KB 20-F DEF-14A Report Dec. 31, 2020

KB 20-F Report ended Dec. 31, 2020

Exhibits

KB FINANCIAL GROUP INC.

20-Fs

20-F	Fiscal year ended Dec. 31, 2024
20-F	Fiscal year ended Dec. 31, 2023
20-F	Fiscal year ended Dec. 31, 2022
20-F	Fiscal year ended Dec. 31, 2021
20-F	Fiscal year ended Dec. 31, 2020
20-F	Fiscal year ended Dec. 31, 2019
20-F	Fiscal year ended Dec. 31, 2018
20-F	Fiscal year ended Dec. 31, 2017
20-F	Fiscal year ended Dec. 31, 2016
20-F	Fiscal year ended Dec. 31, 2015
20-F	Fiscal year ended Dec. 31, 2014
20-F	Fiscal year ended Dec. 31, 2013
20-F	Fiscal year ended Dec. 31, 2012
20-F	Fiscal year ended Dec. 31, 2011
20-F	Fiscal year ended Dec. 31, 2010
20-F	Fiscal year ended Dec. 31, 2009

20-F 1 d27015d20f.htm FORM 20-F Form 20-F

As filed with the Securities and Exchange Commission on April 27, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

☐	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report .

Commission file number 000-53445

KB Financial Group Inc.

(Exact name of Registrant as specified in its charter)

KB Financial Group Inc.

(Translation of Registrant’s name into English)

The Republic of Korea

(Jurisdiction of incorporation or organization)

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

(Address of principal executive offices)

Peter BongJoong Kwon

18F, Kookmin Bank, 141, Uisadang-daero, Yeongdeungpo-gu, Seoul 07332, Korea

Telephone No.: +82-2-2073-7807

Facsimile No.: +82-2-2073-2848

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares, each representing one share of Common Stock	KB	New York Stock Exchange
Common Stock, par value ￦5,000 per share	KB	New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

389,634,335 shares of Common Stock, par value ￦ 5,000 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

☒ Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act: ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (§ 15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Yes ☐ No

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


☐ U.S. GAAP		☒ International Financial Reporting Standards as issued by the International Accounting Standards Board		☐		Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

* Not for trading, but only in connection with the registration of the American Depositary Shares.

TABLE OF CONTENTS


PRESENTATION OF FINANCIAL AND OTHER INFORMATION			1

FORWARD-LOOKING STATEMENTS			2

Item 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		3

Item 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		3

Item 3.	KEY INFORMATION		3

	Item 3.A.	Selected Financial Data	3

	Item 3.B.	Capitalization and Indebtedness	12

	Item 3.C.	Reasons for the Offer and Use of Proceeds	12

	Item 3.D.	Risk Factors	12

Item 4.	INFORMATION ON THE COMPANY		39

	Item 4.A.	History and Development of the Company	39

	Item 4.B.	Business Overview	41

	Item 4.C.	Organizational Structure	124

	Item 4.D.	Property, Plants and Equipment	126

Item 4A.	UNRESOLVED STAFF COMMENTS		126

Item 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		127

	Item 5.A.	Operating Results	127

	Item 5.B.	Liquidity and Capital Resources	166

	Item 5.C.	Research and Development, Patents and Licenses, etc .	173

	Item 5.D.	Trend Information	173

	Item 5.E.	Off-Balance Sheet Arrangements	173

	Item 5.F.	Tabular Disclosure of Contractual Obligations	173

	Item 5.G.	Safe Harbor	173

Item 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		173

	Item 6.A.	Directors and Senior Management	173

	Item 6.B.	Compensation	179

	Item 6.C.	Board Practices	180

	Item 6.D.	Employees	182

	Item 6.E.	Share Ownership	184

Item 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		185

	Item 7.A.	Major Shareholders	185

	Item 7.B.	Related Party Transactions	185

	Item 7.C.	Interests of Experts and Counsel	186

Item 8.	FINANCIAL INFORMATION		186

	Item 8.A.	Consolidated Statements and Other Financial Information	186

	Item 8.B.	Significant Changes	188


Item 9.	THE OFFER AND LISTING		188

	Item 9.A.	Offering and Listing Details	188

	Item 9.B.	Plan of Distribution	190

	Item 9.C.	Markets	191

	Item 9.D.	Selling Shareholders	191

	Item 9.E.	Dilution	191

	Item 9.F.	Expenses of the Issue	191

Item 10.	ADDITIONAL INFORMATION		191

	Item 10.A.	Share Capital	191

	Item 10.B.	Memorandum and Articles of Association	191

	Item 10.C.	Material Contracts	198

	Item 10.D.	Exchange Controls	198

	Item 10.E.	Taxation	199

	Item 10.F.	Dividends and Paying Agents	205

	Item 10.G.	Statement by Experts	205

	Item 10.H.	Documents on Display	205

	Item 10.I.	Subsidiary Information	205

Item 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		205

Item 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		227

Item 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		228

Item 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		228

Item 15.	CONTROLS AND PROCEDURES		228

Item 16.	[RESERVED]		230

Item 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		230

Item 16B.	CODE OF ETHICS		230

Item 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		230

Item 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		231

Item 16E.	PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		231

Item 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		231

Item 16G.	CORPORATE GOVERNANCE		232

Item 16H.	MINE SAFETY DISCLOSURE		233

Item 17.	FINANCIAL STATEMENTS		233

Item 18.	FINANCIAL STATEMENTS		233

Item 19.	EXHIBITS		234

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

The financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As such, we make an explicit and unreserved statement of compliance with IFRS as issued by the IASB with respect to our consolidated financial statements as of December 31, 2019 and 2020 and for the years ended December 31, 2018, 2019 and 2020 included in this annual report. Unless indicated otherwise, the financial information in this annual report as of and for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 has been prepared in accordance with IFRS as issued by the IASB, which is not comparable to information prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.

Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

In this annual report:

•

references to “we,” “us” or “KB Financial Group” are to KB Financial Group Inc. and, unless the context otherwise requires, its subsidiaries;

•

references to “Korea” are to the Republic of Korea;

•

references to the “government” are to the government of the Republic of Korea;

•

references to “Won” or “￦” are to the currency of Korea; and

•

references to “U.S. dollars,” “$” or “US$” are to United States dollars.

Discrepancies between totals and the sums of the amounts contained in any table may be a result of rounding.

For your convenience, this annual report contains translations of Won amounts into U.S. dollars at the noon buying rate of the Federal Reserve Bank of New York for Won in effect on December 31, 2020, which was ￦1,086.11 = US$1.00.

FORWARD-LOOKING STATEMENTS

The U.S. Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This annual report contains forward-looking statements.

Words and phrases such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “estimate,” “expect,” “future,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “predict,” “project,” “risk,” “seek to,” “shall,” “should,” “will likely result,” “will pursue,” “plan” and words and terms of similar substance used in connection with any discussion of future operating or financial performance or our expectations, plans, projections or business prospects identify forward-looking statements. In particular, the statements under the headings “Item 3.D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 4.B. Business Overview” regarding our financial condition and other future events or prospects are forward-looking statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

In addition to the risks related to our business discussed under “Item 3.D. Risk Factors,” other factors could cause actual results to differ materially from those described in the forward-looking statements. These factors include, but are not limited to:

•

our ability to successfully implement our strategy;

•

future levels of non-performing loans;

•

our growth and expansion;

•

the adequacy of allowances for credit and investment losses;

•

technological changes;

•

interest rates;

•

investment income;

•

availability of funding and liquidity;

•

cash flow projections;

•

our exposure to market risks; and

•

adverse market and regulatory conditions.

By their nature, certain disclosures relating to these and other risks are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains, losses or impact on our income or results of operations could materially differ from those that have been estimated. For example, revenues could decrease, costs could increase, capital costs could increase, capital investment could be delayed and anticipated improvements in performance might not be fully realized.

In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this annual report could include, but are not limited to:

•

the occurrence of severe health epidemics (including the ongoing outbreak of the COVID-19 pandemic), in Korea or other parts of the world;

•

general economic and political conditions in Korea or other countries that have an impact on our business activities or investments;

•

the monetary and interest rate policies of Korea;

•

inflation or deflation;

•

unanticipated volatility in interest rates;

•

foreign exchange rates;

•

prices and yields of equity and debt securities;

•

the performance of the financial markets in Korea and globally;

•

changes in domestic and foreign laws, regulations and taxes;

•

changes in competition and the pricing environments in Korea; and

•

regional or general changes in asset valuations.

For further discussion of the factors that could cause actual results to differ, see the discussion under “Item 3.D. Risk Factors” contained in this annual report. We caution you not to place undue reliance on the forward-looking statements, which speak only as of the date of this annual report. Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this annual report.

Item 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

Item 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3.

KEY INFORMATION

Item 3.A.

Selected Financial Data

The selected consolidated financial and operating data as of and for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 set forth below have been derived from our audited consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB. Our consolidated financial statements as of and for the years ended December 31, 2016, 2017, 2018 and 2019 have been audited by Samil PricewaterhouseCoopers, an independent registered public accounting firm. Our consolidated financial statements as of and for the year ended December 31, 2020 have been audited by KPMG Samjong Accounting Corp., an independent registered public accounting firm.

IFRS 9 Financial Instruments , or IFRS 9, is effective for annual periods beginning on or after January 1, 2018 and replaces International Accounting Standard 39 Financial Instruments: Recognition and Measurement , or IAS 39. We have applied IFRS 9 in our consolidated financial statements as of and for the years ended December 31, 2018, 2019 and 2020 included elsewhere in this annual report. As permitted by the transition rules of IFRS 9, our consolidated financial statements as of and for the year ended December 31, 2016 and 2017 have not been restated to retroactively apply IFRS 9.

You should read the following data together with the more detailed information contained in “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this annual report. Historical results do not necessarily predict future results.

Consolidated statements of comprehensive income data


	Year Ended December 31,
	2016			2017			2018 ⁽¹⁾			2019 ⁽¹⁾			2020 ⁽¹⁾			2020 ⁽¹⁾⁽²⁾
	(in billions of Won, except common share data)															(in millions of US$, except common share data)
Interest income	￦	10,335		￦	11,919		￦	13,735		￦	14,639		￦	14,486		US$	13,337
Interest expense		(3,619	)		(3,672	)		(4,830	)		(5,442	)		(4,764	)		(4,386	)

Net interest income		6,716			8,247			8,905			9,197			9,722			8,951

Fee and commission income		3,151			3,988			3,718			3,879			4,527			4,168
Fee and commission expense		(1,566	)		(1,938	)		(1,474	)		(1,524	)		(1,568	)		(1,444	)

Net fee and commission income		1,585			2,050			2,243			2,355			2,959			2,724

Insurance income		1,201			8,971			11,975			12,317			14,387			13,246
Insurance expense		(1,319	)		(8,377	)		(11,485	)		(12,018	)		(14,087	)		(12,970	)

Net insurance income (expenses)		(118	)		594			490			300			300			276

Net gains on financial assets and liabilities at fair value through profit or loss		—			—			352			644			1,011			931

Net gains (losses) on financial assets and liabilities at fair value through profit or loss (under IAS 39)		(322	)		203			—			—			—			—

Net other operating income (expenses)		(416	)		(902	)		(1,130	)		(1,063	)		(1,500	)		(1,381	)

General and administrative expenses		(5,229	)		(5,629	)		(5,919	)		(6,271	)		(6,833	)		(6,291	)

Operating profit before provision for credit losses		2,216			4,563			4,941			5,161			5,659			5,211

Provision for credit losses		(539	)		(548	)		(674	)		(670	)		(1,043	)		(961	)

Net operating income		1,677			4,015			4,267			4,491			4,616			4,250

Share of profit (losses) of associates and joint ventures		281			84			24			16			(44	)		(40	)

Net other non-operating income		671			39			10			27			190			174

Net non-operating income		952			123			34			43			146			134

Profit before income tax expense		2,629			4,138			4,302			4,534			4,762			4,384

Income tax expense		(439	)		(795	)		(1,240	)		(1,221	)		(1,260	)		(1,160	)

Profit for the year	￦	2,190		￦	3,343		￦	3,062		￦	3,313		￦	3,502		US$	3,224

Items that will not be reclassified to profit or loss:
Remeasurements of net defined benefit liabilities		13			23			(138	)		(56	)		(10	)		(10	)
Shares of other comprehensive income (loss) of associates and joint ventures		4			—			(0	)		(0	)		(0	)		(0	)
Net gains (losses) on equity instruments at fair value through other comprehensive income		—			—			(31	)		(17	)		822			757
Fair value changes on financial liabilities designated at fair value due to own credit risk		—			—			1			(11	)		9			8

Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations		20			(110	)		49			38			(187	)		(172	)
Net gains (losses) on debt instruments at fair value through other comprehensive income		—			—			119			35			(356	)		(328	)
Valuation gains (losses) on financial investments		(48	)		89			—			—			—			—
Shares of other comprehensive income (loss) of associates and joint ventures		(11	)		101			(4	)		8			(7	)		(6	)
Gains (losses) on cash flow hedging instruments		4			21			(9	)		(33	)		(1	)		(1	)
Gains (losses) on hedges of a net investment in a foreign operation		(7	)		27			(27	)		(9	)		64			59
Other comprehensive income (loss) of separate account		—			(14	)		30			3			(10	)		(9	)
Net gains on overlay adjustment		—			—			0			194			152			140

Other comprehensive income (loss) for the year, net of tax		(25	)		136			(10	)		152			476			438

Total comprehensive income for the year	￦	2,165		￦	3,480		￦	3,052		￦	3,465		￦	3,978		US$	3,662

Profit attributable to:
Shareholders of the parent company	￦	2,144		￦	3,311		￦	3,061		￦	3,312		￦	3,455		US$	3,181
Non-controlling interests		46			32			1			1			47			43

	￦	2,190		￦	3,343		￦	3,062		￦	3,313		￦	3,502		US$	3,224

Total comprehensive income attributable to:
Shareholders of the parent company	￦	2,119		￦	3,446		￦	3,051		￦	3,464		￦	3,956		US$	3,642
Non-controlling interests		46			34			1			2			22			20

	￦	2,165		￦	3,480		￦	3,052		￦	3,465		￦	3,978		US$	3,662

Earnings per share
Basic earnings per share	￦	5,588		￦	8,305		￦	7,721		￦	8,451		￦	8,809		US$	8.11
Diluted earnings per share		5,559			8,257			7,676			8,389			8,697			8.01

⁽¹⁾	Figures for 2018, 2019 and 2020 reflect the application of IFRS 9 and therefore may not be directly comparable to corresponding figures for prior years.

⁽²⁾	Won amounts are expressed in U.S. dollars at the rate of ￦1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 as quoted by the Federal Reserve Bank of New York in the United States.

Consolidated statements of financial position data


	Year Ended December 31,
	2016			2017			2018 ⁽¹⁾			2019 ⁽¹⁾			2020 ⁽¹⁾			2020 ⁽¹⁾⁽²⁾
	(in billions of Won)															(in millions of US$)
Assets
Cash and due from financial institutions	￦	17,885		￦	19,818		￦	20,274		￦	20,838		￦	25,609		US$	23,578
Financial assets at fair value through profit or loss		—			—			50,988			53,549			61,035			56,196
Financial assets at fair value through profit or loss (IAS 39)		27,858			32,227			—			—			—			—
Derivative financial assets		3,382			3,310			2,026			3,191			5,545			5,106
Loans measured at amortized cost		265,486			290,123			319,202			339,684			377,167			347,264
Financial investments		45,148			66,608			61,665			71,783			98,695			90,871
Investments in associates and joint ventures		1,771			335			505			598			771			710
Property and equipment		3,627			4,202			4,272			5,067			5,434			5,003
Investment property		755			849			2,120			2,828			2,534			2,333
Intangible assets		652			2,943			2,756			2,738			3,351			3,085
Net defined benefit assets		—			1			—			1			3			3
Current income tax assets		66			6			10			19			110			101
Deferred income tax assets		134			4			4			4			65			60
Assets held for sale		52			156			17			23			198			182
Other assets		8,858			16,204			15,749			18,216			30,155			27,764

Total assets	￦	375,674		￦	436,786		￦	479,588		￦	518,538		￦	610,672		US$	562,256

Liabilities
Financial liabilities at fair value through profit or loss	￦	—		￦	—		￦	15,327		￦	15,368		￦	11,810		US$	10,874
Financial liabilities at fair value through profit or loss (IAS 39)		12,123			12,023			—			—			—			—
Derivative financial liabilities		3,807			3,143			2,901			3,007			5,223			4,809
Deposits		239,731			255,800			276,770			305,593			338,580			311,737
Borrowings		26,251			28,821			33,005			37,819			49,827			45,877
Debentures		34,992			44,993			53,279			50,936			62,761			57,785
Provisions		538			568			526			528			715			658
Net defined benefit liabilities		96			155			262			254			248			229
Current income tax liabilities		442			434			699			432			765			704
Deferred income tax liabilities		103			533			493			778			1,162			1,070
Insurance contract liabilities		7,291			31,801			33,413			34,967			54,415			50,101
Other liabilities		19,039			24,470			27,200			29,737			41,805			38,489

Total liabilities	￦	344,413		￦	402,741		￦	443,875		￦	479,419		￦	567,311		US$	522,333

Total Equity
Capital stock	￦	2,091		￦	2,091		￦	2,091		￦	2,091		￦	2,091		US$	1,925
Hybrid securities		—			—			—			399			1,696			1,562
Capital surplus		16,995			17,122			17,122			17,123			16,724			15,398
Accumulated other comprehensive income		405			538			178			348			612			564
Retained earnings		12,229			15,044			17,282			19,710			22,517			20,731

Treasury shares		(722	)		(756	)		(969	)		(1,136	)		(1,136	)		(1,046	)

Equity attributable to shareholders of the parent company		30,998			34,039			35,704			38,534			42,504			39,134
Non-controlling interests		263			6			9			585		￦	857		US$	789

Total equity	￦	31,261		￦	34,045		￦	35,713		￦	39,119		￦	43,361		US$	39,923

Total liabilities and equity	￦	375,674		￦	436,786		￦	479,588		￦	518,538		￦	610,672		US$	562,256

⁽¹⁾	Figures as of December 31, 2018, 2019 and 2020 reflect the application of IFRS 9 and therefore may not be directly comparable to corresponding figures as of prior dates.

⁽²⁾	Won amounts are expressed in U.S. dollars at the rate of ￦1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 as quoted by the Federal Reserve Bank of New York in the United States.

Profitability ratios and other data


	As of or for the year Ended December 31,
	2016			2017			2018			2019			2020
	(Percentages)
Profit (loss) attributable to stockholders as a percentage of:
Average total assets ⁽¹⁾		0.62	%		0.80	%		0.67	%		0.66	%		0.60	%
Average stockholders’ equity ⁽¹⁾		7.13			9.56			8.58			8.66			8.48
Dividend payout ratio ⁽²⁾		23.23			23.17			24.83			26.00			19.97
Net interest spread ⁽³⁾		2.01			2.11			2.05			1.96			1.85
Net interest margin ⁽⁴⁾		2.13			2.27			2.23			2.14			1.98
Efficiency ratio ⁽⁵⁾		70.24			55.23			54.50			54.85			54.70
Cost-to-average assets ratio ⁽⁶⁾		1.50			1.36			1.29			1.25			1.20
Won loans (gross) as a percentage of Won deposits		110.77			114.02			115.98			111.83			115.37
Total loans (gross) as a percentage of total deposits		111.69			114.24			116.27			111.94			112.37

⁽¹⁾	Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

⁽²⁾	Represents the ratio of total dividends declared on common stock as a percentage of profit attributable to stockholders.

⁽³⁾	Represents the difference between the yield on average interest-earning assets and cost of average interest-bearing liabilities.

⁽⁴⁾	Represents the ratio of net interest income to average interest-earning assets.

⁽⁵⁾	Represents the ratio of general and administrative expenses to the sum of net interest income, net fee and commission income, net insurance income, net gain on financial assets and liabilities at fair value through profit or loss and net other operating income.

⁽⁶⁾	Represents the ratio of general and administrative expenses to average total assets.

Capital ratios


	As of or for the year Ended December 31,
	2018			2019			2020
	(Percentages)
Consolidated capital adequacy ratio of KB Financial Group ⁽¹⁾		14.60	%		14.48	%		15.28	%
Capital adequacy ratios of Kookmin Bank
Tier I capital adequacy ratio ⁽²⁾		14.33			14.68			15.42
Common equity Tier I capital adequacy ratio ⁽²⁾		14.33			14.37			15.10
Tier II capital adequacy ratio ⁽²⁾		1.19			1.17			2.36
Average stockholders’ equity as a percentage of average total assets		7.75			7.65			7.13

⁽¹⁾

Under applicable guidelines of the Financial Services Commission, we, as a bank holding company, were required to maintain a total minimum consolidated capital adequacy ratio of 11.5% (including applicable additional capital buffers and requirements) as of December 31, 2020. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy.”

⁽²⁾	Kookmin Bank’s capital adequacy ratios are computed in accordance with the guidelines issued by the Financial Services Commission. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Capital Adequacy.”

Credit portfolio ratios and other data


	As of December 31,
	2016			2017			2018			2019			2020
	(in billions of Won, except percentages)
Total loans ⁽¹⁾	￦	267,764		￦	292,233		￦	321,811		￦	342,092		￦	380,450
Total non-performing loans ⁽²⁾		923			758			725			756			1,108
Other impaired loans not included in non-performing loans		1,613			1,509			1,377			1,151			2,326
Total of non-performing loans and other impaired loans		2,536			2,267			2,102			1,907			3,434
Total allowances for loan losses		2,278			2,110			2,609			2,408			3,283
Non-performing loans as a percentage of total loans		0.34	%		0.26	%		0.23	%		0.22	%		0.29	%
Non-performing loans as a percentage of total assets		0.25	%		0.17	%		0.15	%		0.15	%		0.18	%
Total of non-performing loans and other impaired loans as a percentage of total loans		0.95	%		0.78	%		0.65	%		0.56	%		0.90	%
Allowances for loan losses as a percentage of total loans		0.85	%		0.72	%		0.81	%		0.70	%		0.86	%

⁽¹⁾	Before deduction of allowances for loan losses.

⁽²⁾	Non-performing loans are defined as those loans, including corporate, retail and other loans, which are past due by 90 days or more.

Selected Statistical Information

Average Balance Sheets and Related Interest

The following table shows our average balances and interest rates for the past three years:


	Year Ended December 31,
	2018								2019								2020
	Average Balance ⁽¹⁾			Interest Income ⁽²⁾		Average Yield			Average Balance ⁽¹⁾			Interest Income ⁽²⁾		Average Yield			Average Balance ⁽¹⁾			Interest Income ⁽²⁾		Average Yield
	(in billions of Won, except percentages)
Assets
Cash and interest earning deposits in other banks	￦	8,162		￦	109		1.34	%	￦	10,436		￦	151		1.45	%	￦	14,240		￦	92		0.65	%
Financial assets at fair value through profit or loss (debt securities) ⁽³⁾		27,911			749		2.68			27,164			704		2.59			30,232			659		2.18
Financial investments (debt securities) ⁽⁴⁾		56,585			1,325		2.34			63,699			1,389		2.18			80,087			1,355		1.69
Loans:
Corporate		134,938			4,471		3.31			141,600			4,788		3.38			158,508			4,547		2.87
Mortgage		65,799			1,994		3.03			72,897			2,233		3.06			82,765			2,161		2.61
Home equity		32,661			1,020		3.12			30,188			964		3.19			27,682			786		2.84
Other consumer ⁽⁵⁾		52,333			2,491		4.76			58,514			2,680		4.58			64,220			2,639		4.11
Credit cards ⁽⁶⁾		16,725			1,386		8.29			17,949			1,451		8.08			18,586			1,438		7.74
Foreign ⁽⁷⁾		4,254			190		4.47			6,599			279		4.23			14,683			809		5.51

Loans (total)		306,710			11,552		3.77			327,747			12,395		3.78			366,444			12,380		3.38

Total average interest-earning assets	￦	399,368		￦	13,735		3.44	%	￦	429,046		￦	14,639		3.41	%	￦	491,003		￦	14,486		2.95	%

Cash and due from banks		11,072			—		—			11,681			—		—			11,314			—		—
Financial assets at fair value through profit or loss (excluding debt securities):
Equity securities		4,646			—		—			5,576			—		—			5,225			—		—
Other		17,051			—		—			18,410			—		—			22,952			—		—

Financial assets at fair value through profit or loss (excluding debt securities) (total)		21,697			—		—			23,986			—		—			28,177			—		—
Financial investment (equity securities)		2,628			—		—			2,598			—		—			2,427			—		—
Investment in associates		432			—		—			575			—		—			612			—		—
Derivative financial assets		2,470			—		—			2,989			—		—			4,189			—		—
Premises and equipment		5,639			—		—			7,398			—		—			8,048			—		—
Intangible assets		2,839			—		—			2,720			—		—			3,000			—		—
Allowances for loan losses		(2,827	)		—		—			(2,714	)		—		—			(2,954	)		—		—
Other non-interest-earning assets		16,963			—		—			21,623			—		—			25,414			—		—

Total average non-interest earning assets		60,913			—		—			70,856			—		—			80,227			—		—

Total average assets	￦	460,281		￦	13,735		2.98	%	￦	499,902		￦	14,639		2.93	%	￦	571,230		￦	14,486		2.54	%


	Year Ended December 31,
	2018							2019							2020
	Average Balance ⁽¹⁾		Interest Expense		Average Cost			Average Balance ⁽¹⁾		Interest Expense		Average Cost			Average Balance ⁽¹⁾		Interest Expense		Average Cost
	(in billions of Won, except percentages)
Liabilities
Deposits:
Demand deposits	￦	117,267	￦	347		0.30	%	￦	122,519	￦	370		0.30	%	￦	149,141	￦	267		0.18	%
Time deposits		141,021		2,637		1.87			155,762		3,018		1.94			166,275		2,600		1.56
Certificates of deposit		3,045		58		1.90			4,781		93		1.95			3,636		50		1.38

Deposits (total)		261,333		3,042		1.16			283,062		3,481		1.23			319,052		2,917		0.91
Borrowings ⁽⁸⁾		37,565		639		1.70			38,478		720		1.87			53,334		661		1.24
Debentures		48,147		1,149		2.39			52,574		1,241		2.36			59,379		1,186		2.00

Total average interest-bearing liabilities	￦	347,045	￦	4,830		1.39	%	￦	374,114	￦	5,442		1.45	%	￦	431,765	￦	4,764		1.10	%

Non-interest bearing demand deposits		4,059		—		—			3,942		—		—			4,533		—		—
Derivative financial liabilities		2,932		—		—			3,334		—		—			4,474		—		—
Financial liabilities at fair value through profit or loss		14,280		—		—			16,861		—		—			13,464		—		—
Other non-interest-bearing liabilities		56,275		—		—			63,186		—		—			75,499		—		—

Total average non-interest bearing liabilities		77,546		—		—			87,323		—		—			97,970		—		—

Total average liabilities		424,591		4,830		1.14			461,437		5,442		1.18			529,735		4,764		0.90

Total equity		35,690		—		—			38,465		—		—			41,495		—		—

Total average liabilities and equity	￦	460,281	￦	4,830		1.05	%	￦	499,902	￦	5,442		1.09	%	￦	571,230	￦	4,764		0.83	%

⁽¹⁾	Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

⁽²⁾	We do not invest in any tax-exempt securities.

⁽³⁾	Includes deposits and loans at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽⁴⁾

Comprises financial assets at fair value through other comprehensive income and at amortized cost (formerly referred to as available-for-sale and held-to-maturity financial assets, respectively), and includes loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report. Information related to investment securities classified as financial assets at fair value through other comprehensive income (or available-for-sale financial assets) has been computed using amortized cost, and therefore does not give effect to changes in fair value that are reflected as a component of total equity.

⁽⁵⁾	Includes other interest income.

⁽⁶⁾

Interest income from credit cards includes principally cash advance fees of ￦223 billion, ￦217 billion and ￦195 billion and interest on credit card loans of ￦704 billion, ￦716 billion and ￦722 billion for the years ended December 31, 2018, 2019 and 2020, respectively, but does not include interchange fees.

⁽⁷⁾	Consists primarily of loans from the overseas branches of our subsidiaries to affiliates of large Korean manufacturing companies for trade financing and working capital.

⁽⁸⁾	Includes (i) lease-related interest expense pursuant to our adoption of IFRS 16 Leases (for 2019 and 2020 only) and (ii) other interest expense.

The following table presents our net interest spread, net interest margin, and asset liability ratio for the past three years:


	Year Ended December 31,
	2018			2019			2020
	(percentages)
Net interest spread ⁽¹⁾		2.05	%		1.96	%		1.85	%
Net interest margin ⁽²⁾		2.23			2.14			1.98
Average asset liability ratio ⁽³⁾		115.08			114.68			113.72

⁽¹⁾	The difference between the average rate of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities.

⁽²⁾	The ratio of net interest income to average interest-earning assets.

⁽³⁾	The ratio of average interest-earning assets to average interest-bearing liabilities.

Analysis of Changes in Net Interest Income—Volume and Rate Analysis

The following table provides an analysis of changes in interest income, interest expense and net interest income based on changes in volume and changes in rate for 2018 compared to 2019 and 2019 compared to 2020. Information is provided with respect to: (1) effects attributable to changes in volume (changes in volume multiplied by prior rate) and (2) effects attributable to changes in rate (changes in rate multiplied by prior volume). Changes attributable to the combined impact of changes in rate and volume have been allocated proportionately to the changes due to volume changes and changes due to rate changes.


	2019 vs. 2018 Increase/(Decrease) Due to Change in									2020 vs. 2019 Increase/(Decrease) Due to Change in
	Volume			Rate			Total			Volume			Rate			Total
	(in billions of Won)
Interest-earning assets
Cash and interest earning deposits in other banks	￦	32		￦	10		￦	42		￦	43		￦	(102	)	￦	(59	)
Financial assets at fair value through profit or loss (debt securities) ⁽¹⁾		(20	)		(24	)		(44	)		74			(119	)		(45	)
Financial investments (debt securities) ⁽²⁾		158			(95	)		63			315			(349	)		(34	)
Loans:
Corporate		222			95			317			532			(773	)		(241	)
Mortgage		219			20			239			280			(352	)		(72	)
Home equity		(78	)		22			(56	)		(77	)		(101	)		(178	)
Other consumer		286			(97	)		189			248			(289	)		(41	)
Credit cards		100			(35	)		65			50			(63	)		(13	)
Foreign		100			(11	)		89			425			105			530

Total interest income	￦	1,019		￦	(115	)	￦	904		￦	1,890		￦	(2,043	)	￦	(153	)


	2019 vs. 2018 Increase/(Decrease) Due to Change in							2020 vs. 2019 Increase/(Decrease) Due to Change in
	Volume		Rate			Total		Volume			Rate			Total
	(in billions of Won)
Interest-bearing liabilities
Deposits:
Demand deposits	￦	23	￦	0		￦	23	￦	67		￦	(170	)	￦	(103	)
Time deposits		281		100			381		(19	)		(24	)		(43	)
Certificates of deposit		33		2			35		196			(614	)		(418	)
Borrowings		16		65			81		227			(286	)		(59	)
Debentures		106		(14	)		92		149			(204	)		(55	)

Total interest expense		459		153			612		620			(1,298	)		(678	)

Total net interest income	￦	560	￦	(268	)	￦	292	￦	1,270		￦	(745	)	￦	525

⁽¹⁾	Includes deposits and loans at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽²⁾

Item 3.B.

Capitalization and Indebtedness

Not applicable.

Item 3.C.

Reasons for the Offer and Use of Proceeds

Not applicable.

Item 3.D.

Risk Factors

Risks relating to our retail credit portfolio

Future changes in market conditions as well as other factors may lead to increases in delinquency levels of our retail loan portfolio.

In recent years, consumer debt has increased significantly in Korea. Our portfolio of retail loans, including mortgage and home equity loans, increased from ￦146,150 billion as of December 31, 2017 to ￦158,807 billion as of December 31, 2018, ￦166,307 billion as of December 31, 2019 and ￦182,437 billion as of December 31, 2020. As of December 31, 2020, our domestic retail loans represented 48.0% of our total lending. Within our retail loan portfolio, the outstanding balance of other consumer loans, which unlike mortgage or home equity loans are often unsecured and therefore tend to carry a higher credit risk, increased from ￦48,897 billion as of December 31, 2017 to ￦68,293 billion as of December 31, 2020; as a percentage of total outstanding retail loans, such balance increased from 33.5% as of December 31, 2017 to 37.4% as of December 31, 2020. The growth of our retail lending business, which generally offers higher margins than other lending activities, has contributed significantly to our interest income and profitability in recent years.

The growth of our retail loan portfolio, together with fluctuating economic conditions in Korea and globally in recent years, especially in light of the ongoing global outbreak of the COVID-19 pandemic caused by a new strain of coronavirus, may lead to increases in delinquency levels and a deterioration in asset quality. The amount of our non-performing retail loans (defined as those loans that are past due by 90 days or more) increased from ￦252 billion as of December 31, 2017 to ￦304 billion as of December 31, 2018, ￦376 billion as of December 31, 2019 and ￦306 billion as of December 31, 2020. Higher delinquencies in our retail loan portfolio in the future will require us to increase our loan loss provisions and charge-offs, which in turn will adversely affect our financial condition and results of operations.

Our large exposure to consumer debt means that we are exposed to changes in economic conditions affecting Korean consumers. Accordingly, economic difficulties in Korea that hurt consumers could result in a deterioration in the credit quality of our retail loan portfolio. For example, the severe impact of the COVID-19 pandemic on Korea’s economy has disrupted the business, activities and operations of consumers, which in turn has resulted in, and in the future could result in, a significant decrease in the number of financial transactions or the inability of our customers to meet existing payment or other obligations to us. See “Other risks relating to our business—The ongoing global pandemic of COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.” In addition, a rise in unemployment, an increase in interest rates or a decline in real estate prices in Korea could adversely affect the ability of consumers to make payments and increase the likelihood of potential defaults. See “Risks relating to Korea—Unfavorable financial and economic developments in Korea may have an adverse effect on us.” Despite our efforts to minimize our risk as a result of such exposure, there is no assurance that we will be able to prevent significant credit quality deterioration in our retail loan portfolio.

In addition, we are exposed to changes in regulations and policies on retail lending by the Korean government, which may adopt measures to restrict retail lending or encourage financial institutions to provide financial support to certain types of retail borrowers. From the second half of 2016 to 2020, the Korean

government introduced various measures to tighten regulations on mortgage and other lending and housing subscription in response to the rapid growth in consumer debt and concerns over speculative investments in real estate in certain areas. A decrease in housing prices as a result of the implementation of such measures, together with the high level of consumer debt and rising interest rate levels, could result in declines in consumer spending and reduced economic growth, which may lead to increases in delinquency levels of our retail loan portfolio.

In light of adverse conditions in the Korean economy affecting consumers, in March 2009, the Financial Services Commission requested Korean banks, including us, to establish a “pre-workout program,” including a credit counseling and recovery service, for retail borrowers with outstanding short-term debt defaults. Under the pre-workout program, which has been in operation since April 2009, maturity extensions and/or interest reductions are provided for retail borrowers with total loans of ￦1.5 billion or less (consisting of no more than ￦500 million of unsecured loans and ￦1 billion of secured loans) from two or more financial institutions who are in arrears on their payments for more than 30 days but less than 90 days, and who either have an income in excess of the minimum cost of living or are deemed by the Credit Counseling and Recovery Service, a public service organization that provides debt adjustment services to low-income families in Korea, to have the ability to repay their loans. In addition, in March 2015 and September 2019, in response to increasing levels of consumer debt and amid concerns over the debt-servicing capacity of retail borrowers if interest rates were to rise, the Korean government launched, and requested Korean banks to participate in, mortgage loan refinancing programs aimed at reducing the payment burden on and improving the asset quality of outstanding mortgage loans. Under such refinancing programs, qualified retail borrowers were able to convert their outstanding non-amortizing floating-rate mortgage loans from Korean commercial banks (including us) into amortizing fixed-rate mortgage loans with lower interest rates. Our participation in such refinancing programs may lead to a decrease in our interest income on our outstanding mortgage loans, as well as in our overall net interest margin. Moreover, our participation in such initiatives led by the Korean government to provide financial support to retail borrowers may lead us to offer credit terms for such borrowers that we would not generally offer, which may have an adverse effect on our results of operations and financial condition.

Our credit card operations may generate losses in the future, which could hurt our financial condition and results of operations.

With respect to our credit card portfolio, our delinquency ratio (which represents the ratio of amounts that are overdue by 30 days or more to total outstanding balances) was 1.31% as of December 31, 2018, which decreased to 1.25% as of December 31, 2019 and 1.06% as of December 31, 2020. In line with industry practice, we have restructured a portion of delinquent credit card account balances (defined as balances overdue by 30 days or more) as loans. As of December 31, 2020, these restructured loans outstanding amounted to ￦119 billion. Because these loans are not treated as being delinquent at the time of conversion or for a period of time thereafter, our delinquency ratios may not fully reflect all delinquent amounts relating to our outstanding loans. Including all restructured loans, outstanding balances overdue by 30 days or more accounted for 1.7% of our credit card receivables (including credit card loans) as of December 31, 2020. Delinquencies may further increase in 2021 and in the future as a result of, among other things, adverse economic conditions in Korea, additional government regulations or the inability of Korean consumers to manage increased household debt.

Despite our continuing efforts to sustain and improve our credit card asset quality and performance, we may experience increased delinquencies or deterioration of the asset quality of our credit card portfolio, which would require us to increase our loan loss provisions and charge-offs and adversely affect our overall financial condition and results of operations.

Risks relating to our small- and medium-sized enterprise loan portfolio

We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.

One of our core businesses is lending to small- and medium-sized enterprises (as defined under “Item 4.B. Business Overview—Corporate Banking—Small- and Medium-sized Enterprise Banking”). Our loans to small- and medium-sized enterprises increased from ￦97,379 billion as of December 31, 2017 to ￦124,457 billion as of December 31, 2020. During that period, non-performing loans (defined as those loans that are past due by 90 days or more) to small- and medium-sized enterprises increased from ￦178 billion as of December 31, 2017 to ￦267 billion as of December 31, 2018, but decreased to ￦204 billion as of December 31, 2019 and ￦162 billion as of December 31, 2020. The non-performing loan ratio for such loans increased from 0.2% as of December 31, 2017 to 0.3% as of December 31, 2018, but decreased to 0.2% as of December 31, 2019 and to 0.1% as of December 31, 2020. However, our non-performing loans and non-performing loan ratio may increase in 2021. According to data compiled by the Financial Supervisory Service, the delinquency ratio for Won-currency loans by Korean commercial banks to small- and medium-sized enterprises was 0.4% as of December 31, 2020. The delinquency ratio for Won-currency loans to small- and medium-sized enterprise is calculated as the ratio of (1) the outstanding balance of such loans in respect of which either principal or interest payments are overdue by one month or more to (2) the aggregate outstanding balance of such loans. Our delinquency ratio for such Won currency loans decreased from 0.22% as of December 31, 2017 to 0.15% as of December 31, 2020. However, our delinquency ratio for such Won currency loans may increase in 2021.

The Korean government has historically introduced policies and initiatives intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise borrowers. For example, the Korean government requested Korean banks, including us, to establish a “fast track” program to provide liquidity assistance to small- and medium-sized enterprises on an expedited basis since 2008. Since the termination of the “fast track” program in 2016, the Financial Services Commission implemented a swift financial assistance program for small- and medium-sized enterprise borrowers for a period of five years beginning on January 1, 2017. Financial institutions participating in such program, including us, have provided financial assistance (including in the form of new loans, extension of maturity on existing obligations and provision of lower interest rates) to small- and medium-sized enterprise borrowers that are experiencing temporary liquidity crises but have a credit rating exceeding a certain threshold. The overall prospects for the Korean economy in 2021 and beyond remain uncertain, and the Korean government may extend or renew existing or past policies and initiatives or introduce new policies or initiatives to encourage Korean banks to provide financial support to small- and medium-sized enterprises. In particular, the ongoing global outbreak of the COVID-19 pandemic affecting many countries worldwide, including Korea, has prompted the Korean government in recent months to implement various emergency aid initiatives involving Korean banks, including Kookmin Bank, to provide liquidity assistance to small- and medium-sized enterprise borrowers. See “Other risks relating to our business—The ongoing global pandemic of COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.” Such initiatives include the provision of new loans to borrowers with low credit ratings, extension of maturity dates for existing loans and suspension of interest payment obligations for an extended period of time. Our participation in such government-led initiatives may lead us to extend credit to small- and medium-sized enterprise borrowers that we would not otherwise extend, or offer terms for such credit that we would not otherwise offer, in the absence of such initiatives. Furthermore, there is no guarantee that the financial condition and liquidity position of our small- and medium-sized enterprise borrowers benefiting from such initiatives will improve sufficiently for them to service their debt on a timely basis, or at all. Accordingly, increases in our exposure to small- and medium-sized enterprise borrowers resulting from such government-led initiatives may have a material adverse effect on our financial condition and results of operations.

A substantial part of our small- and medium-sized enterprise lending comprises loans to “small office/home office” customers, or SOHOs. SOHOs, which we currently define to include sole proprietorships and individual

business interests, are usually dependent on a limited number of suppliers or customers. SOHOs tend to be affected to a greater extent than larger corporate borrowers by fluctuations in the Korean economy. In addition, SOHOs often maintain less sophisticated financial records than other corporate borrowers. Although we continue to make efforts to improve our internally developed credit rating systems to rate potential borrowers, particularly with respect to SOHOs, and intend to manage our exposure to these borrowers closely in order to prevent any deterioration in the asset quality of our loans to this segment, we may not be able to do so as intended.

In addition, many small- and medium-sized enterprises have close business relationships with the largest Korean commercial conglomerates, known as “ chaebols ”, primarily as suppliers. Any difficulties encountered by those chaebols would likely hurt the liquidity and financial condition of related small- and medium-sized enterprises, including those to which we have exposure, also resulting in an impairment of their ability to repay loans.

In recent years, we have taken measures which sought to stem rising delinquencies in our loans to small- and medium-sized enterprises, including through strengthening of the review of loan applications and closer monitoring of the post-loan performance of small- and medium-sized enterprise borrowers in industry sectors that are relatively more sensitive to downturns in the economy and have shown higher delinquency ratios, such as shipping, construction, lodging, retail and wholesale, restaurants and real estate. Despite such efforts, however, there is no assurance that delinquency levels of our loans to small- and medium-sized enterprises will not rise in the future. In particular, financial difficulties experienced by small- and medium-sized enterprises as a result of, among other things, adverse economic conditions in Korea and globally, could have an adverse impact on the ability of small- and medium-sized enterprises to make payments on our loans. For example, the ongoing global outbreak of the COVID-19 pandemic has had a significant adverse impact on the Korean and global economy, which in turn has subjected, and could continue to subject, small- and medium-sized enterprises to disruptions in supply chains, a decline in sales and/or deterioration in financial conditions. In addition, aggressive marketing and competition among banks to lend to this segment may lead to a deterioration in the asset quality of our loans to this segment in the future. Any such deterioration would result in increased charge-offs and higher provisioning and reduced interest and fee income from this segment, which would have an adverse impact on our financial condition and results of operations.

We have exposure to Korean construction, shipbuilding and shipping companies, and financial difficulties of these companies may have an adverse impact on us.

As of December 31, 2020, we had loans outstanding to construction, shipbuilding and shipping companies (many of which are small- and medium-sized enterprises) in the amount of ￦3,494 billion, ￦577 billion and ￦306 billion, or 0.92%, 0.15% and 0.08% of our total loans, respectively. We also have other exposures to Korean construction, shipbuilding and shipping companies, including in the form of guarantees extended on behalf of such companies (which included confirmed guarantees of ￦393 billion for construction companies, ￦691 billion for shipbuilding companies and less than ￦1 billion for shipping companies as of December 31, 2020) and debt and equity securities of such companies held by us. In the case of construction companies, such exposures include guarantees provided to us by general contractors with respect to financing extended by us for residential and commercial real estate development projects. In the case of shipbuilding companies, such exposures include refund guarantees extended by us on behalf of shipbuilding companies to cover their obligation to return a portion of the ship order contract amount to customers in the event of performance delays or defaults under shipbuilding contracts.

The construction industry in Korea has long been stagnant due to excessive investments in residential property development projects, steady reductions in the Korean government’s social overhead capital spending until 2018 and heavy losses from overseas construction projects. Although there have been mixed signs of recovery for this industry in recent years, there is increased uncertainty relating to overseas construction projects and stagnant business for commercial properties due to COVID-19. The shipbuilding industry in Korea has experienced a severe downturn in recent years reflecting a significant decrease in ship orders, primarily due to

oversupply. Although ship orders have started to increase again, in particular due to increased demand for eco-friendly Korean ships due to the strengthening of global environmental regulations, the shipbuilding industry has yet to recover fully. In the case of shipping companies in Korea, reduced shipping rates and high chartering costs, together with the slowdown in global trade, have contributed to the deterioration of their financial condition, requiring some of them to file for bankruptcy or pursue voluntary restructuring of their debt. Although there have been mixed signs of recovery for this industry in recent years resulting from the Korean government’s initiatives to rebuild the industry and the recent increase in demand for shipments, the ongoing stagnation in global trade is expected to limit the recovery of the shipping industry.

In response to the deteriorating financial condition and liquidity position of borrowers in the construction, shipbuilding and shipping industries, which were disproportionately impacted by adverse economic developments in Korea and globally, the Korean government implemented a program in 2009 to promote expedited restructuring of such borrowers by their Korean creditor financial institutions, under the supervision of major commercial banks. In accordance with such program, 24 construction companies and five shipbuilding companies became subject to workout in 2009, following review by their creditor financial institutions (including us) and the Korean government. Each year since 2009, the Financial Services Commission and the Financial Supervisory Service have announced the results of subsequent credit risk evaluations conducted by creditor financial institutions (including us) for borrowers with outstanding credit exposures of ￦50 billion or more and borrowers with outstanding credit exposures of less than ￦50 billion, pursuant to which a number of companies were selected by such financial institutions for restructuring in the form of workout, liquidation or court receivership. However, there is no assurance that these measures will be successful in stabilizing the Korean construction, shipbuilding and shipping industries.

The allowances that we have established against our credit exposures to Korean construction, shipbuilding and shipping companies may not be sufficient to cover all future losses arising from these and other exposures. If the asset quality of our exposures to such companies declines further, we may incur substantial additional provisions (including in connection with restructurings of such companies) and charge-offs, which could adversely impact our results of operations and financial condition. See “—Risks relating to our large corporate loan portfolio—We have exposure to companies that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions required and/or the adoption of restructuring plans with which we do not agree.” Furthermore, although a portion of our credit exposures to construction, shipbuilding and shipping companies are secured by collateral, such collateral may not be sufficient to cover uncollectible amounts in respect of such credit exposures. See “—Other risks relating to our business—A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.”

Risks relating to our financial holding company structure and strategy

We may not succeed in implementing our strategy to take advantage of, or fail to realize the anticipated benefits of, our financial holding company structure.

One of our principal strategies is to take advantage of our financial holding company structure to become a comprehensive financial services provider capable of offering a full range of products and services to our large existing base of retail and corporate banking customers. The continued implementation of these plans may require additional investments of capital, infrastructure, human resources and management attention. This strategy entails certain risks, including the possibility that we may face significant competition from other financial holding companies and more specialized financial institutions in particular segments. If our strategy does not succeed, we may incur losses on our investments and our results of operations and financial condition may suffer.

Furthermore, our success under a financial holding company structure depends on our ability to realize the anticipated synergies, growth opportunities and cost savings from coordinating the businesses of our various

subsidiaries. Although we have been integrating certain aspects of our subsidiaries’ operations into our financial holding company structure, our subsidiaries will generally continue to operate as independent entities with separate management and staff and our ability to direct our subsidiaries’ day-to-day operations may be limited. Some of our major acquisitions include the following:

•

In March 2014, we acquired 52.02% of the outstanding shares of KB Capital Co., Ltd. (formerly named Woori Financial Co., Ltd.), a publicly listed Korean consumer finance company, from Woori Finance Holdings Co., Ltd. for ￦280 billion. We conducted a tender offer in May 2017, through which we acquired 5,949,300 shares of KB Capital at ￦27,500 per share, increasing our shareholding in KB Capital to 79.70%. We subsequently acquired the remaining outstanding shares of KB Capital in exchange for 2,269,057 shares of common stock of our company through a comprehensive stock swap effected in July 2017, as a result of which KB Capital became a wholly-owned subsidiary.

•

In June 2015, we acquired 19.47% of the outstanding shares of KB Insurance Co., Ltd. (formerly named LIG Insurance Co., Ltd.), a publicly listed Korean non-life insurance company, from a group of individual shareholders for ￦651 billion. In November 2015, we increased our shareholding in KB Insurance to 33.29% by acquiring its treasury shares for ￦231 billion, and in December 2016, we further increased our shareholding in KB Insurance to 39.81% by purchasing new shares of KB Insurance for ￦171 billion in a rights offering. Through a tender offer conducted in May 2017, we acquired 36,237,649 shares of KB Insurance at ￦33,000 per share, increasing our shareholding to 94.30%. We subsequently effected a comprehensive stock swap in July 2017 to acquire the remaining outstanding shares of KB Insurance in exchange for 2,170,943 shares of common stock of our company, as a result of which KB Insurance became a wholly-owned subsidiary.

•

In May 2016, we acquired 22.56% of the outstanding shares of Hyundai Securities Co., Ltd., a publicly listed Korean securities firm, from Hyundai Merchant Marine Co., Ltd. and other shareholders for ￦1,242 billion, and further increased our shareholding in Hyundai Securities to 29.62% in June 2016 by acquiring treasury shares of Hyundai Securities for ￦107 billion. In October 2016, we effected a comprehensive stock swap of the outstanding shares of Hyundai Securities for 31,759,844 newly issued shares of common stock of our company, as a result of which Hyundai Securities became a wholly-owned subsidiary. Following such transaction, we merged an existing subsidiary, KB Investment & Securities, with and into Hyundai Securities in December 2016 and changed the name of the surviving entity to KB Securities Co., Ltd.

•

In August 2020, we acquired all of the outstanding shares of The Prudential Life Insurance Company of Korea, Ltd., or Prudential Life Insurance, a provider of life insurance services in Korea, from Prudential Financial, Inc. for ￦2.3 trillion, as a result of which Prudential Life Insurance became a wholly-owned subsidiary.

See “Item 5.A. Operating Results—Overview—Acquisitions.”

We may continue to increase our equity interest in our subsidiaries or investees and may also consider acquiring or merging with other financial institutions to achieve more balanced growth and further diversify our revenue base. For example, as part of our continued efforts to expand our businesses abroad, in particular in Southeast Asia, we acquired a 70% stake in PRASAC Microfinance Institution Limited, a provider of microfinance and deposit-taking services in Cambodia, through Kookmin Bank, in April 2020. In addition, through a series of acquisitions from July 2018 to September 2020, we obtained a 67% interest in PT Bank Bukopin TBK of Indonesia, or Bank Bukopin, through Kookmin Bank, our subsidiary, for a total of ￦413 billion. The integration of our new subsidiaries’ or investees’ separate businesses and operations, as well as those of any companies we may acquire or merge with in the future, under our financial holding company structure could require a significant amount of time, financial resources and management attention. Moreover, that process could disrupt our operations (including our risk management operations) or information technology systems, reduce employee morale, produce unintended inconsistencies in our standards, controls, procedures or policies, and affect our relationships with customers and our ability to retain key personnel. The realization of the

anticipated benefits of our financial holding company structure and any mergers or acquisitions we decide to pursue may be blocked, delayed or reduced as a result of many factors, some of which may be outside our control. These factors include:

•

difficulties in integrating the diverse activities and operations of our subsidiaries or investees or any companies we may merge with or acquire, including risk management operations and information technology systems, personnel, policies and procedures;

•

difficulties in reorganizing or reducing overlapping personnel, branches, networks and administrative functions;

•

restrictions under the Financial Holding Company Act and other regulations on transactions between a financial holding company and, or among, its subsidiaries;

•

unforeseen contingent risks, including lack of required capital resources, increased tax liabilities or restrictions in our overseas operations, relating to our financial holding company structure;

•

unexpected business disruptions;

•

failure to attract, develop and retain personnel with necessary expertise;

•

loss of customers; and

•

labor unrest.

Accordingly, we may not be able to realize the anticipated benefits of our financial holding company structure, and our business, results of operations and financial condition may suffer as a result.

We depend on limited forms of funding to fund our operations at the holding company level.

We are a financial holding company with no significant assets other than the shares of our subsidiaries. Our primary sources of funding and liquidity are dividends from our subsidiaries, direct borrowings and issuances of equity or debt securities at the holding company level. In addition, as a financial holding company, we are required to meet certain minimum financial ratios under Korean law, including with respect to liquidity, leverage and capital adequacy. Our ability to meet our obligations to our direct creditors and employees and our other liquidity needs and regulatory requirements at the holding company level depends on timely and adequate distributions from our subsidiaries and our ability to sell our securities or obtain credit from our lenders.

The ability of our subsidiaries to pay dividends to us depends on their financial condition and operating results. In the future, our subsidiaries may enter into agreements, such as credit agreements with lenders or indentures relating to high-yield or subordinated debt instruments, that impose restrictions on their ability to make distributions to us, and the terms of future obligations and the operation of Korean law could prevent our subsidiaries from making sufficient distributions to us to allow us to make payments on our outstanding obligations. See “—As a financial holding company, we depend on receiving dividends from our subsidiaries to pay dividends on our common stock.” Any delay in receipt of or shortfall in payments to us from our subsidiaries could result in our inability to meet our liquidity needs and regulatory requirements, including minimum liquidity and capital adequacy ratios, and may disrupt our operations at the holding company level.

In addition, creditors of our subsidiaries will generally have claims that are prior to any claims of our creditors with respect to their assets. Furthermore, our inability to sell our securities or obtain funds from our lenders on favorable terms, or at all, could also result in our inability to meet our liquidity needs and regulatory requirements and may disrupt our operations at the holding company level.

As a financial holding company, we depend on receiving dividends from our subsidiaries to pay dividends on our common stock.

Since our principal assets at the holding company level are the shares of our subsidiaries, our ability to pay dividends on our common stock largely depends on dividend payments from those subsidiaries. Those dividend

payments are subject to the Korean Commercial Code, the Bank Act and regulatory limitations, generally based on capital levels and retained earnings, imposed by the various regulatory agencies with authority over those entities. For example:

•

under the Korean Commercial Code, dividends may only be paid out of distributable income, an amount which is calculated by subtracting the aggregate amount of a company’s paid-in capital and certain mandatory legal reserves as well as certain unrealized profits from its net assets, in each case as of the end of the prior fiscal period;

•

under the Bank Act, a bank also must credit at least 10% of its net profit to a legal reserve each time it pays dividends on distributable income until that reserve equals the amount of its total paid-in capital; and

•

under the Bank Act and the requirements of the Financial Services Commission, if a bank fails to meet its required capital adequacy ratio or otherwise becomes subject to management improvement measures imposed by the Financial Services Commission, then the Financial Services Commission may restrict the declaration and payment of dividends by that bank.

Our subsidiaries may not continue to meet the applicable legal and regulatory requirements for the payment of dividends in the future. If they fail to do so, they may stop paying or reduce the amount of the dividends they pay to us, which would have an adverse effect on our ability to pay dividends on our common stock.

Although increasing our fee income is an important part of our strategy, we may not be able to do so.

We have historically relied on interest income as our primary revenue source. While we have developed new sources of fee income as part of our business strategy, our ability to increase our fee income and thereby reduce our dependence on interest income will be affected by the extent to which our customers generally accept the concept of fee-based services. Historically, customers in Korea have generally been reluctant to pay fees in return for value-added financial services, and their continued reluctance to do so will adversely affect the implementation of our strategy to increase our fee income. Furthermore, the fees that we charge to customers are subject to regulation by Korean financial regulatory authorities, which may seek to implement regulations or measures that may also have an adverse impact on our ability to achieve this aspect of our strategy.

We may suffer customer attrition or our net interest margin may decrease as a result of our competition strategy.

We have been pursuing, and intend to continue to pursue, a strategy of maintaining or enhancing our margins where possible and avoid, to the extent possible, entering into price competition. In order to execute this strategy, we will need to maintain relatively low interest rates on our deposit products while charging relatively higher rates on loans. If other banks and financial institutions adopt a strategy of expanding market share through interest rate competition, we may suffer customer attrition due to rate sensitivity. In addition, we may in the future decide to compete to a greater extent based on interest rates, which could lead to a decrease in our net interest margins. Any future decline in our customer base or our net interest margins as a result of our future competition strategy could have an adverse effect on our results of operations and financial condition.

Risks relating to competition

Competition in the Korean financial industry is intense, and we may lose market share and experience declining margins as a result.

Competition in the Korean financial industry has been and is likely to remain intense. Some of the financial institutions that we compete with have longer operating histories as financial holding companies, greater financial resources or more specialized capabilities than us and our subsidiaries. In the retail and small- and

medium-sized enterprise lending business, which has been our traditional core business, competition has increased significantly and is expected to increase further. Most Korean banks have been focusing on retail customers and small- and medium-sized enterprises in recent years, although they have begun to generally increase their exposure to large corporate borrowers. In addition, the profitability of our retail lending and credit card operations may decline as a result of growing market saturation in the retail lending and credit card segments, increased interest rate competition, pressure to lower the fee rates applicable to our credit cards (particularly merchant fee rates) and higher marketing expenses. Intense and increasing competition has made and continues to make it more difficult for us to secure retail, credit card and small- and medium-sized customers with the credit quality and on credit terms necessary to achieve our business objectives in a commercially acceptable manner.

Furthermore, the introduction of Internet-only banks in Korea is expected to increase competition in the Korean banking industry. Internet-only banks operate without branches and conduct most of their operations through electronic means, which enables them to minimize costs and offer customers higher interest rates on deposits or lower lending rates. In April 2017, K Bank, the first Internet-only bank in Korea, commenced operations. Kakao Bank, another Internet-only bank, in which Kookmin Bank held a 9.4% equity interest as of December 31, 2020, commenced operations in July 2017. In December 2019, Toss Bank obtained a preliminary business authorization to operate as an Internet-only bank from the Financial Services Commission and is expected to be granted final authorization by June 2021.

In the Korean insurance industry, there has been downward pressure in recent years on margins of insurance products as some of our competitors have sought to obtain or maintain market share by reducing margins and increasing marketing efforts. As the Korean non-life insurance and life insurance sectors continue to mature, they may experience a slowdown in growth as well as a stagnation in market penetration. Due to these and other factors, we believe that competition in the Korean insurance industry will likely remain intense in the future. Sustained or increased competition may lead to decreases in the market share and profitability of our non-life insurance and life insurance businesses.

In addition, we believe that regulatory reforms and the general modernization of business practices in Korea will lead to increased competition among financial institutions in Korea. In the second half of 2015, the Korean government implemented measures to facilitate bank account portability of retail customers by requiring commercial banks to establish systems that allow retail customers to easily switch their bank accounts at one commercial bank to another and automatically transfer the automatic payment settings of their former accounts to the new ones. Such measures have further intensified competition among financial institutions in Korea. Moreover, in March 2016, the Financial Services Commission introduced an individual savings account scheme in Korea, which enables individuals to efficiently manage a wide range of retail investment vehicles, including cash deposits, funds and securities investment products, from a single integrated account with one financial institution and offers tax benefits on investment returns. Since the scheme backed by the Korean government allows only one individual savings account per person, financial institutions have been competing to retain existing customers and attract new customers since the launch of the individual savings account scheme. Over 30 financial institutions, including banks, securities companies and insurance companies, have registered with the Financial Services Commission to sell their individual savings account products and competition among these financial institutions is expected to remain intense.

Moreover, a number of significant mergers and acquisitions in the financial industry have taken place in Korea in recent years, including Hana Financial Group’s acquisition of a controlling interest in Korea Exchange Bank in 2012 and the subsequent merger of Hana Bank into Korea Exchange Bank in 2015. In addition, as part of the Korean government’s plans to privatize Woori Finance Holdings Co., Ltd. (the former financial holding company of Woori Bank), certain subsidiaries of Woori Finance Holdings were sold to other financial institutions and Woori Finance Holdings itself was merged into Woori Bank in 2014, which established a new financial holding company, Woori Financial Group Inc., in January 2019. In the insurance sector, China’s Anbang Insurance Group acquired controlling interests in Tong Yang Life Insurance Co., Ltd. and Allianz Life

Insurance Korea Co., Ltd. in 2015 and 2016, respectively, while Mirae Asset Life Insurance Co., Ltd. acquired PCA Life Insurance Co., Ltd. in 2017. Furthermore, Orange Life Insurance, Ltd. (formerly known as ING Life Insurance Korea, Ltd.) became a wholly-owned subsidiary of Shinhan Financial Group following the acquisition of equity interests by Shinhan Financial Group in February 2019 and January 2020. In the securities sector, in 2016, Mirae Asset Securities Co., Ltd. acquired a 43% interest in KDB Daewoo Securities Co., Ltd., which subsequently merged with and into Mirae Asset Securities to create Mirae Asset Daewoo Securities Co., Ltd., one of the largest securities companies in Korea in terms of capital.

We expect that consolidation in the Korean financial industry will continue. The financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. We also believe that foreign financial institutions, many of which have greater experience and resources than we do, may seek to compete with us in providing financial products and services either by themselves or in partnership with existing Korean financial institutions. Increased competition and continuing consolidation may lead to decreased margins, resulting in a material adverse impact on our future profitability. Accordingly, our results of operations and financial condition may suffer as a result of increasing competition in the Korean financial industry.

Risks relating to our large corporate loan portfolio

We have exposure to chaebols, and, as a result, financial difficulties of chaebols may have an adverse impact on us.

Of our 20 largest corporate exposures (including loans, debt and equity securities and guarantees and acceptances) as of December 31, 2020, 9 were to companies that were members of the 28 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures. As of that date, the total amount of our exposures to 28 of such largest highly-indebted business groups among chaebols was ￦27,163 billion, or 4.9% of our total exposures. If the credit quality of our exposures to chaebols declines as a result of financial difficulties they experience or for other reasons, we could require substantial additional loan loss provisions, which would hurt our results of operations and financial condition. See “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Exposure to Chaebols.”

We cannot assure you that the allowances we have established against these exposures will be sufficient to cover all future losses arising from these exposures. In addition, with respect to those companies that are in or in the future enter into workout or liquidation proceedings, we may not be able to make any recoveries against such companies. We may, therefore, experience future losses with respect to those loans.

We have exposure to companies that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions required and/or the adoption of restructuring plans with which we do not agree.

As of December 31, 2020, our loans and guarantees to companies that were in workout, restructuring or rehabilitation amounted to ￦293 billion, or 0.1% of our total loans and guarantees, most of which was classified as impaired. As of the same date, our allowances for credit losses on these loans and guarantees amounted to ￦138 billion, or 47.1% of these loans and guarantees. These allowances may not be sufficient to cover all future losses arising from our exposure to these companies. Furthermore, we have other exposure to such companies, in the form of debt and equity securities of such companies held by us (including equity securities we acquired as a result of debt-to-equity conversions). Our exposures as of December 31, 2020 with respect to such securities of companies in workout, restructuring or rehabilitation amounted to less than ￦1 billion, or less than 0.01% of our total debt securities and equity securities, but may increase in the future. In addition, in the case of borrowers that are or become subject to workout or restructuring, we may be forced to restructure our credits pursuant to restructuring plans approved by other creditor financial institutions of the borrower, or to dispose of our credits to other creditors on unfavorable terms.

In particular, as of December 31, 2020, we had ￦140 billion of outstanding exposures, comprising ￦64 billion of loans, ￦30 billion of equity securities and ￦46 billion of guarantees (mainly in the form of refund guarantees relating to shipbuilding contracts), to Daewoo Shipbuilding & Marine Engineering Co., Ltd., or DSME, which has been pursuing a voluntary restructuring program. In April 2017, the creditors of DSME agreed on a plan to provide additional financial support to DSME in connection with its voluntary restructuring program, under which the Korea Development Bank and the Export-Import Bank of Korea would provide ￦2.9 trillion of new loans to DSME, on the condition that DSME’s other creditors and bondholders agree to a ￦2.9 trillion debt-to-equity swap. The financial support plan required the Korean commercial bank creditors of DSME (including us) to swap 80% of our outstanding unsecured loans into equity of DSME and extend the maturity of the remaining loans for a period of five years. The financial support plan also requires DSME’s creditors (including us) to provide additional refund guarantees in connection with future shipbuilding contracts of DSME. The implementation of the financial support plan for DSME has required and may continue to require us to increase our loan loss provisions and recognize write-offs and impairment losses with respect to our exposures to DSME and may therefore have a material adverse impact on our results of operations and financial condition. Furthermore, there is no guarantee that the plan will be successful in ensuring the financial viability of DSME.

A large portion of our credit exposure is concentrated in a relatively small number of large corporate borrowers, which increases the risk of our corporate credit portfolio.

As of December 31, 2020, our loans and guarantees to our 20 largest borrowers totaled ￦8,768 billion and accounted for 2.2% of our total loans and guarantees. As of that date, our single largest corporate credit exposure was to The Korea Securities Finance Corporation, to which we had outstanding debt securities of ￦4,800 billion and an additional exposure of ￦30 billion in the form of equity securities. Any deterioration in the financial condition of The Korea Securities Finance Corporation or our other large corporate borrowers, including those in industries particularly affected by the COVID-19 pandemic to which we have exposures such as the transportation, food and beverage, hotel, leisure and shipping industries and certain sectors of the manufacturing industry, may require us to record substantial additional provisions and charge-offs and may have a material adverse impact on our results of operations and financial condition.

Risks relating to our insurance operations

Our profitability may be adversely affected if actual benefits and claims amounts on our in-force insurance policies exceed the amounts that we have reserved, or we increase the amount of reserves due to a change in our underlying assumptions.

We operate our insurance business through KB Insurance Co., Ltd., our non-life insurance subsidiary which became a consolidated subsidiary in May 2017, as well as KB Life Insurance Co., Ltd. and Prudential Life Insurance, our life insurance subsidiaries. With respect to our insurance operations, we establish and carry, as a liability, policy reserves based on the greater of statutory reserves and actuarial estimates of how much we will need to pay for future benefits and claims on our in-force non-life insurance and life insurance policies. The profitability of our insurance operations depends significantly upon the extent to which our actual claims results are consistent with the assumptions used in setting the prices for our insurance products and establishing the liabilities in our financial statements for our obligations for future insurance policy benefits and claims. We establish the liabilities for obligations for future insurance policy benefits and claims based on the expected payout of benefits, calculated through the use of assumptions for investment returns, mortality, morbidity, expenses and persistency, as well as certain macroeconomic factors such as inflation. We also use methods to analyze loss trends with respect to certain risk assumptions relating to natural disasters. These assumptions are based on our previous experience and published data from third party industry sources, as well as judgments made by our management. These assumptions and estimates may deviate from our actual experience due to various factors that are beyond our control, including as a result of unexpected changes in the scope of coverage by the Korean national health insurance program and advancements in health care that result in increased life expectancy and early detection of diseases, as well as re-interpretations of our insurance policy terms by Korean

regulators or courts. In addition, the occurrence of unexpected catastrophic events in Korea, including pandemics or natural or man-made disasters, may result in claims that significantly exceed our expectations. As a result, we cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of, actual benefits and claims or whether the assets supporting the insurance policy liabilities will grow to the level we assume prior to payment of benefits or claims. These amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future.

We evaluate the adequacy of our insurance policy liabilities periodically based on changes in the assumptions used to determine our best estimates of claims, expenses, persistency rates and interest rates, as well as based on our actual policy benefits and claims results. To the extent that trends in actual claims results are less favorable than our underlying assumptions used in establishing these liabilities, and our total insurance policy liabilities are considered to be inadequate to meet our future contractual obligations as and when they arise, we could be required to increase our liabilities. We record increases in our insurance policy liabilities as expenses in the period in which the liabilities are established or re-evaluated. If actual benefits and claims amounts exceed the amounts that we have reserved, or we increase the amount of insurance policy liabilities due to a change in our underlying assumptions, it could have a material adverse effect on our results of operations and financial condition.

Our insurance subsidiaries may be required to raise additional capital or reduce their growth or business scale if their risk-based capital adequacy ratio deteriorates or the applicable capital requirements change in the future.

Pursuant to the risk-based capital adequacy requirements implemented by the Financial Services Commission, insurance companies in Korea are required to maintain a statutory ratio of available regulatory capital to risk-weighted assets of not less than 100% on a consolidated basis. Furthermore, the Financial Supervisory Service had previously recommended that insurance companies maintain a risk-based capital adequacy ratio of not less than 150%, and its former administrative guidelines had required insurance companies failing to maintain such recommended 150% ratio to submit a capital increase plan. Although the Financial Supervisory Service has since withdrawn such administrative guidelines, we believe that a risk-based capital adequacy ratio of not less than 150% is still considered standard in the Korean insurance industry. Risk-based capital adequacy requirements require insurance companies to hold adequate capital to cover their exposures to interest rate risk, market risk, credit risk and operational risk as well as insurance risk by reflecting such risks in their calculation of risk-weighted assets. As of December 31, 2020, KB Insurance, Prudential Life Insurance and KB Life Insurance had a risk-based capital adequacy ratio of 174.76%, 428.95% and 188.43%, respectively.

The Financial Supervisory Service has announced that it plans to introduce a new regulatory solvency regime for insurance companies by 2022 based on the International Capital Standard developed by the International Association of Insurance Supervisors, which would be similar in substance to the Solvency II Directive of the European Union. The Solvency II Directive, which has been in effect in the European Union since January 1, 2016, is a comprehensive program of regulatory requirements for insurance companies, covering authorization, corporate governance, supervisory reporting, public disclosure and risk assessment and management, as well as solvency. Under the Financial Supervisory Service’s planned new solvency regime in Korea, among other things, insurance contract liabilities are expected to be measured based on market value, rather than book value, which would require a number of insurance companies in Korea with a large portfolio of high guaranteed rate of return products to obtain additional capital to meet their capital adequacy requirements. The Financial Supervisory Service has also announced its plans to implement a series of incremental changes to the calculation methodology for the risk-based capital adequacy ratio of insurance companies, as interim measures. Such changes implemented in 2017 included increasing the maximum statutory duration of insurance liabilities recognized for purposes of such calculation, as well as reducing the coefficient applied in calculating interest rate risk and adjusting the methods used to assess the risk of guaranteed benefits of variable insurance policies. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Insurance Companies—Capital Adequacy.”

The details of the new solvency regime in Korea have not yet been finalized and may be further amended in the future. Accordingly, there is no guarantee that our insurance subsidiaries will not be required to raise additional capital to sustain their risk-based capital adequacy ratio above the required level in connection with the future implementation of the new solvency regime. Any material deterioration in the risk-based capital adequacy ratio of our insurance subsidiaries, as a result of the implementation of the new solvency regime or otherwise, could change their customers’ or business counterparties’ perception of their financial health, which in turn could adversely affect their business and profitability. Furthermore, if they grow rapidly or if their asset quality deteriorates in the future, our insurance subsidiaries may be required to raise additional capital, which we may need to provide in whole or in part, to meet their capital adequacy requirements. If we or our insurance subsidiaries are not able to raise any required additional capital, we may be forced to reduce the growth or scale of our insurance operations.

Changes in accounting standards for insurance contracts could adversely impact our reported results of operations and financial condition.

In response to a lack of comparability in the global insurance industry stemming from variations in accounting policies being applied, the IASB issued IFRS 17 (previously referred to as IFRS 4 Phase II), a new IFRS accounting standard for insurance contracts, in May 2017 with an effective date of January 1, 2021, which was subsequently deferred to January 1, 2022 and again to January 1, 2023, with early adoption permitted. Compliance with such revised accounting standards could significantly affect the way in which we and other operators of insurance businesses in Korea account for insurance policies, annuity contracts and financial instruments and how our financial statements are presented.

IFRS 17 will introduce a fundamentally different approach to current accounting policies in terms of both liability measurement and profit recognition. Under IFRS 17, insurance contract liabilities will no longer be calculated based on historical or past assumptions but based on the present value of future insurance cash flows using a discount rate reflecting current interest rates and the characteristics of the insurance contracts, with a risk adjustment and deferral of up-front profits. Among other effects, this may result in an increase in the level of the liabilities of our insurance subsidiaries, which would lead to a decrease in the balance of their available capital, which in turn may lower their risk-based capital adequacy ratio, depending on the solvency regime applicable at the time. In addition, under IFRS 17, certain parts of premium income from insurance contracts will be allocated over the coverage period in proportion to the value of expected coverage and other services that the insurer will provide over such period, rather than recognized at the time of receipt of premium payments, and the investment component of an insurance contract (which refers to amounts to be repaid to policyholders even if the insured event does not occur) will be disaggregated and excluded from premium income. Such changes to revenue recognition methodology will likely change the presentation of our reported revenue from our insurance operations in our financial statements. In June 2020, the IASB issued several amendments to IFRS 17 aimed at simplifying certain requirements and providing additional transition relief for companies subject to IFRS 17.

Given the complexity of IFRS 17 and the significant amount of time and resources that will be required to adopt IFRS 17 accounting, we have established and are in the process of executing an implementation plan, including investments in information technology systems and processes, in order to enhance our financial analysis and impact assessment with respect to our insurance operations. We are also taking other measures to reduce the amount of our statutorily required capital under IFRS 17, including developing new products with improved capital efficiency and strengthening our asset-liability management and our monitoring of interest rate risk. Potential challenges that we may face in terms of implementation of IFRS 17 include:

•

interpretation of the requirements and potential operational difficulties when applying such requirements;

•

data collection, storage and analysis;

•

integration of existing systems and processes with new actuarial systems;

•

increased finance, actuarial and risk management coordination;

•

implementation of new business strategies in preparation for IFRS 17, including adjusting the duration of interest-earning assets and interest-bearing liabilities and our asset-liability management policies within our insurance operations;

•

impact of the transition to a new Korean regulatory solvency regime, which is expected to be implemented around the time of the effective date of IFRS 17; and

•

changes to other aspects of our insurance business, such as product design, remuneration policies and business planning.

Accordingly, the implementation of IFRS 17, as well as any other new or revised insurance accounting standards we are required to adopt in the future, could result in significant costs and may have a material adverse effect on our business and our reported results of operations and financial condition.

Other risks relating to our business

The ongoing global pandemic of COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.

COVID-19, an infectious disease caused by severe acute respiratory syndrome coronavirus 2, has spread globally and was declared a “pandemic” by the World Health Organization in March 2020. The global outbreak of COVID-19 has materially and adversely affected the global economy and financial markets as well as disrupted our business operations.

Risks associated with a prolonged outbreak of COVID-19 or other types of widespread infectious diseases include:

•

an increase in defaults on loan payments from our customers that are particularly affected by the ongoing outbreak of the COVID-19 pandemic (such as those in the transportation, food and beverage, hotel, leisure and shipping industries and certain sectors of the manufacturing industry), who may not be able to meet payment obligations, which may lead to an increase in delinquency ratios and a deterioration in asset quality (see “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Loan Concentration by Industry”);

•

depreciation of the Won against major foreign currencies, which in turn may increase our cost in servicing our foreign currency denominated debt and result in foreign exchange losses;

•

disruption in the normal operations of our business resulting from contraction of infectious diseases by our employees, which may necessitate our employees to be quarantined and/or our offices to be temporarily shut down;

•

disruption resulting from the necessity for social distancing, including, for example, temporary arrangements for employees to work remotely, which may lead to a reduction in labor productivity; and

•

impairments in the fair value of our investments in companies that may be adversely affected by the pandemic.

COVID-19 had a negative impact on our results of operations in 2020 and may continue to do so in the future, and it is not possible to predict the duration or the full magnitude of the overall harm that may result from COVID-19 in the long term. In the event that COVID-19 or other types of widespread infectious diseases cannot be effectively and timely contained, our business, financial condition and results of operations will likely suffer.

Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.

The overall prospects for the Korean and global economy in 2021 and beyond remain uncertain. In recent years, the global financial markets have experienced significant volatility as a result of, among other things:

•

the occurrence of severe health epidemics, such as the ongoing COVID-19 pandemic;

•

a deterioration in economic and trade relations between the United States and its major trading partners, including China;

•

increased uncertainties resulting from the United Kingdom’s exit from the European Union;

•

financial and social difficulties affecting many countries worldwide, in particular in Latin America and Europe;

•

escalations in trade protectionism globally and geopolitical tensions in East Asia and the Middle East;

•

the slowdown of economic growth in China and other major emerging market economies;

•

interest rate fluctuations as well as perceived or actual changes in policy rates by, or other monetary and fiscal policies set forth by, the U.S. Federal Reserve and other central banks; and

•

political and social instability in various countries in the Middle East, including Syria, Iraq and Yemen.

We are also exposed to adverse changes and volatility in the global and Korean financial markets as a result of our liabilities and assets denominated in foreign currencies and our holdings of trading and investment securities, including structured products. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years. A depreciation of the Won will increase our cost in Won of servicing our foreign currency-denominated debt, while continued exchange rate volatility may also result in foreign exchange losses for us. Furthermore, as a result of changes in global and Korean economic conditions, there has been volatility in securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Such volatility has resulted in and may lead to further trading and valuation losses on our trading and investment securities portfolio as well as impairment losses on our investments accounted for under the equity method.

Our business may be materially and adversely affected by legal claims and regulatory actions against us.

We are subject to the risk of legal claims and regulatory actions in the ordinary course of our business, which may expose us to substantial monetary damages and legal costs, injunctive relief, criminal and civil penalties, sanctions against our management and employees and regulatory restrictions on our operations, as well as significant reputational harm. See “Item 8A. Consolidated Statements and Other Financial Information—Legal Proceedings.”

We are unable to predict the outcome of the legal claims and regulatory actions in which we are involved, and the scope of the claims or actions or the total amount in dispute in such matters may increase. Furthermore, adverse final determinations, decisions or resolutions in such matters could encourage other parties to bring related claims and actions against us. Accordingly, the outcome of current and future legal claims and regulatory actions, particularly those for which it is difficult to assess the maximum potential exposure or the ultimate adverse impact with any degree of certainty, may materially and adversely impact our business, reputation, results of operations and financial condition.

Our risk management system may not be effective in mitigating risk and loss.

We seek to monitor and manage our risk exposure through a group-wide risk management platform, encompassing a multi-layered risk management governance structure, reporting and monitoring systems, early warning systems, credit risk management systems for our banking operations and other risk management infrastructure, using a variety of risk management strategies and techniques. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” However, such risk management strategies and techniques employed by us and the judgments that accompany their application cannot anticipate the economic and financial outcome in all market environments, and many of our risk management strategies and techniques have a basis in historical market behavior that may limit the effectiveness of such strategies and techniques in times of significant market stress or other unforeseen circumstances. Furthermore, our risk management strategies may not be effective in a difficult or less liquid market environment, as other market participants may be attempting to use the same or similar strategies as us to deal with such market conditions. In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants.

Uncertainties regarding the transition away from the London Interbank Offered Rate, or LIBOR, or any other interest rate benchmark could have adverse consequences for market participants, including us.

In March 2021, the U.K. Financial Conduct Authority, or the FCA, which has regulatory authority with respect to LIBOR, announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) after December 31, 2021 in the case of all Sterling, Euro, Swiss Franc and Japanese Yen settings and the one-week and two-month U.S. dollar settings and (ii) after June 30, 2023 in the case of the remaining U.S. dollar settings. While the ICE Benchmark Administration, the administrator of LIBOR, may publish certain LIBOR settings on the basis of a synthetic methodology for “tough legacy” contracts, there is no guarantee that such rates will be determined and published after the announced deadlines nor confirmed to be representative by the FCA.

Given the extensive use of LIBOR across financial markets, the transition away from LIBOR presents various risks and challenges to financial markets and institutions, including us, and in particular, Kookmin Bank, our banking subsidiary. As a commercial bank, Kookmin Bank uses various financial products that reference LIBOR, including, among others, commercial loans, deposits, borrowings and debentures. Kookmin Bank also enters into derivatives contracts in order to address the needs of its corporate clients to hedge their risk exposure as well as the need to hedge its own risk exposure that results from such client contracts. In February 2020, Kookmin Bank assembled a task force team in order to assess, identify, monitor and manage risks that may arise from the potential discontinuation of LIBOR. As of the date of this annual report, Kookmin Bank is continuing to transition to alternative reference rates in order to gradually reduce its exposure to LIBOR. Specifically, Kookmin Bank aims to amend its existing agreements to replace LIBOR with alternative reference rates by the third quarter of 2021, and to cease to use LIBOR as the reference rate in new agreements altogether by the end of 2021. Kookmin Bank is also planning to minimize any negative impact that the cessation of LIBOR may have on its results of operations by adjusting its interest rates and deciding upon an appropriate interest rate benchmark.

If not sufficiently planned for, the discontinuation of LIBOR or any other interest rate benchmark could result in increased financial, operational, legal, reputational and/or compliance risks. For example, a significant challenge will be managing the impact of the LIBOR transition on the contractual mechanics of LIBOR-based financial instruments and contracts that mature after the announced deadlines. Certain of these instruments and contracts may not provide for alternative reference rates, and even if such instruments and contracts provide for alternative reference rates, such alternative reference rates are likely to differ from the prior benchmark rates and may require us to pay interest at higher rates on the related obligations, which could adversely impact our interest expense, results of operations and cash flows. For example, the Secured Overnight Financing Rate, or SOFR, has been identified by the Alternative Reference Rates Committee convened by the Board of Governors of the U.S. Federal Reserve System and the Federal Reserve Bank of New York as the preferred alternative benchmark reference rate for LIBOR and differs from LIBOR in many respects, including its basis on actual observed

transactions in the U.S. Treasury market as opposed to LIBOR’s usage of estimations of borrowing rates. While there are a number of international working groups focused on transition plans and the provision of fallback contract language that seek to minimize market disruption, replacement of LIBOR or any other benchmark, such as SOFR, with a new benchmark rate could adversely impact the value of and return on existing instruments and contracts. Moreover, replacement of LIBOR or other benchmark rates could result in market dislocations and have other adverse consequences for market participants, including the potential for increased costs, and litigation risks stemming from potential disputes with customers and counterparties regarding the interpretation and enforceability of fallback contract language in the LIBOR-based financial instruments and contracts.

We are generally subject to Korean corporate governance and disclosure standards, which may differ from those in other countries.

Companies in Korea, including us, are subject to corporate governance standards applicable to Korean public companies which may differ in some respects from standards applicable in other countries, including the United States. As a reporting company registered with the U.S. Securities and Exchange Commission and listed on the New York Stock Exchange, we are subject to certain corporate governance standards as mandated by the Sarbanes-Oxley Act of 2002. However, foreign private issuers, including us, are exempt from certain corporate governance requirements under the Sarbanes-Oxley Act or under the rules of the New York Stock Exchange. There may also be less publicly available information about Korean companies, such as us, than is regularly made available by public or non-public companies in other countries. Such differences in corporate governance standards and less public information could result in corporate governance practices or disclosures that are perceived as less than satisfactory by investors in certain countries.

A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.

A substantial portion of our loans is secured by real estate, the values of which have fluctuated significantly in recent years. Although it is our general policy to lend up to 40% to 88% of the appraised value of collateral (except in areas of high speculation designated by the government where we generally limit our lending to between 10% and 60% of the appraised value of collateral) and to periodically re-appraise our collateral, a downturn in the real estate market in Korea may result in declines in the value of the collateral securing our mortgage and home equity loans. If collateral values decline in the future, they may not be sufficient to cover uncollectible amounts in respect of our secured loans. Any future declines in the value of the real estate or other collateral securing our loans, or our inability to obtain additional collateral in the event of such declines, could result in a deterioration in our asset quality and may require us to take additional loan loss provisions.

In Korea, foreclosure on collateral generally requires a written petition to a court. An application, when made, may be subject to delays and administrative requirements that may result in a decrease in the value realized with respect to such collateral. We cannot guarantee that we will be able to realize the full value on our collateral as a result of, among other factors, delays in foreclosure proceedings and defects in the perfection of our security interest in collateral. Our failure to recover the expected value of collateral could expose us to losses.

The secondary market for corporate bonds in Korea is not fully developed, and, as a result, we may not be able to realize the full book value of debt securities we hold at the time of any sale of such securities.

As of December 31, 2020, we held debt securities issued by Korean companies and financial institutions (other than those issued by the Bank of Korea, the Korea Development Bank, Korea Housing Finance Corporation, Industrial Bank of Korea and the Export-Import Bank of Korea, which are government-owned or -controlled enterprises or financial institutions) with a total carrying amount of ￦51,716 billion in our trading and investment securities portfolio. The market value of these securities could decline significantly due to various factors, including future increases in interest rates or a deterioration in the financial and economic condition of any particular issuer or of Korea in general. Any of these factors individually or a combination of

these factors would require us to write down the fair value of these debt securities, resulting in impairment losses. Because the secondary market for corporate bonds in Korea is not fully developed, the market value of many of these securities as reflected on our statements of financial position is determined by references to suggested prices posted by Korean rating agencies or the Korea Financial Investment Association. These valuations, however, may differ significantly from the actual value that we could realize in the event we elect to sell these securities. As a result, we may not be able to realize the full book value at the time of any such sale of these securities and thus may incur losses.

We may be required to make transfers from our general banking operations to cover shortfalls in our guaranteed trust accounts, which could have an adverse effect on our results of operations.

We manage a number of money trust accounts through Kookmin Bank, our banking subsidiary. Under Korean law, trust account assets of a bank are required to be segregated from the assets of that bank’s general banking operations. Those assets are not available to satisfy the claims of a bank’s depositors or other creditors of its general banking operations. For some of the trust accounts we manage, we have guaranteed either the principal amount of the investor’s investment or the principal and a fixed rate of interest.

If, at any time, the income from our guaranteed trust accounts is not sufficient to pay any guaranteed amount, we will have to cover the shortfall first from the special reserves maintained in these trust accounts, then from our fees from such trust accounts and finally from funds transferred from our general banking operations. As of December 31, 2020, we had ￦117 billion of special reserves in respect of trust accounts for which we provided guarantees of principal. There was no transfer from general banking operations to cover deficiencies in guaranteed trust accounts in 2018, 2019 and 2020. However, we may be required to make transfers from our general banking operations to cover shortfalls, if any, in our guaranteed trust accounts in the future. Such transfers may adversely impact our results of operations.

Our operations have been, and will continue to be, subject to increasing and continually evolving cyber security and other technological risks.

With the proliferation of new technologies and the increasing use of the Internet and mobile devices to conduct financial transactions, our operations as a large financial institution have been, and will continue to be, subject to an increasing risk of cyber incidents relating to these activities, the nature of which is continually evolving. Our computer systems, software and networks are subject to cyber incidents, such as disruptions, delays or other difficulties from our information technology system, computer viruses or other malicious codes, loss or destruction of data (including confidential client information), unauthorized access, account takeover attempts and cyber attacks. A significant portion of our daily operations relies on our information technology systems, including customer service, billing, the secure processing, storage and transmission of confidential and other information as well as the timely monitoring of a large number of complex transactions. Although we have made substantial and continual investments to build systems and defenses to address cyber security and other technological risks, there is no guarantee that such measures or any other measures can provide adequate security. In addition, because methods used to cause cyber attacks change frequently or, in some cases, are not recognized until launched, we may be unable to implement effective preventive measures or proactively address these methods. Furthermore, these cyber threats may arise from human error, accidental technological failure and third parties with whom we do business. Although we maintain insurance coverage that may cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. If we were to be subject to a cyber incident, it could result in the disclosure of confidential client information, damage to our reputation with our customers and in the market, customer dissatisfaction, additional costs to us, regulatory penalties, exposure to litigation and other financial losses to both us and our customers, which could have an adverse effect on our business and results of operations.

Risks relating to liquidity and capital management

Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.

We meet a significant amount of our funding requirements through short-term funding sources, which consist primarily of customer deposits. As of December 31, 2020, approximately 96.2% of our deposits had maturities of one year or less or were payable on demand. In the past, a substantial proportion of our customer deposits have been rolled over upon maturity. We cannot guarantee, however, that depositors will continue to roll over their deposits in the future. In the event that a substantial number of our short-term deposit customers withdraw their funds or fail to roll over their deposits as higher-yielding investment opportunities emerge, our liquidity position could be adversely affected. We may also be required to seek more expensive sources of short-term and long-term funding to finance our operations. See “Item 5.B. Liquidity and Capital Resources—Financial Condition—Liquidity.”

We may be required to raise additional capital if our capital adequacy ratio deteriorates or the applicable capital requirements change in the future, but we may not be able to do so on favorable terms or at all.

Under the capital adequacy requirements of the Financial Services Commission, as of December 31, 2020, both we and Kookmin Bank, our banking subsidiary, were required to maintain a total minimum common equity Tier I capital adequacy ratio of 8.0%, Tier I capital adequacy ratio of 9.5% and combined Tier I and Tier II capital adequacy ratio of 11.5%, on a consolidated basis (including applicable additional capital buffers and requirements as described below). As of December 31, 2020, our common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 13.30%, 14.06% and 15.28%, respectively, and Kookmin Bank’s common equity Tier I capital, Tier I capital and combined Tier I and Tier II capital adequacy ratios were 15.10%, 15.42% and 17.78%, respectively, all of which exceeded the minimum levels required by the Financial Services Commission. However, our capital base and capital adequacy ratios may deteriorate in the future if our results of operations or financial condition deteriorates for any reason, including as a result of a deterioration in the asset quality of our retail loans (including credit card balances) and loans to small- and medium-sized enterprises, or if we are not able to deploy our funding into suitably low-risk assets.

The current capital adequacy requirements of the Financial Services Commission are derived from a new set of bank capital measures, referred to as Basel III, which the Basel Committee on Banking Supervision initially introduced in 2009 and began phasing in starting from 2013. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean banks and bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. The amended regulations also require an additional capital conservation buffer of 2.5% from January 2019, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission. Furthermore, we and Kookmin Bank were each designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2020 by the Financial Services Commission and were subject to an additional capital requirement of 1.0% in 2020. In June 2020, we and Kookmin Bank were each again designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2021, which would again subject us to an additional capital requirement of 1.0% in 2021. All such requirements are in addition to the pre-existing requirement for minimum ratios of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets set forth above. The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean financial institutions, including us. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy” and “—Principal Regulations Applicable to Banks—Capital Adequacy.”

We may be required to obtain additional capital in the future in order to remain in compliance with more stringent capital adequacy and other regulatory requirements. However, we may not be able to obtain additional capital on favorable terms, or at all. Our ability to obtain additional capital at any time may be constrained to the extent that banks or other financial institutions in Korea or from other countries are seeking to raise capital at the same time. To the extent that we fail to comply with applicable capital adequacy ratio or other regulatory requirements in the future, Korean regulatory authorities may impose penalties on us ranging from a warning to suspension or revocation of our banking license.

A considerable increase in interest rates could decrease the value of our debt securities portfolio and raise our funding costs while reducing loan demand and the repayment ability of our borrowers, which, as a result, could adversely affect us.

Interest rates in Korea have been subject to significant fluctuations in recent years. After the Bank of Korea reduced its policy rate to 1.50% in 2015 and again to 1.25% in June 2016 amid deflationary concerns and interest rate cuts by central banks around the world, it increased its policy rate to 1.50% in November 2017 and 1.75% in November 2018 in light of improved growth prospects in Korea and rising interest rate levels globally. However, the Bank of Korea again lowered its policy rate to 1.50% in July 2019 and to 1.25% in October 2019 in order to address the sluggishness of the global and domestic economy. Subsequently, the Bank of Korea further lowered its policy rate to 0.75% in March 2020 and to 0.50% in May 2020 in response to deteriorating economic conditions resulting from the global outbreak of the COVID-19 pandemic. All else being equal, an increase in interest rates in the future could lead to a decline in the value of our portfolio of debt securities, which generally pay interest based on a fixed rate. A sustained increase in interest rates will also raise our funding costs, while reducing loan demand, especially among retail borrowers. Rising interest rates may therefore require us to re-balance our asset portfolio and our liabilities in order to minimize the risk of potential mismatches and maintain our profitability.

In addition, rising interest rate levels may adversely affect the Korean economy and the financial condition of our corporate and retail borrowers, including holders of our credit cards, which in turn may lead to a deterioration in our credit portfolio. In particular, since most of our retail and corporate loans bear interest at rates that adjust periodically based on prevailing market rates, a sustained increase in interest rate levels will increase the interest costs of our retail and corporate borrowers and could adversely affect their ability to make payments on their outstanding loans.

Furthermore, in periods of increasing interest rates, the yields on the general account assets of our insurance subsidiaries may not be sufficient to fund the higher floating interest credit rates necessary to keep their interest-sensitive insurance products competitive. They may therefore have to accept a lower spread and thus lower profitability or face a decline in sales and greater attrition among their existing policyholders. In addition, in periods of increasing interest rates, the value of the debt securities and other general account assets of our insurance subsidiaries may decline, resulting in lower unrealized gains within other comprehensive income in their total equity, which in turn would lower their available capital and their risk-based capital adequacy ratio. Moreover, surrenders and withdrawals of insurance policies may increase as policyholders seek to buy products with perceived higher returns. This process may lead to a cash outflow from our insurance subsidiaries. Such cash outflows may require them to sell their investment assets at a time when the prices of those assets are lower because of the increase in market interest rates, which may result in investment losses.

Risks relating to government regulation and policy

Strengthening of consumer protection laws applicable to financial institutions could adversely affect our operations.

As a financial service provider, we are subject to a variety of regulations in Korea that are designed to protect financial consumers. In recent years, in light of heightened public concern regarding privacy issues, the

Korean government has placed greater emphasis on the protection of personal information by financial institutions and has implemented a number of measures to enhance consumer protection, including considerable restrictions on the transfer or provision of personal information by financial institutions to their affiliates or holding company. Under the Personal Information Protection Act, financial institutions, as personal information managers, may not collect, store, maintain, utilize or provide resident registration numbers of their customers, unless other laws or regulations specifically require or permit the management of resident registration numbers. In addition, under the Use and Protection of Credit Information Act, a financial institution has a higher duty to protect all information that it collects from its customers and is required to treat such information as credit information. There are considerable restrictions on the transfer or provision of the information by financial institutions to their affiliates or holding company. Treble damages may be imposed on a financial institution for leakage of such information. Furthermore, under the Electronic Financial Transaction Act, a financial institution is primarily responsible for compensating its customers harmed by a cyber security breach affecting the financial institution even if the breach is not directly attributable to the financial institution.

Under the Financial Consumer Protection Act, which was newly enacted in March 2020, we, as a financial instrument distributor, are subject to heightened investor protection measures, including stricter distribution guidelines, improved financial dispute resolution procedures, increased liability for customer losses and newly imposed penalty surcharges starting in March 2021. Following the enactment of the Financial Consumer Protection Act, financial regulators have published subordinate regulations to such Act, including the Enforcement Decree, Supervisory Regulations and Enforcement Rules to the Supervisory Regulations governing consumer protection within the financial industry. However, there are still uncertainties regarding the interpretation and application of the Act. The Financial Services Commission has recognized these uncertainties and has announced that it would provide further guidance to financial companies and financial consumers in the six months following March 25, 2021.

These and other measures that may be implemented by the Korean government to strengthen consumer protection laws applicable to financial institutions may limit our operational flexibility and cause us to incur significant additional compliance costs, as well as subject us to increased potential liability to our customers, which could adversely affect our business and performance.

The Korean government may promote lending and financial support by the Korean financial industry to certain types of borrowers as a matter of policy, which financial institutions, including us, may decide to follow.

Through its policies and recommendations, the Korean government has promoted and, as a matter of policy, may continue to attempt to promote lending by the Korean financial industry to particular types of borrowers. For example, the Korean government has in the past provided and may continue to provide policy loans, which encourage lending to particular types of borrowers. It has generally done this by identifying sectors of the economy it wishes to promote and making low interest funding available to financial institutions that may voluntarily choose to lend to these sectors. All loans or credits we choose to make pursuant to such policy loans would be subject to review in accordance with our credit approval procedures. However, the availability of policy loans may influence us to lend to certain sectors or in a manner in which we otherwise would not in the absence of such loans from the government.

In the past, the Korean government has also announced policies under which financial institutions in Korea are encouraged to provide financial support to particular sectors. For example, in light of the deteriorating financial condition and liquidity position of small- and medium-sized enterprises in Korea and adverse conditions in the Korean economy affecting such enterprises, the Korean government introduced measures intended to encourage Korean banks to provide financial support to small- and medium-sized enterprise and retail borrowers, including guidelines for Korean banks to extend loan terms and defer interest payments with respect to small- and medium-sized enterprises and SOHOs affected by the COVID-19 pandemic. See “—Risks relating to our small- and medium-sized enterprise loan portfolio—We have significant exposure to small- and medium-sized

enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.” and “—Risks relating to our retail credit portfolio—Future changes in market conditions as well as other factors may lead to increases in delinquency levels of our retail loan portfolio.” The Korean government may in the future request financial institutions in Korea, including us, to make investments in or provide other forms of financial support to particular sectors of the Korean economy as a matter of policy, which financial institutions, including us, may decide to accept. We may incur costs or losses as a result of providing such financial support.

The Financial Services Commission may impose burdensome measures on us if it deems us or one of our subsidiaries to be financially unsound.

If the Financial Services Commission deems our financial condition or the financial condition of our subsidiaries to be unsound, or if we or our subsidiaries fail to meet applicable regulatory standards, such as minimum capital adequacy and liquidity ratios, the Financial Services Commission may order or recommend, among other things:

•

capital increases or reductions;

•

stock cancelations or consolidations;

•

transfers of businesses;

•

sale of assets;

•

closures of subsidiaries or branch offices;

•

mergers with other financial institutions; and

•

suspensions of a part of our business operations.

If any of these measures is imposed on us by the Financial Services Commission, they could hurt our business, results of operations and financial condition. In addition, if the Financial Services Commission orders us to partially or completely reduce our capital, you may lose part or all of your investment.

Risks relating to Korea

Escalations in tensions with North Korea could have an adverse effect on us and the market value of our ADSs.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In particular, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following:

•

North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Korean government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea.

•

In March 2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The Korean government formally accused North Korea of causing the sinking, while North Korea denied responsibility. Moreover, in November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the west coast of the Korean peninsula, causing casualties and significant property damage. The Korean government condemned North Korea for the attack and vowed stern retaliation should there be further provocation.

North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although bilateral summit meetings were held between Korea and North Korea in April, May and September 2018 and between North Korea and the United States in June 2018, February 2019 and June 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea or between the United States and North Korea break down or military hostilities occur, could have a material adverse effect on the Korean economy and on our business, financial condition and results of operations and the market value of our common stock and American depositary shares, or ADSs.

Unfavorable financial and economic developments in Korea may have an adverse effect on us.

We are incorporated in Korea, and substantially all of our operations are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea, and our performance and successful fulfillment of our operational strategies are dependent to a large extent on the overall Korean economy. The economic indicators in Korea in recent years have shown mixed signs, and starting in early 2020, the overall Korean economy has shown signs of deterioration due to the debilitating effects of the ongoing global outbreak of the COVID-19 pandemic on the Korean economy as well as on the economies of Korea’s major trading partners. See “Other risks relating to our business—The ongoing global pandemic of COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.” As a result, future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy.

In recent years and in 2020, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the increasing weakness of the global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. See “Other risks relating to our business—Unfavorable changes in the global financial markets could adversely affect our results of operations and financial condition.” The value of the Won relative to major foreign currencies has also fluctuated significantly and, as a result of deteriorating global and Korean economic conditions, there recently has been significant volatility in the stock prices of Korean companies. Further declines in the Korea Composite Stock Price Index, or the KOSPI, and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Korea’s economy include:

•

declines in consumer confidence and a slowdown in consumer spending in the Korean or global economy;

•

the occurrence of severe health pandemics, such as the ongoing global outbreak of the COVID-19 pandemic, or other severe health epidemics in Korea or other parts of the world, such as the Middle East Respiratory Syndrome outbreak in Korea in 2015;

•

deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy, in particular the ongoing trade disputes with Japan;

•

adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as the United States, Europe, Japan and China, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union;

•

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets;

•

increased sovereign default risks in select countries and the resulting adverse effects on the global financial markets;

•

a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers in Korea;

•

a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean government’s policies to increase minimum wages and limit working hours of employees;

•

investigations of large Korean business groups and their senior management for possible misconduct;

•

social and labor unrest;

•

substantial decreases in the market prices of Korean real estate;

•

a decrease in tax revenues or a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs, particularly in light of the Korean government’s ongoing efforts to provide emergency relief payments to households and emergency loans to corporations in need of funding due to the COVID-19 pandemic, which, together, may lead to an increased government budget deficit;

•

financial problems or lack of progress in the restructuring of chaebols , other large troubled companies, their suppliers or the financial sector;

•

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

•

increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

•

the economic impact of any pending or future free trade agreements or of any changes to existing free trade agreements;

•

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

•

natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners;

•

political uncertainty or increasing strife among or within political parties in Korea;

•

hostilities or political or social tensions involving oil-producing countries in the Middle East (including a potential escalation of hostilities between the United States and Iran) and Northern Africa and any material disruption in the supply of oil or sudden increase in the price of oil;

•

increased reliance on exports to service foreign currency borrowings, which could cause friction with Korea’s trading partners;

•

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States; and

•

changes in financial regulations in Korea.

Labor unrest in Korea may adversely affect our operations.

Economic difficulties in Korea or increases in corporate reorganizations and bankruptcies could result in layoffs and higher unemployment. Such developments could lead to social unrest and substantially increase government expenditures for unemployment compensation and other costs for social programs. According to statistics from the Korea National Statistical Office, the unemployment rate increased from 3.8% in 2018 and 2019 to 4.0% in 2020. Further increases in unemployment and any resulting labor unrest in the future could adversely affect our operations, as well as the operations of many of our customers and their ability to repay their loans, and could adversely affect the financial condition of Korean companies in general, depressing the price of their securities. These developments would likely have an adverse effect on our financial condition and results of operations.

Risks relating to our common stock and ADSs

We or our major stockholders may sell shares of our common stock or ADSs in the future, and these and other sales may adversely affect the market price of our common stock and ADSs and may dilute your investment and relative ownership in us.

We have no current plans for any public offerings of our common stock, ADSs or securities exchangeable for or convertible into such securities. However, it is possible that we may decide to offer or sell such securities in the future. In addition, our major stockholder, the Korean National Pension Service, held approximately 9.93% of our total issued common stock as of December 31, 2020, which it may sell at any time.

Any future offerings or sales by us of our common stock or ADSs or securities exchangeable for or convertible into such securities, significant sales of our common stock by a major stockholder, or the public perception that an offering or sales may occur, could have an adverse effect on the market price of our common stock and ADSs. Furthermore, any offerings by us in the future of any such securities could have a dilutive impact on your investment and relative ownership interest in us.

Ownership of our common stock is restricted under Korean law.

Under the Financial Holding Company Act, a single stockholder, together with its affiliates, is generally prohibited from owning more than 10.0% of the issued and outstanding shares of voting stock of a bank holding company such as us that controls a nationwide bank, with the exception of certain stockholders that are non-financial business group companies, whose applicable limit has been reduced from 9.0% to 4.0% pursuant to an amendment of the Financial Holding Company Act which became effective from February 14, 2014. To the extent that the total number of shares of our common stock (including those represented by ADSs) that a holder and its affiliates own exceeds the applicable limits, that holder will not be entitled to exercise the voting rights for the excess shares, and the Financial Services Commission may order that holder to dispose of the excess shares within a period of up to six months. Failure to comply with such an order would result in an administrative fine of up to 0.03% of the book value of such shares per day until the date of disposal. Non-financial business group companies can no longer acquire more than 4.0% of the issued and outstanding shares of voting stock of a bank holding company pursuant to the amended Financial Holding Company Act, which grants an exception for non-financial business group companies which, at the time of the enactment of the amended provisions, held more than 4.0% of the shares thereof with the approval of the Financial Services Commission before the amendment. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Ownership of a Financial Holding Company.”

A holder of our ADSs may not be able to exercise dissent and appraisal rights unless it has withdrawn the underlying shares of our common stock and become our direct stockholder.

In some limited circumstances, including the transfer of the whole or any significant part of our business and the merger or consolidation of us with another company, dissenting stockholders have the right to require us to purchase their shares under Korean law. However, holders of our ADSs will not be able to exercise such dissent and appraisal rights if the depositary refuses to do so on their behalf. Our deposit agreement does not require the depositary to take any action in respect of exercising dissent and appraisal rights. In such a situation, holders of our ADSs must withdraw the underlying common stock from the ADS facility (and incur charges relating to that withdrawal) and become our direct stockholder prior to the record date of the stockholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights.

A holder of our ADSs may be limited in its ability to deposit or withdraw common stock.

Under the terms of our deposit agreement, holders of common stock may deposit such stock with the depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the depositary and receive common stock. However, to the extent that a deposit of common stock exceeds the difference between:

(1)

the aggregate number of common shares we have deposited or we have consented to allow to be deposited for the issuance of ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to ADSs); and

(2)

the number of shares of common stock on deposit with the custodian for the benefit of the depositary at the time of such proposed deposit,

such common stock will not be accepted for deposit unless:

(A)

our consent with respect to such deposit has been obtained; or

(B)

such consent is no longer required under Korean laws and regulations.

Under the terms of the deposit agreement, no consent is required if the shares of common stock are obtained through a dividend, free distribution, rights offering or reclassification of such stock. We have consented, under the terms of the deposit agreement, to any deposit to the extent that, after the deposit, the number of deposited shares does not exceed such number of shares as we determine from time to time (which number shall at no time be less than 100,000,000 shares), unless the deposit would be prohibited by applicable laws or ownership restrictions or violate our articles of incorporation. We might not consent to the deposit of any additional common stock. As a result, if a holder surrenders ADSs and withdraws common stock, it may not be able to deposit the stock again to obtain ADSs.

A holder of our ADSs will not have preemptive rights in some circumstances.

The Korean Commercial Code and our articles of incorporation require us, with some exceptions, to offer stockholders the right to subscribe for new shares of our common stock in proportion to their existing shareholding ratio whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, to the extent practicable, the depositary may make the rights available to holders of our ADSs or dispose of the rights on behalf of such holders and make the net proceeds available to such holders. The depositary, however, is not required to make available to holders any rights to purchase any additional shares of our common stock unless it timely receives evidence satisfactory to it from us that it may lawfully do so and:

•

a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or

•

the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act.

Similarly, holders of our common stock located in the United States may not exercise any such rights they receive absent registration or an exemption from the registration requirements under the Securities Act.

We are under no obligation to file any registration statement with the U.S. Securities and Exchange Commission or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, a holder of our ADSs may be unable to participate in our rights offerings and may experience dilution in its holdings. If a registration statement is required for a holder of our ADSs to exercise preemptive rights but is not filed by us or is not declared effective, the holder will not be able to exercise its preemptive rights for additional ADSs and it will suffer dilution of its equity interest in us. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or practicable, it will allow the rights to lapse, in which case the holder will receive no value for these rights.

Dividend payments and the amount a holder of our ADSs may realize upon a sale of its ADSs will be affected by fluctuations in the exchange rate between the U.S. dollar and the Won.

Our common stock is listed on the KRX KOSPI Market of the Korea Exchange and quoted and traded in Won. Cash dividends, if any, in respect of the shares represented by the ADSs will be paid to the depositary in Won and then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Won and the U.S. dollar will affect, among other things, the amounts a holder of our ADSs will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that it would receive upon sale in Korea of the shares of our common stock obtained upon surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our common stock.

The market value of an investment in our ADSs may fluctuate due to the volatility of the Korean securities market.

Our common stock is listed on the KRX KOSPI Market, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European countries. The market value of ADSs may fluctuate in response to the fluctuation of the trading price of shares of our common stock on the KRX KOSPI Market. The KRX KOSPI Market has experienced substantial fluctuations in the prices and volumes of sales of listed securities and the KRX KOSPI Market has prescribed a fixed range in which share prices are permitted to move on a daily basis. The KOSPI was 3,217.5 on April 26, 2021. There is no guarantee that the stock prices of Korean companies will not decline again in the future. Like other securities markets, including those in developed markets, the Korean securities market has experienced problems including market manipulation, insider trading and settlement failures. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Korean companies, including our common stock and ADSs, in both the domestic and the international markets.

The Korean government has the potential ability to exert substantial influence over many aspects of the private sector business community, and in the past has exerted that influence from time to time. For example, the Korean government has promoted mergers to reduce what it considers excess capacity in a particular industry and has also encouraged private companies to publicly offer their securities. Similar actions in the future could have the effect of depressing or boosting the Korean securities market, whether or not intended to do so. Accordingly, actions by the government, or the perception that such actions are taking place, may take place or has ceased, may cause sudden movements in the market prices of the securities of Korean companies in the future, which may affect the market price and liquidity of our common stock and ADSs.

If the Korean government deems that emergency circumstances are likely to occur, it may restrict holders of our ADSs and the depositary from converting and remitting dividends and other amounts in U.S. dollars.

If the Korean government deems that certain emergency circumstances, including, but not limited to, severe and sudden changes in domestic or overseas economic circumstances, extreme difficulty in stabilizing the balance of payments or implementing currency exchange rate and other macroeconomic policies, have occurred or are likely to occur, it may impose certain restrictions provided for under the Foreign Exchange Transaction Act, including the suspension of payments or requiring prior approval from governmental authorities for any transaction. See “Item 10.D. Exchange Controls—General.”

A holder of our ADSs may not be able to enforce a judgment of a foreign court against us.

We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this document reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this document and substantially all of our assets are located in Korea. As a result, it may not be possible for holders of our ADSs to effect service of process within the United States, or to enforce against them or us in the United States judgments obtained in United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.

Item 4.

INFORMATION ON THE COMPANY

Item 4.A.

History and Development of the Company

Overview

We were established as a new financial holding company on September 29, 2008 pursuant to a “comprehensive stock transfer” under Korean law, whereby holders of the common stock of Kookmin Bank and certain of its subsidiaries transferred all of their shares to us in return for shares of our common stock. We were established pursuant to the Financial Holding Company Act, which was enacted in October 2000 and which, together with associated regulations and a related Enforcement Decree, has enabled banks and other financial institutions, including insurance companies, investment trust companies, credit card companies and securities companies, to be organized and managed under the auspices of a single financial holding company.

Our legal and commercial name is KB Financial Group Inc. Our registered office and principal executive offices are located at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea. Our telephone number is +82-2-2073-7114. Our agent in the United States, Kookmin Bank, New York Branch, is located at 565 Fifth Avenue, 24th Floor, New York, NY 10017. Its telephone number is (212) 697-6100. The address of our English website is https://www.kbfg.com/Eng/index.jsp .

The U.S. Securities and Exchange Commission maintains a website (http://www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the U.S. Securities and Exchange Commission.

History of the Former Kookmin Bank

The former Kookmin Bank was established by the Korean government in 1963 under its original name of Citizens National Bank under the Citizens National Bank Act of Korea with majority government ownership. Under this Act, we were limited to providing banking services to the general public and to small- and medium-sized enterprises. In September 1994, we completed our initial public offering in Korea and listed our shares on the KRX KOSPI Market.

In January 1995, the Citizens National Bank Act of Korea was repealed and replaced by the Repeal Act of the Citizens National Bank Act. Our status was changed from a specialized bank to a nationwide commercial bank and in February 1995, we changed our name to Kookmin Bank. The Repeal Act allowed us to engage in lending to large businesses.

History of H&CB

H&CB was established by the Korean government in 1967 under the name Korea Housing Finance Corporation. In 1969, Korea Housing Finance Corporation became the Korea Housing Bank pursuant to the Korea Housing Bank Act. H&CB was originally established to provide low and middle income households with long-term, low-interest mortgages in order to help them purchase their own homes, and to promote the increase of housing supply in Korea by providing low-interest housing loans to construction companies. Until 1997 when the Korea Housing Bank Act was repealed, H&CB was the only entity in Korea allowed to provide mortgage loans with a term of longer than ten years. H&CB also had the exclusive ability to offer housing-related deposit accounts offering preferential rights to subscribe for newly-built apartments.

Merger of the Former Kookmin Bank and H&CB

Effective November 1, 2001, the former Kookmin Bank and H&CB merged into a new entity named Kookmin Bank. This merger resulted in Kookmin Bank becoming the largest commercial bank in Korea. Kookmin Bank’s ADSs were listed on the New York Stock Exchange on November 1, 2001 and its common shares were listed on the KRX KOSPI Market on November 9, 2001.

Establishment of KB Financial Group

We were established on September 29, 2008 pursuant to a “comprehensive stock transfer” under Article 360-15 of the Korean Commercial Code, whereby holders of the common stock of Kookmin Bank and certain of its subsidiaries transferred all of their shares to us, a new financial holding company, and in return received shares of our common stock. In the stock transfer, each holder of one share of Kookmin Bank common stock received one share of our common stock, par value ￦5,000 per share. Holders of Kookmin Bank ADSs and global depositary shares, each of which represented one share of Kookmin Bank common stock, received one of our ADSs for every ADS or global depositary share they owned. In addition, holders of the common stock of KB Investment & Securities Co., Ltd., KB Asset Management Co., Ltd., KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KB Futures Co., Ltd., KB Credit Information Co., Ltd., and KB Data Systems Co., Ltd., all of which were Kookmin Bank’s subsidiaries, transferred all of their shares to us and, as consideration for such transferred shares, received shares of our common stock in accordance with the specified stock transfer ratio applicable to each such subsidiary. Following the completion of the stock transfer, Kookmin Bank, KB Investment & Securities Co., Ltd., KB Asset Management Co., Ltd., KB Real Estate Trust Co., Ltd., KB Investment Co., Ltd., KB Futures Co., Ltd., KB Credit Information Co., Ltd., and KB Data Systems Co., Ltd. became our wholly-owned subsidiaries.

The purpose of the stock transfer and our establishment as a financial holding company was to reorganize the different businesses of Kookmin Bank and its subsidiaries under a holding company structure, the adoption of which we believed would:

•

assist us in creating an integrated system that facilitates the sharing of customer information and the development of integrated products and services by the different businesses within our subsidiaries;

•

assist us in expanding our business scope to include new types of business with higher profit margins;

•

enhance our ability to pursue strategic investments or reorganizations by way of mergers, acquisitions, spin-offs or other means;

•

maximize our management efficiency; and

•

further enhance our capacity to expand our overseas operations.

Following the stock transfer, our common stock was listed on the KRX KOSPI Market on October 10, 2008 and our ADSs were listed on the New York Stock Exchange on September 29, 2008.

Item 4.B.

Business Overview

Business

We are one of the largest financial holding companies in Korea, in terms of consolidated total assets, and our operations include Kookmin Bank, one of the leading commercial banks in Korea. Our subsidiaries collectively engage in a broad range of businesses, including commercial banking, credit cards, asset management, non-life and life insurance, capital markets activities and international banking and finance. As of December 31, 2020, we had consolidated total assets of ￦611 trillion, consolidated total deposits of ￦339 trillion and consolidated total equity of ￦43 trillion.

As part of our commercial banking activities, we provide credit and related financial services to individuals and small- and medium-sized enterprises and, to a lesser extent, to large corporate customers. We also provide a full range of deposit products and related services to both individuals and enterprises of all sizes. We provide these services predominantly through Kookmin Bank.

By their nature, our core consumer and small- and medium-sized enterprise operations place a high premium on customer access and convenience. Our combined banking network of 972 branches as of December 31, 2020, one of the most extensive in Korea, provides a solid foundation for our business and is a major source of our competitive strength. This network provides us with a large, stable and cost effective funding source, enables us to provide our customers convenient access and gives us the ability to provide the customer attention and service essential to conducting our business, particularly in an increasingly competitive environment. Our branch network is further enhanced by automated banking machines and fixed-line, smartphone and Internet banking. As of December 31, 2020, we had a customer base of approximately 35.5 million retail customers, which represented over one-half of the Korean population.

The following table sets forth the principal components of our lending business as of the dates indicated. As of December 31, 2020, retail loans and credit card loans and receivables accounted for 52.9% of our total loan portfolio:


	As of December 31,
	2018				2019				2020
	(in billions of Won, except percentages)
Retail
Mortgage and home equity ⁽¹⁾	￦	102,607	31.9	%	￦	106,711	31.2	%	￦	114,144	30.0	%
Other consumer ⁽²⁾		56,200	17.5			59,596	17.4			68,293	18.0

Total retail		158,807	49.4			166,307	48.6			182,437	48.0

Credit card		17,354	5.4			18,648	5.5			18,737	4.9
Corporate		140,701	43.7			149,152	43.6			160,114	42.1
Foreign		4,949	1.5			7,985	2.3			19,162	5.0

Total loans	￦	321,811	100.0	%	￦	342,092	100.0	%	￦	380,450	100.0	%

⁽¹⁾	Includes ￦6,072 billion, ￦6,266 billion and ￦5,225 billion of overdraft loans secured by real estate in connection with home equity loans as of December 31, 2018, 2019 and 2020, respectively.

⁽²⁾	Includes ￦9,361 billion, ￦9,472 billion and ￦9,877 billion of overdraft loans as of December 31, 2018, 2019 and 2020, respectively.

We provide a full range of personal lending products and retail banking services to individual customers, including mortgage loans. We are the largest private sector mortgage lender in Korea.

Lending to small- and medium-sized enterprises is the single largest component of our non-retail credit portfolio and represents a widely diversified exposure to a broad spectrum of the Korean corporate community, both by type of lending and type of customer, with one of the categories being collateralized loans to SOHO customers that are among the smallest of the small- and medium-sized enterprises. The volume of our loans to small- and medium-sized enterprises requires a customer-oriented approach that is facilitated by our large and geographically diverse branch network.

With respect to large corporate customers, we continue to seek to maintain and expand quality relationships by providing them with an increasing range of fee-related services.

Strategy

Our strategic focus is to become a world-class financial group that ranks among the leaders of the financial industry in Asia and globally. We plan to continue to solidify our market position as Korea’s leading financial group, enhance our ability to provide comprehensive financial services to our retail and corporate customers and strengthen our overseas operating platform and network. In addition, we continually strive to achieve our goal of creating “a happier life and a better world” through a customer-centric management philosophy. We believe our strong market position in the commercial banking area in Korea is an important competitive advantage, which will enable us to compete more effectively based on convenient delivery, product breadth and differentiation, and service quality while focusing on our profitability.

The key elements of our strategy are as follows:

Providing comprehensive financial services and maximizing synergies among our subsidiaries through our financial holding company structure

We believe the Korean financial services market has been undergoing and will continue to undergo significant change, resulting from, among other things, fluctuations in the Korean and global economy and the evolving social landscape in Korea, including the acceleration of population aging in Korea, the prevalence of smartphone usage, developments in digital and mobile technologies and the ensuing trend toward high-tech “smart banking” in the banking sector. In the context of such changes, we plan to become a comprehensive financial services provider capable of offering a full range of products and services to our large existing base of retail and corporate customers, as well as a global firm that can effectively compete with leading international financial institutions. To that end, we are continuing to implement specific initiatives including the enhancement of our group-wide integrated customer relationship management system to facilitate the sharing of customer information in accordance with applicable laws and the integration of various customer loyalty programs among our subsidiaries.

We believe our financial holding company structure gives us a competitive advantage over commercial banks and unaffiliated financial services providers by:

•

allowing us to offer a more extensive range of financial products and services;

•

enabling us to share customer information, which is not permitted outside a financial holding company structure, thereby enhancing our risk management capabilities;

•

enhancing our ability to reduce costs in areas such as back-office processing and procurement; and

•

enabling us to raise and manage capital on a centralized basis.

Identifying, targeting and marketing to attractive customer segments and providing superior customer value and service to such segments

In recent years, rather than focusing on developing products and services to satisfy the overall needs of the general population, we have increasingly targeted specific market segments in Korea that we expect to generate

superior growth and profitability. We will continue to implement a targeted marketing approach that seeks to identify the most attractive customer segments and to develop strategies to build market share in those segments. In particular, we intend to increase our “wallet share” of superior existing customers by using our advanced customer relationship management technology to better identify and meet the needs of our most creditworthy and high net worth customers, on whom we intend to concentrate our marketing efforts. For example, as part of this strategy, we operate a “priority customer” program called KB Star Club through five of our subsidiaries, Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card and KB Life Insurance. We select and classify KB Star Club customers based on their transaction history with the five entities and provide such customers with preferential treatment in various areas, including interest rates and transaction fees, depending upon how they are classified. We also provide private banking services, including personal wealth management services through our exclusive brand “Gold & Wise,” to increase our share of the priority customer market and in turn increase our profitability and strengthen our position in retail banking.

We are also focusing on attracting and retaining creditworthy customers by offering more differentiated fee-based products and services that are tailored to meet their specific needs. The development and marketing of our products and services are, in part, driven by customer segmentation to ensure that we meet the needs of each customer segment. For instance, we continue to develop hybrid financial products with enhanced features, including various deposit products and investment products, for which consumer demand has increased in recent years. We are also focusing on addressing the needs of our customers by providing the highest-quality products and services and developing an open-architecture strategy, which allows us to sell such products through one of the largest branch networks in Korea. In short, we aim to offer our customers a convenient one-stop financial services destination where they can meet their traditional retail and corporate banking requirements, as well as find a broad array of fee-based products and services tailored to address more specific financial needs, including in investment banking, securities brokerage, insurance and wealth management. We believe such differentiated, comprehensive services and cross-selling will not only enhance customer loyalty but also increase profitability.

One of our key customer-related strategies continues to be creating greater value and better service for our customers. We intend to continue improving our customer service, including through:

•

Improved customer relationship management technology . Management has devoted substantial resources toward development of our customer relationship management system, which is designed to provide our employees with the information needed to continually improve the level of service and incentives offered to our preferred customers. Our integrated customer relationship system allows for better customer management and streamlines our customer reward system. We have also developed state-of-the-art call centers, smartphone applications and online Internet capabilities to provide shorter response times to customers seeking information or to execute transactions. Our goals are to continually focus on improving customer service to satisfy our customers’ needs through continuing efforts to deliver new and improved services and to upgrade our customer relationship management system to provide the best possible service to our customers in the future.

•

Enhanced distribution channels . We also believe we can improve customer retention and usage rates by increasing the range of products and services we offer and by developing a differentiated, multi-channel distribution network, including branches, ATMs, call centers, smartphone banking and Internet banking. We believe that our leading market position in the commercial banking area in Korea gives us a competitive advantage in developing and enhancing our distribution capabilities.

Focusing on expanding and improving credit quality in our corporate lending business and increasing market share in the corporate financial services market

We plan to focus on corporate lending as one of our core businesses through attracting top-tier corporate customers and providing customized and distinctive products and services to build our position as a leading

service provider in the Korean corporate financial market. To increase our market share in providing financial services to the corporate market, we intend to:

•

promote a more balanced and strengthened portfolio with respect to our corporate business by developing our large corporate customer base and utilizing our improved credit management operations to better evaluate new large corporate and small- and medium-sized enterprise customers;

•

develop and sell more varied corporate financial products, consisting of transactional banking products which provide higher margin and less risk;

•

generate more fee income from large corporate customers through business-to-business transactions, foreign exchange transactions and derivative and other investment products, as well as investment banking services;

•

strengthen our marketing system based on our accumulated expertise in order to attract top-tier corporate customers;

•

focus on enhancing our channel network in order to provide the best service by strengthening our corporate customer management; and

•

further develop and train our core professionals with respect to this market, including through programs such as the “Career Development Path.”

Strengthening internal risk management capabilities

We believe that ensuring strong asset quality through effective credit risk management is critical to maintaining stable growth and profitability and risk management will continue to be one of our key focus areas. One of our highest priorities is to improve our asset quality and more effectively price our lending products to take into account inherent credit risk in our portfolio. Our goal is to maintain the soundness of our credit portfolio, profitability and capital base. To this end, we intend to continue to strengthen our internal risk management capabilities by tightening our underwriting and management policies and improving our internal compliance policies. To accomplish this objective, we have undertaken the following initiatives:

•

Strengthening underwriting procedures with advanced credit scoring techniques. We have centralized our credit management operations into our Credit Management and Analysis Group. Through such centralization, we aim to enhance our credit management expertise and improve our system of checks-and-balances with respect to our credit portfolio. We have also improved our ability to evaluate the credit of our small- and medium-sized enterprise customers through assigning experienced credit officers to our regional credit offices. We also require the same officer to evaluate, review and monitor the outstanding loans and other credits with respect to a customer, which we believe enhances the expertise and improves the efficiency and accountability of such officer, while enabling us to maintain a consistent credit policy. We have also, as a general matter, implemented enhanced credit analysis and scoring techniques, which we believe will enable us to make better-informed decisions about the credit we extend and improve our ability to respond more quickly to incipient credit problems. We are also focusing on enhancing our asset quality through improvement of our early monitoring systems and collection procedures.

•

Improving our internal compliance policy and ensuring strict application in our daily operations. We have improved our monitoring capabilities with respect to our internal compliance by providing training and educational programs to our management and employees. We have also implemented strict compliance policies to maintain the integrity of our risk management system.

Cultivating a performance-based, customer-oriented culture that emphasizes market best practices

We believe a strong and dedicated workforce is critical to our ability to offer our customers the highest quality financial services and is integral to our goal of maintaining our position as one of Korea’s leading

financial services providers. In the past, we have dedicated significant resources to develop and train our core professionals, and we intend to continue to enhance the productivity of our employees, including by regularly sponsoring in-house training and educational programs. We have also been seeking to cultivate a performance-based culture to create a work environment where members of our staff are incentivized to maximize their potential and in which our employees are directly rewarded for superior performance. We intend to maintain a professional workforce whose high quality of customer service reflects our goal to achieve and maintain global best practice standards in all areas of operations.

Retail Banking

Due to Kookmin Bank’s history and development as a retail bank and the know-how and expertise we have acquired from our activities in that market, retail banking has been and will continue to remain one of our core businesses. Our retail banking activities consist primarily of lending and deposit-taking.

Lending Activities

We offer various loan products that target different segments of the population, with features tailored to each segment’s financial profile and other characteristics. The following table sets forth the balances and the percentage of our total retail lending represented by the categories of our retail loans as of the dates indicated:


	As of December 31,
	2018				2019				2020
	(in billions of Won, except percentages)
Retail:
Mortgage and home equity loans	￦	102,607	64.6	%	￦	106,711	64.2	%	￦	114,144	62.6	%
Other consumer loans ⁽¹⁾		56,200	35.4			59,596	35.8			68,293	37.4

Total	￦	158,807	100.0	%	￦	166,307	100.0	%	￦	182,437	100.0	%

⁽¹⁾	Excludes credit card loans, but includes overdraft loans.

Our retail loans consist of:

•

Mortgage loans , which are loans made to customers to finance home purchases, construction, improvements or rentals; and home equity loans , which are loans made to our customers secured by their homes to ensure loan repayment. We also provide overdraft loans in connection with our home equity loans.

•

Other consumer loans , which are loans made to customers for any purpose (other than mortgage and home equity loans). These include overdraft loans, which are loans extended to customers to cover insufficient funds when they withdraw funds from their demand deposit accounts with us in excess of the amount in such accounts up to a limit established by us.

For secured loans, including mortgage and home equity loans, our policy is to lend up to 100% of the adjusted collateral value (except in areas of high speculation designated by the government where we generally limit our lending to between 10% and 60% of the appraised value of collateral) minus the value of any lien or other security interests that are prior to our security interest. In calculating the adjusted collateral value for real estate, we use the appraisal value of the collateral multiplied by a factor, generally between 40% to 88% (10% to 70% in the case of mortgage and home equity loans). This factor varies depending upon the location and use of the real estate and is established in part by taking into account court-supervised auction prices for nearby properties.

A borrower’s eligibility for our mortgage loans depends on the value of the mortgage property, the appropriateness of the use of proceeds and the borrower’s creditworthiness. A borrower’s eligibility for home

equity loans is determined by the borrower’s credit and the value of the property, while the borrower’s eligibility for other consumer loans is primarily determined by the borrower’s credit. If the borrower’s credit deteriorates, it may be difficult for us to recover the loan. As a result, we review the borrower’s creditworthiness, collateral value, credit scoring and third party guarantees when evaluating a borrower. In addition, to reduce the interest rate of a loan or to qualify for a loan, a borrower may provide collateral, deposits or guarantees from third parties.

Mortgage and Home Equity Lending

The housing finance market in Korea is divided into public sector and private sector lending. In the public sector, two government entities, the National Housing and Urban Fund and the National Agricultural Cooperative Federation, are responsible for most of the mortgage lending.

Private sector mortgage and home equity lending in Korea has expanded substantially in recent years. We provide customers with a number of mortgage and home equity loan products that have flexible features, including terms, repayment schedules, amounts and eligibility for loans, and we offer interest rates on a commercial basis. The maximum term of mortgage loans is 35 years and the majority of our mortgage loans have long-term maturities, which may be renewed. Non-amortizing home equity loans have a maturity of one to five years and home equity loans subject to amortization of principal may have a maximum term of up to 35 years. As of December 31, 2020, we had ￦25,795 billion of amortizing home equity loans, representing 94.1% of our total home equity loans, and ￦1,610 billion of non-amortizing home equity loans, representing 5.9% of our total home equity loans. Any customer is eligible for a mortgage or an individual home equity loan regardless of whether it participates in one of our housing related savings programs and so long as that customer is not barred by regulation from obtaining a loan because of bad credit history. However, customers with whom we frequently transact business and provide us with significant revenue receive preferential interest rates on loans.

As of December 31, 2020, 54.4% of our mortgage loans were secured by residential property which is the subject of the loan, 25.2% of our mortgage loans were guaranteed by the Housing Finance Credit Guarantee Fund, a government housing-related entity, and the remaining 20.4% of our mortgage loans, contrary to general practices in the United States, were unsecured (although the use of proceeds from these loans is restricted to financing of home purchases and some of these loans are guaranteed by a third party). One reason that a relatively high percentage of our mortgage loans are unsecured is that we, along with other Korean banks, provide advance loans to borrowers for the down payment of new housing (particularly apartments) that is in the process of being built. Once construction is completed, which may take several years, these mortgage loans become secured by the new housing purchased by these borrowers. For the year ended December 31, 2020, the average initial loan-to-value ratio of our mortgage loans, which is a measure of the amount of loan exposure to the appraised value of the security collateralizing the loan, was approximately 44.6%. There are three reasons that our loan-to-value ratio is relatively lower (as is the case with other Korean banks) compared to similar ratios in other countries, such as the United States. The first reason is that housing prices are high in Korea relative to average income, so most people cannot afford to borrow an amount equal to the entire value of their collateral and make interest payments on such an amount. The second reason relates to the “ jeonsae ” system, through which people provide a key money deposit while residing in the property prior to its purchase. At the time of purchase, most people use the key money deposit as part of their payment and borrow the remaining amount from Korean banks, which results in a loan that will be for an amount smaller than the appraised value of the property for collateral and assessment purposes. The third reason is that Korean banks discount the appraised value of the borrower’s property for collateral and assessment purposes so that a portion of the appraised value is reserved in order to provide recourse to a renter who lives at the borrower’s property. This is in the event that the borrower’s property is seized by a creditor, and the renter is no longer able to reside at that property. See “Item 3.D. Risk Factors—Other risks relating to our business—A decline in the value of the collateral securing our loans and our inability to realize full collateral value may adversely affect our credit portfolio.”

The following table sets forth our unsecured and secured mortgage loans and home equity loans as of December 31, 2018, 2019 and 2020, based on their loan classification categories under IFRS and our internal credit ratings for loans (which are described in Note 4.2.4 of the notes to our consolidated financial statements):


	As of December 31, 2018 ⁽²⁾
	Stage 1										Stage 2		Stage 3		Total
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5
	(in billions of Won)
Mortgage:
Secured ⁽¹⁾	￦	59,162	￦	1,206	￦	32	￦	141	￦	1	￦	6,969	￦	138	￦	67,649
Unsecured		3,088		41		1		—		—		117		4		3,251
Home Equity:
Secured		27,708		711		76		5		2		3,020		98		31,620
Unsecured		60		22		5		—		—		—		—		87

Total	￦	90,018	￦	1,980	￦	114	￦	146	￦	3	￦	10,106	￦	240	￦	102,607


	As of December 31, 2019 ⁽²⁾
	Stage 1										Stage 2		Stage 3		Total
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5
	(in billions of Won)
Mortgage:
Secured ⁽¹⁾	￦	69,797	￦	930	￦	31	￦	2	￦	1	￦	5,180	￦	169	￦	76,110
Unsecured		1,930		19		1		—		—		36		4		1,990
Home Equity:
Secured		25,655		493		126		7		2		2,203		114		28,600
Unsecured		6		4		1		—		—		—		—		11

Total	￦	97,388	￦	1,446	￦	159	￦	9	￦	3	￦	7,419	￦	287	￦	106,711


	As of December 31, 2020 ⁽²⁾
	Stage 1										Stage 2		Stage 3		Total
	Grade 1		Grade 2		Grade 3		Grade 4		Grade 5
	(in billions of Won)
Mortgage:
Secured ⁽¹⁾	￦	77,133	￦	1,223	￦	81	￦	4	￦	3	￦	5,294	￦	151	￦	83,889
Unsecured		2,800		13		—		—		—		34		3		2,850
Home Equity:
Secured		24,587		717		160		11		4		1,829		91		27,399
Unsecured		4		2		—		—		—		—		—		6

Total	￦	104,524	￦	1,955	￦	241	￦	15	￦	7	￦	7,157	￦	245	￦	114,144

⁽¹⁾	Includes advance loans guaranteed by the Housing Finance Credit Guarantee Fund to borrowers for the down payment of new housing that is in the process of being built.

⁽²⁾	See “Item 5.A. Operating Results—Critical Accounting Policies—Impairment of Loans and Allowance for Loan Losses.”

Our home equity loan portfolio includes loans that are in a second lien position. In addition to the underwriting procedures we perform when we issue home equity loans in general, we perform additional underwriting procedures with respect to home equity loans secured by a second lien to assess and confirm the value and status of any loans secured by security interests on the collateral which would be prior to our security interest under the second lien home equity loan. Under regulations implemented by the Financial Supervisory Service, our home equity loans are subject to maximum loan-to-value ratios (i.e., the ratio of the aggregate principal amount of loans, including first and second lien loans, secured by a particular item of collateral to the appraised value of such collateral) of between 10% and 70%. As such, for home equity loans, we do not lend more than an amount equal to the adjusted collateral value (i.e., the collateral value as discounted by the required loan-to-value ratio) minus the value of any loans secured by security interests on the collateral that are prior to our security interest. Accordingly, in order to ascertain the value of loans secured by security interests on the collateral which would be prior to our security interest and to confirm the status of such loans, we perform

additional underwriting procedures including a review of the relevant title and security interest registration documents and bank documents and certificates regarding such loans. In addition, for purposes of calculating debt-to-income ratios applicable to loans secured by certain types of housing under regulations implemented by the Financial Supervisory Service (see “—Supervision and Regulation—Principal Regulations Applicable to Banks—Regulations Relating to Retail Household Loans”), which we apply on a nationwide basis for our home equity loans, we perform additional adjustments in our debt-to-income ratio calculations with respect to second lien home equity loans to account for the value of loans secured by security interests on the collateral that are prior to our security interest.

Following the issuance of a home equity loan, we make use of the Korea Credit Information Services’ database of delinquent borrowers to generally monitor the compliance of our borrowers with their other loan obligations, including the compliance of our second lien borrowers with their first lien loans. If a borrower in Korea is past due on payments of interest or principal for more than three months on any of its outstanding loans to Korean financial institutions (including mortgage, home equity, other consumer and credit card loans), such borrower is registered on the Korea Credit Information Services’ database of delinquent borrowers, which we monitor on a daily basis. The information disclosed by such database, which includes the outstanding loan amount which is past due, the identity of the delinquent borrower and the name of the applicable lending institution for such loan, provides an early warning about such borrower to our loan officers at the branch level, who then closely monitor our outstanding loans to such delinquent borrower and take appropriate preventive and remedial measures (including requiring such borrower to provide additional collateral) as necessary. Upon the occurrence of a default in the first lien position, we treat the second lien home equity loan as part of our potential problem loans or non-performing loans. More specifically, upon learning of the occurrence of a default in the first lien position, we examine our second lien home equity loan to determine whether the loan should be re-classified as “precautionary,” “substandard” or “doubtful” according to the asset classification guidelines of the Financial Services Commission. Assuming that such second lien home equity loan is not delinquent, if the outstanding principal amount of the relevant first lien loan is less than ￦15 million, we classify the entire amount of the second lien home equity loan as “precautionary” and closely monitor it as a loan that may potentially become problematic. If the outstanding principal amount of the relevant first lien loan is ￦15 million or more or the borrower is undergoing, or preparing to undergo, foreclosure proceedings with respect to the underlying collateral, we classify the estimated recoverable amount of the second lien home equity loan as “substandard” and the rest of such loan amount as “doubtful.”

