NACF Credit & Banking Business June 2009 1
Agenda Businesses of NACF Competitive Market Position of Credit & Banking Business Solid Financial Performance Strong Relationship with the Government Rating Upgrade on Improving Credit Profile 2
Business and Ownership Structure NACF is 100% owned by the member cooperatives, which in turn effectively comprise most of the farmers in Korea NACF Business Divisions Ownership Structure of NACF Education and Support Member Farmers 2.4MM Agriculture Marketing and Supply Livestock Marketing and Supply Regional Livestock Cooperatives 120 Regional Agricultural Cooperatives 994 Commodity Cooperatives 82 Mutual Credit Insurance NACF Credit and Banking Services Source: Company data, Mar 2008 3
Highlights : 1 Competitive Market Position Superior Size, Brand Name Rating Upgrade on Improving Credit Profile Financial Track Record Policy Bank Role 4
NACF s Competitive Market Position NACF maintains one of the widest distribution networks among Korean financial institutions with 1,123 branches in its national branch network Moreover, as a central bank and regulator for the member cooperatives, NACF benefits from 5,426 branches on a combined basis No. of NACF Branches Nationwide Relative Strength of NACF Network Seoul (179) Daegu (41) NACF + Member Coop 5,426 Incheon (42) Gyeonggi (209) Kangwon-do (63) Ulsan (28) NACF Kookmin 1,123 1,223 Daejeon (29) Chungnam (65) Jeonbuk (50) Chungbuk (49) Gyeongbuk (81) Shinhan Woori 1,027 896 Jeonnam (66) Gyeongnam (92) Hana 654 Kwangju (27) Cheju (19) Pusan (64) SCKFB 363 Source: Company data, Dec. 31, 2008 Source: Financial Statistics Information System, Dec. 31, 2008 5
NACF s Competitive Market Position NACF is one of the largest financial institutions in Korea in terms of assets and deposits Total Assets Total Deposits (KRW Tn) (KRW Tn) NACF (1) 260 NACF (1) 164 NACF (2) 183 NACF (2) 123 Kookmin 262 Kookmin 159 Woori 228 Woori 139 Shinhan 214 Shinhan 119 0 100 200 300 0 50 100 150 200 Source: Financial Statistics Information System, Dec. 31, 2008 Source: Financial Statistics Information System, Dec. 31, 2008 Notes 1. NACF including credit & banking, insurance and mutual credit businesses 2. Credit & banking business only 6
Highlights: 2 Competitive Market Position Rating Upgrade on Improving Credit Profile Financial Track Record - Sound Asset Quality, Strong Capital Basetor Policy Bank Role 7
Impressive Financial Track Record Significance of Credit & Banking Business Credit & banking business is the core profit generator for NACF Registered and regulated as a commercial bank under the Bank Act of Korea Provides a full range of credit & banking services to farmers, keepers of livestock and the general public Designated as a Specialized Bank by the government Acts as a central bank and regulator to its member cooperatives Asset Breakdown Operating Revenue Breakdown AMS 1.9% Insurance 10.7% Education 1.3% Administration 0.9% LMS 0.2% Mutual Credit 6.2% AMS 8.6% LMS 0.9% Crop Insurance 0.2% Mutual Credit 16.2% Insurance 24.8% C&B 59.3% C&B 68.8% Source: Company filings, Dec. 31, 2008 Source: Company filings, Dec. 31, 2008 8
Impressive Financial Track Record NACF maintains a diversified loan portfolio, with stable NPL ratio and provisioning coverage Loan Maturity Profile NPL Ratio Due after 5 yrs 16.1% Due in 3 mth or less 21.5% (%) 2% 1.38% 1.14% Due in 1-5 yrs 29.7% Source: Company filings, June 30, 2008 Due in 3-6 mth 12.5% Due in 6-12 mth 20.2% 0.81% 0.68% 0% Source: Company filings, Dec. 31, 2008 Loan Portfolio Provisioning Ratio Public & Others 5.4% Member Co-ops 13.3% Financial Institutions 3.3% Households 41.9% (%) 250% 200% 150% 100% 154.0% 205.2% 237.2% 142.7% Corporates 36.2% 50% 0% Source: Company filings, Dec. 31, 2008 Source: Company filings, Dec. 31, 2008 9
