911		—		15,854,911
Debentures		—		18,167,498		—		18,167,498
Other financial liabilities		—		12,261,378		—		12,261,378

		2,647,071		293,996,575		50,032		296,693,678

6.4 Transfer of Financial Assets

6.4.1 Transferred Financial Assets that are derecognized in Their Entirety

The Bank transferred loans and other financial assets that are derecognized in their entirety to SPEs, while the maximum exposure to loss (carrying amount) from its continuing involvement in the derecognized financial assets as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Type of continuing
involvement

Classification of
financial

instruments

Carrying amount
of continuing
involvement in
statement of
financial position

Fair value of
continuing
involvement in
statement of
financial position

Discovery 2nd Securitization Specialty Co., Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

6,205

FK 1411 ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

8,883

AP 3B ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

5,512

AP 4D ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

13,494

34,094

¹	The recovered portion in excess of the consideration paid attributable to adjustments based on the agreement with the National Happiness Fund for non-performing loans amounts to W 13,731 million as at December 31, 2018.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Type of continuing involvement	Classification of financial instruments	Carrying amount of continuing involvement in statement of financial position	Fair value of continuing involvement in statement of financial position
Discovery 2nd Securitization Specialty Co., Ltd.	Subordinated debt	Available-for-sale financial assets	6,022		6,022
EAK 2nd Securitization Specialty Co., Ltd.	Subordinated debt	Available-for-sale financial assets	5,339		5,339
FK 1411 ABS Ltd.	Subordinated debt	Available-for-sale financial assets	9,601		9,601
AP 3B ABS Ltd.	Subordinated debt	Available-for-sale financial assets	9,902		9,902
AP 4D ABS Ltd.	Senior debt	Loans and receivables	2,248		2,251
	Subordinated debt	Available-for-sale financial assets	14,160		14,160

			47,272		47,275

¹	The recovered portion in excess of the consideration paid attributable to adjustments based on the agreement with the National Happiness Fund for non-performing loans amounts to W 2,989 million as at December 31, 2017.

6.4.2 Securities under Repurchase Agreements and Loaned Securities

The Bank continues to recognize the financial assets related to repurchase agreements and securities lending transactions on the statements of financial position since those transactions are not qualified for derecognition even though the Bank transfers the financial assets. A financial asset is sold under a reverse repurchase agreement to repurchase the same asset at a fixed price, or loaned under a securities lending agreement to be returned as the same asset. Thus, the Bank substantially retains all the risks and rewards of ownership of the financial asset. The amounts of transferred assets and related liabilities as at December 31, 2018 and 2017, are as follows:


	2018				2017
(In millions of Korean won)	Carrying amount of transferred assets		Carrying amount of related liabilities		Carrying amount of transferred assets		Carrying amount of related liabilities
Securities under repurchase agreements		364,886		350,771		740,618		700,466
Loaned securities		674,431		—		109,379		—
Government and public bonds		674,431		—		109,379		—

		1,039,317		350,771		849,997		700,466

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

6.5

Offsetting Financial Assets and Financial Liabilities

The Bank enters into International Swaps and Derivatives Association (“ISDA”) master netting agreements and other similar netting arrangements with the Bank’s derivative and spot exchange counterparties. Similar netting agreements are also entered into with the Bank’s reverse repurchase, securities and others. Pursuant to these agreements, in the event of default by one party, contracts are to be terminated and receivables and payables are to be offset. Further, as the law allows for the right to offset, domestic uncollected receivables balances and domestic accrued liabilities balances are shown in its net settlement balance in the statement of financial position. Account receivables and account payables related to listed securities and derivatives or OTC derivatives settled by the central counterparty are included in the other financial instruments. As the Bank has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis, the net amounts of the other financial instruments balances are presented in the statement of financial position.

Details of financial assets subject to offsetting, enforceable master netting arrangements or similar agreements as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Gross amounts of recognized financial assets		Gross amounts of recognized financial liabilities offset in the statement of financial position			Net amounts of financial assets presented in the statement of financial position		Related amounts not offset in the statement of financial position
(In millions of Korean won)	Gross amounts of recognized financial assets							Financial instruments			Cash collateral			Net amount
Derivatives held for trading		1,535,262		—			1,535,262		(1,128,951	)		(5,102	)		401,209
Derivatives held for hedging		75,956		—			75,956		(41,634	)		—			34,322
Receivable spot exchange		1,879,572		—			1,879,572		(1,876,844	)		—			2,728
Reverse repurchase		3,021,400		—			3,021,400		(3,021,400	)		—			—
Domestic exchange settlement debits		27,413,384		(26,937,034	)		476,350		—			—			476,350
Other financial instruments		3,261		(2,098	)		1,163		—			—			1,163

		33,928,835		(26,939,132	)		6,989,703		(6,068,829	)		(5,102	)		915,772


	2017
(In millions of Korean won)	Gross amounts of recognized financial assets		Gross amounts of recognized financial liabilities offset in the statement of financial position			Net amounts of financial assets presented in the statement of financial position		Related amounts not offset in the statement of financial position
(In millions of Korean won)	Gross amounts of recognized financial assets							Financial instruments			Cash collateral			Net amount
Derivatives held for trading		2,514,629		—			2,514,629		(1,888,558	)		(191,349	)		434,722
Derivatives held for hedging		59,071		—			59,071		(17,840	)		(21,830	)		19,401
Receivable spot exchange		3,447,424		—			3,447,424		(3,447,048	)		—			376
Reverse repurchase		2,445,600		—			2,445,600		(2,445,600	)		—			—
Domestic exchange settlement debits		30,904,611		(29,959,914	)		944,697		—			—			944,697
Other financial instruments		1,580		(1,578	)		2		—			—			2

		39,372,915		(29,961,492	)		9,411,423		(7,799,046	)		(213,179	)		1,399,198

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreements as December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets offset in the statement of financial position			Net amounts of financial liabilities presented in the statement of financial position		Related amounts not offset in the statement of financial position						Net amount
(In millions of Korean won)								Financial instruments			Cash collateral			Net amount
Derivatives held for trading		1,550,178		—			1,550,178		(1,075,427	)		(46,768	)		427,983
Derivatives held for hedging		88,551		—			88,551		(37,564	)		(977	)		50,010
Payable spot exchange		1,877,400		—			1,877,400		(1,876,844	)		—			556
Repurchase¹		360,024		—			360,024		(360,024	)		—			—
Domestic exchange settlement credits		28,616,949		(26,937,034	)		1,679,915		(1,679,915	)		—			—
Other financial instruments		5,154		(2,098	)		3,056		—			—			3,056

		32,498,256		(26,939,132	)		5,559,124		(5,029,774	)		(47,745	)		481,605


	2017
(In millions of Korean won)	Gross amounts of recognized financial liabilities		Gross amounts of recognized financial assets offset in the statement of financial position			Net amounts of financial liabilities presented in the statement of financial position		Related amounts not offset in the statement of financial position						Net amount
(In millions of Korean won)								Financial instruments			Cash collateral			Net amount
Derivatives held for trading		2,572,684		—			2,572,684		(1,051,514	)		(32,585	)		1,488,585
Derivatives held for hedging		50,032		—			50,032		(7,287	)		(9,139	)		33,606
Payable spot exchange		3,448,848		—			3,448,848		(3,447,048	)		—			1,800
Repurchase¹		700,466		—			700,466		(700,466	)		—			—
Domestic exchange settlement credits		29,999,359		(29,959,914	)		39,445		(39,445	)		—			—
Other financial instruments		1,871		(1,578	)		293		(194	)		—			99

		36,773,260		(29,961,492	)		6,811,768		(5,245,954	)		(41,724	)		1,524,090

¹	Includes repurchase agreements sold to customers.

7. Due from Financial Institutions

Details of due from financial institutions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		Financial Institution	Interest rate (%)	2018		2017
Due from financial institutions in Korean won	Due from Bank of Korea	Bank of Korea	0.00 ~ 1.78		8,723,761		8,511,295
	Due from banking institutions	KEB Hana Bank	—		461		279
	Due from others	—	—		—		1,908,070
					8,724,222		10,419,644
Due from financial institutions in foreign currencies	Due from banks in foreign currencies	Bank of Korea and others	—		1,487,017		1,431,387
	Time deposits in foreign currencies	Bank of Communications NY Branch and others	2.90~3.06		22,362		77,331
	Due from others	Societe Generale and others	—		128,763		105,988

					1,638,142		1,614,706

					10,362,364		12,034,350

¹	Before netting of allowance

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Restricted due from financial institutions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		Financial Institution	2018		2017		Reason for restriction
Due from financial institutions in Korean won	Due from Bank of Korea	Bank of Korea		8,723,761		8,511,295	Bank of Korea Act


				8,723,761		8,511,295


Due from financial institutions in foreign currencies	Due from banks in foreign currencies	Bank of Korea and others		192,503		474,787	Bank of Korea Act and others
	Time deposits in foreign currencies	Bank of Communications NY Branch and others		22,362		21,428	New York State Banking Law
	Due from others	Morganstanley Bank International and others		66,578		76,630	Derivatives margin account


				281,443		572,845


				9,005,204		9,084,140

Changes in the allowances for due from financial institutions losses

Changes in the allowances for due from financial institutions losses for year ended December 31, 2018, are as follows:


	2018
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses
(In millions of Korean won)				Non-impaired		Impaired
Beginning¹		38			—		—
Transfer between stages		—			—		—
Provision (reversal) for loan losses		(34	)		—		—

Others (change of currencies and others)		1			—		—

Ending		5			—		—

¹	Restated based on Korean IFRS 1109.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

8. Assets Pledged as Collaterals

Details of assets pledged as collaterals as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018
Assets pledged	Pledgee	Carrying amount		Reason for the pledge
Securities at fair value through profit or loss	Korea Exchange		122,744	Repurchase agreements
	Korea Securities Finance Corp		39,778	Securities lending transactions
		162,522
Securities at fair value through other comprehensive income	Bank of Korea		49,948	Borrowings from Bank of Korea
	Bank of Korea	479,784		Settlement risk of Bank of Korea
	Korea Development Bank and others		337,315	Derivatives transactions
		867,047

Securities at amortized cost	Meritz Securities and others		276,688	Repurchase agreements
	Bank of Korea		1,911,160	Borrowings from Bank of Korea
	Bank of Korea		1,474,529	Settlement risk of Bank of Korea
	Samsung Futures Inc. and others		194,258	Derivatives transactions
	Others		156,150	Others

		4,012,785

Mortgage loans	Others		4,060,863	Covered Bond

		9,103,217


(In millions of Korean won)		2017
Assets pledged	Pledgee	Carrying amount		Reason for the pledge
Available-for-sale financial assets	Mizuho Bank. Ltd and others		740,132	Repurchase agreements
	Bank of Korea		651,283	Borrowings from Bank of Korea
	Bank of Korea		750,254	Settlement risk of Bank of Korea
	Deutsche Bank.AG and others		58,524	Derivatives transaction
	Others		19,985	Others

		2,220,178
Held-to-maturity financial assets	Korea Securities Depository and others		35,026	Repurchase agreements
	Bank of Korea		1,326,559	Borrowings from Bank of Korea
	Bank of Korea		1,204,990	Settlement risk of Bank of Korea
	Samsung Futures Co., Ltd. and others		236,681	Derivatives transaction
	Others		133,388	Others

		2,936,644
Mortgage loans	Others		4,950,490	Covered Bond

		10,107,312

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The fair value of collateral available to sell or repledge regardless of debtor’s default as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Fair value of collateral		Fair value of collateral sold or repledged
Securities		3,131,496		—


	2017
(In millions of Korean won)	Fair value of collateral		Fair value of collateral sold or repledged
Securities		2,498,828		—

9. Derivative Financial Instruments and Hedge Accounting

The Bank engages in derivative trading activities to hedge the interest rate and foreign currency risk exposures arising from the Bank’s own assets and liabilities. In particular, the Bank applies fair value hedge accounting to interest rate swaps that hedge the risk of changes in fair values due to the changes in interest rates of debentures, structured deposits denominated in foreign currencies and debt securities at fair value through other comprehensive income. Also, the Bank applies cash flow hedge accounting to interest rate swaps that hedge cash flow risk of floating rate notes denominated in Korean won and borrowings denominated in foreign currencies.

Details of derivative financial instruments held for trading as at December 31, 2018 and 2017, are as follows:


			2018				2017
(In millions of Korean won)	Notional amount		Assets		Liabilities		Notional amount		Assets		Liabilities
Interest rate
Futures¹		643,952		—		—		946,983		—		—
Swaps		127,469,915		376,523		350,083		108,367,191		389,651		332,265
Options		13,259,000		158,295		252,243		12,615,000		130,013		226,931

		141,372,867		534,818		602,326		121,929,174		519,664		559,196

Currency
Forwards		65,084,258		528,606		479,816		62,251,571		1,147,040		1,238,842
Futures¹		419,802		—		—		440,903		—		—
Swaps		35,977,216		465,774		454,217		28,386,919		843,854		767,344
Options		2,450,186		6,063		13,608		695,848		4,071		6,998

		103,931,462		1,000,443		947,641		91,775,241		1,994,965		2,013,184

Stock and index
Futures¹		2,006		—		—		—		—		—
Options		51,282		78		211		84,742		307		498

		53,288		78		211		84,742		307		498

Others		670,860		—		66		999,016		16,953		2

		246,028,477		1,535,339		1,550,244		214,788,173		2,531,889		2,572,880

¹	Gains or losses arising from daily mark-to-market futures are reflected in the margin accounts.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The average hedge ratio for future nominal cash flows by type of hedge accounting as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	1 year		2 years		3 years		4 years		5 years		Over 5 years		Total
Fair value hedge
The nominal amount of the hedged item		59,134		696,513		1,347,597		567,030		195,392		979,889		3,845,555
The nominal amount of the hedging instrument		69,134		686,513		1,347,597		567,030		195,392		979,889		3,845,555
Average ratio of hedging		116.91		98.56		100.00		100.00		100.00		100.00		100.00
Cash flow hedge
The nominal amount of the hedged item		2,167,227		491,964		—		503,145		—		—		3,162,336
The nominal amount of the hedging instrument		2,167,227		491,964		—		503,145		—		—		3,162,336
Average ratio of hedging		100.00		100.00		—		100.00		—		—		100.00

Fair value hedge

Details of fair value hedged as at December 31, 2018, are as follows:


	2018
	Carrying amount				Accumulated adjusted amount						Changes in the fair value
(In millions of Korean won)	Assets		Liabilities		Assets			Liabilities			Changes in the fair value
Interest rate
Debt securities in Korean won		465,213		—		1,214			—			6,001
Debt securities in foreign currencies		702,727		—		(9,790	)		—			(1,233	)
Deposits in foreign currencies		—		805,215		—			(89,265	)		38,232
Debts in Korean won		—		349,252		—			19,252			(2,308	)
Debts in foreign currencies		—		1,429,457		—			(24,073	)		(1,868	)

		1,167,940		2,583,924		(8,576	)		(94,086	)		38,824

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of derivative financial instruments designated as fair value hedge as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Notional
amount

Assets

Liabilities

Changes in
the fair value

Interest rate

Swaps

3,845,555

58,934

88,017

(37,637

)


	2017
(In millions of Korean won)	Notional amount		Assets		Liabilities
Interest rate
Swaps		2,919,935		47,856		49,962
Other		50,000		775		70

		2,969,935		48,631		50,032

The fair values of non-derivative financial instruments designated as fair value hedging instruments as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Deposits in foreign currencies		—		32,051

Details of the ineffective portion of changes in fair value of derivatives recognized in profit or loss for the year ended December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Hedge ineffectiveness recognized in profit or loss
Interest rate		1,186

Gains and losses from fair value hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Gains (losses) on hedging instruments		(41,472	)		16,195
Gains (losses) on the hedged item attributable to the hedged risk		37,305			(16,368	)

		(4,167	)		(173	)

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Cash flow hedge

Details of cash flow hedged items subject to cash flow hedges as of December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Changes in fair value			Other comprehensive income for cash flow hedge
Interest rate risk		(7,031	)		11,539

Details of derivative financial instruments designated as cash flow hedge as at December 31, 2018 and 2017, are as follows:

2018

Notional
amount

Carrying amount

Changes in
fair value

(In millions of Korean won)

Assets

Liabilities

Interest rate

Swaps

3,162,336

17,022

534

6,961

2017

(In millions of Korean won)

Notional amount

Assets

Liabilities

Interest rate

Swaps

1,660,670

10,440

—

Gains and losses from cash flow hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Gains on hedging instruments		6,961			10,694
Effective gains from cash flow hedging instruments (recognized in other comprehensive income or loss)		6,980			10,691
Ineffective gains from cash flow hedging instruments (recognized in profit or loss)		(19	)		3

Amounts recognized in other comprehensive income and reclassified from equity to profit or loss for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Other comprehensive income or loss		6,980			10,691
Reclassification to profit		(1,755	)		(444	)
Income tax effect		(1,437	)		(2,833	)

		3,788			7,414

As at December 31, 2018, the hedged items subject to cash flow hedge are exposed to the risk of changes in cash flows until June 9, 2022.

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

10. Loans at Amortized Cost

Loans as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Loans		275,936,633			250,956,216
Deferred loan origination fees and costs		581,997			551,090
Allowances		(1,532,827	)		(1,388,066	)

Carrying amount		274,985,803			250,119,240

Loans to banks as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Loans		4,163,259			6,018,909
Allowances		(197	)		(77	)

Carrying amount		4,163,062			6,018,832

Loans to customers other than banks as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Retail			Corporate			Total
Loans in Korean won		141,754,541			115,501,502			257,256,043
Loans in foreign currencies		139,759			3,145,891			3,285,650
Domestic import usance bills		—			2,817,174			2,817,174
Off-shore funding loans		—			899,741			899,741
Call loans		—			1,473,362			1,473,362
Bills bought in Korean won		—			3,057			3,057
Bills bought in foreign currencies		—			3,421,392			3,421,392
Guarantee payments under payment guarantee		—			4,104			4,104
Reverse repurchase agreements		—			2,951,400			2,951,400
Privately placed bonds		—			243,448			243,448

		141,894,300			130,461,071			272,355,371
Proportion (%)		52.10			47.90			100.00

Allowances		(444,964	)		(1,087,666	)		(1,532,630	)

		141,449,336			129,373,405			270,822,741


	2017
(In millions of Korean won)	Retail		Corporate		Total
Loans in Korean won		130,223,811		104,442,685		234,666,496
Loans in foreign currencies		79,283		1,990,056		2,069,339
Domestic import usance bills		—		2,128,868		2,128,868
Off-shore funding loans		—		750,102		750,102
Call loans		—		335,000		335,000
Bills bought in Korean won		—		4,168		4,168
Bills bought in foreign currencies		—		3,872,641		3,872,641

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Guarantee payments under payment guarantee	—		6,373		6,373
Reverse repurchase agreements	—		1,025,600		1,025,600
Privately placed bonds	—		629,810		629,810

	130,303,094		115,185,303		245,488,397
Proportion (%)	53.08		46.92		100.00

Allowances	(318,138	)	(1,069,851	)	(1,387,989	)

	129,984,956		114,115,452		244,100,408

Changes in deferred loan origination fees and costs for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning¹		Increase		Decrease			Others		Ending
Deferred loan origination costs
Loans in Korean won		562,425		333,833		(304,083	)		—		592,175
Other origination costs		202		527		(244	)		1		486

		562,627		334,360		(304,327	)		1		592,661

Deferred loan origination fees
Loans in Korean won		6,793		2,271		(2,742	)		—		6,322
Other origination fees		4,750		831		(1,240	)		1		4,342

		11,543		3,102		(3,982	)		1		10,664

		551,084		331,258		(300,345	)		—		581,997

¹	Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Beginning		Increase		Decrease			Others			Ending
Deferred loan origination costs
Loans in Korean won		582,479		267,116		(287,170	)		—			562,425
Other origination costs		295		243		(328	)		(2	)		208

		582,774		267,359		(287,498	)		(2	)		562,633

Deferred loan origination fees
Loans in Korean won		9,968		1,776		(4,951	)		—			6,793
Other origination fees		2,282		3,672		(1,269	)		65			4,750

		12,250		5,448		(6,220	)		65			11,543

		570,524		261,911		(281,278	)		(67	)		551,090

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

11. Allowances for Loan Losses

Changes in the allowances for loan losses for the years ended December 31, 2018 and 2017, are as follows:


	2018
	Retails											Corporates
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit lcosses						Financial instruments applying credit impaired approach		Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses						Financial instruments applying credit impaired approach
(In millions of Korean won)				Non-impaired			Impaired			Financial instruments applying credit impaired approach					Non-impaired			Impaired			Financial instruments applying credit impaired approach
Beginning¹		161,886			155,623			132,773			—		180,822			263,536			745,011			—
Transfer between stages
Transfer to 12-month expected credit losses		101,441			(101,375	)		(66	)		—		37,146			(36,248	)		(897	)		—
Transfer to lifetime expected credit losses (Non-impaired)		(90,044	)		102,158			(12,114	)		—		(34,407	)		44,698			(10,291	)		—
Transfer to lifetime expected credit losses (Impaired)		(753	)		(43,126	)		43,879			—		(2,289	)		(30,693	)		32,982			—
Write-offs		—			(2	)		(297,228	)		—		—			(5	)		(228,900	)		—
Disposal		(248	)		(5	)		(1,003	)		—		(73	)		—			(14,172	)		—
Provision (reversal) for loan losses^2,3		(2,036	)		43,608			250,560			—		10,041			53,662			50,828			—
Others (change of currency ratio,etc.)		44			321			671			—		1,211			491			25,410			—

Ending		170,290			157,202			117,472			—		192,451			295,441			599,971			—

¹	Restated based on Korean IFRS 1109.

Provision (reversal) for credit losses in statement of comprehensive income also includes provision (reversal) for unused commitments and guarantees (Note 22), provision (reversal) for financial guarantee contracts (Note 22), provision (reversal) of allowance for other financial assets (Note 17), provision (reversal) of allowance for due from financial institutions (Note 7) and provision (reversal) of allowance for debt securities (Note 12).

³	Recovery of written-off loans amounting to W284,457 million is included.