Pricing . The interest rates on our retail mortgage loans are generally based on a periodic floating rate (which is based on a base rate determined for three-month, six-month or twelve-month periods using our Market Opportunity Rate system, which reflects our internal cost of funding, further adjusted to account for our expenses related to lending). Our interest rates also incorporate a margin based among other things on the type of security, the credit score of the borrower and the estimated loss on the security. We can adjust the price to reflect the borrower’s current and/or expected future contribution to us. The applicable interest rate is determined at the time of the loan. If a loan is terminated prior to its maturity, the borrower is obligated to pay us an early termination fee of approximately 1.2% to 1.4% of the loan amount in addition to the accrued interest.

The interest rates on our home equity loans are determined on the same basis as our retail mortgage loans.

As of December 31, 2020, the Market Opportunity Rate was 0.66% for a three-month period, 0.87% for a six-month period and 0.90% for a twelve-month period.

Other Consumer Loans

Other consumer loans are primarily unsecured. However, such loans may be secured by real estate, deposits or securities. As of December 31, 2020, approximately ￦41,438 billion, or 60.7% of our consumer loans (other than mortgage and home equity loans) were unsecured loans (although some of these loans were guaranteed by a third party). Overdraft loans are also classified as other consumer loans, are primarily unsecured and generally

have an initial maturity of one year, which is typically extended automatically on an annual basis and may be extended up to a maximum of five years. The amount of overdraft loans as of December 31, 2020 was approximately ￦9,877 billion.

Pricing . The interest rates on our other consumer loans (including overdraft loans) are determined on the same basis as on our mortgage and home equity loans, except that, for unsecured loans, the borrower’s credit score as determined during our loan approval process is also taken into account. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk Management.”

Deposit-taking Activities

Due to our extensive nationwide network of branches, together with our long history of development and our resulting know-how and expertise, as of December 31, 2020, we had the largest number of retail customers and retail deposits among Korean commercial banks. The balance of our deposits from retail customers was ￦174,851 billion, ￦185,666 billion and ￦209,181 billion as of December 31, 2018, 2019 and 2020, respectively, which constituted 63.2%, 60.8% and 61.8%, respectively, of the balance of our total deposits.

We offer many deposit products that target different segments of our retail customer base, with features tailored to each segment’s financial profile, characteristics and needs, including:

•

Demand deposits , which either do not accrue interest or accrue interest at a lower rate than time deposits. Demand deposits allow the customer to deposit and withdraw funds at any time and, if they are interest bearing, accrue interest at a variable rate depending on the amount of deposit. Retail and corporate demand deposits constituted 47.3% of our total deposits as of December 31, 2020 and paid average interest of 0.18% for 2020.

•

Time deposits , which generally require the customer to maintain a deposit for a fixed term, during which the deposit accrues interest at a fixed rate or a variable rate based on the KOSPI, or to deposit specified amounts on an installment basis. If the amount of the deposit is withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered. The term for time deposits typically ranges from one month to three years, and the term for installment savings deposits ranges from six months to five years. Retail and corporate time deposits constituted 43.3% of our total deposits as of December 31, 2020 and paid average interest of 1.56% for 2020. Most installment savings deposits offer fixed interest rates.

•

Certificates of deposit , the maturities of which typically range from 30 days to 730 days with a required minimum deposit of ￦10 million. Interest rates on certificates of deposit are determined based on the length of the deposit and prevailing market rates. Our certificates of deposit are sold at a discount to their face value, reflecting the interest payable on the certificates of deposit.

•

Foreign currency deposits , which are available to Korean and foreign residents, non-residents and overseas immigrants. We offer foreign currency demand deposits and time deposits as well as checking accounts in 11 currencies. Foreign currency demand deposits , which accrue interest at a variable rate, allow customers to deposit and withdraw funds at any time. Foreign currency time deposits generally require customers to maintain the deposit for a fixed term, during which the deposit accrues interest at a fixed rate. If the funds in a foreign currency time deposit are withdrawn prior to the end of the fixed term, the customer will be paid a lower interest rate than that originally offered.

We offer varying interest rates on our deposit products depending upon average funding costs, the rate of return on our interest-earning assets and the interest rates offered by other commercial banks.

We also offer comprehensive savings deposits for housing subscription, which are monthly installment savings deposits that provide the holder with preferential rights to subscribe for both public and private housing under the Housing Act. This law is the basic law setting forth various measures supporting the purchase of

houses and the supply of such houses by construction companies. These deposits require monthly installments of ￦20,000 to ￦500,000 and accrue interest at variable rates depending on the term. An eligible account holder with ￦70 million or less in annual salary income may also claim a tax deduction for 40% of its annual installment amounts, subject to a maximum deductible amount, in its income tax return for the year under the Special Tax Treatment Control Law.

In 2002, after significant research and planning, we launched private banking operations at Kookmin Bank’s headquarters. Shortly thereafter, we launched a comprehensive strategy with respect to customers with higher net worth, which included staffing appropriate representatives, marketing aggressively, establishing IT systems, selecting appropriate branch locations and readying such branches with the necessary facilities to service such customers. As of December 31, 2020, we operated 21 main private banking centers through Kookmin Bank.

The Monetary Policy Board of the Bank of Korea, or the Monetary Policy Board, imposes a reserve requirement on Won currency deposits of commercial banks based generally on the type of deposit instrument. The reserve requirement is currently up to 7%. See “—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity.”

The Depositor Protection Act provides for a deposit insurance system where the Korea Deposit Insurance Corporation guarantees to depositors the repayment of their eligible bank deposits. The deposit insurance system insures up to a total of ￦50 million per depositor per bank. See “—Supervision and Regulation—Principal Regulations Applicable to Banks—Deposit Insurance System.”

Credit Cards

Credit cards are another of our core retail products. We issue most of our credit cards under the “KB Kookmin Card” brand. Our credit card business is operated by our subsidiary, KB Kookmin Card Co., Ltd.

The following table sets forth certain data relating to our credit card operations, on a non-consolidated basis, as of the dates and for the periods indicated:


	As of and for the Year Ended December 31,
	2018			2019			2020
	(in billions of Won, except number of holders, accounts and percentages)
Number of credit cardholders (at year end) (thousands)
General accounts		9,772			10,265			10,586
Corporate accounts		564			615			550

Total		10,336			10,880			11,136

Number of merchants (at year end) (thousands)		2,575			2,659			2,743
Active ratio (at year end) ⁽¹⁾		89.2	%		91.0	%		90.4	%
Credit card fees
Merchant fees ⁽²⁾	￦	1,327		￦	1,239		￦	1,302
Installment and cash advance fees		450			492			475
Annual membership fees		114			138			157
Other fees		922			987			982

Total	￦	2,813		￦	2,856		￦	2,916

Charge volume ⁽³⁾
General purchase	￦	70,622		￦	77,413		￦	81,328
Installment purchase		17,493			19,222			19,321
Cash advance		9,331			9,265			8,591
Card loan ⁽⁴⁾		6,098			6,654			7,184

Total	￦	103,544		￦	112,554		￦	116,424

Outstanding balance (at year end)
General purchase	￦	6,417		￦	7,028		￦	6,732
Installment purchase		4,772			5,107			5,360
Cash advance		1,257			1,208			1,054
Card loan ⁽⁴⁾		4,942			5,345			5,623

Total	￦	17,388		￦	18,688		￦	18,769

Average outstanding balances
General purchase	￦	6,145		￦	6,748		￦	6,841
Installment purchase		4,449			4,905			5,198
Cash advance		1,230			1,210			1,098
Card loan ⁽⁴⁾		4,917			5,107			5,440

Total	￦	16,741		￦	17,970		￦	18,577

Delinquency ratios (at year end) ⁽⁵⁾
From 1 month to 3 months		0.63	%		0.56	%		0.50	%
From 3 months to 6 months		0.63			0.55			0.46
Over 6 months		0.05			0.14			0.10

Total		1.31	%		1.25	%		1.06	%

Non-performing loan ratio		0.66	%		0.66	%		0.55	%
Write-offs (gross)	￦	465		￦	506		￦	501
Recoveries ⁽⁶⁾		135			138			137

Net write-offs	￦	330		￦	368		￦	364

Gross write-off ratio ⁽⁷⁾		2.78	%		2.82	%		2.70	%
Net write-off ratio ⁽⁸⁾		1.97	%		2.05	%		1.96	%

⁽¹⁾	The active ratio represents the ratio of accounts used at least once within the last six months to total accounts as of year-end.

⁽²⁾

Merchant fees consist of maintenance fees and costs associated with prepayment by us (on behalf of customers) of sales proceeds to merchants, processing fees relating to sales and membership applications, costs relating to the management of delinquencies and recoveries, provision for loan losses, general variable expenses and other fixed costs that are charged to our member merchants. We typically charge our member merchants fees that range from 0.8% to 2.3%. We offer discounts for member merchants that are small- and medium-sized enterprises pursuant to applicable laws.

⁽³⁾	Represents the aggregate cumulative amount charged during the year.

⁽⁴⁾

Card loans consist of loans that are provided on an unsecured basis to cardholders upon prior agreement. Payment on such a loan can be due either in one payment or in installments after a fixed period, in the case of principal payments, and will be due in installments, in the case of interest payments.

⁽⁵⁾

Represents ratio of credit card balances overdue by one month or more to outstanding balance. In line with industry practice, we have restructured a portion of delinquent credit card account balances as loans. As of December 31, 2018, 2019 and 2020, these restructured loans amounted to ￦97 billion, ￦116 billion and ￦119 billion, respectively. Because these restructured loans are not treated as being delinquent at the time of conversion or for a period of time thereafter, our delinquency ratios may not fully reflect all delinquent amounts relating to our outstanding balances.

⁽⁶⁾	Does not include proceeds that we received from sales of our non-performing loans that were written off.

⁽⁷⁾	Represents the ratio of gross write-offs for the year to average outstanding balance for the year. Our charge-off policy is generally to write off balances which have been overdue for four payment cycles or more or which have been classified as expected loss.

⁽⁸⁾	Represents the ratio of net write-offs for the year to average outstanding balances for the year. Our charge-off policy is generally to write off balances which have been overdue for four payment cycles or more or which have been classified as expected loss.

In contrast to the system in the United States and many other countries, where most credit cards are revolving cards that allow outstanding amounts to be rolled over from month to month so long as a required minimum percentage is repaid, credit cardholders in Korea are generally required to pay for their purchases within approximately 14 to 44 days of purchase depending on their payment cycle. However, we also offer revolving payment plans to individuals that allow outstanding amounts to be rolled over to subsequent payment periods. Delinquent accounts (defined as amounts overdue for one day or more) are charged penalty interest and closely monitored. For installment purchases, we charge interest on unpaid installments at rates that vary according to the individual cardholder’s membership level, which is based on, among others, transaction history, the length of the cardholder’s relationship with us and contribution to our profitability.

We are committed to continuing to enhance our credit card business by strengthening our risk management and maximizing our operational efficiency. In addition, we believe that our extensive branch network, brand recognition and overall size will enable us to cross-sell products such as credit cards to our existing and new customers.

To promote our credit card business, we offer services targeted to various financial profiles and customer requirements and are concentrating on :

•

strengthening cross-sales to existing customers and offering integrated financial services;

•

offering cards that provide additional benefits such as frequent flyer miles and reward program points that can be redeemed by the customer for complementary services, prizes and cash;

•

offering platinum cards, VVIP cards and other prime members’ cards, which have a higher credit limit and provide additional services in return for a higher fee;

•

acquiring new customers through strategic alliances and cross-marketing with retailers;

•

encouraging increased use of credit cards by existing customers through special offers for frequent users;

•

introducing new features such as travel services and insurance through alliance partners; and

•

developing fraud detection and security systems to prevent the misuse of credit cards.

As of December 31, 2020, we had approximately 11.1 million credit cardholders. Of the credit cards outstanding, approximately 90.4% were active, meaning that they had been used at least once during the previous six months.

Our card revenues consist principally of cash advance fees, merchant fees, credit card installment fees, interest income from credit card loans, annual fees paid by cardholders, interest and fees on late payments and, with respect to revolving payment plans we offer, interest and fees relating to revolving balances.

Under non-exclusive license agreements with overseas financial services corporations, we also issue MasterCard, Visa, American Express, JCB and China UnionPay credit cards.

We issue debit cards and charge merchants commissions in the amount of approximately 1.0% of the amounts purchased using a debit card. We also issue “check cards,” which are similar to debit cards except that “check cards” are accepted by all merchants that accept credit cards, and charge merchants commissions that typically range from 0.5% to 1.5%. Much like debit cards, check card purchases are also debited directly from customers’ accounts with us.

Corporate Banking

We lend to and take deposits from small- and medium-sized enterprises and, to a lesser extent, large corporate customers. Kookmin Bank, our banking subsidiary, had 369,672 small- and medium-sized enterprise borrowers and 1,930 large corporate borrowers for Won-currency loans as of December 31, 2020. For 2020, we received fee revenue from cash management services offered to corporate customers, which include “firm-banking” services such as inter-account transfers, transfers of funds from various branches and agencies of a company (such as insurance premium payments) to the account of the headquarters of such company and transfers of funds from various customers of a company to the main account of such company, in the amount of ￦111.7 billion. Of our branch network as of December 31, 2020, we had three branches that primarily handled large corporate banking.

The following table sets forth the balances and the percentage of our total corporate lending represented by our small- and medium-sized enterprise business loans and our large corporate business loans as of the dates indicated, estimated based on our internal classifications of corporate borrowers:


	As of December 31,
	2018				2019				2020
	(in billions of Won, except percentages)
Corporate:
Small- and medium-sized enterprise loans	￦	106,015	75.3	%	￦	112,487	75.4	%	￦	123,066	82.0	%
Large corporate loans		34,686	24.7			36,665	24.6			27,104	18.0

Total	￦	140,701	100.0	%	￦	149,152	100.0	%	￦	150,170	100.0	%

On the deposit-taking side, we currently offer our corporate customers several types of corporate deposits. Our corporate deposit products can be divided into two general categories: (1) demand deposits that have no restrictions on deposits or withdrawals, but which offer a relatively low interest rate; and (2) deposits from which withdrawals are restricted for a period of time, but offer higher interest rates. We also offer installment savings deposits, certificates of deposit and repurchase instruments. We offer varying interest rates on deposit products depending upon the rate of return on our income-earning assets, average funding costs and interest rates offered by other nationwide commercial banks.

The total amount of deposits from our corporate customers amounted to ￦123,867 billion as of December 31, 2020, or 36.6% of our total deposits.

Small- and Medium-sized Enterprise Banking

Our small- and medium-sized enterprise banking business has traditionally been and will remain one of our core businesses because of both our historical development and our accumulated expertise. We believe that we

possess the necessary elements to succeed in the small- and medium-sized enterprise market, including our extensive branch network, our credit rating system for credit approval, our marketing capabilities (which we believe have provided us with significant brand loyalty) and our ability to take advantage of economies of scale.

We use the term “small- and medium-sized enterprises” as defined in the Framework Act on Small and Medium Enterprises and related regulations. Under the Framework Act on Small and Medium Enterprises and related regulations, an enterprise must meet each of the following criteria in order to meet the definition of a small- and medium-sized enterprise: (i) total assets at the end of the immediately preceding fiscal year must be less than ￦500 billion, (ii) the average or annual sales revenue standards as prescribed by the Enforcement Decree of the Framework Act on Small and Medium Enterprises that are applicable to the enterprise’s primary business must be met and (iii) the standards of management independence as prescribed by the Enforcement Decree of the Framework Act on Small and Medium Enterprises must be met. However, pursuant to an amendment to the Framework Act on Small and Medium Enterprises, which has become effective in June 2020, an enterprise that qualifies as a small- and medium-sized enterprise pursuant to the above definition shall no longer be considered a small- and medium-sized enterprise if it is incorporated into, or is deemed to be incorporated into, a business group subject to certain disclosure requirements under the Monopoly Regulation and Fair Trade Act. Moreover, certified social enterprises (as defined in the Social Enterprise Promotion Act) and cooperatives and federations of cooperatives (each as defined in the Framework Act on Cooperatives and the Consumer Cooperatives Act) that satisfy the requirements prescribed by the Framework Act on Small and Medium Enterprises may also qualify as small- and medium-sized enterprises.

Lending Activities

Our principal loan products for our small- and medium-sized enterprise customers are working capital loans and facilities loans. Working capital loans are provided to finance working capital requirements and include notes discounted and trade financing. Facilities loans are provided to finance the purchase of equipment and the establishment of manufacturing assembly plants. As of December 31, 2020, working capital loans and facilities loans accounted for 48.2% and 51.8%, respectively, of our total small- and medium-sized enterprise loans. As of December 31, 2020, Kookmin Bank, our banking subsidiary, had 369,672 small- and medium-sized enterprise customers on the lending side.

Loans to small- and medium-sized enterprises may be secured by real estate or deposits or may be unsecured. As of December 31, 2020, secured loans and guaranteed loans accounted for, in the aggregate, 84.5% of our small- and medium-sized enterprise loans. Among the secured loans, 97.2% were secured by real estate and 2.8% were secured by deposits or securities. Working capital loans generally have a maturity of one year, but may be extended for additional terms of up to one year in length for an aggregate term of five years. Facilities loans have a maximum maturity of 15 years.

When evaluating the extension of working capital loans, we review the corporate customer’s creditworthiness and capability to generate cash. Furthermore, we take credit guaranty letters from other financial institutions and use time deposits that the borrower has with us as collateral, and may require additional collateral.

The value of any collateral is defined using a formula that takes into account the appraised value of the property, any prior liens or other claims against the property and an adjustment factor based on a number of considerations including, with respect to property, the value of any nearby property sold in a court-supervised auction during the previous five years. We revalue any collateral on a periodic basis (generally every year) or if a trigger event occurs with respect to the loan in question.

We also offer mortgage loans to home builders or developers who build or sell single- or multi-family housing units, principally apartment buildings. Many of these builders and developers are categorized as small- and medium-sized enterprises. We offer a variety of such mortgage loans, including loans to purchase property or

finance the construction of housing units and loans to contractors used for working capital purposes. Such mortgage loans subject us to the risk that the housing units will not be sold. As a result, we review the probability of the sale of the housing unit when evaluating the extension of a loan. We also review the borrower’s creditworthiness and the adequacy of the intended use of proceeds. Furthermore, we take a lien on the land on which the housing unit is to be constructed as collateral. If the collateral is not sufficient to cover the loan, we also take a guarantee from the Housing Finance Credit Guarantee Fund as security.

A substantial number of our small- and medium-sized enterprise customers are SOHOs, which we currently define to include sole proprietorships and individual business interests. With respect to SOHOs, we apply credit risk evaluation models, which not only use quantitative analysis related to a customer’s accounts, personal credit and financial information and due amounts but also require our credit officers to perform a qualitative analysis of each potential SOHO customer. With respect to SOHO loans in excess of ￦1 billion, our credit risk evaluation model also includes a quantitative analysis of the financial statements of the underlying business. We generally lend to SOHOs on a secured basis, although a small portion of our SOHO exposures are unsecured.

Pricing

We establish the price for our corporate loan products based principally on transaction risk, our cost of funding and market considerations. Transaction risk is measured by such factors as the credit rating assigned to a particular borrower, the size of the borrower and the value and type of collateral. Our loans are priced based on the Market Opportunity Rate system, which is a periodic floating rate system that takes into account the current market interest rate. For the Market Opportunity Rate as of December 31, 2020, see “—Retail Banking—Lending Activities—Mortgage and Home Equity Lending—Pricing.”

While we generally utilize the Market Opportunity Rate system, depending on the price and other terms set by competing banks for similar borrowers, we may adjust the interest rate we charge to compete more effectively with other banks.

Large Corporate Banking

Large corporate customers include all companies that are not small- and medium-sized enterprise customers. Kookmin Bank’s articles of incorporation provide that financial services to large corporate customers must be no more than 40% of the total amount of our Won-denominated loans. Our business focus with respect to large corporate banking is to selectively increase the proportion of high quality large corporate customers. Specifically, we are carrying out various initiatives to improve our customer relationship with large corporate customers and have been seeking to expand our service offerings to this segment.

Lending Activities

Our principal loan products for our large corporate customers are working capital loans and facilities loans. As of December 31, 2020, working capital loans and facilities loans accounted for 76.6% and 23.4%, respectively, of our total large corporate loans. We also offer mortgage loans to large corporate clients who build or sell single- or multi-family housing units, as described above under “—Small- and Medium-sized Enterprise Banking—Lending Activities.”

As of December 31, 2020, secured loans and guaranteed loans accounted for, in the aggregate, 31.7% of our large corporate loans. Among the secured loans, 73.2% were secured by real estate and 26.8% were secured by deposits or securities. Working capital loans generally have a maturity of one year, but may be extended for additional terms ranging from three months to one year in length for an aggregate term of five years. Facilities loans have a maximum maturity of 15 years.

In our unsecured lending to large corporate customers, a critical consideration in our policy regarding the extension of such unsecured loans is the borrower’s creditworthiness. We assign each borrower a credit rating

based on the judgment of our experts or scores calculated using the appropriate credit rating system, taking into account both financial factors and non-financial factors (such as our perception of a borrower’s reliability, management and operational risk and risk relating to the borrower’s industry). The credit ratings, along with such factors, are key determinants in our lending to large corporate customers. Large corporate customers generally have higher credit ratings due to their higher repayment capability compared to other types of borrowers, such as small- and medium-sized enterprise borrowers. In addition, large corporate borrowers generally are affected to a lesser extent than small- and medium-sized enterprise borrowers by fluctuations in the Korean economy and also maintain more sophisticated financial records. As of December 31, 2020, 89.2% of our large corporate customers had credit ratings of BBB- or above according to the internal credit rating system of Kookmin Bank, compared to 79.0% of our small- and medium-sized enterprise customers. A credit rating of BBB- is assigned to customers whose ability to repay the principal and interest on their outstanding loans is determined by us to be generally satisfactory but nonetheless subject to adverse effects under unfavorable economic conditions or during downturns in the business environment. Based on our internal analysis of historical data, we believe that the probability of default for loans extended to large corporate customers with a credit rating of BBB- or above is between 0.00% and 2.26%.

We monitor the credit status of large corporate borrowers and collect information to adjust our ratings appropriately. We also manage and monitor our large corporate customers through a dedicated Corporate Banking Branch and Kookmin Bank’s Large Corporate Business Department. In addition, Kookmin Bank’s Credit Risk Department manages the exposures to each large corporate customer and conducts in-depth analysis of various economic and industry-related risks that are relevant to large corporate customers.

As of December 31, 2020, in terms of our outstanding loan balance, 32.6% was extended to borrowers in the financial industry, 27.7% of our large corporate loans was extended to borrowers in the manufacturing industry, and 22.8% was extended to borrowers in the service industry.

Pricing

We determine pricing of our large corporate loans in the same way as we determine the pricing of our small- and medium-sized enterprise loans. See “—Small- and Medium-sized Enterprise Banking—Pricing” above. As of December 31, 2020, the Market Opportunity Rate, which is utilized in pricing loans offered by us, was the same for our large corporate loans as for our small- and medium-sized enterprise loans.

Capital Markets Activities and International Banking/Finance

Through our capital markets operations, we invest and trade in debt and equity securities and, to a lesser extent, engage in derivatives and asset securitization transactions and make call loans. We also provide investment banking and securities brokerage services.

Securities Investment and Trading

We invest in and trade securities for our own account in order to maintain adequate sources of liquidity and to generate interest and dividend income and capital gains. As of December 31, 2018, 2019 and 2020, our investment portfolio, which consists primarily of financial assets at amortized cost and financial assets at fair value through other comprehensive income (formerly referred to as held-to-maturity financial assets and available-for-sale financial assets, respectively) and our trading portfolio had a combined total carrying amount of ￦111,434 billion, ￦124,913 billion and ￦159,774 billion (including the investment and trading portfolios of our insurance operations) and represented 23.2%, 24.1% and 26.2% of our total assets, respectively.

Our trading and investment portfolios consist primarily of Korean treasury securities and debt securities issued by Korean government agencies, local governments or certain government-invested enterprises and debt

securities issued by financial institutions. As of December 31, 2018, 2019 and 2020, we held debt securities with a total carrying amount of ￦107,192 billion, ￦119,627 billion and ￦153,745 billion, respectively, of which:

•

financial assets at amortized cost (or held-to-maturity debt securities) accounted for ￦23,663 billion, ￦25,348 billion and ￦36,873 billion, or 22.1%, 21.2% and 24.0%, respectively;

•

debt securities at fair value through other comprehensive income (or available-for-sale debt securities) accounted for ￦35,244 billion, ￦43,557 billion and ￦58,457 billion, or 32.9%, 36.4% and 38.0%, respectively; and

•

debt securities at fair value through profit or loss accounted for ￦48,285 billion, ￦50,722 billion and ￦58,415 billion, or 45.0%, 42.4% and 38.0%, respectively.

Of these amounts, debt securities issued by the Korean government and government agencies as of December 31, 2018, 2019 and 2020 amounted to:

•

￦5,090 billion, ￦5,396 billion and ￦17,193 billion, or 21.5%, 21.3% and 46.6%, respectively, of our financial assets at amortized cost (or held-to-maturity debt securities);

•

￦3,475 billion, ￦9,502 billion and ￦14,735 billion, or 9.9%, 21.8% and 25.2%, respectively, of our financial assets at fair value through other comprehensive income (or available-for-sale debt securities); and

•

￦7,923 billion, ￦6,569 billion and ￦9,315 billion, or 16.4%, 13.0% and 15.9%, respectively, of our debt securities at fair value through profit or loss.

From time to time we also purchase equity securities for our securities portfolios. Our equity securities consist primarily of marketable beneficiary certificates and equities listed on the KRX KOSPI Market, the KRX KOSDAQ Market or the KRX KONEX Market. As of December 31, 2018, 2019 and 2020:

•

equity securities at fair value through other comprehensive income (or available-for-sale equity securities) had a carrying amount of ￦2,370 billion, ￦2,504 billion and ￦3,075 billion, or 6.3%, 5.4% and 5.0%, respectively, of our securities at fair value through other comprehensive income (or available-for-sale securities) portfolio; and

•

equity securities at fair value through profit or loss had a carrying amount of ￦1,288 billion, ￦2,104 billion and ￦2,092 billion, or 2.6%, 4.0% and 3.5%, respectively, of our securities at fair value through profit or loss portfolio.

Our trading portfolio also includes derivative-linked securities, the underlying assets of which were linked to, among other things, interest rates, exchange rates, stock price indices or credit risks. As of December 31, 2018, 2019 and 2020, derivative-linked securities in our trading portfolio had a carrying amount of ￦3,517 billion, ￦3,624 billion and ￦2,219 billion, or 7.1%, 6.8% and 3.7% of our trading portfolio, respectively. See “—Derivatives Trading.”

The following tables show, as of the dates indicated, the unrealized gains and losses on financial assets at fair value through other comprehensive income (or available-for-sale financial assets) and financial assets at amortized cost (or held-to-maturity financial assets) within our investment portfolio, and the amortized cost and fair value of the portfolio by type of financial asset:


	As of December 31, 2018
	Amortized Cost ⁽⁷⁾		Net Unrealized Gain and Loss ⁽⁸⁾			Loss Allowance for Expected Credit Losses ⁽⁹⁾		Fair Value
	(in billions of Won)
Financial assets at fair value through other comprehensive income:
Debt securities
Korean treasury securities and government agencies	￦	3,471	￦	4		￦	—	￦	3,475
Financial institutions ⁽¹⁾		20,102		7			1		20,108
Corporate ⁽²⁾		10,488		56			3		10,541
Asset-backed securities ⁽³⁾		1,096		4			—		1,100
Others		20		—			—		20

Subtotal		35,177		71			4		35,244
Equity securities		1,763		607			—		2,370

Total financial assets at fair value through other comprehensive income	￦	36,940	￦	678		￦	4	￦	37,614

Financial assets at amortized cost:
Korean treasury securities and government agencies	￦	5,090	￦	362		￦	—	￦	5,452
Financial institutions ⁽⁴⁾		6,847		(50	)		—		6,797
Corporate ⁽⁵⁾		6,943		150			—		7,093
Asset-backed securities ⁽⁶⁾		4,783		35			1		4,817
Total financial assets at amortized cost	￦	23,663	￦	497		￦	1	￦	24,159


	As of December 31, 2019
	Amortized Cost ⁽⁷⁾		Net Unrealized Gain and Loss ⁽⁸⁾			Loss Allowance for Expected Credit Losses ⁽⁹⁾		Fair Value
	(in billions of Won)
Financial assets at fair value through other comprehensive income:
Debt securities
Korean treasury securities and government agencies	￦	9,538	￦	(35	)	￦	1	￦	9,502
Financial institutions ⁽¹⁾		20,870		44			1		20,913
Corporate ⁽²⁾		12,205		87			2		12,290
Asset-backed securities ⁽³⁾		826		6			—		832
Others		20		—			—		20

Subtotal		43,459		102			4		43,557
Equity securities		1,991		513			—		2,504

Total financial assets at fair value through other comprehensive income	￦	45,450	￦	615		￦	4	￦	46,061

Financial assets at amortized cost:
Korean treasury securities and government agencies	￦	5,396	￦	650		￦	—	￦	6,046
Financial institutions ⁽⁴⁾		8,157		26			—		8,183
Corporate ⁽⁵⁾		7,537		504			—		8,041
Asset-backed securities ⁽⁶⁾		4,258		46			1		4,303
Total financial assets at amortized cost	￦	25,348	￦	1,226		￦	1	￦	26,573


	As of December 31, 2020
	Amortized Cost ⁽⁷⁾		Net Unrealized Gain and Loss ⁽⁸⁾			Loss Allowance for Expected Credit Losses ⁽⁹⁾		Fair Value
	(in billions of Won)
Financial assets at fair value through other comprehensive income:
Debt securities
Korean treasury securities and government agencies	￦	15,056	￦	(321	)	￦	—	￦	14,735
Financial institutions ⁽¹⁾		23,149		47			2		23,194
Corporate ⁽²⁾		18,657		68			4		18,721
Asset-backed securities ⁽³⁾		1,784		13			1		1,796
Others		10		—			—		10

Subtotal		58,656		(193	)		7		58,456
Equity securities		1,739		1,336			—		3,075

Total financial assets at fair value through other comprehensive income	￦	60,395	￦	1,143		￦	7	￦	61,531

Financial assets at amortized cost:
Korean treasury securities and government agencies	￦	17,193	￦	509		￦	—	￦	17,702
Financial institutions ⁽⁴⁾		5,679		32			—		5,711
Corporate ⁽⁵⁾		8,182		560			1		8,741
Asset-backed securities ⁽⁶⁾		5,789		54			2		5,841
Others		30		—			—		30

Total financial assets at amortized cost	￦	36,873	￦	1,155		￦	3	￦	38,025

⁽¹⁾

Includes debt securities issued by the Bank of Korea, the Korea Development Bank, Korea Housing Finance Corporation, Industrial Bank of Korea and the Export-Import Bank of Korea in the aggregate amount of ￦15,795 billion as of December 31, 2018, ￦16,040 billion as of December 31, 2019 and ￦16,660 billion as of December 31, 2020. These financial institutions are owned or controlled by the Korean government.

⁽²⁾

Includes debt securities issued by the Korea Development Bank, Korea Housing Finance Corporation, the Bank of Korea and the Export-Import Bank of Korea in the aggregate amount of ￦210 billion as of December 31, 2018, ￦450 billion as of December 31, 2019 and ￦818 billion as of December 31, 2020. These entities are owned or controlled by the Korean government.

⁽³⁾

Includes mortgage-backed securities issued by Korea Housing Finance Corporation, which have residential mortgage loans as underlying assets, in the amount of ￦1,016 billion as of December 31, 2018, ￦750 billion as of December 31, 2019 and ￦1,684 billion as of December 31, 2020. Korea Housing Finance Corporation is owned by the Korean government.

⁽⁴⁾

Includes debt securities issued by the Bank of Korea, the Korea Development Bank, Industrial Bank of Korea and the Export-Import Bank of Korea in the aggregate amount of ￦5,512 billion as of December 31, 2018, ￦6,736 billion as of December 31, 2019 and ￦4,563 billion as of December 31, 2020. These financial institutions are owned or controlled by the Korean government.

⁽⁵⁾	Includes debt securities issued by Korea Housing Finance Corporation in the aggregate amount of ￦658 billion as of December 31, 2018, ￦807 billion as of December 31, 2019 and ￦863 billion as of December 31, 2020. Korea Housing Finance Corporation is controlled by the Korean government.

⁽⁶⁾

Includes mortgage-backed securities issued by Korea Housing Finance Corporation, which have residential mortgage loans as underlying assets, in the amount of ￦4,681 billion as of December 31, 2018, ￦4,156 billion as of December 31, 2019 and ￦5,687 billion as of December 31, 2020. Korea Housing Finance Corporation is owned by the Korean government.

⁽⁷⁾	Gross carrying amount before adjusting for loss allowance for expected credit losses in accordance with IFRS 9.

⁽⁸⁾	Net unrealized gain and loss after adjusting for loss allowance for expected credit losses in accordance with IFRS 9.

⁽⁹⁾	Loss allowance for expected credit losses in accordance with IFRS 9.

Derivatives Trading

We engage in derivatives trading, including on behalf of our customers. Our trading volume increased from ￦376,249 billion in 2018 to ￦449,590 billion in 2019 and ￦469,477 billion in 2020. Our net trading revenue (expense) from derivatives for the year ended December 31, 2018, 2019 and 2020 was ￦(284) billion, ￦1,116 billion and ￦323 billion, respectively.

We provide and trade a range of derivatives products, including:

•

interest rate swaps and options, relating to interest rate risks;

•

cross-currency swaps, forwards and options relating to foreign exchange risks; and

•

stock price index options linked to the KOSPI index.

Our derivatives operations focus on addressing the needs of our corporate clients to hedge their risk exposure and the need to hedge our risk exposure that results from such client contracts. We also engage in derivatives trading activities to hedge the interest rate and foreign currency risk exposures that arise from our own assets and liabilities. In addition, we engage in proprietary trading of derivatives within our regulated open position limits.

The following shows the estimated fair value of our derivatives as of December 31, 2018, 2019 and 2020:


	As of December 31,
	2018				2019				2020
	Estimated Fair Value Assets		Estimated Fair Value Liabilities		Estimated Fair Value Assets		Estimated Fair Value Liabilities		Estimated Fair Value Assets		Estimated Fair Value Liabilities
	(in billions of Won)
Foreign exchange derivatives ⁽¹⁾	￦	1,133	￦	1,090	￦	1,604	￦	1,482	￦	3,818	￦	3,485
Interest rate derivatives ⁽¹⁾		659		908		914		1,079		1,091		1,183
Equity derivatives		158		796		570		283		579		401
Credit derivatives		33		25		19		14		19		10
Commodity derivatives		2		3		3		—		—		1
Others		41		79		81		149		37		144

Total	￦	2,026	￦	2,901	￦	3,191	￦	3,007	￦	5,544	￦	5,224

⁽¹⁾	Includes those for trading purposes and hedging purposes.

The following table shows certain information related to our derivatives designated as fair value hedges for the years ended December 31, 2018, 2019 and 2020:


	Year Ended December 31,
	2018								2019									2020
	Hedging Instruments			Effective Portion		Ineffective Portion			Hedging Instruments			Effective Portion			Ineffective Portion			Hedging Instruments			Effective Portion			Ineffective Portion
	(in billions of Won)
Foreign exchange derivatives	￦	(119	)	￦	98	￦	(21	)	￦	(74	)	￦	61		￦	(13	)	￦	97		￦	(41	)	￦	56
Interest rate derivatives		(41	)		37		(4	)		108			(105	)		3			(8	)		14			6

Total	￦	(160	)	￦	135	￦	(25	)	￦	34		￦	(44	)	￦	(10	)	￦	89		￦	(27	)	￦	62

The following table shows certain information related to our derivatives designated as cash flow hedges for the years ended December 31, 2018, 2019 and 2020:


	Year Ended December 31,
	2018								2019									2020
	Hedging Instruments			Effective Portion			Ineffective Portion		Hedging Instruments			Effective Portion			Ineffective Portion			Hedging Instruments			Effective Portion			Ineffective Portion
	(in billions of Won)
Foreign exchange derivatives	￦	(17	)	￦	(19	)	￦	2	￦	(39	)	￦	(40	)	￦	1		￦	(43	)	￦	(37	)	￦	(6	)
Interest rate derivatives		(6	)		(6	)		—		(26	)		(25	)		(1	)		(12	)		(11	)		(1	)

Total	￦	(23	)	￦	(25	)	￦	2	￦	(65	)	￦	(65	)	￦	—		￦	(55	)	￦	(48	)	￦	(7	)

The following table shows certain information related to financial instruments designated as net investment hedges in foreign operations for the years ended December 31, 2018, 2019 and 2020:


	Year Ended December 31,
	2018								2019								2020
	Hedging instruments			Effective Portion			Ineffective Portion		Hedging instruments			Effective Portion			Ineffective Portion		Hedging instruments		Effective Portion		Ineffective Portion
	(in billions of Won)
Foreign exchange derivatives ⁽¹⁾	￦	(25	)	￦	(25	)	￦	—	￦	(13	)	￦	(13	)	￦	—	￦	89	￦	89	￦	—

Total	￦	(25	)	￦	(25	)	￦	—	￦	(13	)	￦	(13	)	￦	—	￦	89	￦	89	￦	—

⁽¹⁾	Includes the gain (loss) on a non-derivative instrument designated as a hedging instrument.

Asset Securitization Transactions

We are active in the Korean asset-backed securities market. Based on our diverse experience with respect to product development and management capabilities relating to asset securitization, we offer customers a wide range of financial products and participate in various asset securitization transactions, including through our subsidiary KB Securities, to reinforce our position as a leading financial services provider with respect to the asset securitization market. We were involved in asset securitization transactions with an initial aggregate issue amount of ￦7,791 billion in 2018, ￦8,092 billion in 2019 and ￦9,495 billion in 2020, a significant portion of which were public offerings of asset-backed securities.

Call Loans

We make call loans and borrow call money in the short-term money market. Call loans are defined as short-term lending among banks and financial institutions either in Won or in foreign currencies with maturities of 90 days or less. Typically, call loans have maturities of one day. As of December 31, 2020, we had made call loans of ￦4,692 billion and borrowed call money of ￦1,180 billion, compared to ￦3,118 billion and ￦433 billion, respectively, as of December 31, 2019 and ￦4,064 billion and ￦1,081 billion, respectively, as of December 31, 2018.

Investment Banking

We have focused on selectively expanding our investment banking activities in order to increase our fee income and diversify our revenue base. We provide investment banking services primarily through KB Securities and Kookmin Bank. Our principal investment banking services include:

•

securities underwriting;

•

financing and financial advisory services for mergers and acquisitions;

•

project finance and financial advisory services for social overhead capital projects such as highway, port, power, water and sewage projects;

•

financing and financial advisory services for real estate development projects; and

•

structured finance.

In May 2016, we acquired 22.56% of the outstanding shares of Hyundai Securities Co., Ltd., a publicly listed Korean securities firm, and further increased our shareholding in Hyundai Securities to 29.62% in June 2016 by acquiring treasury shares of Hyundai Securities. In October 2016, we effected a comprehensive stock swap of the outstanding shares of Hyundai Securities for newly issued shares of our company, as a result of which Hyundai Securities became a wholly-owned subsidiary. Following such transaction, we merged our existing subsidiary, KB Investment & Securities, with and into Hyundai Securities in December 2016 and changed the name of the surviving entity to KB Securities. Through the acquisition of Hyundai Securities and the creation of an integrated securities firm, we sought to strengthen our investment banking and securities brokerage capabilities, as well as to achieve economies of scale.

In 2020, we generated investment banking revenues of ￦782 billion, consisting of ￦142 billion of interest income and ￦640 billion of non-interest income.

Securities Brokerage

We provide securities brokerage services through KB Securities. Our activities include provision of brokerage services to our retail and corporate customers relating to a wide range of investment products, including stocks, futures, options, equity- and derivative-linked securities and debt instruments, as well as provision of prime brokerage services to hedge funds. In addition, we offer self-directed brokerage services through KB Securities’ online and smartphone brokerage platforms.

As of December 31, 2020, KB Securities operated a brokerage network consisting of 108 branches and sub-branches in Korea. In 2020, KB Securities generated commission income of ￦627 billion through its securities brokerage activities.

International Banking and Finance

We engage in various international banking and finance activities, including foreign exchange services and derivatives dealing, import and export-related services, offshore lending, syndicated loans, foreign currency securities investment and non-life insurance. These services are provided primarily to our domestic customers and overseas subsidiaries and affiliates of Korean corporations and, to a limited extent, to local companies and individuals. We also raise foreign currency funds through our international banking and finance operations.

The table below sets forth certain information regarding our foreign currency assets and borrowings:


	As of December 31,
	2018		2019		2020
	(in millions of US$)
Total foreign currency assets	US$	33,213	US$	36,927	US$	51,194
Foreign currency borrowings:
Borrowings		9,077		9,188		12,142
Debentures		4,228		4,626		5,627

Total borrowings	US$	13,305	US$	13,814	US$	17,769

The table below sets forth our overseas subsidiaries, branches and representative and liaison offices in operation as of December 31, 2020:


Business Unit ⁽¹⁾	Location
Subsidiaries(19)
Kookmin Bank Cambodia PLC (including seven branches)		Cambodia
Kookmin Bank (China) Ltd. (including five branches)		China
KB Microfinance Myanmar Co., Ltd. (including 20 branches)		Myanmar
Prasac Microfinance Institution Limited (including 182 branches)		Cambodia
PT Bank Bukopin TBK (including 434 branches)		Indonesia
KB Bank Myanmar Co., Ltd. (including one branch)		Myanmar
KBFG Securities America Inc.		United States
KB Securities Hong Kong Ltd.		Hong Kong
KB Securities Vietnam Joint Stock Company (including three branches)		Vietnam
KB FINA Joint Stock Company		Vietnam
LIG Insurance (China) Co., Ltd. (including one branch)		China
PT. Kookmin Best Insurance Indonesia (including two branches)		Indonesia
Leading Insurance Services, Inc.		United States
KB Daehan Specialized Bank PLC. (including one branch)		Cambodia
PT. KB Finansia Multi Finance (including 137 branches)		Indonesia
KB Asset Management Singapore Pte. Ltd.		Singapore
KBAM Shanghai Advisory Services Co., Ltd.		China
KB KOLAO Leasing Co., Ltd.		Laos
PT Sunindo Kookmin Best Finance		Indonesia
Branches(9)
Kookmin Bank, Tokyo Branch		Japan
Kookmin Bank, Auckland Branch		New Zealand
Kookmin Bank, New York Branch		United States
Kookmin Bank, London Branch		United Kingdom
Kookmin Bank, Ho Chi Minh City Branch		Vietnam
Kookmin Bank, Hanoi Branch		Vietnam
Kookmin Bank, Hong Kong Branch		Hong Kong
Kookmin Bank, Gurugram Branch		India
Kookmin Best Insurance Co., Ltd. U.S. Branch		United States
Representative and Liaison Offices(7)
Kookmin Bank, Yangon Representative Office		Myanmar
KB Securities Shanghai Representative Office		China
KB Insurance, Los Angeles Liaison Office		United States
KB Insurance, Hanoi Liaison Office		Vietnam
KB Insurance, Ho Chi Minh City Liaison Office		Vietnam
KB Kookmin Card, Yangon Representative Office		Myanmar
KB Asset Management, Ho Chi Minh City Representative Office		Vietnam

⁽¹⁾	Does not include subsidiaries and branches in liquidation or dissolution.

Trustee and Custodian Services Relating to Investment Trusts and Other Functions

We act as a trustee for 106 financial investment companies with a collective investment license, which invest in investment assets using funds raised by the sale of beneficiary certificates of investment trusts to investors. We also act as custodian for 193 financial institutions and as fund administrator for 115 financial institutions with respect to various investments, as well as acting as settlement agent in connection with such services. We receive a fee for acting in these capacities and generally perform the following functions:

•

holding assets for the benefit of the investment trusts or institutional investors;

•

receiving and making payments in respect of such investments;

•

acting as settlement agent in respect of such investments on behalf of the investment trust or institutional investors, in the domestic and overseas markets;

•

providing reports on assets held in custody;

•

providing certain foreign exchange services for overseas investment and foreign investors; and

•

providing fund-related administration and accounting services.

For the year ended December 31, 2020, our fee income from our trustee and custodian services was ￦34.5 billion and revenue collected as a result of administration of the underlying investments was ￦15 billion.

Other Businesses

Trust Account Management Services

Money Trust Management Services

We provide trust account management services for both specified money trusts and unspecified money trusts. We receive fees for our trust account management services consisting of basic fees that are based upon a percentage of either the net asset value of the assets or the principal under management and, for certain types of trust account operations, performance fees that are based upon the performance of the trust account operations. In 2020, our basic money trust fees ranged from 0.1% to 2.0% of total assets under management depending on the type of trust account. We also charge performance fees with respect to certain types of trust account products. We receive penalty payments when customers terminate their trust accounts prior to the original contract maturity.

We currently provide trust account management services for 20 types of money trusts. The maturities of the money trusts we manage vary by the type of the trust. Approximately 3.5% of our money trusts also provide periodic payments of dividends which are added to the assets held in such trusts and not distributed.

Under Korean law, the assets of our trust accounts are segregated from our banking account assets and are not available to satisfy the claims of any of our potential creditors. We are, however, permitted to deposit surplus funds generated by trust assets into our banking accounts in certain circumstances as set forth under the Financial Investment Services and Capital Markets Act and the regulations thereunder.

As of December 31, 2020, the total balance of our money trusts was ￦52,590 billion (as calculated in accordance with Statement of Korea Accounting Standard No. 5004, Trust Accounts , and the Enforcement Regulations of Financial Investment Services under the Financial Investment Services and Capital Markets Act, which we refer to as an “SKAS basis”). As for unspecified money trust accounts, we have investment discretion over all money trusts, which are pooled and managed jointly for each type of trust account. Specified money trust accounts are established on behalf of individual customers who direct our investment of trust assets.

The following table shows the balances of our money trusts by type as of the dates indicated. Under IFRS, we consolidate trust accounts for which we guarantee both the repayment of the principal amount and a fixed rate of interest as well as trust accounts for which we guarantee only the repayment of the principal amount.


	As of December 31,
	2018		2019		2020
	(in billions of Won)
Principal and interest guaranteed trusts ⁽¹⁾	￦	0.1	￦	0.1	￦	0.1
Principal guaranteed trusts ⁽¹⁾		3,783		3,875		3,927
Performance trusts ⁽¹⁾⁽²⁾		43,629		45,190		48,663

Total	￦	47,412	￦	49,065	￦	52,590

⁽¹⁾	Calculated on an SKAS basis.

⁽²⁾	Trusts which are primarily non-guaranteed.

The balance of our money trusts increased 10.9% between December 31, 2018 and December 31, 2020. As of December 31, 2020, the trust assets we managed consisted principally of securities investments and loans from the trust accounts. As of December 31, 2020, on an SKAS basis, our trust accounts had invested in securities in the aggregate amount of ￦20,850 billion, of which ￦15,570 billion was debt securities and derivative-linked securities. Securities investments consist of government-related debt securities, corporate debt securities, including bonds and commercial paper, equity securities, derivative-linked securities and other securities. Loans made by our trust account operations are similar in type to the loans made by our bank account operations. As of December 31, 2020, on an SKAS basis, our trust accounts had made loans in the principal amount of ￦195 billion (excluding loans from the trust accounts to our banking accounts of ￦2,593 billion), which accounted for 0.4% of our money trust assets. Loans by our money trusts are subject to the same credit approval process as loans from our banking accounts. As of December 31, 2019, substantially all loans from our money trust accounts were collateralized or guaranteed.

Our money trust accounts also invest, to a lesser extent, in equity securities, including beneficiary certificates issued by financial investment companies with a collective investment license. On an SKAS basis, as of December 31, 2020, equity securities in our money trust accounts amounted to ￦5,280 billion, which accounted for 9.8% of our total money trust assets. Of this amount, ￦5,080 billion was from specified money trusts and ￦199 billion was from unspecified money trusts.

We continue to offer pension-type money trusts that provide a guarantee of the principal amount of the investment. On an SKAS basis, as of December 31, 2020, the balance of the money trusts for which we guaranteed the principal was ￦3,918 billion.

If the income from a money trust for which we provide a guarantee is less than the amount of the payments we have guaranteed, we will need to pay the amount of the shortfall with funds from special reserves maintained with respect to trust accounts followed by basic fees from that money trust and funds from our general banking operations. In 2018, 2019 and 2020, we made no payment from our banking accounts to cover shortfalls in our guaranteed trusts. On an SKAS basis, we derived trust fees with regard to trust account management services (including those fees related to property trust management services) of ￦278 billion in 2018, ￦294 billion in 2019 and ￦216 billion in 2020.

Property Trust Management Services

We also offer property trust management services, where we manage non-monetary assets in return for a fee. Non-monetary assets include mostly securities, but can also include other liquid receivables and real estate. Under these arrangements, we render custodial services for the property in question and collect fee income in return.

In 2020, our basic property trust fees ranged from 0.001% to 0.3% of total assets under management depending on the type of trust accounts. On an SKAS basis, as of December 31, 2020, the aggregate balance of our property trusts was ￦4,705 billion, compared to ￦5,846 billion as of December 31, 2019 and ￦3,506 billion as of December 31, 2018.

Under IFRS, the property trusts are not consolidated within our financial statements.

Investment Trust Management

Through KB Asset Management and KB Securities, we offer investment trust products to customers and manage the funds invested by them in investment trusts. As of December 31, 2020, KB Asset Management and KB Securities had an aggregate of ￦60,593 billion of investment trust assets under management.

Insurance

Non-Life Insurance

In June 2015, we acquired a 19.47% stake in KB Insurance Co., Ltd. (formerly named LIG Insurance Co., Ltd.), a publicly listed Korean non-life insurance company. In November 2015 and December 2016, we increased our shareholding in KB Insurance to 33.29% and 39.81%, respectively. Through a tender offer conducted in May 2017, we acquired 36,237,649 shares of KB Insurance at ￦33,000 per share, increasing our shareholding to 94.30%. We subsequently effected a comprehensive stock swap in July 2017 to acquire the remaining shares of KB Insurance in exchange for 2,170,943 shares of common stock of our company, as a result of which KB Insurance became a wholly-owned subsidiary. KB Insurance offers a variety of non-life insurance products, including principally the following:

•

Long-term insurance products . Long-term insurance products are sold to retail customers and provide protection against various types of losses, with specified coverage periods of at least three years and ranging up to 30 years or ending at specified ages. Unlike general property and casualty insurance products, which usually have a coverage period of one year or less and only have pure protection features, substantially all long-term insurance policies in Korea also have an integrated savings feature. KB Insurance offers a broad range of long-term insurance products covering the policyholder’s injuries, illnesses, long-term care, disabilities, accidents, property losses or other events.

•

Automobile insurance products . Automobile insurance products are sold to both retail and institutional customers and generally provide coverage for the following types of losses resulting from the policyholder’s ownership or use of an insured automobile: (i) liability to third parties for bodily injuries or death as well as damage to automobiles or other personal property; and (ii) the policyholder’s own bodily injuries and automobile damage or theft. KB Insurance’s automobile insurance policies typically have a coverage period of one year or less.

•

General property and casualty insurance products. General property and casualty insurance products are sold to institutional customers and include the following: (i) fire and allied lines insurance policies, providing protective coverage for damage to buildings and facilities and their contents against fire, flood, storm, lightening, explosion, theft and other risks; (ii) marine insurance policies, providing protective coverage for damage to marine vessels and their cargo; and (iii) specialty insurance policies, which cover various other types of specified risks faced by businesses, including liabilities and business interruption.

The following table sets forth certain information regarding the operations of KB Insurance, on a standalone basis, as of the dates or for the periods indicated:


	As of or for the Year Ended December 31,
	2018			2019			2020
	(in billions of Won, except as otherwise indicated)
Total policies in force (in thousands)		15,191			16,110			17,525
Number of new policies sold (in thousands)		9,373			9,881			10,535
Gross direct written premiums ⁽¹⁾	￦	9,850		￦	10,273		￦	10,975
Long-term insurance		6,509			6,750			7,017
Automobile insurance		2,035			2,207			2,611
General property and casualty insurance		932			983			1,074
Other		375			333			273
Net earned premiums ⁽²⁾	￦	8,944		￦	9,191		￦	9,577
Loss ratio ⁽³⁾		84.06	%		85.98	%		85.50	%
Risk-based capital adequacy ratio ⁽⁴⁾		181.12	%		182.44	%		174.76	%

⁽¹⁾	The amount of direct written premiums recognized in a specified period in respect of policies in force during such period, on a standalone basis.

⁽²⁾

The sum of (i) gross direct written premiums for the specified period, (ii) reinsurance premium income for such period, (iii) return of surrender refunds for such period and (iv) total unearned premiums deferred from the previous period, less the sum of (x) reinsurance expenses for the specified period, (y) surrender refunds for such period and (z) total unearned premiums deferred to the next period, on a standalone basis.

⁽³⁾	The ratio of (i) total claims paid for the specified period to (ii) net earned premiums for such period, on a standalone basis .

⁽⁴⁾	Calculated in accordance with the applicable requirements of the Financial Supervisory Service. See “—Regulation and Supervision—Principal Regulations Applicable to Insurance Companies—Capital Adequacy.”

KB Insurance operates a multi-channel distribution platform in Korea, comprising agencies (which are independent insurance brokerage companies), a network of financial consultants, bancassurance arrangements with commercial banks and other financial institutions, direct marketing channels (including home shopping television networks and the Internet) and a corporate sales force.

As of December 31, 2020, KB Insurance had W30,972 billion of general account investment assets on a standalone basis, of which domestic debt securities, loans, beneficiary certificates, domestic equity securities and overseas securities accounted for 41.4%, 23.1%, 18.0%, 0.2% and 10.3%, respectively.

Life Insurance

Through KB Life Insurance Co., Ltd. and Prudential Life Insurance, we offer a variety of individual and group life insurance products, including annuities, savings insurance, variable life insurance, whole life insurance and term life insurance as well as health insurance. We utilize our multi-channel distribution platforms to market these products, which includes sales through agencies, financial consultants, telemarketers and bancassurance arrangements with commercial banks and other financial institutions.

KB Life Insurance generated gross premiums (not including separate account premiums) of ￦877 billion in 2018, ￦887 billion in 2019 and ￦1,476 billion in 2020 on a standalone basis. As of December 31, 2020, KB Life Insurance had ￦8,250 billion of general account investment assets on a standalone basis, of which domestic debt securities, beneficiary certificates, loans, domestic equity securities and overseas securities accounted for 53.9%, 17.8%, 14.7%, 1.4% and 7.7%, respectively. As of such date, KB Life Insurance’s risk-based capital adequacy ratio was 188.43%.

In August 2020, we acquired all of the outstanding shares of Prudential Life Insurance, a provider of life insurance services in Korea, from Prudential Financial, Inc. for ￦2.3 trillion, as a result of which Prudential Life Insurance became a wholly-owned subsidiary. Prudential Life Insurance generated gross premiums (not

including separate account premiums) of W451 billion in 2020 on a standalone basis (excluding such amount for the period before Prudential Life Insurance became our consolidated subsidiary). As of December 31, 2020, Prudential Life Insurance had W17,554 billion of general account investment assets on a standalone basis, of which domestic debt securities, beneficiary certificates, loans, domestic equity securities and overseas securities accounted for 86.1%, 0.4%, 4.3%, 1.6% and 5.0%, respectively. As of such date, Prudential Life Insurance’s risk-based capital adequacy ratio was 428.95%.

For further information regarding our insurance-related assets and liabilities, see Note 38 of the notes to our consolidated financial statements included elsewhere in this annual report.

Bancassurance

Through the bancassurance operations of Kookmin Bank, we offer insurance products of other institutions to retail customers in Korea. We currently market a wide range of bancassurance products and seek to generate additional fee-based revenues by expanding our offering of these products.

Currently, our bancassurance business has alliances with 22 life insurance companies (including our subsidiaries, KB Life Insurance and Prudential Life Insurance) and 11 non-life insurance companies (including our subsidiary, KB Insurance) and offers 102 different products through our branch network. These products are composed of 75 types of life insurance policies, such as annuities, savings insurance and variable life insurance, and 27 types of non-life insurance products. In 2020, our commission income from our bancassurance business amounted to ￦89.1 billion.

Consumer Finance

We provide consumer finance services through KB Capital Co., Ltd. We acquired 52.02% of the outstanding shares of KB Capital (formerly known as Woori Financial Co., Ltd.) in March 2014 for ￦280 billion. We conducted a tender offer in May 2017, through which we acquired 5,949,300 shares of KB Capital at ￦27,500 per share, increasing our shareholding in KB Capital to 79.70%. We subsequently acquired the remaining outstanding shares of KB Capital in exchange for 2,269,057 shares of common stock of our company through a comprehensive stock swap effected in July 2017, as a result of which KB Capital became a wholly-owned subsidiary. KB Capital provides leasing services and installment finance services for various products, including automobiles, heavy machineries and medical equipment, as well as microlending services. We expect KB Capital to continue to expand our customer base by providing a variety of non-banking financial services to retail customers, as well as synergies through coordinated business operations with our other subsidiaries, including Kookmin Bank.

Management of the National Housing and Urban Fund

The National Housing and Urban Fund is a government fund that provides financial support to low-income households in Korea by providing mortgage financing and construction loans for projects to build small-sized housing. The operations of the National Housing and Urban Fund include providing and managing National Housing and Urban Fund loans, issuing National Housing and Urban Fund bonds and collecting subscription savings deposits.

In February 2013, the Ministry of Land, Infrastructure and Transport (formerly the Ministry of Land, Transport and Maritime Affairs) designated us as one of the managers of the National Housing and Urban Fund. In 2020, we received total fees of ￦35 billion for managing the National Housing and Urban Fund, compared to ￦32 billion in 2019 and ￦33 billion in 2018.

The financial accounting for the National Housing and Urban Fund is entirely separate from our financial accounting, and the non-performing loans and loan losses of the National Housing and Urban Fund, in general, do not impact our financial condition. Regulations and guidelines for managing the National Housing and Urban Fund are issued by the Minister of Land, Infrastructure and Transport pursuant to the Housing Act.

Distribution Channels

Banking Branch Network

As of December 31, 2020, Kookmin Bank operated a network of 972 branches and sub-branches in Korea, which was one of the largest branch networks among Korean commercial banks. An extensive branch network is important to attracting and maintaining retail customers, who use branches extensively and value convenience. We believe that our extensive branch network in Korea and retail customer base provide us with a source of stable and relatively low cost funding. Approximately 36.6% of our branches and sub-branches are located in Seoul, and approximately 21.7% of our branches are located in the six next largest cities. The following table presents the geographical distribution of our branch network in Korea as of December 31, 2020:


Area	Number of Branches		Percentage
Seoul		356		36.6	%
Six largest cities (other than Seoul)		211		21.7
Other		405		41.7

Total		972		100.0	%

In addition, we have continued to implement the specialization of our branch functions. Of our branch network as of December 31, 2020, we had three branches that primarily handled large corporate banking.

In order to support our branch network, we have established an extensive network of ATMs, which are located in branches and in unmanned outlets known as “autobanks.” As of December 31, 2020, we had 5,785 ATMs.

We have actively promoted the use of these distribution outlets in order to provide convenient service to customers, as well as to maximize the marketing and sales functions at the branch level, reduce employee costs and improve profitability. The aggregate number of transactions conducted using our ATMs amounted to approximately 417 million in 2018, 372 million in 2019 and 295 million in 2020.

Other Banking Channels

The following table sets forth information, for the periods indicated, on the number of users and transactions of the other banking channels for our retail and corporate banking customers, which are discussed below:


	For the Year Ended December 31,
	2018		2019		2020
Internet banking:
Number of users ⁽¹⁾		23,281,390		24,165,164		25,313,463
Number of transactions (thousands) ⁽²⁾		5,471,484		8,426,630		14,794,331
Phone banking:
Number of users ⁽³⁾		5,046,634		5,063,703		5,073,346
Number of transactions (thousands) ⁽²⁾		104,163		93,112		76,595
Smartphone banking:
Number of users ⁽⁴⁾		14,645,787		15,501,894		16,681,329
Number of transactions (thousands) ⁽²⁾		7,142,958		9,009,727		13,811,431

⁽¹⁾	Number of users is defined as the total cumulative number of retail and corporate customers who have registered through our branch offices to use our Internet banking services.

⁽²⁾	Number of transactions includes balance and transaction inquiries, fund transfers and other transactions.

⁽³⁾	Number of users is defined as the total cumulative number of retail and corporate customers who have registered through our branch offices to use our phone banking services.

⁽⁴⁾	Number of users is defined as the total cumulative number of retail customers who have registered through our branch offices, or the customers’ smartphones, to use our smartphone banking services.

Internet Banking

Our goal is to consolidate our position as a market leader in online banking. Our Internet banking services currently include:

•

basic banking services, including fund transfers, balance and transaction inquiries, pre-set automatic transfers, product inquiries, online bill and tax payments and foreign exchange services;

•

investment services, including opening deposit accounts and investing in funds;

•

processing of loan applications;

•

electronic certification services, which permit users to authenticate their identity and transactions on a confidential basis through digital signatures; and

•

wealth management and advisory services, including financial planning and real estate information services.

Phone Banking

We offer a variety of phone banking services, including inter-account fund transfers, balance and transaction inquiries, customer service inquiries and bill payments. We also have call centers, which we primarily use to:

•

advise clients with respect to deposits, loans and credit cards and to provide our customers a way to report any emergencies with respect to their accounts;

•

allow our customers to conduct transactions with respect to their accounts, such as balance and transfer inquiries, transfers or payments and opening accounts; and

•

conduct telemarketing to our customers or potential customers to advertise products or services.

Smartphone Banking

“KB Star Banking,” our mobile banking application for smartphones, allows our customers the flexibility to conduct a variety of financial transactions, including balance and transaction inquiries, fund transfers and asset management, anywhere at any time. Our smartphone banking services currently include:

•

basic banking services, including fund transfers, balance and transaction inquiries, bill payments and foreign exchange services;

•

investment services, including investing in savings deposits that are designed specifically for and offered to smartphone banking customers; and

•

processing of loan applications and bancassurance services.

We also continue to develop innovative mobile applications that cater to specific customer needs and lifestyles. For example, we offer “Liiv,” a mobile banking platform designed to make routine transactions easier for our customers, including providing easy access to banking services without the additional electronic certification process, foreign currency exchange services with lower fees and functions that allow customers to easily split bills and transfer money. We also offer a range of other mobile applications, including “Liiv Talk Talk,” our mobile peer-to-peer payment and messaging application, “Liiv M,” our budget phone service that offers a hybrid of mobile banking and phone services, “Liiv Pay,” our overseas mobile payment service and “Liiv Real Estate,” our new cloud-based real estate application that provides various information on real properties. We provide our customers with a number of other useful tools, such as “KB Star Alerts,” which are free text messages that contain real-time account activity information as well as security alerts, and “KB My Money,” a mobile application that allows customers to manage a wide range of assets deposited with various financial institutions.

Other Channels

We provide cash management services, which include automatic transfers, connection services to other financial institutions, real-time firm banking, automatic fund concentration and transmittal of trading information.

Distribution Channels for Other Services

Through our non-banking subsidiaries, we operate a network of dedicated branches and other distribution channels through which our customers can access credit card, securities brokerage, insurance and consumer finance products and services. The following table sets forth information regarding the number and geographical distribution of the branches in Korea operated by KB Kookmin Card, KB Securities and KB Insurance as of December 31, 2020:


Area	KB Kookmin Card		KB Securities		KB Insurance
Seoul		7		41		56
Six largest cities (other than Seoul)		8		22		67
Other		11		45		133

Total		26		108		256

Our other non-banking subsidiaries also operate a number of branches in Seoul and other areas. We also provide credit card, securities brokerage, insurance and consumer finance services through dedicated call centers, smartphone applications and Internet websites operated by KB Kookmin Card, KB Securities, KB Insurance, Prudential Life Insurance, KB Life Insurance and KB Capital.

Competition

We compete principally with other financial holding companies and nationwide commercial banks, as well as regional banks, development banks, specialized banks and branches of foreign banks operating in Korea. We also compete with other types of financial institutions in Korea, including savings institutions (such as mutual savings and finance companies and credit unions and credit cooperatives), investment institutions (such as merchant banking corporations), life insurance companies, non-life insurance companies, securities companies and other financial investment companies.

Competition in the domestic banking industry is generally based on the types and quality of the products and services offered, including the size and location of retail networks, the level of automation and interest rates charged and paid. Competition has increased significantly in our traditional core businesses, retail banking, small- and medium-sized enterprise banking and credit card lending, contributing to some extent to the asset quality deterioration in retail and small- and medium-sized loans. As a result, our margins on lending activities may decrease in the future.

Furthermore, the introduction of Internet-only banks in Korea is expected to increase competition in the Korean banking industry. Internet-only banks operate without branches and conduct most of their operations through electronic means, which enables them to minimize cost and offer customers higher interest rates on deposits or lower lending rates. In April 2017, K Bank, the first Internet-only bank in Korea, commenced operations. Kakao Bank, another Internet-only bank, in which Kookmin Bank held a 9.4% equity interest as of December 31, 2020, commenced operations in July 2017. In December 2019, Toss Bank obtained a preliminary business authorization to operate as an Internet-only bank from the Financial Services Commission and is expected to be granted final authorization by June 2021.

In the Korean insurance industry, competition is based on a number of factors, including brand recognition, service, product features and pricing, investment performance and perceived financial strength. There has been

downward pressure in recent years on margins of insurance products as some of our competitors have sought to obtain or maintain market share by reducing margins and increasing marketing efforts. As the Korean non-life insurance and life insurance sectors continue to mature, they may experience a slowdown in growth as well as a stagnation in market penetration. Due to these and other factors, we believe that competition in the Korean insurance industry will likely remain intense in the future.

In addition, general regulatory reforms in the Korean financial industry have increased competition among banks and other financial institutions in Korea. As the reform of the financial sector continues, foreign financial institutions, some with greater resources than us, have entered, and may continue to enter, the Korean market either by themselves or in partnership with existing Korean financial institutions and compete with us in providing financial and related services.

Moreover, the Korean financial industry is undergoing significant consolidation. The number of nationwide commercial banks in Korea has decreased from 16 as of December 31, 1997, to six as of December 31, 2020. A number of significant mergers and acquisitions in the financial industry have taken place in Korea in recent years, including Hana Financial Group’s acquisition of a controlling interest in Korea Exchange Bank in 2012 and the subsequent merger of Hana Bank into Korea Exchange Bank in 2015. In addition, as part of the Korean government’s plans to privatize Woori Finance Holdings Co., Ltd. (the former financial holding company of Woori Bank), certain subsidiaries of Woori Finance Holdings were sold to other financial institutions and Woori Finance Holdings itself was merged into Woori Bank in 2014, which established a new financial holding company, Woori Financial Group Inc., in January 2019. In the insurance sector, China’s Anbang Insurance Group acquired controlling interests in Tong Yang Life Insurance Co., Ltd. and Allianz Life Insurance Korea Co., Ltd. in 2015 and 2016, respectively, while Mirae Asset Life Insurance Co., Ltd. acquired PCA Life Insurance Co., Ltd. in 2017. Furthermore, Orange Life Insurance, Ltd. (formerly known as ING Life Insurance Korea, Ltd.) became a wholly-owned subsidiary of Shinhan Financial Group following the acquisition of equity interests by Shinhan Financial Group in February 2019 and January 2020. In the securities sector, in 2016, Mirae Asset Securities Co., Ltd. acquired a 43% interest in KDB Daewoo Securities Co., Ltd., which subsequently merged with and into Mirae Asset Securities to create Mirae Asset Daewoo Securities Co., Ltd., one of the largest securities companies in Korea in terms of capital. We expect that consolidation in the Korean financial industry will continue. The financial institutions resulting from such consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. We intend to review potential acquisition opportunities as they arise. We cannot guarantee that we will not be involved in any future mergers or acquisitions.

Information Technology

We regularly implement various IT system-related initiatives and upgrades at the group and subsidiary level. We believe that continuous improvement of our IT systems is crucial in supporting our operations and management and providing high-quality customer service. Accordingly, we continue to upgrade and improve our systems through various activities, including projects to develop next generation banking systems for Kookmin Bank, further strengthen system security and timely develop and implement various new IT systems and services (including group-wide software) that support our business operations and risk management activities.

Our mainframe-based banking and credit card IT systems are designed to ensure continuity of services even where there is a failure of the host data center due to a natural disaster or other accidents by utilizing backup systems in disaster recovery data centers. In addition, through the implementation of Parallel Sysplex, a “multi-CPU system,” our bank and credit card systems are designed and operated to be able to process transactions without material interruption in the event of CPU failure. From 2019 to 2020, we implemented a next-generation credit card IT system that applies an enhanced platform to ensure greater flexibility and versatility, as well as a banking IT system designed to promote digital transformation and innovation in our IT infrastructure. We also launched a new disaster recovery system to ensure continuity of operations. In addition, we implemented new technologies, including Multi Channel Integration and Enterprise Application Integration systems, to standardize our IT system and better manage IT system operational risk.

The integrity of our IT systems, and their ability to withstand potential catastrophic events (such as natural calamities and internal system failures), are crucial to our continuing operations. We currently test our disaster recovery systems on a quarterly basis. For additional information, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Operational Risk Management.”

In 2020, we spent approximately ￦909 billion for our IT system implementation and operations, including expenses related to the construction of new IT systems, implementation of hardware and software technologies and other new systems, as well as related labor costs.

As of December 31, 2020, we employed a total of 1,845 full-time employees in our IT operations.

Assets and Liabilities

The tables below set out selected financial highlights regarding our operations and our assets and liabilities. Except as otherwise indicated, amounts as of and for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 are presented on a consolidated basis under IFRS.

Loan Portfolio

As of December 31, 2020, our total loan portfolio was ￦380,450 billion compared to ￦342,092 billion as of December 31, 2019 and ￦321,811 billion as of December 31, 2018. As of December 31, 2020, 92.6% of our total loans were Won-denominated loans compared to 94.7% as of December 31, 2019 and 95.3% as of December 31, 2018.

Loan Types

The following table presents loans by type as of the dates indicated. Except where we specify otherwise, all loan amounts stated below are before deduction of allowances for loan losses. Total loans reflect our loan portfolio, including past due amounts.


	As of December 31,
	2016		2017		2018		2019		2020
	(in billions of Won)
Domestic:
Corporate
Small- and medium-sized enterprise	￦	86,065	￦	97,379	￦	106,015	￦	112,487	￦	124,457
Large corporate ⁽¹⁾		30,206		30,002		34,686		36,665		35,657
Retail
Mortgage and home equity		93,327		97,253		102,607		106,711		114,144
Other consumer		41,629		48,897		56,200		59,596		68,293
Credit cards		13,530		15,205		17,354		18,648		18,737

Total domestic		264,757		288,736		316,862		334,107		361,288
Foreign		3,007		3,497		4,949		7,985		19,162

Total gross loans	￦	267,764	￦	292,233	￦	321,811	￦	342,092	￦	380,450

⁽¹⁾	Large corporate loans include ￦285 billion, ￦222 billion, ￦570 billion, ￦622 billion and ￦1,149 billion of loans to the Korean government and government related agencies (including the Korea Deposit Insurance Corporation) as of December 31, 2016, 2017, 2018, 2019 and 2020, respectively.

Loan Concentrations

On a consolidated basis, our exposure to any single borrower or any single chaebol is limited by law to 20% and 25%, respectively, of our “net aggregate equity capital,” as defined under the Enforcement Decree of the

Financial Holding Company Act. See “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Financial Exposure to Any Individual Customer and Major Investor.” In addition, Kookmin Bank’s exposure to any single borrower or any single chaebol is limited by the Bank Act to 20% and 25%, respectively, of its total Tier I and Tier II capital.

20 Largest Exposures by Borrower

As of December 31, 2020, our 20 largest exposures totaled ￦23,190 billion and accounted for 4.2% of our total exposures. The following table sets forth, as of December 31, 2020, our total exposures to these top 20 borrowers or issuers:


	Loans								Guarantees and Acceptances				Amounts Classified as Impaired Loans
Company ⁽¹⁾	Won Currency		Foreign Currency		Equity Securities		Debt Securities		Guarantees and Acceptances		Total Exposures		Amounts Classified as Impaired Loans
	(in billions of Won)
The Korea Securities Finance Corporation	￦	—	￦	—	￦	30	￦	4,800	￦	—	￦	4,830	￦	—
KEB Hana Bank		647		40		—		1,318		—		2,005		—
Shinhan Bank		116		—		9		1,707		—		1,832		—
Mirae Asset Daewoo Co., Ltd.		920		—		—		328		—		1,248		—
Woori Bank		199		—		15		1,016		—		1,230		—
NongHyup Bank		127		29		11		930		—		1,097		—
Samsung Securities Co., Ltd		860		109		—		35		—		1,004		—
LG Display Co., Ltd.		170		348		—		5		435		958		—
KakaoBank Corp.		—		—		952		—		—		952		—
Meritz Securities Co., Ltd.		614		250		—		41		—		905		—
POSCO		4		—		435		462		—		901		—
Hyundai Steel Co., Ltd.		119		513		—		122		139		893		—
Shinhan Card Co. Ltd.		50		—		—		824		—		874		—
Hyundai Motor Company		—		680		—		40		47		767		—
Hyundai Heavy Industries Co., Ltd.		100		59		—		101		451		711		—
Hyundai Capital Services Inc.		340		17		—		341		—		698		—
Shinhan Capital Co., Ltd.		—		—		—		608		—		608		—
Kia Corporation		300		211		—		52		—		563		—
Standard Chartered Bank Korea Limited		330		—		—		230		—		560		—
Lotte International Co., Ltd.		—		—		—		10		544		554		—

Total	￦	4,896	￦	2,256	￦	1,452	￦	12,970	￦	1,616	￦	23,190	￦	—

⁽¹⁾	Excludes exposures to government-owned or -controlled enterprises or financial institutions, including Bank of Korea, Korea Housing Finance Corporation, Industrial Bank of Korea, Korea National Railway and the Korea Development Bank.

As of December 31, 2020, nine of these top 20 borrowers or issuers were companies belonging to the 28 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures.

Exposure to Chaebols

As of December 31, 2020, 4.9% of our total exposure was to the 28 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding

exposures. The following table shows, as of December 31, 2020, our total exposures to the ten chaebol groups to which we have the largest exposure:


	Loans								Guarantees and Acceptances				Amounts Classified as Impaired Loans
Chaebol	Won Currency		Foreign Currency		Equity Securities		Debt Securities		Guarantees and Acceptances		Total Exposures		Amounts Classified as Impaired Loans
	(in billions of Won)
Hyundai Motor ⁽¹⁾	￦	840	￦	1,853	￦	61	￦	861	￦	626	￦	4,241	￦	—
Samsung ⁽²⁾		1,165		1,071		341		561		862		4,000		—
SK ⁽³⁾		1,101		639		219		1,239		178		3,376		—
LG ⁽⁴⁾		567		365		15		717		552		2,216		—
Lotte ⁽⁵⁾		483		416		19		684		710		2,311		—
Hanwha ⁽⁶⁾		677		343		68		277		199		1,564		—
Hyundai Heavy Industries ⁽⁷⁾		306		167		73		199		1,000		1,745		—
Daewoo Shipbuilding & Marine Engineering ⁽⁸⁾		27		37		30		7		46		146		—
POSCO ⁽⁹⁾		180		64		468		513		255		1,480		—
GS ⁽¹⁰⁾		318		55		1		443		56		873		—

Total	￦	5,664	￦	5,010	￦	1,295	￦	5,501	￦	4,484	￦	21,952	￦	—

⁽¹⁾	Includes principally Hyundai Motor, Hyundai Steel Company and Hyundai Capital Services Inc.

⁽²⁾	Includes principally Samsung Securities Co., Ltd., Samsung Heavy Industries Co., Ltd. and Samsung Electronics Co., Ltd.

⁽³⁾	Includes principally SK Holdings Co., Ltd., SK Networks Co., Ltd. and SK Hynix Inc.

⁽⁴⁾	Includes principally LG Display Co., Ltd., LG Electronics Inc. and LG Chem Ltd.

⁽⁵⁾	Includes principally Lotte Property & Development Co., Ltd., Lotte Rental Co., Ltd. and Lotte Corporation.

⁽⁶⁾	Includes principally Hanwha Asset Management Co., Ltd., Hanwha Solution Corporation and Hanwha Aerospace Co., Ltd.

⁽⁷⁾	Includes principally Hyundai Heavy Industries Co., Ltd., Hyundai Samho Heavy Industries Co., Ltd. and Hyundai Mipo Dockyard Co., Ltd.

⁽⁸⁾	Includes principally Daewoo Shipbuilding & Marine Engineering Co., Ltd., Shinhan Heavy Industries Co., Ltd., Samwoo Heavy Industries Co., Ltd.

⁽⁹⁾	Includes principally POSCO, POSCO International Corporation and POSCO Energy Co., Ltd.

⁽¹⁰⁾	Includes principally GS Caltex Corporation, GS Donghae Electric Power Co., Ltd. and GS Pocheon Green Energy Corporation.

Loan Concentration by Industry

The following table presents the aggregate balance of our domestic and foreign corporate loans, by industry concentration, as of December 31, 2018, 2019 and 2020:


	As of December 31,
	2018					2019					2020
Industry	Amount		%			Amount		%			Amount		%
	(in billions of Won, except percentages)
Services	￦	61,303		42.2	%	￦	65,192		41.6	%	￦	75,932		43.2	%
Manufacturing		42,267		29.1			42,901		27.4			45,637		25.9
Wholesale and retail		16,683		11.5			18,539		11.8			23,099		13.1
Financial institutions		13,494		9.3			16,148		10.3			15,834		9.0
Construction		3,277		2.2			3,645		2.4			4,370		2.5
Public sector		864		0.6			1,251		0.8			1,660		0.9
Others		7,491		5.1			8,978		5.7			9,420		5.4

Total	￦	145,379		100.0	%	￦	156,654		100.0	%	￦	175,952		100.0	%

The COVID-19 pandemic has heavily impacted certain industries, including those in the services sector such as transportation, food and beverage, hotel, leisure and shipping, and those in the manufacturing sector such

as automobile transportation equipment manufacturing, automotive component manufacturing, electronic component manufacturing, telecommunications and shipbuilding. There have also been initiatives to suspend the principal and interest payment obligations of certain borrowers for an extended period of time due to COVID-19. See “Item 3.D. Risk Factors—Other risks relating to our business—The ongoing global pandemic of COVID-19 and any possible recurrence of other types of widespread infectious diseases may adversely affect our business, financial condition or results of operations.” The following table presents our exposure and additional provisions recognized for certain industries most impacted by COVID-19, as well as our exposure and additional provisions recognized as of December 31, 2020 in connection with our initiatives to suspend the payment obligations of certain of our borrowers.

As of December 31, 2020

Industry sectors affected
by COVID-19 ⁽¹⁾

Suspension of principal and
interest payment

Exposure

Additional
provisions

Exposure

Additional
provisions

(in billions of Won)

Loans

￦

111,137

￦

8,804

￦

Acceptances and guarantees, and unused loan commitments

￦

33,866

￦

597

￦

Total

￦

145,003

￦

8,681

￦

⁽¹⁾	Includes service industries (e.g., transportation, food and beverage, hotel, leisure and shipping) and manufacturing industries (e.g., automobile transportation equipment, automotive components, petrochemical, electronic components, telecommunications and shipbuilding).

Maturity Analysis

We typically roll over our working capital loans and unsecured consumer loans (other than those payable in installments) after we conduct our normal loan review in accordance with our loan review procedures. Working capital loans may generally be extended on an annual basis for an aggregate term of five years and unsecured consumer loans may generally be extended for another term of up to 12 months for an aggregate term of 10 years.

The following table sets out the scheduled maturities (time remaining until maturity) of our loan portfolio as of December 31, 2020. The amounts disclosed are before deduction of allowances for loan losses:


	1 Year or Less		Over 1 Year But Not More Than 5 Years		Over 5 Years		Total
	(in billions of Won)
Domestic:
Corporate
Small- and medium-sized enterprises	￦	84,244	￦	34,207	￦	6,006	￦	124,457
Large corporate		21,651		10,656		3,350		35,657

Total corporate		105,895		44,863		9,356		160,114
Retail
Mortgage and home equity		13,530		20,344		80,270		114,144
Other consumer		41,326		17,579		9,388		68,293

Total retail		54,856		37,923		89,658		182,437
Credit cards		15,365		2,948		424		18,737

Total domestic		176,116		85,734		99,438		361,288
Foreign:		6,274		7,342		5,546		19,162

Total gross loans	￦	182,390	￦	93,076	￦	104,984	￦	380,450

Interest Rate Sensitivity

The following table shows, as of December 31, 2020, the total amount of loans due after one year, which have fixed interest rates and variable or adjustable interest rates:


	As of December 31, 2020
	(in billions of Won)
Fixed rate ⁽¹⁾	￦	64,345
Variable or adjustable rates ⁽²⁾		133,715

Total gross loans	￦	198,060

⁽¹⁾	Fixed rate loans are loans for which the interest rate is fixed for the entire term.

⁽²⁾	Variable or adjustable rate loans are loans for which the interest rate is not fixed for the entire term.

For additional information regarding our management of interest rate risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Market Risk Management—Market Risk Management for Non-Trading Activities.”

Credit Exposures to Companies in Workout, Restructuring or Rehabilitation

Workout is a voluntary procedure through which we, together with the borrower and other creditors, seek to restore the borrower’s financial stability and viability. Previously, workouts were regulated under a series of Corporate Restructuring Promotion Acts, which last expired on June 30, 2018. In September 2018, the National Assembly of Korea adopted a new Corporate Restructuring Promotion Act, which became effective in October 2018 and is scheduled to expire in October 2023. Under the new Corporate Restructuring Promotion Act, creditors of a financially troubled borrower may participate in a creditors’ committee, which is authorized to prohibit such creditors from exercising their rights against the borrower, commence workout procedures and approve or make revisions to a reorganization plan prepared by the lead creditor bank, the borrower and external experts. The composition of the creditors’ committee is determined at the initial meeting of the committee by the approval of creditors holding not less than 75% of the borrower’s total outstanding debt held by creditors who were notified of the initial meeting of the committee. Although creditors that are not financial institutions or hold less than 1% of the total outstanding debt of the borrower need not be notified of the initial meeting of the creditors’ committee, if such creditors wish to participate, they may not be excluded. Any decision of the creditors’ committee requires the approval of creditors holding not less than 75% of the total outstanding debt of the borrower. However, if a single creditor holds 75% or more of the borrower’s total outstanding debt held by the creditors comprising the creditors’ committee, any decision of the creditors’ committee requires the approval of not less than 40% of the total number of creditors (including such single creditor) comprising the committee. An additional approval of creditors holding not less than 75% of the secured debt is required with respect to the borrower’s debt restructuring. Once approved, any decision made by the creditors’ committee is binding on all creditors of the borrower, with the exception of those creditors that were excluded by a resolution of the committee at its initial meeting and those who exercised their right to request that their claims be purchased. Creditors that voted against commencement of workout, approval or revision of the reorganization plan, debt restructuring, granting of new credit, extension of the joint management process or other resolutions of the committee have the right to request the creditors that voted in favor of such matters to purchase their claims at a mutually agreed price. In the event that the parties are not able to agree on the terms of purchase, a coordination committee consisting of experts would determine the terms. The creditors that oppose a decision made by the coordination committee may request a court to change such decision.

Upon approval of the workout plan, a credit exposure is initially classified as precautionary or lower and thereafter cannot be classified higher than precautionary with limited exceptions. If a corporate borrower is in workout, restructuring or rehabilitation, we take the status of the borrower into account in valuing our loans to and collateral from that borrower for purposes of establishing our allowances for credit losses.

Korean law also provides for corporate rehabilitation proceedings, which are court-supervised procedures to rehabilitate an insolvent company. Under these procedures, a restructuring plan is adopted at a meeting of interested parties, including creditors of the company. Such restructuring plan is subject to court approval.

A portion of our loans to and debt securities of corporate customers are currently in workout, restructuring or rehabilitation. As of December 31, 2020, ￦285 billion or 0.1% of our total loans were in workout, restructuring or rehabilitation. This included ￦46 billion of loans to large corporate borrowers and ￦239 billion of loans to small- and medium-sized enterprises.

The following table shows, as of December 31, 2020, our ten largest credit exposures that were in workout, restructuring or rehabilitation:


	Loans						Guarantees and Acceptances				Amounts Classified as Impaired Loans
Company	Won Currency		Foreign Currency		Equity Securities		Guarantees and Acceptances		Total Exposures		Amounts Classified as Impaired Loans
	(in billions of Won)
Orient Shipyard Co., Ltd.	￦	49	￦	2	￦	—	￦	—	￦	51	￦	51
Dong Il Construction Co., Ltd.		40		—		—		—		40		40
Trans-Pacific Resources Co., Ltd.		—		11		—		2		13		11
Ubcell Co., Ltd.		13		—		—		—		13		13
Donghwa IND Co., Ltd.		10		—		—		—		10		10
Woojeon Co., Ltd.		—		9		—		—		9		9
Yonghyun Co., Ltd.		8		—		—		—		8		—
JNE Co., Ltd.		7		—		—		—		7		—
Taebang Patec Co., Ltd.		6		—		—		—		6		6
Sycnc Co., Ltd.		6		—		—		—		6		—

Total	￦	139	￦	22	￦	—	￦	2	￦	163	￦	140

Provisioning Policy

Under IFRS 9 Financial Instruments , which replaced IAS 39, for annual periods commencing on or after January 1, 2018, we establish allowances for credit losses based on expected credit losses instead of incurred losses (as was the case under IAS 39) by assessing changes in expected credit losses and recognizing such changes as impairment loss (or reversal of impairment loss) in profit or loss. According to three stages of credit risk deterioration since initial recognition under IFRS 9, the allowance required to be established with respect to a loan or receivable is (i) the amount of the expected 12-month credit loss for stage 1 loans or receivables and (ii) the expected lifetime credit loss for stages 2 and 3 loans or receivables.

We establish allowances for loan losses with respect to loans to absorb such losses. For financial reporting periods starting prior to January 1, 2018, under IAS 39 Financial Instruments: Recognition and Measurement , we assessed individually significant loans on a case-by-case basis and other loans on a collective basis. In addition, if we determined that no objective evidence of impairment existed for a loan, we included such loan in a group of loans with similar credit risk characteristics and assessed them collectively for impairment regardless of whether such loan was significant. For individually significant loans, allowances for loan losses were recorded if objective evidence of impairment existed as a result of one or more events that occurred after initial recognition. For collectively assessed loans, we based the level of allowances for loan losses on our evaluation of the risk characteristics of such loans, taking into account such factors as historical loss experience, the financial condition of the borrowers and current economic conditions.

If additions or changes to the allowances for loan losses are required, then we record a provision for loan losses, which is included in impairment losses on credit loss and treated as a charge against current income.

Credit exposures that we deem to be uncollectible, including actual loan losses, net of recoveries of previously charged-off amounts, are charged directly against the allowances for loan losses. See “Item 5.A. Operating Results—Critical Accounting Policies—Impairment of Loans and Allowances for Loan Losses.”

We generally consider the following loans to be impaired loans:

•

loans that are past due by 90 days or more;

•

loans that are subject to legal proceedings related to collection;

•

loans to a borrower that has received a warning from the Korea Credit Information Services indicating that such borrower has exhibited difficulties in making timely payments of principal and interest;

•

loans to corporate borrowers that are rated C or D according to Kookmin Bank’s internal credit ratings for large companies or small-and medium-sized enterprises;

•

loans for which account-specific provisions have been made resulting from a significant perceived decline in credit quality; and

•

loans with respect to which the amount of principal and interest payable has been materially decreased due to restructuring.

We regularly evaluate the adequacy of the overall allowances for loan losses and we believe that the allowances for loan losses reflect our best estimate of probable loan losses as of each balance sheet date.

Loan Aging Schedule

The following table shows our loan aging schedule (excluding accrued interest) as of the dates indicated:


As of December 31,	Normal Amount		%			Amount Past Due 1-3 Months		%			Amount Past Due 3-6 Months		%			Amount Past Due 6 Months or More		%			Total Amount
	(in billions of Won, except percentages)
2016	￦	266,381		99.5	%	￦	460		0.2	%	￦	295		0.1	%	￦	628		0.2	%	￦	267,764
2017		291,074		99.6			401		0.1			267		0.1			491		0.2			292,233
2018		320,628		99.7			458		0.1			366		0.1			359		0.1			321,811
2019		340,894		99.7			442		0.1			369		0.1			387		0.1			342,092
2020		378,638		99.5			704		0.2			412		0.1			696		0.2			380,450

Non-Accrual Loans and Past Due Accruing Loans

We generally consider impaired loans to be non-accrual loans. However, we exclude from non-accrual status and continue to accrue interest on loans that are fully secured by cash on deposit or on which there are financial guarantees from the government, the Korea Deposit Insurance Corporation or certain financial institutions.

We generally recognize interest income on non-accrual loans using the interest rate used to discount the future cash flows of such loans for purposes of measuring impairment loss, as well as upon receipt of cash interest payments. We reclassify loans as accruing when interest and principal payments are up-to-date and future payments of principal and interest are reasonably assured.

Interest foregone is the interest due on non-accrual loans that has not been accrued in our books of account. The table below shows, for the years indicated, the amount of gross interest income that we would have recorded on loans accounted for on a non-accrual basis throughout the year, or since origination for loans held for part of

the year, had we not foregone interest on those loans, as well as the amount of interest income on those loans that was included in our profit for the year.

Year Ended December 31,

2016

2017

2018

2019

2020

(in billions of Won)

Gross interest income that would have been recorded

￦

195

￦

198

￦

154

￦

152

￦

173

Interest income included in profit for the year

￦

129

￦

135

￦

The following table shows, as of the dates indicated, the amount of loans that were placed on a non-accrual basis and accruing loans which were past due 90 days or more. The category “accruing but past due 90 days” includes loans which are still accruing interest but on which principal or interest payments are contractually past due 90 days or more.


	As of December 31,
	2016		2017		2018		2019		2020
	(in billions of Won)
Loans accounted for on a non-accrual basis
Corporate	￦	1,403	￦	1,108	￦	906	￦	640	￦	997
Retail and credit cards		766		759		873		976		918

Sub-total		2,169		1,867		1,779		1,616		1,915

Accruing loans which are contractually past due 90 days or more as to principal or interest
Corporate		27		66		84		47		49
Retail and credit cards		79		33		64		34		40

Sub-total		106		99		148		81		89

Total	￦	2,275	￦	1,966	￦	1,927	￦	1,697	￦	2,004

Troubled Debt Restructurings

The following table presents, as of the dates indicated, our loans that are “troubled debt restructurings” for which we, for economic or legal reasons relating to the debtor’s financial difficulties, grant a concession to the debtor that we would not otherwise consider. These loans consist principally of corporate loans that have been restructured (through the process of workout, court receivership or composition) and which are accruing interest at rates lower than the original contractual terms as a result of a variation of terms upon restructuring.

As of December 31,

2016

2017

2018

2019

2020

(in billions of Won)

Loans classified as “troubled debt restructurings”

￦

168

￦

170

￦

133

￦

154

￦

132

For 2020, interest income that would have been recorded under the original contract terms of restructured loans amounted to ￦14 billion, out of which ￦9 billion was reflected as interest income during 2020.

Potential Problem Loans

We classify potential problem loans as loans that are designated as “early warning loans” and reported to the Financial Services Commission. “Early warning loans” are loans extended to borrowers that have been (i) identified by our early warning system as exhibiting signs of credit risk based on the relevant borrower’s financial data, credit information and/or transactions with banks and, following such identification and (ii) designated by our loan officers as potential problem borrowers based on their evaluation of known

information about such borrowers’ possible credit problems. Such loans are required to be reported on a quarterly basis to the Financial Services Commission. If a borrower’s loans are designated as “early warning loans” pursuant to the process described above and included in our quarterly report to the Financial Services Commission, we consider such borrowers to have serious doubt as to their ability to comply with repayment terms in the near future.

As of December 31, 2020, we had ￦2,224 billion of potential problem loans.

Other Problematic Interest-Earning Assets

We have certain other interest-earning assets received in connection with troubled debt restructurings that, if they were loans, would be required to be disclosed as part of the non-accrual, past due or restructuring or potential problem loan disclosures provided above. As of December 31, 2016, 2017, 2018, 2019 and 2020, we did not have any debt securities received in connection with troubled debt restructurings on which interest was past due.

Non-Performing Loans

Non-performing loans are defined as loans that are past due by 90 days or more. These loans are generally classified as “substandard” or below. For further information on the classification of non-performing loans under Korean regulatory requirements, see “—Regulatory Reserve for Credit Losses” below.

The following table shows, as of the dates indicated, certain details of our total non-performing loan portfolio:


	As of December 31,
	2016			2017			2018			2019			2020
	(in billions of Won, except percentages)
Total non-performing loans	￦	923		￦	758		￦	725		￦	756		￦	1,108
As a percentage of total loans		0.3	%		0.3	%		0.2	%		0.2	%		0.3	%

Analysis of Non-Performing Loans

The following table sets forth, as of the dates indicated, our total non-performing loans by type of borrower:


	As of December 31,
	2016					2017					2018					2019					2020
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
	(in billions of Won, except percentages)
Domestic:
Corporate
Small- and medium sized enterprise	￦	302		32.7	%	￦	178		23.5	%	￦	267		36.8	%	￦	204		27.0	%	￦	162		14.6	%
Large corporate		247		26.8			209		27.6			17		2.3			37		4.9			41		3.7

Total corporate		549		59.5			387		51.1			284		39.1			241		31.9			203		18.3
Retail
Mortgage and home equity		124		13.4			110		14.5			134		18.5			183		24.2			136		12.3
Other consumer		148		16.0			142		18.7			170		23.5			193		25.5			170		15.3

Total retail		272		29.4			252		33.2			304		42.0			376		49.7			306		27.6
Credit cards		81		8.8			100		13.2			119		16.4			123		16.3			104		9.4

Total domestic		902		97.7			739		97.5			707		97.5			740		97.9			613		55.3
Foreign:		21		2.3			19		2.5			18		2.5			16		2.1			495		44.7

Total non-performing loans	￦	923		100.0	%	￦	758		100.0	%	￦	725		100.0	%	￦	756		100.0	%	￦	1,108		100.0	%

Top 20 Non-Performing Loans

As of December 31, 2020, our 20 largest non-performing loans accounted for 8.2% of our total non-performing loan portfolio. The following table shows, as of December 31, 2020, certain information regarding our 20 largest non-performing loans:


	Industry	Gross Principal Outstanding		Allowances for Loan Losses ⁽¹⁾
	(in billions of Won)
Borrower A	Construction	￦	23	￦	23
Borrower B	Manufacturing		17		7
Borrower C	Services		5		5
Borrower D	Manufacturing		4		4
Borrower E	Manufacturing		4		—
Borrower F	Manufacturing		4		4
Borrower G	Services		4		—
Borrower H	Services		3		—
Borrower I	Services		3		—
Borrower J	Services		3		1
Borrower K	Services		3		3
Borrower L	Services		2		—
Borrower M	Services		2		—
Borrower N	Others		2		—
Borrower O	Construction		2		—
Borrower P	Services		2		2
Borrower Q	Manufacturing		2		1
Borrower R	Financial institutions		2		2
Borrower S	Manufacturing		2		1
Borrower T	Financial institutions		2		2

Total		￦	91	￦	55

⁽¹⁾	If the estimated recovery value of collateral for a non-performing loan is sufficient compared to the outstanding loan balance, we record no allowances for loan losses for such non-performing loan.

Non-Performing Loan Strategy

One of our primary objectives is to prevent our loans from becoming non-performing. Through our corporate credit rating systems, we believe that we have reduced our risks relating to future non-performing loans. Our credit rating systems are designed to prevent our loan officers from extending new loans to borrowers with high credit risks based on the borrower’s credit rating. Our early warning system is designed to bring any sudden increase in a borrower’s credit risk to the attention of our loan officers, who then closely monitor such loans. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk Management—Credit Review and Monitoring.”

Notwithstanding the above, if a loan becomes non-performing, an officer at the branch level responsible for monitoring non-performing loans will commence a due diligence review of the borrower’s assets, send a notice either demanding payment or stating that we will take legal action and prepare for legal action.

At the same time, we also initiate our non-performing loan management process, which begins with:

•

identifying loans subject to a proposed sale by assessing the estimated losses from such sale based on the estimated recovery value of collateral, if any, for such non-performing loans;

•

identifying loans subject to charge-off based on the estimated recovery value of collateral, if any, for such non-performing loans and the estimated rate of recovery of unsecured loans; and

•

on a limited basis, identifying corporate loans subject to normalization efforts based on the cash-flow situation of the borrower.

Once the details of a non-performing loan are identified, we pursue early solutions for recovery. While the overall process is the responsibility of Kookmin Bank’s Credit Division, actual recovery efforts on non-performing loans are handled at the operating branch level.

In addition, we use the services of our wholly-owned loan collection subsidiary, KB Credit Information Co., Ltd., which receives payments from recoveries made on charged-off loans and certain loans that are overdue for over three months (28 days on average in the case of credit card loans). KB Credit Information has approximately 130 employees, including legal experts and management employees. The fees that it receives are based on the amounts of non-performing and charged-off loans that are recovered. In 2018, 2019 and 2020, the amount recovered was ￦324 billion, ￦325 billion and ￦302 billion, respectively.

Methods for resolving non-performing loans include the following:

•

non-performing loans are managed by the operating branches of Kookmin Bank until such loans are charged off;

•

a demand note is dispatched by mail if payment is generally one month past due;

•

calls and visits are made by Kookmin Bank’s operating branches to customers encouraging them to make payments;

•

borrowers who are past due on payments of interest and principal are registered on the Korea Credit Information Services’ database of non-performing loans;

•

for unsecured loans other than credit card loans, the loans are transferred to KB Credit Information for collection on a case-by-case basis;

•

for secured loans, actions to enforce or protect the security interests (including foreclosure and auction of the collateral) are commenced within five months of such loans becoming past due; and

•

charged-off loans are given to KB Credit Information for collection, except for loans where the cost of collection exceeds the possible recovery or where the statute of limitations for collection has expired.

In addition, credit card loans that are in arrears for over 28 days on average are transferred to KB Credit Information for collection.

If a loan becomes non-performing, it is managed by an operating branch of Kookmin Bank until such loan is charged off. However, in order to promote speedy recovery on loans subject to foreclosures and litigation, our policy is to permit the branch responsible for handling these loans to request one of Kookmin Bank’s regional head offices for assistance with litigation proceedings and proceedings related to foreclosure and auction of the collateral.

In addition to making efforts to collect on these non-performing loans, we also undertake measures to reduce the level of our non-performing loans, which include:

•

selling our non-performing loans to third parties, including the Korea Asset Management Corporation; and

•

entering into asset securitization transactions with respect to our non-performing loans.

We generally expect to suffer a partial loss on loans that we sell or securitize, to the extent such sales and securitizations are recognized under IFRS as sale transactions.

Allocation and Analysis of Allowances for Loan Losses

The following table presents, as of the dates indicated, the allocation of our allowances for loan losses by loan type. The ratio represents the percentage of allowances for loan losses in each category to total allowances for loan losses.


	As of December 31,
	2016					2017					2018 ⁽¹⁾					2019 ⁽¹⁾					2020 ⁽¹⁾
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
	(in billions of Won, except percentages)
Domestic:
Corporate
Small- and medium sized enterprise	￦	644		28.3	%	￦	522		24.7	%	￦	618		23.7	%	￦	546		22.7	%	￦	620		18.9	%
Large corporate		696		30.6			666		31.6			608		23.3			378		15.7			319		9.7

Total corporate		1,340		58.9			1,188		56.3			1,226		47.0			924		38.4			939		28.6
Retail
Mortgage and home equity		29		1.3			24		1.2			39		1.5			46		1.9			58		1.8
Other consumer		452		19.8			404		19.2			602		23.1			663		27.5			755		23.0

Total retail		481		21.1			428		20.4			641		24.6			709		29.4			813		24.8
Credit cards		414		18.1			449		21.2			711		27.2			740		30.7			698		21.3

Total domestic		2,235		98.1			2,065		97.9			2,578		98.8			2,373		98.5			2,450		74.7
Foreign: ⁽²⁾		43		1.9			45		2.1			31		1.2			35		1.5			833		25.3

Total allowances for loan losses	￦	2,278		100.0	%	￦	2,110		100.0	%	￦	2,609		100.0	%	￦	2,408		100.0	%	￦	3,283		100.0	%

⁽¹⁾	Figures as of December 31, 2018, 2019 and 2020 reflect the application of IFRS 9 and therefore may not be directly comparable to corresponding figures for prior years.

⁽²⁾	Consists primarily of loans to corporations.

The following tables analyze our allowances for loan losses and loan loss experience for each of the years indicated:


	Year Ended December 31,
	2016			2017
	(in billions of Won, except percentages)
Balance at the beginning of the period	￦	2,582		￦	2,278
Amounts charged against income		579			583
Sale		(78	)		(66	)
Gross charge-offs:
Domestic:
Corporate
Small- and medium-sized enterprise		467			308
Large corporate		278			87
Retail
Mortgage and home equity		7			7
Other consumer		288			335
Credit cards		357			400
Foreign:		2			—

Total gross charge-offs		(1,399	)		(1,137	)

Recoveries:
Domestic:
Corporate
Small-and medium-sized enterprise		214			280
Large corporate		1			—
Retail
Mortgage and home equity		43			30
Other consumer		124			116
Credit cards		133			133
Foreign:		—			—

Total recoveries		515			559

Net charge-offs		(884	)		(578	)
Other charges ⁽¹⁾		79			(107	)

Balance at the end of the period	￦	2,278		￦	2,110

Ratio of net charge-offs during the period to average loans outstanding during the period		0.3	%		0.2	%


	As of December 31, 2018
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses						Total
				Non-impaired			Impaired
	(in billions of Won, except percentages)
Balance at the beginning of the period ⁽²⁾	￦	612		￦	732		￦	1,265		￦	2,609
Amounts charged against income		(2	)		185			469			652
Sale		(2	)		(2	)		(16	)		(20	)
Stage transference:
Transfer to 12-month expected credit losses		190			(187	)		(3	)		—
Transfer to lifetime expected credit losses (non-impaired)		(159	)		187			(28	)		—
Transfer to lifetime expected credit losses (impaired)		(7	)		(92	)		99			—
Gross charge-offs:
Domestic:
Corporate
Small- and medium-sized enterprise		—			—			35			35
Large corporate		—			—			198			198
Retail
Mortgage and home equity		—			—			5			5
Other consumer		—			—			376			376
Credit cards		—			—			465			465
Foreign:		—			—			—			—

Total gross charge-offs		—			—			(1,079	)		(1,079	)

Recoveries:
Domestic:
Corporate
Small-and medium-sized enterprise		—			—			36			36
Large corporate		—			—			135			135
Retail
Mortgage and home equity		—			—			10			10
Other consumer		—			—			115			115
Credit cards		—			—			133			133
Foreign:		—			—			—			—

Total recoveries		—			—			429			429

Net charge-offs		—			—			(650	)		(650	)
Other charges		—			1			17			18

Balance at the end of the period	￦	632		￦	824		￦	1,153		￦	2,609

Ratio of net charge-offs during the period to average loans outstanding during the period											0.2	%


	As of December 31, 2019
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses						Total
				Non-impaired			Impaired
	(in billions of Won, except percentages)
Balance at the beginning of the period	￦	632		￦	824		￦	1,153		￦	2,609
Amounts charged against income		19			(1	)		640			658
Sale		—			—			(10	)		(10	)
Stage transference:
Transfer to 12-month expected credit losses		280			(265	)		(15	)		—
Transfer to lifetime expected credit losses (non-impaired)		(222	)		326			(105	)		(1	)
Transfer to lifetime expected credit losses (impaired)		(6	)		(106	)		112			—
Gross charge-offs:
Domestic:
Corporate
Small- and medium-sized enterprise		—			—			18			18
Large corporate		—			—			221			221
Retail
Mortgage and home equity		—			—			4			4
Other consumer		—			—			439			439
Credit cards		—			—			506			506
Foreign:		—			—			1			1

Total gross charge-offs		—			—			(1,189	)		(1,189	)

Recoveries:
Domestic:
Corporate
Small-and medium-sized enterprise		—			—			59			59
Large corporate		—			—			73			73
Retail
Mortgage and home equity		—			—			2			2
Other consumer		—			—			120			120
Credit cards		—			—			136			136
Foreign:		—			—			—			—

Total recoveries		—			—			390			390

Net charge-offs		—			—			(799	)		(799	)
Other charges		—			3			(52	)		(49	)

Balance at the end of the period	￦	703		￦	781		￦	924		￦	2,408

Ratio of net charge-offs during the period to average loans outstanding during the period											0.2	%


	As of December 31, 2020
	Financial instruments applying 12-month expected credit losses			Financial instruments applying lifetime expected credit losses						Total
				Non-impaired			Impaired
	(in billions of Won, except percentages)
Balance at the beginning of the period	￦	703		￦	781		￦	924		￦	2,408
Amounts charged against income		16			198			707			921
Sale		(2	)		—			(22	)		(24	)
Stage transference:
Transfer to 12-month expected credit losses		292			(281	)		(11	)		—
Transfer to lifetime expected credit losses (non-impaired)		(172	)		354			(182	)		—
Transfer to lifetime expected credit losses (impaired)		(9	)		(193	)		202			—
Gross charge-offs:
Domestic:
Corporate
Small- and medium-sized enterprise		—			—			14			14
Large corporate		—			—			188			188
Retail
Mortgage and home equity		—			—			8			8
Other consumer		—			—			453			453
Credit cards		—			—			501			501
Foreign:		—			1			120			121

Total gross charge-offs		—			(1	)		(1,284	)		(1,285	)

Recoveries:
Domestic:
Corporate
Small-and medium-sized enterprise		4			—			19			23
Large corporate		—			—			86			86
Retail
Mortgage and home equity		—			—			11			11
Other consumer		—			—			124			124
Credit cards		—			—			134			134

Foreign:		—			—			—			—

Total recoveries		4			—			374			378

Net charge-offs		4			(1	)		(910	)		(907	)
Other charges		145			27			712			884

Balance at the end of the period	￦	977		￦	885		￦	1,420		￦	3,282

Ratio of net charge-offs during the period to average loans outstanding during the period											0.2	%

⁽¹⁾

The amount for 2016 reflects an increase in allowances for loan losses of ￦136 billion attributable to the addition of KB Securities as a consolidated subsidiary in October 2016. The amount for 2017 reflects an increase in allowance for loan losses of ￦60 billion attributable to the addition of KB Insurance as a consolidated subsidiary in May 2017.

⁽²⁾	Reflects the transition impact of ￦(543) billion for our allowance for loan losses resulting from the application of IFRS 9.

Regulatory Reserve for Credit Losses

If our allowances for credit losses are deemed insufficient for regulatory purposes, we are required to compensate for the difference by recording a regulatory reserve for credit losses, which is segregated within our retained earnings. Regulatory reserve for credit losses are not available for distribution to shareholders as dividends. The level of regulatory reserve for credit losses required to be recorded is equal to the amount by which our allowances for credit losses under IFRS are less than the greater of (x) the amount of expected loss calculated using the internal ratings-based approach under Basel III and as approved by the Financial Supervisory Service and (y) the required amount of credit loss reserve calculated based on standards prescribed by the Financial Services Commission. As of December 31, 2020, our regulatory reserve for credit losses was ￦3,587 billion.

The following tables set forth the Financial Services Commission’s guidelines for the classification of loans and the minimum percentages of the outstanding principal amount of the relevant loans or balances that the credit loss reserve must cover:


Loan Classification		Loan Characteristics
Normal		Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, do not raise concerns regarding their ability to repay the loans.

Precautionary		Loans extended to customers that (i) based on our consideration of their business, financial position and future cash flows, show potential risks with respect to their ability to repay the loans, although showing no immediate default risk or (ii) are in arrears for one month or more but less than three months.

Substandard		(i) Loans extended to customers that, based on our consideration of their business, financial position and future cash flows, are judged to have incurred considerable default risks as their ability to repay has deteriorated; or (ii) the portion that we expect to collect of total loans (a) extended to customers that have been in arrears for three months or more, (b) extended to customers that have incurred serious default risks due to the occurrence of, among other things, final refusal to pay their debt instruments, entry into liquidation or bankruptcy proceedings or closure of their businesses, or (c) extended to customers who have outstanding loans that are classified as “doubtful” or “estimated loss.”

Doubtful		Loans exceeding the amount that we expect to collect of total loans to customers that: (i) based on our consideration of their business, financial position and future cash flows, have incurred serious default risks due to noticeable deterioration in their ability to repay; or (ii) have been in arrears for three months or more but less than 12 months.

Estimated loss		Loans exceeding the amount that we expect to collect of total loans to customers that: (i) based on our consideration of their business, financial position and future cash flows, are judged to be accounted as a loss because the inability to repay became certain due to serious deterioration in their ability to repay; (ii) have been in arrears for 12 months or more; or (iii) have incurred serious risks of default in repayment due to the occurrence of, among other things, final refusal to pay their debt instruments, liquidation or bankruptcy proceedings or closure of their business.

Loan Classifications

Corporate ⁽¹⁾

Consumer

Credit Card
Balances ⁽²⁾

Credit Card Loans ⁽³⁾

Normal

0.85% or above

1% or above

1.1% or above

2.5% or above

Precautionary

7% or above

10% or above

40% or above

50% or above

Substandard

20% or above

60% or above

65% or above

Doubtful

50% or above

55% or above

75% or above

Estimated loss

100%

⁽¹⁾	Subject to certain exceptions pursuant to the Banking Industry Supervision Regulations of Korea.

⁽²⁾	Applicable for credit card balances from general purchases.

⁽³⁾	Applicable for cash advances, card loans and revolving credit card assets.

Loan Charge-Offs

Basic Principles

We attempt to minimize loans to be charged off by adhering to a sound credit approval process based on credit risk analysis prior to extending loans and a systematic management of outstanding loans. However, if charge-offs are necessary, we charge off loans subject to our charge-off policy at an early stage in order to maximize accounting transparency, to minimize any waste of resources in managing loans which have a low probability of being collected and to reduce our non-performing loan ratio.

Loans To Be Charged Off

Loans are charged off if they are deemed to be uncollectible by falling under any of the following categories:

•

loans for which collection is not foreseeable due to insolvency, bankruptcy, compulsory execution, disorganization, dissolution or the shutting down of the business of the debtor;

•

loans for which collection is not foreseeable due to the death or disappearance of the debtor;

•

loans for which expenses of collection exceed the collectable amount;

•

loans on which collection is not possible through legal or any other means;

•

payments in arrears in respect of credit cards that have been overdue for a period of six months or more and have been classified as expected loss (excluding instances where there has been partial payment of the overdue balance, where a related balance is not overdue or where a charge off is not possible due to Korean regulations); and

•

the portion of loans classified as “estimated loss,” net of any recovery from collateral, which is deemed to be uncollectible.

Procedure for Charge-off Approval

In order to charge off corporate loans, an application for a charge-off must be submitted to Kookmin Bank’s Credit Management Department promptly after the corporate loan is classified as estimated loss or deemed uncollectible. The Credit Management Department refers the charge-off application to Kookmin Bank’s Channel Audit Department for their review to ensure compliance with our internal procedures for charge-offs. Then, the Credit Management Department, after reviewing the application to confirm that it meets relevant requirements, seeks an approval from the Financial Supervisory Service for our charge-offs, which is typically granted. Once we receive approval from the Financial Supervisory Service, we must also obtain approval from our senior management to charge off those loans.

With respect to credit card balances and unsecured retail loans, we follow a different process to determine which credit card balances and unsecured retail loans should be charged off, based on the length of time those

loans or balances are past due. We charge off unsecured retail loans deemed to be uncollectible and credit card balances which have been overdue for a period of six months or more or which have been deemed to be uncollectible under IFRS.

Treatment of Loans Charged Off

Once loans are charged off, we classify them as charged-off loans and remove them from our balance sheet. These loans are managed based on a different set of procedures. We continue our collection efforts in respect of these loans, including through our subsidiary, KB Credit Information, although loans may be charged off before we begin collection efforts in some circumstances.

If a collateralized loan is overdue, we will, typically within one year from the time that such loan became overdue (or after a longer period in certain circumstances), petition a court to foreclose and sell the collateral through a court-supervised auction. If a debtor ultimately fails to repay and the court grants its approval for foreclosure, we will sell the collateral, net of expenses incurred from the auction.

Investment Portfolio

Investment Policy

We invest in and trade Won-denominated and, to a lesser extent, foreign currency-denominated securities for our own account to:

•

maintain the stability and diversification of our assets;

•

maintain adequate sources of back-up liquidity to match our funding requirements; and

•

supplement income from our core lending activities.

We also invest in and trade such securities as part of the general account investments of our insurance subsidiaries that support their insurance policy liabilities. In making securities investments, we take into account a number of factors, including macroeconomic trends, industry analysis, credit evaluation and maturity in determining whether to make particular investments in securities.

Our investments in securities are also subject to a number of guidelines, including limitations prescribed under the Financial Holding Company Act and the Bank Act. Under these regulations, a bank holding company may not own (i) more than 5% of the total issued and outstanding shares of another finance-related company, (ii) any shares of its affiliates, other than its direct or indirect subsidiaries or (iii) any shares of a non-finance-related company. In addition, Kookmin Bank must limit its investments in equity securities and debt securities with a redemption period of over three years (other than government bonds, the Monetary Stabilization Bonds issued by the Bank of Korea, among others) to 100.0% of its total Tier I and Tier II capital amount (less any capital deductions). Generally, Kookmin Bank is also prohibited from acquiring more than 15.0% of the shares with voting rights issued by any other corporation subject to certain exceptions. Pursuant to the Bank Act, a bank and its trust accounts are prohibited from acquiring the shares of a major shareholder (for the definition of “major shareholder,” see “—Supervision and Regulation—Principal Regulations Applicable to Banks—Financial Exposure to Any Individual Customer and Major Shareholder”) of that bank in excess of an amount equal to 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions). Further information on the regulatory environment governing our investment activities is set out in “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Liquidity,” “—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Shareholdings in Other Companies,” “—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity” and “—Supervision and Regulation—Principal Regulations Applicable to Banks—Restrictions on Shareholdings in Other Companies.”

The following table sets out the definitions of the three categories of securities we hold:


Category		Classification

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

Financial assets at fair value through other comprehensive income		Debt instruments held with a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and are consistent with representing solely payments of principal and interest on the principal amount outstanding; or Equity instruments not held for trading with the objective of generating a profit from short-term fluctuations in price or dealers’ margin, designated as financial assets at fair value through other comprehensive income.

Financial assets at amortized cost		Financial assets held with a business model whose objective is to hold assets in order to collect contractual cash flows, and are consistent with representing solely payments of principal and interest on the principal amount outstanding.

See “Item 5.A. Operating Results—Critical Accounting Policies—Valuation of Securities and Financial Instruments.”

We also hold limited balances of venture capital securities, non-marketable and restricted equity securities and derivative instruments.

Carrying Amount and Market Value

The following tables set out the carrying amount and market value of securities in our securities portfolio as of the dates indicated:


	As of December 31,
	2018				2019				2020
	Carrying Amount		Market Value		Carrying Amount		Market Value		Carrying Amount		Market Value
	(in billions of Won)
Financial assets at fair value through other comprehensive income:
Equity securities
Stocks	￦	2,262	￦	2,262	￦	2,378	￦	2,378	￦	2,852	￦	2,852
Equity investments		39		39		41		41		38		38
Other equity securities		69		69		85		85		185		185
Debt securities
Korean treasury securities and government agency securities		3,475		3,475		9,502		9,502		14,735		14,735
Debt securities issued by financial institutions		20,108		20,108		20,913		20,913		23,194		23,194
Corporate debt securities		10,541		10,541		12,290		12,290		18,721		18,721
Asset-backed securities		1,100		1,100		832		832		1,796		1,796
Others		20		20		20		20		10		10

Total financial assets at fair value through other comprehensive income		37,614		37,614		46,061		46,061		61,531		61,531

Financial assets at amortized cost:
Debt securities
Korean treasury securities and government agency securities		5,090		5,452		5,396		6,046		17,193		17,702
Debt securities issued by financial institutions		6,847		6,797		8,157		8,183		5,679		5,711
Corporate debt securities		6,943		7,093		7,537		8,041		8,182		8,741
Asset-backed securities		4,783		4,817		4,258		4,303		5,789		5,841
Others		—		—		—		—		30		30

Total financial assets at amortized cost		23,663		24,159		25,348		26,573		36,873		38,025

Financial assets at fair value through profit or loss ⁽¹⁾
Equity securities
Stocks		1,094		1,094		1,716		1,716		1,633		1,633
Other equity securities		193		193		388		388		460		460
Debt securities
Korean treasury securities and government agency securities		7,923		7,923		6,569		6,569		9,315		9,315
Debt securities issued by financial institutions		14,978		14,978		16,360		16,360		17,897		17,897
Corporate debt securities		4,101		4,101		3,218		3,218		3,998		3,998
Asset-backed securities		84		84		125		125		236		236
Puttable instruments (investment funds, etc.)		10,252		10,252		12,375		12,375		14,201		14,201
Derivative linked securities		3,517		3,517		3,624		3,624		2,219		2,219
Others		7,430		7,430		8,449		8,449		10,549		10,549
Others		79		79		80		80		90		90

Total financial assets at fair value through profit or loss		49,651		49,651		52,904		52,904		60,598		60,598

Total securities	￦	110,928	￦	111,424	￦	124,313	￦	125,538	￦	159,002	￦	160,154

⁽¹⁾	Effective as of January 1, 2018, financial assets designated at fair value through profit or loss have been reclassified as financial assets at fair value through profit or loss, without the option for designation of fair value, pursuant to the application of IFRS 9.

Maturity Analysis

The following table categorizes our debt securities by maturity and weighted average yield as of December 31, 2020:


	Within 1 Year		Weighted Average Yield ⁽¹⁾			Over 1 But within 5 Years		Weighted Average Yield ⁽¹⁾			Over 5 But within 10 Years		Weighted Average Yield ⁽¹⁾			Over 10 Years		Weighted Average Yield ⁽¹⁾			Total		Weighted Average Yield ⁽¹⁾
	(in billions of Won, except percentages)
Financial assets at fair value through other comprehensive income:
Korean treasury securities and government agencies	￦	520		2.02	%	￦	5,527		1.52	%	￦	1,341		3.40	%	￦	7,347		2.09	%	￦	14,735		2.00	%
Debt securities issued by financial institutions		7,881		1.63			14,850		1.36			340		2.83			123		3.49			23,194		1.49
Corporate debt securities		3,213		2.38			11,777		1.98			1,943		2.99			1,788		3.13			18,721		2.27
Asset-backed securities		391		1.46			1,308		1.57			32		2.75			65		1.12			1,796		1.55
Others		10		2.30			—		—			—		—			—		—			10		2.30

Total	￦	12,015		1.85	%	￦	33,462		1.62	%	￦	3,656		3.12	%	￦	9,323		2.30	%	￦	58,456		1.87	%

Financial assets at amortized cost:
Korean treasury securities and government agencies	￦	436		1.64	%	￦	2,158		2.23	%	￦	5,570		3.93	%	￦	9,029		2.12	%	￦	17,193		2.71	%
Debt securities issued by financial institutions		3,877		1.19			1,152		2.66			122		6.55			528		6.08			5,679		2.06
Corporate debt securities		805		2.65			1,588		2.52			1,941		2.07			3,848		2.91			8,182		2.61
Asset-backed securities		571		1.59			3,071		1.96			1,932		1.81			215		2.11			5,789		1.88

Total	￦	5,689		1.47	%	￦	7,969		2.25	%	￦	9,565		3.16	%	￦	13,620		2.50	%	￦	36,843		2.46	%

Financial assets at fair value through profit or loss: ⁽²⁾
Korean treasury securities and government agency securities	￦	1,346		2.98	%	￦	4,547		1.54	%	￦	2,082		1.67	%	￦	1,340		2.13	%	￦	9,315		1.86	%
Debt securities issued by financial institutions		11,637		1.57			5,458		1.77			345		2.36			457		1.17			17,897		1.63
Corporate debt securities		1,430		2.37			1,965		2.47			432		2.77			103		3.77			3,930		2.50
Asset-backed securities		81		1.55			130		1.21			—		—			25		2.18			236		1.43
Others		3,688		1.37			540		1.72			16		3.61			71		2.62			4,315		1.44

Total	￦	18,182		1.69	%	￦	12,640		1.79	%	￦	2,875		1.93	%	￦	1,996		2.02	%	￦	35,693		1.76	%

⁽¹⁾

The weighted average yield for the portfolio represents the yield to maturity for each individual security, weighted using its carrying amount (which is the amortized cost in the case of financial assets at amortized cost and the fair value in the case of financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss).

⁽²⁾	Excludes securities with no maturities, such as puttable instruments or derivative linked securities.

Concentrations of Risk

As of December 31, 2020, we held the following securities of individual issuers where the aggregate carrying amount of those securities exceeded 10% of our stockholders’ equity at such date. As of December 31, 2020, our stockholders’ equity was ￦42,504 billion.


	Carrying Amount		Market Value
	(in billions of Won)
Name of Issuer:
The Korean government	￦	39,690	￦	40,165
The Korea Development Bank		10,728		10,737
Korea Housing Finance Corporation		9,574		9,638
Bank of Korea		8,443		8,444
Industrial Bank of Korea		6,291		6,299
Korea Securities Finance Corporation		4,901		4,901

Total	￦	79,627	￦	80,184

Korea Housing Finance Corporation is owned by the Korean government and the Bank of Korea. The Bank of Korea and Industrial Bank of Korea are controlled by the Korean government, whereas the Korea Development Bank is wholly-owned by the Korean government.

Funding

We obtain funding for our lending activities from a variety of sources, both domestic and foreign. Our principal source of funding is customer deposits. In addition, we acquire funding through long-term borrowings (comprising debentures and borrowings), short-term borrowings, including borrowings from the Bank of Korea, and call money.

Our primary funding strategy has been to achieve low-cost funding by increasing the average balances of low-cost retail deposits, in particular demand deposits and time deposits. We also have focused our marketing efforts on higher net worth individuals, who account for a significant portion of the assets in our retail deposit base. Customer deposits accounted for 76.2% of total funding as of December 31, 2018, 77.5% of total funding as of December 31, 2019 and 75.0% of total funding as of December 31, 2020.

Our borrowings consist of issuances of debentures and borrowings from financial institutions, the Korean government and government-affiliated funds. The majority of our borrowings is long-term, with maturities ranging from one year to 30 years.

Deposits

Although the majority of our deposits are short-term, it has been our experience that the majority of our depositors generally roll over their deposits at maturity, providing us with a stable source of funding.

The following table shows the average balances of our deposits and the average rates paid on our deposits for the periods indicated:


	2018					2019					2020
	Average Balance ⁽¹⁾		Average Rate Paid			Average Balance ⁽¹⁾		Average Rate Paid			Average Balance ⁽¹⁾		Average Rate Paid
	(in billions of Won, except percentages)
Demand deposits:
Non-interest bearing	￦	4,059		—		￦	3,942		—		￦	4,533		—
Interest bearing		117,267		0.30	%		122,519		0.30	%		149,141		0.18	%
Time deposits		141,021		1.87			155,762		1.94			166,275		1.56
Certificates of deposit		3,045		1.90			4,781		1.95			3,636		1.38

Average total deposits	￦	265,392		1.16	%	￦	287,004		1.23	%	￦	323,585		0.91	%

⁽¹⁾	Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

For a description of our retail deposit products, see “—Business—Retail Banking—Deposit-Taking Activities.”

Time Deposits and Certificates of Deposit

The following table presents the remaining maturities of our time deposits and certificates of deposit which had a fixed maturity in excess of ￦100 million as of December 31, 2020:


	Time Deposits		Certificates of Deposit		Total
	(in billions of Won)
Maturing within three months	￦	30,297	￦	518	￦	30,815
After three but within six months		20,806		510		21,316
After six but within 12 months		40,580		1,424		42,004
After 12 months		3,054		—		3,054

Total	￦	94,737	￦	2,452	￦	97,189

Long-term borrowings

The aggregate amount of contractual maturities of all long-term borrowings (comprising debentures and borrowings) as of December 31, 2020 was as follows:


	As of December 31, 2020
	(in billions of Won)
Due in 2021	￦	18,764
Due in 2022		16,525
Due in 2023		12,434
Due in 2024		7,244
Due in 2025		5,203
Thereafter		6,726

Gross long-term borrowings		66,896
Fair value adjustments		63
Deferred financing costs		—
Discount		(69	)

Total long-term borrowings, net	￦	66,890

Short-term borrowings

The following table presents information regarding our short-term borrowings (borrowings with an original maturity of one year or less) for the periods indicated:


	As of and for the Year Ended December 31,
	2018			2019			2020
	(in billions of Won, except percentages)
Call money:
Year-end balance	￦	1,081		￦	433		￦	1,180
Average balance ⁽¹⁾		2,189			1,419			2,594
Maximum balance ⁽²⁾		3,421			3,541			3,363
Average interest rate ⁽³⁾		1.81	%		1.84	%		0.77	%
Year-end interest rate		1.20-2.20	%		1.41-4.30	%		0.48-4.30	%
Borrowings from the Bank of Korea: ⁽⁴⁾
Year-end balance	￦	1,673		￦	2,650		￦	6,463
Average balance ⁽¹⁾		1,766			2,002			4,488
Maximum balance ⁽²⁾		1,868			2,650			6,463
Average interest rate ⁽³⁾		0.70	%		0.66	%		0.30	%
Year-end interest rate		0.50-0.75	%		0.50-0.75	%		0.25	%
Other short-term borrowings: ⁽⁵⁾
Year-end balance	￦	28,585		￦	27,461		￦	38,055
Average balance ⁽¹⁾		25,991			25,962			35,253
Maximum balance ⁽²⁾		30,195			29,133			40,863
Average interest rate ⁽³⁾		1.65	%		1.80	%		1.35	%
Year-end interest rate		0.00-5.55	%		0.00-3.53	%		0.00-8.84	%

⁽¹⁾	Average balances are based on daily balances for our banking, credit card and investment and securities operations and monthly or quarterly balances for our other operations.

⁽²⁾	Maximum balances are based on month-end balances.

⁽³⁾	Average interest rates for the year are calculated by dividing the total interest expense by the average amount borrowed.

⁽⁴⁾	Borrowings from the Bank of Korea generally mature within one month for borrowings in Won and six months for borrowings in foreign currencies. These short-term borrowings were secured by securities totaling ￦7,133 billion as of December 31, 2020.

⁽⁵⁾

Other short-term borrowings include securities sold under repurchase agreement, bills sold, borrowings and debentures. Other short-term borrowings have maturities of one year or less. Securities sold under repurchase agreements were secured by securities totaling ￦13,614 billion as of December 31, 2020.

Supervision and Regulation

Principal Regulations Applicable to Financial Holding Companies

General

The Financial Holding Company Act, last amended on December 31, 2018, regulates Korean financial holding companies and their subsidiaries. The entities that regulate and supervise Korean financial holding companies and their subsidiaries are the Financial Services Commission and the Financial Supervisory Service.

The Financial Services Commission exerts direct control over financial holding companies pursuant to the Financial Holding Company Act. Among other things, the Financial Services Commission approves the establishment of financial holding companies, issues regulations on the capital adequacy of financial holding companies and their subsidiaries, and drafts regulations relating to the supervision of financial holding companies.

Following the instructions and directives of the Financial Services Commission, the Financial Supervisory Service supervises and examines financial holding companies and their subsidiaries. In particular, the Financial Supervisory Service sets requirements relating to Korean financial holding companies’ liquidity and capital

adequacy ratios and establishes reporting requirements within the authority delegated under the Financial Services Commission regulations. Financial holding companies must submit quarterly reports to the Financial Supervisory Service discussing business performance, financial status and other matters identified in the Enforcement Decree of the Financial Holding Company Act.

Under the Financial Holding Company Act, a financial holding company is a company which primarily engages in controlling its subsidiaries by holding equity stakes in them equal in aggregate to at least 50% of the financial holding company’s aggregate assets based on its balance sheet as of the end of the immediately preceding fiscal year. A company is required to obtain approval from the Financial Services Commission to become a financial holding company.

A financial holding company may engage only in controlling the management of its subsidiaries, as well as certain ancillary activities including:

•

financially supporting its direct and indirect subsidiaries;

•

raising capital necessary for investment in its subsidiaries or providing financial support to its direct and indirect subsidiaries;

•

supporting the business of its direct and indirect subsidiaries, including the development and marketing of financial products;

•

providing data processing, legal, accounting and other resources and services that have been commissioned by its direct and indirect subsidiaries so as to support their operations; and

•

any other businesses exempted from authorization, permission or approval under the applicable laws and regulations.

The Financial Holding Company Act requires every financial holding company (other than a financial holding company that is controlled by another financial holding company) and its subsidiaries to obtain prior approval from the Financial Services Commission before acquiring control of another company or to file a report with the Financial Services Commission within 30 days thereafter in certain cases (including acquiring control of another company whose assets are less than ￦100 billion as of the end of the immediately preceding fiscal year). In addition, the Financial Services Commission must grant permission to liquidate or to merge with any other company before the liquidation or merger. A financial holding company must report to the Financial Services Commission when certain events, including the following, occur:

•

when the largest shareholder changes;

•

in the case of a bank holding company, when a major investor changes;

•

when the shareholding of the controlling shareholder (i.e., the “largest shareholder” or a “principal shareholder,” each as defined in the Financial Holding Company Act) or a person who has a “special relationship” with such controlling shareholder (as defined in the Enforcement Decree of the Financial Holding Company Act) changes by 1% or more of the total issued and outstanding voting shares of the financial holding company;

•

when it changes its corporate name;

•

when there is a cause for its dissolution; and

•

when it or its subsidiaries cease to control any of their respective direct or indirect subsidiaries by disposing of their shares of such direct or indirect subsidiary.

Capital Adequacy

The Financial Holding Company Act does not provide for a minimum paid-in capital requirement related to financial holding companies. However, all financial holding companies are required to maintain a specified level

of solvency. In addition, with respect to the allocation of net profit earned in a fiscal term, a financial holding company must set aside in its legal reserve an amount equal to at least 10% of its net income after tax 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.

A bank holding company, which is a financial holding company controlling banks or other financial institutions conducting banking business as prescribed in the Financial Holding Company Act, is required to maintain a total minimum consolidated capital adequacy ratio of 11.5% (including applicable additional capital buffers and requirements as described below) as of January 1, 2019. “Consolidated capital adequacy ratio” is defined as the ratio of equity capital as a percentage of risk-weighted assets on a consolidated basis, determined in accordance with the Financial Services Commission requirements that have been formulated based on Bank of International Settlements (or BIS) standards. “Equity capital,” as applicable to bank holding companies, is defined as the sum of common equity Tier I capital, additional Tier I capital and Tier II capital less any deductible items, each as defined under the Regulation on the Supervision of Financial Holding Companies. “Risk-weighted assets” is defined as the sum of credit risk-weighted assets and market risk-weighted assets.

Pursuant to regulations promulgated by the Financial Services Commission commencing in 2013 to implement Basel III, Korean bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. The amended regulations also require an additional capital conservation buffer of 2.5% in 2020 and 2021, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission. Furthermore, we and Kookmin Bank were each designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2020 by the Financial Services Commission and were subject to an additional capital requirement of 1.0% in 2020. In June 2020, we and Kookmin Bank were each again designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2021, which would again subject us to an additional capital requirement of 1.0% in 2021. All such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets set forth above.

Liquidity

All financial holding companies are required to match the maturities of their assets and liabilities on a non-consolidated basis in accordance with the Financial Holding Company Act in order to ensure liquidity. Financial holding companies must:

•

maintain a Won liquidity ratio (defined as Won assets due within one month, including marketable securities, divided by Won liabilities due within one month) of not less than 100% on a non-consolidated basis;

•

maintain a foreign currency liquidity ratio (defined as foreign currency liquid assets due within three months divided by foreign currency liabilities due within three months) of not less than 80% on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets);

•

maintain a ratio of foreign currency liquid assets due within seven days less foreign currency liabilities due within seven days as a percentage of total foreign currency assets of not less than 0% on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets);

•

maintain a ratio of foreign currency liquid assets due within a month less foreign currency liabilities due within a month as a percentage of total foreign currency assets of not less than negative 10% on a non-consolidated basis (except that such requirement is not applicable to a financial holding company whose foreign currency liabilities constitute less than 1% of its total assets); and

•

make quarterly reports regarding their Won liquidity and foreign currency liquidity to the Financial Supervisory Service.

Financial Exposure to Any Individual Customer and Major Investor

Subject to certain exceptions, the aggregate credit (as defined in the Financial Holding Company Act, the Bank Act, the Financial Investment Services and Capital Markets Act, the Insurance Business Act, the Mutual Savings Bank Act and the Specialized Credit Financial Business Act, respectively) of a financial holding company and its direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies (which we refer to as “Financial Holding Company Total Credit”) to a single group of companies that belong to the same conglomerate as defined in the Monopoly Regulations and Fair Trade Act will not be permitted to exceed 25% of net aggregate equity capital (as defined below).

“Net aggregate equity capital” is defined under the Enforcement Decree of the Financial Holding Company Act as the sum of:

(1)

in case of a financial holding company, the capital amount as defined in Article 24-3(7), Item 2 of the Enforcement Decree of the Financial Holding Company Act;

(2)

in case of a bank, the capital amount as defined in Article 2(1), Item 5 of the Bank Act;

(3)

in case of a merchant bank, the capital amount as defined in Article 342(1) of the Financial Investment Services and Capital Markets Act; and

(4)

in case of a financial investment company, the capital amount as defined in Article 37(3) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act;

(5)

in case of an insurance company, the capital amount as defined in Article 2, Item 15 of the Insurance Business Act;

(6)

in case of a savings bank, the capital amount as defined in Article 2, Item 4 of the Mutual Savings Bank Act; and

(7)

in case of a specialized credit financial business company, the capital amount as defined in Article 2, Item 19 of the Specialized Credit Financial Business Act;

less the sum of:

(1)

the amount of shares of direct and indirect subsidiaries held by the financial holding company;

(2)

the amount of shares that are cross-held by each direct and indirect subsidiary that is a bank, merchant bank, financial investment company, insurance company, savings bank or specialized credit financial business company; and

(3)

the amount of shares of a financial holding company held by such direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies.

The Financial Holding Company Total Credit to a single individual or judicial person may not exceed 20% of the net aggregate equity capital. In addition, the Financial Holding Company Total Credit to a shareholder holding (together with the persons who have a “special relationship” with the shareholder, as defined in the Enforcement Decree of the Financial Holding Company Act) in aggregate more than 10% of the total issued and outstanding voting shares of a financial holding company generally may not exceed the lesser of (x) 25% of the net aggregate equity capital and (y) the amount of the equity capital of the financial holding company multiplied by the shareholding ratio of the shareholder (together with the persons who have a special relationship with the shareholder).

100

Further, the total sum of credits (as defined in the Financial Holding Company Act, the Bank Act, the Financial Investment Services and Capital Markets Act, the Insurance Business Act, the Mutual Savings Bank Act and the Specialized Credit Financial Business Act, respectively) of a bank holding company and its direct and indirect subsidiaries that are banks, merchant banks, financial investment companies, insurance companies, savings banks or specialized credit financial business companies as applicable (“Bank Holding Company Total Credit”) extended to a “major investor” (as defined below) (together with the persons who have a special relationship with that major investor) will not be permitted to exceed the lesser of (x) 25% of the net aggregate equity capital and (y) the amount of the equity capital of the bank holding company multiplied by the shareholding ratio of the major investor, except for certain cases.

“Major investor” is defined as:

•

a shareholder holding (together with persons who have a special relationship with that shareholder) in excess of 10% (or in the case of a bank holding company controlling regional banks only, 15%) in the aggregate of the bank holding company’s total issued and outstanding voting shares; or

•

a shareholder holding (together with persons who have a special relationship with that shareholder) more than 4% in the aggregate of the total issued and outstanding voting shares of the bank holding company controlling nationwide banks, where the shareholder is the largest shareholder or has actual control over the major business affairs of the bank holding company through, for example, appointment and dismissal of the officers pursuant to the Enforcement Decree of the Financial Holding Company Act.

In addition, the total sum of the Bank Holding Company Total Credit granted to all of a bank holding company’s major investor must not exceed 25% of the bank holding company’s net aggregate equity capital. Furthermore, any bank holding company that, together with its direct and indirect subsidiaries, intends to extend credit to the bank holding company’s major investor in an amount equal to or exceeding the lesser of (x) the amount equivalent to 0.1% of the net aggregate equity capital and (y) ￦5 billion, in any single transaction, must obtain prior unanimous board resolutions and then, immediately after providing the credit, must file a report to the Financial Services Commission and publicly disclose the filing of the report.

