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USE OF PROCEEDS The net proceeds from the sale of the Bonds

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USE OF PROCEEDS The net proceeds from the sale of the Bonds Powered By Docstoc
					                                             USE OF PROCEEDS

The net proceeds from the sale of the Bonds will be applied by the Issuer for its general banking purposes.




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                          INVESTMENT CONSIDERATIONS (RISK FACTORS)

Prospective purchasers of the Bonds should carefully review the information contained in this Draft Prospectus,
including the following matters.
Risks relating to the Bank — Corporate credit portfolio
The Bank’s increasing loan exposure to SMEs with financial difficulties may result in a deterioration of the
Bank’s asset quality and adversely impact the Bank.
The Bank’s total Won currency loans to SMEs, on a non-consolidated basis under Korean GAAP, increased
from W58,123 billion as of 31st December, 2008 to W59,036 billion as of 31st December, 2010. On a non-
consolidated basis under K-IFRS, the Bank’s total Won currency loans to SMEs was W58,970 billion as of 30th
June, 2011. As of such date, Won currency loans to SMEs that were classified as substandard or below were
W1,600 billion, representing 2.7 per cent. of the Bank’s total Won currency loans to those enterprises, while
those that were classified as precautionary or below were W3,628 billion, representing 6.2 per cent. of the
Bank’s total Won currency loans to SMEs. On a non-consolidated basis under Korean GAAP, the Bank
recorded charge-offs of W953 billion in respect of the Bank’s loans to SMEs in 2010 compared to charge-offs
of W798 billion in 2009. In the first half of 2011, on a non-consolidated basis under K-IFRS, the Bank recorded
charge-offs of W737 billion in respect of the Bank’s loans to SMEs. Industry-wide delinquency ratios for Won-
denominated loans to SMEs increased through most of 2010, and again increased in the first half of 2011.
According to data compiled by the the Financial Supervisory Service of Korea (the “FSS”), the average
delinquency ratio for loans by Korean banks to SMEs (excluding those loans made by the Korean affiliate of
Citibank, the Industrial Bank of Korea and regional banks in Korea) was approximately 1.3 per cent. as of 31st
December, 2010 and increased to 1.4 per cent. as of 30th June, 2011. The delinquency ratio for loans to SMEs is
calculated as the ratio of (1) the outstanding balance of such loans in respect of which either principal or interest
payments are over due by one month or more to (2) the aggregate outstanding balance of such loans. The
Bank’s delinquency ratio for such loans, on a non-consolidated basis under Korean GAAP, decreased from 1.5
per cent. as of 31st December, 2008 to 1.0 per cent. as of 31st December, 2009, but increased to 1.2 per cent. as
of 31st December, 2010. As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the Bank’s
delinquency ratio for such loans was 1.2 per cent. The Bank’s delinquency ratio may increase in the second half
of 2011 and in the future as a result of, among other things, adverse economic conditions in Korea and globally.
See “— Risks relating to the Bank — Other risks — Difficult conditions in the global financial markets could
adversely affect the Bank’s results of operations and financial condition.”
In light of the deteriorating financial condition and liquidity position of SMEs in Korea as a result of the global
financial crisis commencing in the second half of 2008, the Government has introduced measures intended to
encourage Korean banks to provide financial support to SME borrowers. For example, in connection with a
Government programme announced in October 2008 to guarantee certain foreign currency-denominated debt of
Korean banks, the Government requested Korean banks, including the Bank, to enter into a memorandum of
understanding relating to the rationalisation of its management operations (a “Management MOU”). The Bank
entered into a Management MOU with the FSS in November 2008, pursuant to which it is required, among
other things, to help improve the liquidity position of SMEs 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 it. Although the Bank has not issued any debt guaranteed by the
Government, the Bank has been complying with its obligations under the Management MOU by seeking to
increase its lending to SMEs, subject to its normal credit approval procedures. In addition, the Government
requested Korean banks, including the Bank, to establish a “fast track” programme to provide liquidity
assistance to SMEs on an expedited basis. Under the “fast track” programme established by the Bank, which the
Bank plans to maintain until 31st December, 2011, liquidity assistance is provided to SME borrowers applying
for such assistance, in the form of new short-term loans or maturity extensions or interest rate adjustments with
respect to existing loans, after expedited credit review and approval by the Bank. The overall prospects for the
Korean economy in the remainder of 2011 and beyond remain uncertain, and the Government may extend
existing policies and initiatives or introduce new policies or initiatives to encourage Korean banks to provide
financial support to SMEs. The Bank’s participation in such Government-led initiatives to provide financial
support to SMEs may lead the Bank to extend credit to SME borrowers that it would not otherwise extend, or
offer terms for such credit that it would not otherwise offer, in the absence of such initiatives. Furthermore, there
is no guarantee that the financial condition and liquidity position of the Bank’s SME borrowers benefiting from
such initiatives will improve sufficiently for them to service their debt on a timely basis, or at all. Accordingly,



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increases in the Bank’s exposure to SMEs resulting from such Government-led initiatives may have a material
adverse effect on the Bank’s results of operations and financial condition.
Many SMEs represent sole proprietorships or very small businesses dependent on a relatively limited number of
suppliers or customers and tend to be affected to a greater extent by fluctuations in the Korean economy than
large corporate borrowers. In addition, SMEs often maintain less sophisticated financial records than large
corporate borrowers. Therefore, it is generally more difficult for the Bank to judge the level of risk inherent in
lending to SMEs, as compared to large corporations.
In addition, many SMEs have close business relationships with 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 SMEs, including those to which the Bank has exposure, also resulting
in an impairment of their ability to repay loans. In recent years, some chaebols have expanded into China and
other countries with lower labour costs and other expenses through relocating their production plants and
facilities to such countries, which may have a material adverse impact on such SMEs.
Financial difficulties experienced by SMEs as a result of, among other things, adverse economic conditions in
Korea and globally, as well as aggressive marketing and intense competition among banks to lend to this
segment in recent years, have led to a deterioration in the asset quality of the Bank’s loans to this segment in the
past and such factors may lead to a deterioration of asset quality 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 could have a material adverse impact on the Bank’s financial condition and results of operations.
The Bank has exposure to Korean construction and shipbuilding companies, and financial difficulties of
these companies may adversely impact the Bank.
As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the total amount of the Bank’s loans to
construction companies and shipbuilding companies in Korea amounted to W7,639 billion and W5,455 billion,
or 4.2 per cent. and 3.0 per cent. of the Bank’s loans, respectively. The Bank also has other exposures to Korean
construction and shipbuilding companies, including in the form of guarantees extended for the benefit of such
companies and debt and equity securities of such companies held by the Bank. In the case of shipbuilding
companies, such exposures include refund guarantees extended by the Bank 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. In the case of construction companies, the
Bank also has potential exposures in the form of guarantees provided to the Bank by general contractors with
respect to financing extended by the Bank for residential and commercial real estate development projects, as
well as commitments to purchase asset-backed securities secured by the assets of companies in the construction
industry and other commitments the Bank enters into relating to project financing for such real estate projects
which may effectively function as guarantees. In October 2009, the Bank received a reprimand from the FSS
about its prior internal approval processes and the activities of certain responsible officers and employees of its
trust management operations in connection with such commitments, and the Bank took certain remedial actions
in response to such reprimand.
The construction industry in Korea has experienced a downturn in recent years, due to excessive investment in
residential property development projects, stagnation of real property prices and reduced demand for residential
property, especially in areas outside of Seoul, including as a result of the deterioration of the Korean economy
commencing in the second half of 2008. In October 2008, the Government implemented a W9 trillion support
package for the benefit of the Korean construction industry, including a programme to buy unsold housing units
and land from construction companies. The shipbuilding industry in Korea has also experienced a severe
downturn in recent years as a result of a significant decrease in ship orders, primarily due to adverse conditions
in the global economy and the resulting slowdown in global trade. In response to the deteriorating financial
condition and liquidity position of borrowers in the construction and shipbuilding industries, which were
disproportionately impacted by adverse economic developments in Korea and globally, the Government
implemented a programme in the first half of 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 programme, 24 construction companies and five shipbuilding companies became subject to workout
in 2009, following review by their creditor financial institutions (including the Bank) and the Government. In
addition, in June 2010, the FSC and FSS announced that, following credit risk evaluations conducted by six
creditor financial institutions (including the Bank) of companies in Korea with outstanding debt of W50 billion
or more, 65 companies have been selected by such financial institutions for restructuring in the form of workout,
liquidation or court receivership. Of such 65 companies, 16 are construction companies and three are


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shipbuilding companies. There is no assurance, however, that these measures will be successful in stabilising the
Korean construction and shipbuilding industries.
Principally as a result of the deterioration in the asset quality of the Bank’s credit exposures to construction
companies (including in the form of real estate project financing loans) and shipbuilding companies and the
commencement of workout procedures with respect to a number of these companies in 2010, the ratio of the
Bank’s non-performing loans to total loans increased from 1.6 per cent. as of 31st December, 2009 to 3.3 per
cent. as of 31st December, 2010 and the Bank’s provision for loan losses increased from W1,744 billion in 2009
to W2,273 billion in 2010, each on a non-consolidated basis under Korean GAAP. While the ratio of the Bank’s
non-performing loans to total loans decreased from 3.3 per cent. as of 31st December, 2010 to 2.4 per cent. as of
30th June, 2011 and the Bank’s bad debt expense on loans also decreased from W1,291 billion in the first half
of 2010 to W993 billion in the first half of 2011, each on a non-consolidated basis under K-IFRS, there can be
no assurance that the provisions that the Bank has established against its credit exposures to Korean construction
and shipbuilding companies (including the Bank’s regulatory reserve for credit loss under K-IFRS) may not be
sufficient to cover all future losses arising from these and other exposures. If the credit quality of the Bank’s
exposures to Korean construction and shipbuilding companies declines, the Bank may be required to incur
substantial additional bad debt expenses on such loans, which could adversely impact its results of operations
and financial condition. Furthermore, although a portion of the Bank’s credit exposures to construction and
shipbuilding companies are secured by collateral, such collateral may not be sufficient to cover uncollectible
amounts in respect of such credit exposures.
The Bank also has construction-related credit exposures under its project financing loans for real estate
development projects in Korea. In light of the general deterioration in the asset quality of real estate project
financing loans in Korea in recent years, Korean banks, including the Bank, agreed with the FSS in September
2010 to implement a uniform set of guidelines regarding the evaluation of real estate development projects and
asset quality classification of project financing loans for such projects. Under these guidelines, which became
effective from the third quarter of 2010, Korean banks are generally required to apply more stringent criteria in
evaluating the asset quality of real estate project financing loans. As a result, the Bank may be required to
establish additional provisions with respect to its outstanding real estate project financing loans, which could
adversely affect the Bank’s financial condition and results of operations.
The Bank has exposure to the largest chaebols, and financial difficulties of chaebols may adversely impact
the Bank.
Of the Bank’s 20 largest corporate exposures (including loans, debt and equity securities, guarantees and
acceptances, credit-related commitments and other exposures) on a non-consolidated basis under K-IFRS as of
30th June, 2011, 13 were to companies that are members of the 30 largest chaebols in Korea. As of that date, on
a non-consolidated basis under K-IFRS, the total amount of the Bank’s exposures to the 30 largest chaebols was
W25,401 billion, or 11.2 per cent. of the Bank’s total exposures. If the credit quality of the Bank’s exposures to
chaebols declines, the Bank could require substantial additional provisions, which would negatively impact its
results of operations and financial condition. See “Assets and Liabilities — Exposure to Chaebols.”
The provisions the Bank has established against these exposures (including the Bank’s regulatory reserve for
credit loss under K-IFRS) may not be sufficient to cover all future losses arising from these exposures. In
addition, in the case of companies that are in or in the future enter into workout, restructuring, rehabilitation or
liquidation proceedings, the Bank’s recoveries from those companies may be limited. The Bank may, therefore,
experience future losses with respect to these exposures.
As of 30th June, 2011, other than certain of the Bank’s exposures to the Kumho Asiana Group and Hyosung
Group, none of the Bank’s ten largest exposures to chaebols, on a non-consolidated basis under K-IFRS, was
classified as substandard or below. However, if any large credits become non-performing, the quality of the
Bank’s total loan portfolio could be adversely affected, additional provisions would be required and there could
be an adverse impact on the results of operations and financial condition of the Bank.
A large portion of the Bank’s exposure is concentrated in a relatively small number of large corporate
borrowers and the concentration of exposure increases the Bank’s corporate credit portfolio risk.
As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the Bank’s exposures to its 20 largest
borrowers totaled W33,138 billion and accounted for 14.6 per cent. of the Bank’s total exposures. As of 30th
June, 2011, W649 billion of the Bank’s exposures to these borrowers, on a non-consolidated basis under K-
IFRS, was classified as substandard or below. As of that date, the Bank’s single largest corporate exposure was
to the Bank of Korea, to which the Bank had outstanding exposures (substantially all of which was in the form


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of debt securities) of W16,872 billion, representing 7.4 per cent. of the Bank’s total exposures on a non-
consolidated basis under K-IFRS. Any deterioration in the financial condition of the Bank’s corporate
borrowers with the largest exposures is likely to require it to take substantial additional provisions and have a
material adverse impact on the Bank’s results of operations and financial condition.
The Bank has exposure to companies that are currently or may in the future be put in restructuring, and the
Bank may suffer losses as a result of additional loan loss provisions required or the adoption of restructuring
plans with which the Bank does not agree.
As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the Bank’s credit exposure to companies that
were in workout, restructuring or rehabilitation proceedings amounted to W3,906 billion or 2.1 per cent. of the
Bank’s total credit exposures, of which W2,635 billion or 67.5 per cent. was classified as substandard or below.
As of the same date, on a non-consolidated basis under K-IFRS, the Bank’s provisions for credit losses on these
credit exposures amounted to W1,398 billion, or 35.8 per cent. of these credits. These provisions may not be
sufficient to cover all future losses arising from the Bank’s exposure to these companies. Furthermore, the Bank
has other exposure to such companies, in the form of debt and equity securities of such companies held by the
Bank (including equity securities the Bank acquired as a result of debt-to-equity conversions). Including such
securities, the Bank’s exposures as of 30th June, 2011 to companies in workout, restructuring or rehabilitation
proceedings, on a non-consolidated basis under K-IFRS, amounted to W4,181 billion, or 1.9 per cent. of the
Bank’s total exposures. The Bank’s exposures to such companies may also increase in the future, including as a
result of continuing adverse conditions in the Korean economy. See “— The Bank’s increasing loan exposure
to SMEs with financial difficulties may result in a deterioration of the Bank’s asset quality and adversely impact
the Bank” and “— The Bank has exposure to Korean construction and shipbuilding companies, and financial
difficulties of these companies may adversely impact the Bank.” In addition, in the case of borrowers that are or
become subject to workout, the Bank may be forced to restructure its credits pursuant to restructuring plans
approved by other creditor financial institutions of the borrower, or to dispose of its credits to other creditors on
unfavourable terms, which may adversely affect the Bank’s results of operations and financial condition.
The Bank has exposure to member companies of the Kumho Asiana Group, and financial difficulties of these
companies may adversely impact the Bank.
Several member companies of the Kumho Asiana Group, one of Korea’s largest chaebols, have been
experiencing financial difficulties, including as a result of their heavily leveraged acquisition of Daewoo
Engineering & Construction Co., Ltd. in 2006 and the subsequent global financial crisis commencing in the
second half of 2008. In January 2010, Kumho Tires Co., Inc. and Kumho Industrial Co., Ltd. agreed with their
creditors, including the Bank, to begin an out-of-court debt restructuring programme under the Corporate
Restructuring Promotion Act. In addition, Kumho Petrochemical Co., Ltd. and Asiana Airlines announced that
they would undergo a voluntary restructuring, in return for which their creditors, including the Bank, agreed to a
suspension of payments on the two companies’ debt until the end of 2010. These four companies are member
companies of the Kumho Asiana Group. As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the
Bank’s aggregate credit exposures to Kumho Tires, Kumho Industrial, Kumho Petrochemical and Asiana
Airlines, consisting primarily of loans extended to such companies, amounted to W1,454 billion, of which
W463 billion were classified as substandard or below. As of 30th June, 2011, on a non-consolidated basis under
K-IFRS, the Bank’s provisions for credit losses with respect to such credit exposures amounted to W84 billion.
Moreover, the Bank converted an aggregate of W113 billion of its loans to such companies into equity interests
in connection with their restructuring programmes. The Bank’s provisions may not be sufficient to cover all
future losses arising from the Bank’s exposures to these companies. Furthermore, in the event that the financial
condition of these companies deteriorates further in the future, the Bank may be required to record additional
provisions for credit losses, as well as charge-offs and valuation or impairment losses, which may have a
material adverse effect on the Bank’s financial condition and results of operations.
Risks relating to the Bank — Consumer loan portfolio
The asset quality of the Bank’s consumer loan portfolio may deteriorate.
In recent years, consumer debt, including lending to small unincorporated businesses, has increased rapidly in
Korea. The Bank’s portfolio of consumer loans, on a non-consolidated basis under Korean GAAP, has grown
from W54,601 billion as of 31st December, 2008 to W57,288 billion as of 31st December, 2010. On a non-
consolidated basis under K-IFRS, the Bank’s portfolio of consumer loans amounted to W59,418 billion as of
30th June, 2011, which represented 35.8 per cent. of its total lending as of such date. The Bank’s total consumer
loan portfolio is comprised of two principal product types, namely mortgage and home equity loans and general



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purpose household loans (which include principally unsecured consumer loans). Within the Bank’s consumer
loan portfolio, the outstanding balance of general purpose household loans (which, unlike mortgage or home
equity loans, are often unsecured and therefore tend to carry a higher credit risk), on a non-consolidated basis
under Korean GAAP, decreased from W22,477 billion, or 41.2 per cent. of the Bank’s total outstanding
consumer loans, as of 31st December, 2008 to W19,287 billion, or 33.7 per cent. of the Bank’s total outstanding
consumer loans, as of 31st December, 2010. On a non-consolidated basis under K-IFRS, the outstanding
balance of general purpose household loans amounted to W19,363 billion, or 32.6 per cent. of the Bank’s total
outstanding consumer loans, as of 30th June, 2011.
The Bank’s increased exposure to consumer debt means that it is more exposed to changes in economic
conditions affecting Korean consumers. Accordingly, economic difficulties in Korea that hurt consumers, such
as an increase in unemployment or interest rates, could result in increasing delinquencies and a decline in the
asset quality of the Bank’s consumer loan portfolio. On a non-consolidated basis under Korean GAAP, the
Bank’s non-performing consumer loans increased from W264 billion as of 31st December, 2008 to W269
billion as of 31st December, 2010, and as a percentage of the Bank’s consumer loan portfolio, such loans
decreased from 0.5 per cent. as of 31st December, 2008 to 0.4 per cent. as of 31st December, 2010. On a non-
consolidated basis under K-IFRS, the Bank’s non-performing consumer loans amounted to W293 billion as of
30th June, 2011, which represented 0.5 per cent. of its consumer loan portfolio as of such date. On a non-
consolidated basis under Korean GAAP, the Bank’s consumer loans that were classified as precautionary or
below decreased from W652 billion as of 31st December, 2008 to W497 billion as of 31st December, 2010, and
as a percentage of the Bank’s consumer loan portfolio, such loans decreased from 1.2 per cent. as of 31st
December, 2008 to 0.9 per cent. as of 31st December, 2010. On a non-consolidated basis under K-IFRS, the
Bank’s consumer loans that were classified as precautionary or below amounted to W610 billion as of 30th
June, 2011, which represented 1.0 per cent. of its consumer loan portfolio as of such date. The Bank recorded
charge-offs of W88 billion in respect of its consumer loans in 2010 compared to charge-offs of W111 billion in
2009, each on a non-consolidated basis under Korean GAAP, while the Bank’s charge-offs in respect of its
consumer loans in the first half of 2011, on a non-consolidated basis under K-IFRS, amounted to W21 billion.
The amount of such charge-offs may, however, increase in the second half of 2011 and beyond. Any future
deterioration of the asset quality of the Bank’s consumer loan portfolio will require it to increase its loan loss
provisions and charge-offs and may materially and adversely affect the Bank’s financial condition and results of
operations during 2011 and in the future.
Risks relating to the Bank — Credit card operations
The asset quality of the Bank’s credit card portfolio may deteriorate in the future as a result of adverse
economic developments, additional Government regulations or other developments that may adversely affect
the Bank’s customers.
The outstanding balance of the Bank’s credit card accounts, on a non-consolidated basis under K-IFRS, was
W4,125 billion as of 30th June, 2011. In prior years, the growth of the credit card industry in Korea had been
accompanied by increasing delinquencies. In the Bank’s credit card portfolio, outstanding balances overdue by
30 days or more, on a non-consolidated basis under K-IFRS, amounted to W77 billion, or 1.9 per cent. of its
credit card receivables, as of 30th June, 2011.
In addition, in line with industry practice, prior to its merger with the Bank, Woori Credit Card Co., Ltd.
(“Woori Credit Card”) had restructured a portion of its delinquent credit card account balances as loans. As of
30th June, 2011, these restructured loans amounted to W37 billion or in aggregate 0.9 per cent. of the Bank’s
credit card balances. Because these restructured loans are not initially treated as being delinquent, the Bank’s
credit card delinquency ratios do not fully reflect all delinquent amounts relating to its credit card balances.
Including all restructured loans, the Bank’s ratio of outstanding balances overdue by 30 days or more to total
credit card balances, on a non-consolidated basis under K-IFRS, was 2.0 per cent. as of 30th June, 2011. The
Bank recorded charge-offs of W119 billion in respect of its credit card portfolio in 2010 compared to charge-
offs of W193 billion in 2009, each on a non-consolidated basis under Korean GAAP, while the Bank’s charge-
offs in respect of its credit card portfolio in the first half of 2011, on a non-consolidated basis under K-IFRS,
amounted to W70 billion.
There is no assurance that credit card delinquencies of the Bank will not increase significantly in the future as a
result of, among other things, adverse economic conditions in Korea, difficulties experienced by other credit
card companies that adversely affect the Bank’s customers, additional Government regulations or the inability of
Korean consumers to manage increased household debt. Any increases in delinquencies or deterioration of the




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asset quality of the Bank’s credit card portfolio will require the Bank to increase its loan loss provisions and
charge-offs and will adversely affect the Bank’s financial condition and results of operations.
The Bank plans to spin off its credit card business, which may have a material adverse effect on the Bank’s
financial condition and results of operations.
On 16th September, 2011, the board of directors of the Bank resolved to effect a horizontal spin-off of its credit
card business to form a new entity, which will be a wholly-owned direct subsidiary of Woori Finance Holdings.
Pursuant to such resolution, the Bank plans to transfer those assets and liabilities which are directly or indirectly
related to its credit card business to a newly established company on 31st December, 2011, subject to a number
of conditions including the approval of the relevant regulators. If the planned spin-off is effected, the Bank
will remain jointly and severally liable for the spun-off liabilities of the credit card business and the new entity
will be jointly and severally liable for the liabilities of the Bank existing as of the date of the spin-off, in each
case for an indefinite period, pursuant to the Korean Commercial Code. There can be no assurance that the
contemplated spin-off of the credit card business will be completed as proposed or at all. If completed, the spin-
off of the credit card business may result in a significant reduction of the Bank’s capital stock, assets and
revenues. In addition, since the Bank typically charges a higher interest rate for its credit card receivables than
for its other loans, its credit card business has typically yielded a higher net interest margin than its banking
business. Accordingly, the planned spin-off of the credit card business may have a material adverse effect on
the Bank’s financial condition and results of operations, should it be effected as currently planned.
Risks relating to the Bank — Competition
Competition in the Korean financial industry is intense, and the Bank may lose market share and experience
declining margins as a result.
Competition in the Korean financial market has been and is likely to remain intense. Some of the financial
institutions that the Bank competes with are larger in terms of asset size and customer base and have greater
financial resources or more specialised capabilities than the Bank. In addition, in the area of core banking
operations, most Korean banks have been focusing on retail customers and SMEs in recent years, although they
have begun to generally increase their exposure to large corporate borrowers and have been focusing on
developing fee income businesses, including bancassurance and investment products, as increasingly important
sources of revenue. In the area of credit cards, Korean banks and credit card companies have in the past engaged
in aggressive marketing activities and made significant investments in recent years, contributing to some extent
to lower profitability and asset quality problems previously experienced with respect to credit card receivables.
The competition and market saturation resulting from this common focus may make it more difficult for the
Bank to secure retail (including credit card) and SME customers with the credit quality and on credit terms
necessary to maintain or increase the Bank’s income and profitability.
In addition, the Bank believes that regulatory reforms, including the Financial Investment Services and Capital
Markets Act, which became effective in February 2009, and the general modernisation of business practices in
Korea will lead to increased competition among financial institutions in Korea. See “— Risks relating to
Government regulation and policy — The Financial Investment Services and Capital Markets Act may result in
increased competition in the Korean banking industry.” The Bank also believes that foreign financial
institutions, many of which have greater experience and resources than the Bank has, will seek to compete with
the Bank in providing financial products and services either by themselves or in partnership with existing
Korean financial institutions. Furthermore, a number of significant mergers and acquisitions in the industry have
taken place in Korea over the past decade, including the acquisition of Koram Bank by an affiliate of Citibank in
2004, the acquisition of Korea First Bank by Standard Chartered Bank in April 2005, Chohung Bank’s merger
with Shinhan Bank in April 2006 and Hana Financial Group’s agreement in November 2010 to acquire a
controlling interest in Korea Exchange Bank from the Lone Star funds. The Bank expects that consolidation in
the financial industry will continue. In particular, the Government has announced that it plans to privatise the
Korea Development Bank. Other financial institutions may seek to acquire or merge with such or other entities,
and the financial institutions resulting from this consolidation may, by virtue of their increased size and business
scope, provide significantly greater competition for the Bank. Increased competition and continuing
consolidation may lead to decreased margins, resulting in a material adverse impact on the Bank’s future
profitability. Accordingly, the Bank’s results of operations and financial condition may suffer as a result of
increasing competition in the Korean financial industry.




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Competition for customer deposits may increase, resulting in a loss of the Bank’s deposit customers or an
increase in the Bank’s funding costs.
In recent years, the Bank has faced increasing pricing pressure on deposit products from the Bank’s competitors.
If the Bank does not continue to offer competitive interest rates to its deposit customers, the Bank may lose their
business. In addition, even if the Bank is able to match its competitors’ pricing, doing so may result in an
increase in the Bank’s funding costs, which may have an adverse impact on the Bank’s results of operations.
Risks relating to the Bank — Other risks
Difficult conditions in the global financial markets could adversely affect the Bank’s results of operations
and financial condition.
During the second and third quarter of 2007, credit markets in the United States started to experience difficult
conditions and volatility that in turn affected worldwide financial markets. In particular, in late July and early
August 2007, market uncertainty in the U.S. sub-prime mortgage sector increased dramatically and further
expanded to other markets such as those for leveraged finance, collateralised debt obligations (“CDOs”) and
other structured products. In September and October 2008, liquidity and credit concerns and volatility in the
global credit and financial markets increased significantly with the bankruptcy or acquisition of, and
government assistance to, several major U.S. and European financial institutions. These developments resulted
in reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the United
States and global financial markets. In response to such developments, legislators and financial regulators in the
United States and other jurisdictions, including Korea, implemented a number of policy measures designed to
add stability to the financial markets, including the provision of direct and indirect assistance to distressed
financial institutions. In addition, in line with similar actions taken by monetary authorities in other countries,
from the third quarter of 2008 to the first quarter of 2009, the Bank of Korea decreased its policy rate by a total
of 3.25 per cent. in order to address financial market instability and to help combat the slowdown of the
domestic economy and left the key interest rate unchanged at 2.00 per cent. throughout 2009. However, while
the rate of deterioration of the global economy slowed in the second half of 2009, with some signs of
stabilisation and improvement in 2010 and the first half of 2011, the overall prospects for the Korean and global
economy in the remainder of 2011 and beyond remain uncertain. For example, in recent months, the global
financial markets have experienced significant volatility as a result of, among other things, the downgrading by
Standard & Poor’s Rating Services of the long-term sovereign credit rating of the United States to “AA+” from
“AAA” in August 2011 and the financial difficulties affecting many other governments worldwide, in particular
in Greece, Portugal, Spain and other countries in Europe. In addition, recent political instability in various
countries in the Middle East and Northern Africa, including in Egypt, Tunisia, Libya, Syria and Yemen, have
resulted in volatility and uncertainty in the global energy markets. Any of these or other developments could
potentially trigger another financial and economic crisis. Moreover, while many governments worldwide are
implementing “exit strategies” in the form of reduced government spending, higher interest rates or otherwise
with respect to the economic stimulus measures adopted in response to the global financial crisis, such strategies
may, for reasons related to timing, magnitude or other factors, have the unintended consequence of prolonging
or worsening global economic and financial difficulties. In light of the high level of interdependence of the
global economy, any of the foregoing developments could have a material adverse effect on the Korean
economy and financial markets, and in turn on the Bank’s business, financial condition and results of operations.
The Bank is also exposed to adverse changes and volatility in global and Korean financial markets as a result of
its liabilities and assets denominated in foreign currencies and its holdings of trading and investment securities.
From the second half of 2008 to the first half of 2010, the value of the Won relative to major foreign currencies
in general and the U.S. dollar in particular fluctuated widely. While such fluctuations generally stabilised in the
second half of 2010 and into 2011, there has been increased volatility in the value of the Won in recent months
reflecting the general volatility in the global financial markets. There is no guarantee that significant exchange
rate fluctuations will not occur again in the future. See “Exchange Rates.” A depreciation of the Won will
increase the Bank’s cost in Won of servicing its foreign currency-denominated debt, while continued exchange
rate volatility may also result in foreign exchange losses for the Bank. Furthermore, as a result of adverse global
and Korean economic conditions, there has been significant volatility in securities prices, including the stock
prices of Korean and foreign companies in which the Bank holds an interest. Such volatility has resulted in and
may lead to further trading, valuation and impairment losses on the Bank’s trading and investment securities
portfolio.




                                                                                                                 8
The Bank’s risk management system may not be effective in mitigating risk and loss to the Bank.
The Bank seeks to monitor and manage its risk exposure through a comprehensive risk management platform,
encompassing a centralised risk management organisation and credit evaluation systems, reporting and
monitoring systems, early warning systems and other risk management infrastructure, using a variety of risk
management strategies and techniques. See “Risk Management.” However, such risk management strategies
and techniques employed by the Bank and the judgments that accompany their application cannot anticipate the
economic and financial outcome in all market environments, and many of the Bank’s risk management
strategies and techniques have a basis in historic market behavior that may limit the effectiveness of such
strategies and techniques in times of significant market stress or other unforeseen circumstances. Furthermore,
the Bank’s 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 the Bank to deal with such
market conditions. In such circumstances, it may be difficult for the Bank to reduce its risk positions due to the
activity of such other market participants.
The Bank and its affiliates may be involved in mergers and acquisitions in the future, which may adversely
impact the business of the Bank or the price of the Bonds.
The Government, through the Korean Deposit Insurance Corporation (the “KDIC”), currently owns a majority
of the outstanding common stock of the Bank’s holding company, Woori Finance Holdings. On 17th May,
2011, the Government, through the Public Funds Oversight Committee of the Financial Services Commission,
had announced its plans to privatise Woori Finance Holdings through a sale of up to the entire 56.97 per cent.
equity stake (and a minimum of a 30 per cent. equity stake) held by the Government through the KDIC.
However, following a preliminary bidding process in which only one bid was submitted by a consortium led by
a Korean private equity fund, the Public Funds Oversight Committee of the Financial Services Commission
announced the suspension of such sale process in August 2011. The implementation of the Government’s
privatisation plan may be further delayed or changed depending on a variety of factors, such as domestic and
international economic conditions, and there can be no assurance that such privatisation plan will be
implemented as contemplated or at all.
Woori Finance Holdings has also announced that, as part of its strategy, it intends to continue to seek
opportunities to expand its overseas operations, including potentially through acquisitions and investments in
the U.S., Europe and Asia. Depending on their nature, size, structure and timing, any such mergers (including in
connection with the privatisation of Woori Finance Holdings), acquisitions and investments may have a
significant impact, directly or indirectly, on the business and operations of Woori Finance Holdings and its
affiliates, including the Bank and its subsidiaries. For example, such transactions may require the Bank and its
subsidiaries to integrate their operations and systems with those of other financial institutions and to reorganise
or reduce overlapping personnel, branches, networks and administrative functions. Such transactions may also
result in increased capital requirements, greater credit and other exposures, diversion of management attention,
loss of customers and labour unrest. Accordingly, any such future transactions may have a material adverse
effect on the business, financial condition and results of operations of the Bank and the price of the Bonds.
The Bank is a subsidiary of Woori Finance Holdings, and the decisions and policies implemented by Woori
Finance Holdings may not be in the Bank’s best interest as a stand-alone company.
The Bank is the largest subsidiary of Woori Finance Holdings, a financial holding company established in
March 2001 by the KDIC to consolidate the Government’s interests in four commercial banks (the Bank,
Kyongnam Bank, Kwangju Bank and Peace Bank of Korea), one merchant bank and a number of other financial
institutions. Each of these financial institutions, including the Bank, was experiencing significant financial
difficulties, such as sharp deteriorations in asset quality and capital adequacy ratios and net capital deficits, as a
result of the Korean financial crisis that began in 1997. The four banks had been recapitalised by the
Government using public funds injected through the KDIC. Since 2001, Woori Finance Holdings has
implemented a group-wide reorganisation and integration plan that has had a significant impact on the business
operations of its subsidiaries, including the Bank. Because the Bank is the largest subsidiary within the financial
holding company structure, the Bank and the Bank’s personnel have been taking a leading role in implementing
these initiatives.
While the Bank believes that Woori Finance Holdings has generally succeeded in improving the overall
financial condition and normalising the operations of its subsidiaries as a whole, the group-wide management
decisions and policies that Woori Finance Holdings implements in the future may not necessarily be in the




                                                                                                                    9
Bank’s best interest as a stand-alone company. For example, subject to certain limitations under the Financial
Holding Company Act, Woori Finance Holdings may:
         •    require the Bank to engage in various transactions, including mergers and acquisitions,
              investments, joint ventures or dispositions, either with other subsidiaries or with third parties, or to
              expand or restrict the Bank’s operations, for the benefit of the group;
         •    require the Bank to provide direct or indirect support, financial, operational, technical or
              otherwise, to it or to other subsidiaries;
         •    make changes to the Bank’s management personnel or employees, including for the purpose of
              seconding individuals with particular skills or expertise to it or to other subsidiaries or as a result
              of policy disagreements; and
         •    implement group-wide initiatives, policies or strategies that require significant expenditures from
              the Bank or significant time and attention of the Bank’s management.
Accordingly, there is no guarantee that the benefits to the Bank of being a part of Woori Finance Holdings will
outweigh the costs in any instance.
The KDIC, which is a controlling stockholder of Woori Finance Holdings, and therefore the Bank’s indirect
controlling stockholder, is controlled by the Government and could cause the Bank to take actions or pursue
policy objectives that may be against the Bank’s best interests.
The Government, through the KDIC, currently owns 56.97 per cent. of the outstanding common stock of the
Bank’s holding company, Woori Finance Holdings. So long as the Government remains the Bank’s indirect
controlling stockholder, it will have the ability to cause it to take actions or pursue policy objectives that may
conflict with the Bank’s best interests. For example, in order to further its public policy goals, the Government
could request that the Bank participate with respect to a takeover of a troubled financial institution or encourage
it to provide financial support to particular entities or sectors. Such actions or others that are not consistent with
maximising the Bank’s profits may have an adverse impact on the Bank’s results of operations and financial
condition.
In addition, pursuant to the terms of the Bank’s memorandum of understanding with the KDIC, the Bank is
required to take any necessary action to return to the KDIC the funds it injected into the Bank, so long as those
actions do not cause a material adverse effect on the normalisation of the Bank’s business operations as
contemplated by the memorandum of understanding. Any actions that the Bank takes as a result of this
requirement may favour the KDIC over the Bank’s creditors and may therefore be against the interests of
investors.
The Bank’s failure to meet the financial and other business targets set forth in the current terms of the
memoranda of understanding among it, Woori Finance Holdings and the KDIC may result in substantial
harm to it.
Under the current terms of the memoranda of understanding entered into among the Bank, Woori Finance
Holdings and the KDIC, the Bank is required to meet financial and business targets and recapitalisation goals on
a semi-annual and/or quarterly basis until the end of 2011. See “History and Development of the Bank —
Relationship with the Government.” As a result of deteriorating economic and financial market conditions in
Korea and globally, the Bank failed to meet its return on assets target, its expense-to-revenue ratio target and its
operating income per employee target as of 31st December, 2008. In September 2009, the KDIC imposed an
institutional warning on the Bank, as well as reprimands and warnings on 11 current and former executive
officers of the Bank, in connection with the Bank’s failure to meet such financial targets, including as a result of
losses incurred on collateralised debt obligations and other credit derivatives. In February and October 2010
and February 2011, the KDIC imposed institutional warnings on the Bank in connection with its failure to meet
its financial targets with respect to operating income per employee as of 30th September, 2009 and return on
assets and non-performing loan ratio as of 30th June and September, 2010, respectively. In April 2011, the
KDIC imposed another institutional warning on the Bank, as well as a warning on the former chief executive
officer of the Bank, in connection with the Bank’s failure to meet its financial targets with respect to its return
on assets and non-performing loan ratio as of 31st December, 2010. See “History and Development of the
Bank — Relationship with the Government — Memoranda of Understanding with the KDIC.” The Bank
entered into a new business normalisation plan with new restructuring measures and financial targets with the
KDIC in March 2011.




                                                                                                                   10
If the Bank fails to satisfy its obligations under the current or any new memoranda of understanding in the
future, the Government, through the KDIC, or Woori Finance Holdings, may impose penalties on the Bank or
the Bank’s subsidiaries. These penalties could include the replacement of the Bank’s senior management, sale of
the Bank’s assets, restructuring of the Bank’s organisation, restrictions on the Bank’s business, including a
suspension or transfer of the Bank’s business, and elimination or reduction of existing equity. Accordingly, the
Bank’s failure to meet the obligations in the memoranda of understanding may result in harm to its business,
financial condition and results of operations.
The Bank may not generate sufficient additional fees to achieve the Bank’s revenue diversification strategy.
An important element of the Bank’s overall strategy is increasing the Bank’s fee income in order to diversify the
Bank’s revenue base, in anticipation of greater competition and declining lending margins. Historically, the
Bank’s primary source of revenues has been interest income from the Bank’s banking operations. The Bank has
been seeking to develop new sources of fee income as part of the Bank’s business strategy, including through
the Bank’s investment banking, bancassurance and new credit card businesses. Although the Bank, like many
other Korean financial institutions, has begun to charge fees to the Bank’s customers more regularly, customers
may prove unwilling to pay additional fees, even in exchange for more attractive value-added services, and their
reluctance to do so would adversely affect the implementation of this aspect of the Bank’s strategy.
An increase in interest rates would decrease the value of the Bank’s debt securities portfolio and raise the
Bank’s funding costs while reducing loan demand and increasing the interest burden of the Bank’s
borrowers, which could adversely affect the Bank’s financial condition and results of operations.
Interest rates in Korea have been subject to significant fluctuations in recent years. In late 2008 and early 2009,
the Bank of Korea reduced its policy rate by a total of 325 basis points to support Korea’s economy amid the
global financial crisis, and left the key interest rate unchanged at 2.00 per cent. throughout 2009. In an effort to
stem inflation amid improved growth prospects, the Bank of Korea increased its policy rate to 2.25 per cent. in
July 2010, 2.50 per cent. in November 2010, 2.75 per cent. in January 2011, 3.00 per cent. in March 2011 and
3.25 per cent. in June 2011.
As of 30th June, 2011, approximately 95.8 per cent. of the Won currency debt securities that the Bank holds pay
interest at a fixed rate. All else being equal, a further increase in interest rates would lead to a decline in the
value of traded debt securities. A sustained increase in interest rates will also raise the Bank’s funding costs,
while reducing loan demand, especially among consumers. Rising interest rates may therefore require the Bank
to re-balance its assets and liabilities in order to minimise the risk of potential mismatches and maintain its
profitability. See “Risk Management.” In addition, rising interest rate levels may adversely affect the Korean
economy and the financial condition and repayment ability of the Bank’s corporate and consumer borrowers,
including holders of the Bank’s credit cards, which in turn may lead to a deterioration in the Bank’s credit
portfolio. In particular, since most of the Bank’s consumer 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 the Bank’s consumer and corporate borrowers and will adversely affect their ability to make payments
on their outstanding loans.
The Bank’s funding is highly dependent on short-term deposits, which dependence may adversely affect the
Bank’s operations.
The Bank meets a significant amount of its funding requirements through short-term funding sources, which
consist primarily of customer deposits. As of 31st December, 2010, approximately 96.9 per cent. of the Bank’s
Won currency deposits had maturities of one year or less or were payable on demand. In the past, a substantial
proportion of the Bank’s customer deposits have been rolled over upon maturity. The Bank cannot guarantee,
however, that depositors will continue to roll over their deposits in the future. In the event that a substantial
number of these short-term deposit customers withdraw their funds or fail to roll over their deposits if higher
yield investment opportunities emerge, the Bank’s liquidity position could be adversely affected. The Bank may
also be required to seek more expensive sources of short-term and long-term funding to finance its operations.
In connection with its policy initiatives announced in June 2011 to address the risks posed by the rising level of
consumer debt in Korea, the FSC indicated that it would require banks to maintain a ratio of loans to deposits of
not more than 100 per cent., commencing in June 2012. See “Supervision and Regulation—Liquidity.” In order
to comply with this new requirement, the Bank may be required to increase its customer deposits, including by
offering more attractive terms such as higher interest rates. If the Bank is unable to increase its customer
deposits to a level that allows it to meet the new requirement, the Bank may be required to reduce its lending,
which would likely result in reduced interest income for the Bank. Accordingly, the application of the new


                                                                                                                   11
loan-to-deposit ratio requirement commencing in June 2012 may result in a reduction in the Bank’s net interest
income, which in turn may have a material adverse effect on the Bank’s results of operations and financial
condition.
A decline in the value of the collateral securing the Bank’s loans and the Bank’s inability to realise full
collateral value may adversely affect the Bank’s credit portfolio.
A substantial portion of the Bank’s loans is secured by real estate, the values of which have fluctuated
significantly in recent years. Although it is the Bank’s general policy to lend up to 60 per cent. of the appraised
value of collateral (except in areas of high speculation designated by the Government where the Bank generally
limits its lending to 40 to 60 per cent. of the appraised value of collateral) and to periodically re-appraise its
collateral, a downturn in the real estate market in Korea in recent years has resulted in declines in the value of
the collateral securing the Bank’s mortgage and home equity loans. If collateral values decline further in the
future, they may not be sufficient to cover uncollectable amounts in respect of the Bank’s secured loans. Any
future declines in the value of the real estate or other collateral securing the Bank’s loans, or its inability to
obtain additional collateral in the event of such declines, could result in a deterioration in the Bank’s asset
quality and may require it 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 realised with respect to such collateral. The Bank cannot
guarantee that it will be able to realise the full value on its collateral as a result of, among other factors, delays in
foreclosure proceedings and defects in the perfection of the Bank’s security interest in collateral. The Bank’s
failure to recover the expected value of collateral could expose it to losses.
The secondary market for corporate bonds in Korea is not fully developed, and, as a result, the Bank may not
be able to realise the full “marked-to-market” value of debt securities the Bank holds when it sells any of
those securities.
As of 30th June, 2011, the Bank held, on a non-consolidated basis under K-IFRS, debt securities with a total
book value of W25,391 billion in the Bank’s 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 the Bank 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 the Bank’s balance
sheet is determined by references to suggested prices posted by Korean rating agencies or the Korea Securities
Dealers Association. These valuations, however, may differ significantly from the actual value that the Bank
could realise in the event the Bank elects to sell these securities. As a result, the Bank may not be able to realise
the full “marked-to-market” value at the time of any such sale of these securities and thus may incur losses.
The Bank may be required to raise additional capital, but it may not be able to do so on favourable terms or
at all.
Under the capital adequacy requirements of the FSC, the Bank is required to maintain a minimum Tier I capital
adequacy ratio of 4.0 per cent. and a combined Tier I and Tier II capital adequacy ratio of 8.0 per cent., on a
consolidated basis. The amount of Tier II capital is not permitted to exceed the amount of Tier I capital under
FSC regulations. In addition, the current terms of the memoranda of understanding among the Bank, Woori
Finance Holdings and the KDIC require the Bank to meet a more stringent Tier I and Tier II capital adequacy
ratio of 10.0 per cent. on a consolidated basis. See “History and Development of the Bank — Relationship with
the Government.” As of 30th June, 2011, the Bank’s Tier I capital adequacy ratio was 11.47 per cent. and its
combined Tier I and Tier II capital adequacy ratio was 14.58 per cent., which exceeded the minimum levels
required by both the FSC and these memoranda. However, the Bank’s capital base and capital adequacy ratio
may deteriorate in the future if its results of operations or financial condition deteriorates for any reason,
including as a result of any deterioration in the asset quality of its consumer loans and loans to SMEs, or if the
Bank is not able to deploy its funding into suitably low-risk assets.
If the Bank’s capital adequacy ratio deteriorates, the Bank may be required to obtain additional Tier I or Tier II
capital in order to remain in compliance with the applicable capital adequacy requirements. The Bank may not
be able to obtain additional capital on favourable terms, or at all. The Bank’s 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
Asian countries are seeking to raise capital at the same time. To the extent that the Bank fails to maintain its
capital adequacy ratios in the future, Korean regulatory authorities may impose penalties on it ranging from a



                                                                                                                      12
warning to suspension or revocation of its license. For a description of the capital adequacy requirements of the
FSC, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Financial Condition — Capital Adequacy.”
The Bank may face increased capital requirements under the new Basel Capital Accord
Beginning on 1st January, 2008, the FSS implemented the new Basel Capital Accord, referred to as Basel II, in
Korea, which has affected the way risk is measured among Korean financial institutions, including the Bank.
Building upon the initial Basel Capital Accord of 1988, which focused primarily on capital adequacy and asset
soundness as a measure of risk, Basel II expands this approach to contemplate additional areas of risk such as
operational risk. Basel II also institutes new measures that require the Bank to take into account individual
borrower credit risk and operational risk when calculating risk-weighted assets.
In addition, under Basel II, banks are permitted to follow either a standardised approach or an internal ratings-
based approach with respect to calculating credit risk capital requirements. The Bank has voluntarily chosen to
establish and follow an internal ratings-based approach, which is more risk-sensitive in assessing credit risk
capital requirements. In October 2008, the FSS approved the Bank’s internal ratings-based approach for credit
risk. For regulatory reporting purposes, from 30th September, 2008, the Bank has implemented its internal
ratings-based approach for credit risk, beginning with its credit risk with respect to retail, SME and large
corporate loans and asset-backed securities portfolios, and plans to further implement its internal ratings-based
approach to its specialised lending portfolio upon approval by the FSS. A standardised approach will be used in
measuring credit risk for those classes of exposure for which the Bank’s internal ratings-based approach has not
yet been implemented, as well as for certain classes of exposure (including those to the Government, public
institutions and other banks) for which the internal ratings-based approach will not be applied. The Bank plans
to implement an “advanced internal ratings-based approach” for credit risk in the near future. The Bank also
implemented a standardised approach for operational risk beginning on 1st January, 2008, and implemented an
“advanced measurement approach” for operational risk in June 2009. While the Bank believes that the
implementation of its internal ratings-based approach in 2008 has increased its capital adequacy ratio and led to
a decrease in its credit risk-related capital requirements as compared to those under its previous approach under
the initial Basel Capital Accord of 1988, there can be no assurance that such internal ratings-based approach
under Basel II will not require an increase in the Bank’s credit risk capital requirements in the future, which may
require the Bank to either improve its asset quality or raise additional capital. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations — Financial Condition — Capital Adequacy.”
In December 2009, the Basel Committee on Banking Supervision introduced a new set of measures to
supplement Basel II which include, among others, a requirement for higher minimum capital, introduction of a
leverage ratio as a supplementary measure to the capital adequacy ratio and flexible capital requirements for
different phases of the economic cycle. Additional details regarding such new measures, including an additional
capital conservation buffer and countercyclical capital buffer, liquidity coverage ratio and other supplemental
measures, were announced by the Group of Governors and Heads of Supervision of the Basel Committee on
Banking Supervision in September 2010. After further impact assessment and observation periods, the Basel
Committee on Banking Supervision is expected to begin implementing the new set of measures, referred to as
Basel III, starting from 2013. The timing and scope of implementation of Basel III in Korea remain uncertain.
The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean
financial institutions, including the Bank.
The Bank has in the past breached covenants in certain of its financing documents.
Certain of the Bank's financing documents contain covenants that limit the Bank’s ability to pledge its assets to
secure indebtedness, to dispose, sell or transfer assets or to enter into arrangements that would have a similar
effect. In March 2009, the Bank became aware that it had breached, or potentially breached, such covenants in
12 of its bank loan facility agreements with a total aggregate loan amount of approximately U.S.$948 million
(the “Loan Agreements”) as a result of the following ordinary course financing activities:
         •   The Bank borrows funds on a secured basis from certain financial institutions and the Bank of
             Korea (including pursuant to a revolving secured borrowing facility to support lending to SMEs in
             light of the general decline in liquidity in Korea and globally following the global financial crisis).
         •   The Bank raises funds through sale and repurchase arrangements involving the transfer of certain
             of its assets.




                                                                                                                 13
         •   The Bank enters into derivative and swap transactions under which from time to time the Bank
             may provide certain of its assets as collateral.
The assets secured or otherwise provided as collateral in connection with the above activities comprise mainly
Government bonds and other types of securities.
In each case, these activities were in breach of one or more of the covenants in, and triggered defaults of, the
Loan Agreements. These defaults resulted in consequential breaches of representations, covenants and cross-
defaults and/or termination events in other financing documents and instruments, including certain agreements
governing the Bank’s derivative and swap transactions and sale and repurchase arrangements.
During April and May 2009, the Bank sought and obtained waivers of and amendment agreements in relation to
the foregoing covenant breaches and the defaults arising as a result of such breaches from the lenders under
eight Loan Agreements with a total aggregate loan amount of U.S.$725 million to ensure, among other things,
that the respective loans made thereunder will not be accelerated as a result of the above-described breaches or
defaults and that the Bank has the ability to enter into ordinary course financing activities, including those of the
types described above, in the future. In addition, in May 2009, the Bank repaid in full the outstanding loans
under four Loan Agreements with a total aggregate loan amount of U.S.$223 million, for which the Bank did
not obtain such waivers and amendment agreements. However, in relation to certain other financing documents
and instruments, including those governing its derivative and swap transactions and sale and repurchase
arrangements, the Bank did not seek waivers of breaches or potential breaches of representations, covenants or
cross-defaults and/or termination events arising as a consequence of the above-described defaults under the
Loan Agreements. There is no guarantee that the Bank’s counterparties or creditors under such financing
documents and instruments will not seek to assert their contractual or other remedies for such consequential
breaches, which in turn may trigger cross-default or cross-acceleration provisions in other financing documents
and instruments of the Bank. Any such developments could have a material adverse effect on the liquidity and
financial condition of the Bank.
The Bank’s Internet banking services are subject to security concerns relating to the commercial use of the
Internet.
The Bank provides Internet banking services to its retail and corporate customers, which require sensitive
customer information, including passwords and account information, to be transferred over a secure connection
on the Internet. However, connections on the Internet, although secure, are not free from security breaches. The
Bank may experience security breaches in connection with its Internet banking service in the future, which may
result in liability to its customers and third parties and materially and adversely affect the Bank’s business.
The Bank may experience disruptions, delays and other difficulties from its information technology systems.
The Bank relies on its information technology systems for its daily operations including billing, effecting online
and offline banking transactions and record keeping. The Bank may experience disruptions, delays or other
difficulties from its information technology systems, which may have an adverse effect on the Bank’s business
and adversely impact its customers’ confidence in the Bank.
The application of K-IFRS in Korea commencing in 2011 has affected the comparability of the Bank’s
historical financial statements and may adversely affect the Bank’s reported results of operations and
financial condition.
The Bank’s consolidated financial statements for the years ended 31st December, 2008, 2009 and 2010 included
in this Draft Prospectus have been prepared in accordance with Korean GAAP. Commencing in 2011, all listed
companies in Korea are required to prepare their financial statements in accordance with K-IFRS. Accordingly,
the Bank’s consolidated interim financial statements for the six month periods ended 30th June, 2010 and 2011
included in this Draft Prospectus have been prepared in accordance with K-IFRS. K-IFRS differs in significant
respects from Korean GAAP. For a description of the effects of the conversion from Korean GAAP to K-IFRS,
see Note 46 of the notes to the Bank’s consolidated interim financial statements included in this Draft
Prospectus. As a result of such differences, certain balance sheet and income statement items reflected in such
consolidated interim financial statements (as well as the Bank’s future financial statements prepared in
accordance with K-IFRS) differ substantially from, and are not comparable with, those reflected in the Bank’s
consolidated annual financial statements prepared in accordance with Korean GAAP and included in this Draft
Prospectus.




