KB FINANCIAL GROUP INC.

Transcription

1 KB FINANCIAL GROUP INC. FORM 20-F (Annual and Transition Report (foreign private issuer)) Filed 04/29/14 for the Period Ending 12/31/13 Telephone CIK Symbol KB SIC Code Commercial Banks, Not Elsewhere Classified Industry Regional Banks Sector Financial Fiscal Year 12/31 Copyright 2016, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

2 As filed with the Securities and Exchange Commission on April 29, 2014 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C FORM 20-F (Mark One) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to. OR 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 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) 84, Namdaemoon-ro, Jung-gu, Seoul , Korea (Address of principal executive offices) Kyu Sul Choi 84, Namdaemoon-ro, Jung-gu, Seoul , Korea Telephone No.: Facsimile No.: (Name, telephone, 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 Name of each exchange on which registered American Depositary Shares, each representing New York Stock Exchange one share of Common Stock Common Stock, par value 5,000 per share 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. 386,351,693 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 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 and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer 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 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 (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No * Not for trading, but only in connection with the registration of the American Depositary Shares. Other

3 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 11 Item 3.C. Reasons for the Offer and Use of Proceeds 11 Item 3.D. Risk Factors 11 Item 4. INFORMATION ON THE COMPANY 32 Item 4.A. History and Development of the Company 32 Item 4.B. Business Overview 35 Item 4.C. Organizational Structure 110 Item 4.D. Property, Plants and Equipment 112 Item 4A. UNRESOLVED STAFF COMMENTS 112 Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 112 Item 5.A. Operating Results 112 Item 5.B. Liquidity and Capital Resources 144 Item 5.C. Research and Development, Patents and Licenses, etc. 150 Item 5.D. Trend Information 150 Item 5.E. Off-Balance Sheet Arrangements 150 Item 5.F. Tabular Disclosure of Contractual Obligations 150 Item 5.G. Safe Harbor 150 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 150 Item 6.A. Directors and Senior Management 150 Item 6.B. Compensation 154 Item 6.C. Board Practices 155 Item 6.D. Employees 157 Item 6.E. Share Ownership 158 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 160 Item 7.A. Major Shareholders 160 Item 7.B. Related Party Transactions 160 Item 7.C. Interests of Experts and Counsel 161 Item 8. FINANCIAL INFORMATION 161 Item 8.A. Consolidated Statements and Other Financial Information 161 Item 8.B. Significant Changes 164 i

4 Item 9. THE OFFER AND LISTING 164 Item 9.A. Offering and Listing Details 164 Item 9.B. Plan of Distribution 165 Item 9.C. Markets 165 Item 9.D. Selling Shareholders 172 Item 9.E. Dilution 172 Item 9.F. Expenses of the Issue 172 Item 10. ADDITIONAL INFORMATION 172 Item 10.A. Share Capital 172 Item 10.B. Memorandum and Articles of Association 172 Item 10.C. Material Contracts 178 Item 10.D. Exchange Controls 178 Item 10.E. Taxation 179 Item 10.F. Dividends and Paying Agents 184 Item 10.G. Statements by Experts 184 Item 10.H. Documents on Display 184 Item 10.I. Subsidiary Information 185 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 185 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 206 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 207 Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 207 Item 15. CONTROLS AND PROCEDURES 207 Item 16. [RESERVED] 208 Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT 208 Item 16B. CODE OF ETHICS 208 Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 209 Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 209 Item 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 210 Item 16F. CHANGE IN REGISTRANT S CERTIFYING ACCOUNTANT 210 Item 16G. CORPORATE GOVERNANCE 210 Item 16H. MINE SAFETY DISCLOSURE 211 Item 17. FINANCIAL STATEMENTS 211 Item 18. FINANCIAL STATEMENTS 211 Item 19. EXHIBITS 212 ii