Restrictions on Transactions Among Direct and Indirect Subsidiaries and Financial Holding Company

Generally, a direct or indirect subsidiary of a financial holding company may not extend credits (excluding the amount of corporate credit card payments issued by a direct or indirect subsidiary of a financial holding company that is engaged in the banking business) to that financial holding company. In addition, a direct or indirect subsidiary of a financial holding company may not extend credits (excluding the amount of corporate credit card payments issued by a direct or indirect subsidiary of a financial holding company that is engaged in the banking business) to other direct or indirect subsidiaries of the financial holding company in excess of 10% of its capital amount on an individual basis or to those subsidiaries in excess of 20% of its capital amount on an aggregate basis. The subsidiary extending the credit must also obtain an adequate level of collateral depending on the type of such collateral from the other subsidiaries unless the credit is otherwise approved by the Financial Services Commission. The adequate level of collateral for each type of collateral is as follows:

(1)

for deposits and installment savings, obligations of the Korean government or the Bank of Korea, obligations guaranteed by the Korean government or the Bank of Korea, obligations secured by securities issued or guaranteed by the Korean government or the Bank of Korea, 100% of the credit extended;

(2)

for obligations of municipal governments under the Local Autonomy Act, local public enterprise under the Local Public Enterprises Act and investment institutions and other quasi-investment institutions under the Basic Act on the Management of Government-Invested Institution or for obligations guaranteed by, or secured by the securities issued or guaranteed by, the aforementioned entities pursuant to the relevant regulations, 110% of the credit extended; and

101

(3)

for any property other than those set forth in paragraphs (1) and (2) above, 130% of the credit extended.

Subject to certain exceptions, a direct or indirect subsidiary of a financial holding company is prohibited from owning the shares of any other direct or indirect subsidiaries (other than those directly controlled by that direct or indirect subsidiary) under the common control of the financial holding company.

Subject to certain exceptions, a direct or indirect subsidiary of a financial holding company is also prohibited from owning the shares of the financial holding company controlling that direct or indirect subsidiary. The transfer of certain assets classified as precautionary or below between a financial holding company and its direct or indirect subsidiary or between the direct and indirect subsidiaries of a financial holding company is prohibited except for:

(1)

transfers to a special purpose company, or entrustment with a trust company, for an asset-backed securitization transaction under the Asset-Backed Securitization Act;

(2)

transfers to a mortgage-backed securities issuance company for a mortgage securitization transaction;

(3)

transfers or in-kind contributions to a corporate restructuring vehicle under the Corporate Restructuring Investment Companies Act; and

(4)

transfers to a corporate restructuring company under the Industry Promotion Act.

Disclosure of Management Performance

For the purpose of protecting the depositors and investors in the subsidiaries of financial holding companies, the Financial Services Commission requires financial holding companies to disclose certain material matters including:

(1)

financial condition and profit and loss of the financial holding company and its direct and indirect subsidiaries;

(2)

fund-raising by the financial holding company and its direct and indirect subsidiaries and the appropriation of such funds;

(3)

any sanctions levied on the financial holding company and its direct and indirect subsidiaries under the Financial Holding Company Act or any corrective measures or sanctions under the Law on Improvement of Structure of Financial Industry; and

(4)

occurrence of any non-performing assets or financial incident that may have a material adverse effect, or any other event as prescribed in the applicable regulations.

Restrictions on Shareholdings in Other Companies

Generally, a financial holding company may not own (i) more than 5% of the total issued and outstanding shares of another finance-related company, (ii) any shares of its affiliates, other than its direct or indirect subsidiaries or (iii) any shares of a non-finance-related company.

Restrictions on Shareholdings by Direct and Indirect Subsidiaries

Generally, a direct subsidiary of a financial holding company may not control any other company other than, as an indirect subsidiary of the financial holding company:

•

financial institutions established in foreign jurisdictions;

•

certain financial institutions which are engaged in any business that the direct subsidiary may conduct without any licenses or permits;

102

•

certain financial institutions whose business is related to the business of the direct subsidiary as described by the Enforcement Decree of the Financial Holding Company Act (for example, a bank subsidiary may control only credit information companies, credit card companies and financial investment companies with a dealing, brokerage, collective investment, investment advice, discretionary investment management and/or trust license);

•

certain financial institutions whose business is related to the financial business as prescribed by the regulations of the Ministry of Economy and Finance; and

•

certain companies which are not financial institutions but whose business is related to the financial business of the financial holding company as prescribed by the Enforcement Decree of the Financial Holding Company Act (for example, a finance-related research company or a finance-related information technology company).

Acquisition of such indirect subsidiaries by direct subsidiaries of a financial holding company requires prior permission from the Financial Services Commission or the submission of a report to the Financial Services Commission, depending on the types of the indirect subsidiaries and the amount of total assets of the indirect subsidiaries.

Subject to certain exceptions, an indirect subsidiary of a financial holding company may not control any other company. If an indirect subsidiary of a financial holding company had control over another company at the time it became such an indirect subsidiary, the indirect subsidiary is required to dispose of its interest in the other company within two years from such time.

Restrictions on Transactions between a Bank Holding Company and its Major Investor

A bank holding company and its direct and indirect subsidiaries may not acquire (including through their respective trust accounts) shares issued by the bank holding company’s major investor in excess of 1% of the net aggregate equity capital (as defined above). In addition, if those entities intend to acquire shares issued by that major investor in any single transaction equal to or exceeding the lesser of (x) the amount equivalent to 0.1% of the net aggregate equity capital and (y) ￦5 billion, that entity must obtain prior unanimous board resolutions and then, immediately after the acquisition, file a report to the Financial Services Commission and publicly disclose the filing of the report.

Restrictions on Ownership of a Financial Holding Company

Under the Financial Holding Company Act, a financial institution generally may not control a financial holding company. In addition, any single shareholder and persons who have a special relationship with that shareholder may acquire beneficial ownership of up to 10% of the total issued and outstanding shares with voting rights of a bank holding company that controls nationwide banks or 15% of the total issued and outstanding shares with voting rights of a bank holding company that controls only regional banks, subject to certain exceptions. Among others, the Korean government and the Korea Deposit Insurance Corporation are not subject to this limit. “Non-financial business group companies” (as defined below), however, may not acquire the beneficial ownership of shares of a bank holding company controlling nationwide banks in excess of 4% of that bank holding company’s outstanding voting shares unless they obtain the approval of the Financial Services Commission and agree not to exercise voting rights in respect of shares in excess of the 4% limit, in which case they may acquire beneficial ownership of up to 10%. Any other person (whether a Korean national or a foreign investor) may acquire no more than 10% of total voting shares issued and outstanding of a bank holding company controlling nationwide banks unless they obtain approval from the Financial Services Commission in each instance where the total holding will exceed 10% (or 15% in the case of a bank holding company controlling only regional banks), 25% or 33% of the total voting shares issued and outstanding of that bank holding company controlling nationwide banks.

103

Furthermore, in the case where a person (including Korean and foreign investors, but excluding certain persons prescribed under the Enforcement Decree of the Financial Holding Company Act) (i) acquires in excess of 4% of the total issued and outstanding voting shares of any bank holding company (other than a bank holding company controlling only regional banks), (ii) becomes the largest shareholder of such bank holding company in which such person has acquired in excess of 4% of the total issued and outstanding voting shares, (iii) changes its shareholding in such bank holding company, in which it has acquired in excess of 4% of the total issued and outstanding voting shares, by 1% or more of the total issued and outstanding voting shares of such bank holding company or (iv) is a private equity fund or an investment purpose company holding in excess of 4% of the total outstanding voting shares of a bank holding company and changes its members or shareholders, such person must file a report on such change with the Financial Services Commission (x) in case of (i) and (iii), by the last day of the month immediately following the month in which such change occurred, or (y) in case of (ii) and (iv), within ten days after the end of the month in which such change occurred.

“Non-financial business group companies” as defined under the Financial Holding Company Act include:

(1)

any same shareholder group where the aggregate net assets of all non-financial business companies belonging to that group equals or exceeds 25% of the aggregate net assets of all members of that group;

(2)

any same shareholder group where the aggregate assets of all non-financial business companies belonging to that group equals or exceeds ￦2 trillion;

(3)

any mutual fund where a same shareholder group identified in (1) or (2) above beneficially owns and/or exercises the voting rights of more than 4% of the total issued and outstanding voting shares of that mutual fund;

(4)

any private equity fund (a) where a person falling under any of items (1) through (3) above is a limited partner holding not less than 10% of the total amount of contributions to the private equity fund, or (b) where a person falling under any of items (1) through (3) above is a general partner, or (c) where the total equity of the private equity fund acquired by each affiliate belonging to several enterprise groups subject to the limitation on mutual investment is 30% or more of the total amount of contributions to the private equity fund; or

(5)

the investment purpose company concerned, where a private equity fund falling under item (4) above acquires or holds stocks in excess of 4% of the stock or equity of such company or exercises de facto control over significant managerial matters of such company through appointment or dismissal of executives or in any other manner.

Sharing of Customer Information among Financial Holding Company and its Subsidiaries

Under the Act on Use and Protection of Credit Information, any individual customer’s credit information may be disclosed only after obtaining written consent to use that information. In addition, under the Act on Real Name Financial Transactions and Confidentiality, an individual working at a financial institution may not provide or reveal information or data concerning the contents of financial transactions to other persons unless such individual receives a request or consent in writing from the holder of a title deed, except under certain exceptions stipulated in the Act. Under the Financial Holding Company Act, a financial holding company and its direct and indirect subsidiaries, however, may share certain credit information of individual customers among themselves for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act (such as credit risk management, internal control and customer analysis), without the customers’ written consent, subject to the methods and procedures for provision of such information set forth therein. A subsidiary financial investment company with a dealing and/or brokerage license of a financial holding company may provide that financial holding company and its other direct and indirect subsidiaries information relating to the aggregate amount of cash or securities that a customer of the financial investment company with a dealing and/or brokerage license has deposited, for internal management purposes outlined in the Enforcement Decree of the Financial Holding Company Act, subject to the methods and procedures for provision of such information set

104

forth therein. Certain amendments to the Financial Holding Company Act, which became effective on November 29, 2014, limit the scope of credit information that may be shared without the customers’ prior consent and require certain procedures for provision of customer information as prescribed by the Financial Services Commission. Beginning on November 29, 2014, notice must be given to customers at least once a year regarding (i) the provider of customer information, (ii) the recipient of customer information, (iii) the purpose of providing the information and (iv) the categories of the information provided.

Principal Regulations Applicable to Banks

The banking system in Korea is governed by the Bank Act and the Bank of Korea Act of 1950, as amended (the “Bank of Korea Act”). In addition, Korean banks are subject to the regulations and supervision of the Bank of Korea, the Monetary Policy Board of the Bank of Korea, the Financial Services Commission and its executive body, the Financial Supervisory Service.

The Bank of Korea, established in June 1950 under the Bank of Korea Act, performs the customary functions of a central bank. It seeks to contribute to the sound development of the national economy by price stabilization through establishing and implementing efficient monetary and credit policies with a focus on financial stability. The Bank of Korea acts under instructions of the Monetary Policy Board, the supreme policy-making body of the Bank of Korea.

Under the Bank of Korea Act, the Monetary Policy Board’s primary responsibilities are to formulate monetary and credit policies and to determine the operations, management and administration of the Bank of Korea.

The Financial Services Commission, established in April 1998, regulates commercial banks pursuant to the Bank Act, including establishing guidelines on capital adequacy of commercial banks, and promulgates regulations relating to supervision of banks. Furthermore, the Financial Services Commission regulates market entry into the banking business.

The Financial Supervisory Service, established in January 1999, is subject to the instructions and directives of the Financial Services Commission and carries out supervision and examination of commercial banks. In particular, the Financial Supervisory Service sets requirements both for the prudent control of liquidity and for capital adequacy and establishes reporting requirements pursuant to the authority delegated to it under the Financial Services Commission regulations, pursuant to which banks are required to submit annual reports on financial performance and shareholdings, regular reports on management strategy and non-performing loans, including write-offs, and management of problem companies and plans for the settlement of bad loans.

Under the Bank Act, approval to commence a commercial banking business or a long-term financing business must be obtained from the Financial Services Commission. Commercial banking business is defined as the lending of funds acquired predominantly from the acceptance of demand deposits for a period not exceeding one year or subject to the limitation established by the Financial Services Commission, for a period between one year and three years. Long-term financing business is defined as the lending, for periods in excess of one year, of funds acquired predominantly from paid-in capital, reserves or other retained earnings, the acceptance of time deposits with maturities of at least one year, or the issuance of debentures or other bonds. A bank wishing to enter into any business other than commercial banking and long-term financing businesses must file a report to the Financial Services Commission. For businesses that are subject to a license or approval requirement under applicable laws, such as approval to commence a trust business under the Financial Investment Services and Capital Markets Act, such report must be filed concurrently with a relevant license or approval application to the Financial Services Commission. In addition, approval to merge with any other banking institution, to liquidate, spin off or close a banking business or to transfer all or a part of a business must be obtained from the Financial Services Commission.

105

If the Financial Services Commission deems a bank’s financial condition to be unsound or if a bank fails to meet the applicable capital adequacy ratio set forth under Korean law, the Financial Services Commission may order:

•

admonitions or warnings with respect to the bank or its officers;

•

capital increases or reductions;

•

assignments of contractual rights and obligations relating to financial transactions;

•

a suspension of performance by its officers of their duties and the appointment of receivers;

•

disposals of property holdings or closures of subsidiaries or branch offices or downsizing;

•

stock cancelations or consolidations;

•

mergers with other financial institutions;

•

acquisition of such bank by a third party; and

•

suspensions of a part or all of its business operations for not more than six months.

Capital Adequacy

The Bank Act requires nationwide banks, such as us, to maintain a minimum paid-in capital of ￦100 billion and regional banks to maintain a minimum paid-in capital of ￦25 billion. All banks, including foreign bank branches in Korea, are also required to maintain a prescribed solvency position. A bank must also set aside in its legal reserve an amount equal to at least 10% of the net income after tax each time it pays dividends on net profits earned until its legal reserve reaches at least the aggregate amount of its paid-in capital.

Under the Regulation on the Supervision of the Banking Business, the capital of a bank is divided into two categories, Tier I and Tier II capital. Tier I capital (core capital) consists of (i) common equity Tier I capital, including paid-in capital, capital surplus and retained earnings related to common equity and accumulated other comprehensive gains and losses, and (ii) additional Tier I capital, including paid-in capital and capital surplus from the issuance of additional Tier I capital, hybrid capital instruments and other capital securities which meet the standards prescribed by the governor of the Financial Supervisory Service under relevant regulations. Tier II capital (supplementary capital) consists of, among other things, capital and capital surplus from the issuance of Tier II capital, allowances for loan losses on loans classified as “normal” or “precautionary,” subordinated debt and other capital securities which meet the standards prescribed by the governor of the Financial Supervisory Service under Article 26(2) of the Regulation on the Supervision of the Banking Business.

All banks must meet minimum ratios of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets, determined in accordance with Financial Services Commission requirements that have been formulated based on BIS standards. These requirements were adopted and became effective in 1996, and were amended effective January 1, 2008 upon the implementation by the Financial Supervisory Service of Basel II. Under such requirements, all domestic banks and foreign bank branches are required to meet a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets. Commencing in July 2013, the Financial Services Commission promulgated a series of amended regulations implementing Basel III, pursuant to which Korean banks and bank holding companies were required to maintain a minimum ratio of common equity Tier I capital to risk-weighted assets of 3.5% and Tier I capital to risk-weighted assets of 4.5% from December 1, 2013, which minimum ratios were increased to 4.0% and 5.5%, respectively, from January 1, 2014 and increased further to 4.5% and 6.0%, respectively, from January 1, 2015. The amended regulations also require an additional capital conservation buffer of 2.5% in 2020 and 2021, as well as a potential counter-cyclical capital buffer of up to 2.5%, which is determined on a quarterly basis by the Financial Services Commission. Furthermore, we and Kookmin Bank were each designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2020 by the Financial Services Commission and were

106

subject to an additional capital requirement of 1.0% in 2020. In June 2020, we and Kookmin Bank were each again designated as a domestic systemically important bank holding company and a domestic systemically important bank, respectively, for 2021, which would again subject us to an additional capital requirement of 1.0% in 2021. All such requirements are in addition to the pre-existing requirement for a minimum ratio of Tier I and Tier II capital (less any capital deductions) to risk-weighted assets set forth above.

Under the Detailed Regulation on the Supervision of the Banking Business, the following risk-weight ratios must be applied by Korean banks in respect of home mortgage loans:

(1)

for those banks which adopted a standardized approach for calculating credit risk capital requirements, a risk-weight ratio between 20% and 150% for home mortgage loans and, with respect to high risk home mortgage loans, the higher of this value and 50% or 70%; and

(2)

for those banks which adopted an internal ratings-based approach for calculating credit risk capital requirements, a risk-weight ratio calculated with reference to the probability of default, loss given default and exposure at default, each as defined under the Detailed Regulation on the Supervision of the Banking Business.

Liquidity

All banks are required to ensure adequate liquidity by matching the maturities of their assets and liabilities in accordance with the Regulation on the Supervision of the Banking Business. Banks may not invest an amount exceeding 100% of their Tier I and Tier II capital (less any capital deductions) in equity securities and certain other securities with a redemption period of over three years. This stipulation does not apply to Korean government bonds, Monetary Stabilization Bonds issued by the Bank of Korea or debentures and stocks referred to in items 1 and 2, respectively, of paragraph (6) of Article 11 of the Act on the Structural Improvement of the Financial Industry. The Financial Services Commission uses the liquidity coverage ratio (described below) as the principal liquidity risk management measure, and currently requires each Korean bank to:

•

maintain a liquidity coverage ratio (defined as the ratio of highly liquid assets to total net cash outflows over a 30-day period) of not less than 100%;

•

maintain a foreign currency liquidity coverage ratio of not less than 80%; and

•

submit monthly reports with respect to the maintenance of these ratios.

In April 2020, in order to encourage financial institutions to provide financial support to companies adversely affected by COVID-19, the Financial Services Commission announced that it would temporarily lower the required liquidity coverage ratio to 85%, and the required foreign currency liquidity coverage ratio to 70%. Following a series of extensions by the Financial Services Commission, these temporary deregulation measures are currently scheduled to expire at the end of September 2021.

The Monetary Policy Board of the Bank of Korea is empowered to fix and alter minimum reserve requirements that banks must maintain against their deposit liabilities. The current minimum reserve ratios are:

•

7% of average balances for Won currency demand deposits outstanding;

•

0% of average balances for Won currency employee asset establishment savings deposits, employee long-term savings deposits, employee house purchase savings deposits, long-term house purchase savings deposits, household long-term savings deposits and employee preferential savings deposits outstanding (with respect to employee-related deposits and household long-term savings deposits, only if such deposits were made prior to February 28, 2013); and

•

2% of average balances for Won currency time deposits, installment savings deposits, mutual installments, housing installments and certificates of deposit outstanding.

107

For foreign currency deposit liabilities, a 2% minimum reserve ratio is applied to time deposits with a maturity of one month or longer, certificates of deposit with a maturity of 30 days or longer and savings deposits with a maturity of six months or longer and a 7% minimum reserve ratio is applied to other deposits. A 1% minimum reserve ratio applies to deposits in offshore accounts, immigrant accounts and resident accounts opened by financial institutions (excluding bank holding companies) and the Export-Import Bank of Korea, as well as foreign currency certificates of deposit held by account holders of such offshore accounts, immigrant accounts and resident accounts opened by financial institutions (excluding bank holding companies) and the Export-Import Bank of Korea.

Furthermore, under the Regulation on the Supervision of the Banking Business, Kookmin Bank is required to maintain a minimum “mid- to long-term foreign exchange funding ratio” of 100%. “Mid-to long term foreign exchange funding ratio” refers to the ratio of (1) the total outstanding amount of foreign exchange borrowing with a maturity of more than one year to (2) the total outstanding amount of foreign exchange lending with a maturity of one year or more.

Net Stable Funding Ratio and Leverage Ratio Requirements

The Financial Services Commission has implemented the Regulation on Supervision of the Banking Business that impose certain liquidity- and leverage-related ratio requirements on banks in Korea, in accordance with Basel III. Pursuant to such Regulation, each Korean bank is required to:

•

maintain a net stable funding ratio (defined as the ratio of the available amount of stable funding to the required amount of stable funding) of not less than 100%, where (i) the available amount of stable funding generally refers to the portion of liabilities and capital expected to be reliable over a one-year time horizon and (ii) the required amount of stable funding generally refers to the amount of stable funding that is required to be maintained based on the liquidity characteristics, residual maturities and off-balance sheet exposures of the bank’s assets, each as calculated in accordance with the Detailed Regulation on the Supervision of the Banking Business;

•

maintain a leverage ratio (defined as the ratio of core capital to total exposures) of not less than 3%, where (i) the core capital includes paid-in capital, capital surplus, retained earnings and hybrid Tier I capital instruments and (ii) total exposures include on-balance sheet exposures, derivative exposures, securities financing transaction exposures and off-balance sheet exposures, each as calculated in accordance with the Detailed Regulation on the Supervision of the Banking Business; and

•

submit monthly reports with respect to the maintenance of these ratios.

Financial Exposure to Any Individual Customer or Major Shareholder

Under the Bank Act, subject to certain exceptions, the sum of large exposures by a bank—in other words, the total sum of its credits to single individuals, juridical persons or business groups that exceed 10% of the sum of Tier I and Tier II capital (less any capital deductions)—generally must not exceed five times the sum of Tier I and Tier II capital (less any capital deductions). In addition, subject to certain exceptions, banks generally may not extend credit (including loans, guarantees, purchases of securities (extended for financial support) and any other transactions that directly or indirectly create credit risk) in excess of 20% of the sum of Tier I and Tier II capital (less any capital deductions) to a single individual or juridical person, or grant credit in excess of 25% of the sum of Tier I and Tier II capital (less any capital deductions) to a single group of companies as defined in the Monopoly Regulations and Fair Trade Act.

The Bank Act also provides for certain restrictions on extending credits to a major shareholder. A “major shareholder” is defined as:

•

a shareholder holding (together with persons who have a special relationship with that shareholder) in excess of 10%; (or 15% in the case of regional banks) in the aggregate of the bank’s total issued and outstanding voting shares; or

108

•

a shareholder holding (together with persons who have a special relationship with such shareholder) in excess of 4% in the aggregate of the bank’s (excluding regional banks) total issued and outstanding voting shares of a bank (excluding shares subject to the shareholding restrictions on “non-financial business group companies” as described below), where such shareholder is the largest shareholder or has actual control over the major business affairs of the bank through, for example, appointment and dismissal of the officers as prescribed by the Enforcement Decree of the Bank Act. Non-financial business group companies primarily consist of: (i) any single shareholding group whose non-financial company assets comprise no less than 25% of its aggregate net assets; (ii) any single shareholding group whose non-financial company assets comprise no less than ￦2 trillion in aggregate; or (iii) any investment company under the Financial Investment Services and Capital Markets Act of which any single shareholding group identified in (i) or (ii) above, owns more than 4% of the total issued and outstanding shares.

Under these restrictions, banks may not extend credits to a major shareholder (together with persons who have a special relationship with that shareholder) in an amount greater than the lesser of (x) 25% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) and (y) the relevant major shareholder’s shareholding ratio multiplied by the sum of the bank’s Tier I and Tier II capital (less any capital deductions). In addition, the total sum of credits granted to all major shareholders must not exceed 25% of the bank’s Tier I and Tier II capital (less any capital deductions).

Interest Rates

Korean banks generally depend on deposits as their primary funding source. Under the Act on Registration of Credit Business, Etc. and Protection of Finance Users and the regulations thereunder, interest rates on loans made by registered banks in Korea may not exceed 24% per annum , and additional regulations on loans that reduce maximum interest rates that may be charged from 24% to 20% are expected to become effective in July 2021. Historically, interest rates on deposits and lending were regulated by the Monetary Policy Board. There are no controls on deposit interest rates in Korea, except for the prohibition on interest payments on current account deposits.

Lending to Small- and Medium-sized Enterprises

In order to obtain funding from the Bank of Korea at concessionary rates for their small- and medium-sized enterprise loans, banks are required to allocate a certain minimum percentage of any quarterly increase in their Won currency lending to small- and medium-sized enterprises. Currently, this minimum percentage is 45% in the case of nationwide banks and 60% in the case of regional banks. If a bank does not comply with this requirement, the Bank of Korea may:

•

require the bank to prepay all or a portion of funds provided to that bank in support of loans to small- and medium-sized enterprises; or

•

lower the bank’s credit limit.

Disclosure of Management Performance

For the purpose of protecting depositors and investors in commercial banks, the Financial Services Commission requires commercial banks to publicly disclose certain material matters, including:

•

the financial condition and profit and loss of the bank and its subsidiaries;

•

fundraising by the bank and the appropriation of such funds;

•

any sanctions levied on the bank under the Bank Act or any corrective measures or sanctions under the Act on the Structural Improvement of the Financial Industry; and

109

•

the occurrence of any of the following events or any other event as prescribed by the applicable regulations, that have damaged or are likely to damage the soundness of the bank’s management, except as may otherwise have been disclosed by a bank or its financial holding company listed on the KRX KOSPI Market in accordance with the Financial Investment Services and Capital Markets Act,:

(i)

loans bearing no profit made to a single business group in an amount exceeding 10% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month (where the loan exposure to that borrower is calculated pursuant to the criteria under the Detailed Regulation on the Supervision of the Banking Business), unless the loan exposure to that group is not more than ￦4 billion; and

(ii)

any loss due to court judgments or similar decisions in civil proceedings in an amount exceeding 1% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions) as of the end of the previous month, unless the loss is not more than ￦1 billion.

Restrictions on Lending

Pursuant to the Bank Act and its sub-regulations, a commercial bank may not provide:

•

loans secured by a pledge of the bank’s own shares, whether direct or indirect;

•

loans to enable a natural or juridical person to buy the shares issued by the bank, whether direct or indirect;

•

loans to any of the bank’s officers or employees, other than de minimis loans of up to (i) ￦20 million in the case of a general loan, (ii) ￦50 million in the case of a general loan plus a housing loan or (iii) ￦60 million in the aggregate for general loans, housing loans and loans to pay damages arising from wrongful acts of employees in financial transactions;

•

credit (including loans) secured by a pledge of the equity securities of its subsidiary corporation or to enable a natural or juridical person to buy shares of the bank’s subsidiary corporation; or

•

loans to any officers or employees of the bank’s subsidiary corporation, other than general loans of up to ￦20 million or general and housing loans of up to ￦50 million in the aggregate.

Regulations Relating to Retail Household Loans

The Financial Services Commission has implemented a number of changes in recent years to the regulations relating to retail household lending by banks. Under the currently applicable regulations:

•

as to loans secured by housing (including apartments) located nationwide, the loan-to-value ratio (the aggregate principal amount of loans secured by such collateral over the appraised value of the collateral) should not exceed 70%;

•

as to loans secured by housing (including apartments) located in areas of excessive investment or high speculation, in each case, as designated by the government, where the price does not exceed ￦900 million (based on the evaluation data of a certified rating institution, for which the detailed standards shall be as determined by the director of the Financial Supervisory Service), the loan-to-value ratio should not exceed 40%, except that such maximum loan-to-value ratio shall be 50% for low-income households that (i) have an annual income of less than ￦80 million (or ￦90 million for first-home buyers), (ii) do not currently own any housing and (iii) are using the loan to purchase low-price housing valued at less than ￦600 million;

•

as to any new loans secured by high-priced housing (including apartments) located in areas of excessive investment or high speculation, in each case, as designated by the government, where the price exceeds ￦900 million (based on the evaluation data of a certified rating institution, for which the detailed standards shall be as determined by the director of the Financial Supervisory Service), the

110

loan-to-value ratio should not exceed 40% for the portion of such housing price not exceeding ￦900 million, and should not exceed 20% for the rest of the portion of such housing price exceeding ￦900 million, and no new loans shall be made available for any high-priced housing (including apartments) located in areas of excessive investment or high speculation, where the price exceeds ￦1.5 billion;

•

as to any new loans secured by housing (including apartments) located nationwide to be extended to a household that already owns one or more houses, the maximum loan-to-value ratio must be adjusted to 10% lower than the applicable loan-to-value ratio described above;

•

any new loans secured by housing (including apartments) located in areas of excessive investment or high speculation, in each case, as designated by the government, extended to a household that already owns one or more houses are not permitted unless otherwise specified by the applicable regulations;

•

as to loans secured by housing (including apartments) located in areas of excessive investment or high speculation, in each case, as designated by the government, the borrower’s debt-to-income ratio (calculated as (1) the aggregate annual total payment amount of (x) the principal of and interest on loans secured by such housing and existing mortgage and home equity loans and (y) the interest on other borrowings of the borrower over (2) the borrower’s annual income) should not exceed 40%, except that such maximum debt-to-income ratio is 50% for low-income households that (i) have an annual income of less than ￦80 million (or ￦90 million for first-home buyers), (ii) do not currently own any housing and (iii) are using the loan to purchase low-price housing valued at less than ￦600 million;

•

as to any new loans secured by apartments to be extended to a household that already owns one or more houses but plans to purchase additional houses located in an unregulated Seoul metropolitan area, the maximum debt-to-income ratio must be adjusted to 10% lower than the applicable debt-to-income ratio described above; and

•

as to any new loans extended to a household that has already obtained a loan secured by high priced housing (including apartments) located in areas of excessive investment or high speculation, as designated by the government, the borrower’s debt-service-ratio (calculated as (1) the aggregate annual total payment amount of the principal of and interest on financial liabilities, including the loans secured by such high-priced housing, divided by (2) the borrower’s annual income) should not exceed 40% unless otherwise specified by the applicable regulations.

Restrictions on Investments in Property

A bank may not invest in the following securities in excess of 100% of the sum of the bank’s Tier I and Tier II capital (less any capital deductions):

•

debt securities (within the meaning of paragraph (3) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years, but excluding government bonds, monetary stabilization bonds issued by the Bank of Korea and bonds within the meaning of item 2, paragraph (6) of Article 11 of the Act on the Structural Improvement of the Financial Industry;

•

equity securities, but excluding securities within the meaning of item 1, paragraph (6) of Article 11 of the Act on the Structural Improvement of the Financial Industry;

•

derivatives-linked securities (within the meaning of paragraph (7) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years; and

•

beneficiary certificates, investment contracts and depositary receipts (within the meaning of paragraph (2) of Article 4 of the Financial Investment Services and Capital Markets Act) the maturity of which exceeds three years.

A bank may possess real estate property only to the extent necessary to conduct its business. The aggregate value of such property may not exceed 60% of the sum of the bank’s Tier I and Tier II capital (less any capital

111

deductions). Any property that a bank acquires by exercising its rights as a secured party, or which a bank is prohibited from acquiring under the Bank Act, must be disposed of within three years, unless otherwise specified by the regulations thereunder.

Restrictions on Shareholdings in Other Companies

Under the Bank Act, a bank may not own more than 15% of the shares outstanding with voting rights of another corporation, except where, among other reasons:

•

that corporation engages in a category of financial businesses set forth by the Financial Services Commission; or

•

the acquisition of such shares by the bank is necessary for the corporate restructuring of such corporation and is approved by the Financial Services Commission.

In the above exceptional cases, the total investment in corporations in which the bank owns more than 15% of the outstanding shares with voting rights may not exceed (i) 20% of the sum of Tier I and Tier II capital (less any capital deductions) or (ii) 30% of the sum of Tier I and Tier II capital (less any capital deductions) where the acquisition satisfies the requirements determined by the Financial Services Commission.

The Bank Act provides that a bank using its bank accounts and its trust accounts is not permitted to acquire the equity securities issued by the major shareholder of such bank in excess of an amount equal to 1% of the sum of Tier I and Tier II capital (less any capital deductions).

Restrictions on Bank Ownership

Under the Bank Act, a single shareholder and persons who have a special relationship with that shareholder generally may acquire beneficial ownership of no more than 10% of a nationwide bank’s total issued and outstanding shares with voting rights and no more than 15% of a regional bank’s total issued and outstanding shares with voting rights. The Korean government, the Korea Deposit Insurance Corporation and bank holding companies qualifying under the Financial Holding Company Act are not subject to this limit. Pursuant to the Bank Act, non-financial business group companies may not acquire beneficial ownership of shares of a nationwide bank in excess of 4% (or 15% in the case of a regional bank) of that bank’s outstanding voting shares, unless they satisfy certain requirements set forth by the Enforcement Decree of the Bank Act, obtain the approval of the Financial Services Commission and agree not to exercise voting rights in respect of shares in excess of the 4% limit (or the 15% limit in the case of a regional bank), in which case they may acquire beneficial ownership of up to 10% of a nationwide bank’s outstanding voting shares. The Bank Act grants an exception for non-financial business group companies which, at the time of the enactment of the amended provisions, held more than 4% of the shares of a bank.

In addition, if a foreign investor, as defined in the Foreign Investment Promotion Act, owns in excess of 4% of a nationwide bank’s outstanding voting shares, non-financial business group companies may acquire beneficial ownership of up to 10% (or 15% in the case of a regional bank) of that bank’s outstanding voting shares, and in excess of 10% (or 15% in the case of a regional bank), 25% or 33% of that bank’s outstanding voting shares with the approval of the Financial Services Commission in each instance, up to the number of shares owned by the foreign investor. Any other person (whether a Korean national or a foreign investor), with the exception of non-financial business group companies described above, may acquire no more than 10% of a nationwide bank’s total voting shares issued and outstanding, unless they obtain approval from the Financial Services Commission in each instance where the total holding will exceed 10% (or 15% in the case of regional banks), 25% or 33% of the bank’s total voting shares issued and outstanding provided that, in addition to the foregoing threshold shareholding ratios, the Financial Services Commission may, at its discretion, designate a separate and additional threshold shareholding ratio.

112

Deposit Insurance System

The Depositor Protection Act provides insurance for certain deposits of banks in Korea through a deposit insurance system. Under the Depositor Protection Act, all banks governed by the Bank Act are required to pay an insurance premium to the Korea Deposit Insurance Corporation on a quarterly basis and the rate is determined under the Enforcement Decree to the Depositor Protection Act. If the Korea Deposit Insurance Corporation makes a payment on an insured amount, it will acquire the depositors’ claims with respect to that payment amount. The Korea Deposit Insurance Corporation insures a maximum of ￦50 million per individual for deposits and interest in a single financial institution, regardless of when the deposits were made and the size of the deposits.

Restrictions on Foreign Exchange Position

Under the Foreign Exchange Transaction Act of Korea, each of a bank’s net overpurchased and oversold positions may not exceed 50% of its shareholder’s equity as of the end of the prior month.

Laws and Regulations Governing Other Business Activities

A bank must register with the Ministry of Economy and Finance to enter the foreign exchange business, which is governed by the Foreign Exchange Transaction Act of Korea. A bank must obtain the permission of the Financial Services Commission to enter the securities business, which is governed by regulations under the Financial Investment Services and Capital Markets Act. Under these laws, a bank may engage in the foreign exchange business, securities repurchase business, governmental/public bond underwriting business and governmental bond dealing business, among others.

Trust Business

A bank must obtain approval from the Financial Services Commission to engage in trust businesses. The Trust Act and the Financial Investment Services and Capital Markets Act govern the trust activities of banks, and they are subject to various legal and accounting procedures and requirements, including the following:

•

under the Trust Act, assets accepted in trust by a bank in Korea must be segregated from other assets in the accounts of that bank; and

•

depositors and other general creditors cannot obtain or assert claims against the assets comprising the trust accounts in the event the bank is liquidated or wound-up.

The bank must make a special reserve of 25% or more of fees from each unspecified money trust account for which a bank guarantees the principal amount and a fixed rate of interest until the total reserve for that account equals 5% of the trust amount.

Under the Financial Investment Services and Capital Markets Act, a bank with a trust business license (such as Kookmin Bank) is permitted to offer both specified money trust account products and unspecified money trust account products. However, pursuant to guidelines from regulatory authorities that discourage the sale of unspecified money trust account products, sales of such products have generally been suspended.

Credit Card Business

General

In order to enter the credit card business, a company must obtain a license from the Financial Services Commission. Credit card businesses are governed by the Specialized Credit Financial Business Act, which sets forth specific requirements with respect to the credit card business as well as generally prohibiting unsound business practices relating to the credit card business which may infringe on the rights of credit card holders or

113

negatively affect the soundness of the credit card industry. Credit card companies, including our wholly-owned subsidiary, KB Kookmin Card Co., Ltd., are regulated by the Financial Services Commission and the Financial Supervisory Service.

Disclosure and Reports

Under the Specialized Credit Financial Business Act and the regulations thereunder, a credit card company is required to disclose on a periodic and on-going basis certain material matters and events. In addition, a credit card company must submit periodic reports with respect to its results of operations to the Governor of the Financial Supervisory Service, in accordance with the guidelines of the Financial Supervisory Service.

Restrictions on Funding

Under the Specialized Credit Financial Business Act and the regulations thereunder, a credit card company must ensure that its total assets do not exceed an amount equal to eight times its equity capital and that the ratio of its adjusted equity capital to its adjusted total assets is not less than 8.0%. However, if a credit card company is unable to comply with such limit upon the occurrence of unavoidable events, such as drastic changes in the domestic and global financial markets, such limit may be adjusted through a resolution of the Financial Services Commission.

Risk of Loss Due to Lost, Stolen, Forged or Altered Credit Cards

Under the Specialized Credit Financial Business Act, a credit card company is liable for any loss arising from the unauthorized use of credit cards or debit cards after it has received notice from the holder of the loss or theft of the card. A credit card company is also responsible for any losses resulting from the use of forged or altered credit cards, debit cards and pre-paid cards. A credit card company may, however, transfer all or part of this latter risk of loss to holders of credit card in the event of willful misconduct or gross negligence by holders of credit card if the terms and conditions of the agreement entered between the credit card company and members of such cards specifically provide for that transfer.

For these purposes, disclosure of a customer’s password that is made intentionally or through gross negligence, or the transfer of or giving as collateral of the credit card or debit card, is considered willful misconduct or gross negligence. However, a disclosure of a cardholder’s password that is made under irresistible force or threat to cardholder or his/her relatives’ life or health will not be deemed as willful misconduct or negligence of the cardholder.

Each credit card company must institute appropriate measures to fulfill these obligations, such as establishing provisions, purchasing insurance or joining a cooperative association.

Pursuant to the Enforcement Decree to Specialized Credit Financial Business Act, a credit card company will be liable for any losses arising from loss or theft of a credit card (which was not from the holder’s willful misconduct or negligence) during the period beginning 60 days before the notice by the holder to the credit card company.

Pursuant to the Specialized Credit Financial Business Act, the Financial Services Commission may either restrict the limit or take other necessary measures against the credit card company with respect to such matters as the maximum limits on the amount per credit card, details of credit card terms and conditions, management of credit card merchants and collection of claims, including the following:

•

maximum limits for cash advances on credit cards;

•

use restrictions on debit cards with respect to per day or per transaction usage;

114

•

aggregate issuance limits and maximum limits on the amount per card on pre-paid cards; and

•

other matters prescribed by the Enforcement Decree to the Specialized Credit Financial Business Act.

Lending Ratio in Ancillary Business

Pursuant to the Enforcement Decree to the Specialized Credit Financial Business Act, a credit card company must maintain an aggregate quarterly average outstanding lending balance to credit cardholders (including cash advances and credit card loans, but excluding restructured loans) no greater than the sum of (i) its aggregate quarterly average outstanding credit card balance arising from the purchase of goods and services and (ii) the aggregate quarterly debit card transaction volume.

Issuance of New Cards and Solicitation of New Cardholders

The Enforcement Decree to the Specialized Credit Financial Business Act establishes the conditions under which a credit card company may issue new cards and solicit new members. New credit cards may be issued only to the following persons:

•

persons who are at least 19 years old when they apply for a credit card;

•

persons whose capability to pay bills as they come due has been verified using standards established by the credit card company; and

•

in the case of minors who are 18 years old, persons who submit documents evidencing employment as of the date of the credit card application, such as an employment certificate, or persons for whom the issuance of a credit card is necessitated by governmental policies, such as financial aid.

In addition, a credit card company may not solicit credit card members by:

•

providing economic benefits or promising to provide economic benefits in excess of 10% of the annual credit card fee (in the case of credit cards with annual fees that are less than the average of the annual fees charged by major credit cards in Korea, the annual fee will be deemed to be equal to such average annual fee) in connection with issuing a credit card; provided, however, that providing economic benefits or promising to provide economic benefits not exceeding the amount of the annual credit card fee to an applicant that becomes a credit card member through an online platform is permissible;

•

soliciting applicants on roads, public places or along corridors used by the general public;

•

soliciting applicants through visits, except those visits made upon prior consent and visits to a business area;

•

soliciting applicants through the Internet without verifying whether the applicant is who he or she purports to be, by means of a digital signature (limited, however, to cases where it can be confirmed that the applicant is the person in question by using identifiable information) under the Digital Signature Act; and

•

soliciting applicants through pyramid sales methods.

Compliance Rules on Collection of Receivable Claims

Pursuant to Supervisory Regulation on the Specialized Credit Financial Business, a credit card company may not:

•

exert violence or threaten violence;

•

inform a related party (a guarantor of the debtor, blood relative or fiancé(e) of the debtor, a person living in the same household as the debtor or a person working in the same workplace as the debtor) of the debtor’s obligations without just cause;

115

•

provide false information relating to the debtor’s obligation to the debtor or his or her related parties;

•

threaten to sue or sue the debtor for fraud despite lack of affirmative evidence to establish that the debtor has submitted forged or false documentation with respect to his or her ability to make payment;

•

visit or telephone the debtor during late evening hours (between the hours of 9:00 p.m. and 8:00 a.m.); and

•

utilize other uncustomary methods to collect the receivables that interfere with the privacy or the peace in the workplace of the debtor or his or her related parties.

Principal Regulations Applicable to Insurance Companies

General

Under the Insurance Business Act, a company seeking to engage in the insurance business in Korea is required to obtain business authorizations and licenses from the Financial Services Commission, and such company is required to comply with the Insurance Business Act and the regulations thereunder. These rules and regulations cover, among other things: (i) the requirements for obtaining business authorizations and licenses to operate an insurance company; (ii) the scope of business an insurance company may undertake; (iii) the operations of an insurance company, including its asset management activities; (iv) the methods of insurance solicitation; (v) the supervision of the insurance business; and (vi) the disciplinary actions for violation of the Insurance Business Act, which may include revocation of a license, imprisonment, suspension of operations, fines, surcharges and penalties.

The Financial Services Commission has the authority to oversee matters involving licenses necessary for, and supervision of, the operation of an insurance business. Pursuant to the Regulation on Supervision of Insurance Business and the Regulation on Corporate Governance of Financial Companies, the Financial Services Commission sets forth detailed criteria for obtaining the authorization necessary to engage in the insurance business, as well as various comprehensive standards required to be met by an insurance company. The Financial Services Commission entrusts the Financial Supervisory Service with certain matters pursuant to the Regulation on Supervision of Insurance Business, as specified under the Detailed Enforcement Regulations on Insurance Supervision.

Since an insurance company falls within the scope of a financial institution under the Act on the Structural Improvement of the Financial Industry, special provisions thereunder apply to an insurance company in the event (i) it merges with, or converts into, another financial institution, (ii) it becomes bankrupt or insolvent or is dissolved or (iii) members of its business group acquire shares of another company in excess of a certain percentage. In addition, an insurance company that offers and sells investment-type insurance products, such as variable insurance products, and manages assets under special accounts for variable insurance policies is deemed a financial investment company under the Financial Investment Services and Capital Markets Act. Such insurance company is subject to certain provisions under the Financial Investment Services and Capital Markets Act, such as regulations on the control of conflicts of interest as well as the establishment and maintenance of firewalls for asset management of special accounts related to variable insurance policies. In addition, pursuant to the Foreign Exchange Transactions Act, an insurance company is required to obtain prior approval from the Ministry of Economy and Finance, the Bank of Korea, the Financial Supervisory Service or a foreign exchange bank and may be required to file periodic reports if the company engages in any of the following: (a) a transaction involving a foreign currency; (b) a transaction with a non-resident involving either the Won or a foreign currency; (c) a transaction that requires an outgoing overseas payment; (d) a transaction that requires receipt of an overseas payment; and (e) any other transaction prescribed under the Foreign Exchange Transactions Act. Furthermore, an insurance company is required to comply with the Act on the Corporate Governance of Financial Companies.

116

Scope of Business of Insurance Companies

Under the Insurance Business Act, an insurance company is prohibited from concurrently operating a life insurance business and a non-life insurance business (including property, marine and cargo and liability insurance), provided that an insurance company may concurrently operate a “type three” insurance business (including casualty, disease and health care insurance) and provide reinsurance to other insurance companies. However, limited cross-selling of life insurance and non-life insurance products by insurance sales agents working for life insurance or non-life insurance companies in Korea is permitted by the Financial Services Commission.

Upon approval by the Financial Services Commission, a life insurance company may operate (i) a life insurance business, (ii) a pension insurance (including retirement insurance) business and (iii) type three insurance businesses, while a non-life insurance company may operate (i) various types of non-life insurance businesses (including property, marine and cargo, automobile, guarantee, reinsurance and certain other enumerated non-life insurance as designated under the Enforcement Decree of the Insurance Business Act as well as liability insurance) and (ii) type three insurance businesses.

Both life insurance and non-life insurance companies may also operate certain financial businesses and incidental businesses designated under the Enforcement Decree of the Insurance Business Act.

Requirements Relating to Insurance Solicitation

The Insurance Business Act limits entities that may engage in insurance solicitation to insurance sales agents, insurance agencies (including those of financial institutions), insurance brokers and officers and employees of an insurance company. Any person or entity wishing to act as an insurance sales agent, insurance agency (including those of financial institutions) or insurance broker must register with the Financial Services Commission and report promptly to the Financial Services Commission the occurrence of certain changes prescribed under the Insurance Business Act.

Insurance brochures used for insurance solicitation must clearly specify the terms required under the Insurance Business Act in an easy-to-understand manner. Where an insurance company or any person engaging in insurance solicitation persuades an ordinary policyholder to enter into an insurance contract, it must explain to such ordinary policyholder about certain critical matters of the insurance contract prescribed by the Financial Consumer Protection Act, including details of insurance products, insurance premiums (including mutual aid premiums), procedures for payment of insurance proceeds (including mutual aid) and grounds for restricting the payment and coverage scope in a manner the policyholder can easily understand.

Where an insurance company or any person engaging in insurance solicitation advertises an insurance product, it must include the details of such insurance product in such advertisement as prescribed under the Financial Consumer Protection Act and must not engage in any act which, among other things, may lead to a misunderstanding that such insurance product would provide a large amount of insurance proceeds by emphasizing selective terms and conditions of such product or introducing cases where a large amount of insurance proceeds were paid.

In connection with the execution or solicitation of an insurance contract, any person engaging in insurance solicitation must not engage in any act prohibited under the Insurance Business Act and the Financial Consumer Protection Act, including acts of providing a policyholder with false information regarding an insurance product and acts intended to interrupt or prevent a policyholder (including interested parties prescribed by the Enforcement Decree of the Financial Consumer Protection Act) from notifying an insurance company of an important matter relevant to an insurance policy.

Any person engaging in insurance solicitation is prohibited from providing special benefits (including, but not limited to, cash over a certain amount and discounts on insurance premiums) in connection with the

117

execution of an insurance contract unless such special benefits are stipulated in the underlying documents for such insurance product. In addition, an insurance company is prohibited from entrusting any person other than those who are eligible under the Insurance Business Act to engage in insurance solicitation or paying any compensation to any ineligible persons for his or her insurance solicitation. The Insurance Business Act and the Financial Consumer Protection Act also prescribe in detail certain practices that insurance agencies of financial institutions are restricted from engaging in, including, but not limited to:

•

forcing entry into contracts on financial products against the will of the policyholder using a position of advantage; and

•

including insurance premiums in loan transactions without the prior consent of the borrower.

The Insurance Business Act permits insurance sales agents working for life insurance companies to cross-sell non-life insurance products of one non-life insurance company, and insurance sales agents working for non-life insurance companies are correspondingly permitted to cross-sell the life insurance products of one life insurance company.

Capital Adequacy

Pursuant to the risk-based capital adequacy requirements implemented by the Financial Services Commission, insurance companies in Korea are required to maintain a statutory ratio of available regulatory capital to risk-weighted assets of not less than 100% on a consolidated basis (although a risk-based capital adequacy ratio of not less than 150% is still considered standard in the Korean insurance industry). Risk based capital adequacy requirements require insurance companies to hold adequate capital to cover their exposures to interest rate risk, market risk, credit risk and operational risk as well as insurance risk by reflecting such risks in their calculation of risk-weighted assets. The statutory risk-based capital adequacy ratio for insurance companies is computed by dividing available capital by required capital. Available capital of an insurance company is computed as the sum of, among other things, capital stock, reserve for policyholder dividends and bad debt allowance after deducting, among other things, deferred acquisition costs, goodwill, and prepaid expenses. Required capital is computed based on the sum of (i) the square root of the sum of the squares of (w) insurance risk amounts, (x) interest rate risk amounts, (y) credit risk amounts and (z) market risk amounts, and (ii) the operating risk amounts, with each risk amount being calculated in accordance with the detailed criteria set forth under the Regulation on Supervision of Insurance Business and the Detailed Enforcement Regulations on Insurance Supervision.

The Financial Supervisory Service has announced that it plans to introduce a new regulatory solvency regime for insurance companies by 2022 based on the International Capital Standard developed by the International Association of Insurance Supervisors, which would be similar in substance to the Solvency II Directive of the European Union. The Solvency II Directive, which has been in effect in the European Union since January 1, 2016, is a comprehensive program of regulatory requirements for insurance companies, covering authorization, corporate governance, supervisory reporting, public disclosure and risk assessment and management, as well as solvency. Under the Financial Supervisory Service’s planned new solvency regime in Korea, among other things, insurance contract liabilities are expected to be measured based on market value, rather than book value, which would require a number of insurance companies in Korea with a large portfolio of high guaranteed rate of return products to obtain additional capital to meet their capital adequacy requirements. The Financial Supervisory Service has also announced its plans to implement a series of incremental changes to the calculation methodology for the risk-based capital adequacy ratio of insurance companies, as interim measures. Such changes implemented in 2017 included increasing the maximum statutory duration of insurance liabilities recognized for purposes of such calculation, as well as reducing the coefficient applied in calculating interest rate risk and adjusting the methods used to assess the risk of guaranteed benefits of variable insurance policies. The details of the new solvency regime in Korea have not yet been finalized and are likely to be further amended in the future.

118

Regulations on Class Actions Regarding Securities

The Law on Class Actions Regarding Securities was enacted as of January 20, 2004 and last amended on May 28, 2013. The Law on Class Actions Regarding Securities governs class actions suits instituted by one or more representative plaintiff(s) on behalf of 50 or more persons who claim to have been damaged in a capital markets transaction involving securities issued by a listed company in Korea.

Applicable causes of action with respect to such suits include:

•

claims for damages caused by misleading information contained in a securities statement;

•

claims for damages caused by the filing of a misleading business report, semi-annual report, or quarterly report;

•

claims for damages caused by insider trading or market manipulation; and

•

claims instituted against auditors for damages caused by accounting irregularities.

Any such class action may be instituted upon approval from the presiding court and the outcome of such class action will have a binding effect on all potential plaintiffs who have not joined the action, with the exception of those who have filed an opt out notice with such court.

Financial Investment Services and Capital Markets Act

The Financial Investment Services and Capital Markets Act, which became effective in February 2009, regulates and governs the financial investment business in Korea. The entities that regulate and supervise financial investment companies are the Financial Services Commission, the Financial Supervisory Service and the Securities and Futures Commission.

Under the Financial Investment Services and Capital Markets Act, a company must obtain a license from the Financial Services Commission to commence a financial investment business such as a brokerage business, a dealing business or an underwriting business, or register with the Financial Services Commission to commence a financial investment business such as an investment advisory business or a discretionary investment management business. A bank is permitted to engage in certain types of financial investment business as specified under the Enforcement Decree of the Bank Act. Prior to commencing a financial investment business, a bank must file a report with the Financial Services Commission and apply for a license pursuant to the Financial Investment Services and Capital Markets Act.

Consolidation of Capital Markets-Related Laws

Prior to the effectiveness of the Financial Investment Services and Capital Markets Act, there were separate laws regulating various types of financial institutions depending on the type of financial institution (for example, securities companies, futures companies, trust business companies and asset management companies) and subjecting financial institutions to different licensing and ongoing regulatory requirements (for example, the Korean Securities Exchange Act, the Futures Business Act and the Indirect Investment Asset Management Business Act). By applying one uniform set of rules to the same financial business having the same economic function, the Financial Investment Services and Capital Markets Act attempts to improve and address issues caused by the previous regulatory system under which the same economic function relating to capital markets-related businesses are governed by multiple regulations. To this end, the Financial Investment Services and Capital Markets Act categorizes capital markets-related businesses into six different functions, as follows:

•

dealing, trading and underwriting of “financial investment products” (as defined below);

•

brokerage of financial investment products;

•

establishment of collective investment schemes and the management thereof;

119

•

investment advice;

•

discretionary investment management; and

•

trusts (together with the five businesses set forth above, the “Financial Investment Businesses”).

Accordingly, all financial businesses relating to financial investment products have been reclassified as one or more of the Financial Investment Businesses described above, and financial institutions are subject to the regulations applicable to their relevant Financial Investment Businesses, regardless of the type of the financial institution. For example, under the Financial Investment Services and Capital Markets Act, derivative businesses conducted by former securities companies and future companies will be subject to the same regulations.

Banking and insurance businesses are not subject to the Financial Investment Services and Capital Markets Act and will continue to be regulated under separate laws. However, they may become subject to the Financial Investment Services and Capital Markets Act if their activities involve any financial investment businesses requiring a license pursuant to the Financial Investment Services and Capital Markets Act.

Comprehensive Definition of Financial Investment Products

In an effort to encompass the various types of securities and derivative products available in the capital markets, the Financial Investment Services and Capital Markets Act sets forth a comprehensive term “financial investment products,” defined to mean all financial products with a risk of loss in the invested amount (in contrast to “deposits,” which are financial products for which the invested amount is protected or preserved). Financial investment products are classified into two major categories: (i) “securities” (financial investment products in which the risk of loss is limited to the invested amount) and (ii) “derivatives” (financial investment products in which the risk of loss may exceed the invested amount). As a result of the general and broad definition of financial investment products, a variety of financial products may be defined as a financial investment product, which would enable Financial Investment Companies (defined below) to handle a broader range of financial products. Under the Financial Investment Services and Capital Markets Act, entities formerly licensed as securities companies, asset management companies, futures companies and other entities engaging in any Financial Investment Business are classified as “Financial Investment Companies.”

New License System and the Conversion of Existing Licenses

Under the Financial Investment Services and Capital Markets Act, Financial Investment Companies are able to choose the type of Financial Investment Business in which to engage (through a “check the box” method set forth in the relevant license application), by specifying the desired (i) Financial Investment Business, (ii) financial investment product and (iii) target customers to which financial investment products may be sold or distributed (that is, general investors or professional investors). Licenses will be issued under the specific business sub-categories described in the foregoing sentence. For example, it would be possible for a Financial Investment Company to obtain a license to engage in the Financial Investment Business of (i) dealing (ii) over the counter derivatives products (iii) only with sophisticated investors.

Financial institutions that engage in business activities constituting a Financial Investment Business are required to take certain steps, such as renewal of their license or registration, in order to continue engaging in such business activities. Financial institutions that are not licensed Financial Investment Companies are not permitted to engage in any Financial Investment Business, subject to the following exceptions: (i) banks and insurance companies are permitted to engage in certain categories of Financial Investment Business for a period not exceeding six months commencing on the effective date of the Financial Investment Services and Capital Markets Act; and (ii) other financial institutions that engaged in any Financial Investment Business prior to the effective date of the Financial Investment Services and Capital Markets Act (whether in the form of a concurrent business or an incidental business) are permitted to continue such Financial Investment Business for a period not exceeding six months commencing on the effective date of the Financial Investment Services and Capital Markets Act.

120

Expanded Business Scope of Financial Investment Companies

Under the previous regulatory regime in Korea, it was difficult for a financial institution to explore a new line of business or expand upon its existing line of business. For example, previously a financial institution licensed as a securities company generally was not permitted to engage in the asset management business. In contrast, under the Financial Investment Services and Capital Markets Act, pursuant to the integration of its current businesses involving financial investment products into a single Financial Investment Business, a licensed Financial Investment Company is permitted to engage in all types of Financial Investment Businesses, subject to satisfying relevant regulations (for example, maintaining an adequate “Chinese Wall,” to the extent required). As to incidental businesses (that is, a financial related business which is not a Financial Investment Business), the Financial Investment Services and Capital Markets Act generally allows a Financial Investment Company to freely engage in such incidental businesses by shifting away from the previous positive-list system towards a more comprehensive system. In addition, a Financial Investment Company is permitted to (i) outsource marketing activities by contracting “introducing brokers” that are individuals but not employees of the Financial Investment Company, (ii) engage in foreign exchange businesses related to their Financial Investment Business and (iii) participate in the settlement network, pursuant to an agreement among the settlement network participants.

Improvement in Investor Protection Mechanism

While the Financial Investment Services and Capital Markets Act widens the scope of financial businesses in which financial institutions are permitted to engage, a more rigorous investor-protection mechanism is also imposed upon Financial Investment Companies dealing in financial investment products. The Financial Investment Services and Capital Markets Act distinguishes general investors from sophisticated investors and provides new or enhanced protections to general investors. For instance, the Financial Investment Services and Capital Markets Act expressly provides for a strict know-your-customer rule for general investors and imposes an obligation that Financial Investment Companies should market financial investment products suitable to each general investor, using written explanatory materials. Under the Financial Investment Services and Capital Markets Act, a Financial Investment Company could be liable if a general investor proves (i) damage or losses relating to such general investor’s investment in financial investment products solicited by such Financial Investment Company and (ii) the absence of the requisite written explanatory materials, without having to prove fault or causation. With respect to conflicts of interest between Financial Investment Companies and investors, the Financial Investment Services and Capital Markets Act expressly requires (i) disclosure of any conflict of interest to investors and (ii) mitigation of conflicts of interest to a comfortable level or abstention from the relevant transaction.

Other Changes to Securities / Fund Regulations

The Financial Investment Services and Capital Markets Act changed various securities regulations including those relating to public disclosure, insider trading and proxy contests, which were previously governed by the Korean Securities Exchange Act. For example, the 5% and 10% reporting obligations under the Korean Securities Exchange Act have become more stringent. The Indirect Investment and Asset Management Business Act strictly limited the kind of vehicles that could be utilized under a collective investment scheme, restricting the range of potential vehicles to trusts and corporations, and the type of funds that can be used for investments. However, under the Financial Investment Services and Capital Markets Act, these restrictions have been significantly liberalized, permitting all vehicles that may be created under Korean law, such as limited liability companies or partnerships, to be used for the purpose of collective investments and allowing investment funds to be more flexible as to their investments.

Act on the Corporate Governance of Financial Companies

The Act on the Corporate Governance of Financial Companies, which became effective on August 1, 2016, was enacted to address the need for strengthened regulations on corporate governance of financial institutions

121

and to serve as a uniform set of regulations on corporate governance matters applicable to financial institutions across a variety of industry sectors. It contains several key measures, including (i) eligibility requirements for officers of financial institutions and standards for determining whether officers of financial institutions may hold concurrent positions in other companies, (ii) standards for composition and operation of the board of directors of financial institutions, (iii) standards for establishment, composition and operation of various committees of the board of directors of financial institutions, (iv) regulations on internal control and risk management, (v) requirements and procedures for the approval of a change of major shareholders and (vi) special regulations to protect the rights of minority shareholders of financial institutions.

Financial Consumer Protection Act

The Financial Consumer Protection Act became effective on March 25, 2021, with certain provisions relating to internal control under such Act to become effective on September 25, 2021. The Financial Consumer Protection Act aims to enhance measures to protect financial consumers and to establish a sound market order in the financial product sales and advisory businesses. The Financial Consumer Protection Act consolidates existing regulations relating to the sale of financial products and consumer protection stipulated in other laws governing the financial sector, such as the Financial Investment Services and Capital Markets Act, the Banking Act and the Insurance Business Act, and will be applied to the financial industry on a cross-sectoral basis.

Application of the Financial Consumer Protection Act

All financial products that are classified as (i) deposits, (ii) loans, (iii) investment products or (iv) insurance products are subject to the Financial Consumer Protection Act. These four types of products encompass most of the products covered by the Bank Act, the Financial Investment Services and Capital Markets Act and the Insurance Business Act. Financial products offered by credit unions, peer-to-peer (P2P) lending firms and registered credit service providers will also be regulated by the Financial Consumer Protection Act.

Six Principles Regulating Selling Activities

The Financial Consumer Protection Act consolidates previously scattered regulations regarding financial business operations into six uniform standards that cover the following: (i) suitability, (ii) appropriateness, (iii) duty to explain, (iv) unfair sales practices, (v) improper solicitation and (vi) advertisements. Among these six principles, suitability, appropriateness and duty to explain apply only to “general financial consumers,” although “professional financial consumers” may elect to be treated as “general financial consumers,” in which case all six principles would apply to them.

Internal Control Requirements for Consumer Protection

The Financial Consumer Protection Act requires sellers of financial products to have adequate internal control standards to protect consumers. The Enforcement Decree to the Financial Consumer Protection Act sets forth details of certain of the internal control standards as follows:

•

Establishment of the authority and responsibilities of the decision maker, such as the representative director or a director, in the implementation of internal control measures;

•

Development of an organizational structure and designation of personnel responsible for consumer protection matters, including the establishment of a financial consumer protection committee;

•

Implementation of (i) inter-departmental consultation procedures for the development and sale of financial products, (ii) processes for internal deliberations and the incorporation of opinions from independent third party advisors, (iii) standards for vetting advertisements, (iv) mandatory training requirements for officers and employees and implementation of qualification requirements, (v) standards for the prevention of conflicts of interest, (vi) proper management of confidential information, and (vii) disclosure obligations when potential harm to consumers arises; and

122

•

Establishment of standards for performance-based compensation of officers and employees in charge of sales of financial products.

Right to Withdraw Subscriptions and Right to Terminate Contracts

Under the Financial Consumer Protection Act, consumers will have the right to withdraw subscriptions, allowing them to receive a refund during a statutory cooling-off period following the execution of the relevant subscription agreement. This right generally applies to all types of financial products with the exception of deposits, although in the case of investment products, the right to withdraw applies only to highly complex funds and trusts. Consumers also have the right to terminate a contract if the sellers violate the Financial Consumer Protection Act in relation to the sales process. The right to terminate contracts applies to long-term contracts but such right must be exercised within one year from the time that the customer becomes aware that the financial product was sold in violation of the regulatory requirements.

Punitive Penalty Surcharges

In case of a violation of the principles regarding the duty to explain, unfair sales practices, improper solicitation and advertisements, sellers will now be subject to a punitive penalty of up to half the “amount that is the purpose of the contract” (which would be the deposit amount in case of deposit products, loan amount in case of loan products, investment amount in case of investment products, and insurance premium in case of insurance products), depending on the severity of the violation of the Financial Consumer Protection Act.

Environment, Social Responsibility and Corporate Governance

As part of our mission to become a “financial service delivering changes,” we are committed to a management philosophy focused on issues relating to the environment, social responsibility and corporate governance (“ESG”). Our ESG strategy is to focus on internalizing ESG values across all of our business operations by developing a climate change risk management system, an inclusive society and a transparent corporate governance structure.

We have also developed the “KB Green Way 2030” program to fulfill our responsibility as a leading financial group and to become a more trusted company to our stakeholders. Under this program, we plan to reduce our carbon emissions by 25% and to increase the total value of our ESG-related products, investments and loans to ￦50 trillion by 2030. Since 2011, we have published a group-wide sustainability report on our website on an annual basis.

123

Item 4.C.

Organizational Structure

The following chart provides an overview of our structure, including our significant subsidiaries and our ownership of such subsidiaries as of March 31, 2021:

LOGO

Our largest subsidiary is Kookmin Bank, the assets of which represented approximately 71.7% of our total assets as of December 31, 2020. The following table provides summary information for our operating subsidiaries that are consolidated in our consolidated financial statements as of and for the year ended December 31, 2020, including their consolidated total assets, operating revenue, profit (loss) and total equity:


Subsidiaries	Total Assets		Operating Revenue		Profit (Loss)			Total Equity
	(in millions of Won)
Kookmin Bank	￦	438,444,114	￦	24,519,818	￦	2,298,195		￦	30,408,074
KB Securities Co., Ltd.		57,570,654		10,040,497		425,622			5,054,166
KB Insurance Co., Ltd.		39,078,117		13,735,778		163,884			3,991,659
KB Kookmin Card Co., Ltd.		24,071,644		3,210,581		324,662			4,281,686
KB Life Insurance Co., Ltd.		10,424,916		1,897,859		(23,185	)		582,127
Prudential Life Insurance Company of Korea, Ltd.		25,121,656		656,062		55,711			2,439,927

124


Subsidiaries	Total Assets		Operating Revenue		Profit (Loss)			Total Equity
	(in millions of Won)
KB Asset Management Co., Ltd.		335,601		191,427		57,317			223,079
KB Capital Co., Ltd.		12,823,748		1,300,378		141,646			1,431,571
KB Savings Bank Co., Ltd.		1,883,720		104,397		17,305			225,604
KB Real Estate Trust Co., Ltd.		437,619		139,070		66,874			329,523
KB Investment Co., Ltd.		848,693		128,014		15,387			230,141
KB Credit Information Co., Ltd.		40,347		149,966		(1,729	)		17,323
KB Data Systems Co., Ltd.		27,711		39,767		1,132			15,938

Further information regarding our subsidiaries is provided below:

•

Kookmin Bank was established in Korea in 2001 as a result of the merger of the former Kookmin Bank (established in 1963) and H&CB (established in 1967). Kookmin Bank provides a wide range of banking and other financial services to individuals, small- and medium-sized enterprises and large corporations in Korea. As of December 31, 2020, Kookmin Bank was one of the largest commercial banks in Korea based upon total assets (including loans) and deposits. As of December 31, 2020, Kookmin Bank had approximately 32.0 million customers, with 972 branches nationwide.

•

KB Securities Co., Ltd. , formerly known as Hyundai Securities Co., Ltd., was established in Korea in 1962 to provide various securities brokerage and investment banking services. In 2016, we acquired 100% of the outstanding shares of Hyundai Securities, merged another subsidiary, KB Investment & Securities Co., Ltd., with and into Hyundai Securities and changed the name of the surviving entity to KB Securities Co., Ltd.

•

KB Insurance Co., Ltd. , formerly known as LIG Insurance Co., Ltd., was established in Korea in January 1959 to provide non-life insurance products. KB Insurance became our wholly-owned subsidiary in July 2017 after a series of stock purchases, a tender offer and a comprehensive stock swap.

•

KB Kookmin Card Co., Ltd. was established in March 2011 as a separate entity upon the completion of a horizontal spin-off of Kookmin Bank’s credit card business, to provide credit card services.

•

KB Life Insurance Co., Ltd. was established in Korea in April 2004 to provide life insurance and wealth management products primarily through our branch network.

•

Prudential Life Insurance Company of Korea, Ltd. , formerly a subsidiary of Prudential Financial, Inc., a U.S.-based provider of insurance, investment management and other financial products and services, was established in Korea in 1989. In August 2020, we acquired all of the outstanding shares of Prudential Life Insurance from Prudential Financial, Inc. for ￦2.3 trillion, as a result of which Prudential Life Insurance became a wholly-owned subsidiary.

•

KB Asset Management Co., Ltd. was established in Korea in April 1988 as a subsidiary of Citizens Investment Trust Company to provide investment advisory services.

•

KB Capital Co., Ltd. , which provides leasing services and installment finance services, was formerly known as Woori Financial Co., Ltd. and was acquired by us in March 2014. KB Capital became our wholly-owned subsidiary in July 2017 after a tender offer followed by a comprehensive stock swap.

•

KB Savings Bank Co., Ltd. was established in Korea in January 2012 to provide small-loan finance services. KB Savings Bank was established in connection with our purchase of assets and assumption of liabilities of Jeil Savings Bank in January 2012. We acquired Yehansoul Savings Bank, which provided small-loan finance services, in September 2013 and merged it with KB Savings Bank in January 2014, with KB Savings Bank as the surviving entity.

•

KB Real Estate Trust Co., Ltd. was established in Korea in December 1996 to provide real estate development and brokerage services by managing trusts related to the real estate industry.

125

•

KB Investment Co., Ltd. was established in Korea in March 1990 to invest in and finance small- and medium-sized enterprises.

•

KB Credit Information Co., Ltd. was established in Korea in October 1999 to collect delinquent loans and to check credit history.

•

KB Data Systems Co., Ltd. was established in Korea in September 1991 to provide software services to us and other financial institutions.

Item 4.D.

Property, Plants and Equipment

Our registered office and corporate headquarters are located at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea. The following table presents information regarding certain of our properties in Korea:


Type of facility/building	Location	Area (square meters)
Registered office and corporate headquarters and Kookmin Bank headquarters #1	26, Gukjegeumyung-ro 8-gil Yeongdeungpo-gu, Seoul 07331		5,354
Kookmin Bank headquarters #2	141, Uisadang-daero, Yeongdeungpo-gu, Seoul 07332		4,727
KB Kookmin Card headquarters building	Jongno-gu, Seoul		3,923
Kookmin Bank training institute	Ilsan		207,560
Kookmin Bank training institute	Daecheon		4,158
Kookmin Bank training institute	Sokcho		15,559
Kookmin Bank training institute	Cheonan		196,649
Kookmin Bank IT center	Gangseo-gu, Seoul		13,116
Kookmin Bank IT center	Yeouido, Seoul		5,928
Kookmin Bank IT center	Yeouido, Seoul		2,006
Kookmin Bank IT center	Gimpo		13,144
Kookmin Bank support center	Seongbuk-gu, Seoul		9,939
KB Securities training institute	Kiheung-gu, Yongin		64,600

In August 2020, we completed the construction of a second headquarters building for Kookmin Bank in Yeouido, Seoul. Our total capital expenditure for its construction has amounted to approximately W356.5 billion.

As of December 31, 2020, we had a countrywide network of 972 banking branches and sub-branches, as well as 532 branches and sub-branches and 198 representative offices for our other operations including our credit card, securities brokerage, insurance and consumer finance businesses. Approximately one-fifth of these facilities are housed in buildings owned by us, while the remaining branches are leased properties. See “Item 4.B. Business Overview—Capital Markets Activities and International Banking/Finance—International Banking/Finance” for a list of our overseas subsidiaries, branches and representative and liaison offices in operation as of December 31, 2020. In December 2020, we established KB Bank Myanmar Co., Ltd., a subsidiary, in Myanmar. Kookmin Bank, Gurgaon Representative Office in India converted to Kookmin Bank, Gurugram Branch in February 2019. Kookmin Bank, Hanoi Representative Office is currently being liquidated. Lease terms are generally from two to three years and seldom exceed five years. Kookmin Bank International Ltd., previously one of our operating subsidiaries, was converted to a branch in London in May 2018. We do not own any material properties outside of Korea.

The net carrying amount of all the properties owned by us at December 31, 2020 was ￦4,382 billion.

Item 4A.

UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the U.S. Securities and Exchange Commission staff regarding our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

126

Item 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Item 5.A.

Operating Results

Overview

The following discussion is based on our consolidated financial statements, which have been prepared in accordance with IFRS as issued by the IASB. The consolidated financial statements include the accounts of subsidiaries over which substantive control is exercised through majority ownership of voting stock and/or other means. Investments in jointly controlled entities and associates (which are companies over which we have the ability to exercise significant influence) are accounted for by the equity method of accounting.

Trends in the Korean Economy

Our financial position and results of operations have been and will continue to be significantly affected by financial and economic conditions in Korea. In recent years, commercial banks, consumer finance companies and other financial institutions in Korea have made significant investments and engaged in aggressive marketing in retail lending (including mortgage and home equity loans), leading to substantially increased competition in this segment. From the second half of 2016 to 2020, the Korean government introduced various measures to tighten regulations on mortgage and other lending and housing subscription in response to the rapid growth in consumer debt and concerns over speculative investments in real estate in certain areas. Notwithstanding such measures, demand for residential property in certain areas, including Seoul, continued to increase through the end of 2020, and accompanied by an increase in the prices of such residential property, our portfolio of retail loans increased from ￦158,807 billion as of December 31, 2018 to ￦166,307 billion as of December 31, 2019 and ￦182,437 billion as of December 31, 2020. Nevertheless, a decrease in housing prices as a result of the implementation of such measures, together with the high level of consumer debt and deteriorating domestic and global economic conditions, could result in declines in consumer spending and reduced economic growth, which may lead to increases in delinquency levels of our portfolio of retail loans. In 2020, we recorded charge-offs of ￦461 billion and provisions for loan losses of ￦421 billion in respect of our retail loan portfolio, compared to charge-offs of ￦443 billion and provisions for loan losses of ￦515 billion in 2019 and charge-offs of ￦381 billion and provisions for loan losses of ￦270 billion in 2018. See “Item 3.D. Risk Factors—Risks relating to our retail credit portfolio.”

Our loans to small- and medium-sized enterprises increased from ￦106,015 billion as of December 31, 2018 to ￦124,457 billion as of December 31, 2020. Substantial growth in lending in Korea to small- and medium-sized enterprises in recent years, and financial difficulties experienced by such enterprises as a result of, among other things, adverse changes in economic conditions in Korea and globally (such as the COVID-19 pandemic continuing to affect many countries worldwide, including Korea), may lead to increasing delinquencies and a deterioration in overall asset quality in the credit exposures of Korean banks to small- and medium-sized enterprises. In 2020, we recorded charge-offs of ￦14 billion in respect of our loans to small- and medium-sized enterprises, compared to charge-offs of ￦18 billion in 2019 and ￦35 billion in 2018. See “Item 3.D. Risk Factors—Risks relating to our small- and medium-sized enterprise loan portfolio—We have significant exposure to small- and medium-sized enterprises, and any financial difficulties experienced by these customers may result in a deterioration of our asset quality and have an adverse impact on us.”

The Korean economy is closely tied to, and is affected by developments in, the global economy. The overall prospects for the Korean and global economy remain uncertain. In recent years and in 2021, the global financial markets have experienced significant volatility as a result of, among other things:

•

the occurrence of severe health pandemics, such as the global outbreak of the COVID-19 pandemic, or other severe health epidemics in Korea or other parts of the world, such as the Middle East Respiratory Syndrome outbreak in Korea in 2015;

127

•

interest rate fluctuations as well as perceived or actual changes in policy rates by, or other monetary and fiscal policies set forth by, the U.S. Federal Reserve and other central banks;

•

financial and social difficulties affecting many countries worldwide, in particular in Latin America and Europe;

•

a deterioration in economic and trade relations between the United States and its major trading partners, including China;

•

escalations in trade protectionism globally and geopolitical tensions in East Asia and the Middle East;

•

the slowdown of economic growth in China and other major emerging market economies;

•

increased uncertainties resulting from the United Kingdom’s exit from the European Union; and

•

political and social instability in various countries in the Middle East, including Syria, Iraq and Yemen.

In light of the high level of interdependence of the global economy, unfavorable changes in the global financial markets, including as a result of any of the foregoing developments, could have a material adverse effect on the Korean economy and financial markets, and in turn on our business, financial condition and results of operations. In particular, the global outbreak of COVID-19, which was declared a “pandemic” by The World Health Organization in March 2020, has led to significant global economic and financial disruptions, including an adverse impact on international trade and business activities, sharp declines and significant volatility in the financial markets as well as decreases in interest rates worldwide. Although there have been mixed signs of recovery in the domestic and global economy resulting from the availability of COVID-19 vaccinations and gradual normalization of business activities, the extent to which the COVID-19 pandemic continues to impact Korea and its economy will depend on future developments, including the scope and duration of the ongoing outbreak of the COVID-19 pandemic as well as the efficacy of actions taken by governmental authorities, central banks and other third parties around the world in response to the pandemic.

We are also exposed to adverse changes and volatility in the global and Korean financial markets as a result of our liabilities and assets denominated in foreign currencies and our holdings of trading and investment securities, including structured products. The value of the Won relative to major foreign currencies in general and the U.S. dollar in particular has fluctuated widely in recent years, in particular as a result of the COVID-19 pandemic. A depreciation of the Won will increase our cost in Won of servicing our foreign currency-denominated debt, while continued exchange rate volatility may also result in foreign exchange losses for us. Furthermore, as a result of the deterioration in global and Korean economic conditions, there has been downward pressures on securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Such developments have resulted in and may lead to further trading and valuation losses on our trading and investment securities portfolio as well as impairment losses on our investments accounted for under the equity method.

As a result of the ongoing impact of the COVID-19 pandemic on the Korean and global economies and financial markets, as well as factors such as fluctuations in oil and commodity prices, interest and exchange rate fluctuations, higher unemployment, lower consumer confidence, stock market volatility, changes in fiscal and monetary policies and continued tensions with North Korea, the economic outlook for the financial services sector in Korea in 2021 and for the foreseeable future remains highly uncertain.

Acquisitions

In recent years, we have engaged in a number of acquisitions, which have affected, and may continue to affect, our results of operations and their comparability from period to period.

Most recently, in August 2020, we acquired all of the outstanding shares of Prudential Life Insurance, a provider of life insurance services in Korea, from Prudential Financial, Inc. for ￦2.3 trillion, as a result of which

128

Prudential Life Insurance became a wholly-owned subsidiary. As of December 31, 2020, Prudential Life Insurance had total assets of ￦25,122 billion and total equity of ￦2,440 billion, and in 2020, its total operating revenue amounted to ￦656 billion and its profit for the year amounted to ￦56 billion. For additional financial information on our major subsidiaries, see Note 41 of the notes to our consolidated financial statements included elsewhere in this annual report.

From 2014 to 2016, we acquired KB Capital Co., Ltd. (formerly known as Woori Financial Co., Ltd.), KB Insurance Co., Ltd. (formerly known as LIG Insurance Co., Ltd.) and KB Securities Co., Ltd. (formerly known as Hyundai Securities Co., Ltd.).

Changes in Securities Values, Exchange Rates and Interest Rates

Fluctuations of exchange rates, interest rates and stock prices affect, among other things, the demand for our products and services, the value of and rate of return on our assets, the availability and cost of funding and the financial condition of our customers. The following table shows, for the dates indicated, the stock price index of all equities listed on the KRX KOSPI Market as published in the KOSPI, the Won to U.S. dollar exchange rates and benchmark Won borrowing interest rates.


	June 30, 2016			Dec. 30, 2016			June 30, 2017			Dec. 28, 2017			June 29, 2018			Dec. 31, 2018			June 28, 2019			Dec. 31, 2019			June 30, 2020			Dec. 31, 2020
KOSPI		1,970.35			2,026.46	⁽⁴⁾		2,391.79			2,467.49	⁽⁵⁾		2,326.13			2,041.04	⁽⁶⁾		2,130.62			2,197.67	⁽⁷⁾		2,108.33			2,873.47	⁽⁸⁾
W /US$ exchange rates ⁽¹⁾	￦	1,154.2		￦	1,203.7		￦	1,143.8		￦	1,067.4		￦	1,111.8		￦	1,112.9		￦	1,156.8		￦	1,157.8		￦	1,200.7		￦	1,088.0
Corporate bond rates ⁽²⁾		2.26	%		2.79	%		2.84	%		3.08	%		2.93	%		2.58	%		1.98	%		1.99	%		1.78	%		1.70	%
Treasury bond rates ⁽³⁾		1.25	%		1.64	%		1.70	%		2.10	%		2.12	%		1.82	%		1.47	%		1.36	%		0.85	%		0.97	%

⁽¹⁾	Represents the noon buying rate on the dates indicated.

⁽²⁾	Measured by the yield on three-year Korean corporate bonds rated as A+ by the Korean credit rating agencies.

⁽³⁾	Measured by the yield on three-year treasury bonds issued by the Ministry of Economy and Finance of Korea.

⁽⁴⁾	As of December 29, 2016, the last day of trading for the KRX KOSPI Market in 2016.

⁽⁵⁾	As of December 28, 2017, the last day of trading for the KRX KOSPI Market in 2017.

⁽⁶⁾	As of December 31, 2018, the last day of trading for the KRX KOSPI Market in 2018.

⁽⁷⁾	As of December 30, 2019, the last day of trading for the KRX KOSPI Market in 2019.

⁽⁸⁾	As of December 30, 2020, the last day of trading for the KRX KOSPI Market in 2020.

Critical Accounting Policies

The notes to our consolidated financial statements contain a summary of our significant accounting policies, including a discussion of recently issued accounting pronouncements. Certain of these policies are critical to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. We discuss these critical accounting policies below.

Impairment of Loans and Allowances for Loan Losses

We evaluate our loan portfolio for impairment on an ongoing basis. We have established allowances for loan losses, which are available to absorb losses in our loan portfolio. If we believe that additions or changes to the allowances for loan losses are required, we record a provision for loan losses (as part of our provision for credit losses), which is treated as a charge against current income. Loan exposures that we deem to be uncollectible, including actual loan losses, net of recoveries of previously written-off amounts, are charged directly against the allowances for loan losses.

We have established our allowance for loan losses as of December 31, 2018, 2019 and 2020 in accordance with IFRS 9.

129

Our accounting policies under IFRS 9 for losses arising from the impairment of loans and allowances for loan losses are described in Note 3.6 of the notes to our consolidated financial statements. The impairment model under IFRS 9 requires recording of allowance for credit losses based on expected losses instead of incurred losses, and recognition of any subsequent changes in expected credit losses in profit or loss. Under IFRS 9, the allowance required to be established with respect to a loan or receivable is the amount of the 12-month expected credit loss or the lifetime expected credit loss for the applicable loan or receivable, according to the three stages of credit risk deterioration since initial recognition, as follows:

•

Stage 1 (loans and receivables for which credit risk has not significantly increased since initial recognition): the allowance for credit losses must cover expected credit losses due to possible defaults on the relevant loan or receivable within a 12-month period from the reporting date.

•

Stage 2 (loans and receivables for which credit risk has significantly increased since initial recognition): the allowance for credit losses must cover expected credit losses from all possible defaults during the expected lifetime of the relevant loan or receivable.

•

Stage 3 (credit-impaired loans and receivables): the allowance for credit losses must cover expected credit losses from all possible defaults during the expected lifetime of the relevant loan or receivable.

At the end of every reporting period, we evaluate whether the credit risk with respect to our loans and receivables, after taking into account forward-looking information, has significantly increased since the date of their initial recognition. We distinguish between loans and receivables that are individually significant (which we assess on an individual basis) and those that are not (which we assess collectively based on homogeneous credit risk profiles) in performing such evaluation, and consider factors such as the following as indicators of a significant increase in credit risk:

•

payment obligations that are more than 30 days past due;

•

a decline in the borrower’s credit rating in excess of certain levels as compared to that at initial recognition;

•

a decline in ratings below certain levels in our early warning system;

•

the occurrence of a debt restructuring (except for impaired financial assets); and

•

publication of credit delinquency information regarding the borrower by the Korea Federation of Banks or certain other sources.

Expected credit losses are a probability-weighted estimate of credit losses (i.e., the present value of all cash shortfalls) within 12 months of stage 1 loans or receivables and over the expected life of stages 2 and 3 loans or receivables. We measure expected credit losses by reflecting 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.

For a discussion of our assessment of expected credit losses of financial instruments as they relate to the impact of COVID-19, see Note 2.4.7 of the notes to our consolidated financial statements included elsewhere in this annual report.

Our consolidated financial statements as of and for the year ended December 31, 2020 included a total allowance for credit losses of loans measured at amortized cost of ￦3,283 billion as of that date. Our charge-offs for such loans, net of recoveries, amounted to ￦905 billion, and we recorded provisions for credit losses of such loans of ￦941 billion in 2020.

We believe that the accounting estimates related to impairment of loans and receivables and our allowance for credit losses are a “critical accounting policy” because: (1) they are highly susceptible to change from period to period based on our estimates of expected credit losses relating to our loan portfolio; and (2) any significant

130

difference between expected credit losses on loans and receivables (as reflected in our allowance for credit losses) and actual losses on loans and receivables could require us to record additional provisions for credit losses or charge-offs which, if significant, could have a material impact on our profit. Our estimates of expected credit losses require significant management judgment regarding matters such as the significance of changes in credit risk and probability of default since initial recognition. Actual losses have fluctuated in the past and are expected to continue to do so, based on a variety of factors.

Valuation of Financial Instruments

Our accounting policy for determining the fair value of financial instruments is described in Notes 3.3 and 6 of the notes to our consolidated financial statements.

The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active, a valuation technique is used. The majority of valuation techniques employ only observable market data and, as such, the reliability of the fair value measurement is high. However, certain financial instruments are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable. Valuation techniques that rely to a greater extent on unobservable inputs require a higher level of management judgment to calculate a fair value than those based wholly on observable inputs.

Valuation techniques used to calculate fair values are discussed in Note 6.1 of the notes to our consolidated financial statements. The main assumptions and estimates which our management considers when applying a model with valuation techniques are:

•

The likelihood and expected timing of future cash flows on the instrument. These cash flows are usually governed by the terms of the instrument, although judgment may be required when the ability of the counterparty to service the instrument in accordance with the contractual terms is in doubt. Future cash flows may be sensitive to changes in market rates.

•

Selecting an appropriate discount rate for the instrument. The determination of this rate is based on an assessment of what a market participant would regard as the appropriate spread of the rate for the instrument over the appropriate risk-free rate.

•

Judgment to determine what model to use to calculate fair value in areas where the choice of valuation model is particularly subjective (for example, valuation of complex derivative products).

The financial instruments carried at fair value have been categorized under the three levels of the IFRS fair value hierarchy as follows:

•

Level 1: Quoted prices in active markets for identical assets or liabilities.

•

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities.

•

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a market-based measure considered from the perspective of a market participant. As such, even when market assumptions are not readily available, our own assumptions are intended to reflect those that market participants would use in pricing the asset or liability at the measurement date.

For financial instruments traded in the over-the-counter market, we measure the fair value of such instruments as the arithmetic mean of prices obtained from Korea Asset Pricing (an affiliate of Fitch Ratings), KIS Pricing (an affiliate of Moody’s Investors Service), NICE Pricing and Information and FN Pricing, all four

131

of which are recognized as major qualified independent pricing services in Korea. There are extremely rare cases where we do not receive price quotes from all four of the pricing services described above. In such cases, we contact the pricing service which did not submit a price quote to discuss the reason why it cannot provide a price and, following such discussion, we use the arithmetic mean of only the prices obtained from the other pricing services so long as there is no reason to believe that the prices that have been submitted are inadequate. We generally do not adjust the prices we obtain from these independent pricing services, as the variance among such prices is insignificant in most cases (primarily because most of the financial instruments we hold consist of government bonds and highly-rated corporate bonds, there is a high volume of transactions in the over-the-counter market and actual transaction prices are monitored and referenced by the pricing services).

Our consolidated financial statements for the year ended December 31, 2020 included financial assets measured at fair value using a valuation technique of ￦95,076 billion, representing 74.0% of total financial assets measured at fair value, and financial liabilities measured at fair value using a valuation technique of ￦14,801 billion, representing 86.9% of total financial liabilities measured at fair value. As used herein, the fair value using a valuation technique means the fair value at Level 2 and Level 3 in the fair value hierarchy.

We believe that the accounting estimates related to the determination of the fair value of financial instruments are a “critical accounting policy” because: (1) they may be highly susceptible to change from period to period based on factors beyond our control; and (2) any significant difference between our estimate of the fair value of these financial instruments on any particular date and either their estimated fair value on a different date or the actual proceeds that we receive upon sale of these financial instruments could result in valuation losses or losses on disposal which may have a material impact on our profit. Our assumptions about the fair value of financial instruments we hold require significant judgment because actual valuations have fluctuated in the past and are expected to continue to do so, based on a variety of factors.

Deferred Income Tax Assets

Our accounting policy for the recognition of deferred income tax assets is described in Notes 3.20 and 17 of the notes to our consolidated financial statements. The recognition of deferred income tax assets relies on an assessment of the probability and sufficiency of future taxable profits, future reversals of existing taxable temporary differences and ongoing tax planning strategies.

We recognize deferred income tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, unused tax losses and unused tax credits. Deferred income tax assets are recognized only to the extent it is probable that sufficient taxable profit will be available against which those deductible temporary differences, unused tax losses or unused tax credits can be utilized. This assessment requires significant management judgment and assumptions. In determining the amount of deferred income tax assets, we use historical tax capacity and profitability information and, if relevant, forecasted operating results, based upon approved business plans, including a review of the eligible carry-forward periods, available tax planning opportunities and other relevant considerations.

Our consolidated financial statements for the year ended December 31, 2020 included deferred income tax assets and liabilities of ￦65 billion and ￦1,162 billion, respectively, as of that date, after offsetting of ￦2,429 billion of deferred income tax liabilities and assets.

We believe that the estimates related to our recognition and measurement of deferred income tax assets are a “critical accounting policy” because: (1) they may be highly susceptible to change from period to period based on our assumptions regarding our future profitability; and (2) any significant difference between our estimates of future profits on any particular date and estimates of such future profits on a different date could result in an income tax expense or benefit which may have a material impact on our profit from period to period. Our assumptions about our future profitability require significant judgment and are inherently subjective.

132

Uncertain Tax Positions

Our accounting policy for the recognition of uncertain tax positions is described in Note 3.20 of the notes to our consolidated financial statements.

We recognize our uncertain tax positions in our financial statements based on the guidance in International Accounting Standard 12, Income Taxes , as well as International Financial Reporting Interpretations Committee 23, which allows recognition of tax payments as current income tax assets to the extent it is probable that they will be recovered from the tax authorities.

We believe that the estimates related to our recognition and measurement of uncertain tax positions are a “critical accounting policy” because they are measured upon the facts and circumstances that exist as of each reporting period and involve significant management judgment. Subsequent changes in judgment based upon new information may lead to changes in recognition, derecognition and measurement of uncertain tax positions.

Results of Operations

Net Interest Income

The following table shows, for the periods indicated, the principal components of our net interest income:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won, except percentages)									(%)
Interest income
Due from financial institutions at fair value through profit or loss ⁽¹⁾	￦	109		￦	151		￦	92			38.5			(39.1	)
Financial assets at fair value through profit or loss ⁽²⁾		749			704			659			(6.0	)		(6.4	)
Loans		11,552			12,395			12,380			7.3			(0.1	)
Financial investments (debt securities) ⁽³⁾		1,325			1,390			1,355			4.9			(2.5	)

Total interest income		13,735			14,639			14,486			6.6			(1.0	)

Interest expense
Deposits		3,042			3,481			2,917			14.4			(16.2	)
Borrowings		639			720			661			12.7			(8.2	)
Debentures		1,149			1,241			1,186			8.0			(4.4	)

Total interest expense		4,830			5,442			4,764			12.7			(12.5	)

Net interest income	￦	8,905		￦	9,197		￦	9,722			3.3			5.7

Net interest margin ⁽⁴⁾		2.23	%		2.14	%		1.98	%

⁽¹⁾	Consists of cash and interest-earning deposits in other banks.

⁽²⁾	Consists of deposits, loans and securities at fair value through profit or loss. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽³⁾

Consists of securities at fair value through other comprehensive income and at amortized cost and loans at fair value through other comprehensive income. For information on interest income arising from such financial instruments, see Note 28 of the notes to our consolidated financial statements included elsewhere in this annual report.

⁽⁴⁾	The ratio of net interest income to average interest-earning assets. See “Item 3.A. Selected Financial Data—Profitability ratios and other data.”

Comparison of 2020 to 2019

Interest income. Interest income decreased 1.0% from ￦14,639 billion in 2019 to ￦14,486 billion in 2020, as a result of a 39.1% decrease in interest due from financial institutions, a 6.4% decrease in interest on financial assets at fair value through profit or loss, a 2.4% decrease in interest on financial investments and a 0.1%

133

decrease in interest on loans. The average yields on our interest-earning assets decreased 46 basis points from 3.41% in 2019 to 2.95% in 2020, which mainly reflected an overall decrease in the general level of interest rates in Korea in 2020 compared to 2019. The effect of such decrease was partially offset by a 14.4% increase in the average volume of our interest-earning assets from ￦429,046 billion in 2019 to ￦491,003 billion in 2020, principally due to growth in our loan portfolio and, to a lesser extent, our financial investments portfolio.

Interest due from financial institutions at fair value through profit or loss consists of interest from cash and interest-bearing deposits in other banks, and the 39.1% decrease in interest on such deposits from ￦151 billion in 2019 to ￦92 billion in 2020 was due to an 80 basis point decrease in the average yields on such deposits from 1.45% in 2019 to 0.65% in 2020, which was partially offset by a 36.5% increase in the average volume of such deposits from ￦10,436 billion in 2019 to ￦14,240 billion in 2020. The decrease in average yields on such deposits mainly reflected the decrease in the general level of interest rates in Korea, and the increase in the average volume of such deposits was primarily due to the additions of PRASAC Microfinance Institution Limited and Bank Bukopin as subsidiaries of Kookmin Bank in 2020.

Our financial investments portfolio consists of securities and loans measured at fair value through other comprehensive income and securities measured at amortized cost, including debt securities issued by government-owned or -controlled enterprises or financial institutions and debt securities issued by Korean banks and other financial institutions. The 2.5% decrease in interest on financial investments from ￦1,390 billion in 2019 to ￦1,355 billion in 2020 was the result of a 49 basis point decrease in the average yields on financial investments from 2.18% in 2019 to 1.69% in 2020, which was partly offset by a 25.7% increase in the average volume of financial investments from ￦63,699 billion in 2019 to ￦80,087 billion in 2020. The decrease in average yields on financial investments mainly reflected the decrease in the general level of interest rates in Korea. The increase in the average volume of financial investments was primarily due to an increase in our purchases of debt securities issued by Korean banks and other financial institutions.

The 6.4% decrease in interest on financial assets at fair value through profit or loss from ￦704 billion in 2019 to ￦659 billion in 2020 was primarily due to a 41 basis point decrease in the average yields on such financial assets from 2.59% in 2019 to 2.18% in 2020, which was partially offset by an 11.3% increase in the average volume of such financial assets from ￦27,164 billion in 2019 to ￦30,232 billion in 2020. The decrease in average yields on such financial assets mainly reflected the decrease in the general level of interest rates in Korea. The increase in the average volume of such financial assets mainly reflected our increased purchases of such financial assets due to an increase in purchases of government-issued debt securities by Kookmin Bank and KB Securities.

The interest on loans remained relatively stable at ￦12,380 billion in 2020 compared to ￦12,395 billion in 2019. This was primarily the result of:

•

a 51 basis point decrease in the average yields on corporate loans from 3.38% in 2019 to 2.87% in 2020, which was partly offset by an 11.9% increase in the average volume of such loans from ￦141,600 billion in 2019 to ￦158,508 billion in 2020;

•

a 35 basis point decrease in the average yields on home equity loans from 3.19% in 2019 to 2.84% in 2020, which was enhanced by an 8.3% decrease in the average volume of such loans from ￦30,188 billion in 2019 to ￦27,682 billion in 2020;

•

a 45 basis point decrease in the average yields on mortgage loans from 3.06% in 2019 to 2.61% in 2020, which was partially offset by a 13.5% increase in the average volume of such loans from ￦72,897 billion in 2019 to ￦82,765 billion in 2020; and

•

a 47 basis point decrease in the average yields on other consumer loans from 4.58% in 2019 to 4.11% in 2020, which was partially offset by a 9.8% increase in the average volume of such loans from ￦58,514 billion in 2019 to ￦64,220 billion in 2020;

134

which were mostly offset by:

•

a 122.5% increase in the average volume of foreign loans from ￦6,599 billion in 2019 to ￦14,683 billion in 2020, which was enhanced by a 128 basis point increase in the average yields on such loans from 4.23% in 2019 to 5.51% in 2020.

The decreases in the average yields on home equity, corporate, mortgage and other consumer loans mainly reflected the overall decrease in the general level of interest rates in Korea in 2020 compared to 2019. The increase in the average yields on foreign loans was primarily attributable to the reflection of higher average yields applicable to existing foreign loans of Bank Bukopin and PRASAC Microfinance Institution Limited, which were acquired by Kookmin Bank in 2020. The decrease in the average volume of home equity loans was mainly the result of increased government regulations applicable to such loans, which led to a decrease in demand for such loans. The increases in the average volumes of corporate, mortgage, other consumer and foreign loans were attributable primarily to increased demand from borrowers in need of financing in light of the COVID-19 pandemic.

Overall, the average volume of our loans increased 11.8% from ￦327,747 billion in 2019 to ￦366,444 billion in 2020, while the average yields on our loans decreased by 40 basis points from 3.78% in 2019 to 3.38% in 2020.

Interest expense. Interest expense decreased 12.5% from ￦5,442 billion in 2019 to ￦4,764 billion in 2020 due to a 16.2% decrease in interest expense on deposits and, to a lesser extent, an 8.3% decrease in interest expense on borrowings and a 4.4% decrease in interest expense on debentures. The average cost of interest-bearing liabilities decreased by 35 basis points from 1.45% in 2019 to 1.10% in 2020, which was driven mainly by the decrease in the general level of interest rates in Korea in 2020 compared to 2019. The effect of this decrease was partially offset by a 15.4% increase in the average volume of our interest-bearing liabilities from ￦374,114 billion in 2019 to ￦431,765 billion in 2020, which reflected increases in the average volumes of deposits, and, to a lesser extent, borrowings and debentures.

The 16.2% decrease in interest expense on deposits from ￦3,481 billion in 2019 to ￦2,917 billion in 2020 was due to:

•

a 37 basis point decrease in the average cost of time deposits from 1.94% in 2019 to 1.56% in 2020, which was partially offset by a 6.7% increase in the average volume of such deposits from ￦155,762 billion in 2019 to ￦166,275 billion in 2020;

•

a 12 basis point decrease in the average cost of demand deposits from 0.30% in 2019 to 0.18% in 2020, which was partially offset by a 21.7% increase in the average volume of such deposits from ￦122,519 billion in 2019 to ￦149,141 billion in 2020; and

•

a 57 basis point decrease in the average cost of certificates of deposit from 1.95% in 2019 to 1.38% in 2020, which was enhanced by a 23.9% decrease in the average volume of certificates of deposit from ￦4,781 billion in 2019 to ￦3,636 billion in 2020.

The decrease in the average cost of such deposits was principally due to the decrease in the general level of interest rates in Korea in 2020 compared to 2019. The increases in the average volumes of time and demand deposits mainly reflected customers’ continuing preference for low-risk products and institutions in Korea in light of the continuing uncertainty in financial markets in 2020 resulting from the COVID-19 pandemic. The decrease in the average volume of certificates of deposit was principally the result of a decline in sales of such products due to our decreased need for such sales in light of capital requirements. Overall, the average cost of our deposits decreased by 32 basis points from 1.23% in 2019 to 0.91% in 2020, while the average volume of our deposits increased 12.7% from ￦283,062 billion in 2019 to ￦319,052 billion in 2020.

The 8.2% decrease in interest expense on borrowings from ￦720 billion in 2019 to ￦661 billion in 2020 was principally attributable to a 63 basis point decrease in the average cost of borrowings from 1.87% in 2019 to

135

1.24% in 2020, which was partially offset by a 38.6% increase in the average volume of borrowings from ￦38,478 billion in 2019 to ￦53,334 billion in 2020. The decrease in the average cost of borrowings mainly reflected the decrease in the general level of interest rates in Korea in 2020 compared to 2019, while the increase in the average volume of borrowings was primarily due to our increased use of borrowings to meet our funding needs in light of the lower interest rate environment in Korea.

The 4.4% decrease in interest expense on debentures from ￦1,241 billion in 2019 to ￦1,186 billion in 2020 was primarily due to a 36 basis point decrease in the average cost of debentures from 2.36% in 2019 to 2.00% in 2020, which was partially offset by a 12.9% increase in the average volume of debentures from ￦52,574 billion in 2019 to ￦59,379 billion in 2020. The decrease in the average cost of debentures mainly reflected a decrease in interest rates applicable to debentures in 2020 in light of the lower interest rate environment, while the increase in the average volume of debentures was principally due to our increased use of debentures to meet our funding needs in light of the lower interest rate environment in Korea.

Net interest margin. Net interest margin represents the ratio of net interest income to average interest-earning assets. Our overall net interest margin decreased from 2.14% in 2019 to 1.98% in 2020, as a 5.7% increase in our net interest income from ￦9,197 billion in 2019 to ￦9,722 billion in 2020 was outpaced by a 14.4% increase in the average volume of our interest-earnings assets from ￦429,046 billion in 2019 to ￦491,003 billion in 2020. The growth in average interest-earning assets outpaced a 15.4% increase in average interest-bearing liabilities from ￦374,114 billion in 2019 to ￦431,765 billion in 2020, while the decrease in interest expense outpaced the decrease in interest income, resulting in an increase in net interest income. However, our net interest spread, which represents the difference between the average yield on our interest-earning assets and the average cost of our interest-bearing liabilities, decreased from 1.96% in 2019 to 1.85% in 2020. The decrease in our net interest spread reflected a larger decrease in the average yield on interest-earning assets compared to the decrease in the average cost of interest-bearing liabilities between the two periods, primarily due to the earlier adjustment of interest rates on interest-earning assets compared to interest rates on interest-bearing liabilities in the context of a lower interest rate environment in 2020 compared to 2019.

Comparison of 2019 to 2018

Interest income. Interest income increased 6.6% from ￦13,735 billion in 2018 to ￦14,639 billion in 2019, primarily as a result of a 7.3% increase in interest on loans, which was enhanced by a 4.9% increase in interest on financial investments. Such increase was partially offset by a 6.0% decrease in interest on financial assets at fair value through profit or loss. The average volume of our interest-earning assets increased 7.4% from ￦399,368 billion in 2018 to ￦429,046 billion in 2019, principally due to growth in our loan and financial investments portfolios. The effect of such increase was partially offset by a 3 basis point decrease in the average yields on our interest-earning assets from 3.44% in 2018 to 3.41% in 2019, which mainly reflected a decrease in the general level of interest rates in Korea commencing in the second half of 2019, despite an increase in the general level of interest rates in Korea in 2019 compared to 2018.

The 7.3% increase in interest on loans from ￦11,552 billion in 2018 to ￦12,395 billion in 2019 was primarily the result of:

•

a 4.9% increase in the average volume of corporate loans from ￦134,938 billion in 2018 to ￦141,600 billion in 2019, which was enhanced by a 7 basis point increase in the average yields on such loans from 3.31% in 2018 to 3.38% in 2019;

•

a 10.8% increase in the average volume of mortgage loans from ￦65,799 billion in 2018 to ￦72,897 billion in 2019, which was enhanced by a 3 basis point increase in the average yields on such loans from 3.03% in 2018 to 3.06% in 2019; and

•

an 11.8% increase in the average volume of other consumer loans from ￦52,333 billion in 2018 to ￦58,514 billion in 2019, which was partially offset by an 18 basis point decrease in the average yields on such loans from 4.76% in 2018 to 4.58% in 2019.

136

The increase in the average volumes of corporate loans mainly reflected our increased marketing efforts and increased demand for such loans from corporate borrowers in Korea. The increase in the average volume of mortgage loans and other consumer loans was attributable primarily to higher demand for such loans among consumers in Korea. The increase in average yields on corporate loans and mortgage loans mainly reflected an increase in the general level of interest rates in Korea in 2019 compared to 2018. The average yields on other consumer loans decreased mainly as a result of a decrease in interest rates applicable to such loans commencing in the second half of 2019, which was reflected in such loans earlier than in other types of loans.

Overall, the average volume of our loans increased 6.9% from ￦306,710 billion in 2018 to ￦327,747 billion in 2019, while the average yields on our loans increased by 1 basis point from 3.77% in 2018 to 3.78% in 2019.

The 4.9% increase in interest on financial investments from ￦1,325 billion in 2018 to ￦1,390 billion in 2019 was primarily the result of a 12.6% increase in the average volume of financial investments from ￦56,585 billion in 2018 to ￦63,699 billion in 2019, which was partially offset by a 16 basis point decrease in average yields on financial investments from 2.34% in 2018 to 2.18% in 2019. The increase in the average volume of financial investments was primarily due to an increase in our purchases of debt securities issued by Korean banks and other financial institutions. The decrease in average yields on financial investments mainly reflected a decrease in the general level of interest rates in Korea commencing in the second half of 2019, which was reflected in financial investments earlier than in other types of interest-earning assets.

The 6.0% decrease in interest on financial assets at fair value through profit or loss from ￦749 billion in 2018 to ￦704 billion in 2019 was primarily due to a 9 basis point decrease in average yields on such financial assets from 2.68% in 2018 to 2.59% in 2019, which was enhanced by a 2.7% decrease in the average volume of such financial assets from ￦27,911 billion in 2018 to ￦27,164 billion in 2019. The decrease in average yields on such financial assets mainly reflected a decrease in the general level of interest rates in Korea commencing in the second half of 2019, which was reflected in financial assets at fair value through profit or loss earlier than in other types of interest-earning assets. The decrease in the average volume of such financial assets mainly reflected our decreased purchases of such financial assets due to the lower interest rate environment in Korea commencing in the second half of 2019.

Interest expense. Interest expense increased 12.7% from ￦4,830 billion in 2018 to ￦5,442 billion in 2019 primarily due to a 14.4% increase in interest expense on deposits, which was enhanced by an 8.0% increase in interest expense on debentures and a 12.7% increase in interest expense on borrowings. The average volume of our interest-bearing liabilities increased 7.8% from ￦347,045 billion in 2018 to ￦374,114 billion in 2019, which principally reflected increases in the average volumes of deposits. The effect of this increase was enhanced by a 6 basis point increase in the average cost of interest-bearing liabilities from 1.39% in 2018 to 1.45% in 2019, which was driven mainly by an increase in the general level of interest rates in Korea in 2019 compared to 2018.

The 14.4% increase in interest expense on deposits from ￦3,042 billion in 2018 to ￦3,481 billion in 2019 was primarily due to a 10.5% increase in the average volume of time deposits from ￦141,021 billion in 2018 to ￦155,762 billion in 2019, which was enhanced by a 7 basis point increase in the average cost of such deposits from 1.87% in 2018 to 1.94% in 2019. The increase in the average volume of time deposits was principally due to customers’ continuing preference for low-risk products and institutions in Korea in light of increased uncertainties in domestic and global financial markets in 2019. The increase in the average cost of time deposits mainly reflected an increase in the general level of interest rates in Korea in 2019 compared to 2018. Overall, the average volume of our deposits increased 8.3% from ￦261,333 billion in 2018 to ￦283,062 billion in 2019, while the average cost of our deposits increased by 7 basis points from 1.16% in 2018 to 1.23% in 2019.

The 8.0% increase in interest expense on debentures from ￦1,149 billion in 2018 to ￦1,241 billion in 2019 was primarily due to a 9.2% increase in the average volume of debentures from ￦48,147 billion in 2018 to

137

￦52,574 billion in 2019, which was partially offset by a 3 basis point decrease in the average cost of debentures from 2.39% in 2018 to 2.36% in 2019. The increase in the average volume of debentures was principally due to our increased use of debentures to meet our funding needs. The decrease in the average cost of debentures mainly reflected a decrease in interest rates applicable to debentures commencing in the second half of 2019, which was reflected in debentures earlier than in other types of interest-bearing liabilities.

The 12.7% increase in interest expense on borrowings from ￦639 billion in 2018 to ￦720 billion in 2019 was principally attributable to a 17 basis point increase in the average cost of borrowings from 1.70% in 2018 to 1.87% in 2019, which was enhanced by a 2.4% increase in the average volume of borrowings from ￦37,565 billion in 2018 to ￦38,478 billion in 2019. The increase in the average cost of borrowings mainly reflected an increase in the general level of interest rates in Korea in 2019 compared to 2018, while the increase in the average volume of borrowings was primarily due to our increased use of borrowings to meet our funding needs.

Net interest margin. Our overall net interest margin decreased from 2.23% in 2018 to 2.14% in 2019, as a 3.3% increase in our net interest income from ￦8,905 billion in 2018 to ￦9,197 billion in 2019 was outpaced by a 7.4% increase in the average volume of our interest-earnings assets from ￦399,368 billion in 2018 to ￦429,046 billion in 2019. The growth in average interest-earning assets outpaced a 7.8% increase in average interest-bearing liabilities from ￦347,045 billion in 2018 to ￦374,114 billion in 2019, while the increase in interest income outpaced an increase in interest expense, resulting in an increase in net interest income. However, our net interest spread decreased from 2.05% in 2018 to 1.96% in 2019. The decrease in our net interest spread reflected an increase in the average cost of our interest-bearing liabilities, compared to a decrease in the average yield of our interest-earning assets, primarily due to the earlier adjustment of interest rates on interest-earning assets compared to interest rates on interest-bearing liabilities in the context of a lower interest rate environment in the second half of 2019.

Provision for Credit Losses

Provision for credit losses includes provision for loan losses, provision for unused loan commitments, provision for payment guarantees, provision for financial guarantee contracts and provision for other financial assets, in each case net of reversal of provisions. For a discussion of our loan loss provisioning policy, see “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Provisioning Policy.”

In accordance with the guidelines of the Financial Supervisory Service, if our provision for loan losses is deemed insufficient for regulatory purposes, we compensate for the difference by recording a regulatory reserve for credit losses, which is segregated within retained earnings. See “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Regulatory Reserve for Credit Losses” and Note 27.5 of the notes to our consolidated financial statements included elsewhere in this annual report.

Comparison of 2020 to 2019

Our provision for credit losses increased 55.7% from ￦670 billion in 2019 to ￦1,043 billion in 2020, primarily due to an increase in provisions for loan losses and a change in provisions (reversal) for credit losses of unused loan commitments.

Our provisions for loan losses increased 43.2% from ￦657 billion in 2019 to ￦941 billion in 2020, mainly due to increases in provisions in respect of our corporate loans and, to a lesser extent, our retail loans. Such increases resulted primarily from our preemptive measures to account for a potential increase in expected loan losses that could result from a deterioration in the overall asset quality of our corporate and retail loan portfolios due to COVID-19, as well as an increase in the volumes of such corporate and retail loans. Such increases were offset in part by a decrease in provision for loan losses in respect of our credit card receivables, which resulted from an improvement in the overall asset quality of our credit card receivables. Our loan write-offs increased

138

8.1% from ￦1,189 billion in 2019 to ￦1,285 billion in 2020, primarily due to an increase in write-offs of corporate loans.

Provision (reversal) for credit losses of unused loan commitments changed from a reversal of ￦3 billion in 2019 to a provision of ￦90 billion in 2020, due mainly to our preemptive measures to account for a potential increase in expected credit losses for borrowers severely impacted by COVID-19.

Comparison of 2019 to 2018

Our provision for credit losses decreased slightly from ￦674 billion in 2018 to ￦670 billion in 2019, primarily due to decreases in provisions for loan losses in respect of our corporate loans and, to a lesser extent, our credit card receivables. Such decreases resulted mainly from an improvement in the overall asset quality of our corporate loan portfolio and credit card receivables. Such decreases were offset in part by an increase in provision for loan losses in respect of our retail loans, which resulted primarily from our preemptive measures to account for a potential increase in expected loan losses that could result from a deterioration in the overall asset quality of our retail loan portfolio, as well as an increase in the volume of such loans.

Our write-offs increased 10.1% from ￦1,079 billion in 2018 to ￦1,188 billion in 2019, primarily due to increases in write-offs of retail loans and credit card receivables.

Our reversal of provision for payment guarantees and unused loan commitments decreased 90.9% from ￦11 billion in 2018 to ￦1 billion in 2019, due mainly to a change in provision for payment guarantees from a reversal of provision of ￦26 billion in 2018 to a provision of ￦2 billion in 2019.

Allowances for Loan Losses

We establish allowances for loan losses with respect to loans to absorb such losses. We assess individually significant loans on a case-by-case basis and other loans on a collective basis. For further information on allowances for loan losses, see “—Critical Accounting Policies—Impairment of Loans and Allowances for Loan Losses” and “Item 4.B. Business Overview—Assets and Liabilities—Loan Portfolio—Allocation and Analysis of Allowances for Loan Losses.”

Corporate Loans. The following table shows, for the periods indicated, certain information regarding our impaired corporate loans:


	As of December 31,
	2018			2019			2020
Impaired corporate loans as a percentage of total corporate loans		0.8	%		0.5	%		1.2	%
Allowances for loan losses for corporate loans as a percentage of total corporate loans		0.9			0.6			0.9
Allowances for loan losses for corporate loans as a percentage of impaired corporate loans		110.0			116.3			76.4
Net charge-offs of corporate loans as a percentage of total corporate loans		0.0			0.1			0.1

During 2020, both impaired corporate loans and allowances for loan losses for corporate loans, as a percentage of total corporate loans, increased primarily due to an increase in our impaired corporate loans, which mainly reflected our preemptive measures to account for a potential increase in expected loan losses that could result from a deterioration in the overall asset quality of our corporate loan portfolio due to COVID-19. Such increase in our impaired corporate loans outpaced an increase in allowances for loan losses for corporate loans, which caused the level of allowances for loan losses for corporate loans as a percentage of impaired corporate loans to decrease during 2020.

139

During 2019, both impaired corporate loans and allowances for loan losses for corporate loans, as a percentage of total corporate loans, decreased primarily due to a decrease in our impaired corporate loans, which mainly reflected our efforts to improve the asset quality of our corporate loan portfolio, as well as an increase in our total corporate loans. Such decrease in our impaired corporate loans outpaced a decrease in allowances for loan losses for corporate loans, which caused the level of allowances for loan losses for corporate loans as a percentage of impaired corporate loans to increase during 2019.

Retail Loans. The following table shows, for the periods indicated, certain information regarding our impaired retail loans:


	As of December 31,
	2018			2019			2020
Impaired retail loans as a percentage of total retail loans		0.3	%		0.4	%		0.4	%
Allowances for loan losses for retail loans as a percentage of total retail loans		0.4			0.4			0.5
Allowances for loan losses for retail loans as a percentage of impaired retail loans		119.9			117.8			124.4
Net charge-offs of retail loans as a percentage of total retail loans		0.2			0.2			0.2

During 2020, impaired retail loans as a percentage of total retail loans remained stable, as our impaired retail loans and our total retail loans similarly increased. Allowances for loan losses for retail loans as a percentage of both total retail loans and impaired retail loans increased during 2020, reflecting a rate of increase in allowances for loan losses for retail loans, due primarily to COVID-19, that outpaced the rate of increase of both total retail loans and impaired retail loans.

During 2019, impaired retail loans as a percentage of total retail loans increased as the rate of increase in our impaired retail loans, which reflected our preemptive measures to account for a potential increase in expected loan losses that could result from a deterioration in the overall asset quality of our retail loan portfolio, outpaced the rate of increase in the amount of our total retail loans. Allowances for loan losses for retail loans as a percentage of total retail loans remained constant, while allowances for loan losses for retail loans as a percentage of impaired retail loans decreased during 2019, reflecting a rate of increase in impaired retail loans that outpaced the rate of increase in allowances for loan losses for retail loans.

Credit Card Balances. The following table shows, for the periods indicated, certain information regarding our impaired credit card balances:


	As of December 31,
	2018			2019			2020
Impaired credit card balances as a percentage of total credit card balances		2.4	%		2.5	%		2.7	%
Allowances for loan losses for credit card balances as a percentage of total credit card balances		4.1			4.0			3.7
Allowances for loan losses for credit card balances as a percentage of impaired credit card balances		169.5			155.9			138.5
Net charge-offs as a percentage of total credit card balances		1.9			2.0			2.0

During 2020, impaired credit card balances as a percentage of total credit card balances increased as the rate of increase of our impaired credit card balances outpaced the rate of increase of our total credit card balances. Allowances for loan losses for credit card balances as a percentage of both total credit card balances and impaired credit card balances decreased during 2020, reflecting increases in our total credit card balances and impaired credit card balances and a decrease in allowances for loan losses for credit card balances.

During 2019, impaired credit card balances as a percentage of total credit card balances increased as the rate of increase in our impaired credit card balances outpaced the rate of increase in the amount of our total credit

140

card balances. Allowances for loan losses for credit card balances as a percentage of both total credit card balances and impaired credit card balances decreased during 2019, primarily as a result of an improvement in the asset quality of our existing impaired credit card balances.

Net Fee and Commission Income

The following table shows, for the periods indicated, the components of our net fee and commission income:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Fee and commission income	￦	3,718		￦	3,879		￦	4,527			4.3	%		16.7	%
Fee and commission expense		(1,474	)		(1,524	)		(1,568	)		3.4			2.9

Net fee and commission income	￦	2,243		￦	2,355		￦	2,959			5.0			25.6

Comparison of 2020 to 2019

Our net fee and commission income increased 25.6% from ￦2,355 billion in 2019 to ￦2,959 billion in 2020, due to a 16.7% increase in fee and commission income from ￦3,879 billion in 2019 to ￦4,527 billion in 2020, which was offset in part by a 2.9% increase in fee and commission expense from ￦1,524 billion in 2019 to ￦1,568 billion in 2020.

The 16.7% increase in fee and commission income was primarily due to a 77.8% increase in commissions received on securities business from ￦446 billion in 2019 to ￦793 billion in 2020, which was enhanced by a 48.6% increase in lease fees received from ￦428 billion in 2019 to ￦636 billion in 2020. The increase in commissions received on securities business mainly reflected an increase in the volume of commission-generating securities instruments sold by KB Securities, and the increase in commissions received on lease fees was principally as a result of an increase in automobile lease fees received by KB Capital.

The 2.9% increase in fee and commission expense was principally attributable to a 10.8% increase in other fees paid from ￦344 billion in 2019 to ￦381 billion in 2020, a 14.2% increase in outsourcing related fees paid from ￦190 billion in 2019 to ￦217 billion in 2020 and, to a lesser extent, a 31.0% increase in trading activity related fees paid from ￦29 billion in 2019 to ￦38 billion in 2020, which were offset in part by a 4.8% decrease in credit and debit card related fees and commissions paid from ￦892 billion in 2019 to ￦849 billion in 2020. The increase in other fees paid was mainly due to an increase in other miscellaneous fees paid by KB Insurance and KB Capital, the increase in outsourcing related fees paid mainly reflected an increase in advisory and consulting fees relating to various acquisitions paid by us and Kookmin Bank, and the increase in trading activity related fees paid was primarily attributable to an increase in the volume of transactions conducted by KB Securities. The decrease in credit and debit card related fees paid was mainly driven by a decrease in fees paid in connection with sales agents’ marketing activities due to COVID-19, which led to a decline in face-to-face meetings between sales agents and potential customers.

Comparison of 2019 to 2018

Our net fee and commission income increased 5.0% from ￦2,243 billion in 2018 to ￦2,355 billion in 2019, due to a 4.3% increase in fee and commission income from ￦3,718 billion in 2018 to ￦3,879 billion in 2019, which was offset in part by a 3.4% increase in fee and commission expense from ￦1,474 billion in 2018 to ￦1,524 billion in 2019.

The 4.3% increase in fee and commission income was primarily due to a 73.3% increase in lease fees received from ￦247 billion in 2018 to ￦428 billion in 2019. The increase in lease fees received mainly reflected

141

an increase in automobile rental fees received by KB Capital. Such increase in lease fees received was partially offset by a 13.9% decrease in commissions received on securities business from ￦518 billion in 2018 to ￦446 billion in 2019, principally as a result of a decrease in the volume of commission-generating securities instruments sold by KB Securities.

The 3.4% increase in fee and commission expense was principally attributable to a 15.2% increase in outsourcing related fees paid from ￦165 billion in 2018 to ￦190 billion in 2019. The increase in outsourcing related fees paid mainly reflected consulting and other miscellaneous fees paid by Kookmin Bank and KB Capital. Such increase in outsourcing related fees paid was partially offset by a 1.8% decrease in credit and debit card related fees and commissions paid from ￦908 billion in 2018 to ￦892 billion in 2019, principally as a result of a decrease in fees paid to value-added network providers, reflecting the decreased use of debit cards.

For further information regarding our net fee and commission income, see Note 29 of the notes to our consolidated financial statements included elsewhere in this annual report.

Net Insurance Income

The following table shows, for the periods indicated, the components of our net insurance income:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Insurance income	￦	11,975		￦	12,317		￦	14,387			2.9	%		16.8	%
Insurance expense		(11,485	)		(12,018	)		(14,087	)		4.6			17.2

Net insurance income	￦	490		￦	300		￦	300			(38.8	)		0.0

Comparison of 2020 to 2019

Our net insurance income remained stable at ￦300 billion in 2019 and 2020. A 16.8% increase in insurance income from ￦12,317 billion in 2019 to ￦14,387 billion in 2020 was offset by a 17.2% increase in insurance expense from ￦12,018 billion in 2019 to ￦14,087 billion in 2020.

The increase in insurance income was mainly due to a 15.2% increase in premium income from ￦11,173 billion in 2019 to ￦12,873 billion in 2020, which was enhanced by a significant increase in income from change in reinsurance assets from ￦42 billion in 2019 to ￦468 billion in 2020. Such increases were principally as a result of an increase in the number of new insurance products sold by KB Life Insurance and KB Insurance, as well as the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020.

The increase in insurance expense was principally attributable to a 75.2% increase in provision of policy reserves from ￦1,547 billion in 2019 to ￦2,710 billion in 2020, which was enhanced by a 14.5% increase in refunds of surrender value paid from ￦2,871 billion in 2019 to ￦3,286 billion in 2020 and a 4.3% increase in insurance claims paid from ￦5,047 billion in 2019 to ￦5,265 billion in 2020. Such increases were mainly due to an increase in the number of new insurance products sold by KB Insurance and KB Life Insurance.

Comparison of 2019 to 2018

Our net insurance income decreased 38.8% from ￦490 billion in 2018 to ￦300 billion in 2019, primarily due to a 4.6% increase in insurance expense from ￦11,485 billion in 2018 to ￦12,018 billion in 2019, which outpaced a 2.9% increase in insurance income from ￦11,975 billion in 2018 to ￦12,317 billion in 2019.

The increase in insurance expense was principally attributable to a 14.3% increase in insurance claims paid from ￦4,416 billion in 2018 to ￦5,047 billion in 2019, primarily due to an increase in the number of life

142

insurance products sold by KB Life Insurance, as well as an increase in payments on surrenders and withdrawals made by KB Life Insurance. Such increase in insurance claims paid was offset in part by a 49.3% decrease in separate account expenses from ￦276 billion in 2018 to ￦140 billion in 2019, mainly due to decreases in separate account management fees and other expenses on products that provide fixed-level benefits paid by KB Life Insurance.

The increase in insurance income was mainly due to a 4.1% increase in premium income from ￦10,730 billion in 2018 to ￦11,173 billion in 2019, principally as a result of an increase in the number of life insurance products sold by KB Life Insurance in 2019. Such increase in premium income was partially offset by a decrease in separate account income from ￦361 billion in 2018 to ￦216 billion in 2019, primarily due to decreases in interest income, investment income and other income on retirement pension products that provide fixed-level benefits received by KB Life Insurance.

Net Gain on Financial Assets and Liabilities at Fair Value through Profit or Loss

The following table shows, for the periods indicated, the components of our net gain on financial assets and liabilities at fair value through profit or loss:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Net gain on financial assets at fair value through profit or loss	￦	790		￦	974		￦	1,302			23.3	%		33.7	%
Net gain (loss) on derivatives held-for-trading		(283	)		1,116			323			N/M	⁽¹⁾		(71.1	)
Net loss on financial liabilities at fair value through profit or loss		(62	)		(48	)		(125	)		(22.6	)		160.4
Net loss on financial instruments designated at fair value through profit or loss		(93	)		(1,398	)		(489	)		N/M	⁽¹⁾		(65.0	)

Net gain on financial assets and liabilities at fair value through profit or loss		￦ 352		￦	644		￦	1,011			83.0			57.0

⁽¹⁾

“N/M” means not meaningful.

⁽²⁾

“N/A” means not applicable.

Comparison of 2020 to 2019

Our net gain on financial assets and liabilities at fair value through profit or loss increased 57.0% from ￦644 billion in 2019 to ￦1,011 billion in 2020. Such increase was primarily attributable to a decrease in net loss on financial instruments designated at fair value through profit or loss and an increase in net gain on financial assets at fair value through profit or loss, the effects of which were partially offset by a decrease in net gain on derivatives held-for-trading.

•

Our net loss on financial instruments designated at fair value through profit or loss decreased 65.0% from ￦1,398 billion in 2019 to ￦489 billion in 2020 as a result of a decrease in net losses from financial liabilities designated at fair value through profit or loss. Such decrease was primarily attributable to a 41.5% decrease in losses from financial liabilities designated at fair value through profit or loss from ￦1,954 billion in 2019 to ￦1,143 billion in 2020.

•

Our net gain on financial assets at fair value through profit or loss increased 33.7% from ￦974 billion in 2019 to ￦1,302 billion in 2020, due to a 148.7% increase in net gain on equity securities held for trading from ￦113 billion in 2019 to ￦281 billion in 2020 and an 18.6% increase in net gain on debt securities held for trading from ￦861 billion in 2019 to ￦1,021 billion in 2020.

143

•

Our net gain on derivatives held-for-trading decreased 71.1% from ￦1,116 billion in 2019 to ￦323 billion in 2020, primarily due to a 75.7% decrease in net revenue from stock or stock index derivatives held-for-trading from ￦1,027 billion in 2019 to ￦250 billion in 2020.

Comparison of 2019 to 2018

Our net gain on financial assets and liabilities at fair value through profit or loss increased 83.0% from ￦352 billion in 2018 to ￦644 billion in 2019. Such increase was attributable to a change in net gain (loss) on derivatives held-for-trading from a net loss to a net gain and an increase in net gain on financial assets at fair value through profit or loss, the effects of which were partially offset by a more than fourteen-fold increase in net loss on financial instruments designated at fair value through profit or loss.

•

Our net gain (loss) on derivatives held-for-trading changed from a net loss of ￦283 billion in 2018 to a net gain of ￦1,116 billion in 2019, mainly as a result of a change in net gain (loss) on stock or stock index derivatives held-for-trading from a net loss of ￦243 billion in 2018 to a net gain of ￦1,027 billion in 2019.

•

Our net gain on financial assets at fair value through profit or loss increased 23.3% from ￦790 billion in 2018 to ￦974 billion in 2019, principally due to a 23.9% increase in net gain on debt securities held for trading from ￦695 billion in 2018 to ￦861 billion in 2019.

•

Our net loss on financial instruments designated at fair value through profit or loss increased more than fourteen-fold from ￦93 billion in 2018 to ￦1,398 billion in 2019, mainly as a result of a 156.8% increase in net loss on financial liabilities designated at fair value through profit or loss from ￦761 billion in 2018 to ￦1,954 billion in 2019.

For further information regarding our net gain on financial assets and liabilities at fair value through profit or loss, see Note 30 of the notes to our consolidated financial statements included elsewhere in this annual report.

General and Administrative Expenses

The following table shows, for the periods indicated, the components of our general and administrative expenses:


	Year Ended December 31,						Percentage Change
	2018		2019		2020		2019/2018			2020/2019
	(in billions of Won)						(%)
Employee compensation and benefits	￦	3,874	￦	3,955	￦	4,343		2.1	%		9.8	%
Depreciation and amortization		409		784		875		91.7			11.6
Other general and administrative expenses		1,635		1,531		1,615		(6.4	)		5.5

General and administrative expenses	￦	5,919	￦	6,271	￦	6,833		5.9			9.0

Comparison of 2020 to 2019

Our general and administrative expenses increased 9.0% from ￦6,271 billion in 2019 to ￦6,833 billion in 2020, primarily as a result of a 9.8% increase in employee compensation and benefits expenses from ￦3,955 billion in 2019 to ￦4,343 billion in 2020, which was enhanced by an 11.6% increase in depreciation and amortization expenses from ￦784 billion in 2019 to ￦875 billion in 2020 and a 5.5% increase in other general and administrative expenses from ￦1,531 billion in 2019 to ￦1,615 billion in 2020.

The increase in employee compensation and benefits was attributable mainly to a 9.0% increase in salaries from ￦2,558 billion in 2019 to ￦2,789 billion in 2020, which was primarily due to an increase in the number of employees due to the acquisitions of PRASAC Microfinance Institution Limited, Prudential Life Insurance and

144

Bank Bukopin. Such increase was enhanced by a 50.4% increase in termination benefits from ￦240 billion in 2019 to ￦361 billion in 2020, mainly due to our implementation of an early retirement program in December 2020, and, to a lesser extent, a 2.7% increase in other employee benefits from ￦848 billion in 2019 to ￦871 billion in 2020, which was primarily driven by an increase in performance-based compensation paid to our employees in 2020.

The increase in depreciation and amortization expenses was primarily due to the completion of the construction of a second headquarters building for Kookmin Bank in August 2020.

The increase in other general and administrative expenses was attributable mainly to an 8.9% increase in electronic data processing expenses from ￦258 billion in 2019 to ￦281 billion in 2020 and an 8.8% increase in tax and dues from ￦239 billion in 2019 to ￦260 billion in 2020. Such increases were enhanced by a 4.8% increase in service fees from ￦228 billion in 2019 to ￦239 billion in 2020. Such increases were partially offset by a 42.9% decrease in travel expenses from ￦21 billion in 2019 to ￦12 billion in 2020.

Comparison of 2019 to 2018

Our general and administrative expenses increased 5.9% from ￦5,919 billion in 2018 to ￦6,271 billion in 2019, primarily as a result of a 91.7% increase in depreciation and amortization expenses from ￦409 billion in 2018 to ￦784 billion in 2019, which was offset in part by a 6.4% decrease in other general and administrative expenses from ￦1,635 billion in 2018 to ￦1,531 billion in 2019.

The increase in depreciation and amortization expenses was attributable mainly to an increase in depreciation and amortization expenses related to our right-of-use assets pursuant to our adoption of IFRS 16. For additional information regarding IFRS 16 and the impact of its application to our consolidated financial statements, see Notes 2.1 of the notes to our consolidated financial statements.

The decrease in other general and administrative expenses was attributable mainly to a 69.5% decrease in rental expenses from ￦361 billion in 2018 to ￦110 billion in 2019, which was primarily due to our adoption of IFRS 16, as discussed above.

Net Other Operating Expenses

The following table shows, for the periods indicated, the components of our net other operating expenses:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Other operating income	￦	2,127		￦	2,864		￦	4,757			34.6	%		66.1	%
Other operating expenses		(3,257	)		(3,927	)		(6,257	)		20.6			59.3

Net other operating expenses	￦	(1,130	)	￦	(1,063	)	￦	(1,500	)		(5.9	)		41.1

Comparison of 2020 to 2019

Our net other operating expenses increased 41.1% from ￦1,063 billion in 2019 to ￦1,500 billion in 2020, as a 59.3% increase in other operating expenses from ￦3,927 billion in 2019 to ￦6,257 billion in 2020 outpaced a 66.1% increase in other operating income from ￦2,864 billion in 2019 to ￦4,757 billion in 2020.

Other operating expenses include principally loss on foreign exchange transactions, losses related to financial assets at amortized cost, losses related to financial instruments at fair value through other comprehensive income and other expenses. The 59.3% increase in other operating expense was mainly the result

145

of a 79.2% increase in losses on foreign exchange transactions from ￦1,970 billion in 2019 to ￦3,531 billion in 2020, which was enhanced by a 39.8% increase in other operating expenses from ￦1,920 billion in 2019 to ￦2,684 billion in 2020. The increase in losses on foreign exchange transactions, which was primarily due to higher exchange rate volatility, was partially offset by an increase in gain on foreign exchange transactions, which is recorded as part of other operating income. On a net basis, our net gains on foreign exchange transactions decreased 51.4% from ￦214 billion in 2019 to ￦104 billion in 2020.

Other operating income includes principally gain on foreign exchange transactions, gain on sale of financial assets at fair value through other comprehensive income and other income. The 66.1% increase in other operating income was primarily attributable to a 66.4% increase in gain on foreign exchange transactions from ￦2,184 billion in 2019 to ￦3,635 billion in 2020. The increase in gain on foreign exchange transactions, which was mainly the result of increased exchange rate volatility, was more than offset by an increase in loss on foreign exchange transactions, which is recorded as part of other operating expenses as discussed above.

Comparison of 2019 to 2018

Our net other operating expenses decreased 5.9% from ￦1,130 billion in 2018 to ￦1,063 billion in 2019 as a 34.6% increase in other operating income from ￦2,127 billion in 2018 to ￦2,864 billion in 2019 outpaced a 20.6% increase in other operating expenses from ￦3,257 billion in 2018 to ￦3,927 billion in 2019.

The 34.6% increase in other operating income was primarily attributable to a 36.5% increase in gain on foreign exchange transactions from ￦1,600 billion in 2018 to ￦2,184 billion in 2019. The increase in gain on foreign exchange transactions, which was mainly the result of increased exchange rate volatility, was partially offset by an increase in loss on foreign exchange transactions, which is recorded as part of other operating expenses. On a net basis, our net gain on foreign exchange transactions increased 256.7% from ￦60 billion in 2018 to ￦214 billion in 2019.

The 20.6% increase in other operating expense was mainly the result of a 27.9% increase in loss on foreign exchange transactions from ￦1,540 billion in 2018 to ￦1,970 billion in 2019. The increase in loss on foreign exchange transactions, which was primarily due to an increase in the volume of our foreign currency transactions, was more than offset by an increase in gain on foreign exchange transactions, which is recorded as part of other operating income as discussed above.

For further information regarding our net other operating expenses, see Note 31 of the notes to our consolidated financial statements included elsewhere in this annual report.

Net Non-operating Income

The following table shows, for the periods indicated, the components of our net non-operating income:


	Year Ended December 31,							Percentage Change
	2018		2019		2020			2019/2018			2020/2019
	(in billions of Won)							(%)
Share of profit (losses) of associates	￦	24	￦	16	￦	(44	)		(33.3	)%		(375.0	)%
Net other non-operating income		10		27		189			170.0			600.0

Net non-operating income	￦	34	￦	43	￦	146			26.5			239.5

Comparison of 2020 to 2019

Our net non-operating income increased 239.5% from ￦43 billion in 2019 to ￦146 billion in 2020, primarily as a result of a 600.0% increase in net other non-operating income from ￦27 billion in 2019 to ￦189 billion in 2020, which was partially offset by a change in share of profit (losses) of associates from a net profit of ￦16 billion in 2019 to a net loss of ￦44 billion in 2020.

146

The 600.0% increase in net other non-operating income was attributable to a 123.0% increase in other non-operating income from ￦209 billion in 2019 to ￦466 billion in 2020, which was partly offset by a 52.2% increase in other non-operating expenses from ￦182 billion in 2019 to ￦277 billion in 2020. The increase in other non-operating income was mainly due to a gain on bargain purchase of ￦145 billion recognized in connection with the acquisition of Prudential Life Insurance in 2020. Such increase was enhanced by a 208.3% increase in gain on disposal of property and equipment from ￦36 billion in 2019 to ￦111 billion in 2020. The increase in other non-operating expenses primarily reflected a 121.5% increase in other expenses, which was mainly attributable to an increase in provisions in connection with certain litigations involving KB Securities.

The 375.0% decrease in share of profit of associates was primarily due to a decrease in profits of equity-method investees of Kookmin Bank.

Comparison of 2019 to 2018

Our net non-operating income increased 26.5% from ￦34 billion in 2018 to ￦43 billion in 2019, primarily as a result of a 170.0% increase in net other non-operating income from ￦10 billion in 2018 to ￦27 billion in 2019, which was partially offset by a 33.3% decrease in share of profit of associates from ￦24 billion in 2018 to ￦16 billion in 2019.

The 170.0% increase in net other non-operating income was attributable mainly to a 22.9% decrease in other non-operating expenses from ￦236 billion in 2018 to ￦182 billion in 2019, which was partially offset by a 14.7% decrease in other non-operating income from ￦245 billion in 2018 to ￦209 billion in 2019. The decrease in other non-operating expenses primarily reflected a 20.8% decrease in donations from ￦130 billion in 2018 to ￦103 billion in 2019. The decrease in other non-operating income primarily reflected a 97.5% decrease in profit on disposal of non-current assets held for sale, which was mainly attributable to the recognition of a gain on disposal of Kookmin Bank’s former headquarters building in Seoul in 2018, which was not repeated in 2019.

The 33.3% decrease in share of profit of associates was primarily due to a decrease in profits of equity-method investees of Kookmin Bank.

Income Tax Expense (Benefit)

Our income tax expense is calculated by adding or subtracting changes in deferred income tax liabilities and assets to income tax amounts payable for the period. Deferred income tax assets are recognized for deductible temporary differences, unused tax losses and unused tax credits, while deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are those between the carrying values of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred income tax assets, including unused tax losses and credits, are recognized only to the extent it is probable that sufficient taxable profit will be available against which such deferred income tax assets can be utilized. See “—Critical Accounting Policies—Deferred Income Tax Assets.”