	2017
(In millions of Korean won)	Retail			Corporate			Total
Beginning		332,743			1,235,183			1,567,926
Written-off		(274,714	)		(375,705	)		(650,419	)
Recoveries from written-off loans		136,522			272,979			409,501
Sale		(683	)		(17,560	)		(18,243	)
Other changes		2,081			(85,428	)		(83,347	)
Provision (reversal) for loan losses¹		122,189			40,459			162,648

Ending		318,138			1,069,928			1,388,066

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The loan and receivables which were written-off but the claims has not been forfeited (i.e. its extinctive prescription did not occur, and that are not collected) amounts to W 9,576,055 million as at December 31, 2018.

Changes in the gross carrying amounts of loans

Changes in the gross carrying amounts of loans that significantly affect allowances for loan losses for the year ended December 31, 2018, are as follows:


	2018
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses						Financial instruments applying credit impaired approach
(In millions of Korean won)				Non-impaired			Impaired			Financial instruments applying credit impaired approach
Beginning¹		227,614,957			22,207,255			1,517,232			—
Transfer between stages
Transfer to 12-month expected credit losses		7,505,230			(7,465,448	)		(39,782	)		—
Transfer to lifetime expected credit losses (Non-impaired)		(10,068,530	)		10,120,456			(51,926	)		—
Transfer to lifetime expected credit losses (Impaired)		(638,622	)		(761,883	)		1,400,505			—
Write-offs		—			(7	)		(526,127	)		—
Sale		(484,646	)		(3,817	)		(190,401	)		—
Net increase(decrease) (Execution, repayment and others)		30,046,529			(2,924,176	)		(738,169	)		—

Ending		253,974,918			21,172,380			1,371,332			—

¹	Restated based on Korean IFRS 1109.

100

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

12. Financial Assets at Fair Value through Profit or Loss and Financial Investments

Details of financial assets at fair value through profit or loss and financial investments as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Financial assets at fair value through profit or loss
Debt securities
Government and public bonds		1,144,734
Financial bonds		2,888,573
Corporate bonds		336,790
Beneficiary certificates		3,696,533
Equity investments		164,777
Other debt securities		67,886
Equity securities
Stocks		22,167
Loans
Private placed corporate bonds		179,714
Other loans		32,882
Others
Financial instruments indexed to the price of gold		78,808

		8,612,864

Financial Investments
Financial assets at fair value through other comprehensive income
Debt securities
Government and public bonds		2,941,069
Financial bonds		16,838,663
Corporate bonds		6,909,162
Asset-backed securities		867,997
Equity securities
Stocks		1,861,873
Equity investments		37,043

Loans
Private placed corporate bonds		349,547

		29,805,354

Financial assets at amortized cost
Debt securities
Government and public bonds		544,926
Financial bonds		6,206,924
Corporate bonds		1,413,022
Asset-backed securities		4,590,107
Allowance		(1,255	)

		12,753,724

		42,559,078

101

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017
Financial assets held for trading
Debt securities
Government and public bonds		1,071,617
Financial bonds		1,765,827
Corporate bonds		206,564
Equity securities
Beneficiary certificates		29,251
Others		73,856

		3,147,115

Available-for-sale financial assets
Debt securities
Government and public bonds		2,820,398
Financial bonds		15,752,775
Corporate bonds		6,639,107
Asset-backed securities		2,205,360
Equity securities
Stocks		1,908,846
Equity investments		143,685
Beneficiary certificates		4,005,417
Others		500

		33,476,088

Held-to-maturity financial assets
Debt securities
Government and public bonds		1,302,836
Financial bonds		1,873,101
Corporate bonds		1,360,836
Asset-backed securities		4,195,473

		8,732,246

		42,208,334

102

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Dividend incomes from the equity securities designated at fair value through other comprehensive income for the year ended December 31, 2018 are as follows:


		2018
(In millions of Korean won)		From the financial asset derecognized		From the remaining financial asset
Stocks	Listed		—		22,173
	Unlisted		—		14,504
Equity investments			—		2,256

			—		38,933

The derecognized equity securities at fair value through other comprehensive income for the year ended December 31, 2018, are as follows:


		2018
(In millions of Korean won)		Disposal price		Accumulated OCI as at disposal date
Stocks¹	Listed		26,877		18,330
	Unlisted		480		480

			27,357		18,810

¹	In accordance with joint resolution along the stock price increase, the Bank disposed of stocks acquired by a debt to equity swap.

Provision and reversal for the allowance of financial investments for the year ended December 31, 2018, are as follows:


	2018
	Impairment losses			Reversal of impairment		Total
Debt instruments at fair value through other comprehensive income		(835	)		328		(507	)

Loans at fair value through other comprehensive income		(905	)		825		(80	)
Securities at amortized cost		(159	)		280		121

		(1,899	)		1,433		(466	)

The impairment losses and the reversal of impairment losses in financial investments for the year ended December 31, 2017, are as follows:


	2017
(In millions of Korean won)	Impairment			Reversal		Net
Available-for-sale financial assets		(12,405	)		—		(12,405	)

103

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in the allowances for financial investments for the year ended December 31, 2018, are as follows:


	2018
	Financial instruments applying 12- month expected credit losses			Financial instruments applying lifetime expected credit losses
(In millions of Korean won)				Non-impaired			Impaired
Beginning¹		2,505			435			—
Transfer between stages
Transfer to 12-month expected credit losses		125			(125	)		—
Transfer to lifetime expected credit losses		—			—			—
Disposal		(171	)		—			—
Provision (reversal) for loan losses		646			(180	)		—
Others (change of currency ratio, etc.)		563			63			—

Ending		3,668			193			—

¹	Restated based on Korean IFRS 1109.

13. Investments in Associates and Subsidiaries

Investments in associates and subsidiaries as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won, In thousands of US dollars)	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
Associates
Korea Credit Bureau Co., Ltd.¹		9.00		4,500		5,941			2,769	Credit information	Korea
Balhae Infrastructure Fund¹		12.61		104,621		108,050			108,282	Investment finance	Korea
KB GwS Private Securities Investment Trust		20.93		89,124		106,613			89,124	Investment finance	Korea
Incheon Bridge Co., Ltd.¹		14.99		9,158		(16,689	)		9,158	Operation of highways and related facilities	Korea
KB digital innovation & growth New Technology Business Investment Fund¹		45.00		1,125		1,079			1,125	Discovery of and investment in promising FinTech-business venture	Korea
KB12-1 Venture Investment Partnership²		80.00		17,400		49,912			17,400	Investment finance	Korea
Future Planning KB Start-up Creation Fund²		50.00		14,300		18,069			14,300	Investment finance	Korea
KoFC KBIC Frontier Champ 2010-5(PEF)		30.00		90		140			37	Investment finance	Korea
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		20.00		10,376		11,681			10,376	Investment finance	Korea
KB High-tech Company Investment Fund²		50.00		20,300		22,563			20,300	Investment finance	Korea
Aju Good Technology Venture Fund		38.46		18,038		18,134			18,038	Investment finance	Korea
KB-KDBC New Technology Business Investment Fund²		33.33		7,500		7,297			7,500	Investment finance	Korea

104

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


KBTS Technology Venture Private Equity Fund²	30.00	7,620		7,381		7,620	Investment finance	Korea
KB IP Investment Fund II²	37.50	3,000		2,942		3,000	Investment finance	Korea
KB Digital Innovation Investment Fund Limited partnership²	25.74	7,700		7,617		7,700	Investment finance	Korea
KB-Brain KOSDAQ Scale-up Fund²	21.28	4,000		3,966		4,000	Investment finance	Korea
Shinla Construction Co., Ltd.⁴	20.17	—		(551	)	—	Specialty construction	Korea
Terra Corporation⁴	24.06	—		2		—	Manufacture of fabricated and processed metal products	Korea
MJT&I Corp.⁴	22.89	—		(606	)	—	Wholesale of other merchandise	Korea
Jungdong Steel Co., Ltd.⁴	42.65	—		(433	)	—	Wholesale of primary metal	Korea
Doosung Metal Co., Ltd.⁴	26.49	—		(16	)	—	Manufacture of metal door, windows, shutter and relevant products	Korea
Shinhwa Underwear Co., Ltd.⁴	26.05	—		(57	)	—	Manufacture of underwear and sleepwear	Korea
DPAPS Co., Ltd.⁴	38.62	—		14		—	Wholesale of paper	Korea
Jaeyang Industry Co., Ltd.⁴	20.86	—		(552	)	—	Manufacture of luggage and other protective cases	Korea
Kendae Co., Ltd.⁴	41.01	—		(252	)	—	Screen printing	Korea
Jinseung Tech Co., Ltd.⁴	30.04	—		(176	)	—	Manufacture of other general-purpose machinery n.e.c.	Korea
Dongjo Co., Ltd.⁴	29.29	—		806		—	Wholesale of agricultural and forestry machinery and equipment	Korea
Korea NM Tech Co., Ltd.⁴	22.41	—		552		—	Manufacture of motor vehicles, trailers and semitrailers	Korea
Jungdo Co., Ltd.⁴	25.34	—		1,492		—	Office, commercial and institutional building construction	Korea
Dae-A Leisure Co., Ltd.⁴	49.36	—		1,613		—	Earth works	Korea
Chong Il Machine & Tools Co., Ltd.⁴	20.40	—		(107	)	—	Wholesale machinery and equipment	Korea
Imt Technology Co., Ltd.⁴	25.29	—		18		—	Computer Peripherals Distribution	Korea
Iwon Alloy Co., Ltd.⁴	23.20	—		394		—	Manufacture of smelting, refining and alloys	Korea
Carlife Co., Ltd.⁴	24.39	—		(75	)	—	Publishing of magazines and periodicals (publishing industry)	Korea
Computerlife Co., Ltd.⁴	45.71	—		(329	)	—	Publishing of magazines and periodicals (publishing industry)	Korea
SKYDIGITAL INC.⁴	20.40	—		(142	)	—	Manufacture of multimedia and video devices	Korea
Jo Yang Industrial Co., Ltd.⁴	22.77	—		75		—	Manufacture of special glass	Korea

PT Bank Bukopin TBK^5,6	22.00	116,422		106,484		116,422	Banking	Indonesia

		435,274		462,850		437,151
Subsidiaries
Kookmin Bank Int’l Ltd.(London) ³	100.00	USD	30,392	34,983		32,917	Banking	United Kingdom
Kookmin Bank Hongkong Ltd. ³	—	—		—		—	—	China
Kookmin Bank Cambodia PLC. ³	100.00	USD	76,259	92,807		86,761	Banking	Cambodia
Kookmin Bank(China) Ltd. ³	100.00	USD	383,875	412,564		418,155	Banking	China
KB Microfinance Myanmar Co., Ltd. ³	100.00	USD	20,000	20,062		22,405	Micro finance services	Myanmar

		USD	510,526	560,416		560,238

				1,023,333		997,389

105

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won, In thousands of US dollars)	Ownership (%)		Acquisition cost			Share of net asset amount			Carrying amount		Industry	Location
Associates
Balhae Infrastructure Fund ¹		12.61		101,794			105,190			105,455	Investment finance	Korea
Korea Credit Bureau Co., Ltd.¹		9.00		4,500			5,056			2,769	Credit information	Korea
KB12-1 Venture Investment Partnership²		80.00		22,800			37,239			22,800	Investment finance	Korea
KoFC KBIC Frontier Champ 2010-5(PEF)		30.00		3,891			4,504			1,585	Investment finance	Korea
KB GwS Private Securities Investment Trust		20.93		89,124			105,567			89,124	Investment finance	Korea
Incheon Bridge Co., Ltd.¹		14.99		9,159			(16,202	)		8,393	Operation of highways and related facilities	Korea
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		20.00		10,376			13,770			10,376	Investment finance	Korea
Future Planning KB Start-up Creation Fund ²		50.00		14,700			18,093			14,700	Investment finance	Korea
Shinla Construction Co., Ltd.⁴		20.17		—			(551	)		—	Specialty construction	Korea
Terra Corporation⁴		24.06		—			36			—	Manufacture of fabricated and processed metal products	Korea
MJT&I Corp.⁴		22.89		—			(601	)		—	Wholesale of other merchandise	Korea
Jungdong Steel Co., Ltd.⁴		42.65		—			(433	)		—	Wholesale of primary metal	Korea
Doosung Metal Co., Ltd.⁴		26.49		—			(20	)		—	Manufacture of metal door, windows, shutter and relevant products	Korea
Shinhwa Underwear Co., Ltd.⁴		26.05		—			(102	)		—	Manufacture of underwear and sleepwear	Korea
DPAPS Co., Ltd.⁴		38.62		—			155			—	Wholesale of paper	Korea
Jaeyang Industry Co., Ltd.⁴		20.86		—			(522	)		—	Manufacture of luggage and other protective cases	Korea
Keundae Printing Co., Ltd.⁴		41.01		—			(223	)		—	Screen printing	Korea
Jinseung Tech Co., Ltd.⁴		30.04		—			(173	)		—	Manufacture of other general-purpose machinery n.e.c.	Korea
Dong Jo Co., Ltd.⁴		29.29		—			691			—	Wholesale of agricultural and forestry machinery and equipment	Korea
Korea NM Tech Co., Ltd.⁴		22.41		—			580			—	Manufacture of motor vehicles, trailers and semitrailers	Korea
Jungdo Co., Ltd.⁴		25.34		—			1,652			—	Office, commercial and institutional building construction	Korea
Dae-A Leisure Co., Ltd.⁴		49.36		—			1,017			—	Earth works	Korea
Daesang Techlon Co., Ltd.⁴		47.73		—			96			—	Manufacture of Plastic, Teflon etc.	Korea
KB High-tech Company Investment Fund²		50.00		25,000			26,847			25,000	Investment finance	Korea
Aju Good Technology Venture Fund		38.46		8,230			7,856			8,230	Investment finance	Korea
KB-KDBC New Technology Business Investment Fund²		33.33			2,500		2,486			2,500	Investment finance	Korea

					292,074		312,008			290,932

Subsidiaries
Kookmin Bank Int’l Ltd.(London) ³		100.00		USD	30,392		83,222			67,396	Banking	United Kingdom
Kookmin Bank Hong Kong Ltd.³		100.00		USD	20,000		22,866			23,451	—	China
Kookmin Bank Cambodia PLC.³		100.00		USD	47,846		56,453			55,711	Banking	Cambodia
Kookmin Bank(China) Ltd.³		100.00		USD	383,875		400,720			418,155	Banking	China
KB Microfinance Myanmar Co., Ltd.³		100.00		USD	10,000		9,972			11,428	Micro finance services	Myanmar

				USD	492,113		573,233			576,141

							885,241			867,073

¹	As at December 31,2018 and 2017, the Bank is represented in the governing bodies of its associates. Therefore, the Bank has significant influence over the decision-making process relating to their financial and business policies.

²	As at December 31,2018 and 2017, the Bank is a partner in a limited partnership and does not have the right to control over these entities.

106

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

³	Acquisition costs of investments in subsidiaries are presented in US dollars.

⁴	The investment in associates was reclassified from financial instruments at fair value through other comprehensive income due to termination of rehabilitation procedures.

⁵

The Bank has entered into an agreement with PT Bosowa Corporindo, the major shareholder of PT Bank Bukopin TBK. Under this agreement, both parties have a right of first refusal, a tag-along right and a drag-along right. The Bank additionally has the drag-along right that can be exercised for the duration of two years after three-years from acquisition date, subject to the occurrence of certain situations as defined in the agreement.

⁶	The fair value of PT Bank Bukopin TBK’s common stock based on its quoted market price is W 53,540 million as at December 31, 2018.

Changes in investments in associates and subsidiaries for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Acquisition and others		Disposal and others			Impairment			Ending
Associates
Korea Credit Bureau Co., Ltd.		2,769		—		—			—			2,769
Balhae Infrastructure Fund		105,455		4,646		(1,819	)		—			108,282
KB GwS Private Securities Investment Trust		89,124		—		—			—			89,124
Incheon Bridge Co., Ltd.		8,393		—		—			765			9,158
KB Digital Innovation & Growth New Technology Business Investment Fund		—		1,125		—			—			1,125
KB12-1 Venture Investment Partnership		22,800		—		(5,400	)		—			17,400
Future Planning KB Start-up Creation Fund		14,700		—		(400	)		—			14,300
KoFC KBIC Frontier Champ 2010-5 (PEF)		1,585		—		(1,548	)		—			37
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		10,376		—		—			—			10,376
KB High-tech Company Investment Fund		25,000		—		(4,700	)		—			20,300
Aju Good Technology Venture Fund		8,230		9,808		—			—			18,038
KB-KDBC New Technology Business Investment Fund		2,500		5,000		—			—			7,500
KBTS Technology Venture Private Equity Fund		—		7,620		—			—			7,620
KB IP Investment Fund II		—		3,000		—			—			3,000
KB Digital Innovation Investment Fund Limited partnership		—		7,700		—			—			7,700
KB-Brain KOSDAQ Scale-up Fund		—		4,000		—			—			4,000
PT Bank Bukopin TBK¹		—		116,422		—			—			116,422
Subsidiaries
Kookmin Bank Int’l Ltd.(London)²		67,396		—		—			(34,479	)		32,917
Kookmin Bank Hongkong Ltd.		23,451		—		(23,451	)		—			—
Kookmin Bank Cambodia PLC.		55,711		31,050		—			—			86,761
Kookmin Bank(China) Ltd.		418,155		—		—			—			418,155
KB Microfinance Myanmar Co., Ltd.		11,428		10,977		—			—			22,405

		867,073		201,348		(37,318	)		(33,714	)		997,389

107

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Beginning		Acquisition and others		Disposal and others			Impairment			Ending
Associates
Balhae Infrastructure Fund		133,850		807		(29,202	)		—			105,455
Korea Credit Bureau Co., Ltd.		2,769		—		—			—			2,769
JSC Bank CenterCredit		30,111		—		(30,111	)		—			—
KB12-1 Venture Investment Partnership		27,200		—		(4,400	)		—			22,800
KoFC KBIC Frontier Champ 2010-5 (PEF)		12,085		—		(10,500	)		—			1,585
KB GwS Private Securities Investment Trust		89,124		—		—			—			89,124
Incheon Bridge Co., Ltd.		24,677		—		(15,520	)		(764	)		8,393
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund		18,160		—		(7,784	)		—			10,376
Future Planning KB Start-up Creation Fund		10,700		4,000		—			—			14,700
KB-KDBC New Technology Business Investment Fund		—		2,500		—			—			2,500
KB High-tech Company Investment Fund		15,000		10,000		—			—			25,000
Aju Good Technology Venture Fund		1,997		6,233		—			—			8,230
Subsidiaries
Kookmin Bank Int’l Ltd.(London)		67,396		—		—			—			67,396
Kookmin Bank Hongkong Ltd.²		105,643		—		—			(82,192	)		23,451
Kookmin Bank Cambodia PLC.		55,711		—		—			—			55,711
Kookmin Bank(China) Ltd.		418,155		—		—			—			418,155
KB Microfinance Myanmar Co., Ltd.		—		11,428		—			—			11,428

		1,012,578		34,968		(97,517	)		(82,956	)		867,073

¹	The goodwill of PT Bank Bukopin TBK amounts to W 4,101 million.

²	Impairment losses were recognized due to decrease in net asset value resulting from dividend payment during the years ended December 31, 2018 and 2017.

108

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

14. Property and Equipment, and Investment Properties

Details of property and equipment as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
Land		1,979,811		—			(1,018	)		1,978,793
Buildings		1,256,234		(442,317	)		(5,859	)		808,058
Leasehold improvements		788,444		(694,884	)		—			93,560
Equipment and vehicles		1,136,854		(985,842	)		—			151,012
Construction in-progress		81,268		—			—			81,268
Finance lease assets		32,709		(21,788	)		—			10,921

		5,275,320		(2,144,831	)		(6,877	)		3,123,612


	2017
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
Land		1,949,332		—			(1,018	)		1,948,314
Buildings		1,207,836		(415,017	)		(5,859	)		786,960
Leasehold improvements		710,060		(634,803	)		—			75,257
Equipment and vehicles		1,151,915		(1,004,994	)		—			146,921
Construction in-progress		11,975		—			—			11,975
Finance lease assets		23,069		(17,840	)		—			5,229

		5,054,187		(2,072,654	)		(6,877	)		2,974,656

Changes in property and equipment for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Acquisition		Transfers¹			Disposal			Depreciation			Others		Ending
Land		1,948,314		124		31,027			(691	)		—			19		1,978,793
Buildings		786,960		—		54,904			(4,079	)		(29,771	)		44		808,058
Leasehold improvements		75,257		15		69,646			(242	)		(61,345	)		10,229		93,560
Equipment and vehicles		146,921		100,958		247			(795	)		(96,378	)		59		151,012
Construction-in-progress		11,975		229,521		(160,684	)		—			—			456		81,268
Finance lease assets		5,229		9,640		—			—			(3,948	)		—		10,921

		2,974,656		340,258		(4,860	)		(5,807	)		(191,442	)		10,807		3,123,612

109

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Beginning		Acquisition		Transfers¹			Disposal			Depreciation			Others			Ending
Land		2,041,605		16,647		(109,892	)		(19	)		—			(27	)		1,948,314
Buildings		814,712		—		2,391			(1,023	)		(29,058	)		(62	)		786,960
Leasehold improvements		62,741		9		57,548			(757	)		(57,575	)		13,291			75,257
Equipment and vehicles		154,685		88,896		—			(170	)		(96,505	)		15			146,921
Construction-in-progress		4,013		110,122		(102,160	)		—			—			—			11,975
Finance lease assets		7,961		678		—			—			(3,410	)		—			5,229

		3,085,717		216,352		(152,113	)		(1,969	)		(186,548	)		13,217			2,974,656

¹	Including transfers from investment properties and assets held for sale.

Changes in accumulated impairment losses of property and equipment for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)			2018
Beginning	Impairment		Reversal		Others		Ending
(6,877)		—		—		—		(6,877	)

(In millions of Korean won)


2017
Beginning	Impairment		Reversal		Others		Ending
(6,877)		—		—		—		(6,877	)

Details of investment properties as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Carrying amount
Land		33,793		—			33,793
Buildings		22,521		(7,848	)		14,673

		56,314		(7,848	)		48,466


	2017
(In millions of Korean won)	Acquisition cost		Accumulated depreciation			Carrying amount
Land		40,621		—			40,621
Buildings		24,684		(8,867	)		15,817

		65,305		(8,867	)		56,438

110

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The valuation technique and input variables that are used to measure the fair value of investment property as at December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Fair Value		Valuation technique	Inputs
Land and Buildings		57,025	Cost approach value	- Price per square meter - Replacement cost

As at December 31, 2018 and 2017, fair values of the investment properties amount to W 57,025 million and W 63,144 million, respectively. The investment properties were measured by qualified independent appraisers with experience in valuing similar properties in the same area. In addition, per the fair value hierarchy on Note 6.1, the fair value hierarchy of all investment properties has been categorized and classified as Level 3.