5 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 January 1, 2012, December 31, 2012 and 2013 and for the years ended December 31, 2011, 2012 and 2013 included in this annual report. Unless indicated otherwise, the financial information in this annual report (i) as of and for the years ended December 31, 2010, 2011, 2012 and 2013 has been prepared in accordance with IFRS as issued by the IASB, and (ii) as of and for the year ended December 31, 2009 has been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, which is not comparable to information prepared in accordance with IFRS. In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission which became effective on March 4, 2008, we are not required to provide a reconciliation to 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, 2013, which was 1,055.3 = US$

6 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: 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; 2

7 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. Item 2. 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. Not applicable. Not applicable. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS OFFER STATISTICS AND EXPECTED TIMETABLE Item 3. KEY INFORMATION Item 3.A. Selected Financial Data The selected consolidated financial and operating data set forth below as of and for the years ended December 31, 2010, 2011, 2012 and 2013 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, 2010, 2011, 2012 and 2013 have been audited by independent registered public accounting firm Samil PricewaterhouseCoopers. 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. 3

8 Consolidated statements of comprehensive income data Year Ended December 31, 2010 (1) 2011 (1) 2012 (1) (2) 2013 (1) (2) 2013 (3) (in billions of Won, except common share data) (in millions of US$, except common share data) Interest income 13,052 13,956 14,210 12,357 US$ 11,710 Interest expense (6,878) (6,852) (7,172) (5,834) (5,529) Net interest income 6,174 7,104 7,038 6,523 6,181 Fee and commission income 2,482 2,830 2,754 2,657 2,518 Fee and commission expense (777) (1,035) (1,187) (1,178) (1,116) Net fee and commission income 1,705 1,795 1,567 1,479 1,402 Net gains on financial assets and liabilities at fair value through profit or loss 815 1, Net other operating income (expenses) (1,068) (1,092) (1,532) (1,305) (1,236) General and administrative expenses (4,380) (3,887) (3,846) (3,984) (3,775) Operating profit before provision for credit losses 3,246 4,956 4,039 3,470 3,289 Provision for credit losses (2,871) (1,513) (1,607) (1,443) (1,368) Net operating profit 375 3,443 2,432 2,027 1,921 Share of profit (loss) of associates and joint ventures (211) 5 (15) (199) (189) Net other non-operating income (expense) (28) (142) (118) (12) (12) Net non-operating profit (loss) (239) (137) (133) (211) (201) Profit before income tax 136 3,306 2,299 1,816 1,720 Tax income (expense) 75 (845) (559) (552) (522) Profit for the year 211 2,461 1,740 1,264 US$ 1,198 Items that will not be reclassified to profit or loss: Actuarial gains (losses) on post defined benefit pension plans 9 (32) (30) Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (7) 6 (26) (2) (2) Change in value of financial investments 108 (240) 246 (4) (4) Shares of other comprehensive loss of associates and joint ventures (2) (1) (44) (10) (9) Cash flow hedges (1) (1) 2 1 Other comprehensive income (loss) for the year, net of tax 108 (268) Total comprehensive income for the year 319 2,193 1,885 1,291 US$ 1,223 Profit attributable to: Stockholders 138 2,406 1,731 1,261 US$ 1,195 Non-controlling interests ,461 1,740 1,264 US$ 1,198 Total comprehensive income attributable to: Stockholders 226 2,134 1,865 1,302 US$ 1,233 Non-controlling interests (11) (10) 319 2,193 1,885 1,291 US$ 1,223 Earnings per share Basic earnings per share 401 6,548 4,480 3,263 US$ 3.09 Diluted earnings per share 401 6,533 4,467 3,