Comparison of 2020 to 2019

Income tax expense increased 3.2% from ￦1,221 billion in 2019 to ￦1,260 billion in 2020, due to a 9.5% increase in tax payable from ￦992 billion in 2019 to ￦1,086 billion in 2020 and a 12.9% increase in changes in deferred income tax assets (liabilities) from ￦286 billion in 2019 to ￦323 billion in 2020, which were partially offset by a 163.2% increase in income tax recognized directly in equity and others from ￦57 billion in 2019 to ￦150 billion in 2020. The increase in tax payable was due to a 5.4% increase in current tax expense from ￦1,043 billion in 2019 to ￦1,099 billion in 2020, which resulted from the increase in our profit before income tax, as well as a 74.5% decrease in adjustments recognized in the period for the current tax of prior years from ￦51 billion in 2019 to ￦13 billion in 2020. The increase in income tax recognized directly in equity and others was primarily attributable to a 584.6% increase in net losses on financial instruments at fair value through other comprehensive income from ￦13 billion in 2019 to ￦89 billion in 2020. Our effective tax rate was 26.4% in 2020 compared to 26.9% in 2019.

147

Comparison of 2019 to 2018

Income tax expense decreased 1.5% from ￦1,240 billion in 2018 to ￦1,221 billion in 2019, primarily due to the effect of a change in adjustments recognized in 2019 for current tax of prior years from an expense of ￦23 billion in 2018 to a benefit of ￦51 billion in 2019 and an increase in income tax expense recognized directly in equity relating to net overlay adjustments from ￦1 billion in 2018 to ￦73 billion in 2019, which were partially offset by a 5.4% increase in our profit before income tax from 2018 to 2019 and a 150.9% increase in expenses relating to the effect of changes in deferred income tax assets and liabilities from ￦114 billion in 2018 to ￦286 billion in 2019. Our effective tax rate was 26.9% in 2019 compared to 28.8% in 2018.

See Note 34 of the notes to our consolidated financial statements included elsewhere in this annual report.

Profit for the Year

As a result of the factors described above, our profit for the year was ￦3,502 billion in 2020, compared to ￦3,313 billion in 2019 and ￦3,062 billion in 2018.

Results by Principal Business Segment

We compile and analyze financial information for our business segments based upon segment information used by our management for the purposes of resource allocation and performance evaluation. We are organized into seven major business segments: retail banking operations, corporate banking operations, other banking operations, credit card operations, investment and securities operations, life insurance operations and non-life insurance operations.

The following table shows, for the periods indicated, our results of operations by segment:


	Profit ⁽¹⁾ for the Year Ended December 31,						Total Operating Revenue ⁽²⁾ for the Year Ended December 31,
	2018		2019		2020		2018		2019		2020
	(in billions of Won)
Retail banking operations	￦	609	￦	552	￦	421	￦	2,989	￦	2,980	￦	2,919
Corporate banking operations		1,012		1,060		918		2,319		2,376		2,834
Other banking operations		638		827		980		1,271		1,591		1,798
Credit card operations		287		317		324		1,525		1,471		1,538
Investment and securities operations		179		258		426		998		1,113		1,448
Life insurance operations		15		16		33		113		107		237
Non-life insurance operations		262		235		164		1,183		1,186		1,027
Other		128		182		406		461		608		691

Total ⁽³⁾	￦	3,130	￦	3,447	￦	3,672	￦	10,859	￦	11,432	￦	12,492

⁽¹⁾	After deduction of income tax allocated to each segment. See Note 5 of the notes to our consolidated financial statements.

⁽²⁾	Represents operating revenue from external customers. See Note 5 of the notes to our consolidated financial statements.

⁽³⁾	Prior to adjustments for consolidation, inter-segment transactions and certain differences in classification under our management reporting system.

Our other banking operations, which include treasury activities, provide funding to our retail banking operations and corporate banking operations and receive funds procured through the financing activities of such segments, such as deposit-taking activities. When our retail banking operations or corporate banking operations engage in an investing activity, such as lending, the relevant amount is recognized as an inter-segment borrowing from the other banking operations. When our retail banking operations or corporate banking operations engage in a financing activity, such as deposit-taking, the relevant amount is recognized as an inter-segment lending to the other banking operations (or as a reduction in inter-segment borrowings from the other banking operations).

148

Generally, for our retail banking operations, the amounts procured from financing activities are greater than the amounts used in investing activities, whereas for our corporate banking operations, the amounts used in investing activities are greater than the amounts procured from financing activities. The cost of borrowing from the other banking operations is calculated by multiplying the average balance of the amounts used in investing activities by the applicable internal funding rate on such inter-segment borrowings, whereas the income from lending to the other banking operations is calculated by multiplying the average balance of the amounts procured from financing activities by the applicable internal funding rate on such inter-segment lendings. The applicable internal funding rates on inter-segment borrowings tend to be generally higher than the applicable internal funding rates on inter-segment lendings, primarily due to the difference in the maturity structure of interest rates on the amounts used in investing activities and the amounts procured from financing activities. The cost of borrowing from the other banking operations is offset by the income from lending to the other banking operations, and the difference is recorded as expenses related to inter-segment borrowings, within net other operating expenses, for our retail banking operations and corporate banking operations, while a corresponding amount is recorded as income from inter-segment lending, within net other operating income, for our other banking operations.

Retail Banking Operations

This segment consists of retail banking services provided by Kookmin Bank. The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Income statement data
Interest income	￦	4,548		￦	4,873		￦	4,520			7.1	%		(7.2	)%
Interest expense		(1,587	)		(1,725	)		(1,341	)		8.7			(22.3	)
Net fee and commission income		490			472			407			(3.7	)		(13.8	)
Net other operating expense		(462	)		(640	)		(666	)		38.5			4.1
General and administrative expenses		(1,970	)		(1,982	)		(2,073	)		0.6			4.6
Reversal of (provision for) credit losses		(179	)		(236	)		(265	)		31.8			12.3

Profit before income tax		840			761			581			(9.4	)		(23.7	)
Tax expense		(231	)		(209	)		(160	)		(9.5	)		(23.4	)

Profit for the year	￦	609		￦	552		￦	421			(9.4	)		(23.7	)

Comparison of 2020 to 2019

Our profit before income tax for this segment decreased 23.7% from ￦761 billion in 2019 to ￦581 billion in 2020.

Interest income from our retail banking operations decreased 7.2% from ￦4,873 billion in 2019 to ￦4,520 billion in 2020. This decrease was mainly due to decreases in the average yields on mortgage loans, other consumer loans and home equity loans, the effects of which were enhanced by a decrease in the average volume of home equity loans and partially offset by increases in the average volumes of mortgage loans and other consumer loans from 2019 to 2020.

Interest expense for this segment decreased 22.3% from ￦1,725 billion in 2019 to ￦1,341 billion in 2020. Our largest and most important funding source is deposits from retail customers, which represent more than half of our total deposits. The decrease in interest expense for this segment was mainly due to decreases in the average costs on demand deposits, time deposits and certificates of deposit, the effects of which were enhanced by a decrease in the average volume of certificates of deposit and partially offset by increases in the average volumes of demand deposits and time deposits.

149

Net fee and commission income attributable to this segment decreased 13.8% from ￦472 billion in 2019 to ￦407 billion in 2020, mainly due to a decrease in fees received from specified money trusts.

Net other operating expense attributable to this segment increased 4.1% from ￦640 billion in 2019 to ￦666 billion in 2020, mainly as a result of increases in expenses related to inter-segment borrowings and foreign currency trading, which were partially offset by an increase in gains from the sale of loans.

General and administrative expenses attributable to this segment increased 4.6% from ￦1,982 billion in 2019 to ￦2,073 billion in 2020, primarily due to an increase in common administrative expenses allocated to the retail banking segment, the effects of which were offset in part by decreases in business promotion expenses and employee compensation and benefits.

Provision for credit losses increased 12.3% from ￦236 billion in 2019 to ￦265 billion in 2020, mainly due to increases in provisions for credit losses of retail loans and unused retail loan commitments, resulting from an increase in retail loans and additional provisions due to COVID-19.

Comparison of 2019 to 2018

Our profit before income tax for this segment decreased 9.4% from ￦840 billion in 2018 to ￦761 billion in 2019.

Interest income from our retail banking operations increased 7.1% from ￦4,548 billion in 2018 to ￦4,873 billion in 2019. This increase was principally due to increases in the average volume of mortgage loans and other consumer loans, mainly reflecting higher demand for such loans, the effect of which was enhanced by an increase in the average yields on mortgage loans and partially offset by a decrease in the average yields on other consumer loans from 2018 to 2019.

Interest expense for this segment increased 8.7% from ￦1,587 billion in 2018 to ￦1,725 billion in 2019. This increase was mainly due to an increase in the average volume of time deposits held by retail customers, mainly reflecting higher demands for such deposits, which was enhanced by an increase in the average cost of such deposits.

Net fee and commission income attributable to this segment decreased 3.7% from ￦490 billion in 2018 to ￦472 billion in 2019, mainly due to a decrease in beneficiary certificate sales commission fees received and an increase in ATM-related fees paid.

Net other operating expense attributable to this segment increased 38.5% from ￦462 billion in 2018 to ￦640 billion in 2019, mainly as a result of an increase in expenses related to inter-segment borrowings. While the higher interest rate environment in Korea in 2019 led to increases in the internal funding rates applicable to both inter-segment borrowings and lendings from 2018 to 2019, the increase in the cost of inter-segment borrowings was higher than the increase in the yield of inter-segment lendings, leading to an increase in expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment increased 0.6% from ￦1,970 billion in 2018 to ￦1,982 billion in 2019, primarily due to increases in expenses related to right-of-use assets pursuant to our adoption of IFRS 16 and common administrative expenses shared among the banking-related segments, the effects of which were offset in part by a decrease in rental expenses pursuant to our adoption of IFRS 16.

Provision for credit losses increased 31.8% from ￦179 billion in 2018 to ￦236 billion in 2019, mainly due to an increase in the outstanding volume of our retail loans, as well as our preemptive measures to account for a potential increase in expected credit losses that could result from an overall deterioration in the asset quality of such loans.

150

Corporate Banking Operations

This segment consists of corporate banking services provided by Kookmin Bank. The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Income statement data
Interest income	￦	4,268		￦	4,643		￦	4,900			8.8	%		5.5	%
Interest expense		(1,514	)		(1,798	)		(1,662	)		18.8			(7.6	)
Net fee and commission income		288			349			363			21.2			4.0
Net gain (loss) from financial assets and liabilities at fair value through profit or loss		14			(3	)		(52	)		N/M	⁽¹⁾		N/M	⁽¹⁾
Net other operating expense		(642	)		(611	)		(537	)		(4.8	)		(12.1	)
General and administrative expenses		(1,092	)		(1,242	)		(1,555	)		13.7			25.2
Reversal of (provision for) credit losses		77			126			(204	)		63.6			N/M	⁽¹⁾
Net other non-operating revenue		—			—			5			N/A	⁽²⁾		N/A	⁽²⁾

Profit before income tax		1,399			1,464			1,258			4.6			(14.1	)
Tax expense		(387	)		(404	)		(340	)		4.4			(15.8	)

Profit for the year	￦	1,012		￦	1,060		￦	918			4.7			(13.4	)

⁽¹⁾

“N/M” means not meaningful.

⁽²⁾

“N/A” means not applicable.

Comparison of 2020 to 2019

Our profit before income tax for this segment decreased 14.1% from ￦1,464 billion in 2019 to ￦1,258 billion in 2020.

Interest income from our corporate banking operations increased 5.5% from ￦4,643 billion in 2019 to ￦4,900 billion in 2020. This increase was principally due to the additions of PRASAC Microfinance Institution Limited and Bank Bukopin as subsidiaries of Kookmin Bank in 2020, the effects of which were enhanced by an increase in the average volume of corporate loans of Kookmin Bank and partially offset by a decrease in the average yields on such loans from 2019 to 2020.

Interest expense for this segment decreased 7.6% from ￦1,798 billion in 2019 to ￦1,662 billion in 2020. This decrease was principally due to a decrease in the average cost of deposits held by corporate customers of Kookmin Bank from 2019 to 2020, which was partially offset by an increase in the average volume of such deposits and the additions of PRASAC Microfinance Institution Limited and Bank Bukopin as subsidiaries of Kookmin Bank in 2020.

Net fee and commission income attributable to this segment increased 4.0% from ￦349 billion in 2019 to ￦363 billion in 2020, primarily due to the additions of PRASAC Microfinance Institution Limited and Bank Bukopin as subsidiaries of Kookmin Bank in 2020.

Net loss from financial assets and liabilities at fair value through profit or loss attributable to this segment significantly increased from ￦3 billion in 2019 to ￦52 billion in 2020, principally as a result of an increase in net loss from derivatives held-for-trading by a foreign subsidiary from 2019 to 2020.

Net other operating expense attributable to this segment decreased 12.1% from ￦611 billion in 2019 to ￦537 billion in 2020, mainly as a result of a decrease in expenses related to inter-segment borrowings, which was enhanced by an increase in net other operating income of Kookmin Bank’s foreign subsidiaries.

151

General and administrative expenses attributable to this segment increased 25.2% from ￦1,242 billion in 2019 to ￦1,555 billion in 2020, principally due to the additions of PRASAC Microfinance Institution Limited and Bank Bukopin as subsidiaries of Kookmin Bank in 2020, the effects of which were enhanced by increases in salary and benefits expenses and common administrative expenses allocated to the corporate banking segment.

Reversal of (provision for) credit losses attributable to this segment changed from a net reversal of ￦126 billion in 2019 to a net provision of ￦204 billion in 2020, due mainly to an increase in corporate loans and additional provisions due to COVID-19, which was enhanced by the additions of PRASAC Microfinance Institution Limited and Bank Bukopin as subsidiaries of Kookmin Bank in 2020.

Net other non-operating revenue attributable to this segment increased from nil in 2019 to ￦5 billion in 2020, mainly due to the addition of Bank Bukopin as a subsidiary of Kookmin Bank in 2020.

Comparison of 2019 to 2018

Our profit before income tax for this segment increased 4.6% from ￦1,399 billion in 2018 to ￦1,464 billion in 2019.

Interest income from our corporate banking operations increased 8.8% from ￦4,268 billion in 2018 to ￦4,643 billion in 2019. This increase was principally due to an increase in the average volume of corporate loans, mainly reflecting increased demand for such loans, which was enhanced by an increase in the average yields on such loans.

Interest expense for this segment increased 18.8% from ￦1,514 billion in 2018 to ￦1,798 billion in 2019. This increase was principally due to an increase in the average volume of time deposits held by corporate customers, primarily reflecting higher demand for such deposits, which was enhanced by an increase in the average cost of such deposits.

Net fee and commission income attributable to this segment increased 21.2% from ￦288 billion in 2018 to ￦349 billion in 2019, primarily due to an increase in fund transfer fees.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss attributable to this segment changed from a net gain of ￦14 billion in 2018 to a net loss of ￦3 billion in 2019, principally as a result of a change in net gain (loss) on derivatives held-for-trading from a net gain in 2018 to a net loss in 2019.

Net other operating expense attributable to this segment decreased 4.8% from ￦642 billion in 2018 to ￦611 billion in 2019, mainly as a result of a decrease in expenses related to inter-segment borrowings. While the average volumes increased for both inter-segment borrowings and lendings from 2018 to 2019, which was further enhanced by increases in the internal funding rates applicable to both inter-segment borrowings and lendings from 2018 to 2019, the increase in the average volume of inter-segment lendings was higher than the increase in the average volume of inter-segment borrowings, leading to a decrease in expenses related to inter-segment borrowings.

General and administrative expenses attributable to this segment increased 13.7% from ￦1,092 billion in 2018 to ￦1,242 billion in 2019, principally due to increases in common administrative expenses shared among the banking-related segments, depreciation and amortization expenses and salary expenses.

Reversal of provision for credit losses increased 63.6% from ￦77 billion in 2018 to ￦126 billion in 2019, due mainly to an improvement in the asset quality of corporate loans, reflecting a decrease in impaired corporate loans, as well as lower net write-offs of such loans.

Net other non-operating revenue attributable to this segment remained constant at less than ￦1 billion in 2018 and 2019.

152

Other Banking Operations

This segment primarily consists of Kookmin Bank’s banking operations other than retail and corporate banking operations, including treasury activities and Kookmin Bank’s “back office” administrative operations. The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Income statement data
Interest income	￦	1,205		￦	1,264		￦	1,037			4.9	%		(18.0	)%
Interest expense		(818	)		(894	)		(698	)		9.3			(21.9	)
Net fee and commission income		344			312			298			(9.3	)		(4.5	)
Net gain from financial assets and liabilities at fair value through profit or loss		312			425			297			36.2			(30.1	)
Net other operating income		407			651			973			60.0			49.5
General and administrative expenses		(705	)		(663	)		(574	)		(6.0	)		(13.4	)
Reversal of (provision for) credit losses		8			7			(15	)		(12.5	)		N/M	⁽²⁾
Share of profit (loss) of associates		50			29			(48	)		(42.0	)		N/M	⁽²⁾
Net other non-operating revenue (expense)		45			(39	)		23			N/M	⁽²⁾		N/M	⁽²⁾

Profit before income tax		847			1,093			1,293			29.0			18.3
Tax expense		(209	)		(266	)		(313	)		27.3			17.7

Profit for the year	￦	638		￦	827		￦	980			29.6			18.5

⁽¹⁾	“N/A” means not applicable.

⁽²⁾	“N/M” means not meaningful.

Comparison of 2020 to 2019

Our profit before income tax for this segment increased 18.3% from ￦1,093 billion in 2019 to ￦1,293 billion in 2020.

Interest income from our other banking operations decreased 18.0% from ￦1,264 billion in 2019 to ￦1,037 billion in 2020, mainly due to decreases in the average yields on other banking loans and debt securities in this segment from 2019 to 2020, which were offset in part by increases in the average volumes of such loans and securities.

Interest expense for this segment decreased 21.9% from ￦894 billion in 2019 to ￦698 billion in 2020. This decrease was principally due to decreases in the average costs of demand deposits, time deposits, certificates of deposit, borrowings and debentures in this segment, which were partially offset by increases in the average volumes of such deposits, borrowings and debentures.

Net fee and commission income attributable to this segment decreased 4.5% from ￦312 billion in 2019 to ￦298 billion in 2020, mainly due to an increase in net fee and commission expense from our funds and trusts in this segment.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment decreased 30.1% from ￦425 billion in 2019 to ￦297 billion in 2020, principally as a result of a decrease in net gain on derivatives held-for-trading and a decrease in net gain on financial assets and liabilities at fair value through profit or loss attributable to our funds and trusts, which were partially offset by an increase in net gains on short-term securities held-for-trading.

Net other operating income attributable to this segment increased 49.5% from ￦651 billion in 2019 to ￦973 billion in 2020, mainly as a result of an increase in net gain on foreign exchange translations.

153

General and administrative expenses attributable to this segment decreased 13.4% from ￦663 billion in 2019 to ￦574 billion in 2020, primarily due to a decrease in common administrative expenses allocated to this segment, which was partially offset by increases in salary and benefit expenses and depreciation expenses.

Reversal of (provision for) credit losses attributable to this segment changed from a net reversal of ￦7 billion in 2019 to a net provision of ￦15 billion in 2020, due mainly to increases in provisions related to receivables and foreign currency loans in this segment.

Share of profit (loss) of associates attributable to this segment changed from a net profit of ￦29 billion in 2019 to a net loss of ￦48 billion in 2020, principally as a result of losses incurred in connection with our investments in affiliates, including Bank Bukopin, in 2020.

Net other non-operating revenue (expense) attributable to this segment changed from a net expense of ￦39 billion in 2019 to a net revenue of ￦23 billion in 2020, primarily due to increases in gains from sales of investment property and other assets held for sale. Such increases were partially offset by a decrease in dividend income from equity method investments.

Comparison of 2019 to 2018

Our profit before income tax for this segment increased 29.0% from ￦847 billion in 2018 to ￦1,093 billion in 2019.

Interest income from our other banking operations increased 4.9% from ￦1,205 billion in 2018 to ￦1,264 billion in 2019. This increase was attributable primarily to an increase in the average volume of Kookmin Bank’s financial investments portfolio, mainly reflecting higher investments in debt securities issued by Korean financial institutions and corporations, which was offset in part by a decrease in the average yields on such investments.

Interest expense for this segment increased 9.3% from ￦818 billion in 2018 to ￦894 billion in 2019. This increase was principally due to an increase in the average volume of Kookmin Bank’s certificates of deposits, which are classified under this segment, mainly reflecting an amendment to the Regulation on the Supervision of the Banking Business in July 2018 that allows up to 1% of deposits at Korean banks to be comprised of certificates of deposits, which in turn led to increased use of certificates of deposits by Kookmin Bank, which was enhanced by an increase in the average cost of such certificates of deposits.

Net fee and commission income attributable to this segment decreased 9.3% from ￦344 billion in 2018 to ￦312 billion in 2019, mainly due to an increase in credit and debit card related fees paid.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased 36.2% from ￦312 billion in 2018 to ￦425 billion in 2019, principally as a result of a decrease in net loss on financial instruments held-for-trading.

Net other operating income attributable to this segment increased 60.0% from ￦407 billion in 2018 to ￦651 billion in 2019, mainly as a result of increases in net gain on beneficiary certificates and income related to inter-segment lendings, as well as a decrease in net loss on foreign exchange translation.

General and administrative expenses attributable to this segment decreased 6.0% from ￦705 billion in 2018 to ￦663 billion in 2019, primarily due to a decrease in salary and employee benefit expenses.

Reversal of provision for credit losses attributable to this segment decreased slightly from ￦8 billion in 2018 to ￦7 billion in 2019.

154

Share of profit of associates attributable to this segment decreased 42.0% from ￦50 billion in 2018 to ￦29 billion in 2019, principally as a result of a decrease in profits of equity-method investees of Kookmin Bank.

Net other non-operating revenue (expense) attributable to this segment changed from a revenue of ￦45 billion in 2018 to an expense of ￦39 billion in 2019, primarily due to the recognition of a gain on disposal of Kookmin Bank’s former headquarters building in Seoul in 2018, which was not repeated in 2019.

Credit Card Operations

This segment consists of credit card activities conducted by KB Kookmin Card. The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Income statement data
Interest income	￦	1,474		￦	1,581		￦	1,632			7.3	%		3.2	%
Interest expense		(306	)		(351	)		(366	)		14.7			4.3
Net fee and commission income		265			262			400			(1.1	)		52.7
Net insurance income		18			16			13			(11.1	)		(18.8	)
Net gain from financial assets and liabilities at fair value through profit or loss		4			—			6			N/A	⁽¹⁾		N/A	⁽¹⁾
Net other operating expense		(150	)		(247	)		(331	)		64.7			34.0
General and administrative expenses		(405	)		(442	)		(515	)		9.1			16.5
Reversal of (provision for) credit losses		(431	)		(440	)		(396	)		2.1			(10.0	)
Share of profit of associates and joint ventures		—			1			1			N/A	⁽¹⁾		0.0
Net other non-operating revenue (expense)		(32	)		3			(6	)		N/M	⁽²⁾		N/M	⁽²⁾

Profit before income tax		437			384			438			(12.1	)		14.1
Tax expense		(150	)		(67	)		(114	)		(55.3	)		70.1

Profit for the year	￦	287		￦	317		￦	324			10.5			2.2

⁽¹⁾

“N/A” means not applicable.

⁽²⁾

“N/M” means not meaningful.

Comparison of 2020 to 2019

Our profit before income tax for this segment increased 14.1% from ￦384 billion in 2019 to ￦438 billion in 2020.

Interest income from our credit card operations increased 3.2% from ￦1,581 billion in 2019 to ￦1,632 billion in 2020. This increase was primarily due to an increase in the average volume of credit card receivables, which was offset in part by a decrease in the average yields on such receivables.

Interest expense for this segment increased 4.3% from ￦351 billion in 2019 to ￦366 billion in 2020. This increase was primarily due to increases in the average volumes of debentures and borrowings issued by KB Kookmin Card, which were partially offset by decreases in the average costs of such debentures and borrowings.

Net fee and commission income attributable to this segment increased 52.7% from ￦262 billion in 2019 to ￦400 billion in 2020, mainly due to increases in commissions relating to payment gateways received and a decrease in credit card commissions paid.

155

Net insurance income attributable to this segment decreased 18.8% from ￦16 billion in 2019 to ￦13 billion in 2020, which was primarily caused by a decrease in the number of customers using related services.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased from nil to ￦6 billion in 2020, primarily due to increases in dividend income from equity securities and, to a lesser extent, gains from sales of investment trust beneficiary certificates.

Net other operating expense attributable to this segment increased 34.0% from ￦247 billion in 2019 to ￦331 billion in 2020, primarily due to increases in membership reward program-related expenses and provisions, which were enhanced by a decrease in net gains on foreign currency transactions.

General and administrative expenses attributable to this segment increased 16.5% from ￦442 billion in 2019 to ￦515 billion in 2020, mainly due to an increase in salary and employee benefit expenses and depreciation and amortization expenses in this segment.

Provision for credit losses decreased 10.0% from ￦440 billion in 2019 to ￦396 billion in 2020, mainly due to decreases in provisions for cash advances and card loans.

Share of profit of associates and joint ventures attributable to this segment remained stable at ￦1 billion in 2019 and 2020.

Net other non-operating revenue (expense) attributable to this segment changed from a net revenue of ￦3 billion in 2019 to a net expense of ￦6 billion in 2020, primarily due to the recognition of a one-time tax refund in 2019 that was not repeated in 2020.

Comparison of 2019 to 2018

Our profit before income tax for this segment decreased 12.1% from ￦437 billion in 2018 to ￦384 billion in 2019.

Interest income from our credit card operations increased 7.3% from ￦1,474 billion in 2018 to ￦1,581 billion in 2019. This increase was primarily due to an increase in the average volume of credit card receivables, mainly reflecting increases in the number of credit cards issued and in the use of credit cards by customers, which was offset in part by a decrease in the average yields on such receivables.

Interest expense for this segment increased 14.7% from ￦306 billion in 2018 to ￦351 billion in 2019. This increase was primarily due to an increase in the average volume of debentures issued by KB Kookmin Card, which was partially offset by a decrease in the average cost of such debentures.

Net fee and commission income attributable to this segment decreased slightly from ￦265 billion in 2018 to ￦262 billion in 2019.

Net insurance income attributable to this segment decreased slightly from ￦18 billion in 2018 to ￦16 billion in 2019.

Net other operating expense attributable to this segment increased 64.7% from ￦150 billion in 2018 to ￦247 billion in 2019, primarily due to an increase in membership reward program-related costs mainly as a result of an increase in the number and use of credit cards, which was enhanced by a decrease in net gains on sales of receivables.

General and administrative expenses attributable to this segment increased 9.1% from ￦405 billion in 2018 to ￦442 billion in 2019, mainly due to increases in depreciation and amortization expenses.

156

Provision for credit losses increased 2.1% from ￦431 billion in 2018 to ￦440 billion in 2019, mainly due to an increase in the balance of credit card receivables.

Share of profit of associates and joint ventures attributable to this segment increased slightly from nil in 2018 to ￦1 billion in 2019.

Net other non-operating revenue (expense) attributable to this segment changed from an expense of ￦32 billion in 2018 to a revenue of ￦3 billion in 2019, primarily due to an increase in tax refund received.

Investment and Securities Operations

This segment consists primarily of securities brokerage, investment banking, securities investment and trading and other capital markets activities conducted by KB Securities, including its predecessor entities. The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Income statement data
Interest income	￦	819		￦	852		￦	820			4.0	%		(3.8	)%
Interest expense		(277	)		(322	)		(310	)		16.2			(3.7	)
Net fee and commission income		626			580			917			(7.3	)		58.1
Net gain (loss) from financial assets and liabilities at fair value through profit or loss		(222	)		(104	)		118			(53.2	)		N/M	⁽²⁾
Net other operating income (expense)		34			88			(103	)		158.8			N/M	⁽²⁾
General and administrative expenses		(735	)		(757	)		(845	)		3.0			11.6
Reversal of (provision for) credit losses		(10	)		(14	)		(24	)		40.0			71.4
Share of profit of associates and joint ventures		—			—			4			N/A	⁽¹⁾		N/A	⁽¹⁾
Net other non-operating revenue		14			31			4			121.4			(87.1	)

Profit before income tax		249			353			582			41.8			64.9
Tax expense		(70	)		(95	)		(156	)		35.7			64.2

Profit for the year	￦	179		￦	258		￦	426			44.1			65.1

⁽¹⁾

“N/A” means not applicable.

⁽²⁾

“N/M” means not meaningful.

Comparison of 2020 to 2019

Our profit before income tax for this segment increased 64.9% from ￦353 billion in 2019 to ￦582 billion in 2020.

Interest income from our investment and securities operations decreased 3.8% from ￦852 billion in 2019 to ￦820 billion in 2020. This decrease was primarily due to decreases in the average yields on deposits and other government bonds held by KB Securities, which were partially offset by increases in the volumes of such financial assets.

Interest expense for this segment decreased 3.7% from ￦322 billion in 2019 to ￦310 billion in 2020, principally as a result of decreases in the average costs of debentures and bonds sold under repurchase agreements, which were partially offset by an increase in interest expense on other borrowings as well as increases in the average volumes of debentures and bonds sold under repurchase agreements.

157

Net fee and commission income attributable to this segment increased 58.1% from ￦580 billion in 2019 to ￦917 billion in 2020, primarily due to an increase in securities brokerage commissions received resulting from the high volume of activity in the Korean securities trading market in 2020.

Net gain (loss) from financial assets and liabilities at fair value through profit or loss attributable to this segment changed from a net loss of ￦104 billion in 2019 to a net gain of ￦118 billion in 2020, principally due to a decrease in losses from derivative-linked securities at fair value through profit or loss, which was partially offset by a decrease in gains related to derivatives.

Net other operating income (expenses) attributable to this segment changed from a net income of ￦88 billion in 2019 to a net expense of ￦103 billion in 2020, primarily due to an increase in net loss on foreign currency translation with respect to foreign currency-denominated assets and liabilities, mainly as a result of increased exchange rate volatility.

General and administrative expenses attributable to this segment increased 11.6% from ￦757 billion in 2019 to ￦845 billion in 2020, primarily due to increases in short-term employee benefits and early retirement benefits paid in connection with the re-configuration of the compensation structure of KB Securities, which took place in 2020.

Provision for credit losses increased 71.4% from ￦14 billion in 2019 to ￦24 billion in 2020, primarily due to an increase in provisions for other financial assets.

Share of profit of associates and joint ventures attributable to this segment increased from nil in 2019 to ￦4 billion in 2020, mainly due to an increase in profits of equity-method investees, which was offset in part by an increase in loss on the sale of equity-method investees.

Net other non-operating revenue attributable to this segment decreased 87.1% from ￦31 billion in 2019 to ￦4 billion in 2020, mainly due to an increase in other non-operating expenses, which was offset in part by increases in sales of investment property and rental revenue.

Comparison of 2019 to 2018

Our profit before income tax for this segment increased 41.8% from ￦249 billion in 2018 to ￦353 billion in 2019.

Interest income from our investment and securities operations increased 4.0% from ￦819 billion in 2018 to ￦852 billion in 2019. This increase was primarily due to an increase in the volume of interest-earning financial assets at fair value through profit or loss held by KB Securities, which was enhanced by a slight increase in the average yields on such financial assets.

Interest expense for this segment increased 16.2% from ￦277 billion in 2018 to ￦322 billion in 2019, principally as a result of an increase in the average cost of borrowings issued by KB Securities, mainly reflecting the higher interest rate environment in Korea in 2019 compared to 2018, which was enhanced by an increase in the volume of such borrowings.

Net fee and commission income attributable to this segment decreased 7.3% from ￦626 billion in 2018 to ￦580 billion in 2019, primarily due to a decrease in securities brokerage commissions received.

Net loss from financial assets and liabilities at fair value through profit or loss attributable to this segment decreased 53.2% from ￦222 billion in 2018 to ￦104 billion in 2019, principally due to an increase in net gain on derivative-linked securities, which was offset in part by an increase in loss on financial instruments held for trading.

158

Net other operating income attributable to this segment increased 158.8% from ￦34 billion in 2018 to ￦88 billion in 2019, primarily due to an increase in net gain on foreign currency translation with respect to foreign currency assets, mainly as a result of the depreciation of the Won against the U.S. dollar during 2019.

General and administrative expenses attributable to this segment increased 3.0% from ￦735 billion in 2018 to ￦757 billion in 2019, primarily due to increases in depreciation and amortization expenses and rent management fees paid, which were largely offset by a decrease in rental expenses.

Provision for credit losses increased 40.0% from ￦10 billion in 2018 to ￦14 billion in 2019, primarily due to our preemptive measures to account for a potential increase in expected credit losses that could result from a deterioration in the overall asset quality of the loan portfolio of KB Securities.

Share of profit of associates and joint ventures attributable to this segment remained constant at less than ￦1 billion in 2018 and 2019.

Net other non-operating revenue attributable to this segment increased 121.4% from ￦14 billion in 2018 to ￦31 billion in 2019, mainly due to an increase in income from sale of investment properties.

Life Insurance Operations

This segment consists of the life insurance operations of KB Life Insurance and, from August 2020, those of Prudential Life Insurance. We acquired all of the outstanding shares of Prudential Life Insurance from Prudential Financial, Inc. in August 2020, as a result of which Prudential Life Insurance became our wholly-owned subsidiary. See “—Overview—Acquisitions.” The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Income statement data
Interest income	￦	185		￦	159		￦	261			(14.1	)%		64.2	%
Net fee and commission expense		(13	)		(17	)		(18	)		30.8			5.9
Net insurance expense		(140	)		(122	)		(91	)		(12.9	)		(25.4	)
Net gain from financial assets and liabilities at fair value through profit or loss		63			67			71			6.3			6.0
Net other operating income (expense)		(10	)		(2	)		5			(80.0	)		N/M	⁽²⁾
General and administrative expenses		(63	)		(67	)		(152	)		6.3			126.9
Reversal of (provision for) credit losses		—			3			—			N/A	⁽¹⁾		N/A	⁽¹⁾
Net other non-operating income (expense)		(1	)		—			(16	)		N/A	⁽¹⁾		N/A	⁽¹⁾

Profit before income tax		21			21			60			—			185.7
Tax expense ⁽³⁾		(6	)		(5	)		(27	)		(16.7	)		440.0

Profit for the year	￦	15		￦	16		￦	33			6.7			106.3

⁽¹⁾	“N/A” means not applicable.

⁽²⁾	“N/M” means not meaningful.

⁽³⁾	Represents income tax attributable to KB Life Insurance and Prudential Life Insurance from August 2020.

Comparison of 2020 to 2019

Our profit before income tax for this segment increased 185.7% from ￦21 billion in 2019 to ￦60 billion in 2020.

159

Interest income from our life insurance operations increased 64.2% from ￦159 billion in 2019 to ￦261 billion in 2020, primarily due to the additional interest income attributable to the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020.

Net fee and commission expense attributable to this segment increased 5.9% from ￦17 billion in 2019 to ￦18 billion in 2020, primarily due to the additional expenses attributable to the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020, which were enhanced by an increase in fee expenses related to the trading operations of KB Life Insurance.

Net insurance expense attributable to this segment decreased 25.4% from ￦122 billion in 2019 to ￦91 billion in 2020, mainly due to an increase in insurance income due to increased new insurance contracts for KB Life Insurance, which was as enhanced by the additional insurance income attributable to the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020. Such increases were offset in part by an increase in insurance expense, which was mainly due to an increase in KB Life Insurance’s insurance expenses and the addition of Prudential Life Insurance as a consolidated subsidiary.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased 6.0% from ￦67 billion in 2019 to ￦71 billion in 2020, primarily due to an increase in gains relating to investment trust beneficiary certificates, which was partially offset by a decrease in interest from derivative-linked securities and gains from sales of consigned beneficiary certificates.

Net other operating income (expense) attributable to this segment changed from a net expense of ￦2 billion in 2019 to a net income of ￦5 billion in 2020, principally due to an increase in KB Life Insurance’s gains related to currency forwards and sales of bonds in addition to additional gains from currency forwards attributable to the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020. Such effects were offset in part by an increase in KB Life Insurance’s loss on the valuation of securities at amortized cost and additional losses on the valuation of foreign currency-denominated assets and liabilities attributable to the addition of Prudential Life Insurance as a consolidated subsidiary.

General and administrative expenses attributable to this segment increased 126.9% from ￦67 billion in 2019 to ￦152 billion in 2020, primarily due to an increase in salary expenses in this segment, which was enhanced by the addition of salary expenses attributable to the addition of Prudential Life Insurance as a consolidated subsidiary in August 2020.

Reversal of provision for credit losses decreased from ￦3 billion in 2019 to nil in 2020, mainly due to decreases in reversals relating to Won currency loans, other financial assets and Won currency securities.

Net other non-operating expense increased from nil in 2019 to ￦16 billion in 2020, primarily due to provisions for legal proceedings of KB Life Insurance relating to a dispute over the payment of annuities.

Comparison of 2019 to 2018

Our profit before income tax for this segment remained constant at ￦21 billion in 2018 and 2019.

Interest income from our life insurance operations decreased 14.1% from ￦185 billion in 2018 to ￦159 billion in 2019, primarily due to a decrease in the average volume of the financial investments and loan portfolios of KB Life Insurance, which was enhanced by a decrease in the average yields on such portfolios.

Net fee and commission expense attributable to this segment increased 30.8% from ￦13 billion in 2018 to ￦17 billion in 2019, primarily due to an increase in outsourcing-related fees and commissions paid.

Net insurance expense attributable to this segment decreased 12.9% from ￦140 billion in 2018 to ￦122 billion in 2019, mainly due to an increase in reversal of provision of policy reserves as well as a decrease

160

in expenses related to refunds for insurance contracts that matured or were terminated prematurely, which were offset in part by an increase in insurance claims paid.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased 6.3% from ￦63 billion in 2018 to ￦67 billion in 2019, primarily due to an increase in cash and due from financial institutions at fair value through profit or loss.

Net other operating expense attributable to this segment decreased 80.0% from ￦10 billion in 2018 to ￦2 billion in 2019, principally due to an increase in net gain on foreign currency translation with respect to foreign currency assets, mainly as a result of the depreciation of the Won against the U.S. dollar during 2019.

General and administrative expenses attributable to this segment increased 6.3% from ￦63 billion in 2018 to ￦67 billion in 2019, primarily due to increases in depreciation and amortization expenses incurred in connection with our right-of-use assets pursuant to our adoption of IFRS 16 as well as salary expenses, the effects of which were offset in part by a decrease in rental expenses pursuant to our adoption of IFRS 16.

Reversal of provision for credit losses increased from less than ￦1 billion in 2018 to ￦3 billion in 2019.

Non-Life Insurance Operations

This segment consists of the non-life insurance operations of KB Insurance. The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
				(in billions of Won)						(%)
Income statement data
Interest income	￦	616		￦	618		￦	617			0.3	%		(0.2	)%
Interest expense		—			(1	)		(1	)		N/A	⁽¹⁾		—
Net fee and commission expense		(147	)		(153	)		(171	)		4.1			11.8
Net insurance income		611			415			377			(32.1	)		(9.2	)
Net gain from financial assets and liabilities at fair value through profit or loss		181			265			259			46.4			(2.3	)
Net other operating income (expense)		(98	)		(13	)		(48	)		(86.7	)		269.2
General and administrative expenses		(789	)		(844	)		(829	)		7.0			(1.8	)
Reversal of (provision for) credit losses		(14	)		13			8			N/M	⁽²⁾		(38.5	)
Net other non-operating revenue		7			26			16			271.4			(38.5	)

Profit before income tax		367			327			228			(10.9	)		(30.3	)
Tax expense		(105	)		(92	)		(64	)		(12.4	)		(30.4	)

Profit for the year	￦	262		￦	235		￦	164			(10.3	)		(30.2	)

⁽¹⁾	“N/A” means not applicable.

⁽²⁾	“N/M” means not meaningful.

Comparison of 2020 to 2019

Our profit before income tax for this segment decreased 30.3% from ￦327 billion in 2019 to ￦228 billion in 2020.

Interest income attributable to this segment decreased slightly from ￦618 billion in 2019 to ￦617 billion in 2020. Interest expense attributable to this segment remained stable at ￦1 billion in 2019 and 2020.

161

Net fee and commission expense attributable to this segment increased 11.8% from ￦153 billion in 2019 to ￦171 billion in 2020, mainly due to an increase in payment and outsourcing-related fees paid, which was enhanced by a decrease in fee income from credit-related business.

Net insurance income attributable to this segment decreased 9.2% from ￦415 billion in 2019 to ￦377 billion in 2020, primarily due to an increase in insurance expenses, mainly reflecting an increase in insurance claims paid as well as payments on surrenders and withdrawals made by KB Insurance, which outpaced an increase in insurance income.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment decreased 2.3% from ￦265 billion in 2019 to ￦259 billion in 2020, primarily as a result of an increase in loss from securities held at fair value through profit or loss, which was partially offset by increases in gains from derivative-linked securities and beneficiary certificates at fair value through profit or loss.

Net other operating expense attributable to this segment increased 269.2% from ￦13 billion in 2019 to ￦48 billion in 2020, due mainly to an increase in other operating expenses such as losses from other fair value hedges and losses on valuations of foreign currency-denominated assets and liabilities, which was offset in part by an increase in other operating income such as gains on valuations of currency forwards and gains on valuations of foreign currency-denominated assets and liabilities.

General and administrative expenses attributable to this segment decreased 1.8% from ￦844 billion in 2019 to ￦829 billion in 2020, principally due to a decrease in employee compensation and retirement benefits, which was partially offset by increases in other employee benefits in the form of welfare points awarded to employees and electronic data processing expenses.

Reversals of provision for credit losses decreased 38.5% from ￦13 billion in 2019 to ￦8 billion in 2020, primarily due to a decrease in the reversal of provisions for Won currency loans, which was partially offset by a decrease in provisions for other assets.

Net other non-operating revenue attributable to this segment decreased 38.5% from ￦26 billion in 2019 to ￦16 billion in 2020, principally due to a decrease in other non-operating revenue, which was enhanced by an increase in loss on disposal of property and equipment.

Comparison of 2019 to 2018

Our profit before income tax for this segment decreased 10.9% from ￦367 billion in 2018 to ￦327 billion in 2019.

Interest income attributable to this segment increased slightly from ￦616 billion in 2018 to ￦618 billion in 2019.

Net fee and commission expense attributable to this segment increased 4.1% from ￦147 billion in 2018 to ￦153 billion in 2019, mainly due to an increase in payment and outsourcing-related fees paid.

Net insurance income attributable to this segment decreased 32.1% from ￦611 billion in 2018 to ￦415 billion in 2019, primarily due to an increase in insurance expenses, mainly reflecting an increase in insurance claims paid, which outpaced an increase in insurance income.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased 46.4% from ￦181 billion in 2018 to ￦265 billion in 2019, primarily as a result of an increase in gains on other foreign currency-denominated security investments, which was enhanced by a decrease in losses on foreign and local currency-denominated security investments.

162

Net other operating expense attributable to this segment decreased 86.7% from ￦98 billion in 2018 to ￦13 billion in 2019, due mainly to an increase in net gain on disposal of financial assets at fair value through other comprehensive income.

General and administrative expenses attributable to this segment increased 7.0% from ￦789 billion in 2018 to ￦844 billion in 2019, principally due to an increase in employee compensation and benefits, which was partially offset by a decrease in rental expenses.

Provision (reversal of provision) for credit losses changed from a provision of ￦14 billion in 2018 to a reversal of provision of ￦13 billion in 2019, primarily due to an increase in the reversal of provision for loans in Won.

Net other non-operating revenue attributable to this segment increased 271.4% from ￦7 billion in 2018 to ￦26 billion in 2019, principally due to a decrease in donations.

Other

“Other” includes the operations of our holding company and all of our subsidiaries that were consolidated under IFRS as issued by the IASB as of December 31, 2020 except Kookmin Bank, KB Kookmin Card, KB Securities, KB Life Insurance, KB Insurance and Prudential Life Insurance, including principally KB Asset Management, KB Real Estate Trust, KB Investment, KB Credit Information, KB Data System, KB Savings Bank and KB Capital. The following table shows, for the periods indicated, our income statement data for this segment:


	Year Ended December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Income statement data
Interest income	￦	645		￦	688		￦	727			6.7	%		5.7	%
Interest expense		(354	)		(391	)		(412	)		10.5			5.4
Net fee and commission income		386			541			776			40.2			43.4
Net gain from financial assets and liabilities at fair value through profit or loss		89			138			397			55.1			187.7
Net other operating expense		(137	)		(243	)		(472	)		77.4			94.2
General and administrative expenses		(309	)		(374	)		(406	)		21.0			8.6
Reversal of (provision for) credit losses		(124	)		(128	)		(148	)		3.2			15.6
Share of profit of associates		3			7			1			133.3			(85.7	)
Net other non-operating revenue		17			35			41			105.9			17.1

Profit before income tax		216			273			504			26.4			84.6
Tax expense ⁽¹⁾		(88	)		(90	)		(97	)		2.3			7.8

Profit for the year	￦	128		￦	182		￦	406			42.2			123.1

⁽¹⁾

Represents income tax attributable to our holding company and all of our subsidiaries that were consolidated under IFRS as issued by the IASB except Kookmin Bank, KB Kookmin Card, KB Securities (including its predecessor entities), KB Life Insurance, KB Insurance and Prudential Life Insurance.

Comparison of 2020 to 2019

Our profit before income tax for this segment increased 84.6% from ￦273 billion in 2019 to ￦504 billion in 2020.

Interest income attributable to this segment increased 5.7% from ￦688 billion in 2019 to ￦727 billion in 2020. This increase was primarily due to increases in the average volumes of loans of KB Capital and, to a lesser extent, KB Savings Bank.

163

Interest expense attributable to this segment increased 5.4% from ￦391 billion in 2019 to ￦412 billion in 2020, mainly due to increases in the average volumes of debentures of KB Capital and, to a lesser extent, our holding company on a separate basis.

Net fee and commission income attributable to this segment increased 43.4% from ￦541 billion in 2019 to ￦776 billion in 2020, principally reflecting increases in lease and rental fees received by KB Capital and, to a lesser extent, trust fees received by KB Asset Management and KB Real Estate Trust.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased 187.7% from ￦138 billion in 2019 to ￦397 billion in 2020, primarily as a result of an increase in gains from transactions on debt securities by a consolidated fund owned by our holding company.

Net other operating expense attributable to this segment increased 94.2% from ￦243 billion in 2019 to ￦472 billion in 2020, which mainly reflected an increase in depreciation and amortization expenses with respect to leased assets of KB Capital and, to a lesser extent, an increase in losses on valuations of foreign currency-denominated assets and liabilities of consolidated funds owned by our holding company.

General and administrative expenses attributable to this segment increased 8.6% from ￦374 billion in 2019 to ￦406 billion in 2020, principally due to an increase in the salary expenses of our holding company, KB Asset Management, KB Capital and KB Investment, which was enhanced by an increase in advertisement expenses of KB Capital and KB Savings Bank.

Provision for credit losses increased 15.6% from ￦128 billion in 2019 to ￦148 billion in 2020, primarily due to increases in provisions for Won currency loans of one of our consolidated funds and KB Capital, which were enhanced by an increase in provisions for other financial assets of KB Real Estate Trust.

Share of profit of associates attributable to this segment decreased 85.7% from ￦7 billion in 2019 to ￦1 billion in 2020, mainly reflecting increases in valuation loss on equity-method investments of KB Investment.

Net other non-operating revenue attributable to this segment increased 17.1% from ￦35 billion in 2019 to ￦41 billion in 2020, principally reflecting an increase in the rental income of real estate funds included in this segment.

Comparison of 2019 to 2018

Our profit before income tax for this segment increased 26.4% from ￦216 billion in 2018 to ￦273 billion in 2019.

Interest income attributable to this segment increased 6.7% from ￦645 billion in 2018 to ￦688 billion in 2019. This increase was primarily due to an increase in interest income on loans at amortized cost of KB Capital.

Interest expense attributable to this segment increased 10.5% from ￦354 billion in 2018 to ￦391 billion in 2019, mainly due to an increase in interest expense on debentures of KB Capital and our holding company.

Net fee and commission income attributable to this segment increased 40.2% from ￦386 billion in 2018 to ￦541 billion in 2019, principally reflecting an increase in lease and rental fees received by KB Capital.

Net gain from financial assets and liabilities at fair value through profit or loss attributable to this segment increased 55.1% from ￦89 billion in 2018 to ￦138 billion in 2019, primarily as a result of a decrease in net loss on derivatives held-for-trading by a consolidated fund owned by our holding company.

164

Net other operating expense attributable to this segment increased 77.4% from ￦137 billion in 2018 to ￦243 billion in 2019, which mainly reflected an increase in depreciation and amortization expenses with respect to leased assets of KB Capital.

General and administrative expenses attributable to this segment increased 21.0% from ￦309 billion in 2018 to ￦374 billion in 2019, principally due to an increase in depreciation and amortization expenses related to our right-of-use assets, which was partially offset by a decrease in rental expenses, both pursuant to our adoption of IFRS 16.

Provision for credit losses increased 3.2% from ￦124 billion in 2018 to ￦128 billion in 2019, primarily due to an increase in provision for loan losses for KB Capital, which was offset in part by a decrease in provision for loan losses for KB Real Estate Trust.

Share of profit of associates attributable to this segment increased 133.3% from ￦3 billion in 2018 to ￦7 billion in 2019, mainly reflecting an increase in profits of equity-method investees of KB Investment.

Net other non-operating revenue attributable to this segment increased 105.9% from ￦17 billion in 2018 to ￦35 billion in 2019, principally reflecting an increase in rental income of real estate funds included in this segment.

165

Item 5.B.

Liquidity and Capital Resources

Financial Condition

Assets

The following table sets forth, as of the dates indicated, the principal components of our assets:


	As of December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Cash and due from financial institutions	￦	20,274		￦	20,838		￦	25,609			2.8	%		22.9	%
Financial assets at fair value through profit or loss		50,988			53,549			61,035			5.0			14.0
Derivative financial assets		2,026			3,191			5,545			57.5			73.8
Financial investments		61,665			71,783			98,695			16.4			37.5
Loans:
Loans to banks		3,484			4,011			5,577			15.1			39.0

Loans to customers other than banks:
Loans in Won		276,859			289,616			317,875			4.6			9.8
Loans in foreign currencies		4,970			8,558			19,252			72.2			125.0
Domestic import usance bills		2,817			2,618			2,152			(7.1	)		(17.8	)
Off-shore funding loans		845			1,388			1,204			64.3			(13.3	)
Call loans		1,474			610			1,582			(58.6	)		159.3
Bills bought in Won		3			3			2			—			(33.3	)
Bills bought in foreign currencies		3,427			2,159			1,739			(37.0	)		(19.5	)
Guarantee payments under payment guarantee		4			3			8			(25.0	)		166.7
Credit card receivables in Won		17,346			18,642			18,735			7.5			0.5
Credit card receivables in foreign currencies		8			6			63			(25.0	)		N/M	⁽¹⁾
Bonds purchased under repurchase agreements		3,342			6,149			3,175			84.0			(48.4	)
Privately placed bonds		823			971			1,154			18.0			18.8
Factored receivables		6			—			—			N/A	⁽²⁾		N/A	⁽²⁾
Lease receivables		1,795			1,580			1,441			(12.0	)		(8.8	)
Loans for installment credit		4,608			5,776			6,491			25.3			12.4

Total loans to customers other than banks		318,327			338,081			374,873			6.2			10.9
Less:
Allowances for loan losses		(2,609	)		(2,408	)		(3,283	)		(7.7	)		36.3

Total loans, net		319,202			339,684			377,167			6.4			11.0
Property and equipment		4,271			5,067			5,434			18.6			7.2
Other assets ⁽³⁾		21,161			24,427			37,187			15.4			52.2

Total assets	￦	479,588		￦	518,538		￦	610,672			8.1			17.8

⁽¹⁾	“N/M” means not meaningful.

⁽²⁾	“N/A” means not applicable.

⁽³⁾	Includes investments in associates and joint ventures, investment properties, intangible assets, net defined benefit assets, current income tax assets, deferred income tax assets, assets held for sale and miscellaneous other assets.

For further information on our assets, see “Item 4.B. Business Overview—Assets and Liabilities.”

166

Comparison of 2020 to 2019

Our total assets increased 17.8% from ￦518,538 billion as of December 31, 2019 to ￦610,672 billion as of December 31, 2020, principally due to an 11.0% increase in loans from ￦339,684 billion as of December 31, 2019 to ￦377,167 billion as of December 31, 2020, a 37.5% increase in financial investments from ￦71,783 billion as of December 31, 2019 to ￦98,695 billion as of December 31, 2020 and a 52.2% increase in other assets from ￦24,427 billion as of December 31, 2019 to ￦37,187 billion as of December 31, 2020. The increase in loans was mainly due to increases in loans in Korean Won and, to a lesser extent, loans in foreign currencies. The increase in financial investments was primarily attributable to an increase in our debt securities portfolio, and the increase in other assets was mainly driven by an increase in miscellaneous other assets.

Comparison of 2019 to 2018

Our total assets increased 8.1% from ￦479,588 billion as of December 31, 2018 to ￦518,538 billion as of December 31, 2019, principally due to a 4.6% increase in loans in Won from ￦276,859 billion as of December 31, 2018 to ￦289,616 billion as of December 31, 2019, as well as an increase in financial investments from ￦61,665 billion as of December 31, 2018 to ￦71,783 billion as of December 31, 2019.

Liabilities and Equity

The following table sets forth, as of the dates indicated, the principal components of our liabilities and our equity:


	As of December 31,									Percentage Change
	2018			2019			2020			2019/2018			2020/2019
	(in billions of Won)									(%)
Liabilities:
Financial liabilities at fair value through profit or loss	￦	15,327		￦	15,368		￦	11,810			0.3	%		(23.2	)%
Deposits		276,770			305,593			338,580			10.4			10.8
Borrowings		33,005			37,819			49,827			14.6			31.8
Debentures		53,279			50,936			62,761			(4.4	)		23.2
Provisions		526			528			715			0.4			35.4
Insurance liabilities		33,413			34,967			54,415			4.7			55.6
Other liabilities ⁽¹⁾		31,556			34,208			49,203			8.4			43.8

Total liabilities		443,875			479,419			567,311			8.0			18.3

Equity:
Capital stock		2,091			2,091			2,091			—			—
Hybrid securities		—			399			1,696			N/A	⁽²⁾		325.1
Capital surplus		17,122			17,123			16,724			—			(2.3	)
Accumulated other comprehensive income		178			348			612			95.5			75.9
Retained earnings		17,282			19,710			22,517			14.0			14.2
Treasury shares		(969	)		(1,136	)		(1,136	)		17.2			—

Equity attributable to stockholders		35,704			38,534			42,504			7.9			10.3
Non-controlling interests		9			585			857			N/M	⁽³⁾		46.5

Total equity		35,713			39,119			43,361			9.5			10.8

Total liabilities and equity	￦	479,588		￦	518,538		￦	610,672			8.1			17.8

⁽¹⁾	Includes derivative financial liabilities, current income tax liabilities, deferred income tax liabilities, net defined benefit liabilities and miscellaneous other liabilities.

⁽²⁾	“N/A” means not applicable.

⁽³⁾	“N/M” means not meaningful.

167

Comparison of 2020 to 2019

Our total liabilities increased 18.3% from ￦479,419 billion as of December 31, 2019 to ￦567,311 billion as of December 31, 2020. The increase was primarily due to a 10.8% increase in deposits from ￦305,593 billion as of December 31, 2019 to ￦338,580 billion as of December 31, 2020, and to a lesser extent, a 55.6% increase in insurance liabilities from ￦34,967 billion as of December 31, 2019 to ￦54,415 billion as of December 31, 2020, and a 43.8% increase in other liabilities from ￦34,208 billion as of December 31, 2019 to ￦49,203 billion as of December 31, 2020, a 31.8% increase in borrowings from ￦37,819 billion as of December 31, 2019 to ￦49,827 billion as of December 31, 2020 and a 23.2% increase in debentures from ￦50,936 billion as of December 31, 2019 to ￦62,761 billion as of December 31, 2020. Our deposits increased mainly as a result of an increase in demand deposits, which was partially offset by decreases in time deposits and certificates of deposit.

Our total equity increased 10.8% from ￦39,119 billion as of December 31, 2019 to ￦43,361 billion as of December 31, 2020. This increase resulted principally from an increase in our retained earnings, which was attributable mainly to the profit we generated in 2020, as well as increased issuances of hybrid securities in 2020 compared to 2019.

Comparison of 2019 to 2018

Our total liabilities increased 8.0% from ￦443,875 billion as of December 31, 2018 to ￦479,419 billion as of December 31, 2019. The increase was primarily due to a 10.4% increase in deposits from ￦276,770 billion as of December 31, 2018 to ￦305,593 billion as of December 31, 2019, as well as a 14.6% increase in borrowings from ￦33,005 billion as of December 31, 2018 to ￦37,819 billion as of December 31, 2019. Our deposits increased mainly as a result of an increase in time deposits and demand deposits.

Our total equity increased 9.5% from ￦35,713 billion as of December 31, 2018 to ￦39,119 billion as of December 31, 2019. This increase resulted principally from an increase in our retained earnings, which was attributable mainly to the profit we generated in 2019, as well as our issuance of hybrid securities in 2019, compared to no such issuance in 2018.

Liquidity

Our primary source of funding has historically been and continues to be deposits. Deposits amounted to ￦276,770 billion, ￦305,593 billion and ￦338,580 billion as of December 31, 2018, 2019 and 2020, which represented approximately 76.2%, 77.5% and 75.0% of our total funding, respectively. We have been able to use customer deposits to finance our operations generally, including meeting a portion of our liquidity requirements. Although the majority of deposits are short-term, it has been our experience that the majority of our depositors generally roll over their deposits at maturity, thus providing us with a stable source of funding. However, in the event that a substantial number of our depositors do not roll over their deposits or otherwise decide to withdraw their deposited funds, we would need to place increased reliance on alternative sources of funding, some of which may be more expensive than customer deposits, in order to finance our operations. See “Item 3.D. Risk Factors—Risks relating to liquidity and capital management—Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.” In particular, we may increase our utilization of alternative funding sources such as short-term borrowings and cash and cash equivalents (including funds from maturing loans), as well as liquidating our positions in financial assets and using the proceeds to fund parts of our operations, as necessary.

We also obtain funding through debentures and borrowings to meet our liquidity needs. Debentures represented 14.7%, 12.9% and 13.9% of our total funding as of December 31, 2018, 2019 and 2020, respectively. Borrowings represented 9.1%, 9.6% and 11.0% of our total funding as of December 31, 2018, 2019 and 2020, respectively. For further information on our sources of funding, see “Item 4.B. Business Overview—Assets and Liabilities—Funding.”

168

The Financial Services Commission of Korea requires each financial holding company in Korea to maintain specific Won and foreign currency liquidity ratios and each bank in Korea to maintain a liquidity coverage ratio and a foreign currency liquidity coverage ratio. These ratios require us and Kookmin Bank to keep the ratio of liquid assets to liquid liabilities above certain minimum levels. For a description of these requirements, see “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Liquidity” and “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Liquidity.”

We are exposed to liquidity risk arising from withdrawals of deposits, payments of insurance contract claims and refunds, and maturities of our debentures and borrowings, as well as the need to fund our lending, trading and investment activities (including our capital expenditures) and the management of our trading positions. The goal of liquidity management is for us to be able, even under adverse conditions, to meet all of our liability repayments on time and fund all investment opportunities. For an explanation of how we manage our liquidity risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Liquidity Risk Management.” In August 2020, we completed the construction of a second headquarters building for Kookmin Bank in Yeouido, Seoul. Our total capital expenditure for its construction amounted to ￦356.5 billion.

We are a financial holding company, and substantially all of our operations are in our subsidiaries. Accordingly, we rely on distributions from our subsidiaries (as well as associates), direct borrowings and issuances of debt and equity securities to fund our liquidity obligations at the holding company level. We received aggregate dividends of ￦1,090 billion, ￦927 billion and ￦1,573 billion from our subsidiaries and associates in 2018, 2019 and 2020, respectively. See “Item 3.D. Risk Factors—Risks relating to our financial holding company structure and strategy.”

169

Asset Encumbrance

Part of our future funding and collateral needs are supported by assets readily available and unrestricted. The following table sets forth our assets that are available and those that are encumbered and not available to support our future funding and collateral needs as of December 31, 2020.


	December 31, 2020
					Unencumbered Assets
	Assets		Encumbered Asset ⁽¹⁾		Readily Available ⁽²⁾		Other
	(in billions of Won)
On-balance sheet
Cash and due from financial institutions	￦	25,609	￦	3,927	￦	20,369	￦	1,313
Financial assets at fair value through profit or loss		61,035		19,329		15,890		25,816
Derivative financial assets		5,545		—		—		5,545
Loans		377,167		13,292		—		363,875
Financial investments		98,695		17,556		38,635		42,504
Investments in associates and joint ventures		771		—		—		771
Property and equipment		5,434		—		—		5,434
Investment property		2,534		1,368		—		1,166
Intangible assets		3,351		—		—		3,351
Net defined benefit assets		3		—		—		3
Current income tax assets		110		—		—		110
Deferred income tax assets		65		—		—		65
Assets held for sale		198		—		—		198
Other assets		30,155		1,107		—		29,048

Total on-balance sheet	￦	610,672	￦	56,579	￦	74,894	￦	479,199

Off-balance sheet
Fair value of securities accepted as collateral	￦	3,732	￦	—	￦	3,732	￦	—

Total off-balance sheet	￦	3,732	￦	—	￦	3,732	￦	—

⁽¹⁾	Represent assets that have been pledged as collateral against an existing liability or are otherwise restricted in their use to secure funding.

⁽²⁾	Represent those on- and off-balance sheet assets that are not otherwise encumbered, and which are in freely transferable form.

Contractual Cash Obligations

The following table sets forth our contractual cash obligations (excluding short-term borrowings) as of December 31, 2020.


	Payments Due by Period
	Total		1 Year or Less		1-3 Years		3-5 Years		More Than 5 Years
	(in billions of Won)
Long-term borrowing obligations ⁽¹⁾⁽²⁾	￦	70,080	￦	19,816	￦	30,101	￦	12,940	￦	7,223
Lease liabilities		592		219		231		97		45
Pension obligations		221		221		—		—		—
Deposits ⁽²⁾⁽³⁾		164,853		151,056		11,705		427		1,665

Total	￦	235,746	￦	171,312	￦	42,037	￦	13,464	￦	8,933

⁽¹⁾	Includes borrowings and debentures with original maturities of one year or more.

⁽²⁾

Includes estimated future interest payments, which have been estimated using contractual interest rates and scheduled contractual maturities of the outstanding debt obligations and borrowings as of December 31, 2020. In order to calculate future interest payments on debt with floating rates, we used contractual interest rates as of December 31, 2020.

⁽³⁾	Excluding demand deposits.

170

Commitments and Guarantees

The following table sets forth our commitments and guarantees as of December 31, 2020. These commitments and guarantees are not included within our consolidated statements of financial position.


	Payments Due by Period
	Total		1 Year or Less		1-3 Years		3-5 Years		More Than 5 Years
	(in billions of Won)
Financial guarantees ⁽¹⁾	￦	4,168	￦	1,660	￦	2,121	￦	339	￦	48
Confirmed acceptances and guarantees		6,298		4,733		1,059		478		28
Commitments		159,743		121,501		8,476		1,253		28,513

Total	￦	170,209	￦	127,894	￦	11,656	￦	2,070	￦	28,589

⁽¹⁾	Includes ￦3,597 billion of irrevocable commitments to provide contingent liquidity credit lines to special purpose entities for which we serve as the administrator. See Note 40 of the notes to our consolidated financial statements.

Capital Adequacy

Kookmin Bank is subject to capital adequacy requirements of the Financial Services Commission applicable to Korean banks. The requirements applicable commencing in December 2013 pursuant to amended Financial Services Commission regulations promulgated in July 2013 were formulated based on Basel III, which was first introduced by the Basel Committee on Banking Supervision, Bank for International Settlements in December 2009. Under the amended Financial Services Commission regulations, all banks in Korea are required to maintain certain minimum ratios of common equity Tier I capital, total Tier I capital and total Tier I and Tier II capital to risk-weighted assets. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Banks—Capital Adequacy.”

As of December 31, 2020, Kookmin Bank’s total Tier I and Tier II capital adequacy ratio was 17.78%.

171

The following table sets forth a summary of Kookmin Bank’s capital and capital adequacy ratios as of December 31, 2018, 2019 and 2020, based on applicable regulatory reporting standards.


	As of December 31,
	2018			2019			2020
	(in billions of Won, except percentages)
Tier I capital:	￦	25,568		￦	27,610		￦	28,234
Common equity Tier I capital		25,568			27,035			27,659
Paid-in capital		2,022			2,022			2,022
Capital reserves		5,219			5,219			4,808
Retained earnings		19,311			21,065			22,243
Non-controlling interests in consolidated subsidiaries		—			—			—
Others		(984	)		(1,271	)		(1,414	)
Additional Tier I capital		—			575			575
Tier II capital:		2,126			2,200			4,321
Revaluation reserves		—			—			—
Allowances for credit losses ⁽¹⁾		69			59			337
Hybrid debt		—			—			—
Subordinated debt		2,057			2,141			3,984
Valuation gain on financial investments		—			—			—
Others		—			—			—

Total core and supplementary capital		27,694			29,810			32,555
Risk-weighted assets		178,433			188,075			183,148
Credit risk:
On-balance sheet		154,189			158,488			146,229
Off-balance sheet		9,504			14,497			14,588
Market risk		4,748			5,151			11,373
Operational risk		9,992			9,939			10,958
Total Tier I and Tier II capital adequacy ratio		15.52	%		15.85	%		17.78	%
Tier I capital adequacy ratio		14.33	%		14.68	%		15.42	%
Common equity Tier I capital adequacy ratio		14.33	%		14.37	%		15.10	%
Tier II capital adequacy ratio		1.19	%		1.17	%		2.36	%

⁽¹⁾

Under the standardized approach, allowances for credit losses in respect of credits classified as normal or precautionary are used to calculate Tier II capital only to the extent they represent up to 1.25% of credit risk-weighted assets. Under the internal ratings-based approach, allowances for credit losses, less estimated losses, are used to calculate Tier II capital only to the extent they represent up to 0.6% of credit risk-weighted assets.

In addition, we, as a bank holding company, are required to maintain certain minimum capital adequacy ratios pursuant to applicable regulations of the Financial Services Commission. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy.”

172

The following table sets forth a summary of our consolidated capital adequacy ratio as of December 31, 2018, 2019 and 2020, based on applicable regulatory reporting standards.


	As of December 31,
	2018			2019			2020
	(in billions of Won)
Tier I capital
Common equity Tier I capital	￦	32,994		￦	34,710		￦	34,886
Additional Tier I capital		—			716			2,009

Total Tier I capital	￦	32,994		￦	35,426		￦	36,895
Tier II capital		1,482			1,569			3,184

Risk-weighted assets	￦	236,099		￦	255,549		￦	262,349

Total Tier I and Tier II capital adequacy ratio		14.60	%		14.48	%		15.28	%
Tier I capital adequacy ratio		13.97	%		13.86	%		14.06	%
Common equity Tier I capital adequacy ratio		14.60	%		13.58	%		13.30	%
Tier II capital adequacy ratio		0.63	%		0.62	%		1.21	%

Recent Accounting Pronouncements

See Note 2.1 of the notes to our consolidated financial statements for a description of other recent accounting pronouncements under IFRS as issued by the IASB that have been issued but are not yet effective.

Item 5.C.

Research and Development, Patents and Licenses, etc.

Not applicable.

Item 5.D.

Trend Information

These matters are discussed under Item 5.A. and Item 5.B. above where relevant.

Item 5.E.

Off -Balance Sheet Arrangements

See “Item 5B. Liquidity and Capital Resources—Financial Condition—Contractual Cash Obligations” and “Item 5B. Liquidity and Capital Resources—Financial Condition—Commitments and Guarantees.”

Item 5.F.

Tabular Disclosure of Contractual Obligations

See “Item 5B. Liquidity and Capital Resources—Financial Condition—Contractual Cash Obligations.”

Item 5.G.

Safe Harbor

See “Forward-Looking Statements.”

Item 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Item 6.A.

Directors and Senior Management

Board of Directors

Our board of directors, currently consisting of one executive director, one non-standing director and seven non-executive directors, has the ultimate responsibility for the management of our affairs.

173

Our articles of incorporation provide that:

•

we may have no more than 30 directors;

•

the number of executive directors must be less than 50% of the total number of directors; and

•

we have five or more non-executive directors.

The term of office for each director is renewable and is subject to the Korean Commercial Code, the Act on the Corporate Governance of Financial Companies and related regulations.

Our board of directors meets on a regular basis to discuss and resolve material corporate matters. Additional extraordinary meetings may also be convened at the request of any director or any committee that serves under the board of directors.

The names and positions of our directors are set forth below. The business address of all of the directors is our registered office at 26, Gukjegeumyung-ro 8-gil, Yeongdeungpo-gu, Seoul 07331, Korea.

Executive Director

The table below identifies our executive director as of the date of this annual report:

Name

Date of Birth

Position

Director Since

End of Term

Jong Kyoo Yoon

October 13, 1955

Chairman and Chief Executive Officer

November 21, 2014

November 20, 2023

Our executive director does not have any significant activities outside KB Financial Group.

Jong Kyoo Yoon is our chairman and chief executive officer. He has been an executive director since November 2014. He previously served as the president and chief executive officer of Kookmin Bank, our deputy president, chief financial officer and chief risk management officer, a senior advisor of Kim & Chang, a senior executive vice president, chief financial officer and chief strategic officer of Kookmin Bank and a senior partner of Samil PricewaterhouseCoopers. Mr. Yoon received a B.A. in business administration from Sungkyunkwan University, an M.B.A. from Seoul National University and a Ph.D. in business administration from Sungkyunkwan University.

Non-standing Director

The table below identifies our non-standing director as of the date of this annual report:


Name	Date of Birth	Position	Director Since	End of Term
Yin Hur	December 19, 1961	Non-standing director; President and Chief Executive Officer of Kookmin Bank	November 21, 2017	March 19, 2022

Yin Hur has been a non-standing director since November 2017. He currently serves as the president and chief executive officer of Kookmin Bank. Mr. Hur previously served as a senior executive vice president of the sales group, a senior managing director of the strategy and finance planning group, and a managing director of the credit analysis division, at Kookmin Bank. Mr. Hur received a B.A. in law and an M.A. in law from Seoul National University.

Non-executive Directors

Our non-executive directors are selected based on the candidates’ knowledge and experience in diverse areas, such as financial business, accounting, finance, law and regulation, risk management and consumer protection. All seven non-executive directors below were nominated by our Non-executive Director Nominating Committee and approved by our shareholders.

174

The table below identifies our non-executive directors as of the date of this annual report:


Name	Date of Birth	Position	Director Since	Date Term Ends ⁽¹⁾
Suk Ho Sonu	September 16, 1951	Chairman of the Board and Non-executive Director	March 23, 2018	March 25, 2022
Stuart B. Solomon	July 17, 1949	Non-executive Director	March 24, 2017	March 25, 2022
Myung Hee Choi	February 22, 1952	Non-executive Director	March 23, 2018	March 25, 2022
Kouwhan Jeong	September 30, 1953	Non-executive Director	March 23, 2018	March 25, 2022
Kyung Ho Kim	December 21, 1954	Non-executive Director	March 27, 2019	March 25, 2022
Seon-joo Kwon	November 12, 1956	Non-executive Director	March 20, 2020	March 19, 2022
Gyutaeg Oh	February 20, 1959	Non-executive Director	March 20, 2020	March 19, 2022

⁽¹⁾	The date on which each term will end will be the date of the general stockholders’ meeting in the relevant year unless otherwise specified.

Suk Ho Sonu has been a non-executive director since March 2018. He is currently a visiting professor at Hongik University School of Business Administration. He previously served as a visiting professor at Seoul National University Business School, the dean of Hongik University Graduate School of Business Administration, president of the Korea Money and Finance Association and president of the Korea Finance Association. Mr. Sonu received a B.A. in applied mathematics from Seoul National University, an M.B.A. from the Kellogg School of Management of Northwestern University and a Ph.D. in finance from the Wharton School of the University of Pennsylvania.

Stuart B. Solomon has been a non-executive director since March 2017. He previously served as the chairman, president and chief executive officer of MetLife Korea. Mr. Solomon received an undergraduate degree from Syracuse University.

Myung Hee Choi has been a non-executive director since March 2018. She is currently a vice president at the Korea Internal Control Assessment Institute. She previously served as an auditor at the Korea Exchange Bank, a director of the Financial Supervisory Service and senior operations officer of Citibank Korea Inc. Ms. Choi received a B.A. in English from Yonsei University.

Kouwhan Jeong has been a non-executive director since March 2018. He is currently the co-president attorney-at-law of Nambujeil Law and Notary Office Inc. He previously served as the chairperson of the Consumer Dispute Settlement Commission of the Korea Consumer Agency, a standing mediator at Korea Medical Dispute Mediation and Arbitration Agency and the branch chief prosecutor at the Bucheon Branch Office of the Incheon District Prosecutor’s Office. Mr. Jeong received a B.A. in law from Seoul National University.

Kyung Ho Kim has been a non-executive director since March 2019. He previously served as a professor at Hongik University School of Business Administration, the vice president of Hongik University, a non-executive director of Shinhan Investment Corp., a non-executive director of Citibank Korea Inc., a vice chairman of the Korea Accounting Institute and president of the Korea Association for Government Accounting. Mr. Kim received a B.A. in business administration from Seoul National University and an M.S. and a Ph.D. in management from Purdue University.

Seon-joo Kwon has been a non-executive director since March 2020. She previously served a number of roles at Industrial Bank of Korea, including the chairman and chief executive officer, the head of the risk management division, the head of the credit card business division and the head of the central regional headquarters. She also previously served as a visiting scholar at the Korea Institute of Finance. Ms. Kwon received a B.A. in English from Yonsei University.

175

Gyutaeg Oh has been a non-executive director since March 2020. He is currently a professor at Chung-Ang University School of Business Administration. He previously served as a member of the Public Funds Oversight Committee of the Financial Services Commission, an assistant professor at the University of Iowa, a non-executive director at Kiwoom Securities Co., Ltd. and a non-executive director at Moa Savings Bank. Mr. Oh received a B.A. in economics from Seoul National University, an M.S. in management science from the Korea Advanced Institute of Science and Technology and an M.A. and a Ph.D. in economics from Yale University.

Any director having an interest in a transaction that is subject to approval by the board of directors may not vote at the meeting during which the board approves the transaction.

Executive Officers

The table below identifies our executive officers who are not executive directors as of the date of this annual report:


Name	Date of Birth	Position
Jong Hee Yang	June 10, 1961	Vice Chairman and Chief Operation Officer
Chang Kwon Lee	November 15, 1965	Senior Executive Vice President, Chief Strategy Officer and Chief Global Strategy Officer
Hwan-Ju Lee	October 26, 1964	Senior Executive Vice President and Chief Finance Officer
Pil Kyu Im	March 20, 1964	Senior Executive Vice President and Chief Risk Management Officer
Woo Yeul Lee	November 21, 1964	Senior Executive Vice President and Chief Human Resources Officer
Dong Whan Han	January 30, 1965	Senior Executive Vice President and Chief Digital Platform Officer
Jin Gyu Maeng	January 15, 1966	Senior Managing Director and Head of Audit
Bong Joong Kwon	November 5, 1969	Managing Director and Head of IR
Byung Joo Oh	January 4, 1973	Managing Director, Insurance Business Unit
Hye Ja Suh	September 26, 1966	Managing Director and Chief Compliance Officer
Seok Mun Choi	August 9, 1968	Managing Director and Head of the Office of Board of Directors
Soon Bum Kwon	October 20, 1966	Managing Director
Sung Hyun Kim	August 5, 1963	Head of Corporate and Investment Banking Business Unit
Jeong Rim Park	November 27, 1963	Head of Capital Market Business Unit
Dong Cheol Lee	October 4, 1961	Head of Retail Customer Business Unit
Young Gil Kim	January 3, 1963	Head of Wealth Management and Pension Business Unit
Woon Tae Kim	May 17, 1963	Head of Small and Medium Enterprise Business Unit
Jin Young Kim	August 5, 1969	Chief Public Relations Officer
Jin Soo Yoon	February 29, 1964	Chief Information Technology Officer
Chang Hwa Yook	December 11, 1967	Chief Data Officer
Sang Cheol Heo	December 10, 1965	Chief Contact Center Officer
Jae Young Choi	June 7, 1967	Head of Pension Business Division
Sang-Hyeon Woo	February 3, 1964	Senior Executive Vice President, Corporate and Investment Banking Business Unit
Jeong Ha	January 31, 1967	Senior Executive Vice President, Capital Market Business Unit
Chai Hyun Sung	September 12, 1965	Senior Executive Vice President, Retail Customer Business Unit
Chan Yong Park	September 12, 1965	Head of Office of Planning and Coordination
Sungpyo Jeon	August 20, 1966	Head of Future Contact Center Planning
Young Suh Cho	February 25, 1971	Head of KB Research

176

None of the executive officers has any significant activities outside KB Financial Group.

Jong Hee Yang is the vice chairman and our chief operation officer. He previously served as the chief executive officer of KB Insurance. Mr. Yang received a B.A. in history from Seoul National University.

Chang Kwon Lee is a senior executive vice president who serves as our chief strategy officer as well as our chief global strategy officer. He previously served as a general manager of KB Kookmin Card’s strategic planning department. Mr. Lee received a B.A. in applied statistics from Korea University.

Hwan-Ju Lee is a senior executive vice president and our chief finance officer. He previously served as a senior executive vice president of Kookmin Bank’s strategy and finance planning group. Mr. Lee received a B.A. in business administration from Sungkyunkwan University and an M.B.A. from the Helsinki School of Economics.

Pil Kyu Im is a senior executive vice president and our chief risk management officer. He previously served as our chief human resources officer, our chief compliance officer and as the branch manager of Kookmin Bank’s Gwanghwamun branch and Star Tower branch. Mr. Im received an M.A. in economics from Korea University.

Woo Yeul Lee is a senior executive vice president and our chief human resources officer. He previously served as our chief information technology officer and as a senior executive vice president of Kookmin Bank’s information technology group. Mr. Lee received an M.A. in economics from Korea University.

Dong Whan Han is a senior executive vice president and our chief digital platform officer. He previously served as our chief digital innovation officer and as a senior executive vice president of Kookmin Bank’s digital financial group. Mr. Han received an M.S. in geography from Seoul National University and an M.B.A. from the University of Washington.

Jin Gyu Maeng is a senior managing director and the head of audit. He previously served as the head of our office of planning and coordination. Mr. Maeng received a B.A. in economics from Dongguk University.

Bong Joong Kwon is a managing director and the head of IR. He previously served as the general manager of our IR department. Mr. Kwon received a B.A. in law from Hallym University and an M.B.A. from Yonsei University.

Byung Joo Oh is a managing director in our insurance business unit. He previously served as a general manager of KB Insurance’s strategic planning department. Mr. Oh received a B.A. in statistics from Korea University.

Hye Ja Suh is a managing director and our chief compliance officer. She previously served as the head of Kookmin Bank’s Sangin-yeok regional head office. Ms. Suh received a B.A. in law from Kyungpook National University.

Seok Mun Choi is a managing director and the head of the office of board of directors. He previously served as a general manager of Kookmin Bank’s general affairs department. Mr. Choi received a B.A. in public administration from Chosun University and an M.S. in public policy from Sungkyunkwan University.

Soon Bum Kwon is a managing director. He previously served as an executive secretary for our company and Kookmin Bank, as well as a general manager of Kookmin Bank’s human resources department. Mr. Kwon received a B.A. in public administration from Korea University.

Sung Hyun Kim is the head of our corporate and investment banking business unit and also serves as the chief executive officer of KB Securities. He previously served as a senior executive vice president of the investment banking division of KB Securities. Mr. Kim received a B.A. in economics from Yonsei University.

177

Jeong Rim Park is the head of our capital market business unit and also serves as the chief executive officer of KB Securities. She previously served as a senior executive vice president of Kookmin Bank and the head of its wealth management group, as well as a senior executive vice president of KB Securities in charge of its wealth management division. Ms. Park received a B.A. in business administration and an M.B.A. from Seoul National University.

Dong Cheol Lee is the head of our retail customer business unit and also serves as the chief executive officer of KB Kookmin Card. He previously served as a senior executive vice president in charge of our strategy planning department. Mr. Lee received a B.A. in law from Korea University.

Young Gil Kim is the head of our wealth management and pension business unit. He also serves as a senior executive vice president of Kookmin Bank’s wealth management customer group, a senior executive vice president of KB Securities’ wealth management business unit and a senior executive vice president of KB Insurance’s pension business unit. He previously served as the head of Kookmin Bank’s investment product and service division. Mr. Kim received a B.S. in statistical computation from Chungnam National University.

Woon Tae Kim is the head of our small and medium enterprise business unit. He also serves as a senior executive vice president of Kookmin Bank’s SME and SOHO customer group. He previously served as the head of Kookmin Bank’s Daejeon & Chungnam regional sales group. He received a B.A. in agricultural economics from Dongguk University and an M.B.A. from the Helsinki School of Economics.

Jin Young Kim is our chief public relations officer. He also serves as a managing director in Kookmin Bank’s brand and ESG group. He previously served as a general manager of Kookmin Bank’s brand strategy department. He received a B.A. in law from Hanyang University and an M.A. in advertising and public relations from Yonsei University.

Jin Soo Yoon is our chief information technology officer. He also serves as a senior executive vice president of the tech group at Kookmin Bank. He previously served as our chief data officer. Mr. Yoon received a B.S. in computer science from Seoul National University and an M.S. and a Ph.D. from the Korea Advanced Institute of Science and Technology.

Chang Hwa Yook is our chief data officer. He also serves as the head of Kookmin Bank’s data platform division and as a managing director at Kookmin Card’s data strategy division. Mr. Yook received a B.S. in economics from Chungnam National University.

Sang Cheol Heo is our chief contact center officer. He also serves as a senior managing director of Kookmin Bank’s smart customer group. He previously served as the head of Kookmin Bank’s Nambu regional sales group. Mr. Heo received a B.A. in business administration from Daejeon University and an M.S. in public policy from Korea University.

Jae Young Choi is the head of our pension business division. He also serves as the head of the pension business divisions at Kookmin Bank and KB Securities. He previously served as the general manager of Kookmin Bank’s pension business department. Mr. Choi received a B.A. in accounting information from Kookmin University and an M.B.A. from Yonsei University.

Sang-Hyeon Woo is a senior executive vice president and directs our corporate and investment banking business unit. He also serves as a senior executive vice president of Kookmin Bank’s corporate investment banking customer group and KB Securities’ investment banking business unit. He previously served as the head of Kookmin Bank’s investment banking business division. Mr. Woo received a B.A. in business administration and an M.B.A. from Korea University.

Jeong Ha is a senior executive vice president and directs our capital market business unit. He also serves as a senior executive vice president of Kookmin Bank’s capital markets group. He previously served as the head of

178

Kookmin Bank’s capital markets division. Mr. Ha received a B.A. in business administration from Jeonbuk National University and an M.B.A. from the Korea Advanced Institute of Science and Technology.

Chai Hyun Sung is a senior executive vice president and directs our retail customer business unit. He also serves as a senior executive vice president of Kookmin Bank and heads its retail customer group. He previously served as our chief public relations officer, chief human resources officer and as an executive secretary for our company and Kookmin Bank. Mr. Sung received a B.A. in accounting from Jeonbuk National University.

Chan Yong Park is the head of the office of planning and coordination. He is also a managing director of Kookmin Bank’s planning and coordination department. He previously served as the head of Kookmin Bank’s shared service division. Mr. Park received a B.A. in business administration from Kwandong University.

Sungpyo Jeon is the head of our future contact center planning. He also serves as the head of Kookmin Bank’s future contact center implementation department. He previously served as the head of Kookmin Bank’s outbound supporting division. Mr. Jeon received a B.S. and an M.S. in land administration from Kangwon National University.

Young Suh Cho is the head of KB Research. He also serves as a senior managing director of Kookmin Bank’s digital transformation strategy division. He previously served at Shinhan DS (formerly Shinhan Data System) and Shinhan Financial Group, and as a partner at Bain & Company. Mr. Cho received a B.A. in economics from Seoul National University and an M.B.A. from Columbia University.

Item 6.B.

Compensation

The aggregate remuneration paid and benefits-in-kind granted, excluding stock grants, by us and our subsidiaries to our chairman and chief executive officer, our other executive and non-standing directors, our non-executive directors and our executive officers for the year ended December 31, 2020 was ￦21,229 million. For the year ended December 31, 2020, we set aside ￦851 million for allowances for severance and retirement benefits for our chairman and chief executive officer, the other executive directors and our executive officers.

Among those who received total annual compensation exceeding ￦500 million in 2020 at the holding company level, the five highest-paid individuals were as follows:


Name	Position	Total Compensation in 2020 (in millions of Won) ⁽¹⁾	Incentive Compensation for Payment Subsequent to 2020 (number of shares) ⁽²⁾
Jong Kyoo Yoon	Chairman and Chief Executive Officer	￦2,657	39,224
Kyung Yup Cho	Senior Executive Vice President; KB Research	941	12,684
Young Hyuk Jo	Senior Executive Vice President; Audit Department	866	4,165
Pil Kyu Im	Senior Executive Vice President and Chief Human Resources Officer	761	6,776
Ki-Hwan Kim	Senior Executive Vice President and Chief Finance Officer	706	4,838

⁽¹⁾	Includes annual salary and performance-based incentive payments paid by the holding company.

⁽²⁾	Consists of performance-based shares expected to be granted by the holding company in the future. The actual payment amount will be determined at the time of payment based on the then-current market price of our common shares.

179

We do not have service contracts with any of our directors or executive officers providing for benefits upon termination of their employment with us.

In 2008, we established a stock grant plan. Pursuant to this plan, we have entered into performance share agreements with certain of our and our subsidiaries’ directors and executive officers, whereby we may grant shares of our common stock (or the equivalent monetary amount based on the market value of such shares) within specified periods as long-term incentive performance shares in accordance with pre-determined performance targets. See “Item 6.E. Share Ownership—Performance Share Agreements.” In 2020, we incurred ￦49,364 million of compensation costs relating to stock grants under such agreements. See Note 32.1 of the notes to our consolidated financial statements included elsewhere in this annual report.

Item 6.C.

Board Practices

See “Item 6.A. Directors and Senior Management” above for information concerning the terms of office and contractual employment arrangements with our directors and executive officers.

Committees of the Board of Directors

We currently have the following committees that serve under the board:

•

the Audit Committee;

•

the Risk Management Committee;

•

the Evaluation & Compensation Committee;

•

the Non-Executive Director Nominating Committee;

•

the Audit Committee Member Nominating Committee;

•

the CEO Nominating Committee;

•

the Subsidiaries’ CEO Director Nominating Committee; and

•

the ESG Committee.

Each committee member is appointed by the board of directors, except for members of the Audit Committee, who are elected at the general meeting of stockholders.

Audit Committee

The committee currently consists of four non-executive directors, Suk Ho Sonu, Myung Hee Choi, Gyutaeg Oh and Kyung Ho Kim. The chairperson of the Audit Committee is Kyung Ho Kim. The committee oversees our financial reporting and approves the appointment of our independent registered public accounting firm. The committee also reviews our financial information, auditor’s examinations, key financial statement issues, the plans and evaluation of internal control and the administration of our financial affairs by the board of directors. In connection with the general meetings of stockholders, the committee examines the agenda for, and financial statements and other reports to be submitted by, the board of directors to each general meeting of stockholders. The committee holds regular meetings every quarter.

Risk Management Committee

The committee currently consists of four non-executive directors, Stuart B. Solomon, Kyung Ho Kim, Seon-joo Kwon and Gyutaeg Oh. The chairperson of the committee is Seon-joo Kwon. The Risk Management Committee oversees and makes determinations on all issues relating to our comprehensive risk management function. In order to ensure our stable financial condition and to maximize our profits, the committee monitors

180

our overall risk exposure and reviews our compliance with risk policies and risk limits. In addition, the committee reviews risk and control strategies and policies, evaluates whether each risk is at an adequate level, establishes or abolishes risk management divisions and reviews risk-based capital allocations. The committee holds regular meetings every quarter.

Evaluation & Compensation Committee

The committee currently consists of four non-executive directors, Suk Ho Sonu, Kouwhan Jeong, Seon-joo Kwon and Gyutaeg Oh. The chairperson of the committee is Kouwhan Jeong. The Evaluation and Compensation Committee reviews compensation schemes and compensation levels of us and our subsidiaries. The committee is also responsible for deliberating and deciding the compensation of directors, evaluating management’s performance and implementing management training programs, as well as deciding and supervising the performance-based annual salary of the president and the executive officers of us and our subsidiaries. The committee holds regular meetings semi-annually.

Non-executive Director Nominating Committee

The committee currently consists of four non-executive directors, Stuart B. Solomon, Myung Hee Choi, Kouwhan Jeong and Kyung Ho Kim. The chairperson of the committee is Myung Hee Choi. The committee is responsible for the management and evaluation of a pool of non-executive director candidates and recommendation of the non-executive director candidates to be nominated at the annual general meeting of shareholders.

Audit Committee Member Nominating Committee

The committee currently consists of all seven of our non-executive directors. The chairperson of the committee is Suk Ho Sonu. The committee oversees the selection of Audit Committee member candidates and recommends them annually sometime prior to the general stockholders meeting. The term of office of its members is from the first meeting of the committee held to nominate the Audit Committee members until the Audit Committee members are appointed.

CEO Nominating Committee

The committee currently consists of all seven of our non-executive directors. The chairperson of the CEO Nominating Committee is Suk Ho Sonu. The committee is responsible for establishing and monitoring procedures for our CEO candidate cultivation and succession program pursuant to our “CEO Succession Regulations,” which cover, among other things, the qualifications of CEO candidates, continued maintenance of the candidate pool and the CEO candidate nomination process. The committee holds regular meetings semi-annually.

Subsidiaries’ CEO Director Nominating Committee

The committee currently consists of one non-standing director, Yin Hur, and three non-executive directors, Myung Hee Choi, Kouwhan Jeong and Seon-joo Kwon, together with our chairman and chief executive officer, Jong Kyoo Yoon. The chairperson of the Subsidiaries’ CEO Director Nominating Committee is Jong Kyoo Yoon. The committee is responsible for candidate cultivation and succession programs for chief executive officers of our subsidiaries. The committee holds regular meetings semi-annually.

ESG Committee

The Committee currently consists of all seven of our non-executive directors, one non-standing director, Yin Hur, and our chairman and chief executive officer, Jong Kyoo Yoon. The chairperson of the ESG Committee is

181

Gyutaeg Oh. The committee is responsible for establishing and enforcing strategies and policies relating to non-financial aspects of our business, which consist of the environment, social responsibility and corporate governance, in order to promote sustainable development and enhance our corporate value. The committee also manages ESG-related products and investments and monitors ESG-related global initiatives and community outreach efforts. The committee holds regular meetings semi-annually.

Item 6.D.

Employees

As of December 31, 2020, we had a total of 154 full-time employees, excluding 26 executive officers, at our financial holding company.

The following table sets forth information regarding our employees at both our financial holding company and our subsidiaries as of the dates indicated:


		As of December 31,
		2018		2019		2020
KB Financial Group	Full-time employees ⁽¹⁾		170		153		154
	Contractual employees		—		—		—
	Managerial employees		151		135		134
	Members of Korea Financial Industry Union		—		—		—
Kookmin Bank	Full-time employees ⁽¹⁾		16,802		16,413		16,054
	Contractual employees		1,309		1,545		1,728
	Managerial employees		9,615		9,276		9,026
	Members of Korea Financial Industry Union		14,697		14,642		14,266
Other subsidiaries	Full-time employees ⁽¹⁾		8,753		8,777		9,319
	Contractual employees		1,290		1,131		1,062
	Managerial employees		4,675		4,840		5,256
	Members of Korea Financial Industry Union		6,005		5,958		6,565

⁽¹⁾	Excluding executive officers.

We consider our relations with our employees to be satisfactory. We and our subsidiaries each have a joint labor-management council which serves as a forum for ongoing discussions between our management and employees. At eight of our subsidiaries, Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card, KB Capital, KB Real Estate Trust, KB Data Systems and KB Credit Information, our employees have a labor union. Every year, the unions at Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card, KB Capital, KB Real Estate Trust, KB Data Systems and KB Credit Information and their respective managements negotiate and enter into new collective bargaining agreements and negotiate annual wage adjustments.

Our compensation packages consist of base salary and base bonuses. We also provide performance-based compensation to employees and management officers, including those of our subsidiaries, depending on the level of responsibility of the employee or officer and business of the relevant subsidiary. Typically, executive officers, heads of regional headquarters and employees in positions that require professional skills, such as fund managers and dealers, are compensated depending on their individual annual performance evaluation. Also, Kookmin Bank has implemented a profit-sharing system in order to enhance the performance of Kookmin Bank’s employees. Under this system, Kookmin Bank pays bonuses to its employees, in addition to the base salary and depending on Kookmin Bank’s annual performance.

In January 2016, Kookmin Bank implemented a “mileage stock” program, pursuant to which its employees may receive performance-based cash payments that correspond to the market value of our common shares. The accumulated “miles” of common shares can be exercised for cash during a two-year period commencing on the one-year anniversary of the grant date.

182

We provide a wide range of benefits to our employees, including our executive directors. Specific benefits provided may vary for each of our subsidiaries but generally include medical insurance, employment insurance, workers compensation, employee and spouse life insurance, free medical examinations, child tuition and fee reimbursement, disabled child financial assistance and reimbursement for medical expenses, and other benefits may be provided depending on the subsidiary.

In accordance with the National Pension Act, we contribute an amount equal to 4.5% of employee wages, and each employee contributes 4.5% of his or her wages, into each employee’s personal pension account. In addition, in accordance with the Guarantee of Worker’s Retirement Benefits Act, we have adopted a retirement pension plan for our employees. Contributions under the retirement pension plan are deposited annually into a financial institution, and an employee may elect to receive a monthly pension or a lump-sum amount upon retirement. Our retirement pension plans are provided in the form of a defined benefit plan and a defined contribution plan. The defined benefit plan guarantees a certain payout at retirement, according to a fixed formula based on the employee’s average salary and the number of years for which the employee has been a plan member. The defined contribution plan, in which the employer’s contribution is determined in advance based on one twelfth of an employee’s total annual pay, is managed directly by the employees. Under Korean law, we may not terminate the employment of full-time employees except under certain limited circumstances. However, from time to time, we invite our employees to apply for our early retirement programs, which provide for varying amounts of severance pay based on the duration of time an employee has worked for us, along with several other key features. We believe that such programs enhance our productivity and efficiency by improving our labor structure.

In June 2009, we established an employee stock ownership association. All of our employees are eligible to participate in this association. We are not required to, and do not, make cash contributions to this plan. Members of our employee stock ownership association have pre-emptive rights to acquire up to 20% of our shares issued in public offerings by us pursuant to the Financial Investment Services and Capital Markets Act. In August 2009, we offered to members of our employee stock ownership association 6,000,000 of the 30,000,000 new shares of common stock to be issued in our rights offering to our existing shareholders, and the entire amount was subscribed by members of our employee stock ownership association. The employee stock ownership association held 7,390,109 shares of our common stock as of December 31, 2020.

Employees of Kookmin Bank have been eligible to participate in its employee stock ownership association, which will be terminated once all of our common stock held by the association (which the association received following the transfer of Kookmin Bank shares held by it as a result of the comprehensive stock transfer pursuant to which we were established) have been distributed to the relevant Kookmin Bank employees at the requests of such employees following the expiration of the required holding periods. As of December 31, 2020, such employee stock ownership association held 287,355 shares of our common stock.

In order to develop our next generation of leaders and enhance the operational capability of our employees at each of our subsidiaries, we operate various employee training programs. These programs, which are aimed at cultivating financial specialists with higher levels of management and business skills, developing regional experts for increased global capabilities and enhancing employee loyalty, comprise a number of customized programs such as training courses for employees of different positions, domestic and foreign M.B.A. courses and intensive human resources development programs for high performers to cultivate future leaders. For example, Kookmin Bank offers training programs at its employees’ worksites to facilitate access to training, as well as a foreign regional expert training program and a global language training course. We also provide financial and other support for our employees to develop their finance-related knowledge and skills by enrolling in training courses or engaging in self-study programs. The broad spectrum of training programs, combined with the state-of-the-art technologies such as cyber training, satellite broadcasting and mobile-learning, maximizes the level of exposure of the trainees to the contents of the programs. We also believe that our training scheme based on classified training courses and a development evaluation system has facilitated systemic development of employee skills and a spontaneous learning environment.

183

Item 6.E.

Share Ownership

Common Stock

As of March 31, 2021, the persons who are currently our directors or executive officers, as a group, held an aggregate of 86,895 shares of our common stock, representing approximately 0.02% of the issued shares of our common stock as of such date. None of these persons individually held more than 1% of the outstanding shares of our common stock as of such date. The following table presents information regarding our directors and executive officers who beneficially owned our shares as of March 31, 2021:


Name of Executive Officer or Director	Number of Shares of Common Stock
Jong Kyoo Yoon		21,000
Yin Hur		13,500
Suk Ho Sonu		1,300
Jong Hee Yang		914
Chang Kwon Lee		2,010
Hwan-Ju Lee		3,058
Pil Kyu Im		1,005
Woo Yeul Lee		1,931
Dong Whan Han		1,100
Jin Gyu Maeng		865
Bong Joong Kwon		286
Byung Joo Oh		550
Hye Ja Suh		1,121
Seok Mun Choi		843
Soon Bum Kwon		1,674
Sung Hyun Kim		15,468
Jeong Rim Park		3,150
Dong Cheol Lee		3,325
Young Gil Kim		542
Woon Tae Kim		1,488
Jin Young Kim		765
Jin Soo Yoon		100
Chang Hwa Yook		367
Sang Cheol Heo		521
Jae Young Choi		738
Sang-Hyeon Woo		348
Jeong Ha		0
Chai Hyun Sung		7,360
Chan Yong Park		768
Sungpyo Jeon		798
Young Suh Cho		—

Total		86,895

Performance Share Agreements

Pursuant to a stock grant plan we established in 2008, we have entered into performance share agreements with certain of our and our subsidiaries’ directors and executive officers, pursuant to which we may grant shares of our common stock (or the equivalent monetary amount based on the market value of such shares) within specified periods as long-term incentive performance shares in accordance with pre-determined performance targets. Since January 2010, in accordance with the best practice guidelines for outside directors of banking

184

institutions announced by the Korea Federation of Banks, which have been replaced with the Financial Corporate Governance Code issued by the Financial Services Commission in December 2014, we have not entered into any performance share agreements with our non-executive directors.

Actual disbursements under the performance share agreements with our and our subsidiaries’ directors and executive officers have generally been in the form of cash disbursements of equivalent monetary amounts based on the market value of our shares.

Item 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Item 7.A.

Major Shareholders

The following table presents information regarding the beneficial ownership of our shares at December 31, 2020 by each person or entity known to us to own beneficially more than 5% of our issued and outstanding shares.

Except as otherwise indicated, each stockholder identified by name has:

•

sole voting and investment power with respect to its shares; and

•

record and beneficial ownership with respect to its shares.


Beneficial Owner	Number of Shares of Common Stock		Percentage of Total Outstanding Shares of Common Stock (%) ⁽¹⁾
Korean National Pension Service		41,287,280		9.93	%
JP Morgan Chase Bank, N.A. ⁽²⁾		25,053,574		6.03	%

⁽¹⁾	Calculated based on 415,807,920 shares of our common stock issued as of December 31, 2020.

⁽²⁾	As depositary bank.

Other than as set forth above, no other person or entity known by us to be acting in concert, directly or indirectly, jointly or separately, owned 5.0% or more of the issued shares of our common stock or exercised control or could exercise control over us as of December 31, 2020. None of our major stockholders has different voting rights from our other stockholders.

As of December 31, 2020, there were 389,634,335 shares of common stock outstanding. Of the total outstanding shares, 25,053,574 shares were held in the form of ADSs and 89,434,223 shares were held of record in the form of common stock by residents in the United States. As of December 31, 2020, the number of registered holders of our ADSs was 23 and the number of holders of our common stock in the United States was 617.

Item 7.B.

Related Party Transactions

As of December 31, 2020, we had an aggregate of ￦5,158 million in loans outstanding to our executive officers and directors, executive officers and directors of Kookmin Bank and chief executive officers of our other subsidiaries, including family members of such individuals. In addition, as of such date, we had loans outstanding to various companies whose directors or executive officers were serving concurrently as our directors or executive officers. See Note 43 of the notes to our consolidated financial statements included elsewhere in this annual report. All of these loans were made in the ordinary course of business, on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons and did not involve more than the normal risk of collectability or present other unfavorable features.

185

None of our directors or officers have or had any interest in any transactions effected by us that are or were unusual in their nature or conditions or significant to our business which were effected during the current or immediately preceding year or were effected during an earlier year and remain in any respect outstanding or unperformed.

Item 7.C.

Interests of Experts and Counsel

Not applicable.

Item 8.

FINANCIAL INFORMATION

Item 8.A.

Consolidated Statements and Other Financial Information

See “Item 18. Financial Statements” and pages F-1 through F-247.

Legal Proceedings

Excluding the legal proceedings discussed below, we and our subsidiaries are not a party to any legal or administrative proceedings and no proceedings are known by any of us or our subsidiaries to be contemplated by governmental authorities or third parties, which, if adversely determined, may have a material adverse effect on our consolidated financial condition or results of operations.

In June 2010, Fairfield Sentry Limited, or Fairfield, which is currently in liquidation and whose assets were directly or indirectly invested with Bernard L. Madoff Investment Securities LLC, or BLMIS, filed a lawsuit in the Supreme Court of the State of New York against Kookmin Bank, which acted as a trustee bank for its clients who invested in Fairfield. Fairfield seeks recovery of approximately US$42 million paid to Kookmin Bank by its clients in connection with share redemptions on the ground that such payments were made by mistake, based on inflated values resulting from BLMIS’ fraud. In September 2010, the case was transferred to the United States Bankruptcy Court for the Southern District of New York, or the Bankruptcy Court, which in turn ordered that the case be returned to a state court in September 2011 but then stayed the lawsuit before it was sent to state court. While the case was stayed, the Bankruptcy Court issued an opinion in December 2018 holding that the claims against Kookmin Bank were deficiently pleaded and thus should be dismissed. In July 2019, the Bankruptcy Court issued an order to the effect that the case would proceed in a federal court, instead of returning to a state court. Fairfield has appealed the Bankruptcy Court’s dismissal to the United States District Court for the Southern District of New York, or the District Court. Legal arguments have been filed in 2020 and the District Court is expected to rule on the appeal during 2021. Fairfield has filed similar actions against numerous other fund investors to seek recovery of redemption payments.

In May 2012, the trustee appointed for the liquidation of BLMIS filed a lawsuit against Kookmin Bank in the Bankruptcy Court. The trustee seeks recovery of approximately US$42 million, the amount of funds that were allegedly redeemed by Kookmin Bank from Fairfield between June 2004 and January 2006. The trustee alleges that Fairfield was a “feeder fund” that invested in BLMIS and that redemptions from such BLMIS feeder fund are avoidable and recoverable under the U.S. Bankruptcy Code and New York law. The Bankruptcy Court issued an order to dismiss the case during the pleading stage of the litigation in March 2017, and the trustee appealed such decision to the United States Court of Appeals for the Second Circuit, or the Second Circuit, which reversed the dismissal and vacated the judgment in February 2019. Kookmin Bank, along with other defendants, filed a motion asking the Second Circuit to reconsider its ruling and, after such motion was denied, filed a petition for a writ of certiorari asking the United States Supreme Court to accept an appeal of the Second Circuit’s ruling, which was denied in June 2020. Subsequently, the Second Circuit remanded the case to the Bankruptcy Court for further proceedings, which are currently ongoing in 2021. The trustee has filed similar claw back actions against numerous other institutions.

186

In February 2014, the Financial Services Commission suspended the new credit card issuance and other related activities of KB Kookmin Card for three months from February to May 2014, in response to an incident involving the misappropriation of the personal information of a large number of its customers by an employee of the Korea Credit Bureau in the first half of 2013. Specifically, during such suspension period, KB Kookmin Card was prohibited from engaging in the following activities:

•

adding new subscribers for credit cards, prepaid cards and debit cards or issuing such types of cards (except as permitted by the chairman of the Financial Services Commission for public policy purposes);

•

providing new or additional credit lines to credit card customers; and

•

providing new services through mail order or telemarketing channels or related to travel or insurance products.

In connection with the misappropriation incident, as of December 31, 2020, certain of KB Kookmin Card’s customers had filed a total of two lawsuits against KB Kookmin Card (compared to 11 lawsuits as of December 31, 2019) with the aggregate amount of claimed damages amounting to approximately ￦0.11 billion (compared to approximately ￦0.4 billion as of December 31, 2019). The final outcome of such lawsuits remains uncertain. In addition, KB Kookmin Card could become subject to additional litigation and may incur significant costs relating to the compensation of customers for losses incurred as a result of the fraudulent use of the misappropriated personal information.

In February 2018, pursuant to a request by the Financial Supervisory Service, the Supreme Prosecutors’ Office of Korea commenced an investigation into alleged irregularities in hiring practices at certain Korean banks, including Kookmin Bank. In May 2018, the prosecutors charged four current and former executive officers and employees of Kookmin Bank with obstruction of business and violation of the Act on the Equal Employment for Both Sexes, for violating certain regulations relating to the evaluation and hiring of certain individuals in 2015 and 2016. In October 2018, the Seoul Southern District Court sentenced such executive officers and employees to probation and ordered Kookmin Bank to pay a fine in the amount of ￦5 million. The individuals and Kookmin Bank have since appealed such ruling.

In September 2020, PT Bosowa Corporindo, or Bosowa, the second largest shareholder of Bank Bukopin, filed a lawsuit against Otoritas Jasa Keuangan (the Financial Services Authority of Indonesia), or OJK, and subsequently Bank Bukopin, in its capacity as an intervening defendant, in the Jakarta State Administrative Court, demanding a reversal of OJK’s decision in August 2020 to impose certain restrictive measures on Bosowa’s ability to act as a shareholder of Bank Bukopin. The Jakarta State Administrative Court ruled in favor of Bosowa, which decision both OJK and Bank Bukopin are currently appealing. Subsequently, in November 2020, Bosowa filed a lawsuit against Kookmin Bank and OJK as joint defendants in the Central Jakarta District Court of Indonesia, alleging that Kookmin Bank’s acquisition of Bank Bukopin’s shares in September 2020, as well as the capital increase through which Kookmin Bank obtained such shares, violated certain Indonesian laws and regulations, and claimed IDR 20,759 billion in damages to compensate Bosowa’s losses as a shareholder of Bank Bukopin. Although it is currently difficult to predict the outcome of these lawsuits with any degree of certainty, we believe that the grounds for such lawsuits are unfounded and do not expect them to have a material effect on Kookmin Bank’s financial condition.

Commencing in December 2019, a number of plaintiffs brought legal action against KB Securities, alleging that they invested in JB Australia NDIS Private Equity Investment Trust No. 1 through KB Securities based on an offering circular that had made untrue statements of a material fact. The plaintiffs are seeking to terminate the related investment contract on the basis of either breach of contract or mistake, and are demanding ￦120 billion from KB Securities as compensation for the alleged unjust enrichment. In the alternative, they are seeking damages of ￦120 billion from KB Securities for violations of the relevant securities law, among others. As of the date of this annual report, the final outcome of the lawsuits remains uncertain.

187

Dividends

Dividends must be approved by the stockholders at the annual general meeting of stockholders. Cash dividends may be paid out of retained earnings that have not been appropriated to statutory reserves. See “Item 10.B. Memorandum and Articles of Association—Description of Capital Stock— Dividends and Other Distributions.”

The table below sets forth, for the periods indicated, the dividend per share of common stock and the total amount of dividends declared and paid by us in respect of the years ended December 31, 2018, 2019 and 2020. The dividends set out for each of the years below were paid within 30 days after our annual stockholders meeting, which was held no later than March of the following year.


Fiscal Year	Dividends per Common Share ⁽¹⁾				Dividends per Preferred Share			Total Amount of Cash Dividends Paid
								(in millions of Won)
2018 ⁽²⁾	￦	1,920	US$	1.73		—	—	￦	759,736
2019 ⁽³⁾		2,210		1.91		—	—		861,092
2020 ⁽⁴⁾		1,770		1.63		—	—		689,653

⁽¹⁾	Won amounts are expressed in U.S. dollars at the noon buying rate in effect at the end of the relevant periods as quoted by the Federal Reserve Bank of New York in the United States.

⁽²⁾

On February 8, 2019, our board of directors passed a board resolution recommending a cash dividend of ￦1,920 per common share (before dividend tax), representing 38.4% of the par value of each share, for the fiscal year ended December 31, 2018. This resolution was approved and ratified by our stockholders on March 27, 2019.

⁽³⁾

On February 6, 2020, our board of directors passed a board resolution recommending a cash dividend of ￦2,210 per common share (before dividend tax), representing 44.2% of the par value of each share, for the fiscal year ended December 31, 2019. This resolution was approved and ratified by our stockholders on March 20, 2020.

⁽⁴⁾

On February 4, 2021, our board of directors passed a board resolution recommending a cash dividend of ￦1,770 per common share (before dividend tax), representing 35.4% of the par value of each share, for the fiscal year ended December 31, 2020. This resolution was approved and ratified by our stockholders on March 26, 2021.

Future dividends will depend upon our revenues, cash flow, financial condition and other factors. As an owner of ADSs, you will be entitled to receive dividends payable in respect of the shares of common stock represented by such ADSs.

For a description of the tax consequences of dividends paid to our stockholders, see “Item 10.E. Taxation—United States Taxation” and “—Korean Taxation—Taxation of Dividends on Common Shares or ADSs.”

Item 8.B.

Significant Changes

Except as disclosed elsewhere in this annual report, there have been no significant changes since the date of our audited financial statements included in this annual report.

Item 9.

THE OFFER AND LISTING

Item 9.A.

Offering and Listing Details

Principal Trading Market

The principal trading market for our common stock is the KRX KOSPI Market. Our common stock has been listed on the KRX KOSPI Market since October 10, 2008 under the identifying code 105560, and the ADSs have been listed on the New York Stock Exchange under the symbol “KB” since September 29, 2008. The ADSs are identified by the CUSIP number 48241A105.

Restrictions Applicable to ADSs

No Korean governmental approval is necessary for the sale and purchase of our ADSs in the secondary market outside Korea or for the withdrawal of shares of our common stock underlying the ADSs and the delivery

188

inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration card from the Financial Supervisory Service as described below. The acquisition of the shares by a foreigner must be immediately reported to the governor of the Financial Supervisory Service, either by the foreigner or by his standing proxy in Korea.

Persons who have acquired shares of our common stock as a result of the withdrawal of shares underlying our ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further Korean governmental approval.

Under current Korean laws and regulations, the depositary is required to obtain our prior consent for the number of shares of our common stock to be deposited in any given proposed deposit that exceeds the difference between:

(1)

the aggregate number of shares of our common stock deposited by us for the issuance of our ADSs (including deposits in connection with the initial issuance and all subsequent offerings of our ADSs and stock dividends or other distributions related to these ADSs); and

(2)

the number of shares of our common stock on deposit with the depositary at the time of such proposed deposit.

We have agreed to grant such consent to the extent that the total number of shares on deposit with the depositary would not exceed 116,583,985 at any time.

Restrictions Applicable to Shares

As a result of amendments to the Foreign Exchange Transaction Act of Korea, the regulations thereunder and Financial Services Commission regulations (which we refer to collectively as the “Investment Rules”), foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or on the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or on the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including:

•

odd-lot trading of shares;

•

acquisition of shares (which we refer to as “Converted Shares”) by exercise of warrants, conversion rights or exchange rights under bonds with warrants, convertible bonds or exchangeable bonds or withdrawal rights under depositary receipts issued outside of Korea by a Korean company;

•

acquisition of shares as a result of inheritance, donation, bequest or exercise of stockholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;

•

over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners has been reached or exceeded subject to certain exceptions; and

•

sale and purchase of shares at fair value between foreigners who are part of an investor group comprised of foreign companies investing under the control of a common investment manager pursuant to applicable laws or contract.

The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment. The registration requirement does not, however, apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration card, which must be presented each time the foreign investor opens a

189

brokerage account with a financial investment company with a brokerage license. Foreigners eligible to obtain an investment registration card include foreign nationals who have not been residing in Korea for a consecutive period of six months or more, foreign governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international organizations, corporations incorporated under foreign laws and any person in any additional category designated by the Enforcement Decree of the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate foreigner from the offices of the corporation outside Korea for the purpose of investment registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration cards in its name in certain circumstances as described in the relevant regulations.

Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the governor of the Financial Supervisory Service at the time of each such acquisition or sale. In particular, if a foreign investor acquires or sells his shares in connection with a tender offer or odd-lot trading of shares, such foreign investor or his standing proxy must ensure that the financial investment company that was engaged to facilitate the transaction reports such transaction to the governor of the Financial Supervisory Service. A foreign investor may appoint a standing proxy from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing and/or brokerage license (including domestic branches of foreign financial investment companies with such license), financial investment companies with a collective investment license (including domestic branches of foreign financial investment companies with such license) and internationally recognized custodians which will act as a standing proxy to exercise stockholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. Generally, a foreign investor may not permit any person, other than its standing proxy, to exercise rights relating to his shares or perform any tasks related thereto on his behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the governor of the Financial Supervisory Service in cases deemed inevitable, including by reason of conflict between laws of Korea and the home country of the foreign investor.

Certificates evidencing shares of Korean companies must be kept in the custody of an eligible custodian in Korea. The same entities eligible to act as a standing proxy are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that its custodian deposits its shares with the Korea Securities Depository. A foreign investor may be exempted from complying with this deposit requirement with the approval of the governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the foreign investors’ home country.

An investment by a foreign investor in 10% or more of the issued and outstanding shares with voting rights of a Korean company is defined as a foreign direct investment under the Foreign Investment Promotion Act of Korea. Generally, a foreign direct investment must be reported to the Ministry of Trade, Industry and Energy of Korea. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign or other shareholding restrictions in the event that the restrictions are prescribed in a specific law that regulates the business of the Korean company. For a description of such restrictions applicable to Korean banks and bank holding companies (such as us), see “Item 4.B. Business Overview—Supervision and Regulation.”

Item 9.B.

Plan of Distribution

Not applicable.

190

Item 9.C.

Markets

See “Item 9.A. Offering and Listing Details.”

Item 9.D.

Selling Shareholders

Not applicable.

Item 9.E.

Dilution

Not applicable.

Item 9.F.

Expenses of the Issue

Not applicable.

Item 10.

ADDITIONAL INFORMATION

Item 10.A.

Share Capital

Not applicable.

Item 10.B.

Memorandum and Articles of Association

Description of Capital Stock

Set forth below is information relating to our capital stock, including brief summaries of certain provisions of our articles of incorporation, the Korean Commercial Code, Financial Investment Services and Capital Markets Act and certain related laws of Korea, all as currently in effect. The following summaries do not purport to be complete and are subject to the articles of incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act, the Korean Commercial Code, and certain other related laws of Korea.

As of December 31, 2020, our authorized share capital is 1,000,000,000 shares. Pursuant to our articles of incorporation, we are authorized to issue shares with preferred dividend, non-voting shares, class shares with conversion rights, class shares with redemption rights and shares with a combination of all or any of the foregoing characteristics (which we refer to collectively as “Class Shares”), as well as common shares. Subject to applicable laws and regulations, we are authorized to issue Class Shares up to one-half of all of our issued and outstanding shares.

Under our articles of incorporation, dividends on non-voting shares with preferred dividend are required to be at least 1% per annum of the par value and the board of directors must determine at the time of issuance of such shares the dividend rate, type of distributable properties, method of determining the value of distributable properties and conditions on payment of dividends. Also, we may, pursuant to a resolution of the board of directors, issue such non-voting shares with preferred dividend as redeemable shares that may be redeemed with profits at the relevant shareholder’s or our discretion, up to one-half of all of our issued and outstanding shares.

In addition, pursuant to a resolution of the board of directors, we may issue shares that are convertible into common shares or Class Shares at the request of the relevant shareholders, up to 20% of all of our issued and outstanding shares. The period during which a relevant shareholder may make a request for conversion may be determined by a resolution of the board of directors and must be a period between one and ten years from the issue date.

191

Furthermore, through an amendment of the articles of incorporation, we may create new classes of shares, which may be common shares or Class Shares having additional features as prescribed under the Korean Commercial Code. See “—Voting Rights.”

As of the date of this annual report, 415,807,920 shares of common stock were issued and 389,634,335 shares of common stock were outstanding. No Class Shares are currently outstanding. All of the issued and outstanding shares are fully-paid and non-assessable, and are in registered form. Our authorized but unissued share capital consists of 584,192,080 shares. We may issue the unissued shares without further stockholder approval, subject to a board resolution as provided in the articles of incorporation. See “—Preemptive Rights and Issuances of Additional Shares” and “—Dividends and Other Distributions—Distribution of Free Shares.”

Our articles of incorporation provide that our stockholders may, by special resolution, grant to our and our subsidiaries’ officers and employees stock options exercisable for up to 15% of the total number of our issued and outstanding shares. Our board of directors may also grant stock options to officers and employees other than directors exercisable for up to 1% of our issued and outstanding shares, provided that such grant must be approved by a resolution of the subsequent general meeting of stockholders. As of March 31, 2021, none of our officers, directors and employees held options to purchase shares of our common stock.

Share certificates are issued in denominations of one, five, ten, 50, 100, 500, 1,000 and 10,000 shares.

Organization and Register

We are a financial holding company established under the Financial Holding Company Act. We are registered with the commercial registry office of Seoul Central District Court.

Dividends and Other Distributions

Dividends

Dividends are distributed to stockholders in proportion to the number of shares of the relevant class of capital stock owned by each stockholder following approval by the stockholders at an annual general meeting of stockholders. Subject to the requirements of the Korean Commercial Code and other applicable laws and regulations, we expect to pay full annual dividends on newly issued shares for the year in which the new shares are issued.

We declare our dividend annually at the annual general meeting of stockholders, which are held within three months after the end of each fiscal year. Once declared, the annual dividend must be paid to the stockholders of record as of the end of the preceding fiscal year within one month after the annual general meeting unless otherwise resolved thereby. Annual dividends may be distributed either in cash or in shares provided that shares must be distributed at par value and, if the market price of the shares is less than their par value, dividends in shares may not exceed one-half of the total annual dividend (including dividends in shares).

Under the Korean Commercial Code and our articles of incorporation, we do not have an obligation to pay any annual dividend unclaimed for five years from the payment date.

The Financial Holding Company Act and related regulations require that each time a Korean financial holding company pays an annual dividend, it must set aside in its legal reserve to stated capital an amount equal to at least one-tenth of its net income after tax until the amount set aside reaches at least the aggregate amount of its stated capital. Unless it sets aside this amount, a Korean financial holding company may not pay an annual dividend. We intend to set aside allowances for loan losses and reserves for severance pay in addition to this legal reserve.

For information regarding Korean taxes on dividends, see “Item 10.E. Taxation—Korean Taxation.”

192

Distribution of Free Shares

In addition to permitting dividends in the form of shares to be paid out of retained or current earnings, the Korean Commercial Code permits a company to distribute to its stockholders, in the form of free shares, an amount transferred from the capital surplus or legal reserve to stated capital. These free shares must be distributed pro rata to all stockholders. Our articles of incorporation provide that the types of shares to be distributed to the holders of non-voting shares with preferred dividend will be the same type of non-voting shares with preferred dividend held by such holders.

Preemptive Rights and Issuances of Additional Shares

Unless otherwise provided in the Korean Commercial Code, a company may issue authorized but unissued shares at such times and upon such terms as the board of directors of the company may determine. The company must offer the new shares on uniform terms to all stockholders who have preemptive rights and who are listed on the stockholders’ register as of the applicable record date. Our stockholders will be entitled to subscribe for any newly issued shares in proportion to their existing shareholdings. However, as provided in our articles of incorporation, new shares may be issued to persons other than existing stockholders if such shares are:

(1) publicly offered pursuant to the Financial Investment Services and Capital Markets Act, (2) issued to an employee stock ownership association, (3) issued upon exercise of stock options pursuant to the Financial Investment Services and Capital Markets Act, (4) issued for the issuance of our depositary receipts, (5) issued to certain foreign or domestic financial institutions or institutional investors to raise funds to meet urgent needs for our management or operations or (6) issued primarily to a third party who has contributed to the management of our business, including by providing financing, credit, advanced financing technique, know-how or entering into close business alliances, except that, in the case of issuances of new shares under (1), (4), (5) and (6) above, the number of new shares issued to persons other than existing stockholders may not exceed 50% of our total issued and outstanding capital stock.

Public notice of the preemptive rights to new shares and the transferability thereof must be given not less than two weeks (excluding the period during which the stockholders’ register is closed) prior to the record date. We will notify the stockholders or persons other than existing stockholders, who are entitled to subscribe for newly issued shares of the deadline for subscription at least two weeks prior to the deadline. If such stockholders or persons fail to subscribe on or before such deadline, their preemptive rights will lapse. Our board of directors may determine how to distribute shares in respect of which preemptive rights have not been exercised or where fractions of shares occur.

Under the Financial Investment Services and Capital Markets Act, members of a company’s employee stock ownership association, whether or not they are stockholders, will have a preemptive right, subject to certain exceptions, to subscribe for up to 20% of the shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of shares so acquired and held by such members does not exceed 20% of the total number of shares then issued and outstanding.

Voting Rights

Each outstanding share of our common stock is entitled to one vote per share. However, voting rights with respect to shares of common stock that we hold or any of our subsidiaries holds may not be exercised. Unless stated otherwise in a company’s articles of incorporation, the Korean Commercial Code permits holders of an aggregate of 1% or more of the issued and outstanding shares with voting rights to request cumulative voting when electing two or more directors. Our articles of incorporation do not prohibit cumulative voting. The Korean Commercial Code and our articles of incorporation provide that an ordinary resolution may be adopted if approval is obtained from the holders of at least a majority of those shares of common stock present or

193

represented at such meeting and such majority also represents at least one-fourth of the total of our issued and outstanding voting shares. Holders of non-voting shares (other than enfranchised non-voting shares) will not be entitled to vote on any resolution or to receive notice of any general meeting of stockholders unless the agenda of the meeting includes consideration of a resolution on which such holders are entitled to vote. The Korean Commercial Code provides that a company’s articles of incorporation may prescribe conditions for the enfranchisement of non-voting shares. For example, if our annual general stockholders’ meeting resolves not to pay to holders of non-voting shares with preferred dividend the annual dividend as determined by the board of directors at the time of issuance of such shares, the holders of non-voting shares with preferred dividend will be entitled to exercise voting rights from the general stockholders’ meeting following the meeting adopting such resolution to the end of a meeting to declare to pay such dividend with respect to the non-voting shares with preferred dividend. Holders of such enfranchised non-voting shares with preferred dividend will have the same rights as holders of common stock to request, receive notice of, attend and vote at a general meeting of stockholders.

The Korean Commercial Code provides that to amend the articles of incorporation, which is also required for any change to the authorized share capital of the company, and in certain other instances, including removal of a director of a company, dissolution, merger or consolidation of a company, transfer of the whole or a significant part of the business of a company, acquisition of all of the business of any other company, acquisition of a part of the business of any other company having a material effect on the business of the company or issuance of new shares at a price lower than their par value, a special resolution must be adopted by the approval of the holders of at least two-thirds of those shares present or represented at such meeting and such special majority also represents at least one-third of the total issued and outstanding shares with voting rights of the company.

In addition, in the case of amendments to the articles of incorporation or any merger or consolidation of a company or in certain other cases, where the rights or interest of the holders of Class Shares are adversely affected, a resolution must be adopted by a separate meeting of holders of Class Shares. Such a resolution may be adopted if the approval is obtained from stockholders of at least two-thirds of the Class Shares present or represented at such meeting and such shares also represent at least one-third of the total issued and outstanding Class Shares of the company.

A stockholder may exercise his voting rights by proxy given to another stockholder. The proxy must present the power of attorney prior to the start of a meeting of stockholders.

Liquidation Rights

In the event we are liquidated, the assets remaining after the payment of all borrowings, liquidation expenses and taxes will first be distributed to holders of Class Shares which have a preference right in respect of the distribution of residual properties as determined by our board of directors at the time of their issuance, and the residue thereafter will be distributed to the other stockholders in proportion to the number of shares held by them.

General Meetings of Stockholders

There are two types of general meetings of stockholders: annual general meetings and extraordinary general meetings. We are required to convene our annual general meeting within three months after the end of each fiscal year. Subject to a board resolution or court approval, an extraordinary general meeting of stockholders may be held when necessary or at the request of the holders of an aggregate of 3% or more of our issued and outstanding shares, or the holders of an aggregate of 0.75% or more of our issued and outstanding stock with voting rights, who have held those shares at least for six months, under the Act on the Corporate Governance of Financial Companies and its sub-regulations. Under the Korean Commercial Code, an extraordinary general meeting of stockholders may also be convened at the request of our Audit Committee, subject to a board resolution or court

194

approval. Holders of non-voting shares may be entitled to request a general meeting of stockholders only to the extent the non-voting shares have become enfranchised as described under the section entitled “—Voting Rights” above, hereinafter referred to as “enfranchised non-voting shares.” Meeting agendas will be determined by the board of directors or proposed by holders of an aggregate of 3% or more of the issued and outstanding shares with voting rights, or by holders of an aggregate of 0.1% or more of our issued and outstanding shares with voting rights, who have held those shares for at least six months, by way of a written proposal to the board of directors at least six weeks prior to the meeting, under the Act on the Corporate Governance of Financial Companies and its sub-regulations. Written notices or e-mail notices stating the date, place and agenda of the meeting must be given to the stockholders at least two weeks prior to the date of the general meeting of stockholders. Notice may, however, be given to holders of 1% or less of the total number of issued and outstanding shares which are entitled to vote, either by placing at least two public notices at least two weeks in advance of the meeting in at least two daily newspapers or by placing a notice through the electronic disclosure system operated by the Financial Supervisory Service or the Korea Exchange. Stockholders who are not on the stockholders’ register as of the record date will not be entitled to receive notice of the general meeting of stockholders, and they will not be entitled to attend or vote at such meeting. Holders of enfranchised non-voting shares who are on the stockholders’ register as of the record date will be entitled to receive notice of the general meeting of stockholders and they will be entitled to attend and vote at such meeting. Otherwise, holders of non-voting shares will not be entitled to receive notice of or vote at general meetings of stockholders.

The general meeting of stockholders will be held at our head office, which is our registered head office, or, if necessary, may be held anywhere in the vicinity of our head office.

Rights of Dissenting Stockholders

Pursuant to the Financial Investment Services and Capital Markets Act and the Act on the Improvement of the Structure of the Financial Industry, in certain limited circumstances (including, without limitation, if we transfer all or any significant part of our business, if we acquire a part of the business of any other company and such acquisition has a material effect on our business or if we merge or consolidate with another company), dissenting holders of shares of our common stock and our stock with preferred dividends will have the right to require us to purchase their shares. To exercise such a right, stockholders must submit to us a written notice of their intention to dissent prior to the general meeting of stockholders. Within 20 days (10 days in the case of a stock transfer or exchange for the purposes of establishing a financial holding company or acquiring all issued shares of an existing subsidiary under the Financial Holding Company Act) after the date on which the relevant resolution is passed at such meeting, such dissenting stockholders must request in writing that we purchase their shares. We are obligated to purchase the shares from dissenting stockholders within one month after the end of such request period at a price to be determined by negotiation between the stockholder and us. If we cannot agree on a price with the stockholder through such negotiations, the purchase price will be the arithmetic mean of:

•

the weighted average of the closing stock prices on the KRX KOSPI Market for the two-month period prior to the date of the adoption of the relevant board of directors’ resolution;

•

the weighted average of the closing stock prices on the KRX KOSPI Market for the one-month period prior to the date of the adoption of the relevant board of directors’ resolution; and

•

the weighted average of the closing stock prices on the KRX KOSPI Market for the one-week period prior to the date of the adoption of the relevant board of directors’ resolution.

However, any dissenting stockholder who wishes to contest the purchase price may bring a claim in court.

Required Disclosure of Ownership

Any person whose direct or beneficial ownership of our common stock with voting rights, whether in the form of shares of common stock or ADSs, certificates representing the rights to subscribe for shares or

195

equity-related debt securities including convertible bonds and bonds with warrants (which we refer to collectively as “Equity Securities”), together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person, accounts for 5% or more of the total issued and outstanding shares (Equity Securities of us held by such persons and treasury stock) is required to report the status and purpose (in terms of whether the purpose of the shareholding is to exercise control over our management) of the holdings to the Financial Services Commission and the KRX KOSPI Market within five business days after reaching the 5% ownership interest. In addition, any change in (i) the ownership interest subsequent to the report that equals or exceeds 1% of the total issued and outstanding Equity Securities of us or (ii) the purpose of the shareholding is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change.

Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment, an administrative fine of up to 0.001% of the aggregate market value of the total issued and outstanding stock or ￦500 million, whichever is lower, and/or a loss of voting rights with respect to the ownership of Equity Securities exceeding 5% of the total issued and outstanding Equity Securities with respect to which the reporting requirements were violated. Furthermore, the Financial Services Commission may order the disposal of the unreported Equity Securities.

In addition to the reporting requirements described above, any person whose direct or beneficial ownership of our stock accounts for 10% or more of the total issued and outstanding stock (which we refer to as a “major stockholder”) must report the status of his/her shareholding to the Korea Securities and Futures Commission and the KRX KOSPI Market within five days after becoming a major stockholder. In addition, any change in the ownership interest subsequent to the report must be reported to the Korea Securities and Futures Commission and the KRX KOSPI Market within five days of the occurrence of the change, provided that such reporting obligation would not apply if the change in the ownership interest consists of less than 1,000 shares and the amount of such change is less than ￦10 million. Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment.

Other Provisions

Register of Stockholders and Record Dates

We maintain the register of our stockholders at our principal office in Seoul, Korea. We register transfers of shares on the register of stockholders upon presentation of the share certificates.

The record date for annual dividends is December 31. For the purpose of determining the holders of shares entitled to annual dividends, the register of stockholders will be closed for the period beginning from January 1 and ending on January 31. Further, the Korean Commercial Code and our articles of incorporation permit us upon at least two weeks’ public notice to set a record date and/or close the register of stockholders for not more than three months for the purpose of determining the stockholders entitled to certain rights pertaining to the shares. However, in the event that the register of stockholders is closed for the period beginning from January 1 and ending on January 31 for the purpose of determining the holders of shares entitled to attend the annual general meeting of stockholders, the Korean Commercial Code and our articles of incorporation waive the requirement to provide at least two weeks’ public notice. The trading of shares and the delivery of certificates in respect thereof may continue while the register of stockholders is closed. Also, we may distribute dividends to stockholders on a quarterly basis, and the record dates for these quarterly dividends are the end of March, June and September of each year.

Annual Reports

Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market an annual business report within 90 days after the end of each fiscal

196

year, a half-year business report within 45 days after the end of the first six months of each fiscal year and quarterly business reports within 45 days after the end of the first three months and nine months of each fiscal year, respectively. In addition, in accordance with the Enforcement Decree of the Commercial Act, we must make available our annual business report and audit report to our shareholders by sending such reports electronically or posting them on our website at least one week before the annual general meeting of stockholders. Copies of such business reports will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.

Transfer of Shares

Under the Korean Commercial Code, the transfer of shares is effected by the delivery of share certificates. The Financial Investment Services and Capital Markets Act provides, however, that in case of a company listed on the KRX KOSPI Market such as us, share transfers can be effected by the book-entry method. In order to assert stockholders’ rights against us, the transferee must have his name and address registered on the register of stockholders. For this purpose, stockholders are required to file with us their name, address and seal. Non-resident stockholders must notify us of the name of their proxy in Korea to which our notice can be sent.

Under current Korean regulations, the following entities may act as agents and provide related services for foreign stockholders:

•

the Korea Securities Depository;

•

internationally recognized foreign custodians;

•

financial investment companies with a dealing license (including domestic branches of foreign financial investment companies with such license);

•

financial investment companies with a brokerage license (including domestic branches of foreign financial investment companies with such license);

•

foreign exchange banks (including domestic branches of foreign banks); and

•

financial investment companies with a collective investment license (including domestic branches of foreign financial investment companies with such license).

In addition, foreign stockholders may appoint a standing proxy among the foregoing and generally may not allow any person other than the standing proxy to exercise rights to the acquired shares or perform any tasks related thereto on their behalf. Certain foreign exchange controls and securities regulations apply to the transfer of shares by non-residents or non-Koreans. See “Item 9.A. Offering and Listing Details” and “Item 10.D. Exchange Controls.” Except as provided in the Financial Holding Company Act, the ceiling on the aggregate shareholdings of a single stockholder and persons who stand in a special relationship with such stockholder is 10% of our issued and outstanding voting shares. See “Item 4.B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Ownership of a Financial Holding Company.”

Acquisition of Our Shares

Under the Korean Commercial Code, we may acquire our own shares upon a resolution of a general meeting of shareholders by either (i) purchasing them on a stock exchange or (ii) purchasing a number of shares, other than redeemable shares as set forth in Article 345, Paragraph (1) of the Korean Commercial Code, from each shareholder in proportion to their existing shareholding ratio through the methods set forth in the Presidential Decree, provided that the total purchase price does not exceed the amount of our profit that may be distributed as dividends in respect of the immediately preceding fiscal year.

Additionally, pursuant to the Financial Investment Services and Capital Markets Act and regulations under the Financial Holding Company Act and after submission of certain reports to the Financial Services

197

Commission, we may purchase our own shares on the KRX KOSPI Market or through a tender offer, subject to the restrictions that:

•

the aggregate purchase price of such shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year; and

•

the purchase of such shares shall meet the risk-weighted capital adequacy ratio requirements prescribed in the regulations under the Financial Holding Company Act based on Bank for International Settlements standards.

Subject to certain limited exceptions, our subsidiaries will not be permitted to acquire our shares pursuant to the Financial Holding Company Act.

Item 10.C.

Material Contracts

None.

Item 10.D.

Exchange Controls

General

The Foreign Exchange Transaction Act of Korea and the Enforcement Decree and regulations under that Act and Decree, which we refer to collectively as the “Foreign Exchange Transaction Laws,” regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the Foreign Exchange Transaction Laws. The Financial Services Commission has also adopted, pursuant to its authority under the Financial Investment Services and Capital Markets Act, regulations that restrict investment by foreigners in Korean securities and regulate issuance of securities outside Korea by Korean companies.

Under the Foreign Exchange Transaction Laws, (1) if the Korean government deems that it is inevitable due to the outbreak of natural calamities, wars, conflict of arms or grave and sudden changes in domestic or foreign economic circumstances or other situations equivalent thereto, the Ministry of Economy and Finance may temporarily suspend payment, receipt or the whole or part of transactions to which the Foreign Exchange Transaction Laws apply, or impose an obligation to safe-keep, deposit or sell means of payment in or to certain Korean governmental agencies or financial institutions; and (2) if the Korean government deems that international balance of payments and international finance are confronted or are likely to be confronted with serious difficulty or the movement of capital between Korea and abroad brings or is likely to bring about serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Economy and Finance may take measures to require any person who intends to perform capital transactions to obtain permission or to require any person who performs capital transactions to deposit part of the payments received in such transactions at certain Korean governmental agencies or financial institutions, in each case subject to certain limitations.

Restrictions Applicable to Shares

Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at a financial investment company with a dealing and/or brokerage license. Funds in the foreign currency account may be remitted abroad without any Korean governmental approval.

198

Dividends on shares of Korean companies are paid in Won. No Korean governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s financial investment company with a dealing and/or brokerage license or in his Won account. Funds in the investor’s Won account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.

Financial investment companies with dealing and/or brokerage licenses are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, such financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.

Item 10.E.

Taxation

United States Taxation

This summary describes certain U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of common shares or ADSs. This summary applies to you only if you hold the common shares or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:

•

a dealer in securities or currencies;

•

a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

•

a bank;

•

a life insurance company;

•

a tax-exempt organization;

•

an entity treated as a partnership for U.S. federal income tax purposes or a partner in such partnership;

•

a person that holds common shares or ADSs that are a hedge or that are hedged against interest rate or currency risks;

•

a person that holds common shares or ADSs as part of a straddle or conversion transaction for tax purposes;

•

a person whose functional currency for tax purposes is not the U.S. dollar; or

•

a person that owns or is deemed to own 10% or more of our stock, measured by voting power or value.

This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, and published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

This summary does not discuss the application of the U.S. federal estate and gift taxes, the Medicare net investment income tax or the alternative minimum tax.

Please consult your own tax advisers concerning the U.S. federal, state, local, and other tax consequences of purchasing, owning, and disposing of common shares or ADSs in your particular circumstances.

199

For purposes of this summary, you are a “U.S. holder” if you are the beneficial owner of a common share or an ADS and are:

•

a citizen or resident of the United States;

•

a U.S. domestic corporation; or

•

otherwise subject to U.S. federal income tax on a net income basis with respect to income from the common share or ADS.

In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common shares represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common share represented by that ADS.