Rental income from the above investment properties for the years ended December 31, 2018 and 2017, amounts to W 667 million and W 718 million, respectively.

Changes in investment properties for the years ended December 31, 2018 and 2017, are as follows:



	2018
(In millions of Korean won)	Beginning		Acquisitions		Transfers			Depreciation			Ending
Land		40,621		—		(6,828	)		—			33,793
Buildings		15,817		—		(599	)		(545	)		14,673

		56,438		—		(7,427	)		(545	)		48,466



	2017
(In millions of Korean won)	Beginning		Acquisitions		Transfers			Depreciation			Ending
Land		59,604		—		(18,982	)		—			40,621
Buildings		19,326		—		(2,879	)		(631	)		15,817

		78,930		—		(21,861	)		(631	)		56,438

15. Intangible Assets

Details of intangible assets as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Goodwill		65,288		—			—			65,288
Other intangible assets		922,023		(760,448	)		(5,107	)		156,468

		987,311		(760,448	)		(5,107	)		221,756

111

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Goodwill		65,288		—			—			65,288
Other intangible assets		865,116		(711,855	)		(3,597	)		149,664

		930,404		(711,855	)		(3,597	)		214,952

The goodwill arose from the merger of Housing & Commercial Bank (“H&CB”), and there is no change in goodwill for the years ended December 31, 2018 and 2017.

Details of allocation of goodwill to cash-generating units and related information for impairment testing as at December 31, 2018, are as follows:


(In millions of Korean won)	Housing & Commercial Bank
(In millions of Korean won)	Retail Banking		Corporate Banking		Total
Carrying amounts		49,315		15,973		65,288
Recoverable amount exceeded carrying amount		4,281,676		2,875,939		7,157,615
Discount rate (%)		15.51		15.74
Permanent growth rate (%)		1.00		1.00

Goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the combination for impairment testing, and cash-generating units consist of an operating segment or units which are not larger than an operating segment. The Bank recognized the amount of W 65,288 million related to goodwill acquired in the merger of Housing & Commercial Bank. Of this amount, the amount of W 49,315 million and W 15,973 million were allocated to the Retail Banking and Corporate Banking, respectively. Cash-generating units, to which goodwill has been allocated, is tested for impairment annually and whenever there is an indication that the unit may be impaired by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit.

The recoverable amount of a cash-generating unit is measured at the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell is the amount obtainable from the sale in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. If it is difficult to measure the amount obtainable from the sale of the cash-generating unit, the Bank measures the fair value less costs to sell by reflecting the characteristics of the measured cash-generating unit. If it is not possible to obtain the reliable information to measure the fair value less costs to sell, the Bank uses the asset’s value in use as its recoverable amount. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. The projections of the future cash flows are based on the most recent financial budget approved by management and generally cover a period of five years. The future cash flows after projection period are estimated on the assumption that the future cash flows will increase by 1.0% annually for Retail Banking and Corporate Banking. The key assumptions used for the estimation of the future cash flows are the market size and the Bank’s market share. The discount rate is a pre-tax rate that reflects assumptions regarding risk-free interest rate, market risk premium and the risks specific to the asset for which the future cash flow estimates have not been adjusted.

112

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of intangible assets, excluding goodwill, as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Industrial property rights		1,494		(1,243	)		—			251
Software		765,802		(671,084	)		—			94,718
Other intangible assets		120,596		(69,152	)		(5,107	)		46,337
Finance leases assets		34,131		(18,969	)		—			15,162

		922,023		(760,448	)		(5,107	)		156,468


	2017
(In millions of Korean won)	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
Industrial property rights		1,435		(1,154	)		—			281
Software		709,641		(622,243	)		—			87,398
Other intangible assets		127,934		(74,891	)		(3,597	)		49,446
Finance leases assets		26,106		(13,567	)		—			12,539

		865,116		(711,855	)		(3,597	)		149,664

Changes in intangible assets, excluding goodwill, for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Acquisition		Disposal			Amortization			Others			Ending
Industrial property rights		281		59		—			(89	)		—			251
Software		87,398		45,500		—			(38,224	)		44			94,718
Other intangible assets		49,446		7,160		(2,825	)		(5,698	)		(1,746	)		46,337
Finance leases assets		12,539		8,025		—			(5,402	)		—			15,162

		149,664		60,744		(2,825	)		(49,413	)		(1,702	)		156,468


			2017
(In millions of Korean won)	Beginning		Acquisition		Disposal			Amortization			Others			Ending
Industrial property rights		122		244		(8	)		(91	)		14			281
Software		82,863		36,913		—			(32,373	)		(5	)		87,398
Other intangible assets		41,697		13,418		(306	)		(5,665	)		302			49,446
Finance leases assets		16,329		792		—			(4,582	)		—			12,539

		141,011		51,367		(314	)		(42,711	)		311			149,664

113

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in accumulated impairment losses on intangible assets for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning			Impairment			Reversal		Others		Ending
Accumulated impairment losses on other intangible assets		(3,597	)		(1,806	)		31		265		(5,107	)


	2017
(In millions of Korean won)	Beginning			Impairment		Reversal		Others		Ending
Accumulated impairment losses on other intangible assets		(3,875	)		—		35		243		(3,597	)

From 2018, the Bank has to pay the fine, if the actual emission exceeds the targeted emission amount; therefore, the emission rights (intangible asset) do not occur even if it is below the targeted emission amount

Changes in emission rights for the year ended December 31, 2017, are as follows:


	Applicable under 2016					Applicable under 2017					Total
(KAU, In millions of Korean won)	Quantity			Carrying amount		Quantity			Carrying amount		Quantity			Carrying amount
Beginning		99,283			—		104,920			—		204,203			—
Additional allocation		578			—		17,046			—		17,624			—
Borrowings of emission permits		18,306			—		(18,306	)		—		—			—
Surrender of emission permits		(117,484	)		—		—			—		(117,484	)		—
Revocation of allocation		(683	)		—		(398	)		—		(1,081	)		—

Ending		—			—		103,262			—		103,262			—

114

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

16. Deferred Income Tax Assets and Liabilities

Details of deferred income tax assets and liabilities as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Assets			Liabilities			Net amount
Other provisions		62,179			—			62,179
Impairment losses on property and equipment		4,132			—			4,132
Share-based payments		11,868			—			11,868
Provisions for guarantees		20,298			—			20,298
Gains on valuation of derivatives		—			(13,188	)		(13,188	)
Present value discount		—			(34	)		(34	)
Losses on fair value hedged item		—			(25,873	)		(25,873	)
Accrued interest		—			(41,687	)		(41,687	)
Deferred loan origination fees and costs		—			(139,697	)		(139,697	)
Gains on revaluation		—			(286,739	)		(286,739	)
Investments in subsidiaries and associates		13,018			—			13,018
Gains on valuation of security investment		—			(53,384	)		(53,384	)
Defined benefit liabilities		387,667			—			387,667
Accrued expenses		202,220			—			202,220
Retirement insurance expenses		—			(343,176	)		(343,176	)
Adjustments to the prepaid contributions		—			(19,033	)		(19,033	)
Others		163,719			(20,357	)		143,362

		865,101			(943,168	)		(78,067	)
Offsetting of deferred income tax assets and liabilities		(865,101	)		865,101			—

		—			(78,067	)		(78,067	)

115

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Assets			Liabilities			Net amount
Other provisions		71,870			—			71,870
Impairment losses on property and equipment		5,411			—			5,411
Interest on equity index-linked deposits		43			—			43
Share-based payments		17,014			—			17,014
Provisions for guarantees		24,341			—			24,341
Gains on valuation of derivatives		—			(19,239	)		(19,239	)
Present value discount		—			(58	)		(58	)
Losses on fair value hedged item		—			(15,698	)		(15,698	)
Accrued interest		—			(43,328	)		(43,328	)
Deferred loan origination fees and costs		—			(131,911	)		(131,911	)
Gains on revaluation		—			(306,344	)		(306,344	)
Investments in subsidiaries and associates		9,271			(29,022	)		(19,751	)
Gains on valuation of security investment		21,483			—			21,483
Defined benefit liabilities		332,930			—			332,930
Accrued expenses		128,700			—			128,700
Retirement insurance expenses		—			(301,261	)		(301,261	)
Adjustments to the prepaid contributions		—			(16,236	)		(16,236	)
Others		141,444			(18,325	)		123,119

		752,507			(881,422	)		(128,915	)
Offsetting of deferred income tax assets and liabilities		(752,507	)		752,507			—

		—			(128,915	)		(128,915	)

Unrecognized deferred income tax liabilities

Unrecognized deferred income tax assets

No deferred income tax assets have been recognized for the deductible temporary difference of W 5,923 million associated with investments in associates and subsidiaries as at December 31, 2018, because it is not probable that the temporary differences will be reversed in the foreseeable future.

No deferred income tax assets have been recognized for deductible temporary differences of W 363 million and W 15,030 million associated with accrued expenses and others, respectively, as at December 31, 2018, due to the uncertainty that these will be realized in the future.

116

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in cumulative temporary differences for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning¹		Decrease		Increase		Ending
Deductible temporary differences
Other provisions		256,282		256,282		226,103		226,103
Impairment losses on property and equipment		19,678		19,678		15,027		15,027
Interest on equity index-linked deposits		155		155		—		—
Share-based payments		61,870		61,870		43,156		43,156
Provisions for guarantees		98,294		98,294		73,809		73,809
Loss on SPE repurchase		80,204		80,204		—		—
Investment in subsidiaries and associates		39,634		—		13,627		53,261
Gains on valuation of security investment		75,642		75,642		—		—
Defined benefit liabilities		1,210,654		114,562		313,608		1,409,700
Accrued expenses		467,999		467,999		735,712		735,712
Others		797,433		325,886		138,823		610,370

		3,107,845		1,500,572		1,559,865		3,167,138

Unrecognized deferred income tax assets
Accrued expenses		—						363
Loss on SPE repurchase		80,204						—
Investment in subsidiaries and associates		5,923						5,923
Others		12,500						15,030

		3,009,218						3,145,822

Tax rate (%)²		27.50						27.50
Total deferred income tax assets from deductible temporary differences		827,535						865,101

117

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2018
(In millions of Korean won)	Beginning¹			Decrease			Increase			Ending
Taxable temporary differences
Losses from fair value hedge		(57,083	)		(57,083	)		(94,085	)		(94,085	)
Accrued interest		(157,556	)		(116,532	)		(110,565	)		(151,589	)
Deferred loan origination fees and costs		(479,671	)		(479,671	)		(507,988	)		(507,988	)
Gains on valuation of derivatives		(52,764	)		(52,764	)		(47,956	)		(47,956	)
Present value discount		(209	)		(209	)		(124	)		(124	)
Goodwill from merger		(65,288	)		—			—			(65,288	)
Gains on revaluation		(1,113,979	)		(71,292	)		—			(1,042,687	)
Investments in subsidiaries and associates		(105,534	)		(105,534	)		—			—
Retirement insurance expenses		(1,095,495	)		(82,468	)		(234,884	)		(1,247,911	)
Adjustments to the prepaid contributions		(59,040	)		(59,040	)		(69,212	)		(69,212	)
Gains on valuation of security investment		—			—			(194,124	)		(194,124	)
Others		(68,946	)		(10,679	)		(15,759	)		(74,026	)

		(3,255,565	)		(1,035,272	)		(1,274,697	)		(3,494,990	)

Unrecognized deferred income tax liabilities
Goodwill from merger		(65,288	)								(65,288	)

		(3,190,277	)								(3,429,702	)

Tax rate (%)²		27.50									27.50

Total deferred income tax liabilities from taxable temporary differences		(877,326	)								(943,168	)

¹	Restated based on Korean IFRS 1109.

²	As the corporate tax rate was changed due to the revision of the tax law at the end of 2017, deferred tax assets (liabilities) expected to be realized after 2018 are calculated using 27.5%.

118

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Beginning		Decrease		Increase		Ending
Deductible temporary differences
Other provisions		291,350		291,350		261,346		261,346
Impairment losses on property and equipment		20,812		20,812		19,678		19,678
Interest on equity index-linked deposits		168		168		155		155
Share-based payments		43,008		43,008		61,870		61,870
Provisions for guarantees		126,319		126,319		88,512		88,512
Loss on SPE repurchase		80,204		—		—		80,204
Investment in subsidiaries and associates		766,614		756,182		29,202		39,634
Gains on valuation of security investment		282,872		282,872		78,120		78,120
Defined benefit liabilities		1,239,914		205,084		175,824		1,210,654
Accrued expenses		959,532		959,532		467,999		467,999
Others		670,520		194,905		51,230		526,845

		4,481,313		2,880,232		1,233,936		2,835,017

Unrecognized deferred income tax assets
Loss on SPE repurchase		80,204						80,204
Investment in subsidiaries and associates		762,105						5,923
Others		21,797						12,500

		3,617,207						2,736,390

Tax rate (%)		24.20						27.50

Total deferred income tax assets from deductible temporary differences		876,034						752,507


	2017
(In millions of Korean won)	Beginning			Decrease			Increase			Ending
Taxable temporary differences
Losses from fair value hedge		(59,235	)		(59,235	)		(57,083	)		(57,083	)
Accrued interest		(181,166	)		(136,159	)		(112,549	)		(157,556	)
Deferred loan origination fees and costs		(497,149	)		(497,149	)		(479,677	)		(479,677	)
Gains on valuation of derivatives		(42,294	)		(42,294	)		(69,960	)		(69,960	)
Present value discount		(92	)		(92	)		(209	)		(209	)
Goodwill from merger		(65,288	)		—			—			(65,288	)
Gains on revaluation		(1,119,379	)		(5,399	)		—			(1,113,980	)
Investments in subsidiaries and associates		(105,534	)		—			—			(105,534	)
Retirement insurance expenses		(1,119,042	)		(170,469	)		(146,922	)		(1,095,495	)
Adjustments to the prepaid contributions		(62,569	)		(61,034	)		(57,505	)		(59,040	)
Others		(84,483	)		(28,891	)		(11,045	)		(66,637	)

		(3,336,231	)		(1,000,722	)		(934,950	)		(3,270,459	)

Unrecognized deferred income tax liabilities
Goodwill from merger		(65,288	)								(65,288	)

		(3,270,943	)								(3,205,171	)

Tax rate (%)		24.20									27.50

Total deferred income tax liabilities from taxable temporary differences		(791,568	)								(881,422	)

119

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

17. Other Assets

Details of other assets as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Other financial assets
Other receivables		1,912,455			3,547,926
Accrued income		802,972			763,040
Guarantee deposits		1,017,948			1,041,273
Domestic exchange settlement debits		476,349			944,697
Others		11,312			58,763
Allowances for loan losses		(21,417	)		(50,541	)
Present value discount		(1,910	)		(1,855	)

		4,197,709			6,303,303

Other non-financial assets
Other receivables		61			49
Prepaid expenses		125,363			102,777
Guarantee deposits		3,050			3,090
Others		74,872			68,416
Allowances on other assets		(16,992	)		(22,575	)

		186,354			151,757

		4,384,063			6,455,060

Changes in allowances for loan losses on other assets for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Other financial assets			Other non- financial assets			Total
Beginning¹		53,805			22,575			76,380
Provision		1,197			(3,720	)		(2,523	)
Written-off		(34,764	)		(1,863	)		(36,627	)
Others		1,179			—			1,179

Ending		21,417			16,992			38,409

¹	Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Other financial assets			Other non- financial assets			Total
Beginning		59,805			23,305			83,110
Provision		1,996			1,240			3,236
Written-off		(12,392	)		(1,970	)		(14,362	)
Others		1,132			—			1,132

Ending		50,541			22,575			73,116

120

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

18. Assets Held for Sale

Details of assets held for sale as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Acquisition cost¹		Accumulated impairment losses			Carrying amount		Fair value less costs to sell
Land		16,048		(3,442	)		12,606		16,552
Buildings		9,054		(4,708	)		4,346		4,403

		25,102		(8,150	)		16,952		20,955


	2017
(In millions of Korean won)	Acquisition cost¹		Accumulated impairment losses			Carrying amount		Fair value less costs to sell
Land		133,445		(1,492	)		131,953		251,520
Buildings		34,862		(11,309	)		23,553		24,548

		168,307		(12,801	)		155,506		276,068

¹	Acquisition cost of buildings held for sale is net of accumulated depreciation before classified as assets held for sale.

The valuation technique and input variables that are used to measure the fair value of assets held for sale as at December 31, 2018, are as follows:


2018
(In millions of Korean won)	Fair value	Valuation technique¹	Unobservable inputs²	Estimated range of unobservable inputs(%)	Effect of unobservable inputs on fair value
Land and buildings	20,955	Market comparison approach model and others	Adjustment index	0.30 ~ 1.08	Fair value increases as the adjustment index rises
			Adjustment ratio	-20.00 ~ 0.00	Fair value decreases as the absolute value of adjustment ratio rises

¹	The appraisal value is adjusted by the adjustment ratio in the event the public sale is unsuccessful.

²	Adjustment index is calculated using the real estate index, the producer price index, or land price volatility.

Among assets held for sale, real estates were measured by an independent evaluator who has recently assessed similar properties in the area of the qualifying real estates. All of assets held for sale are included in level 3 in accordance with Note 6-1. (2).

121

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in accumulated impairment losses of assets held for sale for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)						2018
Beginning			Provision			Reversal		Others		Ending
	(12,801	)		(5,281	)		286		9,646		(8,150	)


(In millions of Korean won)						2017
Beginning			Provision			Reversal		Others		Ending
	(13,935	)		(16,994	)		5,138		12,990		(12,801	)

19. Deposits

Details of deposits as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Demand deposits
Demand deposits in Korean won		112,780,132			111,234,450
Demand deposits in foreign currencies		6,161,617			6,584,271

		118,941,749			117,818,721

Time deposits
Time deposits in Korean won		140,591,165			123,068,980
Time deposits in foreign currencies		4,550,602			3,657,580
Fair value adjustments on fair value hedged time deposits in foreign currencies		(89,265	)		(51,033	)

		4,461,337			3,606,547

		145,052,502			126,675,527

Certificates of deposits		3,531,719			3,218,540

		267,525,970			247,712,788

20. Debts

Details of debts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Borrowings		16,747,057		14,177,282
Bonds sold under repurchase agreements and others		358,366		710,370
Call money		306,562		967,259

		17,411,985		15,854,911

122

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of borrowings as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		Lenders	Annual interest rate (%)		2018		2017
Borrowings in Korean won	Borrowings from the Bank of Korea	Bank of Korea		0.50~0.75		1,672,714		1,888,880
	Borrowings from the Government	SEMAS and others		0.00~3.00		1,745,940		1,726,543
	Borrowings from non - banking financial institutions	Korea Development Bank		0.22 ~ 2.70		372,853		342,376
	Other borrowings	Korea Development Bank and others		0.00~3.88		3,845,256		3,118,364

						7,636,763		7,076,163

Borrowings in foreign currencies	Due to banks	Kookmin Bank (China) Limited. and others		—		38,403		19,820
	Borrowings from banking institutions	Central Bank of Uzbekistan and others		0.00 ~ 3.52		7,039,389		5,408,642
	Borrowings from other financial institutions	Export Import Bank of Korea and others		3.20 ~ 3.94		18,725		76,134
	Other borrowings in foreign currencies	Standard Chartered Bank and others		—		2,013,777		1,596,523

						9,110,294		7,101,119

						16,747,057		14,177,282

Details of bonds sold under repurchase agreements and others as at December 31, 2018 and 2017, are as follows:

(In millions of Korean won)

Lenders

Annual interest
rate (%)

2018

2017

Bonds sold under repurchase agreements

Individuals, groups, corporations

1.23~1.73

350,771

700,466

Bills sold

Counter sale

0.10~1.20

7,595

9,904

358,366

710,370

Details of call money as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	Lenders	Annual interest rate (%)		2018		2017
Call money in Korean won	—		—		—		577,100
Call money in foreign currencies	Central Bank of Uzbekistan and others		2.42 ~ 4.70		306,562		390,159

					306,562		967,259

123

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

21. Debentures

Details of debentures as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	Annual interest rate (%)		2018			2017
Debentures in Korean won
Structured debentures		5.65 ~ 5.86		34,320			135,800
Subordinated fixed rate debentures		2.96 ~ 4.35		3,422,729			2,888,411
Fixed rate debentures		1.48 ~ 2.44		13,660,045			12,220,065
Floating rate debentures		1.72 ~ 1.77		640,000			—

			17,757,094			15,244,276
Fair value adjustments on fair value hedged debentures in Korean won				19,252			19,891
Discount on debentures in Korean won				(11,792	)		(36,920	)

			17,764,554			15,227,247

Debentures in foreign currencies
Floating rate debentures		0.00 ~ 3.72		1,344,628			835,692
Fixed rate debentures		1.63 ~ 3.63		2,725,700			2,142,800

			4,070,328			2,978,492
Fair value adjustments on fair value hedged debentures in foreign currencies				(24,073	)		(25,941	)
Discount on debentures in foreign currencies				(11,724	)		(12,300	)

			4,034,531			2,940,251

			21,799,085			18,167,498

124

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in debentures based on face value for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning		Issues		Repayments			Others		Ending
Debentures in Korean won
Structured debentures		135,800		—		(101,480	)		—		34,320
Subordinated fixed rate debentures		2,888,411		600,000		(65,682	)		—		3,422,729
Fixed rate debentures		12,220,065		6,860,000		(5,420,020	)		—		13,660,045
Floating rate debentures		—		640,000		—			—		640,000

		15,244,276		8,100,000		(5,587,182	)		—		17,757,094

Debentures in foreign currencies
Floating rate debentures		835,692		725,638		(274,130	)		57,428		1,344,628
Fixed rate debentures		2,142,800		493,022		—			89,878		2,725,700