9 (1) (2) (3) Pursuant to amendments to International Accounting Standards 19, or IAS 19, Employee Benefits, which are effective beginning in 2013, our consolidated financial statements as of and for the year ended December 31, 2013 reflect changes in the methodology for recognition and measurement of actuarial gains and losses and expected returns and service costs relating to our employee pension plans. Our consolidated financial statements as of and for the years ended December 31, 2011 and 2012 have been restated to retroactively apply such changes. See Note 2.1 of the notes to our consolidated financial statements included elsewhere in this annual report. Amounts for 2011 and 2012 reflect such restatement, and amounts for 2010 have been correspondingly restated. Pursuant to the adoption of IFRS 10, Consolidated Financial Statements, which is effective beginning in 2013, our consolidated financial statements as of and for the year ended December 31, 2013 include trust accounts for which we guarantee only the repayment of principal, as well as certain other entities, which were not previously subject to consolidation, while excluding certain other entities that were previously consolidated. Our consolidated financial statements as of and for the year ended December 31, 2012 (but not as of and for the year ended December 31, 2011) have been restated to retroactively apply this change. See Note 2.1 of the notes to our consolidated financial statements included elsewhere in this annual report. Amounts for 2012 reflect such restatement, while amounts for 2010 and 2011 have not been correspondingly restated. Won amounts are expressed in U.S. dollars at the rate of 1,055.3 to US$1.00, the noon buying rate in effect on December 31, 2013 as quoted by the Federal Reserve Bank of New York in the United States. Consolidated statements of financial position data Year Ended December 31, 2010 (1) 2011 (1) 2012 (1) (2) 2013 (1) (2) 2013 (3) (in billions of Won) (in millions of US$) Assets Cash and due from financial institutions 6,830 9,178 10,593 14,793 US$ 14,018 Financial assets at fair value through profit or loss 4,014 6,326 9,560 9,329 8,840 Derivative financial assets 2,595 2,449 2,091 1,819 1,724 Loans 197, , , , ,535 Financial investments 36,190 35,432 36,467 34,849 33,024 Investments in associates and joint ventures Property and equipment 3,150 3,186 3,100 3,061 2,901 Investment property Intangible assets Deferred income tax assets Assets held for sale Other assets 7,077 7,479 8,761 7,568 7,172 Total assets 258, , , ,838 US$ 276,559 Liabilities Financial liabilities at fair value through profit or loss 1,295 1,388 1,851 1,115 US$ 1,057 Derivative financial liabilities 2,236 2,059 2,055 1,795 1,701 Deposits 179, , , , ,364 Debts 11,745 16,824 15,965 14,101 13,363 Debentures 29,107 27,070 24,270 27,040 25,624 Provisions 1, Defined benefit liabilities Current income tax liabilities Deferred income tax liabilities Other liabilities 13,401 15,087 18,328 20,237 19,177 Total liabilities 239, , , ,185 US$ 252,249 5