Dividends

The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source “passive category” dividend income and will not be eligible for the dividends received deduction. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your receipt of the dividend, in the case of common shares, or the depositary’s receipt, in the case of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at reduced rates if the dividends are “qualified dividends.” Dividends paid on the common shares or ADSs will be treated as qualified dividends if (i) the common shares or ADSs are readily tradable on an established securities market in the United States or we are eligible for the benefits of a comprehensive tax treaty with the United States that the U.S. Treasury determines is satisfactory for purposes of this provision and that includes an exchange of information program; and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company as defined for U.S. federal income tax purposes (“PFIC”). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. In addition, the U.S. Treasury has determined that the Korea-United States income tax treaty meets the requirements for reduced rates of taxation, and we believe we are eligible for the benefits of that treaty. Based on our audited financial statements, we believe that we were not a PFIC in our 2019 or 2020 taxable year. In addition, based on our audited financial statements and current expectations regarding our income, assets and activities, we do not anticipate becoming a PFIC for our 2021 taxable year. Therefore, we believe that dividends received by U.S. holders with respect to either common shares or ADSs will be “qualified dividends.” Holders should consult their own tax advisers regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.

Distributions of additional shares in respect of common shares or ADSs that are made as part of a pro-rata distribution to all of our stockholders generally will not be subject to U.S. federal income tax.

Sale or Other Disposition

For U.S. federal income tax purposes, gain or loss you realize on a sale or other disposition of common shares or ADSs generally will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the common shares or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.

200

If a U.S. holder sells or otherwise disposes of our common shares or ADSs in exchange for currency other than U.S. dollars, the amount realized generally will be the U.S. dollar value of the currency received at the spot rate on the date of sale or other disposition (or, if the shares are traded on an established securities market at such time, in the case of cash basis and electing accrual basis U.S. holders, the settlement date). An accrual basis U.S. holder that does not elect to determine the amount realized using the spot exchange rate on the settlement date will recognize foreign currency gain or loss equal to the difference between the U.S. dollar value of the amount received based on the spot exchange rates in effect on the date of the sale or other disposition and the settlement date. If an accrual basis U.S. holder makes the election described in the first sentence of this paragraph, it must be applied consistently from year to year and cannot be revoked without the consent of the Internal Revenue Service. A U.S. holder should consult its own tax advisors regarding the treatment of any foreign currency gain or loss realized with respect to any currency received in a sale or other disposition of the common shares or ADSs.

Foreign Tax Credit Considerations

You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from dividends on the common shares or ADSs, so long as you have owned the common shares or ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, if you so elect, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Such treatment could affect your ability to utilize any available foreign tax credit in respect of such taxes.

Any Korean securities transaction tax or agriculture and fishery special surtax that you pay will not be creditable for foreign tax credit purposes.

Similarly, a U.S. holder will not be able to claim a foreign tax credit against its U.S. federal income tax liability for any Korean inheritance or gift tax imposed in respect of the common shares or ADSs.

Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is insubstantial.

The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.

Specified Foreign Financial Assets

Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 on the last day of the taxable year or US$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer (which would include the common shares or ADSs) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be subject to substantial penalties. Prospective investors should consult their own tax advisers concerning the

201

application of these rules to their investment in the common shares or ADSs, including the application of the rules to their particular circumstances.

U.S. Information Reporting and Backup Withholding Rules

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (i) is a corporation or other exempt recipient and demonstrates this when required or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.

Korean Taxation

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

•

a resident of Korea;

•

a corporation with its head office, principal place of business or place of effective management in Korea; or

•

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

Taxation of Dividends on Common Shares or ADSs

We will deduct Korean withholding tax from dividends paid to you (whether payable in cash or in shares) at a rate of 22.0% (inclusive of local income surtax). If you are a qualified resident and a beneficial owner of the dividends in a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax. See “—Tax Treaties” below for a discussion on treaty benefits. If we distribute to you free shares representing a transfer of earning surplus or certain capital reserves into paid-in capital, that distribution may be subject to Korean withholding tax.

Taxation of Capital Gains from Transfer of Common Shares or ADSs

As a general rule, capital gains earned by non-residents upon transfer of our common shares or ADSs are subject to Korean withholding tax at the lower of (1) 11.0% (inclusive of local income surtax) of the gross proceeds realized or (2) subject to the production of satisfactory evidence of acquisition costs and certain direct transaction costs of the common shares or ADSs, 22.0% (inclusive of local income surtax) of the net realized gain, unless exempt from Korean income taxation under the applicable Korean tax treaty with the non-resident’s country of tax residence. See “—Tax Treaties” below for a discussion on treaty benefits. Even if you do not qualify for an exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you qualify under the relevant Korean domestic tax law exemptions discussed in the following paragraphs.

In regards to the transfer of our common shares through the Korea Exchange, you will not be subject to the withholding tax on capital gains (as described in the preceding paragraph) if you (1) have no permanent establishment in Korea and (2) did not own or have not owned (together with any shares owned by any person with which you have a certain special relationship) 25% or more of the total issued and outstanding shares, which may include the common shares represented by the ADSs, at any time during the calendar year in which the sale occurs and during the five consecutive calendar years prior to the calendar year in which the sale occurs.

202

Under Korean tax law, ADSs are viewed as shares of common stock for capital gains tax purposes. Accordingly, capital gains from the sale or disposition of ADSs are taxed (if such sale or disposition constitutes a taxable event) as if such gains are from the sale or disposition of the underlying common shares. Capital gains that you earn (regardless of whether you have a permanent establishment in Korea) from a transfer of ADSs outside of Korea will generally be exempt from Korean income taxation by virtue of the Special Tax Treatment Control Law of Korea, or STTCL, provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL. However, if you transfer ADSs after having converted the underlying common shares, such exemption under the STTCL will not apply and you will be required to file a corporate income tax return and pay tax in Korea with respect to any capital gains derived from such transfer unless the purchaser or a financial investment company with a brokerage license, as applicable, withholds and pays such tax.

If you are subject to tax on capital gains with respect to the sale of ADSs, or of our common shares you acquired as a result of a withdrawal, the purchaser or, in the case of the sale of the common shares on the Korea Exchange or through a financial investment company with a brokerage license in Korea, such financial investment company is required to withhold Korean tax on capital gains from the sales price in an amount equal to the lower of (1) 11.0% (inclusive of local income surtax) of the gross realization proceeds or (2) subject to the production of satisfactory evidence of acquisition costs and certain direct transaction costs of the common shares or ADSs, 22.0% (inclusive of local income surtax) of the net realized gain, and to make payment of these amounts to the Korean tax authority, unless you establish your entitlement to an exemption under an applicable tax treaty or domestic tax law. See the discussion under “—Tax Treaties” below for an additional explanation on claiming treaty benefits.

Tax Treaties

Korea has entered into a number of income tax treaties with other countries (including the United States), which would reduce or exempt Korean withholding tax on dividends on, and capital gains on transfer of, the common shares or ADSs. For example, under the Korea-United States income tax treaty, reduced rates of Korean withholding tax of 16.5% or 11.0% (depending on your shareholding ratio and inclusive of local income surtax) on dividends and an exemption from Korean withholding tax on capital gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains, subject to certain exceptions. However, under Article 17 (Investment or Holding Companies) of the Korea-United States income tax treaty, such reduced rates and exemption do not apply if (i) you are a United States corporation, (ii) by reason of any special measures, the tax imposed on you by the United States with respect to such dividend income or capital gains is substantially less than the tax generally imposed by the United States on corporate profits and (iii) 25% or more of your capital is held of record or is otherwise determined, after consultation between competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-United States income tax treaty, the exemption on capital gains does not apply if (a) you have a permanent establishment in Korea and any shares of common stock in which you hold an interest and which gives rise to capital gains are effectively connected with such permanent establishment, (b) you are an individual and you maintain a fixed base in Korea for an aggregate of 183 days or more during a given taxable year and your ADSs or common shares giving rise to capital gains are effectively connected with such fixed base or (c) you are an individual and you are present in Korea for an aggregate of 183 days or more during a given taxable year.

You should inquire for yourself whether you are entitled to the benefit of a tax treaty between Korea and the country where you are a resident. It is the responsibility of the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser or the financial investment company, as applicable, a certificate as to his tax residence. In the absence of sufficient proof, we, the purchaser or the financial investment company, as applicable, must withhold tax at the normal rates. Furthermore, in order for you to claim the benefit of a tax rate reduction or tax exemption on certain Korean source income (such as dividends or capital gains) under an applicable tax treaty, Korean tax law requires you (or your agent) to submit an application (for reduced withholding tax rate, “application for entitlement to reduced tax rate,” and in the case

203

of exemptions from withholding tax, “application for tax exemption,” along with a certificate of your tax residency issued by a competent authority of your country of tax residence, subject to certain exceptions) as the beneficial owner of such Korean source income (“BO application”). For example, a U.S. resident would be required to provide Form 6166 as a certificate of tax residency together with the application for entitlement to reduced tax rate or the application for tax exemption. Such application should be submitted to the withholding agent prior to the payment date of the relevant income. Subject to certain exceptions, where the relevant income is paid to an overseas investment vehicle (which is not the beneficial owner of such income) (“OIV”), a beneficial owner claiming the benefit of an applicable tax treaty with respect to such income must submit its BO application to such OIV, which must submit an OIV report and a schedule of beneficial owners (and the BO applications collected from each beneficial owner, if such beneficial owner is applying for tax exemption) to the withholding agent prior to the payment date of such income. Effective from January 1, 2020, an OIV that was not established for the purpose of unjustifiably reducing income tax liabilities in Korea and bears tax liabilities in the country of its residence is deemed to be a beneficial owner of Korean source income for income tax purposes. The benefits under a tax treaty between Korea and the country of such OIV’s residence will apply with respect to the relevant income paid to such OIV, subject to certain application requirements as prescribed by the Corporate Income Tax or Individual Income Tax Law. In the case of a tax exemption application, the withholding agent is required to submit such applications (together with the applicable OIV report in the case of income paid to an OIV) to the relevant district tax office by the ninth day of the month following the date of the payment of such income.

Inheritance Tax and Gift Tax

If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance tax and gift tax purposes, you will be treated as the owner of the common shares underlying the ADSs. If the tax authority interprets depositary receipts as the underlying share certificates, you may be treated as the owner of the common shares and your heir or the donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance tax or gift tax presently at the rate of 10% to 50%, provided that the value of the ADSs or the common shares is greater than a specified amount.

If you die while holding a common share or donate a common share, your heir or donee (or in certain circumstances, you as the donor) will be subject to Korean inheritance tax or gift tax at the same rate as indicated above.

At present, Korea has not entered into any tax treaty relating to inheritance tax or gift tax.

Securities Transaction Tax

If you transfer our common shares on the Korea Exchange, you will be subject to securities transaction tax at the rate of 0.08% (if the transfer is made in 2021 or 2022) and an agriculture and fishery special surtax at the rate of 0.15% of the sale price of the common shares. If your transfer of the common shares is not made on the Korea Exchange, subject to certain exceptions, you will be subject to securities transaction tax at the rate of 0.43% (if the transfer is made in 2021 or 2022) and will not be subject to an agriculture and fishery special surtax.

Under the Securities Transaction Tax Law, depositary receipts (such as American depositary receipts) constitute share certificates subject to the securities transaction tax. However, the transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq Global Market, or other qualified foreign exchanges is exempt from the securities transaction tax.

In principle, the securities transaction tax, if applicable, must be paid by the transferor of the common shares or ADSs. When the transfer is effected through a securities settlement company in Korea, such settlement company is generally required to withhold and pay the tax to the tax authorities. When such transfer is made

204

through a financial investment company only, such financial investment company is required to withhold and pay the tax. Where the transfer is effected by a non-resident without a permanent establishment in Korea, other than through a securities settlement company or a financial investment company, the transferee is required to withhold the securities transaction tax.

Non-reporting or under-reporting of securities transaction tax will generally result in penalties equal to 20% to 60% of the non-reported tax amount or 10% to 60% of under-reported tax amount. Also, a failure to timely pay securities transaction tax will result in a penalty equal to 9.125% per annum of the due but unpaid tax amount. The penalties are imposed on the party responsible for paying the securities transaction tax or, if such tax is required to be withheld, on the party that has the obligation to withhold.

Item 10.F.

Dividends and Paying Agents

Not applicable.

Item 10.G.

Statement by Experts

Not applicable.

Item 10.H.

Documents on Display

We are subject to the information requirements of the Exchange Act, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. As a foreign private issuer, we are also required to make filings with the Commission by electronic means. Any filings we make electronically will be available to the public over the Internet at the Commission’s web site at http://www.sec.gov.

Item 10.I.

Subsidiary Information

Not applicable.

Item 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Overview

As a financial services provider, we are exposed to various risks related to our lending and trading businesses, our funding activities and our operating environment, principally through Kookmin Bank, our banking subsidiary. Our goal in risk management is to ensure that we identify, measure, monitor and control the various risks that arise, and that our organization adheres strictly to the policies and procedures which we establish to address these risks. Under our internal regulations pertaining to our consolidated capital adequacy ratio and internal standards for risk appetite and internal capital under Basel III, we identify the following eight separate categories of risk inherent in our business activities: credit risk, market risk, operational risk, interest rate risk, liquidity risk, credit concentration risk, reputation risk and strategic risk. Of these, the principal risks to which we are exposed are credit risk, market risk, liquidity risk and operational risk, and we strive to manage these and other risks within acceptable limits.

205

Organization

We have a multi-tiered risk management governance structure. Our Risk Management Committee is ultimately responsible for group-wide risk management, and directs our various subordinate risk management entities. The Risk Management Council coordinates the implementation of policies set forth by the Risk Management Committee with the relevant risk management units of our subsidiaries. The Subsidiary Risk Management Committee of each of our subsidiaries, based on the Risk Management Committee’s policies, determines risk management strategies and implements risk management policies and guidelines for such subsidiary and directs the activities of the subsidiary’s risk management units within the risk guidelines set at the group level. Each Subsidiary Risk Management Committee generally receives inputs from the respective risk management units of such subsidiary, which report to the Risk Management Committee.

The following chart sets out our risk management governance structure as of the date of this annual report:

LOGO

Risk Management Committee

Our Risk Management Committee is a board-level committee that is responsible for overseeing all risks and advising the board of directors with respect to risk management-related issues. The committee consists of four non-executive directors (one of whom serves as the chairman of the committee), and convenes on a quarterly basis. Its major roles include:

•

establishing risk management strategies in accordance with the directives of the board of directors;

•

determining our target risk appetite;

•

allocating risk capital to each subsidiary and approving our subsidiaries’ risk limits; and

•

reviewing the level of risks we are exposed to and the appropriateness of our risk management policies, systems and operations.

Risk Management Council

Our Risk Management Council is responsible for coordinating with the risk management units of our subsidiaries to ensure that they implement the policies, guidelines and limits established by the Risk Management Committee. The Risk Management Council is comprised of our chief risk management officer and the chief risk management officers of all of our subsidiaries. It operates independently from all business units and convenes on a quarterly basis. Its responsibilities include:

•

analyzing our risk status by using information provided by our subsidiary-level risk management units;

•

deliberating adjustments to the integrated risk capital allocation plan and risk limits for each of our subsidiaries; and

•

coordinating issues relating to the group-wide integration of our risk management functions.

206

Subsidiary Risk Management Committees

Each of our subsidiaries has delegated risk management authority to its Subsidiary Risk Management Committee. Each Subsidiary Risk Management Committee measures and monitors the various risks faced by the relevant subsidiary and reports to that subsidiary’s board of directors regarding decisions that it makes on risk management issues. It also makes certain strategic risk-related decisions regarding the operations of the relevant subsidiary, such as setting total exposure limits, allocating credit risk limits and market risk-related limits and determining which market risk derivatives instruments the subsidiary can trade. The major activities of each Subsidiary Risk Management Committee include:

•

determining and monitoring risk policies, guidelines, limits and tolerance levels and the level of subsidiary risk in accordance with group policy;

•

reviewing and analyzing the subsidiary’s risk profile;

•

setting limits for and adjusting the risk capital allocation plan and risk levels for each business unit within the subsidiary; and

•

monitoring compliance with our group-wide risk management policies and practices at the business unit and subsidiary level.

Each Subsidiary Risk Management Committee is comprised of the subsidiary’s non-executive directors on its board of directors.

Credit Risk Management

Credit risk is the risk of expected and unexpected losses in the event of borrower or counterparty defaults. Credit risk management aims to improve asset quality and generate stable profits while reducing risk through diversified and balanced loan portfolios. We determine the creditworthiness of each type of borrower or counterparty through reviews conducted by our credit experts and through our credit rating systems, and we set a credit limit for each borrower or counterparty.

We assess and manage all credit exposures. We measure expected losses and internal capital on assets (whether on- or off-balance sheet) that are subject to credit risk management and use expected losses and internal capital as management indicators. We manage credit risk by allocating credit risk internal capital limits. In addition, we control credit concentration risk exposure by applying and managing total exposure limits to prevent excessive risk concentration to particular industries or borrowers. Credit exposures that we assess and manage include loans to borrowers and counterparties, investments in securities, letters of credit, bankers’ acceptances, derivatives and commitments. Our risk appetite, which is the ratio of our required internal capital to our estimated available book capital, is approved by the Risk Management Committee once a year. Thereafter, we calculate internal capital every month for all of our subsidiaries and on a holding company level based on attributed internal capital in accordance with the risk appetite as approved by the Risk Management Committee, and measure and report profiles of credit risk on a holding company level and by subsidiary regularly to our senior management, including our Risk Management Committee.

We use expected default rates and recovery rates to determine the expected loss rate of a borrower or counterparty. We use the expected loss rate to make credit related decisions, including pricing, loan approval and establishment of standards to be followed at each level of decision making. These rates are calculated using information gathered from our internal database. With respect to large corporate borrowers, we also use information provided by external credit rating services to calculate default rates and recovery rates.

Our credit risk management processes include:

•

establishing credit policy;

•

credit evaluation and approval;

207

•

industry assessment;

•

total exposure management;

•

collateral evaluation and monitoring;

•

credit risk assessment;

•

early warning and credit review; and

•

post-credit extension monitoring.

Credit Evaluation

With respect to corporate loans, Kookmin Bank evaluates the ability of all loan applicants to repay their borrowings before it approves any loans, except for loans fully guaranteed by letters of guarantee issued by the Credit Guarantee Fund and the Korea Technology Credit Guarantee Fund, for loans fully secured by deposits and for other loans similarly guaranteed or secured. Kookmin Bank assigns each borrower or guarantor a credit rating based on the judgment of its experts or scores calculated using the appropriate credit rating system. Factors that Kookmin Bank considers in assigning credit ratings include both financial factors and non-financial factors, such as its perception of the borrower’s ability to meet its payment obligations, risks relating to the industry in which the borrower operates, management and operational risks relating to the borrower, the borrower’s financial flexibility and the borrower’s level of reliability based on its transaction history. With respect to retail loans, Kookmin Bank assigns credit ratings based on its internal information regarding the borrower that has been accumulated as well as external information gathered from credit bureaus relating to various criteria, such as the borrower’s profession, annual income, credit card overdue information and transaction history involving both Kookmin Bank and other financial institutions. The credit rating process differs according to the type, size and characteristics of the borrower.

Kookmin Bank uses its internally developed credit rating systems to rate potential borrowers. As the characteristics of each customer segment differ, Kookmin Bank uses several credit rating systems for its customers. The nature of the credit rating system used for a particular borrower depends on whether the borrower is an individual, a SOHO customer, a small- and medium-sized enterprise or a large company. For large companies and small- and medium-sized enterprises, Kookmin Bank has 17 credit ratings ranging from AAA to D for risk management purposes. For retail customers, it has 13 credit ratings ranging from grade 1 to grade 13.

Based on the credit rating of a borrower, Kookmin Bank applies different credit policies, which affect factors such as credit limit, loan period, loan pricing, loan classification and provisioning. Kookmin Bank also uses these credit ratings in evaluating its bank-wide risk management strategy. Factors Kookmin Bank considers in making this evaluation include the profitability of each company or transaction, performance of each business unit and portfolio management. Kookmin Bank monitors the credit status of borrowers and collect information to adjust its ratings appropriately. If Kookmin Bank changes a borrower’s credit rating, it will also change the credit policies relating to that borrower and may also change the policies underlying its loan portfolio.

Retail Loan Approval Process

Mortgage Loans and Secured Retail Loans . Branch staff employees of Kookmin Bank forward loan applications to processing centers and Kookmin Bank’s processing center staff reviews mortgage loans and retail loans secured by real estate or guarantees. However, in the case of loans secured by deposits with Kookmin Bank, its branch staff approves such loans. Kookmin Bank makes lending decisions based on its assessment of the value of the collateral, debt service capability and the borrower’s score generated from its credit scoring systems.

For mortgage loans and loans secured by real estate, Kookmin Bank evaluates the value of the real estate offered as collateral using a database it has developed that contains information about real estate values

208

throughout Korea. Kookmin Bank also uses information from a third party provider about the real estate market in Korea, which gives it up-to-date market value information for Korean real estate. In addition, Kookmin Bank’s processing center staff employees review the value of real estate provided by the evaluation system to ensure there are no significant discrepancies. Kookmin Bank bases decisions regarding the approval of such loans primarily on the results of its credit scoring systems.

For loans secured by deposits, Kookmin Bank will generally grant loans up to 95% of the deposit amount if it holds the deposit.

Kookmin Bank generally decides whether to evaluate a loan application within three to five days after recording the relevant information in its credit scoring systems.

Unsecured Retail Loans . Kookmin Bank reviews applications for unsecured retail loans in accordance with its credit scoring systems. These automated systems evaluate loan applications and determine an appropriate pricing for the loan. The major benefits of using a credit scoring system are that it yields uniform results regardless of the user and that it can be used effectively by employees who do not necessarily have extensive experience in credit evaluation. The staff of Kookmin Bank’s processing centers reviews the results of the credit scoring system based on information input by its branch staff and, if approved, issues the loan.

Kookmin Bank’s credit scoring systems take into account factors including borrower’s income, assets, profession, transaction history (with both it and other financial institutions) and other relevant credit information. The systems rank each borrower in an appropriate grade, and that grade is used as a factor in deciding whether to approve loans as well as to determine loan amounts. Kookmin Bank generally bases its decisions on the results of its credit scoring systems to evaluate applications.

Corporate Loan Approval Process

We approve corporate loans at different levels of our organization depending on the size and type of the loan, the credit risk level assessed by the credit rating system, whether the loan is secured by collateral and, if secured, the value of the collateral. The lowest level of authority is the branch staff employee of Kookmin Bank, who can approve small loans and loans that have the lowest range of credit risk. Larger loans and loans with higher credit risk are approved by higher levels of authority depending on where they fall in a matrix of loan size and credit risk. Depending on the size and terms of any particular loan or the credit risk relating to a particular borrower, more than one entity may review the application, although generally loan applications are reviewed only by the entity having corresponding authority to approve the loan.

Kookmin Bank evaluates all of its corporate borrowers by using credit rating systems, except for applicants whose borrowings are fully secured by deposits or applicants who have obtained third-party guarantees from the government or certain other very highly rated guarantors. See “—Credit Evaluation.”

For owner-operated enterprises (which we refer to as SOHOs), Kookmin Bank has put in place a credit rating system known as Small Office Home Office Corporate Rating System, or SOHO CRS. For other small- and medium-sized enterprises, Kookmin Bank has put in place a similar credit rating system known as Corporate Rating System, or CRS. For large corporations, Kookmin Bank has put in place a similar credit rating system known as Large Corporate Rating System, or LCRS. For financial institutions, certain non-profit organizations and public institutions, Kookmin Bank has put in place a credit rating system known as Financial Institute, Non-profit, Public Corporate Rating System, or FNP CRS. The SOHO CRS, the CRS, the LCRS and the FNP CRS models consist of the following four parts:

•

Financial Model. The financial model uses financial ratios such as stability ratio, profitability ratio and cash flow ratio to make credit determinations.

209

•

Non -financial Model. The non-financial model uses various qualitative and quantitative factors, such as future repayment capability, industry-related risks, management-related risks and operation-related risks, to evaluate borrowers.

•

CEO Evaluation Model . The CEO evolution model is relevant for the SOHO CRS in particular, and evaluates the credit information of the individual owner of SOHOs by reviewing such owner’s personal information, bank transaction records and external credit ratings.

•

Default Signal Check Model. The default signal check model checks factors that have low frequency of occurrence but are highly likely to lead to a default in the event of an occurrence. The results of the default signal check model may be used to cap a borrower’s credit grade.

Credit Card Approval Process

We make decisions on all credit card approvals based on the Financial Supervisory Service standard of review for payment ability (such as the occupation and income of the applicant), as well as a combination of KB Kookmin Card’s internal application scoring system and a credit scoring system developed by independent credit bureaus.

KB Kookmin Card’s application scoring system reflects various credit information, including basic customer information (such as credit history), transaction history with it, if any, delinquency and transaction history with other card companies and financial institutions and credit information provided by Korea Credit Information Services and other credit bureaus. KB Kookmin Card also considers repayment ability, total assets, total outstanding borrowings and the length of the applicant’s relationship, if any, and past contribution to our profitability, if any.

The credit scoring system developed by credit bureaus, reflects various sources of information regarding the credit risk of customers, including delinquency and transaction history with other credit card companies and financial institutions.

On the basis of the standard of review for payment ability and the combination of the scores from our application scoring system and the credit scoring system developed by independent credit bureaus, KB Kookmin Card establishes, among other things, the term of any new approvals, initial limits and differentiation of fee rates with respect to its credit cards. KB Kookmin Card’s systems allow it to differentiate applicants into groups that receive immediate credit card approval or rejection, or that may require it to further investigate that applicant’s credit qualifications. The initial limits of new applicants are based on their estimated disposable income, which is based on their occupation and the value of their personal assets. KB Kookmin Card applies its fee rates to applicants differently according to risk premium and profitability.

Total Exposure Management

We establish and manage total exposure limits for industries, chaebols and corporations, as well as certain small- and medium-sized enterprises, in order to efficiently manage financial assets and to optimize our credit portfolio. Kookmin Bank establishes total exposure limits for (i) main debtor groups designated by the Financial Supervisory Service, (ii) groups to which Kookmin Bank has total exposure of ￦50 billion or more, (iii) enterprises that belong to a main debtor group or large enterprises, in both cases to which Kookmin Bank has total exposure of ￦40 billion or more, (iv) small- and medium-sized enterprises to which Kookmin Bank has total exposure of ￦30 billion or more and (v) other groups or individual enterprises designated by the head of Kookmin Bank’s Risk Management Group as necessary. Kookmin Bank establishes total exposure limit by reviewing factors such as industry, size, cash flows, financial ratios and credit ratings, while establishing exposure limits for industries by reviewing the sales growth rate and risk concentration for each industry. These total exposure limits are set following approval by Kookmin Bank’s Risk Management Council after review by the Credit Risk Management Subcommittee.

210

Kookmin Bank’s maximum exposure limit is within 25% of its Tier I and Tier II capital for a single chaebol , and within 10% of its Tier I and Tier II capital for an individual large corporation.

We manage and control exposure limits on a daily basis. The principal system that we use for this purpose is the Total Exposure Management System. This system allows us to monitor and control our total exposure to large corporations, chaebols and industries. Kookmin Bank monitors its exposure to large corporations to which it has an exposure of ￦40 billion or more, individual corporations to which it has an exposure of ￦30 billion or more, and also its exposure to 139 business groups, which comprise the 28 largest highly-indebted business groups among chaebols in Korea designated as such by the Financial Supervisory Service based on their outstanding exposures as well as 111 business groups to which it has exposures (in the form of securities or loans) of ￦50 billion or more. We also monitor our exposure to 37 industries. Our Total Exposure Management System integrates all of our credit-related risk including credit extended by our overseas branches and affiliates. The assets subject to the system include all Won-denominated and foreign currency-denominated loans, all assets in trust accounts except specified money trusts, guarantees, trade-related credits, commercial paper, corporate bonds and other securities and derivatives.

Collateral Evaluation and Monitoring System

Kookmin Bank uses the Collateral Evaluation and Monitoring System to manage the liquidation value of collateral it holds. The Collateral Evaluation and Monitoring System is a computerized collateral management system that can be accessed from Kookmin Bank’s headquarters and its branches. Using this system, Kookmin Bank can more accurately assess the actual liquidation value of collateral, determine the recovery rate on its loans and use this information in setting its credit risk management and loan policies. Kookmin Bank can monitor the value of all the collateral a borrower provides and the value of that collateral based on its liquidation value. When appraising the value of real estate collateral, which makes up the largest part of Kookmin Bank’s collateral, Kookmin Bank consults a regularly updated database provided by a third party that tracks the prices at which various types of real estate in various regions of Korea are sold. Kookmin Bank appraises the value of collateral when it makes a loan, when the loan is due for renewal and when events occur that may change the value of the collateral.

Credit Risk Management and Monitoring

Kookmin Bank’s Credit Risk Department manages and regulates our loan portfolio policies. It also analyzes and monitors our loan portfolios and monitors our compliance with the applicable limits for credit risk. Moreover, it separately manages high-risk products, such as real estate project financing loans and over-the-counter derivative products, by setting appropriate limits.

Credit Review

Kookmin Bank’s credit review function is independent of the business groups which manage our assets. Its Credit Review Department:

•

reviews internal credit regulations, policies and systems;

•

analyzes the credit status of selected loan assets and verifies the appropriateness of the credit evaluations/approvals made by branches and headquarters; and

•

evaluates the corporate credit risk of potentially insolvent companies.

More specifically, Kookmin Bank’s Credit Review Department continuously reviews the financial condition of selected borrowers with respect to their current debt, collateral, business, transactions with related parties and debt service capability. Based on such review, Kookmin Bank may adjust the borrower’s credit rating, lending policy or asset quality classification of the loan provided to the borrower, depending on the applicable

211

circumstances. Kookmin Bank also regularly reviews other aspects of the lending process, including industries and regions in which its borrowers operate and the quality of its domestic and overseas assets. Kookmin Bank’s industry reviews focus on growth, stability, competition and ability to adapt to a changing environment. Based on the results of a particular industry review, Kookmin Bank may revise the total exposure limit assigned to that industry and lending policy for each company within that industry. When a review takes place, Kookmin Bank may adjust not only the credit ratings of its borrowers based on a variety of factors, but also asset quality classification, credit limits and its credit policies. Credit review results are reported to Kookmin Bank’s chief risk management officer and its Risk Management Committee on a quarterly basis.

Kookmin Bank’s Credit Review Department also conducts on-site reviews of selected branches that are experiencing increasing delinquency ratios and bad debts. During these visits Kookmin Bank examines the loan processes and recommends improvement plans and appropriate follow-up measures.

Also, based on guidelines provided by the Financial Supervisory Service to all Korean banks, Kookmin Bank operates a corporate credit risk assessment program to facilitate the identification of weak companies and possible commencement of corporate restructuring. Through this program, Kookmin Bank, together with other banks, is able to detect symptoms of financially troubled companies at an early stage, assess related credit risk and support the normalization of companies that are likely to turnaround through a workout process, or seek to liquidate those companies that are not likely to recover.

Kookmin Bank’s Credit Review Department also analyzes issues related to credit risk and provides information necessary for the formulation of effective credit policies and strategies and for effective credit risk management.

Market Risk Management

The major risk to which we are exposed is interest rate risk on debt instruments and interest bearing securities and, to a lesser extent, foreign exchange risk and stock price risk. The financial instruments that expose us to these risks are securities and financial derivatives. We are also exposed to interest rate risk and liquidity risk in Kookmin Bank’s banking book. We divide market risk into risks arising from trading activities and risks arising from non-trading activities.

Kookmin Bank’s Risk Management Council establishes overall market risk management principles. It has delegated the responsibility for the market risk management for trading activities to the Market Risk Management Subcommittee of Kookmin Bank, which is chaired by Kookmin Bank’s chief risk management officer. This subcommittee meets on a regular basis each month and as required to respond to developments in the market and the economy. Based on the policies approved by Kookmin Bank’s Risk Management Council, the Market Risk Management Subcommittee reviews and approves reports as required that include trading profits and losses, position reports, limit utilization, sensitivity analysis and VaR results for our trading activities.

Kookmin Bank’s Risk Management Council is responsible for interest rate and liquidity risk management for its non-trading activities. The council meets on a regular basis and as required to respond to developments in the market and the economy. Members of the Risk Management Council, acting through Kookmin Bank’s Risk Management Department, review Kookmin Bank’s interest rate and liquidity gap position monthly, as well as the business profile and its impact on asset and liability management.

To ensure adequate interest rate and liquidity risk management, we have assigned the responsibilities for our asset and liability risk management to Kookmin Bank’s Risk Management Department in Kookmin Bank’s Risk Management Group, which monitors and reviews the asset and liability operating procedures and activities of Kookmin Bank’s Financial Planning Department and Asset and Liability Risk Management Department, and independently reports to the management on the related issues.

212

Market Risk Management for Trading Activities

Our trading activities consist of:

•

trading activities for our own account to realize short-term trading profits in Won-denominated debt and equities markets and foreign exchange markets based on our short-term forecast of changes in the market situation; and

•

trading activities involving derivatives, such as swaps, forwards, futures and option transactions, to realize profits primarily from selling derivative products to our customers and to hedge market risk incurred from those activities.

We use derivative instruments to hedge our market risk and, to a limited extent, to make profits by trading derivative products within acceptable risk limits. The principal objective of our hedging strategy is to manage our market risk within established limits. We use the following hedging instruments to manage relevant risks:

•

to hedge interest rate risk arising from its trading activities, the Trading/Capital Markets Department of Kookmin Bank occasionally uses interest rate futures (Korea Treasury Bond Futures) and interest rate swaps;

•

to hedge interest rate risk and foreign exchange risk arising from our foreign currency-denominated asset and liability positions as well as our trading activities, the Treasury Unit within the Capital Markets Department of Kookmin Bank uses interest rate swaps, cross-currency interest rate swaps, foreign exchange forwards and futures, Euro-dollar futures and currency options; and

•

to change the interest rate characteristics of certain assets and liabilities after the original investment or funding, we use swaps. For example, depending on the market situation, we may choose to obtain fixed rate funding instead of floating rate funding if we believe that the terms are more favorable, which we can achieve by entering into interest rate swaps.

We generally manage our market risk at the portfolio level. To control our exposure to market risk, we use internal capital limits set by Kookmin Bank’s Risk Management Committee for Kookmin Bank and at the group level within Kookmin Bank, VaR, position and stop loss limits set by Kookmin Bank’s Risk Management Council for Kookmin Bank and at the group level within Kookmin Bank, and VaR, position, stop loss and sensitivity limits (PVBP, Delta, Gamma, Vega) set by Kookmin Bank’s Market Risk Management Subcommittee at the department level within Kookmin Bank. We prepared our risk control and management guidelines for derivative trading based on the regulations and guidelines promulgated by the Financial Supervisory Service.

In addition, we have implemented internal processes which include a number of key controls designed to ensure that fair value is measured appropriately, particularly where a fair value model is internally developed and used to price a significant product. See “Item 5.A. Operating Results—Critical Accounting Policies—Valuation of Financial Instruments” and Notes 4.4 and 6 of the notes to our consolidated financial statements. For example, each year, Kookmin Bank’s Risk Management Department reviews the existing pricing and valuation models, with a focus on their underlying modeling assumptions and restrictions, to assess the appropriateness of their continued use. In consultation with Kookmin Bank’s Trading Department, the Risk Management Department recommends potential valuation models to Kookmin Bank’s Fair Value Evaluation Committee. Upon approval by Kookmin Bank’s Fair Value Evaluation Committee, the selected valuation models are reported to its Market Risk Management Subcommittee.

We monitor market risk arising from trading activities of our business groups and departments. The market risk measurement model we use for both our Won-denominated trading operations and foreign currency-denominated trading operations is implemented through our integrated market risk management system called Adaptiv, which enables us to generate consistent VaR numbers for all trading activities.

Value at Risk analysis. We use VaR to measure market risk. VaR is a statistically estimated maximum amount of loss that could occur over a given period of time at a given level of confidence. VaR is a commonly

213

used market risk management technique. However, this approach does have some shortcomings. VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is 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 can be different depending on the assumptions made at the time of 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. Different VaR methodologies and distributional assumptions could produce a materially different VaR. VaR is most appropriate as a risk measure for trading positions in liquid capital markets and will understate the risk associated with severe events, such as a period of extreme illiquidity.

We use a 99% single tail confidence level to measure VaR, which means the actual amount of loss may exceed the VaR, on average, once out of 100 business days. Until 2011, we used the “variance-covariance method” or parametric VaR (“PVaR”) methodology to measure our daily VaR, which took into account the diversification effects among different risk categories as well as within the same risk category. In 2012, we received authorization from the Financial Services Commission to use a historical simulation VaR (“HSVaR”) methodology, which we believe to be more accurate and responsive in reflecting market volatilities, to measure market risk. Our ten-day HSVaR method, which is computed using a full valuation and is computationally intensive, uses an archive of historic price data and the VaR for a portfolio is estimated by creating a hypothetical time series of returns on that portfolio, obtained by running the portfolio through actual ten-day historical data and computing the changes that would have occurred in each ten-day period.

The following table shows the volume and types of positions held by Kookmin Bank for which the VaR method is used to measure market risk as of December 31, 2018, 2019 and 2020.


	As of December 31,
	2018		2019		2020
	(in millions of Won)
Securities—Bond ⁽¹⁾	￦	9,167,080	￦	10,615,199	￦	10,168,932
Securities—Equity ⁽¹⁾		42,943		106,321		72,317
Spot exchanges ⁽²⁾		3,496,671		3,963,814		3,875,863
Derivatives ⁽³⁾		3,364,318		4,564,306		8,994,807

Total	￦	16,071,012	￦	19,249,640	￦	23,111,919

⁽¹⁾	Represents amounts marked to market and as shown on the balance sheet information that is prepared and submitted to the Financial Supervisory Service for risk management purposes.

⁽²⁾	Represents the overall net open currency position in each currency, which is the greater of (i) the sum of the absolute value of all short positions and (ii) the sum of the absolute value of all long positions.

⁽³⁾	For over-the-counter derivatives, represents the absolute value of over-the-counter derivatives measured at fair value at year end. For exchange-traded derivatives, includes the amount of deposits and the collateral posted for such derivatives.

214

The following table shows Kookmin Bank’s ten-day HSVaRs (at a 99% confidence level for a ten-day holding period) as of December 31, 2018, 2019 and 2020 for interest risk, stock price risk and foreign exchange risk relating to its trading activities. The following figures were calculated on a consolidated basis.


	As of December 31,
	2018			2019			2020
	(in billions of Won)
Risk categories:
Interest risk	￦	7.1		￦	16.6		￦	50.8
Stock price risk		3.3			3.9			24.8
Foreign exchange risk		16.5			13.1			49.3
Less: diversification		(11.9	)		(13.2	)		(7.3	)

Diversified VaR for overall trading activities	￦	14.9		￦	20.4		￦	117.6

In 2020, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows.


	Trading activities VaR for 2020
	Average		Minimum		Maximum		As of December 31, 2020
	(in billions of Won)
Interest risk	￦	59.3	￦	9.6	￦	106.0	￦	50.8
Stock price risk		15.2		3.8		24.3		24.8
Foreign exchange risk		36.1		5.3		67.8		49.3
Less: diversification								(7.3	)

Diversified VaR for overall trading activities		105.4		14.2		158.8	￦	117.6

In 2019, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows.


	Trading activities VaR for 2019
	Average		Minimum		Maximum		As of December 31, 2019
	(in billions of Won)
Interest risk	￦	11.2	￦	1.7	￦	20.5	￦	16.6
Stock price risk		3.4		2.4		4.3		3.9
Foreign exchange risk		15.8		11.4		20.7		13.1
Less: diversification								(13.2	)

Diversified VaR for overall trading activities		17.5		13.6		24.8	￦	20.4

215

In 2018, the average, high, low and ending amounts of ten-day HSVaR (at a 99% confidence level for a ten-day holding period) for Kookmin Bank relating to its trading activities were as follows.


	Trading activities VaR for 2018
	Average		Minimum		Maximum		As of December 31, 2018
	(in billions of Won)
Interest risk	￦	12.5	￦	6.0	￦	18.7	￦	7.1
Stock price risk		3.0		1.3		4.8		3.3
Foreign exchange risk		9.4		5.0		16.5		16.5
Less: diversification								(11.9	)

Diversified VaR for overall trading activities		16.2		11.7		23.1	￦	14.9

Standardized Method . Market risk for positions not measured by VaR are measured using the standardized method for measuring market risk-based required equity capital specified by the Financial Supervisory Service, which takes into account certain risk factors. Under the standardized method, the required equity capital is measured using the risk-weighted values for each risk factor. The method used to measure the market risk-based required equity capital for each risk factor is as follows:

•

Interest rate risk:

•

General market risk: General market risk relates to the risk of losses from macroscopic events which could have an impact on interest rates, stock prices, exchange rates, and market prices of general commodities. General market interest rate risk of a debt security is calculated on its net position, taking into consideration the remaining maturity and coupon rate.

•

Specific risk: Specific risk relates to the risk of loss from changes in credit risk of issuers of debt securities or equities, excluding changes in general market prices. Specific interest rate risk of a debt security is measured by multiplying the interest rate position appraised based on the market price of such security by the risk-weighted value applicable to the type of debt security, credit rating and the remaining maturity.

•

Equity risk: General and specific equity risk are calculated by multiplying the bought or sold position by the relevant risk-weighted values.

•

Foreign exchange risk: Foreign exchange risk is measured by multiplying the larger of the absolute values among the net bought or sold positions of each currency by the relevant risk-weighted values.

•

Option risk: Option risk is measured using the delta, gamma and vega of the option.

The standardized method is used to measure the market risk of the positions for which the Financial Supervisory Service has not approved the use of the VaR method. In addition, we use the standardized method for positions which are held by certain subsidiaries or for which measuring VaR is difficult due to the lack of daily position data. See Note 4.4.3 of the notes to our consolidated financial statements included elsewhere in this annual report.

216

The following table shows the volume and types of instruments held by Kookmin Bank for which the standardized method is used to measure its required equity capital as of December 31, 2018, 2019 and 2020.


	As of December 31,
	2018		2019		2020
	(in millions of Won)
Swaps and foreign exchange positions ⁽¹⁾	￦	24,366	￦	30,864	￦	217,007
Derivative-linked securities ⁽²⁾		126,416		160,576		85,021
Debt-equity swap stock put options ⁽³⁾		—		—		364

Total	￦	150,783	￦	191,440	￦	302,392

⁽¹⁾	Includes our overseas consolidated subsidiaries’ currency positions and their positions for foreign exchange swaps, total return swaps held by special purpose vehicles and structured rate swaps, which cannot be measured through the use of our internal models.

⁽²⁾	Amounts as of December 31, 2018, 2019 and 2020 represent the value of derivative-linked securities held by the trust accounts of Kookmin Bank subject to consolidation, for which the standardized method is used to measure Kookmin Bank’s required equity capital.

⁽³⁾	Reflects the value of our debt-equity swap stock put options in purchase agreements, which cannot be measured through the use of our internal models.

The following table shows Kookmin Bank’s required equity capital measured using the standardized method as of December 31, 2018, 2019 and 2020.


	As of December 31,
	2018 ⁽¹⁾		2019 ⁽¹⁾		2020 ⁽¹⁾
	(in millions of Won)
Risk categories:
Interest risk	￦	112,153	￦	83,731	￦	40,290
Stock price risk		19,756		1,953		7,088
Foreign exchange risk		1,338		1,850		23,938

Total	￦	133,248	￦	87,534	￦	71,316

⁽¹⁾

In the first half of 2015, Kookmin Bank received approval from the Financial Supervisory Service to use its internal VaR model, in lieu of the standardized method, to measure the market risk of certain instruments held by Kookmin Bank, including 30-year government bonds held by Kookmin Bank, as well as positions held by certain subsidiaries of Kookmin Bank, including Kookmin Bank (China) Ltd.

Back -Testing . We conduct back testing on a daily basis to validate the adequacy of our market risk model. In back testing, we compare both the actual and hypothetical profit and loss with the VaR calculations and analyze any results that fall outside our predetermined confidence interval of 99%. The number of times the actual changes in fair values, earnings or cash flows from the market risk sensitive instruments exceeded the VaR amounts in 2018, 2019 and 2020 was 2, 5 and 9, respectively.

Stress testing . In addition to VaR, which assumes normal market situations, we use stress testing to assess our market risk exposure to abnormal market fluctuations. Abnormal market fluctuations include significant declines in the stock market and significant increases in the general level of interest rates. This is an important way to supplement VaR, as VaR is a statistical expression of possible loss under a given confidence level and holding period. It does not cover potential loss if the market moves in a manner that is outside our normal expectations. Stress testing projects the anticipated change in value of holding positions under certain scenarios assuming that no action is taken during a stress event to change the risk profile of a portfolio. According to Kookmin Bank’s stress testing, we estimate that as of December 31, 2020, Kookmin Bank’s trading portfolio could have lost ￦381.4 billion for an assumed short-term extreme decline of approximately 33% in the equity market and an approximate 29 basis point increase in the Korean treasury bond rates under an abnormal stress environment.

217

We monitor the impact of market turmoil or any abnormality by conducting stress tests and confirming that the results are within our market risk limits. If the impact is large, Kookmin Bank’s chief risk management officer may request that our portfolio be restructured or other appropriate action be taken.

Interest Risk

Interest risk from trading activities arises mainly from our trading of Won-denominated debt securities. Our trading strategy is to benefit from short-term movements in the prices of debt securities arising from changes in interest rates. As our trading accounts are marked-to-market daily, we manage the interest risk related to our trading accounts using market value-based tools such as VaR and sensitivity analysis. As of December 31, 2020, the VaR of Kookmin Bank’s interest risk from trading was ￦50.8 billion and the weighted average duration, or weighted average maturity, of its Won-denominated debt securities at fair value through profit or loss was approximately two years.

Foreign Exchange Risk

Foreign exchange risk arises because we have assets and liabilities that are denominated in currencies other than Won, as well as off-balance sheet items such as foreign exchange forwards and currency swaps. Our assets and liabilities denominated in U.S. dollars, Japanese Yen, Euro and Chinese Renminbi have typically accounted for the majority of our foreign currency assets and liabilities.

The difference between our foreign currency assets and liabilities is offset against forward foreign exchange positions, currency options and currency swaps to obtain our net foreign currency open position. Kookmin Bank’s Risk Management Council and Market Risk Management Subcommittee oversee Kookmin Bank’s foreign exchange exposure for both trading and non-trading purposes by establishing a limit for this net foreign currency open position, together with stop loss limits. VaR limits are established on a combined basis for our domestic operations and foreign branches.

The following table shows Kookmin Bank’s non-consolidated net open positions at the end of 2018, 2019 and 2020. Positive amounts represent long positions and negative amounts represent short positions. The net open positions held by subsidiaries other than Kookmin Bank are not significant.


	As of December 31, ⁽¹⁾
	2018			2019			2020
	(in millions of US$)
Currency:
U.S. dollars	US$	(495.2	)	US$	(592.9	)	US$	(676.2	)
Japanese Yen		(1.6	)		(0.2	)		(2.6	)
Euro		(0.2	)		(1.9	)		4.8
Chinese Renminbi		21.9			12.8			13.9
Others		146.9			189.2			437.6

Total	US$	(328.2	)	US$	(393.0	)	US$	(222.4	)

⁽¹⁾	Amounts prepared on a non-consolidated basis.

Equity Price Risk

Equity price risk results from our equity derivatives trading portfolio in Won since we do not have any trading exposure to shares denominated in foreign currencies.

The equity derivatives trading portfolio in Won consists of exchange-traded stocks and equity derivatives under strict limits on diversification as well as position limits and stop loss limits.

218

Kookmin Bank’s Risk Management Council and Market Risk Management Subcommittee set annual and monthly stop loss limits that are monitored by Kookmin Bank’s Risk Management Department. In order to ensure timely action, the stop loss limit of individual securities is monitored by the relevant middle office.

As of December 31, 2020, Kookmin Bank’s equity trading position was ￦72.3 billion.

Derivative Market Risk

Our derivative trading includes interest rate and cross-currency swaps, foreign exchange forwards, stock index and interest rate futures and currency options. These activities consist primarily of the following:

•

sales of tailor-made derivative products that meet various needs of our corporate customers and related transactions to reduce our exposure resulting from those sales;

•

taking positions in limited cases when we expect short-swing profits based on our market forecasts; and

•

trading to hedge our interest rate and foreign currency risk exposure as described above.

Market risk from trading derivatives is not significant since our derivative trading activities are primarily driven by customer deals with very limited open trading positions.

Market Risk Management for Non-Trading Activities

Interest Rate Risk

Our principal market risk from non-trading activities is interest rate risk. Interest rate risk arises due to mismatches in the maturities or re-pricing periods of these rate-sensitive assets and liabilities. We measure interest rate risk for Won and foreign currency assets and liabilities in our bank accounts (including derivatives) and our principal guaranteed trust accounts. Most of our interest-earning assets and interest-bearing liabilities are denominated in Won and our foreign currency-denominated assets and liabilities are mostly denominated in U.S. dollars.

Our principal interest rate risk management objectives are to generate stable net interest revenues and to protect our asset value against interest rate fluctuations. We principally manage this risk for our non-trading activities by analyzing and managing maturity and duration gaps between our interest-earning assets and interest-bearing liabilities. In addition, we use hedging instruments for interest rate risk management for our non-trading assets and liabilities.

Interest rate gap analysis measures expected changes in net interest revenues by calculating the difference in the amounts of interest-earning assets and interest-bearing liabilities at each maturity and interest resetting date. We perform interest rate gap analysis for Won-denominated and foreign currency-denominated assets and trust assets on a monthly basis or more frequently when deemed necessary.

Interest Rate Gap Analysis. We perform interest rate gap analysis based on interest rate repricing maturities of assets and liabilities. However, for some of our assets and liabilities with either no maturities or unique characteristics, we use or assume certain maturities, including the following examples:

•

With respect to asset maturities, we assume remaining maturities of prime rate-linked loans with remaining maturities of over one year to be one year and use the actual maturities for prime rate-linked loans with remaining maturities of less than one year.

•

With respect to liability maturities, we use last 120 months’ average balance to segregate “non-core” and “core” demand deposits. We assume “non-core” demand deposits to have remaining maturities of one day or less, and we assume “core” demand deposits to have remaining maturities between one month and five years.

219

The following table shows Kookmin Bank’s interest rate gap for Won-denominated accounts and foreign currency-denominated accounts as of December 31, 2020.


	As of December 31, 2020
	0-3 Months			3-6 Months			6-12 Months			1-3 Years			Over 3 Years			Total
	(in billions of Won, except percentages)
Won-denominated Interest-earning assets:
Loans	￦	96,847		￦	73,131		￦	66,420		￦	30,106		￦	28,588		￦	295,092
Securities		7,435			2,944			6,780			24,411			12,375			53,945
Others		5,502			153			103			94			0			5,852

Total	￦	109,784		￦	76,228		￦	73,303		￦	54,611		￦	40,963		￦	354,889

Interest-bearing liabilities:
Deposits	￦	119,011		￦	35,676		￦	65,337		￦	45,911		￦	37,300		￦	303,235
Borrowings		14,298			0			0			142			0			14,440
Others		13,513			1,872			3,450			6,659			3,480			28,974

Total	￦	146,822		￦	37,548		￦	68,787		￦	52,712		￦	40,780		￦	346,649

Sensitivity gap		(37,038	)		38,680			4,516			1,899			183			8,240
Cumulative gap		(37,038	)		1,642			6,158			8,057			8,240
% of total assets		(10.4	)%		0.5	%		1.7	%		2.3	%		2.3	%
Foreign currency-denominated Interest-earning assets:
Due from banks	￦	5,478		￦	6		￦	103		￦	0		￦	0		￦	5,587
Loans		15,533			2,997			2,841			1,935			3,196			26,502
Securities		3,740			255			152			881			1,101			6,129

Total	￦	24,751		￦	3,258		￦	3,096		￦	2,816		￦	4,297		￦	38,218

Interest-bearing liabilities:
Deposits	￦	12,857		￦	2,675		￦	2,923		￦	2,790		￦	2,639		￦	23,884
Borrowings		10,107			2,192			1,162			1,743			1,880			17,084
Others		670			0			0			0			0			670

Total	￦	23,634		￦	4,867		￦	4,085		￦	4,533		￦	4,519		￦	41,638

Sensitivity gap		1,117			(1,609	)		(989	)		(1,717	)		(222	)		(3,420	)
Cumulative gap		1,117			(492	)		(1,481	)		(3,198	)		(3,420	)
% of total assets		2.9	%		(1.3	)%		(3.9	)%		(8.4	)%		(8.9	)%

Duration Gap Analysis . We also perform duration gap analysis to measure and manage interest rate risk. Duration gap analysis is a more long-term risk indicator than interest rate gap analysis, as interest rate gap analysis focuses more on accounting income as opposed to the market value of the assets and liabilities. We emphasize duration gap analysis because, in the long run, our principal concern with respect to interest rate fluctuations is the net asset value rather than net interest revenue changes. In 2020, our Won-denominated asset and liability duration gap was positive and it moved between +0.151 years and +0.174 years. Accordingly, our net asset value would have declined (or increased) between ￦528 billion and ￦627 billion if interest rates had increased (or decreased) by one percentage point.

For duration gap analysis we use or assume the same maturities for different assets and liabilities that we use or assume for our interest rate gap analysis.

220

The following table shows Kookmin Bank’s duration gaps and net asset value changes when interest rates decrease by one percentage point as of the specified dates, on a non-consolidated basis.

Won-denominated

Asset
Duration

Liability
Duration

Duration
Gap

Net Asset
Value Change

Date

(in years)

(in billions of
Won)

June 30, 2020

1.000

0.896

0.151

￦

528

December 31, 2020

1.091

0.963

0.174

627

Foreign currency-denominated

Asset
Duration

Liability
Duration

Duration
Gap

Net Asset
Value Change

Date

(in years)

(in billions of
Won)

June 30, 2020

0.743

0.665

0.048

￦

December 31, 2020

0.915

0.767

0.096

We set interest rate risk limits using historical interest rate volatility of financial bonds and duration gaps with respect to expected asset and liability positions based on our annual business plans. The Risk Management Department in Kookmin Bank’s Risk Management Group submits interest rate gap analysis reports, duration gap analysis reports and interest rate risk limit compliance reports monthly to Kookmin Bank’s Risk Management Council and quarterly to Kookmin Bank’s Risk Management Committee.

The following table summarizes Kookmin Bank’s interest rate risk, taking into account asset and liability durations as of December 31, 2020.


	As of December 31, 2020
	3 Months or Less			3-6 Months			6-12 Months			1-3 Years			Over 3 Years			Total
	(in billions of Won, except percentages and maturities in years)
Won-denominated:
Asset position	￦	109,784		￦	76,228		￦	73,303		￦	54,611		￦	40,963		￦	354,889
Liability position		146,822			37,548			68,787			52,712			40,780			346,649
Gap		(37,038	)		38,680			4,516			1,899			183			8,240
Average maturity		0.094			0.371			0.736			1.919			7.030
Interest rate volatility		0.00	%		0.06	%		0.19	%		0.42	%		1.04	%
Amount at risk		1			10			3			16			481			511

Foreign currency-denominated:
Asset position	￦	24,751		￦	3,258		￦	3,096		￦	2,816		￦	4,297		￦	38,218
Liability position		23,634			4,867			4,085			4,533			4,519			41,638
Gap		1,117			(1,609	)		(989	)		(1,717	)		(222	)		(3,420	)
Average maturity		0.094			0.372			0.741			1.947			7.298
Interest rate volatility		0.02	%		0.23	%		0.38	%		0.47	%		1.02	%
Amount at risk		0			(1	)		(3	)		(11	)		(95	)		80

IRRBB Analysis . Prior to January 2020, we estimated the maximum possible loss on net non-trading assets due to unfavorable changes in interest rates by calculating interest rate VaR using a historical simulation method with actual historical price, volatility and yield changes in comparison with the current position to generate hypothetical portfolios and calculate a distribution of position and portfolio market value changes. Using this method, Kookmin Bank’s interest rate VaR was ￦167 billion as of December 31, 2018, ￦320 billion as of December 31, 2019 and ￦591 billion as of December 31, 2020.

221

Recent amendments to the Detailed Regulation on the Supervision of the Banking Business, which became effective in November 2019, require banks, including Kookmin Bank, to adopt the standards of the Interest Rate Risk in the Banking Book, or IRRBB, issued by the Basel Committee on Banking Supervision for calculating interest rate risk exposure. Such amendments were adopted in order to promote more financial stability for banks by requiring them to maintain a sufficient level of capital through a more robust risk management system. Under the new IRRBB analysis standards, Kookmin Bank estimates its interest rate risk by calculating the changes in economic value of equity and the changes in net interest income based on various interest rate risk scenarios. Under this method, Kookmin Bank’s interest risk exposure was ￦544 billion as of December 31, 2020.

For additional information, see Note 4.4 of the notes to our consolidated financial statements included elsewhere in this annual report.

Foreign Exchange Risk

We manage foreign exchange rate risk arising from our non-trading operations together with such risks arising from our trading operations. See “—Market Risk Management for Trading Activities—Foreign Exchange Risk” above.

Liquidity Risk Management

Liquidity risk is the risk of insolvency or loss due to a disparity between the inflow and outflow of funds resulting from, for example, maturity mismatches, obtaining funds at a high price or disposing of securities at an unfavorable price due to lack of available funds. We manage our liquidity in order to meet our financial liabilities from withdrawals of deposits, redemption of matured debentures and repayments at maturity of borrowed funds. We also require sufficient liquidity to fund loans, to extend other credits and to invest in securities. Our liquidity management goal is to meet all our liability repayments on time and fund all investment opportunities even under adverse conditions. To date, we have not experienced significant liquidity risk.

We maintain liquidity by holding sufficient quantities of assets that can be liquidated to meet actual or potential demands for funds from depositors and others. We also manage liquidity by ensuring that the excess of maturing liabilities over maturing assets in any period is kept to manageable levels relative to the amount of funds we believe we could raise by issuing securities. We seek to minimize our liquidity costs by managing our liquidity position on a daily basis and by limiting the amount of cash at any time that is not invested in interest-earning assets or securities.

We maintain diverse sources of liquidity to facilitate flexibility in meeting our funding requirements. We fund our operations principally by accepting deposits from retail and corporate depositors, accessing the call loan market (a short-term market for loans with maturities of less than 90 days), issuing debentures and borrowing from the Bank of Korea. We use the majority of funds we raise to extend loans or purchase securities. Generally, deposits are of shorter average maturity than loans or investments.

For Won-denominated assets and liabilities, we manage liquidity using a cash flow structure based on holding short-term liabilities and long-term assets. Generally, the average initial contract maturity of our new Won-denominated time deposits was less than one year, while during the same period most of our new loans and securities had maturities over one year.

We manage liquidity risk within the limits set on Won and foreign currency accounts in accordance with the regulations of the Financial Services Commission. The Financial Services Commission requires Korean banks, including Kookmin Bank, to maintain a liquidity coverage ratio of not less than 100%. The Financial Services Commission defines the liquidity coverage ratio as the ratio of highly liquid assets to total net cash outflows over a 30-day period. The highly liquid assets and total net cash outflows included in the calculation of the liquid coverage ratio are determined in accordance with the “Standards for Calculation of Liquidity Coverage Ratio”

222

under the Detailed Regulation on the Supervision of the Banking Business. In addition, the Financial Services Commission requires Korean banks, including Kookmin Bank, to maintain a foreign currency liquidity coverage ratio of not less than 80%. In April 2020, in order to encourage financial institutions to provide financial support to companies adversely affected by COVID-19, the Financial Services Commission announced that it would temporarily lower the required liquidity coverage ratio to 85%, and the required foreign currency liquidity coverage ratio to 70%. Following a series of extensions by the Financial Services Commission, these temporary deregulation measures are currently scheduled to expire at the end of September 2021.

Kookmin Bank’s Asset Liability Management Department is responsible for daily liquidity management with respect to its Won and foreign currency exposure. It reports monthly plans for funding and operations to the Asset Liability Management Committee of Kookmin Bank, which discusses factors such as interest rate movements and maturity structures of its deposits, loans and securities and establishes strategies with respect to deposit and lending rates.

The following table shows Kookmin Bank’s liquidity coverage ratio and foreign currency liquidity coverage ratio on an average balance basis for the month of December 2020 in accordance with Financial Services Commission regulations:


Liquidity coverage ratio:	30 Days or Less
	(in billions of Won, except percentages)
Highly liquid assets (A)	￦	58,543
Cash outflows (B)		79,271
Cash inflows (C)		16,003
Total net cash outflows (D = B-C)		63,268
Liquidity coverage ratio (A/D)		92.53	%
Minimum limit		85	%

Foreign currency liquidity coverage ratio:	30 Days or Less
	(in millions of US$, except percentages)
Highly liquid assets (A)	US$	3,677
Cash outflows (B)		10,032
Cash inflows (C)		6,398
Total net cash outflows (D = B-C)		3,634
Liquidity coverage ratio (A/D)		101.18	%
Minimum limit		70	%

The Risk Management Department in Kookmin Bank’s Risk Management Group reports whether it is complying with these limits monthly to Kookmin Bank’s Risk Management Council and quarterly to Kookmin Bank’s Risk Management Committee.

Operational Risk Management

Overall Status

There is no complete consensus on the definition of operational risk in the banking industry. We define operational risk broadly to include all financial and non-financial risks, other than credit risk, market risk, interest rate risk and liquidity risk, that may arise from our operations that could negatively impact our capital, including the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events as defined under Basel II. Our operational risk management objectives include not only satisfying regulatory

223

requirements, but also providing internal support through the growth of a strong risk management culture, reinforcement of internal controls, improvement of work processes and provision of timely feedback to management members and staff throughout the group.

Each of our subsidiaries manages operational risks related to its own business, and we regularly monitor them. Kookmin Bank, our banking subsidiary, uses an operational risk management framework meeting the Basel II Advanced Measurement Approach, or AMA, under which Kookmin Bank:

•

calculates its operational risk VaR on a quarterly basis using the “loss distribution approach VaR” and “scenario based VaR” methodology;

•

monitors operational risk in terms of Key Risk Indicators, or KRIs, using tolerance levels for each indicator;

•

executes integrated compliance and operational risk Control Self Assessments, or CSAs, that enhance the effect on internal controls, which Kookmin Bank employees are able to access and use for process improvement;

•

collects and analyzes internal and external loss data;

•

conducts scenario analyzes to evaluate exposure to high-severity events;

•

manages certain insurance-related activities relating to insurance strategies established to mitigate operational risk;

•

examines operational risks arising in connection with the development of, changes in or discontinuance of products, policies or systems;

•

uses a detailed business continuity plan covering all of its operations and locations to prepare against unexpected events, including an alternate back-up site for use in disaster events as well as annual full-scale testing of such site;

•

refines bank-wide operational risk policies and procedures;

•

provides appropriate training and support to business line operational risk managers; and

•

reports overall operational risk status to our senior management.

While Kookmin Bank’s Risk Management Department advises relevant business units with respect to the review of and suggested improvements on related operational processes and procedures, each of Kookmin Bank’s relevant business units has primary responsibility for the management of its own operational risk. In addition, the Operational Risk Unit, which is part of Kookmin Bank’s Risk Management Department, monitors bank-wide operational risk. Kookmin Bank also has business line operational risk managers in all of its subsidiaries, departments and branches who periodically conduct CSAs and monitor KRIs. For example, Kookmin Bank has developed KRIs relating to customer data protection, which are applied and monitored at all domestic branches and offices. In addition, in order to strengthen risk management of its overseas operations, Kookmin Bank designates expert auditors for overseas branches and conducts internal audits designed especially to check key risks identified for each overseas branch. Kookmin Bank has also established a risk CSA system for overseas branches, pursuant to which all employees (including locally hired staff) of such branches are required to perform a risk CSA on a quarterly basis. Furthermore, Kookmin Bank regularly monitors operational risks related to new businesses as well as existing operating processes and seeks to develop appropriate new KRIs and risk CSA measures on an ongoing basis. Through such methods, Kookmin Bank is able to ensure proper monitoring and measurement of operational risk in each of its business groups and overseas operations.

Internal Control

To monitor and control operational risks, we maintain a system of comprehensive policies and have put in place a control framework designed to provide a stable and well-managed operational environment throughout

224

our organization. We have in place a prescribed leave policy for employees in certain high-risk categories to safeguard against fraud and to check for weaknesses in internal controls. In addition, we maintain an external whistleblower “ombudsman” channel to encourage whistleblowing and voluntary reporting of fraudulent behavior.

Each of our subsidiaries establishes its own internal control system in accordance with the group-level internal control principles. Our Compliance Supporting Department is responsible for monitoring and advising our subsidiaries regarding their internal control systems. Our Audit Committee, which consists of four non-executive directors, is an independent authority that evaluates the effectiveness and efficiency of our group-wide internal control systems and business processes and monitors our subsidiaries’ compliance with such systems and processes, as well as reviews the reliability of our financial statements to secure the transparency and stability of our management (including through the activities of our independent auditors). In particular, we have established group-wide internal guidelines with respect to our subsidiaries’ reporting requirements. Our subsidiaries review their operations and their level of compliance with internal control systems and business processes on a periodic basis and, as part of this process, they are required to report any problems discovered and any remedial actions taken to our chief compliance officer, who is responsible for reporting to our Audit Committee. Based on the results of these reports, or on an ad hoc basis in response to any problem or potential problem that it identifies, the Audit Committee may direct a subsidiary to conduct an audit of its operations or, if it chooses to do so, conduct its own audit of those operations. The Audit Committee interacts on a regular basis with our Audit Department, Compliance Supporting Department and our independent auditors. In carrying out these duties, the Audit Committee ultimately protects our property for the benefit of our shareholders, investors and customers by independently monitoring our management.

Our Audit Department supports our Audit Committee in monitoring our accounting and business operations and overseeing the management of our subsidiaries’ internal control systems by performing the following activities:

•

general audits, which include full-scale audits of the overall operations performed according to an annual audit plan, and sectional audits of selected operations; and

•

special audits of troubled or weak operations, which are performed when our Audit Committee or executive officer responsible for audits deems it necessary or pursuant to requests by our board, executive officers or supervisory authorities, such as the Financial Supervisory Service.

The Financial Supervisory Service periodically conducts a general examination of our operations. It also performs specific audits on particular aspects of our operations, such as risk management, credit monitoring and liquidity, as the need arises. We and our subsidiaries have in the past been subject to, and expect in the future to be subject to, the receipt of warning notices or the imposition of penalties in connection with our or our subsidiaries’ failure to comply with the applicable laws or rules, regulations and guidelines of the Financial Supervisory Service. For example, in June 2019, the Financial Supervisory Service conducted a comprehensive annual inspection of overall operations at our company, Kookmin Bank and KB Securities, and imposed an administrative fine of ￦12 million on our company for alleged deficiencies in the determination of compensation for certain of our personnel responsible for audit and risk management. Subsequently, in November 2020, the Financial Supervisory Service conducted a risk management evaluation of our company and Kookmin Bank, the result of which was deemed satisfactory.

Kookmin Bank’s Audit Department is the execution body for its audit committee and supports Kookmin Bank’s management objectives by auditing the operations of its branches using a risk analysis system and reviewing the operations of its headquarters and subsidiaries through the use of “risk-based audit” in accordance with the “business measurement process” audit methodology, which requires that the Audit Department evaluate the risk and process of its business units and concentrate its audit capacity with respect to high risk areas.

As a result of recent regulatory trends, Kookmin Bank’s Audit Department is continuing its efforts to establish an advanced audit system and value-added internal audit by introducing risk-based audit techniques.

225

Our Compliance Supporting Department operates a compliance system to ensure that all of our employees comply with the relevant laws and regulations. This system’s main function is to establish and manage our compliance program, educate employees and management and improve our internal control process.

Legal Risk

We consider legal risk as a part of our operational risk. The uncertainty of the enforceability of the obligations of our customers and counterparties creates legal risk. Changes in laws and regulations could also adversely affect us. Legal risk is higher in new areas of business where the law is often untested in the courts, although legal risk can also increase in our traditional business to the extent that the legal and regulatory landscape in Korea is changing and many new laws and regulations governing the financial industry remain untested. Our Compliance Supporting Department seeks to minimize legal risk by using stringent legal documentation, employing procedures designed to ensure that transactions are properly authorized and consulting legal advisers.

IT System Operational Risk

The integrity of our IT systems, and their ability to withstand potential catastrophic events, are crucial to our continuing operations. Accordingly, we are continuing to strengthen our disaster recovery capabilities. In order to minimize operational risks relating to our IT systems, we have implemented a multi-CPU system that runs multiple CPUs simultaneously on-site and ensures system continuity in case any of the CPUs fails. This system backs up our data systems at an off-site location on a real-time basis to ensure that our operations can be carried out normally and without material interruption in the event of CPU failure. Also, in order to protect our Internet banking services from system failures and cyber attacks, we process our Internet transactions through three separate data processing centers.

We currently test our disaster recovery systems on a quarterly basis, with the comprehensive testing including our branches and the main IT center’s disaster recovery system. In addition, we monitor and report on any unusual delays or irregularities reported by our branches. Moreover, Kookmin Bank’s Information Security Platform Department is responsible for the daily monitoring of its information security system. Our business operations regularly conduct IT security inspections with respect to such operations and have implemented measures to identify and respond collectively to security breach attempts, such as hacking attempts.

In particular, at Kookmin Bank, we have taken steps to establish a comprehensive security system aimed at detecting and responding to internal and external threats to its IT system and have implemented network segregation on the computers of all employees so that Intranet and Extranet functions are segregated. We have endeavored to enhance protection of customer data by using personal identification numbers internally generated and managed by Kookmin Bank in all customer financial transaction, in lieu of the resident registration numbers of its customers, and by amending forms and templates to minimize collection of potentially sensitive customer data. Kookmin Bank’s chief information security officer is responsible for ensuring protection of information assets and technologies and reducing IT risks.

At KB Kookmin Card, we have taken steps to strengthen its information security infrastructure by implementing a solution to prevent attacks on its website and a security system to prevent unauthorized access to local networks and information. As part of strengthening its operational processes and procedures for customer information protection, KB Kookmin Card prohibits use of portable devices within the premises, requires managerial approval for all documents sent externally, including via email, and continuously monitors compliance with data protection policies, including through spot inspection of each department.

In 2009, Kookmin Bank obtained ISO 27001 certification, which relates to information security. In 2011, Kookmin Bank also obtained ISO 20000 certification, which relates to IT service management, and BS 25999 certification, which relates to business continuity management. Kookmin Bank is the first Korean bank to have

226

obtained all three such international certifications. In addition, between 2013 and 2020, we, Kookmin Bank, KB Securities, KB Insurance, KB Kookmin Card and KB Life Insurance obtained ISMS certification, which relates to information security management. In 2017, KB Kookmin Card obtained PCI DSS certification, which relates to protection of credit card data.

We implement various year-round education programs and training sessions designed to raise the information security awareness of both management and employees.

Item 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees and Charges

Under the terms of the deposit agreement, as a holder of our ADSs, you are required to pay the following service fees to the depositary:


Services		Fees
Issuance of ADSs		Up to $5.00 per 100 ADSs (or portion thereof) issued

Delivery of deposited shares against surrender of ADSs		Up to $5.00 per 100 ADSs (or portion thereof) surrendered

Distribution of cash dividends or other cash distributions		Up to $0.02 per ADS held

Transfer of ADSs, combination and split-up of American depositary receipts or interchange of certificated and uncertificated ADSs		Up to $1.50 per American depositary receipt transferred

Distribution or sale of securities pursuant to stock dividends, free stock distributions, exercise of rights or any other non-cash distributions		A fee equivalent to the fee that would be payable if securities distributed or sold, as the case may be, had been shares and such shares had been deposited for issuance of ADSs

Depositary Services		Up to $0.02 per ADS (or portion thereof) held on the applicable record date(s) established by the depositary

As a holder of our ADSs, you are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

•

Fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea ( i.e. , upon deposit and withdrawal of shares).

•

Expenses incurred for converting foreign currency into U.S. dollars.

•

Expenses for cable, telex and fax transmissions and for delivery of securities.

•

Taxes and duties upon the transfer of securities ( i.e. , when shares are deposited or withdrawn from deposit).

•

Fees and expenses incurred in connection with the delivery or servicing of shares on deposit or other deposited securities.

Depositary fees payable upon the issuance and surrender of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for surrender. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.

227

The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Depository Trust Company, or DTC), the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.

In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs.

Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary. You will receive prior notice of such changes.

Fees and Payments from the Depositary to Us

In 2020, we received the following payments from the depositary:


Reimbursement of listing fees:	$	71,000
Reimbursement of SEC filing fees:	$	36,320
Reimbursement of expenses related to our investor relations activities (investor conferences and investor relations agency fees, etc.) and legal fees (expenses related to the preparation of our Form 20-F for fiscal year 2019):	$	497,000

In addition, as part of its service to us, the depositary waives its fees for the standard costs and operating expenses associated with the administration of the ADS facility.

Item 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

Item 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

Item 15.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have evaluated, with the participation of our chief executive officer and chief finance officer, the effectiveness of our disclosure controls and procedures as of December 31, 2020. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief finance officer concluded that our disclosure controls and procedures as of December 31, 2020 were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief finance officer, as appropriate to allow timely decisions regarding required disclosure.

228

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and chief finance officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS as issued by the IASB, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. 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.

Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Our management has excluded Prudential Life Insurance from our assessment of internal control over financial reporting as of December 31, 2020 in accordance with the SEC’s general guidance that an assessment of a recently-acquired business may be omitted from our scope of assessment in the year of acquisition. In August 2020, we acquired all of the outstanding shares of Prudential Life Insurance, as a result of which Prudential Life Insurance became our wholly-owned subsidiary. Prudential Life Insurance accounted for approximately 4.11% of our consolidated total assets as of December 31, 2020, and its profit before income tax for the period subsequent to its consolidation in 2020 amounted to 1.94% of our consolidated total profit before income tax.

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG Samjong Accounting Corp., an independent registered public accounting firm, as stated in its report included herein, which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2020.

Attestation Report of the Registered Public Accounting Firm

The attestation report of our independent registered public accounting firm is included in Item 18 of this Form 20-F.

Changes in Internal Control Over Financial Reporting

As a result of our acquisition of all of the outstanding shares of Prudential Life Insurance in August 2020, we are evaluating and implementing changes to processes, policies and other components of our internal control over financial reporting as part of our ongoing integration activities. Our management continues to be engaged in efforts to evaluate the effectiveness of our internal control procedures and the design of those control procedures

229

in connection with the acquisition of Prudential Life Insurance, with a plan to report its evaluation of the internal control over the financial reporting of Prudential Life Insurance at December 31, 2021. Except for the foregoing, there has been no change in our internal control over financial reporting during 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16.

[RESERVED]

Item 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Kyung Ho Kim, Myung Hee Choi and Gyutaeg Oh, our non-executive directors and members of our Audit Committee, qualify as “audit committee financial experts” and are independent within the meaning of this Item 16A.

Item 16B.

CODE OF ETHICS

We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act. Our code of ethics applies to our chief executive officer and chief finance officer, as well as to our non-executive directors, non-standing directors and other officers and employees. Our code of ethics is available on our website at https://www.kbfg.com/Eng/about/ethics.htm . If we amend the provisions of our code of ethics that apply to our chief executive officer and chief finance officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address.

Item 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit and Non-audit Fees

The following table sets forth the fees billed to us by our former independent registered public accounting firm Samil PricewaterhouseCoopers for the fiscal year ended December 31, 2019 and our current independent registered public accounting firm KPMG Samjong Accounting Corp. during the fiscal year ended December 31, 2020:


	Year Ended December 31,
	2019		2020
	(in millions of Won)
Audit fees	￦	9,787	￦	11,713
Audit-related fees		—		275
Tax fees		7		—

Total fees	￦	9,794	￦	11,988

Audit fees in the above table are the aggregate fees billed by Samil PricewaterhouseCoopers or KPMG Samjong Accounting Corp. (as applicable) in connection with:

•

the audits of our annual financial statements and the review of our interim financial statements;

•

the audits of our special purpose entities in connection with the Financial Investment Services and Capital Markets Act; and

•

our financial debenture offering services.

Audit-related fees in the above table are the aggregate fees billed by Samil PricewaterhouseCoopers or KPMG Samjong Accounting Corp. (as applicable) in connection with due diligence services rendered in the ordinary course of our business.

230

Tax fees in the above table are fees billed or expected to be billed by Samil PricewaterhouseCoopers in connection with tax filing services for funds operated by KB Asset Management Co., Ltd.

Audit Committee Pre-Approval Policies and Procedures

Our Audit Committee pre-approves the engagement of our independent auditors for audit services with respect to our financial statements. Our Audit Committee has implemented a policy regarding pre-approval of certain other services provided by our independent auditors to our subsidiaries that the Audit Committee has deemed as not affecting their independence. Under this policy, pre-approvals for the following services to our subsidiaries have been granted by our Audit Committee to each of our subsidiaries’ audit committees: (i) services related to the audit of financial statements prepared in accordance with IFRS as adopted by Korea and internal controls under Korean laws and regulations; (ii) general tax services; (iii) issuance of comfort letters in connection with offering of securities; and (iv) educational services provided to employees.

Any other audit or permitted non-audit service must be pre-approved by the Audit Committee on a case-by-case basis. Our Audit Committee did not pre-approve any non-audit services under the de minimis exception of Rule 2.01(c)(7)(i)(C) of Regulation S-X as promulgated by the Securities and Exchange Commission.

Item 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

Item 16E.

PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.

Item 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

The disclosure called for by paragraph (a) of this Item 16F was previously reported, as that term is defined in Rule 12b-2 under the Exchange Act, in our Annual Report on Form 20-F for the year ended December 31, 2019 (File No. 000-53445), filed on April 24, 2020.

231

Item 16G.

CORPORATE GOVERNANCE

Differences in Corporate Governance Practices

Pursuant to the rules of the New York Stock Exchange applicable to foreign private issuers like us that are listed on the New York Stock Exchange, we are required to disclose significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law and in accordance with our own internal procedures. The following is a summary of such significant differences:


NYSE Corporate Governance Standards		KB Financial Group

Director Independence
Listed companies must have a majority of independent directors.		The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), as seven out of nine directors are non-executive directors.

Executive Session
Non-management directors must meet in regularly scheduled executive sessions without management. Independent directors should meet alone in an executive session at least once a year.		Our non-executive directors hold executive sessions as needed in accordance with the Regulation of the Board of Directors.

Nomination/Corporate Governance Committee
A nomination/corporate governance committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities (including development of corporate governance guidelines) and annual performance evaluation of the committee.		We maintain a Non-executive Director Nominating Committee composed of four non-executive directors. We maintain a CEO Nominating Committee composed of all seven of our non-executive directors.

Compensation Committee
A compensation committee of independent directors is required. The committee must have a charter that addresses the purpose, responsibilities and annual performance evaluation of the committee. The charter must be made available on the company’s website. In addition, in accordance with the U.S. Securities and Exchange Commission rules adopted pursuant to Section 952 of the Dodd-Frank Act, the New York Stock Exchange listing standards were amended to expand the factors relevant in determining whether a committee member has a relationship with the company that will materially affect that member’s duties to the compensation committee. Additionally, the committee may obtain or retain the advice of a compensation adviser only after taking into consideration all factors relevant to determining that adviser’s independence from management.		We maintain an Evaluation and Compensation Committee composed of four non-executive directors.

Audit Committee
Listed companies must have an audit committee that satisfies the independence and other requirements of Rule 10A-3 under the Exchange Act. All members must be independent. The committee must have a charter		We maintain an Audit Committee composed of four non-executive directors. Accordingly, we are in compliance with Rule 10A-3 under the Exchange Act.

232


addressing the committee’s purpose, an annual performance evaluation of the committee, and the duties and responsibilities of the committee. The charter must be made available on the company’s website.

Audit Committee Additional Requirements
Listed companies must have an audit committee that is composed of at least three directors.		Our Audit Committee has four members, as described above.

Shareholder Approval of Equity Compensation Plan
Listed companies must allow its shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan.		We currently have two equity compensation plans: (i) performance share agreements with certain of our directors and executive officers and (ii) an employee stock ownership plan, or ESOP. Matters related to the performance share agreements or ESOP are not subject to shareholders’ approval under Korean law. Our Articles of Incorporation provide that our stockholders may, by special resolution, grant stock options to officers, directors and employees. All material matters related to stock options are provided in our Articles of Incorporation, and any amendments to the Articles of Incorporation are subject to shareholders’ approval.

Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance guidelines.		We have adopted corporate governance standards, the Korean-language version of which is available on our website.

Item 16H.

MINE SAFETY DISCLOSURE

Not applicable.

Item 17.

FINANCIAL STATEMENTS

Not applicable.

Item 18.

FINANCIAL STATEMENTS

Reference is made to Item 19(a) for a list of all financial statements filed as part of this annual report.

233

Item 19.

EXHIBITS

(a)	List of Financial Statements:


	Page
Audited consolidated financial statements of KB Financial Group Inc. and subsidiaries, prepared in accordance with IFRS as issued by the IASB
Report of independent registered public accounting firm		F-1
Consolidated statements of financial position as of December 31, 2019 and 2020		F-6
Consolidated statements of comprehensive income for the years ended December 31, 2018, 2019 and 2020		F-7
Consolidated statements of changes in equity for the years ended December 31, 2018, 2019 and 2020		F-10
Consolidated statements of cash flows for the years ended December 31, 2018, 2019 and 2020		F-14
Notes to consolidated financial statements		F-16

234

(b)

Exhibits

Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, KB Financial Group has filed certain agreements as exhibits to this Annual Report on Form 20-F. These agreements may contain representations and warranties made by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements if those statements turn out to be inaccurate, (ii) may have been qualified by disclosures that were made to such other party or parties and that either have been reflected in the company’s filings or are not required to be disclosed in those filings, (iii) may apply materiality standards different from what may be viewed as material to investors and (iv) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments. Accordingly, these representations and warranties may not describe KB Financial Group’s actual state of affairs at the date of this annual report.


Number		Description

1.1 ⁽¹⁾		Articles of Incorporation of KB Financial Group (translation in English).

2.1 ⁽²⁾		Form of Share Certificate of KB Financial Group’s common stock, par value ￦5,000 per share (translation in English).

2.2 ⁽³⁾		Form of Fifth Amended and Restated Deposit Agreement among KB Financial Group, JPMorgan Chase Bank, N.A., as depositary, and all owners and holders from time to time of American depositary receipts issued thereunder, evidencing American depositary shares, including the form of American depositary receipt.

2.3 ⁽⁴⁾		Description of KB Financial Group’s Capital Stock.

2.4 ⁽⁵⁾		Description of KB Financial Group’s American Depositary Shares.

8.1 ⁽⁶⁾		List of subsidiaries of KB Financial Group.

11.1 ⁽⁷⁾		Code of Ethics.

12.1		Section 302 certifications.

13.1		Section 906 certifications.

101		Interactive Data Files (XBRL-Related Documents).

(1)	Incorporated by reference to exhibit 1.1 to the registrant’s filing on Form 20-F (No. 000-53445) filed on April 24, 2020 (https://www.sec.gov/Archives/edgar/data1445930/000119312520118233/d862752dex24.htm)

(2)	Incorporated by reference to the registrant’s filing on Form 20-F (No. 000-53445), filed on June 15, 2009 (https://www.sec.gov/Archives/edgar/data/1445930/000095012309013901/h03411exv2w1.htm).

(3)	Incorporated by reference to the registrant’s filing on Form F-6 (No. 333-208008), filed on November 13, 2015 (https://www.sec.gov/Archives/edgar/data/1445930/000119380515001876/e614274_ex99-a.htm).

(4)	Incorporated by reference to “Item 10.B. Memorandum and Articles of Association—Description of Capital Stock” of this annual report.

(5)	Incorporated by reference to exhibit 2.4 to the registrant’s filing on Form 20-F (No. 000-53445) filed on April 24, 2020 (https://www.sec.gov/Archives/edgar/data/1445930/000119312520118233/d862752dex24.htm).

(6)	Incorporated by reference to Note 41 of the consolidated financial statements of the registrant included in this annual report.

(7)	Incorporated by reference to the registrant’s filing on Form 20-F (No. 000-53445), filed on April 28, 2016 (https://www.sec.gov/Archives/edgar/data/1445930/000119312516561071/d181570dex111.htm).

235

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

KB FINANCIAL GROUP INC.

(Registrant)

/s/ Jong Kyoo Yoon

(Signature)

Jong Kyoo Yoon

Chairman and Chief Executive Officer

(Name and Title)

Date: April 27, 2021

236

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

KB Financial Group Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated statement of financial position of KB Financial Group Inc. and its subsidiaries (“the Group”) as of December 31, 2020, the related consolidated statements of comprehensive income, changes in equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). We also have audited the Group’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited the adjustments to the 2019 consolidated financial statements to retrospectively apply the change in the criteria for the insurance liability adequacy test, as described in Note 38.3. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2019 financial statements of the Group other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2019 consolidated financial statements taken as a whole.

The Group acquired an 100% interest in Prudential Life Insurance Company of Korea Ltd. during 2020, and management excluded from its assessment of the effectiveness of the Group’s internal control over financial reporting as of December 31, 2020, Prudential Life Insurance Company of Korea Ltd.’s internal control over financial reporting associated with 4.11% of total assets and 1.94% of total profit before income tax included in the consolidated financial statements of the Group as of and for the year ended December 31, 2020. Our audit of internal control over financial reporting of the Group also excluded an evaluation of the internal control over financial reporting of Prudential Life Insurance Company of Korea Ltd.

Basis for Opinions

The Group’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the Group’s consolidated financial statements and an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

F-1

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

(i) Assessment of the allowance for credit losses for loans

As discussed in Notes 3.6, 4.2, 10, and 11 to the consolidated financial statements, the Group recognized an allowance for credit losses using the Expected Credit Loss (ECL) impairment model for loans at amortized cost amounting to KRW 3,283,363 million as of December 31, 2020. A lifetime ECL is recognized for those loans that have experienced a Significant Increase in Credit Risk (SICR) since initial recognition or are credit impaired, otherwise a 12-month ECL is recognized. The Group measures ECL allowances on an individual basis for individually significant corporate loans which are credit impaired and for those which have experienced a SICR and demonstrate certain other high risk indicators (for example, debt restructuring). The individual assessment involves judgment by the Group in estimating the future cash flows, including the value of related collateral. The allowance for credit losses for other loans are measured on a collective basis. For these loans, the Group measures ECL based on its estimates of the Probability of Default (PD), the Loss Given Default (LGD) and the Exposure at Default (EAD) as well as the impact of Forward-Looking Information (FLI). For the corporate loans

F-2

measured on a collective basis, one of the relevant inputs for determining PD is the internal credit risk rating of the borrower. The internal credit risk rating of the borrower is defined by the Group using quantitative and qualitative factors.

We identified the assessment of the allowance for credit losses for loans as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved to evaluate the Group’s estimates of future cash flows, including from the sale of collateral, for the corporate loans with ECL measured on an individual basis. In addition, a high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved to evaluate the Group’s estimates and judgments with respect to the measurement of ECL on a collective basis. This included the analysis of the qualitative factors considered in determining the internal credit risk ratings of corporate loans, the calculation of 12 month and lifetime PD, the calculation of LGD and the evaluation of FLI incorporated in the measurement of collective ECL.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to: (i) the estimation of future cash flows for individually assessed corporate loans, including controls over the work of external valuation professionals engaged by the Group to assess the future cash flows together with the value of collateral; (ii) the validation of the models used to determine the inputs to the collective ECL calculation and the impact of FLI; (iii) the assessment of qualitative factors in the process of determining the internal credit risk rating of the loans, including the review of internal credit risk ratings performed by an independent department with access to the same qualitative information; and (iv) the completeness and accuracy of data used in the determination of the credit risk ratings. We assessed the estimates of future cash flows on a sample of individually assessed corporate loans by: (i) comparing assumptions made with information obtained from internal and external sources; and (ii) assessing the reliability of information used in the estimates, including the qualification of external valuation professionals engaged by the Group. We involved credit risk and information technology professionals with specialized skills and knowledge who assisted in: (i) evaluating the methodology and key judgments used in determining the PD and LGD parameters; (ii) evaluating how FLI was incorporated in the collective ECL model; and (iii) checking the accuracy of PDs, and a sample of LGDs. We evaluated whether, for a sample of corporate loans with ECL measured on a collective basis, Group policy was applied in the internal credit risk rating process.

(ii) Assessment of the measurement of fair value of certain level 3 derivatives and level 3 derivative-linked securities

As discussed in Notes 3.3.2 and 6.1.2 to the consolidated financial statements, as of December 31, 2020 the Group has level 3 derivative assets and liabilities of KRW 441,868 million and KRW 141,447 million, respectively, level 3 debt securities at fair value through profit or loss of KRW 10,518,113 million and level 3 financial liabilities designated at fair value through profit or loss of KRW 9,201,431 million, which include financial instruments measured using internally developed valuation models. Level 3 financial instruments are those for which the determination of the fair value requires the use of one or more significant inputs which are not based on observable market data. To measure the fair value of certain of these level 3 financial instruments, the Group uses internally developed valuation models, such as discounted cash flow models and option models, which use various inputs and assumptions depending on the nature of the financial instruments.

We identified the assessment of the measurement of fair value of the level 3 derivatives and derivative-linked securities that are valued using internally developed valuation models as a critical audit matter. Subjective auditor judgment was required to evaluate the models used by the Group to estimate the fair value of these level 3 financial instruments. In addition, assessing the models’ significant inputs which were not directly observable in financial markets, such as volatility of underlying assets, correlations, regression coefficients, discount rates, and growth rates, required subjective auditor judgment.

F-3

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of fair value of the level 3 derivatives and derivative-linked securities that are valued using internally developed valuation models. This included controls related to: (i) the development, validation and changes in the models used to value these financial instruments; (ii) the development and application of the significant unobservable inputs and assumptions used in the measurement of fair values; and (iii) the monitoring of changes to these inputs and assumptions. We involved valuation professionals with specialized skills and knowledge, who assisted in: (i) evaluating the valuation techniques and significant unobservable inputs for a selection of the level 3 derivatives and derivative-linked securities that are valued using internally developed valuation models; and (ii) developing models and significant unobservable inputs independently for a selection of these financial instruments and comparing the resulting fair value estimates to the Group’s fair value measurements.

/s/ KPMG Samjong Accounting Corp.

We have served as the Group’s auditor since 2019.

Seoul, Korea

April 27, 2021

F-4

Report of Independent Registered Public Accounting Firm

To the shareholders and board of directors of

KB Financial Group Inc.:

Opinion on the Financial Statements

We have audited the consolidated statement of financial position of KB Financial Group Inc. and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”), before the effects of the adjustments to retrospectively reflect the revision of the Regulations on Supervision of Insurance Business on the criteria for the insurance liability adequacy test described in Note 38.3. In our opinion, the consolidated financial statements, before the effects of the adjustments described in Note 38.3, present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (the 2019 financial statements before the effects of the adjustments discussed in Note 38.3 are not presented herein).

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively reflect the revision of the Regulations on Supervision of Insurance Business on the criteria for the insurance liability adequacy test described in Note 38.3 and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements, before the effects of the adjustments described above, based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements, before the effects of the adjustments described above, in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

April 24, 2020

We served as the Company’s auditor from 2008 to 2020.

F-5

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2019 AND 2020


	Dec. 31 2019			Dec. 31 2020			Dec. 31 2020
							Translation into U.S. dollars (Note 3)
	(In millions of Korean won)						(In thousands)
ASSETS
Cash and due from financial institutions	￦	20,837,878		￦	25,608,842		US$	23,578,497
Financial assets at fair value through profit or loss		53,549,086			61,035,455			56,196,385
Derivative financial assets		3,190,673			5,545,385			5,105,730
Loans measured at amortized cost		339,684,059			377,166,984			347,264,074
Financial investments		71,782,606			98,695,426			90,870,562
Investments in associates and joint ventures		598,240			771,435			710,274
Property and equipment		5,067,377			5,433,554			5,002,766
Investment property		2,827,988			2,533,539			2,332,673
Intangible assets		2,737,813			3,351,133			3,085,445
Net defined benefit assets		946			2,845			2,620
Current income tax assets		19,095			109,772			101,069
Deferred income tax assets		3,597			65,058			59,900
Assets held for sale		23,151			197,727			182,051
Other assets		18,215,608			30,155,037			27,764,256

Total assets		518,538,117			610,672,192			562,256,302

LIABILITIES
Financial liabilities at fair value through profit or loss		15,368,153			11,810,058			10,873,722
Derivative financial liabilities		3,007,341			5,222,897			4,808,810
Deposits		305,592,771			338,580,220			311,736,583
Borrowings		37,818,860			49,827,156			45,876,712
Debentures		50,935,583			62,760,687			57,784,835
Provisions		527,929			714,903			658,223
Net defined benefit liabilities		253,989			248,226			228,546
Current income tax liabilities		432,431			764,981			704,331
Deferred income tax liabilities		777,793			1,162,286			1,070,137
Insurance liabilities		34,966,683			54,415,296			50,101,091
Other liabilities		29,737,259			41,804,023			38,489,677

Total liabilities		479,418,792			567,310,733			522,332,667

TOTAL EQUITY
Share capital		2,090,558			2,090,558			1,924,812
Hybrid securities		399,205			1,695,988			1,561,525
Capital surplus		17,122,777			16,723,589			15,397,693
Accumulated other comprehensive income		348,021			612,337			563,789
Retained earnings		19,709,545			22,517,392			20,732,148
Treasury shares		(1,136,188	)		(1,136,188	)		(1,046,108	)

Equity attributable to shareholders of the parent company		38,533,918			42,503,676			39,133,859
Non-controlling interests		585,407			857,783			789,776

Total equity		39,119,325			43,361,459			39,923,635

Total liabilities and equity	￦	518,538,117		￦	610,672,192		US$	562,256,302

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

F-6

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	2018			2019			2020			2020
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won, except per share amounts)									(In thousands, except per share amounts)
Interest income	￦	13,734,569		￦	14,639,187		￦	14,485,747		US$	13,337,275
Interest income from financial instruments at fair value through other comprehensive income and amortized cost		12,986,209			13,935,124			13,826,382			12,730,186
Interest income from financial instruments at fair value through profit or loss		748,360			704,063			659,365			607,089
Interest expense		(4,829,641	)		(5,442,400	)		(4,763,473	)		(4,385,812	)

Net interest income		8,904,928			9,196,787			9,722,274			8,951,463

Fee and commission income		3,717,720			3,879,247			4,527,024			4,168,109
Fee and commission expense		(1,474,344	)		(1,524,243	)		(1,568,085	)		(1,443,763	)

Net fee and commission income		2,243,376			2,355,004			2,958,939			2,724,346

Insurance income		11,975,070			12,317,182			14,386,640			13,246,025
Insurance expense		(11,484,954	)		(12,017,670	)		(14,086,647	)		(12,969,816	)

Net insurance income		490,116			299,512			299,993			276,209

Net gains on financial instruments at fair value through profit or loss before applying overlay approach		350,490			912,187			1,221,610			1,124,757
Net gains (losses) on overlay adjustment		813			(268,315	)		(210,244	)		(193,575	)

Net gains on financial instruments at fair value through profit or loss		351,303			643,872			1,011,366			931,182

Net other operating expenses		(1,130,036	)		(1,063,324	)		(1,499,930	)		(1,381,011	)

General and administrative expenses		(5,918,512	)		(6,271,017	)		(6,833,152	)		(6,291,399	)

Operating profit before provision for credit losses		4,941,175			5,160,834			5,659,490			5,210,790

Provision for credit losses		(673,694	)		(670,185	)		(1,043,498	)		(960,767	)

Net operating income		4,267,481			4,490,649			4,615,992			4,250,023

Share of profit (losses) of investments in associates and joint ventures		24,260			16,451			(43,750	)		(40,281	)
Net other non-operating income		9,791			26,886			189,390			174,374

Net non-operating income		34,051			43,337			145,640			134,093

Profit before income tax expense		4,301,532			4,533,986			4,761,632			4,384,116

Income tax expense		(1,239,586	)		(1,220,787	)		(1,259,351	)		(1,159,506	)

Profit for the year	￦	3,061,946		￦	3,313,199		￦	3,502,281		US$	3,224,610

(Continued)

F-7

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	2018			2019			2020			2020
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won, except per share amounts)									(In thousands, except per share amounts)
Items that will not be reclassified to profit or loss
Remeasurements of net defined benefit liabilities	￦	(138,016	)	￦	(55,827	)	￦	(10,385	)	US$	(9,561	)
Share of other comprehensive loss of associates and joint ventures		(74	)		(105	)		(1	)		(1	)
Net gains (losses) on equity instruments at fair value through other comprehensive income		(31,169	)		(17,329	)		822,140			756,958
Fair value changes on financial liabilities designated at fair value due to own credit risk		1,484			(11,372	)		8,819			8,120

		(167,775	)		(84,633	)		820,573			755,516

Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations		48,820			37,861			(187,283	)		(172,435	)
Net gains (losses) on debt instruments at fair value through other comprehensive income		119,182			35,490			(356,572	)		(328,302	)
Shares of other comprehensive income (loss) of associates and joint ventures		(3,659	)		7,800			(6,846	)		(6,303	)
Losses on cash flow hedging instruments		(9,038	)		(33,182	)		(1,264	)		(1,164	)
Gains (losses) on hedging instruments of net investments in foreign operations		(27,134	)		(8,900	)		64,269			59,174
Other comprehensive income (loss) arising from separate account		28,709			3,364			(9,683	)		(8,915	)
Net gains on overlay approach adjustment		413			194,223			152,125			140,064

		157,293			236,656			(345,254	)		(317,881	)

Other comprehensive income (loss) for the year, net of tax		(10,482	)		152,023			475,319			437,635

Total comprehensive income for the year		3,051,464			3,465,222			3,977,600			3,662,245

(Continued)

F-8

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	2018		2019		2020		2020
							Translation into U.S. dollars (Note 3)
	(In millions of Korean won, except per share amounts)						(In thousands, except per share amounts)
Profit attributable to:
Shareholders of the parent company		3,061,191		3,311,828		3,455,151		3,181,217
Non-controlling interests		755		1,371		47,130		43,393

		3,061,946		3,313,199		3,502,281		3,224,610

Total comprehensive income for the year attributable to:
Shareholders of the parent company		3,050,805		3,463,567		3,956,113		3,642,462
Non-controlling interests		659		1,655		21,487		19,783

	￦	3,051,464	￦	3,465,222	￦	3,977,600	US$	3,662,245

Earnings per share
Basic earnings per share	￦	7,721	￦	8,451	￦	8,809	US$	8.11
Diluted earnings per share		7,676		8,389		8,697		8.01

*	The consolidated statements of comprehensive income for the years ended December 31, 2020 and 2019 are prepared in accordance with IFRS 16, and the comparatives for the year ended December 31, 2018 has not been restated.

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

F-9

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	Equity attributable to shareholders of the parent company
	Share Capital		Capital surplus			Accumulated other comprehensive income			Retained earnings			Treasury shares			Non- controlling interests			Total equity
	(In millions of Korean won)
Balance as of January 1, 2018	￦	2,090,558	￦	17,122,228		￦	537,668		￦	15,044,204		￦	(755,973	)	￦	6,144		￦	34,044,829

The effect of changing of accounting policy		—		—			(349,476	)		(71,724	)		—			—			(421,200	)
Balance after reflecting the effect of accounting policy		2,090,558		17,122,228			188,192			14,972,480			(755,973	)		6,144			33,623,629

Comprehensive income for the year
Profit for the year		—		—			—			3,061,191			—			755			3,061,946
Remeasurements of net defined benefit liabilities		—		—			(138,016	)		—			—			—			(138,016	)
Exchange differences on translating foreign operations		—		—			48,916			—			—			(96	)		48,820
Net gains on financial instruments at fair value through other comprehensive income		—		—			88,013			15,498			—			—			103,511
Share of other comprehensive loss of associates and joint ventures		—		—			(3,733	)		—			—			—			(3,733	)
Losses on cash flow hedging instruments		—		—			(9,038	)		—			—			—			(9,038	)
Losses on hedge of net investments in a foreign operations		—		—			(27,134	)		—			—			—			(27,134	)
Other comprehensive income arising from separate account		—		—			28,709			—			—			—			28,709
Fair value changes on financial liabilities designated at fair value due to own credit risk		—		—			1,484			—			—			—			1,484
Net gains on overlay approach adjustment		—		—			413			—			—			—			413

Total comprehensive income (loss) for the year		—		—			(10,386	)		3,076,689			—			659			3,066,962
Transactions with shareholders
Annual dividends paid to shareholders of the parent company		—		—			—			(766,728	)		—			—			(766,728	)
Acquisition of treasury shares		—		—			—			—			(212,576	)		—			(212,576	)
Non-controlling interests changes in business combination		—		—			—			—			—			2,238			2,238
Others		—		(568	)		—			—			—			70			(498	)

Total transactions with shareholders		—		(568	)		—			(766,728	)		(212,576	)		2,308			(977,564	)
Balance as of December 31, 2018	￦	2,090,558	￦	17,121,660		￦	177,806		￦	17,282,441		￦	(968,549	)	￦	9,111		￦	35,713,027

(Continued)

F-10

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	Equity attributable to shareholders of the parent company
	Share Capital		Hybrid securities		Capital surplus		Accumulated other comprehensive income			Retained earnings			Treasury shares			Non-controlling interests		Total equity
	(In millions of Korean won)
Balance as of January 1, 2019	￦	2,090,558	￦	—	￦	17,121,660	￦	177,806		￦	17,282,441		￦	(968,549	)	￦	9,111	￦	35,713,027

Comprehensive income for the year
Profit for the year		—		—		—		—			3,311,828			—			1,371		3,313,199
Remeasurements of net defined benefit liabilities		—		—		—		(55,827	)		—			—			—		(55,827	)
Exchange differences on translating foreign operations		—		—		—		37,577			—			—			284		37,861
Net gains (losses) on financial instruments at fair value through other comprehensive income		—		—		—		36,637			(18,475	)		—			—		18,162
Share of other comprehensive income of associates and joint ventures		—		—		—		7,695			—			—			—		7,695
Losses on cash flow hedging instruments		—		—		—		(33,182	)		—			—			—		(33,182	)
Losses on hedge of net investments in foreign operations		—		—		—		(8,900	)		—			—			—		(8,900	)
Other comprehensive income arising from separate account		—		—		—		3,364			—			—			—		3,364
Fair value changes on financial liabilities designated at fair value due to own credit risk		—		—		—		(11,372	)		—			—			—		(11,372	)
Net gains on overlay approach adjustment		—		—		—		194,223			—			—			—		194,223

Total comprehensive income for the year		—		—		—		170,215			3,293,353			—			1,655		3,465,223
Transactions with shareholders
Annual dividends paid to shareholders of the parent company		—		—		—		—			(759,736	)		—			—		(759,736	)
Acquisition and retirement of treasury shares		—		—		—		—			(100,000	)		(167,639	)		—		(267,639	)
Issuance of hybrid securities		—		399,205		—		—			—			—			574,580		973,785
Dividends on hybrid securities		—		—		—		—			(6,513	)		—			—		(6,513	)
Others		—		—		1,117		—			—			—			61		1,178

Total transactions with shareholders		—		399,205		1,117		—			(866,249	)		(167,639	)		574,641		(58,925	)
Balance as of December 31, 2019	￦	2,090,558	￦	399,205	￦	17,122,777	￦	348,021		￦	19,709,545		￦	(1,136,188	)	￦	585,407	￦	39,119,325

(Continued)

F-11

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	Equity attributable to shareholders of the parent company
	Share Capital		Hybrid securities		Capital surplus			Accumulated other comprehensive income			Retained earnings			Treasury shares			Non- controlling interests			Total equity
	(In millions of Korean won)
Balance as of January 1, 2020	￦	2,090,558	￦	399,205	￦	17,122,777		￦	348,021		￦	19,709,545		￦	(1,136,188	)	￦	585,407		￦	39,119,325

Comprehensive income for the year
Profit for the year		—		—		—			—			3,455,151			—			47,130			3,502,281
Remeasurements of net defined benefit liabilities		—		—		—			(10,096	)		—			—			(289	)		(10,385	)
Exchange differences on translating foreign operations		—		—		—			(162,906	)		—			—			(24,377	)		(187,283	)
Net gains (losses) on financial instruments at fair value through other comprehensive income		—		—		—			229,899			236,648			—			(979	)		465,568
Share of other comprehensive loss of associates and joint ventures		—		—		—			(6,847	)		—			—			—			(6,847	)
Losses on cash flow hedging instruments		—		—		—			(1,264	)		—			—			—			(1,264	)
Gains on hedge of net investments in foreign operations		—		—		—			64,269			—			—			—			64,269
Other comprehensive loss arising from separate account		—		—		—			(9,683	)		—			—			—			(9,683	)
Fair value changes on financial liabilities designated at fair value due to own credit risk		—		—		—			8,819			—			—			—			8,819
Net gains on overlay approach adjustments		—		—		—			152,125			—			—			—			152,125

Total comprehensive income for the year		—		—		—			264,316			3,691,799			—			21,485			3,977,600
Transactions with shareholders
Annual dividends paid to shareholders of the parent company		—		—		—			—			(861,092	)		—			—			(861,092	)
Issuance of hybrid securities		—		1,296,783		—			—			—			—			—			1,296,783
Dividends on hybrid securities		—		—		—			—			(22,860	)		—			(25,658	)		(48,518	)
Non-controlling interests changes in business combination		—		—		—			—			—			—			247,008			247,008
Others		—		—		(399,188	)		—			—			—			29,541			(369,647	)

Total transactions with shareholders		—		1,296,783		(399,188	)		—			(883,952	)		—			250,891			264,534
Balance as of December 31, 2020	￦	2,090,558	￦	1,695,988	￦	16,723,589		￦	612,337		￦	22,517,392		￦	(1,136,188	)	￦	857,783		￦	43,361,459

(Continued)

F-12

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	Equity attributable to shareholders of the parent company
	Share Capital		Hybrid securities		Capital Surplus			Accumulated other comprehensive income			Retained earnings			Treasury shares			Non- controlling interests			Total equity
	(Translation into U.S. dollars (Note 3)) (In thousands)
Balance as of January 1, 2020	US$	1,924,812	US$	367,555	US$	15,765,233		US$	320,429		US$	18,146,914		US$	(1,046,108	)	US$	538,995		US$	36,017,830

Comprehensive income for the year
Profit for the year		—		—		—			—			3,181,217			—			43,393			3,224,610
Remeasurements of net defined benefit liabilities		—		—		—			(9,296	)		—			—			(265	)		(9,561	)
Exchange differences on translating foreign operations		—		—		—			(149,991	)		—			—			(22,444	)		(172,435	)
Net gains (losses) on financial instruments at fair value through other comprehensive income		—		—		—			211,672			217,886			—			(901	)		428,657
Share of other comprehensive loss of associates and joint ventures		—		—		—			(6,304	)		—			—			—			(6,304	)
Losses on cash flow hedging instruments		—		—		—			(1,164	)		—			—			—			(1,164	)
Gains on hedge of net investments in foreign operations		—		—		—			59,174			—			—			—			59,174
Other comprehensive loss arising from separate account		—		—		—			(8,915	)		—			—			—			(8,915	)
Fair value changes on financial liabilities designated at fair value due to own credit risk		—		—		—			8,120			—			—			—			8,120
Net gains on overlay approach adjustments		—		—		—			140,064			—			—			—			140,064

Total comprehensive income for the year		—		—		—			243,360			3,399,102			—			19,784			3,662,246
Transactions with shareholders
Annual dividends paid to shareholders of the parent company		—		—		—			—			(792,822	)		—			—			(792,822	)
Issuance of hybrid securities		—		1,193,970		—			—			—			—			—			1,193,970
Dividends on hybrid securities		—		—		—			—			(21,047	)		—			(23,624	)		(44,671	)
Non-controlling interests changes in business combination		—		—		—			—			—			—			227,424			227,424
Others		—		—		(367,540	)		—			—			—			27,198			(340,342	)

Total transactions with shareholders		—		1,193,970		(367,540	)		—			(813,869	)		—			230,998			243,559
Balance as of December 31, 2020	US$	1,924,812	US$	1,561,525	US$	15,397,693		US$	563,789		US$	20,732,148		US$	(1,046,108	)	US$	789,776		US$	39,923,635

*	The consolidated statements of changes in equity for the years ended December 31, 2019 and 2020 are prepared in accordance with IFRS 16, and the comparatives for the year ended December 31, 2018 has not been restated.

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

F-13

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	2018			2019			2020			2020
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won)									(In thousands)
Cash flows from operating activities:
Profit for the year	￦	3,061,946		￦	3,313,199		￦	3,502,281		US$	3,224,610

Adjustment for non-cash items
Net gains on financial assets/liabilities at fair value through profit or loss		(104,755	)		(438,567	)		(566,447	)		(521,538	)
Net losses (gains) on derivative financial instruments for hedging purposes		186,029			(3,835	)		(52,696	)		(48,519	)
Adjustment of fair value of derivative financial instruments		410			282			(3,198	)		(2,945	)
Provision for credit loss		673,694			670,185			1,043,498			960,767
Net gains on financial investments		(99,253	)		(206,192	)		(278,805	)		(256,702	)
Share of loss (profit) of associates and joint ventures		(24,260	)		(16,451	)		43,750			40,281
Depreciation and amortization expense		409,481			784,431			874,911			805,545
Depreciation and amortization expense on VOBA		214,153			192,459			173,866			160,082
Other net gains on property and equipment/intangible assets		(138,553	)		(33,238	)		(124,218	)		(114,369	)
Share-based payments		10,930			49,418			49,364			45,450
Policy reserve appropriation		1,608,175			1,546,271			2,709,818			2,494,976
Post-employment benefits		220,215			231,913			235,231			216,581
Net interest expense		277,152			313,550			458,210			421,883
Net gains on foreign currency translation		(142,586	)		(74,488	)		(116,786	)		(107,526	)
Gain on bargain purchase		—			—			(145,067	)		(133,566	)
Net other expense		207,025			390,074			524,742			483,141

		3,297,857			3,405,812			4,826,173			4,443,541

Changes in operating assets and liabilities
Financial asset at fair value through profit or loss		(8,446,927	)		(916,415	)		(7,139,647	)		(6,573,595	)
Derivative financial instruments		151,297			(644,342	)		(38,376	)		(35,333	)
Loans at fair value through other comprehensive income		(40,413	)		15,536			81,803			75,318
Loans at amortized cost		(31,334,606	)		(21,681,258	)		(31,126,636	)		(28,658,825	)
Current income tax assets		(3,668	)		(9,091	)		(54,539	)		(50,215	)
Deferred income tax assets		(557	)		803			(15,108	)		(13,910	)
Other assets		(2,292,160	)		(3,668,385	)		(9,126,046	)		(8,402,507	)
Financial liabilities at fair value through profit or loss		3,690,005			(77,231	)		(3,247,108	)		(2,989,668	)
Deposits		20,679,844			28,480,993			27,381,662			25,210,763
Current income tax liabilities		264,765			(266,204	)		323,313			297,679
Deferred income tax liabilities		115,208			235,209			(125,066	)		(115,150	)
Other liabilities		1,899,791			1,212,080			3,216,600			2,961,577

		(15,317,421	)		2,681,695			(19,869,148	)		(18,293,866	)

Net cash inflow (outflow) from operating activities	￦	(8,957,618)		￦	9,400,706		￦	(11,540,694)		US$	(10,625,715)

(Continued)

F-14

KB FINANCIAL GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2018, 2019 and 2020


	2018			2019			2020			2020
										Translation into U.S. dollars (Note 3)
	(In millions of Korean won)									(In thousands)
Cash flows from investing activities:
Net cash flows from derivative financial instruments for hedging purposes	￦	42,305		￦	(206,680)		￦	(64,177)		US$	(59,089)
Disposal of financial asset at fair value through profit or loss		9,582,940			11,364,615			14,169,758			13,046,338
Acquisition of financial asset at fair value through profit or loss		(8,707,420	)		(12,359,886	)		(13,923,371	)		(12,819,485)
Disposal of financial investments		60,773,660			69,489,132			83,143,443			76,551,586
Acquisition of financial investments		(64,729,380	)		(79,083,472	)		(92,206,817	)		(84,896,389)
Disposal of investments in associates and joint ventures		34,717			26,185			210,266			193,595
Acquisition of investments in associates and joint ventures		(187,077	)		(92,200	)		(515,342	)		(474,484)
Disposal of property and equipment		2,272			12,786			6,465			5,952
Acquisition of property and equipment		(452,270	)		(608,736	)		(424,862	)		(391,178)
Disposal of investment property		140,969			94,207			646,263			595,025
Acquisition of investment property		(1,288,125	)		(806,088	)		(53,196	)		(48,978)
Disposal of intangible assets		10,706			14,694			14,303			13,169
Acquisition of intangible assets		(126,163	)		(333,557	)		(182,859	)		(168,361)
Net cash flows from the change in subsidiaries		188,140			91,592			(1,951,245	)		(1,796,545)
Others		234,440			62,984			142,961			131,627

Net cash outflow from investing activities		(4,480,286	)		(12,334,424	)		(10,988,410	)		(10,117,217	)

Cash flows from financing activities:
Net cash flows from derivative financial instruments for hedging purposes		15,044			(28,631	)		(16,202	)		(14,918	)
Net increase in borrowings		4,216,014			5,027,313			10,683,659			9,836,627
Increase in debentures		143,603,589			93,655,747			119,705,016			110,214,450
Decrease in debentures		(135,180,630	)		(96,145,669	)		(107,760,800	)		(99,217,206	)
Increase (decrease) in other payables from trust accounts		267,077			(68,648	)		2,326,495			2,142,043
Dividends paid to shareholders of the parent company		(766,728	)		(759,736	)		(861,092	)		(792,822	)
Dividends paid on hybrid securities		—			(6,513	)		(22,860	)		(21,047	)
Acquisition of treasury shares		(224,700	)		(274,317	)		—			—
Issuance of hybrid securities		—			399,205			1,296,783			1,193,970
Decrease (increase) in non-controlling interests		—			574,580			(25,658	)		(23,624	)
Redemption of principal elements of lease payments		—			(229,750	)		(235,498	)		(216,827	)
Others		(185,894	)		134,027			172,433			158,762

Net cash inflow from financing activities		11,743,772			2,277,608			25,262,276			23,259,408

Effect of exchange rate changes on cash and cash equivalents		(67,950	)		137,019			(171,805	)		(158,184	)

Net increase (decrease) in cash and cash equivalents		(1,762,082	)		(519,091	)		2,561,367			2,358,292
Cash and cash equivalents at the beginning of the year		8,404,898			6,642,816			6,123,725			5,638,218

Cash and cash equivalents at the end of the year	￦	6,642,816		￦	6,123,725		￦	8,685,092		US$	7,996,510

*	The consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are prepared in accordance with IFRS 16, and the comparatives for the year ended December 31, 2018 has not been restated.

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

F-15

1. The Parent Company

KB Financial Group Inc. (the “Parent Company”) was incorporated on September 29, 2008, under the Financial Holding Companies Act of Korea. KB Financial Group Inc. and its subsidiaries (the “Group”) derive substantially all of their revenue and income from providing a broad range of banking and related financial services to consumers and corporations primarily in Korea and in selected international markets. The Parent Company’s principal business includes ownership and management of subsidiaries and associated companies that are engaged in financial services or activities. In 2011, Kookmin Bank spun off its credit card business segment and established a new separate credit card company, KB Kookmin Card Co., Ltd. and KB Investment & Securities Co., Ltd. merged with KB Futures Co., Ltd. The Group established KB Savings Bank Co., Ltd. in January 2012, acquired Yehansoul Savings Bank Co., Ltd. in September 2013, and KB Savings Bank Co., Ltd. merged with Yehansoul Savings Bank Co., Ltd. in January 2014. In March 2014, the Group acquired Woori Financial Co., Ltd. and changed the name to KB Capital Co., Ltd. Meanwhile, the Group included LIG Insurance Co., Ltd. as an associate and changed the name to KB Insurance Co., Ltd. in June 2015, and KB Insurance Co., Ltd. became one of the subsidiaries through a tender offer in May 2017. Also, the Group included Hyundai Securities Co., Ltd. as an associate in June 2016 and included as a subsidiary in October 2016 by comprehensive exchange of shares. Hyundai Securities Co., Ltd. merged with KB Investment & Securities Co., Ltd. in December 2016 and changed its name to KB Securities Co., Ltd. in January 2017. In August 2020, the Group acquired Prudential Life Insurance Company of Korea Ltd., which was classified as a subsidiary.

The Parent Company’s share capital as of December 31, 2020, is ￦ 2,090,558 million. The Parent Company has been listed on the Korea Exchange (“KRX”) since October 10, 2008, and on the New York Stock Exchange (“NYSE”) for its American Depositary Shares (“ADS”) since September 29, 2008. Number of shares authorized in its Articles of Incorporation is 1,000 million.

2. Basis of Preparation

2.1 Application of IFRS

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS are the standards, subsequent amendments and related interpretations (“IFRICs”) issued by the International Accounting Standards Board (“IASB”).

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

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

•

Amendments to IAS No.1 Presentation of Financial Statements and IAS No.8 Accounting policies, changes in accounting estimates and errors – Definition of Material

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

•

Amendments to IFRS No.3 Business Combination – Definition of a Business

The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and the definition of output excludes the returns in the form of lower costs and other economic benefits. If substantially all of the fair value of the gross

F-16

assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, an entity may elect to apply an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. These amendments do not have a significant impact on the consolidated financial statements. However, these amendments may have impact on the consolidated financial statements if business combination occurs in the future.

2.1.2 The Group has early adopted the following amended standards.

•

Amendments to IFRS No.7 Financial Instruments: Disclosure , IFRS No.9 Financial Instruments – Interest Rate Benchmark Reform

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

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

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

•

Amendments to IFRS No.16 Leases – Practical expedient for COVID-19-Related Rent Exemption, Concessions, Suspension

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

•

Amendments to IFRS No.9 Financial Instruments , IAS No.39 Financial Instruments: Recognition and Measurement , IFRS No.7 Financial Instruments: Disclosure , IFRS No.4 Insurance Contracts and IFRS No.16 Lease – Interest Rate Benchmark Reform

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

•

Amendments to IFRS No.3 Business Combination – Reference to the Conceptual Framework

The amendments update a reference of definition of assets and liabilities to qualify for recognition in revised Conceptual Framework for Financial Reporting. However, the amendments add an exception for the recognition

F-17

of liabilities and contingent liabilities within the scope of IAS No.37 Provisions, Contingent Liabilities and Contingent Assets , and IFRIC No.21 Levies . The amendments also confirm that contingent assets should not be recognized at the acquisition date. The amendments should be applied for annual periods beginning on or after January 1, 2022, and earlier application is permitted. The Group does not expect that these amendments have a significant impact on the consolidated financial statements.

•

Amendments to IAS No.16 Property, Plant and Equipment – Proceeds before intended use

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

•

Amendments to IAS No.37 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts: Cost of Fulfilling a Contract

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

•

Annual improvements to IFRS 2018-2020

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

•

IFRS No.1 First time Adoption of International Financial Reporting Standards – Subsidiaries that are first-time adopters

•

IFRS No.9 Financial Instruments – Fees related to the 10% test for derecognition of financial liabilities

•

IFRS No.16 Leases – Lease incentives

•

IAS No.41 Agricultur e – Measuring fair value

•

Amendments to IAS No.1 Presentation of Financial Statements – Classification of Liabilities as Current or Non-current

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

•

IFRS No.17 Insurance Contracts

IFRS No.17 Insurance Contracts was issued in May 2017 and sets out the requirements that an entity should apply in accounting for insurance contracts it issues and reinsurance contracts it holds. IFRS No.17 is currently

F-18

effective from January 1, 2023. The Group is in the process of implementing IFRS No.17. Industry practice and interpretation of the standard are still developing and there may be changes to it. Therefore, the likely impact of its implementation remains uncertain.

2.2 Measurement Basis

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

2.3 Functional and Presentation Currency

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

2.4 Critical Accounting Estimates

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

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

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

2.4.1 Income taxes

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

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

2.4.2 Fair value of financial instruments

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

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

F-19

2.4.3 Allowances and provisions for credit losses

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

2.4.4 Net defined benefit liability

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

2.4.5 Impairment of goodwill

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

2.4.6 Estimated claims for Incurred But Not Reported (“IBNR”)

An amount of IBNR is the total sum of estimated insurance claims that shall be paid for accidents that occurred but have not been reported to the Group and the estimated amount of insurance proceeds that shall be additionally paid upon resumption of payment claims. The Group calculates IBNR by applying statistical methods in risk units designated in Detailed Regulations on Supervision of Insurance Business, and records IBNR in reserve for outstanding claims of insurance liability. IBNR based on statistical methods requires significant accounting estimates in determining appropriate model applied by accident year (PLDM, ILDM, BFM, and others) and development parameters.

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

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

3. Significant Accounting Policies

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

For the comparative purpose, certain information in the notes for the year ended December 31, 2019 have been reclassified to conform to the presentation for the year ended December 31, 2020.

F-20

3.1 Consolidation

3.1.1 Subsidiaries

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

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

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

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

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

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

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

The Group applies the book amount method to account for business combinations of entities under a common control. Identifiable assets acquired and liabilities assumed in a business combination are measured at

F-21

their book amounts on the consolidated financial statements of the Group. In addition, the difference between (a) the sum of consolidated net book amounts of the assets and liabilities transferred and accumulated other comprehensive income and (b) the consideration paid is recognized as capital surplus.

3.1.2 Associates and joint ventures

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

Joint ventures are investments in which the Group jointly controls over economic activities pursuant to contractual arrangement. Decisions about financial and operating policies require unanimous consent of the parties sharing control.

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

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

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

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

3.1.3 Structured entity

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

3.1.4 Funds management

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

F-22

3.1.5 Intragroup transactions

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

3.2 Foreign Currency

3.2.1 Foreign currency transactions

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

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

3.2.2 Foreign operations

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

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

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

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

3.2.3 Translation of the net investment in a foreign operation

A monetary item that is receivable from or payable to a foreign operation, for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the Group’s net investment in that

F-23

foreign operation, then foreign currency difference arising from that monetary item is recognized in the other comprehensive income and shall be reclassified to profit or loss on disposal of the net investment.

3.3 Recognition and Measurement of Financial Instruments

3.3.1 Initial recognition

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

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

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

3.3.2 Subsequent measurement

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

3.3.2.1 Amortized cost

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

3.3.2.2 Fair value

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

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

The Group uses valuation models that are commonly used by market participants and customized for the Group to determine fair values of common over-the-counter (“OTC”) derivatives such as options, interest rate

F-24

swaps and currency swaps which are based on the inputs observable in markets. For more complex instruments, the Group uses internally developed models, which are usually based on valuation methods and techniques generally used within the industry, or a value measured by an independent external valuation institution as the fair values if all or some of the inputs to the valuation models are not observable in market and therefore it is necessary to estimate fair value based on certain assumptions.

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


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

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

Level 3 :		Unobservable inputs for the asset or liability

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

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

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

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

3.3.3 Derecognition

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

3.3.3.1 Derecognition of financial assets

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

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

F-25

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

3.3.3.2 Derecognition of financial liabilities

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

3.3.4 Offsetting

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

3.4 Cash and Due from Financial Institutions

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

3.5 Non-derivative Financial Assets

3.5.1 Financial assets at fair value through profit or loss

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

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

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

3.5.2 Financial assets at fair value through other comprehensive income

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

•

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

F-26

•

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

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

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

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

3.5.3 Financial assets at amortized cost

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

3.6 Expected Credit Loss of Financial Assets (Debt Instruments)

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

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

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

•

General approach: for financial assets and unused loan commitments not subject to the below 2 approaches

•

Simplified approach: for trade receivables, contract assets and lease receivables

•

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

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

The Group assesses whether the credit risk has increased significantly using the following information, and if one or more of the following conditions are met, it is deemed as significant increase in credit risk. Information

F-27

of more than 30 days overdue is applied to all subsidiaries, and other information is applied selectively considering specific indicators of each subsidiary or additionally considering specific indicators of each subsidiary. If the contractual cash flows on a financial asset have been renegotiated or modified, the Group assesses whether the credit risk has increased significantly using the same following information.

•

More than 30 days past due

•

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

•

Subsequent managing ratings below certain level in the early warning system

•

Debt restructuring (except for impaired financial assets) and

•

Credit delinquency information of Korea Federation of Banks, etc.

Under simplified approach, the Group always measures the loss allowance at an amount equal to lifetime expected credit losses. Under credit-impaired approach, the Group only recognizes the cumulative changes in lifetime expected credit losses since initial recognition as a loss allowance for purchased or originated credit-impaired financial assets. In assessing credit impairment, the Group uses definition of default as in the new Basel Accord which rules calculation of Capital Adequacy Ratio.

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

•

90 days or more past due

•

Legal proceedings related to collection

•

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

•

A corporate borrower with the credit rating C or D

•

Refinancing

•

Debt restructuring, etc.

3.6.1 Forward-looking information

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

The Group assumes the risk components have a certain correlation with the economic cycle and uses statistical methodologies to estimate the relation between key macroeconomic variables and risk components for the expected credit losses.

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


Key macroeconomic variables		Correlation between the major macroeconomic variables and the credit risk
Domestic GDP growth rate		(-)
Composite stock index		(-)
Construction investment change rate		(-)
Rate of change in housing transaction price index		(-)
Interest rate spread		(+)
Private consumption growth rate		(-)
Change of call rate compared to the last year (%p)		(+)
Household loan change rate		(-)

F-28

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

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

3.6.2 Measuring expected credit losses on financial assets at amortized cost

The expected credit losses of financial assets at amortized cost are measured as present value of the difference between the contractual cash flows that are due to the Group under the contract and the cash flows that the Group expects to receive. The Group estimates expected future cash flows for financial assets that are individually significant. The Group selects the individually significant financial assets by comprehensively considering quantitative and qualitative factors (such as debt restructuring or negative net assets, etc.) among financial assets with the credit risk has increased significantly or credit-impaired(individual assessment of impairment).

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

3.6.2.1 Individual assessment of impairment

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

3.6.2.2 Collective assessment of impairment

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

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

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

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

F-29

3.7 Derivative Financial Instruments

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

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

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

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

3.7.1 Derivative financial instruments held for trading

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

3.7.2 Derivative financial instruments for fair value hedges

If derivatives are designated and qualify for a fair value hedge, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in profit or loss as part of other operating income and expenses. If the hedged items are equity instruments for which the Group has elected to present changes in fair value in other comprehensive income, changes in fair value of the hedging instrument and changes in fair value of the hedged item attributable to the hedged risk are recognized in other comprehensive income. Fair value hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. Once fair value hedge accounting is discontinued, the adjustment to the carrying amount of a hedged item is amortized to profit or loss by the maturity of the financial instrument using the effective interest method.

3.7.3 Derivative financial instruments for cash flow hedges

The effective portion of changes in fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income, limited to the cumulative change in fair value (present value) of the hedged item (the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge. The ineffective portion is recognized in profit or loss as other operating income or expense. The associated gains or losses that were previously recognized in other comprehensive income are reclassified from equity to profit or loss (other operating income or expense) as a reclassification adjustment in

F-30

the same period or periods during which the hedged forecast cash flows affect profit or loss. Cash flow hedge accounting is discontinued prospectively if the hedging instrument expires or is sold, terminated or exercised, or the hedging relationship ceases to meet the qualifying criteria. When the cash flow hedge accounting is discontinued, the cumulative gains or losses on the hedging instrument that have been recognized in other comprehensive income are reclassified to profit or loss over the period in which the forecast transaction occurs. If the forecast transaction is no longer expected to occur, the cumulative gains or losses that have been recognized in other comprehensive income are immediately reclassified to profit or loss.

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

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

3.7.5 Embedded derivatives

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

3.7.6 Day one gains or losses

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

3.8 Property and Equipment

3.8.1 Recognition and measurement

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

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

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

F-31

3.8.2 Depreciation

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

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

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


Property and equipment	Depreciation method	Estimated useful lives
Buildings	Straight-line	20~40 years
Leasehold improvements	Declining-balance/ Straight-line	4~15 years
Equipment and vehicles	Declining-balance/ Straight-line	3~15 years

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

3.9 Investment Properties

3.9.1 Recognition and measurement

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

3.9.2 Depreciation

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

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


Investment properties	Depreciation method	Estimated useful lives
Buildings	Straight-line	20~40 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 or declining-balance method with no residual value over their estimated useful economic life since the asset is available for use.

F-32


Intangible assets	Amortization method	Estimated useful lives
Industrial property rights	Straight-line	3 ~ 19 years
Software	Straight-line	3 ~ 5 years
VOBA	Declining-balance	30, 60 years
Others	Straight-line / Declining-balance	1 ~ 13 years

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

3.10.1 Value of business acquired (“VOBA”)

In case of acquisition of insurance company, the Group recognized the difference amount as VOBA in intangible assets, if the fair value of the acquired insurance liability is less than the carrying amount based on the acquiree’s accounting policy, and in the opposite case, the difference amount is recognized as negative VOBA and included in premium reserve. VOBA is an estimated present value of future cash flow of insurance contracts at the acquisition date. VOBA is amortized over the above estimated useful lives using declining balance method, and the depreciation is recognized as insurance expense.

3.10.2 Goodwill

3.10.2.1 Recognition and measurement

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

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

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

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

3.10.2.2 Additional acquisitions of non-controlling interests

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

3.10.2.3 Subsequent measurement

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

F-33

3.10.3 Subsequent expenditure

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

3.11 Impairment of Non-financial Assets

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

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

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

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

3.12 Non-current Assets Held for Sale

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

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

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

F-34

3.13 Financial Liabilities

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

3.13.1 Financial liabilities at fair value through profit or loss

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

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

In addition, the change in fair value of the financial liability that is attributable to change in the credit risk of that liability, the Group presents this change in other comprehensive income, and does not recycle this to profit or loss in accordance with IFRS No.9. However, if this treatment creates or enlarges an accounting mismatch, the Group recognizes this change in profit or loss.

3.13.2 Other financial liabilities

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

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

3.14 Insurance Contracts

KB Insurance Co., Ltd., KB Life Insurance Co., Ltd. and Prudential Life Insurance Company of Korea Ltd., the subsidiaries of the Group, issue insurance contracts.

Insurance contracts are defined as “a contract under which one party (the insurer) accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder”. A contract that qualifies as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire. Such a contract that does not contain significant insurance risk is classified as an investment contract and is within the scope of IFRS No.9 Financial Instruments to the extent that it gives rise to a financial asset or financial liability, except if the investment contract contains a Discretionary Participation Features (DPF). If the contract has a DPF, the contract is subject to IFRS No.4 Insurance Contracts . The Group recognizes assets (liabilities) and gains (losses) relating to insurance contracts as other assets (liabilities) in the consolidated statement of financial position, and as other operating income (expenses) in the consolidated statement of comprehensive income, respectively.

F-35

3.14.1 Insurance premiums

The Group recognizes collected premiums as revenue on the due date of collection of premiums from insurance contracts and the collected premium which is not earned at the end of the reporting period is recognized as unearned premium.

3.14.2 Insurance liabilities

The Group recognizes a liability for future claims, refunds, policyholders’ dividends and related expenses as follows:

3.14.2.1 Premium reserve

Premium reserve refers to an amount based on the net premium method for payment of future claims with respect to events covered by insurance policies which have not yet occurred as of the reporting period. It is calculated as the greater of the amount using standard interest rate and standard loss ratio defined by Financial Supervisory Services and the amount using the actual underlying data that have been used in premium calculation.

3.14.2.2 Reserve for outstanding claims

Reserve for outstanding claims refers to the amount not yet paid, out of an amount to be paid or expected to be paid with respect to the insured events which have arisen as of the end of each fiscal year.

3.14.2.3 Unearned premium reserve

Reserve for the insurance premiums that are due during the reporting period but not earned at the end of the period.

3.14.2.4 Reserve for dividend to policyholders

Reserve for dividend to policyholders including dividend of interest rate differential, rate of risk differential and business expenses differential is recognized for the purpose of provisioning for policyholders’ dividends in the future in accordance with statutes or insurance terms and conditions.

3.14.3 Liability adequacy test

The Group conducts a liability adequacy test for all contracts to which IFRS No.4 Insurance Contracts apply, in consideration of current estimates of all cash inflows and cash outflows from the insurance contracts at the end of the reporting period including options, guarantees, claims survey costs and policy loans. If the assessment shows that the carrying amount of its insurance liabilities is insufficient in light of the estimated adequate liabilities, additional reserve is recognized for the deficient amount.

Future cash flows from long-term insurance are discounted at interest rate scenario, which is risk-free rate scenario adjusted by liquidity premium, whereas future cash flows from general insurance are not discounted to present value. In case of insurance premium and unearned premium reserves, all future cash flows such as payment of claims, administration expenses and premium received from policyholders are considered for the liability adequacy test. And in case of reserve for outstanding claims, the adequacy of individually assessed payment of claims is tested by applying models that are considered appropriate for claim development trend among various statistical methods.

3.14.4 Deferred acquisition costs

The Group recognizes acquisition cost incurred by the long-term insurance contract as an asset and amortizes it evenly over the premium payment period. If the premium payment period exceeds seven years, the

F-36

amortization period shall be seven years. If the insurance contract is surrendered or lapsed due to payment overdue, the remaining balances of deferred acquisition cost are fully amortized in the period in which the contract is surrendered or lapsed.

3.15 Provisions

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

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

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

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

3.16 Financial Guarantee Contracts

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

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

•

The amount determined in accordance with IFRS No.9 Financial Instruments and

•

The amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with IFRS No.15 Revenue from Contracts with Customers.

3.17 Equity Instrument Issued by the Group

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

3.17.1 Ordinary shares

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

F-37

3.17.2 Hybrid securities

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

3.17.3 Treasury shares

If the Group acquires its own equity instruments, these are accounted for as treasury shares and are deducted directly from equity. No gains or losses are recognized in profit or loss on the purchase, sale, issue or retirement of own equity instruments. If an entity within the Group acquires and retains treasury shares, the consideration paid or received is directly recognized in equity.

3.17.4 Compound financial instruments

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

3.18 Revenue Recognition

The Group recognizes revenues in accordance with the following steps determined in accordance with IFRS No.15 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.

3.18.1 Interest income and expense

Interest income and expense on debt securities at fair value through profit or loss (excluding beneficiary certificates, equity investments and other debt instruments), loans, financial instruments at amortized cost and debt securities at fair value through other comprehensive income, are recognized in the consolidated statement of comprehensive income using the effective interest method in accordance with IFRS No.9 Financial Instruments . The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and allocating the interest income or interest expense over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument or, where appropriate, a shorter period, to the gross carrying amount of a financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Group estimates expected cash flows by considering all contractual terms of the financial instrument but does not consider expected credit losses. The calculation includes all fees and points paid (main components of

F-38

effective interest rate only) or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. In those rare cases when it is not possible to estimate reliably the cash flows and the expected life of a financial instrument, the Group uses the contractual cash flows over the full contractual term of the financial instrument.

Interest income on impaired financial assets is recognized using the rate of interest used to discount the expected cash flows for the purpose of measuring the impairment loss.

Interest income on debt securities at fair value through profit or loss is also classified as interest income in the consolidated statement of comprehensive income.

3.18.2 Fee and commission income

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

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

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

3.18.2.2 Fees related to performance obligations satisfied over time

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

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

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

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

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

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

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

•

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

F-39

•

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

3.18.4 Dividend income

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

3.19 Employee Compensation and Benefits

3.19.1 Post-employment benefits:

3.19.1.1 Defined contribution plans

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

3.19.1.2 Defined benefit plans

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

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

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

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

3.19.2 Short-term employee benefits

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

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

3.19.3 Share-based payment

The Group has provided its directors and employees with stock grants, mileage stocks and long-term share-based payments programs. When stock grants are exercised, the Group can either select to distribute newly

F-40

issued shares or treasury shares or compensate in cash based on the share price. When mileage stocks and long-term share-based payments are exercised, the Group pays the amount equivalent to share price of KB Financial Group Inc. in cash.

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

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

3.19.4 Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or an employee’s decision to accept an offer of benefits in exchange for the termination of employment. The Group recognizes a liability and expense for termination benefits at the earlier of the following dates; when the Group can no longer withdraw the offer of those benefits and when the Group recognizes costs for a restructuring that is within the scope of IAS No.37 and involves the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, then the termination benefits are discounted to present value.

3.20 Income Tax Expenses

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

3.20.1 Current income tax

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

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

3.20.2 Deferred income tax

Deferred income tax is recognized, using the asset-liability method, on temporary differences arising between the tax-based amount of assets and liabilities and their carrying amount in the financial statements.

F-41

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

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

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

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

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

3.20.3 Uncertain tax positions

Uncertain tax positions arise from tax treatments applied by the Group which may be challenged by the tax authorities due to the complexity of the transaction or different interpretation of the tax laws, a claim for rectification brought by the Group, an appeal for a refund claimed from the tax authorities related to additional assessments or a tax investigation by the tax authorities. The Group recognizes its uncertain tax positions in the consolidated financial statements in accordance with IAS No.12 and IFRIC No.23. The income tax asset is recognized if a tax refund is probable for taxes paid and levied by the tax authority, and the amount to be paid as a result of the tax investigation and others is recognized as the current tax payable. However, additional dues on tax paid or refund are recognized in accordance with IAS No.37 because those are, in substance, interest and penalty.