		2,978,492		1,218,660		(274,130	)		147,306		4,070,328

		18,222,768		9,318,660		(5,861,312	)		147,306		21,827,422


	2017
(In millions of Korean won)	Beginning		Issues		Repayments			Others			Ending
Debentures in Korean won
Structured debentures		337,500		—		(201,700	)		—			135,800
Subordinated fixed rate debentures		3,196,993		—		(308,582	)		—			2,888,411
Fixed rate debentures		6,510,095		8,300,000		(2,590,030	)		—			12,220,065
Floating rate debentures		680,000		—		(680,000	)		—			—

		10,724,588		8,300,000		(3,780,312	)		—			15,244,276

Debentures in foreign currencies
Floating rate debentures		700,930		884,239		(670,236	)		(79,241	)		835,692
Fixed rate debentures		2,803,721		568,150		(945,394	)		(283,677	)		2,142,800

		3,504,651		1,452,389		(1,615,630	)		(362,918	)		2,978,492

		14,229,239		9,752,389		(5,395,942	)		(362,918	)		18,222,768

125

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

22. Provisions

Details of provisions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Provisions for unused loan commitments		102,975		106,555
Provisions for acceptances and guarantees		73,809		88,512
Provisions for asset retirement obligation		95,396		85,575
Others		35,199		76,846

		307,379		357,488

Changes in provisions for unused loan commitments, acceptances and guarantees for the years ended December 31, 2018 and 2017, are as follows:


	2018
	Provisions for unused loan commitments									Provisions for acceptances and guarantees
	12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses
(In millions of Korean won)	12-month expected credit losses			Non- impaired			Impaired			12-month expected credit losses			Non- impaired			Impaired
Beginning¹		74,317			27,174			—			39,922			39,628			18,744
Transfer between stages
Transfer to 12-month expected credit losses		10,002			(9,935	)		(66	)		661			(661	)		—
Transfer to lifetime expected credit losses		(7,701	)		7,784			(83	)		(534	)		676			(142	)
Impairment		(201	)		(667	)		867			(6	)		(87	)		93
Provision (reversal) for loan losses		(2,541	)		4,369			(718	)		(14,244	)		(10,174	)		(898	)
Others (effects of changes in foreign exchange rate, etc.)		212			162			—			404			243			184

Ending		74,088			28,887			—			26,203			29,625			17,981

¹	Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Provisions for unused loan commitments			Provisions for acceptances and guarantees			Total
Beginning		124,966			126,319			251,285
Effects of changes in foreign exchange rate		(1,300	)		(3,362	)		(4,662	)
Reversal		(17,111	)		(34,540	)		(51,651	)
Others		—			95			95

Ending		106,555			88,512			195,067

126

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in provisions for asset retirement obligation for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Beginning		85,575			77,810
Increase		1,780			2,778
Reversal		(154	)		(336	)
Used		(2,534	)		(6,712	)
Unwinding of discount		2,305			1,746
Effects of changes in interest rate		8,424			10,289

Ending		95,396			85,575

Changes in other provisions for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Membership rewards program			Dormant accounts			Litigations			Financial guarantee liabilities¹		Greenhouse Gas Emission liabilities			Others			Total
Beginning		138			5,050			7,482			2,218		177			62,137			77,202
Provision (reversal)		110			2,657			184			173		(177	)		(10,621	)		(7,674	)
Used and Others		(187	)		(3,331	)		(1,188	)		—		—			(29,623	)		(34,329	)

Ending		61			4,376			6,478			2,391		—			21,893			35,199

¹	Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Membership rewards program			Dormant accounts			Litigations			Financial guarantee liabilities			Greenhouse Gas Emission liabilities¹			Others			Total
Beginning		115			50,396			8,537			1,870			358			34,779			96,055
Provision (Reversal)		185			5,133			1,390			(8	)		(181	)		27,781			34,300
Used and Others		(162	)		(50,479	)		(2,445	)		—			—			(423	)		(53,509	)

Ending		138			5,050			7,482			1,862			177			62,137			76,846

¹	As at December 31, 2017, the estimated greenhouse gas emission is 112,121 tons.

127

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

23. Net Defined Benefit Liabilities

Defined benefit plan

The Bank operates defined benefit plans which have the following characteristics:

•

The Bank has the obligation to pay the agreed benefits to all its current and former employees.

•

Actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on the Bank.

The net defined benefit liabilities recognized in the statements of financial position is calculated in accordance with actuarial valuation methods. Data such as discount rates, future salary growth rates, and mortality rates based on market data and historical data are used. Actuarial assumptions may differ from actual results, due to changes in the market, economic trends and mortality trends.

Changes in the net defined benefit liabilities for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
Beginning		1,318,665			(1,310,097	)		8,568
Current service cost		136,192			—			136,192
Past service cost¹		26,663			—			26,663
Interest expense (income)		37,568			(37,327	)		241
Remeasurements :
-Actuarial loss arising from experience adjustment		26,780			—			26,780
-Actuarial loss arising from changes in demographic assumptions		9,775			—			9,775
-Actuarial loss arising from changes in financial assumptions		77,611			—			77,611
-Return on plan assets (excluding amounts included in interest income)		—			17,967			17,967
Contributions		—			(133,000	)		(133,000	)
Payments from plans (benefit payments)		(77,785	)		77,785			—
Payments from the Bank		(4,469	)		—			(4,469	)
Transfer in		2,677			(2,497	)		180
Transfer out		(4,682	)		4,682			—
Effects of changes in foreign exchange rate		17			—			17

Ending		1,549,012			(1,382,487	)		166,525

¹	The amont of 22,306 million was transferred from other provisions as at December 31, 2017.

128

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
Beginning		1,380,204			(1,309,069	)		71,135
Current service cost		141,485			—			141,485
Past service cost		4,185			—			4,185
Interest expense(income)		30,159			(28,360	)		1,799
Remeasurements :
-Actuarial loss arising from experience adjustment		11,520			—			11,520
-Actuarial gain arising from changes in financial assumptions		(42,579	)		—			(42,579	)
-Return on plan assets (excluding amounts included in interest income)		—			12,356			12,356
Contributions		—			(187,500	)		(187,500	)
Payments from plans (benefit payments)		(199,522	)		199,522			—
Payments from the Bank		(3,977	)		—			(3,977	)
Transfer in		2,744			(2,608	)		136
Transfer out		(5,562	)		5,562			—
Effects of changes in foreign exchange rate		(24	)		—			(24	)
Others		32			—			32

Ending		1,318,665			(1,310,097	)		8,568

Details of the net defined benefit liabilities as December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Present value of defined benefit obligation		1,549,012			1,318,665
Fair value of plan assets		(1,382,487	)		(1,310,097	)

Net defined benefit liabilities		166,525			8,568

Details of post-employment benefits recognized in profit or loss as employee compensation and benefits for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Current service cost		136,192		141,485

Past service cost		4,357		4,185
Interest expenses of net defined benefit liabilities		241		1,799

Total		140,790		147,469

129

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Remeasurements of net defined benefit liabilities recognized as other comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Remeasurements:
-Actuarial loss arising from experience adjustment		(9,775	)		—
-Actuarial gain arising from changes in demographic assumptions		(26,780	)		(11,520	)
-Actuarial gain arising from changes in financial assumptions		(77,611	)		42,579
-Return on plan assets (excluding amounts included in interest income)		(17,967	)		(12,356	)
Income tax effects		36,336			(4,526	)

Remeasurements after income tax		(95,797	)		14,177

Details of fair value of plan assets as at December 31, 2018 and 2017, are as follows:

2018

(In millions of Korean won)

Assets quoted
in an active market

Assets not quoted in
an active market

Total

Time deposits

—

1,382,487

2017

(In millions of Korean won)

Assets quoted
in an active market

Assets not quoted
in an active market

Total

Time deposits

—

1,310,097

Key actuarial assumptions used as at December 31, 2018 and 2017, are as follows:


	Ratio (%)
	2018		2017
Discount rate		2.30		2.90
Salary growth rate		3.75		3.75
Turnover		1.00		1.00

Mortality assumptions are based on the 8th experience-based mortality table of Korea Insurance Development Institute of 2015.

The sensitivity of the defined benefit obligation to changes in the principal assumptions as at December 31, 2018, is as follows:

Effect on defined benefit obligation

Changes in principal
assumption

Increase in principal
assumption

Decrease in principal
assumption

Discount rate

0.5% p

4.18% decrease

4.49% increase

Salary growth rate

0.5% p

4.12% increase

3.89% decrease

Turnover

0.5% p

0.39% decrease

0.41% increase

130

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Expected maturity analysis of undiscounted pension benefits as at December 31, 2018, is as follows:


(In millions of Korean won)	Less than 1 year		Between 1 and 2 years		Between 2 and 5 years		Between 5 and 10 years		Over 10 years		Total
Pension benefits		34,207		83,204		465,152		937,292		2,708,298		4,228,153

The weighted average duration of the defined benefit obligations is 8.86 years.

Expected contributions to plan assets for the period after December 31, 2018, are estimated to be approximately W 150,000 million.

24. Other Liabilities

Details of other liabilities as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Other financial liabilities
Other payables		2,093,647		3,767,618
Prepaid card and debit cards		2,351		2,018
Accrued expenses		2,305,494		2,011,695
Financial guarantee liabilities		44,256		37,620
Deposits for letter of guarantees and others		148,032		340,866
Domestic exchange settlement credits		1,679,914		39,445
Foreign exchanges settlement credits		102,170		124,706
Borrowings from other business accounts		13,166		5,408
Payables to trust accounts		5,403,198		5,126,752
Liabilities incurred from agency relationship		605,076		518,955
Account for agency businesses		460,949		257,760
Others		29,202		28,535

		12,887,455		12,261,378

Other non-financial liabilities
Other payables		847,346		384,875
Unearned revenue		31,941		28,928
Accrued expenses		450,493		324,694
Withholding taxes		92,962		145,319
Others		77,775		103,471

		1,500,517		987,287

		14,387,972		13,248,665

131

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

25. Equity

25.1 Capital Stock

Details of outstanding shares as at December 31, 2018 and 2017, are as follows:


	Ordinary shares
	2018		2017
Number of shares authorized		1,000,000,000		1,000,000,000
Face value per share (in Korean Won)		5,000		5,000
Number of shares		404,379,116		404,379,116
Capital stock¹		2,021,896		2,021,896

¹	In millions of Korean won.

25.2 Capital Surplus

Details of capital surplus as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Paid-in capital in excess of face value		4,604,417		4,604,417
Gain on business combination		397,669		397,669
Revaluation increment		177,229		177,229
Other capital surplus		40,716		40,716

		5,220,031		5,220,031

The gain on business combination is a gain from a bargain purchase related to the merger with Korea Long Term Credit Bank on December 31, 1998, in accordance with previous Korean GAAP.

25.3 Accumulated Other Comprehensive Income

Details of accumulated other comprehensive income as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Remeasurements of net defined benefit liabilities		(175,698	)
Currency translation differences		3,873
Net gains on debt instruments at fair value through other comprehensive income		21,648
Net gains on equity instruments at fair value through other comprehensive income		315,052
Gains on cash flow hedging instruments		11,539

		176,414

132

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017
Remeasurements of net defined benefit liabilities		(79,902	)
Currency translation differences		1,434
Gains on valuation of available-for-sale financial assets		816,573
Gains on cash flow hedging instruments		7,751

		745,856

25.4 Retained Earnings

Retained earnings as at December 31, 2018 and 2017, consist of:


(In millions of Korean won)	2018		2017
Legal reserves		2,033,926		2,033,626
Regulatory reserve for credit losses		2,137,264		1,989,616
Voluntary reserves		12,441,522		10,966,730
Retained earnings before appropriation		2,539,666		2,262,967

		19,152,378		17,252,939

With respect to the allocation of net profit earned in a fiscal term, the Bank must set aside in its legal reserve an amount equal to at least 10% of its net income after tax as reported in the separate statement of comprehensive income each time it pays dividends on its net profits earned until its legal reserve reaches at least the aggregate amount of its paid-in capital in accordance with Article 40 of the Banking Act. The reserves can only be transferred to capital stock or be used to reduce deficit. With respect to the Bank’s branches overseas, a portion of the branch’s net income is appropriated into legal reserves, in line with the financial legislation of the country where the overseas branch is located.

The appropriation of retained earnings for the years ended December 31, 2018 and 2017, (Dates of appropriation: March 21, 2019 and March 22, 2018 for the years ended December 31, 2018 and 2017, respectively) is follows:


(In millions of Korean won)	2018			2017
Retained earnings before appropriation
Unappropriated retained earnings carried forward from prior year		95			51
Effect of change in accounting policies		286,616			—
Reclassification of sale of securities at fair value through other comprehensive income		13,638			—
Net income		2,239,317	2,539,666		2,262,916	2,262,967
Transfers such as voluntary reserves
Reserve for research and manpower development		487			486
Revaluation of property and equipment		56,387			10,222
Reserve for electronic financial transaction accidents		1,000	57,874		—	10,708

133

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Appropriation
Legal reserve	1,789,700		1,485,500
Voluntary reserves	132,861		147,648
Regulatory reserve for credit losses	667,226		640,132
Cash dividends (dividends per share(%) 2018 : W1,650(33.00%) 2017 : W1,583(31.66%)	667,226		640,132
Other reserve	7,699	2,597,486	300	2,273,580


Unappropriated retained earnings carried forward to subsequent year		54		95

Regulatory Reserve for Credit Losses

Measurement and disclosure of regulatory reserve for credit losses are required in accordance with Articles 29.1 through 29.2 of Regulation on Supervision of Banking Business.

Details of the amounts estimated to be appropriated as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Beginning		2,137,264		1,989,616
Amounts estimated to be appropriated		132,861		147,648

Ending		2,270,125		2,137,264

Adjustments to the regulatory reserve for credit losses for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Provision of regulatory reserve for credit losses¹		239,973		147,648
Adjusted profit after provision of regulatory reserve for credit losses²		1,999,344		2,115,268

¹	The amount expected to be appropriated is the amount required to reserve for credit losses, calculated based on the beginning balance of regulatory reserve for credit losses (including unearned reserves) that reflects the effect of adoption of Korean IFRS 1109 retrospectively.

134

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

26. Interest Income and Expense

Details of interest income, expense, and net interest income for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Interest income
Securities at fair value through profit or loss		81,156
Loans at fair value through profit or loss		7,850
Securities at fair value through other comprehensive income		498,189
Loans at fair value through other comprehensive income		2,138
Due from financial institutions at amortized cost		30,854
Securities at amortized cost		319,563
Loans at amortized cost		8,692,723
Others		104,683

		9,737,156

Interest expense
Deposits		2,884,339
Debts		306,288
Debentures		477,150
Others		81,292

		3,749,069

Net interest income		5,988,087


(In millions of Korean won)	2017¹
Interest income
Due from financial institutions		49,097
Loans		7,427,864
Financial assets at fair value through profit or loss (under Korean IFRS 1039)		61,119
Financial investments
Available-for-sale financial assets		385,845
Held-to-maturity financial assets		276,591
Others		96,028

		8,296,544

Interest expense
Deposits		2,223,975
Debts		207,545
Debentures		353,697
Others		57,065

		2,842,282

Net interest income		5,454,262

¹	Interest income for the year ended December 31, 2017 has been restated according to changes in accounting policy concerning interest income reclassification.

Interest income recognized on impaired loans is W 23,042 million (December 31, 2017: W 30,524 million) for the years ended December 31, 2018.

135

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

27. Net Fee and Commission Income

Details of fee and commission income, and fee and commission expense for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Fee and commission income
Banking activity fees		209,499		194,624
Lending activity fees		73,005		73,549
Credit card related fees		1,030		1,280
Debit card related fees and commissions		554		649
Agent activity fees		312,497		350,036
Trust and other fiduciary fees		305,893		317,977
Guarantee fees		32,256		29,360
Foreign currency related fees		85,424		84,757
Security activity commissions		146,928		176,209
Other business account commission on consignment		36,947		33,793
Others		239,806		219,896

		1,443,839		1,482,130

Fee and commission expense
Trading activity related fees¹		11,952		13,206
Lending activity fees		30,661		27,510
Credit card related fees		18,478		1,888
Outsourcing related fees		78,464		60,718
Foreign currency related fees		17,585		15,281
Management fees of written-off loans		12,624		10,299
Contributions to external institutions		23,949		25,037
Others		90,426		81,374

		284,139		235,313

Net fee and commission income		1,159,700		1,246,817

¹	Fees from financial assets/liabilities at fair value through profit or loss.

136

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

28. Net Gains or Losses from Financial Assets/Liabilities at Fair Value through Profit or Loss

Net gains or losses from financial assets/liabilities at fair value through profit or loss are composed of gains or losses from financial instruments held for trading includes dividend income and, gains or losses arising from changes in the fair values, sales and redemptions.

Details for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Revenue from financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt instruments		216,321
Equity instruments		1,937

		218,258

Derivatives held for trading
Interest rate		1,415,631
Currency		3,380,603
Stock or stock index		906
Others		298

		4,797,438

Financial liabilities at fair value through profit or loss		377
Other financial instruments		22

		5,016,095

Expense from financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt instruments		148,576
Equity instruments		2,483

		151,059

Derivatives held for trading
Interest rate		1,409,686
Currency		3,095,659
Stock or stock index		1,079
Others		779

		4,507,203

Financial liabilities at fair value through profit or loss		193
Other financial instruments		60

		4,658,515

Net gains or losses from financial assets/liabilities at fair value through profit or loss		357,580

137

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017¹
Gains related to financial instruments held for trading
Financial assets held for trading
Debt instruments		14,672
Derivatives held for trading
Interest rate		1,197,017
Currency		5,487,318
Stock or stock index		362
Others		1,658

		6,686,355

Financial liabilities held for trading		78
Other financial instruments		109

		6,701,214

Losses related to financial instruments held for trading
Financial assets held for trading
Debt instruments		31,713

		31,713

Derivatives held for trading
Interest rate		1,157,911
Currency		5,578,860
Stock or stock index		2,396
Others		1,834

		6,741,001

Financial liabilities held for trading		125
Other financial instruments		117

		6,772,956

Net gains or losses from financial instruments held for trading		(71,742	)

¹	Interest income for the year ended December 31, 2017 has been restated according to changes in accounting policy concerning interest income reclassification.

138

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

29. Other Operating Income and Expense

Details of other operating income and expenses for years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Other operating income
Revenue related to financial assets at fair value through other comprehensive income
Gains on redemption of the securities at fair value through other comprehensive income		230
Gains on sale of the securities at fair value through other comprehensive income		93,899

		94,129

Revenue related to financial assets at amortized cost
Gains on sale of loans at amortized cost		15,691

		15,691

Gains on foreign exchange transactions		1,112,384
Dividend income		38,933
Others		84,381

		1,345,518

Other operating expense
Expenses related to financial assets at fair value through other comprehensive income
Losses on sale of the securities at fair value through other comprehensive income		7,135

		7,135

Expenses related to financial assets at amortized cost
Losses on sale of loans at amortized cost		6,674

		6,674

Losses on foreign exchanges transactions		1,160,270
Others		826,202

		2,000,281
Net other operating expense		(654,763	)

139

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	2017
Other operating income
Revenue related to available-for-sale financial assets
Gains on redemption of available-for-sale financial assets		5
Gains on sale of available-for-sale financial assets		98,487

		98,492
Gains on foreign exchange transactions		2,260,280
Dividend income		121,012
Others		90,715

		2,570,499

Other operating expense
Expense related to available-for-sale financial assets
Losses on sale of available-for-sale financial assets		148,481
Impairment losses on available-for-sale financial assets		12,405

		160,886

Losses on foreign exchange transactions		1,887,034
Others		761,599

		2,809,519

Net other operating expense		(239,020	)

140

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

30. General and Administrative Expenses

30.1 General and Administrative Expenses

Details of general and administrative expenses for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Employee Benefits
Salaries and short-term employee benefits - salaries		1,509,641		1,518,626
Salaries and short-term employee benefits - welfare expense		649,848		642,097
Post-employment benefits - defined benefit plans		140,790		147,469
Post-employment benefits - defined contribution plans		6,719		3,594
Termination benefits		209,737		151,172
Share-based payments		4,051		33,148

		2,520,786		2,496,106

Depreciation and amortization		241,400		229,890

Other general and administrative expenses
Rental expense		253,302		228,401
Tax and dues		106,563		96,324
Communication		23,038		22,113
Electricity and utilities		21,456		21,909
Publication		9,667		11,237
Repairs and maintenance		11,194		11,099
Vehicle		7,172		6,925
Travel		3,683		3,975
Training		17,460		16,688
Service fees		107,036		91,999
Others		410,951		395,880

		971,522		906,550

		3,733,708		3,632,546

30.2 Share-based Payments

30.2.1 Share Grants

The Bank changed the scheme of share-based payment from share option to share grants in November 2007. The share grant award program is an incentive plan that sets, on grant date, the maximum number of shares that can be awarded. Actual shares to be granted is determined in accordance with achievement of performance targets over the vesting period.

141

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Details of the share grants as at December 31, 2018, are as follows:


(In number of shares)
Share grants	Grant date		Number of granted shares^{1, 2}		Vesting conditions
Series 69		2017.01.01		173,030	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Series 71		2017.08.26		4,372	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Series 72		2017.08.28		5,601	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Series 73		2017.11.21		27,786	Service provision, TSR 30~50%, Performance of the bank 50~70%
Series 74		2018.01.01		190,536	Service provision, TSR 30~50%, Performance of the company and responsibilities 50~70%
Deferred grant in 2015		—		33,050
Deferred grant in 2016		—		110,967
Deferred grant in 2017		—		139,697

				685,039

¹	Granted shares in relation to Series 69, 71 ~ 74 represent the total number of shares granted to directors and employees but not vested at the end of reporting period. The number of deferred grants represents residual shares that have been vested at the end of reporting period.

²	Certain percentages among the granted shares are deferred for over three years to five years from the time of initial exercising.

Details of share grants linked to short-term performance as at December 31, 2018, are as follows:


Share grants¹	Grant date		Number of vested shares		Vesting conditions
Granted shares for 2015		2015.01.01		58,366	Vested
Granted shares for 2016		2016.01.01		83,794	Vested
Granted shares for 2017		2017.01.01		80,331	Vested
Granted shares for 2018		2018.01.01		109,871	Proportion to service period

¹	Options are given to the executives and employees during the year for deferred payment schedule (after the retirement date), payment proportion and payment period. Due to these given options, the deferred payment period might be a maximum of five years after the retirement date.