                                                                                                                  14
The Bank is generally subject to Korean corporate governance and disclosure standards, which differ in
significant respects from those in other countries.
Companies in Korea, including the Bank, are subject to corporate governance standards applicable to Korean
public companies that differ in many respects from standards applicable in other countries, including the United
States. There may also be less publicly available information about Korean companies, such as the Bank, 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 less than satisfactory corporate governance
practices or disclosure to investors in certain countries.
Legal claims and regulatory actions against the Bank could materially and adversely impact the Bank’s
business.
In the ordinary course of its business, the Bank is subject to the risk of legal claims and regulatory actions,
which may expose the Bank to substantial monetary damages and legal costs, injunctive relief, criminal and
civil penalties and regulatory restrictions on the Bank’s operations, as well as significant reputational harm.
Recently, due to the difficult conditions and volatility in the worldwide financial markets, particularly the
significant depreciation of the Won against the U.S. dollar and declines in securities prices, certain of the Bank’s
customers have brought lawsuits against the Bank in Korea in connection with the Bank’s sales of foreign
currency derivatives products known as “KIKO” (which stands for “knock-in knock-out”) and certain
investment fund products. In August 2010, FSS announced its decision to impose penalties on nine commercial
banks which sold KIKO products, including the Bank (which received an institutional warning), as well as
certain employees of such banks (including two former employees of the Bank, who received reprimands) in
connection with such transactions. See “Business — Legal Proceedings.” The outcome of these and other legal
claims and regulatory actions cannot be predicted and may materially and adversely impact the Bank’s business.
The Bank engages in limited activities relating to Iran and may become subject to sanctions under relevant
laws and regulations of the United States and other jurisdictions as a result of such activities, which may
adversely affect the Bank’s business and reputation or investors in the Bonds.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) enforces certain laws and
regulations (“OFAC Sanctions”) that impose restrictions upon U.S. persons with respect to activities or
transactions with certain countries, governments, entities and individuals that are the subject of OFAC Sanctions,
including Iran. Even though non-U.S. persons are not directly bound by OFAC Sanctions, in recent years OFAC
has asserted that such non-U.S. persons can be held liable if they “cause” violations by U.S. persons. The
European Union (the “E.U.”) also enforces certain laws and regulations (“E.U. Sanctions”) that impose
restrictions upon nationals and entities of, and business conducted in, E.U. member states with respect to
activities or transactions with certain countries, governments, entities and individuals that are the subject of E.U.
Sanctions, including Iran. The United Nations Security Council and other governmental entities also impose
similar sanctions.
In addition, in July 2010, the United States adopted legislation that expands the potential for U.S. economic
sanctions against foreign companies doing business with Iran in certain sectors. The Comprehensive Iran
Sanctions, Accountability, and Divestment Act of 2010 (the “CISADA”), among other things, expands the
scope of sanctionable activities relating to the development of petroleum and gas resources in Iran, the export of
refined petroleum products to Iran, and the development of refining capacity in Iran. These sanctionable
activities could include the provision of goods and services (including financing) in connection with such
projects. The CISADA also expands the severity of potential sanctions available under the Iran Sanctions Act,
as amended (the “ISA”), and imposes mandatory investigation and reporting requirements designed to increase
the likelihood of enforcement. A range of sanctions may be imposed on companies that engage in sanctionable
activities, including among other things the blocking of any property subject to U.S. jurisdiction in which the
sanctioned company has an interest, which could include a prohibition on transactions or dealings involving
securities of the sanctioned company.
Pursuant to the CISADA, the Secretary of the Treasury of the United States (the “U.S. Treasury Secretary”) has
also issued regulations prohibiting or strictly controlling opening or maintaining a correspondent account or a
payable-through account in the United States for a foreign financial institution that has been found by the U.S.
Treasury Secretary to knowingly facilitate Iran’s efforts to acquire weapons of mass destruction, Iran’s support
of foreign terrorist groups, the activities of a person subject to relevant United Nations Security Council
resolution sanctions, or any significant transaction supporting the Iranian Revolutionary Guard Corps (or an




                                                                                                                  15
entity designated as an affiliate thereof under OFAC Sanctions) or a financial institution whose property is
blocked under OFAC Sanctions due to activities related to weapons of mass destruction or terrorism.
Korea has also adopted a sanctions programme targeting Iran in accordance with the series of relevant
resolutions adopted by the United Nations Security Council. In particular, in September 2010, the Government
announced broad sanctions implementation guidelines covering financial, trade, transportation and energy-
related activities with Iran, which also included a proposal to facilitate legitimate trade between Korea and Iran
through Won-denominated settlement accounts to be opened by Bank Markazi Jomhouri Islami Iran (the
“Central Bank of Iran” or “CBI”) at certain Korean banks for such purpose.
The Bank operates certain accounts for CBI, which were opened at the Bank by CBI pursuant to a service
agreement entered into by the Bank and CBI in September 2010 to facilitate trade between Korea and Iran. The
accounts opened by CBI (the “Accounts”) consist of Won-denominated accounts which are used for the
settlement of exports of goods to Iran by Korean exporters and Won, U.S. dollar, euro and Japanese Yen-
denominated accounts which are used for the settlement of imports of oil and gas from Iran by Korean importers.
By the terms of the service agreement between the Bank and CBI, settlement of export and import transaction
payments through the Accounts are effected by crediting or debiting the relevant amount to or from the
applicable Accounts while a corresponding payment of funds is made to or from an Iranian bank by CBI, and
generally does not involve any actual transfer of the relevant funds from the Accounts at the Bank to CBI’s
accounts in Iran or elsewhere for such settlement. The Bank also provides limited export-import financing
services to Korean exporters and importers in connection with their trade transactions with Iran that are
permitted under the relevant Korean sanctions, primarily by discounting, advising on or issuing letters of credit,
which are settled through the Accounts. Furthermore, the Bank occasionally acts as recipient bank on behalf of
Korean exporters for international money transfers from Iranian importers and maintains a limited number of
deposit accounts in Korea for Iranian financial institutions. In addition, the Bank may in the future be requested
by the Government to participate in the settlement, through the Accounts, of certain past trade transactions
involving Iran which were frozen prior to the implementation of Iran-related economic sanctions and export
controls by the Korean government in 2010.
The applicable laws and regulations and banking guidelines of Korea require that trade transactions between
Korean and Iranian parties be subject to prior certification and clearance by relevant Korean governmental
authorities (or organizations designated thereby) to ensure compliance with Korean economic sanctions and
export controls against Iran, and the settlement of payments through the Accounts are not permitted without
such prior certification and clearance. While the Bank believes that its activities relating to Iran (including the
operation of the Accounts) are in compliance with applicable OFAC Sanctions, applicable E.U. Sanctions and
applicable sanctions imposed by the United Nations Security Council and other governmental entities, and the
Bank does not believe its activities would be sanctioned under CISADA or the regulations issued pursuant
thereto (collectively, the “Sanctions”), there is no guarantee that such activities will not be found to constitute
sanctionable activities or that the Bank will not be subjected to liability under the Sanctions.
The Bank’s business and reputation could be adversely affected if the U.S. government or other governments
were to determine that the Bank’s Iran-related activities (including the operation of the Accounts) involve
sanctionable activity under any of the Sanctions. Investors in the Bonds may also be adversely affected if the
Bank is found to violate any of the Sanctions, or if any Sanctions with which the investors are required to
comply results in their investment in the Bonds being restricted. If the Bank is sanctioned under the ISA as
amended by CISADA, such sanctions could include the blocking of any property in which the Bank has an
interest, which would effectively prohibit all U.S. persons from receiving any payments from the Bank,
including payments under the Bonds, or otherwise acquiring, holding, withholding, using, transferring,
withdrawing, transporting, importing, or exporting any property in which the Bank has any interest.
Furthermore, some of the Bank’s U.S. investors may be required to divest their investments in the Bank under
the laws of certain U.S. states or under internal investment policies or may decide for reputational reasons to
divest such investments, and some U.S. institutional investors may forego the purchase of the Bonds. The Bank
is aware of initiatives by U.S. governmental entities and U.S. institutional investors, such as pension funds, to
adopt or consider adopting laws, regulations, or policies prohibiting transactions with or investment in, or
requiring divestment from, entities doing business with countries identified as state sponsors of terrorism. There
can be no assurance that the foregoing will not occur or that such occurrence will not have a material adverse
effect on the value of the Bonds.




                                                                                                                16
Risks relating to Government regulation and policy
The 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 the Bank, may decide to
follow.
Through its policies and recommendations, the 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 Government has in the past provided and may continue to provide policy loans, which encourage
lending to particular types of borrowers. The Government 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. The Government has in this manner provided policy loans intended
to promote mortgage lending to low-income individuals and lending to SMEs. All loans or credits the Bank
chooses to provide pursuant to these policy loans would be subject to review in accordance with the Bank’s
credit approval procedures. However, the availability of policy loans may influence the Bank to lend to certain
sectors or in a manner in which it otherwise would not in the absence of such loans from the government.
In the past, the 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 SMEs in Korea as a result of the global financial crisis commencing in the
second half of 2008 and adverse conditions in the Korean economy affecting consumers, the Government
introduced measures intended to encourage Korean banks to provide financial support to SME borrowers. See
“— Risks relating to the Bank — Corporate credit portfolio — The Bank’s increasing loan exposure to SMEs
with financial difficulties may result in a deterioration of the Bank’s asset quality and adversely impact the
Bank.”
The Government may in the future request financial institutions in Korea, including the Bank, to make
investments in or provide other forms of financial support to particular sectors of the Korean economy as a
matter of policy, which such financial institutions, including the Bank, may decide to accept. The Bank may
incur costs or losses as a result of providing such financial support.
The FSC may impose burdensome measures on the Bank if it deems the Bank to be financially unsound.
If the FSC deems the Bank’s financial condition to be unsound, or if the Bank fails to meet applicable regulatory
standards, such as minimum capital adequacy and liquidity ratios, the FSC may order, among other things:
         •   capital increases or reductions;
         •   stock cancellations or consolidations;
         •   transfers of business;
         •   sales of assets;
         •   closures of branch offices;
         •   mergers with other financial institutions; and
         •   suspensions of a part or all of the Bank’s business operations.
If any of these measures are imposed on the Bank by the FSC, such measures could hurt its business, results of
operations and financial condition.
In September 2009, the FSC imposed an institutional warning on the Bank in connection with the Bank’s losses
on CDOs and other credit derivatives in recent years. The FSC also required the Bank to enter into a
memorandum of understanding with the FSS, which was entered into in December 2009 and required the Bank
to implement specific measures to improve its risk management systems and internal controls (including with
respect to its board practices, investment and credit risk management-related processes, compliance monitoring
and internal audit practices). In addition, the FSC imposed warnings and reprimands on certain of the Bank’s
current and former executive officers, including the former chief executive officer of the Bank. See “—Risks
relating to the Bank — Other risks — Difficult conditions in the global financial markets could adversely affect
the Bank’s results of operations and financial condition.”




                                                                                                                17
The Financial Investment Services and Capital Markets Act may result in increased competition in the
Korean banking industry.
In July 2007, the National Assembly of Korea enacted the Financial Investment Services and Capital Markets
Act, a new law intended to enhance the integration of the Korean capital markets and financial investment
products industry, which became effective in February 2009. As a result, the Bank and other banks in Korea
face greater competition in the Korean financial services market from financial investment companies and other
non-bank financial institutions. For example, securities companies previously were not permitted to accept
deposits other than for purposes of securities investment by customers or provide secondary services in
connection with securities investments such as settlement and remittance relating to such deposits. However,
under the Financial Investment Services and Capital Markets Act, financial investment companies, which
replaced securities companies, among others, are able to provide such secondary services. Accordingly, the
Bank and other banks in Korea may experience a loss of customer deposits (which in turn may result in a need
to seek alternative funding sources and an increase in the Bank’s funding costs), as well as a decrease in the
Bank’s settlement and remittance service fee income.
Risks relating to Korea
Unfavourable financial and economic developments in Korea may have an adverse effect on the Bank.
The Bank is incorporated in Korea, and substantially all of its operations are located in Korea. As a result, it is
subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in
recent years have shown mixed signs of growth and uncertainty, and future growth of the economy is subject to
many factors beyond the Bank’s control.
In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and
commodity prices and the general weakness of the U.S. and 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 “— Risks relating to the Bank — Current economic conditions — Difficult conditions in
the global financial markets could adversely affect the Bank’s results of operations and financial condition.”
From the second half of 2008 to the first half of 2010, the value of the Won relative to major foreign currencies
in general and the U.S. dollar in particular fluctuated widely. While such fluctuations generally stabilised in the
second half of 2010 and into 2011, there has been increased volatility in the value of the Won in recent months
reflecting the general volatility in the global financial markets. There is no guarantee that they will not occur
again in the future. See “Exchange Rates.” A depreciation of the Won increases the cost of imported goods and
services and the Won revenue needed by Korean companies to service foreign currency-denominated debt. An
appreciation of the Won, on the other hand, causes export products of Korean companies to be less competitive
by raising their prices in terms of the relevant foreign currency and reduces the Won value of such export sales.
Furthermore, as a result of adverse global and Korean economic conditions, there has been an overall decline
and continuing volatility in the stock prices of Korean companies. The Korea Composite Stock Price Index
(known as the “KOSPI”) declined from 1,897.1 on 31st December, 2007 to 938.8 on 24th October, 2008. While
the KOSPI recovered to a significant extent since 2008, there has been increased volatility and substantial
declines in the KOSPI in recent months, particularly following the downgrading by Standard & Poor’s Rating
Services of the long-term sovereign credit rating of the United States to “AA+” from “AAA” in August 2011
and in light of the financial difficulties affecting many other governments worldwide, in particular Greece,
Portugal, Spain and other countries in Europe. There is no guarantee that the stock prices of Korean companies
will not decline again in the future. On 10th November, 2011, the KOSPI closed at 1,813.25. Future declines in
the KOSPI and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of
the proceeds of such sales may continue to 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 the Bank’s business, financial condition
and results of operations.
Developments that could hurt Korea’s economy in the future include:
         •   difficulties in the financial sector in Europe and elsewhere and the resulting adverse effects on the
             global financial markets;
         •   adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil
             prices), exchange rates (including fluctuation of the U.S. dollar or Japanese yen exchange rates or
             revaluation of the Chinese renminbi), interest rates and stock markets;




                                                                                                                18
         •   continuing adverse conditions in the economies of countries that are important export markets for
             Korea, such as the United States, Japan and China, or in emerging market economies in Asia or
             elsewhere;
         •   substantial decreases in the market prices of Korean real estate;
         •   increasing delinquencies and credit defaults by small- and medium sized enterprise (“SME”) and
             consumer borrowers;
         •   declines in consumer confidence and a slowdown in consumer spending;
         •   the continued emergence of the Chinese economy, to the extent its benefits (such as increased
             exports to China) are outweighed by its costs (such as competition in export markets or for foreign
             investment and the relocation of the manufacturing base from Korea to China);
         •   social and labour unrest;
         •   a decrease in tax revenues and a substantial increase in the Government’s expenditures for
             unemployment compensation and other social programmes that, together, would lead to an
             increased Government budget deficit;
         •   financial problems or lack of progress in the restructuring of Korean conglomerates, other large
             troubled companies, their suppliers or the financial sector;
         •   loss of investor confidence arising from corporate accounting irregularities and corporate
             governance issues at certain Korean conglomerates;
         •   the economic impact of any pending or future free trade agreements;
         •   geo-political uncertainty and risk of further attacks by terrorist groups around the world;
         •   natural disasters that have a significant adverse economic or other impact on Korea or its major
             trading partners, such as the earthquake and tsunami that occurred in the northeast part of Japan in
             March 2011 and resulting releases of radiation from damaged nuclear power plants in the area;
         •   the recurrence of severe acute respiratory syndrome, or SARS, or an outbreak of swine or avian flu
             in Asia and other parts of the world;
         •   deterioration in economic or diplomatic relations between Korea and its trading partners or allies,
             including deterioration resulting from trade disputes or disagreements in foreign policy;
         •   political uncertainty or increasing strife among or within political parties in Korea;
         •   hostilities or political and social unrest involving oil producing countries in the Middle East or
             North Africa and any material disruption in the supply of oil or increase in the price of oil; and
         •   an increase in the level of tension or an outbreak of hostilities between North Korea and Korea or
             the United States.
Escalations in tensions with North Korea could have an adverse effect on the Bank and the market value of
the Bonds.
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 recent years, there have been heightened security concerns stemming from North Korea’s nuclear
weapon and long-range missile programmes and increased uncertainty regarding North Korea’s actions and
possible responses from the international community. In January 2003, North Korea renounced its obligations
under the Nuclear Non-Proliferation Treaty. Since the renouncement, Korea, the United States, North Korea,
China, Japan and Russia have held numerous rounds of six-party multi-lateral talks in an effort to resolve issues
relating to North Korea’s nuclear weapons programme.
North Korea announced in October 2006 that it had successfully conducted a nuclear test, which increased
tensions in the region and elicited strong objections worldwide. In May 2009, North Korea announced that it
had successfully conducted a second nuclear test and test-fired three short-range surface-to-air missiles. In
response, the United Nations Security Council unanimously passed a resolution that condemned North Korea for
the nuclear test and decided to expand and tighten sanctions against North Korea. In March 2010, a Korean
warship was destroyed by an underwater explosion, killing many of the crewmen on board. The Government



                                                                                                              19
formally accused North Korea of causing the sinking, while North Korea has denied responsibility and has
threatened retaliation for any attempt to punish it over the incident. In November 2010, North Korea reportedly
fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the maritime border
between Korea and North Korea on the west coast of Korea, killing two Korean soldiers and two civilians,
wounding many others and causing significant property damage. Korea responded by firing artillery shells back
and putting the military on its highest level of alert. The Government condemned North Korea for the attack and
vowed stern retaliation should there be further provocation.
In addition, recently there has been increased uncertainty with respect to the future of North Korea’s political
leadership and concern regarding its implications for political stability in the region. In September 2010, Kim
Jong-il, the North Korean ruler who reportedly suffered a stroke in August 2008, named Kim Jong-eun, his third
son who is reported to be in his twenties, as the vice chairman of the Central Military Commission and a general
of the North Korean army. Although Kim Jong-il has designated his son to be his successor, the implementation
of the succession plan remains uncertain. North Korea’s economy also faces severe challenges. For example, in
November 2009, the North Korean government redenominated its currency at a ratio of 100 to 1 as part of a
currency reform undertaken in an attempt to control inflation and reduce income gaps. In tandem with the
currency redenomination, the North Korean government banned the use or possession of foreign currency by its
residents and closed down privately run markets, which led to severe inflation and food shortages. Such
developments may further aggravate social and political tensions within North Korea.
There can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any
further increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-
level contacts between Korea and North Korea break down or military hostilities occur, could have a material
adverse effect on the Korean economy and/or the economies of other countries in Asia, in general, and on the
Bank’s business, financial condition and results of operations and the price of the Bonds, including a downgrade
in the credit rating of Korea, the Bank or the Bonds.
Labour unrest in Korea may adversely affect the Bank’s operations.
Economic difficulties in Korea or increases in corporate reorganisations 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 programmes. According
to statistics from the Korea National Statistics Office, the unemployment rate was 3.2 per cent. in 2007 and
2008, but increased to 3.6 per cent. in 2009 primarily as a result of adverse economic conditions in Korea and
further increased to 3.7 per cent. in 2010. Future increases in unemployment and any resulting labour unrest
could adversely affect the Bank’s operations, as well as the operations of many of the Bank’s 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 the
financial condition and results of operations of the Bank.
Risks relating to the Bonds
Financial instability in Korea and other countries, particularly emerging market countries, could adversely
impact the price of the Bonds.
The Korean market and the Korean economy are influenced by economic and market conditions in other
countries, particularly emerging market countries in Asia, including China. Past and recent financial turmoil in
Asia and elsewhere in the world has adversely affected, and may continue to adversely affect, the Korean
economy. See “— Risks relating to Korea — Unfavourable financial and economic conditions in Korea may
have an adverse effect on the Bank” and “— Risks relating to the Bank — Other risks — Difficult conditions in
the global financial markets could adversely affect the Bank’s results of operations and financial condition.”
Although economic conditions are different in each country, investors’ reactions to developments in one country
can have adverse effects on the securities of companies in other countries, including Korea. A loss of investor
confidence in the financial systems of emerging and other markets may cause increased volatility in Korean
financial markets. No assurances can be given that the recent difficult conditions in the U.S. and global financial
markets will not continue, that financial events of the type that occurred in emerging markets in Asia in 1997
and 1998 will not happen again in Asia or in other markets in which the Bank may invest, or that such
conditions or events will not have an adverse effect on the Bank’s business or the market value of the Bonds.
In the future, if the Government believes that serious difficulties exist or are expected in relation to international
balance of payments or finance or the movement of capital between Korea and abroad poses serious obstacles in
carrying out its currency, exchange rate and other macroeconomic policies, it may take measures to require any


                                                                                                                   20
person who intends to perform capital transactions to obtain permission or to require any person who performs
capital transactions to deposit part of the means of payment acquired in such transactions in certain Government
agencies or financial institutions.
Such measures would likely have an adverse impact on the price of the Bonds. The Bonds are unsecured
obligations, the repayment of which may be jeopardised in certain circumstances. Because the Bonds are
unsecured obligations, their repayment may be compromised if:
         •   the Bank enters into bankruptcy, liquidation, reorganisation or other winding-up procedures;
         •   there is a default in payment under the Bank’s future secured indebtedness or other unsecured
             indebtedness; or
         •   there is an acceleration of any of the Bank’s indebtedness.
If any of these events occurs, the Bank’s assets may not be sufficient to pay amounts due on any of the Bonds.
The Bonds are subject to transfer restrictions.
The Bank has been granted permission to offer the newly issued Bonds to institutional investors and high net-
worth investors and has registered a transfer restriction with the Office of the Securities and Exchange
Commission. The Issuer and/or the Registrar shall not accept the registration of any person who is not an
institutional investor or a high net-worth investor as defined under Clause 3(2)(a) and Clause 3(2)(b) of the
Notification of the Securities and Exchange Commission No. KorJor. 5/2552 re: Determination of Definitions
used in the Notifications on the Issue and Sale of All Types of Debt Instruments dated 13 March 2009.
Furthermore, a registration statement for the offering and sale of the Bonds has not been filed with the FSC, and
under currently applicable laws and regulations of Korea, until the expiration of one year after the issuance of
any Bonds, such Bonds may not be transferred to any resident of Korea except as otherwise permitted by
applicable Korean law and regulations.
The Bonds may have limited liquidity.
No assurance can be given as to the liquidity of, or the development and continuation of an active trading
market for, the Bonds. If an active trading market for the Bonds does not develop or is not maintained, the
market price and liquidity of the Bonds may be adversely affected. If such a market were to develop, the Bonds
could trade at prices that may be higher or lower than the price at which the Bonds are issued depending on
many factors, including:
         •   prevailing interest rates;
         •   the Bank’s results of operations and financial condition;
         •   political and economic developments in and affecting Korea;
         •   the market conditions for similar securities; and
         •   the financial condition and stability of the Korean financial sector.




                                                                                                                 21
                                                                   CAPITALISATION OF THE ISSUER
The following table sets out the Bank’s consolidated capitalisation (defined as the sum of its borrowings and
debentures and its shareholder’s equity) under K-IFRS as of 30th June, 2011. This information has been
extracted from the Bank’s unaudited consolidated financial statements as of and for the six month period ended
30th June, 2011.

                                                                                                                                      As of 30th June, 2011(1)
                                                                                                                                       (in billions of Won)
Indebtedness (including current portion):
Borrowings ........................................................................................................................   W           19,081
Debentures.........................................................................................................................               20,420
        Total Indebtedness ...................................................................................................        W           39,501


Shareholder’s equity:
Capital stock, par value W5,000
Authorised share capital (3,000 million shares)
      Issued and outstanding common stock (695,956,600 shares).....................................                                   W            3,480
      Issued and outstanding convertible preferred stock (70,000,000 shares)...................                                                     350
Hybrid equity securities ....................................................................................................                      1,882
Capital surplus...................................................................................................................                   811
Other equity.......................................................................................................................                  522
Retained earnings ..............................................................................................................                 10,494
less Regulatory reserve for credit loss ..............................................................................                              (647)
Non-conrolling equity .......................................................................................................                          7
        Total shareholder’s equity........................................................................................            W           17,546
       Total capitalisation ..............................................................................................            W           57,047
_________________
Note:
(1)     There has been no material change in the capitalisation of the Bank since 30th June, 2011.




                                                                                                                                                                 22
                                                                       SELECTED FINANCIAL DATA
The following tables set forth selected consolidated financial information of the Bank under Korean GAAP as of
and for the years ended 31st December, 2008, 2009 and 2010, which have been derived from the Bank’s
consolidated financial statements as of such dates and for such periods prepared under Korean GAAP, and
selected consolidated financial information of the Bank under K-IFRS as of 31st December, 2010 and 30th June,
2011 and for the six month periods ended 30th June, 2010 and 2011, which have been derived from the Bank’s
consolidated financial statements as of such dates and for such periods prepared under K-IFRS.
The audited consolidated financial statements as of and for the years ended 31st December, 2008, 2009 and
2010, which are annexed to this Draft Prospectus, have been audited by the Bank’s independent accountants,
Deloitte Anjin LLC, a member firm of Deloitte Touche Tohmatsu.
The unaudited consolidated interim financial statements as of 31st December, 2010 and 30th June, 2011 and for
the six month periods ended 30th June, 2010 and 2011, which are annexed to this Draft Prospectus, have not
been audited but have been reviewed by the Bank’s independent accountants, Deloitte Anjin LLC.
With respect to the unaudited consolidated interim financial statements as of 31st December, 2010 and 30th
June, 2011 and for the six month periods ended 30th June, 2010 and 2011, the Bank’s independent accountants,
Deloitte Anjin LLC, have reported that they have conducted their review in accordance with standards for
review of interim financial statements in the Republic of Korea. However, their separate review report annexed
to this Draft Prospectus states that they did not audit and do not express an audit opinion on the interim financial
information. Accordingly, the degree of reliance on their report on such information should be restricted in light
of the limited nature of the review procedures applied.
Consolidated Annual Financial Information of the Bank under Korean GAAP

                                                                                             As of and for the year ended 31st December,
                                                                                          2008                   2009                  2010
                                                                                               (in billions of Won, except per share data and ratios)
Consolidated Income Statement Information
Operating income
  Interest income.............................................................        W      13,385              W          11,425                       W 11,087
  Other operating income(1) ............................................                     61,890                         32,842                        15,059
                                                                                             75,275                         44,267                        26,146
Operating expenses
  Interest expense ...........................................................                8,618                          6,868                         6,024
  Other operating expenses(2)..........................................                      66,109                         36,327                        18,719
                                                                                             74,727                         43,195                        24,743
Net operating income .......................................................                    548                          1,072                         1,403
Non-operating income......................................................                      133                            231                           125
Non-operating expenses ...................................................                       74                             96                           111
Income before income tax expense (benefit) and
   minority interests .........................................................                 607                           1,207                         1,417
Income tax expense (benefit) ...........................................                        373                             252                           308
Income before minority interests .....................................                          234                             954                         1,108
Minority interests, gain ....................................................                     1                               1                             1
Net income .......................................................................    W         235              W              955               W        1,109
Basic net income per common share ...............................                     W         364              W            1,318               W         1,551

Consolidated Balance Sheet Information
Assets:
   Cash and due from banks.............................................               W      14,991              W          16,423                       W 16,097
   Loans, net of allowance for possible loan losses and
   deferred loan origination fees......................................                     168,585                        166,805                        161,870
   Trading securities.........................................................                6,852                          8,469                          7,682
   Available-for-sale securities ........................................                    13,881                          9,758                         12,710
   Held-to-maturity securities ..........................................                     6,166                         12,525                         15,919
   Equity securities accounted for using the equity
      method .....................................................................              415                            527                           540
   Tangible assets.............................................................               1,913                          1,908                          1,859
   Other assets ..................................................................           19,688                         10,374                         11,529
      Total assets ..............................................................           232,491                        226,789                        228,206
Liabilities and Stockholder’s Equity:
   Deposits .......................................................................   W     143,509              W         151,831                      W 158,970
   Borrowings...................................................................             51,797                         47,526                         42,093
   Other liabilities ............................................................            25,259                         13,797                         12,952




                                                                                                                                                                    23
                                                                                                              As of and for the year ended 31st December,
                                                                                                           2008                   2009                  2010
                                                                                                                  (in billions of Won, except per share data and ratios)
       Total liabilities ........................................................   220,565          213,154                 214,015
       Minority interests ....................................................            5                 6                       7
          Total stockholder’s equity ..................................           W  11,926  W         13,635         W      14,191
  _________________
  Notes:
  (1) Includes principally gain on transaction and valuation of derivatives, gain on foreign exchange, commission income and gain on
       valuation and disposal of securities.
  (2) Includes principally loss on transaction and valuation of derivatives, loss on foreign exchange, employee and other general and
       administrative expenses, provision for loan losses, loss on valuation and disposal of securities and commission expenses. Provision for
       loan losses amounted to W1,394 billion in 2008, W1,785 billion in 2009 and W2,330 billion in 2010.


  Consolidated Interim Financial Information of the Bank under K-IFRS
                                                                                                                                 For the six month period ended 30th June,
                                                                                                                                   2010                            2011
                                                                                                                                   (in billions of Won, except per share data and ratios)
Consolidated Statement of Comprehensive Income Information
Operating income
    Net interest income:
      Interest income ...................................................................................           W                        5,620               W                      5,750
      Interest expense ..................................................................................                                    3,007                                      2,872
                                                                                                                                             2,614                                      2,878
    Net fees income:
      Fees income ........................................................................................                                     452                                          484
      Fees expense.......................................................................................                                      202                                          232
                                                                                                                                               249                                          252
   Dividend income.....................................................................................                                         59                                           76
   Gain (loss) on financial instruments at fair value through profit or
       loss....................................................................................................                                149                                          63
   Gain (loss) on available-for-sale financial assets ...................................                                                      544                                        912
   Impairment loss on credit loss ................................................................                                         (1,292)                                    (1,042)
   Other net operating expenses(1) ...............................................................                                         (1,511)                                    (1,441)
   Share of profits of jointly controlled entities and associates..................                                                              1                                         (8)
Net Income before income tax expense ......................................................                                                    813                                      1,690
Income tax expense .....................................................................................                                        89                                        452
Net income...................................................................................................       W                          724               W                     1,238
Basic earnings per common share...............................................................                      W                          886               W                     1,632
Diluted earnings per common share............................................................                       W                          841               W                     1,519



                                                                                                                      As of 31st December, 2010                       As of 30th June, 2011
                                                                                                                                                    (in billions of Won)

 Consolidated Statement of Financial Position Information
 Assets:
    Cash and cash equivalents ...................................................................                     W                    2,823                 W                    2,717
    Loans and receivables...........................................................................                                     178,694                                    188,420
    Financial assets at fair value through profit and loss ..........................                                                     11,104                                     10,930
    Available-for-sale financial assets........................................................                                           16,610                                     12,622
    Held-to-maturity financial assets..........................................................                                           15,920                                     16,644
    Investments in jointly controlled entities and associates .....................                                                          306                                        275
    Investment properties............................................................................                                        369                                        367
    Tangible assets ......................................................................................                                 2,334                                      2,327
    Intangible assets....................................................................................                                     39                                        165
    Other assets ...........................................................................................                                 207                                        169
    Prepaid tax assets ..................................................................................                                      3                                          3
    Deferred tax assets ................................................................................                                       8                                          8
    Derivative assets ...................................................................................                                    133                                        138
    Held-for-sale assets group                                                                                                                 5                                         83
       Total assets .......................................................................................           W                  228,555                  W                 234,867
 Liabilities and Shareholder’s Equity:
    Financial liabilities at fair value through profit or loss ........................                               W                    4,730                 W                     3,441
    Deposits due to customers ....................................................................                                       157,314                                     159,488
    Borrowings............................................................................................                                18,983                                      19,081
    Debentures ............................................................................................                               20,192                                      20,420
    Provisions..............................................................................................                                 520                                         673
    Tax liabilities ........................................................................................                                 109                                         177
    Other financial liabilities ......................................................................                                     8,800                                      13,417




                                                                                                                                                                                                  24
                                                                                                                As of 31st December, 2010             As of 30th June, 2011
                                                                                                                                     (in billions of Won)
   Other liabilities .....................................................................................                       278                                408
   Deferred tax liabilities ..........................................................................                           107                                186
   Derivative liabilities..............................................................................                           34                                 29
     Total liabilities..................................................................................        W            211,068              W             217,320
        Total shareholder’s equity                                                                              W             17,487              W              17,546

_________________
Notes:
(1)    Includes other operating income, which principally consists of gain on transaction of foreign exchange, gain on derivatives and gain on
       fair value hedging derivatives, net of other operating expenses, which principally consists of loss on transaction of foreign exchange,
       loss on fair value hedging derivatives, contributions to miscellaneous funds, deposit insurance premiums and other expenses.

Selected Ratios
The following ratios (other than capital ratios and unless otherwise specified) are calculated using the non-
consolidated financial statements of the Bank prepared in accordance with Korean GAAP in respect of the
periods indicated. Unless otherwise specified, the Bank’s assets as used in calculating the following ratios do
not include assets in trust accounts.

                                                                                                         As of and for the year ended 31st
                                                                                                                    December,
                                                                                                        2008            2009           2010
Average return on assets(1) ............................................................                 0.11%           0.41%        0.49%
Average return on equity(1) ...........................................................                    1.90            7.32        7.98
Stockholder’s equity/total assets ..................................................                       5.23            6.13        6.35
Non-performing credits/total credits(2) .........................................                          1.19            1.60        3.34
Allowance/non-performing credits(2)............................................                          144.05           113.7        70.1
Net interest margin(3) ....................................................................                2.24            1.88        2.22
Cost-to-income ratio(4) ..................................................................                53.20           44.00        40.80
Risk-weighted (Tier I and Tier II) capital ratio(5) .........................                             11.68           14.39        14.65
Core capital (Tier I) ratio(6) ...........................................................                 7.69           10.40        11.40
_________________
Notes:
(1)    Defined as net income divided by daily average balance of total assets or equity, as the case may be, in accordance with Korean bank
       accounting guidelines. Total assets include total assets in the banking accounts and assets in the trust accounts whose principal and
       interest are guaranteed by the Bank in accordance with FSC reporting guidelines. For more information on the Bank’s assets in trust
       accounts, see “Business — Asset Management — Trust Management Services.”
(2)    Includes loans, guarantees and other credits in both the banking and trust accounts and is calculated in accordance with FSC reporting
       guidelines.
(3)    Defined as net interest income divided by daily average balance of interest earning assets, excluding merchant banking-related interest
       income and assets in accordance with FSC reporting guidelines.
(4)    Calculated as the ratio of general and administrative expenses to the sum of net interest income and net non-interest income (excluding
       general and administrative expenses and provisions for loan losses).
(5)    Calculated as the ratio of the sum of Tier I and Tier II capital to risk-weighted assets, on a consolidated basis. For details, see
       “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Capital
       Adequacy.”
(6)    Calculated as the ratio of core capital (Tier I) to risk-weighted assets, on a consolidated basis. For details, see “Management’s
       Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Capital Adequacy.”

The following ratios (other than capital ratios and unless otherwise specified) are calculated using the separate
financial statements of the Bank prepared in accordance with K-IFRS in respect of the periods indicated. Unless
otherwise specified, the Bank’s assets as used in calculating the following ratios do not include assets in trust
accounts.




                                                                                                                                                                          25
                                                                                                                                                As of and for the six month
                                                                                                                                               period ended 30th June, 2011
Average return on assets(1) ............................................................................................................                              0.94%
Average return on equity(1) ............................................................................................................                               12.52
Stockholder’s equity/total assets...................................................................................................                                    7.64
Non-performing credits/total credits(2) ..........................................................................................                                      2.42
Provisions/non-performing credits(2) .............................................................................................                                     99.26
Net interest margin(3) .....................................................................................................................                            2.44
Cost-to-income ratio(4) ...................................................................................................................                            37.56
Risk-weighted (Tier I and Tier II) capital ratio(5) .........................................................................                                          14.58
Core capital (Tier I) ratio(6) ...........................................................................................................                             11.47
_________________
Notes:
(1)     Defined as annualised net income divided by daily average balance of total assets or equity, as the case may be, calculated in
        accordance with FSC reporting guidelines. Total assets include total assets in the banking accounts and assets in the trust accounts
        whose principal and interest are guaranteed by the Bank in accordance with FSC reporting guidelines. For more information on the
        Bank’s assets in trust accounts, see “Business — Asset Management — Trust Management Services.”
(2)     Includes loans, guarantees and other credits in both the banking and trust accounts and is calculated in accordance with FSC reporting
        guidelines.
(3)     Defined as annualised net interest income divided by daily average balance of interest earning assets, excluding merchant banking-
        related interest income and assets in accordance with FSC reporting guidelines.
(4)     Calculated as the ratio of general and administrative expenses to the sum of net interest income and net non-interest income (excluding
        general and administrative expenses and provisions for loan losses).
(5)     Calculated as the ratio of the sum of Tier I and Tier II capital to risk-weighted assets, on a consolidated basis. For details, see
        “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Capital
        Adequacy.”
(6)     Calculated as the ratio of core capital (Tier I) to risk-weighted assets, on a consolidated basis. For details, see “Management’s
        Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Capital Adequacy.”




                                                                                                                                                                               26
                                        SELECTED NON-CONSOLIDATED STATISTICAL INFORMATION
       Average Balance Sheets and Related Interest
       The following tables show the Bank’s average balances and interest rates on a non-consolidated basis under
       Korean GAAP for the years ended 31st December, 2008, 2009 and 2010.

                                                                            Year ended 31st December,
                                           2008                                       2009                                      2010
                              Average      Interest      Average       Average        Interest      Average      Average       Interest       Average
                              Balance      Income(1)      Yield        Balance        Income(1)      Yield        Balance     Income(1)        Yield
                                                                      (in billions of Won, except percentages)
Assets
Due from banks..... W              6,478 W        168        2.59% W         11,590 W        138        1.19%     W 11,760        W 158            1.34%
Loans(2)

  Corporate...........           101,192         6,708       6.63           109,427         5,943        5.43       105,598        5,578            5.28
  Consumer ..........             53,336         3,782       7.09            54,789         2,759        5.04        55,722        2,868            5.15
  Credit cards(3) ....             3,944           930      23.58             4,096         1,000       24.41         4,132          996           24.10
Securities
  Trading ..............           6,600          364        5.52             6,008          244         4.06         5,514            195          3.54
  Investment.........             17,270          923        5.34            22,813          946         4.15        23,557            908          3.85
Other .....................        3,279          196        5.98             2,629          119         4.53         3,736            155          4.15
Total average
interest
earning assets ......            192,099      13,071         6.80           211,352      11,149          5.28       210,019       10,858            5.17
Total average
non-interest
earning assets ........           23,929           ⎯              ⎯          22,689           ⎯              ⎯       17,672             ⎯             ⎯
Total average
assets.....................   W 216,028    W 13,071          6.05%    W 234,041       W 11,149          4.76%     W 227,691      W 10,858           4.77%

                                                                             Year ended 31st December,
                                           2008(1)                                     2009                                    2010
                              Average       Interest     Average        Average        Interest     Average      Average      Interest       Average
                              Balance      Expense        Cost          Balance        Expense        Cost       Balance      Expense         Cost
                                                                      (in billions of Won, except percentages)
Liabilities

Deposits
   Demand ............      W 4,578          W     15       0.33%       W     4,805     W     17        0.35%       W 5,022        W 13              0.26%
   Time and
      savings .........        93,025            4,121        4.43          115,908         3,696        3.19       130,222        3,753               2.88
   Installment........            207                9        4.35              164             6        3.66           126            5               3.97
   Certificates of
      deposit..........        17,916            1,085        6.06           11,869           621        5.23         6,215          278               4.47
   Other.................      13,333              540        4.05           13,762           230        1.67        11,836          168               1.42
Borrowings ...........         49,484            2,379        4.81           51,091         2,052        4.02        43,502        1,598               3.67
Other .....................     5,397              307        5.69            5,448           131        2.40        3,578           97               2.71
Total average
interest bearing
liabilities...............    183,940            8,456        4.60          203,047         6,753        3.33      200,501       5,912                2.95
Total average
non-interest
bearing liabilities ..         16,255              ⎯              ⎯          18,195           ⎯              ⎯      12,936          ⎯                ⎯
Total
stockholder’s
equity....................     15,833              ⎯              ⎯          12,799           ⎯              ⎯      14,254          ⎯                ⎯
Total average
liabilities and
stockholder’s
equity....................  W 216,028        W 8,456        3.91%      W 234,041        W 6,753         2.89%    W 227,691     W5,912               2.60%
      _________________
       Notes:
       (1) Includes cash interest received on non-accrual loans.
       (2) Includes non-accrual loans.
       (3) Interest income on credit cards comprises interest on card loans and credit card installment purchases, merchant fees, and commission
            on cash advances and credit card installment purchases.




                                                                                                                                             27
The following tables show the Bank’s average balances and interest rates on a non-consolidated basis under K-
IFRS for the six month periods ended 30th June, 2010 and 2011.

                                                                                                       Six month period ended 30th June,
                                                                                                 2010                                         2011
                                                                                 Average        Interest       Average        Average        Interest       Average
                                                                                 Balance       Income(1)        Yield         Balance       Income(1)        Yield
                                                                                                     (in billions of Won, except percentages)
Assets
Due from banks ..............................................                    W     5,840     W        3         0.10%    W     7,097    W          15      0.43%
Loans(2) ...........................................................
    Corporate ...................................................                    105,367         2,846           5.45%       105,379          2,859        5.47%
    Consumer ...................................................                      56,144         1,453           5.22%        58,017          1,516        5.27%
    Credit cards(3) .............................................                      4,129           510         24.91%          4,251            490       23.24%
Securities ........................................................
    Trading.......................................................                     7,840           139           3.58%         8,038            140        3.51%
    Investment..................................................                      27,800           481           3.49%        28,139            554        3.97%
Other ...............................................................                  2,200            48           4.40%         1,989             56        5.68%
Total average interest earning assets .........                                      209,320         5,480           5.28%       212,910          5,630        5.33%
Total average non-interest earning assets ......                                      17,314           —                 —        17,902               —            —
Total average assets......................................                       W 226,634       W 5,480             4.88% W 230,812            W 5,630        4.92%



                                                                                                       Six month period ended 30th June,
                                                                                                2010                                            2011
                                                                                 Average       Interest        Average        Average       Interest        Average
                                                                                 Balance       Expense          Cost          Balance       Expense          Cost
                                                                                                     (in billions of Won, except percentages)
Liabilities
Deposits ...................................................................     W 151,111     W 2,112             2.82%     W 157,513          W 2,106        2.70%
  Demand ...............................................................               5,056              8        0.32%           7,171                9      0.25%
    Time and savings ................................................                125,500         1,836         2.95%         137,196          1,966        2.89%
    Installment ..........................................................              135               2        2.99%            103                 2      3.92%
    Certificates of deposit.........................................                   8,739           186         4.29%           1,129               25      4.47%
    Other ...................................................................         11,681            80         1.38%          11,914            104        1.76%
Borrowings ..............................................................             17,385           157         1.82%          17,328            153        1.78%
Debentures, net of discounts ...................................                      24,267           645         5.36%          21,568            524       4.90%
Other ........................................................................         3,457            47         2.74%           2,901               45     3.13%
Total average interest bearing liabilities ............                              196,220         2,961         3.04%         199,310          2,828       2.86%
Total average non-interest bearing liabilities..........                              11,605            —              —          12,974               —            —
Total stockholder’s equity ....................................                       18,809            —              —          18,528               —            —
Total average liabilities and stockholder’s
equity ......................................................................    W 226,634       W 2,961           2.63%     W 230,812          W 2,828        2.47%

_________________
Notes:
(1) Includes cash interest received on non-accrual loans.
(2) Includes non-accrual loans.
(3) Interest income on credit cards comprises interest on card loans and credit card installment purchases, merchant fees, and commission
     on cash advances and credit card installment purchases.




                                                                                                                                                               28
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 rates, on a non-consolidated basis under Korean GAAP, for the year
ended 31st December, 2010 compared to 2009 and the year ended 31st December, 2009 compared to 2008.
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.


                                                             2009 vs. 2008                             2010 vs. 2009
                                                 Increase/(decrease) due to changes in     Increase/(decrease) due to changes in
                                                  Volume         Rate         Total          Volume        Rate         Total
                                                                                (in billions of Won)
         Interest earning assets
         Due from banks...............             W      61 W      (91)    W       (30)       W       2   W     18     W       20
         Loans
           Corporate ....................               447      (1,212)           (765)           (205)        (160)        (365)
           Consumer....................                  73      (1,096)         (1,023)              48           61          109
           Credit card ..................                36           34              70               9         (13)           (4)
         Securities
           Trading securities .......                   (28)        (92)          (120)             (19)         (30)           (49)
           Investment securities ..                      230       (207)             23             29           (67)           (38)
         Other ...............................          (34)        (43)           (77)             46           (10)            36
         Total interest income ......                   785      (2,707)         (1,922)           (90)         (201)       (291)
         Interest bearing
         liabilities
         Deposits
            Demand ......................                   1          1              2               1          (5)          (4)
            Time and savings........                     730     (1,155)          (425)            413         (356)           57
            Installment ..................                (2)        (1)            (3)             (1)            0          (1)
            Certificates of deposit                    (341)       (123)          (464)          (274)          (69)        (343)
            Other ...........................               7      (317)          (310)           (30)          (32)         (62)
         Borrowings......................                  65      (392)          (327)          (292)         (162)        (454)
         Other ...............................         1           (177)       (176)            (45)           11         (34)
           Total interest expense.                   461         (2,164)     (1,703)           (228)        (613)        (841)
              Net interest income                  W 324        W (543)     W (219)           W 138        W 412        W 550


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 rates, on a non-consolidated basis under K-IFRS, for the six month
period ended 30th June, 2011 compared to the six month period ended 30th June, 2010. 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.




                                                                                                                                       29
                                                           First six months of 2011 vs.
                                                            First six months of 2010
                                                      Increase/(decrease) due to changes in
                                                      Volume          Rate            Total
                                                               (in billions of Won)
Interest earning assets
Due from banks.............................             W      2     W       10       W       12
Loans
    Corporate ..................................               0             13               13
    Consumer..................................               49              14               63
    Credit card ................................             14            (34)             (20)
Securities
  Trading securities .....................                     3             (2)               1
    Investment securities ................                     6             67               73
Other..............................................           (5)            13                8
Total interest income ....................                   69              81             150
Interest bearing liabilities
Deposits
    Demand ....................................                3              (2)              1
    Time and                                                 168           (38)             130
       savings..................................
    Installment ................................               0               0               0
    Certificates of deposit ..............                  (162)             1            (161)
    Other .........................................            2             22               24
Borrowings....................................                (1)             (3)             (4)
Debentures, net of discounts.........                        (69)            (52)          (121)
Other..............................................           (8)             6               (2)
  Total interest expense...............                   (67)            (66)             (133)
        Net interest income .............                W 2             W 15             W 17




                                                                                                    30
                   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is based on the Bank’s consolidated financial statements as of and for the
years ended 31st December, 2008, 2009 and 2010 prepared under Korean GAAP and the Bank’s consolidated
interim financial statements as of 31st December, 2010 and 30th June, 2011 and for the six month periods
ended 30th June, 2010 and 2011 prepared under K-IFRS. This discussion should be read together with the
Bank’s consolidated financial statements and related notes included elsewhere in this Draft Prospectus. Unless
otherwise specified, the information provided below is stated on a consolidated basis.
Prior to 2011, the Bank prepared its financial statements in accordance with Korean GAAP, which differed in
certain significant respects from U.S. GAAP. You should read the section entitled “— Critical Accounting
Policies, Estimates and Judgments under Korean GAAP” as well as Note 2 of the notes to the consolidated
financial statements as of and for the years ended 31st December, 2008, 2009 and 2010, which provide
summaries of certain critical accounting policies under Korean GAAP that required the Bank’s management to
make difficult, complex or subjective judgments relating to matters that are highly uncertain and that may have
a material impact on the Bank’s financial condition and results of operations.
Commencing in 2011, the Bank prepares its financial statements in accordance with K-IFRS, which differs in
certain significant respects from U.S. GAAP. The Bank has made no attempt to identify or quantify the impact
of differences between K-IFRS and U.S. GAAP. You should read the section entitled “— Critical Accounting
Policies, Estimates and Judgments under K-IFRS” as well as Notes 2 and 3 of the notes to the consolidated
interim financial statements as of 31st December, 2010 and 30th June, 2011 and for the six month periods ended
30th June, 2010 and 2011, which provide summaries of certain critical accounting policies under K-IFRS that
require the Bank’s management to make difficult, complex or subjective judgments relating to matters that are
highly uncertain and that may have a material impact on the Bank’s financial condition and results of
operations. Note 46 of the notes to the consolidated interim financial statements as of 31st December, 2010 and
30th June, 2011 and for the six month periods ended 30th June, 2010 and 2011 also provides a description of the
effects of the conversion from Korean GAAP to K-IFRS.
Overview
The Korean Economy
The Bank’s financial position and results of operations have been and will continue to be significantly affected
by financial and economic conditions in Korea. Substantial growth in lending in Korea to SMEs in recent years,
and adverse economic conditions in Korea and globally since the second half of 2008, have generally led to
increasing delinquencies and a deterioration in overall asset quality of the credit exposures of Korean banks to
SMEs, including those in construction and shipbuilding industries. On a non-consolidated basis under Korean
GAAP, the Bank recorded charge-offs of W953 billion in respect of its loans to SMEs in 2010, compared to
charge-offs of W798 billion in 2009. On a non-consolidated basis under K-IFRS, the Bank recorded charge-offs
of W737 billion in respect of its loans to SMEs in the first half of 2011 compared to charge-offs of W272 billion
in the first half of 2010. In light of the difficult financial condition and liquidity position of SMEs in Korea as a
result of the global financial crisis commencing in the second half of 2008, the Government has introduced
measures intended to encourage Korean banks to provide financial support to SME borrowers. See “Risk
Factors — Risks relating to the Bank — Corporate credit portfolio — The Bank’s increasing loan exposure to
SMEs with financial difficulties may result in a deterioration of the Bank’s asset quality and adversely impact
the Bank” and “— The Bank has exposure to Korean construction and shipbuilding companies, and financial
difficulties of these companies may adversely impact the Bank.”
In recent years, commercial banks, credit card companies, consumer finance companies and other financial
institutions in Korea have also made significant investments and engaged in aggressive marketing in consumer
lending (including mortgage and home equity loans), leading to substantially increased competition in this
segment. The rapid growth in consumer credit, together with current adverse economic conditions in Korea,
may lead to increasing delinquencies and a deterioration in asset quality in certain segments of the Bank’s
consumer credit portfolio. On a non-consolidated basis under Korean GAAP, the Bank recorded charge-offs of
W119 billion in respect of its credit card portfolio in 2010 compared to charge-offs of W193 billion in 2009. On
a non-consolidated basis under K-IFRS, the Bank recorded charge-offs of W70 billion in respect of its credit
card portfolio in the first half of 2011 compared to charge-offs of W61 billion in the first half of 2010. The
Bank’s charge-offs in respect of its consumer loan portfolio, on a non-consolidated basis under Korean GAAP,
decreased to W88 billion in 2010 compared to charge-offs of W111 billion in 2009, and such charge-offs, on a



                                                                                                                  31
non-consolidated basis under K-IFRS, were W22 billion and W35 billion in the first half of 2011 and 2010,
respectively. See “Risk Factors — Risks relating to the Bank — Consumer loan portfolio” and “— Credit card
operations.”
The Korean economy is also closely tied to, and is affected by developments in, the global economy. During
the second and third quarter of 2007, credit markets in the United States started to experience difficult
conditions and volatility that in turn affected worldwide financial markets. In particular, in late July and early
August 2007, market uncertainty in the U.S. sub-prime mortgage sector increased dramatically and further
expanded to other markets such as those for leveraged finance, CDOs and other structured products. In
September and October 2008, liquidity and credit concerns and volatility in the global financial markets
increased significantly with the bankruptcy or acquisition of, and government assistance to, several major U.S.
and European financial institutions. These developments resulted in reduced liquidity, greater volatility,
widening of credit spreads and a lack of price transparency in the United States and global financial markets. In
response to such developments, legislators and financial regulators in the United States and other jurisdictions,
including Korea, implemented a number of policy measures designed to add stability to the financial markets,
including the provision of direct and indirect assistance to distressed financial institutions. In addition, in line
with similar actions taken by monetary authorities in other countries, from the third quarter of 2008 to the first
quarter of 2009, the Bank of Korea decreased its policy rate by a total of 3.25 per cent. in order to address
financial market instability and to help combat the slowdown of the domestic economy and left the key interest
rate unchanged at 2.00 per cent. throughout 2009. However, while the rate of deterioration of the global
economy slowed in the second half of 2009, with some signs of stabilisation and improvement in 2010 and the
first half of 2011, the overall prospects for the Korean and global economy in the remainder of 2011 and beyond
remain uncertain. For example, in recent months, the global financial markets have experienced significant
volatility as a result of, among other things, the downgrading by Standard & Poor’s Rating Services of the long-
term sovereign credit rating of the United States to “AA+” from “AAA” in August 2011 and the financial
difficulties affecting many other governments worldwide, in particular in Greece, Portugal, Spain and other
countries in Europe. In addition, recent political instability in various countries in the Middle East and Northern
Africa, including in Egypt, Tunisia, Libya, Syria and Yemen, have resulted in volatility and uncertainty in the
global energy markets. Any of these or other developments could potentially trigger another financial and
economic crisis. Moreover, while many governments worldwide are implementing “exit strategies” in the form
of reduced government spending, higher interest rates or otherwise with respect to the economic stimulus
measures adopted in response to the global financial crisis, such strategies may, for reasons related to timing,
magnitude or other factors, have the unintended consequence of prolonging or worsening global economic and
financial difficulties. In light of the high level of interdependence of the global economy, any of the foregoing
developments could have a material adverse effect on the Korean economy and financial markets, and in turn on
the Bank’s business, financial condition and results of operations.
The Bank is also exposed to adverse changes and volatility in global and Korean financial markets as a result of
its liabilities and assets denominated in foreign currencies and its holdings of trading and investment securities.
From the second half of 2008 to the first half of 2010, the value of the Won relative to major foreign currencies
in general and the U.S. dollar in particular fluctuated widely. While such fluctuations generally stabilised in the
second half of 2010 and into 2011, there has been increased volatility in the value of the Won in recent months
reflecting the general volatility in the global financial markets. There is no guarantee that significant exchange
rate fluctuations will not occur again in the future. See “Exchange Rates.” A depreciation of the Won will
increase the Bank’s cost in Won of servicing its foreign currency-denominated debt, while continued exchange
rate volatility may also result in foreign exchange losses for the Bank. Furthermore, as a result of adverse global
and Korean economic conditions, there has been significant volatility in securities prices, including the stock
prices of Korean and foreign companies in which the Bank holds an interest. Such volatility has resulted in and
may lead to further trading, valuation and impairment losses on the Bank’s trading and investment securities
portfolio.
As a result of volatile conditions and weakness in the Korean and global economies, as well as factors such as
the uncertainty surrounding the global financial markets, fluctuations in oil and commodity prices, interest and
exchange rate fluctuations, higher unemployment, lower consumer confidence, a rise in inflation rates and
continued tensions with North Korea, the economic outlook for the financial services sector in Korea in 2011
and for the foreseeable future remains uncertain.