10 Year Ended December 31, 2010 (1) 2011 (1) 2012 (1) (2) 2013 (1) (2) 2013 (3) (in billions of Won) (in millions of US$) Total Equity Capital stock 1,932 1,932 1,932 1,932 US$ 1,831 Capital surplus 15,990 15,842 15,840 15,855 15,024 Accumulated other comprehensive income Retained earnings 2,612 4,976 6,501 7,530 7,136 Treasury shares (2,477) Equity attributable to stockholders 18,497 22,918 24,568 25,653 24,310 Non-controlling interests 1, Total equity 19,666 23,100 24,763 25,653 US$ 24,310 Total liabilities and equity 258, , , ,838 US$ 276,559 (1) (2) (3) Pursuant to amendments to International Accounting Standards 19, or IAS 19, Employee Benefits, which are effective beginning in 2013, our consolidated financial statements as of and for the year ended December 31, 2013 reflect changes in the methodology for recognition and measurement of actuarial gains and losses and expected returns and service costs relating to our employee pension plans. Our consolidated financial statements as of and for the years ended December 31, 2011 and 2012 have been restated to retroactively apply such changes. See Note 2.1 of the notes to our consolidated financial statements included elsewhere in this annual report. Amounts as of December 31, 2011 and 2012 reflect such restatement, and amounts as of December 31, 2010 have been correspondingly restated. Pursuant to the adoption of IFRS 10, Consolidated Financial Statements, which is effective beginning in 2013, our consolidated financial statements as of and for the year ended December 31, 2013 include trust accounts for which we guarantee only the repayment of principal, as well as certain other entities, which were not previously subject to consolidation, while excluding certain other entities that were previously consolidated. Our consolidated financial statements as of and for the year ended December 31, 2012 (but not as of and for the year ended December 31, 2011) have been restated to retroactively apply this change. See Note 2.1 of the notes to our consolidated financial statements included elsewhere in this annual report. Amounts as of December 31, 2012 reflect such restatement, while amounts as of December 31, 2010 and 2011 have not been correspondingly restated. Won amounts are expressed in U.S. dollars at the rate of 1,055.3 to US$1.00, the noon buying rate in effect on December 31, 2013 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, (Percentages) Profit (loss) attributable to stockholders as a percentage of: Average total assets (1) 0.05 % 0.88 % 0.60 % 0.44 % Average stockholders equity (1) Dividend payout ratio (2) Net interest spread (3) Net interest margin (4) Efficiency ratio (5) Cost-to-average assets ratio (6) Won loans (gross) as a percentage of Won deposits Total loans (gross) as a percentage of total deposits (1) (2) (3) (4) (5) (6) 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. Represents the ratio of total dividends declared on common stock as a percentage of profit attributable to stockholders. Represents the difference between the yield on average interest earning assets and cost of average interest bearing liabilities. Represents the ratio of net interest income to average interest earning assets. Represents the ratio of general and administrative expenses to the sum of net interest income, net fee and commission income, net gain on financial assets and liabilities at fair value through profit or loss and net other operating income. Represents the ratio of general and administrative expenses to average total assets. 6

11 Capital ratios As of or for the year Ended December 31, 2011 (1) 2012 (1) 2013 (Percentages) Consolidated capital adequacy ratio of KB Financial Group (2) 13.00% 13.90% % Capital adequacy ratios of Kookmin Bank Tier I capital adequacy ratio (3) 10.30% 10.87% % Tier I common equity capital adequacy ratio (3) Tier II capital adequacy ratio (3) Average stockholders equity as a percentage of average total assets (1) (2) (3) With effect from December 1, 2013, the Financial Services Commission adopted amended guidelines that implemented capital adequacy requirements in Korea based on Basel III. Capital adequacy ratios as of December 31, 2011 and 2012 were computed in accordance with previously applicable guidelines based on Basel I (for KB Financial Group) and Basel II (for Kookmin Bank) and therefore are not directly comparable to corresponding ratios as of December 31, Under applicable guidelines of the Financial Services Commission, we, as a bank holding company, are required to maintain a minimum consolidated capital adequacy ratio of 8%. See Item 4.B. Business Overview Supervision and Regulation Principal Regulations Applicable to Financial Holding Companies Capital Adequacy. 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, (in billions of Won, except percentages) Total loans (1) 201, , , ,862 Total non-performing loans (2) 1,612 1,180 1,606 1,421 Other impaired loans not included in non-performing loans 2,204 2,285 2,086 2,669 Total of non-performing loans and other impaired loans 3,816 3,465 3,692 4,090 Total allowances for loan losses 3,756 3,448 3,269 2,861 Non-performing loans as a percentage of total loans 0.80 % 0.55 % 0.74 % 0.64 % Non-performing loans as a percentage of total assets Total of non-performing loans and other impaired loans as a percentage of total loans Allowances for loan losses as a percentage of total loans (1) (2) Before deduction of allowances for loan losses. Non-performing loans are defined as those loans, including corporate, retail and other loans, which are past due by 90 days or more. 7