142

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Share grants are measured at fair value using the MonteCarlo Simulation Model and assumptions used in determining the fair value as at December 31, 2018, are as follows:

(In Korean won)

Expected
exercise period
(Years)

Risk free rate
(%)

Fair value
(Market
performance
condition)

Fair value
(Non-market
performance
condition)

Linked to long-term performance

Series 69

0.00~5.00

1.75

40,224~47,153

Series 71

1.00~4.00

1.75

41,473~45,236

Series 72

1.00~4.00

1.75

41,473~45,236

Series 73

0.89~3.89

1.75

41,614~45,382

Series 74

1.00~6.00

1.75

38,510~44,580

39,077~45,236

Grant deferred in 2015

0.00~3.00

1.75

—

42,682~47,153

Grant deferred in 2016

0.00~5.00

1.75

—

40,224~47,153

Grant deferred in 2017

0.00~4.00

1.75

—

41,473~47,153

Linked to short-term performance

Share granted in 2015

0.00~5.00

1.75

—

40,224~47,153

Share granted in 2016

0.00~6.00

1.75

—

39,077~47,153

Share granted in 2017

0.00~6.00

1.75

—

39,077~47,153

Share granted in 2018

1.00~6.00

1.75

—

39,077~45,236

As at December 31, 2018 and 2017, the accrued expenses related to share-based payments including share grants, amounted to W 40,873 million and W 58,897 million, respectively, and the compensation costs from share grants amounting to W 4,051 million and W 33,148 million were incurred during the years ended December 31, 2018 and 2017, respectively.

143

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

30.2.2 Mileage Stock

Details of Mileage Stock as at December 31, 2018, are as follows:


(In number of shares)	Grant date		Number of granted shares¹		Expected exercise period (Years)¹		Number of exercisable shares²
Share granted in 2016		2016.01.23		33,829		0.00~0.06		12,334
		2016.04.29		60		0.00~0.33		21
		2016.07.07		280		0.00~0.52		62
		2016.07.18		767		0.00~0.55		—
		2016.08.03		107		0.00~0.59		38
		2016.08.17		51		0.00~0.63		23
		2016.08.30		256		0.00~0.66		168
		2016.09.06		206		0.00~0.68		103
		2016.10.07		105		0.00~0.77		69
		2016.11.01		118		0.00~0.84		24
		2016.12.07		211		0.00~0.93		96
		2016.12.08		43		0.00~0.94		32
		2016.12.15		12		0.00~0.96		12
		2016.12.20		309		0.00~0.97		169
		2016.12.28		76		0.00~0.99		40
		2016.12.30		210		0.00~1.00		79
Share granted in 2017		2017.01.09		28,925		0.00~1.02		13,198
		2017.02.03		43		0.00~1.09		28
		2017.04.03		82		0.00~1.25		61
		2017.05.22		20		0.00~1.39		20
		2017.07.03		52		0.00~1.50		52
		2017.08.07		29		0.00~1.60		19
		2017.08.08		5		0.00~1.60		2
		2017.08.16		204		0.00~1.62		166
		2017.08.17		40		0.00~1.63		32
		2017.08.24		387		0.00~1.65		323
		2017.09.08		82		0.00~1.69		73
		2017.10.20		9		0.00~1.80		—
		2017.11.01		120		0.00~1.84		103
		2017.11.06		106		0.00~1.85		106
		2017.12.06		105		0.00~1.93		91
		2017.12.26		254		0.00~1.99		215
		2017.12.29		114		0.00~1.99		98
Share granted in 2018		2018.01.10		19,197		0.00~2.03		18,663
		2018.02.12		9		0.00~2.12		9
		2018.04.02		115		0.00~2.25		115
		2018.04.30		86		0.00~2.33		86
		2018.05.08		170		0.00~2.35		166
		2018.06.01		140		0.00~2.42		140
		2018.07.02		180		0.00~2.50		180
		2018.08.07		194		0.00~2.60		194
		2018.08.09		47		0.00~2.61		47
		2018.08.14		30		0.00~2.62		30

144

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


2018.08.16	130	0.00~2.62	130
2018.09.07	106	0.00~2.68	106
2018.10.04	129	0.00~2.76	129
2018.11.01	258	0.00~2.84	258
2018.11.06	236	0.00~2.85	236
2018.12.04	21	0.00~2.93	21
2018.12.07	91	0.00~2.93	91
2018.12.03	132	0.00~2.92	132
2018.12.12	64	0.00~2.95	64
2018.12.18	271	0.00~2.96	271
2018.12.19	42	0.00~2.97	42
2018.12.31	127	0.00~3.00	127

	88,992		49,094

Mileage stock is exercisable for two years after one year from the grant date. When the mileage stock is exercised, the closing price of prior month is applied. However, in case of transfer or retirement during the vesting period, mileage stock is exercisable at the closing price of the last month prior to transfer or retirement.

²	The exercisable shares are assessed based on the stock price as at December 31, 2018. These shares are vested immediately at grant date.

The accrued expenses for share-based payments in regard to mileage stock as at December 31, 2018 and 2017, are W2,283 million and W 2,973 million, respectively. The compensation costs amounting to W1,350 million and W 2,378 million were recognized as an expense for the years ended December 31, 2018 and 2017, respectively.

31. Non-operating Income and Expenses

Details of non-operating income and expenses for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Non-operating income
Gains on disposal in property and equipment and assets held for sale		120,137		58,895
Rental income		8,934		8,067
Dividend income from associates and subsidiaries		78,206		156,433
Others		20,762		45,220

		228,039		268,615

Non-operating expenses
Losses on disposal in property and equipment and assets held for sale		5,590		2,581
Donation		91,943		39,752
Restoration cost		1,854		3,323
Others		87,285		177,194

		186,672		222,850

Net non-operating income (expenses)		41,367		45,765

145

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

32. Income Tax Expense

Income tax expense the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018
Tax payable
Current tax expense		798,523
Adjustments recognized in the period for current tax of prior years		(4,856	)

		793,667

Changes in deferred income tax assets (liabilities)		28,276

Income tax expense of overseas branches		6,863

Income tax recognized directly in equity
Net losses on debt instruments at fair value through other comprehensive income		(21,618	)
Remeasurements of net defined benefit liabilities		36,336
Net gains on equity instruments at fair value through other comprehensive income		13,660
Cash flow hedges		(1,437	)
Reclassification of sale of securities at fair value through other comprehensive income		(5,172	)

		26,941

Consolidated tax effect		(31,431	)

Tax expense		819,144


(In millions of Korean won)	2017
Tax payable
Current tax expense		344,761
Adjustments recognized in the period for current tax of prior years		(19,160	)

		325,601

Changes in deferred income tax assets (liabilities)		213,381

Income tax expense of overseas branches		4,721

Income tax recognized directly in equity
Changes in value of available-for-sale financial assets		(89,362	)
Remeasurements of net defined benefit liabilities		(4,526	)
Cash flow hedges		(2,833	)

		(96,721	)

Consolidated tax effect		(19,347	)

Tax expense		427,635

The Bank did not recognize deferred income tax assets regarding the loss on valuation of JSC Bank Center Credit’s shares due to the low possibility of the disposal of its shares. Notwithstanding, the Bank recognized W172,475 million as the reduction of income tax expenses since the sale of its shares was completed during the year ended December 31, 2017.

146

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

An analysis of the net profit before income tax and income tax expense for the years ended December 31, 2018 and 2017, follows:


(In millions of Korean won)	2018			2017
Profit before income tax		3,058,461			2,690,551

Tax at the applicable tax rate¹		830,745			650,684
Non-taxable income		(2,967	)		(189,687	)
Non-deductible expense		12,964			8,992
Tax credit and tax exemption		(275	)		(296	)
Temporary difference for which no deferred tax is recognized		1,112			1,166
Tax supplementary pay (rebate) for tax of prior years		(2,771	)		(8,334	)
Income tax expense of overseas branch		6,863			4,721
Effect of tax rate change		—			(22,051	)
Consolidated tax effect		(31,431	)		(19,347	)
Others		4,904			1,787

Tax expense		819,144			427,635

Tax expense / Profit before income tax (%)		26.78			15.89

Details of current tax liabilities (income tax payables) and current tax assets (income tax refund receivables) before offsetting, as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Tax payables after offsetting^{1, 2}		622,155			231,383
Adjustment on consolidated tax payable and others³		(31,431	)		(19,347	)
Accounts payables⁴		(586,699	)		(209,533	)

Current tax payable		4,025			2,503

¹	Excludes current tax assets of W 486 million (December 31, 2017: W 486 million) from uncertain tax position, which do not qualify for offsetting.

²	Includes income tax payable of W 4,025 million (December 31, 2017: W 2,503 million) under current tax liabilities as at December 31, 2018, which are not to be offset against any income tax refund receivables, such as those of overseas branches.

³	Tax expense reduced due to the adoption of consolidated tax return was recognized as tax benefit.

⁴	The amount of income tax payable by the Bank is reclassified as accounts payable, not to the tax authority, but to KB Financial Group Inc. due to the adoption of consolidated tax return.

147

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

33. Dividends

The dividend to the shareholder of the Bank in respect of the year ended December 31, 2018, of W1,650 per share, amounting to total dividends of W667,226 million, is to be proposed at the annual general shareholder’s meeting on March 21, 2019. The Bank’s financial statements as at December 31, 2018, do not reflect this dividend payable.

34. Accumulated Other Comprehensive Income

Details of accumulated other comprehensive income for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Beginning¹			Changes (excluding reclassification)			Reclassification to profit or loss			Tax effect			Transfer to retained earnings			Others		Ending
Remeasurements of net defined benefit liabilities		(79,902	)		(132,132	)		—			36,336			—			—		(175,698	)
Currency translation differences		3,017			856			—			—			—			—		3,873
Net gains (losses) on debt instruments at fair value through other comprehensive income		(35,344	)		72,021			6,455			(21,618	)		—			134		21,648
Net gains (losses) on equity instruments at fair value through other comprehensive income		351,065			(30,863	)		—			13,660			(18,810	)		—		315,052
Gains(losses) on cash flow hedging instruments		7,751			6,980			(1,755	)		(1,437	)		—			—		11,539

		246,587			(83,138	)		4,700			26,941			(18,810	)		134		176,414

¹	Restated based on Korean IFRS 1109.


	2017
(In millions of Korean won)	Beginning			Changes (excluding reclassification)			Reclassification to profit or loss			Tax effect			Ending
Remeasurements of net defined benefit liabilities		(94,079	)		18,703			—			(4,526	)		(79,902	)
Currency translation differences		4,320			(2,886	)		—			—			1,434
Gains (losses) on valuation of available-for-sale financial assets		690,259			169,575			46,101			(89,362	)		816,573
Gains (losses) on cash flow hedging instruments		337			10,691			(444	)		(2,833	)		7,751

		600,837			196,083			45,657			(96,721	)		745,856

148

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

35. Trust Accounts

Financial information of the trust segments the Bank manages as at December 31, 2018 and 2017, and for years ended December 31, 2018 and 2017, are as follows:


	Total assets				Operating revenues
(In millions of Korean won)	2018		2017		2018		2017
Consolidated		4,259,441		4,148,600		127,994		110,487
Unconsolidated		47,644,193		43,256,371		1,609,587		2,590,728

		51,903,634		47,404,971		1,737,581		2,701,215

Financial information of the trust accounts are not based on Korean IFRS; it has been prepared in accordance with the Statement of Korea Accounting Standard 5004, Trust Accounts and enforcement regulations of Financial Investment Services under the Financial Investment Services and Capital Markets Act.

Significant receivables and payables related to the Bank’s trust accounts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
	Assets
	Accrued trust fees		53,618		46,524
	Other accrued income		23,658		21,250

			77,276		67,774

Trust Segment	Liabilities
	Due to trust accounts		1,278,243		1,265,074
	Accrued interest on due to trust accounts		6,531		4,449
	Deposits		345,873		385,597
	Accrued interest on deposits		24,868		25,544

			1,655,515		1,680,664

	Assets
	Accrued trust fees		5,549		4,982

Custody Segment	Liabilities
	Due to trust accounts		4,124,955		3,861,677
	Accrued interest on due to trust accounts		4,280		3,408

			4,129,235		3,865,085

149

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Significant revenue and expenses related to the Bank’s trust accounts for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
	Revenues
	Fees and commissions from trust accounts		277,677		292,716
Trust Segment	Management fees and commissions from retirement pension		25,321		24,590
	Commissions from early termination in trust accounts		87		88

			303,085		317,394
	Expenses
	Interest expenses on due to trust accounts		20,742		17,560
	Interest expenses on deposits		21,389		29,005

			42,131		46,565
	Revenues
	Fees and commissions from trust accounts		28,216		25,261

Custody Segment	Expenses
	Interest expenses on due to trust accounts		43,613		28,504

As at December 31, 2018 and 2017, the carrying amounts of the trust accounts for which the Bank guarantees payment of principal or payment of principal and fixed rate of return are as follows:


(In millions of Korean won)		2018		2017
Trust accounts guaranteeing repayment of principal	Old age pension		1,791		1,955
	Personal pension		1,883,905		1,872,089
	Pension		2,218,351		2,115,220
	Retirement		9,705		10,979
	New personal pension		90,893		90,582
	New old age pension		4,801		5,325
	Retail		12,940		14,559
	Corporate		1,344		1,372
	Installment		18,025		19,789

			4,241,755		4,131,870

Trust accounts guaranteeing repayment of principal and fixed rate of return	Development money		17,594		16,639
	Unspecified monetary		92		91

			17,686		16,730

			4,259,441		4,148,600

150

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

¹	Trust account is not based on the K-IFRS, but is prepared in accordance with the Trust Accounts of Trustee; Financial Accounting Standards No.5004 and Regulations on Financial Investment Business under the Financial Investment Services and Capital Markets Act.

As at December 31, 2018 and 2017, there is no amount the Bank has to pay in relation to the management results of the trust accounts in accordance with the guarantees of payment of principal or payment of principal and fixed rate of return.

36. Supplemental Cash Flow Information

Cash and cash equivalents as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Cash		2,179,255			2,163,836
Checks with other banks		872,166			430,253
Due from Bank of Korea		8,911,607			8,981,665
Due from other financial institutions		1,450,752			3,052,685

		13,413,780			14,628,439

Restricted due from financial institutions		(9,005,204	)		(9,084,140	)
Due from financial institutions with original maturities over three months		—			(34,453	)

		(9,005,204	)		(9,118,593	)

		4,408,576			5,509,846

Significant non-cash transactions for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Decrease in loans due to the write-offs		526,134		650,419
Changes in accumulated other comprehensive income due to gains and losses on debt instruments at fair value through other comprehensive income		56,992		—
Changes in accumulated other comprehensive income due to valuation of financial investments		—		126,314
Changes in financial investments due to debt-for-equity swap		22,286		10,250

Cash inflows and outflows from income tax, interest and dividends for years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	Activities		2018		2017
Income tax paid		Operating		388,897		399,280
Interest received		Operating		9,995,892		8,564,606
Interest paid		Operating		3,390,941		2,818,781
Dividends received		Operating		173,812		259,188
Dividends paid		Financing		640,132		359,493

151

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Changes in liabilities arising from financial activities for the year ended December 31, 2018 are as follows:


(In millions of Korean won)
	Derivative financial instrument for hedging purposes¹			Debts			Debentures		Payables to trust accounts		Finance lease liabilities			Deposits for letter of guarantees and others			Total
Beginning		(3,659	)		15,854,911			18,167,498		5,126,752		1,642			340,866			39,488,010
Cash flow		(17,698	)		1,346,037			3,447,178		276,446		(11,242	)		(201,236	)		4,839,485
Lease newly acquired		—			—			—		—		17,555			—			17,555
Exchange differences		—			179,864			147,306		—		—			—			327,170
Changes in fair values		30,679			—			4,067		—		—			—			34,746
Changes from business combination		—			31,998			—		—		—			—			31,998
Other changes from non-cash transactions		5,321			(825	)		33,035		—		109			8,401			46,041

Ending		14,643			17,411,985			21,799,084		5,403,198		8,064			148,031			44,785,005

¹	Derivative financial instruments held for hedging are shown at net amounts of liabilities and assets.

152

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

37. Contingent Liabilities and Commitments

Acceptances and guarantees as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Confirmed acceptances and guarantees
Confirmed acceptances and guarantees in Korean won
Acceptances and guarantees for KB purchasing loan		196,517		252,817
Others		597,636		530,272

		794,153		783,089

Confirmed acceptances and guarantees in foreign currencies
Acceptances of letter of credit		208,926		147,987
Letter of guarantees		53,210		60,853
Bid bond		51,528		46,984
Performance bond		604,311		563,506
Refund guarantees		592,925		778,779
Others		2,513,553		1,948,907

		4,024,453		3,547,016

Financial guarantees
Acceptances and guarantees for mortgage		50,497		57,445
Overseas debt guarantees		463,245		451,325
International financing guarantees in foreign currencies		110,070		46,953
Others		270,000		270,000

		893,812		825,723

		5,712,418		5,155,828

Unconfirmed acceptances and guarantees
Guarantees of letter of credit		1,744,612		2,250,439
Refund guarantees		686,843		384,958

		2,431,455		2,635,397

		8,143,873		7,791,225

153

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Guarantee exposure by credit ratings

The credit quality of the guarantees exposure as at December 31, 2018 can be categorized as follows:


	2018
	Financial instruments applying 12-month expected credit losses		Financial instruments applying lifetime expected credit losses				Total
(In millions of Korean won)			Non-impaired		Impaired		Total
Confirmed acceptances and guarantees¹
Grade 1		3,864,908		—		—		3,864,908
Grade 2		1,579,619		29,034		—		1,608,653
Grade 3		62,522		13,585		—		76,107
Grade 4		30,443		117,166		420		148,029
Grade 5		—		171		14,550		14,721

		5,537,492		159,956		14,970		5,712,418

Unconfirmed acceptances and guarantees¹
Grade 1		1,102,294		1,747		—		1,104,041
Grade 2		1,180,137		17,795		—		1,197,932
Grade 3		25,205		16,225		—		41,430
Grade 4		9,627		66,186		—		75,813
Grade 5		—		219		12,020		12,239

		2,317,263		102,172		12,020		2,431,455

		7,854,755		262,128		26,990		8,143,873

¹	Applied same criteria as the credit quality classification of loans.

Acceptances and guarantees by counterparty as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Large companies		4,914,524		1,901,767		6,816,291		83.70
Small and medium sized companies		603,874		423,947		1,027,821		12.62
Public and others		194,020		105,741		299,761		3.68

		5,712,418		2,431,455		8,143,873		100.00

154

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	2017
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Large companies		4,344,763		1,913,114		6,257,877		80.32
Small and medium sized companies		616,933		492,265		1,109,198		14.24
Public and others		194,132		230,018		424,150		5.44

		5,155,828		2,635,397		7,791,225		100.00

Acceptances and guarantees by industry as at December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Financial institutions		72,991		3,736		76,727		0.94
Manufacturing		3,085,119		1,450,929		4,536,048		55.70
Service		951,988		84,586		1,036,574		12.73
Wholesale and retail		998,333		723,367		1,721,700		21.14
Construction		280,146		40,988		321,134		3.94
Public		165,571		36,256		201,827		2.48
Others		158,270		91,593		249,863		3.07

		5,712,418		2,431,455		8,143,873		100.00


	2017
(In millions of Korean won)	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
Financial institutions		24,783		7,353		32,136		0.41
Manufacturing		2,893,858		1,270,655		4,164,513		53.45
Service		683,674		100,004		783,678		10.06
Wholesale and retail		957,097		837,193		1,794,290		23.03
Construction		334,994		198,996		533,990		6.85
Public		165,249		129,944		295,193		3.79
Others		96,173		91,252		187,425		2.41

		5,155,828		2,635,397		7,791,225		100.00

155

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Commitments as at December 31, 2018 and 2017, are as follows:



(In millions of Korean won)	2018		2017
Commitments
Corporate loan commitments		36,695,640		32,534,513
Retail loan commitments		41,283,734		15,935,382
Other acceptance and guarantees in Korean won		1,300,000		1,000,000
Purchase of securities		1,858,405		1,315,125

		81,137,779		50,785,020

Financial Guarantees
Credit line		1,956,426		1,953,579
Purchase of securities		1,786,300		1,356,100

		3,742,726		3,309,679

		84,880,505		54,094,699

Other Matters (including litigation)

a) The Bank has filed 50 lawsuits (excluding minor lawsuits in relation to the collection or management of loans), as the plaintiff, involving aggregate claims of W 361,685 million, and faces 93 lawsuits as the defendant (excluding minor lawsuits in relation to the collection or management of loans) involving aggregate damages of W 205,557 million, which arose in the normal course of the business and are still pending as at December 31, 2018.

b) As at December 31, 2018, the Bank has entered into construction contracts amounting to W151,280 million related to the construction of integrated headquarter building and payments made up to December 31, 2018 amount to W7,605 million.

c) As at December 31, 2018, the Bank has entered into construction contracts amounting to W116,563 million related to the construction of integrated IT center, and payments made up to December 31, 2018 amount to W42,857 million.

d) The face values of the securities sold to general customers through tellers’ sale amount to W 372 million and W 372 million as at December 31, 2018 and 2017, respectively.