Impressive Financial Track Record NACF s strong profitability and capital adequacy are evidenced by our operating revenue, net income and capital adequacy ratios Operating Revenue Net Income (KRW Tn) (KRW Bn) Capital Adequacy Profitability 50 1,500 41.0 1,352 40 1,200 1,094 30 25.2 24.1 27.6 900 864 20 600 10 300 240 0 0 Source: Company filings, Dec. 31, 2008 Source: Company filings, Dec.31, 2008 Tier 1 Capital Ratio BIS Ratio (%) (%) 9% 13% 12.34% 8% 7.89% 7.87% 11.81% 11.83% 12% 7.26% 6.78% 11.12% 7% 11% 6% 10% 5% 9% Source: Company filings, Dec. 31, 2008 Source: Company filings, Dec. 31, 2008 10
Impressive Financial Track Record NACF s ROAA and ROAE, along with equity, have demonstrated stable growth NIM has been stable despite continued asset growth Net Interest Margin ROAA (%) (%) 3.0% 2.0% 2.7% 2.5% 2.3% 2.0% 1.0% 0.7% 0.8% 0.9% 1.0% 0.5% 0.2% 0.0% 0.0% Source: Company filings, Dec. 31, 2008 Source: Company filings, Dec. 31, 2008 ROAE Equity (%) 20% 15% 10% 5% 12.6% 13.0% 13.8% 3.2% (KRW Bn) 12,000 10,000 8,000 6,000 4,000 7,671 9,279 10,094 10,028 0% 2005 2006 2007 2Q 2008 2,000 Source: Company filings, Dec. 31, 2008 Source: Company filings, June. 30, 2008 11
Recent Market Volatility Will Not Change NACF s Outlook NACF s strong outlook has not changed on the back of the conservative balance sheet and strong liquidity profile, despite current market conditions NACF is Well Positioned Across the Three Main Areas of Impact Financial Assets Total CDO investment: US$309MM (before write-off) Total write-off of CDO exposure: US$155MM Remaining Balance of CDO exposure: US$159MM (as of 31 Dec 08) Counterparties Approximately 98% of exposures to Korea No US ABCP conduits Only KRW ABCP (KRW2.6Tn) No concern of potential liability to provide liquidity LBO commitment: US$180MM (0.09% of total assets) Liquidity and Funding Large retail deposit base Diversified funding sources Funding Sources 70.0% 4.5% 7.2% 12.1% 6.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Customer Deposit Borrow ings from Financial Institutions Government Funding Bonds Others Source: Company data 12
Financial Statement (whole NACF) Key Financials KRW Bn Total Assets 202,205 229,088 240,442 260,377 Total Liabilities 194,534 219,809 230,347 250,349 Total Shareholders Equity 7,671 9,279 10,094 10,028 Income Before Income Taxes 963 1,135 1,476 480.3 Net Income 804 1,053 1,235 240.3 Source: Company filings 13
Highlights: 3 Competitive Market Position Rating Upgrade on Improving Credit Profile Financial Track Record Policy Bank Role - Policy arm with Committed Financial and non-financial Support from the Government 14
Strong Relationship with Government The government has a track record of providing direct and indirect financial support to NACF The Agricultural Cooperative Law states potential ongoing government support. Policy Loan Guarantee Government Support to NACF Direct or indirect guarantee to NACF for agricultural policy loans which represent around 11.5% of NACF s loan book Funding Authority to issue agricultural debentures with government guarantee subject to National Assembly approval Expense Subsidy The Agricultural Cooperative Law (Article 9) requires the government to subsidize the expenses of NACF The voluntary winding-up of NACF is constitutionally prohibited and no appropriate alternative organization would be available Track Record of Government Support During the acquisition of National Livestock Cooperative Federation ( NLCF ); The MAF(currently known as MIFAFF) waived NACF s debt repayment of KRW274.8Bn in 2000 from the Livestock Development Fund The government injected a KRW 87 Bn to compensate for the pre-merger deficit of NLCF. The government also purchased KRW96.2Bn preferred shares to support NACF s BIS ratio. 15