12 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, Average Balance (1) Interest Income (2)(3) Average Yield Average Balance (1) Interest Income (2)(3) Average Yield Average Balance (1) Interest Income (2)(3) (in billions of Won, except percentages) Assets Cash and interest earning deposits in other banks 2, % 4, % 5, % Financial investment (debt securities) (4) 32,655 1, ,382 1, ,339 1, Loans: Corporate 94,486 5, ,773 5, ,614 4, Mortgage 43,790 2, ,444 2, ,514 1, Home equity 29,399 1, ,170 1, ,275 1, Other consumer 29,179 2, ,721 2, ,536 1, Credit cards (5) 12,378 1, ,078 1, ,611 1, Foreign 2, , , Loans (total) 211,673 12, ,930 12, ,401 10, Total average interest earning assets 246,627 13, % 260,120 14, % 259,645 12, % Cash and due from banks 7,267 7,622 7,688 Financial assets at fair value through profit or loss: Debt securities (3) 5,056 8,744 8,091 Equity securities 674 1,026 1,280 Other Financial assets at fair value through profit or loss (total) 5,750 9,806 9,413 Financial investment (equity securities) 3,687 2,444 2,671 Investment in associates Derivative financial assets 2,420 2,040 1,760 Premises and equipment 3,224 3,212 3,191 Intangible assets Allowances for loan losses (4,227) (4,159) (4,108) Other non-interest earning assets 8,712 7,173 8,230 Total average non-interest earning assets 28,074 29,611 30,202 Total average assets 274,701 13, % 289,731 14, % 289,847 12, % 8 Average Yield

13 Year Ended December 31, Average Balance (1) Interest Expense Average Cost Average Balance (1) Interest Expense Average Cost Average Balance (1) Interest Expense (in billions of Won, except percentages) Liabilities Deposits: Demand deposits 53, % 56, % 60, % Time deposits 124,713 4, ,617 5, ,286 3, Certificates of deposit 1, , , Deposits (total) 180,283 4, ,506 5, ,960 4, Debts 18, , , Debentures 28,400 1, ,552 1, ,319 1, Total average interest bearing liabilities 227,158 6, % 240,831 7, % 238,452 5, % Non-interest bearing demand deposits 3,249 3,075 3,252 Derivative financial liabilities 2,064 1,899 1,789 Financial liabilities at fair value through profit or loss 1,847 1,724 1,697 Other non-interest bearing liabilities 16,093 17,770 19,157 Total average non-interest bearing liabilities 23,253 24,468 25,895 Total average liabilities 250,411 6, ,299 7, ,347 5, Total equity 24,290 24,432 25,500 Total average liabilities and equity 274,701 6, % 289,731 7, % 289,847 5, % Average Cost (1) (2) (3) (4) (5) 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. We do not invest in any tax-exempt securities. Excludes interest income from debt securities at fair value through profit or loss. Information related to investment securities classified as available-for-sale 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. Interest income from credit cards includes principally cash advance fees of 441 billion, 447 billion and 353 billion and interest on credit card loans of 484 billion, 457 billion and 435 billion for the years ended December 31, 2011, 2012 and 2013, respectively, but does not include interchange fees. The following table presents our net interest spread, net interest margin, and asset liability ratio for the past three years: Year Ended December 31, (percentages) Net interest spread (1) 2.64 % 2.48 % 2.31 % Net interest margin (2) Average asset liability ratio (3) (1) (2) (3) The difference between the average rate of interest earned on interest earning assets and the average rate of interest paid on interest bearing liabilities. The ratio of net interest income to average interest earning assets. The ratio of average interest earning assets to average interest bearing liabilities. 9