156

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

38. Subsidiaries

Details of subsidiaries as at December 31, 2018, are as follows:


Investor	Investee	Ownership (%)		Location	Industry
Kookmin Bank	Kookmin Bank Int’l Ltd.(London)¹		100.00	United Kingdom	Banking and foreign exchange transaction
Kookmin Bank	Kookmin Bank Cambodia PLC.		100.00	Cambodia	Banking and foreign exchange transaction
Kookmin Bank	Kookmin Bank (China) Ltd.		100.00	China	Banking and foreign exchange transaction
Kookmin Bank	KB Microfinance Myanmar Co., Ltd		100.00	Myanmar	Micro finance services
Kookmin Bank	Personal pension trust and 10 others²		—	Korea	Trust
Kookmin Bank	KL the 1st L.L.C. and 33 others³		—	Korea	Asset-backed securitization and others
Kookmin Bank	KB Wise Star Private Real Estate Feeder Fund 1⁴		86.00	Korea	Investment Trust
KB Wise Star Private Real Estate Feeder Fund 1	KB Star Office Private Real Estate Master Fund 2³		44.44	Korea	Investment Trust
Kookmin Bank	KB Multi-Asset Private Securities Fund S-1⁴		99.96	Korea	Investment Trust
Kookmin Bank	KB Multi-Asset Private Securities Fund P-1⁴		99.96	Korea	Investment Trust
KB Multi-Asset Private Securities Fund P-1(Bond Mixed)	KB Multi-Asset Private Securities Fund P-1(Bond Mixed)⁴		100.00	Korea	Investment Trust
Kookmin Bank	Samsung KODEX 10Y F-LKTB Inverse ETF(Bond-Derivatives)⁴		88.74	Korea	Investment Trust
Kookmin Bank	KB Haeorum Private Securities 83⁴		99.95	Korea	Investment Trust
Kookmin Bank	KB KBSTAR KTB 3Y Futures Inverse ETF⁴		61.56	Korea	Investment Trust
Kookmin Bank	Kiwoom Frontier Private placement fund 10[Bond]⁴		99.85	Korea	Investment Trust
Kookmin Bank	Tong Yang Safe Plus Qualified Private Trust S-8(Bond)⁴		99.93	Korea	Investment Trust
Kookmin Bank	Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1⁴		99.92	Korea	Investment Trust
Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1	Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1		100.00	Korea	Investment Trust
Kookmin Bank	NH-Amundi Global Private Securities Investment Trust 1(BOND)⁴		83.31	Korea	Investment Trust
Kookmin Bank	Meritz Private Real Estate fund No.9-2⁴		99.98	Korea	Investment Trust
Kookmin Bank	AIP US Red Private Real Estate Trust NO.10⁴		99.97	Korea	Investment Trust

The Bank converted Kookmin Bank Int’l Ltd.(London) into a London branch as at May 16, 2018, which is considered to be a merger transaction between subsidiaries under common control. The Bank accounted for the transaction by applying carrying amount method and measured the transferred assets and liabilities at carrying amounts included in the consolidated financial statements. The amounts of the transferred assets and liabilities resulting from the business combination were W 480,161 million and W 480,023 million, respectively as of the acquisition date.

157

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

²	The Bank controls the trust because it has power that determines the management performance over the trust, and is exposed to variable returns to absorb losses through the guarantees of payment of principal or payment of principal and fixed rate of return.

³	The Bank controls these investees because it is exposed to variable returns from its involvement with the investees, and has ability to affect those returns through its power, even though it holds less than a majority of the voting rights of the investees.

⁴	The Bank controls these investees because it is exposed to variable returns from its involvement with the investees, and has ability to affect those returns through its power.

The condensed financial information of major subsidiaries as at December 31, 2018 and 2017, and for the years ended December 31, 2018 and 2017, are as follows:


	2018
(In millions of Korean won)	Assets		Liabilities		Equity		Operating revenue		Profit (loss) for the period
Kookmin Bank Int’l Ltd. (London)		35,923		940		34,983		7,330		1,331
Kookmin Bank Hongkong Ltd.¹		—		—		—		5,716		5,434
Kookmin Bank Cambodia PLC.		197,135		104,328		92,807		10,307		1,621
Kookmin Bank (China) Ltd.		2,605,033		2,192,469		412,564		138,453		14,819
KB Microfinance Myanmar Co., Ltd		20,941		879		20,062		2,783		538
Personal pension trust and 10 others		4,284,440		4,173,488		110,952		144,767		3,966

¹	Liquidation was completed during the year ended December 31, 2018.


	2017
(In millions of Korean won)	Assets		Liabilities		Equity		Operating revenue		Profit (loss) for the period
Kookmin Bank Int’l Ltd. (London)		506,474		423,252		83,222		15,931		3,022
Kookmin Bank Hongkong Ltd.		22,866		—		22,866		—		(1,953	)
Kookmin Bank Cambodia PLC.		133,133		76,680		56,453		8,267		984
Kookmin Bank (China) Ltd.		2,007,154		1,606,434		400,720		70,142		1,118
KB Microfinance Myanmar Co., Ltd		10,372		400		9,972		623		(664	)
Personal pension trust and 10 others		4,162,200		4,055,204		106,996		111,187		4,825

158

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Nature of the risks associated with interests in consolidated structured entities

Terms of contractual arrangements that provide financial support to a consolidated structured entity are as follows:

•

The Bank provides the capital commitments of W 172,000 million to KB Wise Star Private Real Estate Feeder Fund 1^st , of which W 56,717 million has not been utilized and of W 55,894 million to Meritz Private Real Estate fund No.9-2, of which W 36,243 million has not been utilized. Based on the investment agreement, the Bank is subject to increase its investment upon the request of the asset management company or the agreement among existing investors.

•

The Bank has provided purchase commitment and grant of credit to the structured entities that are considered as subsidiaries. The Bank should purchase unsold commercial paper securities if there is a shortage of the investors for the commercial paper securities issued by the structured entity. If events causing the cessation of the issuance of commercial paper securities occur or if the structured entities become insolvent, the Bank should provide loans to the structured entities under certain conditions.


(In millions of Korean won)	2018
KL the 1st L.L.C.		50,132
KH the 2nd L.L.C.		40,988
KL the International 1st L.L.C.		30,280
Silver Investment 2nd Inc.		50,000
KL the 3rd L.L.C.		30,155
KH the 3rd L.L.C.		70,100
KBM the 1st L.L.C.		50,289
KY the 1st L.L.C.		24,035
KBC the 1st L.L.C.		35,104
KH the 4th L.L.C.		25,130
KDL the 1st L.L.C.		32,828
KB INO 1st L.L.C.		10,200
KBH the 1st L.L.C.		14,070
KBH the 2nd L.L.C.		20,187
LIIV FOR RENTAL 1st L.L.C.		32,200
HLD the 3rd L.L.C.		108,500
KB HUB the 1st L.L.C.		30,123
Leecheon Albatros L.L.C.		20,200
KBH the 3rd L.L.C.		40,167
KBC the 2nd L.L.C.		50,141
KLD the 1st L.L.C.		9,100
LOG the 3rd L.L.C.		24,300
KB Green 1st L.L.C.		52,672
KBL Incheon 1st L.L.C.		100,968
KB DTower 1st L.L.C.		50,017
KB Display 1st L.L.C.		100,382
KBL CC 1st L.L.C.		90,207
KB Alminium 1st L.L.C.		50,208
KB First Park L.L.C.		62,919
KB INO 2nd L.L.C.		50,049

159

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

•

The Bank provides the guarantees of payment of principal or principal and fixed rate of return, in case the operating results of the trusts are less than the guaranteed principal or principal and a fixed rate of return.

Changes in subsidiaries

39. Finance and Operating Leases

39.1 Finance Lease

The future minimum lease payments as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Net carrying amount of finance lease assets		26,083		17,768
Minimum lease payments
Within 1 year		5,824		1,660
1-5 years		2,406		—

		8,230		1,660

Present value of minimum lease payments
Within 1 year		5,716		1,642
1-5 years		2,349		—

		8,065		1,642

39.2 Operating Lease

39.2.1 The Bank as an Operating Lessee

The future minimum lease payments arising from the non-cancellable lease contracts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Minimum lease payments
Within 1 year		131,418			119,273
1-5 years		182,665			138,368
Over 5 years		16,675			34,128

		330,758			291,769

Minimum sublease payments		(2,323	)		(2,461	)

160

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

The lease payments reflected in profit or loss for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018			2017
Lease payments reflected in profit or loss
Minimum lease payments		156,181			154,383
Sublease payments		(1,769	)		(1,177	)

		154,412			153,206

39.2.2 The Bank as an Operating Lessor

The future minimum lease receipts arising from the non-cancellable lease contracts as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)	2018		2017
Minimum lease receipts
Within 1 year		4,464		4,322
1-5 years		2,322		2,471

		6,786		6,793

40. Related Party Transactions

Profit and loss arising from transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent
KB Financial Group Inc.	Fee and commission income		4,644		2,961
	Other operating income		—		110
	Other non-operating income		808		778
	Interest expense		5,178		3,151
	General and administrative expenses		778		671
Subsidiaries
Kookmin Bank Hongkong Ltd.¹	Reversal for credit losses		—		126
	Other non-operating income		—		2,326
Kookmin Bank Int’l Ltd. (London)	Interest income		1,068		4,295
	Fee and commission income		10		23
	Other non-operating income		131		303
Kookmin Bank Cambodia PLC.	Interest income		1,105		490
	Fee and commission income		14		13
	Other non-operating income		212		431
Kookmin Bank (China) Ltd.	Interest income		17,739		6,580
	Fee and commission income		119		98
KB Microfinance Myanmar Co.,Ltd.	Other non-operating income		77		80
Trust	Fee and commission income		18,508		11,970
	Interest expense		2,901		2,120
Securitization SPE	Interest expense		1		1
KB Wise Star Private Real Estate Feeder Fund 1st	Fee and commission income		17		15
	Interest expense		7		6

161

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Structured entities	Interest income	166	130
	Fee and commission income	9,026	6,808
	Gains on financial assets/liabilities at fair value through profit or loss	12,999	—
	Gains on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	2,500
	Interest expense	23	—
	Losses on financial assets/liabilities at fair value through profit or loss	595	—
	Losses on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	4,962
	Provision for credit losses	6	2
KB Multi-Asset Private Securities Fund (Bond Mixed-ETF)¹	Fee and commission income	53	40
KB Multi-Asset Private Securities Fund S-1(Bond Mixed)	Fee and commission income	37	13
KB Multi-Asset Private Securities Master Fund P-1(Bond Mixed)	Fee and commission income	36	9
	Gains on financial assets/liabilities at fair value through profit or loss	15,199	—
	Losses on financial assets/liabilities at fair value through profit or loss	7,103	—
	Losses on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	15,139
KB Haeoreum private securities investment trust 83(Bond)	Fee and commission income	91	5
Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1	Fee and commission income	25	—
NH-Amundi Global Private Securities Investment Trust 1(BOND)	Fee and commission income	3	—
Private Equity Fund¹	Interest income	—	162
	Fee and commission income	—	77
	Interest expense	—	9

162

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Parent’s subsidiaries
KB Asset Management Co., Ltd.	Fee and commission income	1,085	1,125
	Other non-operating income	4	3
	Interest expense	95	272
	General and administrative expenses	458	—
KB Real Estate Trust Co., Ltd.	Fee and commission income	134	114
	Other non-operating income	42	44
	Interest expense	197	160
	Fee and commission expense	2,282	1,577
KB Investment Co., Ltd.	Fee and commission income	23	36
	Interest expense	376	270
KB Credit Information Co., Ltd.	Fee and commission income	58	67
	Other non-operating income	205	231
	Interest expense	85	90
	Fee and commission expense	16,738	13,965
	General and administrative expenses	—	365
KB Data System Co., Ltd.	Fee and commission income	202	131
	Other non-operating income	98	95
	Interest expense	250	173
	General and administrative expenses	50,803	45,517
KB Life Insurance Co., Ltd.	Fee and commission income	12,471	14,418
	Gains on financial assets/liabilities at fair value through profit or loss	14,064	—
	Gains on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	1,302
	Other non-operating income	82	122
	Interest expense	8	9
	Fee and commission expense	12	5
	Losses on financial assets/liabilities at fair value through profit or loss	3,421	—
	Losses on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	10,779
	General and administrative expenses	1,582	1,793
KB Kookmin Card Co., Ltd.	Interest income	3,855	3,549
	Fee and commission income	211,328	236,355
	Gains on financial assets/liabilities at fair value through profit or loss	2,730	—
	Gains on financial assets/liabilities at fair value through profit or loss(under Korean IFRS 1039)	—	263

163

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	Reversal of credit losses	7	—
	Other non-operating income	983	1,003
	Interest expense	870	1,289
	Fee and commission expense	1,587	777
	Losses on financial assets/liabilities at fair value through profit or loss	400	—
	Losses on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	6,825
	Provision for credit losses	—	292
	General and administrative expenses	216	279
KB Savings Bank Co., Ltd.	Fee and commission income	379	273
	Other non-operating income	44	47
	Interest expense	2	7
	Fee and commission expense	24	—
KB Capital Co., Ltd.	Interest income	1,989	89
	Fee and commission income	2,311	1,264
	Other non-operating income	208	156
	Interest expense	1,138	247
	Fee and commission expense	61	—
	Other operating expense	5	—
	Provision for credit losses	163	105
	General and administrative expenses	16	—
KB Insurance Co., Ltd.	Interest income	45	53
	Fee and commission income	22,948	22,856
	Gains on financial instruments at fair value through profit or loss	24,999	—
	Gains on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	3,345
	Other non-operating income	363	280
	Interest expense	1,265	1,340
	Fee and commission expense	967	—
	Losses on financial instruments at fair value through profit or loss	4,328	—
	Losses on financial instruments at fair value through profit or loss (under Korean IFRS 1039)	—	53,165

164

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	Other operating expense	16	—
	General and administrative expenses	15,667	14,663
KB Securities Co., Ltd.	Interest income	459	56
	Fee and commission income	15,770	13,511
	Gains on financial assets/liabilities at fair value through profit or loss	8,583	—
	Gains on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	3,295
	Reversal of credit losses	—	123
	Other non-operating income	2,667	1,615
	Interest expense	3,771	2,910
	Fee and commission expense	957	291
	Losses on financial assets/liabilities at fair value through profit or loss	8,448	—
	Losses on financial assets/liabilities at fair value through profit or loss (under Korean IFRS 1039)	—	7,237
	Provision for credit losses	21	—
	General and administrative expenses	8,361	803
Hanbando BTL Private Special Asset Fund	Fee and commission income	160	170
KB Senior Loan Private Fund No.1	Fee and commission income	20	31
KB Evergreen Private Securities Fund 98(Bond)	Fee and commission income	5	—
KB AMP Infra Private Special Asset Fund 1(FoFs)	Fee and commission income	5	10
KB Onkookmin 2020 TDF Fund(FoFs)¹	Fee and commission income	1	1
KB Onkookmin 2025 TDF Fund(FoFs)¹	Fee and commission income	1	1
KB Onkookmin 2030 TDF Fund(FoFs)¹	Fee and commission income	1	1
KB Onkookmin 2035 TDF Fund(FoFs)	Fee and commission income	2	1
KB Onkookmin 2040 TDF Fund(FoFs)¹	Fee and commission income	1	1
KB Onkookmin 2045 TDF Fund(FoFs)	Fee and commission income	1	1
KB Onkookmin 2050 TDF Fund(FoFs)¹	Fee and commission income	1	1

165

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


KB Muni bond Private Securities Fund 1(USD)(bond)	Fee and commission income	10	2
KB Global Private Real Estate Debt Fund 1	Fee and commission income	5	—
KB Na Compass Energy Private Special Asset Fund	Fee and commission income	5	—
KB Star Office Private Real Estate Master Fund 3	Interest income	433	—
	Interest expense	48	—
KB Star Office Private Real Estate Master Fund 4	Interest income	396	—
	Fee and commission income	10	—
	Interest expense	13	—
KB Korea Short Term Premium Private Securities 5(USD)(Bond)	Fee and commission income	2	—
KB Global Core Bond Securities Master Fund(Bond)	Fee and commission income	2	—
Associates
Korea Credit Bureau Co., Ltd.	Fee and commission income	4	4
	Interest expense	127	132
	Fee and commission expense	1,486	1,439
Incheon Bridge Co., Ltd.	Interest income	9,426	25,511
	Fee and commission income	9	—
	Reversal of credit losses	—	43
	Interest expense	296	292
	Fee and commission expense	2	—
	Provision for credit losses	1	—
Jaeyang Industry Co., Ltd.	Interest income	—	98
	Reversal of credit losses	—	6
Dongjo Co., Ltd.	Reversal of credit losses	31	2
Dae-A Leisure Co., Ltd.	Interest expense	9	1
KB12-1 Venture Investment Partnership	Interest expense	24	18
Future Planning KB Start-up Creation Fund	Interest expense	18	—
KB High-tech Company Investment Fund	Interest expense	27	65
Aju Good Technology Venture Fund	Interest expense	30	14
KB-KDBC New Technology Business Investment Fund	Interest expense	39	4
KB Digital Innovation & Growth New Technology Business Investment Fund	Interest expense	7	—
KB-Brain KOSDAQ Scale-up Fund	Interest expense	21	—
Paroman Corporation¹	Reversal of credit losses	—	345
Associate of Subsidiary
KB Star Office Private Real Estate Investment Trust No.1	Interest expense	93	63

166

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Associates of parent’s subsidiaries
SY Auto Capital Co., Ltd.	Interest income	189	102
	Fee and commission income	1	—
	Reversal of credit losses	—	32
	Interest expense	—	22
	Provision for credit losses	14	—
KB No.8 Special Purpose Acquisition Company¹	Interest expense	17	36
KB No.9 Special Purpose Acquisition Company	Interest expense	43	33
KB No.10 Special Purpose Acquisition Company	Interest expense	30	24
KB No.11 Special Purpose Acquisition Company	Interest expense	12	—
RAND Bio Science Co., Ltd.	Interest expense	3	16
Wise Asset Management Co., Ltd.	Interest expense	9	5
Food Factory Co., Ltd.	Interest income	9	1
	Fee and commission expense	1	—
	Provision for credit losses	1	—
APRO CO.,LTD.	Interest expense	1	—
Rainist Co., Ltd.	Interest expense	2	—
Spark Biopharma Inc.	Interest expense	25	—
KB Pre IPO Secondary Venture Fund 1st	Interest expense	27	60
POSCO-KB Shipbuilding Fund	Interest expense	81	3
Kyobo 7 Special Purpose Acquisition Co., Ltd.¹	Interest expense	—	1
Inno Lending Co., Ltd.¹	Fee and commission income	1	3
	Interest expense	—	1
Other
Retirement pension	Fee and commission income	876	795
	Interest expense	3	3

¹	Not related parties of the Bank as at December 31, 2018

Details of receivables and payables, and related allowances for loan losses arising from the related party transactions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent
KB Financial Group Inc.	Other assets		4,545		2,837
	Deposits		69,621		46,062
	Other liabilities		643,010		283,610

167

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Subsidiaries
Kookmin Bank Hongkong Ltd.¹	Deposits	—	22,209
Kookmin Bank Int’l Ltd. (London)	Cash and due from financial institutions	—	5,292
	Loans at amortized cost (Gross amount)	—	332,051
	Other assets	580	9,568
	Debts	—	124,543
	Other liabilities	—	127
Kookmin Bank Cambodia PLC.	Cash and due from financial institutions	228	—
	Loans at amortized cost (Gross amount)	55,905	42,856
	Other assets	739	139
	Deposits	2,017	5,096
	Debts	—	1,342
	Other liabilities	19	42
Kookmin Bank (China) Ltd.	Cash and due from financial institutions	14,717	4,898
	Loans at amortized cost (Gross amount)	860,937	514,272
	Other assets	41,518	12,661
	Deposits	1,963	1,064
	Debts	248,398	173,892
	Other liabilities	210	1,236
KB Microfinance Myanmar Co., Ltd.	Other liabilities	10	12
Trust	Other assets	17,446	16,494
	Other liabilities	118,355	108,945
Securitization SPE	Deposits	1,310	1,323
KB Wise Star Private Real Estate Feeder Fund 1st	Other assets	5	4
	Deposits	413	405
	Other liabilities	2	2
Structured entities	Derivative assets	6,519	106
	Loans at amortized cost (Gross amount)	3,129	2,077
	Allowances	5	3
	Other assets	187	2
	Derivative liabilities	746	4,192
	Deposits	31,866	384
	Provisions	4	5
	Other liabilities	1,931	1,130
KB Multi-Asset Private Securities Fund 1 (Bond Mixed-FoFs)¹	Other assets	—	9
KB Multi-Asset Private Securities Fund S-1(Bond Mixed)	Other assets	4	4
KB Multi-Asset Private Securities Master Fund P-1(Bond Mixed)	Derivative liabilities	4,058	15,139

168

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


KB Haeoreum private securities investment trust 83(Bond)	Other assets	6	5
Mirae Asset Triumph Global Privately placed Feeder Investment Trust 1	Other assets	7	—
NH-Amundi Global Private Securities Investment Trust 1(BOND)	Other assets	3	—
Parent’s subsidiaries
KB Asset Management Co., Ltd.	Other assets	209	231
	Deposits	3,284	8,958
	Other liabilities	6	6
KB Real Estate Trust Co., Ltd.	Deposits	27,321	16,187
	Other liabilities	350	347
KB Investment Co., Ltd.	Deposits	20,784	19,816
	Other liabilities	17	62
KB Credit Information Co., Ltd.	Deposits	4,240	4,444
	Other liabilities	5,659	5,710
KB Data System Co., Ltd.	Other assets	322	319
	Deposits	18,059	15,036
	Other liabilities	4,397	4,788
KB Life Insurance Co., Ltd.	Derivative assets	270	—
	Other assets	1,827	562
	Derivative liabilities	1,197	6,580
	Deposits	1,576	372
	Other liabilities	507	556
KB Kookmin Card Co., Ltd.	Loans at amortized cost (Gross amount)	—	6,806
	Other assets	24,582	25,454
	Derivative liabilities	612	3,298
	Deposits	84,089	85,091
	Provisions	296	777
	Other liabilities	59,748	48,073
KB Savings Bank Co., Ltd.	Other assets	2	2
	Other liabilities	391	391
KB Capital Co., Ltd.	Loans at amortized cost (Gross amount)	54,787	19,285
	Allowances	227	105
	Other assets	574	89
	Deposits	64,283	73,906
	Other liabilities	57	45
KB Insurance Co., Ltd.	Derivative assets	7,034	—
	Other assets	12,143	7,183
	Derivative liabilities	5,265	22,818
	Deposits	2,745	2,941
	Debentures	30,002	49,981
	Other liabilities	1,929	2,146
KB Securities Co., Ltd.	Derivative assets	3,935	1,095