                                                                                                                 32
New Basel Capital Accord
Beginning on 1st January, 2008, the FSS implemented the new Basel Capital Accord, referred to as Basel II, in
Korea, which has affected the way risk is measured among Korean financial institutions, including the Bank.
Building upon the initial Basel Capital Accord of 1988, which focused primarily on capital adequacy and asset
soundness as a measure of risk, Basel II expands this approach to contemplate additional areas of risk such as
operational risk. Basel II also institutes new measures that require the Bank to take into account individual
borrower credit risk and operational risk when calculating risk-weighted assets.
In addition, under Basel II, banks are permitted to follow either a standardised approach or an internal ratings-
based approach with respect to calculating capital requirements. The Bank has voluntarily chosen to establish
and follow an internal ratings-based approach, which is more risk-sensitive in assessing credit risk capital
requirements. See “ — Financial Condition — Capital Adequacy.”
In December 2009, the Basel Committee on Banking Supervision introduced a new set of measures to
supplement Basel II which include, among others, a requirement for higher minimum capital, introduction of a
leverage ratio as a supplementary measure to the capital adequacy ratio and flexible capital requirements for
different phases of the economic cycle. Additional details regarding such new measures, including an additional
capital conservation buffer and countercyclical capital buffer, liquidity coverage ratio and other supplemental
measures, were announced by the Group of Governors and Heads of Supervision of the Basel Committee on
Banking Supervision in September 2010. After further impact assessment and observation periods, the Basel
Committee on Banking Supervision is expected to begin implementing the new set of measures, referred to as
Basel III, starting from 2013. The timing and scope of implementation of Basel III in Korea remain uncertain.
The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean
financial institutions, including the Bank.
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 the
Bank’s products and services, the value of and rate of return on the Bank’s assets, the availability and cost of
funding and the financial condition of the Bank’s 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.
                            31st Dec., 2008 30th June, 2009 31st Dec., 2009 30th June, 2010 31st Dec., 2010          30th June, 2011
KOSPI                             1,124.47        1,390.07        1,682.77        1,698.29         2,051.00               2,100.69
W/U.S.$ exchange rates(1)     W 1,257.5       W 1,284.7         W1,163.7       W 1,210.3        W 1,138.9              W 1,078.1
Corporate bond rates(2)                8.1%           5.6%             5.7%           5.0%             4.5%                   4.9%
Treasury bond rates(3)                 3.4%           4.2%             4.4%           3.9%             3.4%                   3.9%
_________________
Notes:
(1)   Represents the Market Average Exchange Rate in effect on such dates.
(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 MOSF.

Critical Accounting Policies, Estimates and Judgments under K-IFRS
The Bank’s consolidated interim financial statements as of 31st December, 2010 and 30th June, 2011 and for the
six month periods ended 30th June, 2010 and 2011 included in this Draft Prospectus have been prepared in
accordance with K-IFRS. The preparation of these financial statements requires the Bank to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure
of contingent assets and liabilities. See Notes 2 and 3 of the notes to the Bank’s consolidated interim financial
statements included elsewhere in this Draft Prospectus for a summary of the Bank’s significant accounting
policies that are critical to the portrayal of the Bank’s financial condition since they require the Bank’s
management to make difficult, complex or subjective judgments, some of which may relate to inherently
uncertain matters, and because of the possibility that future events affecting these estimates may differ
significantly from management’s current judgment.

Critical Accounting Policies, Estimates and Judgments under Korean GAAP
Prior to 2011, the Bank’s non-consolidated and consolidated financial statements were prepared in accordance
with Korean GAAP. The preparation of these financial statements required the Bank to make estimates and
judgments that affected the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure



                                                                                                                                  33
of contingent assets and liabilities under Korean GAAP. The notes to the Bank’s consolidated financial
statements as of and of the years ended 31st December, 2008, 2009 and 2010 contain a summary of its
significant Korean GAAP accounting policies under Korean GAAP. Certain of these policies were critical to
the portrayal of the Bank’s financial condition under Korean GAAP, since they required management to make
difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain.
Below is a discussion of these critical accounting policies. The Bank continually evaluated its estimates and
judgments including those related to revenue recognition, allowances for doubtful accounts, investments,
employee stock option compensation plans and income taxes. The Bank based its estimates and judgments on
historical experience and other factors that were believed to be reasonable under the circumstances. Actual
results could differ from these estimates under different assumptions or conditions.
Allowance for Loan Losses
The Bank established an allowance for loan losses, which was available to absorb losses that the Bank incurs in
its loan portfolio. This allowance was based on the Bank’s classification of the loans in the Bank’s portfolio, as
of the balance sheet date, under the asset classification criteria of the FSC. If additions or changes to the
allowance for loan losses were required, then the Bank recorded provisions for loan losses, which were treated
as charges against current income. Credit exposures that the Bank deemed to be uncollectable, including actual
loan losses, net of recoveries of previously charged-off amounts, were charged directly against the allowance for
loan losses.
The Bank classified its corporate loans (including SME loans) based on the borrower’s capacity to repay in
consideration of its business operations, financial position and future cash flows, the past due period (if any) of
the loans and status of any bankruptcy proceedings in which the borrower was involved. Loans to small
companies and to households, however, were classified not by evaluating the debt repayment capability of the
borrower but by the past due period (if any) of the loans and the status of any bankruptcy proceedings in which
the borrower was involved. The Bank generally classified all credits to a single borrower in the same category
of classification, but guaranteed credits or credits secured by bank deposits, real estate or other collateral could
be classified differently based on the guarantor’s capability to perform under its guarantee or based on the value
of collateral securing the credits.
Loans were classified as of the balance sheet dates as normal, precautionary, substandard, doubtful or estimated
loss. The allowance for loan losses under Korean GAAP was established based on the classification of the loans,
using the minimum percentages prescribed by the FSS. See “Assets and Liabilities — Asset Quality of Loans
— Loan Loss Provisioning Policy.”
The Bank believes that the accounting estimates related to its allowance for loan losses under Korean GAAP
were a “critical accounting policy” because: (a) they may be highly susceptible to change from period to period
based on its judgments regarding the capacity of the Bank’s borrowers to repay their loans; and (b) any
significant difference between the Bank’s estimated loan losses (as reflected in the Bank’s allowance for loan
losses) and actual loan losses could require the Bank to take additional provisions which, if significant, could
have a material impact on the Bank’s net income.
The Bank’s consolidated financial statements for the year ended 31st December, 2010 included a total loan loss
allowance of W4,293 billion as of that date (as well as an allowance of W463 billion with respect to unused
credit lines and an allowance of W167 billion with respect to guarantees and acceptances). The Bank’s
consolidated provision for loan losses amounted to W2,330 billion (not including provisions of W59 billion for
unused credit lines and provisions of W4 billion for losses on guarantees and acceptances) in 2010.
Valuation of Securities
Under Korean GAAP, the Bank classified securities on its balance sheet as trading, available-for-sale, or held-
to-maturity, based on their marketability, the intent of its acquisition and its ability to hold those securities.
Specifically, the Bank classified securities as trading securities when those securities were bought and held
principally for sale in the near term to generate profits from short-term price differences and traded frequently.
Debt securities that had a fixed or determinable payment amount and a fixed maturity were classified as held-to-
maturity only if the Bank had both the positive intent and ability to hold such securities to maturity. All other
securities were classified as available-for-sale.
The valuation method for the different categories of securities was as follows:
Trading securities ..................................... If the fair value of trading securities differed from the book value,
                                                         they were recorded at their fair value on the Bank’s balance sheet and


                                                                                                                           34
                                               unrealised holding gains and losses were included in its current
                                               earnings.
Available-for-sale securities ..................... The Bank recorded available-for-sale securities at their fair value on
                                                    its balance sheet. Unrealised holding gains and losses for available-
                                                    for-sale securities were accounted for as separate components of
                                                    stockholder’s equity until realised; that is, at the time when such
                                                    securities were disposed of or written down to recognise impairment
                                                    loss, the lump-sum cumulative amount of such components of
                                                    stockholder’s equity related to those securities was reflected in
                                                    current earnings. As an exception, however, those available-for-sale
                                                    equity securities that were not traded in an active trading market were
                                                    accounted for at their acquisition costs, only if their fair values could
                                                    not be reliably estimated. When the recoverable values of available-
                                                    for-sale equity securities were less than their acquisition cost (for debt
                                                    securities, their amortised acquisition cost), and there was any
                                                    objective evidence that their fair values were impaired, book values
                                                    were adjusted to the recoverable amounts and the amount of the
                                                    acquisition cost (for debt securities, the amortised acquisition cost) in
                                                    excess of the recoverable value less the amount of impairment loss
                                                    already recognised in prior periods was reflected in current loss as
                                                    impairment loss for available-for-sale securities.
Held-to-maturity securities ....................... The Bank recorded held-to-maturity securities at amortised cost. The
                                                    difference between their acquisition cost and face value (commonly
                                                    referred to as a “discount” or “premium” on debt securities) was: (a)
                                                    amortised into interest income over the remaining term of the
                                                    securities using the effective interest method; and (b) added to or
                                                    subtracted from the acquisition cost. When the recoverable amount
                                                    was less than the amortised cost of a debt security, and there was any
                                                    objective evidence of impairment loss, the book value of the security
                                                    was adjusted to the recoverable amount. The difference between the
                                                    recoverable amount and book value was accounted for as impairment
                                                    loss for held-to-maturity securities.

The Bank believes that the accounting estimates related to the fair value and recoverable value of the Bank’s
various securities under Korean GAAP were a “critical accounting policy” because: (a) they may be highly
susceptible to change from period to period based on factors beyond the Bank’s control; and (b) any significant
difference between the Bank’s estimated fair or recoverable value of these securities on any particular date and
either their estimated fair or recoverable value on a different date or the actual proceeds that it receives upon
sale of these securities could result in valuation losses or losses on disposal which could have a material impact
on the Bank’s net income. The Bank’s assumptions about the fair or recoverable value of securities it held
required significant judgment because actual valuations have fluctuated over time based on a variety of factors.
Recognition of Deferred Tax Assets
Income tax expense was calculated as the amount currently payable for the period added to or deducted from the
change in deferred income tax. However, the Bank recognised deferred income tax assets only if it reasonably
expected to realise the future tax benefits from accumulated temporary differences and tax loss carry-forwards.
The Bank accounted for the difference between the amount currently payable for the period and income tax
expense as deferred income tax assets or liabilities that were offset against income tax assets or liabilities in
future periods.
The Bank believes that the estimates related to its establishment of deferred tax assets under Korean GAAP
were a “critical accounting policy” because: (a) they may be highly susceptible to change from period to period
based on its assumptions regarding the Bank’s future profitability; and (b) any significant difference between the
Bank’s estimates of future profits on any particular date and such estimates of future profits on a different date
could result in changes in income tax expense (benefits) which could have a material impact on the Bank’s net
income from period to period. The Bank’s assumptions about future profitability required significant judgment
and were inherently subjective.


                                                                                                                          35
Results of Operations under K-IFRS
Comparison of the six month period ended 30th June, 2011 to the six month period ended 30th June, 2010
Net Interest Income
The following table sets out the principal components of the Bank’s consolidated interest income under K-IFRS
for the six month periods ended 30th June, 2010 and 2011, as well as changes in these components over such
periods in percentage terms.

                                                                              Six month period ended 30th June,               Percentage
                                                                             2010                          2011                 change
                                                                                       (in billions of Won)                   (per cent.)
Interest income
Due from banks ..................................................                  W          5                   W     20         300.0%
Loans ..................................................................                  4,920                       4,965             0.9
Financial assets at fair value through profit or
    loss .................................................................                 143                         141            (1.4)
Investment financial assets(1) ..............................                              499                         566            13.4
Other assets.........................................................                        53                         59            11.3
        Total interest income.................................                            5,620                       5,750             2.3
Interest expense
Deposits ..............................................................                   2,124                       2,126             0.1
Borrowings .........................................................                       183                         174            (4.9)
Debentures..........................................................                       649                         527           (18.8)
Others .................................................................                     50                         45           (10.0)
        Total interest expense................................                            3,007                       2,872           (4.5)
Net interest income.............................................                   W      2,614                   W   2,878           10.1
_________________
Notes:
(1)     Includes available-for-sale financial assets and held-to-maturity financial assets.


                 (a)              Interest income
Interest income increased 2.3 per cent. from W5,620 billion for the six month period ended 30th June, 2010 to
W5,750 billion for the six month period ended 30th June, 2011, primarily due to a 13.4 per cent. increase in
interest on investment financial assets and a 0.9 per cent. increase in interest on loans. On a non-consolidated
basis, the average balance of the Bank’s interest earning assets increased 1.7 per cent. from W209,320 billion
for the six month period ended 30th June, 2010 to W212,910 billion for the six month period ended 30th June,
2011, principally due to growth in the Bank’s loan portfolio as well as in the Bank’s portfolio of financial assets
at fair value through profit or loss. This increase was enhanced by a 5 basis point increase, on a non-
consolidated basis, in annualised average yields on interest earning assets from 5.28 per cent. for the six month
period ended 30th June, 2010 to 5.33 per cent. for the six month period ended 30th June, 2011, which was
driven mainly by increases in average yields on investment financial assets.
The 13.4 per cent. increase in interest on investment financial assets from W499 billion in the first six months of
2010 to W566 billion in the first six months of 2011 was mainly the result of a 48 basis point increase, on a non-
consolidated basis, in annualised average yields on such assets from 3.49 per cent. in the first six months of
2010 to 3.97 per cent. in the first six months of 2011. Such increase was enhanced by a 1.2 per cent. increase,
on a non-consolidated basis, in the average balance of such assets from W27,800 billion in the first six months
of 2010 to W28,139 billion in the first six months of 2011. The increase in average yields on investment
financial assets was primarily due to an increase in the proportion of corporate bonds held by the Bank as held-
to-maturity financial assets, which typically feature relatively higher yields compared to other types of held-to-
maturity financial assets held by the Bank, in the Bank’s investment financial assets portfolio. The increase in
the average balance of investment financial assets mainly reflected an increase in the volume of corporate bonds
and bonds issued by Government-related entities held by the Bank as held-to-maturity financial assets.
The 0.9 per cent. increase in interest on loans from W4,920 billion in the first six months of 2010 to W4,965
billion in the first six months of 2011 was primarily due to a 4.3 per cent. increase, on a non-consolidated basis,
in interest on consumer loans from W1,453 billion in the first six months of 2010 to W1,516 billion in the first



                                                                                                                                              36
six months of 2011, as well as a 0.5 per cent. increase, on a non-consolidated basis, in interest on corporate
loans from W2,846 billion in the first six months of 2010 to W2,859 billion in the first six months of 2011. The
effect of such increases was partially offset by a 3.9 per cent. decrease, on a non-consolidated basis, in interest
on credit card balances from W510 billion in the first six months of 2010 to W490 billion in the first six months
of 2011.
The increase in interest on consumer loans was primarily the result of a 3.3 per cent. increase, on a non-
consolidated basis, in the average balance of such loans from W56,144 billion in the first six months of 2010 to
W58,017 billion in the first six months of 2011. The effect of such increase was enhanced by a 5 basis point
increase, on a non-consolidated basis, in annualised average yields on such loans from 5.22 per cent. in the first
six months of 2010 to 5.27 per cent. in the first six months of 2011. The increase in the average volume of
consumer loans mainly reflected the Bank’s continuing focus on the retail loan segment, while the increase in
average yields on consumer loans mainly reflected the increase in the general level of interest rates in Korea
applicable to such loans from the first half of 2010 to the first half of 2011.
The increase in interest on corporate loans was the result of a 2 basis point increase, on a non-consolidated basis,
in annualised average yields on such loans from 5.45 per cent. in the first six months of 2010 to 5.47 per cent. in
the first six months of 2011. The average balance of corporate loans remained relatively constant, on a non-
consolidated basis, at W105,379 billion in the first six months of 2011 compared to W105,367 billion in the first
six months of 2010. The increase in average yields on corporate loans mainly reflected the increase in the
general level of interest rates in Korea applicable to such loans from the first half of 2010 to the first half of
2011.
The decrease in interest on credit card balances was primarily the result of a 167 basis point decrease, on a non-
consolidated basis, in annualised average yields on such balances from 24.91 per cent. in the first six months of
2010 to 23.24 per cent. in the first six months of 2011. The effect of such decrease was partially offset by a 3.0
per cent. increase, on a non-consolidated basis, in the average balance of such balances from W4,129 billion in
the first six months of 2010 to W4,251 billion in the first six months of 2011. The decrease in average yields on
credit card balances mainly reflected the Bank’s decision to eliminate certain credit card-related fees and
commissions, which had previously been accounted for as interest income on credit card loans, in November
2010 and January 2011 in light of the Government's consumer protection policies and guidance, while the
increase in the average volume of credit card balances mainly reflected the Bank’s continuing marketing focus
on procuring new credit card subscribers and its introduction of new credit card products.
         (b)      Interest Expense
Interest expense decreased 4.5 per cent. from W3,007 billion for the six month period ended 30th June, 2010 to
W2,872 billion for the six month period ended 30th June, 2011, primarily due to an 18.8 per cent. decrease in
interest expense on debentures. On a non-consolidated basis, the average balance of interest bearing liabilities
increased 1.6 per cent. from W196,220 billion for the six month period ended 30th June, 2010 to W199,310
billion for the six month period ended 30th June, 2011, principally due to an increase in the average balance of
deposits. This increase was more than offset by a decrease, on a non-consolidated basis, of 18 basis points in
the annualised average cost of interest bearing liabilities from 3.04 per cent. for the six month period ended 30th
June, 2010 to 2.86 per cent. for the six month period ended 30th June, 2011, which was driven mainly by a
decrease in the average cost of debentures.
The 18.8 per cent. decrease in interest expense on debentures from W649 billion in the first six months of 2010
to W527 billion in the first six months of 2011 mainly resulted from an 11.1 per cent. decrease, on a non-
consolidated basis, in the average balance of debentures from W24,267 billion in the first six months of 2010 to
W21,568 billion in the first six months of 2011. Such decrease was enhanced by a 46 basis point decrease, on a
non-consolidated basis, in the annualised average cost of debentures from 5.36 per cent. in the first six months
of 2010 to 4.90 per cent. in the first six months of 2011. The decrease in the average balance of debentures
mainly reflected a decrease in debentures in local currency, while the decrease in the average cost of debentures
was primarily attributable to the maturity of higher interest rate debentures previously issued by the Bank.
Interest expense on deposits remained relatively constant at W2,126 billion in the first six months of 2011
compared to W2,124 billion in the first six months of 2010, as the effect of a 7.1 per cent. increase, on a non-
consolidated basis, in interest expense on time and savings deposits from W1,836 billion in the first six months
of 2010 to W1,966 billion in the first six months of 2011 and a 30.0 per cent. increase, on a non-consolidated
basis, in interest expense on other deposits from W80 billion in the first six months of 2010 to W104 billion in
the first six months of 2011 was substantially offset by an 86.6 per cent. decrease, on a non-consolidated basis,



                                                                                                                 37
in interest expense on certificates of deposit from W186 billion in the first six months of 2010 to W25 billion in
the first six months of 2011.
The increase in interest expense on time and savings deposits resulted from a 9.3 per cent. increase, on a non-
consolidated basis, in the average balance of such deposits from W125,500 billion in the first six months of
2010 to W137,196 billion in the first six months of 2011, which was partially offset by a 6 basis point decrease,
on a non-consolidated basis, in the annualised average cost of such deposits from 2.95 per cent. in the first six
months of 2010 to 2.89 per cent. in the first six months of 2011. The increase in the average balance of time and
savings deposits was attributable mainly to the Bank’s increased focus on marketing such deposits. The
decrease in the average cost of time and savings deposits was due to the increase in the proportion of savings
deposits, which have relatively lower interest costs compared to time deposits, in the Bank’s time and savings
deposits portfolio.
The increase in interest expense on other deposits resulted from a 38 basis point increase, on a non-consolidated
basis, in the annualised average cost of such deposits from 1.38 per cent. in the first six months of 2010 to 1.76
per cent. in the first six months of 2011, which was enhanced by a 2.0 per cent. increase, on a non-consolidated
basis, in the average balance of such deposits from W11,681 billion in the first six months of 2010 to W11,914
billion in the first six months of 2011. The increase in the average cost of other deposits reflected the increase
in the proportion of cash management accounts, which typically offer relatively high interest rates, in the Bank’s
other deposits portfolio, while the increase in the average balance of other deposits was primarily the result of
the increase in the average balance of cash management accounts reflecting increased demand for such product.
The decrease in interest expense on certificates of deposit resulted from an 87.1 per cent. decrease, on a non-
consolidated basis, in the average balance of such deposits from W8,739 billion in the first six months of 2010
to W1,129 billion in the first six months of 2011, which was partially offset by an 18 basis point increase, on a
non-consolidated basis, in the annualised average cost of such deposits from 4.29 per cent. in the first six
months of 2010 to 4.47 per cent. in the first six months of 2011. The decrease in the average balance of
certificates of deposits was principally due to the Bank’s continuing efforts to convert its certificates of deposit
into other deposits in order to comply with new FSS loan-to-deposit ratio requirements, which exclude
certificates of deposit from the calculation of total deposits for purposes of determining compliance with such
ratio requirements. The increase in the average cost of certificates of deposit was mainly due to the increase in
the general level of interest rates for deposit products in Korea between the two periods.
         (c)      Net interest margin
Net interest margin represents the ratio of net interest income (annualised, in the case of interim periods) to
average interest earning assets. On a non-consolidated basis, the Bank’s overall net interest margin increased
from 2.44 per cent. for the six month period ended 30th June, 2010 to 2.63 per cent. for the six month period
ended 30th June, 2011, as an 11.2 per cent increase in the Bank’s net interest income, on a non-consolidated
basis, from W2,519 billion in the first six months of 2010 to W2,802 billion in the first six months of 2011,
outpaced a 1.8 per cent. increase in the average balance of its interest earning assets, on a non-consolidated
basis, from W206,693 billion in the first six months of 2010 to W212,910 billion in the first six months of 2011.
The growth in average interest earning assets outpaced a 1.6 per cent. increase in average interest bearing
liabilities, on a non-consolidated basis, from W196,220 billion in the first six months of 2010 to W199,310
billion in the first six months of 2011, while the decrease in interest expense enhanced the effect of the increase
in interest income, resulting in the increase in net interest income. The magnitude of this increase was enhanced
by an increase in the Bank’s net interest spread, which represents the difference between the average yield on
the Bank’s interest earning assets and the average cost of its interest bearing liabilities (annualised, in the case of
interim periods), from 2.31 per cent. in the first six months of 2010 to 2.47 per cent. in the first six months of
2011 on a non-consolidated basis. The increase in net interest spread resulted from the combined effect of an
increase in the annualised average yield on interest earning assets, on a non-consolodiated basis, and a decrease
in the annualised average cost of interest bearing liabilities, on a non-consolidated basis, between the two
periods.

Impairment Losses on Credit Loss

Impairment losses on credit loss include bad debt expenses for loans, provision for guarantees and provision for
unused credit lines, net of reversals of provisions. Impairment losses on credit loss decreased by 19.3 per cent.
from W1,292 billion for the six month period ended 30th June, 2010 to W1,042 billion for the six month period
ended 30th June, 2011, primarily due to a decrease in bad debt expenses for loans. The Bank’s bad debt
expenses for loans, net of reversal of provisions for credit loss, decreased 31.4 per cent. from W1,352 billion in


                                                                                                                    38
the first six months of 2010 to W925 billion for the first six months of 2011, primarily due to an overall
improvement in the asset quality of the Bank’s loans, as well as the application of FSS guidelines relating to
non-recognition of provisions for regulatory reserve for credit loss in 2010. Under K-IFRS, if the Bank’s
provision for credit loss is deemed insufficient for regulatory purposes, the Bank compensates for the difference
by recording a regulatory reserve for credit loss, which is deducted from shareholder’s equity. See “Assets and
Liabilities — Asset Quality of Loans — Loan Loss Provisioning Policy”. For the six month period ended 30th
June, 2011, the Bank’s provisions for regulatory reserve for credit loss were W134 billion. However, in
accordance with the applicable guidelines of the FSS, the Bank did not recognise any provisions for regulatory
reserve for credit loss for the six month period ended 30th June, 2010, which effectively increased the amount of
bad debt expenses for loans that the Bank was required to recognise for that period. The Bank’s bad debt
expenses for loans (net of reversal of provision for credit loss) and provisions for regulatory reserve for credit
loss, in the aggregate, decreased by 27.7 per cent. from W1,352 billion in the first six months of 2010 to W1,059
billion in the first six months of 2011. See Notes 30 and 38 of the notes to the Bank’s consolidated interim
financial statements included elsewhere in this Draft Prospectus.
The Bank’s loan write-offs, net of recoveries, increased 147.5 per cent. from W356 billion for the six month
period ended 30th June, 2010 to W890 billion for the six month period ended 30th June, 2011, primarily due to
greater write-offs of SME loans.
Net Fees Income
The following table sets forth the components of the Bank’s net fees income for the six month periods ended
30th June, 2010 and 2011, as well as changes in these components over such periods in percentage terms.

                                                  Six month period ended 30th June,            Percentage
                                                  2010                          2011             change
                                                         (in billions of Won)                  (per cent.)
Fees income....................................              W 452                     W 484            7.1%
Fees expense...................................                  202                     232            14.9
Total fees income, net ....................                  W 249                     W 252             1.2

The Bank’s net fees income remained relatively constant at W252 billion for the six month period ended 31th
June, 2011 compared to W249 billion for the six month period ended 30th June, 2010, as a 7.1 per cent. increase
in fees income from W452 billion in the first six months of 2010 to W484 billion in the first six months of 2011
was substantially offset by a 14.9 per cent. increase in fees expenses from W202 billion in the first six months of
2010 to W232 billion in the first six months of 2011. The 7.1 per cent. increase in fees income was mainly the
result of a 7.9 per cent. increase in commissions received, from W315 billion in the first six months of 2010 to
W340 billion in the first six months of 2011, which reflected increased commissions received in local currency,
particularly with respect to bancassurance activities. The 14.9 per cent. increase in fees expense was principally
due to W32 billion of commission expenses on brand royalty recorded for the first six months of 2011,
compared to W1 billion of such commission expenses recorded for the first six months of 2010, which was the
result of a new brand licensing scheme implemented by Woori Finance Holdings from July 2010 under which
the Bank must pay licensing fees for use of the “Woori” brand.
Dividend Income
The Bank’s dividend income increased 28.8 per cent. from W59 billion for the six month period ended 30th
June, 2010 to W76 billion for the six month period ended 30th June, 2011, primarily as the result of an increase
in Won dividends for the Bank’s holdings of available-for-sale equity securities, which reflected the improved
financial results and earnings of Korean companies in general in 2010 compared to 2009.
Net Gain (Loss) on Financial Assets
The following table sets forth the components of the Bank’s net gain on financial assets for the six month
periods ended 30th June, 2010 and 2011, as well as changes in these components over such periods in
percentage terms. The Bank did not recognise any gain or loss on held-for-maturity financial assets for such
periods.




                                                                                                                39
                                                        Six month period ended 30th June,                        Percentage
                                                         2010                             2011                     change
                                                                 (in billions of Won)                            (per cent.)
Gain (loss) on financial assets at fair
  value through profit or loss, net........                         W 149                            W 63               (58.1)%
Gain (loss) on available-for-sale
  financial assets, net(1) ........................                    544                              912               67.6
Total net gain (loss) on financial
  assets ..........................................                 W 694                            W 975                40.6
_________________
Notes:
(1)    Includes reversal of impairment losses on credit loss for available-for-sale financial assets of W5 billion for the six month period ended
       30th June, 2010 and impairment losses on credit loss for available-for-sale financial assets of W58 billion for the six month period
       ended 30th June, 2011.

The Bank’s net gain on financial assets increased 40.6 per cent. from W694 billion for the six month period
ended 30th June, 2010 to W975 billion for the six month period ended 30th June, 2011. This increase was
primarily attributable to a 67.6 per cent increase in net gain on available-for-sale financial assets from W544
billion in the first six months of 2010 to W912 billion in the first six months of 2011, the effect of which was
partially offset by a 57.7 per cent decrease in net gain on financial assets at fair value through profit or loss from
W149 billion in the first six months of 2010 to W63 billion in the first six months of 2011.
The 67.6 per cent. increase in net gain on available-for-sale financial assets was attributable primarily to a 84.9
per cent. increase in net gain on disposition of local currency securities from W524 billion in the first six months
of 2010 to W970 billion in the first six months of 2011, which resulted mainly from the disposal of shares of
Hyundai Engineering & Construction Co., Ltd. held by the Bank in the first six months of 2011.
The 57.7 per cent. decrease in net gain on financial assets at fair value through profit or loss was principally the
result of a 76.6 per cent. decrease in net gain on disposition of currency derivatives from W203 billion in the
first six months of 2010 to W48 billion in the first six months of 2011, which mainly reflected decreases in
foreign exchange rate volatility and trading volume.
Other Operating Expenses, Net
The following table sets forth the components of the Bank’s net other operating expenses for the six month
periods ended 30th June, 2010 and 2011, as well as changes in these components over such periods in
percentage terms.

                                                        Six month period ended 30th June,                        Percentage
                                                        2010                              2011                     change
                                                                (in billions of Won)                             (per cent.)
Other operating income.........................                 W 4,077                          W    2,404             (41.0)%
Other operating expenses ......................                      5,588                            3,845              (31.2)
Total other operating expenses, net ......                      W 1,511                          W    1,441               (4.6)

The Bank’s net other operating expenses decreased 4.6 per cent. from W1,511 billion for the six month period
ended 30th June, 2010 to W1,441 billion for the six month period ended 31th June, 2010, as the effect of a 31.2
per cent. decrease in other operating expenses from W5,588 billion in the first six months of 2010 to W3,845
billion in the first six months of 2011 was partially offset by a 41.0 per cent. decrease in other operating income
from W4,077 billion in the first six months of 2010 to W2,404 billion in the first six months of 2011.
Other operating income include principally gain on transaction of foreign exchange, gain on derivatives and
gain on fair value hedging derivatives. The 41.0 per cent. decrease in other operating income was attributable
mainly to a 40.5 per cent. decrease in gain on transaction of foreign exchange from W3,859 billion in the first
six months of 2010 to W2,295 billion in the first six months of 2011. This decrease, which was principally due
to lower exchange rate volatility, was more than offset by a corresponding decrease in loss on transaction of
foreign exchange, which is recorded as part of other operating expenses. On a net basis, the Bank had a net gain
on transaction of foreign exchange of W116 billion in the first six months of 2011 compared to a net loss of
W31 billion in the first six months of 2010.
Other operating expenses include principally loss on transaction of foreign exchange, loss on fair value hedging
derivatives, contributions to miscellaneous funds, deposit insurance premiums and other expenses (which in turn
mainly include salaries and benefits, computing expenses, rent, services fee and depreciation). The 31.2 per



                                                                                                                                              40
cent. decrease in other operating expenses was primarily the result of a 44.0 per cent. decrease in loss on
transaction of foreign exchange from W3,890 billion in the first six months of 2010 to W2,178 billion in the
first six months of 2011, which reflected lower exchange rate volatility. This decrease was partially offset by a
corresponding decrease in gain on transaction of foreign exchange, which is recorded as part of other operating
income as discussed above. The decrease was also offset in part by an 8.9 per cent. increase in other expenses
from W1,246 billion in the first six months of 2010 to W1,358 billion in the first six months of 2011, which in
turn was attributable mainly to a 17.0 per cent. increase in salaries from W414 billion in the first six months of
2010 to W484 billion in the first six months of 2011. The increase in salaries resulted primarily from the
increase in the discretionary bonus and other benefits paid to the employees of the Bank.
Income Tax Expense
The Bank’s 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. The Bank recognises deferred income tax assets only
if it reasonably expects to realise the future tax benefits from accumulated temporary differences and tax loss
carry-forwards. Deferred income tax assets or liabilities may be offset against income tax assets or liabilities in
future periods.
Income tax expense increased W363 billion from W89 billion for the six month period ended 30th June, 2010 to
W452 billion for the six month period ended 30th June, 2011, mainly as a result of changes in deferred income
taxes due to temporary difference of W197 billion in the first six months of 2011 compared to W(25) billion in
the first six months of 2010, as well as an increase in the Bank’s net income before income tax expense. The
statutory tax rate was 24.2 per cent. for the six month periods ended 30th June, 2010 and 2011. The Bank’s
effective tax rate was 11.0 per cent. in the first six months of 2010 and 26.8 per cent. in the first six months of
2011. See Note 40 of the notes to the Bank’s consolidated interim financial statements included elsewhere in
this Draft Prospectus.
Net Income
Due to the factors described above, the Bank’s net income for the six month period ended 30th June, 2011 was
W1,238 billion compared to W724 billion for the six month period ended 30th June, 2010.
Results of Operations under Korean GAAP
Net Interest Income
The following table sets out the principal components of the Bank’s consolidated interest income under Korean
GAAP for the years ended 31st December, 2008, 2009 and 2010, as well as changes in these components over
such periods in percentage terms.


                                                      Year ended 31st December,                         Percentage change
                                          2008                  2009              2010            2008/2009           2009/2010
                                                          (in billions of Won)                             (per cent.)
Interest income
Interest due from
    banks ............................     W       189             W      148      W        166         (21.7)%               12.2%
Interest on trading
    securities ......................              425                    315               265          (25.9)                   (15.9)
Interest on investment
    securities(2) ...................              938                    958               919            2.1                     (4.1)
Interest on loans ...............                11,637                 9,884             9,582          (15.1)                    (3.1)
Other .................................            196                    120              155           (38.8)                    29.2
Total interest income........                    13,385                11,425            11,087          (14.6)                    (3.0)

Interest expense
Interest on deposits...........                   5,905                 4,683             4,330          (20.7)                    (7.5)
Interest on
    borrowings(3) ................                2,415                 2,059             1,600          (14.7)                   (22.3)
Other .................................            298                    126               94           (57.7)                   (25.4)
Total interest expense.......                     8,618                 6,868             6,024          (20.3)                   (12.3)




                                                                                                                             41
                                                  Year ended 31st December,                                     Percentage change
                                      2008                  2009                    2010                  2008/2009           2009/2010
                                                      (in billions of Won)                                          (per cent.)
Net interest income...........          W 4,767                 W    4,557           W     5,063                   (4.4)                      11.1%

(1)   Includes available-for-sale securities and held-to-maturity securities.
(2)   Includes call money, bonds sold under the repurchase agreements and bills sold as well as borrowings in local and foreign currencies.


Comparison of 2010 to 2009

            (a)          Interest income

Interest income decreased 3.0 per cent. to W11,087 billion in 2010 compared to W11,425 billion in 2009,
primarily due to a 3.1 per cent. decrease in interest on loans. On a non-consolidated basis, the average balance
of the Bank’s interest earning assets decreased 0.6 per cent. from W211,352 billion in 2009 to W210,019 billion
in 2010, principally due to a decrease in the Bank’s corporate loan portfolio. This decrease was enhanced by an
11 basis point decrease in average yields on interest earning assets, on a non-consolidated basis, from 5.28 per
cent. in 2009 to 5.17 per cent. in 2010, which was driven mainly by decreases in average yields on corporate
loans and securities.
The 3.1 per cent. decrease in interest on loans from W9,884 billion in 2009 to W9,582 billion in 2010 was
primarily the result of a 6.1 per cent. decrease in interest on corporate loans, on a non-consolidated basis, from
W5,943 billion in 2009 to W5,578 billion in 2010. This decrease was partially offset by a 4.0 per cent. increase
in interest on consumer loans, on a non-consolidated basis, from W2,759 billion in 2009 to W2,868 billion in
2010. Interest on credit card balances, on a non-consolidated basis, remained relatively constant at W996 billion
in 2010 compared to W1,000 billion in 2009.
The decrease in interest on corporate loans was primarily the result of a 3.5 per cent. decrease, on a non-
consolidated basis, in the average balance of such loans from W109,427 billion in 2009 to W105,598 billion in
2010, which was enhanced by a 15 basis point decrease in average yields on such loans, on a non-consolidated
basis, from 5.43 per cent. in 2009 to 5.28 per cent. in 2010. The decrease in the average balance of corporate
loans mainly reflected a decrease in the Bank’s lending to large corporate borrowers, while the decrease in
average yields on such loans mainly reflected the decrease in the general level of interest rates in Korea in 2010.
The increase in interest on consumer loans was primarily the result of an 11 basis point increase in average
yields on such loans, on a non-consolidated basis, from 5.04 per cent. in 2009 to 5.15 per cent. in 2010, which
was enhanced by a 1.7 per cent. increase in the average balance of such loans, on a non-consolidated basis, from
W54,789 billion in 2009 to W55,722 billion in 2010. The increase in average yields on consumer loans was
mainly due to an increase in interest rates applicable to mortgage and home equity loans in Korea in 2010, while
the increase in the average balance of such loans mainly reflected the Bank’s continuing focus on the retail loan
segment.
Interest on trading securities decreased 15.9 per cent. from W315 billion in 2009 to W265 billion in 2010. This
decrease resulted primarily from a 52 basis point decrease in average yields on such securities, on a non-
consolidated basis, from 4.06 per cent. in 2009 to 3.54 per cent. in 2010, which was enhanced by an 8.2 per cent.
decrease in the average balance of trading securities, on a non-consolidated basis, from W6,008 billion in 2009
to W5,514 billion in 2010. The decrease in average yields on trading securities mainly reflected the lower
interest rate environment in Korea in 2010, while the average balance of trading securities decreased primarily
as a result of the Bank’s decreased purchases of commercial paper and debt securities issued by Government-
related entities for trading purposes.
The decrease in interest on trading securities was accompanied by a 4.1 per cent. decrease in interest on
investment securities, on a non-consolidated basis, from W958 billion in 2009 to W919 billion in 2010. This
decrease resulted from a 30 basis point decrease in average yields on investment securities, on a non-
consolidated basis, from 4.15 per cent. in 2009 to 3.85 per cent. in 2010, which was partially offset by a 3.3 per
cent. increase in the average balance of such securities, on a non-consolidated basis, from W22,813 billion in
2009 to W23,557 billion in 2010. The decrease in average yields on investment securities mainly reflected the
lower interest rate environment in Korea. The increase in the average balance of investment securities was
primarily due to an increase in corporate and government bonds held by the Bank as held-to-maturity securities.




                                                                                                                                          42
         (b)      Interest Expense

Interest expense decreased 12.3 per cent. from W6,868 billion in 2009 to W6,024 billion in 2010, primarily due
to a 22.3 per cent. decrease in interest expense on borrowings, as well as a 7.5 per cent. decrease in interest
expense on deposits. The average balance of interest bearing liabilities, on a non-consolidated basis, decreased
1.3 per cent. from W203,047 billion in 2009 to W200,501 billion in 2010, principally due to a decrease in the
average balance of borrowings. This decrease was enhanced by a decrease of 38 basis points in the average cost
of interest bearing liabilities, on a non-consolidated basis, from 3.33 per cent. in 2009 to 2.95 per cent. in 2010,
which was driven mainly by decreases in the average cost of deposits and borrowings.
The 22.3 per cent. decrease in interest expense on borrowings from W2,059 billion in 2009 to W1,600 billion in
2010 primarily resulted from a 14.9 per cent. decrease in the average balance of borrowings, on a non-
consolidated basis, from W51,091 billion in 2009 to W43,502 billion in 2010. This decrease was enhanced by a
35 basis point decrease in the average cost of borrowings, on a non-consolidated basis, from 4.02 per cent. in
2009 to 3.67 per cent. in 2010. The decrease in the average balance of borrowings was primarily attributable to
a decrease in debentures in local currency as well as decreases in borrowings in local currency and call money,
while the decrease in the average cost of borrowings mainly reflected the decrease in the general level of interest
rates in Korea in 2010.
The 7.5 per cent. decrease in interest expense on deposits from W4,683 billion in 2009 to W4,330 billion in
2010 was primarily due to a 55.2 per cent. decrease in interest expense on certificates of deposit, on a non-
consolidated basis, from W621 billion in 2009 to W278 billion in 2010, which was enhanced by a 27.0 per cent.
decrease in interest expense on other deposits, on a non-consolidated basis, from W230 billion in 2009 to W168
billion in 2010. These decreases were partially offset by a 1.5 per cent. increase in interest expense on time and
savings deposits, on a non-consolidated basis, from W3,696 billion in 2009 to W3,753 billion in 2010.
The decrease in interest expense on certificates of deposit resulted primarily from a 44.6 per cent. decrease in
the average balance of such deposits, on a non-consolidated basis, from W11,869 billion in 2009 to W6,215
billion in 2010, which was enhanced by a 76 basis point decrease in the average cost of such deposits, on a non-
consolidated basis, from 5.23 per cent. in 2009 to 4.47 per cent. in 2010. The decrease in the average balance of
certificates of deposit was primarily attributable to a reduced emphasis on certificates of deposit, relative to
other deposit products, in the Bank’s marketing efforts in 2010. The decrease in the average cost of certificates
of deposit mainly reflected the lower interest rate environment in Korea in 2010.
Other deposits include principally deposits in foreign currencies, notes payable deposits and cash management
accounts. The decrease in interest expense on other deposits resulted from a 25 basis point decrease in the
average cost of such deposits, on a non-consolidated basis, from 1.67 per cent. in 2009 to 1.42 per cent. in 2010,
as well as a 14.0 per cent. decrease in the average balance of such deposits, on a non-consolidated basis, from
W13,762 billion in 2009 to W11,836 billion in 2010. The decrease in the average cost of other deposits mainly
reflected the lower interest rate environment in Korea, while the decrease in the average balance of such
deposits was primarily attributable to a decrease in the average balance of deposits in foreign currencies due to
the general appreciation of the Won relative to major foreign currencies in 2010 and the consequent decline in
demand for such deposits.
The increase in interest expense on time and savings deposits resulted from a 12.3 per cent. increase in the
average balance of such deposits, on a non-consolidated basis, from W115,908 billion in 2009 to W130,222
billion in 2010, which was offset in large part by a 31 basis point decrease in the average cost of such deposits,
on a non-consolidated basis, from 3.19 per cent. in 2009 to 2.88 per cent. in 2010. The increase in the average
balances of time and savings deposits was primarily attributable to the Bank’s increased marketing of such
deposits in order to fund its lending, as well as increased demand for such deposits as alternatives to higher-risk
investments. The decrease in the average cost of time and savings deposits mainly reflected the lower interest
rate environment in Korea.

         (c)      Net interest margin

From 2009 to 2010, the Bank’s overall net interest margin, on a non-consolidated basis, increased from 2.08 per
cent. to 2.36 per cent., as the Bank’s net interest income increased 12.5 per cent., on a non-consolidated basis,
from W4,396 billion to W4,946 billion, while the average balance of its interest earning assets decreased 0.6 per
cent., on a non-consolidated basis, from W211,352 billion to W210,019 billion. The decrease in average
interest earning assets was outpaced by a 1.3 per cent. decrease in average interest bearing liabilities, on a non-
consolidated basis, from W203,047 billion in 2009 to W200,501 billion in 2010, while the decrease in interest


                                                                                                                 43
expense outpaced the decrease in interest income, resulting in the increase in net interest income. The
magnitude of this increase was enhanced by an increase in the Bank’s net interest spread from 1.95 per cent. in
2009 to 2.22 per cent. in 2010, on a non-consolidated basis. The increase in net interest spread resulted from a
larger decrease in the average cost of interest bearing liabilities, on a non-consolidated basis, between the two
periods compared to the decrease in the average yield on interest earning assets, on a non-consolidated basis, as
interest rates on interest bearing liabilities adjusted later than those on interest earning assets in the context of
the lower interest rate environment in 2009 and 2010.
Comparison of 2009 to 2008

         (a)       Interest income

Interest income decreased 14.6 per cent. to W11,425 billion in 2009 compared to W13,385 billion in 2008,
primarily due to a 15.1 per cent. decrease in interest on loans. On a non-consolidated basis, the average balance
of the Bank’s interest earning assets increased 10.0 per cent. from W192,099 billion in 2008 to W211,352
billion in 2009, principally due to growth in the Bank’s loan portfolio. This increase was more than offset by a
152 basis point decrease in average yields on interest earning assets, on a non-consolidated basis, from 6.80 per
cent. in 2008 to 5.28 per cent. in 2009, which was driven mainly by decreases in average yields on loans.
The 15.1 per cent. decrease in interest on loans from W11,637 billion in 2008 to W9,884 billion in 2009 was
primarily the result of:
         •     a 27.0 per cent. decrease in interest on consumer loans, on a non-consolidated basis, from W3,782
               billion in 2008 to W2,759 billion in 2009; and
         •     an 11.4 per cent. decrease in interest on corporate loans, on a non-consolidated basis, from W6,708
               billion in 2008 to W5,943 billion in 2009.
These decreases were partially offset by a 7.5 per cent. increase in interest on credit card balances, on a non-
consolidated basis, from W930 billion in 2008 to W1,000 billion in 2009.
The decrease in interest on consumer loans was primarily the result of a 205 basis point decrease in average
yields on consumer loans, on a non-consolidated basis, from 7.09 per cent. in 2008 to 5.04 per cent. in 2009,
which was partially offset by a 2.7 per cent. increase in the average balance of consumer loans, on a non-
consolidated basis, from W53,336 billion in 2008 to W54,789 billion in 2009. The decrease in average yields
on consumer loans was primarily the result of the decrease in the general level of interest rates in Korea in 2009,
which in turn reflected the low policy rate set by the Bank of Korea in the fourth quarter of 2008 and maintained
throughout 2009 as part of the Government’s initiative to address financial market instability and to help combat
the slowdown in the domestic economy. The increase in the average balance of consumer loans mainly
reflected the Bank’s continuing focus on the retail loan segment.
The decrease in interest on corporate loans was the result of a 120 basis point decrease in average yields on
corporate loans, on a non-consolidated basis, from 6.63 per cent. in 2008 to 5.43 per cent. in 2009, which was
partially offset by a 8.1 per cent. increase in the average balance of corporate loans, on a non-consolidated basis,
from W101,192 billion in 2008 to W109,427 billion in 2009. The decrease in average yields on corporate loans
was mainly the result of the decrease in the general level of interest rates in Korea in 2009, which reflected the
low policy rate maintained by the Bank of Korea during such period. The increase in the average balance of
corporate loans mainly reflected an increase in the Bank’s lending to SMEs, primarily as a result of policies and
initiatives introduced by the Government to encourage Korean banks to provide financial support to SMEs. See
“Risk Factors — Risks relating to the Bank — Corporate credit portfolio — The Bank’s increasing loan
exposure to SMEs with financial difficulties may result in a deterioration of the Bank’s asset quality and
adversely impact the Bank.”
The increase in interest on credit card balances was the combined result of a 3.9 per cent. increase in the average
balance of credit card balances, on a non-consolidated basis, from W3,944 billion in 2008 to W4,096 billion in
2009, and an 83 basis point increase in average yields on credit card balances, on a non-consolidated basis, from
23.58 per cent. in 2008 to 24.41 per cent. in 2009. The increase in the average balance of credit card balances
mainly reflected the Bank’s continuing marketing efforts to procure new credit card subscribers and its
introduction of new credit card products. The increase in average yields on credit card balances was primarily
due to a decrease in interest-free installment payment benefits extended by the Bank to its cardholders, as well
as an increase in the proportion of consumer credit card purchases, which typically carry higher interest rates
and merchant fees, relative to the Bank’s overall credit card balances.



                                                                                                                  44
Interest on investment securities increased 2.1 per cent. from W938 billion in 2008 to W958 billion in 2009.
This increase resulted principally from a 32.1 per cent. increase in the average balance of investment securities,
on a non-consolidated basis, from W17,270 billion in 2008 to W22,813 billion in 2009, which was partially
offset by a 119 basis point decrease in average yields on investment securities, on a non-consolidated basis,
from 5.34 per cent. in 2008 to 4.15 per cent. in 2009. The increase in the average balance of investment
securities was primarily due to an increase in fixed rate debt securities issued by Government-related entities
held by the Bank as held-to-maturity securities, including as a result of the Bank’s increased purchases of short-
term finance debentures issued by the Bank of Korea as a means of conservatively managing its temporary
excess Won liquidity. The decrease in average yields on investment securities mainly reflected an increase in
the proportion of such fixed rate debt securities issued by Government-related entities, which offer relatively
lower interest rates, in the Bank’s investment securities portfolio, as well as the lower interest rate environment
in Korea.
The increase in interest on investment securities was more than offset by a 25.9 per cent. decrease in interest on
trading securities from W425 billion in 2008 to W315 billion in 2009. This decrease resulted primarily from a
146 basis point decrease in average yields on such securities, on a non-consolidated basis, from 5.52 per cent. in
2008 to 4.06 per cent. in 2009, which was enhanced by a 9.0 per cent. decrease in the average balance of trading
securities, on a non-consolidated basis, from W6,600 billion in 2008 to W6,008 billion in 2009. The decrease in
average yields on trading securities mainly reflected the lower interest rate environment in Korea, while the
average balance of trading securities decreased primarily as a result of the Bank’s decreased purchases of debt
securities issued by Government-related entities and financial institutions for trading purposes.

        (b)       Interest Expense

Interest expense decreased 20.3 per cent. from W8,618 billion in 2008 to W6,868 billion in 2009, primarily due
to a 20.7 per cent. decrease in interest expense on deposits, together with a 14.7 per cent. decrease in interest
expense on borrowings (including debentures). The average balance of interest bearing liabilities, on a non-
consolidated basis, increased 10.4 per cent. from W183,940 billion in 2008 to W203,047 billion in 2009,
principally due to increases in the average balance of deposits. This increase was more than offset by a decrease
of 127 basis points in the average cost of interest bearing liabilities, on a non-consolidated basis, from 4.60 per
cent. in 2008 to 3.33 per cent. in 2009, which was driven mainly by a decrease in the average cost of deposits.
The 20.7 per cent. decrease in interest expense on deposits from W5,905 billion in 2008 to W4,683 billion in
2009 was primarily due to:
         •    a 42.8 per cent. decrease in interest expense on certificates of deposit, on a non-consolidated basis,
              from W1,085 billion in 2008 to W621 billion in 2009;
         •    a 10.3 per cent. decrease in interest expense on time and savings deposits, on a non-consolidated
              basis, from W4,121 billion in 2008 to W3,696 billion in 2009; and
         •    a 57.4 per cent. decrease in interest expense on other deposits, on a non-consolidated basis, from
              W540 billion in 2008 to W230 billion in 2009.
The decrease in interest expense on certificates of deposit resulted from a 33.8 per cent. decrease in the average
balance of such deposits, on a non-consolidated basis, from W17,916 billion in 2008 to W11,869 billion in
2009, which was enhanced by an 83 basis point decrease in the average cost of such deposits, on a non-
consolidated basis, from 6.06 per cent. in 2008 to 5.23 per cent. in 2009. The decrease in the average balance of
certificates of deposit was primarily attributable to a reduced emphasis on certificates of deposit, relative to
other lower cost deposit products, in the Bank’s marketing efforts in 2009. The decrease in the average cost of
certificates of deposit mainly reflected the decrease in the general level of interest rates in Korea in 2009.
The decrease in interest expense on time and savings deposits resulted from a 124 basis point decrease in the
average cost of such deposits, on a non-consolidated basis, from 4.43 per cent. in 2008 to 3.19 per cent. in 2009,
which was partially offset by a 24.6 per cent. increase in the average balance of such deposits, on a non-
consolidated basis, from W93,025 billion in 2008 to W115,908 billion in 2009. The decrease in the average
cost of time and savings deposits mainly reflected the decrease in the general level of interest rates in Korea in
2009. The increase in the average balances of time and savings deposits was primarily attributable to increased
demand for such deposits as an alternative to higher-risk investments in light of continuing adverse economic
conditions during 2009.