14 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 2011 compared to 2012 and 2012 compared to 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 vs Increase/(Decrease) Due to Change in 2013 vs 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 (46) (14) Financial investment (debt securities) 33 (76) (43) (2) (155) (157) Loans: Corporate 438 (242) 196 (110) (692) (802) Mortgage 33 (44) (11) 3 (338) (335) Home equity 40 (18) 22 5 (253) (248) Other consumer 40 (53) (13) 58 (247) (189) Credit cards (33) 36 3 (51) (52) (103) Foreign (8) (5) Total interest income 644 (390 ) 254 (62) (1,791 ) (1,853 ) vs Increase/(Decrease) Due to Change in 2013 vs Increase/(Decrease) Due to Change in Volume Rate Total Volume Rate Total (in billions of Won) Interest bearing liabilities Deposits: Demand deposits (78) (51) Time deposits (225) (882) (1,107) Certificates of deposit (1) (1) 2 (15) (13) Debts 70 (9) 61 (32) (63) (95) Debentures (199) (47) (246) 39 (111) (72) Total interest expense 329 (9) 320 (189) (1,149) (1,338) Total net interest income 315 (381 ) (66) 127 (642) (515)

15 Exchange Rates The table below sets forth, for the periods and dates indicated, information concerning the noon buying rate for Won, expressed in Won per one U.S. dollar. The noon buying rate is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, translations of Won amounts into U.S. dollars in this annual report were made at the noon buying rate in effect on December 31, 2013, which was 1,055.3 to US$1.00. We do not intend to imply that the Won or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Won, as the case may be, at any particular rate, or at all. On April 25, 2014, the noon buying rate was 1,041.0 = US$1.00. Source : Federal Reserve Bank of New York. (1) The average of the daily noon buying rates of the Federal Reserve Bank in effect during the relevant period (or portion thereof). Not applicable. Not applicable. Won per U.S. dollar (noon buying rate) Average Low High (1) Period-End , , , , , , , , , , , , , , , , , , , ,055.3 October 1, , , ,060.8 November 1, , , ,057.8 December 1, , , , (through April 25) 1, , , ,041.0 January 1, , , ,080.4 February 1, , , ,066.0 March 1, , , ,064.7 April (through April 25) 1, , , ,041.0 Item 3.B. Item 3.C. Capitalization and Indebtedness Reasons for the Offer and Use of Proceeds 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. For most of the recent past, consumer debt has increased significantly in Korea. Our portfolio of retail loans, including mortgage and home equity loans, grew from 98,996 billion as of December 31, 2010 to 103,855 billion as of December 31, 2011, although it decreased slightly to 103,432 billion as of December 31, 2012 but increased to 107,644 billion as of December 31, As of December 31, 2013, our retail loans represented 48.5% 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, has increased from 27,281 billion as of December 31, 2010 to 28,275 billion as of December 31, 2011, 28,969 billion as of December 31, 2012 and 29,675 billion as of December 31, 2013; as a percentage of total 11

16 outstanding retail loans, such balance has remained relatively stable at 27.6% as of December 31, 2010, 27.2% as of December 31, 2011, 28.0% as of December 31, 2012 and 27.6% as of December 31, The growth of our retail lending business, which generally offers higher margins than other lending activities, contributed significantly to our interest income and profitability in recent years. The growth of our retail loan portfolio, together with adverse economic conditions in Korea and globally in recent years, may lead to further increases in delinquency levels and a deterioration in asset quality. The amount of our non-performing retail loans (defined as those that are past due by 90 days or more) increased from 642 billion as of December 31, 2011 to 762 billion as of December 31, 2012 but decreased to 546 billion as of December 31, Higher delinquencies in our retail loan portfolio 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, a rise in unemployment, an increase in interest rates, deterioration of the real estate market or difficulties in the Korean economy may have an adverse effect on Korean consumers, which could result in reduced growth and further deterioration in the credit quality of our retail loan portfolio. See Risks relating to Korea Unfavorable financial and economic developments in Korea may have an adverse effect on us. In order to minimize our risk as a result of such exposure, we are continuing to strengthen our risk management processes, including further improving the retail lending process, upgrading our retail credit rating system, as well as strengthening the overall management of our portfolio. Despite our efforts, however, there is no assurance that we will be able to prevent significant credit quality deterioration in 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 shortterm debt. 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) who are in arrears on their payments for more than 30 days but less than 90 days or for retail borrowers with an annual income of 40 million or less who have been in arrears on their payments for more than 30 days on an aggregate basis for the 12 months prior to their application. While we believe that our participation in such pre-workout program has not had a material impact on the overall credit quality of our retail loan and credit card portfolio or on our results of operations and financial condition to date, our future participation in such government-led initiatives to provide financial support to retail borrowers may lead us to offer credit terms for such borrowers that we would not otherwise offer, in the absence of such initiatives, 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) increased from 1.0% as of December 31, 2010 to 1.5% as of December 31, 2011, then decreased to 1.3% as of December 31, 2012 but increased to 1.7% as of December 31, 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, 2013, these restructured loans outstanding amounted to 50 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 2.1% of our credit card receivables (including credit card loans) as of December 31, Delinquencies may increase further in 2014 and in the future as a result of, among other things, adverse economic conditions in Korea and the inability of Korean consumers to manage increased household debt. 12