169

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	Loans at amortized cost (Gross amount)	25,617	4,346
	Allowances	21	—
	Other assets	8,644	2,267
	Derivative liabilities	1,412	1,481
	Deposits	334,470	436,508
	Provisions	37	97
	Other liabilities	15,473	11,769
Hanbando BTL Private Special Asset Fund	Other assets	39	42
KB Senior Loan Private Fund No.1	Other assets	3	6
KB AMP Infra Private Special Asset Fund 1(FoFs)	Other assets	1	—
KB Onkookmin 2025 TDF Fund(FoFs) ¹	Other assets	—	1
KB Onkookmin 2030 TDF Fund(FoFs) ¹	Other assets	—	1
KB Muni bond Private Securities Fund 1(USD)(Bond)	Other assets	2	2
KB Global Private Real Estate Debt Fund 1	Other assets	2	—
KB Na Compass Energy Private Special Asset Fund	Other assets	1	—
KB Star Office Private Real Estate Master Fund 3	Loans at amortized cost (Gross amount)	24,000	—
	Other assets	12	—
	Deposits	5,361	—
	Other liabilities	48	—
KB Star Office Private Real Estate Master Fund 4	Loans at amortized cost (Gross amount)	20,000	—
	Other assets	13	—
	Deposits	1,629	—
	Other liabilities	13	—
KB Korea Short Term Premium Private Securities 5(USD)(Bond)	Other assets	2	—
KB Global Core Bond Securities Master Fund(Bond)	Other assets	2	—
Associates
Korea Credit Bureau Co., Ltd.	Deposits	15,674	25,513
	Other liabilities	33	111
Incheon Bridge Co., Ltd.	Financial assets at fair value through profit or loss	32,882	—
	Loans at amortized cost (Gross amount)	158,200	200,400
	Allowances	14	287
	Other assets	736	710

170

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	Deposits	43,666	48,795
	Provisions	7	—
	Other liabilities	24	29
Terra Co., Ltd.	Deposits	—	10
Jungdong Steel Co., Ltd.	Deposits	—	3
Doosung Metal Co., Ltd.	Deposits	3	—
Jungdo Co., Ltd.	Deposits	4	4
Dongjo Co., Ltd.	Loans at amortized cost (Gross amount)	—	116
	Allowances	—	1
Dae-A Leisure Co., Ltd.	Deposits	1,229	466
	Other liabilities	7	14
Daesang Techlon Co., Ltd.¹	Deposits	—	2
Carlife Co., Ltd.	Deposits	2	—
Computerlife Co., Ltd.	Deposits	1	—
Skydigital INC.	Deposits	16	—
KB12-1 Venture Investment Partnership	Deposits	245	4,963
	Other liabilities	1	2
KB High-tech Company Investment Fund	Deposits	275	7,212
	Other liabilities	—	5
Aju Good Technology Venture Fund	Deposits	6,439	2,771
	Other liabilities	2	1
KB-KDBC New Technology Business Investment Fund	Deposits	7,088	7,500
	Other liabilities	3	4
KB Digital Innovation & Growth New Technology Business Investment Fund	Deposits	618	—
KB-Brain KOSDAQ Scale-up Fund	Deposits	18,813	—
	Other liabilities	7	—
Associate of Subsidiary
KB Star Office Private Real Estate Investment Trust No.1	Deposits	7,946	6,962
	Other liabilities	58	45

171

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Associates of parent’s subsidiaries
SY Auto Capital Co., Ltd.	Loans at amortized cost (Gross amount)	8,300	—
	Allowances	18	—
	Other assets	9	—
	Deposits	5	6
	Provisions	11	29
	Other liabilities	2	—
KB No.8 Special Purpose Acquisition Company ¹	Deposits	—	2,339
	Other liabilities	—	19
KB No.9 Special Purpose Acquisition Company	Deposits	2,275	2,309
	Other liabilities	42	38
KB No.10 Special Purpose Acquisition Company	Deposits	1,666	1,698
	Other liabilities	11	10
KB No.11 Special Purpose Acquisition Company	Deposits	658	530
	Other liabilities	2	—
RAND Bio Science Co., Ltd.	Deposits	232	1,032
	Other liabilities	—	4
Wise Asset Management Co., Ltd.	Deposits	696	340
	Other liabilities	2	1
Built On Co., Ltd.	Deposits	7	26
Food Factory Co., Ltd.	Loans at amortized cost (Gross amount)	200	200
	Allowances	1	—
	Other assets	1	1
	Deposits	68	1
Acts Co., Ltd.	Deposits	29	4
Paycoms Co., Ltd.	Deposits	1	—
Big Dipper Co., Ltd.	Deposits	182	473
APRO CO.,LTD.	Deposits	2,201	—
Rainist Co., Ltd.	Deposits	1	—
Spark Biopharma Inc.	Deposits	2,630	—
	Other liabilities	19	—
KB IGen Private Equity Fund No.1	Deposits	148	—
KB Pre IPO Secondary Venture Fund 1st	Deposits	1,115	2,690
	Other liabilities	1	6
Inno Lending Co., Ltd.¹	Deposits	—	41
Key management	Loans at amortized cost (Gross amount)	2,218	1,619
	Other assets	2	2
	Deposits	8,119	6,179
	Other liabilities	37	34
Other
Retirement pension	Other assets	331	348
	Other liabilities	16,388	4,286

172

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

¹	Not considered to be the Bank’s related party as at December 31, 2018.

Notional amount of derivative assets and liabilities arising from the related party transactions as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Subsidiaries
KL the 1st L.L.C.	Notional amount of Derivative financial instruments		50,000		50,000
KH the 2nd L.L.C	Notional amount of Derivative financial instruments		40,000		40,000
Silver Investment 2nd Inc.	Notional amount of Derivative financial instruments		50,000		50,000
KL International the 1st L.L.C.	Notional amount of Derivative financial instruments		30,000		40,000
KL the 3rd L.L.C.	Notional amount of Derivative financial instruments		30,000		30,000
KBM the 1st L.L.C.	Notional amount of Derivative financial instruments		50,000		50,000
KY the 1st L.L.C.	Notional amount of Derivative financial instruments		24,000		24,000
KH the 3rd L.L.C.	Notional amount of Derivative financial instruments		70,000		70,000
KBC the 1st L.L.C.	Notional amount of Derivative financial instruments		35,000		35,000
KH the 4th L.L.C.	Notional amount of Derivative financial instruments		25,000		25,000
KDL the 1st L.L.C.	Notional amount of Derivative financial instruments		29,000		43,000
KL Food the 1st L.L.C.¹	Notional amount of Derivative financial instruments		—		50,000
KBH the 1st L.L.C.	Notional amount of Derivative financial instruments		12,500		18,500
KBH the 2nd L.L.C.	Notional amount of Derivative financial instruments		18,000		26,000
KB INO 1st L.L.C.	Notional amount of Derivative financial instruments		10,000		40,000
LIIV FOR RENTAL 1st L.L.C.	Notional amount of Derivative financial instruments		24,000		60,000
HLD the 3rd L.L.C.	Notional amount of Derivative financial instruments		109,200		106,100
Leecheon Albatros L.L.C	Notional amount of Derivative financial instruments		20,000		30,000
KB HUB the 1st L.L.C.	Notional amount of Derivative financial instruments		30,000		30,000
KBH the 3rd L.L.C.	Notional amount of Derivative financial instruments		40,000		50,000
KBC the 2nd L.L.C.	Notional amount of Derivative financial instruments		50,000		50,000

173

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


KLD 1st L.L.C.	Notional amount of Derivative financial instruments	9,300	8,100
LOG the 3rd L.L.C.	Notional amount of Derivative financial instruments	24,300	24,300
KB Green 1st L.L.C.	Notional amount of Derivative financial instruments	52,500	35,000
KB Multi-Asset Private Securities Master Fund P-1(Bond Mixed)	Notional amount of Derivative financial instruments	231,447	219,637
KBL Incheon 1st L.L.C.	Notional amount of Derivative financial instruments	100,000	—
KB DTower 1st L.L.C.	Notional amount of Derivative financial instruments	50,000	—
KB Display 1st L.L.C.	Notional amount of Derivative financial instruments	100,000	—
KBL CC 1st L.L.C.	Notional amount of Derivative financial instruments	90,000	—
KB Alminium 1st L.L.C.	Notional amount of Derivative financial instruments	50,000	—
KB INO 2nd L.L.C.	Notional amount of Derivative financial instruments	50,000	—
Parent’s subsidiaries
KB Life Insurance Co., Ltd.	Notional amount of Derivative financial instruments	252,213	155,567
KB Kookmin Card Co., Ltd.	Notional amount of Derivative financial instruments	62,611	79,106
KB Insurance Co., Ltd.	Notional amount of Derivative financial instruments	1,127,722	491,133
KB Securities Co., Ltd.	Notional amount of Derivative financial instruments	393,515	151,204

In accordance with Korean IFRS 1024, the Bank includes the parent, subsidiaries, the parent’s subsidiaries, associates, associates of the parent’s subsidiaries, key management (including family members), and post-employment benefit plans of the Bank and entities regarded as its related parties in the scope of its related parties. Additionally, the Bank discloses balances (receivables and payables) and other amounts arising from the related party transactions in the notes to the separate financial statements. Refer to Note 13 for details on investments in associates and subsidiaries.

Key management includes the directors of the Bank and the executive directors (vice-presidents and above) of the Bank and companies where the directors and/or their close family members have control or joint control.

174

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Significant loan transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:


	2018 ¹
(In millions of Korean won)	Beginning		Loans		Repayments		Others			Ending
Subsidiaries
Kookmin Bank Int’l Ltd. (London)		332,051		42,853		226,989		(147,915	)		—
Kookmin Bank Cambodia PLC.		42,856		55,577		43,903		1,375			55,905
Kookmin Bank (China) Ltd.		514,272		1,206,165		885,046		25,546			860,937
Structured entities²		2,077		19,162		18,110		—			3,129
Parent’s subsidiaries
KB Securities Co., Ltd.		4,346		1,369,958		1,348,687		—			25,617
KB Kookmin Card Co., Ltd.		6,806		161,281		168,087		—			—
KB Capital Co., Ltd.		19,285		33,711		—		1,791			54,787
KB Star Office Private Real Estate Master Fund 3		—		24,000		—		—			24,000
KB Star Office Private Real Estate Master Fund 4		—		20,000		—		—			20,000
Associate
Incheon Bridge Co., Ltd.		203,126		—		14,700		2,656			191,082
Dongjo Co., Ltd		116		—		116		—			—
Associate of parent’s subsidiary
SY Auto Capital Co., Ltd.		—		50,053		41,753		—			8,300
Food Factory Co., Ltd		200		—		—		—			200
Key management^5,6		1,619		108		836		1,327			2,218


	2017 ¹
(In millions of Korean won)	Beginning		Loans		Repayments		Others			Ending
Subsidiaries
Kookmin Bank Hongkong Ltd.		326,295		—		—		(326,295	)		—
Kookmin Bank Int’l Ltd. (London)		349,270		596,162		584,072		(29,309	)		332,051
Kookmin Bank Cambodia PLC.		24,170		44,481		22,296		(3,499	)		42,856
Kookmin Bank (China) Ltd.		386,720		608,412		428,423		(52,437	)		514,272
Private equity fund³		47,100		—		47,100		—			—
Structured entities⁴		3,084		13,928		14,871		(64	)		2,077
Parent’s subsidiaries
KB Securities Co., Ltd.		—		1,534,202		1,529,856		—			4,346
KB Kookmin Card Co., Ltd.		—		157,871		151,065		—			6,806
KB Capital Co., Ltd.		—		19,285		—		—			19,285
Associate
Incheon Bridge Co., Ltd.		209,094		202,500		211,194		—			200,400
Dongjo Co., Ltd		—		—		130		246			116
Jaeyang Industry Co., Ltd.		303		—		290		(13	)		—
Associate of parent’s subsidiary
SY Auto Capital Co., Ltd.		10,000		24,031		34,031		—			—
Food Factory Co., Ltd.		—		200		—		—			200

175

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

¹	Transactions between related parties, such as settlements arising from operating activities and daylight overdraft to be repaid on the day of handling, are excluded.

²	Includes details of KL Food the 1st L.L.C. that are excluded from related parties.

³	Not considered to be the Bank’s related party as at December 31, 2018.

⁴	Includes details of KBY the 1st L.L.C. that are excluded from related parties.

⁵	Includes details of loan transactions that occurred before they became related parties.

⁶	Represents the transactions that have started occurring since the current year.

Significant borrowing transactions with related parties for the years ended December 31, 2018 and 2017, are as follows:


		2018
(In millions of Korean won)		Beginning		Increase		Decrease		Others¹			Ending
Parent’s subsidiaries
KB Financial Group Inc..	Deposits		46,062		1,555,000		1,495,000		(36,441	)		69,621
Subsidiaries
Kookmin Bank Hongkong Ltd.²	Deposits		22,209		—		—		(22,209	)		—
Kookmin Bank Int’l Ltd. (London)	Deposits		124,543		—		—		(124,543	)		—
Kookmin Bank Cambodia PLC.	Deposits		5,096		—		—		(3,079	)		2,017
	Debts		1,342						(1,342	)		—
Kookmin Bank (China) Ltd.	Deposits		1,064		—		—		899			1,963
	Debts		173,892						74,506			248,398
Securitization SPE	Deposits		1,323		—		—		(13	)		1,310
KB Wise Star Private Real Estate Feeder Fund 1st	Deposits		405		8		—		—			413
Structured entities	Deposits		384		—		—		31,482			31,866
Parent’s subsidiaries
KB Asset Management Co., Ltd.	Deposits		8,958		—		—		(5,674	)		3,284
KB Real Estate Trust Co., Ltd.	Deposits		16,187		—		—		11,134			27,321
KB Investment Co., Ltd.	Deposits		19,816		56,200		68,200		12,968			20,784
KB Credit Information Co., Ltd.	Deposits		4,444		1,569		1,409		(364	)		4,240
KB Data System Co., Ltd.	Deposits		15,036		11,500		10,700		2,223			18,059
KB Life Insurance Co., Ltd.	Deposits		372		—		—		1,204			1,576
KB Kookmin Card Co., Ltd.	Deposits		85,091		22,000		22,000		(1,002	)		84,089
KB Capital Co., Ltd.	Deposits		73,906		—		—		(9,623	)		64,283
KB Insurance Co., Ltd.	Deposits		2,941		—		—		(196	)		2,745

176

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


	Debentures	49,981	—	—	(19,979	)	30,002
KB Securities Co., Ltd.	Deposits	436,508	111,996	82,512	(131,522	)	334,470
KB Star Office Private Real Estate Master Fund 3	Deposits	—	5,361	—	—		5,361
KB Star Office Private Real Estate Master Fund 4	Deposits	—	1,629	—	—		1,629
Associates
Korea Credit Bureau Co., Ltd.	Deposits	25,513	8,000	16,000	(1,839	)	15,674
Incheon Bridge Co., Ltd.	Deposits	48,795	1,260	1,270	(5,119	)	43,666
Terra Co., Ltd.	Deposits	10	—	—	(10	)	—
Jungdong Steel Co., Ltd.	Deposits	3	—	—	(3	)	—
Doosung Metal Co., Ltd.	Deposits	—	—	—	3		3
Jungdo Co., Ltd.	Deposits	4	—	—	—		4
Dae-A Leisure Co., Ltd.	Deposits	466	479	466	750		1,229
Daesang Techlon Co., Ltd.²	Deposits	2	—	—	(2	)	—
Carlife Co., Ltd.	Deposits	—	—	—	2		2
Computerlife Co., Ltd.	Deposits	—	—	—	1		1
Skydigital INC.	Deposits	—	—	—	16		16
KB12-1 Venture Investment Partnership	Deposits	4,963	—	—	(4,718	)	245
Future Planning KB Start-up Creation Fund	Deposits	—	9,000	9,000	—		—
KB High-tech Company Investment Fund	Deposits	7,212	—	—	(6,937	)	275
Aju Good Technology Venture Fund	Deposits	2,771	—	—	3,668		6,439
KB-KDBC New Technology Business Investment Fund	Deposits	7,500	—	—	(412	)	7,088
KB Digital Innovation & Growth New Technology Business Investment Fund	Deposits	—	—	—	618		618
KB-Brain KOSDAQ Scale-up Fund	Deposits	—	—	—	18,813		18,813
Associate of Subsidiary
KB Star Office Private Real Estate Investment Trust No.1	Deposits	6,962	351	—	633		7,946
Associates of parent’s subsidiaries
SY Auto Capital Co., Ltd.	Deposits	6	—	—	(1	)	5
KB No.8 Special Purpose Acquisition Company 1²	Deposits	2,339	—	2,300	(39	)	—

177

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


KB No.9 Special Purpose Acquisition Company	Deposits		2,309		2,266		2,234		(66	)		2,275
KB No.10 Special Purpose Acquisition Company	Deposits		1,698		1,618		1,618		(32	)		1,666
KB No.11 Special Purpose Acquisition Company	Deposits		530		530		530		128			658
RAND Bio Science Co., Ltd.	Deposits		1,032		—		500		(300	)		232
Wise Asset Management Co., Ltd.	Deposits		340		2,366		2,008		(2	)		696
Built On Co., Ltd.	Deposits		26		—		—		(19	)		7
Food Factory Co., Ltd.	Deposits		1		—		—		67			68
Acts Co., Ltd.	Deposits		4		—		—		25			29
Paycoms Co., Ltd.	Deposits		—		—		—		1			1
Big Dipper Co., Ltd.	Deposits		473		—		—		(291	)		182
APRO CO.,LTD.	Deposits		—		—		—		2,201			2,201
Rainist Co., Ltd.	Deposits		—		—		—		1			1
Spark Biopharma Inc.	Deposits		—		4,300		3,300		1,630			2,630
KB IGen Private Equity Fund No. 1	Deposits		—		—		—		148			148
KB Pre IPO Secondary Venture Fund 1st	Deposits		2,690		2,000		4,000		425			1,115
POSCO-KB Shipbuilding Fund	Deposits		—		32,800		32,800		—			—
Inno Lending Co., Ltd.²	Deposits		41		—		—		(41	)		—
Key management³	Deposits		6,179		6,605		5,140		475			8,119

		2017¹
(In millions of Korean won)		Beginning		Increase		Decrease		Others			Ending
Parent’s subsidiaries
KB Financial Group Inc.	Deposits		57,967		—		—		(11,905	)		46,062
Subsidiaries
Kookmin Bank Hongkong Ltd.²	Deposits		—		—		—		22,209			22,209
	Debts		260,507		—		—		(260,507	)		—
Kookmin Bank Int’l Ltd. (London)	Debts		149,930		—		—		(25,387	)		124,543
Kookmin Bank Cambodia PLC.	Deposits		4,833		—		—		263			5,096
	Debts		4,569		—		—		(3,227	)		1,342
Kookmin Bank (China) Ltd.	Deposits		3,672		—		—		(2,608	)		1,064
	Debts		211,544		—		—		(37,652	)		173,892
Securitization SPE	Deposits		1,296		—		—		27			1,323
KB Wise Star Private Real Estate Feeder Fund 1st	Deposits		397		8		—		—			405
Private equity fund²	Deposits		776		—		—		(776	)		—
Structured entities	Deposits		128		—		—		256			384

178

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Parent’s subsidiaries
KB Asset Management Co., Ltd.	Deposits	73,279	—	65,000	679		8,958
KB Real Estate Trust Co., Ltd.	Deposits	21,211	—	10,000	4,976		16,187
KB Investment Co., Ltd.	Deposits	23,954	49,000	48,537	(4,601	)	19,816
KB Credit Information Co., Ltd.	Deposits	3,465	1,819	2,399	1,559		4,444
KB Data System Co., Ltd.	Deposits	10,926	10,700	7,000	410		15,036
KB Life Insurance Co., Ltd.	Deposits	700	—	—	(328	)	372
KB Kookmin Card Co., Ltd.	Deposits	160,002	22,000	22,000	(74,911	)	85,091
KB Capital Co., Ltd.	Deposits	9,075	—	—	64,831		73,906
KB Insurance Co., Ltd.	Deposits	2,951	—	—	(10	)	2,941
	Debenture	—	—	—	49,981		49,981
KB Securities Co., Ltd.	Deposits	116,893	242,085	135,000	212,530		436,508
	Debenture	300	—	—	(300	)	—
Associates
Korea Credit Bureau Co., Ltd.	Deposits	26,827	11,000	6,000	(6,314	)	25,513
Incheon Bridge Co., Ltd.	Deposits	38,556	1,270	21,270	30,239		48,795
Terra Co., Ltd.	Deposits	—	—	—	10		10
Jungdong Steel Co., Ltd.	Deposits	3	—	—	—		3
Jungdo Co., Ltd.	Deposits	—	—	—	4		4
Dae-A Leisure Co., Ltd.	Deposits	—	—	—	466		466
Daesang Techlon Co., Ltd.²	Deposits	—	—	—	2		2
KB12-1 Venture Investment Partnership	Deposits	4,562	4,000	4,000	401		4,963
KB High-tech Company Investment Fund	Deposits	4,643	3,000	3,000	2,569		7,212
Aju Good Technology Venture Fund	Deposits	1,201	—	—	1,570		2,771
KB-KDBC New Technology Business Investment Fund	Deposits	—	—	—	7,500		7,500
EJADE Co., Ltd.²	Deposits	2	—	—	(2	)	—
Associate of Subsidiary
KB Star Office Private Real Estate Investment Trust No.1	Deposits	6,682	303	—	(23	)	6,962
Associates of parent’s subsidiaries
KB No.8 Special Purpose Acquisition Company 1²	Deposits	2,342	2,300	2,300	(3	)	2,339
KB No.9 Special Purpose Acquisition Company	Deposits	2,399	—	100	10		2,309
KB No.10 Special Purpose Acquisition Company	Deposits	1,754	1,618	1,600	(74	)	1,698

179

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


KB No.11 Special Purpose Acquisition Company	Deposits	—	530	—	—		530
SY Auto Capital Co., Ltd.	Deposits	3,997	2,000	2,000	(3,991	)	6
RAND Bio Science Co., Ltd.	Deposits	2,356	1,000	2,500	176		1,032
Wise Asset Management Co., Ltd.	Deposits	—	1,346	1,475	469		340
Built On Co., Ltd.	Deposits	—	—	—	26		26
Food Factory Co., Ltd.	Deposits	—	—	—	1		1
Acts Co., Ltd.	Deposits	—	—	—	4		4
Big Dipper Co., Ltd.	Deposits	—	—	—	473		473
KB Pre IPO Secondary Venture Fund 1st	Deposits	—	13,000	11,000	690		2,690
POSCO-KB Shipbuilding Fund	Deposits	—	3,000	3,000	—		—
Inno Lending Co., Ltd.²	Deposits	1,902	—	—	(1,861	)	41
KB IC 3rd Private Equity Fund ²	Deposits	700	—	700	—		—

¹	Transactions between related parties, such as settlements arising from operating activities and deposits that can deposit and withdraw frequently, are presented in net amounts.