3.21 Earnings per Share

The Group calculates basic earnings per share amounts and diluted earnings per share amounts for profit or loss attributable to ordinary equity holders of the Parent Company and presents them in the consolidated statement of comprehensive income. Basic earnings per share is calculated by dividing profit or loss attributable to ordinary equity holders of the Parent Company by the weighted average number of ordinary shares outstanding during the period. For the purpose of calculating diluted earnings per share, the Group adjusts profit

F-42

or loss attributable to ordinary equity holders of the Parent Company, and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares including convertible bonds and share options.

3.22 Lease

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

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

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

•

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

•

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

•

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

•

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

•

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

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

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

•

The amount of the initial measurement of the lease liability

•

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

•

Any initial direct costs incurred by the lessee, and

•

An estimate of restoration costs

However, the Group can elect not to apply the requirements of IFRS No.16 to short-term lease (lease that, at the commencement date, has a lease term of 12 months or less) and leases for which the underlying asset is of low value (for example, underlying leased asset under $ 5,000).

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

For sale and leaseback transactions, the Group applies the requirements of IFRS No.15 Revenue from Contracts with Customers , to determine whether the transfer of an asset is accounted for as a sale of that asset.

3.23 Operating Segments

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

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

F-43

3.24 Overlay Approach

The Group applies the overlay approach in accordance with IFRS No.4 and a financial asset is eligible for designation for the overlay approach if, and only if, the following criteria are met:

•

It is measured at fair value through profit or loss applying IFRS No.9 but would not have been measured at fair value through profit or loss in its entirety applying IAS No.39 and

•

It is not held in respect of an activity that is unconnected with contracts within the scope of IFRS No.4.

The Group reclassifies between profit or loss and other comprehensive income, and the amount reclassified is equal to the difference between:

•

The amount reported in profit or loss for the designated financial assets applying IFRS No.9 and

•

The amount that would have been reported in profit or loss for the designated financial assets if the insurer had applied IAS No.39.

The Group is permitted to apply the overlay approach either at initial recognition or it may subsequently designate financial assets that newly meet criterion of not being held in respect of an activity that is unconnected with insurance contract, having previously not met that criterion.

The Group continues to apply the overlay approach to a designated financial asset until that financial asset is derecognized. However, the Group de-designates a financial asset when the financial asset no longer meets the criterion. In this case, the Group reclassifies from accumulated other comprehensive income to profit or loss as a reclassification adjustment any balance relating to that financial asset.

At the beginning of any annual period, the Group may stop applying the overlay approach to all designated financial assets, and cannot subsequently apply the overlay approach, if it stops using this approach because it is no longer an insurer.

3.25 United States dollar amounts

The Group operates primarily in Korea and its official accounting records are maintained in Korean won. The U.S. dollar amounts are provided herein as supplementary information solely for the convenience of the reader. Korean won amounts are expressed in U.S. dollars at the rate of ￦1,086.11 to U.S. $1.00, the U.S. Federal Reserve Bank of New York buying exchange rate in effect at noon, December 31, 2020. Such convenience translation into US dollars should not be construed as representations that the Korean won amounts have been, could have been, or could in the future be, converted at this or any other rate of exchange.

4. Financial Risk Management

4.1 Summary

4.1.1 Overview of financial risk management policy

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

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

The Group’s risk management system focuses on efficiently supporting long-term strategy and management decisions through increased risk transparency, spread of risk management culture and preemptive response to

F-44

rapidly changing financial environments. Credit risk, market risk, liquidity risk, and operational risk are recognized as the Group’s significant risks and measured and managed by quantifying them in the form of Internal Capital or Value at Risk (“VaR”) using statistical methods.

4.1.2 Risk management organization

4.1.2.1 Risk Management Committee

The Risk Management Committee, as the ultimate decision-making body, deals with risk-related issues, such as establishing risk management strategies in accordance with the strategic direction determined by the Board of Directors, determining the affordable level of risk appetite, reviewing the level of risk and the status of risk management activities, approving the application of risk management systems, methodologies, and major improvements, and establishing and approving risk management policies and procedures to timely recognize, measure, monitor, and control risks arising from various transactions by the Group.

4.1.2.2 Risk Management Council

The Risk Management Council is responsible for consulting on matters delegated by the Risk Management Committee and requests for review by the Management Executive Committee, consulting on details of each subsidiary’s risk management policies and procedures, monitoring the Group’s risk management status, and establishing and implementing necessary measures.

4.1.2.3 Risk Management Department

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

4.2 Credit Risk

4.2.1 Overview of credit risk

Credit risk is the risk of loss from the portfolio of assets held due to the counterparty’s default, breach of contract and deterioration of credit quality. For risk management reporting purposes, the Group considers all factors of credit risk exposure, such as default risk of individual borrowers, country risk and risk of specific sectors.

The Group defines default as the definition applied to the calculation of Capital Adequacy Ratio under the new Basel Accord (Basel III).

4.2.2 Credit risk management

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

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

All of the Kookmin Bank’s loan customers (individuals and corporates) are assigned with credit rating and managed by a comprehensive internal credit evaluation system. For individuals, the credit rating takes into account the personal information, income and job information, asset information, and bank transaction information. For corporates, the credit rating is evaluated by analyzing and utilizing financial and non-financial information which measures current and future corporate value and ability to repay the debt. Also, the extent to which it has the ability to meet debt obligations is comprehensively considered.

F-45

The credit rating, once assigned, serves as the fundamental instrument in Kookmin Bank’s credit risk management, and is applied in a wide range of credit risk management processes, including credit approval, credit limit management, loan pricing and computation of allowance for credit loss. For corporates, Kookmin Bank conducts a regular credit evaluation at least once a year, and the review and supervision departments regularly validate the adequacy of credit ratings to manage credit risks.

KB Kookmin Card Co., Ltd.’s credit scoring system is divided into Application Scoring System (“ASS”) and Behavior Scoring System (“BSS”). For applications that meet the eligibility criteria for card issuance, the card will be issued only if the ASS credit rating is above the standard. KB Kookmin Card Co., Ltd.’s internal information, a credit bureau company’s external information and personal information on the application are used to calculate the ASS credit rating. The BSS, which is recalculated on a weekly basis, predicts the delinquency probability of cardholders, and utilizes it to monitor cardholders and portfolio risk.

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

4.2.3 Maximum exposure to credit risk

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


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Financial assets
Due from financial institutions measured at amortized cost ^*	￦	18,142,960	￦	22,720,091
Financial assets at fair value through profit or loss
Due from financial institutions measured at fair value through profit or loss		216,367		100,094
Securities measured at fair value through profit or loss		50,721,526		58,415,100
Loans measured at fair value through profit or loss		427,545		337,983
Financial instruments indexed to the price of gold		79,805		89,965
Derivatives		3,190,673		5,545,385
Loans measured at amortized cost ^*		339,684,059		377,166,984
Financial investments
Securities measured at fair value through other comprehensive income		43,556,848		58,456,889
Securities measured at amortized cost ^*		25,346,555		36,870,229
Loans measured at fair value through other comprehensive income		375,098		293,409
Other financial assets ^*		9,147,059		14,167,689

		490,888,495		574,163,818

Off-balance sheet items
Acceptances and guarantees contracts		8,327,494		8,548,928
Financial guarantee contracts		3,847,390		4,964,468
Commitments		151,797,615		159,133,983

		163,972,499		172,647,379

	￦	654,860,994	￦	746,811,197

*	After netting of allowance.

F-46

4.2.4 Credit risk of loans

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

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

F-47

4.2.4.1 Credit risk exposure

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


	December 31, 2019
	12-month expected credit losses		Lifetime expected credit losses				Not applying expected credit losses		Total
	12-month expected credit losses		Non-impaired		Impaired		Not applying expected credit losses		Total
	(In millions of Korean won)
Loans measured at amortized cost*
Corporate
Grade 1	￦	83,839,707	￦	2,621,898	￦	1,000	￦	—	￦	86,462,605
Grade 2		58,057,809		4,683,445		7,052		—		62,748,306
Grade 3		2,650,199		2,187,662		4,194		—		4,842,055
Grade 4		518,108		900,386		4,605		—		1,423,099
Grade 5		16,648		355,893		805,938		—		1,178,479

		145,082,471		10,749,284		822,789		—		156,654,544

Retail
Grade 1		146,265,744		3,611,001		8,155		—		149,884,900
Grade 2		7,081,846		4,433,832		29,304		—		11,544,982
Grade 3		2,080,690		1,541,647		11,366		—		3,633,703
Grade 4		185,081		387,811		9,722		—		582,614
Grade 5		10,180		587,448		545,295		—		1,142,923

		155,623,541		10,561,739		603,842		—		166,789,122

Credit card
Grade 1		8,390,177		96,052		—		—		8,486,229
Grade 2		5,695,069		719,065		—		—		6,414,134
Grade 3		1,558,999		1,161,396		—		—		2,720,395
Grade 4		26,404		390,941		—		—		417,345
Grade 5		350		135,630		474,327		—		610,307

		15,670,999		2,503,084		474,327		—		18,648,410

		316,377,011		23,814,107		1,900,958		—		342,092,076

Loans measured at fair value through other comprehensive income
Corporate
Grade 1		241,524		—		—		—		241,524
Grade 2		133,574		—		—		—		133,574
Grade 3		—		—		—		—		—
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—

		375,098		—		—		—		375,098

		375,098		—		—		—		375,098

	￦	316,752,109	￦	23,814,107	￦	1,900,958	￦	—	￦	342,467,174

F-48


	December 31, 2020
	12-month expected credit losses		Lifetime expected credit losses				Not applying expected credit losses		Total
	12-month expected credit losses		Non-impaired		Impaired		Not applying expected credit losses		Total
	(In millions of Korean won)
Loans measured at amortized cost*
Corporate
Grade 1	￦	93,033,311	￦	4,646,801	￦	7,042	￦	—	￦	97,687,154
Grade 2		61,701,031		7,060,916		7,817		—		68,769,764
Grade 3		2,702,369		2,507,455		3,055		—		5,212,879
Grade 4		611,743		1,085,704		8,562		—		1,706,009
Grade 5		18,792		394,935		2,162,732		—		2,576,459

		158,067,246		15,695,811		2,189,208		—		175,952,265

Retail
Grade 1		163,261,012		3,536,290		6,789		—		166,804,091
Grade 2		8,828,445		4,197,409		34,896		—		13,060,750
Grade 3		2,519,004		1,322,878		9,012		—		3,850,894
Grade 4		225,262		402,881		8,352		—		636,495
Grade 5		39,466		636,361		672,397		—		1,348,224

		174,873,189		10,095,819		731,446		—		185,700,454

Credit card
Grade 1		8,210,540		412,555		—		—		8,623,095
Grade 2		5,831,625		708,405		—		—		6,540,030
Grade 3		1,526,382		1,216,434		—		—		2,742,816
Grade 4		16,978		247,241		—		—		264,219
Grade 5		2,101		118,907		506,462		—		627,470

		15,587,626		2,703,542		506,462		—		18,797,630

		348,528,061		28,495,172		3,427,116		—		380,450,349

Loans measured at fair value through other comprehensive income
Corporate
Grade 1		235,469		—		—		—		235,469
Grade 2		57,940		—		—		—		57,940
Grade 3		—		—		—		—		—
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—

		293,409		—		—		—		293,409

		293,409		—		—		—		293,409

	￦	348,821,470	￦	28,495,172	￦	3,427,116	￦	—	￦	380,743,758

*	Before netting of allowance

F-49

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


	Range of Probability of Default (%)	Retail	Corporate

Grade 1	0.0 ~ 1.0	1 ~ 5 grade	AAA ~ BBB+
Grade 2	1.0 ~ 5.0	6 ~ 8 grade	BBB ~ BB
Grade 3	5.0 ~ 15.0	9 ~ 10 grade	BB- ~ B
Grade 4	15.0 ~ 30.0	11 grade	B- ~ CCC
Grade 5	30.0 ~	12 grade or under	CC or under

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


	December 31, 2019
	12-month expected credit losses		Lifetime expected credit losses				Total
	12-month expected credit losses		Non-impaired		Impaired		Total
	(In millions of Korean won)
Guarantees	￦	70,183,658	￦	3,839,736	￦	179,825	￦	74,203,219
Deposits and savings		4,478,032		118,221		8,034		4,604,287
Property and equipment		10,014,552		582,109		55,410		10,652,071
Real estate		155,769,901		10,839,595		417,815		167,027,311

	￦	240,446,143	￦	15,379,661	￦	661,084	￦	256,486,888


	December 31, 2020
	12-month expected credit losses		Lifetime expected credit losses				Total
	12-month expected credit losses		Non-impaired		Impaired		Total
	(In millions of Korean won)
Guarantees	￦	79,088,720	￦	5,732,814	￦	187,512	￦	85,009,046
Deposits and savings		5,210,681		149,745		67,047		5,427,473
Property and equipment		11,607,675		808,476		120,471		12,536,622
Real estate		170,171,707		12,836,286		1,836,865		184,844,858

	￦	266,078,783	￦	19,527,321	￦	2,211,895	￦	287,817,999

F-50

4.2.5 Credit risk of securities

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


	December 31, 2019
	12-month expected credit losses		Lifetime expected credit losses				Not applying expected credit losses		Total
	12-month expected credit losses		Non-impaired		Impaired		Not applying expected credit losses		Total
	(In millions of Korean won)
Securities measured at amortized cost*
Grade 1	￦	25,147,636	￦	—	￦	—	￦	—	￦	25,147,636
Grade 2		157,881		—		—		—		157,881
Grade 3		42,710		—		—		—		42,710
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—

		25,348,227		—		—		—		25,348,227


Securities measured at fair value through other comprehensive income
Grade 1		40,206,856		—		—		—		40,206,856
Grade 2		3,337,327		—		—		—		3,337,327
Grade 3		12,665		—		—		—		12,665
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—

		43,556,848		—		—		—		43,556,848

	￦	68,905,075	￦	—	￦	—	￦	—	￦	68,905,075


	December 31, 2020
	12-month expected credit losses		Lifetime expected credit losses				Not applying expected credit losses		Total
	12-month expected credit losses		Non-impaired		Impaired		Not applying expected credit losses		Total
	(In millions of Korean won)
Securities measured at amortized cost*
Grade 1	￦	36,467,719	￦	—	￦	—	￦	—	￦	36,467,719
Grade 2		359,551		—		—		—		359,551
Grade 3		38,847		7,061		—		—		45,908
Grade 4		—		—		—		—		—
Grade 5		—		—		—		—		—

		36,866,117		7,061		—		—		36,873,178


Securities measured at fair value through other comprehensive income
Grade 1		54,576,777		—		—		—		54,576,777
Grade 2		3,746,200		—		—		—		3,746,200
Grade 3		126,391		—		—		—		126,391
Grade 4		7,521		—		—		—		7,521
Grade 5		—		—		—		—		—

		58,456,889		—		—		—		58,456,889

	￦	95,323,006	￦	7,061	￦	—	￦	—	￦	95,330,067

*	Before netting of allowance

F-51

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

Domestic

Foreign

Credit quality

KIS

NICE P&I

KAP

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 domestic agencies above, and those denominated in foreign currencies are based on the lowest credit rating by the foreign agencies above.

4.2.6 Credit risk of due from financial institutions

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


	December 31, 2019
	12-month expected credit losses		Lifetime expected credit losses				Not applying expected credit losses		Total
	12-month expected credit losses		Non-impaired		Impaired		Not applying expected credit losses		Total
	(In millions of Korean won)
Due from financial institutions measured at amortized cost*
Grade 1	￦	17,292,966	￦	—	￦	—	￦	—	￦	17,292,966
Grade 2		149,927		—		—		—		149,927
Grade 3		677,249		—		—		—		677,249
Grade 4		—		—		—		—		—
Grade 5		13,991		13,179		360		—		27,530

	￦	18,134,133	￦	13,179	￦	360	￦	—	￦	18,147,672


	December 31, 2020
	12-month expected credit losses		Lifetime expected credit losses				Not applying expected credit losses		Total
	12-month expected credit losses		Non-impaired		Impaired		Not applying expected credit losses		Total
	(In millions of Korean won)
Due from financial institutions measured at amortized cost*
Grade 1	￦	21,437,207	￦	—	￦	—	￦	—	￦	21,437,207
Grade 2		334,371		—		—		—		334,371
Grade 3		445,732		13,099		—		—		458,831
Grade 4		479,142		—		—		—		479,142
Grade 5		13,520		—		283		—		13,803

	￦	22,709,972	￦	13,099	￦	283	￦	—	￦	22,723,354

*	Before netting of allowance

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

F-52

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 of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Deposits, savings, securities, etc.	￦	802,170	￦	1,651,322

4.2.8 Credit risk concentration analysis

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


	December 31, 2019*
	Retail		Corporate		Credit card		Total		%		Allowances			Carrying amount
	(In millions of Korean won)
Korea	￦	166,310,457	￦	149,149,657	￦	18,642,111	￦	334,102,225		97.44	￦	(2,363,332	)	￦	331,738,893
Europe		—		1,118,429		—		1,118,429		0.33		(4,181	)		1,114,248
China		—		3,135,501		358		3,135,859		0.91		(20,654	)		3,115,205
Japan		101		647,956		81		648,138		0.19		(576	)		647,562
United States		—		2,333,269		—		2,333,269		0.68		(9,205	)		2,324,064
Others		478,564		1,072,375		5,860		1,556,799		0.45		(10,069	)		1,546,730

	￦	166,789,122	￦	157,457,187	￦	18,648,410	￦	342,894,719		100.00	￦	(2,408,017	)	￦	340,486,702


	December 31, 2020*
	Retail		Corporate		Credit card		Total		%		Allowances			Carrying amount
	(In millions of Korean won)
Korea	￦	182,344,832	￦	160,385,598	￦	18,734,570	￦	361,465,000		94.85	￦	(2,433,702	)	￦	359,031,298
Europe		—		2,042,979		—		2,042,979		0.54		(11,141	)		2,031,838
China		—		4,518,737		654		4,519,391		1.19		(20,489	)		4,498,902
Japan		94		923,354		10		923,458		0.24		(1,249	)		922,209
United States		—		1,962,377		—		1,962,377		0.51		(21,489	)		1,940,888
Cambodia		1,444,906		2,280,180		—		3,725,086		0.98		(89,652	)		3,635,434
Indonesia		1,483,345		3,637,351		60,959		5,181,655		1.36		(699,947	)		4,481,708
Others		427,276		833,080		1,437		1,261,793		0.33		(5,694	)		1,256,099

	￦	185,700,453	￦	176,583,656	￦	18,797,630	￦	381,081,739		100.00	￦	(3,283,363	)	￦	377,798,376

*	Amount includes loans measured at fair value through profit or loss, other comprehensive income and amortized cost.

F-53

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


	December 31, 2019
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Financial institutions	￦	16,405,404		10.42	￦	(14,819	)	￦	16,390,585
Manufacturing		43,265,607		27.48		(394,428	)		42,871,179
Service		65,277,701		41.46		(195,205	)		65,082,496
Wholesale & Retail		18,593,540		11.81		(99,051	)		18,494,489
Construction		3,679,798		2.34		(194,737	)		3,485,061
Public sector		1,250,909		0.79		(2,084	)		1,248,825
Others		8,984,228		5.70		(56,662	)		8,927,566

	￦	157,457,187		100.00	￦	(956,986	)	￦	156,500,201


	December 31, 2020
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Financial institutions	￦	16,044,243		9.09	￦	(20,987	)	￦	16,023,256
Manufacturing		45,884,606		25.98		(473,360	)		45,411,246
Service		76,001,877		43.04		(385,093	)		75,616,784
Wholesale & Retail		23,129,457		13.10		(241,021	)		22,888,436
Construction		4,397,814		2.49		(190,819	)		4,206,995
Public sector		1,660,370		0.94		(74,839	)		1,585,531
Others		9,465,289		5.36		(285,660	)		9,179,629

	￦	176,583,656		100.00	￦	(1,671,779	)	￦	174,911,877

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


	December 31, 2019
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Housing	￦	78,102,637		42.12	￦	(34,395	)	￦	78,068,242
General		88,686,485		47.83		(676,927	)		88,009,558
Credit card		18,648,410		10.05		(739,709	)		17,908,701

	￦	185,437,532		100.00	￦	(1,451,031	)	￦	183,986,501


	December 31, 2020
	Loans		%		Allowances			Carrying amount
	(In millions of Korean won)
Housing	￦	87,312,052		42.70	￦	(61,155	)	￦	87,250,897
General		98,388,401		48.11		(848,933	)		97,539,468
Credit card		18,797,630		9.19		(701,496	)		18,096,134

	￦	204,498,083		100.00	￦	(1,611,584	)	￦	202,886,499

F-54

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


	December 31, 2019
	Amount		%		Allowances			Carrying amount
	(In millions of Korean won)
Due from financial institutions measured at amortized cost
Finance and insurance	￦	18,147,672		100.00	￦	(4,712	)	￦	18,142,960

		18,147,672		100.00		(4,712	)		18,142,960

Due from financial institutions measured at fair value through profit or loss
Finance and insurance		216,367		100.00		—			216,367

		216,367		100.00		—			216,367

Securities measured at fair value through profit or loss
Government and government funded institutions		11,937,703		23.53		—			11,937,703
Finance and insurance		32,475,354		64.03		—			32,475,354
Others		6,308,469		12.44		—			6,308,469

		50,721,526		100.00		—			50,721,526

Derivative financial assets
Government and government funded institutions		7,330		0.23		—			7,330
Finance and insurance		3,003,371		94.13		—			3,003,371
Others		179,972		5.64		—			179,972

		3,190,673		100.00		—			3,190,673

Securities measured at fair value through other comprehensive income
Government and government funded institutions		16,744,232		38.44		—			16,744,232
Finance and insurance		21,439,272		49.22		—			21,439,272
Others		5,373,344		12.34		—			5,373,344

		43,556,848		100.00		—			43,556,848

Securities measured at amortized cost
Government and government funded institutions		11,115,435		43.86		(37	)		11,115,398
Finance and insurance		12,279,883		48.44		(1,349	)		12,278,534
Others		1,952,909		7.70		(286	)		1,952,623

		25,348,227		100.00		(1,672	)		25,346,555

	￦	141,181,313			￦	(6,384	)	￦	141,174,929

F-55


	December 31, 2020
	Amount		%		Allowances			Carrying amount
	(In millions of Korean won)
Due from financial institutions measured at amortized cost
Finance and insurance	￦	22,723,354		100.00	￦	(3,263	)	￦	22,720,091

		22,723,354		100.00		(3,263	)		22,720,091

Due from financial institutions measured at fair value through profit or loss
Finance and insurance		100,094		100.00		—			100,094

		100,094		100.00		—			100,094

Securities measured at fair value through profit or loss
Government and government funded institutions		16,902,284		28.94		—			16,902,284
Finance and insurance		34,244,398		58.62		—			34,244,398
Others		7,268,418		12.44		—			7,268,418

		58,415,100		100.00		—			58,415,100

Derivative financial assets
Government and government funded institutions		44,670		0.81		—			44,670
Finance and insurance		4,925,535		88.82		—			4,925,535
Others		575,180		10.37		—			575,180

		5,545,385		100.00		—			5,545,385

Securities measured at fair value through other comprehensive income
Government and government funded institutions		26,205,864		44.83		—			26,205,864
Finance and insurance		24,847,602		42.51		—			24,847,602
Others		7,403,423		12.66		—			7,403,423

		58,456,889		100.00		—			58,456,889

Securities measured at amortized cost
Government and government funded institutions		24,018,884		65.14		(30	)		24,018,854
Finance and insurance		11,019,911		29.89		(2,475	)		11,017,436
Others		1,834,383		4.97		(445	)		1,833,938

		36,873,178		100.00		(2,950	)		36,870,228

	￦	182,114,000			￦	(6,213	)	￦	182,107,787

F-56

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


	December 31, 2019
	Amount		%		Allowances			Carrying amount
	(In millions of Korean won)
Due from financial institutions measured at amortized cost
Korea	￦	13,864,687		76.40	￦	(555	)	￦	13,864,132
United States		1,318,582		7.27		(1	)		1,318,581
Others		2,964,403		16.33		(4,156	)		2,960,247

		18,147,672		100.00		(4,712	)		18,142,960

Due from financial institutions measured at fair value through profit or loss
Korea		216,367		100.00		—			216,367

		216,367		100.00		—			216,367

Securities measured at fair value through profit or loss
Korea		46,413,061		91.51		—			46,413,061
United States		1,939,330		3.82		—			1,939,330
Others		2,369,135		4.67		—			2,369,135

		50,721,526		100.00		—			50,721,526

Derivative financial assets
Korea		1,440,349		45.14		—			1,440,349
United States		529,956		16.61		—			529,956
France		358,951		11.25		—			358,951
Others		861,417		27.00		—			861,417

		3,190,673		100.00		—			3,190,673

Securities measured at fair value through other comprehensive income
Korea		40,948,853		94.01		—			40,948,853
United States		687,243		1.58		—			687,243
Others		1,920,752		4.41		—			1,920,752

		43,556,848		100.00		—			43,556,848

Securities measured at amortized cost
Korea		22,591,541		89.12		(1,034	)		22,590,507
United States		1,312,941		5.18		(217	)		1,312,724
Others		1,443,745		5.70		(421	)		1,443,324

		25,348,227		100.00		(1,672	)		25,346,555

	￦	141,181,313			￦	(6,384	)	￦	141,174,929

F-57


	December 31, 2020
	Amount		%		Allowances			Carrying amount
	(In millions of Korean won)
Due from financial institutions measured at amortized cost
Korea	￦	16,535,849		72.78	￦	(607)		￦	16,535,242
United States		2,030,614		8.94		(283	)		2,030,331
Others		4,156,891		18.28		(2,373	)		4,154,518

		22,723,354		100.00		(3,263	)		22,720,091

Due from financial institutions measured at fair value through profit or loss
Korea		100,094		100.00		—			100,094

		100,094		100.00		—			100,094

Securities measured at fair value through profit or loss
Korea		53,991,978		92.43		—			53,991,978
United States		2,370,538		4.06		—			2,370,538
Others		2,052,584		3.51		—			2,052,584

		58,415,100		100.00		—			58,415,100

Derivative financial assets
Korea		2,885,214		52.03		—			2,885,214
United States		706,866		12.75		—			706,866
Others		1,953,305		35.22		—			1,953,305

		5,545,385		100.00		—			5,545,385

Securities measured at fair value through other comprehensive income
Korea		54,786,461		93.72		—			54,786,461
United States		942,151		1.61		—			942,151
Others		2,728,277		4.67		—			2,728,277

		58,456,889		100.00		—			58,456,889

Securities measured at amortized cost
Korea		34,545,872		93.69		(2,283	)		34,543,589
United States		1,049,387		2.85		(241	)		1,049,146
Others		1,277,919		3.46		(426	)		1,277,493

		36,873,178		100.00		(2,950	)		36,870,228

	￦	182,114,000			￦	(6,213	)	￦	182,107,787

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

F-58

4.3 Liquidity Risk

4.3.1 Overview of liquidity risk

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

4.3.2 Liquidity risk management and indicator

The liquidity risk is managed by risk management policies and liquidity risk management guidelines set forth in these policies applied to all risk management policies and procedures that may arise throughout the overall business of the Group.

The Group calculates and manages cumulative liquidity gaps and liquidity ratio for all transactions and off-balance transactions, that affect the cashflows in Korean won and foreign currency funds raised and operated for the management of liquidity risks and periodically reports them to the Risk Management Council and the Risk Management Committee.

4.3.3 Analysis of remaining contractual maturity of financial assets and liabilities

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

F-59

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


	December 31, 2019
	On demand		Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions ¹	￦	5,323,332	￦	1,038,805	￦	286,091	￦	822,123	￦	18,628	￦	—	￦	7,488,979
Financial assets at fair value through profit or loss		52,488,545		446,069		273,144		187,821		236,130		1,011,289		54,642,998
Derivatives held for trading ²		3,008,598		—		—		—		—		—		3,008,598
Derivatives held for hedging ³		—		4,892		20,216		37,441		41,401		66,176		170,126
Loans measured at amortized cost		2,908,095		33,042,040		32,668,128		125,125,270		94,802,566		96,757,198		385,303,297
Financial investments ⁴
Financial assets at fair value through other comprehensive income		2,101,605		526,465		1,403,884		6,761,533		33,604,010		4,506,581		48,904,078
Securities measured at amortized cost		—		1,002,164		2,080,834		5,700,500		7,366,945		15,888,344		32,038,787
Other financial assets		71,528		6,578,005		179,790		1,373,850		40,243		35,927		8,279,343

	￦	65,901,703	￦	42,638,440	￦	36,912,087	￦	140,008,538	￦	136,109,923	￦	118,265,515	￦	539,836,206


	December 31, 2019
	On demand		Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities at fair value through profit or loss ²	￦	2,663,327	￦	—	￦	—	￦	—	￦	—	￦	—	￦	2,663,327
Financial liabilities designated at fair value through profit or loss ²		12,704,826		—		—		—		—		—		12,704,826
Derivatives held for trading ²		2,842,950		—		—		—		—		—		2,842,950
Derivatives held for hedging ³		—		14,764		15,588		1,652		20,044		129		52,177
Deposits ⁵		141,821,986		17,180,492		27,300,542		110,410,809		10,804,440		2,354,504		309,872,773
Borrowings		7,074,508		12,341,516		3,057,980		8,994,817		4,950,294		1,763,234		38,182,349
Debentures		22,285		2,652,730		3,812,476		11,062,873		32,477,672		3,515,716		53,543,752
Lease liabilities		256		19,304		35,730		137,419		318,781		66,032		577,522
Other financial liabilities		114,320		17,663,385		187,976		212,059		693,921		119,637		18,991,298

	￦	167,244,458	￦	49,872,191	￦	34,410,292	￦	130,819,629	￦	49,265,152	￦	7,819,252	￦	439,430,974

Off-balance sheet items
Commitments ⁶	￦	151,797,615	￦	—	￦	—	￦	—	￦	—	￦	—	￦	151,797,615
Financial guarantee contracts ⁷		3,847,390		—		—		—		—		—		3,847,390

	￦	155,645,005	￦	—	￦	—	￦	—	￦	—	￦	—	￦	155,645,005

F-60


	December 31, 2020
	On demand		Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions ¹	￦	7,186,004	￦	1,449,949	￦	469,858	￦	1,217,217	￦	35,056	￦	—	￦	10,358,084
Financial assets at fair value through profit or loss		60,520,103		242,664		83,408		25,658		142,547		561,959		61,576,339
Derivatives held for trading ²		5,210,512		—		—		—		—		—		5,210,512
Derivatives held for hedging ³		—		9,371		32,816		74,364		70,863		88,462		275,876
Loans measured at amortized cost		3,126,366		29,240,531		35,862,097		135,526,320		116,211,931		103,685,410		423,652,655
Financial investments ⁴
Financial assets at fair value through other comprehensive income		2,532,279		896,523		1,556,600		10,523,465		35,347,644		16,949,942		67,806,453
Securities measured at amortized cost		—		1,003,104		2,724,223		2,567,726		9,658,717		29,923,188		45,876,958
Other financial assets		89,855		11,514,303		206,227		1,273,876		73,735		48,019		13,206,015

	￦	78,665,119	￦	44,356,445	￦	40,935,229	￦	151,208,626	￦	161,540,493	￦	151,256,980	￦	627,962,892


	December 31, 2020
	On demand		Up to 1 month		1-3 months		3-12 months		1-5 years		Over 5 years		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities at fair value through profit or loss ²	￦	2,025,952	￦	—	￦	—	￦	—	￦	—	￦	—	￦	2,025,952
Financial liabilities designated at fair value through profit or loss ²		9,784,107		—		—		—		—		—		9,784,107
Derivatives held for trading ²		5,014,072		—		—		—		—		—		5,014,072
Derivatives held for hedging ³		—		3,123		4,120		62,147		35,198		109		104,697
Deposits ⁵		182,111,594		17,207,360		28,485,765		99,879,946		12,133,364		1,664,509		341,482,538
Borrowings		9,333,894		17,730,230		4,923,897		9,617,100		7,616,809		938,374		50,160,304
Debentures		18,105		2,806,105		6,769,859		14,330,686		35,512,544		6,241,226		65,678,525
Lease liabilities		205		22,372		40,376		152,084		332,033		44,882		591,952
Other financial liabilities		217,866		24,153,880		208,745		329,291		748,593		215,447		25,873,822

	￦	208,505,795	￦	61,923,070	￦	40,432,762	￦	124,371,254	￦	56,378,541	￦	9,104,547	￦	500,715,969

Off-balance sheet items
Commitments ⁶	￦	159,133,983	￦	—	￦	—	￦	—	￦	—	￦	—	￦	159,133,983
Acceptances and guarantees contracts		8,548,928		—		—		—		—		—		8,548,928
Financial guarantee contracts ⁷		4,964,468		—		—		—		—		—		4,964,468

	￦	172,647,379	￦	—	￦	—	￦	—	￦	—	￦	—	￦	172,647,379

¹	Restricted due from financial instruments amounting to ￦ 13,394,627 million and ￦ 15,331,515 million are excluded as of December 31, 2019 and 2020, respectively.

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

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

⁴

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

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

⁶	Commitments are included in the ‘On demand’ category because payments can be requested at any time.

⁷	Cash flows under financial guarantee contracts are classified based on the earliest period that the contract can be executed.

F-61

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


	December 31, 2019
	Up to 1 month			1-3 months			3-12 months			1-5 years			Over 5 years		Total
	(In millions of Korean won)
Cash flow to be received (paid) of net-settled derivatives	￦	(639	)	￦	(1,831	)	￦	(5,021	)	￦	(10,602	)	￦	1,084	￦	(17,009	)
Cash flow to be received of gross-settled derivatives		14,119			200,170			657,909			1,888,772			—		2,760,970
Cash flow to be paid of gross-settled derivatives		(18,171	)		(199,141	)		(671,375	)		(1,955,650	)		—		(2,844,337	)


	December 31, 2020
	Up to 1 month			1-3 months			3-12 months			1-5 years			Over 5 years		Total
	(In millions of Korean won)
Cash flow to be received (paid) of net-settled derivatives	￦	(1,082)		￦	(5,569)		￦	(15,132)		￦	(25,354)			￦ 290	￦	(46,847)
Cash flow to be received of gross-settled derivatives		85,064			220,339			517,929			2,289,277			—		3,112,609
Cash flow to be paid of gross-settled derivatives		(88,952	)		(221,261	)		(523,442	)		(1,616,530	)		—		(2,450,185	)

4.4 Market Risk

4.4.1 Concept

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

4.4.2 Risk management

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

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

Kookmin Bank’s Asset-Liability Management Committee (“ALCO”) determines interest rate and commission operating standards and Asset Liability Management (“ALM”) operation policies and enacts and

F-62

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

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

4.4.3 Trading position

4.4.3.1 Definition of a trading position

The trading position, which is subject to market risk management, is the trading position defined in “Trading Policy and Guidelines” and the basic requirements for the trading position are as follows:

•

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

•

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

•

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

•

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

•

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

4.4.3.2 Observation method of market risk arising from trading positions

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

F-63

4.4.3.3 VaR

(a) VaR

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

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

When a subsidiary with a trading position measures market risk for trading position, it uses an internal model (VaR) for general risk and a standard method for individual risks. Standard method is used if internal model is not authorized for certain market risk. Therefore, disclosed market risk VaR does not reflect the market risk for individual risks and for some positions. In addition, non-bank subsidiaries use the same standard method as the regulatory capital calculation method in order to enhance the effectiveness of market risk VaR management (improving the link with regulatory capital).

(b) Back-Testing

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

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

Ten-day VaR at a 99% confidence level of interest rate, stock price and foreign exchange rate risk for trading positions by Kookmin Bank for the years ended December 31, 2019 and 2020, are as follows:

Kookmin Bank


	2019
	Average		Minimum		Maximum		Dec. 31 2019
	(In millions of Korean won)
Interest rate risk	￦	11,190	￦	1,725	￦	20,467	￦	16,628
Stock price risk		3,434		2,402		4,310		3,914
Foreign exchange rate risk		15,760		11,416		20,704		13,081
Deduction of diversification effect								(13,246	)

Total VaR	￦	17,545	￦	13,641	￦	24,849	￦	20,377

F-64


	2020
	Average		Minimum		Maximum		Dec. 31 2020
	(In millions of Korean won)
Interest rate risk	￦	59,147	￦	9,588	￦	105,983	￦	50,795
Stock price risk		15,379		3,787		24,821		24,821
Foreign exchange rate risk		36,281		5,302		67,766		49,338
Deduction of diversification effect								(7,320	)

Total VaR	￦	105,428	￦	14,225	￦	158,798	￦	117,634

Meanwhile, the positions which are not measured by VaR as of December 31, 2019 and 2020 and required equity capital of non-bank subsidiaries using the standardized method for the years ended December 31, 2019 and 2020, are as follows:

Kookmin Bank


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Interest rate risk	￦	83,731	￦	40,290
Stock price risk		1,954		7,088
Foreign exchange rate risk		1,850		23,938

	￦	87,535	￦	71,316

KB Securities Co., Ltd.


	2019
	Average		Minimum		Maximum		Dec. 31, 2019
	(In millions of Korean won)
Interest rate risk	￦	520,681	￦	460,539	￦	563,991	￦	563,991
Stock price risk		248,183		217,149		282,584		270,443
Foreign exchange rate risk		15,785		7,578		23,674		21,418
Commodity risk		3		1		20		1

	￦	784,652	￦	685,267	￦	870,269	￦	855,853


	2020
	Average		Minimum		Maximum		Dec. 31, 2020
	(In millions of Korean won)
Interest rate risk	￦	656,651	￦	575,053	￦	755,704	￦	755,704
Stock price risk		267,186		213,639		317,478		213,639
Foreign exchange rate risk		15,113		8,759		21,907		10,588
Commodity risk		18		1		56		18

	￦	938,968	￦	797,452	￦	1,095,145	￦	979,949

F-65

KB Insurance Co., Ltd.


	2019
	Average		Minimum		Maximum		Dec. 31, 2019
	(In millions of Korean won)
Interest rate risk	￦	3,418	￦	2,201	￦	4,904	￦	3,252
Foreign exchange rate risk		23,293		16,153		27,550		26,140

	￦	26,711	￦	18,354	￦	32,454	￦	29,392

2020

Average

Minimum

Maximum

Dec. 31, 2020

(In millions of Korean won)

Interest rate risk

￦5,682

￦ 2,850

￦ 7,652

￦ 7,055

Foreign exchange rate risk

26,529

23,491

29,339

28,891

￦

32,211

￦

26,341

￦

36,991

￦

35,946

KB Kookmin Card Co., Ltd.

2020

Average

Minimum

Maximum

Dec. 31, 2020

(In millions of Korean won)

Foreign exchange rate risk

￦

2,712

￦

169

￦

7,861

￦

7,546

Prudential Life Insurance Company of Korea Ltd.

2020

Average

Minimum

Maximum

Dec. 31, 2020

(In millions of Korean won)

Foreign exchange rate risk

￦

7,977

￦

7,977

￦

7,977

￦

7,977

KB Asset Management Co., Ltd.


	2019
	Average		Minimum		Maximum		Dec. 31, 2019
	(In millions of Korean won)
Interest rate risk	￦	417	￦	202	￦	1,238	￦	509
Stock price risk		3,456		1,965		6,248		6,248
Foreign exchange rate risk		825		362		1,427		362

	￦	4,698	￦	2,529	￦	8,913	￦	7,119


	2020
	Average		Minimum		Maximum		Dec. 31, 2020
	(In millions of Korean won)
Interest rate risk	￦	1,298	￦	—	￦	2,589	￦	—
Stock price risk		3,382		—		9,484		—
Foreign exchange rate risk		812		1,208		1,523		1,141

	￦	5,492	￦	1,208	￦	13,596	￦	1,141

F-66

KB Capital Co., Ltd.

2020

Average

Minimum

Maximum

Dec. 31, 2020

(In millions of Korean won)

Foreign exchange rate risk

￦

810

￦

297

￦

1,315

￦

896

KB Life Insurance Co., Ltd.

2019

Average

Minimum

Maximum

Dec. 31, 2019

(In millions of Korean won)

Interest rate risk

￦

2,630

￦

1,295

￦

3,597

￦

2,038

2020

Average

Minimum

Maximum

Dec. 31, 2020

(In millions of Korean won)

Interest rate risk

￦

3,054

￦

1,784

￦

4,389

￦

2,743

KB Real Estate Trust Co., Ltd.

2020

Average

Minimum

Maximum

Dec. 31, 2020

(In millions of Korean won)

Stock price risk

￦

399

￦

—

￦

435

￦

—

KB Investment Co., Ltd.


	2019
	Average		Minimum		Maximum		Dec. 31, 2019
	(In millions of Korean won)
Stock price risk	￦	—	￦	—	￦	—	￦	—
Foreign exchange rate risk		7,452		4,072		10,480		9,988

	￦	7,452	￦	4,072	￦	10,480	￦	9,988


	2020
	Average		Minimum		Maximum		Dec. 31, 2020
	(In millions of Korean won)
Stock price risk	￦	1,153	￦	—	￦	7,588	￦	6,253
Foreign exchange rate risk		11,864		10,167		12,625		11,655

	￦	13,017	￦	10,167	￦	20,213	￦	17,908

F-67

4.4.3.4 Details of risk factors

(a) Interest rate risk

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

(b) Stock price risk

Stock price risk occurs only in trading stocks denominated in Korean won because there are no trading stocks denominated in foreign currency. The portfolio of trading stocks denominated in Korean won consists of stocks listed on the exchange and derivatives linked to stocks and is managed by strict distributed investment limits.

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

4.4.4 Non-trading position

4.4.4.1 Definition of non-trading position

Interest rate risk management targets for non-trading positions include both on-balance and off-balance assets, liabilities and derivatives that are sensitive to interest rate, except for trading positions that are subject to market risk measurement. Interest-sensitive assets and liabilities refer to interest-bearing assets and liabilities that generate interest income and interest expenses.

4.4.4.2 Observation method of market risk arising from non-trading position

As a qualitative methodology, interest rate risk is a change in equity and profit due to the changes in value of interest-sensitive assets, liabilities, etc., and is measured by D EVE or interest rate VaR and D NII. In addition, the average interest rate revision maturity and the longest interest rate revision maturity of demand deposits are managed through a quantitative methodology.

F-68

4.4.4.3 Interest rate risk levels

(a) Subsidiary Kookmin Bank

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


	December 31, 2019
	Changes in the Economic Value of Equity Capital ( D EVE)		Changes in net interest income ( D NII)
	(In millions of Korean won)
Scenario 1 (Parallel rise)	￦	483,207	￦	152,013
Scenario 2 (Parallel decline)		31,718		9,717
Scenario 3 (Short-term decline, long-term rise)		257,756
Scenario 4 (Short-term rise, long-term decline)		411,237
Scenario 5 (Short-term rise)		378,380
Scenario 6 (Short-term decline)		492,047
Maximum of 6 scenarios		492,047		152,013
Basic capital		27,609,684		—


	December 31, 2020
	Changes in the Economic Value of Equity Capital ( D EVE)		Changes in net interest income ( D NII)
	(In millions of Korean won)
Scenario 1 (Parallel rise)	￦	544,087	￦	415,339
Scenario 2 (Parallel decline)		—		—
Scenario 3 (Short-term decline, long-term rise)		245,337
Scenario 4 (Short-term rise, long-term decline)		423,673
Scenario 5 (Short-term rise)		466,220
Scenario 6 (Short-term decline)		480,246
Maximum of 6 scenarios		544,087		415,339
Basic capital		28,234,310		—

(b) Non-bank subsidiaries

Interest rate VaR is the maximum possible loss due to interest rate risk under a normal distribution at a 99.9% confidence level. The measurement results of risk as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
KB Securities Co., Ltd.	￦	20,605	￦	28,396
KB Insurance Co., Ltd.		345,292		585,648
KB Kookmin Card Co., Ltd.		49,878		64,783
Prudential Life Insurance Company of Korea Ltd.		—		132,576
KB Life Insurance Co., Ltd.		56,214		29,392
KB Capital Co., Ltd.		33,038		27,805
KB Savings Bank Co., Ltd.		6,510		6,014

F-69

4.4.5 Financial instruments denominated in foreign currencies

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


	December 31, 2019
	USD		JPY		EUR		GBP		CNY		Others		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	2,581,674	￦	354,484	￦	377,651	￦	128,600	￦	1,207,769	￦	840,250	￦	5,490,428
Financial assets at fair value through profit or loss		6,275,426		43,124		610,820		23,034		6,131		149,188		7,107,723
Derivatives held for trading		244,010		22,729		25,226		698		6,786		48,396		347,845
Derivatives held for hedging		83,610		—		—		—		—		—		83,610
Loans measured at amortized cost		14,478,537		484,087		795,285		178,628		1,205,297		991,445		18,133,279
Financial assets at fair value through other comprehensive income		4,643,921		21,267		71,078		—		282,390		39,186		5,057,842
Financial assets at amortized cost		2,380,000		—		304,484		—		97,845		101,958		2,884,287
Other financial assets		1,619,738		230,542		313,363		18,237		186,607		195,691		2,564,178

	￦	32,306,916	￦	1,156,233	￦	2,497,907	￦	349,197	￦	2,992,825	￦	2,366,114	￦	41,669,192

Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,754,602	￦	—	￦	—	￦	—	￦	—	￦	—	￦	2,754,602
Derivatives held for trading		351,394		39,050		36,018		—		7,806		67,809		502,077
Derivatives held for hedging		35,538		—		—		—		—		—		35,538
Deposits		12,266,565		766,720		791,638		45,892		1,477,097		560,939		15,908,851
Borrowings		9,399,828		125,096		419,155		408,918		15,092		247,943		10,616,032
Debentures		5,007,285		—		—		—		—		338,225		5,345,510
Other financial liabilities		2,556,502		60,029		101,289		22,531		190,841		254,876		3,186,068

	￦	32,371,714	￦	990,895	￦	1,348,100	￦	477,341	￦	1,690,836	￦	1,469,792	￦	38,348,678

Off-balance sheet items	￦	18,702,327	￦	32,694	￦	176,756	￦	—	￦	252,369	￦	257,881	￦	19,422,027


	December 31, 2020
	USD		JPY		EUR		GBP		CNY		Others		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	4,482,459	￦	583,545	￦	558,793	￦	113,586	￦	878,798	￦	1,152,515	￦	7,769,696
Financial assets at fair value through profit or loss		5,464,176		39,817		508,587		30,030		6,046		177,545		6,226,201
Derivatives held for trading		339,190		18,061		41,834		1,774		4,344		9,724		414,927
Derivatives held for hedging		112,431		—		—		—		—		—		112,431
Loans measured at amortized cost		18,783,163		565,918		1,387,089		259,787		1,617,715		5,597,016		28,210,688
Financial assets at fair value through other comprehensive income		5,446,539		5,271		35,478		—		342,804		224,801		6,054,893
Financial assets at amortized cost		1,660,713		—		300,315		—		108,594		537,966		2,607,588
Other financial assets		2,747,958		50,573		231,435		20,162		122,642		353,707		3,526,477

	￦	39,036,629	￦	1,263,185	￦	3,063,531	￦	425,339	￦	3,080,943	￦	8,053,274	￦	54,922,901

Financial liabilities
Financial liabilities at fair value through profit or loss	￦	1,267,690	￦	—	￦	—	￦	—	￦	—	￦	—	￦	1,267,690
Derivatives held for trading		497,975		21,221		84,712		1,817		42,023		36,625		684,373
Derivatives held for hedging		139,528		—		—		—		—		14,050		153,578
Deposits		16,441,107		933,268		991,872		66,440		1,755,272		4,331,641		24,519,600
Borrowings		10,068,379		485,618		402,802		501,716		439		1,728,281		13,187,235
Debentures		5,135,667		—		666,873		—		—		308,675		6,111,215
Other financial liabilities		3,407,300		38,979		98,093		9,911		51,331		237,281		3,842,895

	￦	36,957,646	￦	1,479,086	￦	2,244,352	￦	579,884	￦	1,849,065	￦	6,656,553	￦	49,766,586

Off-balance sheet items	￦	14,991,859	￦	32,200	￦	248,007	￦	741	￦	253,472	￦	906,502	￦	16,432,781

F-70

4.5 Operational Risk

4.5.1 Concept

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

4.5.2 Risk management

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

4.6 Capital Adequacy

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

The Group is required to maintain a minimum Common Equity Tier 1 ratio of at least 8.0%, a minimum Tier 1 ratio of :9.5% and a minimum Total Regulatory Capital of 11.5% as of December 31, 2020.

The Group’s equity capital is classified into three categories in accordance with the Supervisory Regulations and Detailed Supervisory Regulations on Financial Holding Companies:

•

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

•

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

•

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

The risk-weighted assets are the magnitude of the amount of risk inherent in the total asset held by the Group. The Group calculates risk-weighted assets by each risk (credit risk, market risk, and operational risk) based on the Supervisory Regulations and Detailed Supervisory Regulations on Financial Holding Companies and uses them to calculate BIS ratio.

The Group evaluates and manages capital adequacy through separate internal policies. The valuation of capital adequacy compares the size of available capital (the amount of capital actually available) to the size of internal capital (the amount of capital required to cover all the significant risks faced by the Group under its target credit rating), which monitors financial soundness and provides a risk-adjusted performance measurement basis.

F-71

Internal capital refers to the capital required to prevent the insolvency from future unexpected losses. The Group operates a system to measure, allocate and manage internal capital to major subsidiaries by risk type.

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

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


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Equity Capital:	￦	36,995,181	￦	40,080,136
Tier 1 Capital		35,426,114		36,895,778
Common Equity Tier 1 Capital		34,709,873		34,886,283
Additional Tier 1 Capital		716,241		2,009,495
Tier 2 Capital		1,569,067		3,184,358
Risk-weighted assets:		255,549,020		262,349,242
Equity Capital (%):		14.48		15.28
Tier 1 Capital (%)		13.86		14.06
Common Equity Tier 1 Capital (%)		13.58		13.30

5. Segment Information

5.1 Overall Segment Information and Business Segments

The Group classifies reporting segments based on the nature of the products and services provided, the type of customer, and the Group’s management organization.


Banking business	Corporate banking	Loans, deposit products and other related financial services to large, small and medium-sized enterprises and SOHOs
	Retail banking	Loans, deposit products and other related financial services to individuals and households
	Other banking services	Trading activities in securities and derivatives, funding and other supporting activities
Securities business		Investment banking, brokerage services and other supporting activities
Non-life insurance business		Non-life insurance and other supporting activities
Credit card business		Credit sale, cash service, card loan and other supporting activities
Life insurance business		Life insurance and other supporting activities

F-72

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


	2019
	Banking business
	Corporate banking			Retail banking			Other banking services			Sub-total			Securities			Non-life insurance			Credit card			Life insurance			Others			Consolidation adjustment			Total
	(In millions of Korean won)
Operating revenues from external customers	￦	2,375,800		￦	2,979,503		￦	1,591,323		￦	6,946,626		￦	1,113,200		￦	1,185,600		￦	1,470,910		￦	107,404		￦	608,111		￦	—		￦	11,431,851
Intersegment operating revenues (expenses)		204,476			—			167,966			372,442			(18,795	)		(54,160	)		(209,874	)		(22,742	)		124,857			(191,728	)		—

		2,580,276			2,979,503			1,759,289			7,319,068			1,094,405			1,131,440			1,261,036			84,662			732,968			(191,728)			11,431,851

Net interest income		2,844,880			3,148,061			370,846			6,363,787			529,888			616,378			1,230,288			159,248			296,512			686			9,196,787
Interest income		4,642,555			4,872,937			1,264,456			10,779,948			852,153			617,617			1,581,178			159,463			687,823			(38,995	)		14,639,187
Interest expense		(1,797,675	)		(1,724,876	)		(893,610	)		(4,416,161	)		(322,265	)		(1,239	)		(350,890	)		(215	)		(391,311	)		39,681			(5,442,400	)
Net fee and commission income (expenses)		349,393			471,869			312,034			1,133,296			580,435			(152,597	)		261,829			(16,792	)		541,343			7,490			2,355,004
Fee and commission income		459,879			577,845			445,638			1,483,362			683,600			11,095			1,406,273			239			617,622			(322,944	)		3,879,247
Fee and commission expense		(110,486	)		(105,976	)		(133,604	)		(350,066	)		(103,165	)		(163,692	)		(1,144,444	)		(17,031	)		(76,279	)		330,434			(1,524,243	)
Net insurance income (expenses)		—			—			—			—			—			415,112			15,748			(122,295	)		—			(9,053	)		299,512
Insurance income		—			—			—			—			—			11,375,543			28,874			942,662			—			(29,897	)		12,317,182
Insurance expenses		—			—			—			—			—			(10,960,431	)		(13,126	)		(1,064,957	)		—			20,844			(12,017,670	)
Net gains (losses) on financial instruments at fair value through profit or loss		(2,526	)		—			425,150			422,624			(103,815	)		265,187			371			66,773			137,680			(144,948	)		643,872
Net other operating income (expenses)		(611,471	)		(640,427	)		651,259			(600,639	)		87,897			(12,640	)		(247,200	)		(2,272	)		(242,567	)		(45,903	)		(1,063,324	)
General and administrative expenses	￦	(1,241,721	)	￦	(1,982,375	)	￦	(663,323	)	￦	(3,887,419	)	￦	(757,276	)	￦	(843,800	)	￦	(441,921	)	￦	(66,514	)	￦	(373,919	)	￦	99,832		￦	(6,271,017	)
Operating profit before provision for credit losses		1,338,555			997,128			1,095,966			3,431,649			337,129			287,640			819,115			18,148			359,049			(91,896	)		5,160,834
Reversal (provision) for credit losses		125,919			(235,995	)		6,546			(103,530	)		(14,366	)		12,959			(439,765	)		3,084			(128,331	)		(236	)		(670,185	)
Net operating income		1,464,474			761,133			1,102,512			3,328,119			322,763			300,599			379,350			21,232			230,718			(92,132	)		4,490,649
Share of profit (loss) of associates and joint ventures		—			—			29,240			29,240			(103	)		(21	)		1,106			—			7,201			(20,972	)		16,451
Net other non-operating income (expenses)		(262	)		—			(38,625	)		(38,887	)		30,518			26,490			3,362			(30	)		34,644			(29,211	)		26,886
Segment profit before income tax		1,464,212			761,133			1,093,127			3,318,472			353,178			327,068			383,818			21,202			272,563			(142,315	)		4,533,986
Income tax expense		(404,426	)		(209,311	)		(265,656	)		(879,393	)		(95,271	)		(92,381	)		(67,262	)		(5,238	)		(90,366	)		9,124			(1,220,787	)

Profit for the year	￦	1,059,786		￦	551,822		￦	827,471		￦	2,439,079		￦	257,907		￦	234,687		￦	316,556		￦	15,964		￦	182,197		￦	(133,191	)	￦	3,313,199

Profit attributable to shareholders of the Parent Company		1,059,786			551,822			827,471			2,439,079			257,893			234,326			316,545			15,964			179,783			(131,762	)		3,311,828
Profit attributable to non-controlling interests		—			—			—			—			14			361			11			—			2,414			(1,429	)		1,371
Total assets*		139,496,393			147,468,173			100,460,472			387,425,038			47,816,512			36,552,368			22,990,115			9,801,904			42,140,936			(28,188,756	)		518,538,117
Total liabilities*		142,063,122			161,834,984			54,522,699			358,420,805			43,131,858			32,689,460			18,925,195			9,186,567			18,675,585			(1,610,678	)		479,418,792

F-73


	2020
	Banking business												Securities			Non-life insurance			Credit card			Life insurance			Others			Consolidation adjustment			Total
	Corporate banking			Retail banking			Other banking services			Sub-total			Securities			Non-life insurance			Credit card			Life insurance			Others			Consolidation adjustment			Total
	(In millions of Korean won)
Operating revenues from external customers	￦	2,833,601		￦	2,918,826		￦	1,797,921		￦	7,550,348		￦	1,448,409		￦	1,027,269		￦	1,538,230		￦	237,416		￦	690,970		￦	—		￦	12,492,642
Intersegment operating revenues (expenses)		178,199			—			108,118			286,317			(6,366	)		5,976			(183,480	)		(9,655	)		324,910			(417,702	)		—

		3,011,800			2,918,826			1,906,039			7,836,665			1,442,043			1,033,245			1,354,750			227,761			1,015,880			(417,702	)		12,492,642

Net interest income		3,238,002			3,178,280			338,484			6,754,766			510,566			615,951			1,265,703			260,925			314,832			(469	)		9,722,274
Interest income		4,899,943			4,519,579			1,036,643			10,456,165			820,100			616,852			1,631,520			261,056			726,668			(26,614	)		14,485,747
Interest expense		(1,661,941	)		(1,341,299	)		(698,159	)		(3,701,399	)		(309,534	)		(901	)		(365,817	)		(131	)		(411,836	)		26,145			(4,763,473	)
Net fee and commission income (expenses)		363,459			406,603			297,860			1,067,922			916,758			(171,220	)		400,485			(18,059	)		776,282			(13,229	)		2,958,939
Fee and commission income		480,190			529,178			440,319			1,449,687			1,037,545			8,571			1,485,718			98			871,499			(326,094	)		4,527,024
Fee and commission expense		(116,731	)		(122,575	)		(142,459	)		(381,765	)		(120,787	)		(179,791	)		(1,085,233	)		(18,157	)		(95,217	)		312,865			(1,568,085	)
Net insurance income (expenses)		—			—			—			—			—			376,827			13,283			(91,410	)		—			1,293			299,993
Insurance income		—			—			—			—			—			12,367,894			23,989			2,026,052			—			(31,295	)		14,386,640
Insurance expenses		—			—			—			—			—			(11,991,067	)		(10,706	)		(2,117,462	)		—			32,588			(14,086,647	)
Net gains (losses) on financial instruments at fair value through profit or loss		(52,493	)		—			296,676			244,183			117,792			259,274			5,904			71,350			396,626			(83,763	)		1,011,366
Net other operating income (expenses)		(537,168	)		(666,057	)		973,019			(230,206	)		(103,073	)		(47,587	)		(330,625	)		4,955			(471,860	)		(321,534	)		(1,499,930	)
General and administrative expenses	￦	(1,555,089)		￦	(2,072,515)		￦	(573,742)		￦	(4,201,346)		￦	(844,503)		￦	(829,263)		￦	(514,845)		￦	(152,271)		￦	(405,530)		￦	114,606		￦	(6,833,152)
Operating profit before provision for credit losses		1,456,711			846,311			1,332,297			3,635,319			597,540			203,982			839,905			75,490			610,350			(303,096	)		5,659,490
Reversal (provision) for credit losses		(204,302	)		(264,943	)		(14,937	)		(484,182	)		(23,827	)		7,569			(396,376	)		472			(148,127	)		973			(1,043,498	)
Net operating income		1,252,409			581,368			1,317,360			3,151,137			573,713			211,551			443,529			75,962			462,223			(302,123	)		4,615,992
Share of profit (loss) of associates and joint ventures		—			—			(48,158	)		(48,158	)		3,598			(42	)		1,127			1			553			(829	)		(43,750	)
Net other non-operating income (expenses)		5,490			—			23,354			28,844			4,472			16,142			(6,636	)		(16,270	)		40,927			121,911			189,390
Segment profit before income tax		1,257,899			581,368			1,292,556			3,131,823			581,783			227,651			438,020			59,693			503,703			(181,041	)		4,761,632
Income tax expense		(339,728	)		(159,876	)		(312,700	)		(812,304	)		(156,135	)		(63,778	)		(114,027	)		(27,167	)		(97,268	)		11,328			(1,259,351	)

Profit for the year	￦	918,171		￦	421,492		￦	979,856		￦	2,319,519		￦	425,648		￦	163,873		￦	323,993		￦	32,526		￦	406,435		￦	(169,713)		￦	3,502,281

Profit attributable to shareholders of the Parent Company		917,956			421,492			958,747			2,298,195			425,622			163,884			324,662			32,526			404,381			(194,119	)		3,455,151
Profit (loss) attributable to non-controlling interests		215			—			21,109			21,324			26			(11	)		(669	)		—			2,054			24,406			47,130
Total assets ^*		164,323,181			161,330,053			112,790,880			438,444,114			57,570,654			39,078,117			24,071,645			35,546,572			47,408,052			(31,446,962	)		610,672,192
Total liabilities ^*		167,236,387			176,571,944			64,227,709			408,036,040			52,516,488			35,086,458			19,789,959			32,524,518			21,598,232			(2,240,962	)		567,310,733

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

F-74

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, 2019 and 2020, are as follows:


	2018		2019		2020
	(In millions of Korean won)
Banking service	￦	6,579,169	￦	6,946,626	￦	7,550,348
Securities service		997,898		1,113,200		1,448,409
Non-life insurance service		1,183,394		1,185,600		1,027,269
Credit card service		1,524,695		1,470,910		1,538,230
Life insurance service		113,238		107,404		237,416
Other service		461,293		608,111		690,970

	￦	10,859,687	￦	11,431,851	￦	12,492,642

5.2.2 Geographical information

Geographical operating revenues from external customers for the years ended December 31, 2018, 2019 and 2020, and major non-current assets as of December 31, 2019 and 2020, are as follows:


	Revenues from external customers						Major non-current assets
	2018		2019		2020		December 31, 2019		December 31, 2020
	(In millions of Korean won)
Domestic	￦	10,666,586	￦	11,142,264	￦	11,891,540	￦	9,515,220	￦	10,603,254
United States		46,391		72,945		114,044		386,724		45,353
New Zealand		6,213		6,946		3,554		3,516		2,385
China		94,996		109,574		84,821		15,119		13,971
Cambodia		11,062		19,534		250,426		7,162		32,354
United Kingdom		8,119		10,037		28,681		85,634		81,879
Others		26,320		70,551		119,576		551,039		51,288
Consolidation adjustments		—		—		—		68,764		487,742

	￦	10,859,687	￦	11,431,851	￦	12,492,642	￦	10,633,178	￦	11,318,226

F-75

6. Financial Assets and Financial Liabilities

6.1 Classification and Fair Value of Financial Instruments

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


	December 31, 2019
	Carrying amount		Fair value
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	20,837,878	￦	20,835,235
Financial assets at fair value through profit or loss		53,549,086		53,549,086
Due from financial institutions		216,367		216,367
Debt securities		50,721,526		50,721,526
Equity securities		2,103,843		2,103,843
Loans		427,545		427,545
Others		79,805		79,805
Derivatives held for trading		3,008,598		3,008,598
Derivatives held for hedging		182,075		182,075
Loans measured at amortized cost		339,684,059		340,836,884
Securities measured at amortized cost		25,346,555		26,570,494
Financial assets at fair value through other comprehensive income		46,436,051		46,436,051
Debt securities		43,556,848		43,556,848
Equity securities		2,504,105		2,504,105
Loans		375,098		375,098
Other financial assets		9,147,059		9,147,059

	￦	498,191,361	￦	500,565,482

Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,663,327	￦	2,663,327
Financial liabilities designated at fair value through profit or loss		12,704,826		12,704,826
Derivatives held for trading		2,842,950		2,842,950
Derivatives held for hedging		164,391		164,391
Deposits		305,592,771		306,048,291
Borrowings		37,818,860		37,808,944
Debentures		50,935,583		51,558,748
Other financial liabilities		22,629,587		22,629,587

	￦	435,352,295	￦	436,421,064

F-76


	December 31, 2020
	Carrying amount		Fair value
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	25,608,842	￦	25,612,273
Financial assets at fair value through profit or loss		61,035,455		61,035,455
Due from financial institutions		100,094		100,094
Debt securities		58,415,100		58,415,100
Equity securities		2,092,313		2,092,313
Loans		337,983		337,983
Others		89,965		89,965
Derivatives held for trading		5,210,512		5,210,512
Derivatives held for hedging		334,873		334,873
Loans measured at amortized cost		377,166,984		378,791,808
Securities measured at amortized cost		36,870,229		38,026,073
Financial assets at fair value through other comprehensive income		61,825,197		61,825,197
Debt securities		58,456,889		58,456,889
Equity securities		3,074,899		3,074,899
Loans		293,409		293,409
Other financial assets		14,167,689		14,167,689

	￦	582,219,781	￦	585,003,881

Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,025,951	￦	2,025,951
Financial liabilities designated at fair value through profit or loss		9,784,107		9,784,107
Derivatives held for trading		5,014,072		5,014,072
Derivatives held for hedging		208,825		208,825
Deposits		338,580,220		338,833,784
Borrowings		49,827,156		50,081,900
Debentures		62,760,687		63,189,132
Other financial liabilities		28,612,287		28,612,287

	￦	496,813,305	￦	497,750,058

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.

F-77

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


Cash and due from financial institutions		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 Discounted Cash Flow (“DCF”) Model.

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

Loans measured at amortized cost		DCF model is used to determine the fair value of loans. 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.

Derivatives and financial instruments at fair value through profit or loss		For exchange traded derivatives, quoted price in an active market is used to determine fair value and for OTC derivatives, fair value is determined using valuation techniques. The Group uses internally developed valuation models that are widely used by market participants to determine fair values of plain vanilla OTC derivatives including options, interest rate swaps, and currency swaps, based on observable market parameters. However, some complex financial instruments are valued using appropriate models developed from generally accepted market valuation models including the Finite Difference Method (“FDM”), the MonteCarlo Simulation, Black-Scholes Model, Hull and White Model, Closed Form and Tree Model or valuation results from independent external professional valuation institution.

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

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

Debentures		Fair value is determined by using the valuation results of external professional valuation institution, which are calculated using market inputs.

Other financial assets and liabilities		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.

F-78

6.1.2 Fair value hierarchy

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

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

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

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

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

The fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. If an observable input requires an adjustment using an unobservable input and that adjustment results in a significantly higher or lower fair value measurement, the resulting measurement would be categorized within Level 3 of the fair value hierarchy.

F-79

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

Fair value hierarchy of financial assets and liabilities at fair value in the consolidated statements of financial position as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Fair value hierarchy						Total
	Level 1		Level 2		Level 3		Total
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss	￦	11,177,716	￦	31,476,070	￦	10,895,300	￦	53,549,086
Due from financial institutions		—		165,242		51,125		216,367
Debt securities		9,853,733		30,735,027		10,132,766		50,721,526
Equity securities		1,244,178		336,389		523,276		2,103,843
Loans		—		239,412		188,133		427,545
Others		79,805		—		—		79,805
Derivatives held for trading		72,983		2,398,831		536,784		3,008,598
Derivatives held for hedging		—		182,075		—		182,075
Financial assets at fair value through other comprehensive income		15,188,993		29,764,660		1,482,398		46,436,051
Debt securities		14,236,566		29,320,282		—		43,556,848
Equity securities		952,427		69,280		1,482,398		2,504,105
Loans		—		375,098		—		375,098

	￦	26,439,692	￦	63,821,636	￦	12,914,482	￦	103,175,810

Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,663,327	￦	—	￦	—	￦	2,663,327
Financial liabilities designated at fair value through profit or loss		492		1,482,302		11,222,032		12,704,826
Derivatives held for trading		157,634		2,458,498		226,818		2,842,950
Derivatives held for hedging		—		164,391		—		164,391

	￦	2,821,453	￦	4,105,191	￦	11,448,850	￦	18,375,494

F-80


	December 31, 2020
	Fair value hierarchy						Total
	Level 1		Level 2		Level 3*		Total
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss	￦	14,508,028	￦	35,298,665	￦	11,228,762	￦	61,035,455
Due from financial institutions		—		10,011		90,083		100,094
Debt securities		13,316,819		34,580,168		10,518,113		58,415,100
Equity securities		1,101,244		409,259		581,810		2,092,313
Loans		—		299,227		38,756		337,983
Others		89,965		—		—		89,965
Derivatives held for trading		90,459		4,678,185		441,868		5,210,512
Derivatives held for hedging		—		334,873		—		334,873
Financial assets at fair value through other comprehensive income		18,731,801		40,645,505		2,447,891		61,825,197
Debt securities		18,147,167		40,309,722		—		58,456,889
Equity securities		584,634		70,357		2,419,908		3,074,899
Loans		—		265,426		27,983		293,409

	￦33,330,288		￦80,957,228		￦14,118,521		￦128,406,037

Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,025,951	￦	—	￦	—	￦	2,025,951
Financial liabilities designated at fair value through profit or loss		1,040		581,636		9,201,431		9,784,107
Derivatives held for trading		204,470		4,668,155		141,447		5,014,072
Derivatives held for hedging		—		208,825		—		208,825

	￦2,231,461		￦5,458,616		￦9,342,878		￦17,032,955

Included KB Securities Co., Ltd.’s OTC derivatives consist of ￦ 635,920 million of financial assets at fair value through profit or loss (debt instruments), ￦ 9,201,431 million of financial liabilities designated at fair value through profit or loss, ￦ 441,775 million of derivative financial assets and ￦ 134,934 million of derivative financial liabilities.

F-81

Valuation techniques and inputs of financial assets and liabilities classified as Level 2 and measured at fair value in the consolidated statements of financial position as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss	￦	31,476,070
Due from financial institutions		165,242	DCF Model, One factor Hull-White Model	Discount rate, Volatility and others
Debt securities		30,735,027	DCF Model, Closed Form, Option Model, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model, Net Asset Value Method and others	Projected cash flow, Fair value of underlying asset, Dividend yield, Price of underlying asset, Interest rate, Discount rate, Volatility, Correlation coefficient and others
Equity securities		336,389	DCF Model	Interest rate, Discount rate and others
Loans		239,412	DCF Model	Interest rate, Discount rate and others
Derivatives held for trading		2,398,831	DCF Model, Closed Form, FDM, Option Model, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model and others	Discount rate, Underlying asset Index, Volatility, Correlation coefficient, Interest rate, Stock price, Foreign exchange rate, Dividend yield, Probability of default (PD), Credit spread and others
Derivatives held for hedging		182,075	DCF Model, Closed Form, FDM and others	Discount rate, Volatility, Foreign exchange rate and others
Financial assets at fair value through other comprehensive income		29,764,660
Debt securities		29,320,282	DCF Model, Option Model, Market value approach	Discount rate, Underlying asset Index, Volatility and others
Equity securities		69,280	DCF Model, Black-Scholes Model	Discount rate, Underlying asset Index, Volatility and others
Loans		375,098	DCF Model	Discount rate, Underlying asset Index, Volatility and others

	￦	63,821,636


Financial liabilities
Financial liabilities designated at fair value through profit or loss	￦	1,482,302	DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model and others	Price of underlying asset, Interest rate, Dividend yield, Volatility, Discount rate and others
Derivatives held for trading		2,458,498	DCF Model, Closed Form, FDM, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model, Option Model, FDM and others	Discount rate, Underlying asset Index, Volatility, Correlation coefficient, Interest rate, Stock price, Foreign exchange rate, Dividend yield, Probability of default (PD), Credit spread and others
Derivatives held for hedging		164,391	DCF Model, Closed Form, FDM and others	Discount rate, Volatility, Foreign exchange rate and others

	￦	4,105,191

F-82


	December 31, 2020
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss	￦	35,298,665
Due from financial institutions		10,011	DCF Model	Projected cash flow, Discount rate
Debt securities		34,580,168	DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model, Net Asset Value Method and others	Projected cash flow, Fair value of underlying asset, Dividend yield, Price of underlying asset, Interest rate, Discount rate, Volatility, Correlation coefficient and others
Equity securities		409,259	DCF Model	Interest rate, Discount rate and others
Loans		299,227	DCF Model	Interest rate, Discount rate and others
Derivatives held for trading		4,678,185	DCF Model, Closed Form, FDM, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model and others	Discount rate, Underlying asset Index, Volatility, Interest rate, Stock price, Foreign exchange rate, Dividend yield and others
Derivatives held for hedging		334,873	DCF Model, Closed Form, FDM and others	Discount rate, Volatility, Foreign exchange rate and others
Financial assets at fair value through other comprehensive income		40,645,505
Debt securities		40,309,722	DCF Model, Market value approach	Discount rate, Volatility and others
Equity securities		70,357	DCF Model	Interest rate, Discount rate and others
Loans		265,426	DCF Model	Discount rate, Volatility and others

	￦ 80,957,228

Financial liabilities
Financial liabilities designated at fair value through profit or loss	￦	581,636	DCF Model, Closed Form, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model, Binomial Model and others	Price of underlying asset, Interest rate, Dividend yield, Volatility, Discount rate and others
Derivatives held for trading		4,668,155	DCF Model, Closed Form, FDM, MonteCarlo Simulation, Black-Scholes Model, Hull and White Model and others	Discount rate, Price of underlying asset, Volatility, Interest rate, Stock price, Foreign exchange rate, Dividend yield and others
Derivatives held for hedging		208,825	DCF Model, Closed Form, FDM and others	Discount rate, Foreign exchange rate and others

	￦	5,458,616

F-83

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

Fair value hierarchy of financial assets and liabilities whose fair value is disclosed as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Fair value hierarchy						Total
	Level 1		Level 2		Level 3		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions ¹	￦	3,015,104	￦	13,812,640	￦	4,007,491	￦	20,835,235
Loans measured at amortized cost		—		372,988		340,463,896		340,836,884
Securities measured at amortized cost		9,587,770		16,979,656		3,068		26,570,494
Other financial assets ²		—		—		9,147,059		9,147,059

	￦	12,602,874	￦	31,165,284	￦	353,621,514	￦	397,389,672

Financial liabilities
Deposits ¹	￦	—	￦	142,021,800	￦	164,026,491	￦	306,048,291
Borrowings ³		—		1,469,263		36,339,681		37,808,944
Debentures		—		46,969,992		4,588,756		51,558,748
Other financial liabilities ²		—		—		22,629,587		22,629,587

	￦	—	￦	190,461,055	￦	227,584,515	￦	418,045,570


	December 31, 2020
	Fair value hierarchy						Total
	Level 1		Level 2		Level 3		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions ¹	￦	3,362,096	￦	19,573,075	￦	2,677,102	￦	25,612,273
Loans measured at amortized cost		—		271,241		378,520,567		378,791,808
Securities measured at amortized cost		19,438,941		18,584,264		2,868		38,026,073
Other financial assets ²		—		—		14,167,689		14,167,689

	￦	22,801,037	￦	38,428,580	￦	395,368,226	￦	456,597,843

Financial liabilities
Deposits ¹	￦	—	￦	181,472,846	￦	157,360,938	￦	338,833,784
Borrowings ³		—		1,149,734		48,932,166		50,081,900
Debentures		—		57,916,235		5,272,897		63,189,132
Other financial liabilities ²		—		—		28,612,287		28,612,287

	￦	—	￦	240,538,815	￦	240,178,288	￦	480,717,103

¹	The amounts included in Level 2 are the carrying amounts which are reasonable approximations of the fair value.

²	Other financial assets and other financial liabilities included in Level 3 are the carrying amounts which are reasonable approximation of fair value.

³	Borrowings of ￦ 4,685 million and ￦ 292 million included in Level 2 is the carrying amounts which are reasonable approximation of fair value as of December 31, 2019 and 2020, respectively.

F-84

For financial assets and liabilities whose carrying amount is a reasonable approximation of fair value, valuation techniques and inputs are not disclosed.

Valuation techniques and inputs of financial assets and liabilities classified as Level 2, and whose fair value is disclosed as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Financial assets
Loans measured at amortized cost	￦	372,988	DCF Model		Discount rate
Securities measured at amortized cost		16,979,656	DCF Model, MonteCarlo Simulation		Discount rate, Interest rate

	￦	17,352,644

Financial liabilities
Borrowings	￦	1,464,578	DCF Model		Discount rate
Debentures		46,969,992	DCF Model		Discount rate

	￦	48,435,570


	December 31, 2020
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Financial assets
Loans measured at amortized cost	￦	271,241	DCF Model		Discount rate
Securities measured at amortized cost		18,584,264	DCF Model, MonteCarlo Simulation		Discount rate, Interest rate

	￦	18,855,505

Financial liabilities
Borrowings	￦	1,149,442	DCF Model		Discount rate
Debentures		57,916,235	DCF Model		Discount rate

	￦	59,065,677

F-85

Valuation techniques and inputs of financial assets and liabilities classified as Level 3 and, whose fair value is disclosed and as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	4,007,491	DCF Model	Credit spread, Other spread, Interest rate
Loans measured at amortized cost		340,463,896	DCF Model	Credit spread, Other spread, Prepayment rate, Interest rate
Securities measured at amortized cost		3,068	DCF Model	Interest rate

	￦	344,474,455

Financial liabilities
Deposits	￦	164,026,491	DCF Model	Other spread, Prepayment rate, Interest rate
Borrowings		36,339,681	DCF Model	Other spread, Interest rate
Debentures		4,588,756	DCF Model	Other spread, Interest rate

	￦	204,954,928


	December 31, 2020
	Fair value		Valuation techniques	Inputs
	( In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	2,677,102	DCF Model	Credit spread, Other spread, Interest rate
Loans measured at amortized cost		378,520,567	DCF Model	Credit spread, Other spread, Prepayment rate, Interest rate
Securities measured at amortized cost		2,868	DCF Model	Interest rate

	￦	381,200,537

Financial liabilities
Deposits	￦	157,360,938	DCF Model	Other spread, Prepayment rate, Interest rate
Borrowings		48,932,166	DCF Model	Other spread, Interest rate
Debentures		5,272,897	DCF Model	Other spread, Interest rate

	￦	211,566,001

F-86

6.2 Disclosure of Fair Value Hierarchy Level 3

6.2.1 Valuation policy and process of Level 3 fair value

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

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

F-87

6.2.2 Changes in fair value (Level 3) measured using valuation technique based on unobservable inputs in the market

6.2.2.1 Changes in financial instruments classified as Level 3 of the fair value hierarchy for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Financial assets at fair value through profit or loss								Financial investments			Financial liabilities at fair value through profit or loss			Net derivatives financial instruments
	Due from financial institutions measured at fair value through profit or loss		Securities measured at fair value through profit or loss			Loans measured at fair value through profit or loss			Financial assets at fair value through other comprehensive income			Financial liabilities designated at fair value through profit or loss			Derivatives held for trading
	(In millions of Korean won)
Beginning	￦	48,743	￦	7,464,860		￦	213,203		￦	1,332,718		￦	(10,873,383	)	￦	(300,131	)
Total gains or losses
Profit or loss		1,207		(66,208	)		10,412			—			(1,285,157	)		851,453
Other comprehensive income (loss)		1,175		111,826			—			55,993			(25,538	)		—
Purchases		—		4,544,254			154,005			95,359			—			—
Sales		—		(2,139,174	)		(189,487	)		(1,672	)		—			(163,856	)
Issues		—		—			—			—			(12,416,402	)		(59,202	)
Settlements		—		—			—			—			13,378,448			(1,316	)
Transfers into Level 3*		—		851,457			—			—			—			(16,982	)
Transfers out of Level 3*		—		(110,973	)		—			—			—			—

Ending	￦	51,125	￦	10,656,042		￦	188,133		￦	1,482,398		￦	(11,222,032	)	￦	309,966

F-88


	2020
	Financial assets at fair value through profit or loss									Financial investments						Financial liabilities at fair value through profit or loss			Net derivatives financial instruments
	Due from financial institutions measured at fair value through profit or loss			Securities measured at fair value through profit or loss			Loans measured at fair value through profit or loss			Equity securities measured at fair value through other comprehensive income			Loans measured at fair value through other comprehensive income			Financial liabilities designated at fair value through profit or loss			Derivatives held for trading
	(In millions of Korean won)
Beginning	￦	51,125		￦	10,656,042		￦	188,133		￦	1,482,398		￦	—		￦	(11,222,032	)	￦	309,966
Total gains or losses
Profit or loss		(2,021	)		22,069			627			(206	)		—			(406,788	)		400,241
Other comprehensive income (loss)		(7,693	)		144,963			—			815,244			(217	)		(27,876	)		—
Purchases		135,227			3,519,573			—			122,827			40,000			—			(24,165	)
Sales		(86,555	)		(3,263,111	)		(150,004	)		(355	)		(11,800	)		—			(328,348	)
Issues		—			—			—			—			—			(9,333,419	)		(42,732	)
Settlements		—			—			—			—			—			11,788,684			90
Transfers into Level 3*		—			129,580			—			—			—			—			(1,044	)
Transfers out of Level 3*		—			(109,193	)		—			—			—			—			(13,587	)

Ending	￦	90,083		￦	11,099,923		￦	38,756		￦	2,419,908		￦	27,983		￦	(9,201,431	)	￦	300,421

*	Changes in levels for the financial instruments occurred due to the change in the availability of observable market data.

F-89

6.2.2.2 In relation to changes in Level 3 of the fair value hierarchy, total gains or losses recognized in profit or loss for the year, and total gains or losses recognized in profit or loss from financial instruments held at the end of the reporting period for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018							2019
	Net gains (losses) on financial instruments at fair value through profit or loss		Other operating expenses			Net interest income		Net losses on financial instruments at fair value through profit or loss			Other operating income		Net interest income
	(In millions of Korean won)
Total gains (losses) recognized in profit or loss for the year	￦	(36,466)	￦	(405)		￦	617	￦	(489,703)		￦	1,388	￦	22
Total gains (losses) recognized in profit or loss from financial instruments held at the end of the reporting year		144,674		(289	)		43		(37,668	)		1,331		—


	2020
	Net gains on financial instruments at fair value through profit or loss		Other operating expenses			Net interest income
	(In millions of Korean won)
Total gains (losses) recognized in profit or loss for the year	￦	70,251	￦	(56,329	)	￦	—
Total gains (losses) recognized in profit or loss from financial instruments held at the end of the reporting year		129,824		(60,884	)		—

F-90

6.2.3 Sensitivity analysis of changes in unobservable inputs

6.2.3.1 Information about fair value measurements using unobservable inputs as of December 31, 2019 and 2020, are as follows:

December 31, 2019

Fair value

Valuation techniques

Unobservable inputs

Range of
unobservable
inputs (%)

Relationship of unobservable inputs to
fair value

(In millions of
Korean won)

Financial assets

Financial assets at fair value through profit or loss

Due from financial institutions

￦

51,125

Option Model

Volatility of the underlying asset

11.43~34.39

The higher the volatility of the underlying asset, the higher the fair value fluctuation

Correlation coefficient

-4.84

The higher the correlation coefficient, the higher the fair value fluctuation

Debt securities

10,132,766

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull-White Model, Black-Scholes Model, Option Model, Binomial Model, Net Asset Value, Income approach, Market approach

and others

Growth rate

-1.00~1.00

The higher the growth rate, the higher the fair value

Volatility

1.00~48.00

The higher the volatility, the higher the fair value fluctuation

Discount rate

0.75~17.37

The lower the discount rate, the higher the fair value

Recovery rate

40.00

The higher the recovery rate, the higher the fair value

Correlation coefficient between underlying assets

3.11~95.67

The higher the correlation coefficient, the higher the fair value fluctuation

Liquidation value

0.00

The higher the liquidation value, the higher the fair value

Volatility of real estate price

-1.00~1.00

The higher the price of real estate, the higher the fair value

Equity securities

523,276

Income approach, Market value approach, Asset value approach, DCF Model, Comparable Company Analysis, Risk adjusted discount rate method, Dividend Discount Model, Usage of past transactions, Binomial Model and others

Growth rate

0.00~2.20

The higher the growth rate, the higher the fair value

Discount rate

2.00~22.00

The lower the discount rate, the higher the fair value

Liquidation value

-1.00~1.00

The higher the liquidation value, the higher the fair value

Volatility

11.90

The higher the volatility, the higher the fair value fluctuation

Loans

188,133

Binomial Model, DCF Model

Volatility of the stock price

12.91~48.28

The higher the volatility, the higher the fair value fluctuation

Discount rate

10.81

The lower the discount rate, the higher the fair value

F-91

December 31, 2019

Fair value

Valuation techniques

Unobservable inputs

Range of
unobservable
inputs (%)

Relationship of unobservable inputs to
fair value

(In millions of
Korean won)

Derivatives held for trading

Stock and index

￦

416,486

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull and White

Volatility of the underlying asset

9.75~52.00

The higher the volatility, the higher the fair value fluctuation

Model, Black-Scholes Model, Binomial Model

Correlation coefficient between underlying assets

4.00~77.00

The higher the correlation coefficient, the higher the fair value fluctuation

Currency and interest rate

120,298

DCF Model, Hull-White Model

Volatility

2.00~58.00

The higher the volatility, the higher the fair value fluctuation

Correlation coefficient between underlying assets

-49.00~90.00

The higher the absolute value of correlation coefficient, the higher the fair value fluctuation

Financial assets at fair value through other comprehensive income

Equity securities

1,482,398

Risk adjusted discount rate method, IMV Model, DCF Model, Comparable Company Analysis, Dividend discount model, Option Model, Net Asset value method, Market approach, One Factor Hull-White Model and others

Growth rate

0.00~2.20

The higher the growth rate, the higher the fair value

Discount rate

3.04~16.37

The lower the discount rate, the higher the fair value

Volatility

20.97~34.87

The higher the volatility, the higher the fair value fluctuation

￦12,914,482

Financial liabilities

Financial liabilities designated at fair value through profit or loss

Derivative-linked securities

￦

11,222,032

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull and White Model, Black-Scholes Model

Volatility of the underlying asset

1.00~58.00

The higher the volatility, the higher the fair value fluctuation

Correlation coefficient between underlying assets

-49.00~90.00

The higher the absolute value of correlation coefficient, the higher the fair value fluctuation

Derivatives held for trading

Stock and index

54,341

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull and White Model, Black-Scholes Model, Binomial Model

Volatility

12.00~52.00

The higher the volatility, the higher the fair value fluctuation

Correlation coefficient between underlying assets

9.00~77.00

The higher the correlation coefficient, the higher the fair value fluctuation

F-92

December 31, 2019

Fair value

Valuation techniques

Unobservable inputs

Range of
unobservable
inputs (%)

Relationship of unobservable inputs to
fair value

(In millions of
Korean won)

Others

172,477

MonteCarlo Simulation, Hull and White Model, DCF Model, Closed Form

Volatility

2.00~58.00

The higher the volatility, the higher the fair value fluctuation

Volatility of the stock price

16.28

The higher the volatility, the higher the fair value fluctuation

Volatility of the interest rate

0.52

The higher the volatility, the higher the fair value fluctuation

Discount rate

1.94~2.00

The higher the discount rate, the lower the fair value

Correlation coefficient between underlying assets

19.00~90.00

The higher the absolute value of correlation coefficient, the higher the fair value fluctuation

￦

11,448,850

December 31, 2020

Fair value

Valuation techniques

Unobservable inputs

Range of
unobservable
inputs (%)

Relationship of

unobservable inputs to fair value

(In millions of
Korean won)

Financial assets

Financial assets at fair value through profit or loss

Due from financial institutions

￦

90,083

MonteCarlo Simulation

Volatility of the underlying asset

19.40 ~ 36.76

The higher the volatility of the underlying asset, the higher the fair value fluctuation

Correlation coefficient

12.27

The higher the correlation coefficient, the higher the fair value fluctuation

Debt securities

10,518,113

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull-White Model, Black-Scholes Model, Option Model, Binomial Model, Net Asset Value Method, Income approach, Market approach and others

Growth rate

0.00 ~ 2.00

The higher the growth rate, the higher the fair value

Volatility

8.00 ~ 179.75

The higher the volatility, the higher the fair value fluctuation

Discount rate

0.00 ~ 21.37

The lower the discount rate, the higher the fair value

Recovery rate

The higher the recovery rate, the higher the fair value

Correlation coefficient between underlying assets

-61.12 ~ 100.00

The higher the correlation coefficient, the higher the fair value fluctuation

Liquidation value

0.00

The higher the liquidation value, the higher the fair value

Volatility of real estate price

0.00

The higher the price of real estate, the higher the fair value

F-93

December 31, 2020

Fair value

Valuation techniques

Unobservable inputs

Range of
unobservable
inputs (%)

Relationship of

unobservable inputs to fair value

(In millions of
Korean won)

Equity securities

￦

581,810

Income approach, Market approach, Asset value approach, DCF Model, Comparable Company Analysis, Risk adjusted discount rate method, Dividend Discount Model, Usage of past transactions, Binomial Model and others

Growth rate

0.00 ~ 1.10

The higher the growth rate, the higher the fair value

Discount rate

0.60 ~ 18.67

The lower the discount rate, the higher the fair value

Liquidation value

0.00

The higher the liquidation value, the higher the fair value

Loans

38,756

Binomial Model, DCF Model

Volatility of the stock price

0.00

The higher the volatility, the higher the fair value fluctuation

Discount rate

7.86

The lower the discount rate, the higher the fair value

Derivatives held for trading

Stock and index

￦

382,337

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull and White

Volatility of the underlying asset

20.00 ~ 72.00

The higher the volatility, the higher the fair value fluctuation

Model, Black-Scholes Model, Binomial Model

Correlation coefficient between underlying assets

-61.12 ~ 89.01

The higher the correlation coefficient, the higher the fair value fluctuation

Others

59,531

DCF Model, Hull-White Model

Volatility

0.00 ~ 68.00

The higher the volatility, the higher the fair value fluctuation

Correlation coefficient between underlying assets

-50.48 ~ 90.95

The higher the correlation coefficient, the higher the fair value fluctuation

Financial assets at fair value through other comprehensive income

Equity securities

2,419,908

Risk adjusted discount rate method, IMV Model, DCF Model, Comparable Company Analysis, Dividend discount model, Option Model, Net Asset Value Method, Market approach, One Factor Hull-White Model and others

Growth rate

0.00 ~ 2.00

The higher the growth rate, the higher the fair value

Discount rate

7.60 ~ 19.67

The lower the discount rate, the higher the fair value

Volatility

22.11 ~ 24.16

The higher the volatility, the higher the fair value fluctuation

Loans

27,983

DCF Model

Discount rate

2.21 ~ 4.21

The lower the discount rate, the higher the fair value

￦

14,118,521

F-94

December 31, 2020

Fair value

Valuation techniques

Unobservable inputs

Range of
unobservable
inputs (%)

Relationship of

unobservable inputs to fair value

(In millions of
Korean won)

Financial liabilities

Financial liabilities designated at fair value through profit or loss

Derivative-linked securities

￦

9,201,431

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull and White

Volatility of the underlying asset

1.00 ~ 72.00

The higher the volatility, the higher the fair value fluctuation

Model, Black-Scholes Model

Correlation coefficient between underlying assets

-61.12 ~ 90.95

The higher the absolute value of correlation coefficient, the higher the fair value fluctuation

Derivatives held for trading

Stock and index

60,291

DCF Model, Closed Form, FDM, MonteCarlo Simulation, Hull and White

Volatility

20.00 ~ 68.00

The higher the volatility, the higher the fair value fluctuation

Model, Black-Scholes Model, Binomial Model

Correlation coefficient between underlying assets

-61.12 ~ 90.95

The higher the correlation coefficient, the higher the fair value fluctuation

Others

81,156

MonteCarlo Simulation, Hull and White Model, DCF Model, Closed Form

Volatility

21.00 ~ 68.00

The higher the volatility, the higher the fair value fluctuation

Discount rate

1.15 ~ 1.29

The higher the discount rate, the lower the fair value

Correlation coefficient between underlying assets

-50.48 ~ 90.95

The higher the absolute value of correlation coefficient, the higher the fair value fluctuation

￦

9,342,878

F-95

6.2.3.2 Sensitivity analysis of changes in unobservable inputs

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable changes in fair value of financial instruments which are affected by unobservable parameters, using a statistical technique. When the fair value is affected by more than one input parameter, the amounts represent the most favorable or most unfavorable outcome. Level 3 financial instruments subject to sensitivity analysis are (a) equity-related derivatives, currency-related derivatives and interest rate related derivatives whose fair value changes are recognized in profit or loss, (b) financial liabilities designated at fair value through profit or loss, and (c) due from financial institutions, debt securities (including beneficiary certificates), equity securities and loan receivables whose fair value changes are recognized in profit or loss or other comprehensive income. If overlay approach is applied in accordance with IFRS No.4, changes in fair value of financial assets at fair value through profit or loss are recognized as other comprehensive income.

Results of the sensitivity analysis of changes in inputs as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Profit or loss					Other comprehensive income (loss)
	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss ¹
Due from financial institutions	￦	3	￦	(3)		￦	2	￦	(2)
Debt securities ⁴		30,771		(27,062	)		2,341		(2,276	)
Equity securities ³		24,456		(10,251	)		1,110		(824	)
Loans ⁵		6,362		(4,344	)		—		—
Derivatives held for trading ²		25,830		(29,317	)		—		—
Financial assets at fair value through other comprehensive income
Equity securities ³		—		—			214,268		(110,687	)

	￦	87,422	￦	(70,977)		￦	217,721	￦	(113,789)

Financial liabilities
Financial liabilities designated at fair value through profit or loss ¹	￦	49,730	￦	(44,136)		￦	—	￦	—
Derivatives held for trading ²		14,638		(13,572	)		—		—

	￦	64,368	￦	(57,708)		￦	—	￦	—

F-96


	December 31, 2020
	Profit or loss					Other comprehensive income (loss)
	Favorable changes		Unfavorable changes			Favorable changes		Unfavorable changes
	(In millions of Korean won)
Financial assets
Financial assets at fair value through profit or loss ¹
Due from financial institutions	￦	2	￦	(2	)	￦	199	￦	(222	)
Debt securities ⁴		35,790		(12,826	)		2,123		(2,122	)
Equity securities ³		16,125		(8,275	)		973		(744	)
Loans ⁵		3,316		(2,952	)		—		—
Derivatives held for trading ²		22,783		(25,013	)		—		—
Financial assets at fair value through other comprehensive income
Equity securities ³		—		—			120,652		(73,434	)
Loans ⁶		—		—			534		(518	)

	￦	78,016	￦	(49,068	)	￦	124,481	￦	(77,040	)

Financial liabilities
Financial liabilities designated at fair value through profit or loss ¹	￦	46,859	￦	(42,995	)	￦	—	￦	—
Derivatives held for trading ²		7,255		(7,139	)		—		—

	￦	54,114	￦	(50,134	)	￦	—	￦	—

¹	For financial instruments at fair value through profit or loss, changes in fair value are calculated by shifting principal unobservable input parameters such as volatility of the underlying asset or correlation coefficient between underlying asset by ± 10%.

²	For derivatives financial instruments, changes in fair value are calculated by shifting principal unobservable input parameters; such as, price of underlying asset, volatility of stock price, volatility of interest rate by ± 10% and the loss given default ratio, discount rate by ± 1%.

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

⁴

For beneficiary certificates, it is practically impossible to analyze sensitivity of changes in unobservable inputs. But only for beneficiary certificates whose underlying assets are real estates, changes in fair value are calculated by shifting correlation between discount rate of rent cashflow (-1~1%) and volatility of real estate price (-1~1%).

⁵	For loans, changes in fair value are calculated by shifting principal unobservable input parameters such as stock price, volatility of stock price (-10~10%), discount rate (-1~1%).

⁶	For loans measured at fair value through other comprehensive income, changes in fair value are calculated by shifting principal unobservable input parameters such as discount rate, volatility of the underlying asset 1%, growth rate 10%.

6.2.4 Day one gains or losses

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

F-97

Changes in aggregate deferred differences for the years ended December 31, 2019 and 2020, are as follows:


	2019			2020
	(In millions of Korean won)
Balance at the beginning of the year	￦	62,155		￦	45,767
New transactions		168,225			166,555
Changes during the year		(184,613	)		(150,929	)

Balance at the end of the year	￦	45,767		￦	61,393

6.3 Carrying Amounts of Financial Instruments by Category

Financial assets and liabilities are measured at fair value or amortized cost. The carrying amounts of financial assets and liabilities by category as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Financial instruments at fair value through profit or loss		Financial instruments at fair value through other comprehensive income		Financial instruments designated at fair value through other comprehensive income		Financial instruments at amortized cost		Derivatives held for hedging		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	—	￦	—	￦	—	￦	20,837,878	￦	—	￦	20,837,878
Financial assets at fair value through profit or loss		53,549,086		—		—		—		—		53,549,086
Derivatives		3,008,598		—		—		—		182,075		3,190,673
Loans measured at amortized cost		—		—		—		339,684,059		—		339,684,059
Financial investments		—		43,931,946		2,504,105		25,346,555		—		71,782,606
Other financial assets		—		—		—		9,147,059		—		9,147,059

	￦	56,557,684	￦	43,931,946	￦	2,504,105	￦	395,015,551	￦	182,075	￦	498,191,361


	December 31, 2019
	Financial instruments at fair value through profit or loss		Financial instruments designated at fair value through profit or loss		Financial instruments at amortized cost		Derivatives held for hedging		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,663,327	￦	12,704,826	￦	—	￦	—	￦	15,368,153
Derivatives		2,842,950		—		—		164,391		3,007,341
Deposits		—		—		305,592,771		—		305,592,771
Borrowings		—		—		37,818,860		—		37,818,860
Debentures		—		—		50,935,583		—		50,935,583
Other financial liabilities		—		—		22,629,587		—		22,629,587

	￦	5,506,277	￦	12,704,826	￦	416,976,801	￦	164,391	￦	435,352,295

F-98


	December 31, 2020
	Financial instruments at fair value through profit or loss		Financial instruments at fair value through other comprehensive income		Financial instruments designated at fair value through other comprehensive income		Financial instruments at amortized cost		Derivatives held for hedging		Total
	(In millions of Korean won)
Financial assets
Cash and due from financial institutions	￦	—	￦	—	￦	—	￦	25,608,842	￦	—	￦	25,608,842
Financial assets at fair value through profit or loss		61,035,455		—		—		—		—		61,035,455
Derivatives		5,210,512		—		—		—		334,873		5,545,385
Loans measured at amortized cost		—		—		—		377,166,984		—		377,166,984
Financial investments		—		58,750,298		3,074,899		36,870,229		—		98,695,426
Other financial assets		—		—		—		14,167,689		—		14,167,689

	￦	66,245,967	￦	58,750,298	￦	3,074,899	￦	453,813,744	￦	334,873	￦	582,219,781


	December 31, 2020
	Financial instruments at fair value through profit or loss		Financial instruments designated at fair value through profit or loss		Financial instruments at amortized cost		Derivatives held for hedging		Total
	(In millions of Korean won)
Financial liabilities
Financial liabilities at fair value through profit or loss	￦	2,025,951	￦	9,784,107	￦	—	￦	—	￦	11,810,058
Derivatives		5,014,072		—		—		208,825		5,222,897
Deposits		—		—		338,580,220		—		338,580,220
Borrowings		—		—		49,827,156		—		49,827,156
Debentures		—		—		62,760,687		—		62,760,687
Other financial liabilities		—		—		28,612,288		—		28,612,288

	￦	7,040,023	￦	9,784,107	￦	479,780,351	￦	208,825	￦	496,813,306

F-99

6.4 Transfer of Financial Assets

6.4.1 Transferred financial assets that are derecognized in their entirety

The Group transferred loans and other financial assets that are derecognized in their entirety, to SPEs (special purpose entities), while the maximum exposure to loss (carrying amount) from its continuing involvement and fair value of its continuing involvement of the derecognized financial assets as of December 31, 2019 and 2020, are as follows:

December 31, 2019

Type of continuing
involvement

Classification of financial
instruments

Carrying amount
of continuing
involvement

Fair value of
continuing
involvement

(In millions of Korean won)

Discovery 2nd Securitization Specialty Co., Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

￦

5,596

￦

5,596

FK 1411 ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

5,428

AP 3B ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

3,205

AP 4D ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

6,175

￦

20,404

￦

20,404

December 31, 2020

Type of continuing
involvement

Classification of financial
instruments

Carrying amount
of continuing
involvement

Fair value of
continuing
involvement

(In millions of Korean won)

Discovery 2nd Securitization Specialty Co., Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

￦

5,190

￦

5,190

FK 1411 ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

1,062

AP 3B ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

646

AP 4D ABS Ltd.

Subordinated debt

Financial assets at fair value through profit or loss

6,304

￦

13,202

￦

13,202

F-100

6.4.2 Transferred financial assets that are not derecognized in their entirety

The Group securitized the loans and issued the asset-backed debentures. The senior debentures and related securitized assets as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Carrying amount of underlying assets		Fair value of underlying assets		Carrying amount of senior debentures		Fair value of senior debentures
	(In millions of Korean won)
KB Kookmin Card 3 ^rd Securitization Co., Ltd.*	￦	601,659	￦	592,358	￦	351,207	￦	342,204
KB Kookmin Card 4 ^th Securitization Co., Ltd.*		560,903		552,216		347,387		340,820
KB Kookmin Card 5 ^th Securitization Co., Ltd.*		542,861		534,630		299,795		304,835
KB Kookmin Card 6 ^th Securitization Co., Ltd. *		795,884		784,080		461,909		469,600

	￦	2,501,307	￦	2,463,284	￦	1,460,298	￦	1,457,459


	December 31, 2020
	Carrying amount of underlying assets		Fair value of underlying assets		Carrying amount of senior debentures		Fair value of senior debentures
	(In millions of Korean won)
KB Kookmin Card 4 ^th Securitization Co., Ltd.*	￦	490,465	￦	488,251	￦	219,419	￦	226,401
KB Kookmin Card 5 ^th Securitization Co., Ltd.*		476,523		474,481		299,838		304,914
KB Kookmin Card 6 ^th Securitization Co., Ltd.*		701,360		698,421		434,492		472,861
KB Kookmin Card 7 ^th Securitization Co., Ltd.*		924,159		919,775		553,711		591,609

	￦	2,592,507	￦	2,580,928	￦	1,507,460	￦	1,595,785

The Group has an obligation to early redeem the asset-backed debentures upon occurrence of an event specified in the agreement such as when the outstanding balance of the eligible asset-backed securitization (ABS), a trust-type ABS, is below the solvency margin ratio (minimum rate: 104.5%) of the beneficiary interest in the trust. To avoid such early redemption, the Group entrusts credit card accounts and deposits in addition to the previously entrusted credit card accounts.

F-101

6.4.3 Bonds sold under repurchase agreements and loaned securities

The Group continues to recognize the financial assets related to bonds sold under repurchase agreements and securities lending transactions in the consolidated statement of financial position since those transactions are not qualified for derecognition even though the Group transfers the financial assets. Bonds sold under repurchase agreements are sold on the condition that they will be repurchased at a fixed price and loaned securities will be returned at the expiration of the loan period. Thus, the Group retains substantially all the risks and rewards of ownership of the financial assets. The carrying amount of transferred assets and related liabilities as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Carrying amount of transferred assets		Carrying amount of related liabilities
	(In millions of Korean won)
Bonds sold under repurchase agreements*	￦	9,292,858	￦	8,884,847
Loaned securities
Government bond		2,259,096		—
Stock		25,725		—

	￦	11,577,679	￦	8,884,847


	December 31, 2020
	Carrying amount of transferred assets		Carrying amount of related liabilities
	(In millions of Korean won)
Bonds sold under repurchase agreements*	￦	13,994,352	￦	13,398,140
Loaned securities
Government bond		1,831,673		—
Stock		19,811		—

	￦	15,845,836	￦	13,398,140

*	Bonds sold under repurchase agreements using borrowed securities as collateral amounts to ￦4,126,274 million and ￦ 2,147,975 million as of December 31, 2019 and 2020, respectively.

6.5 Offsetting Financial Assets and Financial Liabilities

The Group enters into International Swaps and Derivatives Association (“ISDA”) master netting agreements and other similar arrangements with the Group’s OTC derivative and spot exchange counterparties. Similar netting agreements are also entered into with the Group’s (a) sales or purchase of bonds under repurchase agreements and (b) securities lending and borrowing transactions, etc. Pursuant to these agreements, in the event of default by one party, contracts are to be terminated and receivables and payables are to be offset. Further, as the law allows for the right to offset, domestic exchange settlement debits and domestic exchange settlement credits are shown in its net settlement balance in the consolidated statement of financial position.

F-102

6.5.1 Details of financial assets subject to offsetting, enforceable master netting arrangements or similar agreements as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Gross assets		Gross liabilities offset			Net amounts in the statement of financial position		Non-offsetting amount						Net amount
	Gross assets		Gross liabilities offset			Net amounts in the statement of financial position		Financial instruments			Cash collateral			Net amount
	(In millions of Korean won)
Derivatives held for trading and derivatives linked securities	￦	3,043,757	￦	—		￦	3,043,757	￦	(2,122,160	)	￦	(288,040	)	￦	815,632
Derivatives held for hedging		182,075		—			182,075
Receivable spot exchange		3,051,390		—			3,051,390		(3,050,116	)		—			1,274
Bonds purchased under repurchase agreements		6,507,646		—			6,507,646		(6,507,046	)		—			600
Domestic exchange settlement debits		31,344,009		(30,794,160	)		549,849		—			—			549,849
Other financial instruments		1,043,320		(1,022,977	)		20,343		(2,492	)		—			17,851

	￦	45,172,197	￦	(31,817,137	)	￦	13,355,060	￦	(11,681,814	)	￦	(288,040	)	￦	1,385,206


	December 31, 2020
	Gross assets		Gross liabilities offset			Net amounts in the statement of financial position		Non-offsetting amount						Net amount
	Gross assets		Gross liabilities offset			Net amounts in the statement of financial position		Financial instruments			Cash collateral			Net amount
	(In millions of Korean won)
Derivatives held for trading and derivatives linked securities	￦	5,425,708	￦	—		￦	5,425,708	￦	(3,940,729	)	￦	(263,564	)	￦	1,556,289
Derivatives held for hedging		334,874		—			334,874	￦	(3,940,729	)	￦	(263,564	)	￦	1,556,289
Receivable spot exchange		3,435,657		—			3,435,657		(3,434,222	)		—			1,435
Bonds purchased under repurchase agreements		3,600,447		—			3,600,447		(3,600,447	)		—			—
Domestic exchange settlement debits		37,549,292		(36,823,836	)		725,456		—			—			725,456
Other financial instruments		4,560,879		(4,474,909	)		85,970		—			—			85,970

	￦	54,906,857	￦	(41,298,745	)	￦	13,608,112	￦	(10,975,398	)	￦	(263,564	)	￦	2,369,150

F-103

6.5.2 Details of financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreement as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Gross liabilities		Gross assets offset			Net amounts in the statement of financial position		Non-offsetting amount						Net amount
	Gross liabilities		Gross assets offset			Net amounts in the statement of financial position		Financial instruments			Cash collateral			Net amount
	(In millions of Korean won)
Derivatives held for trading and derivatives linked securities	￦	2,936,638	￦	—		￦	2,936,638	￦	(2,182,243	)	￦	(92,565	)	￦	826,221
Derivatives held for hedging		164,391		—			164,391	￦	(2,182,243	)	￦	(92,565	)	￦	826,221
Payable spot exchange		3,050,982		—			3,050,982		(3,034,679	)		—			16,303
Bonds sold under repurchase agreements*		13,011,121		—			13,011,121		(13,000,321	)		—			10,800
Securities borrowing agreements		2,583,092		—			2,583,092		(2,583,092	)		—			—
Domestic exchange settlement credits		32,867,423		(30,794,160	)		2,073,263		(2,073,263	)		—			—
Other financial instruments		1,156,345		(1,022,977	)		133,368		(2,492	)		—			130,876

	￦	55,769,992	￦	(31,817,137	)	￦	23,952,855	￦	(22,876,090	)	￦	(92,565	)	￦	984,200


	December 31, 2020
	Gross liabilities		Gross assets offset			Net amounts in the statement of financial position		Non-offsetting amount						Net amount
	Gross liabilities		Gross assets offset			Net amounts in the statement of financial position		Financial instruments			Cash collateral			Net amount
	(In millions of Korean won)
Derivatives held for trading and derivatives linked securities	￦	5,300,028	￦	—		￦	5,300,028	￦	(3,365,443	)	￦	(77,324	)	￦	2,066,086
Derivatives held for hedging		208,825		—			208,825	￦	(3,365,443	)	￦	(77,324	)	￦	2,066,086
Payable spot exchange		3,434,887		—			3,434,887		(3,434,222	)		—			665
Bonds sold under repurchase agreements*		16,329,799		(11,800	)		16,317,999		(16,317,999	)		—			—
Securities borrowing agreements		1,934,736		—			1,934,736		(1,934,736	)		—			—
Domestic exchange settlement credits		37,757,164		(36,823,835	)		933,329		(933,329	)		—			—
Other financial instruments		4,764,991		(4,474,909	)		290,082		—			—			290,082

	￦	69,730,430	￦	(41,310,544	)	￦	28,419,886	￦	(25,985,729	)	￦	(77,324	)	￦	2,356,833

*	Includes bonds sold under repurchase agreements to customers.

F-104

7. Due from Financial Institutions Measured at Amortized Cost

7.1 Details of due from financial institutions as of December 31, 2019 and 2020, are as follows:


		Financial institutions	Interest rate (%)		December 31, 2019		December 31, 2020
					(In millions of Korean won)
Due from financial institutions in Korean won	Due from the Bank of Korea	The Bank of Korea		0.00	￦	8,117,840	￦	11,242,803
	Due from banking institutions	Hana Bank and others		0.00 ~ 1.90		4,641,714		3,692,044
	Due from others	NH Investment & Securities Co., Ltd. and others		0.00 ~ 1.63		654,981		753,581

						13,414,535		15,688,428

Due from financial institutions in foreign currencies	Due from banking institutions in foreign currencies	Wells Fargo Bank N.A. and others		0.00 ~ 3.50		2,351,929		4,215,918
	Time deposits in foreign currencies	Bank of Shanghai, Beijing Branch and others		0.00 ~ 7.05		1,053,776		739,637
	Due from others	Societe Generale (Paris) and others		0.00 ~7.70		1,327,432		2,079,371

						4,733,137		7,034,926

					￦	18,147,672	￦	22,723,354

*	Before netting of allowance

7.2 Details of restricted due from financial institutions as of December 31, 2019 and 2020, are as follows:

Financial institutions

December 31,
2019

December 31,
2020

Reasons of restriction

(In millions of Korean won)

Due from financial institutions in Korean won

Due from the Bank of Korea

The Bank of Korea

￦

8,117,840

￦

11,242,803

Bank of Korea Act

Due from banking institutions

Shinhan Bank and others

3,027,963

772,986

Net settlement and others

Due from others

NH Investment & Securities Co., Ltd. and others

555,294

545,457

Derivatives margin account and others

11,701,097

12,561,246

Due from financial institutions in foreign currencies

Due from banking institutions in foreign currencies

People’s Bank of China and others

490,071

1,097,729

Cambodian law and others

Time deposits in foreign currencies

Bank of Communications Co., Ltd. New York Branch

31,443

46,428

Bank Act of the State of New York and others

Due from others

Societe Generale (Paris) and others

1,150,355

1,597,960

Derivatives margin account and others

1,671,869

2,742,117

￦ 13,372,966

￦15,303,363

*	Before netting of allowance

F-105

7.3 Changes in allowances for credit losses of due from financial institutions for the years ended December 31, 2019 and 2020, are as follows:


	2019
	12-month expected credit losses		Lifetime expected credit losses
	12-month expected credit losses		Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	2,019	￦	—		￦	—
Transfer between stages
Transfer to 12-month expected credit losses		—		—			—
Transfer to lifetime expected credit losses		—		—			—
Impairment		—		—			—
Disposal		—		—			—
Provision for credit losses		1,116		1,210			360
Others		29		(22	)		—

Ending	￦	3,164	￦	1,188		￦	360


	2020
	12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	3,164		￦	1,188		￦	360
Transfer between stages
Transfer to 12-month expected credit losses		—			—			—
Transfer to lifetime expected credit losses		—			—			—
Impairment		—			—			—
Disposal		—			—			—
Reversal of credit losses		(416	)		(1,128	)		—
Business combination		154			—			—
Others		45			(26	)		(78	)

Ending	￦	2,947		￦	34		￦	282

F-106

8. Assets Pledged as Collateral

8.1 Details of assets pledged as collateral as of December 31, 2019 and 2020, are as follows:


		December 31, 2019
Assets pledged	Pledgee	Carrying amount		Reasons of pledge
		(In millions of Korean won)
Due from financial institutions	Korea Federation of Savings Banks and others	￦	3,752,497	Borrowings from bank and others
Financial assets at fair value through profit or loss	The Korea Securities Depository and others		7,561,287	Repurchase agreements
	The Korea Securities Depository and others		7,745,154	Securities borrowing transactions
	Samsung Futures Inc. and others		1,090,495	Derivatives transactions

			16,396,936

Financial assets at fair value through other comprehensive income	The Korea Securities Depository and others		1,139,852	Repurchase agreements
	The Korea Securities Depository and others		1,168,515	Securities borrowing transactions
	The Bank of Korea		1,212,021	Borrowings from the Bank of Korea
	The Bank of Korea		653,825	Settlement risk of the Bank of Korea
	Samsung Futures Inc. and others		167,600	Derivatives transactions

			4,341,813

Securities measured at amortized cost	The Korea Securities Depository and others		581,268	Repurchase agreements
	The Bank of Korea		1,767,559	Borrowings from the Bank of Korea
	The Bank of Korea		3,077,151	Settlement risk of the Bank of Korea
	Samsung Futures Inc. and others		247,301	Derivatives transactions
	Others		494,785	Others

			6,168,064

Mortgage loans	Others		6,487,022	Covered bond

Real estate	NATIXIS REAL ESTATE CAPITAL LLC and others		1,665,368	Borrowings from bank and others

		￦	38,811,700

F-107


		December 31, 2020
Assets pledged	Pledgee	Carrying amount		Reasons of pledge
		(In millions of Korean won)
Due from financial institutions	Korea Federation of Savings Banks and others	￦	1,293,930	Borrowings from bank and others
Financial assets at fair value through profit or loss	The Korea Securities Depository and others		10,733,047	Repurchase agreements
	The Korea Securities Depository and others		7,009,580	Securities borrowing transactions
	Samsung Futures Inc. and others		730,774	Derivatives transactions

			18,473,401

Financial assets at fair value through other comprehensive income	The Korea Securities Depository and others		2,216,165	Repurchase agreements
	The Korea Securities Depository and others		1,322,998	Securities borrowing transactions
	The Bank of Korea		2,837,452	Borrowings from the Bank of Korea
	The Bank of Korea		1,610,691	Settlement risk of the Bank of Korea
	Samsung Futures Inc. and others		270,089	Derivatives transactions

			8,257,395

Securities measured at amortized cost	The Korea Securities Depository and others		664,438	Repurchase agreements
	The Bank of Korea		4,295,149	Borrowings from the Bank of Korea
	The Bank of Korea		3,677,922	Settlement risk of the Bank of Korea
	Samsung Futures Inc. and others		103,748	Derivatives transactions
	Others		598,187	Others

			9,339,444

Mortgage loans	Others		10,699,721	Covered bond

Real estate	LGIM COMMERCIAL LENDING Ltd and others		1,480,942	Borrowings from bank and others

		￦	49,544,833

In addition, the Group provided ￦ 7,320,220 million and ￦ 4,680,816 million of its borrowed securities and assets held as collateral to Korea Securities Finance Corporation and others as collateral as of December 31, 2019 and 2020, respectively.

F-108

8.2 Fair value of collateral available to sell or repledge, and collateral sold or repledged, regardless of debtor’s default as of December 31, 2019 and 2020, are as follows:

December 31, 2019

Fair value of collateral
held

Fair value of collateral
sold or repledged

Total

(In millions of Korean won)

Securities

￦

6,726,632

￦

—

￦

6,726,632

December 31, 2020

Fair value of collateral
held

Fair value of collateral
sold or repledged

Total

(In millions of Korean won)

Securities

￦

3,732,013

￦

—

￦

3,732,013

9. Derivative Financial Instruments and Hedge Accounting

The Group’s derivative operations focus on addressing the needs of the Group’s corporate clients to hedge their risk exposure and hedging the Group’s risk exposure that results from such client contracts. The Group also engages in derivative trading activities to hedge the interest rate and foreign currency risk exposures that arise from the Group’s own assets and liabilities. In addition, the Group engages in proprietary trading of derivatives within the Group’s regulated open position limits.

The Group provides and trades a range of derivatives products, including:

•

Interest rate swaps, relating to interest rate risks in Korean won

•

Cross-currency swaps, forwards and options relating to foreign exchange rate risks,

•

Stock price index options linked with the KOSPI index

In particular, the Group applies fair value hedge accounting using interest rate swaps, currency forwards and others to hedge the risk of changes in fair values due to the changes in interest rate and foreign exchange rates of structured debentures in Korean won, debentures in foreign currencies, and structured deposits in foreign currencies. The Group applies cash flow hedge accounting using interest rate swaps, currency swaps and others to hedge the risk of changes in cash flows of floating rate debt securities in Korean won and borrowings in foreign currencies. In addition, the Group applies net investment in foreign operations hedge accounting by designating debentures in foreign currencies and cross currency forwards as hedging instruments to hedge foreign exchange risks on net investments in foreign operations.

F-109

9.1 Details of derivative financial instruments held for trading as of December 31, 2019 and 2020, are as follows:


	December 31, 2019						December 31, 2020
	Notional amount		Assets		Liabilities		Notional amount		Assets		Liabilities
	(In millions of Korean won)
Interest rate
Forwards	￦	570,000	￦	206	￦	84,126	￦	1,824,000	￦	50,580	￦	107,218
Futures*		2,951,770		698		235		4,540,235		43		1,834
Swaps		270,091,778		512,145		557,511		300,105,350		631,917		682,401
Options		17,521,156		267,697		379,262		14,779,000		248,437		302,134

		291,134,704		780,746		1,021,134		321,248,585		930,977		1,093,587

Currency
Forwards		87,373,417		942,632		750,380		78,255,991		1,712,560		1,986,239
Futures*		107,793		—		349		376,281		158		695
Swaps		46,501,399		606,464		610,275		49,756,478		1,897,636		1,349,919
Options		2,789,562		5,438		14,346		2,377,775		33,421		28,012

		136,772,171		1,554,534		1,375,350		130,766,525		3,643,775		3,364,865

Stock and index
Futures*		1,646,785		22,451		20,704		1,027,347		20,061		2,246
Swaps		6,773,467		448,803		86,100		5,434,057		423,297		123,242
Options		5,559,865		99,013		176,141		6,482,510		135,805		275,282

		13,980,117		570,267		282,945		12,943,914		579,163		400,770

Credit
Swaps		4,433,960		19,178		13,659		3,015,782		19,395		9,700

		4,433,960		19,178		13,659		3,015,782		19,395		9,700

Commodity
Futures*		3,281		68		3		11,609		151		81
Swaps		105,658		2,948		474		13,923		268		991

		108,939		3,016		477		25,532		419		1,072

Other		3,160,013		80,857		149,385		1,476,310		36,783		144,076

	￦	449,589,904	￦	3,008,598	￦	2,842,950	￦	469,476,648	￦	5,210,512	￦	5,014,070

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

F-110

9.2 Average price condition of future nominal cash flows by type of hedge accounting as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	1 year		2 years		3 years		4 years		5 years		Over 5 years		Total
	(In millions of Korean won)
Fair value hedge
Nominal amount of the hedging instrument	￦	2,649,272	￦	1,807,950	￦	897,562	￦	309,882	￦	466,053	￦	1,414,570	￦	7,545,289
Average price condition (%)		2.29		2.70		2.29		3.16		2.50		3.92		2.91
Average price condition (USD/KRW)		1,149.90		1,138.82		1,094.35		—		—		—		1,146.84
Average price condition (EUR/KRW)		1,319.66		1,346.38		—		—		—		—		1,327.68
Average price condition (AUD/KRW)		803.71		—		—		—		—		—		803.71
Cash flow hedge
Nominal amount of the hedging instrument	￦	2,450,918	￦	1,199,124	￦	1,764,991	￦	529,202	￦	120,000	￦	150,000	￦	6,214,235
Average price condition (%)		2.64		2.56		2.66		2.79		2.00		1.67		2.59
Average price condition (USD/KRW)		1,129.58		1,111.66		1,153.15		1,095.73		—		—		1,132.99
Average price condition (EUR/KRW)		1,305.22		1,306.76		1,312.75		—		—		—		1,306.91
Average price condition (AUD/KRW)		—		837.00		—		—		—		—		837.00
Average price condition (SGD/KRW)		815.80		831.49		—		—		—		—		823.54
Hedge of net investments in foreign operations
Nominal amount of the hedging instrument	￦	248,233	￦	—	￦	27,336	￦	—	￦	—	￦	—	￦	275,569
Average price condition (USD/KRW)		1,151.49		—		—		—		—		—		1,151.49
Average price condition (GBP/KRW)		—		—		1,465.26		—		—		—		1,465.26

F-111


	December 31, 2020
	1 year		2 years		3 years		4 years		5 years		Over 5 years		Total
	(In millions of Korean won)
Fair value hedge
Nominal amount of the hedging instrument	￦	5,266,994	￦	1,083,877	￦	512,608	￦	620,788	￦	1,462,964	￦	2,442,692	￦	11,389,923
Average price condition (%)		0.76		0.81		1.00		1.07		1.21		1.14		0.97
Average price condition (USD/KRW)		1,160.33		1,115.45		1,151.50		—		—		—		1,157.28
Average price condition (EUR/KRW)		1,353.28		—		1,366.30		—		—		—		1,353.36
Average price condition (AUD/KRW)		835.43		—		—		—		—		—		835.43
Average price condition (GBP/KRW)		1,546.54		—		—		—		—		—		1,546.54
Cash flow hedge
Nominal amount of the hedging instrument	￦	2,568,922	￦	1,767,357	￦	1,277,053	￦	166,643	￦	509,940	￦	100,000	￦	6,389,915
Average price condition (%)		0.83		1.66		2.48		2.00		1.63		1.67		1.36
Average price condition (USD/KRW)		1,113.33		1,160.46		1,181.36		1,128.30		1,142.05		—		1,152.37
Average price condition (EUR/KRW)		1,306.76		1,312.75		1,321.00		—		1,340.64		—		1,312.93
Average price condition (AUD/KRW)		837.00		—		—		—		—		—		837.00
Average price condition (SGD/KRW)		831.49		—		866.14		—		—		—		858.33
Hedge of net investments in foreign operations
Nominal amount of the hedging instrument	￦	217,274	￦	26,683	￦	—	￦	—	￦	—	￦	—	￦	243,957
Average price condition (USD/KRW)		1,111.45		—		—		—		—		—		1,111.45
Average price condition (GBP/KRW)		—		1,465.26		—		—		—		—		1,465.26

F-112

9.3 Fair Value Hedge

9.3.1 Details of fair value hedged items as of and for the years ended December 31, 2019 and 2020, are as follows:


		December 31, 2019									2019
		Carrying amount				Accumulated amount of hedge adjustments					Changes in fair value
		Assets		Liabilities		Assets		Liabilities			Changes in fair value
		(In millions of Korean won)
Hedge accounting
Interest rate	Debt securities in Korean won	￦	549,526	￦	—	￦	5,485	￦	—		￦	5,502
	Debt securities in foreign currencies		1,670,838		—		19,243		—			25,540
	Deposits in foreign currencies		—		780,491		—		(18,391	)		(62,439	)
	Debentures in Korean won		—		351,070		—		21,070			(1,818	)
	Debentures in foreign currencies		—		2,067,556		—		41,406			(65,480	)

			2,220,364		3,199,117		24,728		44,085			(98,695	)

Currency	Debt securities in foreign currencies		2,339,239		—		24,181		—			61,133

			2,339,239		—		24,181		—			61,133

		￦	4,559,603	￦	3,199,117	￦	48,909	￦	44,085		￦	(37,562	)


		December 31, 2020									2020
		Carrying amount				Accumulated amount of hedge adjustments					Changes in fair value
		Assets		Liabilities		Assets		Liabilities			Changes in fair value
		(In millions of Korean won)
Hedge accounting
Interest rate	Debt securities in Korean won	￦	1,001,957	￦	—	￦	5,888	￦	—		￦	402
	Debt securities in foreign currencies		2,712,980		—		62,922		—			42,382
	Deposits in foreign currencies		—		121,768		—		2,088			(4,491	)
	Debentures in Korean won		—		3,623,161		—		(6,839	)		27,909
	Debentures in foreign currencies		—		1,985,333		—		81,333			(37,438	)

			3,714,937		5,730,262		68,810		76,582			28,764

Currency	Debt securities in foreign currencies		2,669,410		—		310,745		—			(40,710	)

			2,669,410		—		310,745		—			(40,710	)

		￦	6,384,347	￦	5,730,262	￦	379,555	￦	76,582		￦	(11,946	)

F-113

9.3.2 Details of derivative instruments designated as fair value hedge as of and for the years ended December 31, 2019 and 2020, are as follows:

December 31, 2019

2019

Notional amount

Assets

Liabilities

Changes in
fair value

(In millions of Korean won)

Interest rate

Swaps

￦

5,326,500

￦

129,085

￦

29,676

￦

101,448

Currency

Forwards

2,218,789

22,503

27,862

(74,372)

￦

7,545,289

￦

151,588

￦

57,538

￦

27,076


	December 31, 2020						2020
	Notional amount		Assets		Liabilities		Changes in fair value
	(In millions of Korean won)
Interest rate
Swaps	￦	9,217,731	￦	158,914	￦	51,842	￦	(23,022	)
Currency
Forwards		2,172,192		128,038		2,616		97,394

	￦	11,389,923	￦	286,952	￦	54,458	￦	74,372

9.3.3 Details of hedge ineffectiveness recognized in profit or loss from derivatives for the years ended December 31, 2018, 2019 and 2020, are as follows:


	Hedge ineffectiveness recognized in profit or loss
	(In millions of Korean won)
	2018			2019			2020
Hedge accounting
Interest rate	￦	1,186		￦	2,753		￦	5,742
Currency		(20,694	)		(13,239	)		56,684

	￦	(19,508	)	￦	(10,486	)	￦	62,426

9.3.4 Gains or losses from fair value hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Gains (losses) on hedging instruments	￦	(160,416	)	￦	34,070		￦	89,179
Gains (losses) on the hedged items attributable to the hedged risk		135,556			(44,655	)		(26,899	)

	￦	(24,860	)	￦	(10,585	)	￦	62,280

F-114

9.4 Cash Flow Hedge

9.4.1 Details of cash flow hedged items as of and for the years ended December 31, 2019 and 2020, are as follows:


	Cash flow hedge reserve						Changes in fair value
	December 31, 2019			December 31, 2020			2019		2020
	(In millions of Korean won)
Hedge accounting
Interest rate risk	￦	(15,670	)	￦	(22,439	)	￦	25,671	￦	12,172
Foreign currency change risk		(11,663	)		(6,158	)		42,357		1,065

	￦	(27,333	)	￦	(28,597	)	￦	68,028	￦	13,237

9.4.2 Details of derivative instruments designated as cash flow hedge as of and for the years ended December 31, 2019 and 2020, are as follows:


	December 31, 2019						2019
	Notional amount		Assets		Liabilities		Changes in fair value
	(In millions of Korean won)
Interest rate
Swaps	￦	3,600,334	￦	3,698	￦	28,484	￦	(25,997	)
Currency
Swaps		2,613,901		23,382		73,067		(38,534	)

	￦	6,214,235	￦	27,080	￦	101,551	￦	(64,531	)


	December 31, 2020						2020
	Notional amount		Assets		Liabilities		Changes in fair value
	(In millions of Korean won)
Interest rate
Swaps	￦	3,532,480	￦	1,286	￦	37,120	￦	(11,940	)
Currency
Swaps		2,857,435		40,835		116,124		(43,300	)

	￦	6,389,915	￦	42,121	￦	153,244	￦	(55,240	)

9.4.3 Gains or losses from cash flow hedging instruments and hedged items attributable to the hedged risk for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Losses on hedging instruments	￦	(23,022)		￦	(64,531)		￦	(55,240)
Effective portion of losses on cash flow hedging instruments (amount recognized in other comprehensive income)		(24,672	)		(65,323	)		(48,034	)
Ineffective portion of losses on cash flow hedging instruments (amount recognized in profit or loss)		1,650			792			(7,206	)

F-115

9.4.4 Amounts recognized in other comprehensive income (loss) and reclassified from equity to profit or loss for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Other comprehensive loss	￦	(24,672	)	￦	(65,323	)	￦	(48,034	)
Reclassification to profit or loss		15,234			21,604			39,190
Income tax effect		400			10,537			7,580

	￦	(9,038	)	￦	(33,182	)	￦	(1,264	)

9.5 Hedge of Net Investments in Foreign Operations

9.5.1 Details of net investments in foreign operations hedged items as of and for the years ended December 31, 2019 and 2020, are as follows:

Foreign currency
translation reserve

Changes in fair value

December 31,
2019

December 31,
2020

2019

2020

(In millions of Korean won)

Hedge accounting

Currency (foreign currency exchange risk)

￦

(41,992

)

￦

22,278

￦

13,410

￦

(88,769

)

9.5.2 Details of financial instruments designated as hedge of net investments in foreign operations as of and for the years ended December 31, 2019 and 2020, are as follows:


	December 31, 2019						2019
	Notional Amount		Assets		Liabilities		Changes in fair value
	(In millions of Korean won)
Currency
Forwards	￦	275,569	￦	3,407	￦	5,302	￦	(10,330	)
Debentures in foreign currencies		97,255		—		97,255		(3,080	)

	￦	372,824	￦	3,407	￦	102,557	￦	(13,410	)


	December 31, 2020						2020
	Notional amount		Assets		Liabilities		Changes in fair value
	(In millions of Korean won)
Currency
Forwards	￦	243,957	￦	5,800	￦	1,125	￦	14,406
Debentures in foreign currencies		842,112		—		842,112		74,363

	￦	1,086,069	￦	5,800	￦	843,237	￦	88,769

9.5.3 Fair value of non-derivative financial instruments designated as hedge of net investments in foreign operations as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Debentures in foreign currencies	￦	97,737	￦	852,570

F-116

9.5.4 Gains or losses from hedging instruments in hedge of net investments in foreign operations and hedged items attributable to the hedged risk for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Gains (losses) on hedging instruments	￦	(25,096	)	￦	(13,410	)	￦	88,769
Effective portion of gains (losses) on hedge of net investments in foreign operations (amount recognized in other comprehensive income)		(25,096	)		(13,410	)		88,769
Ineffective portion of gains (losses) on hedge of net investments in foreign operations (amount recognized in profit or loss)		—			—			—

9.5.5 Effective portion of gains or losses on hedging instruments recognized in other comprehensive income for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Other comprehensive income (loss)	￦	(25,096	)	￦	(13,410	)	￦	88,769
Reclassification to profit or loss		(12,330	)		1,316			—
Income tax effect		10,292			3,194			(24,500	)

Other comprehensive income (loss) after tax	￦	(27,134	)	￦	(8,900	)	￦	64,269

9.6 Interest Rate Benchmark Reform

The Group’s exposure to hedging relationships related to the interest rate benchmark reform as of December 31, 2020, is as follows. The USD LIBOR interest rate will be replaced by the Secured Overnight Financing Rate (“SOFR”) based on actual transactions starting in 2022 and the KRW CD rate is currently under consideration for improving the calculation methodology. In this hedging relationship, the Group assumed that the spread to be changed on a SOFR basis in 2022 would be similar to that included in the interest rate swap used as a hedging instrument, and no other changes were assumed.


	December 31, 2020
Interest rate benchmark	Currency		Carrying amount of non-derivative assets		Carrying amount of non-derivative liabilities		Notional amount of hedging instruments
	(In millions of Korean won and millions of US dollars)
CD#3M		KRW		1,807,701		3,623,161		5,430,000
USD#LIBOR#3M		USD		78,083		3,276		82,907
USD#LIBOR#6M		USD		213		10		206

10. Loans Measured at Amortized Cost

10.1 Details of loans as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Loans measured at amortized cost	￦	341,363,805		￦	379,734,020
Deferred loan origination fees and costs		728,270			716,327
Less: Allowances for credit losses		(2,408,016	)		(3,283,363	)

Carrying amount	￦	339,684,059		￦	377,166,984

F-117

10.2 Details of loans to banks as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Loans measured at amortized cost	￦	4,011,246		￦	5,577,728
Less: Allowances for credit losses		(432	)		(682	)

Carrying amount	￦	4,010,814		￦	5,577,046

10.3 Details of loan types and customer types of loans to customers other than banks as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Retail			Corporate			Credit card			Total
	(In millions of Korean won)
Loans in Korean won	￦	159,232,495		￦	130,383,260		￦	—		￦	289,615,755
Loans in foreign currencies		433,399			8,125,029			—			8,558,428
Domestic import usance bills		—			2,617,862			—			2,617,862
Off-shore funding loans		—			1,387,798			—			1,387,798
Call loans		—			610,001			—			610,001
Bills bought in Korean won		—			2,843			—			2,843
Bills bought in foreign currencies		—			2,158,877			—			2,158,877
Guarantee payments under acceptances and guarantees		36			3,312			—			3,348
Credit card receivables in Korean won		—			—			18,642,111			18,642,111
Credit card receivables in foreign currencies		—			—			6,299			6,299
Bonds purchased under repurchase agreements		—			6,149,458			—			6,149,458
Privately placed bonds		—			971,414			—			971,414
Factored receivables		117			167			—			284
Lease receivables		1,385,617			194,576			—			1,580,193
Loans for installment credit		5,737,458			38,700			—			5,776,158

		166,789,122			152,643,297			18,648,410			338,080,829

Proportion (%)		49.33			45.15			5.52			100.00
Less: Allowances for credit losses		(711,322	)		(956,554	)		(739,708	)		(2,407,584	)

	￦	166,077,800		￦	151,686,743		￦	17,908,702		￦	335,673,245

F-118


	December 31, 2020
	Retail			Corporate			Credit card			Total
	(In millions of Korean won)
Loans in Korean won	￦	175,062,187		￦	142,812,751		￦	—		￦	317,874,938
Loans in foreign currencies		3,092,630			16,159,722			—			19,252,352
Domestic import usance bills		—			2,152,059			—			2,152,059
Off-shore funding loans		—			1,203,737			—			1,203,737
Call loans		—			1,582,251			—			1,582,251
Bills bought in Korean won		—			1,620			—			1,620
Bills bought in foreign currencies		—			1,739,262			—			1,739,262
Guarantee payments under acceptances and guarantees		10			8,011			—			8,021
Credit card receivables in Korean won		—			—			18,734,560			18,734,560
Credit card receivables in foreign currencies		—			—			63,071			63,071
Bonds purchased under repurchase agreements		—			3,175,080			—			3,175,080
Privately placed bonds		—			1,154,162			—			1,154,162
Factored receivables		104			3			—			107
Lease receivables		1,105,001			335,582			—			1,440,583
Loans for installment credit		6,440,521			50,295			—			6,490,816

		185,700,453			170,374,535			18,797,631			374,872,619

Proportion (%)		49.54			45.45			5.01			100.00
Less: Allowances for credit losses		(910,088	)		(1,671,098	)		(701,495	)		(3,282,681	)

	￦	184,790,365		￦	168,703,437		￦	18,096,136		￦	371,589,938

10.4 Changes in deferred loan origination fees and costs for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Increase		Decrease			Others			Ending
	(In millions of Korean won)
Deferred loan origination costs
Loans in Korean won	￦	664,237	￦	387,420	￦	(406,352	)	￦	—		￦	645,305
Others		119,780		56,030		(79,432	)		—			96,378

		784,017		443,450		(485,784	)		—			741,683

Deferred loan origination fees
Loans in Korean won		9,055		7,238		(7,693	)		—			8,600
Others		21,836		3,415		(20,439	)		1			4,813

		30,891		10,653		(28,132	)		1			13,413

	￦	753,126	￦	432,797	￦	(457,652	)	￦	(1	)	￦	728,270

F-119


	2020
	Beginning		Increase		Decrease			Business combination			Others			Ending
	(In millions of Korean won)
Deferred loan origination costs
Loans in Korean won	￦	645,305	￦	502,044	￦	(473,392	)	￦	—		￦	—		￦	673,957
Others ¹		96,378		53,345		(63,509	)		9,376			—			95,590

		741,683		555,389		(536,901	)		9,376			—			769,547

Deferred loan origination fees
Loans in Korean won		8,600		6,681		(6,133	)		—			—			9,148
Others ²		4,813		21,636		(26,396	)		48,117			(4,098	)		44,072

		13,413		28,317		(32,529	)		48,117			(4,098	)		53,220

	￦	728,270	￦	527,072	￦	(504,372	)	￦	(38,741	)	￦	4,098		￦	716,327

¹	Includes deferred loan origination costs to credit card receivables, loans for installment credit and financial lease receivables.

²	Includes deferred loan origination fees to loans in foreign currencies from PT Bank Bukopin TBK and PRASAC Microfinance Institution Limited.