17 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. In addition, in February 2014, the Financial Services Commission suspended the new credit card issuance and other related activities of our credit card subsidiary, KB Kookmin Card Co., Ltd., 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 an external credit information company in the first half of Specifically, during such suspension period, KB Kookmin Card will be 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. Furthermore, in connection with the misappropriation incident, a number of customers have filed lawsuits against KB Kookmin Card seeking damages, and it could become subject to additional litigation and regulatory sanctions. See Item 8A. Consolidated Statements and Other Financial Information Legal Proceedings. KB Kookmin Card may also incur significant costs relating to the issuance of replacement cards for customers and the compensation of customers for losses incurred as a result of the fraudulent use of the misappropriated personal information. Accordingly, the misappropriation incident and the resulting regulatory sanctions (including the three-month suspension of KB Kookmin Card s new business activities), customer claims and costs could have a material adverse effect on our business, reputation, results of operations and financial condition. 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 65,132 billion as of December 31, 2010 to 71,045 billion as of December 31, 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 decreased from 686 billion as of December 31, 2010 to 373 billion as of December 31, 2011 but increased to 568 as of December 31, 2013, and the non-performing loan ratio for such loans decreased from 1.1% as of December 31, 2010 to 0.5% as of December 31, 2011 but increased to 0.8% as of December 31, 2013, and may further increase in 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 1.4% as of December 31, The delinquency ratio for 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 has remained relatively stable at 1.1% as of December 31, 2010, 1.0% as of December 31, 2011, 1.1% as of December 31, 2012, and 0.9% as of December 31, 2013, but may increase in 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 13

18 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 construction, lodging, retail and wholesale, restaurants and real estate. Despite such efforts, however, there is no assurance that delinquency levels for our loans to small- and mediumsized 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 in recent years may lead to a deterioration in the asset quality of our loans to this segment. Any such deterioration would result in increased charge-offs and higher provisioning and reduced interest and fee income from this segment, which could have a material adverse impact on our financial condition and results of operations. 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. 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 light of the deteriorating financial condition and liquidity position of small- and medium-sized enterprises in Korea since the global financial crisis commencing in the second half of 2008, the Korean government introduced policies and initiatives intended to encourage Korean banks to provide financial support to small- and medium-sized enterprises. For example, in November 2008, we entered into a memorandum of understanding with the Financial Supervisory Service under which we were required to improve the liquidity position of small- and medium-sized enterprises and exporters by providing them with adequate financing and to endeavor to alleviate burdens on low-income debtors by extending maturity dates or by delaying interest payments on loans owed to us. In addition, in October 2008, the Financial Supervisory Service 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. Under the fast track program we established, which has been extended until December 31, 2014, we provide liquidity assistance to qualified small- and medium-sized enterprise borrowers applying for such assistance, in the form of new loans or maturity extensions or interest rate adjustments with respect to existing loans, after expedited credit review and approval by us. The overall prospects for the Korean economy in 2014 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. 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. 14