                                                                                                                 45
The decrease in interest expense on other deposits resulted from a 238 basis point decrease in the average cost of
other deposits, on a non-consolidated basis, from 4.05 per cent. in 2008 to 1.67 per cent. in 2009, which was
partially offset by a 3.2 per cent. increase in the average balance of such deposits, on a non-consolidated basis,
from W13,333 billion in 2008 to W13,762 billion in 2009. The decrease in the average cost of other deposits
mainly reflected the lower interest rate environment in Korea, while the increase in the average balance of such
deposits was primarily attributable to increased demand for such deposits as an alternative to higher-risk
investments in light of continuing adverse economic conditions during 2009.
The 14.7 per cent. decrease in interest expense on borrowings (including debentures) from W2,415 billion in
2008 to W2,059 billion in 2009 resulted mainly from a 79 basis point decrease in the average cost of
borrowings, on a non-consolidated basis, from 4.81 per cent. in 2008 to 4.02 per cent. in 2009, which was
partially offset by a 3.2 per cent. increase in the average balance of borrowings, on a non-consolidated basis,
from W49,484 billion in 2008 to W51,091 billion in 2009. The decrease in the average cost of borrowings
primarily reflected the lower interest rate environment in Korea, while the increase in the average balance of
borrowings was principally due to the Bank’s increased utilisation of call money in foreign currencies during
2009, which reflected the Bank’s focus on more conservatively managing its foreign currency liquidity
following the global financial crisis.

         (c)      Net interest margin

From 2008 to 2009, the Bank’s overall net interest margin, on a non-consolidated basis, decreased from 2.40 per
cent. to 2.08 per cent., as the effect of a 4.7 per cent. decrease in the Bank’s net interest income, on a non-
consolidated basis, from W4,615 billion to W4,396 billion was enhanced by a 10.0 per cent. increase in the
average balance of its interest earning assets, on a non-consolidated basis, from W192,099 billion to W211,352
billion. The growth in average interest earning assets was largely matched by a 10.4 per cent. increase in
average interest bearing liabilities, on a non-consolidated basis, from W183,940 billion in 2008 to W203,047
billion in 2009. The magnitude of the decrease in net interest income was enhanced by a decrease in the Bank’s
net interest spread from 2.20 per cent. in 2008 to 1.95 per cent. in 2009, on a non-consolidated basis. The
decrease in net interest spread resulted from a larger decrease in the average yield on interest earning assets, on
a non-consolidated basis, between the two periods compared to the decrease in the average cost of interest
bearing liabilities, on a non-consolidated basis, 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 the lower interest
rate environment, as well as continuing rate-based competition in the Korean banking industry for the marketing
of both loan and deposit products.
Provision for Loan Losses
For a discussion of the Bank’s previous loan loss provisioning policy under Korean GAAP, see “Assets and
Liabilities — Asset Quality of Loans — Loan Loss Provisioning Policy.”
Comparison of 2010 to 2009
The Bank’s provision for loan losses increased from W1,785 billion in 2009 to W2,330 billion in 2010. The
increase was mainly attributable to increases in delinquencies and non-performing loans in the Bank’s loan
portfolios, including real estate project financing loans and loans made to corporate borrowers in the
construction and shipbuilding industries, which resulted in the commencement of workout procedures with
respect to a number of these borrowers.
The Bank’s loan charge-offs, net of recoveries, decreased 5.4% from W1,203 billion in 2009 to W1,138 billion
in 2010, primarily due to a decrease in net charge-offs in respect of the Bank’s SME loans.
Comparison of 2009 to 2008
The Bank’s provision for loan losses increased from W1,394 billion in 2008 to W1,785 billion in 2009. The
increase was mainly attributable to increases in delinquencies and non-performing loans in the Bank’s loan
portfolios, particularly with respect to SME and construction industry borrowers, which reflected continuing
adverse economic conditions during 2009, as well as the overall growth of the Bank’s corporate loan portfolio in
2009.
The Bank’s loan charge-offs, net of recoveries, increased 307.8 per cent. from W295 billion in 2008 to W1,203
billion in 2009, primarily due to an increase in net charge-offs in respect of the Bank’s SME loans.




                                                                                                                    46
Non-Interest Income
The following tables set forth the components of the Bank’s consolidated non-interest income under Korean
GAAP for the years ended 31st December, 2008, 2009 and 2010, as well as changes in these components over
such periods in percentage terms.

                                                           Year ended 31st December,                    Percentage change
                                                   2008               2009             2010        2008/2009           2009/2010
                                                              (in billions of Won)                         (per cent.)
Gain on valuation and disposal
of securities...................................       W 294            W 841            W 1,059        186.1%                25.9%
Gain on disposal of loans .............                    14               74               120          428.6                 62.2
Gain on foreign exchange ............                  21,515           15,486             6,258         (28.0)               (59.6)
Commission income.....................                  1,051              924               928         (12.1)                  0.4
Trust management fees ................                     39               30                28         (23.1)                (6.7)
Dividend on securities..................                  160               60                50         (62.5)               (16.7)
Other operating revenue...............                 38,818           15,428             6,616         (60.3)               (57.1)
Non-operating income..................                    133              231               125           73.7               (45.9)
Total non-interest income ............               W 62,024      W    33,074         W 15,184          (46.7)             (54.1)%


Comparison of 2010 to 2009
Non-interest income decreased 54.1 per cent. from W33,074 billion in 2009 to W15,184 billion in 2010. This
decrease was primarily attributable to:
               •       a W9,228 billion decrease in gain on foreign exchange from W15,486 billion in 2009 to W6,258
                       billion in 2010; and
               •       a W8,812 billion decrease in other operating revenue from W15,428 billion in 2009 to W6,616
                       billion in 2010.
The 59.6 per cent. decrease in gain on foreign exchange, which was principally due to reduced exchange rate
volatility and trading volume in 2010 compared to 2009, was substantially offset by a corresponding decrease in
loss on foreign exchange, which is recorded as an operating expense. On a net basis, the Bank’s net gain on
foreign exchange decreased from W864 billion in 2009 to W241 billion in 2010.
Other operating revenue includes principally gain on transaction of derivatives, gain on valuation of derivatives
and gain on fair value of hedged items. The 57.1 per cent. decrease in other operating revenue was attributable
mainly to a 64.2 per cent. decrease in gain on transaction of derivatives from W12,255 billion in 2009 to
W4,390 billion in 2010, which was enhanced by a 28.8 per cent. decrease in gain on valuation of derivatives
from W2,991 billion in 2009 to W2,131 billion in 2010. These decreases, which mainly reflected the decrease
in volatility and derivatives trading volume in 2010 compared to 2009, were more than offset by corresponding
decreases in loss on transaction of derivatives and loss on valuation of derivatives, which are recorded as other
operating expenses. On a net basis, the Bank’s net loss on transaction and valuation of derivatives decreased
from W809 billion in 2009 to W90 billion in 2010, primarily as a result of lower net transaction losses on
currency derivatives.
Comparison of 2009 to 2008
Non-interest income decreased 46.7 per cent. from W62,024 billion in 2008 to W33,074 billion in 2009. This
decrease was primarily attributable to:
               •       a W23,390 billion decrease in other operating revenue from W38,818 billion in 2008 to W15,428
                       billion in 2009; and
               •       a W6,029 billion decrease in gain on foreign exchange from W21,515 billion in 2008 to W15,486
                       billion in 2009.
The 60.3 per cent. decrease in other operating revenue was attributable mainly to a 55.7 per cent. decrease in
gain on transaction of derivatives from W27,694 billion in 2008 to W12,255 billion in 2009, as well as a 72.6
per cent. decrease in gain on valuation of derivatives from W10,927 billion in 2008 to W2,991 billion in 2009.
These decreases, which mainly reflected the decrease in volatility and derivatives trading volume in 2009
compared to 2008, were more than offset by corresponding decreases in loss on transaction of derivatives and
loss on valuation of derivatives, which are recorded as other operating expenses. On a net basis, the Bank’s net
loss on transaction and valuation of derivatives decreased from W1,464 billion in 2008 to W809 billion in 2009,



                                                                                                                                   47
primarily as a result of lower net transaction losses on currency forwards. However, such decrease was more
than offset by a decrease in net gain on foreign exchange, as described below.
The 28.0 per cent. decrease in gain on foreign exchange, which was principally due to reduced exchange rate
volatility and trading volume in 2009 compared to 2008, was largely offset by a corresponding decrease in loss
on foreign exchange, which is recorded as an operating expense. On a net basis, the Bank’s net gain on foreign
exchange decreased from W1,600 billion in 2008 to W864 billion in 2009, but this decrease was largely offset
by a decrease in net loss on transaction and valuation of derivatives.
Non-Interest Expense
The following tables show the components of the Bank’s consolidated non-interest expense under Korean
GAAP for the years ended 31st December, 2008, 2009 and 2010, as well as changes in these components over
such periods in percentage terms, other than loan loss provisions.
                                                          Year ended 31st December,                       Percentage change
                                                   2008              2009             2010           2008/2009           2009/2010
                                                             (in billions of Won)                            (per cent.)
Loss on valuation and disposal
of securities...................................      W 969            W 351             W 130           (63.8)%              (63.0)%
Loss on disposal of loans .............                   68              284               172            317.7                (39.4)
Loss on foreign exchange.............                 19,915           14,622             6,017            (26.6)               (58.8)
Commission expenses ..................                   432              394               428             (8.8)                  8.6
Salaries and benefits.....................               978              987             1,050               0.9                  6.4
Other general and administrative
expenses........................................       1,280            1,180                1,206          (7.8)                  2.2
Other operating expenses .............                41,072           16,726                7,386         (59.3)               (55.8)
Non-operating expenses ...............                    74               96                  111           29.7                 15.6
Total non-interest expense                          W 64,788         W 34,640          W 16,500          (46.5)%             (52.4)%
(excluding loan loss provisions) ..


Comparison of 2010 to 2009
Non-interest expense (excluding loan loss provisions) decreased 52.4 per cent. from W34,640 billion in 2009 to
W16,500 billion in 2010. This decrease was primarily attributable to:
               •       a W9,340 billion decrease in other operating expenses from W16,726 billion in 2009 to W7,386
                       billion in 2010; and
               •       an W8,605 billion decrease in loss on foreign exchange from W14,622 billion in 2009 to W6,017
                       billion in 2010.
Other operating expenses include principally loss on transaction of derivatives, loss on valuation of derivatives,
funds contribution fee, loss on fair value hedged items and various provisions. The 55.8 per cent. decrease in
other operating expenses was attributable primarily to a 65.6 per cent. decrease in loss on transaction of
derivatives from W13,306 billion in 2009 to W4,575 billion in 2010, which was enhanced by a 25.9 per cent.
decrease in loss on valuation of derivatives from W2,749 billion in 2009 to W2,036 billion in 2010. These
decreases, which resulted mainly from the decrease in volatility and derivatives trading volume in 2010
compared to 2009, were substantially offset by corresponding decreases in gain on transaction of derivatives and
gain on valuation of derivatives, which are recorded as other operating revenue. See “—Non-Interest Income.”
The 58.8 per cent. decrease in loss on foreign exchange, which mainly reflected reduced exchange rate volatility
and trading volume in 2010 compared to 2009, was more than offset by a corresponding decrease in gain on
foreign exchange, which is recorded as operating revenue. See “—Non-Interest Income.”
Comparison of 2009 to 2008
Non-interest expense (excluding loan loss provisions) decreased 46.5 per cent. from W64,788 billion in 2008 to
W34,640 billion in 2009. This decrease was primarily attributable to:
               •       a W24,346 billion decrease in other operating expenses from W41,072 billion in 2008 to W16,726
                       billion in 2009; and
               •       a W5,293 billion decrease in loss on foreign exchange from W19,915 billion in 2008 to W14,622
                       billion in 2009.




                                                                                                                                     48
The 59.3 per cent. decrease in other operating expenses was attributable primarily to a 54.6 per cent. decrease in
loss on transaction of derivatives from W29,277 billion in 2008 to W13,306 billion in 2009, as well as a 74.6
per cent. decrease in loss on valuation of derivatives from W10,808 billion in 2008 to W2,749 billion in 2009.
These decreases, which resulted mainly from the decrease in volatility and derivatives trading volume in 2009
compared to 2008, were substantially offset by corresponding decreases in gain on transaction of derivatives and
gain on valuation of derivatives, which are recorded as other operating revenue. See “—Non-Interest Income—
Comparison of 2009 to 2008.”
The 26.6 per cent. decrease in loss on foreign exchange, which mainly reflected reduced exchange rate volatility
and trading volume in 2009 compared to 2008, was more than offset by a corresponding decrease in gain on
foreign exchange, which is recorded as operating revenue. See “—Non-Interest Income—Comparison of 2009
to 2008.”
Income Tax Expense
Under Korean GAAP, the Bank’s income tax expense was calculated by adding or subtracting changes in
deferred income tax liabilities and assets to tax amounts payable for the period. The Bank recognised deferred
income tax assets only if it reasonably expected to realise the future tax benefits from accumulated temporary
differences and tax loss carry-forwards. Deferred income tax assets or liabilities could be offset against income
tax assets or liabilities in future periods.
Comparison of 2010 to 2009
Income tax expense increased by W56 billion, from W252 billion in 2009 to W308 billion in 2010. The
increase in income tax expense resulted primarily from an increase in current income tax expense as a result of
the increase in the Bank’s income before income tax. The statutory tax rate was 24.2 per cent. in both 2009 and
2010. The Bank’s effective tax rate was 20.9 per cent. in 2009 and 21.7 per cent. in 2010.
Comparison of 2009 to 2008
Income tax expense decreased by W121 billion, from W373 billion in 2008 to W252 billion in 2009. The
decrease in income tax expense resulted primarily from a decrease in current income tax expense, reflecting a
decrease in the statutory tax rate applicable to the Bank and the effect of a refund of prior years’ income taxes,
which more than offset the effect of an increase in the Bank’s income before income tax. The statutory tax rate
was 27.5 per cent. in 2008 and 24.2 per cent. in 2009. The Bank’s effective tax rate was 61.4 per cent. in 2008
and 20.9 per cent. in 2009.
Net Income
Due to the factors described above, the Bank’s net income, on a consolidated basis under Korean GAAP, was
W1,109 billion in 2010, compared to W955 billion in 2009 and W234 billion in 2008.
Financial Condition
Assets
The following table sets forth the principal components of the Bank’s assets on a consolidated basis under K-
IFRS as of 31st December, 2010 and as of 30th June, 2011, as well as changes in these components over such
dates in percentage terms.




                                                                                                               49
                                                                                          As of 31st December,            As of 30th June,              Percentage
                                                                                                  2010                          2011                      change
                                                                                                         (in billions of Won)                            (per cent.)
Cash and cash equivalents ..............................................                W              2,823         W               2,717                      (3.8)%
Financial assets at fair value through profit and loss .....                                          11,104                        10,930                     (1.6)
Available-for-sale financial assets .................................                                 16,610                        12,622                    (24.0)
Held-to-maturity financial assets ...................................                                 15,920                        16,644                       4.5
Loans and receivables:
   Due from banks...........................................................                              9,917                       13,479                    35.9
   Loans in local currency...............................................                               134,973                      139,085                     3.0
   Loans in foreign currencies.........................................                                  12,269                       11,745                   (4.3)
   Bills bought in local currency.....................................                                      177                          467                  163.8
   Bills bought in foreign currencies...............................                                      4,568                        4,618                     1.1
   Advances for customers on guarantees ......................                                              297                          199                  (33.0)
   Factoring receivables ..................................................                                  58                           92                    58.6
   Credit card accounts....................................................                               3,945                        4,127                     4.6
   Bonds purchased with resale agreements ..................                                                508                          514                     1.2
   Call loans.....................................................................                        3,320                        1,452                  (56.3)
   Privately placed bonds, net of present value
      discount...................................................................                         2,074                        1,915                      (7.7)
   Backed loans ...............................................................                             531                          593                      11.7
   Domestic import usance .............................................                                   4,034                        5,121                      26.9
   Other loans and receivables ........................................                                   6,124                        8,656                      41.3
                                                                                                        182,795                      192,063                        5.1
Less:
  Provision for credit loss ..............................................                                4,171                        3,739                       10.4
  Deferred loan origination fees (costs) ........................                                           (70)                         (96)                     37.1
Total loans and receivables, net ......................................                                 178,694                      188,420                        5.4
Tangible assets, net..........................................................                            2,334                        2,327                      (0.3)
Other assets(1) ...................................................................                       1,070                        1,207                      13.0
  Total assets..................................................................        W               228,555       W              234,867                        2.8%
  _________________
   (1)      Includes investments in jointly controlled entities and associates, investment properties, intangible assets, other assets, prepaid tax
            assets, deferred tax assets, derivative assets and held-for-sale assets group.



   The following table sets forth the principal components of the Bank’s assets on a consolidated basis under
   Korean GAAP as of 31st December, 2008, 2009 and 2010, as well as changes in these components over such
   dates in percentage terms.
                                                                                              As of 31st December,                                   Percentage change
                                                                         2008                           2009              2010                  2008/2009            2009/2010
                                                                                               (in billions of Won)                                      (per cent.)

Cash and due from banks .....................                             W       14,991               W 16,423           W      16,097                  9.6%                   (2.0)%
Trading securities .................................                               6,852                  8,469                   7,682                   23.6                    (9.3)
Investment securities(1) .........................                                20,462                 22,810                  29,169                   11.5                     27.9
Loans:
   Loans in local currency....................                                  133,342                   135,855             134,729                       1.9                 (0.8)%
   Loans in foreign currencies..............                                     15,803                    12,446              12,199                    (21.2)                   (2.0)
   Bills bought in local currency..........                                       1,893                       865                 203                    (54.3)                  (76.5)
   Bills bought in foreign currencies....                                         4,979                     4,388               4,568                    (11.9)                     4.1
   Advances for customers...................                                        114                        53                 297                    (53.5)                  460.4
   Factoring receivables .......................                                     57                        47                  58                    (17.5)                    23.4
   Credit card accounts.........................                                  3,878                     3,690               3,946                     (4.8)                     6.9
   Bonds purchased with resale
      agreements ...................................                                  2,041                 1,496                   500                  (26.7)                 (66.6)
   Call loans..........................................                               1,310                 4,448                 3,265                  239.5                  (26.6)
   Privately placed bonds .....................                                       3,789                 2,996                 2,133                  (20.9)                 (28.8)
   Investment in direct financing
      leases............................................                             —                         —                   —                        —                       —
   Domestic banker’s usance ..............                                        4,271                     3,738               4,045                    (12.5)                    8.2
   Other.................................................                           261                       176                 149                    (32.6)                 (15.3)
                                                                                171,738                   170,198             166,092                     (0.9)                  (2.4)
Less:
  Allowance for loan losses ................                                          3,111                 3,404                 4,293                    9.4                    26.1
  Deferred loan origination fees
      (costs)...........................................                             42                      (11)                (72)                   N/M(2)                   545.5
Total loans, net .....................................                          168,585                   166,805             161,870                    (1.1)                    (3.0)
Tangible assets......................................                             1,913                     1,908               1,859                    (0.3)                    (2.6)



                                                                                                                                                                           50
                                                                      As of 31st December,                             Percentage change
                                                          2008                  2009          2010                2008/2009            2009/2010
                                                                       (in billions of Won)                                (per cent.)

Other assets...........................................      19,688              10,374          11,529                    (47.3)                11.1
  Total assets.......................................     W 232,491           W 226,789       W 228,206                   (2.5)%                0.6%
  _________________
   (1)     Includes available-for-sale securities, held-to-maturity securities and equity securities accounted for using the equity method of
           accounting.
   (2)     N/M = Not meaningful.



   For further information on the Bank’s assets, see “Assets and Liabilities.”
   Comparison as of 30th June, 2011 to 31st December, 2010 under K-IFRS
   The Bank’s assets increased 2.8 per cent. from W228,555 billion as of 31st December, 2010 to W234,867
   billion as of 30th June, 2011, principally due to a 3.0 per cent. increase in loans in local currency from
   W134,973 billion as of 31st December, 2010 to W139,085 billion as of 30th June, 2011, a 35.9 per cent.
   increase in receivables due from banks from W9,917 billion as of 31st December, 2010 to W13,479 billion as of
   30th June, 2011 and a 41.3 per cent. increase in other loans and receivables from W6,124 billion as of 31st
   December, 2010 to W8,656 billion as of 30th June, 2011. These increases were partially offset by a 24.0 per
   cent. decrease in available-for-sale financial assets from W16,610 billion as of 31st December, 2010 to W12,622
   billion as of 30th June, 2011 and a 56.3 per cent. decrease in call loans from W3,320 billion as of 31st
   December, 2010 to W1,452 billion as of 30th June, 2011.
   Comparison as of 31st December, 2010 to 31st December, 2009 under Korean GAAP
   The Bank’s assets increased 0.6 per cent. from W226,789 billion as of 31st December, 2009 to W228,206
   billion as of 31st December, 2010, principally due to a 27.9 per cent. increase in investment securities from
   W22,810 billion as of 31st December, 2009 to W29,169 billion as of 31st December, 2010. This increase was
   partially offset by a 26.6 per cent. decrease in call loans from W4,448 billion as of 31st December, 2009 to
   W3,265 billion as of 31st December, 2010, a 0.8 per cent. decrease in loans in local currency from W135,855
   billion as of 31st December, 2009 to W134,729 billion as of 31st December, 2010, a 66.6 per cent. decrease in
   bonds purchased with resale agreements from W1,496 billion as of 31st December, 2009 to W500 billion as of
   31st December, 2010 and a 28.8 per cent. decrease in privately placed bonds from W2,996 billion as of 31st
   December, 2009 to W2,133 billion as of 31st December, 2010.
   Comparison as of 31st December, 2009 to 31st December, 2008 under Korean GAAP
   The Bank’s assets decreased 2.5 per cent. from W232,491 billion as of 31st December, 2008 to W226,789
   billion as of 31st December, 2009, principally due to a 47.3 per cent. decrease in other assets from W19,688
   billion as of 31st December, 2008 to W10,374 billion as of 31st December, 2009, which reflected a decrease in
   derivative assets, and a 21.2 per cent. decrease in loans in foreign currencies from W15,803 billion as of 31st
   December, 2008 to W12,446 billion as of 31st December, 2009 and a 54.3 per cent. decrease in bills bought in
   local currency from W1,893 billion as of 31st December, 2008 to W865 billion as of 31st December, 2009.
   These decreases were partially offset by a 239.5 per cent. increase in call loans from W1,310 billion as of 31st
   December, 2008 to W4,448 billion as of 31st December, 2009, a 1.9 per cent. increase in loans in local currency
   from W133,342 billion as of 31st December, 2008 to W135,855 billion as of 31st December, 2009, an 11.5 per
   cent. increase in investment securities from W20,462 billion as of 31st December, 2008 to W22,810 billion as of
   31st December, 2009, a 28.7 per cent. increase in trading securities from W6,582 billion as of 31st December,
   2008 to W8,469 billion as of 31st December, 2009 and a 9.6 per cent. increase in cash and due from banks from
   W14,991 billion as of 31st December, 2008 to W16,423 billion as of 31st December, 2009.
   Liabilities and Stockholder’s Equity
   The following table sets forth the principal components of the Bank’s liabilities, as well as the Bank’s
   shareholder’s equity, on a consolidated basis under K-IFRS as of 31st December, 2010 and as of 30th June,
   2011, as well as changes in these components over such dates in percentage terms.




                                                                                                                                          51
                                                                                As of 31st December,              As of 30th June,           Percentage
                                                                                         2010                           2011                   change
                                                                                                (in billions of Won)                         (per cent.)
Liabilities:
   Deposits ..............................................................                     W 157,314                     W 159,488              1.4%
   Borrowings..........................................................                           18,983                        19,081              0.5
   Debentures ..........................................................                          20,192                        20,420              1.1
   Financial liabilities at fair value through profit
      or loss .............................................................                         4,730                            3,441        (27.3)
   Provisions............................................................                             520                              673          29.4
   Other liabilities(1) ................................................                            9,329                           14,217          52.4
   Total liabilities ....................................................                         211,068                          217,320           3.0
Equity:
   Common stock ....................................................                               3,830                         3,830                ⎯
   Hybrid equity securities......................................                                  2,182                         1,882            (13.7)
   Capital surplus ....................................................                              811                           811                ⎯
   Other equity ........................................................                             938                           522            (44.3)
   Retained earnings................................................                               9,719                        10,494               8.0
   Regulatory reserve for credit loss.......................                                       (514)                         (647)              25.9
                                                                                                  17,480                        17,539               0.3
        Non-controlling interests .............................                                        7                             7                ⎯
  Total shareholder’s equity ..................................                                   17,487                        17,546               0.3
Total liabilities and equity.......................................                            W 228,555                     W 234,867              2.8%
_________________
(1)     Includes tax liabilities, other financial liabilities, other liabilities, deferred tax liabilities and derivative liabilities.



The following table sets forth the principal components of the Bank’s liabilities, as well as the Bank’s
stockholder’s equity on a consolidated basis under Korean GAAP as of 31st December, 2008, 2009 and 2010, as
well as changes in these components over such dates in percentage terms.

                                                                                       As of 31st December,                                Percentage change
                                                                       2008                      2009              2010                2008/2009           2009/2010
                                                                                        (in billions of Won)                                   (per cent.)

Deposits .................................................              W 143,509               W 151,831          W 158,970                    5.8%                4.7%
Borrowings ............................................                    51,797                  47,526             42,093                    (8.2)              (11.4)
Other liabilities ......................................                   25,259                  13,797             12,952                   (45.4)               (6.1)
Total liabilities.......................................                  220,565                 213,154            214,015                    (3.4)                 0.4
Capital stock:
  Common stock ..................................                              3,180                 3,480                 3,480                   9.4                  —
  Preferred stock ..................................                             350                   350                   350                   —                   —
Capital surplus.......................................                           814                   812                   812                 (0.2)                 0.0
Accumulated other comprehensive                                                                                              867
  income...............................................                          675                 1,136                                       68.3              (23.7)
Retained earnings ..................................                           6,902                 7,851                 8,675                 13.7                10.5
Minority interests ..................................                              5                     6                     7                 20.0                16.7
Total stockholder’s equity.....................                               11,926                13,635                14,191                 14.3                 4.1
Total liabilities, minority interest
  and stockholder’s equity...................                           W 232,491               W 226,789          W 228,206                   (2.5)%              0.6%

For further information on the Bank’s liabilities, see “Assets and Liabilities.”
Comparison as of 30th June, 2011 to 31st December, 2010 under K-IFRS
The Bank’s total liabilities increased 3.0 per cent from W211,068 billion as of 31st December, 2010 to
W217,320 billion as of 30th June, 2011, principally as a result of a 52.4 per cent. increase in other liabilities
from W9,328 billion as of 31st December, 2010 to W14,217 billion as of 30th June, 2011, which mainly
reflected a 175.2 per cent. increase in accounts payable from W1,999 billion as of 31st December, 2010 to
W5,501 billion as of 30th June, 2011, as well as a 1.4 per cent. increase in deposits from W157,314 billion as of
31st December, 2010 to W159,488 billion as of 30th June, 2011 resulting primarily from an increase in demand
deposits in local currency.
The Bank’s shareholder’s equity increased 0.3% from W17,487 billion as of 31st December, 2010 to W17,546
billion as of 30th June, 2011. This increase was principally due to an increase in retained earnings, which was



                                                                                                                                                              52
attributable to net income generated in the six month period ended 30th June, 2011. Such increase was partially
offset by a 26.0 per cent. increase in regulatory reserve for credit loss (which is deducted from shareholder’s
equity under K-IFRS) from W514 billion as of 31st December, 2010 to W647 billion as of 30th June, 2011. See
Note 30 of the notes to the Bank’s consolidated interim financial statements included elsewhere in this Draft
Prospectus.
Comparison as of 31st December, 2010 to 31st December, 2009 under Korean GAAP
The Bank’s total liabilities increased 0.4 per cent from W213,154 billion as of 31st December, 2009 to
W214,015 billion as of 31st December, 2010, as a result of a 4.7 per cent increase in deposits from W151,831
billion as of 31st December, 2009 to W158,970 billion as of 31st December, 2010, primarily due to increases in
savings deposits in local currency. This increase was partially offset by an 11.4 per cent decrease in the Bank’s
borrowings from W47,526 billion as of 31st December, 2009 to W42,093 billion as of 31st December, 2010,
primarily due to decreases in debentures in local currency, borrowings in local currency and call money, and a
6.1 per cent decrease in the Bank’s other liabilities from W13,797 billion as of 31st December, 2009 to
W12,952 billion as of 31st December, 2010, primarily due to decreases in derivative liabilities and borrowings
from trust accounts.
The Bank’s stockholder’s equity increased 4.1% from W13,635 billion as of 31st December, 2009 to W14,191
billion as of 31st December, 2010. This increase resulted principally from an increase in retained earnings,
which was attributable to net income generated in 2010.
Comparison as of 31st December, 2009 to 31st December, 2008 under Korean GAAP
The Bank’s total liabilities decreased 3.4 per cent. from W220,565 billion as of 31st December, 2008 to
W213,154 billion as of 31st December, 2009, mainly as the result of a 45.4 per cent. decrease in other liabilities
from W25,259 billion as of 31st December, 2008 to W13,797 billion as of 31st December, 2009, which
reflected a decrease in derivative liabilities, and an 8.2 per cent. decrease in the Bank’s borrowings from
W51,797 billion as of 31st December, 2008 to W47,526 billion as of 31st December, 2009, which principally
reflected a decrease in debentures in local currency. These decreases were partially offset by a 5.8 per cent.
increase in the Bank’s deposits from W143,509 billion as of 31st December, 2008 to W151,831 billion as of
31st December, 2009, primarily due to increases in savings deposits in local currency.
The Bank’s stockholder’s equity increased 14.3 per cent. from W11,926 billion as of 31st December, 2008 to
W13,635 billion as of 31st December, 2009. This increase resulted principally from an increase in retained
earnings, which was attributable to net income generated in 2009.
Liquidity
The Bank’s primary source of funding has historically been and continues to be customer deposits, particularly
lower-cost retail deposits. Under Korean GAAP, deposits amounted to W151,831 billion as of 31st December,
2009 and W158,970 billion as of 31st December, 2010, which represented approximately 76.2 per cent. and
79.1 per cent. of the Bank’s total funding, respectively. Under K-IFRS, deposits amounted to W159,488 billion
as of 30th June, 2011, representing approximately 80.1 per cent. of the Bank’s total funding. The Bank has been
able to use customer deposits to finance its operations generally, including meeting a portion of the Bank’s
liquidity requirements. Although the majority of deposits are short-term, it has been the Bank’s experience that
the majority of its depositors generally roll over their deposits at maturity, thus providing the Bank with a stable
source of funding.
The Bank also obtains funding through borrowings and issuances of debentures to meet the Bank’s liquidity
needs. Debentures in local and foreign currencies represented 13.8 per cent. and 11.9 per cent. of the Bank’s
total funding as of 31st December, 2009 and 2010, respectively, under Korean GAAP and 10.3 per cent. of the
Bank’s total funding as of 30th June, 2011 under K-IFRS. Borrowings (not including debentures) represented
10.0 per cent. and 9.0 per cent. of the Bank’s total funding as of 31st December, 2009 and 2010, respectively,
under Korean GAAP and 9.6 per cent. of the Bank’s total funding as of 30th June, 2011 under K-IFRS. For
further information on the Bank’s sources of funding, see “Assets and Liabilities — Funding.”
The Bank’s liquidity risks arise from withdrawals of deposits and maturities of its borrowings and debentures,
as well as the Bank’s need to fund its lending, trading and investment activities and to manage its trading
positions. The Bank’s goal in managing its liquidity is to be able, even under adverse conditions, to meet all of
its liability repayments on time and to fund all investment opportunities. For a discussion of how the Bank
manages its liquidity risk, see “Risk Management ⎯ Liquidity Risk Management.”




                                                                                                                 53
The FSC requires each Korean bank to maintain specific Won and foreign currency liquidity ratios. These
ratios require the Bank to keep its ratio of liquid assets to liquid liabilities above certain minimum levels. In
addition, in connection with its policy initiatives announced in June 2011 to address the risks posed by the rising
level of consumer debt in Korea, the FSC announced that it would require banks to maintain a ratio of loans to
deposits of not more than 100 per cent., commencing in June 2012. For a description of these requirements, see
“Supervision and Regulation — Liquidity.” Furthermore, pursuant to the Regulation on Supervision of Banking
Business issued by the FSC as amended by Notice No. 2009-65 dated 31st December, 2009 (the “Guidelines”),
beginning on 1st July 2010, foreign exchange agencies, including the Bank, are required to hold “foreign
currency safe assets” in an aggregate amount that is not less than the lower of (i) the product of (x) its total
foreign currency-denominated debt maturing in one year or less multiplied by 2/12 and (y) an amount equal to
one minus the “lowest rollover ratio” and (ii) 2 per cent. of its total foreign currency-denominated assets as
shown in the balance sheet for the immediately preceding quarter. The “lowest rollover ratio” of a foreign
exchange agency means the ratio of (A) its total debt with a maturity of one year or less (excluding overnight
money) incurred in a particular month to (B) its total debt with maturity of one year or less (excluding overnight
money) payable in that particular month, and is calculated by taking the lowest three month average from a
period to be designated by the governor of the FSS. Under the Guidelines, foreign currency debt includes
financial bonds, borrowings, call monies and repurchase selling denominated in foreign currencies and such
other similar debt instruments denominated in a foreign currency as designated by the governor of the FSS.
“Foreign currency safe assets” are defined as deposits denominated in foreign currency with a central bank or
financial institutions rated A or above, bonds issued or guaranteed by a government or central bank rated A or
above or corporate bonds issued or guaranteed by corporations rated A or above. Accordingly, the Bank may be
required to acquire further foreign currency safe assets. Effective from 1st August, 2010, the Guidelines (as
amended by Notice No. 2010-23 dated 27th July, 2010) also increased the minimum “mid- to long-term foreign
exchange funding ratio” applicable to foreign exchange agencies, including the Bank, from 90 per cent. to 100
per cent. “Mid-to long term foreign exchange funding ratio” refers to the ratio of (1) the total outstanding
amount of its foreign exchange borrowing with a maturity of more than one year to (2) the total outstanding
amount of its foreign exchange lending with a maturity of one year or more.
In 2009, the Bank paid dividends to Woori Finance Holdings, its holding company, of W2 billion for its
common stock in respect of 2008. In 2010, the Bank paid dividends to Woori Finance Holdings of W230
billion for its common stock and W56 billion for its convertible preferred stock in respect of 2009. In 2011 to
date, the Bank has paid dividends to Woori Finance Holdings of W332 billion for its common stock and W56
billion for its convertible preferred stock in respect of 2010.
Credit-related Commitments and Other Off-Balance Sheet Arrangements
The Bank has various credit-related commitments that are not reflected on its balance sheet, which primarily
consist of guarantees and loan commitments under K-IFRS and primarily consisted of guarantees and
acceptances, commitments and bills endorsed with recourse under Korean GAAP. Under K-IFRS, guarantees
include confirmed and unconfirmed guarantees and commercial paper purchase commitments and loan
commitments include those for loans and other commitments. Under Korean GAAP, acceptance and guarantees
included financial guarantees and confirmed and contingent acceptances and guarantees and commitments
included those for loans, purchases of securities and credit lines. Contingent liabilities for which guaranteed
amounts are not finalised appear as off-balance sheet items in the notes to the consolidated financial statements
prepared in accordance with K-IFRS as of 31st December, 2010 and 30th June, 2011 and for the six month
periods ended 30th June, 2010 and 2011. Such contingent liabilities include, among others, contingent
liabilities relating to provisions for litigation and trade financings under both Korean GAAP and K-IFRS and
derivatives contracts with respect to foreign exchange rates and interest rates under Korean GAAP.
The following table sets forth the Bank’s credit-related commitments on a consolidated basis under K-IFRS as
of 31st December, 2010 and 30th June, 2011.

                                                                                                             As of 31st December,              As of 30th June,
                                                                                                                     2010                            2011
                                                                                                                            (in billions of Won)
Confirmed guarantees .............................................................................                         W 9,570                         W 9,733
  Debenture issuance .............................................................................                               41                              0
  Loans...................................................................................................                      128                            196
  Acceptances ........................................................................................                          743                            848
  Acceptances of imported goods..........................................................                                       125                            112
  Others..................................................................................................                    8,532                          8,576
Unconfirmed guarantees .........................................................................                              9,852                          9,607




                                                                                                                                                                  54
                                                                                                               As of 31st December,               As of 30th June,
                                                                                                                       2010                             2011
                                                                                                                               (in billions of Won)
  Local letters of credit ..........................................................................                               880                              925
  Import letters of credit ........................................................................                              5,294                            4,952
  Others..................................................................................................                       3,679                            3,730
Commercial paper purchase commitments and others ...........................                                                     4,028                            3,385
Loan commitments..................................................................................                              89,825                           89,910
  Loans...................................................................................................                      79,895                           80,142
  Others..................................................................................................                       9,929                            9,768

The following table sets forth the Bank’s credit-related commitments on a consolidated basis under Korean
GAAP as of 31st December, 2008, 2009 and 2010.
                                                                                                                              As of 31st December,
                                                                                                                 2008                   2009                 2010
                                                                                                                               (in billions of Won)
Confirmed acceptances and guarantees ..................................................                            W11,639                 W10,146              W 9,690
   Local currency ....................................................................................               1,202                       959              1,049
      Bond issuance.................................................................................                     4                        46                 41
      Guarantees for loans.......................................................................                       74                        84                129
      Guarantees for bills ........................................................................                     —                         —                 —
      Other...............................................................................................           1,124                       829                879
   Foreign currencies ..............................................................................                10,437                     9,187              8,641
      Acceptances....................................................................................                  746                       765                639
      Letters of guarantee........................................................................                      99                       114                125
      Credit derivatives sold ...................................................................                      170                       134                131
      Other...............................................................................................           9,422                     8,174              7,746
Unconfirmed acceptances and guarantees ..............................................                               14,393                   10,870               9,852
   Customer’s liability on letters of credit..............................................                          14,393                   10,870               6,174
   Local letters of credit in foreign currencies........................................                               570                       617                721
   Local letters of credit in Won .............................................................                         73                       112                159
   Import letters of credit ........................................................................                 5,845                     5,432              5,294
   Other ...................................................................................................         7,905                     4,709              3,678
Commitments ..........................................................................................              80,508                   79,703              85,070
   Commitments on loans in Won (including unused portions) ...........                                              58,830                   59,991              62,937
   Commitments on loans in foreign currencies (including unused
      portions) .........................................................................................            21,243                18,724                    20,885
   Commitments on purchase of securities.............................................                                   435                   988                     1,248
Bills endorsed with recourse ...................................................................                          7                    10                         9

The Bank analyses its off-balance sheet legally binding credit-related commitments for possible losses
associated with such commitments, and establishes provisions for possible losses in a manner similar to
provisions that the Bank would establish with respect to a loan granted under the terms of the applicable
commitment. These provisions include provisions for possible losses on acceptances and guarantees and
provisions for unused credit lines, which are reflected as “other liabilities” in the Bank’s balance sheets as of
31st December, 2008, 2009 and 2010 prepared in accordance with Korean GAAP and as part of “provisions” in
the Bank’s balance sheet as of 31st December, 2010 and 30th June, 2011 prepared in accordance with K-IFRS.
As 30th June, 2011, the Bank had established provisions for credit losses of W553 billion under K-IFRS with
respect to its credit-related commitments.
Capital Adequacy
The Bank is subject to the capital adequacy requirements of the FSC. The requirements applicable commencing
in 2008 were formulated based on, and are consistent in all material respects with, the “International
Convergence of Capital Measurement and Capital Standards, a Revised Framework,” also known as Basel II,
first published by the Basel Committee on Banking Supervision, Bank for International Settlements in 2004.
Under the applicable FSC guidelines, all banks in Korea are required to maintain a minimum ratio of total
capital (regulatory Tier I and Tier II capital, less any capital deductions) to risk-weighted assets, as determined
by a specified formula, of 8.0 per cent. and a minimum ratio of core capital (regulatory Tier I capital) to risk-
weighted assets of 4.0 per cent. See “Supervision and Regulation — Capital Adequacy and Provisions.”
Regulatory capital is divided into two tiers:

Tier I capital ...................................                        The sum of paid-in capital, capital surplus, retained earnings, hybrid Tier I
                                                                          capital, minority interests in consolidated subsidiaries and unpaid share
                                                                          dividends minus goodwill and other intangible assets, deferred income tax



                                                                                                                                                                         55
                                                                                                  debits, discount on stock issuances, treasury stock accounts and valuation
                                                                                                  losses in investment securities in capital adjustment accounts.
Tier II capital ..................................                                                Total Tier II capital is limited to 100 per cent. of Tier I capital and
                                                                                                  includes:
                                                                                                  •          provisions for credit losses for credits classified as normal or
                                                                                                             precautionary up to 1.25 per cent. of total risk-weighted assets;
                                                                                                  •          subordinated debt with an initial maturity of over five years, limited
                                                                                                             to 50 per cent. of Tier I capital for lower Tier II capital (subordinated
                                                                                                             debt with an initial maturity of over five years), and to 100 per cent.
                                                                                                             of Tier I capital for upper Tier II capital (subordinated debt with an
                                                                                                             initial maturity of over ten years);
                                                                                                  •          preferred shares with redemption rights (other than hybrid Tier I
                                                                                                             capital);
                                                                                                  •          up to 45 per cent. of investment securities gains; and
                                                                                                  •          revaluation reserves.
Deductions......................................                                                  The following items, among others, are deducted from the sum of Tier I
                                                                                                  and II capital for the purpose of the calculation of total capital:
                                                                                                  •          investments in unconsolidated subsidiaries or affiliates that engage in
                                                                                                             financial business (which includes the business of banks, securities
                                                                                                             companies, merchant banks and other financial institutions); and
                                                                                                  •          capital-raising instruments issued by other banks which are
                                                                                                             reciprocally held in order to improve the ratio of Tier I and II capital
                                                                                                             of the banks.

A bank’s risk-weighted assets equal the sum of (a) assets on the balance sheet multiplied by the risk weighting
for each category of asset, and (b) off-balance sheet exposures multiplied by the applicable credit conversion
factor, in each case as provided in the FSC’s applicable guidelines. A bank’s risk-weighted assets are calculated
as the sum of its credit risk-weighted assets, market risk-weighted assets and operational risk-weighted assets, in
each case as provided in the FSC’s applicable guidelines.
If a bank fails to maintain its capital adequacy ratios, the Korean regulatory authorities may impose penalties on
such bank ranging from a warning to suspension or revocation of its license. See “Risk Factors — Risks
relating to the Bank — Other risks — The Bank may be required to raise additional capital, but it may not be
able to do so on favourable terms or at all.”
The following table sets forth a summary of the Bank’s capital and capital adequacy ratios as of 30th June, 2011
under K-IFRS and regulatory reporting standards.

                                                                                                                                 As of 30th June,
                                                                                                                                      2011
Tier I capital
Paid-in capital............................................................................                                                          3,830
Hybrid........................................................................................                                                       1,882
Capital surplus...........................................................................                                                            812
Retained earnings ......................................................................                                                             9,747
Minority interests in consolidated subsidiaries.........................                                                                                7
Consolidated adjustment credit/debit........................................                                                                           —
Others ........................................................................................                                                      (907)
     Total Tier I capital ................................................................                                                          15,371
Tier II capital
Revaluation reserves .................................................................                                                                550
Provision for credit losses(1)......................................................................................                                  839
Subordinated debt(2) .........................................................................................................                       2,616




                                                                                                                                                                                   56
                                                                                                   As of 30th June,
                                                                                                        2011
Valuation gain on investment securities ...................................                                               174
    Total Tier II capital...............................................................                                 4,179
Investment in jointly controlled entities and associates and
   other deduction items............................................................                                      (11)
Total core and supplementary capital .......................................                                     W      19,539
Risk-weighted assets
Credit risk-weighted assets .......................................................                                    124,304
Market risk-weighted assets......................................................                                        1,821
Operational risk-weighted assets ..............................................                                          7,862
    Total ......................................................................................                       133,988
Tier I capital ratio ......................................................................                            11.47%
Tier II capital ratio.....................................................................                              3.11%
Capital adequacy ratio...............................................................                                  14.58%


Notes:
(1)     Provision for credit losses in respect of credits classified as normal or precautionary are used to calculate Tier II capital only to the
        extent such allowances represent up to 1.25 per cent. of risk-weighted assets.
(2)     Subordinated debt representing up to 50% of Tier I capital is used in the calculation of Tier II capital.
The following table sets forth a summary of the Bank’s capital and capital adequacy ratios as of 31st December,
2008, 2009 and 2010 under Korean GAAP and regulatory reporting standards.
                                                                                                                       As of 31st December,
                                                                                                      2008                       2009            2010
                                                                                                                       (in billions of Won)
Tier I capital
Paid-in capital............................................................................           W       3,529              W       3,830   W       3,830
Hybrid........................................................................................                1,513                      2,423           2,394
Capital surplus...........................................................................                      814                        812             812
Retained earnings ......................................................................                      6,936                      7,887           8,713
Minority interests in consolidated subsidiaries.........................                                          5                          6               7
Consolidated adjustment credit/debit........................................                                     —                          —               —
Others ........................................................................................              (1,119)                     (747)           (705)
    Total Tier I capital ................................................................                    11,678                     14,211          15,051
Tier II capital
Revaluation reserves .................................................................                           —                          —               —
Allowance for loan losses(1) .....................................................                            1,128                      1,150             819
Subordinated debt(2) ..................................................................                       4,634                      4,032           3,241
Valuation gain on investment securities ...................................                                     415                        451             324
    Total Tier II capital...............................................................                      6,177                      5,633           4,384
Investment in consolidated equity method investees and other                                                  (114)                      (181)            (98)
   deduction items .....................................................................
Total core and supplementary capital .......................................                          W      17,741              W      19,663   W      19,337
Risk-weighted assets
Credit risk-weighted assets .......................................................                       140,183                    126,339         123,370
Market risk-weighted assets......................................................                             3,446                      2,535           1,257
Operational risk-weighted assets ..............................................                               8,314                      7,788           7,370
    Total ......................................................................................       W 151,943                  W 136,662       W 131,997
Tier I capital ratio ......................................................................                  7.69%                      10.40%          11.40%
Tier II capital ratio.....................................................................                   4.07%                      3.99%           3.25%
Capital adequacy ratio...............................................................                        11.68%                     14.39%          14.65%


Notes:
(1)     Allowances for loan losses in respect of credits classified as normal or precautionary are used to calculate Tier II capital only to the
        extent such allowances represent up to 1.25 per cent. of risk-weighted assets.
(2)     Subordinated debt representing up to 50% of Tier I capital is used in the calculation of Tier II capital.



                                                                                                                                                             57
Beginning on 1st January, 2008, the FSC implemented Basel II in Korea. Basel II, which builds upon the initial
Basel Capital Accord of 1988, focuses its attention on risk assessment and credit risk in particular. Basel II
institutes new measures that require the Bank to:
         •   take into account individual borrower credit when calculating the Bank’s risk-weighted assets,
             unlike in the past; and
         •   quantify its operational risk to include explicit capital requirements in the Bank’s financial
             statements.
In addition, under Basel II, banks are permitted to follow either a standardised approach or an internal ratings-
based approach with respect to calculating credit risk capital requirements. The Bank has voluntarily chosen to
establish and follow an internal ratings-based approach, which is more risk-sensitive in assessing credit risk
capital requirements. In October 2008, the FSS approved the Bank’s internal ratings-based approach for credit
risk. For regulatory reporting purposes, from 30th September, 2008, the Bank has implemented its internal
ratings-based approach for credit risk, beginning with its credit risk with respect to retail, SME and large
corporate loans and asset-backed securities portfolios, and plans to further implement its internal ratings-based
approach to its specialised lending portfolio upon approval by the FSS. A standardised approach will be used in
measuring credit risk for those classes of exposure for which the Bank’s internal ratings-based approach has not
yet been implemented, as well as for certain classes of exposure (including those to the Government, public
institutions and other banks) for which the internal ratings-based approach will not be applied. The Bank plans
to implement an “advanced internal ratings-based approach” for credit risk in the near future. The Bank also
implemented a standardised approach for operational risk beginning on 1st January, 2008, and implemented an
“advanced measurement approach” for operational risk in June 2009.
In December 2009, the Basel Committee on Banking Supervision introduced a new set of measures to
supplement Basel II which include, among others, a requirement for higher minimum capital, introduction of a
leverage ratio as a supplementary measure to the capital adequacy ratio and flexible capital requirements for
different phases of the economic cycle. Additional details regarding such new measures, including an additional
capital conservation buffer and countercyclical capital buffer, liquidity coverage ratio and other supplemental
measures, were announced by the Group of Governors and Heads of Supervision of the Basel Committee on
Banking Supervision in September 2010. After further impact assessment and observation periods, the Basel
Committee on Banking Supervision is expected to begin implementing the new set of measures, referred to as
Basel III, starting from 2013. The timing and scope of implementation of Basel III in Korea remain uncertain.
The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean
financial institutions, including the Bank.




                                                                                                              58
                             HISTORY AND DEVELOPMENT OF THE BANK
History
The Bank was established on 31st December, 1998, originally as Hanvit Bank, as a result of the merger of two
nationwide commercial banks, the Commercial Bank of Korea (established in 1899) and Hanil Bank
(established in 1932).
In response to the financial and economic downturn beginning in late 1997, the Government announced and
implemented a series of comprehensive policy packages to address structural weaknesses in the Korean
economy and the financial sector. As part of these measures, on 1st October, 1998, the KDIC purchased 95.0 per
cent. of the outstanding shares of the Commercial Bank of Korea and 95.6 per cent. of the outstanding shares of
Hanil Bank, and subsequently merged Hanil Bank into the Commercial Bank of Korea (which was renamed
Hanvit Bank). These banks had suffered significant losses in 1997 and 1998. The Commercial Bank of Korea
incurred losses of W164 billion in 1997 and W1,644 billion in the first ten months of 1998, while Hanil Bank
incurred losses of W281 billion in 1997 and W1,717 billion in the first ten months of 1998. The Government
took pre-emptive measures to ensure the survival of these and other banks as it believed that bank failures would
have a substantial negative impact on the Korean economy. The KDIC acquired the Commercial Bank of Korea
and Hanil Bank in particular because they were two of the largest nationwide banks and it was believed that
their continued existence was important to help preserve the stability of Korea’s financial system.
Despite the measures implemented by the Government, however, the Bank recorded significant losses in 1999
and 2000, primarily as a result of high levels of non-performing credits and loan loss provisioning. Based on
subsequent audits conducted by the FSS of a number of Korean commercial and merchant banks, the FSC
announced in April 2000 that certain financial institutions had a high risk of insolvency and that substantial
remedial measures were required.
Commercial Banking Operations
The Government, through the FSC, decided in December 2000 to write down the capital of the Bank (then
named Hanvit Bank), Kyongnam Bank, Kwangju Bank and Peace Bank of Korea (since renamed Woori Credit
Card) to zero. It accomplished this by having the FSC issue a capital reduction order with respect to these banks
pursuant to its regulatory authority. Under Korean law, the FSC has the power to order a distressed financial
institution to effect a capital reduction by requiring it either to cancel the whole or a part of the shares held by
certain stockholders with or without consideration or to effect a reverse stock-split with respect to the shares
owned by certain stockholders. Although the precise requirements of any particular order will vary on a case by
case basis, with respect to these banks, the capital reduction order required them to cancel their outstanding
shares without providing consideration to stockholders.
After that order was issued by the FSC, it was ratified by the board of directors of each bank. Immediately
following that ratification, each bank published a notice in two newspapers in Korea that informed stockholders
who dissented as to the capital reduction that the relevant bank would be required to purchase their shares, so
long as they made a request in writing no more than ten business days following the publication date. Each bank
purchased the shares owned by dissenting stockholders within two months after receiving those requests, in each
case at a price negotiated between the bank and its dissenting stockholders. With respect to each of the four
banks, the bank and the dissenting stockholders were unable to agree on a purchase price. Accordingly, an
accounting expert determined that price. Although the stockholders of each of the Bank, Kyongnam Bank and
Kwangju Bank subsequently requested, pursuant to Korean law, that a court review and adjust the determined
price, the court in each case declined to make any such adjustment.
The Government also decided to recapitalise these banks by injecting public funds through the KDIC in two
parts. The first part of this recapitalisation would comprise capital injections of approximately W3.5 trillion, in
return for new shares of the relevant banks, to eliminate their capital deficits, while the second part would
comprise further capital contributions of approximately W2.6 trillion, without consideration, to increase their
capital adequacy ratios to more than 10 per cent. Accordingly, trading of shares of these four commercial banks
was suspended in December 2000, and the capital of each was written down to zero after each bank purchased
outstanding shares from the then-existing dissenting minority stockholders. On 22nd December, 2000, the
Government and the labour unions of the four commercial banks entered into an agreement under which the
labour unions consented to a plan to include their respective banks as subsidiaries of a state-run financial
holding company that would have full management rights to oversee the restructuring of those banks.