²	Not considered to be the Bank’s related party as at December 31, 2018.

³	Represents the transactions that have started occurring since the current year.

Significant contribution and collection arising from transactions with related parties for the year ended December 31, 2018, are as follows:


	2018
(In millions of Korean won)	Contribution		Collection and others
Subsidiaries
Kookmin Bank Hongkong Ltd.¹		—		23,610
Kookmin Bank Int’l Ltd. (London)		—		50,664
Kookmin Bank Cambodia PLC.		31,050		—
KB Microfinance Myanmar Co.,Ltd		10,979		—
KB Wise Star Private Real Estate Feeder Fund 1st		43,000		35,183
KB Multi-Asset Private Securities Fund 1 (Bond Mixed-FoFs)¹		—		297,888
KB KBSTAR Short Term KTB Active ETF¹		—		81,255
SAMSUNG KODEX 10Y F-LKTB INV ETF		558,823		610,663
KB Haeoreum private securities investment trust 83(Bond)		—		305,140
KB KBSTAR KTB 3Y Futures Inverse ETF		1,289,671		1,296,352
Kiwoom Frontier Private placement fund 10[Bond]		300,000		101,958
Tong Yang Safe Plus Qualified Private Trust S-8(Bond)		300,000		152,219
Mirae Asset Triumph Global Privately placed Feeder Investment Trust		240,000		—
KODEX 3Y F-KTB Inverse ETF¹		199,857		199,051
NH-Amundi Global Private Securities Investment Trust 1(BOND)		112,325		—
Meritz Private Real Estate fund No.9-2		19,134		199

180

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


AIP US Red Private Real Estate Trust NO.10	33,832	319
Parent’s subsidiaries
KB IP Investment Fund	—	120
Hanbando BTL Private Special Asset Fund	—	20,257
Hope Sharing BTL Private Special Asset Fund	—	1,675
KB Mezzanine Private Security Investment Trust No.2	—	29,280
KB Senior Loan Private Fund No.1	—	31,305
KB Haeoreum private securities investment trust 70(Bond)¹	—	51,100
KB KBSTAR Mid-long Term KTB Active ETF	—	30,377
KB Star Office Private Real Estate Master Fund 4	43,500	916
KB Korea Short Term Premium Private Securities 5(USD)(Bond)	113,220	—
KB Global Core Bond Securities Master Fund(Bond)	50,000	—
KB Haeoreum private securities investment trust 96	50,000	—
KB Korea Short Term Premium Private Securities 4(USD)(Bond)	44,872	—
Associates
Korea Credit Bureau Co., Ltd.	—	113
Balhae Infrastructure Fund	4,645	8,623
Daesang Techlon Co., Ltd.¹	—	42
PT Bank Bukopin TBK	116,422	—
KoFC KBIC Frontier Champ 2010-5 (PEF)	—	4,800
KB GwS Private Securities Investment Trust	—	6,386
KB12-1 Venture Investment Partnership	—	16,040
Future Planning KB Start-up Creation Fund	—	2,876
KB High-tech Company Investment Fund	—	4,700
Aju Good Technology Venture Fund	9,808	—
KB-KDBC New Technology Business Investment Fund	5,000	—
KBTS Technology Venture Private Equity Fund	7,620	—
KB Digital Innovation & Growth New Technology Business Investment Fund	1,125	—
KB IP Investment Fund II	3,000	—
KB Digital Innovation Investment Fund Limited partnership	7,700	—
KB-Brain KOSDAQ Scale-up Fund²	4,000	—

¹	Not considered to be the Bank’s related party as at December 31, 2018.

Acceptances and guarantees and unused commitments to related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Subsidiaries
KB Wise Star Private Real Estate Feeder Fund 1st	Purchase of securities		56,717		185,717
Structured entities	Loan commitment in Korean won		6,151		3,143
	Purchase of securities		1,349,500		1,001,300
Meritz Private Real Estate fund No.9-2 1st	Purchase of securities		36,243		—

181

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Parent’s subsidiaries
KB Investment Co., Ltd.	Loss sharing agreements	1,000	1,000
KB Kookmin Card Co., Ltd.	Loan commitment in Korean won	820,000	813,194
	Other commitments in Korean won	1,300,000	1,000,000
KB Securities Co., Ltd.	Loan commitment in Korean won	137,509	135,653
KB Mezzanine Private Security Investment Trust No.2	Purchase of securities	11,141	11,141
KB Senior Loan Private Fund No.1	Purchase of securities	3,770	3,770
Associates
Balhae Infrastructure Fund	Purchase of securities	10,453	12,564
Incheon Bridge Co., Ltd.	Loan commitment in Korean won	20,000	20,000
KoFC KBIC Frontier Champ 2010-5 (PEF)	Purchase of securities	1,290	1,290
KB GwS Private Securities Investment Trust	Purchase of securities	876	876
KoFC POSCO HANWHA KB Shared Growth No.2. Private Equity Fund	Purchase of securities	10,040	10,040
Aju Good Technology Venture Fund	Purchase of securities	1,960	11,768
KB-KDBC New Technology Business Investment Fund	Purchase of securities	2,500	7,500
KBTS Technology Venture Private Equity Fund	Purchase of securities	7,380	—
KB Digital Innovation & Growth New Technology Business Investment Fund	Purchase of securities	3,375	—
KB IP Investment Fund	Purchase of securities	12,000	—
KB Digital Innovation & Growth New Technology Business Investment Fund	Purchase of securities	27,300	—
KB-Brain KOSDAQ Scale-up Fund	Purchase of securities	16,000	—
Associates of parent’s subsidiaries
SY Auto Capital Co., Ltd.	Loan commitment in Korean won	6,700	10,000
Key management	Loan commitment in Korean won	894	458

182

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Acceptances and gurantees and unused commitments received from related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Parent’s subsidiaries
KB Investment Co., Ltd.	Loss sharing agreements		14,474		12,117
KB Kookmin Card Co., Ltd.	Loan commitment in Korean won		87,922		85,114

Compensation to key management for the years ended December 31, 2018 and 2017, consists of:


	2018

(In millions of Korean won)	Short-term employee benefits		Post- employment benefits		Share-based payments		Total
Registered directors (executive)		1,278		51		1,022		2,351
Registered directors (non-executive)		337		—		—		337
Non-registered directors		4,807		183		3,217		8,207

		6,422		234		4,239		10,895


(In millions of Korean won)	2017
(In millions of Korean won)	Short-term employee benefits		Post- employment benefits		Share-based payments		Total
Registered directors (executive)		1,270		60		1,831		3,161
Registered directors (non-executive)		315		—		—		315
Non-registered directors		4,990		178		7,966		13,134

		6,575		238		9,797		16,610

Significant operating transactions occurring between the Bank and related parties include the establishment of deposit accounts, issuance of general purpose loans, loans on business transactions and trade receivables, and providing foreign currency remittances and related services. Other significant transactions include the grant of credit due to acceptance of banker’s usance that the Bank issues and overdraft credit accounts arising from net settlement agreement between the Bank and KB Kookmin Card Co., Ltd.

Collateral offered to related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)			2018				2017
	Assets pledged		Carrying amount		Collateralized amount		Carrying amount		Collateralized amount
Parent’s subsidiaries
KB Securities Co., Ltd.		Securities		62,006		62,000		75,990		76,000
KB Life Insurance Co., Ltd.		Securities		26,055		25,000		26,128		25,000
KB Insurance Co., Ltd.		Securities		50,000		50,000		50,000		50,000

¹	Collaterals related to lease contracts arising from operating activities between related parties are excluded.

183

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

Collateral received from related parties as at December 31, 2018 and 2017, are as follows:


(In millions of Korean won)		2018		2017
Subsidiary
Taejon Samho The First Co., Ltd.	Beneficiary certificate of land development trust		130,000		130,000
Parent’s subsidiaries
KB Securities Co., Ltd.	Time deposits/ Beneficiary right certificate		178,178		167,000
	Securities		20,000		20,000
KB Life Insurance Co., Ltd.	Securities		10,000		10,000
KB Kookmin Card Co., Ltd.	Time deposits		22,000		22,000
KB Insurance Co., Ltd.	Securities		66,500		58,000
KB Credit Information Co., Ltd.	Time deposits and others		1,425		1,265
KB Star Office Private Real Estate Master Fund 3	Real estate		28,800		—
KB Star Office Private Real Estate Master Fund 4	Real estate		24,000		—
Key management	Time deposits and others		401		388
	Real estate		3,182		2,287

¹	Collaterals related to lease contracts arising from operating activities between related parties are excluded.

As at December 31, 2018, Incheon Bridge Co., Ltd., a related party, provides fund management account, civil engineering completed risk insurance, and management rights as senior collateral amounting to W 611,000 million to a financial syndicate that consists of the Bank and five other institutions, and as subordinated collateral amounting to W 384,800 million to subordinated debt holders that consist of the Bank and two other institutions. Also, it provides certificate of credit guarantee amounting to W 400,000 million as collateral to a financial syndicate consisting of the Bank and five other institutions.

The amounts of debt securities purchased through KB securities Co., Ltd. are W 7,920,050 million and W 4,168,048 million for the years ended December 31, 2018 and 2017, respectively, and the amounts of debts securities sold through KB securities Co., Ltd. are W 3,835,245 million and W 2,204,346 million for the years ended December 31, 2018 and 2017, respectively.

The amounts of intangible Assets purchased through KB Data System Co., Ltd. are W 17,831 million and W 12,532 million for the years ended December 31, 2018 and 2017, respectively.

The Bank and KB Kookmin Card Co., Ltd. are jointly and severally liable for the payables of the Bank before the spin-off date.

184

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

41. Adoption of Korean IFRS 1109 Financial Instruments

The Bank adopted Korean IFRS 1109 Financial Instruments, which was issued on September 25, 2015, on January 1, 2018. The application of Korean IFRS 1109 has following impacts on the financial statements.

On the date of initial application, January 1, 2018, the measurement category of the financial assets in accordance with Korean IFRS 1039 and 1109, are as follows:


(In millions of Korean won)
Measurement categories		Carrying amounts
December 31, 2017 (Korean IFRS 1039)	January 1, 2018 (Korean IFRS 1109)	Korean IFRS 1039 ¹		Reclassification			Remeasurement			Korean IFRS 1109 ¹
Cash and due from financial institutions	Financial assets at amortized cost		14,628,439		(1,908,070	)		(38	)		12,720,331
Cash and due from financial institutions	Financial assets at fair value through profit or loss ²		—		1,908,070			—			1,908,070

			14,628,439		—			(38	)		14,628,401

Financial assets at fair value through profit or loss (under Korean IFRS 1039)
Financial assets held for trading: debt securities	Financial assets at fair value through profit or loss		3,044,008		29,251			—			3,073,259
Financial assets held for trading: equity securities			29,251		(29,251	)		—			—
Financial assets held for trading: others			73,856		—			—			73,856

			3,147,115		—			—			3,147,115

Derivative financial assets held for trading	Derivative financial assets held for trading		2,531,889		(17,197	)		—			2,514,692
Derivative financial assets held for hedging	Derivative financial assets held for hedging		59,071		—			—			59,071

			2,590,960		(17,197	)		—			2,573,763

Loans	Financial assets at amortized cost		250,119,240		(132,254	)		(287,193	)		249,699,793
Loans	Financial assets at fair value through profit or loss ³		—		130,032			2,690			132,722

			250,119,240		(2,222	)		(284,503	)		249,832,515

185

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


Financial investments
Available-for-sale financial assets: debt securities	Financial assets at fair value through other comprehensive income	27,417,640	(2,835,591	)	—		24,582,049
	Financial assets at fair value through profit or loss ⁴	—	4,149,698		—		4,149,698
	Financial assets at amortized cost⁵	—	2,835,591		4,118		2,839,709
Available-for-sale financial assets: equity securities	Financial assets at fair value through other comprehensive income	6,057,948	(4,173,565	)	276		1,884,659
	Financial assets at fair value through profit or loss ⁶	—	23,867		(87	)	23,780
Available-for-sale financial assets: others	Financial assets at fair value through other comprehensive income	500	(500	)	—		—
	Financial assets at fair value through profit or loss ⁷	—	500		—		500
Held-to-maturity financial assets	Financial assets at amortized cost	8,732,246	(214,280	)	(1,200	)	8,516,766
	Financial assets at fair value through profit or loss ⁸	—	214,280		(2,004	)	212,276

		42,208,334	—		1,103		42,209,437


Other financial assets	Financial assets at amortized cost	6,303,303	(1,625	)	(3,264	)	6,298,414

		318,997,391	(21,044	)	(286,702	)	318,689,645

¹	Net of allowance.

³	The loans amounting to W 132,254 million classified as loans and receivables in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss because those financial assets did not meet the SPPI condition.

⁴	The equity securities amounting to W 4,149,698 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as debt securities (financial assets at fair value through profit or loss) because those financial assets did not meet the SPPI condition.

⁵

The debt securities amounting to W 2,835,591 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at amortized cost because those financial assets met the business model condition which the Bank holds the financial asset for the collection of the contractual cash flows, and the SPPI condition.

⁶

The equity securities amounting to W 23,867 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss as the Bank did not designate those equity securities as financial assets at fair value through other comprehensive income.

⁷	Other securities amounting to W 500 million classified as available-for-sale financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss because those financial assets did not meet the SPPI condition.

⁸	The structured debt securities amounting to W 214,280 million classified as held-to-maturity financial assets in accordance with Korean IFRS 1039 were reclassified as financial assets at fair value through profit or loss because those financial assets did not meet the SPPI condition.

186

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the measurement category of the financial liabilities in accordance with Korean IFRS 1039 and 1109, are as follows:


(In millions of Korean won)
Measurement categories			Carrying amounts
December 31, 2017 (Korean IFRS 1039)	January 1, 2018 (Korean IFRS 1109)		Korean IFRS 1039		Reclassification			Remeasurement		Korean IFRS 1109
Financial liabilities held for trading		Financial liabilities at fair value through profit or loss		74,191		—			—		74,191
Derivative financial liabilities held for trading		Derivative financial instruments held for trading		2,572,880		—			—		2,572,880
Derivative financial liabilities held for hedging		Derivative financial liabilities held for hedging		50,032		—			—		50,032
Deposits		Financial liabilities at amortized cost		247,712,788		—			—		247,712,788
Debts		Financial liabilities at amortized cost		15,854,911		—			—		15,854,911
Debentures		Financial liabilities at amortized cost		18,167,498		—			—		18,167,498
Other financial liabilities		Financial liabilities at amortized cost		12,261,378		(21,044	)		—		12,240,334

				296,693,678		(21,044	)		—		296,672,634

187

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the classification of the financial assets by category in accordance with Korean IFRS 1109, are as follows:



	January 1, 2018
(In millions of Korean won)	Financial assets at fair value through profit or loss		Debt securities at fair value through other comprehensive income		Equity securities at fair value through other comprehensive income		Financial assets at amortized cost¹		Derivative instruments held for hedging		Total
Cash and due from financial institutions		—		—		—		12,720,331		—		12,720,331
Financial assets at fair value through profit or loss		9,574,161		—		—		—		—		9,574,161
Derivative assets designated for trading		2,514,692		—		—		—		—		2,514,692
Derivative assets held for hedging		—		—		—		—		59,071		59,071
Loans at amortized cost		—		—		—		249,699,793		—		249,699,793
Financial investments		—		24,582,049		1,884,659		11,356,475		—		37,823,183
Other financial assets		—		—		—		6,298,414		—		6,298,414

	12,088,853		24,582,049		1,884,659		280,075,013		59,071		318,689,645

¹	Net of allowance.


(In millions of Korean won)	Measurement categories before reclassification		Fair value		Recognizable valuation gain or loss if not reclassified
Currency stabilization bond		Available-for-sale		1,975,001		(248	)
Asset backed securities		Available-for-sale		860,590		(4,046	)

				2,835,591		(4,294	)

188

Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the adjustments from the allowances/provision in accordance with Korean IFRS 1039 to the allowances (provision) in accordance with Korean IFRS 1109, are as follows:


Measurement categories		Allowances(Provision)
December 31, 2017 (Korean IFRS 1039)	January 1, 2018 (Korean IFRS 1109)	Korean IFRS 1039		Reclassification			Remeasurement		Korean IFRS 1109
Loans and receivables
Due from financial institutions	Financial assets at amortized cost		—		—			38		38
Loans	Financial assets at amortized cost		1,352,458		—			287,193		1,639,651
	Financial assets at fair value through profit or loss		35,608		(35,608	)		—		—
Other financial assets	Financial assets at amortized cost		49,440		—			3,264		52,704
Available-for-sale
Debts securities	Financial assets at fair value through other comprehensive income		—		—			1,564		1,564
	Financial assets at amortized cost		—		—			176		176
Held-to-maturity securities
Debts securities	Financial assets at amortized cost		—		—			1,200		1,200

			1,437,506		(35,608	)		293,435		1,695,333

Unused commitment and guarantee
Non-financial guarantee and unused commitment			195,068		—			4,717		199,785

			195,068		—			4,717		199,785

Financial guarantee			1,862		—			356		2,218

			1,862		—			356		2,218

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Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017


(In millions of Korean won)	Impact of application
December 31, 2017 (before adoption of Korean IFRS 1109)		745,856
Change of subsequent measurement category: available-for-sale financial assets to financial assets at amortized cost		4,294
Change of subsequent measurement category: available-for-sale financial assets to financial assets at fair value through profit or loss		(84,315	)
Recognition of expected credit losses on debt securities at fair value through other comprehensive income		1,564
Reversal of impairment on equity securities at fair value through other comprehensive income		(612,647	)
Valuation of fair value of equity securities accounted for under cost method		276
Change of gain/loss from foreign currency translation of foreign operations		1,583
Tax effect		189,976

January 1, 2018 (after adoption of Korean IFRS 1109)		246,587

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Kookmin Bank

(A wholly owned subsidiary of KB Financial Group Inc.)

Notes to the Separate Financial Statements

December 31, 2018 and 2017

On the date of initial application, January 1, 2018, the impacts on retained earnings, are as follows:


(In millions of Korean won)	Impact of application
December 31, 2017 (before adoption of Korean IFRS 1109)		17,252,939
Change of subsequent measurement category: available-for-sale financial assets to financial assets at fair value through profit or loss		84,315
Change of classification/subsequent measurement category: held-to-maturity financial assets to financial assets at fair value through profit or loss		(2,004	)
Change of subsequent measurement category: loans and receivables to financial assets at fair value through profit or loss		2,690
Recognition of expected credit losses on debt securities at fair value through other comprehensive income		(1,564	)
Reversal of impairment on equity securities at fair value through other comprehensive income		612,647
Application of expected credit losses on financial assets at amortized cost		(291,871	)
Application of expected credit losses on provisions		(5,073	)
Valuation of fair value of equity securities accounted for under cost method		(87	)
Change of gain/loss from foreign currency translation of foreign operations		(1,583	)
Tax effect		(110,854	)

January 1, 2018 (after adoption of Korean IFRS 1109)		17,539,555

42. Approval of Issuance of the Financial Statements

The issuance of the Bank’s separate financial statements as at and for the year ended December 31, 2018, was originally approved by the Board of Directors on February 7, 2019, and was re-approved with revision on February 28, 2019.

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Report on Independent Auditor’s

Review of Internal Control over Financial Reporting

To the President of

Kookmin Bank

We have reviewed the accompanying management’s report on the effectiveness of the Internal Control over Financial Reporting (“ICFR”) of Kookmin Bank (the “Bank”) as of December 31, 2018. The Bank’s management is responsible for designing and operating ICFR and for its assessment of the effectiveness of ICFR. Our responsibility is to review the management’s report on the effectiveness of the ICFR and issue a report based on our review. The management’s report on the effectiveness of the ICFR of the Bank states that “Based on the assessment results, Chief Executive Officer and ICFR Officer believe that the Bank’s ICFR, as at December 31, 2018, is designed and operating effectively, in all material respects, in conformity with the Best Practice Guideline”

Our review was conducted in accordance with the ICFR review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management’s report on the effectiveness of the ICFR to obtain a lower level of assurance than an audit. A review is to obtain an understanding of a company’s ICFR and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit.

A Bank’s ICFR is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as adopted by the Republic of Korea. Because of its inherent limitations, ICFR may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Based on our review, nothing has come to our attention that causes us to believe that management’s report on the effectiveness of the ICFR, referred to above, is not presented fairly, in all material respects, in accordance with the Best Practice Guideline.

Our review is based on the Bank’s ICFR as of December 31, 2018, and we did not review management’s assessment of its ICFR subsequent to December 31, 2018. This report has been prepared pursuant to the Acts on External Audit for Stock Companies, etc. in Korea and may not be appropriate for other purposes or for other users.

Samil PricewaterhouseCoopers

March 11, 2019

193

Report on the Effectiveness of

the Internal Control over Financial Reporting

To the Shareholders, Board of Directors and Auditor (Audit Committee) of

Kookmin Bank

We, as the Chief Executive Officer (“CEO”) and the Internal Control over Financial Reporting(“ICFR”) Officer of Kookmin Bank (“the Bank”), assessed the effectiveness of the design and operation of the Bank’s Internal Control over Financial Reporting for the year ended December 31, 2018.

The Bank’s management, including ourselves, is responsible for designing and operating ICFR. We assessed the design and operating effectiveness of the ICFR in the prevention and detection of an error or fraud which may cause material misstatements in the preparation and disclosure of reliable financial statements. We followed the ‘Best Practice Guideline’ which is established by the Operating Committee of Internal Control over Financial Reporting in Korea (the “ICFR Committee”) to evaluate the effectiveness of the ICFR design and operation.

Based on the assessment results, we believe that the Bank’s ICFR, as at December 31, 2018, is designed and operating effectively, in all material respects, in conformity with the Best Practice Guideline.

We certify that this report does not contain any untrue statement of a fact, or omit to state a fact necessary to be presented herein. We also certify that this report does not contain or present any statement which cause material misunderstandings, and we have reviewed and verified this report with sufficient due care.

February 21, 2019

Yin Hur, President and Chief Executive Officer

Jae Keun Lee, Internal Control over Financial Reporting Officer

194