F-120

11. Allowances for Credit Losses

11.1 Changes in allowances for credit losses of loans measured at amortized cost for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Retail									Corporate									Credit card
	12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non-impaired			Impaired			12-month expected credit losses			Non-impaired			Impaired			12-month expected credit losses			Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	237,440		￦	215,743		￦	189,714		￦	214,312		￦	318,656		￦	722,875		￦	180,467		￦	290,025		￦	240,449
Transfer between stages
Transfer to 12-month expected credit losses		168,460			(167,957	)		(503	)		59,848			(46,312	)		(13,536	)		51,542			(50,627	)		(915	)
Transfer to lifetime expected credit losses		(144,590	)		160,509			(15,919	)		(53,696	)		141,398			(87,702	)		(23,537	)		24,529			(992	)
Impairment		(1,619	)		(54,736	)		56,355			(2,250	)		(36,656	)		38,906			(2,388	)		(14,377	)		16,765
Write-offs		(2	)		24			(443,034	)		—			2			(239,319	)		—			—			(506,255	)
Sales		(486	)		(70	)		(782	)		—			—			(8,909	)		—			—			—
Provision (reversal) for credit losses ^1,2		19,152			71,231			424,758			(3,540	)		(89,234	)		80,216			3,567			16,633			524,652
Others (exchange differences, etc.)		25			161			(2,552	)		395			2,456			(40,924	)		—			—			(9,830	)

Ending	￦	278,380		￦	224,905		￦	208,037		￦	215,069		￦	290,310		￦	451,607		￦	209,651		￦	266,183		￦	263,874

F-121


	2020
	Retail									Corporate									Credit card
	12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non-impaired			Impaired			12-month expected credit losses			Non-impaired			Impaired			12-month expected credit losses			Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	278,380		￦	224,905		￦	208,037		￦	215,069		￦	290,310		￦	451,607		￦	209,651		￦	266,183		￦	263,874
Transfer between stages
Transfer to 12-month expected credit losses		123,666			(121,970	)		(1,696	)		119,723			(111,708	)		(8,015	)		48,959			(47,611	)		(1,348	)
Transfer to lifetime expected credit losses		(91,410	)		182,076			(90,666	)		(56,655	)		146,690			(90,035	)		(25,227	)		26,379			(1,152	)
Impairment		(3,301	)		(131,852	)		135,153			(3,365	)		(48,773	)		52,138			(2,273	)		(13,657	)		15,930
Write-offs		—			(5	)		(460,734	)		—			(1	)		(321,583	)		—			—			(502,275	)
Sales		(1,561	)		(99	)		(1,131	)		(8	)		—			(21,069	)		—			—			—
Provision (reversal) for credit losses ^1,2,3		49,459			78,413			428,220			(2,059	)		113,335			180,162			(26,042	)		2,925			496,162
Business combination		50,664			9,545			53,532			99,824			24,303			668,426			89			—			4,409
Others (exchange differences, etc.)		(2,092	)		(435	)		(5,010	)		(3,747	)		(3,219	)		(19,570	)		—			—			(13,481	)

Ending	￦	403,805		￦	240,578		￦	265,705		￦	368,782		￦	410,937		￦	892,061		￦	205,157		￦	234,219		￦	262,119

Provision for credit losses in the consolidated statements of comprehensive income also include provision (reversal) for credit losses of due from financial institutions (Note 7.3), and provision (reversal) for credit losses of financial investments (Note 12.5), provision for credit losses of unused commitments and guarantees (Note 24.2), provision (reversal) for credit losses of financial guarantees contracts (Note 24.3), and provision (reversal) for credit losses of other financial assets (Note 19.2).

²	Includes ￦ 390,041 million and ￦ 379,179 million of collections from written-off loans for the years ended December 31, 2019 and 2020, respectively.

Includes additional provision of ￦ 43,777 million for industries and borrowers which are highly affected by COVID-19, ￦ 29,861 million due to expanding the scope of the loans subject to lifetime expected credit losses (non-impaired) and ￦ 23,325 million due to expanding the scope of the loans subject to individual assessment for the year ended December 31, 2020.

The Group manages the written-off loans that their legal extinctive prescriptions have not been completed, and that have not been collected; the balances of those loans are ￦ 11,264,785 million and ￦ 10,566,603 million as of December 31, 2019 and 2020, respectively.

F-122

11.2 Changes in gross carrying amount of loans for the years ended December 31, 2019 and 2020, are as follows:


	2019
	12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	293,296,370		￦	26,417,165		￦	2,097,749
Transfer between stages
Transfer to 12-month expected credit losses		54,530,173			(54,412,664	)		(117,509	)
Transfer to lifetime expected credit losses (non-impaired)		(57,514,696	)		58,078,679			(563,983	)
Transfer to lifetime expected credit losses (impaired)		(564,375	)		(1,792,641	)		2,357,016
Write-offs		(2	)		26			(1,188,608	)
Sales		(889,880	)		(18,163	)		(188,080	)
Net increase (decrease) (execution, repayment and others)		27,519,419			(4,458,294	)		(495,627	)

Ending	￦	316,377,009		￦	23,814,108		￦	1,900,958


	2020
	12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	316,377,009		￦	23,814,108		￦	1,900,958
Transfer between stages
Transfer to 12-month expected credit losses		26,751,021			(26,629,210	)		(121,811	)
Transfer to lifetime expected credit losses (non-impaired)		(33,475,491	)		34,603,648			(1,128,157	)
Transfer to lifetime expected credit losses (impaired)		(596,861	)		(2,287,196	)		2,884,057
Write-offs		—			(6	)		(1,284,592	)
Sales		(4,324,146	)		(20,907	)		(200,182	)
Business combination		7,029,580			570,710			1,711,823
Net increase (decrease) (execution, repayment and others)		36,757,668			(1,546,945	)		(334,731	)

Ending	￦	348,518,780		￦	28,504,202		￦	3,427,365

F-123

12. Financial Assets at Fair Value through Profit or Loss and Financial Investments

12.1 Details of financial assets at fair value through profit or loss and financial investments as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Financial assets at fair value through profit or loss
Debt securities:
Government and public bonds	￦	6,569,472		￦	9,315,317
Financial bonds		16,360,495			17,897,348
Corporate bonds		3,218,480			3,997,753
Asset-backed securities		124,898			236,130
Beneficiary certificates		12,375,326			14,200,802
Derivatives linked securities		3,623,648			2,218,502
Other debt securities		8,449,207			10,549,248
Equity securities:
Stocks		1,716,149			1,632,619
Other equity securities		387,694			459,694
Loans:
Privately placed bonds		265,499			212,021
Other loans		162,046			125,962
Due from financial institutions:
Other due from financial institutions		216,367			100,094
Others		79,805			89,965

	￦	53,549,086		￦	61,035,455

Financial Investments
Financial assets at fair value through other comprehensive income
Debt securities:
Government and public bonds	￦	9,501,642		￦	14,735,340
Financial bonds		20,913,361			23,194,387
Corporate bonds		12,289,820			18,721,327
Asset-backed securities		832,160			1,795,840
Other debt securities		19,865			9,995
Equity securities:
Stocks		2,377,994			2,852,158
Equity investments		41,042			37,602
Other equity securities		85,069			185,139
Loans:
Privately placed bonds		375,098			265,426
Other loans		—			27,983

		46,436,051			61,825,197

Financial assets at amortized cost
Debt securities:
Government and public bonds		5,395,720			17,193,289
Financial bonds		8,157,428			5,678,949
Corporate bonds		7,536,805			8,181,961
Asset-backed securities		4,258,274			5,788,587
Other debt securities		—			30,392
Allowances for credit losses		(1,672	)		(2,949	)

		25,346,555			36,870,229

	￦	71,782,606		￦	98,695,426

F-124

12.2 Dividend income from equity securities designated at fair value through other comprehensive income for the years ended December 31, 2019 and 2020, are as follows:


		2019				2020
		From the financial assets derecognized		From the remaining financial assets		From the financial assets derecognized		From the remaining financial assets
		(In millions of Korean won)
Equity securities measured at fair value through other comprehensive income
Stocks	Listed	￦	—	￦	26,121	￦	7,000	￦	11,843
Stocks	Unlisted		—		25,599		—		22,241
Equity investments			—		95		—		285
Other equity securities			—		2,953		—		3,755

		￦	—	￦	54,768	￦	7,000	￦	38,124

12.3 Derecognized equity securities measured at fair value through other comprehensive income for the years ended December 31, 2019 and 2020, are as follows:


		2019					2020
		Disposal price		Accumulated other comprehensive income as of disposal date			Disposal price		Accumulated other comprehensive income as of disposal date
		(In millions of Korean won)
Equity securities measured at fair value through other comprehensive income
Stocks	Listed	￦	18,342	￦	(25,652	)	￦	516,883	￦	326,394
Stocks	Unlisted		1,671		169			13		13
Equity investments			—		—			3		3

		￦	20,013	￦	(25,483	)	￦	516,899	￦	326,410

12.4 Provision (reversal) for credit losses of financial investments for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018
	Provision		Reversal			Total
	(In millions of Korean won)
Securities measured at fair value through other comprehensive income	￦	860	￦	(873	)	￦	(13	)
Loans measured at fair value through other comprehensive income		963		(826	)		137
Securities measured at amortized cost		296		(282	)		14

	￦	2,119	￦	(1,981	)	￦	138


	2019
	Provision		Reversal			Total
	(In millions of Korean won)
Securities measured at fair value through other comprehensive income	￦	1,537	￦	(1,144	)	￦	393
Loans measured at fair value through other comprehensive income		170		(982	)		(812	)
Securities measured at amortized cost		216		(280	)		(64	)

	￦	1,923	￦	(2,406	)	￦	(483	)

F-125


	2020
	Provision		Reversal			Total
	(In millions of Korean won)
Securities measured at fair value through other comprehensive income	￦	4,297	￦	(229	)	￦	4,068
Loans measured at fair value through other comprehensive income		202		(316	)		(114	)
Securities measured at amortized cost		1,916		(636	)		1,280

	￦	6,415	￦	(1,181	)	￦	5,234

12.5 Changes in allowances for credit losses of financial investments for the years ended December 31, 2019 and 2020, are as follows:


	2019
	12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non-impaired			Impaired
	(In millions of Korean won)
Beginning	￦	5,657		￦	192		￦	322
Transfer between stages
Transfer to 12-month expected credit losses		437			(188	)		(249	)
Transfer to lifetime expected credit losses		(669	)		669			—
Sales		(329	)		—			—
Provision (reversal) for credit losses		219			(702	)		—
Others		55			29			(73	)

Ending	￦	5,370		￦	—		￦	—


	2020
	12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non-impaired		Impaired
	(In millions of Korean won)
Beginning	￦	5,370		￦	—	￦	—
Transfer between stages
Transfer to 12-month expected credit losses		—			—		—
Transfer to lifetime expected credit losses		—			—		—
Sales		(589	)		—		—
Provision for credit losses		5,195			39		—
Others		(68	)		—		73

Ending	￦	9,908		￦	39	￦	73

F-126

13. Investments in Associates and Joint Ventures

13.1 Investments in associates and joint ventures as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1 ¹		15.19	￦	1,137	￦	1,705		￦	1,705	Investment finance	Korea
KB GwS Private Securities Investment Trust		26.74		113,880		138,013			136,168	Investment finance	Korea
KB-KDBC Pre-IPO New Technology Business Investment Fund ²		66.66		20,000		18,988			18,988	Investment finance	Korea
KB Star Office Private Real Estate Investment Trust No.1		21.05		20,000		19,839			19,839	Investment finance	Korea
PT Bank Bukopin TBK		22.00		116,422		115,321			121,381	Banking and foreign exchange transaction	Indonesia
Balhae Infrastructure Company ¹		12.61		105,214		101,391			101,391	Investment finance	Korea
Aju Good Technology Venture Fund		38.46		19,998		23,016			23,016	Investment finance	Korea
SY Auto Capital Co., Ltd.		49.00		9,800		17,736			12,725	Installment loan	Korea
Incheon Bridge Co., Ltd. ¹		14.99		9,158		(14,746	)		—	Operation of highways and related facilities	Korea
Big Dipper Co., Ltd.		29.33		440		10			125	Research, consulting and big data	Korea
Paycoms Co., Ltd. ³		11.70		800		17			45	System software publishing	Korea
Food Factory Co., Ltd. ⁴		22.22		1,000		398			1,000	Farm product distribution industry	Korea
KBSP Private Equity Fund No.4 ¹		14.95		6,100		5,904			5,904	Investment finance	Korea
KB Private Equity Fund No.3 ¹		15.69		8,000		7,754			7,754	Investment finance	Korea
Korea Credit Bureau Co., Ltd. ¹		9.00		4,500		5,991			5,991	Credit information	Korea
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		25.00		12,970		13,616			13,616	Investment finance	Korea
Keystone-Hyundai Securities No.1 Private Equity Fund ¹		4.49		1,908		1,625			1,625	Investment finance	Korea
KB Social Impact Investment Fund		30.00		1,500		1,465			1,465	Investment finance	Korea
KB-Solidus Global Healthcare Fund		43.33		42,697		45,021			45,718	Investment finance	Korea
POSCO-KB Shipbuilding Fund		31.25		7,500		6,847			6,847	Investment finance	Korea
KB-TS Technology Venture Private Equity Fund ²		56.00		19,824		19,731			19,731	Investment finance	Korea
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund ²		42.55		21,250		20,504			19,752	Investment finance	Korea
KB-SJ Tourism Venture Fund ¹		18.52		3,000		2,761			2,761	Investment finance	Korea
UNION Media Commerce Fund		28.99		1,000		961			961	Investment	Korea
KB-Stonebridge Secondary Private Equity Fund ¹		14.56		5,215		4,944			4,944	Investment finance	Korea
KB SPROTT Renewable Private Equity Fund No.1		37.69		1,667		1,295			1,295	Investment finance	Korea
KB-UTC Inno-Tech Venture Fund		44.29		450		417			417	Investment finance	Korea
APRO Co., Ltd. ¹		15.19		1,500		2,565			2,790	Manufacture of electric power storage system	Korea
GH Real Estate I LP		42.00		17,678		19,042			19,042	Asset management	Guernsey
Others				2,505		2,243			1,244

			￦	577,113	￦	584,374		￦	598,240

F-127


	December 31, 2020
	Ownership (%)		Acquisition cost		Share of net asset amount			Carrying amount		Industry	Location
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1 ¹		15.19	￦	551	￦	1,279		￦	1,279	Investment finance	Korea
KB GwS Private Securities Investment Trust		26.74		113,880		142,799			141,359	Investment finance	Korea
KB-KDBC Pre-IPO New Technology Business Investment Fund ²		66.66		13,601		16,042			16,042	Investment finance	Korea
KB Star Office Private Real Estate Investment Trust No.1		21.05		20,000		20,413			20,066	Investment finance	Korea
Balhae Infrastructure Company ¹		12.61		106,107		106,624			106,624	Investment finance	Korea
Aju Good Technology Venture Fund		38.46		17,113		21,351			21,348	Investment finance	Korea
SY Auto Capital Co., Ltd.		49.00		9,800		18,713			16,144	Installment loan	Korea
Incheon Bridge Co., Ltd. ¹		14.99		9,158		(18,100	)		—	Operation of highways and related facilities	Korea
Big Dipper Co., Ltd.		25.14		440		(5	)		—	Research, consulting and big data	Korea
Paycoms Co., Ltd. ³		11.70		800		72			198	System software publishing	Korea
Food Factory Co., Ltd. ⁴		22.22		1,000		632			1,281	Farm product distribution industry	Korea
KBSP Private Equity Fund No.4 ¹		14.95		6,100		5,950			5,950	Investment finance	Korea
KB Private Equity Fund No.3 ¹		15.69		—		94			94	Investment finance	Korea
Korea Credit Bureau Co., Ltd. ¹		9.00		4,500		7,153			7,153	Credit information	Korea
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		25.00		9,739		9,845			9,845	Investment finance	Korea
Keystone-Hyundai Securities No.1 Private Equity Fund ¹		4.49		1,908		1,556			1,556	Investment finance	Korea
KB Social Impact Investment Fund		30.00		3,000		2,874			2,874	Investment finance	Korea
KB-Solidus Global Healthcare Fund		43.33		48,677		45,516			46,213	Investment finance	Korea
POSCO-KB Shipbuilding Fund		31.25		10,375		12,895			12,895	Investment finance	Korea
KB-TS Technology Venture Private Equity Fund ²		56.00		16,576		17,630			17,630	Investment finance	Korea
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund ²		42.55		26,050		27,513			26,763	Investment finance	Korea
KB-SJ Tourism Venture Fund ¹		18.52		4,500		4,133			4,133	Investment finance	Korea
UNION Media Commerce Fund		28.99		1,000		960			960	Investment	Korea
KB-Stonebridge Secondary Private Equity Fund ¹		14.56		14,308		16,636			16,636	Investment finance	Korea
KB SPROTT Renewable Private Equity Fund No.1		37.69		5,795		5,049			5,049	Investment finance	Korea
KB-UTC Inno-Tech Venture Fund		44.29		17,416		16,999			16,999	Investment finance	Korea
WJ Private Equity Fund No.1		26.95		10,000		9,711			9,711	Investment finance	Korea
All Together Korea Fund No.2		99.99		10,000		10,023			10,023	Asset management	Korea
KB-NAU Special Situation Corporate Restructuring Private Equity Fund ¹		12.00		5,700		5,611			5,611	Asset management	Korea
JR GLOBAL REIT		26.07		215,854		215,854			215,854	Real estate management	Korea
Project Vanilla Co., Ltd.		49.00		2,450		2,151			2,151	System software publishing	Korea
December & Company Inc. ¹		17.63		24,849		24,402			24,402	System software publishing	Korea
2020 KB Fintech Renaissance Fund ¹		5.05		550		547			547	Investment finance	Korea
KB Material and Parts No.1 PEF ¹		14.47		3,400		3,371			3,371	Investment finance	Korea
FineKB Private Equity Fund No.1		25.00		—		—			—	Investment finance	Korea
Others				2,475		1,004			674

			￦	737,672	￦	757,297		￦	771,435

¹	As of December 31, 2019 and 2020, the Group can exercise significant influence on the decision-making processes of the associate’s financial and business policies through participation in governing bodies.

²	In order to direct relevant activities, it is necessary to obtain the consent of the two co-operative members; the Group has applied the equity method as the Group cannot control the investee by itself.

F-128

³	The ownership of Paycoms Co., Ltd. would be 22.96% and 22.96% as of December 31, 2019 and 2020, respectively, considering the potential voting rights from convertible bond.

⁴	The ownership of Food Factory Co., Ltd. would be 30.00% and 30.00% as of December 31, 2019 and 2020, respectively, considering the potential voting rights from convertible bond.

In accordance with IAS No.28 Investments in Associates and Joint Ventures , the Group has applied exemption of equity method for 28 companies including Rainist Co., Ltd., and recognized them as financial assets at fair value through profit or loss.

Although the Group holds more than 20% of ownership, the entities that the Group has a limited influence on due to the trust agreement on related activities, bankruptcy and rehabilitation procedures have been excluded from the investment in associates by limited influence

13.2 Condensed financial information, adjustments to the carrying amount and dividend from major investments in associates and joint ventures as of December 31, 2019 and 2020, and for the years ended December 31, 2019 and 2020, are as follows:


	December 31, 2019*
	Total assets		Total liabilities		Paid-in capital		Equity			Share of net asset amount			Unrealized gains (losses) and others			Consoli- dated carrying amount
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1	￦	11,237	￦	20	￦	8,690	￦	11,217		￦	1,705		￦	—		￦	1,705
KB GwS Private Securities Investment Trust		522,865		741		425,814		522,124			138,013			(1,845	)		136,168
KB-KDBC Pre-IPO New Technology Business Investment Fund		29,086		603		30,000		28,483			18,988			—			18,988
KB Star Office Private Real Estate Investment Trust No.1		218,611		122,465		95,000		96,146			19,839			—			19,839
PT Bank Bukopin TBK		8,148,013		7,623,829		106,536		524,184			115,321			6,060			121,381
Balhae Infrastructure Company		806,218		1,854		834,695		804,364			101,391			—			101,391
Aju Good Technology Venture Fund		60,675		828		52,000		59,847			23,016			—			23,016
SY Auto Capital Co., Ltd.		88,611		52,415		20,000		36,196			17,736			(5,011	)		12,725
Incheon Bridge Co., Ltd.		609,194		707,563		61,096		(98,369	)		(14,746	)		14,746			—
Big Dipper Co., Ltd.		370		336		1,500		34			10			115			125
APRO Co., Ltd.		47,164		30,281		2,468		16,883			2,565			225			2,790
Paycoms Co., Ltd.		1,763		1,620		855		143			17			28			45
Food Factory Co., Ltd.		5,587		3,797		450		1,790			398			602			1,000
KBSP Private Equity Fund No.4		39,492		2		40,800		39,490			5,904			—			5,904
KB Private Equity Fund No.3		49,437		4		51,000		49,433			7,754			—			7,754
Korea Credit Bureau Co., Ltd.		96,855		30,289		10,000		66,566			5,991			—			5,991
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		55,524		1,063		51,880		54,461			13,616			—			13,616
Keystone-Hyundai Securities No.1 Private Equity Fund		187,156		153,842		42,837		33,314			1,625			—			1,625
KB Social Impact Investment Fund		4,885		3		5,000		4,882			1,465			—			1,465
KB-Solidus Global Healthcare Fund		103,896		5		61,800		103,891			45,021			697			45,718
POSCO-KB Shipbuilding Fund		21,916		4		24,000		21,912			6,847			—			6,847
GH Real Estate I LP		45,340		61		42,093		45,279			19,042			—			19,042
KB-TS Technology Venture Private Equity Fund		36,445		1,212		35,400		35,233			19,731			—			19,731
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		48,369		185		51,700		48,184			20,504			(752	)		19,752
KB-SJ Tourism Venture Fund		14,914		4		16,200		14,910			2,761			—			2,761
UNION Media Commerce Fund		3,318		4		3,450		3,314			961			—			961
KB-Stonebridge Secondary Private Equity Fund		34,450		507		35,805		33,943			4,944			—			4,944
KB SPROTT Renewable Private Equity Fund No.1		3,686		249		9,640		3,437			1,295			—			1,295
KB-UTC Inno-Tech Venture Fund		1,016		75		1,016		941			417			—			417

F-129


	2019*
	Operating revenue		Net profit (loss)			Other comprehensive income			Total comprehensive income (loss)			Dividends
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1	￦	3,225	￦	2,452		￦	—		￦	2,452		￦	—
KB GwS Private Securities Investment Trust		42,503		41,524			—			41,524			9,297
KB-KDBC Pre-IPO New Technology Business Investment Fund		371		(638	)		—			(638	)		—
KB Star Office Private Real Estate Investment Trust No.1		14,455		6,004			—			6,004			—
PT Bank Bukopin TBK		721,169		(5,612	)		45,780			40,168			—
Balhae Infrastructure Company		62,113		(3,153	)		—			(3,153	)		6,855
Aju Good Technology Venture Fund		9,288		7,734			—			7,734			—
SY Auto Capital Co., Ltd.		20,394		5,292			(215	)		5,077			—
Incheon Bridge Co., Ltd.		107,178		9,127			—			9,127			—
Big Dipper Co., Ltd.		598		(532	)		—			(532	)		—
APRO Co., Ltd.		47,725		7,702			—			7,702			—
Paycoms Co., Ltd.		262		(343	)		—			(343	)		—
Food Factory Co., Ltd.		6,807		664			—			664			—
KBSP Private Equity Fund No.4		39		(1,304	)		—			(1,304	)		—
KB Private Equity Fund No.3		—		(485	)		—			(485	)		—
Korea Credit Bureau Co., Ltd.		91,200		1,480			—			1,480			135
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		4,077		(3,911	)		—			(3,911	)		—
Keystone-Hyundai Securities No.1 Private Equity Fund		18,342		(572	)		—			(572	)		—
KB Social Impact Investment Fund		8		(118	)		—			(118	)		—
KB-Solidus Global Healthcare Fund		13,085		8,708			—			8,708			—
POSCO-KB Shipbuilding Fund		1,000		(371	)		—			(371	)		—
GH Real Estate I LP		5,043		3,698			565			4,263			—
KB-TS Technology Venture Private Equity Fund		1,643		632			—			632			—
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		138		(3,355	)		—			(3,355	)		—
KB-SJ Tourism Venture Fund		—		(673	)		—			(673	)		—
UNION Media Commerce Fund		—		(3	)		—			(3	)		—
KB-Stonebridge Secondary Private Equity Fund		346		(1,856	)		—			(1,856	)		—
KB SPROTT Renewable Private Equity Fund No.1		1		(986	)		—			(986	)		—
KB-UTC Inno-Tech Venture Fund		—		(75	)		—			(75	)		—

F-130


	December 31, 2020*
	Total assets		Total liabilities		Paid-in capital		Equity			Share of net asset amount			Unrealized gains (losses) and others			Consolidated carrying amount
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1	￦	8,423	￦	3	￦	5,940	￦	8,420		￦	1,279		￦	—		￦	1,279
KB GwS Private Securities Investment Trust		534,764		741		425,814		534,023			142,799			(1,440	)		141,359
KB-KDBC Pre-IPO New Technology Business Investment Fund		24,655		592		20,400		24,063			16,042			—			16,042
KB Star Office Private Real Estate Investment Trust No.1		231,018		122,298		95,000		108,720			20,413			(347	)		20,066
Balhae Infrastructure Company		847,758		1,870		841,784		845,888			106,624			—			106,624
Aju Good Technology Venture Fund		57,776		2,265		44,500		55,511			21,351			(3	)		21,348
SY Auto Capital Co., Ltd.		89,462		51,272		20,000		38,190			18,713			(2,569	)		16,144
Incheon Bridge Co., Ltd.		579,386		700,133		61,096		(120,747	)		(18,100	)		18,100			—
Big Dipper Co., Ltd.		285		306		1,750		(21	)		(5	)		5			—
Paycoms Co., Ltd.		2,690		2,073		855		617			72			126			198
Food Factory Co., Ltd.		7,613		4,767		450		2,846			632			649			1,281
KBSP Private Equity Fund No.4		39,795		—		40,800		39,795			5,950			—			5,950
KB Private Equity Fund No.3		1,132		533		—		599			94			—			94
Korea Credit Bureau Co., Ltd.		117,077		37,599		10,000		79,478			7,153			—			7,153
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		42,585		3,205		38,960		39,380			9,845			—			9,845
Keystone-Hyundai Securities No.1 Private Equity Fund		178,848		132,123		42,837		46,725			1,556			—			1,556
KB Social Impact Investment Fund		9,585		4		10,000		9,581			2,874			—			2,874
KB-Solidus Global Healthcare Fund		106,215		1,179		75,600		105,036			45,516			697			46,213
POSCO-KB Shipbuilding Fund		41,807		541		33,200		41,266			12,895			—			12,895
KB-TS Technology Venture Private Equity Fund		34,972		3,490		29,600		31,482			17,630			—			17,630
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		64,968		313		62,980		64,655			27,513			(750	)		26,763
KB-SJ Tourism Venture Fund		22,327		6		24,300		22,321			4,133			—			4,133
UNION Media Commerce Fund		3,318		7		3,450		3,311			960			—			960
KB-Stonebridge Secondary Private Equity Fund		114,712		496		98,235		114,216			16,636			—			16,636
KB SPROTT Renewable Private Equity Fund No.1		13,896		497		15,376		13,399			5,049			—			5,049
KB-UTC Inno-Tech Venture Fund		38,585		207		39,319		38,378			16,999			—			16,999
WJ Private Equity Fund No.1		36,197		170		37,100		36,027			9,711			—			9,711
All Together Korea Fund No.2		10,025		1		10,001		10,024			10,023			—			10,023
KB-NAU Special Situation Corporate Restructuring Private Equity Fund		47,607		850		47,500		46,757			5,611			—			5,611
JR GLOBAL REIT		1,859,214		1,043,068		165,600		816,146			215,854			—			215,854
Project Vanilla Co., Ltd.		4,445		132		5,000		4,313			2,151			—			2,151
December & Company Inc.		68,173		3,305		35,441		64,868			24,402			—			24,402
2020 KB Fintech Renaissance Fund		10,841		5		10,900		10,836			547			—			547
KB Material and Parts No.1 PEF		23,296		—		23,500		23,296			3,371			—			3,371
FineKB Private Equity Fund No.1		—		77		—		(77	)		—			—			—

F-131


	2020*
	Operating revenue		Net profit (loss)			Other comprehensive income			Total comprehensive income (loss)			Dividends
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1	￦	1,942	￦	1,053		￦	—		￦	1,053		￦	—
KB GwS Private Securities Investment Trust		48,501		47,520			—			47,520			9,525
KB-KDBC Pre-IPO New Technology Business Investment Fund		5,151		4,421			—			4,421			—
KB Star Office Private Real Estate Investment Trust No.1		2,392		1,076			—			1,076			—
Balhae Infrastructure Company		63,781		89,757			—			89,757			6,973
Aju Good Technology Venture Fund		8,685		2,815			—			2,815			—
SY Auto Capital Co., Ltd.		17,404		2,057			(49	)		2,008			—
Incheon Bridge Co., Ltd.		70,345		(23,200	)		—			(23,200	)		—
Big Dipper Co., Ltd.		942		(305	)		—			(305	)		—
Paycoms Co., Ltd.		1,391		505			—			505			—
Food Factory Co., Ltd.		9,282		407			—			407			—
KBSP Private Equity Fund No.4		2		306			—			306			—
KB Private Equity Fund No.3		—		15,442			—			15,442			2,082
Korea Credit Bureau Co., Ltd.		107,810		13,391			—			13,391			89
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		1,629		626			—			626			—
Keystone-Hyundai Securities No.1 Private Equity Fund		16,586		(1,536	)		—			(1,536	)		—
KB Social Impact Investment Fund		8		(301	)		—			(301	)		—
KB-Solidus Global Healthcare Fund		6,435		(12,655	)		—			(12,655	)		—
POSCO-KB Shipbuilding Fund		12,842		10,154			—			10,154			—
KB-TS Technology Venture Private Equity Fund		5,342		4,051			—			4,051			—
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		5,257		3,013			—			3,013			—
KB-SJ Tourism Venture Fund		—		(689	)		—			(689	)		—
UNION Media Commerce Fund		—		(3	)		—			(3	)		—
KB-Stonebridge Secondary Private Equity Fund		20,068		17,842			—			17,842			—
KB SPROTT Renewable Private Equity Fund No.1		1		(991	)		—			(991	)		—
KB-UTC Inno-Tech Venture Fund		—		(866	)		—			(866	)		—
WJ Private Equity Fund No.1		2		(1,073	)		—			(1,073	)		—
All Together Korea Fund No.2		187		150			—			150			—
KB-NAU Special Situation Corporate Restructuring Private Equity Fund		2,901		(743	)		—			(743	)		—
JR GLOBAL REIT		—		—			—			—			—
Project Vanilla Co., Ltd.		—		(611	)		—			(611	)		—
December & Company Inc.		756		(2,469	)		—			(2,469	)		—
2020 KB Fintech Renaissance Fund		1		(64	)		—			(64	)		—
KB Material and Parts No.1 PEF		—		(204	)		—			(204	)		—
FineKB Private Equity Fund No.1		—		(77	)		—			(77	)		—

*	The condensed financial information of the associates and joint ventures is 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.

F-132

13.3 Changes in carrying amount of investments in associates and joint ventures for the years ended December 31, 2019 and 2020, are as follows:


	2019 ¹
	Beginning		Acquisition and others		Disposal and others			Dividends			Gains (losses) on equity- method accounting			Other compre- hensive income			Impairment loss			Ending
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1	￦	1,649	￦	—	￦	(317	)	￦	—		￦	373		￦	—		￦	—		￦	1,705
KB GwS Private Securities Investment Trust		134,362		—		—			(9,297	)		11,103			—			—			136,168
KB-KDBC Pre-IPO New Technology Business Investment Fund		14,594		5,000		—			—			(606	)		—			—			18,988
KB Star Office Private Real Estate Investment Trust No.1		19,839		—		—			—			—			—			—			19,839
PT Bank Bukopin TBK ²		113,932		—		—			—			(1,236	)		10,408			(1,723	)		121,381
Balhae Infrastructure Company		108,050		592		—			(6,855	)		(396	)		—			—			101,391
Aju Good Technology Venture Fund		18,134		1,960		—			—			2,922			—			—			23,016
SY Auto Capital Co., Ltd.		10,672		—		—			—			2,158			(105	)		—			12,725
Big Dipper Co., Ltd.		280		—		—			—			(155	)		—			—			125
APRO Co., Ltd.		1,403		—		—			—			1,386			1			—			2,790
Paycoms Co., Ltd.		103		—		—			—			(58	)		—			—			45
Food Factory Co., Ltd.		928		—		—			—			72			—			—			1,000
KBSP Private Equity Fund No.4		—		6,100		—			—			(196	)		—			—			5,904
KB Private Equity Fund No.3		7,830		—		—			—			(76	)		—			—			7,754
Korea Credit Bureau Co., Ltd.		5,941		—		—			(135	)		185			—			—			5,991
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		14,601		—		—			—			(985	)		—			—			13,616
Keystone-Hyundai Securities No.1 Private Equity Fund		1,581		66		—			—			(26	)		4			—			1,625
KB Social Impact Investment Fund		—		1,500		—			—			(35	)		—			—			1,465
KB-Solidus Global Healthcare Fund		—		42,697		—			—			3,021			—			—			45,718
POSCO-KB Shipbuilding Fund		4,463		2,500		—			—			(116	)		—			—			6,847
GH Real Estate I LP		17,252		—		—			—			1,553			237			—			19,042
KB-TS Technology Venture Private Equity Fund		13,777		7,440		(1,840	)		—			269			85			—			19,731
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		7,930		13,250		—			—			(1,428	)		—			—			19,752
KB-SJ Tourism Venture Fund		1,386		1,500		—			—			(125	)		—			—			2,761
UNION Media Commerce Fund		962		—		—			—			(1	)		—			—			961
KB-Stonebridge Secondary Private Equity Fund		—		7,070		(1,855	)		—			(271	)		—			—			4,944
KB SPROTT Renewable Private Equity Fund No.1		—		1,667		—			—			(372	)		—			—			1,295
KB-UTC Inno-Tech Venture Fund		—		450		—			—			(33	)		—			—			417
Others		5,263		408		(4,463	)		—			667			212			(843	)		1,244

	￦	504,932	￦	92,200	￦	(8,475	)	￦	(16,287	)	￦	17,594		￦	10,842		￦	(2,566	)	￦	598,240

F-133


	2020 ¹
	Beginning		Acquisition and others		Disposal and others			Dividends			Gains (losses) on equity- method accounting			Other compre- hensive income			Ending
	(In millions of Korean won)
KB Pre IPO Secondary Venture Fund No.1	￦	1,705	￦	—	￦	(586	)	￦	—		￦	160		￦	—		￦	1,279
KB GwS Private Securities Investment Trust		136,168		—		—			(9,525	)		14,716			—			141,359
KB-KDBC Pre-IPO New Technology Business Investment Fund		18,988		—		(6,399	)		—			3,453			—			16,042
KB Star Office Private Real Estate Investment Trust No.1		19,839		—		—			—			227			—			20,066
PT Bank Bukopin TBK ²		121,381		43,909		(54,069	)		—			(107,258	)		(3,963	)		—
Balhae Infrastructure Company		101,391		893		—			(6,973	)		11,313			—			106,624
Aju Good Technology Venture Fund		23,016		—		(2,885	)		—			1,217			—			21,348
SY Auto Capital Co., Ltd.		12,725		—		—			—			3,422			(3	)		16,144
Incheon Bridge Co., Ltd.		—		—		—			—			—			—			—
Big Dipper Co., Ltd.		125		—		—			—			(125	)		—			—
Paycoms Co., Ltd.		45		—		—			—			153			—			198
Food Factory Co., Ltd.		1,000		—		—			—			247			34			1,281
KBSP Private Equity Fund No.4		5,904		—		—			—			46			—			5,950
KB Private Equity Fund No.3		7,754		—		(8,000	)		(2,082	)		2,422			—			94
Korea Credit Bureau Co., Ltd.		5,991		—		—			(89	)		1,251			—			7,153
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		13,616		—		(3,231	)		—			(540	)		—			9,845
Keystone-Hyundai Securities No.1 Private Equity Fund		1,625		—		—			—			(69	)		—			1,556
KB Social Impact Investment Fund		1,465		1,500		—			—			(91	)		—			2,874
KB-Solidus Global Healthcare Fund		45,718		10,920		(4,940	)		—			(5,485	)		—			46,213
POSCO-KB Shipbuilding Fund		6,847		5,000		(2,125	)		—			3,173			—			12,895
KB-TS Technology Venture Private Equity Fund		19,731		2,240		(5,488	)		—			1,232			(85	)		17,630
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		19,752		8,000		(3,200	)		—			2,211			—			26,763
KB-SJ Tourism Venture Fund		2,761		1,500		—			—			(128	)		—			4,133
UNION Media Commerce Fund		961		—		—			—			(1	)		—			960
KB-Stonebridge Secondary Private Equity Fund		4,944		9,093		—			—			2,599			—			16,636
KB SPROTT Renewable Private Equity Fund No.1		1,295		4,128		—			—			(374	)		—			5,049
KB-UTC Inno-Tech Venture Fund		417		16,966		—			—			(384	)		—			16,999
WJ Private Equity Fund No.1		—		10,000		—			—			(289	)		—			9,711
All Together Korea Fund No.2		—		100,000		(90,000	)		—			150			(127	)		10,023
KB-NAU Special Situation Corporate Restructuring Private Equity Fund		—		5,700		—			—			(89	)		—			5,611
JR GLOBAL REIT		—		219,493		(3,639	)		—			—			—			215,854
Project Vanilla Co., Ltd.		—		2,450		—			—			(299	)		—			2,151
December & Company Inc.		—		30,000		(5,151	)		—			(447	)		—			24,402
2020 KB Fintech Renaissance Fund		—		550		—			—			(3	)		—			547
KB Material and Parts No.1 PEF		—		3,400		—			—			(29	)		—			3,371
FineKB Private Equity Fund No.1		—		—		—			—			—			—			—
Others		23,076		40,000		(61,862	)		—			(899	)		359			674

	￦	598,240	￦	515,742	￦	(251,575	)	￦	(18,669	)	￦	(68,518	)	￦	(3,785	)	￦	771,435

¹	Gains on disposal of investments in associates and joint ventures amount to ￦ 1,423 million ￦ 24,768 million for the years ended December 31, 2019 and 2020, respectively.

²	The investment was reclassified to subsidiaries from associates for the year ended December 31, 2020 due to additional share purchase.

F-134

13.4 Unrecognized share of losses in investments in associates and joint ventures due to discontinuation of applying the equity method for the years ended December 31, 2019 and 2020 and accumulated amount as of December 31, 2019 and 2020, are as follows:


	Unrecognized losses (gains)					Accumulated unrecognized losses
	2019			2020		December 31, 2019		December 31, 2020
	(In millions of Korean won)
Doosung Metal Co., Ltd.	￦	46		￦	—	￦	65	￦	65
Incheon Bridge Co., Ltd.		(1,944	)		3,354		14,746		18,100
Jungdong Steel Co., Ltd.		—			—		489		489
DPAPS Co., Ltd.		14			19		339		358
Shinla Construction Co., Ltd.		—			—		183		183
Jaeyang Industry Co., Ltd.		—			—		30		30
Terra Corporation		—			—		14		14
Jungdo Co., Ltd.		—			151		161		312
Jinseung Tech Co., Ltd.		18			—		21		21
Korea NM Tech Co., Ltd.		—			—		28		28
Chongil Machine & Tools Co., Ltd.		19			—		19		19
SKYDIGITAL INC.		106			—		106		106
Imt Technology Co., Ltd.		—			3		—		3
Jo Yang Industrial Co., Ltd.		—			96		—		96
IDTECK Co., Ltd.		—			216		—		216

	￦	(1,741	)	￦	3,839	￦	16,201	￦	20,040

14. Property and Equipment, and Investment Properties

14.1 Property and Equipment

14.1.1 Details of property and equipment as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Land	￦	2,431,812	￦	—		￦	(1,018	)	￦	2,430,794
Buildings		2,265,929		(757,147	)		(5,859	)		1,502,923
Leasehold improvements		865,531		(749,407	)		—			116,124
Equipment and vehicles		1,867,739		(1,487,386	)		—			380,353
Construction in-progress		86,303		—			—			86,303
Right-of-use assets		854,327		(302,269	)		(1,178	)		550,880

	￦	8,371,641	￦	(3,296,209	)	￦	(8,055	)	￦	5,067,377

F-135


	December 31, 2020
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Land	￦	2,611,604	￦	—		￦	(1,018	)	￦	2,610,586
Buildings		2,607,957		(830,516	)		(5,859	)		1,771,582
Leasehold improvements		929,120		(833,293	)		—			95,827
Equipment and vehicles		2,040,100		(1,699,442	)		—			340,658
Construction in-progress		44,190		—			—			44,190
Right-of-use assets		1,094,876		(524,165	)		—			570,711

	￦	9,327,847	￦	(3,887,416	)	￦	(6,877	)	￦	5,433,554

14.1.2 Changes in property and equipment for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Acquisition		Transfer ¹			Disposal			Depreciation ²			Business Combination		Others			Ending
	(In millions of Korean won)
Land	￦	2,432,041	￦	7,334	￦	(3,957	)	￦	(4,907	)	￦	—		￦	—	￦	283		￦	2,430,794
Buildings		1,330,211		10,908		220,535			(9,964	)		(55,669	)		—		6,902			1,502,923
Leasehold improvements		122,309		13,398		58,645			(338	)		(77,948	)		—		58			116,124
Equipment and vehicles		280,624		283,896		(4	)		(526	)		(183,900	)		—		263			380,353
Construction in-progress		88,618		293,204		(288,136	)		—			—			—		(7,383	)		86,303
Right-of-use assets		589,188		379,934		19			(153,034	)		(281,404	)		—		16,177			550,880

	￦	4,842,991	￦	988,674	￦	(12,898	)	￦	(168,769	)	￦	(598,921	)	￦	—	￦	16,300		￦	5,067,377


	2020
	Beginning		Acquisition		Transfer ¹			Disposal			Depreciation2			Business Combination		Others			Ending
	(In millions of Korean won)
Land	￦	2,430,794	￦	6,475	￦	(116,264	)	￦	(2,578	)	￦	—		￦	295,421	￦	(3,262	)	￦	2,610,586
Buildings		1,502,923		43,592		190,917			(4,442	)		(61,339	)		100,984		(1,053	)		1,771,582
Leasehold improvements		116,124		13,348		34,596			(574	)		(73,394	)		5,087		640			95,827
Equipment and vehicles		380,353		161,515		3,705			(1,990	)		(221,697	)		19,873		(1,101	)		340,658
Construction in-progress		86,303		229,927		(291,336	)		—			—			20,022		(726	)		44,190
Right-of-use assets		550,880		426,405		53			(203,376	)		(272,686	)		55,656		13,779			570,711

	￦	5,067,377	￦	881,262	￦	(178,329	)	￦	(212,960	)	￦	(629,116	)	￦	497,043	￦	8,277		￦	5,433,554

¹	Includes transfers with investment properties and assets held for sale.

²	Includes depreciation expenses amounting to ￦ 111 million and ￦ 123 million recorded as other operating expenses for the years ended December 31, 2019 and 2020, respectively.

F-136

14.1.3 Changes in accumulated impairment losses of property and equipment for the years ended December 31, 2019 and 2020, are as follows:


	2019

	Beginning			Impairment			Reversal		Disposal and others		Ending
	(In millions of Korean won)
Accumulated impairment losses of property and equipment	￦	(6,877	)	￦	—		￦	—	￦	—	￦	(6,877	)
Accumulated impairment losses of right-of-use assets		—			(1,178	)		—		—		(1,178	)

	￦	(6,877	)	￦	(1,178	)	￦	—	￦	—	￦	(8,055	)


	2020
	Beginning			Impairment			Reversal		Disposal and others		Ending
	(In millions of Korean won)
Accumulated impairment losses of property and equipment	￦	(6,877	)	￦	(12	)	￦	—	￦	12	￦	(6,877	)
Accumulated impairment losses of right-of-use assets		(1,178	)		—			—		1,178		—

	￦	(8,055	)	￦	(12	)	￦	—	￦	1,190	￦	(6,877	)

14.2 Investment Properties

14.2.1 Details of investment properties as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses		Carrying amount
	(In millions of Korean won)
Land	￦	1,537,240	￦	—		￦	—	￦	1,537,240
Buildings		1,463,736		(172,988	)		—		1,290,748

	￦	3,000,976	￦	(172,988	)	￦	—	￦	2,827,988


	December 31, 2020
	Acquisition cost		Accumulated depreciation			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Land	￦	1,568,508	￦	—		￦	(410	)	￦	1,568,098
Buildings		1,092,737		(122,833	)		(4,463	)		965,441

	￦	2,661,245	￦	(122,833	)	￦	(4,873	)	￦	2,533,539

F-137

14.2.2 Valuation techniques and inputs that are used to measure the fair value of investment properties as of December 31, 2020, are as follows:


	December 31, 2020
	Fair value		Valuation techniques	Inputs
	(In millions of Korean won)
Land and buildings	￦	92,128	Cost approach method	- Price per square meter - Replacement cost
		1,141,121	Market comparison method	- Price per square meter
		1,248,604	Cash flow approach	- Prospective rental market growth rate - Period of vacancy - Rental rate - Discount rate and others
		230,800	Income approach	- Discount rate - Capitalization rate - Vacancy rate

Fair value of the investment properties amounts to ￦ 3,032,726 million and ￦ 2,712,653 million as of December 31, 2019 and 2020, respectively. The investment properties were measured by qualified independent appraisers with experience in valuing similar properties in the same area. In addition, per fair value hierarchy in Note 6.1.2, fair value hierarchy of all investment properties has been classified as Level 3.

Rental income from the above investment properties for the years ended December 31, 2019 and 2020, amounts to ￦ 129,944 million and ￦ 157,652 million, respectively.

14.2.3 Changes in investment properties for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Acquisition		Transfer			Disposal			Depreciation			Others		Ending
	(In millions of Korean won)
Land	￦	972,562	￦	580,255	￦	(3,374	)	￦	(13,318	)	￦	—		￦	1,115	￦	1,537,240
Buildings		1,147,249		225,833		(8,861	)		(50,780	)		(36,877	)		14,184		1,290,748

	￦	2,119,811	￦	806,088	￦	(12,235	)	￦	(64,098	)	￦	(36,877	)	￦	15,299	￦	2,827,988


	2020
	Beginning		Acquisition		Transfer		Disposal			Depreciation			Business combination		Others			Ending
	(In millions of Korean won)
Land	￦	1,537,240	￦	34,529	￦	61,383	￦	(167,015	)	￦	—		￦	106,944	￦	(4,983	)	￦	1,568,098
Buildings		1,290,748		18,667		37,694		(378,332	)		(38,717	)		42,169		(6,788	)		965,441

	￦	2,827,988	￦	53,196	￦	99,077	￦	(545,347	)	￦	(38,717	)	￦	149,113	￦	(11,771	)	￦	2,533,539

F-138

15. Intangible Assets

15.1 Details of intangible assets as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Others			Carrying amount
	(In millions of Korean won)
Goodwill	￦	346,314	￦	—		￦	(70,517	)	￦	(56	)	￦	275,741
Other intangible assets		4,420,371		(1,926,647	)		(31,652	)		—			2,462,072

	￦	4,766,685	￦	(1,926,647	)	￦	(102,169	)	￦	(56	)	￦	2,737,813


	December 31, 2020
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Others			Carrying amount
	(In millions of Korean won)
Goodwill	￦	887,259	￦	—		￦	(70,517	)	￦	(53,160	)	￦	763,582
Other intangible assets		4,928,003		(2,304,188	)		(36,264	)		—			2,587,551

	￦	5,815,262	￦	(2,304,188	)	￦	(106,781	)	￦	(53,160	)	￦	3,351,133

15.2 Details of goodwill as of December 31, 2019 and 2020, are as follows:


	December 31, 2019				December 31, 2020
	Acquisition cost		Carrying amount *		Acquisition cost		Carrying amount *
	(In millions of Korean won)
Housing & Commercial Bank	￦	65,288	￦	65,288	￦	65,288	￦	65,288
KB Cambodia Bank		1,202		—		1,202		—
KB Securities Co., Ltd.		70,265		58,889		70,265		58,889
KB Capital Co., Ltd.		79,609		79,609		79,609		79,609
KB Savings Bank Co., Ltd.		115,343		57,404		115,343		57,404
KB Securities Vietnam Joint Stock Company		13,092		12,987		13,092		12,234
KB Daehan Specialized Bank Plc.		1,515		1,564		1,515		1,470
PRASAC Microfinance Institution Plc.		—		—		396,942		356,570
PT Sunindo Kookmin Best Finance		—		—		2,963		2,963
PT Bank Bukopin TBK		—		—		89,220		80,002
PT. KB Finansia Multi Finance		—		—		51,820		49,153

	￦	346,314	￦	275,741	￦	887,259	￦	763,582

*	Includes the effect of exchange differences etc.

15.3 Changes in accumulated impairment losses of goodwill for the years ended December 31, 2019 and 2020, are as follows:

2019

Beginning

Impairment

Others

Ending

(In millions of Korean won)

Accumulated impairment losses of goodwill

￦

(70,517

)

￦

—

￦

—

￦

(70,517

)

2020

Beginning

Impairment

Others

Ending

(In millions of Korean won)

Accumulated impairment losses of goodwill

￦

(70,517

)

￦

—

￦

—

￦

(70,517

)

F-139

15.4 Details of goodwill allocation to cash-generating units and related information for impairment testing as of December 31, 2020 are as follows:


		December 31, 2020
		Carrying amount of goodwill		Recoverable amount exceeding carrying amount		Discount rate (%)		Permanent growth rate (%)
		(In millions of Korean won)
Housing & Commercial Bank	Retail banking	￦	49,315	￦	1,595,304		17.46		1.00
	Corporate banking		15,973		955,540		17.63		1.00
KB Securities Co., Ltd.			58,889		11,340		21.46		1.00
KB Capital Co., Ltd.			79,609		424,933		17.39		1.00
KB Savings Bank Co., Ltd. and Yehansoul Savings Bank Co., Ltd.			57,404		443,778		13.80		1.00
KB Securities Vietnam Joint Stock Company			12,234		10,262		23.61		1.00
KB Daehan Specialized Bank Plc.			1,470		9,299		25.77		1.00
PRASAC Microfinance Institution Plc.			356,570		111,425		24.50		3.00
PT Sunindo Kookmin Best Finance			2,963		1,909		15.47		0.00
PT. KB Finansia Multi Finance			49,153		28,990		16.19		3.00

		￦	683,580	￦	3,592,780

For impairment testing, goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the business combination, and cash-generating units consist of an operating segment or units which are not larger than an operating segment.

The Group recognized goodwill amounting to ￦ 65,288 million from the merger of Housing & Commercial Bank, the amounts of ￦ 49,315 million and ￦ 15,973 million were allocated to the retail banking and corporate banking, respectively.

And the goodwill of ￦ 356,570 million arising from the acquisition of PRASAC Microfinance Institution Plc. was allocated to microfinance unit.

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 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 of retail banking and corporate banking after projection period are estimated on the assumption that the future cash flows will increase by 1.0% per year. The key assumptions used for the estimation of the future cash flows are estimated based on the market size and the Group’s market share.

The future cash flows PRASAC Microfinance Institution Plc. after five years are estimated on the assumption that the future cash flows will increase by 3.0% per year. The key assumptions used for the estimation of the future cash flows are the GDP growth rate of Cambodia, the market size and the recent growth

F-140

rate of PRASAC Microfinance Institution Plc. 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 cash-generating unit.

The Group acquired a 67% stake in PT Bank Bukopin TBK with the acquisition date of September 2, 2020, and the goodwill recognized due to the business combination is ￦ 80,002 million as of December 31, 2020. The Group conducts an impairment test annually and whenever there is an indication of impairment, and no indication of impairment has been observed as of December 31, 2020.

15.5 Details of intangible assets other than goodwill as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Industrial property rights	￦	5,802	￦	(2,930	)	￦	(19	)	￦	2,853
Software		1,428,655		(1,055,136	)		—			373,519
Other intangible assets		555,424		(257,274	)		(31,633	)		266,517
Value of Business Acquired (VOBA)		2,395,290		(585,805	)		—			1,809,485
Right-of-use assets		35,200		(25,502	)		—			9,698

	￦	4,420,371	￦	(1,926,647	)	￦	(31,652	)	￦	2,462,072


	December 31, 2020
	Acquisition cost		Accumulated amortization			Accumulated impairment losses			Carrying amount
	(In millions of Korean won)
Industrial property rights	￦	6,222	￦	(2,936	)	￦	(940	)	￦	2,346
Software		1,800,686		(1,225,173	)		(2,326	)		573,187
Other intangible assets		690,665		(285,893	)		(32,998	)		371,774
Value of Business Acquired (VOBA)		2,395,291		(759,672	)		—			1,635,619
Right-of-use assets		35,139		(30,514	)		—			4,625

	￦	4,928,003	￦	(2,304,188	)	￦	(36,264	)	￦	2,587,551

15.6 Changes in intangible assets other than goodwill for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Acquisition & transfer		Disposal			Amortization ¹			Others			Ending
	(In millions of Korean won)
Industrial property rights	￦	4,497	￦	174	￦	(1,160	)	￦	(658	)	￦	—		￦	2,853
Software		204,505		274,583		—			(105,228	)		(341	)		373,519
Other intangible assets ²		248,611		59,776		(13,534	)		(33,590	)		5,254			266,517
Value of Business Acquired (VOBA)		2,001,945		—		—			(192,460	)		—			1,809,485
Right-of-use assets		21,063		1,010		—			(9,893	)		(2,482	)		9,698

	￦	2,480,621	￦	335,543	￦	(14,694	)	￦	(341,829	)	￦	2,431		￦	2,462,072

F-141


	2020
	Beginning		Acquisition & transfer		Disposal			Amortization ¹			Business combination		Others			Ending
	(In millions of Korean won)
Industrial property rights	￦	2,853	￦	116	￦	(147	)	￦	(476	)	￦	—	￦	—		￦	2,346
Software		373,519		340,045		(4,444	)		(153,876	)		18,252		(309	)		573,187
Other intangible assets ²		266,517		63,743		(9,527	)		(47,948	)		106,445		(7,456	)		371,774
Value of Business Acquired (VOBA)		1,809,485		—		—			(173,866	)		—		—			1,635,619
Right-of-use assets		9,698		—		—			(5,026	)		—		(47	)		4,625

	￦	2,462,072	￦	403,904	￦	(14,118	)	￦	(381,192	)	￦	124,697	￦	(7,812	)	￦	2,587,551

¹	Includes ￦ 193,085 million and ￦ 173,992 million recorded as insurance expenses and other operating expenses for the years ended December 31, 2019 and 2020, respectively.

²	Impairment losses for membership right of other intangible asset with indefinite useful life was recognized when its recoverable amount is lower than its carrying amount, and reversal of impairment losses was recognized when its recoverable amount is higher than its carrying amount.

15.7 Changes in accumulated impairment losses of other intangible assets for the years ended December 31, 2019 and 2020, are as follows:

2019

Beginning

Impairment

Reversal

Disposal and
others

Ending

(In millions of Korean won)

Accumulated impairment losses of other intangible assets

￦

(45,017

)

￦

(1,578

)

￦

6,859

￦

8,084

￦

(31,652

)

2020

Beginning

Impairment

Reversal

Disposal and
others

Ending

(In millions of Korean won)

Accumulated impairment losses of other intangible assets

￦

(31,652

)

￦

(9,312

)

￦

3,669

￦

1,031

￦

(36,264

)

F-142

16. Lease

16.1 The Group as a Lessee

16.1.1 Amounts recognized in the consolidated statements of financial position related to lease as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Right-of-use property and equipment*
Real estate	￦	518,795	￦	537,392
Vehicles		13,542		16,218
Others		18,543		17,101

		550,880		570,711

Right-of-use intangible assets*		9,698		4,626

	￦	560,578	￦	575,337

Lease liabilities*	￦	544,439	￦	559,113

*	Included in property and equipment, intangible assets and other liabilities.

16.1.2 Amounts recognized in the consolidated statements of comprehensive income related to lease for the years ended December 31, 2019 and 2020, are as follows:


	2019		2020
	(In millions of Korean won)
Depreciation and amortization of right-of-use assets
Real estate	￦	251,465	￦	246,058
Vehicles		19,594		15,286
Others		10,345		11,342
Intangible assets		9,893		5,026

	￦	291,297	￦	277,712

Interest expenses on the lease liabilities	￦	12,720	￦	13,492
Expense relating to short-term lease		2,209		6,169
Expense relating to leases of low-value assets that are not short-term lease		5,416		7,130
Expense relating to variable lease payments not included in lease liabilities (included in administrative expenses)		15		438

Total cash outflow for lease for the years ended December 31, 2019 and 2020 was ￦ 228,312 million and ￦ 245,151 million, respectively.

F-143

16.2 The Group as a Lessor

16.2.1 The Group as a finance lessor

16.2.1.1 Total lease investment and the present value of minimum lease payments as of December 31, 2019 and 2020, are as follows:


	December 31, 2019				December 31, 2020
	Total lease investment		Present value of minimum lease payment		Total lease investment		Present value of minimum lease payment
	(In millions of Korean won)
Up to 1 year	￦	654,104	￦	367,937	￦	579,968	￦	354,588
1-5 years		1,085,208		569,939		958,125		551,777
Over 5 years		773		748		—		—

	￦	1,740,085	￦	938,624	￦	1,538,093	￦	906,365

16.2.1.2 Unearned interest income on finance lease as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Total lease investment	￦	1,740,085	￦	1,538,093
Net lease investment
Present value of minimum lease payments		938,624		906,365
Present value of non-guaranteed residual value		639,075		496,969

		1,577,699		1,403,334

Unearned interest income	￦	162,386	￦	134,759

16.2.2 The Group as an operating lessor

Future minimum lease receipts arising from the non-cancellable lease contracts as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Minimum lease receipts
Up to 1 year	￦	577,490	￦	792,935
1-5 years		1,432,354		1,727,498
Over 5 years		682,165		84,733

	￦	2,692,009	￦	2,605,166

16.3 The Group as an operating lessee for the year ended December 31, 2018

The lease payment reflected in profit or loss for the year ended December 31, 2018, is as follows:


	2018
	(In millions of Korean won)
Minimum lease payment	￦	221,305
Sublease payment		(1,804	)

Total	￦	219,501

F-144

17. Deferred Income Tax Assets and Liabilities

17.1 Details of deferred income tax assets and liabilities as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Assets			Liabilities			Net amount
	(In millions of Korean won)
Other provisions	￦	115,500		￦	—		￦	115,500
Allowances for credit losses		451			(3,266	)		(2,815	)
Impairment losses of property and equipment		4,396			(1,952	)		2,444
Share-based payments		18,002			—			18,002
Provisions for acceptances and guarantees		20,959			—			20,959
Gains or losses on valuation of derivatives		51,160			(158,604	)		(107,444	)
Present value discount		8,244			(4,201	)		4,043
Gains or losses on fair value hedge		12,123			—			12,123
Accrued interest		—			(110,359	)		(110,359	)
Deferred loan origination fees and costs		531			(199,000	)		(198,469	)
Advanced depreciation provision		—			(1,703	)		(1,703	)
Gains or losses on revaluation		549			(329,331	)		(328,782	)
Investments in subsidiaries and others		35,306			(105,470	)		(70,164	)
Gains or losses on valuation of security investment		39,949			(265,934	)		(225,985	)
Defined benefit liabilities		557,423			—			557,423
Accrued expenses		249,999			—			249,999
Retirement insurance expense		—			(489,602	)		(489,602	)
Adjustments to the prepaid contributions		—			(22,897	)		(22,897	)
Derivative-linked securities		131,259			(34,635	)		96,624
Others		469,540			(762,633	)		(293,093	)

		1,715,391			(2,489,587	)		(774,196	)

Offsetting of deferred income tax assets and liabilities		(1,711,794	)		1,711,794			—

	￦	3,597		￦	(777,793	)	￦	(774,196	)

F-145


	December 31, 2020
	Assets			Liabilities			Net amount
	(In millions of Korean won)
Other provisions	￦	149,259		￦	—		￦	149,259
Allowances for credit losses		26,496			(3,356	)		23,140
Impairment losses of property and equipment		3,992			(1,889	)		2,103
Share-based payments		17,718			—			17,718
Provisions for acceptances and guarantees		17,046			—			17,046
Gains or losses on valuation of derivatives		20,645			(223,482	)		(202,837	)
Present value discount		17,058			(3,041	)		14,017
Gains or losses on fair value hedge		21,060			—			21,060
Accrued interest		—			(125,835	)		(125,835	)
Deferred loan origination fees and costs		7,224			(226,821	)		(219,597	)
Advanced depreciation provision		—			(1,703	)		(1,703	)
Gains or losses on revaluation		338			(319,698	)		(319,360	)
Investments in subsidiaries and others		38,164			(111,589	)		(73,425	)
Gains or losses on valuation of security investment		73,857			(1,232,689	)		(1,158,832	)
Defined benefit liabilities		606,146			—			606,146
Accrued expenses		334,900			—			334,900
Retirement insurance expense		—			(541,317	)		(541,317	)
Adjustments to the prepaid contributions		—			(28,261	)		(28,261	)
Derivative-linked securities		78,202			(30,881	)		47,321
Others*		1,081,691			(740,462	)		341,229

		2,493,796			(3,591,024	)		(1,097,228	)

Offsetting of deferred income tax assets and liabilities		(2,428,738	)		2,428,738			—

	￦	65,058		￦	(1,162,286	)	￦	(1,097,228	)

*	Includes PPA amount from acquisition of Prudential Life Insurance Company of Korea Ltd. and KB Insurance Co., Ltd., and others.

17.2 Unrecognized Deferred Income Tax Assets

17.2.1 No deferred income tax assets have been recognized for the deductible temporary difference of ￦ 242,875 million associated with investments in subsidiaries and associates as of December 31, 2020, because it is not probable that the temporary differences will be reversed in the foreseeable future.

17.2.2 No deferred income tax assets have been recognized for deductible temporary differences of ￦ 75,831 million associated with others, as of December 31, 2020, due to the uncertainty that these will be realized in the future.

17.3 Unrecognized Deferred Income Tax Liabilities

17.3.1 No deferred income tax liabilities have been recognized for the taxable temporary difference of ￦ 260,739 million associated with investment in subsidiaries and associates as of December 31, 2020, 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.

17.3.2 No deferred income tax liabilities have been recognized as of December 31, 2020, for the taxable temporary difference of ￦ 65,288 million arising from the initial recognition of goodwill from the merger of Housing and Commercial Bank in 2001.

F-146

17.4 Changes in cumulative temporary differences for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning			Decrease			Increase			Ending
	(In millions of Korean won)
Deductible temporary differences
Gains or losses on fair value hedge	￦	—		￦	—		￦	44,085		￦	44,085
Other provisions		411,903			411,747			424,227			424,383
Allowances for credit losses		12,481			16,160			5,697			2,018
Impairment losses on property and equipment		21,927			21,402			15,460			15,985
Deferred loan origination fees and costs		1,841			1,841			1,930			1,930
Share-based payments		60,071			52,475			55,496			63,092
Provisions for acceptance and guarantees		73,809			73,809			76,214			76,214
Gains or losses on valuation of derivatives		503,277			503,277			186,035			186,035
Present value discount		24,593			24,347			29,732			29,978
Investments in subsidiaries and others		184,870			47,217			47,727			185,380
Gains or losses on valuation of security investment		269,731			264,318			130,823			136,236
Defined benefit liabilities		1,977,430			200,827			384,616			2,161,219
Accrued expenses		993,906			994,326			912,019			911,599
Derivative-linked securities		13,679			13,679			477,307			477,307
Others		1,290,065			600,750			979,710			1,669,025

		5,839,583			3,226,175			3,771,078			6,384,486

Unrecognized deferred income tax assets:
Other provisions		3,416									4,788
Investments in subsidiaries and others		73,764									67,645
Others		120,704									125,158

		5,641,699									6,186,895
Tax rate (%)		27.5									27.5

Total deferred income tax assets	￦	1,562,537								￦	1,715,391

Taxable temporary differences
Gains or losses on fair value hedge	￦	(94,085	)	￦	(94,085	)	￦	—		￦	—
Accrued interest		(411,487	)		(362,627	)		(352,477	)		(401,337	)
Allowances for credit losses		(238	)		(238	)		(11,877	)		(11,877	)
Impairment losses on property and equipment		(4,457	)		(212	)		82			(4,163	)
Deferred loan origination fees and costs		(727,528	)		(727,528	)		(752,178	)		(752,178	)
Advanced depreciation provision		(6,192	)		—			—			(6,192	)
Gains or losses on valuation of derivatives		(49,036	)		(49,036	)		(576,743	)		(576,743	)
Present value discount		(8,656	)		(8,656	)		(15,278	)		(15,278	)
Goodwill from merger		(65,288	)		—			—			(65,288	)
Gains or losses on revaluation		(1,201,992	)		(52,470	)		(48,044	)		(1,197,566	)
Investments in subsidiaries and others		(316,346	)		(19,421	)		(122,130	)		(419,055	)
Gains or losses on valuation of security investment		(601,496	)		(594,206	)		(899,500	)		(906,790	)
Retirement insurance expense		(1,611,475	)		(153,528	)		(317,793	)		(1,775,740	)
Adjustments to the prepaid contributions		(69,212	)		(69,212	)		(83,262	)		(83,262	)
Derivative-linked securities		(271,873	)		(271,873	)		(125,947	)		(125,947	)
Others		(2,098,159	)		(2,917,318	)		(3,613,007	)		(2,793,848	)

		(7,537,520	)		(5,320,410	)		(6,918,154	)		(9,135,264	)

Unrecognized deferred income tax liabilities:					—
Goodwill from merger		(65,288	)								(65,288	)
Investments in subsidiaries and others		(62,367	)								(68,836	)
Others		(588	)								(1,247	)

		(7,409,277	)								(8,999,893	)
Tax rate (%)		27.5									27.5

Total deferred income tax liabilities	￦	(2,050,913	)							￦	(2,489,587	)

F-147


	2020
	Beginning			Business combination			Decrease			Increase			Ending
	(In millions of Korean won)
Deductible temporary differences
Gains or losses on fair value hedge	￦	44,085		￦	—		￦	44,085		￦	76,583		￦	76,583
Other provisions		424,383			6,383			426,457			540,396			544,705
Allowances for credit losses		2,018			105,505			96,885			83,111			93,749
Impairment losses of property and equipment		15,985			—			9,658			8,189			14,516
Deferred loan origination fees and costs		1,930			35,863			15,098			3,574			26,269
Share-based payments		63,092			5			55,601			54,589			62,085
Provisions for acceptance and guarantees		76,214			—			76,214			61,984			61,984
Gains or losses on valuation of derivatives		186,035			5,201			191,236			76,238			76,238
Present value discount		29,978			—			29,732			61,783			62,029
Investments in subsidiaries and others		185,380			—			47,034			232,655			371,001
Gains or losses on valuation of security investment		136,236			—			136,070			251,524			251,690
Defined benefit liabilities		2,161,219			94,105			227,010			327,255			2,355,569
Accrued expenses		911,599			75,498			911,599			1,144,785			1,220,283
Derivative-linked securities		477,307			—			477,307			284,370			284,370
Others*		1,669,025			2,068,207			1,170,462			1,081,994			3,648,764

		6,384,486			2,390,767			3,914,448			4,289,030			9,149,835

Unrecognized deferred income tax assets:
Other provisions		4,788												3,054
Investments in subsidiaries and others		67,645												242,875
Others		125,158												75,831

		6,186,895												8,828,075
Tax rate (%)		27.5												27.5

Total deferred income tax assets	￦	1,715,391											￦	2,493,796

Taxable temporary differences
Accrued interest	￦	(401,337	)	￦	(168,859	)	￦	(394,255	)	￦	(281,685	)	￦	(457,626	)
Allowances for credit losses		(11,877	)		—			(11,877	)		(12,203	)		(12,203	)
Impairment losses of property and equipment		(4,163	)		—			(111	)		117			(3,935	)
Deferred loan origination fees and costs		(752,178	)		—			(752,178	)		(820,223	)		(820,223	)
Advanced depreciation provision		(6,192	)		—			—			—			(6,192	)
Gains or losses on valuation of derivatives		(576,743	)		—			(576,743	)		(812,662	)		(812,662	)
Present value discount		(15,278	)		—			(15,278	)		(10,916	)		(10,916	)
Goodwill from merger		(65,288	)		—			—			—			(65,288	)
Gains or losses on revaluation		(1,197,566	)		—			(80,036	)		(45,008	)		(1,162,538	)
Investments in subsidiaries and others		(419,055	)		—			(70,188	)		(297,809	)		(646,676	)
Gains or losses on valuation of security investment		(906,790	)		(3,060,750	)		(899,660	)		(1,358,042	)		(4,425,922	)
Retirement insurance expense		(1,775,740	)		(61,789	)		(162,764	)		(288,296	)		(1,963,061	)
Adjustments to the prepaid contributions		(83,262	)		—			(83,262	)		(102,768	)		(102,768	)
Derivative-linked securities		(125,947	)		—			(125,947	)		(112,293	)		(112,293	)
Others*		(2,793,848	)		(1,613	)		(1,644,815	)		(1,555,740	)		(2,706,386	)

		(9,135,264	)		(3,293,011	)		(4,817,114	)		(5,697,528	)		(13,308,689	)

Unrecognized deferred income tax liabilities:								—
Goodwill from merger		(65,288	)											(65,288	)
Investments in subsidiaries and others		(68,836	)											(260,739	)
Others		(1,247	)											(1,042	)

		(8,999,893	)											(12,981,620	)
Tax rate (%)		27.5												27.5

Total deferred income tax liabilities	￦	(2,489,587	)										￦	(3,591,024	)

*	Includes PPA amount from acquisition of Prudential Life Insurance Company of Korea Ltd. and KB Insurance Co., Ltd., and others.

F-148

18. Assets Held for Sale

18.1 Details of assets held for sale as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Acquisition cost*		Accumulated impairment losses			Carrying amount		Fair value less costs to sell
	(In millions of Korean won)
Land held for sale	￦	14,542	￦	(1,530	)	￦	13,012	￦	14,374
Buildings held for sale		11,391		(1,252	)		10,139		12,396

	￦	25,933	￦	(2,782	)	￦	23,151	￦	26,770


	December 31, 2020
	Acquisition cost*		Accumulated impairment losses			Carrying amount		Fair value less costs to sell
	(In millions of Korean won)
Land held for sale	￦	80,740	￦	(16,169	)	￦	64,571	￦	68,321
Buildings held for sale		152,426		(24,887	)		127,539		134,247
Other assets held for sale		10,676		(5,059	)		5,617		5,801

	￦	243,842	￦	(46,115	)	￦	197,727	￦	208,369

*	Acquisition cost of buildings held for sale is net of accumulated depreciation before classified as assets held for sale.

18.2 Valuation techniques and inputs that are used to measure the fair value of assets held for sale as of December 31, 2020 are as follows:

December 31, 2020

Fair value

Valuation
techniques ¹

Unobservable
inputs ²

Estimated range of
unobservable
inputs (%)

Effect of
unobservable
inputs to fair value

(In millions of Korean won)

Land and buildings

￦

208,369

Market comparison
approach model

Adjustment index

0.68 ~ 1.95

Fair value increases
as the adjustment
index 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 time factor correction or local factors or individual factors.

Among assets held for sale, real estate was measured by independent appraisers with recent experience in evaluating similar properties in the area of the property to be assessed with professional qualifications. All of assets held for sale are classified as level 3 in accordance with fair value hierarchy in Note 6.1.2.

18.3 Changes in accumulated impairment losses of assets held for sale for the years ended December 31, 2019 and 2020, are as follows:

2019

Beginning

Provision

Reversal

Others

Ending

(In millions of Korean won)

Accumulated impairment losses of assets held for sale

￦

(8,150

)

￦

(333

)

￦

—

￦

5,701

￦

(2,782

)


	2020
	Beginning			Provision			Reversal		Business combination			Others		Ending
	(In millions of Korean won)
Accumulated impairment losses of assets held for sale	￦	(2,782	)	￦	(11,593	)	￦	—	￦	(45,433	)	￦	13,693	￦	(46,115	)

F-149

18.4 As of December 31, 2020, assets held for sale consist of 4 real estates of closed offices and 1,087 foreclosure assets on loans of PT Bank Bukopin TBK, which were determined to sell by the management, but not yet sold as of December 31, 2020. Negotiation with buyers is in process for the one closed office and the remaining 1,090 assets are also being actively marketed.

19. Other Assets

19.1 Details of other assets as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Other financial assets
Other receivables	￦	5,792,814		￦	10,628,272
Accrued income		1,659,182			1,726,651
Guarantee deposits		1,146,000			1,099,618
Domestic exchange settlement debits		531,356			722,616
Others		129,039			117,330
Allowances for credit losses		(104,629	)		(119,762	)
Present value discount		(6,703	)		(7,036	)

		9,147,059			14,167,689

Other non-financial assets
Other receivables		1,294			1,091
Prepaid expenses		198,893			254,152
Guarantee deposits		4,084			3,906
Insurance assets		1,662,016			2,376,679
Separate account assets		5,052,804			10,210,047
Others		2,173,693			3,158,993
Allowances for credit losses		(24,235	)		(17,520	)

		9,068,549			15,987,348

	￦	18,215,608		￦	30,155,037

19.2 Changes in allowances for credit losses of other assets for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Other financial assets			Other non-financial assets			Total
	(In millions of Korean won)
Beginning	￦	106,275		￦	24,780		￦	131,055
Write-offs		(5,883	)		(152	)		(6,035	)
Provision (reversal)		9,885			(393	)		9,492
Others		(5,648	)		—			(5,648	)

Ending	￦	104,629		￦	24,235		￦	128,864


	2020
	Other financial assets			Other non-financial assets			Total
	(In millions of Korean won)
Beginning	￦	104,629		￦	24,235		￦	128,864
Write-offs		(6,517	)		(8,503	)		(15,020	)
Provision		22,153			1,726			23,879
Business combination		7,946			59			8,005
Others		(8,449	)		3			(8,446	)

Ending	￦	119,762		￦	17,520		￦	137,282

F-150

20. Financial Liabilities at Fair Value through Profit or Loss

20.1 Details of financial liabilities at fair value through profit or loss, and financial liabilities designated at fair value through profit or loss as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Financial liabilities at fair value through profit or loss
Borrowed securities sold	￦	2,583,092	￦	1,934,735
Other		80,235		91,216

		2,663,327		2,025,951

Financial liabilities designated at fair value through profit or loss
Derivative-linked securities		12,704,826		9,784,107

		12,704,826		9,784,107

	￦	15,368,153	￦	11,810,058

20.2 Difference between the carrying amount and contractual cash flow amount of financial liabilities designated at fair value through profit or loss as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Contractual cash flow amount	￦	12,515,734		￦	9,583,186
Carrying amount		12,704,826			9,784,107

Difference	￦	(189,092	)	￦	(200,921	)

21. Deposits

Details of deposits as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Demand deposits
Demand deposits in Korean won	￦	127,790,349		￦	162,155,728
Demand deposits in foreign currencies		8,550,068			14,473,832

		136,340,417			176,629,560

Time deposits
Time deposits in Korean won		157,653,603			149,435,968

		157,653,603			149,435,968

Time deposits in foreign currencies		7,377,173			10,043,679
Fair value adjustments on fair value hedged time deposits in foreign currencies		(18,391	)		2,089

		7,358,782			10,045,768

		165,012,385			159,481,736

Certificates of deposits		4,239,969			2,468,924

	￦	305,592,771		￦	338,580,220

F-151

22. Borrowings

22.1 Details of borrowings as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
General borrowings	￦	24,370,567	￦	32,312,859
Bonds sold under repurchase agreements and others		13,015,506		16,334,365
Call money		432,787		1,179,932

	￦	37,818,860	￦	49,827,156

22.2 Details of general borrowings as of December 31, 2019 and 2020, are as follows:


		Lenders	Annual interest rate (%)	December 31, 2019		December 31, 2020
				(In millions of Korean won)
Borrowings in Korean won	Borrowings from the Bank of Korea	The Bank of Korea	0.25	￦	2,649,851	￦	6,463,267
	Borrowings from the government	SEMAS and others	0.00 ~ 2.70		1,658,810		2,675,568
	Borrowings from banks	Shinhan Bank and others	1.55 ~ 3.01		116,160		137,952
	Borrowings from non-banking financial institutions	Korea Securities Finance Corporation and others	0.20 ~ 4.74		1,982,242		2,203,702
	Other borrowings	The Korea Development Bank and others	0.00 ~ 5.20		8,022,921		9,717,382

					14,429,984		21,197,871

Borrowings in foreign currencies	Due to banks	Commonwealth Bank of Australia and others	—		4,682		292
	Borrowings from banks	Central Bank of Uzbekistan and others	0.00 ~ 8.84		8,089,368		9,839,110
	Borrowings from other financial institutions	The Export-Import Bank of Korea and others	0.70 ~ 1.47		7,081		23,827
	Other borrowings	Bank of New York Mellon and others	0.00 ~ 2.80		1,839,452		1,251,759

					9,940,583		11,114,988

				￦	24,370,567	￦	32,312,859

22.3 Details of bonds sold under repurchase agreements and others as of December 31, 2019 and 2020, are as follows:

Lenders

Annual
interest rate
(%)

December 31,
2019

December 31,
2020

(In millions of Korean won)

Bonds sold under repurchase agreements

Individuals, groups and corporations

0.25~3.00

￦

13,011,121

￦

16,329,799

Bills sold

Counter sale

0.10~0.35

4,385

4,566

￦

13,015,506

￦

16,334,365

F-152

22.4 Details of call money as of December 31, 2019 and 2020, are as follows:

Lenders

Annual
interest rate
(%)

December 31,
2019

December 31,
2020

(In millions of Korean won)

Call money in Korean won

The Export-Import Bank of Korea and others

0.48~0.85

￦

165,000

￦

510,000

Call money in foreign currencies

Central Bank of Uzbekistan and others

0.00~0.34

267,787

669,932

￦

432,787

￦

1,179,932

23. Debentures

23.1 Details of debentures as of December 31, 2019 and 2020, are as follows:


	Annual interest rate (%)		December 31, 2019			December 31, 2020
			(In millions of Korean won)
Debentures in Korean won
Structured debentures		5.65 ~ 5.86	￦	33,310		￦	1,960
Exchangeable bonds*		0.00		—			240,000
Subordinated fixed rate debentures		2.02 ~ 4.35		3,386,590			4,834,407
Fixed rate debentures		0.00 ~ 3.50		40,596,755			47,229,619
Floating rate debentures		0.58 ~ 1.55		1,580,000			3,190,000

				45,596,655			55,495,986

Fair value adjustments of fair value hedged debentures in Korean won				21,070			(6,839	)
Less: Discount on debentures in Korean won				(30,029	)		(32,028	)
Less: Adjustment for exchangeable rights in Korean won				—			(14,957	)

				45,587,696			55,442,162

Debentures in foreign currencies
Floating rate debentures		0.58 ~ 1.51		2,227,607			2,232,938
Fixed rate debentures		0.05 ~ 13.50		3,094,196			5,030,580

				5,321,803			7,263,518

Fair value adjustments of fair value hedged debentures in foreign currencies				41,406			81,333
Less: Discount on debentures in foreign currencies				(15,322	)		(26,326	)

				5,347,887			7,318,525

			￦	50,935,583		￦	62,760,687

Fair value of the liability component of exchangeable bonds is calculated by using market interest rates of bonds under the same conditions without the exchangeable rights. The residual amount after deducting the liability component from the issuance amount, represents the value of the exchangeable rights and is recorded in equity. Shares to be exchanged are 5 million treasury shares of KB Financial Group Inc. with the exchange price of ￦ 48,000. Exercise period for exchangeable rights is from the 60th day from the issuance date to 10 days before the maturity date.

F-153

23.2 Changes in debentures based on face value for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Issue		Repayment			Others			Ending
	(In millions of Korean won)
Debentures in Korean won
Structured debentures	￦	34,320	￦	—	￦	(1,010	)	￦	—		￦	33,310
Subordinated fixed rate debentures		3,437,729		—		(51,139	)		—			3,386,590
Fixed rate debentures		43,466,085		91,960,041		(94,829,371	)		—			40,596,755
Floating rate debentures		1,650,000		570,000		(640,000	)		—			1,580,000

		48,588,134		92,530,041		(95,521,520	)		—			45,596,655

Debentures in foreign currencies
Floating rate debentures		1,791,868		532,380		(33,199	)		(63,442	)		2,227,607
Fixed rate debentures		2,951,251		595,490		(590,950	)		138,405			3,094,196

		4,743,119		1,127,870		(624,149	)		74,963			5,321,803

	￦	53,331,253	￦	93,657,911	￦	(96,145,669	)	￦	74,963		￦	50,918,458


	2020
	Beginning		Issue		Repayment			Business combination		Others			Ending
	(In millions of Korean won)
Debentures in Korean won
Structured debentures	￦	33,310	￦	—	￦	(1,350	)	￦	—	￦	(30,000	)	￦	1,960
Exchangeable bonds		—		240,000		—			—		—			240,000
Subordinated fixed rate debentures		3,386,590		2,150,000		(702,183	)		—		—			4,834,407
Fixed rate debentures		40,596,755		111,677,084		(105,044,220	)		—		—			47,229,619
Floating rate debentures		1,580,000		2,010,000		(400,000	)		—		—			3,190,000

		45,596,655		116,077,084		(106,147,753	)		—		(30,000	)		55,495,986

Debentures in foreign currencies
Floating rate debentures		2,227,607		823,478		(675,075	)		—		(143,072	)		2,232,938
Fixed rate debentures		3,094,196		2,909,967		(937,972	)		277,087		(312,698	)		5,030,580

		5,321,803		3,733,445		(1,613,047	)		277,087		(455,770	)		7,263,518

	￦	50,918,458	￦	119,810,529	￦	(107,760,800	)	￦	277,087	￦	(485,770	)	￦	62,759,504

F-154

24. Provisions

24.1 Details of provisions as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Provisions for credit losses of unused loan commitments	￦	208,148	￦	298,753
Provisions for credit losses of acceptances and guarantees		77,759		62,254
Provisions for credit losses of financial guarantee contracts		6,063		6,348
Provisions for restoration costs		120,340		151,696
Others		115,619		195,852

	￦	527,929	￦	714,903

24.2 Changes in provisions for credit losses of unused loan commitments, acceptances and guarantees for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Provisions for credit losses of unused loan commitments									Provisions for credit losses of acceptances and guarantees
	12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non- impaired			Impaired			12-month expected credit losses			Non- impaired			Impaired
	(In millions of Korean won)
Beginning	￦	132,876		￦	68,920		￦	8,881		￦	27,084		￦	30,109		￦	17,982
Transfer between stages
Transfer to 12-month expected credit losses		32,622			(31,408	)		(1,214	)		365			(365	)		—
Transfer to lifetime expected credit losses		(16,932	)		17,195			(263	)		(975	)		1,705			(729	)
Impairment		(422	)		(1,516	)		1,938			(24	)		(280	)		304
Provision (reversal) for credit losses		(21,171	)		18,036			45			(1,763	)		4,584			(893	)
Others (exchange differences, etc.)		324			237			—			274			259			122

Ending	￦	127,297		￦	71,464		￦	9,387		￦	24,961		￦	36,012		￦	16,786

F-155

24.2 Changes in provisions for credit losses of unused loan commitments, acceptances and guarantees for the years ended December 31, 2019 and 2020, are as follows: (cont’d)


	2020
	Provisions for credit losses of unused loan commitments									Provisions for credit losses of acceptances and guarantees
	12-month expected credit losses			Lifetime expected credit losses						12-month expected credit losses			Lifetime expected credit losses
	12-month expected credit losses			Non- impaired			Impaired			12-month expected credit losses			Non- impaired			Impaired
	(In millions of Korean won)
Beginning	￦	127,297		￦	71,464		￦	9,387		￦	24,961		￦	36,012		￦	16,786
Transfer between stages
Transfer to 12-month expected credit losses		23,318			(21,694	)		(1,624	)		194			(191	)		(3	)
Transfer to lifetime expected credit losses		(13,431	)		15,991			(2,560	)		(486	)		486			—
Impairment		(304	)		(3,474	)		3,778			(5	)		(461	)		466
Provision (reversal) for credit losses*		24,583			65,449			(412	)		9,482			(20,389	)		(2,734	)
Business combination		19,426			—			—			—			—			—
Others (exchange differences, etc.)		(18,168	)		(273	)		—			(1,058	)		(619	)		(187	)

Ending	￦	162,721		￦	127,463		￦	8,569		￦	33,088		￦	14,838		￦	14,328

*	Includes additional provision of ￦ 14,974 million for industries and borrowers which are highly affected by COVID-19, and ￦ 28,385 million due to expanding the scope of the loans subject to lifetime expected credit losses (non-impaired) for the year ended December 31, 2020.

24.3 Changes in provisions for credit losses of financial guarantee contracts for the years ended December 31, 2019 and 2020, are as follows:


	2019			2020
	(In millions of Korean won)
Beginning	￦	4,275		￦	6,063
Provision		1,865			280
Others		(77	)		5

Ending	￦	6,063		￦	6,348

24.4 Changes in provisions for restoration costs for the years ended December 31, 2019 and 2020, are as follows:


	2019			2020
	(In millions of Korean won)
Beginning	￦	108,000		￦	120,340
Provision		7,037			14,192
Reversal		(7,178	)		(2,010	)
Used		(5,211	)		(9,469	)
Unwinding of discount		2,237			2,372
Effect of changes in discount rate		15,455			23,886
Business combination		—			2,385

Ending	￦	120,340		￦	151,696

F-156

Provisions for restoration costs are the present value of estimated costs to be incurred for the restoration of the leased properties. The expenditure of the restoration cost will be incurred at the end of each lease contract, and the lease period is used to reasonably estimate the time of expenditure. Also, the average restoration expense based on actual three-year historical data and three-year historical average inflation rate were used to estimate the present value of estimated costs.

24.5 Changes in other provisions for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Membership rewards program			Dormant accounts			Litigations			Others*			Total
	(In millions of Korean won)
Beginning	￦	12,654		￦	4,377		￦	21,190		￦	89,511		￦	127,732
Increase		56,758			2,378			23,863			38,025			121,024
Decrease		(54,743	)		(3,176	)		(16,363	)		(58,855	)		(133,137	)

Ending	￦	14,669		￦	3,579		￦	28,690		￦	68,681		￦	115,619


	2020
	Membership rewards program			Dormant accounts			Litigations			Others*			Total
	(In millions of Korean won)
Beginning	￦	14,669		￦	3,579		￦	28,690		￦	68,681		￦	115,619
Increase		76,138			2,607			19,186			89,361			187,292
Decrease		(71,306	)		(3,179	)		(9,725	)		(28,173	)		(112,383	)
Business combination		—			—			2,366			2,958			5,324

Ending	￦	19,501		￦	3,007		￦	40,517		￦	132,827		￦	195,852

*	Provisions for incomplete sales of cardssurance are ￦ 2,532 million and ￦ 1,319 million, as of December 31, 2019 and 2020, respectively.

25. Net Defined Benefit Liabilities

25.1 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.

•

The Group assumes actuarial risk (that benefits will cost more than expected) and investment risk.

The net defined benefit liability recognized in the consolidated statement of financial position is calculated by independent actuaries in accordance with actuarial valuation methods. The net defined benefit obligation is calculated using the Projected Unit Credit method (the ‘PUC’). Data used in the PUC such as interest rates, future salary increase rate, mortality rate and consumer price index are based on observable market data and historical data which are updated annually.

Actuarial assumptions may differ from actual results, due to changes in the market, economic trends and mortality trends which may impact defined benefit liabilities and future payments. Actuarial gains and losses arising from changes in actuarial assumptions are recognized in the period incurred through other comprehensive income.

F-157

25.2 Changes in net defined benefit liabilities for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
	(In millions of Korean won)
Beginning	￦	2,172,260		￦	(1,910,047	)	￦	262,213
Current service cost		226,788			—			226,788
Past service cost		2,276			—			2,276
Interest expense (income)		48,795			(43,250	)		5,545
Remeasurements:
Actuarial gains or losses by changes in demographic assumptions		(3,122	)		—			(3,122	)
Actuarial gains or losses by changes in financial assumptions		61,547			—			61,547
Actuarial gains or losses by experience adjustments		7,458			—			7,458
Return on plan assets (excluding amounts included in interest income)		—			11,116			11,116
Contributions by the Group		—			(288,420	)		(288,420	)
Payments from plans (benefit payments)		(141,820	)		141,798			(22	)
Payments from the Group		(32,556	)		—			(32,556	)
Transfer in		7,775			(7,425	)		350
Transfer out		(7,517	)		7,517			—
Effect of exchange differences		(2	)		—			(2	)
Others		(129	)		1			(128	)

Ending*	￦	2,341,753		￦	(2,088,710	)	￦	253,043

F-158


	2020
	Present value of defined benefit obligation			Fair value of plan assets			Net defined benefit liabilities
	(In millions of Korean won)
Beginning	￦	2,341,753		￦	(2,088,710	)	￦	253,043
Current service cost		232,147			—			232,147
Past service cost		3,269			—			3,269
Gains on settlement		(1,912	)		—			(1,912	)
Interest expense (income)		46,178			(41,435	)		4,743
Remeasurements:
Actuarial gains and losses by changes in demographic assumptions		(9,611	)		—			(9,611	)
Actuarial gains and losses by changes in financial assumptions		789			—			789
Actuarial gains and losses by experience adjustments		16,292			—			16,292
Return on plan assets (excluding amounts included in interest income)		—			6,308			6,308
Contributions by the Group		—			(268,918	)		(268,918	)
Contributions by the employees		—			(248	)		(248	)
Payments from plans (settlement)		(8,162	)		8,162			—
Payments from plans (benefit payments)		(148,468	)		144,546			(3,922	)
Payments from the Group		(34,361	)		—			(34,361	)
Transfer in		9,673			(9,027	)		646
Transfer out		(8,635	)		8,635			—
Effect of exchange differences		(724	)		5			(719	)
Effect of business acquisition and disposal		110,080			(62,271	)		47,809
Others		26			—			26

Ending*	￦	2,548,334		￦	(2,302,953	)	￦	245,381

The net defined benefit liabilities of ￦ 253,043 million is calculated by subtracting ￦ 946 million net defined benefit assets from ￦ 253,989 million net defined benefit liabilities as of December 31, 2019. The net defined benefit liabilities of ￦ 245,381 million is calculated by subtracting ￦ 2,845 million net defined benefit assets from ￦ 248,226 million net defined benefit liabilities as of December 31, 2020.

25.3 Details of net defined benefit liabilities as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Present value of defined benefit obligation	￦	2,341,753		￦	2,548,334
Fair value of plan assets		(2,088,710	)		(2,302,953	)

Net defined benefit liabilities	￦	253,043		￦	245,381

F-159

25.4 Details of post-employment benefits recognized in profit or loss as employee compensation and benefits for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019		2020
	(In millions of Korean won)
Current service cost	￦	208,470		￦	226,788	￦	232,147
Past service cost		7,912			2,276		3,269
Net interest expenses on net defined benefit liabilities		3,833			5,545		4,743
Gains on settlement		(1,000	)		—		(1,912	)

Post-employment benefits *	￦	219,215		￦	234,609	￦	238,247

Includes post-employment benefits amounting to ￦ 2,575 million recognized as other operating expense and ￦ 121 million recognized as prepayment for the year ended December 31, 2019 and post-employment benefits amounting to ￦ 2,840 million recognized as other operating expense and ￦ 176 million recognized as prepayment for the year ended December 31, 2020.

25.5 Details of remeasurements of net defined benefit liabilities recognized as other comprehensive income (loss) for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Remeasurements:
Return on plan assets (excluding amounts included in interest income)	￦	(22,420	)	￦	(11,116	)	￦	(6,308	)
Actuarial gains or losses		(167,973	)		(65,883	)		(7,470	)
Income tax effects		52,377			21,172			3,792
Effect of exchange difference		—			—			(399	)

Remeasurements after income tax	￦	(138,016	)	￦	(55,827	)	￦	(10,385	)

25.6 Details of fair value of plan assets as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Assets quoted in an active market		Assets not quoted in an active market		Total
	(In millions of Korean won)
Cash and due from financial institutions	￦	—	￦	2,087,861	￦	2,087,861
Investment fund		—		849		849

	￦	—	￦	2,088,710	￦	2,088,710


	December 31, 2020
	Assets quoted in an active market		Assets not quoted in an active market		Total
	(In millions of Korean won)
Cash and due from financial institutions	￦	—	￦	2,299,500	￦	2,299,500
Derivative instruments		—		1,930		1,930
Investment fund		—		1,523		1,523

	￦	—	￦	2,302,953	￦	2,302,953

F-160

25.7 Details of key actuarial assumptions used as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
Discount rate (%)		1.60~2.00		0.90~2.00
Salary increase rate (%)		0.00~7.50		0.00~7.50
Turnover (%)		0.00~50.00		0.00~50.00

Mortality assumptions are based on the experience-based mortality table issued by Korea Insurance Development Institute in 2019.

25.8 Sensitivity analysis results of significant actuarial assumptions as of December 31, 2020, are as follows:

Changes in principal
assumptions

Effect on net defined benefit obligation

Increase in principal
assumptions

Decrease in principal
assumptions

Discount rate

0.5

4.34% decrease

4.12% increase

Salary increase rate

0.5

1.41% increase

6.41% decrease

Turnover

0.5

0.94% decrease

0.39% increase

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 changes in principal actuarial assumptions is calculated using the same projected unit credit method used in calculating the defined benefit obligations recognized in the consolidated statement of financial position.

25.9 Expected maturity analysis of undiscounted pension benefits (including expected future benefit) as of December 31, 2020 are as follows:

Up to 1 year

1~2 years

2~5 years

5~10 years

Over 10 years

Total

(In millions of Korean won)

Pension benefits*

￦

98,050

￦

182,432

￦

706,187

￦

1,415,615

￦

3,829,749

￦

6,232,033

*	Amount determined under the promotion compensation type defined contribution plan is excluded.

The weighted average duration of the defined benefit obligation is 1.0 ~ 11.5 years .

25.10 Expected contribution to plan assets for the next annual reporting period after December 31, 2020 is estimated to be ￦ 221,271 million.

F-161

26. Other Liabilities

Details of other liabilities as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Other financial liabilities
Other payables	￦	9,485,597	￦	14,247,067
Prepaid card and debit card payables		27,555		31,184
Accrued expenses		3,066,445		2,787,360
Financial guarantee liabilities		46,428		49,286
Deposits for letter of guarantees and others		862,968		1,103,876
Domestic exchange settlement credits		2,079,636		938,039
Foreign exchanges settlement credits		114,316		134,678
Borrowings from other business accounts		256		—
Due to trust accounts		5,216,460		7,542,955
Liabilities incurred from agency relationships		771,609		765,844
Account for agency businesses		407,475		400,507
Dividend payables		473		478
Lease liabilities		544,439		559,113
Others		5,930		51,901

		22,629,587		28,612,288

Other non-financial liabilities
Other payables		283,771		386,094
Unearned revenue		465,501		669,908
Accrued expenses		716,180		815,941
Deferred revenue on credit card points		206,188		211,815
Withholding taxes		158,992		180,092
Separate account liabilities		5,047,080		10,701,404
Others		229,960		226,481

		7,107,672		13,191,735

	￦	29,737,259	￦	41,804,023

27. Equity

27.1 Share Capital

Details of share capital as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
Type of share	Ordinary share		Ordinary share
	(In millions of Korean won and in number of shares)
Number of authorized shares		1,000,000,000		1,000,000,000
Par value per share (In Korean won)	￦	5,000	￦	5,000
Number of issued shares		415,807,920		415,807,920
Share capital	￦	2,090,558	￦	2,090,558

F-162

Changes in outstanding shares for the years ended December 31, 2019 and 2020, are as follows:


	2019			2020
	(In number of shares)
Beginning		395,551,297			389,634,335
Increase		—			—
Decrease		(5,916,962	)		—

Ending		389,634,335			389,634,335

27.2 Hybrid Securities

Details of hybrid securities classified as equity as of December 31, 2019 and 2020, are as follows:

Issuance date

Maturity

Interest rate
(%)

December 31,

2019

December 31,

2020

(In millions of Korean won)

The 1-1st Hybrid securities

May 2, 2019

Perpetual bond

3.23

￦349,309

The 1-2nd Hybrid securities

May 2, 2019

Perpetual bond

3.44

49,896

The 2-1st Hybrid securities

May 8, 2020

Perpetual bond

3.30

—

324,099

The 2-2nd Hybrid securities

May 8, 2020

Perpetual bond

3.43

—

74,812

The 3-1st Hybrid securities

July 14, 2020

Perpetual bond

3.17

—

369,099

The 3-2nd Hybrid securities

July 14, 2020

Perpetual bond

3.38

—

29,922

The 4-1st Hybrid securities

Oct 20, 2020

Perpetual bond

3.00

—

433,996

The 4-2nd Hybrid securities

Oct 20, 2020

Perpetual bond

3.28

—

64,855

￦399,205

￦1,695,988

The above hybrid securities are early redeemable by the Group after 5 or 10 years from the issuance date. On the other hand, hybrid securities of ￦ 574,580 million issued by Kookmin Bank are recognized as non-controlling interests and are early redeemable after 5 years from the issuance date and each interest payment date thereafter.

27.3 Capital Surplus

Details of capital surplus as of December 31, 2019 and 2020, are as follows


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Paid-in capital in excess of par value	￦	13,190,274		￦	13,190,274
Loss on sales of treasury shares		(481,332	)		(481,332	)
Other capital surplus		4,413,835			4,002,714
Consideration for exchangeable rights		—			11,933

	￦	17,122,777		￦	16,723,589

F-163

27.4 Accumulated Other Comprehensive Income

Details of accumulated other comprehensive income as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Remeasurements of net defined benefit liabilities	￦	(290,228	)	￦	(300,324	)
Exchange differences on translating foreign operations		31,793			(131,113	)
Net gains on financial instruments at fair value through other comprehensive income		487,331			717,230
Share of other comprehensive income (loss) of associates and joint ventures		3,318			(3,529	)
Losses on cash flow hedging instruments		(27,333	)		(28,597	)
Gains (losses) on hedging instruments of net investments in foreign operations		(41,992	)		22,277
Other comprehensive income arising from separate account		18,381			8,698
Fair value changes on financial liabilities designated at fair value due to own credit risk		(20,326	)		(11,507	)
Net gains on overlay approach adjustment		187,077			339,202

	￦	348,021		￦	612,337

27.5 Retained Earnings

Details of retained earnings as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020 ²
	(In millions of Korean won)
Legal reserves ¹	￦	482,807	￦	557,405
Voluntary reserves		982,000		982,000
Unappropriated retained earnings		18,244,738		20,977,987

	￦	19,709,545	￦	22,517,392

With respect to the allocation of net profit earned in a fiscal term, the Parent Company must set aside in its legal reserve an amount equal to at least 10% of its profit after tax as reported in the financial statements, 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 53 of the Financial Holding Company Act. This reserve is not available for the payment of cash dividends, but may be transferred to share capital, or used to reduce accumulated deficit.

²	Retained earnings restricted for dividend at subsidiaries level pursuant to law and regulations amounts to ￦ 3,587,439 million as of December 31, 2020.

27.6 Treasury Shares

Changes in treasury shares for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Acquisition		Disposal			Ending
	(In millions of Korean won and in number of shares)
Number of treasury shares		22,560,240		5,916,962		(2,303,617	)		26,173,585
Carrying amount	￦	968,549	￦	267,639	￦	(100,000	)	￦	1,136,188

F-164


	2020
	Beginning		Acquisition		Disposal		Ending
	(In millions of Korean won and in number of shares)
Number of treasury shares*		26,173,585		—		—		26,173,585
Carrying amount	￦	1,136,188	￦	—	￦	—	￦	1,136,188

*	5,000,000 treasury shares are deposited at the Korea Securities Depository for issuing exchangeable bonds.

28. Net Interest Income

Details of interest income, expense and net interest income for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In millions of Korean won)
Interest income
Due from financial institutions measured at fair value through profit or loss	￦	9,236	￦	2,685	￦	649
Securities measured at fair value through profit or loss		713,058		668,377		647,840
Loans measured at fair value through profit or loss		26,066		33,001		10,876
Securities measured at fair value through other comprehensive income		718,327		774,864		719,434
Loans measured at fair value through other comprehensive income		2,373		14,708		7,899
Due from financial institutions measured at amortized cost		109,155		150,635		92,155
Securities measured at amortized cost		604,709		599,519		627,201
Loans measured at amortized cost		11,431,359		12,247,493		12,177,822
Others		120,286		147,905		201,871

		13,734,569		14,639,187		14,485,747

Interest expenses
Deposits		3,041,739		3,481,121		2,916,794
Borrowings		544,562		596,425		572,946
Debentures		1,148,729		1,240,566		1,186,310
Others		94,611		124,288		87,423

		4,829,641		5,442,400		4,763,473

Net interest income	￦	8,904,928	￦	9,196,787	￦	9,722,274

Interest income recognized on impaired loans is ￦48,974 million, ￦ 54,033 million and ￦ 56,606 million for the years ended December 31, 2018, 2019 and 2020, respectively.

F-165

29. Net Fee and Commission Income

Details of fee and commission income, expense and net fee and commission income for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In millions of Korean won)
Fee and commission income
Banking activity fees	￦	208,443	￦	214,512	￦	189,100
Lending activity fees		74,340		83,916		91,663
Credit card and debit card related fees		1,360,515		1,316,636		1,378,450
Agent activity fees		149,585		172,211		196,518
Trust and other fiduciary fees		363,767		388,352		331,827
Fund management related fees		132,657		153,798		154,612
Acceptances and guarantees fees		44,104		48,122		54,108
Foreign currency related fees		124,201		134,145		173,313
Securities agency fees		167,071		145,846		172,097
Other business account commission on consignment		36,947		36,813		40,461
Commissions received on securities business		518,309		445,987		793,278
Lease fees		246,537		428,195		636,301
Others		291,244		310,714		315,296

		3,717,720		3,879,247		4,527,024

Fee and commission expense
Trading activity related fees*		31,889		28,869		38,497
Lending activity fees		25,734		26,040		33,444
Credit card and debit card related fees		907,831		892,391		848,823
Outsourcing related fees		164,594		190,312		216,962
Foreign currency related fees		43,053		42,902		49,435
Others		301,243		343,729		380,924

		1,474,344		1,524,243		1,568,085

Net fee and commission income	￦	2,243,376	￦	2,355,004	￦	2,958,939

*	Fees from financial instruments at fair value through profit or loss.

F-166

30. Net Gains or Losses on Financial Instruments at Fair Value through Profit or Loss

30.1 Net Gains or Losses on Financial Instruments at Fair Value through Profit or Loss

Net gains or losses on financial instruments at fair value through profit or loss include dividend income and gains or losses arising from changes in fair values, sales and redemptions. Details of net gains or losses on financial instruments at fair value through profit or loss for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In millions of Korean won)
Gains on financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt securities	￦	1,544,892	￦	1,613,946	￦	2,061,505
Equity securities		571,404		428,646		725,072

		2,116,296		2,042,592		2,786,577

Derivatives held for trading
Interest rate		2,328,576		2,685,998		2,632,246
Currency		3,764,985		5,251,597		8,335,594
Stock or stock index		1,383,446		2,612,422		2,808,284
Credit		38,461		41,548		28,434
Commodity		8,285		15,240		18,097
Other		92,947		212,731		231,901

		7,616,700		10,819,536		14,054,556

Financial liabilities at fair value through profit or loss		72,410		46,750		28,160
Other financial instruments		22		5,811		689

		9,805,428		12,914,689		16,869,982

Losses on financial instruments at fair value through profit or loss
Financial assets at fair value through profit or loss
Debt securities		850,129		752,999		1,040,285
Equity securities		475,968		315,743		444,554

		1,326,097		1,068,742		1,484,839

Derivatives held for trading
Interest rate		2,610,305		2,758,205		2,687,114
Currency		3,499,356		5,118,095		8,191,456
Stock or stock index		1,626,007		1,585,086		2,558,205
Credit		36,747		42,172		19,213
Commodity		10,456		9,437		21,797
Other		117,741		190,979		253,406

		7,900,612		9,703,974		13,731,191

Financial liabilities at fair value through profit or loss		134,287		94,426		153,227
Other financial instruments		60		5,704		116

		9,361,056		10,872,846		15,369,373

Net gains on financial instruments at fair value through profit or loss	￦	444,372	￦	2,041,843	￦	1,500,609

F-167

30.2 Net Gains or Losses on Financial Instruments Designated at Fair Value through Profit or Loss

Net gains or losses on financial instruments designated at fair value through profit or loss include dividend income and gains or losses arising from changes in fair values, sales and redemptions. Details of net gains or losses on financial instruments designated at fair value through profit or loss for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Gains on financial instruments designated at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss	￦	667,508		￦	555,749		￦	654,045

		667,508			555,749			654,045

Losses on financial instruments designated at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss		760,577			1,953,720			1,143,288

		760,577			1,953,720			1,143,288

Net losses on financial instruments designated at fair value through profit or loss	￦	(93,069	)	￦	(1,397,971	)	￦	(489,243	)

F-168

31. Net Other Operating Income and Expenses

Details of other operating income and expenses for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Other operating income
Gains related to financial instruments at fair value through other comprehensive income
Gains on redemption of financial instruments at fair value through other comprehensive income	￦	259		￦	796		￦	351
Gains on disposal of financial instruments at fair value through other comprehensive income		134,875			222,371			304,217

		135,134			223,167			304,568

Gains related to financial assets at amortized cost
Gains on sale of loans measured at amortized cost		46,877			80,746			180,038
Gains on disposal of securities measured at amortized cost		—			—			229

		46,877			80,746			180,267

Gains on foreign exchange transactions		1,600,161			2,183,703			3,634,987
Dividend income		83,930			54,768			45,125
Others		260,709			321,244			591,798

		2,126,811			2,863,628			4,756,745

Other operating expenses
Losses related to financial instruments at fair value through other comprehensive income
Losses on redemption of financial instruments at fair value through other comprehensive income		17			—			320
Losses on disposal of financial instruments at fair value through other comprehensive income		35,864			16,975			19,159

		35,881			16,975			19,479

Losses related to financial assets at amortized cost
Losses on sale of loans measured at amortized cost		9,006			19,439			16,061
Losses on disposal of securities measured at amortized cost		—			—			6,513

		9,006			19,439			22,574

Losses on foreign exchanges transactions		1,539,837			1,970,294			3,530,618
Others		1,672,123			1,920,244			2,684,004

		3,256,847			3,926,952			6,256,675

Net other operating expenses	￦	(1,130,036	)	￦	(1,063,324	)	￦	(1,499,930	)

F-169

32. General and Administrative Expenses

32.1 Details of general and administrative expenses for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In millions of Korean won)
Employee Benefits
Salaries and short-term employee benefits—salaries	￦	2,512,945	￦	2,557,821	￦	2,789,201
Salaries and short-term employee benefits—others		870,356		848,421		871,014
Post-employment benefits—defined benefit plans		217,085		231,913		235,231
Post-employment benefits—defined contribution plans		21,056		27,924		37,328
Termination benefits		242,010		239,790		361,098
Share-based payments		10,930		49,418		49,364

		3,874,382		3,955,287		4,343,236

Depreciation and amortization		408,771		784,431		874,911

Other general and administrative expenses
Rental expense		361,344		109,745		116,325
Tax and dues		214,683		238,670		260,071
Communication		46,661		48,749		53,596
Electricity and utilities		28,823		29,161		32,298
Publication		16,018		15,136		13,988
Repairs and maintenance		22,432		23,947		32,448
Vehicle		12,495		11,537		14,314
Travel		19,393		21,452		12,251
Training		30,310		31,451		27,610
Service fees		210,081		227,631		238,787
Electronic data processing expenses		189,007		258,456		280,773
Advertising		217,244		228,826		236,618
Others		266,868		286,538		295,926

		1,635,359		1,531,299		1,615,005

	￦	5,918,512	￦	6,271,017	￦	6,833,152

32.2 Share-based Payments

32.2.1 Stock grants

The Group changed the scheme of share-based payments from stock options to stock grants in November 2007. The stock grants 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 pre-set performance targets over the vesting period.

F-170

32.2.1.1 Details of stock grants linked to long-term performance as of December 31, 2020, are as follows:


	Grant date	Number of granted shares ¹		Vesting conditions ²
		(In number of shares)
KB Financial Group Inc.
Series 21	Jan. 01, 2019		25,172	Services fulfillment, market performance ³ 0~30% and non-market performance ⁴ 70~100%
Series 22	Apr. 01, 2019		3,226	Services fulfillment, market performance ³ 30% and non-market performance ⁴ 70%
Series 23	May 27, 2019		1,436	Services fulfillment, market performance ³ 30% and non-market performance ⁴ 70%
Series 24	Jul. 17, 2019		8,195	Services fulfillment, market performance ³ 30% and non-market performance ⁴ 70%
Series 25	Jan. 01, 2020		57,367	Services fulfillment, market performance ³ 0~30% and non-market performance ⁴ 70%~100%
Series 26	Mar. 18, 2020		430	Services fulfillment, market performance ³ 30% and non-market performance ⁴ 70%
Series 27	Jun. 15, 2020		187	Services fulfillment, market performance ³ 30% and non-market performance ⁴ 70%
Series 28	Nov. 21, 2020		68,135	Services fulfillment, market performance ³ 35% and non-market performance ⁵ 65%
Deferred grant	2015		7,674	Satisfied
	2016		8,705	Satisfied
	2017		17,983	Satisfied
	2018		5,960	Satisfied
	2019		24,533	Satisfied
	2020		28,134	Satisfied

			257,137

Kookmin Bank
Series 75	Jan. 01, 2019		154,996	Services fulfillment, market performance ³ 0~50% and non-market performance ⁴ 50~100%
Series 76	Apr. 01, 2019		5,380	Services fulfillment, market performance ³ 30~50% and non-market performance ⁴ 50~70%
Series 77	May 27, 2019		4,468	Services fulfillment, market performance ³ 30~50% and non-market performance ⁴ 50~70%
Series 78	Nov. 21, 2019		36,443	Services fulfillment, market performance ³ 30% and non-market performance ⁶ 70%
Series 79	Jan. 01, 2020		241,609	Services fulfillment, market performance ³ 0~50% and non-market performance ⁴ 50~100%
Series 80	Mar. 01, 2020		7,711	Services fulfillment, market performance ³ 30~50% and non-market performance ⁴ 50~70%
Deferred grant	2015		2,759	Satisfied
	2016		19,109	Satisfied
	2017		47,863	Satisfied
	2018		65,514	Satisfied
	2019		98,194	Satisfied

			684,046

F-171


	Grant date	Number of granted shares ¹		Vesting conditions ²
		(In number of shares)
Other subsidiaries
Stock granted in 2010	—		106	Services fulfillment, market performance ³ 10~50% and non-market performance ⁴ , 50~90%
Stock granted in 2011	—		146
Stock granted in 2012	—		420
Stock granted in 2013	—		622
Stock granted in 2014	—		1,028
Stock granted in 2015	—		3,323
Stock granted in 2016	—		9,103
Stock granted in 2017	—		36,814
Stock granted in 2018	—		120,266
Stock granted in 2019	—		331,688
Stock granted in 2020	—		268,669

			772,185

			1,713,368

¹	Granted shares represent the total number of shares initially granted to executives and employees who have residual shares as of December 31, 2020 (Deferred grants are residual shares vested as of December 31, 2020).

Executives and employees were given the option of deferred payment of the granted shares (after the date of retirement), payment ratio, and payment period. Accordingly, a certain percentage of the granted amount is deferred for up to five years after the date of retirement after the deferred grant has been confirmed.

³	Relative TSR (Total Shareholders Return): [(Fair value at the end of the contract—Fair value at the beginning of the contract) + (Total amount of dividend per share paid during the contract period)] / Fair value at the beginning of the contract

⁴	Companies’ and individuals’ performance results

⁵	EPS, Asset Quality, HCROI, Profit from non-banking segments

⁶	EPS, Asset Quality

F-172

32.2.1.2 Details of stock grants linked to short-term performance as of December 31, 2020, are as follows:


	Estimated number of vested shares*		Vesting conditions
	(In number of shares)
KB Financial Group Inc.
Stock granted in 2015		7,524	Satisfied
Stock granted in 2016		6,595	Satisfied
Stock granted in 2017		7,385	Satisfied
Stock granted in 2018		14,292	Satisfied
Stock granted in 2019		28,030	Satisfied
Stock granted in 2020		37,300	Proportional to service period
Kookmin Bank
Stock granted in 2015		9,887	Satisfied
Stock granted in 2016		19,662	Satisfied
Stock granted in 2017		30,003	Satisfied
Stock granted in 2018		73,989	Satisfied
Stock granted in 2019		125,530	Satisfied
Stock granted in 2020		121,676	Proportional to service period
Other subsidiaries
Stock granted in 2015		12,191	Satisfied
Stock granted in 2016		40,970	Satisfied
Stock granted in 2017		149,329	Satisfied
Stock granted in 2018		345,546	Satisfied
Stock granted in 2019		551,667	Satisfied
Stock granted in 2020		290,013	Proportional to service period

		1,871,589

F-173

32.2.1.3 Stock grants are measured at fair value using the MonteCarlo Simulation Model and assumptions used in determining the fair value as of December 31, 2020, are as follows:

Risk-free
rate (%)

Fair value
(market
performance
condition)

Fair value
(non-market
performance
condition)

(in Korean won)

Linked to long-term performance

( KB Financial Group Inc. )

Series 21

0.74

38,789~45,096

Series 22

0.74

37,324~41,899

Series 23

0.74

37,324~41,899

Series 24

0.74

38,789~45,096

Series 25

0.74

37,324~45,096

Series 26

0.74

38,789~45,096

Series 27

0.74

38,789~45,096

Series 28

0.74

30,871~34,675

34,694~38,969

Deferred grant in 2015

0.74

—

35,895~45,096

Deferred grant in 2016

0.74

—

38,789~45,096

Deferred grant in 2017

0.74

—

40,299~45,096

Deferred grant in 2018

0.74

—

38,789~45,096

Deferred grant in 2019

0.74

—

40,299~47,631

Deferred grant in 2020

0.74

—

38,969~42,065

( Kookmin Bank )

Series 75

0.74

38,789~45,096

Series 76

0.74

37,324~41,899

Series 77

0.74

37,324~41,899

Series 78

0.74

36,370~40,828

37,324~41,899

Series 79

0.74

37,324~45,096

Series 80

0.74

35,895~40,299

Grant deferred in 2015

0.74

—

41,899~45,096

Grant deferred in 2016

0.74

—

38,789~45,096

Grant deferred in 2017

0.74

—

38,789~45,096

Grant deferred in 2018

0.74

—

38,789~45,096

Grant deferred in 2019

0.74

—

40,299~45,096

( Other subsidiaries )

Stock granted in 2010

0.74

—

40,299~40,299

Stock granted in 2011

0.74

—

40,299~40,299

Stock granted in 2012

0.74

—

40,299~41,899

Stock granted in 2013

0.74

—

35,692~41,899

Stock granted in 2014

0.74

—

41,899~41,899

Stock granted in 2015

0.74

—

34,581~47,631

Stock granted in 2016

0.74

—

37,324~56,293

Stock granted in 2017

0.74

—

34,581~61,294

Stock granted in 2018

0.74

33,612~44,072

35,895~47,631

Stock granted in 2019

0.74

37,324~45,096

34,581~47,631

Stock granted in 2020

0.74

35,780~45,096

35,895~45,096

F-174


	Risk-free rate (%)		Fair value (Market performance condition)		Fair value (Non-market performance condition)
	(in Korean won)
Linked to short-term performance
( KB Financial Group Inc. )
Stock granted in 2015		0.74		—		35,895~45,096
Stock granted in 2016		0.74		—		34,581~45,096
Stock granted in 2017		0.74		—		38,789~45,096
Stock granted in 2018		0.74		—		38,789~47,631
Stock granted in 2019		0.74		—		40,299~45,096
Stock granted in 2020		0.74		—		38,789~42,065
(Kookmin Bank)
Stock granted in 2015		0.74		—		38,789~47,153
Stock granted in 2016		0.74		—		37,324~61,294
Stock granted in 2017		0.74		—		38,789~47,631
Stock granted in 2018		0.74		—		38,789~47,631
Stock granted in 2019		0.74		—		40,299~45,096
Stock granted in 2020		0.74		—		38,789~41,899
(Other subsidiaries)
Stock granted in 2015		0.74		—		34,581~45,096
Stock granted in 2016		0.74		—		34,581~47,631
Stock granted in 2017		0.74		—		34,581~47,631
Stock granted in 2018		0.74		—		34,581~47,631
Stock granted in 2019		0.74		—		34,581~45,096
Stock granted in 2020		0.74		—		35,895~43,147

The Group used the volatility of the stock price over the previous year as the expected volatility, and used the arithmetic mean of the dividend rate of one year before, two years before, and three years before the base year as the dividend rate, and used one-year risk-free rate of Korea Treasury Bond in order to calculate fair value.

32.2.1.4 The accrued expenses for share-based payments related to stocks grants as of December 31, 2019 and 2020, are ￦ 124,853 million and ￦ 135,327 million, respectively, and compensation costs from stock grants amounting to ￦ 49,418 million and ￦ 48,712 million were recognized for the years ended December 31, 2019 and 2020, respectively.

F-175

32.2.2 Mileage stock

32.2.2.1 Details of mileage stock as of December 31, 2020, are as follows:


	Grant date	Number of granted shares 1		Expected exercise period (years) ²	Remaining shares
	(In number of shares)
Stock granted in 2018	Jan. 10, 2018		19,197	0.00~0.02		13,522
	Feb. 12, 2018		9	0.00~0.12		3
	Apr. 02, 2018		115	0.00~0.25		82
	Apr. 30, 2018		86	0.00~0.33		49
	May 08, 2018		170	0.00~0.35		140
	Jun. 01, 2018		140	0.00~0.41		106
	Jul. 02, 2018		180	0.00~0.50		123
	Aug. 07, 2018		194	0.00~0.60		149
	Aug. 09, 2018		47	0.00~0.60		31
	Aug. 14, 2018		30	0.00~0.62		26
	Aug. 16, 2018		130	0.00~0.62		93
	Sep. 07, 2018		106	0.00~0.68		77
	Oct. 04, 2018		129	0.00~0.76		78
	Nov. 01, 2018		258	0.00~0.83		200
	Nov. 06, 2018		236	0.00~0.85		168
	Dec. 03, 2018		132	0.00~0.92		127
	Dec. 04, 2018		21	0.00~0.92		21
	Dec. 07, 2018		91	0.00~0.93		78
	Dec. 12, 2018		64	0.00~0.95		32
	Dec. 18, 2018		271	0.00~0.96		237
	Dec. 19, 2018		42	0.00~0.96		34
	Dec. 31, 2018		127	0.00~1.00		106
Stock granted in 2019	Jan. 11, 2019		26,580	0.00~1.03		21,231
	Feb. 01, 2019		12	0.00~1.08		8
	Apr. 01, 2019		167	0.00~1.25		96
	Apr. 18, 2019		105	0.00~1.29		81
	Apr. 22, 2019		33	0.00~1.30		33
	Jul. 01, 2019		109	0.00~1.50		87
	Aug. 29, 2019		39	0.00~1.66		39
	Sep. 02, 2019		50	0.00~1.67		50
	Nov. 01, 2019		119	0.00~1.83		95
	Nov. 08, 2019		14	0.00~1.85		14
	Dec. 05, 2019		56	0.00~1.93		54
	Dec. 06, 2019		84	0.00~1.93		84
	Dec. 31, 2019		87	0.00~2.00		87
Stock granted in 2020	Jan. 18, 2020		28,645	0.00~2.05		27,672
	May 12, 2020		46	0.00~2.36		46
	Jun. 30, 2020		206	0.00~2.50		206
	Aug. 26, 2020		40	0.00~2.65		40
	Oct. 29, 2020		160	0.00~2.83		160
	Nov. 6, 2020		45	0.00~2.85		45
	Nov. 30, 2020		35	0.00~2.92		35
	Dec. 2, 2020		57	0.00~2.92		57
	Dec. 4, 2020		154	0.00~2.93		154
	Dec. 30, 2020		88	0.00~3.00		88

		78,706			65,944

F-176

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 shares are assessed based on the stock price as of December 31, 2020. These shares are vested immediately at grant date.

32.2.2.2 The accrued expenses for share-based payments related to mileage stock as of December 31, 2019 and 2020, are ￦ 2,705 million and ￦ 2,862 million, respectively. The compensation costs amounting to ￦ 1,334 million and ￦ 1,086 million were recognized as expenses for the years ended December 31, 2019 and 2020, respectively.

32.2.3 Long-term share-based payments

The Group calculates the short-term performance bonus of directors of Prudential Life Insurance Company of Korea Ltd. based on the results of the current performance evaluation and will defer the bonus for three years and pay it in cash reflecting the stock price of KB Financial Group at that time.

32.2.3.1 Details of long-term share-based payments as of December 31, 2020, are as follows:

Grant date

Vested shares

Expected exercise period (years)

Vesting condition

Granted in 2020

2020

16,800

3.00

Services fulfillment

32.2.3.2 long-term share-based payments are measured at fair value using the MonteCarlo Simulation Model and assumptions used in determining the fair value as of December 31, 2020, are as follows:

Risk-free rate (%)

Fair value
(Market performance condition)

Fair value
(Non-market
performance condition)

(in Korean won)

Granted in 2020

0.741

—

38,789

32.2.3.3 The accrued expenses for long-term share-based payments as of December 31, 2020 are ￦ 652 million. The compensation costs amounting to ￦ 652 million were recognized as expenses for the year ended December 31, 2020.

F-177

33. Non-Operating Income and Expenses

Details of non-operating income and expenses for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In millions of Korean won)
Non-operating income
Gains on disposal of property and equipment	￦	34,238	￦	35,747	￦	111,132
Rental income		55,321		85,720		113,075
Gain on a bargain purchase		—		—		145,067
Gain on sales of disposal group held for sale		118,716		2,731		—
Others		37,122		84,793		96,931

		245,397		208,991		466,205

Non-operating expenses
Losses on disposal of property and equipment		6,131		8,587		11,945
Donation		130,249		102,711		113,083
Restoration costs		4,386		2,902		5,043
Management cost for written-off loans		3,338		3,382		3,018
Others		91,502		64,523		143,726

		235,606		182,105		276,815

Net non-operating income	￦	9,791	￦	26,886	￦	189,390

F-178

34. Income Tax Expense

34.1 Details of income tax expense for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019			2020
	(In millions of Korean won)
Tax payable
Current tax expense	￦	1,096,600		￦	1,043,047		￦	1,099,171
Adjustments of tax of prior years recognized in current tax		22,925			(51,130	)		(13,434	)

		1,119,525			991,917			1,085,737

Changes in deferred income tax assets (liabilities)*		114,345			285,820			323,032

Income tax recognized directly in equity and others
Remeasurements of net defined benefit liabilities		52,377			21,172			3,792
Exchange differences on translating foreign operations		(13,087	)		(5,714	)		14,988
Net gains or losses on financial instruments at fair value through other comprehensive income		(33,329	)		(13,168	)		(88,907	)
Shares of other comprehensive income or loss of associates and joint ventures		1,374			(3,147	)		2,976
Gains or losses on cash flow hedging instruments		400			10,537			7,580
Gains or losses on hedging instruments of net investments in foreign operations		10,292			3,194			(24,500	)
Other comprehensive income or loss arising from separate account		(10,864	)		(1,301	)		3,671
Fair value changes on financial liabilities designated at fair value due to own credit risk		(563	)		4,294			(3,350	)
Net gains or losses on overlay approach adjustment		(884	)		(72,817	)		(61,637	)
Consideration for exchangeable rights		—			—			(4,526	)

		5,716			(56,950	)		(149,913	)

Others		—			—			495

Income tax expense	￦	1,239,586		￦	1,220,787		￦	1,259,351

*	Effect of business combination is excluded.

F-179

34.2 Analysis of the net profit before income tax and income tax expense for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018						2019						2020
	Tax rate (%)			Amount			Tax rate (%)			Amount			Tax rate (%)			Amount
	(In millions of Korean won)
Profit before tax				￦	4,301,532					￦	4,533,986					￦	4,761,632
Tax at the applicable tax rate*		27.26			1,172,559			27.27			1,236,484			27.28			1,299,087
Non-taxable income		(0.28	)		(11,888	)		(0.52	)		(23,601	)		(1.55	)		(73,855	)
Non-deductible expense		0.64			27,551			0.42			19,086			0.35			16,541
Tax credit and tax exemption		(0.01	)		(637	)		(0.01	)		(627	)		(0.08	)		(4,016	)
Temporary difference for which no deferred tax is recognized		0.29			12,260			(0.11	)		(4,860	)		0.47			22,189
Changes in recognition and measurement of deferred tax		(0.06	)		(2,692	)		—			(100	)		0.24			11,616
Income tax refund for tax of prior years		(0.19	)		(8,135	)		(0.20	)		(9,105	)		(0.46	)		(22,139	)
Income tax expense of overseas branch		0.09			3,882			0.11			5,004			0.23			10,739
Effects from change in tax rate		(0.03	)		(1,470	)		—			—			—			—
Others		1.12			48,156			(0.03	)		(1,494	)		(0.02	)		(811	)

Average effective tax rate and tax expense		28.82		￦	1,239,586			26.93		￦	1,220,787			26.45		￦	1,259,351

*	Applicable income tax rate for ￦ 200 million and below is 11%, for over ￦ 200 million to ￦ 20 billion is 22%, for over ￦ 20 billion to ￦ 300 billion is 24.2% and for over ￦ 300 billion is 27.5% for the years ended December 31, 2018, 2019 and 2020.

35. Dividends

The dividends paid to the shareholders of the Parent Company in 2019 and 2020 were ￦ 759,736 million (￦ 1,920 per share) and ￦ 861,092 million (￦ 2,210 per share), respectively. The dividend to the shareholders for the year ended December 31, 2020, amounting to ￦ 689,653 million (￦ 1,770 per share) is to be proposed at the annual general meeting on March 26, 2021. The Group’s consolidated financial statements as of December 31, 2020, do not reflect this dividend payable.

F-180

36. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning			Changes except for reclassification			Reclassification to profit or loss			Transfer to retained earnings		Tax effect			Ending
	(In millions of Korean won)
Remeasurements of net defined benefit liabilities	￦	(234,401	)	￦	(76,999	)	￦	—		￦	—	￦	21,172		￦	(290,228	)
Exchange differences on translating foreign operations		(5,784	)		37,938			5,353			—		(5,714	)		31,793
Net gains on financial instruments at fair value through other comprehensive income		450,694			106,984			(82,662	)		25,483		(13,168	)		487,331
Share of other comprehensive income (loss) of associates and joint ventures		(4,377	)		10,842			—			—		(3,147	)		3,318
Gains (losses) on cash flow hedging instruments		5,849			(65,323	)		21,604			—		10,537			(27,333	)
Losses on hedging instruments of net investments in foreign operations		(33,092	)		(13,410	)		1,316			—		3,194			(41,992	)
Other comprehensive income arising from separate account		15,017			21,029			(16,364	)		—		(1,301	)		18,381
Fair value changes on financial liabilities designated at fair value due to own credit risk		(8,954	)		(15,666	)		—			—		4,294			(20,326	)
Net gains (losses) on overlay approach adjustment		(7,146	)		269,643			(2,603	)		—		(72,817	)		187,077

	￦	177,806		￦	275,038		￦	(73,356	)	￦	25,483	￦	(56,950	)	￦	348,021

F-181


	2020
	Beginning			Changes except for reclassification			Reclassification to profit or loss			Transfer to retained earnings			Tax effect			Ending
	(In millions of Korean won)
Remeasurements of net defined benefit liabilities	￦	(290,228	)	￦	(13,888	)	￦	—		￦	—		￦	3,792		￦	(300,324	)
Exchange differences on translating foreign operations		31,793			(177,894	)		—			—			14,988			(131,113	)
Net gains on financial instruments at fair value through other comprehensive income		487,331			757,236			(112,020	)		(326,410	)		(88,907	)		717,230
Share of other comprehensive income (loss) of associates and joint ventures		3,318			(3,923	)		(5,900	)		—			2,976			(3,529	)
Losses on cash flow hedging instruments		(27,333	)		(48,034	)		39,190			—			7,580			(28,597	)
Gains (losses) on hedging instruments of net investments in foreign operations		(41,992	)		88,769			—			—			(24,500	)		22,277
Other comprehensive income arising from separate account		18,381			2,834			(16,188	)		—			3,671			8,698
Fair value changes on financial liabilities designated at fair value due to own credit risk		(20,326	)		12,169			—			—			(3,350	)		(11,507	)
Net gains on overlay approach adjustment		187,077			248,688			(34,926	)		—			(61,637	)		339,202

	￦	348,021		￦	865,957		￦	(129,844	)	￦	(326,410	)	￦	(145,387	)	￦	612,337

F-182

37. Earnings per Share

37.1 Basic Earnings per Share

Basic earnings per share is calculated by dividing profit attributable to shareholders of the Parent Company by the weighted average number of ordinary shares outstanding.

37.1.1 Weighted average number of ordinary shares outstanding

Details of weighted average number of ordinary shares outstanding for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018						2019						2020
	(in number of shares)
	Number of Shares			Accumulated amount			Number of Shares			Accumulated amount			Number of shares			Accumulated amount
Number of issued ordinary shares		418,111,537			152,610,711,005			415,807,920			152,564,638,665			415,807,920			152,185,698,720
Number of treasury shares		(22,560,240	)		(7,888,226,378	)		(26,173,585	)		(9,801,574,522	)		(26,173,585	)		(9,579,532,110	)

Average number of ordinary shares outstanding		395,551,297			144,722,484,627			389,634,335			142,763,064,143			389,634,335			142,606,166,610
Number of days					365						365						366
Weighted average number of ordinary shares outstanding					396,499,958						391,131,683						389,634,335

37.1.2 Basic earnings per share

Details of basic earnings per share for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In Korean won and in number of shares)
Profit attributable to shareholders of the Parent Company	￦	3,061,191,387,929	￦	3,311,827,412,557	￦	3,455,151,501,224
Deduction: Dividends on hybrid securities		—		6,512,500,000		22,859,500,000
Profit attributable to the ordinary equity holders of the Parent Company (A)		3,061,191,387,929		3,305,314,912,557		3,432,292,001,224
Weighted average number of ordinary shares outstanding (B)		396,499,958		391,131,683		389,634,335
Basic earnings per share (A/B)	￦	7,721	￦	8,451	￦	8,809

37.2 Diluted Earnings per Share

Diluted earnings per share is calculated through increasing the weighted average number of ordinary shares outstanding by the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. The Group has categories of dilutive potential ordinary shares such as stock grants and ordinary share exchange rights of exchangeable bonds.

A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price for the year) based on the monetary value of stock grants. The number of shares calculated above is compared with the number of shares that would have been issued assuming the settlement of stock grants.

F-183

In addition, exchangeable bonds issued for the year ended December 31, 2020, were included in potential ordinary shares from the exercisable date of the exchange right, and interest expenses after tax for the period were added to profit for diluted earnings per share.

37.2.1 Adjusted profit for diluted earnings per share

Adjusted profit for diluted earnings per share for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In Korean won)
Profit attributable to shareholders of the Parent Company	￦	3,061,191,387,929	￦	3,311,827,412,557	￦	3,455,151,501,224
Deduction: Dividends on hybrid securities		—		6,512,500,000		22,859,500,000

Profit attributable to ordinary equity holders of the Parent Company		3,061,191,387,929		3,305,314,912,557		3,432,292,001,224
Adjustments: Interest expense on exchangeable bonds		—		—		798,012,332

Adjusted profit for diluted earnings per share	￦	3,061,191,387,929	￦	3,305,314,912,557	￦	3,433,090,013,556

37.2.2 Weighted average number of ordinary shares outstanding for diluted earnings per share

Adjusted weighted average number of ordinary shares outstanding for diluted earnings per share for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In number of shares)
Weighted average number of ordinary shares outstanding		396,499,958		391,131,683		389,634,335
Adjustment:
Stock grants		2,307,630		2,890,513		3,416,737
Exchangeable bonds		—		—		1,707,650

Adjusted weighted average number of ordinary shares outstanding for diluted earnings per share		398,807,588		394,022,196		394,758,722

37.2.3 Diluted earnings per share

Details of diluted earnings per share for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018		2019		2020
	(In Korean won and in number of shares)
Adjusted profit for diluted earnings per share	￦	3,061,191,387,929	￦	3,305,314,912,557	￦	3,433,090,013,556
Adjusted weighted average number of ordinary shares outstanding for diluted earnings per share		398,807,588		394,022,196		394,758,722

Diluted earnings per share	￦	7,676	￦	8,389	￦	8,697

F-184

38. Insurance Contracts

38.1 Insurance Assets

38.1.1 Details of deferred acquisition costs included in other assets as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Non-life insurance	￦	786,626	￦	965,683
Life insurance		134,739		205,289

	￦	921,365	￦	1,170,972

38.1.2 Changes in deferred acquisition costs included in other assets for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Increase		Amortization			Ending
	(In millions of Korean won)
Non-life insurance	￦	547,831	￦	815,712	￦	(576,917	)	￦	786,626
Life insurance		119,293		117,808		(102,362	)		134,739

	￦	667,124	￦	933,520	￦	(679,279	)	￦	921,365


	2020
	Beginning		Increase		Amortization			Ending
	(In millions of Korean won)
Non-life insurance	￦	786,626	￦	872,811	￦	(693,754	)	￦	965,683
Life insurance		134,739		144,429		(73,879	)		205,289

	￦	921,365	￦	1,017,240	￦	(767,633	)	￦	1,170,972

F-185

38.1.3 Details of reinsurance assets included in other assets as of December 31, 2019 and 2020, are as follows:


		December 31, 2019		December 31, 2020
		(In millions of Korean won)
Non-life insurance	Reserve for outstanding claims
	General insurance	￦	361,065	￦	732,579
	Automobile insurance		16,555		14,916
	Long-term insurance		130,758		156,234
	Unearned premium reserve
	General insurance		208,820		285,634
	Automobile insurance		19,952		10,870

			737,150		1,200,233

Life insurance	Reserve for outstanding claims		1,639		2,081
	Unearned premium reserve		408		951

			2,047		3,032

Others	Reserve for outstanding claims		2,563		2,427
Others	Unearned premium reserve		844		895

			3,407		3,322

Total reinsurance assets			742,604		1,206,587
Allowances for impairment			1,953		879

Total reinsurance assets, net		￦	740,651	￦	1,205,708

38.1.4 Changes in reinsurance assets included in other assets for the years ended December 31, 2019 and 2020, are as follows:


		2019
		Beginning		Net increase (decrease)			Ending
		(In millions of Korean won)
Non-life insurance	Reserve for outstanding claims
	General insurance	￦	360,997	￦	68		￦	361,065
	Automobile insurance		18,057		(1,502	)		16,555
	Long-term insurance		109,751		21,007			130,758
	Unearned premium reserve
	General insurance		171,240		37,580			208,820
	Automobile insurance		30,864		(10,912	)		19,952

			690,909		46,241			737,150

Life insurance	Reserve for outstanding claims		1,912		(273	)		1,639
Life insurance	Unearned premium reserve		448		(40	)		408

			2,360		(313	)		2,047

Others	Reserve for outstanding claims		3,417		(854	)		2,563
Others	Unearned premium reserve		983		(139	)		844

			4,400		(993	)		3,407

Total reinsurance assets			697,669		44,935			742,604
Allowance for impairment			1,916		37			1,953

Total reinsurance assets, net		￦	695,753	￦	44,898		￦	740,651

F-186


		2020
		Beginning		Net increase (decrease)			Business combination		Ending
		(In millions of Korean won)
Non-life insurance	Reserve for outstanding claims
	General insurance	￦	361,065	￦	371,514		￦	—	￦	732,579
	Automobile insurance		16,555		(1,639	)		—		14,916
	Long-term insurance		130,758		25,476			—		156,234
	Unearned premium reserve
	General insurance		208,820		76,814			—		285,634
	Automobile insurance		19,952		(9,082	)		—		10,870

			737,150		463,083			—		1,200,233

Life insurance	Reserve for outstanding claims		1,639		(564	)		1,006		2,081
Life insurance	Unearned premium reserve		408		(27	)		570		951

			2,047		(591	)		1,576		3,032

Others	Reserve for outstanding claims		2,563		(136	)		—		2,427
Others	Unearned premium reserve		844		51			—		895

			3,407		(85	)		—		3,322

Total reinsurance assets			742,604		462,407			1,576		1,206,587
Allowances for impairment			1,953		(1,074	)		—		879

Total reinsurance assets, net		￦	740,651	￦	463,481		￦	1,576	￦	1,205,708

38.2 Insurance Liabilities

38.2.1 Details of insurance liabilities by insurance types as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Non-life insurance		Life insurance		Others		Total
	(In millions of Korean won)
Premium reserve	￦	23,799,607	￦	6,991,247	￦	—	￦	30,790,854
Reserve for outstanding claims		2,297,256		101,690		2,563		2,401,509
Unearned premium reserve		1,522,827		4,603		845		1,528,275
Reserve for dividend to policyholders		117,094		29,745		—		146,839
Reserve for distribution of earnings to policyholders		46,901		4,202		—		51,103
Reserve for loss compensation on participating insurance		20,090		5,784		—		25,874
Guarantee reserve		—		22,229		—		22,229

	￦	27,803,775	￦	7,159,500	￦	3,408	￦	34,966,683

F-187


	December 31, 2020
	Non-life insurance		Life insurance		Others		Total
	(In millions of Korean won)
Premium reserve*	￦	24,990,530	￦	23,264,955	￦	—	￦	48,255,485
Reserve for outstanding claims		2,885,006		252,883		2,426		3,140,315
Unearned premium reserve		1,859,367		9,450		896		1,869,713
Reserve for dividend to policyholders		129,660		41,024		—		170,684
Reserve for distribution of earnings to policyholders		51,292		5,009		—		56,301
Reserve for loss compensation on participating insurance		20,090		6,818		—		26,908
Guarantee reserve		—		895,890		—		895,890

	￦	29,935,945	￦	24,476,029	￦	3,322	￦	54,415,296

*	Negative VOBA amounting to ￦ 2,698,010 million is included.