                                                                                                                 59
In December 2000, the KDIC made initial capital injections to the Bank (W2,764 billion), Kyongnam Bank
(W259 billion), Kwangju Bank (W170 billion) and Peace Bank of Korea (W273 billion), in return for new
shares of those banks. The KDIC also agreed to make additional capital contributions, not involving the
issuance of new shares, in the future, which were made in September 2001 to the Bank (W1,877 billion),
Kyongnam Bank (W94 billion), Kwangju Bank (W273 billion) and Peace Bank of Korea (W339 billion). These
subsequent capital contributions were made pursuant to a memorandum of understanding entered into among
the KDIC and the four commercial banks on 30th December, 2000. The terms of the memorandum of
understanding provided that the four banks would subscribe for bonds issued by the KDIC in an aggregate
principal amount equal to the capital contribution amount agreed to by the KDIC, and that the KDIC would then
pay the subscription price back to the banks as capital contributions. From the perspective of the KDIC, the
issuance of the bonds avoided the need to raise additional cash in connection with the capital contributions.
From the perspective of the banks, the KDIC bonds qualified as low-risk assets that helped increase their capital
adequacy ratios. The KDIC bonds also paid interest at market rates and were liquid instruments that could be
readily sold in the market by the banks for cash.
Merchant Banking Operations
On 3rd November, 2000, the KDIC established Hanaro Merchant Bank (since renamed Woori Investment Bank)
to restructure substantially all of the assets and liabilities of four failed merchant banks (Yeungnam Merchant
Banking Corporation, Central Banking Corporation, Korea Merchant Banking Corporation and H&S Investment
Bank) that were transferred to it.
Formation of Financial Holding Company
Partly as a response to perceived inefficiencies in the mechanism by which Korean financial institutions were
managed and partly as a first step to divest itself of its stake in these and other recapitalised financial
institutions, the Government implemented a number of significant initiatives relating to the Korean financial
industry. One of these initiatives, the Financial Holding Company Act, together with associated regulations and
a related presidential decree, created a means by which banks and other financial institutions, including
insurance companies, investment trust companies, credit card companies and securities companies, could be
organised and managed under the auspices of a single financial holding company.
In January 2001, the Bank, Kyongnam Bank, Kwangju Bank, Peace Bank of Korea and Hanaro Merchant Bank
agreed in principle to consolidate and become subsidiaries of a new financial holding company. In July 2001,
the Bank and each of these other financial institutions entered into a memorandum of understanding with Woori
Finance Holdings, and entered into a separate memorandum of understanding with the KDIC. These memoranda
of understanding, which are described in more detail below, established the basis for the relationships among
Woori Finance Holdings, its subsidiaries (including the Bank) and the KDIC. These memoranda set forth,
among other things, financial targets and restructuring objectives that Woori Finance Holdings and its
subsidiaries were expected to satisfy in order to create a fully integrated financial services provider and to
enable the KDIC to recover the public funds used to recapitalise Woori Finance Holdings and its subsidiaries.
On 27th March, 2001, the KDIC transferred all of its shares in each of the Bank, Kyongnam Bank, Kwangju
Bank, Peace Bank of Korea and Hanaro Merchant Bank to Woori Finance Holdings in exchange for its newly
issued shares. Accordingly, Woori Finance Holdings became the sole owner of those subsidiaries (including the
Bank). Woori Finance Holdings subsequently listed its shares on the Stock Market Division of the Korea
Exchange on 24th June, 2002.
Pursuant to the terms of the Financial Holding Company Act, Woori Finance Holdings is subject to certain
limitations on its activities that would not be applicable to most other Korean corporations. For example, it:
         •   may not engage in any business other than managing its subsidiaries and other related matters;
         •   must obtain prior approval from, or file an ex post facto report with, the FSC before it can acquire
             control of another company;
         •   must obtain permission from the FSC to liquidate or to merge with another company;
         •   must inform the FSC if there is any change in its officers or largest stockholder; and
         •   must inform the FSC if it ceases to control any of its subsidiaries.




                                                                                                              60
Relationship with the Government
The relationship of Woori Finance Holdings and its subsidiaries with the Government is governed by a number
of agreements, including in particular the agreements discussed below. In addition, the Government, through the
KDIC, is Woori Finance Holdings’ largest stockholder and accordingly has the ability to require it and its
subsidiaries, including the Bank, to take a number of actions beyond those specifically covered by these
agreements. See “Risk Factors — Risks relating to Government regulation.”
Labour-Government Agreement
As a result of an agreement in December 2000 between the labour unions of Woori Finance Holdings’
subsidiaries and the Government, Woori Finance Holdings controls the management strategies of its subsidiaries
and has the ability to dispose of overlapping business lines. Pursuant to this agreement, any downsizing that
may be required in connection with the reorganisation of the subsidiaries’ operations should be implemented
based on separate agreements concluded between Woori Finance Holdings and its subsidiaries’ labour unions.
Memoranda of Understanding with the KDIC
In December 2000, in connection with the capital contributions made by the KDIC into each of the Bank,
Kyongnam Bank, Kwangju Bank, Peace Bank of Korea and Hanaro Merchant Bank, each of these banks entered
into separate memoranda of understanding with the KDIC that included business normalisation plans. The plans
were substantially identical with respect to each entity, other than with respect to specific financial targets, and
primarily dealt with the obligations of each of the banks to implement a two-year business normalisation plan
covering 2001 and 2002. To the extent that any of the banks fails to implement its business normalisation plan
or to meet financial targets, the KDIC has the right to impose sanctions on the bank’s directors or employees, or
to require the bank to take certain actions. In addition, the banks are each required to take all actions necessary
to enable the bank to return to the KDIC any public funds injected into the bank, so long as that action does not
cause a material adverse effect on the normalisation of business operations as contemplated by the memorandum
of understanding.
Each of the banks prepared a two-year business normalisation plan that was approved by the KDIC. Each plan
included recapitalisation goals and deadlines, econometric models, plans to dispose of non-performing loans,
cost reduction initiatives, future management and business strategies and other restructuring plans. Each plan
also set forth six financial targets for each quarter of 2001 and 2002 that the banks were required to meet.
In addition, the directors of each of the banks executed a letter of undertaking, pursuant to which they assumed
responsibility for the bank’s performance in executing these obligations.
Under each memorandum of understanding, the KDIC could exercise its discretion in determining whether to
take punitive measures against any bank that failed to meet any financial target. The Bank, Kyongnam Bank and
Kwangju Bank generally met their respective targets.
Peace Bank of Korea failed to meet five of its six financial targets as of 30th June, 2001. Woori Finance
Holdings decided to transfer Peace Bank of Korea’s commercial banking operations into the Bank and to
transform Peace Bank of Korea into a credit card subsidiary, Woori Credit Card. In March 2002, Woori Credit
Card entered into a memorandum of understanding with the KDIC that included a business normalisation plan.
This replaced the earlier memorandum of understanding entered into by Peace Bank of Korea and the KDIC in
December 2000. The business normalisation plan was substantially similar to the business normalisation plan
agreed to by Peace Bank of Korea.
Woori Investment Bank (formerly known as Hanaro Merchant Bank) also failed to meet three of its six financial
targets as of 31st December, 2002. In July 2003, Woori Finance Holdings merged Woori Investment Bank into
the Bank.
The Bank, Kyongnam Bank and Kwangju Bank entered into a new business normalisation plan with new
restructuring measures and financial targets with the KDIC in January 2003. In May 2003, Woori Credit Card
entered into a similar business normalisation plan with the KDIC. Woori Credit Card failed to meet three of its
five financial targets as of 30th June, and 30th September, 2003 and failed to meet four of its five financial
targets as of 31st December, 2003. As a result of these failures, the KDIC imposed penalties on Woori Credit
Card, including the termination of certain members of its senior management and the reduction of the
compensation of certain others. In December 2003, Woori Finance Holdings’ board of directors resolved to
merge Woori Credit Card with the Bank, which merger was completed in March 2004. Kwangju Bank and
Kyongnam Bank also failed to meet their respective return on assets target as of 31st December, 2003, although



                                                                                                                 61
they met such target as of 31st March, 2004. Due to its merger with Woori Credit Card, the Bank also failed to
meet its return on assets target and operating profit per employee target as of 30th June, 2004. Woori Finance
Holdings negotiated with the KDIC to adjust some of the financial targets applicable to the Bank, Kyongnam
Bank and Kwangju Bank under the memoranda of understanding and, as a result, each of the Bank, Kyongnam
Bank and Kwangju Bank met its financial targets as of 31st December, 2004.
The Bank, Kyongnam Bank and Kwangju Bank entered into a new business normalisation plan with new
restructuring measures and financial targets with the KDIC in April 2005 and again in April 2007. In addition to
the new restructuring measures and financial targets, the plan primarily dealt with ways to reduce labour cost
and increase employees’ productivity and efficiency with respect to each of the Bank, Kyongnam Bank and
Kwangju Bank. As a result of deteriorating economic and financial market conditions in Korea and globally,
the Bank failed to meet its return on assets target, its expense-to-revenue ratio target and its operating income
per employee target as of 31st December, 2008. In September 2009, the KDIC imposed an institutional warning
on the Bank, as well as reprimands and warnings on 11 current and former executive officers of the Bank
(including its current and former chief executive officers), in connection with the Bank’s failure to meet such
financial targets, including as a result of losses incurred on CDOs and other credit derivatives.
In February and October 2010 and February 2011, the KDIC imposed institutional warnings on the Bank in
connection with its failure to meet its financial targets with respect to operating income per employee as of 30th
September, 2009 and return on assets and non-performing loan ratio as of 30th June and 30th September, 2010,
respectively. In April 2011, the KDIC imposed another institutional warning on the Bank, as well as a warning
on the former chief executive officer of the Bank, in connection with the Bank’s failure to meet its financial
targets with respect to its return on assets and non-performing loan ratio as of 31st December, 2010. Each of the
Bank, Kyongnam Bank and Kwangju Bank entered into a new one-year business normalisation plan with new
restructuring measures and financial targets with the KDIC in March 2011. See “— Recent Developments with
the KDIC.”
Memoranda of Understanding with Woori Finance Holdings
In July 2001, the Bank and each of the other subsidiaries of Woori Financial Holdings entered into separate
memoranda of understanding with Woori Finance Holdings, which included financial targets and a business
initiative plan. The plans are substantially identical with respect to each one of the banks, other than with respect
to specific financial targets, and each plan is primarily intended to define the respective roles of each of the
banks and Woori Finance Holdings within the context of the financial group as a whole, including each of their
rights and obligations with respect to Woori Finance Holdings. These include the obligations of each bank to
implement its respective business initiative plan and to meet the financial targets set forth in the respective
memorandum of understanding on a quarterly basis, and certain other matters that Woori Finance Holdings may
require from time to time. Each subsidiary’s business initiative plan sets forth initiatives related to each of its
operational integration. The Bank’s initial business initiative plan included:
         •   cooperating with Woori Finance Holdings to develop an integrated management and support
             system for it to oversee the Bank’s operations;
         •   disposing of redundant branches;
         •   adopting U.S. GAAP accounting; and
         •   cooperating with Woori Finance Holdings to consolidate its risk management and information
             technology systems, establish an information technology subsidiary, consolidate its credit card
             business, dispose of non-performing assets and establish its asset management subsidiary.
Subsequent business initiative plans have required the banks to continue these activities and undertake new
initiatives.
Under the terms of each memorandum of understanding, Woori Finance Holdings’ role within the group
includes supervising the implementation of overall management policies and strategies, determining business
targets for each subsidiary in order to meet Woori Finance Holdings’ business targets, consulting with each
subsidiary with respect to its business plans, budgets, dividend policies and capital increases, evaluating
management and determining management compensation. The role of each subsidiary includes executing the
business targets Woori Finance Holdings sets, consulting with it with respect to important management
decisions, developing a restructuring execution plan and cooperating with respect to paying consulting fees
incurred in connection with developing business strategies.




                                                                                                                  62
If Woori Finance Holdings determines that a subsidiary has failed to perform its obligations under its
memorandum of understanding, it has the right to impose sanctions on the subsidiary’s directors or employees,
or to take other remedial measures. Each memorandum of understanding also provides that it will terminate if
the subsidiary loses its status as a subsidiary of Woori Finance Holdings under the Financial Holding Company
Act. The memorandum of understanding would not, however, terminate simply if the KDIC were to lose its
status as Woori Finance Holdings’ largest stockholder.
The specified financial targets for 2011 that are to be met by each of the banks as subsidiaries to Woori Finance
Holdings are identical to those imposed by the KDIC on each of the banks.
Recent Developments with the KDIC
In March 2011, Woori Finance Holdings, the Bank, Kyongnam Bank and Kwangju Bank each entered into a
new one-year business normalisation plan with the KDIC that included new restructuring measures and financial
targets. In addition, with respect to the Bank, the plan primarily dealt with ways to increase labor efficiency,
strengthen the risk management system, improve asset quality and improve profitability through increased
synergy with other members of the Woori Financial Holdings group. The other terms of the previously agreed
memoranda of understanding remain unchanged.
The one-year business normalisation plan sets forth the basis on which each of the banks should manage the
normalisation and integration of its respective operations as well as return the public funds that were injected
into the banks. The business normalisation plan sets forth five financial targets for fiscal year 2011 that the Bank
is required to meet on a K-IFRS basis, with quarterly targets being set internally by the Bank in accordance with
the year-end targets. The Bank’s current non-consolidated K-IFRS targets for fiscal year 2011 are set forth in
the following table:

                                                                                                                       2011
                                                                                                      March    June    September   December
                                                 (1)
                  Capital adequacy ratio ......................................................        10.0%   10.0%     10.0%      10.0%
                  Return on total assets(2)........................................................    0.34     0.36     0.37       0.44
                  Expense-to- revenue ratio(3) ................................................        50.5    50.0      49.0       47.2
                  Operating income per employee (in billions of Won)(4) .....                          3.1      3.1      3.1        3.1
                  Non-performing loan ratio(5) ...............................................         2.2      2.1      1.9        1.5

Notes:
(1)   For a description of how the capital adequacy ratio is calculated, see “Regulation and Supervision — Capital Adequacy.”
(2)   Represents the ratio of net income to total assets.
(3)   Represents the ratio of general and administrative expenses to operating income net of operating expenses before loan loss provisions
      and general and administrative expenses (“adjusted operating income”).
(4)   Represents adjusted operating income divided by the total number of employees.
(5)   Represents the ratio of total credits (net of provisions) classified as substandard or below to total credits.


Each of Woori Finance Holdings, Kyongnam Bank and Kwangju Bank also submitted similar one-year business
normalisation plans that contain similar financial targets that each is required to meet. The Bank expects that it
and these banks will be required to enter into new business normalisation plans with the KDIC every year, in
accordance with a recent shift in the term of such plans from two years to one year, so long as the KDIC remains
Woori Finance Holdings’ largest stockholder.




                                                                                                                                              63
                                                  BUSINESS

The Bank is the second-largest commercial bank in Korea, in terms of total assets (including loans) and deposits
as of 30th June, 2011. The Bank’s operations include a broad range of businesses, including commercial
banking, credit cards, capital markets activities, international banking, asset management and bancassurance.
The Bank provides a wide range of products and services to its customers, which mainly comprise SMEs and
individuals, as well as some of Korea’s largest corporations. As of 30th June, 2011, the Bank had, on a
consolidated basis under K-IFRS, total assets of W234,867 billion, total liabilities of W217,320 billion and
shareholder’s equity of W17,546 billion.
While the Bank has been focusing increasingly on the consumer banking segment in recent years, historically its
operations concentrated on large corporate customers. As a result, the Bank believes that it has strong
relationships with many of Korea’s leading corporate entities, and it is the main creditor bank to 11 of the 30
largest Korean corporations. The Bank’s ability to lend to SMEs further enhances its corporate loan portfolio
with a total of over 225,000 SME borrowers as of 30th June, 2011.
With respect to its consumer banking operations, the Bank had the second-largest deposit base of any Korean
commercial bank, and approximately 16 million retail customers, representing about a third of the Korean
population as of 30th June, 2011. Of these customers, more than half are active customers, meaning that they
have an account with the Bank with a positive balance or have transacted business with it at least once during
the last six months. The Bank’s network of over 900 branches and 6,900 ATMs and cash dispensers gives it a
strong market presence throughout Korea, with a particularly strong representation in the Seoul metropolitan
area.
The Bank was formed on 31st December, 1998 as a result of the merger of two nationwide commercial banks,
the Commercial Bank of Korea and Hanil Bank. The Bank is the largest subsidiary of Woori Finance Holdings,
which is a financial holding company that was established in March 2001 by the KDIC to consolidate the
Government’s interests in four commercial banks (the Bank, Kyongnam Bank, Kwangju Bank and Peace Bank
of Korea), one merchant bank and a number of other financial institutions. See “History and Development of the
Bank.” The Bank’s legal and commercial name is Woori Bank. Its registered office and corporate headquarters
are located at 203 Hoehyon-dong, 1-ga, Chung-gu, Seoul, Korea.
Strategy
The Bank aims to continue to build its position as a leading universal banking and financial services company in
Korea, with a view to having its business platform and operating structure match or outperform those of leading
global financial institutions. The key elements of its strategy are as follows:
Enhance core risk and credit management systems. Risk and credit management remains a core capability
integrated with all aspects of the Bank’s daily operations. Its credit risk management policy expedites the loan
review process by providing systematic, efficient and centralised credit rating procedures for standardising
decisions and ensuring consistency with its internal approval policies. The Bank aims to continue to strengthen
its central risk and credit operations by promoting close communications between relationship managers and
credit officers, utilising proven models to better quantify credit risk, making more accurate risk-based pricing
decisions, reducing delinquent loans and distressed assets and maximising the recovery value of non-performing
loans, and increasing accountability and efficiency throughout its loan approval and monitoring processes.
A primary focus will be strengthening management of consumer and SME credit risk. The Bank aims to achieve
this, in part, by extension of monitoring of potential delinquencies to normal loans. Furthermore, in response to
the recent difficult conditions and volatility in the worldwide financial markets, the Bank is seeking to further
enhance its risk management capabilities in its capital markets activities, including with respect to securities
investment and trading, derivatives trading and investment banking activities, and to strengthen the internal
controls of its overseas branches and subsidiaries.
The Bank has created a centralised risk management organisation, installed a comprehensive warning and
monitoring system, adopted uniform loan loss provisioning policies and implemented an advanced credit
evaluation system called “CREPIA.” In preparation for the implementation of Basel II, the Bank completed
upgrades to its credit risk management systems in 2007, including credit evaluation models, collateral
management systems and non-performing credit management systems, as well as the implementation of a
“credit risk measurement engine” to quantify its credit risk exposures. In addition, the Bank has adopted a value
at risk, or “VaR,” monitoring system for managing market risk. The Bank intends to vigorously maintain a
manageable risk profile and balance that risk profile with adequate returns. The Bank believes that its


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continuous focus on upgrading its risk management systems and practices will enable the Bank to maintain its
strong asset quality, improve its financial performance and enhance its competitiveness.
Increase value income and diversify revenue base with a view to reducing exposure to interest rate cycles and
increasing profitability. The Bank plans to increase “value income,” which it defines as value-added income, net
of cost and risk expenses, mainly through rationalised pricing and wealth management. The Bank seeks to
rationalise its pricing structure by re-calibrating interest and fees based on actual cost. Moreover, the Bank seeks
to differentiate pricing by assessing each customer’s net worth and risk. In addition, in order to promote more
efficient wealth management, the Bank plans to install a comprehensive infrastructure for customer asset
management and enter into business ties with other institutions to adopt advanced financial techniques. The
Bank also plans to expand the role of its private banking centres and increase the number of private bankers
specialising in serving the needs of its high net-worth customers.
The Bank seeks to obtain high value income by increasing market share and profitability in high margin
business areas (such as investment banking and private banking), strengthening its bancassurance business,
expanding its credit card business, diversifying its income sources by increasing non-interest income (such as
income from fees and commissions), creating new profitable areas and seeking innovative alliances with
complementary non-banking firms.
The market has seen increased cross-selling of financial products, the growth of the asset management market
due to excess liquidity and the low interest rate environment, and greater competition in mobile banking
services. Consistent with these trends, the Bank is diversifying its business and product platforms and increasing
the synergies between product units.
Optimise current operational platform and maximise synergies. The Bank plans to increase the efficiency of its
current operations and optimise its current operational platform. Through the completion of its business process
re-engineering project, the Bank has been able to re-align employees and resources in order to reduce processing
redundancies, enhance marketing focus and improve cost efficiency. In addition, the Bank has implemented new
central systems, such as a knowledge management database, to increase information sharing and synergies
among its different business operations.
In recent years, the Bank has also sought to strengthen its operational platform by introducing M-Banking, a
mobile banking platform that enhances customer service and generates transaction fees. The Bank believes that
this mobile banking platform is more advanced than existing systems because it provides simplified processes,
faster access and lower transmission costs. The Bank has also introduced its “Win-CMS” service, which
provides an integrated electronic cash management system and in-house banking platform for the Bank’s
corporate customers.
The Bank aims to maximise synergies by strengthening cooperation with other subsidiaries of Woori Finance
Holdings, cross-selling systems and mechanisms for exchanging client information. It also plans to strengthen
the relationships between business groups, operational units and on- and off-line systems.
Develop and increase productivity of the Bank’s professional workforce. The Bank aims to retain the most
qualified and highly-trained professionals in the market, and it intends to continue to focus on the development
and training of its core professionals. In order to boost employee morale and productivity, the Bank aims to
create an environment that nurtures development and growth, and it will continue to emphasise performance-
based incentive programmes to recognise high performers on both an individual and business unit level. In
addition, a rigorous ethics management programme and related measures have been instituted to reduce
operational risk and help ensure compliance with the Bank’s internal standards and policies.
Enhance customer profitability through optimisation of channel usage, products and services for each customer
segment. The Bank’s extensive distribution network and wide range of quality products and services has enabled
the Bank to serve its customers effectively. However, the Bank intends to further enhance the value proposition
to its customers by differentiating products and delivery channels based on the distinct needs of different
customer segments.
Retail customers: The Bank has segmented its retail customers into four groups: high net worth; mass affluent;
middle class; and mass market. The Bank believes it is relatively competitive in its core customer base, which
includes mass affluent and middle class customers, and the Bank serves these customers through its team of
financial planners in its branches who sell customised higher margin services and products, such as investment
advice, mutual funds, insurance, personal loans and securities brokerage services. For the Bank’s mass market
customers, the Bank offers simple, easy-to-understand and relatively more standardised products such as basic



                                                                                                                 65
deposit and lending products, including mortgage loans. The Bank encourages the use of alternative distribution
channels such as the Internet, phone banking and ATMs by its mass market customers such that it can serve
them in a cost efficient manner. The Bank serves its high net worth customers via branches and dedicated
private banking centres staffed with experienced private bankers who offer sophisticated tailored financial
services.
Corporate customers: The Bank continuously and vigorously reviews its portfolio of large corporate and SME
customers to refine its database of core accounts and industries in terms of profitability potential. The Bank
seeks to expand its relationship beyond a pure lending relationship by promoting the Bank’s foreign exchange,
factoring, trade finance and investment banking services to its core SME customers and cross-selling the Bank’s
investment banking services, derivatives and other risk hedging products, as well as employee retirement
products to the Bank’s core large corporate customers.
Corporate Banking
The Bank provides commercial banking services to SMEs and large corporate customers (including
Government-owned enterprises) in Korea. Its corporate banking operations consist mainly of lending to and
taking deposits from its corporate customers. The Bank also provides ancillary services on a fee basis, such as
inter-account transfers, transfers of funds from branches and agencies of a company to its headquarters and
transfers of funds from a company’s customer accounts to the company’s main account.
The following table sets forth the balances and percentages of the Bank’s total corporate lending represented by
its SME loans and large corporate loans on a non-consolidated basis under Korean GAAP as of the dates
indicated.
                                                                                                       As of 31st December,
                                                                                2009                                                          2010
                                                         Amount                              Percentage                   Amount                       Percentage
                                                                                              of Total                                                  of Total
Loans:                                              (in billions of Won)                                              (in billions of Won)
SMEs ........................................                W 61,659                                    57.5%                   W 59,036                       58.0%
Large corporate ........................                       14,730                                      13.8                     15,261                        15.0
Others(1) ....................................                 30,768                                      28.7                     27,567                        27.0
Total..........................................             W 107,157                                   100.0%                   W 101,864                     100.0%

Note:
(1) Includes loans to Government agencies, foreign currency loans and other corporate loans.


The following table sets forth the balances and percentages of the Bank’s total corporate lending represented by
its SME loans and large corporate loans on a non-consolidated basis under K-IFRS as of 30th June, 2011.

                                                                                                           As of 30th June, 2011
                                                                                                   Amount                    Percentage
                                                                                                                              of Total
                                           Loans:                                              (in billions of Won)
                                           SMEs........................................                  W 58,970                             57.5%
                                           Large corporate........................                          16,581                              16.2
                                           Others(1) ....................................                   27,013                              26.3
                                           Total .........................................               W 102,564                           100.0%

Note:
(1) Includes loans to Government agencies, foreign currency loans and other corporate loans.



The Bank had over 225,000 SME borrowers and over 2,200 large corporate borrowers as of 30th June, 2011.
Corporate loans that the Bank provides consist principally of the following:
                •        working capital loans, which are loans used for general working capital purposes, typically with a
                         maturity of one year or less, including notes discounted and trade finance; and
                •        facilities loans, which are loans to finance the purchase of materials, equipment and facilities,
                         typically with a maturity of three years or more.




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On the deposit-taking side, the Bank currently offers its corporate customers several types of corporate deposit
products. These products can be divided into two general categories: demand deposits that have no restrictions
on deposits or withdrawals, but which offer a relatively low interest rate; and time deposits from which
withdrawals are restricted for a period of time, but offer higher interest rates. The Bank also offers installment
deposits, certificates of deposit and repurchase instruments. The Bank offers varying interest rates on its deposit
products depending upon the rate of return on its interest-earning assets, average funding costs and interest rates
offered by other nationwide commercial banks.
SME Banking
The Bank uses the term “small- and medium-sized enterprises” as defined in the Small and Medium Industry
Basic Act of Korea and related regulations. Under the Small and Medium Industry Basic Act of Korea, the
major criteria generally used to define SMEs are (i) the number of full-time employees (in the case of
manufacturers, less than 300), (ii) stockholders’ equity (in the case of manufacturers, not more than W8 billion)
or (iii) sales revenues (not more than W30 billion), depending on the industry, but in each case the number of
full-time employees must be fewer than 1,000 and the total amount of assets must be less than W500 billion.
The SME segment of the corporate banking market has grown significantly in recent years, including as a result
of Government measures to encourage lending to these enterprises. As a result of its efforts to target this
growing market segment, the Bank’s loan exposure to SMEs has remained relatively large, accounting for, on a
non-consolidated basis under Korean GAAP, 80.7 per cent. of its total corporate loans as of 31st December,
2009 and 79.5 per cent. as of 31st December, 2010. On a non-consolidated basis under K-IFRS, the Bank’s loan
exposure to SMEs accounted for 78.1 per cent. of its total corporate loans as of 30th June, 2011. As of 30th
June, 2011, on a non-consolidated basis under K-IFRS, 34.5 per cent. of its SME loans were extended to
borrowers in the manufacturing industry, 26.0 per cent. were extended to borrowers in the construction and real
estate and leasing industries,16.9 per cent. were extended to borrowers in the retail and wholesale industry and
6.9 per cent. were extended to borrowers in the hotel, leisure and transportation industries.
The Bank services its SMEs primarily through its network of branches and SME relationship managers. As of
30th June, 2011, the Bank had stationed one or more relationship managers at 721 branches, of which 399 were
located in the Seoul metropolitan area. The relationship managers specialise in servicing the banking needs of
SME customers and concentrate their marketing efforts on developing new customers in this segment. As of
30th June, 2011, the Bank had a total of 825 SME relationship managers stationed at its branches.
In addition to increasing the Bank’s dedicated staffing and branches, the Bank’s strategy for this banking
segment is to identify promising industry sectors and to develop and market products and services targeted
towards customers in these sectors. The Bank has also developed in-house industry specialists who can help
identify leading SMEs in, and develop products and marketing strategies for, these targeted industries. In
addition, the Bank operates customer loyalty programmes for its most profitable SME customers and provides
them with benefits and services such as preferential rates, free seminars and workshops and complementary
invitations to cultural events.
Industry-wide delinquency ratios for Won-denominated loans to SMEs increased in 2010 and again increased in
the first half of 2011. The Bank’s delinquency ratio for loans to SMEs may further increase in the future as a
result of, among other things, adverse economic conditions in Korea and globally. In addition, in light of the
deteriorating financial condition and liquidity position of SMEs in Korea, the Government has introduced
measures intended to encourage Korean banks to provide financial support to SME borrowers. See “Risk
Factors—Risks relating to the Bank—Corporate credit portfolio—The Bank’s increasing loan exposure to
SMEs with financial difficulties may result in a deterioration of the Bank’s asset quality and adversely impact
the Bank.”
Lending Activities. The Bank provides both working capital loans and facilities loans to its SME customers. As
of 30th June, 2011, on a non-consolidated basis under K-IFRS, Won currency working capital loans and
facilities loans accounted for 74.1 per cent. and 25.9 per cent., respectively, of its total Won currency SME
loans. As of 30th June, 2011, the Bank had a total of over 225,000 SME borrowers.
As of 30th June, 2011, on a non-consolidated basis under K-IFRS, secured loans and loans guaranteed by a third
party accounted for 60.4 per cent. and 9.8 per cent., respectively, of the Bank’s SME loans. As of 30th June,
2011, on a non-consolidated basis under K-IFRS, approximately 80.5 per cent. of the secured loans was secured
by real estate, 3.8 per cent. was secured by deposits and approximately 15.7 per cent. was secured by letters of
guarantee or other collateral such as accounts receivable, ships and other assets of the borrower. Working
capital loans generally have a maturity of one year, but may be extended on an annual basis for an aggregate



                                                                                                                67
term of three to five years if periodic payments are made. Facilities loans have a maximum maturity of ten
years.
When evaluating the extension of working capital loans and facilities loans, the Bank reviews the
creditworthiness and capability to generate cash of the SME customer. Furthermore, the Bank takes corporate
guarantees and credit guarantee letters from other financial institutions and uses deposits that the borrower has
with it or securities pledged to it as collateral. The Bank receives fees in relation to credit evaluation, collateral
appraisal and other services provided in connection with a loan extension.
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. The Bank generally revalues any collateral on a periodic basis (every
year for real estate (with apartments being revalued every month, subject to the availability of certain specified
market information), every year for equipment, every month for unlisted stocks and deposits and every week for
stocks listed on a major Korean stock exchange) or if a trigger event occurs with respect to the loan in question.
Pricing. The Bank establishes the pricing for its SME loan products based principally on transaction risk, its
cost of funding and market considerations. The Bank’s lending rates are generally determined using its
automated CREPIA system. See “Risk Management — Credit Risk Management — Credit Evaluation and
Approval.” The Bank measures transaction risk using factors such as the credit rating assigned to a particular
borrower and the value and type of collateral. Its system also takes into account cost factors such as the current
market interest rate, opportunity cost and cost of capital, as well as a spread calculated to achieve a target rate of
return. Depending on the price and other terms set by competing banks for similar borrowers, the Bank may
reduce the interest rate it charges to compete more effectively with other banks. Loan officers have limited
discretion in deciding what interest rates to offer, and significant variations require review at higher levels. As of
30th June, 2011, on a non-consolidated basis under K-IFRS, approximately 87.1 per cent. of the Bank’s SME
loans had interest rates that varied with reference to current market interest rates.
Large Corporate Banking
Large corporate customers consist of companies that are not “small- and medium-size enterprises” as defined in
the Small and Medium Industry Basic Act of Korea and related regulations, and typically include companies
that have assets of W10 billion or more and are therefore subject to external audit under the External Audit Act
of Korea. As a result of its history and development, the Bank remains the main creditor bank to some of
Korea’s largest corporate borrowers.
In terms of the Bank’s outstanding loan balance, on a non-consolidated basis under K-IFRS, as of 30th June,
2011, 47.8 per cent. of the Bank’s large corporate loans were extended to borrowers in the manufacturing
industry, 17.3 per cent. were extended to borrowers in the construction and real estate and leasing industries, 8.3
per cent. were extended to borrowers in the retail and wholesale industry and 5.9 per cent. were extended to
borrowers in the hotel, leisure and transportation industries.
The Bank services its large corporate customers primarily through its network of dedicated corporate marketing
centres and relationship managers. It operates 13 corporate marketing centres, 12 of which are located in the
Seoul metropolitan area. Each centre is staffed with several general managers and headed by a senior general
manager. Depending on the centre, each such manager is responsible for large corporate customers that either
are affiliates of a particular chaebol or operate in a particular industry or region. As of 30th June, 2011, the Bank
had a total of 96 general managers who focus on marketing to, and managing the accounts of, large corporate
customers.
The Bank’s strategy for the large corporate banking segment is to develop new products and cross-sell its
existing products and services to its core base of large corporate customers. In particular, the Bank continues to
focus on marketing fee-based products and services such as foreign exchange and trade finance services,
derivatives and other risk hedging products, investment banking services and advisory services. The Bank has
also been reviewing the credit and risk profiles of its existing customers as well as those of its competitors, with
a view to identifying a target group of high-quality customers on whom the Bank can concentrate its marketing
efforts. In addition, the Bank is striving to increase the chaebol-, region- and industry-based specialisation of its
relationship managers, including through the operation of a knowledge management database that allows greater
sharing of marketing techniques and skills.




                                                                                                                   68
Lending Activities. The Bank provides both working capital loans and facilities loans to its large corporate
customers. As of 30th June, 2011, Won currency working capital loans and facilities loans accounted for 78.2
per cent. and 21.8 per cent., respectively, of the Bank’s total Won currency large corporate loans on a non-
consolidated basis under K-IFRS.
Loans to large corporate customers may be secured by real estate or deposits or be unsecured. As of 30th June,
2011, secured loans and loans guaranteed by a third party accounted for 29.1 per cent. and 1.2 per cent.,
respectively, of the Bank’s large corporate loans, on a non-consolidated basis under K-IFRS. Since a relatively
low percentage of its large corporate loan portfolio is secured by collateral, the Bank may be required to
establish larger provisions for credit losses with respect to any such loans that become non-performing or
impaired. See “Assets and Liabilities — Asset Quality of Loans — Loan Loss Provisioning Policy.” As of 30th
June, 2011, approximately 66.9 per cent. of the secured loans was secured by real estate and approximately 4.3
per cent. was secured by deposits, on a non-consolidated basis under K-IFRS. Working capital loans generally
have a maturity of one year but may be extended on an annual basis for an aggregate term of three to five years.
Facilities loans have a maximum maturity of ten years.
The Bank evaluates creditworthiness and collateral for its loans to large corporate customers in essentially the
same way as it does for loans to SME customers. See “— SME Banking — Lending Activities.”
Pricing. The Bank determines the pricing of its loans to large corporate customers in the same way that it
determines the pricing of its loans to SME customers. See “— SME Banking — Pricing.” As of 30th June,
2011, on a non-consolidated basis under K-IFRS, approximately 69.8 per cent. of the Bank’s large corporate
loans had interest rates that varied with reference to current market interest rates.
Consumer Banking
The Bank provides retail banking services to consumers in Korea. Its consumer banking operations consist
mainly of lending to and taking deposits from its retail customers. The Bank also provides ancillary services on
a fee basis, such as wire transfers. While it has historically attracted and held large amounts of consumer
deposits through its extensive branch network, the Bank’s substantial consumer lending growth occurred
principally in recent years, in line with the increase in the overall level of consumer debt in Korea.
The Bank’s strategy in the consumer banking area has been to segment these customers based on their
individual net worth and contribution to its consumer banking operations, into four groups: high net worth; mass
affluent; middle class; and mass market. The Bank differentiates its products, services and service delivery
channels with respect to these segments and targets the Bank’s marketing and cross-selling efforts based on this
segmentation. With respect to the high net worth and mass affluent segments, the Bank has established private
banking operations to better service customers in these segments. See “— Private Banking Operations.” With
respect to the middle class segment, the Bank intends to use its branch-level sales staff to maximise the overall
volume of products and services it provides. With respect to the mass market segment, the Bank has focused on
increasing its operating efficiency by encouraging customers to migrate to low-cost alternative service delivery
channels, such as the Internet, call centres, mobile banking and ATMs.
Lending Activities
The Bank offers a variety of consumer loan products to households and individuals. It differentiates its product
offerings based on a number of factors, including the customer’s age group, the purpose for which the loan is
used, collateral requirements and maturity.
The following table sets forth the balances and percentage of the Bank’s total consumer lending, on a non-
consolidated basis under Korean GAAP, represented by the different types of its consumer loans as of the dates
indicated.
                                                                                  As of 31st December,
                                                                          2009                                2010
                                                                Amount            Percentage        Amount            Percentage
                                                                                    of total                            of total
                                                           (in billions of Won)                (in billions of Won)
General purpose household loans .....                               W 17,621          31.2%             W 19,287          33.7%
Mortgage and home equity loans ......                                 38,770           68.8               38,001          66.3
Total...................................................            W 56,391         100.0%             W 57,288         100.0%


The following table sets forth the balances and percentage of the Bank’s total consumer lending, on a non-
consolidated basis under K-IFRS, represented by the different types of its consumer loans as of 30th June, 2011.



                                                                                                                                   69
                                                                  As of 30th June,
                                                                        2011
                                                                Amount            Percentage
                                                                                    of total
                                                           (in billions of Won)
General purpose household loans .....                              W 19,363           32.6%
Mortgage and home equity loans ......                                40,055            67.4
Total...................................................          W 59,418           100.0%



The Bank’s consumer loans consist of:
                 •       General purpose household 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 the Bank in excess of the amount in such accounts up to a limit established by the
                         Bank.
                 •       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 customers secured by
                         their homes to ensure loan repayment.
For secured loans, including mortgage and home equity loans, the Bank generally lends up to 60 per cent. of the
collateral value (except in areas of high speculation designated by the Government where it generally limits its
lending to 40 to 60 per cent. of the appraised value of collateral) minus the value of any lien or other security
interest that is prior to the Bank’s security interest. In calculating the collateral value for real estate, the Bank
generally uses the appraisal value of the collateral as determined using its automated CREPIA system. The Bank
generally revalues collateral on a periodic basis. As of 30th June, 2011, the revaluation period was every year
for real estate (with apartments being revalued every month, subject to the availability of certain specified
market value information), every year for equipment, every month for deposits and every week for stocks listed
on a major Korean stock exchange.
A borrower’s eligibility for general purpose household loans is primarily determined by such borrower’s
creditworthiness. In reviewing a potential borrower’s loan application, the Bank also considers the suitability of
the borrower’s proposed use of funds, as well as the borrower’s ability to provide a first-priority mortgage. A
borrower’s eligibility for a home equity loan is primarily determined by such borrower’s creditworthiness
(including as determined by the Bank’s internal credit scoring protocols) and the value of the collateral property,
as well as any third party guarantees of the borrowed amounts.
The Bank also offers a variety of collective housing loans, including loans to purchase property or finance the
construction of housing units, loans to contractors to be used for working capital purposes, and loans to
educational institutions and non-profit entities to finance the construction of dormitories. Collective housing
loans subject the Bank to the risk that the housing units will not be sold. As a result, the Bank reviews the
probability of the sale of the housing unit when evaluating the extension of a loan. It also reviews the borrower’s
creditworthiness and the suitability of the borrower’s proposed use of funds. Furthermore, the Bank takes 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, it also takes a guarantee from the Housing Finance Credit Guarantee Fund as security.
As of 30th June, 2011, approximately W14,606 billion, or 24.6 per cent. of the Bank’s consumer loans, on a
non-consolidated basis under K-IFRS, was unsecured, although some of these loans were guaranteed by a third
party. As of 30th June, 2011, approximately 57.1 per cent. of the Bank’s consumer loans, on a non-consolidated
basis under K-IFRS, was secured by residential property, 6.5 per cent. were guaranteed by letters of guarantee
and 11.8 per cent. were secured by other collateral such as other real estate, deposits or securities.
General Purpose Household Loans
The Bank’s general purpose household loans include loans secured by homes, other real estate, deposits or
securities. As of 30th June, 2011, on a non-consolidated basis under K-IFRS, approximately W13,024 billion or
67.3 per cent. of the Bank’s general purpose household loans were unsecured, although some of these loans
were guaranteed by a third party. Overdraft loans are primarily unsecured and typically have a maturity
between one and three years. In recent years, the amount of such overdraft loans the Bank has extended has been
steadily declining. As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the Bank had
approximately W403 million in overdraft loans outstanding.




                                                                                                                      70
Pricing. The interest rates on the Bank’s general purpose household loans are either a periodic floating rate
(based on an internally derived base rate (determined for three-month, six-month or twelve-month periods),
reflecting the Bank’s internal cost of funding, which is then adjusted to account for the borrower’s credit score
and the Bank’s opportunity cost) or a fixed rate that reflects those same costs and expenses, but that also takes
into account interest rate risks. In February 2010, the Bank began using the “Cost of Fund Index” (or COFIX)
benchmark rate, as announced by the Korea Federation of Banks, as the base rate for the Bank’s general purpose
household loans with periodic floating rates in place of the benchmark certificate of deposit rate that the Bank
had traditionally used for such purpose. The Bank’s interest rates also incorporate a margin based on, among
other things, the type of collateral (if any), priority with respect to any security, its target loan-to-value ratio and
loan duration. The Bank also can adjust the applicable rate based on current or expected profit contributions by
the customer. The Bank’s lending rates are generally generated by its automated CREPIA system, and the
applicable interest rate is determined at the time of the loan. The Bank also charges a termination fee in the
event a borrower repays the loan prior to maturity. As of 30th June, 2011, on a non-consolidated basis under K-
IFRS, approximately 93.7 per cent. of its general purpose household loans had floating interest rates.
Mortgage and Home Equity Lending
The Bank provides customers with a number of mortgage and home equity loan products that have flexible
features, including terms, repayment schedules, amounts and eligibility for loans. The maximum term of the
Bank’s mortgage and home equity loans is 35 years. Most of such mortgage and home equity loans have an
interest-only payment period of five years or less. The Bank evaluates a borrower’s eligibility for a mortgage or
home equity loan based on the borrower’s personal information, transaction history and credit history using the
CREPIA system. See “Risk Management — Credit Risk Management — Credit Evaluation and Approval.” The
eligibility of a borrower participating in a housing lottery is also contingent upon such borrower’s ability to
demonstrate that the borrower has paid a deposit, or can obtain a guarantee from a Government-related housing
fund. The Bank receives fee income related to the origination of loans, including fees relating to loan processing
and collateral evaluation.
Contrary to general mortgage and home equity lending practice in the United States and many other countries, it
is not uncommon for Korean banks, including the Bank, to extend a portion of mortgage and home equity loans
on an unsecured basis, although borrowers are typically restricted from using such borrowed funds for any
purpose other than to finance the purchase of the subject property, and some such loans are guaranteed by a
third party. The “unsecured” loans in the Bank’s mortgage loan portfolio, in part, reflects the practice common
among Korean banks, of extending loans to finance a borrower’s purchase of new housing under construction
(particularly in large multi-unit apartment complexes). Once construction is complete, which may take several
years, the formerly “unsecured” mortgage loan becomes secured by the new property. For each of the year
ended 31st December, 2010 and the six month period ended 30th June, 2011, the average initial loan-to-value
ratio of the Bank’s mortgage and home equity loans was approximately 48.1 per cent.
Pricing. The interest rates for the Bank’s mortgage and home equity loans are determined on essentially the
same basis as its general purpose household loans, except that for mortgage and home equity loans the Bank
places significantly greater weight on the value of any collateral that is being provided to secure the loan. The
base rate that it uses in determining the interest rate for its mortgage and home equity loans is identical to the
base rate that it uses to determine pricing for its general purpose household loans. As of 30th June, 2011, on a
non-consolidated basis under K-IFRS, approximately 98.5 per cent. of its outstanding mortgage and home
equity loans had floating interest rates.
Deposit-Taking Activities
As of 30th June, 2011, the Bank was the second-largest deposit holder among Korean banks, in large part due to
its nationwide branch network. The balance of its deposits from retail customers, on a non-consolidated basis
under Korean GAAP, was W42,218 billion and W45,191 billion as of 31st December, 2009 and 2010,
respectively, which constituted 28.6 per cent. and 29.3 per cent., respectively, of the balance of its total deposits.
On a non-consolidated basis under K-IFRS, the balance of the Bank’s deposits from retail customers was
W47,612 billion as of 30th June, 2011, which constituted 30.4 per cent. of the balance of its total deposits.
The Bank offers diversified deposit products that target different customers with different needs and
characteristics. These deposit products fall into five general categories:
         •    time deposits, which generally require a customer to maintain a deposit for a fixed term during
              which interest accrues at a fixed or floating rate. Early withdrawals require penalty payments. The
              term for time deposits typically ranges from one month to five years;


                                                                                                                     71
              •       demand deposits, which either do not accrue interest or accrue interest at a lower rate than time,
                      installment or savings deposits. The customer may deposit and withdraw funds at any time and, if
                      the deposits are interest bearing, they accrue interest at a fixed or variable rate depending on the
                      period and/or amount of deposit;
              •       savings deposits, which allow the customer to deposit and withdraw funds at any time and accrue
                      interest at a fixed rate set by the Bank depending upon the period and amount of deposit;
              •       installment deposits, which generally require the customer to make periodic deposits of a fixed
                      amount over a fixed term during which interest accrues at a fixed rate. Early withdrawals require
                      penalty payment. The term for installment deposits range from six months to ten years; and
              •       certificates of deposit, the maturities of which range from 30 days to five years, with a required
                      minimum deposit of W5 million. Interest rates on certificates of deposit vary with the length of
                      deposit and prevailing market rates. Certificates of deposit may be sold at face value or at a
                      discount with the face amount payable at maturity.
The following table sets forth the balances of the Bank’s total retail and corporate deposits, on a non-
consolidated basis under K-IFRS, in local and foreign currencies, represented by each deposit product category
as of 30th June, 2011:
                                                                                                                      Cash
                                                                                                                    Manage-
                                                Time and                                                Notes         ment
                                                 Savings    Demand      Installment Certificates       Payable       Account
           Deposits in Won                      Deposits    Deposits     Deposits      of Deposit    Deposits(1)    Deposits(1)    Total
                                                                                  (in billions of Won)
30th June, 2011 .............................   W 135,025     W 9,369          W 95        W 1,609      W 2,549        W 2,022    W 150,669

                                                Current     Passbook      Notice             Time      Temporary     Other
  Deposits in foreign currency                  Deposits    Deposits     Deposits         Deposits       Deposits   Deposits       Total
                                                                                    (in billions of Won)
30th June, 2011 .............................      W 373      W 3,004       −                W 2,513        W 196         W 56      W 6,142

Note:
(1)     Deposits of the Bank’s merchant banking unit.


The Bank offers varying interest rates on its deposit products depending on market interest rates as reflected in
average funding costs, the rate of return on its interest earning assets and the interest rates offered by other
commercial banks. Generally, the interest payable is the highest on installment deposits and decreases with
certificate of deposit accounts and time and savings deposit accounts receiving relatively less interest, and
demand deposits accruing little or no interest.
The Bank also offers deposits in foreign currencies and various specialised deposit products, including:
              •       Apartment application time deposits, which are special purpose time deposit accounts providing
                      the holder with a preferential right to subscribe for new private apartment units and mid-sized,
                      privately constructed national housing units under the Housing Act. This law sets forth various
                      measures supporting the purchase of houses and the supply of such houses by construction
                      companies. These products accrue interest at a fixed rate for one year, and at an adjustable rate
                      after one year. Deposit amounts per account range from W2 million to W15 million depending on
                      the size and location of the dwelling unit. These deposit products target high- and middle-income
                      households.
              •       Apartment application installment savings deposits, which are monthly installment savings
                      programmes providing the holder with a preferential right to subscribe for new private apartment
                      units under 85 square meters in size and mid-sized, privately constructed national housing units
                      under the Housing Act. These deposits require monthly installments of W50,000 to W500,000,
                      have maturities of between three and five years and accrue interest at fixed or variable rates
                      depending on the term.
              •       Apartment application savings accounts, which are monthly installment savings programmes
                      providing the holder with a preferential right to subscribe for new national housing units
                      constructed under the Housing Act or mid-sized, privately constructed national housing units.



                                                                                                                                           72
                          These accounts are available only to heads of household who do not own a home. These accounts
                          require monthly installments of W20,000 to W100,000, terminate when the accountholder is
                          selected as a subscriber for a housing unit and accrue interest at fixed rates.
                 •        Apartment application comprehensive deposits, which are monthly installment comprehensive
                          savings programmes providing the holder with a preferential right to subscribe for new national
                          housing units constructed under the Housing Act or privately constructed housing units. These
                          deposits require monthly installments of W20,000 to W500,000, terminate when the holder is
                          selected as a subscriber for a housing unit and accrue interest at fixed rates depending on the term.
                          These deposit products target all segments of the population.
The Monetary Policy Committee of the Bank of Korea 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 per cent. See “Supervision and Regulation — Liquidity.” Ongoing regulatory reforms have removed all
controls on lending rates and deposit rates (except for the prohibition on interest payments on current account
deposits).
The Depositor Protection Act provides for a deposit insurance system where the KDIC guarantees to depositors
the repayment of their eligible bank deposits. The deposit insurance system insures up to a total of W50 million
per depositor per bank. See “Supervision and Regulation — Deposit Insurance System.” The Bank pays a
quarterly premium for such system of 0.02 per cent. of its average deposits and a quarterly special contribution
of 0.025 per cent. of our average deposits, in each case for the relevant quarter. For the year ended 31st
December, 2010 and the six month period ended 30th June, 2011, the Bank paid an aggregate of W178 billion
and W102 billion, respectively, in connection with such premiums and contributions.
Branch Network and Other Distribution Channels
The Bank maintained a total of 918 branches in Korea as of 30th June, 2011, which was the third-most extensive
network of branches among Korean commercial banks. In Korea, consumer transactions are generally
conducted in cash or with credit cards, and conventional checking accounts generally are not offered. As a
result, an extensive branch network is important for attracting and maintaining retail customers, as they
generally conduct most of their transactions through bank branches. The Bank believes that its extensive branch
network in Korea helps it to maintain its retail customer base, which in turn provides it with a stable and
relatively low cost funding source.
The following table presents the geographical distribution of the Bank’s branch network in Korea as of 30th
June, 2011.
                                                                                                                                                                             Percentage of
Area                                                                                                                                                                Number       Total
Seoul ...........................................................................................................................................................     449           48.9%
Other ...........................................................................................................................................................     469           51.1%
Total............................................................................................................................................................     918         100.0%


The Bank’s branches are located throughout Korea and it is particularly well represented in key areas, including
the Seoul metropolitan area, which allows it to provide overall nationwide coverage.
In order to maximise customer access to its products and services, the Bank has established an extensive
network of ATMs and cash dispensers, which are located in branches as well as unmanned outlets. As of 30th
June, 2011, the Bank had 5,945 ATMs and 991 cash dispensers.
The Bank also actively promotes the use of alternative service delivery channels in order to provide convenient
service to customers. It also benefits from customers’ increasing use of these outlets, as they allow it to
maximise the marketing and sales functions at the branch level, reduce employee costs and improve
profitability. The following table sets forth information, for the periods indicated, relating to the number of
transactions and the fee revenue, on a non-consolidated basis under Korean GAAP, of the Bank’s alternative
service delivery channels.




                                                                                                                                                                                         73
                                                                                                                          For the year ended
                                                                                                                            31st December,
                                                                                                                        2009              2010
ATMs(1)
   Number of transactions (millions)...................................................................                      447              429
   Fee income (billions of Won)..........................................................................                   W 30             W 31
Telephone banking
   Number of users...............................................................................................       5,903,273        6,103,894
   Number of transactions (millions)...................................................................                       159              167
   Fee income (billions of Won)..........................................................................                    W4               W3
Internet banking
   Number of users...............................................................................................       8,567,955        9,408,592
   Number of transactions (millions)...................................................................                     3,368            3,946
   Fee income (billions of Won)..........................................................................                  W 104            W 107

Note:
(1)     Includes cash dispensers.


The following table sets forth information, for the six month period ended 30th June, 2011, relating to the
number of transactions and the fee revenue, on a non-consolidated basis under K-IFRS, of Bank’s alternative
service delivery channels.
                                                                                                                     For the six
                                                                                                                    month period
                                                                                                                     ended 30th
                                                                                                                     June, 2011
ATMs(1)
   Number of transactions (millions)...................................................................                      211
   Fee income (billions of Won)..........................................................................                   W 15
Telephone banking
   Number of users...............................................................................................       6,192,434
   Number of transactions (millions)...................................................................                        81
   Fee income (billions of Won)..........................................................................                    W2
Internet banking
   Number of users...............................................................................................       9,895,653
   Number of transactions (millions)...................................................................                     2,227
   Fee income (billions of Won)..........................................................................                   W 58

Note:
(1)     Includes cash dispensers.