Strong Relationship with Government Annual Trend of Government s Ongoing Financial Support (KRW Bn) Policy Loans Breakdown KRWBn (%) 2,100 1,800 1,500 1,200 1,316 1,639 1,914 1,873 30,000 20,000 35.7 36.4 15,830 15,267 38.7 14,820 44.1 16,312 50.0 40.0 30.0 900 600 300 0 10,000 10,183 9,708 9,088 9,124 5,647 5,559 5,732 7,188 0 NACF Government NACF % 20.0 10.0 0.0 Policy Loans Percentage In 2008, the Government contributed KRW 1,873.3Bn for various uses, including construction of a rice processing complex compensate losses incurred on reduced prices on fertiliser sales establish an agro-producer marketing chain subsidies for reduced interest rates charged by NACF in respect of policy loans to the agricultural sector Total KRW 144,723 Bn 88.7% Policy Loans 11.3% Policy Loans KRW16,312 Bn Others 16
Strong Relationship with Government Agricultural Credit Guarantee Fund Funds for Possible Policy Loan Loss Purpose The ACGF aims to contribute to the balanced growth of the rural economy by stimulating the financing of funds needed for agriculture and forestry, by guaranteeing the credit of persons involved in agriculture and forestry with modest collateral Sources of Funds The sources of funds for ACGF shall be contributions from the government and municipalities, contributions from financial institutions (1), contributions from agricultural and marine organizations and profits from the management of funds Administration Tasks related to the administration of ACGF will be managed by the NACF, including fund management, credit guarantee, credit systems Purpose The sources of funds for FPPL shall be contributions from the cooperative entities (2), profits from the management of funds and other external contributions and income Source of Funds The sources of funds for FPPL shall be contributions from the cooperative entities (2), profits from the management of funds and other external contributions and income Supervision The FPPL is under the supervision of the Minister of Agriculture and Forestry Agricultural Credit Guarantee Fund KRWBn 900.0 750.0 600.0 450.0 300.0 150.0 0.0 387.3 39.5 442.3 347.8 400.0 42.3 649.1 578.0 71.1 817.8 804.7 82.1 109.5 735.7 695.2 2004 Government NACF Funds for Possible Policy Loan Loss KRWBn 45.0 37.4 36.0 36.5 32.7 27.0 21.0 24.9 18.0 9.0 0.0 2004 NACF Notes 1. Regional NACF member cooperatives, regional National Livestock Cooperatives Federation (NLCF) member cooperatives, other cooperatives and NACF 2. NACF, National Federation of Fisheries Cooperatives (NFFC), National Forestry Cooperatives Federation (NFCF) 17
Key Investment Highlights: 4 Competitive Market Position Rating Upgrade on Improving Credit Profile - Rating upgrade by Moody s to A1 in Jul 2007 - Assigned A+ by Fitch in Jul 2007, equivalent to sovereign rating Financial Track Record Policy Bank Role 18
Rating Upgrades NACF maintains a solid credit ratings, which are in line with sovereign ratings Fitch assigned A+ to NACF in Jul 2007, equivalent to sovereign rating Improving Credit Profile Improving asset quality and capitalization Strong nation-wide network Good funding base Continued direct and indirect government support NACF Rating History Rating Agency Current Previous S&P 3/21/2007 A A- Moody's 2/9/2009 A2 A1 7/25/2007 A1 A2 Fitch 7/5/2007 A+ NR Ratings by Moody s Ratings by S&P Ratings by Fitch A1 A2 A3 Baa3 Baa2 Baa1 2003 2004 2009 A+ A A- BBB+ BBB BBB- A+ A A- BBB+ BBB BBB- 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Note 1. Joint Default Analysis 19
Thank You 20