38.2.2 Changes in insurance liabilities for the years ended December 31, 2019 and 2020, are as follows:


		2019
		Beginning		Net increase (decrease) ¹			Ending
		(In millions of Korean won)
Non-life insurance	General insurance	￦	1,054,823	￦	10,090		￦	1,064,913
	Automobile insurance		1,492,294		131,552			1,623,846
	Long-term insurance		23,386,279		1,619,799			25,006,078
	Long-term investment contract		110,256		(1,318	)		108,938
Life insurance	Pure endowment insurance		5,233,491		2,637			5,236,128
	Death insurance		500,571		142,392			642,963
	Endowment insurance		1,621,460		(350,605	)		1,270,855
	Group insurance		735		(211	)		524
	Others ²		8,640		391			9,031
Others			4,400		(993	)		3,407

		￦	33,412,949	￦	1,553,734		￦	34,966,683


		2020
		Beginning		Net increase (decrease) ¹			Business combination		Ending
		(In millions of Korean won)
Non-life insurance	General insurance	￦	1,064,913	￦	503,828		￦	—	￦	1,568,741
	Automobile insurance		1,623,846		274,026			—		1,897,872
	Long-term insurance		25,006,078		1,356,401			—		26,362,479
	Long-term investment contract		108,938		(2,085	)		—		106,853
Life insurance	Pure endowment insurance		5,236,128		318,109			2,016,112		7,570,349
	Death insurance		642,963		404,456			14,658,632		15,706,051
	Endowment insurance		1,270,855		(156,688	)		74,132		1,188,299
	Group insurance		524		(1,021	)		—		(497	)
	Others ²		9,031		(1,217	)		4,013		11,827
Others			3,407		(85	)		—		3,322

		￦	34,966,683	￦	2,695,724		￦	16,752,889	￦	54,415,296

F-188

¹	Includes exchange differences effect and decrease in liabilities related to investment contract.

²	Includes reserve for distribution of earnings to policyholders and Reserve for loss compensation on participating insurance.

38.3 Liability Adequacy Test

According to the revision of the Regulations on Supervision of Insurance Business, the criteria for the insurance liability adequacy test were changed, and the Group accounted for the change as a change in accounting policy because it provided reliable and more relevant information about current estimates of future cash flows. This change in accounting policy has no effect on the consolidated financial statements, but comparative notes have been restated.

38.3.1 KB Insurance Co., Ltd.

Assumptions and basis for the insurance liability adequacy test of KB Insurance Co., Ltd. as of December 31, 2019 and 2020, are as follows:


	Assumptions (%)				Calculation basis
	December 31, 2019		December 31, 2020		Calculation basis
Long-term insurance
Discount rate		1.53~8.34		0.83~15.42	Calculated by applying interest rate scenario which is risk-free rate scenario adjusted by liquidity premium. This is presented by the Financial Supervisory Service
Expense ratio		6.60		6.46	Calculated using future expense plan based on the most recent one-year experience statistics
Lapse ratio		1.51~34.13		1.48~35.44	Calculated based on the recent five-year experience statistics
Risk ratio		13.1~1,037.3		11.9~1,055.2	Calculated by ratio of insurance claim payments to risk premiums based on the recent seven-year experience statistics
General insurance
Expense ratio		11.38		10.74	Ratio of maintenance costs incurred to earned premiums by the types of contracts for the most recent one year
Claim survey cost ratio		4.54		4.70	Ratio of claim survey cost to insurance claim payments by the type of contracts for the most recent three years
Loss ratio		64.95		70.74	Ratio of final loss incurred to earned premiums by the type of contracts for the most recent five years
Automobile insurance
Expense ratio		9.94		9.00	Ratio of maintenance costs incurred to earned premiums by the types of collaterals for the most recent one year
Claim survey cost ratio		8.84		8.40	Ratio of claim survey cost to insurance claim payments by the type of collaterals for the most recent three years
Loss ratio		78.44		78.20	Ratio of final loss incurred to earned premiums by the type of collaterals for the most recent five years

F-189

Results of the insurance liability adequacy test of KB Insurance Co., Ltd. as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Recognized liabilities*		Estimated adequate liabilities		Shortfall (surplus)
	(In millions of Korean won)
General insurance	￦	365,234	￦	296,801	￦	(68,433	)
Automobile insurance		1,123,450		1,071,076		(52,374	)
Long-term insurance		19,775,907		10,685,319		(9,090,588	)

	￦	21,264,591	￦	12,053,196	￦	(9,211,395	)


	December 31, 2020
	Recognized liabilities*		Estimated adequate liabilities		Shortfall (surplus)
	(In millions of Korean won)
General insurance	￦	461,227	￦	384,780	￦	(76,447	)
Automobile insurance		1,363,104		1,279,587		(83,517	)
Long-term insurance		20,892,077		11,982,350		(8,909,727	)

	￦	22,716,408	￦	13,646,717	￦	(9,069,691	)

*	Long-term insurance is for premium reserves and unearned premium reserves; the premium reserve is the amount of subtracting deferred acquisition costs and insurance contract loans from the net insurance premium reserve in accordance with Article 6-3 of the Insurance Supervisory Regulation.

As a result of liability adequacy test, the Group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of liability adequacy test.

38.3.2 KB Life Insurance Co., Ltd.

Assumptions and basis for the insurance liability adequacy test of KB Life Insurance Co., Ltd. as of December 31, 2019 and 2020, are as follows:


	Assumptions (%)
	December 31, 2019	December 31, 2020	Calculation basis
Lapse ratio	0~65.39	0~65.50	Ratio of canceled premiums to premiums by product group, method of payment, channel, and elapsed period, based on the most recent five-year experience statistics

Loss ratio	11~132	24~156	Ratio of number of accidents to the number of holding insurances, by collateral, gender and elapsed period, based on the most recent seven-year experience statistics

Discount rate	1.04~5.79	0.98~15.33	Estimated investment yield based on the interest rate scenario provided by the Financial Supervisory Service adjusted by risk spread

Indirect costs included in administration expenses were calculated based on unit cost of the expense allocation standards of the last year in accordance with the Detailed Regulations on Supervision of Insurance Business. Direct costs included in administration expenses were calculated based on estimates of future expense according to the Group’s internal regulations.

F-190

The insurance liability adequacy test of KB Life Insurance Co., Ltd. is performed by contract types such as interest rate types and dividend types. Results of life insurance liability adequacy test as of December 31, 2019 and 2020, are as follows:


		December 31, 2019
		Recognized liabilities			Estimated adequate liabilities			Shortfall (surplus)
		(In millions of Korean won)
Fixed interest type	Participating	￦	30,514		￦	56,460		￦	25,946
Fixed interest type	Non-participating		180,058			45,166			(134,892	)

Variable interest type	Participating		1,037,148			1,080,830			43,682
Variable interest type	Non-participating		5,335,572			5,069,047			(266,525	)

Variable type			(23,514	)		(133,781	)		(110,267	)

Total		￦	6,559,778		￦	6,117,722		￦	(442,056	)


		December 31, 2020
		Recognized liabilities			Estimated adequate liabilities			Shortfall (surplus)
		(In millions of Korean won)
Fixed interest type	Participating	￦	30,447		￦	56,125		￦	25,678
Fixed interest type	Non-participating		395,766			12,952			(382,814	)

Variable interest type	Participating		970,376			991,663			21,287
Variable interest type	Non-participating		5,508,172			5,141,265			(366,907	)

Variable type			(26,685	)		(124,623	)		(97,938	)

Total		￦	6,878,076		￦	6,077,382		￦	(800,694	)

As a result of liability adequacy test, the Group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of liability adequacy test.

38.3.3 Prudential Life Insurance Company of Korea Ltd.

Assumptions and basis for the insurance liability adequacy test of Prudential Life Insurance Company of Korea Ltd. as of December 31, 2020, are as follows:


	Assumptions (%)	Calculation basis
Lapse ratio	2~28	Ratio of canceled premiums to premiums by product group and elapsed period, based on the most recent five-year experience statistics
Loss ratio	21~312	Calculated by ratio of insurance claim payments to risk premiums based on the recent five-year experience statistics
Discount rate	0.85~16.27	Estimated investment yield based on the interest rate scenario provided by the Financial Supervisory Service adjusted by risk spread

F-191

The insurance liability adequacy test of Prudential Life Insurance Company of Korea Ltd. is performed by contract types such as interest rate types and dividend types. Results of life insurance liability adequacy test as of December 31, 2020, are as follows:


		December 31, 2020
		Recognized liabilities		Estimated adequate liabilities			Shortfall (surplus)
		(In millions of Korean won)
Fixed interest type	Participating	￦	75,390	￦	83,404		￦	8,014
Fixed interest type	Non-participating		11,037,531		10,534,663			(502,868	)

Variable interest type	Participating		—		—			—
Variable interest type	Non-participating		721,570		547,754			(173,816	)

Variable type			369,991		(1,220,080	)		(1,590,071	)

Total		￦	12,204,482	￦	9,945,741		￦	(2,258,741	)

As a result of liability adequacy test, the Group did not set additional reserve as it shows net surplus. As such, there was no amount recorded as a result of liability adequacy test.

38.4 Net Insurance Income

Details of insurance income and expenses for the years ended December 31, 2018, 2019 and 2020, are as follows:


		2018		2019		2020
		(In millions of Korean won)
Insurance Income	Premium income	￦	10,730,227	￦	11,173,367	￦	12,872,727
	Reinsurance income		873,053		850,871		823,500
	Reversal of policy reserves		344		993		85
	Separate account income		360,664		216,429		216,485
	Income from change in reinsurance assets		—		42,432		467,729
	Other insurance income		10,782		33,090		6,114

			11,975,070		12,317,182		14,386,640

Insurance Expenses	Insurance claims paid		4,415,760		5,046,772		5,264,829
	Dividend expenses		9,400		9,902		11,661
	Refunds of surrender value		2,855,573		2,870,543		3,286,150
	Reinsurance expenses		947,560		1,018,007		1,127,304
	Provision for policy reserves		1,608,519		1,547,264		2,709,903
	Separate account expenses		276,412		139,810		113,703
	Administration expenses		418,646		453,016		563,085
	Amortization of deferred acquisition costs		606,073		679,279		767,633
	Expenses from change in reinsurance assets		89,621		314		163
	Claim survey expenses paid		38,782		52,123		58,873
	Other insurance expenses		218,608		200,640		183,343

			11,484,954		12,017,670		14,086,647

Net insurance income		￦	490,116	￦	299,512	￦	299,993

F-192

38.5 Risk Management of KB Insurance Co., Ltd.

38.5.1 Overview

Insurance risk is the risk that arises from a primary operation of insurance companies that is associated with acceptance of insurance contract and payment of claims and is classified as the insurance price risk and the reserves risk. The insurance price risk is the risk of loss that might occur when the actual risk exceeds the expected risk ratio or expected expense ratio in calculation of premiums. It is the risk of loss that arises from differences between actual payment of claims and premiums received from policyholders. The reserves risk is the risk that arises due to a deficit in reserves at the date of assessment, making the Group unable to cover the actual claims payment in the future.

38.5.2 Purposes, policies and procedures to manage risk arising from insurance contracts

The risks associated with insurance contract that the Group faces are the insurance actuarial risk and the acceptance risk. Each risk occurs due to insurance contract’s pricing and conditions of acceptance. In order to minimize acceptance risk, the Group establishes guidelines and procedure for acceptance and outlines specific conditions for acceptance by product. In addition, expected risk level at the date of pricing is compared with actual risk of contracts after acceptance and various subsequent measures such as the adjustments in the interest rate and sales conditions, termination of selling specific product and others are taken in order to reduce insurance actuarial risk. The Group has a committee to discuss status of product acceptance risk and interest rate policy. The committee decides important matters to set the processes that allow minimizing the insurance actuarial risk, the acceptance risk and other business-related risk.

In addition, according to reinsurance operating standards, the Group establishes an operating strategy of reinsurance for large claims expense due to unexpected catastrophic events. The Group aims at policy holders’ safety and its stable profit achievement. For the long-term goal, the Group manages risk at a comprehensive level to keep its value at the maximum.

38.5.3 Exposure to insurance price risk

According to RBC standard, exposure to insurance price risk is defined as net written premiums for prior one year that is calculated by adding and subtracting direct insurance premium, assumed reinsurance premium and ceded reinsurance premium.

The Group’s exposure to insurance price risk as of December 31, 2019 and 2020, as follows:


	December 31, 2019
	Direct insurance		Reinsurance assumed		Reinsurance ceded			Total
	(In millions of Korean won)
General	￦	999,348	￦	101,613	￦	(579,922	)	￦	521,039
Automobile		2,101,780		—		(40,067	)		2,061,713
Long-term		2,550,236		—		(367,904	)		2,182,332

	￦	5,651,364	￦	101,613	￦	(987,893	)	￦	4,765,084


	December 31, 2020
	Direct insurance		Reinsurance assumed		Reinsurance ceded			Total
	(In millions of Korean won)
General	￦	1,088,791	￦	79,429	￦	(663,750	)	￦	504,470
Automobile		2,491,412		—		(21,433	)		2,469,979
Long-term		2,803,532		—		(415,439	)		2,388,093

	￦	6,383,735	￦	79,429	￦	(1,100,622	)	￦	5,362,542

F-193

38.5.4 Concentration of insurance risk

The Group is selling general non-life insurances (fire, maritime, injury, technology, liability, package, title, guarantee and special type insurances), automobile insurances (for private use, for hire, for business, bicycle and other), long-term insurances (long-term non-life, property damage, injury, driver, savings, illness, nursing and pension) and various other insurances. The Group’s risk is distributed through reinsurance, joint acceptance and diversified selling. In addition, insurances that cover severe level of risk, although there is rare possibility of the occurrence of disaster, such as storm and flood insurance are limited, and the Group controls the risk through joint acquisition.

38.5.5 Claims development tables

The Group uses claim development of payments and the estimated ultimate claims for the years where the accident has occurred, in order to maintain overall reserve adequacy in respect of general, automobile and long-term insurance. When the estimated ultimate claims are greater than claim payments, the Group establishes additional reserves. Claims development tables as of December 31, 2019 and 2020, are as follows:

<2019>

General Insurance


	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2015.1.1 ~ 2015.12.31	￦	125,162	￦	144,566	￦	147,031	￦	147,616	￦	148,995
2016.1.1 ~ 2016.12.31		145,618		167,818		171,205		178,265		—
2017.1.1 ~ 2017.12.31		168,409		200,704		204,538		—		—
2018.1.1 ~ 2018.12.31		200,280		237,111		—		—		—
2019.1.1 ~ 2019.12.31		220,474		—		—		—		—

		859,943		750,199		522,774		325,881		148,995

Gross cumulative claim payments (B)
2015.1.1 ~ 2015.12.31		93,443		129,764		137,157		141,218		143,985
2016.1.1 ~ 2016.12.31		108,098		151,283		162,059		170,353		—
2017.1.1 ~ 2017.12.31		132,430		184,333		193,811		—		—
2018.1.1 ~ 2018.12.31		153,770		216,705		—		—		—
2019.1.1 ~ 2019.12.31		185,832		—		—		—		—

		673,573		682,086		493,027		311,571		143,985

Difference (A-B)	￦	186,369	￦	68,112	￦	29,747	￦	14,310	￦	5,010

F-194

Automobile Insurance


	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2013.1.1 ~ 2013.12.31	￦	1,131,945	￦	1,156,535	￦	1,170,968	￦	1,179,458	￦	1,179,323	￦	1,179,514	￦	1,180,458
2014.1.1 ~ 2014.12.31		1,174,611		1,193,832		1,205,524		1,212,025		1,212,162		1,214,524		—
2015.1.1 ~ 2015.12.31		1,227,106		1,245,780		1,256,058		1,263,044		1,267,142		—		—
2016.1.1 ~ 2016.12.31		1,276,939		1,281,381		1,287,728		1,294,735		—		—		—
2017.1.1 ~ 2017.12.31		1,342,998		1,348,828		1,358,867		—		—		—		—
2018.1.1 ~ 2018.12.31		1,468,784		1,471,807		—		—		—		—		—
2019.1.1 ~ 2019.12.31		1,591,793		—		—		—		—		—		—

		9,214,176		7,698,163		6,279,145		4,949,262		3,658,627		2,394,038		1,180,458

Gross cumulative claim payments (B)
2013.1.1 ~ 2013.12.31		939,569		1,114,063		1,145,110		1,161,624		1,168,617		1,175,681		1,178,158
2014.1.1 ~ 2014.12.31		969,211		1,150,462		1,180,953		1,196,387		1,204,580		1,208,421		—
2015.1.1 ~ 2015.12.31		1,020,975		1,198,241		1,228,357		1,245,779		1,254,187		—		—
2016.1.1 ~ 2016.12.31		1,052,830		1,235,656		1,264,651		1,282,346		—		—		—
2017.1.1 ~ 2017.12.31		1,104,158		1,306,235		1,335,962		—		—		—		—
2018.1.1 ~ 2018.12.31		1,224,820		1,428,973		—		—		—		—		—
2019.1.1 ~ 2019.12.31		1,332,849		—		—		—		—		—		—

		7,644,412		7,433,630		6,155,033		4,886,136		3,627,384		2,384,102		1,178,158

Difference (A-B)	￦	1,569,764	￦	264,533	￦	124,112	￦	63,126	￦	31,243	￦	9,936	￦	2,300

Long-term Insurance


	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2013.1.1 ~ 2013.12.31	￦	709,602	￦	965,587	￦	997,607	￦	1,003,646	￦	1,006,025	￦	1,007,041	￦	1,008,589
2014.1.1 ~ 2014.12.31		789,087		1,083,048		1,114,821		1,119,206		1,122,192		1,123,240		—
2015.1.1 ~ 2015.12.31		885,476		1,219,393		1,256,051		1,266,881		1,270,967		—		—
2016.1.1 ~ 2016.12.31		1,064,744		1,437,573		1,485,839		1,500,403		—		—		—
2017.1.1 ~ 2017.12.31		1,184,224		1,614,903		1,670,929		—		—		—		—
2018.1.1 ~ 2018.12.31		1,372,706		1,881,046		—		—		—		—		—
2019.1.1 ~ 2019.12.31		1,626,481		—		—		—		—		—		—

		7,632,320		8,201,550		6,525,247		4,890,136		3,399,184		2,130,281		1,008,589

Gross cumulative claim payments (B)
2013.1.1 ~ 2013.12.31		671,500		953,494		989,957		999,944		1,003,715		1,005,796		1,007,865
2014.1.1 ~ 2014.12.31		744,944		1,065,792		1,104,468		1,114,341		1,119,531		1,122,378		—
2015.1.1 ~ 2015.12.31		836,471		1,205,130		1,248,475		1,262,528		1,269,557		—		—
2016.1.1 ~ 2016.12.31		1,017,243		1,424,948		1,477,415		1,496,556		—		—		—
2017.1.1 ~ 2017.12.31		1,130,868		1,599,227		1,662,978		—		—		—		—
2018.1.1 ~ 2018.12.31		1,319,613		1,868,434		—		—		—		—		—
2019.1.1 ~ 2019.12.31		1,574,696		—		—		—		—		—		—

		7,295,335		8,117,025		6,483,293		4,873,369		3,392,803		2,128,174		1,007,865

Difference (A-B)	￦	336,985	￦	84,525	￦	41,954	￦	16,767	￦	6,381	￦	2,107	￦	724

F-195

<2020>

General Insurance


	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2016.1.1 ~ 2016.12.31	￦	145,618	￦	167,818	￦	171,206	￦	178,265	￦	180,160
2017.1.1 ~ 2017.12.31		168,409		200,699		204,368		206,201		—
2018.1.1 ~ 2018.12.31		200,968		241,474		246,871		—		—
2019.1.1 ~ 2019.12.31		219,881		263,849		—		—		—
2020.1.1 ~ 2020.12.31		232,622		—		—		—		—

		967,498		873,840		622,445		384,466		180,160

Gross cumulative claim payments (B)
2016.1.1 ~ 2016.12.31		108,098		151,282		162,059		170,353		175,063
2017.1.1 ~ 2017.12.31		132,430		184,333		193,780		199,225		—
2018.1.1 ~ 2018.12.31		153,770		217,955		235,900		—		—
2019.1.1 ~ 2019.12.31		185,645		246,397		—		—		—
2020.1.1 ~ 2020.12.31		167,129		—		—		—		—

		747,072		799,967		591,739		369,578		175,063

Difference (A-B)	￦	220,426	￦	73,873	￦	30,706	￦	14,888	￦	5,097

Automobile Insurance


	Payment year
Accident year	After 1 year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2014.1.1 ~ 2014.12.31	￦	1,174,611	￦	1,193,833	￦	1,205,524	￦	1,212,025	￦	1,212,162	￦	1,214,524	￦	1,217,006
2015.1.1 ~ 2015.12.31		1,227,106		1,245,780		1,256,058		1,263,044		1,267,142		1,271,001		—
2016.1.1 ~ 2016.12.31		1,276,939		1,281,381		1,287,728		1,294,735		1,299,964		—		—
2017.1.1 ~ 2017.12.31		1,342,998		1,348,828		1,358,867		1,368,016		—		—		—
2018.1.1 ~ 2018.12.31		1,468,784		1,471,807		1,481,509		—		—		—		—
2019.1.1 ~ 2019.12.31		1,591,793		1,620,609		—		—		—		—		—
2020.1.1 ~ 2020.12.31		1,624,341		—		—		—		—		—		—

		9,706,572		8,162,238		6,589,686		5,137,820		3,779,268		2,485,525		1,217,006

Gross cumulative claim payments (B)
2014.1.1 ~ 2014.12.31		969,211		1,150,462		1,180,953		1,196,387		1,204,580		1,208,421		1,210,632
2015.1.1 ~ 2015.12.31		1,020,975		1,198,241		1,228,357		1,245,779		1,254,187		1,261,995		—
2016.1.1 ~ 2016.12.31		1,052,830		1,235,656		1,264,651		1,282,346		1,288,754		—		—
2017.1.1 ~ 2017.12.31		1,104,158		1,306,235		1,335,962		1,350,174		—		—		—
2018.1.1 ~ 2018.12.31		1,224,820		1,428,973		1,456,532		—		—		—		—
2019.1.1 ~ 2019.12.31		1,332,849		1,570,194		—		—		—		—		—
2020.1.1 ~ 2020.12.31		1,353,799		—		—		—		—		—		—

		8,058,642		7,889,761		6,466,455		5,074,686		3,747,521		2,470,416		1,210,632

Difference (A-B)	￦	1,647,930	￦	272,477	￦	123,231	￦	63,134	￦	31,747	￦	15,109	￦	6,374

F-196

Long-term Insurance


	Payment year
Accident year	After 1 Year		After 2 years		After 3 years		After 4 years		After 5 years		After 6 years		After 7 years
	(In millions of Korean won)
Estimate of gross ultimate claims (A)
2014.1.1 ~ 2014.12.31	￦	789,088	￦	1,083,049	￦	1,114,820	￦	1,119,206	￦	1,122,191	￦	1,123,240	￦	1,124,628
2015.1.1 ~ 2015.12.31		885,476		1,219,394		1,256,051		1,266,881		1,270,967		1,273,615		—
2016.1.1 ~ 2016.12.31		1,064,744		1,437,573		1,485,839		1,500,403		1,506,889		—		—
2017.1.1 ~ 2017.12.31		1,184,224		1,614,903		1,670,929		1,689,768		—		—		—
2018.1.1 ~ 2018.12.31		1,372,706		1,881,046		1,941,497		—		—		—		—
2019.1.1 ~ 2019.12.31		1,626,481		2,229,830		—		—		—		—		—
2020.1.1 ~ 2020.12.31		1,818,316		—		—		—		—		—		—

		8,741,035		9,465,795		7,469,136		5,576,258		3,900,047		2,396,855		1,124,628

Gross cumulative claim payments (B)
2014.1.1 ~ 2014.12.31		744,944		1,065,792		1,104,468		1,114,341		1,119,531		1,122,378		1,123,868
2015.1.1 ~ 2015.12.31		836,471		1,205,130		1,248,475		1,262,528		1,269,557		1,272,648		—
2016.1.1 ~ 2016.12.31		1,017,243		1,424,948		1,477,415		1,496,556		1,503,841		—		—
2017.1.1 ~ 2017.12.31		1,130,868		1,599,227		1,662,978		1,683,997		—		—		—
2018.1.1 ~ 2018.12.31		1,319,613		1,868,434		1,933,543		—		—		—		—
2019.1.1 ~ 2019.12.31		1,574,696		2,211,717		—		—		—		—		—
2020.1.1 ~ 2020.12.31		1,749,647		—		—		—		—		—		—

		8,373,482		9,375,248		7,426,879		5,557,422		3,892,929		2,395,026		1,123,868

Difference (A-B)	￦	367,553	￦	90,547	￦	42,257	￦	18,836	￦	7,118	￦	1,829	￦	760

38.5.6 Sensitivity analysis of insurance risk

The Group manages insurance risk by performing sensitivity analysis based on discount rate, loss ratio and expense ratio which are considered to have significant influence on future cash flow, timing and uncertainty. According to result of sensitivity analysis there is no material influence on the equity and net profit before tax.


	December 31, 2019
	Assumption Change			Effect on
	Assumption Change			LAT			Insurance liabilities		Profit before tax		Equity
				(In millions of Korean won)
Lapse ratio		+10	%	￦	495,287		￦	—	￦	—	￦	—
		-10	%		(553,013	)		—		—		—
Loss ratio		+10	%		4,576,415			—		—		—
		-10	%		(4,576,415	)		—		—		—
Expense ratio		+10	%		342,587			—		—		—
		-10	%		(342,587	)		—		—		—
Discount rate		+0.5	%p		(1,521,385	)		—		—		—
		-0.5	%p		1,800,472			—		—		—

F-197


	December 31, 2020
	Assumption change			Effect on
	Assumption change			LAT			Insurance liabilities		Profit before tax		Equity
				(In millions of Korean won)
Lapse ratio		+10	%	￦	568,734		￦	—	￦	—	￦	—
		-10	%		(633,788	)		—		—		—
Loss ratio		+10	%		5,012,443			—		—		—
		-10	%		(5,012,443	)		—		—		—
Expense ratio		+10	%		345,752			—		—		—
		-10	%		(345,752	)		—		—		—
Discount rate		+0.5	%p		(1,499,565	)		—		—		—
		-0.5	%p		1,726,707			—		—		—

38.5.7 Liquidity risk of insurance contracts

Liquidity risk arising from insurance contracts is the increase in refunds at maturity caused by concentrations of maturity, the increase in surrender values caused by unexpected amounts in cancelation and the increase in payments of claims caused by catastrophic events. The Group manages payment of refunds payable at maturity by analyzing maturity of insurance.

Premium reserve’s maturity structure as of December 31, 2019 and 2020, as follows:


	December 31, 2019*
	Up to 1 year		1~5 years		5~10 Years		10~20 years		Over 20 years		Total
	(In millions of Korean won)
Long-term insurance non-participating
Fixed interest type	￦	57,532	￦	258,436	￦	84,349	￦	43,141	￦	125,622	￦	569,080
Variable interest type		527,467		2,578,004		2,085,054		777,340		13,336,668		19,304,533

		584,999		2,836,440		2,169,403		820,481		13,462,290		19,873,613

Annuity
Fixed interest type		10		543		2,244		3,714		1,075		7,586
Variable interest type		273		70,180		367,710		1,245,176		2,227,054		3,910,393

		283		70,723		369,954		1,248,890		2,228,129		3,917,979

Asset-linked
Variable interest type		27,389		—		—		—		—		27,389
Total
Fixed interest type		57,542		258,979		86,593		46,855		126,697		576,666
Variable interest type		555,129		2,648,184		2,452,764		2,022,516		15,563,722		23,242,315

	￦	612,671	￦	2,907,163	￦	2,539,357	￦	2,069,371	￦	15,690,419	￦	23,818,981

F-198


	December 31, 2020*
	Up to 1 year		1~5 years		5~10 years		10~20 years		Over 20 years		Total
	(In millions of Korean won)
Long-term insurance non-participating
Fixed interest type	￦	70,782	￦	191,570	￦	78,092	￦	51,216	￦	175,387	￦	567,047
Variable interest type		663,210		2,304,298		1,937,621		845,404		14,716,753		20,467,286

		733,992		2,495,868		2,015,713		896,620		14,892,140		21,034,333

Annuity
Fixed interest type		5		717		2,203		3,817		738		7,480
Variable interest type		242		83,568		390,516		1,301,383		2,195,244		3,970,953

		247		84,285		392,719		1,305,200		2,195,982		3,978,433

Asset-linked
Variable interest type		—		—		—		—		—		—
Total
Fixed interest type		70,787		192,287		80,295		55,033		176,125		574,527
Variable interest type		663,452		2,387,866		2,328,137		2,146,787		16,911,997		24,438,239

	￦	734,239	￦	2,580,153	￦	2,408,432	￦	2,201,820	￦	17,088,122	￦	25,012,766

*	Includes long-term investment contract amounting to ￦ 108,938 million and ￦ 106,853 million, as of December 31, 2019 and 2020, respectively.

38.5.8 Credit risk of insurance contract

Credit risk of insurance contract is the economic loss arising from non-performing contractual obligations due to decline in credit ratings or default. Through strict internal review, only the insurers rated above BBB- of S&P rating are accepted for the insurance contracts.

As of December 31, 2020, there are 168 reinsurance companies that deal with the Group, and the top three reinsurance companies’ concentration and credit ratings are as follows:


Reinsurance company	Ratio			Credit rating
KOREAN RE		48.02	%		AA
MUNICH RE		3.94	%		AAA
ALLIANZGLOBAL		3.85	%		AAA

Exposures to credit risk related to reinsurance as of December 31, 2019 and 2020 as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Reinsurance assets ¹	￦	735,196	￦	1,199,354
Receivables from reinsurers ²		328,177		252,064

	￦	1,063,373	￦	1,451,418

¹	Net carrying amounts after impairment loss

²	Net carrying amounts after allowance for credit losses

F-199

38.5.9 Interest rate risk of insurance contract

The interest rate risk exposure from the Group’s insurance contracts is the risk of unexpected losses in net interest income or net assets arising from changes in interest rates and it is managed to minimize unexpected loss. For long-term, non-life insurance contracts, the Group calculates exposure of interest-bearing assets and interest-bearing liabilities. Liabilities exposure is premium reserves less costs of termination deductions plus unearned premium reserve. Asset exposure is interest-bearing assets. Assets that receive only fees without interest are excluded from interest bearing assets. Exposures to interest rate risk as of December 31, 2019 and 2020, are as follows:

38.5.9.1 Exposure to interest rate risk


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Interest bearing liabilities
Fixed interest rate type	￦	534,236	￦	501,147
Variable interest rate type		21,911,393		23,213,667

	￦	22,445,629	￦	23,714,814

Interest bearing assets
Due from financial institutions measured at amortized cost and cash equivalents	￦	108,559	￦	160,249
Financial assets at fair value through profit or loss		4,560,512		3,823,603
Financial assets at fair value through other comprehensive income		2,984,738		3,983,567
Securities measured at amortized cost		8,163,485		8,700,196
Loans measured at amortized cost		6,924,597		6,271,484

	￦	22,741,891	￦	22,939,099

38.5.9.2 Measurement and recognition method

Duration is used to measure interest rate risk within risk-based solvency test. ALM system is utilized to manage interest rate risk internally. In addition, Risk Management Committee sets ALM strategy every year to manage interest rate risk.

38.5.9.3 Sensitivity to changes in interest rates

Generally, when interest rates rise, the value and duration of assets and liabilities fall when interest rates fall, value and duration of assets and liabilities increase. Where duration of assets is shorter than that of liabilities with the interest rates fall, the interest rate risk is increased since the incremental portion of liabilities exceeds that of assets.

38.5.9.4 Negative spread risk control

In order to manage the negative margins risk between interest expenses on liabilities and investment incomes on assets, the Group sets the disclosure rate every month considering the market interest rate and the investment yield.

38.6 Risk Management of KB Life Insurance Co., Ltd.

38.6.1 Overview

Insurance risk is the risk of loss arising from the actual risk at the time of claims exceeding the estimated risk at the time of underwriting. Insurance risk is classified by insurance price risk and policy reserve risk.

F-200

Insurance price risk is the risk of loss arising from differences between received from policyholders and actual claims paid.

Policy reserve risk is the risk of loss arising from differences between policy reserves the Group holds and actual claims to be paid. Therefore, loss is recognized if actual claims are more than policy reserves.

KB Life Insurance Co., Ltd. measures only insurance price risk under RBC requirement because life insurance claim pay-out is mainly in a fixed amount with less volatility in policy reserve and shorter waiting period before payment.

38.6.2 Concentration of insurance risk and reinsurance policy

The Group uses reinsurance to mitigate concentration of insurance risk seeking an enhanced capital management.

The Group categorized reinsurance into group and individual contracts, and reinsurance is ceded through the following process:

(a)

In the decision-making process of launching a new product, the Group decides on ceding reinsurance. Subsequently, a reinsurer is selected through bidding, agreements with the relevant departments and final approval by the executive management.

(b)

The reinsurance department analyzes the object of reinsurance, the maximum limit of reinsurance and the loss ratio with the relevant departments.

38.6.3 Characteristic and exposure of insurance price risk

The exposure of insurance price risk is measured by the risk premium for all insurance contracts held for one year prior to the calculation date. The premium for risk retention is calculated by adding direct insurance premium and reinsurance assumed premium, and deducting reinsurance ceded premium (which is paid to reinsurance companies). If the holding risk premium is less than zero, the exposure of the insurance price is measured as zero.

The insurance risk of a life insurance company is measured by insurance price risk. As the life insurance coverage is in the form of a fixed payment, the fluctuation of policy reserve is small and the period from insured event to claims payment is not long. The policy reserve risk is managed by assessments of adequacy of the policy reserve.

The insurance price risk is managed through insurance risk management regulation established by Risk Management Committee.

Maximum exposures to insurance price risk as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Before reinsurance mitigation		After reinsurance mitigation
	(In millions of Korean won)
Death	￦	12,882	￦	9,033
Disability		754		424
Hospitalization		1,260		642
Operation and diagnosis		4,419		2,211
Actual medical expense		1,053		396
Others		1,066		411

	￦	21,434	￦	13,117

F-201


	December 31, 2020
	Before reinsurance mitigation		After reinsurance mitigation
	(In millions of Korean won)
Death	￦	13,509	￦	10,409
Disability		672		349
Hospitalization		1,213		787
Operation and diagnosis		4,809		1,783
Actual medical expense		1,095		23
Others		1,045		474

	￦	22,343	￦	13,825

Average ratios of claims paid per risk premium received based on exposure before mitigation for the past three years as of December 31, 2019 and 2020, were 65.7% and 65.1%, respectively.

Exposure of market risk arising from embedded derivatives included in host insurance contracts as of December 31, 2019 and 2020, are as follows:


	December 31, 2019				December 31, 2020
	Policyholders’ reserve*		Guarantee reserve		Policyholders’ reserve*		Guarantee reserve
	(In millions of Korean won)
Variable annuity	￦	429,970	￦	2,565	￦	490,551	￦	2,782
Variable universal		91,988		3,095		90,337		2,515
Variable saving		734,661		516		720,197		504

	￦	1,256,619	￦	6,176	￦	1,301,085	￦	5,801

*	Excludes the amount of the lapsed reserve.

38.6.4 Assumptions used in measuring insurance liabilities

The Group applies assumed rates defined in the premium and liability reserve calculation manual provided by the regulatory authority and in accordance with the Insurance Business Act and the Regulations on Supervision of Insurance Business when measuring insurance liabilities at every reporting period. For variable interest type insurance, disclosed interest rate stated in the premium and liabilities reserve calculation manual, which is calculated based on adjusted external base rate and investment yield according to Article 6-12 of the Regulations on Supervision of Insurance Business.

Reserve amount should exceed the standard reserve which is calculated using the standard interest rate and standard risk ratio as required by the Enforcement Rules of the Insurance Business Act and the Regulations on Supervision of Insurance Business.

38.6.5 Maturity structure of premium reserve as of December 31, 2019 and 2020, as follows:

December 31, 2019

Up to
3 years

3-5 years

5-10 years

10-15 years

15-20 years

Over
20 years

Total

(In millions of Korean won)

Premium reserve

￦

984,945

￦

280,733

￦

665,241

￦

525,699

￦

345,664

￦

4,188,965

￦

6,991,247

December 31, 2020

Up to
3 years

3-5 years

5-10 years

10-15 years

15-20 years

Over
20 years

Total

(In millions of Korean won)

Premium reserve

￦

739,485

￦

350,639

￦

605,931

￦

412,563

￦

451,074

￦

4,770,046

￦

7,329,738

F-202

38.6.6 Sensitivity analysis of insurance risk

The Group manages insurance risk by performing sensitivity analysis based on lapse ratio, claim ratio, expense ratio, discount rate and others which are considered to have significant influence on future cash flow, timing and uncertainty.


	December 31, 2019
	Assumption change			Effect on
	Assumption change			LAT			Insurance liabilities		Profit before tax		Equity
	(In millions of Korean won)
Lapse ratio		+10	%	￦	47,615		￦	—	￦	—	￦	—
		-10	%		(52,877	)		—		—		—
Claim ratio		+10	%		22,675			—		—		—
		-10	%		(23,308	)		—		—		—
Expense ratio		+10	%		32,068			—		—		—
		-10	%		(32,068	)		—		—		—
Discount rate		+0.5	%p		(388,848	)		—		—		—
		-0.5	%p		441,585			—		—		—


	December 31, 2020
	Assumption change			Effect on
	Assumption change			LAT			Insurance liabilities		Profit before tax		Equity
	(In millions of Korean won)
Lapse ratio		+10	%	￦	68,714		￦	—	￦	—	￦	—
		-10	%		(76,265	)		—		—		—
Claim ratio		+10	%		30,594			—		—		—
		-10	%		(31,600	)		—		—		—
Expense ratio		+10	%		33,020			—		—		—
		-10	%		(33,020	)		—		—		—
Discount rate		+0.5	%p		(424,309	)		—		—		—
		-0.5	%p		477,556			—		—		—

38.7 Risk Management of Prudential Life Insurance Company of Korea Ltd.

38.7.1 Overview

Insurance price risk is the risk of loss arising from differences between received from policyholders and actual claims paid.

Life insurance company manages insurance price risk through insurance liability adequacy test because life insurance claim pay-out is mainly in a fixed amount with less volatility in policy reserve and shorter waiting period before payment.

38.7.2 Concentration of insurance risk and reinsurance policy

The Group uses reinsurance to mitigate concentration of insurance risk seeking an enhanced capital management.

F-203

The Group categorized reinsurance into group and individual contracts, and reinsurance is ceded through the following process:

(a)

(b)

The reinsurance department analyzes the object of reinsurance, the maximum limit of reinsurance and the loss ratio with the relevant departments.

38.7.3 Characteristic and exposure of insurance price risk

The insurance price risk is managed through insurance risk management regulation established by Risk Management Committee.

Maximum exposures to insurance price risk as of December 31, 2020, are as follows:


	December 31, 2020
	Before reinsurance mitigation		After reinsurance mitigation
	(In millions of Korean won)
Death	￦	244,975	￦	240,121
Disability		10,485		9,964
Hospitalization		33,321		33,321
Operation and diagnosis		77,820		76,530

	￦	366,601	￦	359,936

Average ratios of claims paid per risk premium received based on exposure before mitigation for the past three years as of December 31, 2020, were 51.97%.

Exposures of market risk arising from embedded derivatives included in host insurance contracts as of December 31, 2020, are as follows:


	December 31, 2020
	Policyholders’ reserve*		Guarantee reserve
	(In millions of Korean won)
Variable whole life	￦	241,955	￦	112,620
Variable annuity		2,487,715		30,306
Variable universal (protection)		1,544,241		718,783
Variable universal (savings)		446,686		448

	￦	4,720,597	￦	862,157

*	Excludes the amount of the lapsed reserve.

F-204

38.7.4 Assumptions used in measuring insurance liabilities

Reserve amount should exceed the standard reserve which is calculated using the standard interest rate and standard risk ratio as required by Enforcement Rules of the Insurance Business Act and the Regulations on Supervision of Insurance Business.

38.7.5 Maturity structure of premium reserve as of December 31, 2020, are as follows:

December 31, 2020

Up to
3 years

3-5 years

5-10 years

10-15 years

15-20 years

Over
20 years

Total

(In millions of Korean won)

Premium reserve

￦

48,807

￦

37,502

￦

139,973

￦

215,470

￦

418,684

￦

12,376,772

￦

13,237,208

38.7.6 Sensitivity analysis of insurance risk


	December 31, 2020
	Assumption change			Effect on
	Assumption change			LAT			Insurance liabilities		Profit before tax		Equity
	(In millions of Korean won)
Lapse ratio		+10	%	￦	167,536		￦	—	￦	—	￦	—
		-10	%		(182,654	)		—		—		—
Claim ratio		+10	%		644,798			—		—		—
		-10	%		(665,990	)		—		—		—
Expense ratio		+10	%		135,587			—		—		—
		-10	%		(135,587	)		—		—		—
Discount rate		+0.5	%p		(1,245,727	)		—		—		—
		-0.5	%p		1,426,726			—		—		—

38.8 Application of the Overlay Approach

Upon initial application of IFRS No.9, the Group applied the overlay approach in accordance with IFRS No.4.

38.8.1 Details of financial assets with the overlay approach applied as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Financial assets at fair value through profit or loss
Due from financial institutions	￦	166,891	￦	70,312
Debt securities		7,955,286		7,363,457
Equity securities		52,250		305,337

	￦	8,174,427	￦	7,739,106

F-205

38.8.2 Changes in net gains (losses) on overlay adjustment for the years ended December 31, 2019 and 2020, are as follows:


	2019			2020
	(In millions of Korean won)
Beginning	￦	(7,146	)	￦	187,077
Recognition of other comprehensive income due to acquisition and valuation		196,110			177,500
Reclassification to profit or loss due to disposal		(1,887	)		(25,375	)

Ending	￦	187,077		￦	339,202

39. Statement of Cash Flows

39.1 Details of cash and cash equivalents as of December 31, 2019 and 2020, are as follows:


	December 31, 2019			December 31, 2020
	(In millions of Korean won)
Cash	￦	2,311,418		￦	2,560,970
Checks with other banks		383,500			327,781
Due from the Bank of Korea		8,607,911			12,340,532
Due from other financial institutions		9,535,049			10,379,559

		20,837,878			25,608,842

Due from financial institutions measured at fair value through profit or loss		216,367			100,094

		21,054,245			25,708,936

Restricted due from financial institutions		(13,372,966	)		(15,303,363	)
Due from financial institutions with original maturities over three months		(1,557,554	)		(1,720,481	)

		(14,930,520	)		(17,023,844	)

	￦	6,123,725		￦	8,685,092

39.2 Significant non-cash transactions for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018			2019		2020
	(In millions of Korean won)
Decrease in loans due to write-offs	￦	1,079,435		￦	1,188,584	￦	1,283,071
Changes in financial investments due to debt-for-equity swap		22,286			104,815		13,820
Changes in accumulated other comprehensive income from valuation of financial instruments at fair value through other comprehensive income		119,182			35,490		496,159
Changes in accumulated other comprehensive income from valuation of investments in associates		(3,733	)		7,695		(6,978	)
Changes in other payables due to treasury stock trust agreement, etc.		6,678			—		—

F-206

39.3 Cash inflows and outflows from income tax, interests and dividends for the years ended December 31, 2018, 2019 and 2020, are as follows:


	Activity		2018		2019		2020
	(In millions of Korean won)
Income tax paid		Operating	￦	759,013	￦	1,223,084	￦	1,119,252
Interest received		Operating		13,958,806		14,936,705		14,986,532
Interest paid		Operating		4,369,345		5,365,595		5,266,158
Dividends received		Operating		235,243		185,846		187,699
Dividends paid		Financing		766,728		766,249		883,952

39.4 Changes in liabilities arising from financing activities for the years ended December 31, 2019 and 2020, are as follows:


	2019
						Non-cash changes
	Beginning		Net cash flows			Acquisition (disposal)		Exchange differences		Changes in fair value		Subsidiaries			Others			Ending
	(In millions of Korean won)
Derivatives held for hedging*	￦	8,049	￦	(28,631	)	￦	—	￦	—	￦	139,771	￦	—		￦	67,912		￦	187,101
Borrowings		86,283,531		2,537,391			—		397,571		67,297		(602,388	)		71,041			88,754,443
Due to trust accounts		5,285,108		(68,648	)		—		—		—		—			—			5,216,460
Changes in non-controlling interests		9,110		574,580			—		345		—		—			1,372			585,407
Others		167,128		(95,723	)		766,259		35,591		—		—			(4,699	)		868,556

	￦	91,752,926	￦	2,918,969		￦	766,259	￦	433,507	￦	207,068	￦	(602,388	)	￦	135,626		￦	95,611,967


	2020
						Non-cash changes
	Beginning		Net cash flows			Acquisition (disposal)		Exchange differences			Changes in fair value			Subsidiaries		Others			Ending
	(In millions of Korean won)
Derivatives held for hedging*	￦	187,101	￦	(16,202	)	￦	—	￦	(102,347	)	￦	10,553		￦	1,166	￦	(137,467	)	￦	(57,196	)
Borrowings		88,754,443		22,627,875			—		(217,461	)		(591,619	)		2,131,517		(116,912	)		112,587,843
Due to trust accounts		5,216,460		2,326,495			—		—			—			—		—			7,542,955
Changes in non-controlling interests		585,407		(25,658	)		—		250,904			—			—		47,130			857,783
Others		868,556		(63,065	)		236,860		11			—			—		(23,287	)		1,019,075

	￦	95,611,967	￦	24,849,445		￦	236,860	￦	(68,893	)	￦	(581,066	)	￦	2,132,683	￦	(230,536	)	￦	121,950,460

*	Derivatives held for hedging purposes are the net amount after offsetting liabilities from assets.

39.5 The net cash flow associated with the changes in the subsidiaries for the years ended December 31, 2019 and 2020 was ￦ 91,592 million of cash inflow and ￦ 1,951,245 million of cash outflow, respectively.

F-207

40. Contingent Liabilities and Commitments

40.1 Details of acceptances and guarantees as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Confirmed acceptances and guarantees
Confirmed acceptances and guarantees in Korean won
Acceptances and guarantees for KB purchasing loan	￦	161,314	￦	144,457
Others		746,823		1,048,848

		908,137		1,193,305

Confirmed acceptances and guarantees in foreign currencies
Acceptances of letter of credit		155,151		221,422
Letter of guarantees		49,754		45,693
Bid bond		37,765		72,037
Performance bond		718,097		703,826
Refund guarantees		1,022,646		801,445
Others		2,935,939		3,072,099

		4,919,352		4,916,522

Financial guarantees
Acceptances and guarantees for issuance of debenture		—		10,040
Acceptances and guarantees for mortgage		47,384		89,302
Overseas debt guarantees		406,680		410,470
International financing guarantees in foreign currencies		231,685		197,097
Others		230,000		50,950

		915,749		757,859

		6,743,238		6,867,686

Unconfirmed acceptances and guarantees
Guarantees of letter of credit		1,845,508		2,094,989
Refund guarantees		654,497		344,112

		2,500,005		2,439,101

	￦	9,243,243	￦	9,306,787

F-208

40.2 Credit qualities of acceptances and guarantees exposure as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	12-month expected credit losses		Lifetime expected credit losses				Total
	12-month expected credit losses		Non-impaired		Impaired		Total
	(In millions of Korean won)
Confirmed acceptances and guarantees
Grade 1	￦	4,220,046	￦	696	￦	—	￦	4,220,742
Grade 2		2,105,637		38,271		—		2,143,908
Grade 3		93,074		81,317		—		174,391
Grade 4		18,773		172,440		—		191,213
Grade 5		—		2,873		10,111		12,984

		6,437,530		295,597		10,111		6,743,238

Unconfirmed acceptances and guarantees
Grade 1		1,228,258		1,289		—		1,229,547
Grade 2		1,121,159		32,413		—		1,153,572
Grade 3		17,091		20,957		—		38,048
Grade 4		4,236		62,964		—		67,200
Grade 5		—		170		11,468		11,638

		2,370,744		117,793		11,468		2,500,005

	￦	8,808,274	￦	413,390	￦	21,579	￦	9,243,243


	December 31, 2020
	12-month expected credit losses		Lifetime expected credit losses				Total
	12-month expected credit losses		Non-impaired		Impaired		Total
	(In millions of Korean won)
Confirmed acceptances and guarantees
Grade 1	￦	4,377,798	￦	1,119	￦	—	￦	4,378,917
Grade 2		2,269,455		47,438		—		2,316,893
Grade 3		27,588		85,321		—		112,909
Grade 4		14,925		33,440		501		48,866
Grade 5		—		453		9,648		10,101

		6,689,766		167,771		10,149		6,867,686

Unconfirmed acceptances and guarantees
Grade 1		1,422,528		771		—		1,423,299
Grade 2		912,209		28,506		—		940,715
Grade 3		11,399		23,069		—		34,468
Grade 4		2,369		29,934		—		32,303
Grade 5		—		589		7,727		8,316

		2,348,505		82,869		7,727		2,439,101

	￦	9,038,271	￦	250,640	￦	17,876	￦	9,306,787

F-209

40.3 Acceptances and guarantees by counterparty as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Large companies	￦	5,962,004	￦	1,904,346	￦	7,866,350		85.10
Small and medium-sized companies		650,612		397,539		1,048,151		11.34
Public sector and others		130,622		198,120		328,742		3.56

	￦	6,743,238	￦	2,500,005	￦	9,243,243		100.00


	December 31, 2020
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Large companies	￦	5,538,003	￦	1,770,235	￦	7,308,238		78.53
Small and medium-sized companies		695,860		459,487		1,155,347		12.41
Public sector and others		633,823		209,379		843,202		9.06

	￦	6,867,686	￦	2,439,101	￦	9,306,787		100.00

40.4 Acceptances and guarantees by industry as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Financial institutions	￦	260,974	￦	23,999	￦	284,973		3.08
Manufacturing		3,373,220		1,627,840		5,001,060		54.11
Service		1,187,516		88,158		1,275,674		13.80
Wholesale and retail		1,126,976		597,998		1,724,974		18.66
Construction		467,114		20,590		487,704		5.28
Public sector		107,481		81,895		189,376		2.05
Others		219,957		59,525		279,482		3.02

	￦	6,743,238	￦	2,500,005	￦	9,243,243		100.00


	December 31, 2020
	Confirmed guarantees		Unconfirmed guarantees		Total		Proportion (%)
	(In millions of Korean won)
Financial institutions	￦	632,947	￦	5,871	￦	638,818		6.86
Manufacturing		2,992,319		1,285,530		4,277,849		45.96
Service		920,352		89,457		1,009,809		10.85
Wholesale and retail		1,086,772		891,619		1,978,391		21.26
Construction		411,601		14,488		426,089		4.58
Public sector		104,925		103,285		208,210		2.24
Others		718,770		48,851		767,621		8.25

	￦	6,867,686	￦	2,439,101	￦	9,306,787		100.00

F-210

40.5 Details of commitments as of December 31, 2019 and 2020, are as follows:


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Commitments
Corporate loan commitments	￦	41,930,407	￦	40,253,100
Retail loan commitments		42,582,736		46,450,857
Credit line of credit cards		60,667,219		65,325,863
Purchase of other securities		6,617,253		7,104,163

		151,797,615		159,133,983

Financial Guarantees
Credit line		2,340,141		3,522,809
Purchase of securities		591,500		683,800

		2,931,641		4,206,609

	￦	154,729,256	￦	163,340,592

40.6 Other Matters (including litigation)

a) The Group has 122 pending lawsuits as a plaintiff (excluding simple lawsuits related to the collection or management of loans), with an aggregate claims of ￦ 396,881 million, and 275 pending lawsuits as a defendant (excluding simple lawsuits related to the collection or management of loans) with an aggregate claims of ￦ 2,009,603 million, which arose in the normal course of the business, as of December 31, 2020. Details of major pending lawsuits in which the Group is a defendant are as follows:

(in number of cases, in millions of Korean won)

Company

Lawsuits

No. of
cases

Amount

Description of the lawsuits

Status of the lawsuits

Kookmin Bank

Request for a return of redemption amount

￦

48,068

Kookmin Bank invested the assets entrusted by OO Asset Management and OO Investment Trust Management in the Fairfield Sentry Limited, and Fairfield Sentry Limited reinvested the assets in Bernard L. Madoff Investment Securities LLC managed by Bernard Madoff (Bernard L. Madoff Investment Securities LLC is in the liquidation process due to Ponzi scheme fraud-related losses).

Bankruptcy trustee of Bernard L. Madoff Investment Securities LLC filed a lawsuit against Kookmin Bank seeking to return the amount of redemptions received by Kookmin Bank through Fairfield Sentry Limited.

Application for incineration by the defendant has been denied, and further proceedings are scheduled. [Related litigation is in progress at the New York Southern District Bankruptcy Court (10-03777) at the written complaint review stage]

F-211

Company

Lawsuits

No. of
cases

Amount

Description of the lawsuits

Status of the lawsuits

Kookmin Bank

Request for compensation for damages

1,629,557

The plaintiff filed a lawsuit for compensation for damages against Indonesian Financial Supervisory Authority (OJK) and Kookmin Bank as joint defendants, claiming that the capital increase and Kookmin Bank’s acquisition of PT Bank Bukopin TBK was illegal in violation of local laws and regulations in Indonesia.

It is difficult to accurately predict the result of the lawsuit as of now because the complaint has not been received, but it is judged that the possibility that the result of this lawsuit will have a significant impact on the financial position of Kookmin Bank is low.

KB Securities Co., Ltd.

Request for a return of transaction amount (Australian fund)

100,000

The plaintiffs OOOO Securities and OOOO Life Insurance filed lawsuits, claiming that the KB Securities Co., Ltd. provided false information on major matters in the product description while selling JB Australia NDIS Private Fund No.1 (on April 25, 2019, plaintiffs invested ￦ 50 billion each) (a) (Primary claim) requesting KB Securities Co., Ltd. to return unjust enrichment of ￦ 100 billion for cancelation of sales contracts of beneficiary certificates due to an error or termination of the contract due to default, (b) (Secondary claim) requesting for compensation for damages in investments amounting to ￦ 100 billion due to violation of the investor protection obligation and fraudulent transactions of KB Securities Co., Ltd. and OOO Asset Management.

First trial is in progress (second hearing for the first trial is scheduled on April 2, 2021).

b) On April 10, 2020, Kookmin Bank acquired 70% shares of PRASAC Microfinance Institution Plc. (“PRASAC”), a specialized credit micro finance institution in Cambodia, for US$ 603 million from its existing shareholders. Kookmin Bank has signed an agreement with the existing shareholders of PRASAC. The existing shareholders have the right of put option to sell 30% of the remaining shares to Kookmin Bank, and they are entitled to exercise their rights at the exercise price calculated on the basis of the adjusted book value of net asset as of 2021 year-end, within six months from the issue date of the audit report or the confirmation date of the adjusted value. If the put option is not exercised until its expiry, Kookmin Bank has a right to exercise a call option during the six months following the expiry of such put option. All shareholders are restricted from selling shares or additional pledge before exercising the put option and call option.

c) Kookmin Bank has entered into an agreement with PT Bosowa Corporindo, a major shareholder of PT Bank Bukopin TBK. Under this agreement, Kookmin Bank and PT Bosowa Corporindo have a right of first refusal and a tag-along right. In addition, Kookmin Bank can exercise its drag-along right for two years from the time three years have elapsed since the acquisition date (July 27, 2018) in certain cases, such as violation of the agreement between shareholders.

F-212

d) In June 2013, KB Kookmin Card Co., Ltd. had an accident in which cardholders’ personal information was stolen (hereinafter referred to as “accident”) due to illegal activities by employees of personal credit information company in charge of development of the system upgrading to prevent fraudulent use of credit card. As a result, KB Kookmin Card Co., Ltd. was notified by the Financial Services Commission of the suspension of some new business for 3 months as of February 16, 2014. In respect of the incident, the Group faces 11 and 2 legal claims filed as a defendant, with an aggregate claim of ￦ 444 million and ￦ 108 million as of December 31, 2019 and 2020 and a provision for these lawsuits amounting ￦ 2,549 million was recognized as of December 31, 2019. In addition, the Group takes out the personal information protection liability insurance as of December 31, 2020.

e) As of December 31, 2020, the Group is not able to dispose, transfer or collateralize the shares or rights of shares of KB KOLAO Leasing Co., LTD. (“joint-venture lease company”) to a third party without the written consent of both KB Kookmin Card Co., Ltd. and Kolao Holdings, for five years (the restriction period for the disposal of its equity) after the date of initial investment for KB KOLAO LEASING CO., LTD. However, KB Kookmin Card Co., Ltd. and KB Capital Co., Ltd. may transfer all or part of their shares in the joint-venture lease company to affiliates who agree to comply with all the terms and conditions of this agreement on the establishment and operation of the joint-venture lease company in Laos and agree to succeed their responsibility for the joint-venture lease company. After the expiration of the restriction period for the disposal, as prescribed separately, each party of the joint-venture lease company may transfer all or part of their shares. Meanwhile, KB KOLAO Leasing Co., LTD. is selling LVMC Holdings (formerly Kolao Holdings) allied receivables that are more than three months overdue to Lanexang Leasing Co., Ltd. in accordance with an agreement.

f) As of December 31, 2020, KB Capital Co., Ltd. and PT Sunindo Primasura are required to hold the shares of PT Sunindo Kookmin Best Finance for five years after the completion of the share purchase. If one party is going to sell all or part of the shares, provide them as collateral, trade or dispose of them, it should give the opportunity to exercise preemption to the other party by providing written proposal including transfer price, payment method and others. Meanwhile, the shareholders of PT Sunindo Kookmin Best Finance can receive dividends for up to 20% of net profit after taxes for each fiscal year starting from the fiscal year ended December 31, 2023.

g) KB Securities Co., Ltd., as a sales agency, sold ￦ 326,500 million of private equity funds and trusts, which loans to corporations (borrower) that invest in apartment rental businesses for the disabled in Australia, to individuals and institutional investors. However, management of the fund is impossible due to the breach of contract by local borrower in Australia, therefore there is a possibility of losses of principal to these funds subscribers. In this regard, there are three lawsuits in which the Group is the defendant as of December 31, 2020. There is a possibility that additional lawsuits will be filed in the future, but the magnitude and final outcome of the lawsuit are unpredictable.

h) In relation to Lime Asset Management, KB Securities Co., Ltd. has a PIS (Portfolio Index Swap) contract, as of December 31, 2020, associated with ‘Lime Thetis Qualified Investor Private Investment Trust No.2’ and Lime Pluto FI Qualified Investor Private Investment Trust No.D-1’ whose redemption were suspended during the fourth quarter of 2019. The notional amount of the underlying assets of the PIS contract is ￦ 298,500 million. Meanwhile, the Group sold ￦ 68,100 million of feeder fund of aforementioned redemption-suspended funds. On October 20, 2020, Lime Asset Management’s license as a fund manager was revoked by the Financial Supervisory Service’s sanctions review committee, and most of its redemption-suspended funds and normal funds will be transferred to Wellbridge Asset Management (the bridge management company) to continue collecting investments. It is difficult to predict whether and when the aforementioned redemption-suspended funds will be redeemed, and there is a possibility that lawsuits may be filed in the future, but the impact on the consolidated financial statements cannot be predicted at this time.

F-213

i) The proliferation of COVID-19 has had a negative impact on the global economy, which has a greater impact than expected credit losses and potential impairment of assets in a particular portfolio, which can negatively affect the profit generation capability of the Group as follows:

•

There is a possibility of uncertainty about the credit risk of a borrower that could be affected by COVID-19.

•

Uncertainty may arise about forward-looking macroeconomic information related to expected credit losses.

•

Korean won may depreciate against major foreign currencies. This may result in an increase in principal and interest payments on liabilities denominated in foreign currencies, and losses on foreign exchanges transactions.

•

A significant decrease in the fair value of the Group’s investment in an entity that could be affected by COVID-19 pandemic can occur.

Meanwhile, the Group’s accounting policy related to COVID-19 is described in Note 2.4 Critical accounting estimates and the impact on expected credit losses is described in Note 11.1 Changes in allowances for credit losses of loans and Note 24.2 Changes in provisions for credit losses of unused loan commitments, acceptances and guarantees.

41. Subsidiaries

41.1 Details of major consolidated subsidiaries as of December 31, 2020, are as follows:

Investor

Investee

Ownership
(%)

Location

Date of
financial
statements

Industry

KB Financial Group Inc.

Kookmin Bank

100.00

Korea

Dec. 31

Banking and foreign exchange transaction

KB Securities Co., Ltd.

100.00

Korea

Dec. 31

Financial investment

KB Insurance Co., Ltd.

100.00

Korea

Dec. 31

Non-life insurance

KB Kookmin Card Co., Ltd.

100.00

Korea

Dec. 31

Credit card and installment financing

Prudential Life Insurance Company of Korea Ltd.

100.00

Korea

Dec. 31

Life insurance

KB Asset Management Co., Ltd.

100.00

Korea

Dec. 31

Collective investment and advisory

KB Capital Co., Ltd.

100.00

Korea

Dec. 31

Financial Leasing

KB Life Insurance Co., Ltd.

100.00

Korea

Dec. 31

Life insurance

KB Real Estate Trust Co., Ltd.

100.00

Korea

Dec. 31

Real estate trust management

KB Savings Bank Co., Ltd.

100.00

Korea

Dec. 31

Savings banking

KB Investment Co., Ltd.

100.00

Korea

Dec. 31

Capital investment

KB Data System Co., Ltd.

100.00

Korea

Dec. 31

Software advisory, development, and supply

KB Credit Information Co., Ltd.

100.00

Korea

Dec. 31

Collection of receivables or credit investigation

Kookmin Bank

Kookmin Bank Cambodia Plc.

100.00

Cambodia

Dec. 31

Banking and foreign exchange transaction

Kookmin Bank (China) Ltd.

100.00

China

Dec. 31

Banking and foreign exchange transaction

KB Microfinance Myanmar Co., Ltd.

100.00

Myanmar

Dec. 31

Microfinance services

PRASAC Microfinance Institution Plc.

70.00

Cambodia

Dec. 31

Microfinance services

PT Bank Bukopin TBK

67.00

Indonesia

Dec. 31

Banking and foreign exchange transaction

PT Bank Syariah Bukopin

92.78

Indonesia

Dec. 31

Banking

PT Bukopin Finance

97.03

Indonesia

Dec. 31

Installment financing

F-214

Investor

Investee

Ownership
(%)

Location

Date of
financial
statements

Industry

KB Bank Myanmar Co., Ltd.

100.00

Myanmar

Dec. 31

Banking and foreign exchange transaction

KB Securities Co., Ltd.

KBFG Securities America Inc.

100.00

United States

Dec. 31

Investment advisory and securities dealing activities

KB Securities Hong Kong Ltd.

100.00

China

Dec. 31

Investment advisory and securities dealing activities

KB Securities Vietnam Joint Stock Company

99.70

Vietnam

Dec. 31

Investment advisory and securities dealing activities

KB FINA Joint Stock Company

100.00

Vietnam

Dec. 31

Investment advisory and securities dealing activities

KB Insurance Co., Ltd.

Leading Insurance Services, Inc.

100.00

United States

Dec. 31

Management service

LIG Insurance (China) Co., Ltd.

100.00

China

Dec. 31

Non-life insurance

PT. KB Insurance Indonesia

70.00

Indonesia

Dec. 31

Non-life insurance

KB Claims Survey & Adjusting

100.00

Korea

Dec. 31

Claim service

KB Sonbo CNS

100.00

Korea

Dec. 31

Management service

KB Golden Life Care Co., Ltd.

100.00

Korea

Dec. 31

Service

KB Kookmin Card Co., Ltd.

KB Daehan Specialized Bank Plc.

95.71

Cambodia

Dec. 31

Auto Installment finance

PT. KB Finansia Multi Finance

80.00

Indonesia

Dec. 31

Auto Installment finance

KB Capital Co., Ltd.

PT Sunindo Kookmin Best Finance

85.00

Indonesia

Dec. 31

Auto Installment finance

KB Kookmin Card Co., Ltd., KB Capital Co., Ltd.

KB KOLAO LEASING CO., LTD.

80.00

Laos

Dec. 31

Auto Installment finance

KB Asset Management Co., Ltd.

KBAM Shanghai Advisory Services Co., Ltd.

100.00

China

Dec. 31

General advisory

41.2 Details of consolidated structured entities as of December 31, 2020, are as follows:


	Consolidated structured entities	Reasons for consolidation
Trusts	Kookmin Bank (development trust) and 10 others	The Group controls the trust because it has power to determine management performance of the trust and is significantly exposed to variable returns that absorb losses through the guarantees of payment of principal, or payment of principal and fixed rate of return.

F-215


	Consolidated structured entities	Reasons for consolidation
Asset-backed securitization	Able Hana Co., Ltd. and 127 others	The Group controls these investees because it has power over relevant activities in the event of default, is significantly exposed to variable returns by providing lines of credit, ABCP purchase commitments or acquisition of subordinated debt and has ability to affect those returns through its power.

Investment funds	KB Global Platform Fund and 151 others	Funds are consolidated if the Group, as a collective investor or operating manager (member), etc., can manage fund assets on behalf of other investors, or dismiss the collective investor and operating manager, and is substantially exposed to significant variable returns or has such rights.

If the Group holds more than a majority of the ownership interests but does not have the power over relevant activities of structured entities in accordance with agreements with trust and other related parties, those structured entities are excluded from the consolidation.

41.3 Condensed financial information of major subsidiaries as of December 31, 2019 and 2020, and for the years ended December 31, 2019 and 2020, are as follows:


	December 31, 2019						2019
	Assets		Liabilities		Equity		Operating revenue		Profit (loss) attributable to shareholders of the Parent Company			Total comprehensive income (loss) attributable to shareholders of the Parent Company
	(In millions of Korean won)
Kookmin Bank ¹	￦	387,425,038	￦	358,420,805	￦	29,004,233	￦	20,817,431	￦	2,439,079		￦	2,428,154
KB Securities Co., Ltd. ^1,2		47,816,512		43,131,858		4,684,654		8,053,363		257,893			261,639
KB Insurance Co., Ltd. ^1,2		36,552,368		32,689,460		3,862,908		12,661,927		234,327			366,362
KB Kookmin Card Co., Ltd. ¹		22,990,114		18,925,195		4,064,919		3,102,186		316,546			306,251
KB Asset Management Co., Ltd. ¹		310,018		114,776		195,242		148,780		48,899			48,490
KB Capital Co., Ltd. ^1,2		11,190,568		10,036,077		1,154,491		931,694		117,028			115,524
KB Life Insurance Co., Ltd. ¹		9,801,905		9,186,567		615,338		1,506,417		15,963			63,107
KB Real Estate Trust Co., Ltd.		377,938		85,132		292,806		119,899		61,713			61,672
KB Savings Bank Co., Ltd.		1,361,032		1,148,625		212,407		92,435		16,301			15,433
KB Investment Co., Ltd. ¹		756,972		542,221		214,751		99,822		11,311			11,310
KB Data System Co., Ltd.		41,690		20,999		20,691		158,067		4,664			4,282
KB Credit Information Co., Ltd.		27,834		12,936		14,898		38,278		(256	)		(337	)

F-216


	December 31, 2020						2020
	Assets		Liabilities		Equity		Operating revenue		Profit (loss) attributable to shareholders of the Parent Company			Total comprehensive income (loss) attributable to shareholders of the Parent Company
	(In millions of Korean won)
Kookmin Bank ¹	￦	438,444,114	￦	408,036,040	￦	30,408,074	￦	24,519,818	￦	2,298,195		￦	2,905,953
KB Securities Co., Ltd. ^1,2		57,570,654		52,516,488		5,054,166		10,040,497		425,622			449,507
KB Insurance Co., Ltd. ^1,2		39,078,117		35,086,458		3,991,659		13,735,778		163,884			129,042
KB Kookmin Card Co., Ltd. ¹		24,071,644		19,789,958		4,281,686		3,210,581		324,662			308,148
Prudential Life Insurance Company of Korea Ltd. ²		25,121,656		22,681,729		2,439,927		656,062		55,711			(31,718	)
KB Asset Management Co., Ltd. ¹		335,601		112,522		223,079		191,427		57,317			57,802
KB Capital Co., Ltd. ^1,2		12,823,748		11,392,177		1,431,571		1,300,378		141,646			139,949
KB Life Insurance Co., Ltd.		10,424,916		9,842,789		582,127		1,897,859		(23,185	)		(33,210	)
KB Real Estate Trust Co., Ltd. ¹		437,619		108,096		329,523		139,070		66,874			66,718
KB Savings Bank Co., Ltd.		1,883,720		1,658,116		225,604		104,397		17,305			16,197
KB Investment Co., Ltd. ¹		848,693		618,552		230,141		128,014		15,387			15,390
KB Data System Co., Ltd.		40,347		23,024		17,323		149,966		(1,729	)		(3,367	)
KB Credit Information Co., Ltd.		27,711		11,773		15,938		39,767		1,132			1,040

¹	Financial information is based on its consolidated financial statements.

²	Includes fair value adjustments arising from the acquisition.

41.4 The Characteristics of Risks Associated with Consolidated Structured Entities

The terms of contractual arrangements to provide financial support to consolidated structured entities are as follows:

41.4.1 The Group has provided payment guarantees of ￦ 4,082,878 million to K plus 1st L.L.C and other subsidiaries.

41.4.2 The Group provides capital commitment to 23 subsidiaries including KB Sinansan Line Private Special Asset Fund (SOC). The unexecuted amount of the capital commitment is ￦ 1,046,516 million. Based on the capital commitment, the Group is subject to increase its investment upon the request of the asset management company or the additional agreement among investors.

41.4.3 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 fixed rate of return.

F-217

41.5 Changes in Subsidiaries

41.5.1 Subsidiaries newly included in consolidation for the year ended December 31, 2020, are as follows:

41.5.2 Subsidiaries excluded from consolidation for the year ended December 31, 2020, are as follows:


Company				Reasons of losing control
KBH the 3rd L.L.C and 60 others				Termination of the commitments
Sechste Casalog KG and 16 others				Liquidation
KB Contents Panda iMBC Contents Venture Fund and 5 others				Disposal
Hyundai Smart Index Alpha Securities Feeder Investment Trust No.1 and 27 others				Decrease in ownership interests to less than majority

F-218

42. Unconsolidated Structured Entities

42.1 Nature, purpose and activities of the unconsolidated structured entities and how the structured entities are financed, are as follows:


Nature	Purpose	Activity	Method of Financing
Structured financing	Granting PF loans to SOC and real estate Granting loans to ships/aircrafts SPC	Construction of SOC and real estate Building ships, construction and purchase of aircrafts	Loan commitments through credit line, providing credit line 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 from general partners and limited partners

Trusts	Management of financial trusts; —Development trust —General unspecified money trust —Trust whose principal is not guaranteed —Other trusts	Management of trusted financial assets Payment of trust fees and allocation of trust profits.	Sales of trusted financial assets

Asset-backed securitization	Early cash generation through transfer of securitized assets Fees earned through services to SPC, such as providing lines of credit and ABCP purchase commitments	Fulfillment of asset-backed securitization plan Purchase and collection of securitized assets Issuance and repayment of ABS and ABCP	Issuance of ABS and ABCP based on securitized assets

F-219

42.2 Details of scale of unconsolidated structured entities and nature of the risks associated with the Group’s interests in unconsolidated structured entities as of December 31, 2019 and 2020, are as follows:


	December 31, 2019
	Structured financing		Investment funds		Trusts		Asset-backed securitization and others		Total
	(In millions of Korean won)
Total assets of unconsolidated structured entities	￦	54,206,404	￦	180,236,568	￦	2,287,172	￦	99,012,931	￦	335,743,075
Carrying amount in the financial statements
Assets
Financial assets at fair value through profit or loss	￦	132,685	￦	9,846,278	￦	—	￦	2,405,228	￦	12,384,191
Derivative financial assets		—		—		—		2,959		2,959
Loans measured at amortized cost		4,775,723		293,221		266,974		920,863		6,256,781
Financial investments		—		—		—		5,166,578		5,166,578
Investment in associates		—		352,488		—		—		352,488
Other assets		1,876		69,353		93,613		9,181		174,023

	￦	4,910,284	￦	10,561,340	￦	360,587	￦	8,504,809	￦	24,337,020

Liabilities
Deposits	￦	523,086	￦	90,131	￦	—	￦	409,246	￦	1,022,463
Derivative financial liabilities		—		—		—		228		228
Other liabilities		1,362		78		—		16,169		17,609

	￦	524,448	￦	90,209	￦	—	￦	425,643	￦	1,040,300

Maximum exposure*
Assets held	￦	4,910,284	￦	10,561,340	￦	360,587	￦	8,504,809	￦	24,337,020
Purchase and investment commitments		38,650		3,980,356		—		945,598		4,964,604
Unused credit		654,203		2,900		28,427		1,927,902		2,613,432
Acceptances and guarantees and loan commitments		1,816,411		7,188		—		600,664		2,424,263

	￦	7,419,548	￦	14,551,784	￦	389,014	￦	11,978,973	￦	34,339,319

Methods of determining the maximum exposure		Loan commitments / investment agreements / purchase commitments and acceptances and guarantees		Investments / loans and Investment agreements		Trust paying dividends by results: Total amount of trust exposure		Providing credit lines/ purchase commitments/ loan commitments and acceptances and guarantees

F-220


	December 31, 2020
	Structured financing		Investment funds		Trusts		Asset-backed securitization and others		Total
		(In millions of Korean won)
Total assets of unconsolidated structured entities	￦	56,200,300	￦	285,528,467	￦	1,984,006	￦	116,115,027	￦	459,827,800
Carrying amount in the financial statements
Assets
Financial assets at fair value through profit or loss	￦	164,996	￦	11,151,958	￦	—	￦	2,308,917	￦	13,625,871
Derivative financial assets		—		—		—		3,005		3,005
Loans measured at amortized cost		4,655,337		379,727		262,382		1,080,824		6,378,270
Financial investments		—		—		—		7,849,054		7,849,054
Investment in associates		—		396,953		—		—		396,953
Other assets		2,572		3,257		91,297		16,363		113,489

	￦	4,822,905	￦	11,931,895	￦	353,679	￦	11,258,163	￦	28,366,642

Liabilities
Deposits	￦	612,023	￦	26,839	￦	—	￦	344,221	￦	983,083
Derivative financial liabilities		—		—		—		1,307		1,307
Other liabilities		8,422		97		1		13,736		22,256

	￦	620,445	￦	26,936	￦	1	￦	359,264	￦	1,006,646

Maximum exposure*
Assets held	￦	4,822,905	￦	11,931,895	￦	353,679	￦	11,258,163	￦	28,366,642
Purchase and investment commitments		—		5,650,847		—		761,200		6,412,047
Unused credit		1,322,414		—		18,287		3,020,084		4,360,785
Acceptances and guarantees and loan commitments		883,342		16,650		—		684,257		1,584,249

	￦	7,028,661	￦	17,599,392	￦	371,966	￦	15,723,704	￦	40,723,723

Methods of determining the maximum exposure		Loan commitments /investment agreements / purchase commitments and acceptances and guarantees		Investments / loans and Investment agreements		Trust paying dividends by results: Total amount of trust exposure		Providing credit lines/ purchase commitments/ loan commitments and acceptances and guarantees

*	Maximum exposure includes the asset amounts, after deducting loss (provision for credit losses, impairment losses and others), recognized in the consolidated financial statements of the Group.

43. Related Party Transactions

According to IAS No.24, the Group includes investments in associates, key management (including family members), and post-employment benefit plans of the Group and its related party companies in the scope of related parties. The Group discloses balances (receivables and payables) and other amounts arising from transactions with related parties in the notes to the consolidated financial statements. Refer to Note 13 for details of investments in associates and joint ventures.

F-221

43.1 Profit or loss arising from transactions with related parties for the years ended December 31, 2018, 2019 and 2020, are as follows:


		2018		2019		2020
		(In millions of Korean won)
Associates and joint ventures
Balhae Infrastructure Company	Fee and commission income	￦	6,691	￦	6,743	￦	6,817
Korea Credit Bureau Co., Ltd.	Interest expense		127		21		7
	Fee and commission income		1,194		1,056		957
	Insurance income		—		3		5
	Fee and commission expense		1,909		2,541		3,280
	Other operating expense		4		—		1
KB GwS Private Securities Investment Trust	Fee and commission income		851		851		853
Incheon Bridge Co., Ltd.	Interest income		9,426		8,612		4,345
	Interest expense		296		483		334
	Fee and commission income		9		—		23
	Fee and commission expense		2		7		6
	Insurance income		365		284		279
	Gains on financial instruments at fair value through profit or loss		2,655		4,975		899
	Reversal of credit losses		6		5		—
	Provision for credit losses		1		1		472
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2	Fee and commission income		210		178		12
Aju Good Technology Venture Fund	Interest expense		30		22		18
KB Star Office Private Real Estate Investment Trust No.1	Interest income		370		370		371
	Interest expense		93		208		61
	Fee and commission income		435		435		436
RAND Bio Science Co., Ltd.	Interest expense		3		5		11
RAND Bio Science Co., Ltd.	Other non-operating expense		—		843		—
SY Auto Capital Co., Ltd.	Interest income		1,279		1,016		1,097
	Interest expense		—		1		2
	Fee and commission income		73		34		39
	Fee and commission expense		840		389		132
	Insurance income		33		32		40
	Other operating income		621		689		1,709
	Other operating expense		415		288		121
	Reversal of credit losses		—		13		17
	Provision for credit losses		14		—		—
Food Factory Co., Ltd.	Interest income		9		41		52
	Interest expense		—		—		12
	Insurance income		5		4		5
	Fee and commission expense		1		12		4
	Gains on financial instruments at fair value through profit or loss		30		60		72
	Reversal of credit losses		1		—		—
	Provision for credit losses		1		1		8
KB Pre IPO Secondary Venture Fund No.1	Interest expense		27		7		3
KB Pre IPO Secondary Venture Fund No.1	Fee and commission income		110		110		110

F-222


		2018		2019		2020
		(In millions of Korean won)
Built On Co., Ltd.*	Interest income		4		1		—
	Insurance income		2		1		—
	Losses on financial instruments at fair value through profit or loss		1		—		—
KB Private Equity Fund No.3	Fee and commission income		521		480		463
Wise Asset Management Co., Ltd.	Interest expense		9		2		—
Acts Co., Ltd.	Interest income		—		1		1
	Insurance income		2		1		—
	Gains on financial instruments at fair value through profit or loss		—		30		—
	Losses on financial instruments at fair value through profit or loss		1,851		—		—
	Other non-operating expense		1,246		—		—
Dongjo Co., Ltd.	Insurance income		2		2		1
Dongjo Co., Ltd.	Reversal of credit losses		31		—		—
APRO Co., Ltd.*	Interest income		—		19		7
	Interest expense		1		4		1
	Fee and commission expense		—		17		—
	Insurance income		5		4		1
	Provision for credit losses		—		—		1
POSCO-KB Shipbuilding Fund	Fee and commission income		490		490		387
POSCO-KB Shipbuilding Fund	Interest expense		81		—		—
Dae-A Leisure Co., Ltd.	Interest expense		9		8		7
Paycoms Co., Ltd.	Interest income		10		10		10
	Insurance income		1		1		—
	Gains on financial instruments at fair value through profit or loss		125		125		69
Big Dipper Co., Ltd.	Fee and commission expense		—		—		768
Big Dipper Co., Ltd.	Reversal of credit losses		2		—		—
KB-KDBC Pre-IPO New Technology Business Investment Fund	Interest expense		39		58		23
KB-KDBC Pre-IPO New Technology Business Investment Fund	Fee and commission income		322		449		300
KB-TS Technology Venture Private Equity Fund	Fee and commission income		305		730		126
KB-SJ Tourism Venture Fund	Fee and commission income		314		422		338
JLK Inspection Co., Ltd.*	Interest income		6		—		—
JLK Inspection Co., Ltd.*	Interest expense		—		1		—
TESTIAN Inc.*	Interest income		4		3		—
TESTIAN Inc.*	Gains on financial instruments at fair value through profit or loss		83		—		—
Rainist Co., Ltd.	Gains on financial instruments at fair value through profit or loss		—		—		1,636
	Fee and commission income		—		39		36
	Fee and commission expense		—		—		5
	Interest expense		2		—		—

F-223


		2018		2019			2020
		(In millions of Korean won)
Iwon Alloy Co., Ltd.	Insurance income		1		2			1
Bioprotect Ltd.	Losses on financial instruments at fair value through profit or loss		—		—			216
RMGP Bio-Pharma Investment Fund, L.P.	Fee and commission income		—		—			27
	Other non-operating income		10		33			—
	Gains on financial instruments at fair value through profit or loss		—		947			—
	Losses on financial instruments at fair value through profit or loss		—		2,120			489
RMGP Bio-Pharma Investment, L.P.	Losses on financial instruments at fair value through profit or loss		—		—			1
KB-MDI Centauri Fund LP	Fee and commission income		—		—			308
KB-MDI Centauri Fund LP	Losses on financial instruments at fair value through profit or loss		—		—			322
S&E BIO	Interest expense		—		—			1
Contents First	Interest expense		—		—			14
December & Company Inc.	Interest expense		—		—			1
GENINUS Inc.	Interest expense		—		—			70
Hasys.	Gains on financial instruments at fair value through profit or loss		—		136			—
	Losses on financial instruments at fair value through profit or loss		136		—			—
	Insurance income		4		50			63
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund	Interest expense		21		89			40
	Fee and commission income		108		735			734
Spark Biopharma Inc.*	Interest expense		25		59			—
SKYDIGITAL INC.	Fee and commission income		—		—			4
KB No.8 Special Purpose Acquisition Company*	Interest expense		17		—			—
KB No.8 Special Purpose Acquisition Company*	Losses on financial instruments at fair value through profit or loss		2,330		—			—
KB No.9 Special Purpose Acquisition Company*	Interest expense		43		(23	)		—
	Gains on financial instruments at fair value through profit or loss		48		—			—
	Losses on financial instruments at fair value through profit or loss		2,256		—			—
KB No.10 Special Purpose Acquisition Company*	Interest expense		30		18			—
KB No.10 Special Purpose Acquisition Company*	Gains on financial instruments at fair value through profit or loss		121		3,066			—
KB No.11 Special Purpose Acquisition Company*	Interest expense		12		9			—
KB No.11 Special Purpose Acquisition Company*	Gains on financial instruments at fair value through profit or loss		56		118			—
KB No.17 Special Purpose Acquisition Company	Fee and commission income		—		175			—
	Gains on financial instruments at fair value through profit or loss		—		1,384			4
	Interest expense		—		28			25
KB No.18 Special Purpose Acquisition Company	Fee and commission income		—		263			—
	Gains on financial instruments at fair value through profit or loss		—		1,898			84
	Interest expense		—		28			31

F-224


		2018		2019		2020
		(In millions of Korean won)
KB No.19 Special Purpose Acquisition Company	Fee and commission income		—		150		—
	Gains on financial instruments at fair value through profit or loss		—		1,044		11
	Interest expense		—		8		13
KB No.20 Special Purpose Acquisition Company	Fee and commission income		—		—		210
	Gains on financial instruments at fair value through profit or loss		—		—		1,568
	Interest expense		—		3		25
KB SPROTT Renewable Private Equity Fund No.1	Fee and commission income		—		490		488
KB-Stonebridge Secondary Private Equity Fund	Fee and commission income		—		1,444		1,442
COSES GT	Losses on financial instruments at fair value through profit or loss		—		5		—
	Interest income		—		—		6
	Provision for credit losses		—		—		4
WJ Private Equity Fund No.1	Fee and commission income		—		—		5
UPRISE, Inc.	Interest income		—		—		2
UPRISE, Inc.	Provision for credit losses		—		—		1
CWhy Inc.	Losses on financial instruments at fair value through profit or loss		—		—		2,000
CWhy Inc.	Insurance income		—		3		—
Stratio, Inc.	Interest expense		—		1		—
NEXELON Inc.*	Interest expense		—		2		—
CellinCells Co., Ltd.	Interest expense		—		19		4
Bomapp Inc.	Fee and commission expense		—		—		9
	Interest expense		—		1		—
	Insurance income		—		1		8
KB Social Impact Investment Fund	Fee and commission income		—		121		300
KB-UTC Inno-Tech Venture Fund	Fee and commission income		—		—		371
KBSP Private Equity Fund No.4	Fee and commission income		—		—		480
KB-NAU Special Situation Corporate Restructuring Private Equity Fund	Fee and commission income		—		—		237
JR GLOBAL REIT	Fee and commission income		—		—		6,210
IGIS No.371 Professional Investors’ Real Estate Investment Company*	Fee and commission income		—		—		200
Koreit Tower Real Estate Investment Trust Company*	Fee and commission income		—		—		2,852
2020 KB Fintech Renaissance Fund	Fee and commission income		—		—		60
KB Material and Parts No.1 PEF	Fee and commission income		—		—		63
FineKB Private Equity Fund No.1	Fee and commission income		—		—		38
Bluepointpartners Inc.	Losses on financial instruments at fair value through profit or loss		—		—		68
KB-Solidus Global Healthcare Fund	Fee and commission income		—		81		777
Fabric Time Co., Ltd.	Fee and commission income		—		—		9
Fabric Time Co., Ltd.	Interest expense		—		—		47

F-225


		2018		2019		2020
		(In millions of Korean won)
BNF Corporation Ltd.*	Interest income		—		7		401
	Fee and commission income		—		—		2
	Gains on financial instruments at fair value through profit or loss		—		158		—
	Provision for credit losses		—		1		8
KB Cape No.1 Private Equity Fund	Fee and commission income		—		97		144
ALS Co., Ltd.*	Interest income		—		194		—
Keystone-Hyundai Securities No.1 Private Equity Fund	Fee and commission income		116		90		115
MJT&I Corp.	Insurance income		—		1		—
Doosung Metal Co., Ltd.*	Insurance income		1		—		—
Hyundai-Tongyang Agrifood Private Equity Fund*	Fee and commission income		151		—		—
Bungaejangter. Inc.*	Interest income		60		—		—
Inno Lending Co., Ltd.*	Fee and commission income		1		—		—
KoFC KBIC Frontier Champ 2010-5(PEF)*	Fee and commission income		197		—		—
Other
Retirement pension	Fee and commission income		876		939		1,077
Retirement pension	Interest expense		3		4		3

*	Excluded from the Group’s related party as of December 31, 2020.

Meanwhile, the Group purchased installment financial assets, etc. from SY Auto Capital Co., Ltd. amounting to ￦ 1,393,346 million and ￦ 1,504,217 million for the years ended December 31, 2019 and 2020, respectively.

43.2 Details of receivables and payables, and related allowances for credit losses arising from transactions with related parties as of December 31, 2019 and 2020, are as follows:


		December 31, 2019		December 31, 2020
		(In millions of Korean won)
Associates and joint ventures
Balhae Infrastructure Company	Other assets	￦	1,718	￦	1,733
Korea Credit Bureau Co., Ltd.	Loans measured at amortized cost (gross amount)		43		36
	Deposits		17,966		19,982
	Provisions		1		—
	Insurance liabilities		2		1
	Other liabilities		—		623

F-226


		December 31, 2019		December 31, 2020
		(In millions of Korean won)
KB GwS Private Securities Investment Trust	Other assets		641		641
Incheon Bridge Co., Ltd.	Financial assets at fair value through profit or loss		37,857		38,756
	Loans measured at amortized cost (gross amount)		147,707		133,002
	Allowances for credit losses		12		202
	Other assets		520		545
	Deposits		45,447		39,520
	Provisions		10		292
	Insurance liabilities		108		109
	Other liabilities		346		205
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2	Other assets		89		—
Jungdo Co., Ltd.	Deposits		4		4
Dongjo Co., Ltd.	Insurance liabilities		1		1
Dae-A Leisure Co., Ltd.	Deposits		753		636
Dae-A Leisure Co., Ltd.	Other liabilities		14		21
Aju Good Technology Venture Fund	Deposits		5,456		3,093
Aju Good Technology Venture Fund	Other liabilities		2		1
KB Star Office Private Real Estate Investment Trust No.1	Loans measured at amortized cost (gross amount)		10,000		10,000
	Allowances for credit losses		4		5
	Other assets		136		137
	Deposits		8,293		4,255
	Other liabilities		66		24
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund	Deposits		13,118		8,097
	Other liabilities		4		1
WJ Private Equity Fund No.1	Other assets		—		2
WJ Private Equity Fund No.1	Deposits		—		349
KB IGen Private Equity Fund No.1*	Deposits		147		—
KB Cape No.1 Private Equity Fund	Financial assets at fair value through profit or loss		2,000		2,000
KB Cape No.1 Private Equity Fund	Other assets		—		144
RAND Bio Science Co., Ltd.	Deposits		4,452		693
RAND Bio Science Co., Ltd.	Loans measured at amortized cost (gross amount)		1		1
SY Auto Capital Co., Ltd.	Loans measured at amortized cost (gross amount)		41,990		40,060
	Allowances for credit losses		4		57
	Other assets		63		65
	Deposits		8		6
	Provisions		13		—
	Insurance liabilities		13		13
	Other liabilities		70		76

F-227


		December 31, 2019		December 31, 2020
		(In millions of Korean won)
Food Factory Co., Ltd.	Financial assets at fair value through profit or loss		590		662
	Loans measured at amortized cost (gross amount)		1,992		3,210
	Allowances for credit losses		2		8
	Other assets		1		3
	Deposits		1,073		1,555
	Provisions		—		2
	Insurance liabilities		4		5
	Other liabilities		1		9
KB Pre IPO Secondary Venture Fund No.1	Deposits		2,955		629
KB Pre IPO Secondary Venture Fund No.1	Other liabilities		1		—
Wise Asset Management Co., Ltd.	Deposits		21		—
Acts Co., Ltd.	Deposits		1		18
	Insurance liabilities		—		1
	Other liabilities		100		100
POSCO-KB Shipbuilding Fund	Other assets		—		264
Paycoms Co., Ltd.	Other assets		1		1
	Financial assets at fair value through profit or loss		1,157		1,226
	Deposits		1		1
Big Dipper Co., Ltd.	Loans measured at amortized cost (gross amount)		11		4
Big Dipper Co., Ltd.	Deposits		6		1
KB-KDBC Pre-IPO New Technology Business Investment Fund	Deposits		7,054		923
KB-KDBC Pre-IPO New Technology Business Investment Fund	Other liabilities		4		—
APRO Co., Ltd.*	Loans measured at amortized cost (gross amount)		2,019		—
	Insurance liabilities		2		—
	Deposits		3,201		—
	Other liabilities		1		—
Iwon Alloy Co., Ltd.	Insurance liabilities		1		—
Computerlife Co., Ltd.	Deposits		1		—
RMGP Bio-Pharma Investment Fund, L.P.	Financial assets at fair value through profit or loss		3,419		4,250
RMGP Bio-Pharma Investment Fund, L.P.	Other liabilities		2		71
RMGP Bio-Pharma Investment, L.P.	Financial assets at fair value through profit or loss		8		9
Hasys.	Financial assets at fair value through profit or loss		6,000		6,000
	Deposits		—		1
	Insurance liabilities		37		39
SKYDIGITAL INC.	Deposits		25		15
Rainist Co., Ltd.	Financial assets at fair value through profit or loss		7,504		9,141

F-228


		December 31, 2019		December 31, 2020
		(In millions of Korean won)
UPRISE, Inc.	Financial assets at fair value through profit or loss		250		250
	Loans measured at amortized cost (gross amount)		—		500
	Allowances for credit losses		—		1
	Deposits		—		11
Stratio, Inc.	Financial assets at fair value through profit or loss		1,000		1,000
Stratio, Inc.	Deposits		726		13
Honest Fund, Inc.	Financial assets at fair value through profit or loss		3,999		3,999
CellinCells Co., Ltd.	Financial assets at fair value through profit or loss		2,000		2,000
	Loans measured at amortized cost (gross amount)		4		24
	Deposits		1,545		260
	Other liabilities		1		—
Jo Yang Industrial Co., Ltd.	Deposits		2		2
KB No.17 Special Purpose Acquisition Company	Financial assets at fair value through profit or loss		2,683		2,687
	Deposits		1,742		1,711
	Other liabilities		27		23
KB No.18 Special Purpose Acquisition Company	Financial assets at fair value through profit or loss		3,786		3,873
	Deposits		2,140		2,101
	Other liabilities		28		19
KB No.19 Special Purpose Acquisition Company	Financial assets at fair value through profit or loss		2,043		2,055
	Deposits		1,093		1,053
	Other liabilities		7		3
KB No.20 Special Purpose Acquisition Company	Financial assets at fair value through profit or loss		1,499		3,067
	Deposits		1,984		1,716
	Other liabilities		3		1
COSES GT	Financial assets at fair value through profit or loss		2,930		4,930
	Loans measured at amortized cost (gross amount)		—		500
	Allowances for credit losses		—		4
	Other assets		—		1
	Deposits		—		292
	Insurance liabilities		—		1
CWhy Inc.	Financial assets at fair value through profit or loss		2,000		—
Bomapp Inc.	Financial assets at fair value through profit or loss		1,999		1,999
Bomapp Inc.	Insurance liabilities		2		2
Channel Corporation	Financial assets at fair value through profit or loss		2,000		4,551

F-229


		December 31, 2019		December 31, 2020
		(In millions of Korean won)
MitoImmune Therapeutics	Financial assets at fair value through profit or loss		5,000		5,000
KB-Solidus Global Healthcare Fund	Other assets		—		707
Bioprotect Ltd.	Financial assets at fair value through profit or loss		—		3,264
GOMI CORPORATION	Financial assets at fair value through profit or loss		—		500
	Loans measured at amortized cost (gross amount)		—		9
	Deposits		—		37
Copin Communications, Inc.	Financial assets at fair value through profit or loss		—		1,500
Go2joy Co., Ltd.	Financial assets at fair value through profit or loss		—		1,200
ClavisTherapeutics, Inc.	Financial assets at fair value through profit or loss		—		2,000
S&E BIO	Financial assets at fair value through profit or loss		—		2,000
S&E BIO	Deposits		—		1,142
Bluepointpartners Inc.	Financial assets at fair value through profit or loss		—		1,432
4N Inc.	Financial assets at fair value through profit or loss		—		200
4N Inc.	Deposits		—		76
Xenohelix Co., Ltd.	Financial assets at fair value through profit or loss		—		2,100
Contents First	Financial assets at fair value through profit or loss		—		6,146
	Deposits		—		1,823
	Other liabilities		—		7
KB-MDI Centauri Fund LP	Financial assets at fair value through profit or loss		—		4,280
KB-MDI Centauri Fund LP	Other assets		—		308
OKXE Inc.	Financial assets at fair value through profit or loss		—		800
GENINUS Inc.	Financial assets at fair value through profit or loss		—		5,599
	Deposits		—		13,630
	Other liabilities		—		15
FineKB Private Equity Fund No.1	Other assets		—		38
NEOMIO CORP.	Deposits		—		535
December & Company Inc.	Deposits		—		1
KB Social Impact Investment Fund	Other assets		73		—
Fabric Time Co., Ltd.	Financial assets at fair value through profit or loss		1,845		3,345
	Loans measured at amortized cost (gross amount)		—		59
	Provisions		—		1
	Deposits		395		3,947
	Other liabilities		2		40

F-230


		December 31, 2019		December 31, 2020
		(In millions of Korean won)
BNF Corporation Ltd.*	Financial assets at fair value through profit or loss		2,259		—
	Loans measured at amortized cost (gross amount)		1,400		—
	Other assets		2		—
	Deposits		947		—
	Other liabilities		6		—
Key management	Loans measured at amortized cost (gross amount)		3,538		5,153
Key management	Allowances for credit losses		1		2
	Other assets		3		5
	Deposits		15,339		17,167
	Insurance liabilities		1,984		2,501
	Other liabilities		289		371
Other
Retirement pension	Other assets		366		295
	Other liabilities		17,620		10,600

*	Excluded from the Group’s related party as of December 31, 2020, therefore, the remaining outstanding balances with those entities are not disclosed.

F-231

43.3 Significant lending transactions with related parties for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Increase			Decrease			Ending
	(In millions of Korean won)
Associates and joint ventures
Korea Credit Bureau Co., Ltd.	￦	22	￦	43		￦	(22	)	￦	43
Incheon Bridge Co., Ltd.		191,088		4,982			(10,506	)		185,564
KB Star Office Private Real Estate Investment Trust No.1		10,000		—			—			10,000
KB Cape No.1 Private Equity Fund		—		2,000			—			2,000
RAND Bio Science Co., Ltd.		1		1			(1	)		1
SY Auto Capital Co., Ltd.		48,356		28,088			(34,454	)		41,990
Food Factory Co., Ltd.		730		1,872			(20	)		2,582
Built On Co., Ltd.*		401		—			(401	)		—
Acts Co., Ltd.		—		68			(68	)		—
Paycoms Co., Ltd.		1,032		125			—			1,157
Big Dipper Co., Ltd.		5		11			(5	)		11
APRO Co., Ltd.*		—		2,019			—			2,019
JLK Inspection Co., Ltd.*		7,300		(7,300	)		—			—
TESTIAN Inc.*		615		24			(639	)		—
RMGP Bio-Pharma Investment Fund, L.P.		3,051		368			—			3,419
RMGP Bio-Pharma Investment, L.P.		4		4			—			8
Hasys.		5,864		136			—			6,000
Rainist Co., Ltd.		2,504		5,000			—			7,504
Spark Biopharma Inc.*		6,500		(6,500	)		—			—
UPRISE, Inc.		250		—			—			250
Stratio, Inc.		1,000		—			—			1,000
Honest Fund, Inc.		—		3,999			—			3,999
CellinCells Co., Ltd.		—		2,004			—			2,004
KB No.9 Special Purpose Acquisition Company*		2,481		—			(2,481	)		—
KB No.10 Special Purpose Acquisition Company*		2,025		—			(2,025	)		—
KB No.11 Special Purpose Acquisition Company*		737		—			(737	)		—
KB No.17 Special Purpose Acquisition Company		—		2,683			—			2,683
KB No.18 Special Purpose Acquisition Company		—		3,786			—			3,786
KB No.19 Special Purpose Acquisition Company		—		2,043			—			2,043
KB No.20 Special Purpose Acquisition Company		—		1,499			—			1,499
COSES GT		—		2,930			—			2,930
CWhy Inc.		—		2,000			—			2,000
Bomapp Inc.		—		1,999			—			1,999
Channel Corporation		—		2,000			—			2,000
MitoImmune Therapeutics		—		5,000			—			5,000
Fabric Time Co., Ltd.		—		1,845			—			1,845
BNF Corporation Ltd.*		—		3,659			—			3,659
Key management		2,404		2,006			(872	)		3,538

F-232


	2020
	Beginning		Increase		Decrease			Ending
	(In millions of Korean won)
Associates and joint ventures
Korea Credit Bureau Co., Ltd.	￦	43	￦	36	￦	(43	)	￦	36
Incheon Bridge Co., Ltd.		185,564		901		(14,707	)		171,758
Carlife Co., Ltd.		—		22		(22	)		—
KB Star Office Private Real Estate Investment Trust No.1		10,000		—		—			10,000
KB Cape No.1 Private Equity Fund		2,000		—		—			2,000
RAND Bio Science Co., Ltd.		1		1		(1	)		1
SY Auto Capital Co., Ltd.		41,990		11,310		(13,240	)		40,060
Food Factory Co., Ltd.		2,582		1,314		(24	)		3,872
Acts Co., Ltd.		—		74		(74	)		—
Paycoms Co., Ltd.		1,157		69		—			1,226
Big Dipper Co., Ltd.		11		4		(11	)		4
APRO Co., Ltd.*		2,019		2,000		(4,019	)		—
RMGP Bio-Pharma Investment Fund, L.P.		3,419		831		—			4,250
RMGP Bio-Pharma Investment, L.P.		8		1		—			9
Hasys.		6,000		—		—			6,000
Rainist Co., Ltd.		7,504		1,637		—			9,141
UPRISE, Inc.		250		500		—			750
Stratio, Inc.		1,000		—		—			1,000
Honest Fund, Inc.		3,999		—		—			3,999
CellinCells Co., Ltd.		2,004		24		(4	)		2,024
KB No.17 Special Purpose Acquisition Company		2,683		4		—			2,687
KB No.18 Special Purpose Acquisition Company		3,786		87		—			3,873
KB No.19 Special Purpose Acquisition Company		2,043		12		—			2,055
KB No.20 Special Purpose Acquisition Company		1,499		1,568		—			3,067
COSES GT		2,930		2,500		—			5,430
CWhy Inc.		2,000		—		(2,000	)		—
Bomapp Inc.		1,999		—		—			1,999
Channel Corporation		2,000		2,551		—			4,551
MitoImmune Therapeutics		5,000		—		—			5,000
Bioprotect Ltd.		—		3,264		—			3,264
GOMI CORPORATION		—		509		—			509
Copin Communications, Inc.		—		1,500		—			1,500
Go2joy Co., Ltd.		—		1,200		—			1,200
ClavisTherapeutics, Inc.		—		2,000		—			2,000
S&E BIO		—		2,000		—			2,000
Bluepointpartners Inc.		—		1,432		—			1,432
4N Inc.		—		200		—			200
Xenohelix Co., Ltd.		—		2,100		—			2,100
Contents First		—		6,146		—			6,146
KB-MDI Centauri Fund LP		—		4,280		—			4,280
Fabric Time Co., Ltd.		1,845		1,559		—			3,404
OKXE Inc.		—		800		—			800
GENINUS Inc.		—		5,599		—			5,599
BNF Corporation Ltd.*		3,659		1,000		(4,659	)		—
Key management		3,538		5,141		(3,526	)		5,153

*	Excluded from the Group’s related party as of December 31, 2020.

F-233

43.4 Significant borrowing transactions with related parties for the years ended December 31, 2019 and 2020, are as follows:


	2019
	Beginning		Borrowing		Repayment			Others ¹			Ending
		(In millions of Korean won)
Associates and joint ventures
Korea Credit Bureau Co., Ltd.	￦	15,674	￦	—	￦	(3,000	)	￦	5,292		￦	17,966
Incheon Bridge Co., Ltd.		43,666		25,260		(5,260	)		(18,219	)		45,447
Doosung Metal Co., Ltd.		3		—		—			(3	)		—
Jungdo Co., Ltd.		4		—		—			—			4
Dae-A Leisure Co., Ltd.		1,229		—		—			(476	)		753
Carlife Co., Ltd.		2		—		—			(2	)		—
Computerlife Co., Ltd.		1		—		—			—			1
SKYDIGITAL INC.		16		—		—			9			25
Jo Yang Industrial Co., Ltd.		—		—		—			2			2
Aju Good Technology Venture Fund		6,439		—		—			(983	)		5,456
KB-KDBC Pre-IPO New Technology Business Investment Fund		7,088		15,000		(10,000	)		(5,034	)		7,054
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		18,813		—		—			(5,695	)		13,118
KB Star Office Private Real Estate Investment Trust No.1		7,946		5,018		(5,072	)		401			8,293
SY Auto Capital Co., Ltd.		5		—		—			3			8
KB No.9 Special Purpose Acquisition Company ²		2,275		—		(2,266	)		(9	)		—
KB No.10 Special Purpose Acquisition Company ²		1,666		—		(1,618	)		(48	)		—
KB No.11 Special Purpose Acquisition Company ²		658		—		(530	)		(128	)		—
KB No.17 Special Purpose Acquisition Company		—		1,500		—			242			1,742
KB No.18 Special Purpose Acquisition Company		—		2,200		(100	)		40			2,140
KB No.19 Special Purpose Acquisition Company		—		1,000		—			93			1,093
KB No.20 Special Purpose Acquisition Company		—		1,500		—			484			1,984
RAND Bio Science Co., Ltd.		232		1,900		—			2,320			4,452
Wise Asset Management Co., Ltd.		696		—		(682	)		7			21
Built On Co., Ltd. ²		7		—		—			(7	)		—
Food Factory Co., Ltd.		68		—		—			1,005			1,073
Acts Co., Ltd.		29		—		—			(28	)		1
Paycoms Co., Ltd.		1		—		—			—			1
Big Dipper Co., Ltd.		182		—		—			(176	)		6
APRO Co., Ltd. ²		2,201		—		—			1,000			3,201
Rainist Co., Ltd.		1		—		—			(1	)		—
Spark Biopharma Inc. ²		2,630		17,000		(9,000	)		(10,630	)		—
Stratio, Inc.		516		—		—			210			726
NEXELON Inc. ²		—		—		(200	)		200			—
CellinCells Co., Ltd.		—		—		—			1,545			1,545
KB IGen Private Equity Fund No.1 ²		148		—		—			(1	)		147
KB Pre IPO Secondary Venture Fund No.1		1,115		—		—			1,840			2,955
Fabric Time Co., Ltd.		—		—		—			395			395
BNF Corporation Ltd. ²		—		—		—			947			947
Key management		13,818		13,520		(14,611	)		2,611			15,338

F-234


	2020
	Beginning		Borrowing		Repayment			Others ¹			Ending
	(In millions of Korean won)
Associates and joint ventures
Korea Credit Bureau Co., Ltd.	￦	17,966	￦	1,000	￦	—		￦	1,016		￦	19,982
Incheon Bridge Co., Ltd.		45,447		20,000		(21,260	)		(4,667	)		39,520
Jungdo Co., Ltd.		4		—		—			—			4
Dae-A Leisure Co., Ltd.		753		—		—			(117	)		636
Computerlife Co., Ltd.		1		—		—			(1	)		—
SKYDIGITAL INC.		25		—		—			(10	)		15
Jo Yang Industrial Co., Ltd.		2		—		—			—			2
Aju Good Technology Venture Fund		5,456		1,442		—			(3,805	)		3,093
KB-KDBC Pre-IPO New Technology Business Investment Fund		7,054		1,500		(6,500	)		(1,131	)		923
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		13,118		—		—			(5,021	)		8,097
NEOMIO CORP.		—		—		—			535			535
WJ Private Equity Fund No.1		—		—		—			349			349
KB Star Office Private Real Estate Investment Trust No.1		8,293		2,117		(5,630	)		(525	)		4,255
SY Auto Capital Co., Ltd.		8		—		—			(2	)		6
KB No.17 Special Purpose Acquisition Company		1,742		1,525		(1,500	)		(56	)		1,711
KB No.18 Special Purpose Acquisition Company		2,140		2,063		(2,100	)		(2	)		2,101
KB No.19 Special Purpose Acquisition Company		1,093		1,000		(1,000	)		(40	)		1,053
KB No.20 Special Purpose Acquisition Company		1,984		1,522		(1,500	)		(290	)		1,716
RAND Bio Science Co., Ltd.		4,452		2,250		(3,750	)		(2,259	)		693
Wise Asset Management Co., Ltd.		21		—		—			(21	)		—
Food Factory Co., Ltd.		1,073		1,503		(1,003	)		(18	)		1,555
Acts Co., Ltd.		1		—		—			17			18
Paycoms Co., Ltd.		1		—		—			—			1
Big Dipper Co., Ltd.		6		—		—			(5	)		1
APRO Co., Ltd. ²		3,201		—		—			(3,201	)		—
Hasys.		—		—		—			1			1
Stratio, Inc.		726		—		—			(713	)		13
UPRISE, Inc.		—		—		—			11			11
CellinCells Co., Ltd.		1,545		—		—			(1,285	)		260
COSES GT		—		—		—			292			292
Fabric Time Co., Ltd.		395		7,002		(3,801	)		351			3,947
BNF Corporation Ltd. ²		947		—		—			(947	)		—
GOMI CORPORATION		—		—		—			37			37
S&E BIO		—		—		—			1,142			1,142
KB IGen Private Equity Fund No.1 ²		147		—		—			(147	)		—
KB Pre IPO Secondary Venture Fund No.1		2,955		—		—			(2,326	)		629
4N Inc.		—		—		—			76			76
Contents First		—		4,000		(3,000	)		823			1,823
December & Company Inc.		—		—		—			1			1
GENINUS Inc.		—		—		—			13,630			13,630
Key management		15,338		21,319		(20,410	)		920			17,167

¹	Transactions between related parties, such as settlements arising from operating activities and deposits, are expressed in net amount.

²	Excluded from the Group’s related party as of December 31, 2020.

F-235

43.5 Significant investment and withdrawal transactions with related parties for the years ended December 31, 2019 and 2020, are as follows:


	2019				2020
	Equity investments		Withdrawal and others		Equity investments		Withdrawal and others
	(In millions of Korean won)
Balhae Infrastructure Company	￦	592	￦	6,855	￦	894	￦	6,973
KB GwS Private Securities Investment Trust		—		7,276		—		9,523
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2		—		—		—		3,230
POSCO-KB Shipbuilding Fund		2,500		—		5,000		2,125
KB Pre IPO Secondary Venture Fund No.1		—		—		—		585
KB-KDBC Pre-IPO New Technology Business Investment Fund		5,000		—		—		6,400
KB-SJ Tourism Venture Fund		1,500		—		1,500		—
Korea Credit Bureau Co., Ltd.		—		135		—		90
KB-UTC Inno-Tech Venture Fund		450		—		16,965		—
KB-Solidus Global Healthcare Fund		10,400		13,520		10,920		4,940
KB-Stonebridge Secondary Private Equity Fund		7,070		1,855		9,093		—
WJ Private Equity Fund No.1		—		—		10,000		—
All Together Korea Fund No.2		—		—		100,000		90,127
KB Star Office Private Real Estate Investment Trust No.1		—		1,275		—		1,273
KB SPROTT Renewable Private Equity Fund No.1		1,667		—		4,129		—
KB-NAU Special Situation Corporate Restructuring Private Equity Fund		—		—		5,700		—
JR GLOBAL REIT		—		—		219,493		3,639
IGIS No.371 Professional Investors’ Real Estate Investment Company*		—		—		10,000		10,000
Koreit Tower Real Estate Investment Trust Company*		—		—		30,000		30,000
Project Vanilla Co., Ltd.		—		—		2,450		—
December & Company Inc.		—		—		30,000		—
KB Social Impact Investment Fund		1,500		—		1,500		—
2020 KB Fintech Renaissance Fund		—		—		550		—
KB Material and Parts No.1 PEF		—		—		3,400		—
KB Private Equity Fund No.3		—		—		—		8,000
KoFC KBIC Frontier Champ 2010-5 (PEF)*		—		138		—		—
KB-TS Technology Venture Private Equity Fund		7,840		2,240		2,240		5,488
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund		14,000		—		8,000		3,200
KB Cape No.1 Private Equity Fund		2,000		—		—		—
Aju Good Technology Venture Fund		1,960		—		—		2,885
KB No.9 Special Purpose Acquisition Company*		—		16		—		—
KB No.17 Special Purpose Acquisition Company		1		—		—		—
KB No.18 Special Purpose Acquisition Company		1		—		—		—
KB No.19 Special Purpose Acquisition Company		1		—		—		—
KB No.20 Special Purpose Acquisition Company		1		—		—		—
KBSP Private Equity Fund No.4		6,100		—		—		—

*	Excluded from the Group’s related party as of December 31, 2020.

F-236

43.6 Unused commitments provided to related parties as of December 31, 2019 and 2020, are as follows:


		December 31, 2019		December 31, 2020
		(In millions of Korean won or in a US Dollar)
Associates and joint ventures
Balhae Infrastructure Company	Purchase of securities	￦	7,327	￦	6,433
Korea Credit Bureau Co., Ltd.	Unused lines of credit for credit card		557		564
KB GwS Private Securities Investment Trust	Purchase of securities		876		—
Aju Good Technology Venture Fund	Purchase of securities		1,154		—
Incheon Bridge Co., Ltd.	Loan commitments in Korean won		20,000		20,000
Incheon Bridge Co., Ltd.	Unused lines of credit for credit card		93		98
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2	Purchase of securities		12,550		—
KoFC POSCO HANWHA KB Shared Growth Private Equity Fund No.2	Commitments on loss absorption priority		10,000		14,980
SY Auto Capital Co., Ltd.	Loan commitments in Korean won		8,100		—
SY Auto Capital Co., Ltd.	Unused lines of credit for credit card		60		90
Food Factory Co., Ltd.	Loan commitments in Korean won		—		388
Food Factory Co., Ltd.	Unused lines of credit for credit card		25		73
KB No.17 Special Purpose Acquisition Company	Unused lines of credit for credit card		—		441
KB No.18 Special Purpose Acquisition Company	Unused lines of credit for credit card		15		15
KB No.19 Special Purpose Acquisition Company	Unused lines of credit for credit card		1		—
CellinCells Co., Ltd.	Unused lines of credit for credit card		20		—
RAND Bio Science Co., Ltd.	Unused lines of credit for credit card		24		24
Big Dipper Co., Ltd.	Unused lines of credit for credit card		89		96
Fabric Time Co., Ltd.	Unused lines of credit for credit card		—		7
KB Pre IPO Secondary Venture Fund No.1	Commitments on loss absorption priority		1,671		1,671
POSCO-KB Shipbuilding Fund	Purchase of securities		5,000		—
KB-TS Technology Venture Private Equity Fund	Purchase of securities		5,936		3,696
KB-SJ Tourism Venture Fund	Purchase of securities		2,000		500
KB-Brain KOSDAQ Scale-up New Technology Business Investment Fund	Purchase of securities		18,000		10,000
KB SPROTT Renewable Private Equity Fund No.1	Purchase of securities		22,833		18,704
KB-Stonebridge Secondary Private Equity Fund	Purchase of securities		27,930		18,837
KB Social Impact Investment Fund	Purchase of securities		3,000		1,500
BNF Corporation Ltd.*	Loan commitments in Korean won		360		—
APRO Co., Ltd.*	Unused lines of credit for credit card		96		—
KB-UTC Inno-Tech Venture Fund	Purchase of securities		22,050		5,085
KB-NAU Special Situation Corporate Restructuring Private Equity Fund	Purchase of securities		—		24,300
All Together Korea Fund No.2	Purchase of securities		—		990,000
FineKB Private Equity Fund No.1	Purchase of securities		—		25,000
KB-Solidus Global Healthcare Fund	Purchase of securities		24,700		2,120
RMGP Bio-Pharma Investment Fund, L.P.	Purchase of securities	USD	8,911,002	USD	7,796,423
RMGP Bio-Pharma Investment, L.P.	Purchase of securities	USD	13,150	USD	17,132
KB-MDI Centauri Fund LP	Purchase of securities		—	USD	13,537,500
Key management	Loan commitments in Korean won		1,695		1,760

*	Excluded from the Group’s related party as of December 31, 2020.

F-237

43.7 Details of compensation to key management for the years ended December 31, 2018, 2019 and 2020, are as follows:


	2018
	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
	(In millions of Korean won)
Registered directors (executive)	￦	7,757	￦	418	￦	4,213	￦	12,388
Registered directors (non-executive)		960		—		—		960
Non-registered directors		7,135		273		3,314		10,722

	￦	15,852	￦	691	￦	7,527	￦	24,070


	2019
	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
	(In millions of Korean won)
Registered directors (executive)	￦	8,540	￦	425	￦	7,434	￦	16,399
Registered directors (non-executive)		1,030		—		—		1,030
Non-registered directors		9,157		360		7,510		17,027

	￦ 18,727		￦ 785		￦ 14,944		￦ 34,456


	2020
	Short-term employee benefits		Post-employment benefits		Share-based payments		Total
	(In millions of Korean won)
Registered directors (executive)	￦	8,111	￦	672	￦	6,369	￦	15,152
Registered directors (non-executive)		1,133		—		—		1,133
Non-registered directors		10,782		396		6,934		18,112

	￦	20,026	￦	1,068	￦	13,303	￦	34,397

43.8 Details of collateral provided from related parties as of December 31, 2019 and 2020, are as follows:


	Assets pledged as collateral	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Associates
KB Star Office Private Real Estate Investment Trust No.1	Real estate	￦	13,000	￦	13,000
Key management	Time deposits and others		192		213
Key management	Real estate		2,922		4,356

As of December 31, 2020, Incheon Bridge Co., Ltd., a related party, provides fund management account, civil engineering works insurance, and management and operations rights as senior collateral amounting to ￦ 611,000 million to the project financing group that consists of the Group and 5 other institutions, and as subordinated collateral amounting to ￦ 384,800 million to subordinated debt holders that consist of the Group and 2 other institutions. Also, it provides certificate of credit guarantee amounting to ￦ 400,000 million as collateral to the project financing group that consists of the Group and 5 other institutions.

F-238

44. Business Combination

44.1 Acquisition of Prudential Life Insurance Company of Korea Ltd.

44.1.1 General information

On August 26, 2020, the Group obtained an approval from the Financial Services Commission to acquire Prudential Life Insurance Company of Korea Ltd. On August 31, 2020, the Group acquired 100 percent share in the subsidiary through purchase of shares and obtained control.

The main purpose of the business combination is to improve competitiveness of life insurance business by including the acquiree into subsidiaries of the Group.

44.1.2 Identifiable assets acquired and liabilities assumed

Details of consideration paid, assets acquired and liabilities assumed are as follows:


	2020
	(In millions of Korean won)
Consideration
Cash	￦	2,299,541

Total consideration transferred		2,299,541

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and due from financial institutions		574,204
Financial assets at fair value through profit or loss		503,853
Financial assets at fair value through other comprehensive income		7,195,958
Securities measured at amortized cost		10,064,300
Loans measured at amortized cost		759,869
Derivatives		389
Property and equipment		178,537
Intangible assets ¹		10,382
Other assets		4,931,131

Total assets		24,218,623

Insurance liabilities ²		16,752,888
Derivatives		1,166
Other liabilities		5,019,961

Total liabilities		21,774,015

Total identifiable net assets	￦	2,444,608

Non-controlling interests		—
Gain on a bargain purchase ³		145,067

¹	Memberships, software, development costs and others were previously held by Prudential Life Insurance Company of Korea Ltd.

²	Separately measured VOBA (Value of Business Acquired) was adjusted by applying an indirect method of intrinsic value to the carrying amount of insurance liabilities of the acquiree.

³	As a result of the business combination, gain on a bargain purchase was recognized as other non-operating income in the consolidated statement of comprehensive income.

For the allocation of consideration, the Group measured the acquiree’s identifiable assets and liabilities at their fair value at the acquisition date. The fair value is measured at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. If the value is not directly observed, it is estimated using an appropriate valuation technique.

F-239

Details of intangible assets recognized as the result of the business combination are as follows:


	2020
	(In millions of Korean won)
VOBA ¹	￦	(2,807,162	)
Others ²		10,382

	￦	(2,796,780	)

Negative VOBA was recognized and adjusted in the insurance liability. In accordance with IFRS No.4, an indirect method of intrinsic value is applied to the measurement of VOBA. VOBA is a similar concept to present value of in force business (PVIF) and present value of future profits (PVFP or PVP). The VOBA from intrinsic values is calculated through the actuarial model and cash flows that were originally used to calculate the embedded value of the insurance contracts.

²	Memberships, software, development costs and others were previously held by Prudential Life Insurance Company of Korea Ltd.

44.1.3 Expenses related to business combination

The Group incurred expenses of ￦ 10,183 million, including legal fees and due diligence fees, in connection with the business combination, and these were recognized as fee and commission expenses in the consolidated statement of comprehensive income.

44.1.4 Others

Operating income and net profit of Prudential Life Insurance Company of Korea Ltd. for the period after the acquisition date were ￦ 92,535 million and ￦ 55,711 million, respectively, which are reflected in the consolidated statement of comprehensive income.

If Prudential Life Insurance Company of Korea Ltd. was consolidated from the beginning of the current period, its operating income and net profit to be reflected in the consolidated statement of comprehensive income would be ￦ 529,678 million and ￦ 386,864 million, respectively.

44.2 Acquisition of PRASAC Microfinance Institution Plc (PRASAC).

On April 10, 2020, the Group acquired 161 million shares which is 70% of total 230 million shares in PRASAC, a microfinance company in Cambodia, for US$ 603 million from existing shareholders. Therefore, PRASAC became a subsidiary of the Group.

The main purpose of the business combination is to improve competitiveness of global business by maximizing the operational synergy with foreign subsidiaries.

F-240

Details of consideration paid, assets acquired and liabilities assumed are as follows:


	2020
	(In millions of Korean won)
Consideration
Cash	￦	733,976

Total consideration transferred		733,976

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and due from financial institutions		658,865
Loans measured at amortized cost		3,194,211
Financial investments		35
Property and equipment		24,472
Intangible assets		1,821
Current income tax assets		873
Deferred income tax assets		26,330
Other assets		37,325

Total assets		3,943,932

Deposits		2,222,944
Borrowings		1,038,684
Debentures		89,570
Current income tax liabilities		9,238
Deferred income tax liabilities		323
Other liabilities		101,696

Total liabilities		3,462,455

Total identifiable net assets	￦	481,477

Non-controlling interests ¹		144,443
Goodwill ²		396,942

¹	Measured at the proportionate share (30%) of the fair value of PRASAC’s net assets as of the acquisition date.

²	As a result of the business combination, there was a goodwill and the Group recognized it as intangible assets in the consolidated statement of financial position.

Details of loans acquired are as follows:


	2020
	(In millions of Korean won)
Acquiree’s carrying amount of loans	￦	3,294,798
Present value of contractual cash flows not expected to be paid		(100,587	)

Fair value of loans	￦	3,194,211

The Group has signed an agreement with the existing shareholders of PRASAC. The existing shareholders have the right of put option to sell 30% of the remaining shares to the Group, and they are entitled to exercise their rights at the exercise price calculated on the basis of the adjusted book value of net asset as of 2021 year-end, within six months from the issue date of the audit report or the confirmation date of the adjusted value. If the put option is not exercised until its expiry, the Group has a right to exercise a call option during the six months following the expiry of such put option. All shareholders are restricted from selling shares or additional pledge before exercising the put option and call option. In addition, the Group has agreed to pay dividends to

F-241

existing shareholders of PRASAC for 30% of the amount exceeding USD 370 million based on the adjusted carrying value of net asset and this payment can be added to the exercised price of put option in accordance with the shareholders’ agreement.

Amount of the recognized liabilities and deducted equity in relation to the above agreement with shareholders are as follows:


	2020
	(In millions of Korean won)
Agreement with shareholders (purchase of remaining shares and payment of dividends)
Other payables (present value of exercising price of options)	￦	308,236
Other payables (present value of expected dividends)		102,986

	￦	411,222

Attributable to ordinary equity holders of the Parent Company (capital surplus)		(411,222	)

Operating income and net profit of PRASAC for the period after the acquisition date were ￦ 147,571 million and ￦ 118,339 million, respectively, which are reflected in the consolidated statement of comprehensive income, and the amount attributed to net profit to shareholders of the Parent Company is ￦ 82,837 million.

If PRASAC was consolidated from the beginning of the current period, its operating income and net profit to be reflected in the consolidated statement of comprehensive income would be ￦ 183,735 million and ￦ 147,383 million, respectively and the amount that would have been attributed to net profit to shareholders of the Parent Company is ￦ 103,168 million.

44.3 Acquisition of PT Bank Bukopin TBK

At the Board of Directors meeting held on July 16, 2020, the Group has decided to acquire additional ordinary shares of PT Bank Bukopin TBK, the Group’s associate, which operates a banking business in Indonesia, through issuance of shares in the form of an allotment to shareholders (1 ^st ) and an allotment to the third party (2 ^nd ).

Accordingly, the Group acquired 2,967,600,372 ordinary shares for IDR 534,168,066,960 (￦ 43,909 million) from issuance of shares in the form of an allotment to shareholders (1 ^st ) on July 30, 2020, and 16,360,578,947 ordinary shares for IDR 3,108,509,999,930 (￦ 252,722 million) from issuance of shares in the form of an allotment to the third party (2 ^nd ) on September 2, 2020. The Group secured 67.00% of PT Bank Bukopin TBK through paid-in capital increase twice, and PT Bank Bukopin TBK became a subsidiary of the Group on September 2, 2020.

The main purpose of the business combination is to improve competitiveness of global business by maximizing the operational synergy with foreign subsidiaries.

F-242

Details of consideration paid, assets acquired and liabilities assumed are as follows:


	2020
	(In millions of Korean won)
Consideration
Fair value of existing shares at the time of exchange	￦	78,446
Cash (=16,360,578,947shares x 190 IDR)		252,722

Total consideration transferred		331,168

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and due from financial institutions		300,424
Financial assets at fair value through profit or loss		3,960
Derivative assets		130
Loans measured at amortized cost		4,256,209
Financial investments		469,625
Property and equipment		280,197
Intangible assets		99,085
Deferred income tax assets		25,350
Assets held for sale		183,642
Other assets		272,775

Total assets		5,891,397

Deposits		4,253,557
Borrowings		838,142
Debentures		141,806
Provisions		3,522
Net defined benefit liabilities		15,141
Other liabilities		276,336

Total liabilities		5,528,504

Total identifiable net assets	￦	362,893

Non-controlling interests ¹		120,945
Goodwill ²		89,220

¹	The sum of the existing non-controlling interests held by PT Bank Bukopin TBK and the proportionate share (33%) of the fair value of PT Bank Bukopin TBK’s net assets as of the acquisition date.

²	As a result of the business combination, there was a goodwill and the Group recognized it as intangible assets in the consolidated statement of financial position.

Details of loans acquired are as follows:


	2020
	(In millions of Korean won)
Acquiree’s carrying amount of loans	￦	5,053,321
Present value of contractual cash flows not expected to be paid		(797,112	)

Fair value of loans	￦	4,256,209

In 2020, the Group measured 33.90% shares of PT Bank Bukopin TBK, which the Group held before the business combination, at fair value, and recognized ￦ 30,277 million as gain on investment in associates in the consolidated statement of comprehensive income.

F-243

Operating loss and net loss of PT Bank Bukopin TBK for the period after the acquisition date were ￦ 61,051 million and ￦ 43,402 million, respectively, which are reflected in the consolidated statement of comprehensive income, and the amount attributed to net loss to shareholders of the Parent Company is ￦ 29,223 million.

If PT Bank Bukopin TBK was consolidated from the beginning of the current period, its operating loss and net loss to be reflected in the consolidated statement of comprehensive income would be ￦ 190,584 million and ￦ 146,227 million, respectively and the amount that would have been attributed to net loss to shareholders of the Parent Company is ￦ 97,981 million.

Details of intangible assets recognized as a result of business combinations are as follows:


	2020
	(In millions of Korean won)
Core deposits ¹	￦	95,477
Others ²		3,608

	￦	99,085

¹	It is an identifiable intangible asset and reflects the fair value of financing costs saved through stable relationships with saving customers.

²	Software and other intangible assets which were previously held by PT Bank Bukopin TBK.

44.4 Acquisition of PT. Finansia Multi Finance

On July 3, 2020, the Group acquired 80 percent share in PT. Finansia Multi Finance, which is engaged in financial services in Indonesia, and obtained control.

The main purpose of the business combination is to improve competitiveness of global business by maximizing the operational synergy with foreign subsidiaries.

F-244

Details of consideration paid, assets acquired and liabilities assumed are as follows:


	2020
	(In millions of Korean won)
Consideration
Cash	￦	89,689

Total consideration transferred		89,689

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and due from financial institutions		24,150
Loans measured at amortized cost		191,039
Property and equipment		13,837
Intangible assets		13,409
Other assets		17,587

Total assets		260,022

Borrowings		146,588
Debentures		46,865
Other liabilities		19,233

Total liabilities		212,686

Total identifiable net assets	￦	47,336

Non-controlling interests ¹		9,467
Goodwill ²		51,820

¹	Measured at the proportionate share (20%) of the fair value of PT. Finansia Multi Finance’s net assets as of the acquisition date.

²	As a result of the business combination, there was a goodwill and the Group recognized it as intangible assets in the consolidated statement of financial position.

The Group incurred expenses of ￦ 1,064 million and ￦ 1,623 million for the 2020 and 2019, respectively, including legal fees and due diligence fees, in connection with the business combination, and these were recognized as fee and commission expenses in the consolidated statement of comprehensive income.

Operating loss and net loss of PT. Finansia Multi Finance for the period after the acquisition date were ￦ 4,432 million and ￦ 3,456 million, respectively, which are reflected in the consolidated statement of comprehensive income.

If PT. Finansia Multi Finance was consolidated from the beginning of the current period, its operating loss and net loss to be reflected in the consolidated statement of comprehensive income would be ￦ 26,166 million and ￦ 19,187 million, respectively and the amount that would have been attributed to net loss to shareholders of the Parent Company is ￦ 15,349 million.

45. Approval of Issuance of the Consolidated Financial Statements

The Group’s consolidated financial statements as of and for the year ended December 31, 2020 was certified by management on April 27, 2021.

F-245

46. Parent Company Information

The following tables present the Parent Company Only financial information:

Condensed Statements of Financial Position


	December 31, 2019		December 31, 2020
	(In millions of Korean won)
Assets
Cash and due from financial institutions	￦	18,537	￦	23,084
Financial assets at fair value through profit or loss		413,909		474,262
Loans at amortized cost		120,000		179,542
Investments in subsidiaries*
Banking subsidiaries		14,821,721		14,821,721
Nonbanking subsidiaries.		9,340,395		11,698,159
Other assets		632,074		911,723

Total assets	￦	25,346,636	￦	28,108,491

Liabilities and shareholders’ equity
Borrowings	￦	—	￦	100,000
Debentures		5,543,446		6,128,043
Other liabilities		621,291		894,828
Shareholders’ equity		19,181,899		20,985,620

Total liabilities and shareholders’ equity	￦	25,346,636	￦	28,108,491

*	Investments in subsidiaries were accounted at cost method in accordance with IAS No.27.

Condensed Statements of Comprehensive Income


	2018			2019			2020
	(In millions of Korean won)
Income
Dividends from subsidiaries	￦	1,089,556		￦	926,934		￦	1,573,411
Interest from subsidiaries		5,710			3,618			3,519
Other income		20,940			22,709			22,749

Total income		1,116,206			953,261			1,599,679

Expense
Interest expense		122,451			126,065			132,437
Non-interest expense		65,027			80,355			87,876

Total expense		187,478			206,420			220,313

Profit before income tax expense		928,728			746,841			1,379,366

Income tax benefit (expense)		(2,823	)		(854	)		49

Profit for the year		925,905			745,987			1,379,415

Other comprehensive loss for the year, net of tax		(1,911	)		(520	)		(368	)

Total comprehensive income for the year	￦	923,994		￦	745,467		￦	1,379,047

*	The condensed statements of comprehensive income for the years ended December 31, 2019 and 2020 are prepared in accordance with IFRS No.16, and the comparatives for the year ended December 31, 2018 has not been restated.

F-246

Condensed Statements of Cash Flows


	2018			2019			2020
	(In millions of Korean won)
Operating activities
Net income	￦	925,905		￦	745,987		￦	1,379,415
Reconciliation of net income (loss) to net cash provided by operating activities:
Other operating activities, net		(1,243	)		(274	)		9,930

Net cash inflow from operating activities		924,662			745,713			1,389,345

Investing activities
Net payments to subsidiaries		—			(100,000	)		(2,347,543	)
Other investing activities, net		(43,554	)		(200,609	)		(146,477	)

Net cash outflow from investing activities		(43,554	)		(300,609	)		(2,494,020	)

Financing activities
Net decrease in borrowings		(164	)		(298,321	)		100,000
Increases in debentures		897,872			1,037,656			1,537,091
Repayments of debentures and lease liabilities		(688,486	)		(868,723	)		(940,610	)
Issuance of hybrid securities		—			399,085			1,296,693
Cash dividends paid		(766,728	)		(766,249	)		(883,952	)
Acquisition of treasury shares		(224,700	)		(274,317	)		—

Net cash inflow (outflow) from financing activities		(782,206	)		(770,869	)		1,109,222

Net increase(decrease) in cash and cash equivalents		98,902			(325,765	)		4,547
Cash and cash equivalents at January 1		245,397			344,299			18,534

Cash and cash equivalents at December 31	￦	344,299		￦	18,534		￦	23,081

*	The condensed statements of cash flows for the years ended December 31, 2019 and 2020 are prepared in accordance with IFRS No.16, and the comparatives for the year ended December 31, 2018 has not been restated.

F-247

TABLE OF CONTENTS

Item 1. Identity Of Directors, Senior Management and Advisers Item 2. Offer Statistics and Expected Timetable Item 3. Key Information Item 3. A. Selected Financial Data Item 3. B. Capitalization and Indebtedness Item 3. C. Reasons For The Offer and Use Of Proceeds Item 3. D. Risk Factors Item 4. Information on The Company Item 4. A. History and Development Of The Company Item 4. B. Business Overview Item 4. C. Organizational Structure Item 4. D. Property, Plants and Equipment Item 4A. Unresolved Staff Comments Item 5. Operating and Financial Review and Prospects Item 5. A. Operating Results Item 5. B. Liquidity and Capital Resources Item 5. C. Research and Development, Patents and Licenses, Etc Item 5. D. Trend Information Item 5. E. Off-balance Sheet Arrangements Item 5. F. Tabular Disclosure Of Contractual Obligations Item 5. G. Safe Harbor Item 6. Directors, Senior Management and Employees Item 6. A. Directors and Senior Management Item 6. B. Compensation Item 6. C. Board Practices Item 6. D. Employees Item 6. E. Share Ownership Item 7. Major Shareholders and Related Party Transactions Item 7. A. Major Shareholders Item 7. B. Related Party Transactions Item 7. C. Interests Of Experts and Counsel Item 8. Financial Information Item 8. A. Consolidated Statements and Other Financial Information Item 8. B. Significant Changes Item 9. The Offer and Listing Item 9. A. Offering and Listing Details Item 9. B. Plan Of Distribution Item 9. C. Markets Item 9. D. Selling Shareholders Item 9. E. Dilution Item 9. F. Expenses Of The Issue Item 10. Additional Information Item 10. A. Share Capital Item 10. A Item 10. B. Memorandum and Articles Of Association Item 10. B Item 10. C. Material Contracts Item 10. C Item 10. D. Exchange Controls Item 10. D Item 10. E. Taxation Item 10. E Item 10. F. Dividends and Paying Agents Item 10. F Item 10. G. Statement By Experts Item 10. G Item 10. H. Documents on Display Item 10. H Item 10. I. Subsidiary Information Item 10. I Item 11. Quantitative and Qualitative Disclosures About Market Risk Item 12. Description Of Securities Other Than Equity Securities Item 13. Defaults, Dividend Arrearages and Delinquencies Item 14. Material Modifications To The Rights Of Security Holders and Use Of Proceeds Item 15. Controls and Procedures Item 16. [reserved]Item 16A. Audit Committee Financial Expert Item 16B. Code Of Ethics Item 16C. Principal Accountant Fees and Services Item 16D. Exemptions From The Listing Standards For Audit Committees Item 16E. Purchase Of Equity Securities By The Issuer and Affiliated Purchasers Item 16F. Change in Registrant S Certifying Accountant Item 16G. Corporate Governance Item 16H. Mine Safety Disclosure Item 17. Financial Statements Item 18. Financial Statements Item 19. Exhibits

1.1(1) Articles of Incorporation of KB Financial Group (translation in English). 2.1(2) Form of Share Certificate of KB Financial Groups common stock, par value 5,000 per share (translation in English). 2.2(3) Form of Fifth Amended and Restated Deposit Agreement among KB Financial Group, JPMorgan Chase Bank, N.A., as depositary, and all owners and holders from time to time of American depositary receipts issued thereunder, evidencing American depositary shares, including the form of American depositary receipt. 2.4(5) Description of KB Financial Groups American Depositary Shares. 11.1(7) Code of Ethics. 12.1 Section302 certifications. 13.1 Section906 certifications.

Company

Reasons of obtaining control

Prudential Life Insurance Company of Korea Ltd. and 27 others

Holds more than a majority of the ownership interests

KB Hwaseong 1st L.L.C. and 82 others

Holds the power in the event of default and is exposed to significant variable returns by providing lines of credit, ABCP purchase commitments or acquisition of subordinated debt

KB Global Infrastructure Synergy Private Special Asset Fund and 21 others

Holds the power to determine the operation of the funds and is exposed to variable returns by holding significant amount of ownership interests

KB Smart Scale Up Fund and 2 others

Holds the power as a general partner and is exposed to variable returns by holding significant amount of ownership interests