Most of the Bank’s ATM, telephone and Internet banking transactions do not generate fee income as many of
those transactions are free of charge, such as balance inquiries, consultations with customer representatives or
transfers of money with its banking subsidiaries. This is particularly true for telephone banking services, where
a majority of the transactions are balance inquiries or consultations with customer representatives, although
other services such as money transfers are also available.
The Bank’s automated telephone banking system offers a variety of services, including inter-account fund
transfers, balance and transaction inquiries and customer service inquiries. The Bank operates a call centre that
handles calls from customers, engages in telemarketing and assists in its collection efforts.
The Bank’s Internet banking services include balance and transaction inquiries, money transfers, loan
applications, bill payment and foreign exchange transactions. It seeks to maintain and increase its Internet
banking customer base by focusing largely on its younger customers and those that are able to access the
Internet easily (such as office workers), as well as by developing additional Internet-based financial services and
products. The Bank also develops new products to target different types of customers with respect to its Internet
banking services, and recently completed the development of a service that enables private banking customers to
access their accounts on a website that provides specialised investment advice. The Bank also offers escrow
services and identification authentication services, such as electronic “finger printing,” for Internet transactions.
The Bank also provides mobile banking services to its customers, which are available to all the Bank’s Internet-
registered users. These services allow the Bank’s customers to complete selected banking transactions through
major Korean telecommunications networks using their cellular phones or other mobile devices. In April 2010,
the Bank launched new “smart banking” services which enable users of so-called “smart phones” to access a
broad range of banking and credit card services through their mobile phones. From July 2004, the Bank’s



                                                                                                                                                     74
electronic bill presentation and payment system was implemented to provide its customers with the ability to
pay taxes, maintenance fees and other public fees electronically.
The Bank also provides its “Win-CMS” service, an integrated electronic cash management system and in-house
banking platform for the Bank’s corporate customers.
Private Banking Operations
In 2002, the Bank launched its private banking operations. These operations currently aim to service its high net
worth retail customers who individually maintain a deposit balance of at least W100 million with the Bank and,
on a discretionary basis, certain mass affluent retail customers who individually maintain a deposit balance of at
least W30 million with the Bank. As of 30th June, 2011, the Bank had approximately 98,000 customers who
qualified for private banking services, representing about 0.6 per cent. of its total retail customer base.
Through the Bank’s private bankers, it provides financial and real estate advisory services to its high net worth
and mass affluent customers. It also markets differentiated investment and banking products and services to
these segments, including beneficiary certificates, overseas mutual fund products, specialised bank accounts and
credit cards. In addition, the Bank has developed a customer loyalty programme for its private banking
customers that provides preferential rate and fee benefits and awards. The Bank has also segmented its private
banking operations by introducing exclusive private client services for high net worth customers who
individually maintain a deposit balance of at least W100 million with it. The Bank believes that its private
banking operations will allow it to increase its revenues from its existing high net worth and mass affluent
customers, as well as attract new customers in these segments.
The Bank has 350 branches that offer private banking services. These branches are staffed by 356 private
bankers and almost all of the branches are located in metropolitan areas, including Seoul.
The Bank operates four “financial products department stores” in Seoul, which function as regular branches and
through which the Bank offers and markets a variety of financial products and services, including credit cards,
foreign currency products, bonds, stocks and insurance policies. As of 30th June, 2011, these “department
stores” collectively employed 28 specialists in the areas of tax, real estate and fund products. They are also
dedicated to offering comprehensive wealth management consulting services for high net worth customers. In
addition, the Bank operates an advisory centre in Seoul for its private banking clients, which employed 17
specialists advising on matters of law, tax, real estate, risk assessment and investments as of 30th June, 2011.
Credit Cards
The Bank’s credit card operations consist mainly of the former operations of Woori Credit Card, which was
merged into the Bank in March 2004. In 2010, the Bank’s market share based on transaction volume was
approximately 7.6 per cent. which ranked the Bank as the sixth largest credit card issuer in Korea, according to
BC Research, which is a quarterly report issued by BC Card.
The Bank’s credit card operations benefit from its ownership of a 7.6 per cent. equity stake in BC Card. BC
Card is co-owned by KT Capital, which is a financial subsidiary of KT Corporation, one of Korea’s largest
telecom companies, as well as a private equity fund and other Korean financial institutions and operates the
largest merchant payment network in Korea as measured by transaction volume. This ownership stake allows
the Bank to outsource production and delivery of new credit cards, the preparation of monthly statements,
management of merchants and other ancillary services to BC Card for its credit card operations. In February
2011, the Bank entered into an agreement with KT Capital to sell a 20 per cent. equity stake in BC Card. The
sale was completed in October 2011.
On 16th September, 2011, the board of directors of the Bank resolved to effect a horizontal spin-off its credit
card business to form a new entity, which will be a wholly-owned direct subsidiary of Woori Finance Holdings.
Pursuant to such resolution, the Bank plans to transfer those assets and liabilities which are directly or indirectly
related to its credit card business to a newly established company on 31st December, 2011, subject to a number
of conditions including the approval of the relevant regulators. See “Risk Factors—Risks relating to the Bank—
Credit card operations—The Bank plans to spin off its credit card business, which may have a material adverse
effect on the Bank’s financial condition and results of operations.”
Products and Services
The Bank currently has the following brands of credit cards outstanding:
         •   a “Woori” brand previously offered by Woori Credit Card and currently offered by the Bank; and



                                                                                                                  75
         •   a “BC Card” brand previously offered by the Bank.
The Bank also issues “Visa” brand cards under a non-exclusive license agreement with Visa International
Service Association and “MasterCard” and “JCB” brand cards under a non-exclusive, co-branding agreement
with BC Card.
The Bank offers a number of different services to holders of its credit cards. Generally, these services include:
         •   credit purchase services, which allow cardholders to purchase merchandise or services on credit
             and repay such credit on a lump-sum or installment basis;
         •   cash advance services from ATMs and bank branches; and
         •   credit card loans, which are loans that cardholders can obtain based on streamlined application
             procedures.
Unlike in the United States and many other countries, where most credit cards are revolving cards that allow
outstanding balances to be rolled over from month to month so long as a required minimum percentage is
repaid, cardholders in Korea are generally required to pay for their non-installment purchases as well as cash
advances within approximately 18 to 58 days of purchase or advance, depending on their payment cycle.
The following table sets forth certain data on a reported basis under Korean GAAP relating to the Bank’s credit
card operations as of the dates or for the periods indicated. The Bank has not engaged in material securitisation
transactions with respect to its credit card receivables.




                                                                                                                    76
                                                                                                                          As of and for the As of and for the
                                                                                                                          year ended 31st year ended 31st
                                                                                                                          December, 2009 December, 2010
                                                                                                                             (in billions of Won, except for
                                                                                                                          ratios and numbers of holders and
                                                                                                                                        merchants)
Number of credit card holders (at period end) (thousands of holders)
  General accounts..............................................................................................                     9,888               10,707
  Corporate accounts ..........................................................................................                        198                  220
     Total.............................................................................................................             10,086               10,927
  Active ratio(1) ...................................................................................................               45.2%                45.0%
Credit card interest and fees.................................................................................
  Installment and cash advance interest .............................................................                          W       433         W        378
  Annual membership fees .................................................................................                               9                   10
  Merchant fees...................................................................................................                     567                  618
  Other fees.........................................................................................................                   19                   22
     Total.............................................................................................................        W     1,028         W      1,028
Charge volumes
  General purchase .............................................................................................               W 21,571        W         24,815
  Installment purchase ........................................................................................                   4,590                   4,892
  Cash advance ...................................................................................................                6,510                   6,084
  Card loan..........................................................................................................               331                     546
     Total.............................................................................................................        W 33,002          W       36,337
Outstanding balances (at period end)
  General purchase .............................................................................................               W     1,632      W         1,826
  Installment purchase ........................................................................................                        931                  969
  Cash advance ...................................................................................................                     830                  790
  Card loan..........................................................................................................                  295                  358
     Total.............................................................................................................        W     3,688         W      3,943
Average outstanding balances
  General purchase .............................................................................................               W     1,724      W         1,873
  Installment purchase ........................................................................................                      1,111                1,114
  Cash advance ...................................................................................................                     916                  827
  Card loan..........................................................................................................                  345                  318
     Total.............................................................................................................        W     4,096         W      4,132
Delinquency ratios
  Less than 1 month............................................................................................                      1.1%                 0.9%
  From 1 month to 3 months ..............................................................................                              0.8                  0.5
  From 3 months to 6 months.............................................................................                               0.9                  0.9
  Over 6 months..................................................................................................                      0.0                  0.0
     Total.............................................................................................................              2.8%                 2.2%
Non-performing loan ratio(2)                                                                                                         0.9%                 0.9%
Charge-offs (gross)                                                                                                            W      193          W       119
Recoveries ............................................................................................................                 62                   61
  Net charge-offs ................................................................................................             W      131            W       57
Gross charge-off ratio(3)........................................................................................                    5.2%                 2.9%
  Net charge-off ratio(4).......................................................................................                     3.6%                 1.4%

Notes:
(1)     Represents the ratio of accounts used at least once within the preceding three months to total accounts as of 30th June, 2011.
(2)     Represents the ratio of balances that are more than three months overdue to total outstanding balances as of as of 30th June, 2011.
        Does not include an aggregate of W15 billion and W16 billion of previously delinquent credit card balances restructured into loans that
        were classified as normal or precautionary as of 31st December, 2009 and 2010, respectively. If such restructured loans had been
        included, the non-performing loan ratio for credit card operations would have been 1.1 per cent. and 1.0 per cent. as of 31st
        December, 2009 and 2010, respectively.
(3)     Represents the ratio of annualised gross charge-offs to average outstanding balances for the period. The Bank’s charge-off policy is to
        charge off balances which are more than six months past due (including previously delinquent credit card balances restructured into
        loans that are more than six months overdue from the point at which the relevant balances were so restructured), except for those
        balances with a reasonable probability of recovery.
(4)     Represents the ratio of annualised net charge-offs to average outstanding balances for the period.


The following table sets forth certain data on a reported basis under K-IFRS relating to the Bank’s credit card
operations as of and for the six month period ended 30th June, 2011.




                                                                                                                                                                  77
                                                                                                                            As of and for the six month
                                                                                                                          period ended 30th June, 2011
                                                                                                                          (in billions of Won, except for
                                                                                                                          ratios and numbers of holders
                                                                                                                                   and merchants)
Number of credit card holders (at period end) (thousands of holders)
  General accounts..............................................................................................                                    11,112
  Corporate accounts ..........................................................................................                                        240
     Total.............................................................................................................                             11,352
  Active ratio(1) ...................................................................................................                               45.3%
Credit card interest and fees.................................................................................
  Installment and cash advance interest .............................................................                                           W     185
  Annual membership fees .................................................................................                                              6
  Merchant fees...................................................................................................                                    306
  Other fees.........................................................................................................                                  10
     Total.............................................................................................................                         W     507
Charge volumes
  General purchase .............................................................................................                                W 13,534
  Installment purchase ........................................................................................                                    2,414
  Cash advance ...................................................................................................                                 2,944
  Card loan..........................................................................................................                                393
     Total.............................................................................................................                         W 19,285
Outstanding balances (at period end)
  General purchase .............................................................................................                                W 1,835
  Installment purchase ........................................................................................                                   1,063
  Cash advance ...................................................................................................                                  783
  Card loan..........................................................................................................                               444
     Total.............................................................................................................                         W 4,125
Average outstanding balances
  General purchase .............................................................................................                                W 1,977
  Installment purchase ........................................................................................                                   1,065
  Cash advance ...................................................................................................                                  795
  Card loan..........................................................................................................                               414
     Total.............................................................................................................                         W 4,251
Delinquency ratios
  Less than 1 month............................................................................................                                   1.2%
  From 1 month to 3 months ..............................................................................                                           1.0
  From 3 months to 6 months.............................................................................                                            0.9
  Over 6 months..................................................................................................                                   0.1
     Total.............................................................................................................                           3.0%
Non-performing loan ratio(2)                                                                                                                      0.9%
Charge-offs (gross)                                                                                                                             W    70
Recoveries ............................................................................................................                              17
  Net charge-offs ................................................................................................                              W 53
Gross charge-off ratio(3)........................................................................................                                 1.6%
  Net charge-off ratio(4).......................................................................................                                  1.2%

Notes:
(1)     Represents the ratio of accounts used at least once within the preceding three months to total accounts as of the end of the relevant
        period.
(2)     Represents the ratio of balances that are more than three months overdue to total outstanding balances as of the end of the relevant
        period. Does not include an aggregate of W20 billion of previously delinquent credit card balances restructured into loans that were
        classified as normal or precautionary as of 30th June, 2011. If such restructured loans had been included, the non-performing loan ratio
        for credit card operations would have been 0.9 per cent. as of 30th June, 2011.
(3)     Represents the ratio of gross charge-offs to average outstanding balances for the six month period ended 30th June, 2011. The Bank’s
        charge-off policy is to charge off balances which are more than six months past due (including previously delinquent credit card
        balances restructured into loans that are more than six months overdue from the point at which the relevant balances were so
        restructured), except for those balances with a reasonable probability of recovery.
(4)     Represents the ratio of net charge-offs to average outstanding balances for the six month period ended 30th June, 2011.


The Bank offers a diverse range of credit card products within its various brands. Factors that determine which
type of card a particular cardholder may receive include net worth, age, location, income level and the particular
programmes or services that may be associated with a particular card. Customer-tailored card products that the
Bank offers include:
                 •       cards that offer additional benefits, such as frequent flier miles and award programme points that
                         can be redeemed for services, products or cash;



                                                                                                                                                             78
         •   gold cards, platinum cards and other preferential members’ cards that have higher credit limits and
             provide additional services;
         •   corporate and affinity cards that are issued to employees or members of particular companies or
             organisations; and
         •   revolving credit cards and cards that offer travel services and insurance.
In recent years, credit card issuers in Korea have agreed with selected cardholders to restructure their delinquent
credit card account balances as loans that have more gradual repayment terms, in order to retain fundamentally
sound customers who are experiencing temporary financial difficulties and to increase the likelihood of eventual
recovery on those balances. In line with industry practice, Woori Credit Card restructured a portion of its
delinquent credit card account balances as loans commencing in 2002. The general qualifications to restructure
delinquent credit card balances as loans are that the delinquent amount be more than one month overdue and in
excess of W1 million. The terms of the restructured loans usually require the payment of approximately 10 per
cent. to 20 per cent. of the outstanding balance as a down payment and that they be guaranteed by a third party
and carry higher interest rates than prevailing market rates. These loans are usually required to be repaid by the
borrower in installments over terms ranging from three months to 60 months. As of 30th June, 2011, the total
amount of the Bank’s restructured loans was W37 billion (which also included revolving loans and installment
loans). Because restructured loans are not initially recorded as being delinquent, the Bank’s delinquency ratios
do not fully reflect all delinquent amounts relating to its outstanding credit card balances.
Payments and Charges
Revenues from the Bank’s credit card operations consist principally of cash advance charges, merchant fees,
interest income from credit card loans, interest on late and deferred payments, and annual membership fees paid
by cardholders.
Each cardholder is allocated an aggregate credit limit in respect of all cards issued under his or her account each
month. The Bank advises each cardholder of the credit limit relating to the cards in his or her monthly billing
statement. Credit limits in respect of card loans are established separately. The Bank conducts ongoing
monitoring of all cardholders and accounts, and may reduce the credit limit or cancel an existing cardholder’s
card based on current economic conditions, receipt of new negative credit data from third party sources or the
cardholder’s score under the credit risk management systems used to monitor their behavior. Based on such
factors, the Bank may make credit limit adjustments, or cancel a cardholder’s account entirely, notwithstanding
a cardholder’s consistent timely credit card payments. The Bank considers an account delinquent if the payment
due is not received on the first monthly payment date on which such payment was due, and late fees are
immediately applied. Late fee charges and computation of the delinquency period are based on each outstanding
unpaid transaction or installment, as applicable. See “Risk Management — Credit Risk Management — Credit
Review and Monitoring.”
Payments on amounts outstanding on credit cards must be made (at the cardholder’s election at the time of
purchase) either in full on each monthly payment date, in the case of lump-sum purchases, or in equal monthly
installments over a fixed term from two months to 24 months, in the case of installment purchases. Cardholders
may prepay installment purchases at any time without penalty. Payment for cash advances must be made on a
lump sum basis. Payments for card loans must be made on an equal principal installment basis over a fixed term
from three months up to a maximum of 36 months, up to a maximum loan amount of W20 million.
No interest is charged on lump-sum purchases that are paid in full by the monthly payment date. For installment
purchases, the Bank charges a fixed rate of interest on the outstanding balance of the transaction amount, based
on the installment period selected at the time of purchase. For a new cardholder, as of 30th June, 2011, the Bank
applied an interest rate between approximately 10.9 per cent. and 19.5 per cent. per annum as determined by the
cardholder’s application system score.
For cash advances, finance charges start accruing immediately following the cash withdrawal. As of 30th June,
2011, the Bank charged a periodic finance charge on the outstanding balance of cash advance of approximately
9.2 per cent. to 27.4 per cent. per annum. The periodic finance charge assessed on such balances is calculated by
multiplying the daily installment balances for each day during the billing cycle by the applicable periodic
finance charge rate, and aggregating the results for each day in the billing period. In addition to finance charges,
cardholders using cash advance networks operated by companies that are not financial institutions (such as
Hannet and NICE) are also charged an additional commission of W600 per withdrawal. Previously, the Bank
also charged handling fees on cash advances and credit card loans, which were accounted for as interest income



                                                                                                                 79
on credit card balances. In light of the Government’s consumer protection policies and guidance, credit card
issuers in Korea, including the Bank, eliminated such handling fees on cash advances in November 2010 and on
credit card loans in January 2011. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Results of Operations under K-IFRS — Comparison of the six month period ended
30th June, 2011 to the six month period ended 30th June, 2010 — Net Interest Income.”
The Bank also charges a basic annual membership fee of W2,000 to W5,000 for regular cards, W5,000 to
W10,000 for gold cards and W30,000 to W120,000 for platinum cards. The determination of the annual fee is
based on various factors including the type of card chosen, and whether “affiliation” options are selected by the
cardholder. For certain cards, such as the Woori Card (which can only be used in Korea and is not affiliated with
Visa or MasterCard), Woori Christian Card and Hyundai Home Shopping Woori Card, the Bank will waive
membership fees if customers charge above a certain amount.
Commencing in July 2006, the Bank outsourced the management of merchants to BC Card. The Bank charges
merchant fees to merchants for processing transactions. Merchant fees vary depending on the type of merchant
and the total transaction amounts generated by the merchant. As of 30th June, 2011, the Bank charged
merchants an average of 1.92 per cent. of their respective total transaction amounts. In addition to merchant
fees, the Bank receives nominal interchange fees for international card transactions.
Capital Markets Activities
The Bank engages in certain capital markets activities for its own account and for its customers. The Bank’s
capital markets activities include securities investment and trading, derivatives trading, asset securitisation
services and investment banking. For a discussion of the Bank’s risk management policies with respect to the
Bank’s trading activities, see “Risk Management — Market Risk Management — Market Risk Management for
Trading Activities.”
Securities Investment and Trading
The Bank invests in and trades securities for its own account in order to maintain adequate sources of liquidity
and to generate interest and dividend income and capital gains. As of 30th June, 2011, the Bank’s investment
portfolio, which consists of held-to-maturity financial assets and available-for-sale financial assets, and its
trading portfolio, which consists of financial assets at fair value through profit or loss, had a combined total
book value, on a non-consolidated basis under K-IFRS, of W34,395 billion and represented 14.9 per cent. of its
total assets.
The Bank’s trading and investment portfolios consist primarily of Korean treasury securities and debt securities
issued by Government agencies, including the KDIC, local governments or Government-invested enterprises,
and debt securities issued by financial institutions. As of 30th June, 2011, the Bank held debt securities with a
total book value, on a non-consolidated basis under K-IFRS, of W25,374 billion, of which:
         •   held-to-maturity debt securities accounted for W16,494 billion, or 65.0 per cent.;
         •   available-for-sale debt securities accounted for W6,206 billion, or 24.5 per cent.; and
         •   trading debt securities accounted for W2,674 billion, or 10.5 per cent.
Of these amounts, as of 30th June, 2011, debt securities issued by the Government and Government agencies
amounted to W15,924 billion, or 96.5 per cent., of the Bank’s held-to-maturity debt securities, W5,469 billion,
or 88.1 per cent., of the Bank’s available-for-sale debt securities, and W2,664 billion, or 99.6 per cent., of its
trading debt securities, in each case on a non-consolidated basis under K-IFRS.
From time to time, the Bank also purchases and sells equity securities for its securities portfolios. The Bank’s
equity securities consist primarily of equities listed on the KRX KOSPI Market or the KRX KOSDAQ Market.
As of 30th June, 2011, on a non-consolidated basis under K-IFRS:
         •   equity securities in the Bank’s available-for-sale portfolio had a book value of W1,614 billion, or
             13.3 per cent. of its available-for-sale portfolio; and
         •   equity securities in the Bank’s trading portfolio had a book value of W190 billion, or 3.3 per cent.
             of its trading portfolio.
Funds that are not used for lending activities are used for investment and liquidity management purposes,
including investment and trading in securities. See “Assets and Liabilities — Securities Investment Portfolio.”




                                                                                                               80
The following tables show, on a non-consolidated basis under Korean GAAP, as of the dates indicated, the face
value, acquisition cost, amortised cost and fair value of the Bank’s investment debt securities portfolio by type
of investment security.




                                                                                                              81
                                                                                                                                  As of 31st December, 2008
                                                                                                                                  Acquisition      Amortised
                                                                                                                     Face value      cost             cost     Fair value
                                                                                                                                     (in billions of Won)
Available-for-sale securities:
Government bonds ......................................................................................                 W 2,474      W 2,472        W 2,437      W 2,577
Finance debentures......................................................................................                  5,237        5,194          5,208        5,261
Corporate bonds ..........................................................................................                  373          377            377          370
Debt securities in foreign currencies...........................................................                          2,167        2,173          2,174          846
Beneficiary certificates(1) .............................................................................                    —           324             —           276
Beneficiary certificates in foreign currencies .............................................                                 —            30             —            —
Other ............................................................................................................           —            —              —            —
                                                                                                                         10,249       10,570         10,232        9,330
Held-to-maturity securities:
Government bonds ......................................................................................                 W 614        W 609          W    604      W 617
Finance debentures......................................................................................                  5,160        6,152           5,152        5,257
Corporate bonds ..........................................................................................                  215          214             214          218
Debt securities in foreign currencies...........................................................                             57           57              57           57
Securities lent ..............................................................................................               13           12              12           14
                                                                                                                          6,059        6,044           6,039        6,163
Total.............................................................................................................     W 16,308     W 16,614        W 16,271     W 15,493


                                                                                                                                  As of 31st December, 2009
                                                                                                                                  Acquisition      Amortised
                                                                                                                     Face value      cost             cost     Fair value
                                                                                                                                     (in billions of Won)
Available-for-sale securities:
Government bonds ......................................................................................                 W 2,292      W 2,311        W 2,308      W 2,309
Finance debentures......................................................................................                  2,385        2,373          2,377        2,385
Corporate bonds ..........................................................................................                  295          301            301          293
Debt securities in foreign currencies...........................................................                            909          872            869          454
Beneficiary certificates(1) .............................................................................                    —         1,563             —         1,501
Beneficiary certificates in foreign currencies .............................................                                 —            —              —            —
Other ............................................................................................................           —            —              —            —
                                                                                                                          5,881        7,420          5,855        6,942
Held-to-maturity securities:
Government bonds ......................................................................................                W 1,709      W 1,728         W 1,718      W 1,710
Finance debentures......................................................................................                 10,000        9,981           9,995       10,019
Corporate bonds ..........................................................................................                  617          658             614          618
Debt securities in foreign currencies...........................................................                             53           53              53           53
                                                                                                                         12,379       12,420          12,380       12,400
Total.............................................................................................................     W 18,260     W 19,840        W 18,235     W 19,342


                                                                                                                                  As of 31st December, 2010
                                                                                                                                  Acquisition    Amortised
                                                                                                                     Face value      cost           cost       Fair value
                                                                                                                                     (in billions of Won)
Available-for-sale securities:
Government bonds ......................................................................................                W 2,830       W 2,858        W 2,847      W 2,900
Finance debentures......................................................................................                 4,345         4,324          4,332        4,347
Corporate bonds ..........................................................................................                 685           689            690          685
Debt securities in foreign currencies...........................................................                           668           631            631           73
Beneficiary certificates(1) .............................................................................                   —          1,909             —         1,940
Beneficiary certificates in foreign currencies .............................................                                —             —              —            —
Other ............................................................................................................          —             —              —            —
                                                                                                                         8,528        10,411          8,500        9,945
Held-to-maturity securities:
Government bonds ......................................................................................                W 4,829      W 4,894         W 4,877      W 4,919
Finance debentures......................................................................................                  6,950        6,961           6,956        6,998
Corporate bonds ..........................................................................................                3,941        3,942           3,943        3,997
Debt securities in foreign currencies...........................................................                             2             2               2            2
                                                                                                                         15,722       15,799          15,778       15,896
Total.............................................................................................................     W 24,250     W 26,210        W 24,278     W 25,841

Note:
(1)     Beneficiary certificates are instruments that are issued by and represent an ownership interest in an investment trust. Investment trusts,
        which operate like mutual funds in the United States, are managed by investment trust management companies and invest in portfolios




                                                                                                                                                                        82
        of securities and/or other financial instruments, such as certificates of deposit. Beneficiary certificates give the holder beneficial rights
        to both the relevant investment trust and the trust property in which the investment trust has invested.


The following table shows, on a non-consolidated basis under K-IFRS, as of 30th June, 2011, the face value,
acquisition cost, amortised cost and fair value of the Bank’s investment debt securities portfolio by type of
investment security.

                                                                                                                                       As of 30th June, 2011
                                                                                                                                     Acquisition      Amortised
                                                                                                                       Face value       cost             cost     Fair value
                                                                                                                                        (in billions of Won)
Available-for-sale financial assets:
Government bonds ......................................................................................                   W 2,390       W 2,413        W 2,403      W 2,435
Finance debentures......................................................................................                    2,825         2,819          2,822        2,826
Corporate bonds ..........................................................................................                    945           950            950          945
Debt securities in foreign currencies...........................................................                              286           239             16           16
Beneficiary certificates(1) .............................................................................                      —          3,470             —         3,460
Beneficiary certificates in foreign currencies .............................................                                   —             —              —            —
Other ............................................................................................................             —             —              —            —
                                                                                                                            6,446         9,828          6,191        9,682
Held-to-maturity financial assets:
Government bonds ......................................................................................                  W 5,839       W 5,861         W 5,841      W 6,021
Finance debentures......................................................................................                    6,050         6,052           6,049        6,091
Corporate bonds ..........................................................................................                  4,601         4,604           4,604        4,669
Debt securities in foreign currencies...........................................................                                2             2               2            2
                                                                                                                           16,492        16,519          16,496       16,783
Total.............................................................................................................       W 22,938      W 26,347        W 22,687     W 26,465

Note:
(1)     Beneficiary certificates are instruments that are issued by and represent an ownership interest in an investment trust. Investment trusts,
        which operate like mutual funds in the United States, are managed by investment trust management companies and invest in portfolios
        of securities and/or other financial instruments, such as certificates of deposit. Beneficiary certificates give the holder beneficial rights
        to both the relevant investment trust and the trust property in which the investment trust has invested.

The following table shows, on a non-consolidated basis under Korean GAAP, as of the dates indicated, the gross
unrealised gains and losses within the Bank’s portfolio of available-for-sale investment securities, other than
investment debt securities.

                                                                                                                                As of 31st December,
                                                                                                                         2008            2009          2010
                                                                                                                                (in billions of Won)
Valuation gain or loss
Equity securities ............................................................................................             W 657        W 1,065          W 752
Capital contributions .....................................................................................                   (2)          (10)            (13)
Beneficiary certificates(1) ...............................................................................                   10             (2)             59
Others ............................................................................................................            —              —              —
Total...............................................................................................................       W 665        W 1,053          W 798


Note:
(1)     Beneficiary certificates are instruments that are issued by and represent an ownership interest in an investment trust. Investment trusts,
        which operate like mutual funds in the United States, are managed by investment trust management companies and invest in portfolios
        of securities and/or other financial instruments, such as certificates of deposit. Beneficiary certificates give the holder beneficial rights
        to both the relevant investment trust and the trust property in which the investment trust has invested.


The following table shows, on a non-consolidated basis under K-IFRS, as of 30th June, 2011, the gross
unrealised gains and losses within the Bank’s portfolio of available-for-sale financial assets, other than
investment debt securities.




                                                                                                                                                                           83
                                                                                                                   As of 30th June,
                                                                                                                          2011
                                                                                                                 (in billions of Won)
Valuation gain or loss
Equity securities ......................................................................................                       W 468
Capital contributions ...............................................................................                             —
Beneficiary certificates(1) .........................................................................                             93
Others ......................................................................................................                     —
Total.........................................................................................................                 W 561


Note:
(1)     Beneficiary certificates are instruments that are issued by and represent an ownership interest in an investment trust. Investment trusts,
        which operate like mutual funds in the United States, are managed by investment trust management companies and invest in portfolios
        of securities and/or other financial instruments, such as certificates of deposit. Beneficiary certificates give the holder beneficial rights
        to both the relevant investment trust and the trust property in which the investment trust has invested.

Derivatives Trading
The Bank offers derivatives products and engages in derivatives trading, mostly for its corporate customers. The
Bank’s trading volume, on a non-consolidated basis under Korean GAAP, was W935,678 billion in 2008,
W573,669 billion in 2009 and W382,223 billion in 2010. Its trading volume, on a non-consolidated basis under
K-IFRS, was W187,784 billion for the six month period ended 30th June, 2011. The Bank’s net trading gain
(loss), on a non-consolidated basis under Korean GAAP, from derivatives contracts for the years ended 31st
December, 2008, 2009 and 2010 was W(1,465) billion, W(807) billion and W(90) billion, respectively. Its net
trading gain, on a non-consolidated basis under K-IFRS, from derivatives contracts for the six month period
ended 30th June, 2011 was W81 billion.
The Bank provides and trades a number of derivatives products principally through sales or brokerage accounts
for its customers, including:
                 •        interest rate swaps, options and futures, relating principally to Won interest rate risks;
                 •        index futures, relating to stock market fluctuations;
                 •        cross currency swaps, relating to foreign exchange risks, largely for Won against U.S. dollars;
                 •        foreign exchange forwards, swaps, options and futures, relating to foreign exchange risks;
                 •        commodity derivatives, which the Bank began providing in 2007 to customers that wish to hedge
                          their commodities exposure; and
                 •        credit derivatives, which the Bank provides to financial institutions that wish to hedge existing
                          credit exposures or take on credit exposure to generate revenue.
The Bank’s derivatives operations focus on addressing the needs of its corporate clients to hedge their risk
exposure and on hedging its risk exposure resulting from such client contracts. The Bank also engages in
derivatives trading activities to hedge the interest rate and foreign currency risk exposure that arises from its
own assets and liability positions. In addition, the Bank engages in proprietary trading of derivatives and
arbitrage through Korean securities firms (including its affiliate, Woori Investment & Securities), such as index
options and futures within its regulated open position limits, for the purpose of generating capital gains.
The following table shows the estimated fair value, on a non-consolidated basis under Korean GAAP, of
derivatives the Bank held or had issued as of the dates indicated.
                                                                                 As of 31st December,
                                                                  2008                     2009                   2010
                                                         Estimated Estimated Estimated Estimated Estimated Estimated
                                                            Fair        Fair        Fair          Fair      Fair        Fair
                                                          Value of    Value of   Value of      Value of   Value of    Value of
                                                           Assets    Liabilities  Assets      Liabilities  Assets    Liabilities
                                                                                  (in billions of Won)
Foreign exchange derivatives......                        W 8,249 W 7,537 W 2,732 W 2,016 W 2,225                      W 1,445
Interest rate derivatives ...............                     2,046      2,142        1,274        1,320     1,403       1,393
Equity derivatives........................                      266         423          47          456         66         353
Others ..........................................               476         941          40          240         25           26
Total.............................................        W 11,037 W 11,043      W 4,093        W 4,032   W 3,719      W 3,217




                                                                                                                                                  84
The following table shows the estimated fair value, on a non-consolidated basis under K-IFRS, of derivatives
the Bank held or had issued as of 30th June, 2011.
                                                                                         As of 30th June,
                                                                                                2011
                                                                                                    Estimated Fair
                                                                                Estimated Fair          Value of
                                                                                Value of Assets        Liabilities
                                                                                       (in billions of Won)
                           Foreign exchange derivatives......                         W 1,177             W 1,165
                           Interest rate derivatives ...............                       2,092                1,495
                           Equity derivatives........................                          73                 386
                           Others ..........................................                   25                  26
                           Total.............................................          W 3,367             W 3,072



In August 2006, the Bank entered into an agreement with Macquarie Bank, pursuant to which Macquarie Bank
provides operational support and cooperation to the Bank in the area of commodity derivatives trading, in
connection with the Bank’s plans to develop its commodities derivatives business. Following a one-year
extension, the agreement is effective until August 2012.
For a discussion of the Bank’s risk management policies with respect to the Bank’s derivatives trading activities,
see “Risk Management — Market Risk Management — Market Risk Management for Trading Activities.”
Asset Securitisation Services
The Bank is active in the Korean asset-backed securities market. It participates in asset securitisation
transactions in Korea by acting as an arranger, trustee or liquidity provider. In 2010, it was involved in new
asset securitisation transactions with an initial aggregate issue amount of W1,264 billion and generated total fee
income, on a non-consolidated basis under Korean GAAP, of approximately W53 billion in connection with
asset securitisation-related services provided by the Bank during the year. For the six month period ended 30th
June, 2011, the Bank was involved in new asset securitisation transactions with an initial aggregate issue
amount of W649 billion and generated total fee income , on a non-consolidated basis under K-IFRS, of
approximately W27 billion in connection with asset securitisation-related services provided by the Bank during
such period. The securities issued in asset securitisation transactions are sold mainly to institutional investors
buying through Korean securities firms.
Investment Banking
The Bank engages in investment banking activities in Korea by providing project finance and financial advisory
services, in the area of social overhead capital projects such as highway, port, power and water and sewage
projects, as well as structured finance, leveraged buy-out financing, equity and venture financing and mergers
and acquisitions advisory services. In 2008, 2009 and 2010, on a non-consolidated basis under Korean GAAP,
the Bank generated investment banking revenue of W287 billion, W108 billion and W199 billion respectively,
from gains on investment in foreign bonds and equity securities and fees from advisory and other services. For
the six month period ended 30th June, 2011, the Bank generated investment banking revenue of W101 billion on
a non-consolidated basis under K-IFRS.
The Bank believes that significant opportunities exist for it to leverage its existing base of large corporate and
SME banking customers to cross-sell investment banking services. The Bank intends to expand its investment
banking operations to take advantage of these opportunities, with a view to increasing its fee income and further
diversifying its revenue base.
International Banking
The Bank engages in various international banking activities, including foreign exchange services and dealing,
import and export-related services, offshore lending, syndicated loans and foreign currency securities
investment. These services are provided primarily to the Bank’s domestic customers and overseas subsidiaries
and affiliates of Korean corporations. It also raises foreign currency funding through its international banking
operations. In addition, the Bank provides commercial banking services to retail and corporate customers in
select overseas markets.
The table below sets forth certain information regarding the Bank’s foreign currency assets and borrowings, on a
non-consolidated basis under Korean GAAP, as of the dates indicated:




                                                                                                                        85
                                                                                                                                  As of 31st December,
                                                                                                                         2008              2009                               2010
                                                                                                                                  (in millions of U.S.$)
Total foreign currency assets ......................................................................                        $19,634          $21,379                           $21,168
Foreign currency borrowings
  Long-term borrowings............................................................................                              835                       622                      445
  Short-term borrowings............................................................................                           6,869                     6,301                    6,432
Total foreign currency borrowings .............................................................                              $7,704                    $6,923                   $6,877


The table below sets forth certain information regarding the Bank’s foreign currency assets and borrowings, on a
non-consolidated basis under K-IFRS, as of 30th June, 2011:
                                                                                                                                                  As of 30th June, 2011
                                                                                                                                                  (in millions of U.S.$)
                               Total foreign currency assets ......................................................................                              $24,893
                               Foreign currency borrowings
                                 Long-term borrowings ............................................................................                                               602
                                 Short-term borrowings............................................................................                                             7,339
                               Total foreign currency borrowings .............................................................                                                $7,941



The table below sets forth the Bank’s overseas subsidiaries and branches currently in operation as of 30th June,
2011.
Business Unit(1)                                                                                                                                                                         Location
Subsidiaries
Woori America Bank ..................................................................................................................................................                        United States
P.T. Bank Woori Indonesia.........................................................................................................................................                              Indonesia
Woori Global Markets Asia Limited ..........................................................................................................................                           China (Hong Kong)
Woori Bank (China) Limited ......................................................................................................................................                                   China
Zao Woori Bank ..........................................................................................................................................................                          Russia
Branches, Agencies and Representative Offices
London Branch............................................................................................................................................................                 United Kingdom
Tokyo Branch ..............................................................................................................................................................                         Japan
Singapore Branch ........................................................................................................................................................                       Singapore
Hong Kong Branch .....................................................................................................................................................                              China
Shanghai Branch .........................................................................................................................................................                           China
Bahrain Branch............................................................................................................................................................                        Bahrain
Dhaka Branch ..............................................................................................................................................................                    Bangladesh
Hanoi Branch...............................................................................................................................................................                      Vietnam
Ho Chi Minh City Branch ...........................................................................................................................................                              Vietnam
Gaeseong Industrial Complex Branch ........................................................................................................................                                   North Korea
New York Agency.......................................................................................................................................................                       United States
Los Angeles Branch ....................................................................................................................................................                      United States
New Delhi Representative Office ...............................................................................................................................                                      India
Sao Paulo Representative Office.................................................................................................................................                                    Brazil
Kuala Lumpur Representative Office .........................................................................................................................                                     Malaysia
Dubai Representative Office.......................................................................................................................................                   United Arab Emirates
Sydney Representative Office.....................................................................................................................................                                Australia

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


In addition, Woori America Bank operates 18 branches in New York, New Jersey, Maryland, Virginia,
Pennsylvania and California and provides retail and corporate banking services targeted towards the Korean-
American community. Woori America Bank had total assets of U.S.$1,040 million as of 31st December, 2010
and net loss of U.S.$64 million in 2010 and total assets of U.S.$1,027 million as of 30th June, 2011 and net
income of U.S.$4 million for the six month period ended 30th June, 2011.
The principal activities of the Bank’s overseas branches and subsidiaries are providing trade financing and local
currency funding for Korean companies and Korean nationals operating in overseas markets as well as servicing
local customers and providing foreign exchange services in conjunction with the Bank’s headquarters. On a
limited basis, the Bank’s overseas branches and subsidiaries also engage in the investment and trading of
securities of foreign issuers.
In November 2007, the Bank established a local subsidiary in China, Woori Bank (China) Limited, which
currently has branches (including one sub-branch) in Beijing, Shanghai, Shenzhen, Suzhou and Tianjin. The
Bank also established a local subsidiary in Russia, Zao Woori Bank, in January 2008. In addition, the Bank has


                                                                                                                                                                                                      86
in recent years entered into various memoranda of understanding and strategic alliances with local banks in
overseas markets, including China and Vietnam, in order to pursue business cooperation activities in such
markets including joint marketing efforts and information exchange.
Asset Management
Trust Management Services
Money Trusts. The Bank offers money trust products to its customers and manages the funds they invest in
money trusts. The money trusts that it manages are generally trusts with a fixed life that allow investors to share
in the investment performance of the trust in proportion to the amount of their investment in the trust. The Bank
currently offers the following types of money trust products:
         •   retirement trusts, which invest funds received from corporations or organisations and manage
             these funds until they are withdrawn to pay retirement funds to a corporation’s officers or
             employees or an organisation’s members;
         •   pension trusts, which invest funds received until pension benefits are due to be disbursed to a
             pension beneficiary; and
         •   specified money trusts, which invest cash received as trust property at the direction of the trustors
             and, once the trust matures, disburse the principal and any gains to the trust beneficiaries.
The Bank also offers other types of money trusts that have a variety of differing characteristics with respect to,
for example, maturities and tax treatment.
Under Korean law, the assets of the Bank’s money trusts should be segregated from its assets and will not be
available to satisfy the claims of the Bank’s creditors. The Bank is, however, permitted to maintain deposits of
surplus funds generated by trust assets. Except for specified money trusts, the Bank has investment discretion
over all money trusts, which are pooled and managed jointly for each type of trust. Specified money trusts are
established on behalf of individual customers, typically corporations, which direct the Bank’s investment of
trust assets.
The Bank receives fees for its trust management services consisting of:
         •   basic fees that are based upon a percentage, ranging between 0.5 per cent. and 2 per cent., of the
             net asset value of the assets under management; and
         •   performance fees that are based upon the investment performance of the trust.
It also receives penalty payments when customers terminate their trust deposit prior to the original contract
maturity. Fees that the Bank received for its trust management services (including those fees related to property
trust management services, described below, but excluding those fees relating to guaranteed trusts, which are
eliminated in consolidation), net of expenses, amounted to W31 billion in 2008, W22 billion in 2009 and W21
billion in 2010, in each case under Korean GAAP. Such fees amounted to W16 billion for the six month period
ended 30th June, 2011 under K-IFRS.
For some of the money trusts that the Bank manages, it has guaranteed the principal amount of an investor’s
investment as well as a fixed rate of interest. The Bank no longer offers new money trust products where it
guarantees both the principal amount and a fixed rate of interest. It continues to offer pension-type money trusts
that provide a guarantee of the principal amount of an investor’s investment. Trust accounts for which the Bank
guarantees the repayment of principal and/or a fixed rate of interest were included in the Bank’s consolidated
financial statements under Korean GAAP. Under K-IFRS, trust accounts for which the Bank guarantees both
the repayment of the principal amount and a fixed rate of interest are included in the Bank’s consolidated
financial statements, while those trust accounts for which the Bank guarantees only the repayment of the
principal amount are not included in the Bank’s consolidated financial statements.
The following table shows the balances of the Bank’s money trusts under Korean GAAP by type as of the dates
indicated.




                                                                                                                87
                                                                                                                                As of 31st December,
                                                                                                                          2008            2009            2010
                                                                                                                                 (in billions of Won)
Principal and interest guaranteed trusts ......................................................                           W     1          W      1        W     1
Principal guaranteed trusts ..........................................................................                      1,799             1,766          1,488
Mixed trusts(1) ..............................................................................................                 38                33             28
Performance trusts.......................................................................................                  11,434             6,847          8,678
Total.............................................................................................................       W 13,272          W 8,647        W 10,195

Note:
(1)      Consists of trusts that are performance-based and non-performance-based trusts (for which the repayment of principal and, in certain
         cases, interest is guaranteed).


The following table shows the balances of the Bank’s money trusts under K-IFRS by type as of 30th June, 2011.
                                                                                                                     As of 30th June, 2011
                                                                                                                      (in billions of Won)
Principal and interest guaranteed trusts ......................................................                                     W      1
Principal guaranteed trusts ..........................................................................                                 1,644
Mixed trusts(1) ..............................................................................................                            30
Performance trusts.......................................................................................                              7,422
Total.............................................................................................................                  W 9,097

Note:
(1)      Consists of trusts that are performance-based and non-performance-based trusts (for which the repayment of principal and, in certain
         cases, interest is guaranteed).


If the income from a money trust for which the Bank provides a guarantee is less than the amount of the
payments that it has guaranteed, the Bank will need to pay the amount of the shortfall with funds from special
reserves maintained in its trust accounts, followed by basic fees from that money trust and funds from its
banking operations. The Bank nets any payments that it makes as a result of these shortfalls against any gains
that it receives from other money trusts. Only nonmaterial amounts of such payments were made in 2008, 2009,
2010 and in the first half of 2011.
Under the Financial Investment Services and Capital Markets Act, which became effective in February 2009, a
bank with a trust business license (such as the Bank) is permitted to offer both specified money trust account
products and unspecified money trust account products. Previously, banks were not permitted to offer
unspecified money trust account products pursuant to the Indirect Investment Asset Management Act, which is
no longer in effect following the effectiveness of the Financial Investment Services and Capital Markets Act.
Property Trusts. The Bank also offers property trust management services, where it manages non-cash assets in
return for a fee. Non-cash assets include mostly securities, but can also include movable property such as
artwork. Under these arrangements, the Bank renders escrow or custodial services for the property in question
and collects fees in return.
In 2010, the Bank’s property trust fees ranged from 0.04 per cent. to 0.25 per cent. of total assets under
management, depending on the type of trust account product. As of 30th June, 2011, on a non-consolidated basis
under K-IFRS, the balance of the Bank’s property trusts totaled W11,507 billion.
Management of Trust Assets. The trust assets that the Bank manages in connection with its money and property
trusts, on a non-consolidated basis under K-IFRS, consisted principally of the following as of 30th June, 2011:
                                                                                                                                          As of 30th June, 2011
                                                                                                                                           (in billions of Won)
      Cash and due from banks·····························································································                                  W 2,786
      Securities ·····················································································································                          2,311
      Loans(1) ························································································································                         4,978
      Personal and real property ···························································································                                    8,456
      Others(2) ·······················································································································                         2,297
              less provision for credit losses ·········································································                                           (2)
      Total ···························································································································                     W 20,826

Notes:
(1)      Includes loans to the banking operations of the Bank of W1,878 billion as of 30th June, 2011.




                                                                                                                                                                         88
(2)   Includes privately placed bonds, bonds purchased under repurchase agreements, money receivables and other assets.



Trustee and Custodian Services Relating to Securities Investment Trusts
The Bank acts as a trustee for over 1,100 securities investment trusts, mutual funds and other investment funds.
It receives a fee for acting as a trustee and generally performs the following functions:
           •    receiving payments made in respect of such securities;
           •    executing trades in respect of such securities on behalf of the investment fund, based on
                instructions from the relevant investment fund management company; and
           •    in certain cases, authenticating beneficiary certificates issued by the investment trust management
                companies and handling settlements in respect of such beneficiary certificates.
For the year ended 31st December, 2010, on a non-consolidated basis under Korean GAAP, the Bank’s fee
income from such services was W8 billion. For the six month period ended 30th June, 2011, on a non-
consolidated basis under K-IFRS, its fee income from such services was W4 billion.

Other Businesses
Merchant Banking
The merchant banking services that the Bank offers include principally the following:
           •    commercial paper discounting, which entails purchasing at a discount notes that are issued,
                endorsed or guaranteed by companies to supply them with short-term working capital;
           •    factoring financing, which entails purchasing at a discount trade receivables held by companies to
                supply them with capital;
           •    payment guarantees, which entails issuing guarantees in respect of notes, corporate bonds and
                other Won and foreign currency payment obligations in return for fees; and
           •    cash management account (“CMA”) services, which offer accounts into which the accountholder
                may freely deposit or withdraw funds and for which returns from an investment portfolio
                purchased with such deposited funds are distributed as interest.
In recent years, the Bank has focused its merchant banking operations on providing short-term funds to public
institutions and financially sound corporations in order to improve the Bank’s asset quality and increase its
income and profitability.
Management of National Housing Fund
In November 2002, the Bank was selected to manage the operations of the National Housing Fund, together
with two other financial institutions. In April 2008, the Bank was selected to be the lead manager of the National
Housing Fund. The National Housing Fund provides financial support to low-income households in Korea by
providing mortgage financing and construction loans for projects to build small- and medium-sized housing. As
of 30th June, 2011, on a non-consolidated basis under K-IFRS, outstanding housing loans from the National
Housing Fund amounted to approximately W73 trillion, of which the Bank originated approximately W36
trillion. The activities of the National Housing Fund are funded primarily by the issuance of national housing
bonds, which must be purchased by persons and legal entities wishing to make real estate-related registrations
and filings, and by subscription savings deposits held at the National Housing Fund.
In return for managing the operations of the National Housing Fund the Bank receives a monthly fee. This fee
consists of a fund raising fee, a loan origination fee and a management fee. The fund raising fee is based on the
number of National Housing Fund subscription savings deposit accounts opened and the level of activity for
existing accounts and the number of National Housing Fund bonds issued or redeemed. The loan origination fee
is based on the number of new National Housing Fund loans and the number of National Housing Fund
mortgage loans to contractors constructing housing units that are assumed by the individual buyers of housing
units and the level of activity for existing loans during each month. The management fee is based on the
monthly average of the number of outstanding accounts and the monthly average of the number of overdue
loans owed to the National Housing Fund. In 2010, on a non-consolidated basis under Korean GAAP, the Bank
received total fees of approximately W48 billion for managing the National Housing Fund compared to
approximately W25 billion in the first six months of 2011 on a non-consolidated basis under K-IFRS.


                                                                                                                          89
Bancassurance
The term “bancassurance” refers to the marketing and sale by commercial banks of insurance products
manufactured within a group of affiliated companies or by third-party insurance companies. The Bank markets a
wide range of bancassurance products. In 2010 and the first six months of 2011, on a non-consolidated basis
under Korean GAAP and K-IFRS, respectively, the Bank generated fee income of approximately W83 billion
and W52 billion, respectively, through the marketing of bancassurance products. The Bank believes that it will
be able to continue to develop an important new source of fee-based revenues by expanding its offering of these
products. The Bank has entered into bancassurance marketing arrangements with 23 insurance companies,
including Samsung Life Insurance, Samsung Fire and Marine Insurance, Korea Insurance, Hyundai Fire and
Marine Insurance and American International Assurance, and plans to enter into additional arrangements with
other leading insurance companies whose names and reputation are likely to be familiar to the Bank’s customer
base, to market their insurance products. The Bank has also entered into bancassurance marketing arrangements
with Woori Aviva Life Insurance, in which Woori Finance Holdings acquired a 51.0 per cent. interest in April
2008 and currently hold a 51.6 per cent. interest.
Subsidiaries
The following table provides summary financial information regarding the Bank’s consolidated subsidiaries
under K-IFRS (other than special-purpose companies) as of or for the six month period ended 30th June, 2011.
                                                                                              Percentage                                                   Net
                                                                                                  of         Total         Stockholder’s   Operating     Income
Subsidiary                                                                                    Ownership      Assets           Equity        Revenue       (loss)
                                                                                                           (in billions of Won, except percentages)
P.T. Bank Woori Indonesia...........................................................              95.2%       W 538              W 154         W 38         W 9
Woori America Bank ....................................................................          100.0%          1,107               130            26        4
Woori Credit Information Co., Ltd. ..............................................                100.0%              28                25           17        2
Woori Global Markets Asia Limited ............................................                   100.0%             191                57            4        1
Woori Bank (China) Limited ........................................................              100.0%          2,487               406          129        24
Zao Woori Bank ............................................................................      100.0%             192                22            5        1
Korea BTL Infrastructure Fund ....................................................               100.0%             400              400            12       11
Woori Fund Service Co., Ltd. .......................................................             100.0%               3                 3            0        0

Competition
The Bank competes with other financial institutions in Korea, including principally nationwide and regional
Korean commercial banks and branches of foreign banks operating in Korea. Some of these banks are
significantly larger in terms of asset size and customer base and have greater financial resources than the Bank.
Competition in the Korean financial market has been and is likely to remain intense. In particular, in the area of
the Bank’s core banking operations, most Korean banks have been focusing on retail customers and SMEs in
recent years, although they are beginning to increase their exposure to large corporate borrowers, and have been
focusing on developing fee income businesses, including bancassurance, as increasingly important sources of
revenue. In the area of credit cards, Korean banks and credit card companies have in the past engaged in
aggressive marketing activities and made significant investments, contributing to some extent to the lower
profitability and asset quality problems previously experienced with respect to credit card receivables. In
addition, the Bank believes regulatory reforms, including the Financial Investment Services and Capital Markets
Act, which became effective in February 2009, and the general modernisation of business practices in Korea
will lead to increased competition among financial institutions in Korea. The Bank also believes that foreign
financial institutions, many of which have greater experience and resources than it does, will seek to compete
with the Bank in providing financial products and services either by themselves or in partnership with existing
Korean financial institutions. Furthermore, a number of significant mergers and acquisitions in the industry have
taken place in Korea over the past decade, including the acquisition of Koram Bank by an affiliate of Citibank in
2004, the acquisition of Korea First Bank by Standard Chartered Bank in April 2005, Chohung Bank’s merger
with Shinhan Bank in April 2006 and Hana Financial Group’s agreement in November 2010 to acquire a
controlling interest in Korea Exchange Bank from the Lone Star funds. The Bank expects that consolidation in
the financial industry will continue. In particular, the Government has announced that it plans to privatise the
Korea Development Bank. Other financial institutions may seek to acquire or merge with such or other entities,
and the financial institutions resulting from this consolidation may, by virtue of their increased size and business
scope, provide significantly greater competition for the Bank. See “Risk Factors — Risks relating to the Bank
— Competition.”




                                                                                                                                                              90
Employees
As of 30th June, 2011, the Bank had 14,295 regular (or full-time) employees and 603 part-time employees. The
Bank believes that it has a good relationship with its employees. As of 30th June, 2011, approximately 11,097
employees were members of the Korea Financial Industry Union. The Bank has not experienced a work
stoppage of a serious nature. Every year representatives of the Korea Financial Industry Union and the Bank’s
management negotiate and enter into a new collective bargaining agreement having a one-year duration.
The Bank’s standard employment contract for management-level and certain non-management employees is
three years. Employee compensation is based on a combination of the agreed-upon base salary and bonuses. The
bonus system is based on individual performance and business unit performance. Like most other Korean
commercial banks, the Bank grants its employees annual increases in basic wages and pays periodic bonuses
and overtime. For the year ended 31st December, 2010, on a non-consolidated basis under Korean GAAP,
salaries and wages comprised approximately 47.0 per cent. of the Bank’s total general and administrative
expenses, compared to 47.9 per cent. for the six months period ended 30th June, 2011 on a non-consolidated
basis under K-IFRS. The Bank believes that its compensation package is similar to that offered by its peer
financial institutions. The Bank provides a wide range of benefits to its employees, including medical insurance,
employment insurance, workers compensation, life insurance, financial aid for children’s tuition, low-interest
housing loans and pension plans.
In 2010, the Bank paid W9 billion for the training of its employees in specialist areas by local and foreign
training institutes.
Property, Plants and Equipment
The Bank’s registered office and corporate headquarters, with a total area of approximately 97,222 square
meters, are located at 203, 1-ga, Hoehyon-dong, Chung-Gu, Seoul, Korea.
As of 30th June, 2011, the Bank had a network of 918 branches in Korea. Approximately 254 of these facilities
are housed in buildings owned by it, while the remaining branches are leased properties. Lease terms are
generally from two to three years and seldom exceed five years. The Bank also has subsidiaries in the United
States, Russia, China and Indonesia and branches, agencies and representative offices in Asia, the United States
and Europe. It does not own any material properties outside of Korea.
The net book value of all the properties owned by the Bank, on a non-consolidated basis under K-IFRS, as of
30th June, 2011 was W2,470 billion.
Legal Proceedings
Commencing in 2005, the Bank marketed and sold investment fund products known as the “Woori Power
Income Funds,” created and managed by its affiliate Woori Asset Management, to customers in Korea. The
funds have experienced significant declines in value, principally as a result of investments made in securities
and derivative instruments of troubled financial institutions in the U.S. and elsewhere. In November 2008, in
response to complaints filed by customers who suffered losses as a result of their investment in these products,
the FSS ruled that the Bank should compensate such customers for 30 per cent. to 50 per cent. of the investment
losses they suffered due to its failure to adequately disclose the risks associated with an investment in the
products. However, certain customers who invested in these products through the Bank have opted to instead
file lawsuits against the Bank based on its alleged failure to adequately disclose such risks, in order to obtain
higher levels of compensation. As of 30th June, 2011, 13 such lawsuits were pending and the aggregate amount
claimed against the Bank in such lawsuits was approximately W8 billion. In 12 of such lawsuits, the trial courts
ruled that the Bank was liable for damages equal to approximately 20 per cent. to 45 per cent. of the losses
suffered by the plaintiffs. These decisions were appealed to the appellate court by both the plaintiffs and the
Bank, where they are currently pending. Through 30th June, 2011, the aggregate amount of compensation
payments made to customers by the Bank in relation to such products, including payments made in accordance
with the FSS’ ruling as well as lawsuits filed by customers, was W19 billion. In addition, certain of the Bank’s
customers have filed lawsuits against it in connection with certain other investment fund products created and
managed by Woori Asset Management and sold by the Bank to customers in Korea, including those which had
invested in certain equity-linked securities issued by Lehman Brothers and incurred significant losses following
the Lehman Brothers bankruptcy. As of 30th June, 2011, three such lawsuits were pending and the aggregate
amount claimed against the Bank in such lawsuits was approximately W12 billion. The trial courts ruled for the
Bank in two of such lawsuits, each of which has been appealed by the plaintiffs, while one lawsuit is still




                                                                                                              91
pending in the trial court. Additional lawsuits may be filed against the Bank with respect to its sales of such
products, and the final outcome of such litigation remains uncertain.
In 2008, certain of the Bank’s customers filed lawsuits against the Bank in connection with its sales of foreign
currency derivatives products known as “KIKO” (which stands for “knock-in knock-out”), which are intended
to operate as hedging instruments against fluctuations in the exchange rate between the Won and the U.S. dollar.
Due to the significant depreciation of the Won against the U.S. dollar in 2008 and 2009, customers who
purchased KIKO products from the Bank were required to make large payments to it. Seven companies have
filed lawsuits against the Bank alleging that the contracts under which the relevant KIKO products were sold by
the Bank should be nullified and that the Bank should return payments received thereunder. As of 30th June,
2011, two of such lawsuits were pending at the trial court, two were pending in the appellate court following
appeals by the plaintiffs after trial court decisions in favor of the Bank and one was pending at the Supreme
Court of Korea following appeal by the plaintiff after both the trial court and the appellate court decided in favor
of the Bank. The aggregate amount of such claims, as of 30th June, 2011, was approximately W47 billion, and
such amount may increase as the lawsuits progress or in the event of further depreciation of the Won against the
U.S. dollar. Additional lawsuits may be filed against the Bank with respect to KIKO products, and the final
outcome of such litigation remains uncertain.




                                                                                                                 92
                                                                               ASSETS AND LIABILITIES

The tables below and accompanying discussions provide selected financial highlights regarding the Bank’s
assets and liabilities on a non-consolidated basis (excluding its trust accounts).
Loan Portfolio
On a non-consolidated basis under K-IFRS, the balance of the Bank’s total loan portfolio was W 166,107 billion
as of 30th June, 2011. As of such date, on a non-consolidated basis under K-IFRS, 83.5 per cent. of the Bank’s
total loans were Won-denominated loans and 16.5 per cent. of its total loans were denominated in other
currencies.
Except where specified otherwise, all loan amounts stated below are before deduction of provision for credit
losses.
Loan Types
The following table presents loans by type, on a non-consolidated basis under Korean GAAP, as of the dates
indicated. Totals include past due amounts.
                                                                                                                              As of 31st December,
                                                                                                                      2008             2009           2010
                                                                                                                              (in billions of Won)
Loans in local currency
   Corporate ................................................................................................        W 75,515         W 76,532       W 74,387
   Consumer ................................................................................................           54,601           56,391         57,288
   Public ......................................................................................................        3,140            2,880          3,011
Loans in foreign currency
Corporate .....................................................................................................          17,162           13,556         13,654
Bills bought in local currency .....................................................................                       1,867              848            195
Bills bought in foreign currencies...............................................................                          4,927            4,347          4,508
Advances for customers ..............................................................................                        114               53            297
Factoring receivables ..................................................................................                      57               46             50
Bonds purchased with resale agreements ...................................................                                 2,041            1,496            500
Credit card accounts ....................................................................................                  3,876            3,688          3,943
Call loans.....................................................................................................            1,234            4,228          2,981
Privately placed bonds ................................................................................                    3,789            2,996          2,133
Investment in direct financing leases..........................................................                               —                —              —
Other ............................................................................................................           260              175            148
                                                                                                                        168,584          167,236        163,095
Allowance for possible loan losses .............................................................                         (2,920)          (3,025)        (3,928)
Deferred loan origination costs (fees).........................................................                             (41)               12             72
Loans, net of allowance for possible loan losses and deferred loan
origination fees............................................................................................         W 165,623       W 164,223       W 159,239



The following table presents loans by type, on a non-consolidated basis under K-IFRS, as of 30th June, 2011.
Totals include past due amounts.
                                                                                                                      As of 30th June, 2011
                                                                                                                       (in billions of Won)
Loans in local currency
   Corporate ................................................................................................                      W 74,772
   Consumer ................................................................................................                         59,418
   Public and other ......................................................................................                            4,560
Loans in foreign currency
Corporate .....................................................................................................                       14,235
Bills bought in local currency .....................................................................                                      394
Bills bought in foreign currencies...............................................................                                       4,565
Advances for customers ..............................................................................                                     199
Factoring receivables ..................................................................................                                   90
Bonds purchased with resale agreements ...................................................                                                500
Credit card accounts ....................................................................................                               4,125
Call loans.....................................................................................................                         1,142
Privately placed bonds ................................................................................                                 1,994
Investment in direct financing leases..........................................................                                            —
Other ............................................................................................................                        113
                                                                                                                                     166,107
Provision for credit losses ...........................................................................                               (3,421)
Deferred loan origination costs (fees).........................................................                                            98
Loans, net of provision for credit losses and deferred loan origination fees                                                       W 162,784




                                                                                                                                                                   93
              Loan Concentrations
              The Bank limits its total exposure to any single borrower as required by Korean regulations and pursuant to its
              internal policies. The Bank determines this limit based on the borrower’s credit rating provided by the CREPIA
              system. It may adjust this limit if the limit would otherwise exceed that imposed by Korean regulations. See
              “Supervision and Regulation — Financial Exposure to any Individual Customer and Major Stockholder.”
              Ten Largest Exposures by Borrower
              As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the Bank’s exposures to its ten largest
              borrowers totaled W27,827 billion and accounted for 12.3 per cent. of the Bank’s total exposures. The
              following table sets forth the Bank’s total exposures on a non-consolidated basis under K-IFRS (excluding trust
              accounts) to those borrowers as of that date.
                                                                              Loans                                                                           Amounts
                                                                                                                 Guarantees                                  Classified as
                                                                       Won           Foreign                         and                          Total      Substandard
   Company                                                           Currency       Currency    Securities(1)    Acceptances      Derivatives   Exposures    or Below(2)(3)
                                                                                                                (In billions of Won)
   Bank of Korea.............................................               —             —     W   16,872                —              —      W   16,872            —

   Sung-Dong Ship Marin Co., Ltd ................ W                        370            —              —      W    1,218       W     147           1,735            —

   Samsung Electronics...................................                  327      W   1,229            12             —               —            1,568            —

   Hyundai Heavy Industries Co., Ltd ............                            8           116              1          1,392              —            1,517            —

   STX Offshore & Shipbuilding Co., Ltd .....                               99           103             —             980              16           1,198            —

   Samsung Heavy Industries Co., Ltd ...........                            —             —               1          1,047              52           1,100            —

   SPP Shipbuilding Co., Ltd..........................                      43            57             —             910              —            1,010            —

   SH Corporation ...........................................              960            —              49             —               —            1,009            —

   Korea Deposit Insurance Corporation ........                           1,000           —              —              —               —            1,000            —

   Daewoo International Corporation .............                           31           394             —             393              —             818             —

   Total ............................................................ W   2,838     W   1,899   W   16,935      W    5,940       W     215      W   27,827            —

              Notes:
              (1)     Includes debt and equity securities.
              (2)     Classification is based on the FSC’s asset classification criteria.
              (3)     Includes guarantees and acceptances.

              As of 30th June, 2011, five of these top ten borrowers were companies belonging to the 30 largest chaebols in
              Korea. See “Risk Factors — Risks relating to the Bank — Corporate credit portfolio — The Bank has exposure
              to the largest chaebols, and financial difficulties of chaebols may adversely impact the Bank” and “— Exposure
              to Chaebols.”
              Exposure to Chaebols
              As of 30th June, 2011, 11.2 per cent. of the Bank’s total exposure, on a non-consolidated basis under K-IFRS,
              was to the 30 largest chaebols in Korea. The following table shows, as of 30th June, 2011, a breakdown of the
              Bank’s ten largest exposures to chaebols on a non-consolidated basis under K-IFRS.
                                                                                                                                                               Amounts
                                                             Loans                             Guarantees                            Amounts                  Classified as
                                                       Won      Foreign                            and                      Total   Classified as             Substandard
                                                                                  (1)
Chaebol                                              Currency Currency Securities              Acceptances Derivatives Exposures Precautionary(2)(3)          or Below(2)(3)
                                                                                                       (In billions of Won)
Samsung Group ................................. W               848 W       1,474 W       167 W    1,396      W        55 W   3,940      —                             —

Hyundai Heavy Industries Group .....                            266           239           3        2,303                   1        2,812          —                 —

Hyundai Motor Group.......................                      948           619         276          506                   1        2,350          —                 —

STX Group ........................................              348           373          —         1,252                —           1,973 W        50                —

Kumho Asiana Group .......................                   1,005            482          —            92                   8        1,587         405      W        463




                                                                                                                                                                 94
                                                                                                                                                                                                              Amounts
                                                                  Loans                                                   Guarantees                            Amounts                                      Classified as
                                                            Won      Foreign                                                  and                      Total   Classified as                                 Substandard
                                                                                       (1)
Chaebol                                                   Currency Currency Securities                                    Acceptances Derivatives Exposures Precautionary(2)(3)                              or Below(2)(3)
                                                                                                                                  (In billions of Won)
POSCO Group...................................                        267                  412                     1            693               —      1,373      —                                                    —

LG Group ..........................................                   349                  718                   84                  180                           —              1,331         —                        —

Hanwha Group ..................................                       961                  133                     4                 165                            4             1,267         —                        —

Doosan Group ...................................                      348                  248                   11                  528                           11             1,146         —                        —

Hyosung Group .................................                      668                  168                   30                  165                             2           1,033           —                       120
Total................................................... W         6,008 W              4,866 W                576 W              7,280            W               82     W    18,812 W        455          W           583


               Notes:
               (1)     Includes debt and equity securities.
               (2)     Classification is based on the FSC’s asset classification criteria.
               (3)     Includes guarantees and acceptances.


               Loan Concentration by Industry — Corporate
               The following table shows, as of 30th June, 2011, the aggregate balance, on a non-consolidated basis under K-
               IFRS, of the Bank’s Won currency loans by industry concentration.
                                                                                                                                                                               As of 30th June, 2011
                                                                                                                                                                      Aggregate loan        Percentage of loan
               Industry                                                                                                                                                   balance                balance
                                                                                                                                                                   (in billions of Won)
               Manufacturing ........................................................................................................................                       W     25,238                 33.8%
               Real estate and leasing ...........................................................................................................                                14,750                 19.7
               Retail and wholesale...............................................................................................................                                10,769                 14.3
               Hotel, leisure and transportation ............................................................................................                                      5,148                  6.9
               Financial .................................................................................................................................                         4,007                  5.4
               Other .......................................................................................................................................                      14,861                 19.9
                     Total...............................................................................................................................                   W     74,773                  100%


               Loan Concentration by Size of Loans
               The following table shows, as of 30th June, 2011, the aggregate balances, on a non-consolidated basis under K-
               IFRS, of the Bank’s loans in Won currency by outstanding loan amount.
                                                                                                                                                                                  As of 30th June, 2011
                                                                                                                                                                        Aggregate loan             Percentage of
                                                                                                                                                                            balance                loan balance
                                                                                                                                                                         (in billions of
                                                                                                                                                                             Won)
               Corporate loans
               Up to W100 million .....................................................................................................................                       W      6,596                   4.8%
               Over W100 million to W500 million...........................................................................................                                         19,467                 14.0
               Over W500 million to W1 billion ................................................................................................                                      8,824                  6.4
               Over W1 billion............................................................................................................................                          39,886                 28.8
               Sub-total .......................................................................................................................................                    74,773                 54.0

               Consumer loans
               Up to W100 million .....................................................................................................................                       W     31,362                  22.6%
               Over W100 million to W500 million...........................................................................................                                         24,455                 17.6
               Over W500 million to W1 billion ................................................................................................                                      2,087                  1.5
               Over W1 billion............................................................................................................................                           1,514                  1.1
               Sub-total .......................................................................................................................................                    59,418                 42.8

               Public sector loans
               Up to W100 million .....................................................................................................................                            W    21                   0.0%
               Over W100 million to W500 million...........................................................................................                                            154                  0.1
               Over W500 million to W1 billion ................................................................................................                                        146                  0.1
               Over W1 billion............................................................................................................................                           3,374                  2.4
               Sub-total .......................................................................................................................................                     3,695                  2.6

               Interbank loans
               Up to W100 million .....................................................................................................................                            W      84                 0.1%



                                                                                                                                                                                                                   95
                                                                                                                                                                  As of 30th June, 2011
                                                                                                                                                        Aggregate loan             Percentage of
                                                                                                                                                            balance                loan balance
                                                                                                                                                         (in billions of
                                                                                                                                                             Won)
Over W100 million to W500 million...........................................................................................                                           552                   0.4
Over W500 million to W1 billion ................................................................................................                                       190                   0.1
Over W1 billion............................................................................................................................                              38                  0.0
Sub-total .......................................................................................................................................                      864                   0.6
Total..............................................................................................................................................        W       138,750                 100.0%


Maturity Analysis
The following table sets out, as of 30th June, 2011, the scheduled maturities (time remaining until maturity) of
the Bank’s Won currency loan portfolio on a non-consolidated basis under K-IFRS.
                                                                                                                                                 Over 1 year
                                                                                                                                                 but not more
                                                                                                                      1 year or less             than 5 years Over 5 years                       Total
                                                                                                                                                      (in billions of Won)
Corporate .....................................................................................................              W 54,202                W 15,211          W 5,360                  W 74,773
Consumer.....................................................................................................                  24,429                    12,797          22,192                    59,418
Public sector ................................................................................................                  2,533                       705             457                     3,695
Interbank......................................................................................................                    14                       450             400                       864
Total.............................................................................................................           W 81,178                W 29,163          W 28,409                 W 138,750


A significant portion of the Bank’s loans with maturities of one year are renewed annually. The Bank typically
rolls over its working capital loans and consumer loans (other than those payable in installments) after it
conducts its normal loan review in accordance with internal loan review procedures. Under the Bank’s internal
guidelines, the Bank may extend working capital loans on an annual basis for an aggregate term of five years.
Those guidelines also allow it to extend consumer loans for another term on an annual basis for an aggregate
term of up to five years.
Interest Rate Type
The following table shows, as of 30th June, 2011, the total amount of the Bank’s Won currency loans, on a non-
consolidated basis under K-IFRS, that have fixed interest rates and variable or adjustable interest rates.
                                                                                                                                                                                   As of 30th June, 2011
                                                                                                                                                                                    (in billions of Won)
Fixed rate(1) ..................................................................................................................................................................                W 15,966
Variable or adjustable rates(2) ......................................................................................................................................                              122,784
Total loans ...................................................................................................................................................................                W 138,750

Notes:
(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 the Bank’s management of interest rate risk, see “Risk Management —
Market Risk Management — Asset and Liability Management.”
Asset Quality of Loans
Loan Classifications
The FSC generally requires Korean financial institutions to analyse and classify their assets by quality into one
of five categories for reporting purposes. In making these classifications, the Bank takes into account a number
of factors, including the financial position, profitability and transaction history of the borrower, and the value of
any collateral or guarantee taken as security for the extension of credit. This classification method, and its
related provisioning policy, is intended to fully reflect the borrower’s capacity to repay.
The following is a summary of the asset classification criteria that the Bank applies for corporate and consumer
loans, based on the asset classification guidelines of the FSC. Credit card receivables are subject to classification
based on the number of days past due, as required by the FSC. The Bank also applies different criteria for other
types of credits such as loans to the Government or to Government-related or controlled entities, certain bills of
exchange and certain receivables.



                                                                                                                                                                                                         96
Asset Classification                                  Characteristics
Normal.................................................... Credits extended to customers that, based on the Bank’s consideration
                                                           of their business, financial position and future cash flows, do not raise
                                                           concerns regarding their ability to repay the credits.

Precautionary.......................................... Credits extended to customers that, based on the Bank’s consideration
                                                        of its business, financial position and future cash flows, show
                                                        potential risks with respect to their ability to repay the credits,
                                                        although showing no immediate default risk; or are in arrears for one
                                                        month or more but less than three months.

Substandard ............................................ Either:
                                                     •       credits extended to customers that, based on the Bank’s
                                                             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
                                                     •       the portion that the Bank expects 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.................................................. Credits exceeding the amount that the Bank expects to collect of total
                                                           credits to customers that:
                                                     •       based on the Bank’s 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
                                                     •       have been in arrears for three months or more but less than
                                                             twelve months.

Estimated Loss........................................ Credits exceeding the amount that the Bank expects to collect of total
                                                       credits to customers that:
                                                     •       based on the Bank’s consideration of their business, financial
                                                             position and future cash flows, are judged to have to be
                                                             accounted as a loss as the inability to repay became certain due
                                                             to serious deterioration in their ability to repay;
                                                     •       have been in arrears for twelve months or more; or

                                                     •       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.

In the actual application of the criteria described above, the Bank classifies its corporate loans (including SME
loans) based on the borrower’s capacity to repay in consideration of its business operations, financial position
and future cash flows, the past due period (if any) of the loans and status of any bankruptcy proceedings in
which the borrower is involved. Loans to small companies and to households, however, are classified not by
evaluating the debt repayment capability of the borrower but by the past due period (if any) of the loans and the
status of any bankruptcy proceedings in which the borrower is involved. The Bank generally classifies all credits
to a single borrower in the same category of classification, but guaranteed credits or credits secured by bank




                                                                                                                                  97
deposits, real estate or other collateral may be classified differently based on the guarantor’s capability to
perform under its guarantee or based on the value of collateral securing the credits.
Loan Loss Provisioning Policy
Under Korean GAAP, the Bank established an allowance for loan losses, which was available to absorb losses
that it incurred in its loan portfolio. This allowance was based on the Bank’s classification of the loans in its
portfolio as of the balance sheet date under the asset classification criteria of the FSC. Similarly, the Bank has
established provisions for credit losses under K-IFRS to absorb such losses. The provisions for credit loss under
K-IFRS are recorded for those loans for which objective evidence of impairment exists as a result of one or
more events that occurred after initial recognition and, if the Bank’s provisions for credit loss are deemed
insufficient for regulatory purposes, the Bank compensates for the difference by recording a regulatory reserve
for credit loss, which is deducted from shareholder’s equity.
Under K-IFRS, if additions or changes to the provisions for credit losses are required, then the Bank records bad
debt expenses, which are included in impairment losses on credit loss and treated as charges against current
income. Credit exposures that the Bank deems to be uncollectible, including actual loan losses, net of recoveries
of previously charged-off amounts, are charged directly against the provisions for credit losses.
The level of regulatory reserve for credit loss under K-IFRS required to supplement the Bank’s allowance for
loan losses provisions for credit loss under K-IFRS is determined based on the classification of the Bank’s
loans, using the following percentages prescribed by the FSS as the minimum percentage of the outstanding
principal amount of the relevant loans that the sum of such provisions and reserve must cover.
Loan classifications                                             Corporate                          Consumer                       Credit card
Normal.........................................                  0.85 per cent. or above              1 per cent. or above          1.5 per cent. or above
Precautionary...............................                        7 per cent. or above             10 per cent. or above           15 per cent. or above
Substandard .................................                      20 per cent. or above             20 per cent. or above           20 per cent. or above
Doubtful.......................................                    50 per cent. or above             55 per cent. or above           60 per cent. or above
Estimated loss..............................                               100 per cent.                     100 per cent.                   100 per cent.

Similar provisioning requirements apply to other types of credits such as guarantees and acceptances and loans
from the trust accounts.
Allocation of Allowances for Loan Losses under Korean GAAP
The following tables present, as of the dates indicated, the allocation of the Bank’s allowances for loan losses,
on a non-consolidated basis under Korean GAAP, by loan type.
                                                                                                  As of 31st December, 2008
                                                                                                                                 Estimated
Account                                                          Normal       Precautionary      Substandard        Doubtful       Loss            Total
                                                                                                     (in billions of Won)
Domestic banker’s usance.......................                   W   36               W  3           W      8        W     —       W   1            W  48
Loans in local currency ...........................                1,179                387               201              242        392            2,401
Loans in foreign currencies.....................                     107                 30                  3               3         12              155
Bills bought in local currency .................                      16                 —                  —               —          —                16
Bills bought in foreign currencies...........                         42                  4                  1              —           1               48
Advances for customers ..........................                     —                   1                  3              25         17               46
Factoring receivable ................................                  1                 —                  —               —          —                 1
Credit card accounts ................................                 56                 12                 —               26          8              102
Privately placed bonds ............................                   37                  6                  2              17         —                62
Other ........................................................         2                  1                  6              31          1               41
     Total .................................................     W 1,476              W 444           W 224            W 344        W 432          W 2,920


                                                                                                  As of 31st December, 2009
                                                                                                                                 Estimated
Account                                                          Normal       Precautionary      Substandard        Doubtful       Loss            Total
                                                                                                     (in billions of Won)
Domestic banker’s usance.......................                   W      31           W      2      W       15        W     —      W     —          W       48
Loans in local currency ...........................                   1,207                548            300              115          291              2,461
Loans in foreign currencies.....................                         75                 50              47              10            7                189
Bills bought in local currency .................                          6                 11              19              —            —                  36
Bills bought in foreign currencies...........                            37                 —               15               1           —                  53
Advances for customers ..........................                        —                  —                5               8           12                 25
Factoring receivable ................................                    —                  —               —               —            —                  —
Credit card accounts ................................                    54                  9              —               24            6                 93
Privately placed bonds ............................                      23                  6              75               1            4                109




                                                                                                                                                         98
                                                                                                               As of 31st December, 2009
                                                                                                                                              Estimated
Account                                                               Normal                 Precautionary    Substandard        Doubtful       Loss        Total
                                                                                                                  (in billions of Won)
Other ........................................................                1                          2                8              —           —            11
    Total .................................................             W 1,434                      W 628       W 484             W 159          W 320      W 3,025


                                                                                                               As of 31st December, 2010
                                                                                                                                              Estimated
Account                                                               Normal                 Precautionary    Substandard        Doubtful       Loss        Total
                                                                                                                  (in billions of Won)
Domestic banker’s usance.......................                         W    34                   W     10       W       11         W     7       W   1      W    63
Loans in local currency ...........................                       1,170                        358             944              546         270        3,288
Loans in foreign currencies.....................                             69                         61               29               3           4          166
Bills bought in local currency .................                              1                          6               —               —           —             7
Bills bought in foreign currencies...........                                37                         48               —               —            1           86
Advances for customers ..........................                             1                         —                 1              88           4           94
Factoring receivable ................................                         1                         —                —               —           —             1
Credit card accounts ................................                        57                         11                1              20           7           96
Privately placed bonds ............................                          17                         13               65               4          17          116
Other ........................................................                1                          1                5               4          —            11
     Total .................................................            W 1,388                      W 508       W 1,056            W 672         W 304      W 3,928



Allocation of Provisions for Credit Losses under K-IFRS
The following tables present, as of 30th June, 2011, the allocation of the Bank’s provisions for credit losses, on
a non-consolidated basis under K-IFRS, by loan type.


Account                                                                                        As of 30th June, 2011
                                                                                                (in billions of Won)
Due from banks in local currency .........................................                                      W     2
Due from banks in foreign currencies...................................                                               6
Domestic banker’s usance.....................................................                                        —
Loans in local currency .........................................................                                2,775
Loans in foreign currencies...................................................                                     223
Bills bought in local currency ...............................................                                       —
Bills bought in foreign currencies.........................................                                          54
Advances for customers .......................................................                                     114
Factoring receivable ..............................................................                                  —
Credit card accounts ..............................................................                                116
Privately placed bonds ..........................................................                                    76
Loans for debt-equity swap...................................................                                        —
Backed loans .........................................................................                               —
Other loans ............................................................................                             40
Bonds purchased under resale agreements ...........................                                                  —
Other receivables...................................................................                               162
     Total ...............................................................................                     W 3,568



Loan Aging Schedule
The following table shows the Bank’s loan aging schedule (excluding accrued interest), on a non-consolidated
basis under Korean GAAP, as of the dates indicated.
                                            Normal                           1-3 months             3-6 months       More than 6 months       Total
                                                                        Amount                 Amount                Amount
                                 Amount               Percent           past due Percent past due Percent past due Percent              Amount    Percent
                                                                                    (in billions of Won, except percentages)
As of 31st
December,
2008 ......................... W 160,118                98.2%           W 1,826               1.1%       W 720      0.4%       W 411       0.3%   W 163,075 100.0%
2009 .........................   158,964                 99.4               315                0.2         204       0.1         466        0.3     159,949 100.0
2010 .........................   157,049                 99.1               354                0.2         812       0.5         338        0.2     158,553 100.0

The following table shows the Bank’s loan aging schedule (excluding accrued interest), on a non-consolidated
basis under K-IFRS, as of 30th June, 2011.




                                                                                                                                                                 99
                                                Normal                       1-3 months             3-6 months       More than 6 months       Total
                                                                        Amount                 Amount                Amount
                                    Amount               Percent        past due Percent past due Percent past due Percent              Amount    Percent
                                                                                    (in billions of Won, except percentages)
    As of 30th June,
    2011 ......................... W 161,423                   99.2% W        409         0.2%   W 276            0.2%   W 638       0.4% W 162,746 100.0%

    Credit Exposures to Companies in Workout, Restructuring or Rehabilitation
    Workout is a voluntary procedure through which the Bank, together with the borrower and other creditors,
    restructure a borrower’s credit terms. Previously, workouts were regulated under the Corporate Restructuring
    Promotion Act, which was enacted in 2007 and expired on 31st December, 2010. In April 2011, the National
    Assembly of Korea adopted a new Corporate Restructuring Promotion Act (the “New Corporate Restructuring
    Promotion Act”), which became effective on 19th May, 2011. Workouts that had been initiated under the
    Corporate Restructuring Promotion Act are also governed by the New Corporate Restructuring Promotion Act
    effective from such date. Under the New Corporate Restructuring Promotion Act, which is similar to the
    Corporate Restructuring Promotion Act, all creditor financial institutions of a financially troubled borrower are
    required to participate in a creditors’ committee which is authorised to prohibit such creditor financial
    institutions from exercising their rights against the borrower, commencing workout procedures or approving a
    reorganisation plan prepared by the borrower. Any decision of the creditors’ committee requires the approval of
    creditor financial institutions holding interests as creditor in 75 per cent. or more of the total debt outstanding of
    a borrower. An additional approval of creditor financial institutions holding interests as creditor in 75 per cent.
    or more 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 the creditor financial institutions of the borrower.
    Creditor financial institutions that voted against commencement of workout, debt restructuring or granting of
    new credit have the right to request the creditor financial institutions 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 creditor financial
    institutions that oppose a decision made by the coordination committee may request a court to change such
    decision. The New Corporate Restructuring Promotion Act is scheduled to expire on 31st December, 2013.
    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. That restructuring plan is subject to court approval.
    A portion of the Bank’s loans to and securities of corporate customers are currently in workout, restructuring or
    rehabilitation. As of 30th June, 2011, W4,151 billion, or 1.9 per cent., of the Bank’s total loans and securities,
    on a non-consolidated basis under K-IFRS, were in workout, restructuring or rehabilitation. This included
    W3,256 billion of loans to, and securities of, large corporate borrowers in workout or restructuring and W895
    billion of loans to, and securities of, SMEs in workout, restructuring or rehabilitation, which represented less
    than 1.5 per cent. and less than 0.4 per cent. of the Bank’s total loans and securities, respectively. The Bank’s
    Corporate Restructuring Division manages its workout, restructured and rehabilitated loans. Upon approval of a
    workout, restructuring or rehabilitation 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, the Bank takes the status of the borrower into account in valuing its
    loans to and collateral from that borrower for purposes of establishing the Bank’s provisions for credit losses.
    The following table shows, as of 30th June, 2011, the Bank’s ten largest exposures, on a non-consolidated basis
    under K-IFRS, that were in workout or restructuring, including rehabilitation.
                                                                                  Loans                                                                     Amounts
                                                                                                                   Guarantees                              Classified as
                                                                         Won         Foreign                            and                    Total     Substandard or
Company                                                                Currency     Currency     Securities(1)     Acceptances Derivatives   Exposures      Below(2)(3)
                                                                                                                 (In billions of Won)
ShinaSB YARD Co., Ltd. ...............................                  W 159           —             —              W 554            —       W 713        W 186
Kumho Tire co., Inc ........................................              106        W 304         W 167                   15         —         592           —
Kumho Industrial Co., Ltd. .............................                  437           —             —                    60         —         497          463
Poonglim Industrial Co., Ltd. .........................                   279           —             —                      2        19        300          282
Byuck San Engineering & Construction
                                                                           153            —              —                5           —          158            158
Co., Ltd............................................................
Daewoo Motor Sales Corp..............................                      145            —              3               —            —          148            148
21st Century Shipbuilding Co., Ltd ................                         49             2             1               83           —          135            134
Chinhung International Inc. ............................                   120            —              —               —            —          120            120
Jeil Engineering & Construction Co., Ltd ......                            107            —              —               —            —          107             12
Hyundai Cement Co., Ltd. ..............................                     88            —              —               —            —           88             88



                                                                                                                                                          100
                                                                                    Loans                                                                   Amounts
                                                                                                                   Guarantees                              Classified as
                                                                           Won         Foreign                          and                    Total     Substandard or
Company                                                                  Currency     Currency   Securities(1)     Acceptances Derivatives   Exposures      Below(2)(3)
                                                                                                                 (In billions of Won)

Total.................................................................    W1,643        W306         W171             W719          W19       W2,858        W1,591

    Notes:
    (1) Includes debt and equity securities.
    (2)      Classification is based on the FSC’s asset classification criteria.
    (3)      Includes guarantees and acceptances.


    Credit Rehabilitation Programmes for Delinquent Consumer Borrowers
    In light of the rapid increase in delinquencies in credit card and other consumer credit in recent years, and
    concerns regarding potential social issues posed by the growing number of individuals with bad credit, the
    Government has implemented a number of measures intended to support the rehabilitation of the credit of
    delinquent consumer borrowers. These measures may affect the amount and timing of the Bank’s collections
    and recoveries on its delinquent consumer credits.
    In 2002, the FSC established the Credit Counseling and Recovery Service based upon an agreement among
    approximately 160 financial institutions in Korea. Upon application to the Credit Counseling and Recovery
    Service and approval of creditor financial institutions representing a majority of the outstanding unsecured debt
    and two-thirds of the outstanding secured debt, a qualified “credit delinquent person” with outstanding debts to
    two or more financial institutions in an aggregate amount not exceeding W500 million may participate in an
    individual work-out programme designed to restructure such person’s debt and rehabilitate such person’s credit.
    On 1st April, 2006, the Korean Debtor Recovery and Bankruptcy Law took effect and replaced the Individual
    Debtor Rehabilitation Law. Under the Korean Debtor Recovery and Bankruptcy Law, a qualified individual
    debtor with outstanding debts in an aggregate amount not exceeding threshold amounts of W500 million of
    unsecured debt and/or W1 billion of secured debt may restructure his or her debts through a court-supervised
    debt restructuring that is binding on creditors.
    On 2nd September, 2008, to support consumer borrowers with low credit scores, the FSC established the Credit
    Rehabilitation Fund to purchase from creditors the loans of such borrowers that are in default and to provide
    guarantees so that such loans may be refinanced at lower rates. The Credit Rehabilitation Fund provides support
    to (i) individuals with low credit scores who are in default on loans not exceeding W50 million in amount in the
    aggregate (which requirement will be waived for individuals who are “basic living welfare recipients”) for a
    period of three months or more and (ii) individuals with low credit scores ranging from category 6 to 10 who are
    in default on loans not exceeding W30 million in amount in the aggregate (which requirement will be waived
    for individuals who are basic living welfare recipients) and the interest rate of which is 30 per cent. or more.
    In March 2009, the FSC requested Korean banks, including the Bank, to establish a “pre-workout program,”
    including a credit counseling and recovery service, for retail borrowers with outstanding short-term debt. The
    pre-workout programme has been in operation since April 2009 and, following a one-year extension by the
    Korean government, is expected to continue until April 2013. Under the pre-workout program, maturity
    extensions and/or interest rate adjustments are provided for retail borrowers with total loans of less than W500
    million who are in arrears on their payments for more than 30 days but less than 90 days.
    Delinquent Loans
    Delinquent loans are defined as those loans in respect of which either principal or interest payments are over due
    by one month or more. The delinquency ratio for loans is calculated as the ratio of (1) the outstanding balance of
    such loans in respect of which either principal or interest payments are over due by one month or more to (2) the
    aggregate outstanding balance of such loans. The following table shows, as of the dates indicated, certain details
    regarding the Bank’s delinquent loan portfolio on a non-consolidated basis under Korean GAAP.




                                                                                                                                                          101
                                                                                                                    As of 31st December,
                                                                                                        2008                2009               2010
                                                                                                          (in billions of Won, except percentages)
Total delinquent loans ....................................................                             W 1,575               W 985            W 1,563
As a percentage of total loans ........................................                                       1.0%                 0.6%             1.0%

The following table shows certain details regarding the Bank’s delinquent loan portfolio as of 30th June, 2011
on a non-consolidated basis under K-IFRS.
                                                                                                     As of 30th
                                                                                                     June, 2011
                                                                                                (in billions of Won,
                                                                                                except percentages)
Total delinquent loans .........................................                                       W 1,453
As a percentage of total loans .............................                                                  0.9%



The following table shows the total delinquent loans by type of borrower as of 30th June, 2011 on a non-
consolidated basis under K-IFRS.
                                                                                                                                   As of 30th June, 2011
                                                                                                                                         Delinquent      Delinquency
                                                                                                                    Total Loans            Loans            Ratio
                                                                                                                         (in billions of Won, except percentages)
Corporate loans
     Total corporate ................................................................................                W     94,431              948                   1.0%
Consumer loans
  Mortgage and home equity ..................................................................                           40,055                234                    0.6%
  Other consumer....................................................................................                    19,402                188                    1.0%
  Credit cards ..........................................................................................                3,349                 65                    1.9%
     Total consumer................................................................................                     62,806                487                    0.8%
Public and other loans(1) ........................................................................                       5,470                 18                    0.3%
Total..........................................................................................................      W 162,707            W 1,453                    0.9%


Notes:
(1)     Includes primarily loans to Government institutions.


Non-Performing Loans
Non-performing loans are defined as those loans that are classified as substandard or below based on the FSC’s
asset classification criteria. See “— Loan Classifications” above. The following table shows, as of the dates
indicated, certain details regarding the asset quality of the Bank’s loan portfolio on a non-consolidated basis
under Korean GAAP, including its non-performing loans.
                                                                                                                         As of 31st December,
                                                                                                     2008(1)                    2009(1)             2010(1)
                                                                                                                          (in billions of Won, except percentages)
Normal............................................................................                 W 158,085                    W 152,347           W 148,072
Precautionary..................................................................                        3,449                            4,815               4,127
Substandard ....................................................................                         908                            1,943               3,855
Doubtful..........................................................................                       616                              300               1,262
Estimated loss.................................................................                          432                              320                 305
Total non-performing loans ...........................................                                 1,956                            2,563               5,422
Problem loans(2) ..............................................................                        5,405                            7,378               9,549
Allowance for loan losses ..............................................                               2,920                            3,025               3,928
Non-performing loans as a percentage of
   total loans...................................................................                                 1.2%                1.6%                3.4%
Problem loans as a percentage of total loans .................                                                    3.3%                4.6%                6.1%
Allowance for loan losses as a percentage of non-
   performing loans........................................................                                149.3%                   118.0%               72.4%
Allowance for loan losses as a percentage
   of total loans...............................................................                                  1.8%                1.9%                2.5%

Notes:
(1)     Excludes suspense receivables and receivables related to non-performing bills bought.
(2)     Problem loans consist of loans that are classified as “precautionary” or below.




                                                                                                                                                                            102
The following table shows certain details regarding the asset quality of the Bank’s loan portfolio on a non-
consolidated basis under K-IFRS, including its non-performing loans, as of 30th June, 2011.
                                                                                         As of 30th June,
                                                                                               2011(1)
                                                                                       (in billions of Won,
                                                                                       except percentages)
Normal............................................................................              W 163,431
Precautionary..................................................................                        4,671
Substandard ....................................................................                       2,617
Doubtful..........................................................................                     1,323
Estimated loss.................................................................                          233
Total non-performing loans ...........................................                                 4,173
Problem loans(2) ..............................................................                        8,844
Provisions for credit losses ............................................                              3,560
Non-performing loans as a percentage of
   total loans...................................................................                     2.4%
Problem loans as a percentage of total loans .................                                        5.1%
Provisions for credit losses as a percentage of non-
   performing loans........................................................                          85.3%
Provisions for credit losses as a percentage
   of total loans...............................................................                      2.1%

Notes:
(1)     Excludes suspense receivables and receivables related to non-performing bills bought, and includes confirmed guarantees, which are
        not recorded as loans in the Bank’s financial statements as of 30th June, 2011.
(2)     Problem loans consist of loans that are classified as “precautionary” or below.
The above amounts do not include loans classified as substandard or below that the Bank or any of its
predecessor entities sold to KAMCO or otherwise. See “— Sales of Non-Performing Loans.”
The Bank has also issued securities backed by non-performing loans and other assets through special purpose
companies. Some of these transactions involved transfers of loans in connection with asset securitisations. The
assets are not included in its balance sheet under Korean GAAP or its statement of financial position under K-
IFRS as these transactions are classified as “true sales”.
The following table sets forth, as of the dates indicated, the Bank’s total non-performing loans on a non-
consolidated basis under Korean GAAP by type of borrowing.

                                                                                             As of 31st December,
                                                                        2008                         2009                      2010
                                                          Amount                Percent     Amount        Percent     Amount        Percent
                                                                                          (in billions              (in billions
                                                                                            of Won)                   of Won)
Loans in local currency ................... W 1,630                                 83.3% W 1,666             65.0% W 4,787             88.3%
Loans in foreign currencies.............                  32                         1.6          258         10.1          115          2.1
Bills bought in local currency .........                  ⎯                           ⎯            92          3.6           ⎯            ⎯
Bills bought in foreign currencies...                      7                         0.4           75          2.9            1          0.0
Advances for customers ..................                 81                         4.1           52          2.0          186          3.4
Factoring receivables ......................              ⎯                           ⎯            ⎯           ⎯             ⎯            ⎯
Credit card accounts ........................             53                         2.7           48          1.9           45          0.8
Bonds purchased with resale
   agreements ..................................          ⎯                            ⎯            ⎯            ⎯          ⎯            ⎯
Domestic banker’s usance...............                   17                          0.9           47           1.8        41          0.8
Call loans.........................................       ⎯                            ⎯            ⎯             ⎯         ⎯            ⎯
Privately placed bonds ....................               43                          2.2          285          11.1       211          3.9
Loans to be converted to equity
   securities .....................................       ⎯                             ⎯          1             0.0        1           0.0
Suspense receivable as credit ..........                  ⎯                             ⎯         ⎯               ⎯        ⎯             ⎯
Other ................................................    93                           4.8        39             1.5       35           0.7
Total non-performing loans ............                W 1,956                       100.0%    W 2,563         100.0%   W 5,422       100.0%




                                                                                                                                                103
The following table sets forth the Bank’s total non-performing loans on a non-consolidated basis under K-IFRS
by type of borrowing, as of 30th June, 2011.

                                                                                                       As of 30th June, 2011
                                                                                                      Amount             Percent
                                                                                                (in billions of Won)
Loans in local currency .........................................................                        W 3,333            79.9%
Loans in foreign currencies...................................................                                 144           3.5
Bills bought in foreign currencies.........................................                                     19           0.5
Advances for customers .......................................................                                 175           4.2
Bonds purchased under resale agreements ...........................                                             —           —
Credit card accounts ..............................................................                             64           1.5
Call loans...............................................................................                       —           —
Privately placed bonds ..........................................................                              221           5.3
Others(1) ................................................................................                     217           5.2
Total non-performing loans .................................................                          W 4,173                100%


Notes:
(1)     Includes bills bought in local currency, factoring receivables and other loans and receivables, as well as confirmed guarantees, which
        are not recorded as loans in the Bank’s financial statements as of 30th June, 2011.



As of 30th June, 2011, the Bank’s ten largest non-performing credits accounted for 63.8 per cent. of its total
non-performing credit portfolio on a non-consolidated basis under K-IFRS. The following table shows, as of
that date, certain information regarding those credits on a non-consolidated basis under K-IFRS.
                                                                                             Gross principal        Provision for credit
                                                                                              outstanding(1)               losses                     Industry
                                                                                                   (in billions of Won)

Borrower 1........................................................................               W 713                   W    96           Manufacturing
Borrower 2........................................................................                   497                      13           Real estate and leasing
Borrower 3........................................................................                   409                     347           Real estate and leasing
Borrower 4........................................................................                   282                     214           Real estate and leasing
Borrower 5........................................................................                   158                     113           Real estate and leasing
Borrower 6........................................................................                   145                      91           Retail and wholesale
Borrower 7........................................................................                   134                     121           Manufacturing
Borrower 8........................................................................                   120                     106           Real estate and leasing
Borrower 9........................................................................                   106                      14           Manufacturing
Borrower 10......................................................................                    100                      40           Real estate and leasing
  Total .............................................................................            W 2,664                W 1,155


Note:
(1)     Includes guarantees and acceptances.


Non-Performing Loan Strategy
One of the Bank’s goals is to improve its asset quality, in part by reducing its non-performing loans. The Bank’s
credit rating systems are designed to prevent new loans being extended to high-risk borrowers as determined by
their credit rating. The Bank’s credit monitoring systems are designed to bring any sudden increase in a
borrower’s credit risk to its attention, and the Bank will then monitor such loans closely. See “Risk Management
— Credit Risk Management.”
The Bank’s Credit Management and Collection Department and Corporate Restructuring Department generally
oversee the process for resolving non-performing loans transferred to them by other business units. The Bank
believes that by centralising the management of its non-performing loans, it can become more effective in
dealing with the issues relating to these loans by pooling institutional knowledge and creating a more specialised
workforce.
When a loan becomes non-performing, the Bank will begin a due diligence review of the borrower’s assets, send
a notice demanding payment or stating that it will take legal action, and prepare for legal action. At the same
time, the Bank initiates its 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;



                                                                                                                                                                     104
         •   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 normalisation efforts based on the cash-
             flow situation of the borrower.
Once the Bank has confirmed the details of a non-performing loan, it makes efforts to recover amounts owed to
it. Methods for resolving non-performing loans include the following:
         •   commencing collection proceedings;
         •   commencing legal actions to seize collateral;
         •   writing off these amounts, transferring them to its subsidiary, Woori Credit Information, which is
             in charge of collections and authorising this subsidiary to recover what it can with respect to these
             amounts or to sell these loans to third parties; and
         •   with respect to large corporations, commencing or participating in voluntary workouts or
             restructurings mandated by Korean courts.
In addition to making efforts to collect on its non-performing loans, the Bank also undertakes measures to
reduce the overall level of its non-performing loans. These measures include selling non-performing loans to
third parties, including KAMCO. See “— Sales of Non-performing Loans.” The Bank generally expects to
suffer a partial loss on loans that it sells or securitises.
Foreclosure and Collateral
The Bank generally forecloses on mortgages or exercises its security interests in respect of other collateral if a
collateralised obligation becomes overdue for more than three months. At that time, the Bank will petition a
court to foreclose on collateral and to sell that collateral through a court-supervised auction. Under Korean law,
that petition must be filed with a court that has jurisdiction over the mortgaged property, and must be filed
together with a copy of the mortgage agreement and an extract of the court registry regarding the subject
property. The court will then issue an order to commence the foreclosure auction, which will be registered in the
court registry of the subject property. If no bidder bids at least the minimum amount set by the court on the first
auction date, the court will set another date for a subsequent auction approximately one month later. Each time a
new auction date is set, the minimum auction price will be lowered by approximately 20 per cent. Korean law
does not provide for non-judicial foreclosure.
Korean financial institutions, including the Bank, maintain general policies to assess a potential customer’s
eligibility for loans based on that entity’s credit quality, rather than requiring a particular level of collateral,
especially in the case of large corporate borrowers. As a result, the ratio of the Bank’s collateral to non-
performing corporate loans is relatively low when compared with its total exposures. For secured consumer
loans, however, the Bank generally imposes limits on loan amounts based on the collateral it receives. See
“Business — Consumer Banking — Lending Activities.”
The Bank reflects this collateral level when it estimates the future cash flow for its loans, which it calculates
using a discounted cash flow method. With respect to loans to borrowers that the Bank does not believe will be
going concerns in the future, the lower collateral ratio has a direct effect on cash flow estimates and results in a
higher level of provisions. With respect to loans to borrowers that the Bank expects to be going concerns, the
lower collateral ratio has an effect on cash flow estimates but the Bank also considers other factors, including
future operating income and future asset disposals and restructuring, in determining allowance levels.
Accordingly, for these latter borrowers, the effect of lower collateral levels on allowances is mitigated by other
characteristics of the borrower, and that lower collateral level will not necessarily result in a higher level of
allowances.
Sales of Non-Performing Loans
The overall asset quality of the Bank’s loan portfolio is affected by its sales of non-performing loans. These
sales have been made primarily to KAMCO and to special purpose companies established as a result of joint
ventures between Woori Finance Holdings and several financial institutions.
The following table sets forth information regarding the Bank’s sales of loans, on a non-consolidated basis
under Korean GAAP, for the periods indicated.




                                                                                                                105
                                                                              Year ended 31st December,
                                                     2008                                  2009                              2010
                                        Principal                          Principal                             Principal
                                        Amount       Sale       Gain       Amount         Sale                   Amount       Sale     Gain
Purchaser                                 Sold       Price      (loss)       Sold        Price     Gain (loss)     Sold       Price    (loss)
                                                                                  (in billions of Won)

KAMCO ......................... W            249 W 183 W (57)                W 684       W 449 W (147)             W 73       W 61     W (9)
Joint venture special
   purpose companies ....               189            158    (1)              981         692         (78)          984         735     (27)
Others .............................     ⎯              ⎯      ⎯               441         431           19        1,176       1,113     (26)
Total................................ W 438          W 341 W (58)          W 2,105      W1,572      W (206)      W 2,223     W 1,909   W (62)

The following table sets forth information regarding the Bank’s sales of loans, on a non-consolidated basis
under K-IFRS, for the six months period ended 30th June, 2011.
                                          Six month period ended 30th
                                                    June, 2011
                                        Principal
                                        Amount          Sale      Gain
Purchaser                                 Sold         Price      (loss)
                                               (in billions of Won)
KAMCO .........................                ⎯            ⎯            ⎯
Joint venture special
   purpose companies ....                W 271        W 83       W (35)
Others .............................       443         203         (81)
Total................................    W 714       W 286      W (116)

Korea Asset Management Corporation
In December 1997, in response to difficulties faced by Korean financial institutions as a result of the severe
economic downturn in Korea, the Government authorised KAMCO to purchase from those institutions certain
assets (which were primarily classified as substandard or below) at discounted prices.
Pursuant to the terms of the sales, KAMCO can require the Bank to repurchase any substandard or below loans
that it has sold to KAMCO in the event that:
                  •         the underlying documentation of the loan is incomplete;
                  •         there is a flaw in the perfection of any security interest underlying the loan; or
                  •         certain litigation regarding the loan is pending.
In addition, the Bank may be required to repurchase any loan relating to a borrower that has applied to a court
for reorganisation or that is the subject of reorganisation proceedings at the time the loan was sold to KAMCO if
a court rejects the application for reorganisation, disapproves the reorganisation plan or fails to approve the
reorganisation plan within two years of the sale. The Bank may also be required to repurchase a loan if a court
determines that the borrower cannot meet the terms of the repayment schedule developed in the reorganisation
proceeding. The ability of KAMCO to exercise its right to require the Bank to repurchase loans sold is without
limit. As of 30th June, 2011, the aggregate principal amount of loans subject to these repurchase rights was
W9.6 billion.
In May 2011, the FSS entered into a memorandum of understanding with seven banks in Korea (including the
Bank) regarding the establishment of an entity to acquire and manage non-performing bank loans relating to the
construction and real estate industry, including project financing loans. Such entity was established in June
2011 in the form of a private equity fund, with UAMCO, Ltd. as the general partner and several Korean banks
(including the Bank) as limited partners. Such banks have made W800 billion of capital contributions (of which
the Bank contributed W148 billion) and have committed to provide up to an additional W428 billion in credit
lines (of which the Bank’s share is W109 billion) to the entity. The entity acquired approximately W1.2 trillion
principal amount of non-performing loans from Korean banks in June 2011 at significantly discounted prices,
including W440 billion of non-performing loans from the Bank at a price of W202 billion, and is expected to
make similar purchases through the first half of 2012.
Loan Charge-Offs
The Bank’s credit approval process includes assessing credit risk before extending loans and monitoring
outstanding loans, in order to minimise loans that must be charged off. To the extent charge-offs are required,
the Bank follows charge-off policies aimed at maximising accounting transparency, minimising any waste of




                                                                                                                                                106
resources in managing loans that have a low probability of being collected and reducing its non-performing loan
ratio.
Loans To Be Charged Off
The Bank charges off loans that are deemed to be uncollectible by virtue of their falling under any of the
following categories:
         •   loans for which collection is not foreseeable due to insolvency, bankruptcy, compulsory execution,
             disorganisation, 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 more than four payment
             cycles 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 those that have been overdue for more than six
             months;
         •   payments outstanding on corporate and consumer loans (other than credit card receivables) that
             have been overdue for more than 12 months, and those on unsecured consumer loans that have
             been overdue for more than six months; or
         •   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 by a branch to the
Credit Management and Collection Department promptly and, in any event, within one month after the
corporate loan is classified as estimated loss. The relevant department or team evaluates and approves the
application. Then, the Bank must seek an approval from the FSS for its charge-offs, which is typically granted.
At the same time, the Bank refers the approval of the charge-off by the Credit Management and Collection
Department to its Audit Committee for that committee’s review to ensure compliance with the Bank’s internal
procedures for charge-offs, which include consultations with the branch submitting the charge-off application.
Once the Bank receives approval from the FSS, it must also obtain approval from the Bank’s senior
management to charge off those loans.
With respect to unsecured consumer loans and credit card balances, the Bank follows a different process to
determine which unsecured consumer loans and credit card balances should be charged off, based on the length
of time those loans or balances are past due. The Bank charges off unsecured consumer loans, which are 12
months overdue, and credit card balances, which have been overdue for more than four payment cycles 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).
Treatment of Loans Charged Off
Once loans are charged off, the Bank classifies them as charged-off loans. These loans are then transferred to its
wholly-owned subsidiary, Woori Credit Information, which is in charge of collections. Woori Credit
Information will attempt to recover amounts owed or to sell these loans to third parties.
In the case of collateralised loans, the Bank’s general policy is to petition a court to foreclose and sell the
collateral through a court-supervised auction if a collateralised loan becomes overdue for more than three
months. If a debtor still fails to repay and the court grants its approval for foreclosure, the Bank will sell the
collateral, net of expenses incurred from the auction.
Securities Investment Portfolio
Investment Policy
The Bank invests in and trades Won-denominated securities and, to a lesser extent, foreign currency-
denominated securities for its own account to:




                                                                                                              107
            •     maintain asset stability and diversification;
            •     maintain adequate sources of back-up liquidity to match funding requirements; and
            •     supplement income from core lending activities.
Team managers of the treasury and investment banking departments supervise the Bank’s investment and
trading activities. In making securities investments, the Bank takes into account a number of factors, including
external broker analyses and internal assessments of macroeconomic trends, industry analysis, credit evaluation
and trading history in determining whether to make particular investments in securities.
The Bank’s securities investments are subject to various guidelines, including limitations prescribed under the
Bank Act. Under these regulations, the Bank must limit its investments in equity securities and bonds with a
maturity in excess of three years (other than monetary stabilisation bonds issued by the Bank of Korea and
Government bonds) to 60 per cent. of the sum of its total Tier I and Tier II capital amount (less any capital
deductions). The Bank is also generally prohibited from purchasing or retaining permanent ownership interests
in equity securities of other banking institutions or acquiring more than 15 per cent. of the shares with voting
rights issued by any other corporation. The Bank and its trust accounts are also prohibited from acquiring the
shares of any of its “major stockholders,” as defined in “Supervision and Regulation — Financial Exposure to
any Individual Customer and Major Stockholder,” in excess of an amount determined by the enforcement decree
within a maximum limit of 1 per cent. of the sum of the Bank’s Tier I and Tier II capital (less any capital
deductions).
Further information on the regulatory environment governing the Bank’s investment activities is set out in
“Supervision and Regulation — Liquidity” and “Supervision and Regulation — Restrictions on Shareholdings
in Other Companies.”
The Bank’s investments in foreign currencies are subject to certain limits and restrictions specified in its internal
guidelines relating to country exposure, a single issuer and type of security exposure, and total investments by
individual business units.
The following table sets out the definitions of the four types of securities investments the Bank held under
Korean GAAP:
Category                                                                                          Classification
Trading securities ........................................................   Securities bought and held principally for sale in the
                                                                              near term to generate profits from short-term price
                                                                              differences and which are traded frequently.
Available-for-sale securities ........................................        Securities not classified as held-to-maturity or trading
                                                                              or equity.
Held-to-maturity securities ..........................................        Debt securities that have fixed or determinable
                                                                              payment amounts and fixed maturity if the Bank has
                                                                              both the positive intent and ability to hold such
                                                                              securities to maturity.
Equity securities accounted for using the equity                              Equity securities where the Bank exercises significant
method of accounting ..................................................       influence over the operating and financial policies of
                                                                              an investee.
For a description of the method by which the Bank valued its securities for purposes of its financial statements
under Korean GAAP, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Policies, Estimates and Judgments under Korean GAAP—Valuation of
Securities.”
The following table sets out the definitions of the four types of securities investments the Bank holds under K-
IFRS:




                                                                                                                                  108
Category                                                                                               Classification
Financial assets at fair value through profit and loss ...                     Financial assets bought and held for trading or
                                                                               otherwise designated as at fair value through profit
                                                                               and loss.
Available-for-sale financial assets ...............................            Non-derivative financial assets not classified as held-
                                                                               to-maturity, at fair value through profit and loss or
                                                                               loans and receivables.
Held-to-maturity financial assets .................................            Non-derivative financial assets with fixed or
                                                                               determinable payments and fixed maturity dates that
                                                                               the Bank has the positive intent and ability to hold to
                                                                               maturity.
Investments in associates.............................................         Equity investments in entities over which the Bank
                                                                               has significant influence but does not have direct or
                                                                               indirect control over.
For a description of the method by which the Bank values its securities for purposes of its financial statements
under K-IFRS, see Note 2 of the notes to the Bank’s consolidated interim financial statements included
elsewhere in this Draft Prospectus.
Book Value and Market Value
The following table sets out the book value and market value, on a non-consolidated basis under Korean GAAP,
of securities in the Bank’s trading and investment portfolio (other than equity securities accounted for using the
equity method of accounting) as of the dates indicated.
                                                                               As of 31st December,
                                                        2008                               2009                           2010
                                               Book             Fair             Book               Fair         Book             Fair
                                               Value           Value(1)          Value           Value(1)        Value           Value(1)
                                                                               (in billions of Won)
Trading securities:
Equity securities ....................           W      165     W    165          W    208         W    208       W      188       W    188
Government bonds ................                       351          351              1,743            1,743            1,566          1,566
Finance debentures................                     1,006        1,006              345              345             1,103          1,103
Corporate bonds ....................                     69               69            —                   —             —                 —
Debt securities in foreign
  currencies ..........................                   8            8                —                —                —              —
Beneficiary certificates..........                      824          824               176              176              283            283
Commercial Paper .................                     3,885        3,885             3,098            3,098            3,062          3,062
Other ......................................             17               17            26                  26            33                33
Sub-total ................................             5,587        5,587             6,932            6,932            6,235          6,235


Available-for-sale securities:
Equity securities ....................                 2,393        2,393             2,230            2,230            2,257          2,257
Capital contributions .............                     265          265               255              255              226            226
Equity securities in foreign
  currencies ..........................                 276          276              3,622            3,622             149             149
Government bonds ................                      2,577        2,577             2,309            2,309            2,900          2,900
Finance debentures................                     5,261        5,261             2,385            2,385            4,347          4,347
Corporate bonds ....................                    370          370               293              293              685            685
Debt securities in foreign
  currencies ..........................                  846          846               455              455               73             73
Beneficiary certificates..........                     1,779        1,779             1,501            1,501            1,940          1,940
Beneficiary certificates in
  foreign currency................                       —                —             —                   —             —                 —
Other ......................................             —                —             —                   —             —                 —
Sub-total ................................         13,767         13,767            13,050            13,050        12,577           12,577


Held-to-maturity securities:
Government bonds ................                       604          617              1,718            1,710            4,877          4,919



                                                                                                                                             109
                                                                                                     As of 31st December,
                                                                   2008                                           2009                          2010
                                                          Book                     Fair                 Book               Fair         Book            Fair
                                                          Value                   Value(1)              Value           Value(1)        Value          Value(1)
                                                                                                      (in billions of Won)
Finance debentures................                                5,152               5,257                 9,995           10,019          6,956           6,998
Corporate bonds ....................                               214                  218                  614               618          3,942           3,977
Debt securities in foreign
  currencies ..........................                             57                       57                53                  53            2             2
Securities lent ........................                            12                       14                —                   —            —             —
Commercial paper .................                                  ⎯                        —                 —                   —            —                 —
Sub-total ................................                        6,039               6,163                12,380           12,400        15,777          15,896
Total.......................................               W 25,393               W 25,517             W 32,362          W 32,382       W 34,589       W 34,708


Notes:
(1)     Net asset values or book values of some unmarketable equity securities, equity investments, securities lent and other securities are used
        as substitutes for the fair values of corresponding securities.
The following table sets out the book value and market value, on a non-consolidated basis under K-IFRS, of
securities in the Bank’s trading and investment portfolio (other than investments in associates) as of 30th June,
2011.
                                                                   As of 30th June, 2011
                                                                  Book               Fair
                                                                  Value            Value(1)
                                                                    (in billions of Won)
Financial assets at fair value through
  profit or loss:
Equity securities ...............................                  W       190                W     190
Government bonds ...........................                               788                      788
Finance debentures...........................                             1,886                    1,886
Corporate bonds ...............................                             —                        —
Debt securities in foreign currencies                                       —                        —
Beneficiary certificates.....................                              300                      300
Commercial Paper ............................                          2,336                       2,336
Other .................................................                    273                      273
Sub-total ...........................................                  5,773                       5,773


Available-for-sale financial assets:
Equity securities ...............................                         1,613                    1,613
Capital contributions ........................                             236                      236
Equity securities in foreign                                               138                      138
  currencies .....................................
Government bonds ...........................                              2,435                    2,435
Finance debentures...........................                             2,826                    2,826
Corporate bonds ...............................                            945                      945
Debt securities in foreign currencies                                       16                       16
Beneficiary certificates.....................                          3.460                       3,460
Beneficiary certificates in foreign                                         —                        —
  currency .......................................
Other .................................................                    458                      458
Sub-total ...........................................                12,127                       12,127


Held-to-maturity financial assets:
Government bonds ...........................                              5,841                    6,021
Finance debentures...........................                             6,049                    6,091
Corporate bonds ...............................                           4,604                    4,669
Debt securities in foreign currencies                                        2                        2
Securities lent ...................................                         —                        —
Commercial paper ............................                               —                        —




                                                                                                                                                                   110
                                                                       As of 30th June, 2011
                                                                      Book               Fair
                                                                      Value            Value(1)
                                                                          (in billions of Won)
Sub-total ...........................................                        16,495                         16,783
Total..................................................                W 34,395                       W 34,683


Notes:
(1)     Net asset values or book values of some unmarketable equity securities, equity investments, securities lent and other securities are used
        as substitutes for the fair values of corresponding securities.
Maturity Analysis
The following table categorises the Bank’s debt securities by maturity, on a non-consolidated basis under K-
IFRS, as of 30th June, 2011.
                                                                                                                                   As of 30th June, 2011
                                                                                                                         Over 1 but     Over 5 but
                                                                                                Within 1                  within 5       within 10       Over 10
                                                                                                 year                      years           years          years                                   Total
                                                                                                                                             (in billions of Won)
Financial assets at fair value through profit or loss:
Government bonds ............................................................                  W               —         W             539           W            248        W         —      W        787
Finance debentures............................................................                                 80                    1,806                         —                   —             1,886
Corporate bonds ................................................................                               —                          —                        —                   —                   —
Debt securities in foreign currencies.................................                                         —                          —                        —                   —                   —
Sub-total ............................................................................                         80                    2,345                        248                  —             2,673


Available-for-sale financial assets:
Government bonds ............................................................                                935                     1,444                         55                  —             2,434
Finance debentures............................................................                            1.657                      1,149                         20                  —             2,826
Corporate bonds ................................................................                             300                        502                       144                  —                  946
Debt securities in foreign currencies.................................                                         9                         —                          2                  7                   18
Sub-total ............................................................................                    2,901                      3,095                        221                  7             6,224


Held-to-maturity financial assets:
Government bonds ............................................................                             1,660                      4,133                         47                  —             5,840
Finance debentures............................................................                            4,826                      1,203                         20                  —             6,049
Corporate bonds ................................................................                             811                     2,631                        100              1,063             4,605
Debt securities in foreign currencies.................................                                         2                        —                          —                  —                  2
Securities lent ....................................................................                           —                          —                        —                   —                   —
Sub-total ............................................................................                    7,299                      7,967                        167              1,063            16,496
Total...................................................................................       W        10,280            W        13,407             W           636        W     1,070      W     25,393

Risk Concentrations
As of 30th June, 2011, on a non-consolidated basis under K-IFRS, the Bank held the following securities of
individual issuers where the aggregate book value of those securities exceeded W1,765 billion, or 10 per cent. of
its shareholder’s equity at such date.
                                                                                                                                                                            As of 30th June, 2011
                                                                                                                                                                   Book Value              Market Value
                                                                                                                                                                             (in billions of Won)
Name of issuer:
Government(1) ...........................................................................................................................................               W      9,322          W      9,547
The Bank of Korea ...................................................................................................................................                          8,322                 8,373
Total..........................................................................................................................................................         W     17,644           W 17,920


Note:
(1)     Central government of Korea; excludes local governments.




                                                                                                                                                                                                          111
The Bank of Korea is a Government entity.
Funding
The Bank funds its lending and other activities using various sources, both domestic and foreign. The Bank’s
primary funding strategy is to maintain stable and low-cost funding. It has in the past achieved this in part by
increasing the average balances of low-cost deposits, in particular demand deposits and savings deposits.
Deposits are the Bank’s principal funding source. Deposits accounted for 73.1 per cent. of its total funding as of
31st December, 2008, 75.7 per cent. of its total funding as of 31st December, 2009 and 78.7 per cent. of its total
funding as of 31st December, 2010, respectively, on a non-consolidated basis under Korean GAAP. Deposits
accounted for 89.6 per cent. of its total funding as of 30th June, 2011 on a non-consolidated basis under K-IFRS.
The Bank also acquires funding through the following sources:
                •       long-term borrowings, including the issuance of senior and subordinated bonds and borrowings
                        from Government-affiliated funds and entities and other financial institutions;
                •       short-term borrowings, including borrowings from its trust accounts and from the Bank of Korea,
                        and call money; and
                •       asset securitisations and securities sold under repurchase agreements.
As of 30th June, 2011, approximately 78.6 per cent. of the Bank’s total funding on a non-consolidated basis
under K-IFRS was denominated in Won.
Deposits
Although the majority of the Bank’s deposits are short-term, it has been the Bank’s experience that the majority
of its depositors generally roll over their deposits at maturity, providing it with a stable source of funding. See
“Risk Factors — Risks relating to the Bank — Other risks — The Bank’s funding is highly dependent on short-
term deposits, which dependence may adversely affect the Bank’s operations.” The following table shows the
average balances of the Bank’s deposits and the average rates paid on its deposits, on a non-consolidated basis
under Korean GAAP, for the periods indicated.
                                                                            For the year ended 31st December,
                                                                2008                        2009                         2010
                                                       Average       Average       Average       Average       Average        Average
                                                       Balance      rate paid      Balance      rate paid      Balance        rate paid
                                                     (in billions                (in billions                (in billions
                                                       of Won)                     of Won)                     of Won)
Deposits in local currency:
Demand deposits ..............................       W     4,578        0.33%    W     4,805        0.35%     W     5,022          0.26%
Savings deposits ...............................          93,024          4.43       115,908          3.19        130,223          2.88
Mutual installment receipts(1) ...........                 2,017          4.28           164          3.58            126          3.74
Certificates of deposit.......................            17,916          6.06        11,869          5.24          6,215          4.47
Deposits in foreign currencies..........                   5,504          2.70         7,966          1.36          6,299          0.74
Offshore deposits..............................               ⎯             ⎯             ⎯             ⎯              —           0.00
Notes payable deposits .....................               5,448          5.03         4,167          2.10          2,802          2.20
Cash management account ...............                    2,381          4.98         1,629          2.12          2,736          2.19
Total deposits ...................................    W 129,058                   W 146,508                    W 153,423


Note:
(1)     Mutual installment receipts are interest-bearing deposits offered by the Bank, which enable customers to become eligible to apply for
        loans secured by deposits while they maintain an account with the Bank. In order to qualify to apply for such a loan, a customer must
        make required periodic deposits to the mutual installment account for a contracted term of less than five years. Any such loan will be
        secured in an amount up to the holder’s mutual installment receipt and will be subject to the same loan underwriting policy the Bank
        applies for other secured loans. For the portion of the loan, if any, that is not secured, the Bank applies the same loan underwriting
        policy as the Bank would for other unsecured loans.


The following table shows the average balances of the Bank’s deposits and the average rates paid on its
deposits, on a non-consolidated basis under K-IFRS, for the six month period ended 30th June, 2011.




                                                                                                                                           112
                                                            For the six month period
                                                             ended 30th June, 2011
                                                              Average     Average
                                                              Balance     rate paid
                                                            (in billions
                                                              of Won)
Deposits in local currency:
Demand deposits ..............................                  W 7,171                     0.26%
Savings deposits ...............................                    137,197                     2.89
Mutual installment receipts(1) ...........                                103                   3.76
Certificates of deposit.......................                          1,129                  4.45
Deposits in foreign currencies..........                               6,090                    0.64
Offshore deposits..............................                               −                     −
Notes payable deposits .....................                           3,364                    2.93
Cash management account ...............                                2,459                    2.91
Total deposits ...................................             W 157,513


Note:
(1)     Mutual installment receipts are interest-bearing deposits offered by the Bank, which enable customers to become eligible to apply for
        loans secured by deposits while they maintain an account with the Bank. In order to qualify to apply for such a loan, a customer must
        make required periodic deposits to the mutual installment account for a contracted term of less than five years. Any such loan will be
        secured in an amount up to the holder’s mutual installment receipt and will be subject to the same loan underwriting policy the Bank
        applies for other secured loans. For the portion of the loan, if any, that is not secured, the Bank applies the same loan underwriting
        policy as the Bank would for other unsecured loans.



For a description of the Bank’s retail deposit products, see “Business — Consumer Banking — Lending
Activities — Mortgage and Home Equity Lending” and “Business — Consumer Banking — Deposit — Taking
Activities.”
Maturities of Certificates of Deposit and Other Time Deposits
The following table presents, as of 30th June, 2011, the remaining maturities of the Bank’s Won currency time
deposits, certificates of deposit and mutual installment deposits on a non-consolidated basis under K-IFRS.
                                                                                                                                                       As of 30th June, 2011
                                                                                                                                                                               Mutual
                                                                                                                       Certificates               Other time
                                                                                                                                                                            installment              Total
                                                                                                                         of deposit                deposits(1)
                                                                                                                                                                               deposits
                                                                                                                                                        (in billions of Won)
Maturing within three months.......................................................................                             W 365                 W 35,019                            W 85      W 35,469
After three but within six months .................................................................                                     787                  24,011                           3          24,801
After six but within 12 months .....................................................................                                    405                  33,924                           4          34,333
After 12 months.............................................................................................                              53                   3,635                          3           3,691
Total...............................................................................................................            W 1,610                 W 96,589                           W 95       W 98,294


Note:
(1)     Does not include corporate free savings deposits and savings deposits.



Long-Term Debentures
The aggregate amount of contractual maturities of the Bank’s long-term Won currency debentures, on a non-
consolidated basis under K-IFRS, at 30th June, 2011 was as follows:
                                                                                                                                                                                          As of 30th June, 2011
                                                                                                                                                                                           (in billions of Won)
Due in 2011 .........................................................................................................................................................................                 W 2,761
Due in 2012 .........................................................................................................................................................................                     5,730
Due in 2013 .........................................................................................................................................................................                     2,969
Thereafter ............................................................................................................................................................................                   5,950




                                                                                                                                                                                                             113
                                                                                                                                                                                       As of 30th June, 2011
                                                                                                                                                                                        (in billions of Won)
Gross long-term debentures ................................................................................................................................................                           17,410
Less: discount......................................................................................................................................................................                      19
Total long-term debentures, net ..........................................................................................................................................                         W 17,391


Short-Term Borrowings
The following table presents, for the periods indicated, information regarding the Bank’s short-term borrowings
with an original maturity of one year or less, on a non-consolidated basis under Korean GAAP.
                                                                                                     As of and for the year ended 31st December,
                                                                                                       2008                            2009                           2010
                                                                                                         (in billions of Won, except percentages)
Call money
Year-end balance...................................................................                   W        2,935                 W        5,237                  W 4,161
Average balance ....................................................................                           2,969                          4,204                         3,028
Maximum balance .................................................................                              6,198                          5,463                         5,769
Average interest rate(1)...........................................................                          4.13%                           1.95%                         1.49%
Year-end interest rate ............................................................                          2.90%                           1.95%                         2.45%
Borrowings from the Bank of Korea(2)
Year-end balance...................................................................                              865                          1,107                            771
Average balance ....................................................................                             667                          1,023                            969
Maximum balance .................................................................                                867                          1,146                            844
Average interest rate(1)...........................................................                          3.04%                           1.28%                         1.25%
Year-end interest rate ............................................................                          1.75%                           1.25%                         1.25%
Other short-term borrowings(3)
Year-end balance...................................................................                            4,325                          2,666                         1,981
Average balance ....................................................................                           5,117                          5,166                         3,174
Maximum balance .................................................................                              7,069                          6,597                         4,870
Average interest rate(1)...........................................................                          4.85%                           2.03%                         2.08%
Year-end interest rate ............................................................                          4.00%                           1.96%                         2.37%

Notes:
(1)     Average interest rates for the year are calculated by dividing the total interest expense by the average amount borrowed.
(2)     Borrowings from the Bank of Korea generally mature within one month for borrowings in Won and six months for borrowings in
        foreign currencies.
(3)     Other short-term borrowings consist of borrowings from trust accounts. Other short-term borrowings have maturities of up to one year
        and are unsecured.


The following table presents, as of and for the six month period ended 30th June, 2011, information regarding
the Bank’s short-term borrowings with an original maturity of one year or less, on a non-consolidated basis
under K-IFRS.
                                                                                              As of and for the six
                                                                                              month period ended
                                                                                                  30th June, 2011
                                                                                               (in billions of Won,
                                                                                               except percentages)
Call money
Year-end balance...................................................................                            W 3,932
Average balance ....................................................................                                  2,819
Maximum balance .................................................................                                     8,857
Average interest rate(1)...........................................................                                  1.98%
Year-end interest rate ............................................................                                  3.20%
Borrowings from the Bank of Korea(2)
Year-end balance...................................................................                                      664
Average balance ....................................................................                                     706
Maximum balance .................................................................                                     1,298




                                                                                                                                                                                                        114
                                                                                       As of and for the six
                                                                                       month period ended
                                                                                         30th June, 2011
                                                                                       (in billions of Won,
                                                                                       except percentages)
Average interest rate(1)...........................................................                  1.43%
Year-end interest rate ............................................................                  1.50%
Other short-term borrowings(3)
Year-end balance...................................................................                   2,290
Average balance ....................................................................                  2,373
Maximum balance .................................................................                     3,499
Average interest rate(1)...........................................................                  2.76%
Year-end interest rate ............................................................                  3.16%

Notes:
(1)    Average interest rates for the year are calculated by dividing the total interest expense by the average amount borrowed.
(2)    Borrowings from the Bank of Korea generally mature within one month for borrowings in Won and six months for borrowings in
       foreign currencies.
(3)    Other short-term borrowings consist of borrowings from trust accounts. Other short-term borrowings have maturities of up to one year
       and are unsecured.




                                                                                                                                      115
                                            RISK MANAGEMENT

The Bank operates a centralised credit risk management system to oversee and control credit operations, from
credit origination to monitoring, in a systematic and comprehensive manner. The primary components of its risk
management platform are credit, market, liquidity and operations. The system aims to manage risks of loss
stemming from borrowers’ indebtedness, price volatility in securities, mismatches between assets and liabilities
and from contingencies in management, administration, reputation, legal concerns or information technology.
The Bank continues to invest resources to improve its risk management infrastructure:
         •   in September 2004, the Bank completed the development of the CREPIA system, which is a
             centralised credit risk management system;
         •   in December 2006, the Bank implemented a new credit evaluation model, which reflects the new
             Basel II capital adequacy requirements and is used to evaluate both corporate and consumer loan
             applications;
         •   in 2007, the Bank completed upgrades to its credit risk management systems in preparation for the
             implementation of Basel II, including with respect to credit evaluation models, collateral
             management systems and non-performing credit management systems, as well as the
             implementation of a “credit risk measurement engine” to quantify its credit risk exposures;
         •   in September 2008, the Bank implemented its internal ratings-based approach for credit risk,
             beginning with its credit risk with respect to retail, SME and large corporate loans and its asset-
             backed securities portfolio; and
         •   in June 2009, the Bank implemented an “advanced measurement approach” for operational risk.
The Bank also takes proactive steps to counter risk such as implementing a watch list system that identifies and
monitors at-risk loans currently classified as normal, reviewing real estate in order to decrease the exposure of
mortgage loan products, reducing loan-to-value for mortgages in areas deemed speculative and considering
forward looking cash flows in the mortgage loan approval process.
A primary focus of the current risk management strategy is risk differentiation by segment. The Bank’s risk
policy will be recalibrated quarterly in light of economic cycles, and IT support will be provided to obtain
quality customer data. The Bank aims to discourage personnel from making exceptions in decision making and
foster a principle-oriented culture. The Bank has also developed an operational risk management system in light
of the implementation of Basel II in 2008, which established more stringent guidelines for internal controls.
The Bank’s Risk Management Committee (“RMC”), acting in accordance with the group-wide directives,
strategies, policies and guidelines set by the Group Risk Management Committee of Woori Finance Holdings,
the Bank’s parent, is ultimately responsible for the Bank’s risk management. The RMC provides board-level
direction regarding risk management strategies and policies to the risk management bodies that are subordinate
to it. The Bank’s lending and trading businesses, its deposit taking activities and its operating environment
expose the Bank to various risks. The Bank’s risk management goal is to understand, measure and monitor these
risks and to ensure that its employees strictly adhere to the policies and procedures that it establishes. The Bank
seeks to take a conservative approach to risk management in order to better insulate its operations from adverse
events. Risks that the Bank faces include:
         •   credit risk;
         •   market risk (primarily interest rate risk, equity price risk and foreign exchange risk);
         •   liquidity risk; and
         •   operational and business risk (including legal risk).
The RMC reports to the Bank’s board of directors regarding decisions that it makes on risk management issues.
It also makes strategic decisions regarding the Bank’s operations, such as allocating credit risk limits, setting
total exposure limits and market risk-related limits and determining which market risk derivative instruments
that the Bank can trade. The major activities of the RMC include:
         •   determining and monitoring risk policies, guidelines, limits and tolerance levels and the level of
             risk in accordance with Woori Finance Holdings’ group-wide risk management policies;
         •   reviewing and analysing the Bank’s risk profile;


                                                                                                               116
         •   setting limits for and adjusting the risk-adjusted capital allocation plan and risk levels for each of
             the Bank’s business units; and
         •   monitoring compliance with Woori Finance Holdings’ group-wide risk management policies and
             practices.
The RMC is comprised of the Chief Executive Officer, the Non-Standing Directors and the director of the
Bank’s risk management unit.
The Bank’s Executive Risk Management Committee (“ERMC”), which reports directly to the RMC and Chief
Executive Officer, implements the execution of these strategies and policies. The ERMC works with various
business units, including the Bank’s risk management unit, the Bank’s credit support unit and the Bank’s
individual business units. The risk management unit and the credit support unit directly implement and ensure
compliance with the Bank’s risk policies and guidelines at an operational level. They monitor market risk and
liquidity risk on a daily basis and credit risk and interest rate repricing gap risk on a monthly basis, and make
monthly reports to the RMC and, in the case of the risk management unit, quarterly reports to the Group Risk
Management Council (“GRMC”) of Woori Finance Holdings, which is responsible for implementing the risk
management strategies of Woori Finance Holdings and its subsidiaries. The GRMC, in turn, reports directly to
the Group Risk Management Committee of Woori Finance Holdings.
From July 2004, Woori Finance Holdings instituted a “double report” system with respect to its risk
management procedures. As a result the Bank’s risk management unit is also required to submit risk
management reports directly to the Group Risk Management Team (“GRMT”). Through this internal reporting
system, Woori Finance Holdings is able to better ascertain and strengthen the monitoring of its subsidiaries’ risk
management and is able to quickly address any deviation from its group-wide risk policies. From March 2010,
following a group-wide review of Woori Finance Holdings’ enterprise risk management procedures with outside
consultants in 2009, Woori Finance Holdings further supplemented the double report system by strengthening
the role and independence of chief risk officers in each of its subsidiaries, including the Bank, and expanding
the role of subsidiary risk management units.
Credit Risk Management
The Bank’s credit risk management policy objectives are to improve the Bank’s asset quality, reduce its non-
performing loans and minimise its concentration risk through a diversified, balanced and risk-weighted loan
portfolio. The Bank, together with several external consultants, has since 2003 developed and implemented a
centralised credit risk management system called the CREPIA system. In September 2004, the Bank completed
the development and implementation of the CREPIA system. CREPIA is a credit risk management system that
combines credit risk management and the credit approval process on a transactional level with respect to
individual borrowers and approval with respect to each individual loan or credit. Following upgrades to the
CREPIA system completed in 2007, including the implementation of a “credit risk measurement engine,” the
system quantifies credit risk with respect to corporate borrowers using a “mark-to-market” methodology, which
reflects both the likelihood of a default by a borrower as well as the likelihood of a change in such borrower’s
credit rating, and quantifies credit risk with respect to retail borrowers using a “default mode” methodology,
which reflects the likelihood of a default by a borrower. The Bank believes that CREPIA is a systematic and
efficient credit evaluation system and that it has expedited its loan review process and improved its ability to
monitor and evaluate its overall risk profile by using this system. The main characteristics of CREPIA are as
follows:
         •   automation of credit risk management system, which allows the Bank to centralise and automate
             many tasks relating to its credit risk management system;
         •   automatic recognition and processing of different forms of credit, which allows the Bank to
             process and approve different types of credit, such as new applicants, renewing applicants and
             changes in the condition of the loan or credit approved;
         •   incorporation of credit risk management prior to approval of credit, which allows the Bank to
             consider individualised characteristics of a borrower and enables it to calculate a more accurate
             price with respect to the loan or credit approved;
         •   automatic credit risk monitoring after approval of credit, which allows the Bank to evaluate and
             re-rate the loan or credit on a real-time basis as a result of any change in the characteristics of the
             borrower (including the condition of the underlying collateral, change in borrowing limit and early
             warning characteristics); and


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         •   automatic verification of internal procedures and regulations with respect to approval of credit,
             which reduces the Bank’s operational risk and ensures that there are no material deviations from
             its loan and credit policies.
From 2004, Woori Finance Holdings also established a credit risk limit for each of its banking subsidiaries,
including the Bank, with respect to “large exposures.” The aim is to avoid concentrations of exposure with
respect to any single corporate borrower or affiliated group of corporate borrowers. Accordingly, the Bank
established aggregate exposure limits based on its capital adequacy levels and, with respect to individual
corporate borrowers, established limits by dividing the “expected loss” with respect to companies affiliated with
such corporate borrower with the “unexpected loss” (a measurement of credit risk) of such borrower and
converting that into an exposure amount. The Bank uses this as the basis for its “large exposure” limits with
respect to such corporate borrower.
From 2005, the Bank also established a similar credit risk limit with respect to investment in private equity
funds. Much like “large exposure” limits with respect to corporate borrowers, the aim is to avoid concentrations
of exposure with respect to any single private equity fund or affiliated group of funds. Accordingly, the Bank
has established aggregate investment limits based on its capital adequacy levels and, with respect to limits on
each opportunity to invest, established limits depending on whether the target fund is an affiliate, or the Bank’s
participation is as a limited or general partner. In 2006, the Bank also established a “principal investment” limit
for investment activities that it undertakes as a principal (as opposed to as an agent). The Bank’s principal
investment limit is set as a certain percentage of the Bank’s capitalisation.
The Bank uses its credit risk management systems to measure and control credit risk, to evaluate and approve
new credit and to review and monitor outstanding credit. The Bank conducts various quantitative and qualitative
analyses to establish acceptable risk levels that provide what it believes are appropriate levels of return on
investments. The credit risk management systems that it uses to do this integrate various data, including
customers’ financial and economic condition, limits on loans and guarantee amounts, cash flow evaluations,
collateral levels, the Bank’s desired profit margin and the likelihood of unexpected loan losses.
The Bank monitors its level of risk, determines how that level compares to its target optimised level of risk on a
monthly basis and produces risk analysis reports and optimisation reports on a monthly basis and stress test
reports on an ad hoc basis. These reports, which are sent monthly to the RMC and quarterly to the GRMC and
GRMT, provide a basis to set risk limits for, and allocate capital to, the Bank’s business units.
Credit Evaluation and Approval
The Bank evaluates the credit of every loan applicant and guarantor before approving any loans, except for:
         •   loans guaranteed by letters of guarantee issued by the Korea Credit Guarantee Fund, the Korea
             Technology Credit Guarantee Fund or certain other specified Government-controlled funds;
         •   loans guaranteed by highly rated banks;
         •   loans fully secured by deposits with the Bank; and
         •   loans against commercial promissory notes issued by creditworthy companies at a discount to the
             face value of the note determined by the issuer’s creditworthiness.
The evaluation and approval process differs depending on whether the loan is a corporate loan, a general
household consumer loan or a mortgage or home equity loan, and there is a separate process for credit card
applications.
The Bank prefers to use credit rating systems in its credit evaluation and loan approval process because they:
         •   yield a uniform result regardless of the user;
         •   can be used effectively by employees who do not have extensive experience in credit evaluation;
         •   can be easily updated to reflect changing market conditions by changing how factors are weighted;
         •   significantly limit the scope of employee discretion in the loan assessment and approval process;
             and
         •   improve loan processing times while generally resulting in declines in delinquencies among new
             borrowers.




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For example, in September 2004 the Bank introduced its CREPIA credit evaluation system for corporate loans
(including SME loans) and a consumer credit evaluation system for consumer loans. Following the introduction
of its consumer credit evaluation system, the Bank substantially reduced the authority of branch managers and
loan officers to approve consumer loans based solely on their own judgment. The Bank’s consumer loan
approval process historically took as long as three days, but now generally takes less than 24 hours even when
applications are reviewed by headquarters personnel.
Customers apply for loans by submitting a loan application through one of the Bank’s branches. These
applications are initially reviewed using the appropriate credit evaluation system and, in the case of applications
for a small amount or involving applicants with little or no credit risk, are approved by the branch manager or a
relationship manager acting in concert with a credit officer based on the credit risk rating they receive under that
system. Applications for larger loans and loans which are determined to involve greater credit risk are approved
by bodies with greater authority, depending on where those loans fall in a matrix of size, collateral and credit
risk. These loan applications will be referred to a credit officer committee at a bank office located near the
customer, which may or may not be at the Bank’s headquarters. Every credit officer committee is made up of
credit officers from headquarters and has the same level of authority. Applications that cannot be approved by a
credit officer committee are referred to a senior credit officer committee or the Loan Committee, depending on
loan size, collateral and credit risk. The following table sets forth the Bank’s various committees and personnel
involved in its credit evaluation and loan approval process:
               Committee                                     Members                                  Approval Process
Headquarters Approval
Loan Committee                            Head of the credit support unit, head of the risk   2/3 required for approval; 2/3
                                          management unit and other members selected          required to participate
                                          by the Chief Executive Officer (no more than
                                          seven persons)

Headquarters/Regional Approval
Senior Credit Officer Committee           One head senior credit officer and four to six      2/3 required for approval; 2/3
                                          other senior credit officers (five to seven         required to participate
                                          persons)

Credit Officer Committee                  At least one senior credit officer and two other    2/3 required for approval; 2/3
                                          credit officers (at least three persons)            required to participate

Individual Approval
Senior Relationship Manager               Individual                                          Approval of the individual

Relationship Manager                      Individual                                          Approval of the individual

Branch Manager                            Individual                                          Approval of the individual

Different individuals or committees review and approve loan applications depending on various factors,
including:
          •      the size and type of the loan;
          •      the level of credit risk established by the credit rating system;
          •      whether the loan is secured by collateral; and
          •      if the loan is secured, an assessment of the collateral.
Loan applications are generally reviewed only by the highest-level committee required to approve the loan,
although multiple reviews, including separate reviews at the branch, regional and headquarters level, may occur
depending on the size and terms of any particular loan or a borrower’s credit risk.
Corporate Loan Approval Process
Each of the Bank’s branches reviews corporate loan applications using a credit evaluation system for corporate
borrowers. The Bank’s corporate credit evaluation system measures various quantitative and qualitative factors.
The model used by the credit evaluation system to review an application depends, however, on certain
characteristics of the potential borrower. The Bank’s credit risk management department, together with the
Bank’s large corporate loan department and SME loan department, has developed separate credit evaluation
models for large corporate borrowers that are subject to external audit under the External Audit Act of Korea,
large corporate borrowers that are not subject to external audit, medium-sized enterprises and “small office,
home office” (“SOHO”) borrowers that either have outstanding loans, or are applying for a loan, in excess of



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W1 billion. In general, each model uses scores from both a computerised evaluation of quantitative financial
factors, such as cash flow and income, and more qualitative factors which are scored using judgments by the
credit officer or officers reviewing the application to produce an overall credit risk rating. These credit
evaluation systems provide the Bank with tools to make consistent credit decisions and assist them in making
risk-based pricing decisions. The CREPIA system, for example, depending on whether the borrower is audited
by independent auditors and its size, produces two separate scores based on one of fourteen rating models: one
for quantitative current financial factors, which is weighted 60 per cent. in determining the CREPIA credit risk
rating, and another for the more qualitative factors that the judgment of the Bank’s credit officers plays a more
significant part in determining, which is weighted 40 per cent. The CREPIA credit risk rating estimates the
probability that the Bank will recover extended credits and the likelihood that borrowers will default. Qualitative
factors included in CREPIA include:
         •   a customer’s future financial condition;
         •   its competitive position in the industry;
         •   its industry situation;
         •   the quality of its management;
         •   its technological merits;
         •   its operations;
         •   the nature and the location of any collateral; and
         •   the Bank’s level of priority in that collateral to estimate non-recovery risks.
These qualitative factors are input into the CREPIA system by the credit officer, and are scored based on his or
her historical experience and that of the Bank.
The CREPIA system produces separate credit risk ratings for each borrower and for each loan requested by that
borrower. The Bank’s Credit Analysis and Approval Centre evaluates and approves corporate loan applications
based on these credit risk ratings. The CREPIA system assigns each borrower and facility one of the following
fourteen credit risk rating grades from AAA to D, which are classified as follows: AAA (extremely strong),
AA (very strong), A+ (strong), A- (good), BBB+ (more adequate), BBB (adequate), BBB- (less adequate), BB+
(less susceptible), BB (susceptible), BB- (more susceptible), B+ (slightly weak), B- (weak), C (very weak) and
D (default). Certain loans are subject to review by the Loan Committee depending on the size of the loan and the
determined credit risk rating. Examples of this include loan applications for secured loans in excess of W60
billion regardless of the borrower’s or facility’s credit risk rating, and, at the other extreme for unsecured loans,
loan applications in excess of W4 billion for a borrower or facility with a credit risk rating of BB- to C.
Applications from borrowers with loans on the Bank’s watch list (see “— Credit Review and Monitoring”
below) are also automatically reviewed by its Loan Committee.
The Bank uses the same systems to evaluate and approve applications from SMEs that it uses to evaluate other
corporate borrowers, but uses different credit evaluation models. The Bank implemented its current credit
evaluation model for SME customers in September 2004. These models, which are incorporated into the
CREPIA system, use the same quantitative and qualitative factors that the Bank uses to evaluate other corporate
customers. However, the SME models apply a 50 per cent. weighting to the score derived from quantitative
factors and a 50 per cent. weighting to the score derived from the more flexible qualitative factors in
determining the credit risk rating. In September 2004, the Bank introduced a separate credit evaluation model to
evaluate newly opening SMEs that relies solely on qualitative factors. The Bank has also adopted a separate
credit evaluation system for SOHOs (such as pharmacies, clinics and restaurants) which either have outstanding
loans, or are applying for a loan, of W1 billion or less that uses simpler credit evaluation models and resembles
the Bank’s application scoring system for new retail customers. In December 2006, the Bank implemented a
new credit evaluation model, which reflects the Bank’s new capital adequacy requirements and applies to
consumer and corporate loans (including loans to SMEs). The Bank also introduced a new corporate rating
model dedicated to evaluating large corporate borrowers in July 2008.
The Bank supplements the CREPIA evaluation by testing potential exposures with another separate model that
is an element of its portfolio management system. This model analyses information based primarily on current
factors, such as a potential borrower’s stock price. This model provides a check on potential lending, including
potential deterioration of outstanding credits, in cases where there have been significant changes in a borrower’s
status that may not be fully reflected in its most recently available quantitative or qualitative data.


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The Bank has set credit limits for its corporate customers. Some of these limits, particularly those imposed by
Korean banking regulations, are aimed at preventing loan concentrations relating to any single customer. See
“Supervision and Regulation — Financial Exposure to any Individual Customer and Major Stockholder.” In
certain cases, the Bank has introduced even stricter exposure limits than required by regulation, including
additional limitations on providing credit to certain borrowers. For example, the Bank has introduced and
implemented internally developed large exposure limits that are stricter than the applicable FSC requirements.
In evaluating applications, credit officers or the Loan Committee will often, in addition to reviewing ratings
from these credit evaluation models, also refer to corporate information gathered or ratings assigned by external
credit rating agencies, such as the Korea Federation of Banks, Korea Information Service, Government-released
information on bankruptcy rates, National Information & Credit Evaluation Inc. and Korea Management
Consulting & Credit Rating Corporation. They review the information the Bank obtains from these sources and
compare it to the information the Bank has developed internally with respect to its customers to improve the
accuracy of its internal credit ratings.
Consumer Loan Approval Process
The Bank’s consumer loan department evaluates and approves consumer loan applications using dedicated
consumer credit evaluation systems. It uses an integrated credit scoring system to evaluate and approve
consumer loan applications and determine the appropriate pricing for the loan. Each consumer credit evaluation
system measures various quantitative factors to produce a credit score for each application. As similarly situated
consumer loan customers generally have similar performance profiles when evaluated collectively, these
systems enable the Bank to better evaluate individual customers using group characteristics.
The Bank began using its current consumer credit evaluation system to review consumer loan applications in
September 2004. That system assigns a credit score to each application based on its evaluation of various
factors. These factors include any loan and guarantee limits that the Bank has set for particular borrowers or
groups of borrowers and its evaluation of their cash flows and credit profiles. The system gives each customer’s
loan application a score from one to ten. From March 2006, the Bank also has added another scoring system
based on the external ratings provided by the Korea Credit Bureau. Applications are classified as “automatically
approved,” “automatically rejected” and “subject to further evaluation” based on a combination of the scores of
these two systems. For example, applications scoring between one to six under the Bank’s internal system that
also score between one to eight in the external ratings provided by the Korea Credit Bureau are automatically
accepted, while applications scoring ten under the Bank’s internal system and nine or above in the external
ratings provided by the Korea Credit Bureau are automatically rejected. The Bank uses this system to evaluate
all new consumer loan applications, except for loans fully secured by deposits with the Bank.
The Bank augments its consumer credit evaluation system with a behavioral scoring system. The behavioral
scoring system enhances the consumer credit evaluation system by enabling the consideration of factors not
previously evaluated, including the customer’s spending history and credit behavior. By the nature of the
information it analyses, however, the behavioral scoring system can only be used for applications of persons
who are existing borrowers, generally consisting of roll-overs of outstanding amounts or increases to existing
credit limits.
The Bank also evaluates any collateral to which a loan application relates. At the time of the initial loan, the
Bank will review the proposed collateral using both internal review processes and outside parties that provide
automated property evaluation services. The Bank automatically re-evaluates the underlying collateral for
secured loans and mortgages every two weeks (with respect to apartments) or semi-annually (with respect to
other buildings). If the value of the collateral declines, the Bank may have the ability to require that the
borrower provide more collateral or to change the payment terms of the relevant loan.
Credit Card Approval Process
Since the merger with Woori Credit Card in March 2004, credit card operations have been managed as a
separate business unit within the Bank, and that business unit maintains separate credit risk management
policies and procedures. The Bank’s credit card business unit reviews each new card application for
completeness, accuracy and creditworthiness. It bases this review on various factors that assess the applicant’s
ability to repay borrowed amounts. The review process involves three stages:
         •   Initial Application Process. The credit card business unit verifies basic information by requesting
             certain documents from the applicant, generally contacts the applicant directly (usually by
             telephone, although there are personal visits to some applicants) and statistically analyses the



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             applicant’s personal credit history together with financial and default information gathered from
             third-party sources and its internal database. The analysis considers various factors including
             employment, default status and historical relationships with the Bank and any delinquency history
             with other credit card companies. The credit card business unit also reviews information about an
             applicant obtained from external databases maintained by the Korea Federation of Banks, Korea
             Information Service Inc., Korea Credit Bureau Inc. and a consortium of seven Korean credit card
             providers.
         •   Application Scoring System Process. The application scoring system at the credit card business
             unit is an integrated evaluation tool used to determine the probability of a credit card applicant
             defaulting during the one-year period following issuance. The application scoring system, using a
             statistical model, assigns risks to factors that indicate a probability of non-payment. The model
             analyses credit history, occupation, income, gender and age data to develop a combined risk score.
             The applicant’s eligibility to receive a credit card and credit limit is determined by its anticipated
             delinquency ratio over 90 days within one year.
         •   Credit Assessment. If the application is approved, then the application scoring system assessment
             is used to determine the applicant’s credit limit. The aggregate credit limit for a new applicant who
             is an individual rarely exceeds W20 million. There is a separate but similar system for determining
             the credit limit available to corporate card applicants, which will generally be higher than limits
             available to individual applicants but will not provide for the ability to obtain cash advances.
The initial application process is handled at the Bank’s branch level. Final credit approval is subject to the
application scoring system review conducted at the Bank’s headquarters. The entire approval process generally
takes two to three days and the applicant receives the new card within one week after making an application.
The credit card business unit evaluates and updates the application scoring system on a monthly basis (or more
frequently as required) to incorporate new data or adjust the importance placed on existing data or market
conditions.
Credit Review and Monitoring
The Bank’s credit review and monitoring procedures are designed to reduce the risks of deterioration in its asset
quality and to maintain acceptable levels of portfolio risk. These procedures include:
         •   confirming a borrower’s credit rating or score;
         •   ensuring the accuracy of the credit analysis done by the Bank’s credit officers; and
         •   ensuring compliance with internal policies relating to loan approval.
The Bank believes that these procedures enable it to identify potential non-performing loans as soon as possible
and minimise the possibility of approving in advance loans that will become non-performing. These procedures
also enable it to manage credit risk more effectively and set interest rates to reach the Bank’s targeted level of
return more accurately.
Loan Review and Monitoring
The Bank monitors credit risk with respect to its borrowers using its own loan review system. The Bank has a
loan review department that oversees its review and monitoring efforts. After a loan has been approved, the
relevant materials or the results generated by the Bank’s credit evaluation system, together with any supporting
data, are reviewed by an officer in that department. There are three types of reviews that the Bank’s loan review
units undertake:
         •   Desk review. Desk reviews are the most common and are generally done within five days after a
             loan has been approved. The Bank’s loan review department will initiate a desk review of loans
             approved by a credit officer committee or the Loan Committee, for any corporate loan that
             exceeded W5 billion, any consumer loan that exceeded W1 billion, any loan to a housing applicant
             group that exceeded W5 billion or any loan where the loan terms were adjusted. For loans
             originating from a branch, the loan review department will initiate a desk review for new domestic
             loans or credit limit increases that exceed W300 million. For new overseas loans, desk reviews are
             conducted for amounts that exceed U.S.$300,000.
         •   Periodic review. Periodic reviews are done on a quarterly, semi-annual or annual basis with
             respect to loans that are current and exceed W10 billion or with respect to borrowers who are on a



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              “watch list” with respect to possible insolvency. Quarterly periodic reviews are done for certain
              corporate borrowers, depending on their size and the borrower’s industry.
         •    Ad hoc review. Ad hoc reviews can be done at any time. The head of the risk management unit,
              Chief Executive Officer or Chief Financial Officer can initiate ad hoc reviews. Loan review
              officers who are responsible for desk and periodic reviews also conduct ad hoc reviews.
Following a review, the Bank’s sales office may hold additional meetings with the borrower and adjust the loan
amount or the borrower’s credit rating. The loan review department may also direct sales office personnel to
institute early collections or to adjust a borrower’s credit rating, total exposure and asset portfolio without
consulting the borrower. The loan review officer may request that the credit officer adjust a borrower’s credit
ratings based on various factors, including asset quality, credit limits, applied interest rates and the Bank’s credit
policies. The Bank also continually reviews other factors, such as industries in which borrowers operate and
their domestic and overseas assets and operations, to ensure that its ratings are appropriate.
The Bank monitors and manages its exposures to and credit limits for corporations and chaebols on a daily
basis. It uses its Total Exposure Management System to make real-time inquiries regarding its exposures, either
by company or by chaebol, and to manage the credit limits for all kinds of business transactions. Corporate
borrowers on the Bank’s “watch list” are monitored more closely and with respect to additional aspects of their
relationships with the Bank. The Bank places borrowers on its watch list when it believes that any impediment
on a borrower’s ability to meet its financial obligations exists or is pending. The Bank may also monitor newly
extended credits or any additional credits extended to a previous borrower more frequently if it believes
additional monitoring is necessary after reviewing the loan approval process. Credits outstanding to a particular
industry or region that the Bank believes are higher risk are monitored even more frequently. Based on the
results of such monitoring, the loan review department provides monthly reports to the Chief Executive Officer
and the RMC.
The Bank’s consumer loan department has the ability to conduct daily surveillance on the status of its retail
borrowers through an on-line system established by the Korea Federation of Banks. This system, which tracks
consumer loans at all major Korean banks and non-banking institutions, permits the Bank to track all loan
defaults by any borrower. It evaluates the need to monitor consumer loans by using its consumer credit
evaluation system, including its behavioral scoring system, and makes adjustments to the credit scoring formula
based on the results of that process.
The loan review department is required to submit monthly loan review reports and quarterly deficiency reports
to the Chief Executive Officer and the head of the risk management unit. The Chief Executive Officer then
provides feedback to the relevant sales offices of the Bank’s branches through the auditing team or relevant
business unit. Based on these reports, the Bank may, for example, stop lending to particular borrowers, change
credit limits or modify its loan approval procedures. The Bank does not monitor loans to certain borrowers, such
as loans to Government entities such as the KDIC or to companies in workout proceedings.
Credit Card Review and Monitoring
The Bank’s credit card business unit monitors its risk exposure to individual accounts on a regular basis. It
monitors each customer’s card usage trends and negative credit data such as delinquency information through
both its own credit risk management system (which was developed with the assistance of an outside consultant)
and BC Card’s similar system (which BC Card maintains for its member banks). These systems monitor the
behavior of users of credit cards issued by the Bank, using both internally generated information and
information from external sources. The credit card business unit statistically analyses this information to
estimate each customer’s creditworthiness on a monthly basis. The credit risk management system is an integral
part of the credit practices at the credit card business unit and is used to determine increases or decreases in
credit limits, reset interest rates, set fee levels, authorise special transactions and approve card loans using
criteria such as:
         •    how much credit each customer has incurred in the past (i.e., frequency and amount of payments);
         •    whether a customer uses his card to make credit card purchases or to get cash advances;
         •    internal credit scores; and
         •    whether the customer has been delinquent in making payments.
After assigning appropriate weightings to each factor, the system computes a behavior score and uses that score
to classify each cardholder. Each customer’s credit limit is subject to adjustment in accordance with the monthly


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updated score. The credit card business unit uses these results and the results of its application scoring system to
evaluate its credit risk management system and make adjustments to its credit scoring formula based on the
results of that process.
The credit card business unit’s credit risk management system has also been able to run various simulations in
connection with monitoring its operations, including:
         •   new product simulations, which predict a customer’s likely spending pattern when using a new
             credit card product and analyses that pattern to predict the new product’s costs, delinquencies and
             profitability; and
         •   credit use limit simulations, which test whether a customer’s credit limit has been properly set by
             simulating an increase or decrease of that limit.
The credit card business unit’s credit administration team manages customer credit risk for users of credit cards
issued by the Bank. It reviews and updates its underwriting, credit evaluation, collection, servicing and write-off
procedures, and the terms and conditions of card agreements, from time to time in accordance with its business
practices, applicable law and guidelines issued by regulatory authorities.
Early Warning Systems
The Bank has developed early warning systems that monitor the status of both commercial and retail borrowers
and evaluate all of a customer’s outstanding credits. These systems monitor various factors, including the
financial status, financial transaction status, industry rating and management status of borrowers. They enable
the Bank to find defaults and signs of potential delinquency in advance, monitor these problematic credits
properly before any default or delayed payment occurs and keep track of information on the credit status of
borrowers. Updated information is input as it becomes available, either automatically from internal and external
sources or manually. This information includes data relating to:
         •   credit evaluation and monitoring system results, which determine if a borrower should be put on a
             watch list;
         •   loan transactions, such as a borrower’s remaining line of credit and whether it has any
             dishonoured notes, overdue loans or setoffs with respect to collateral deposits which have not
             matured;
         •   deposit transactions, such as any decrease in a borrower’s average deposit balance, requests for
             large volumes of promissory notes or checks, or the inability to pay immediately available funds
             owed when due;
         •   foreign exchange transactions, such as unpaid amounts of a borrower’s purchased export bills that
             have exceeded the maturity date; and
         •   other information, such as a borrower’s management and employees, business operations,
             production operations, financial affairs and accounting operations and bank transactions.
The Bank also monitors borrowers’ credits through on-line credit reports that are provided by Korea Information
Service and National Information & Credit Evaluation, Inc., which are Korean credit reporting agencies. After
gathering this information, the CREPIA system reviews such information to monitor any changes that could
affect the credit rating of the borrower, approval conditions with respect to the loan or credit, underlying
collateral or assigned credit limit of the borrower. Depending on the likelihood of the change, the system
automatically sends a signal to the responsible credit officer. The officer then evaluates the information and
formulates an action plan, which could result in an adjustment in the borrower’s credit rating or loan pricing, a
re-evaluation of the loan or the taking of other preventative measures.
Credit Remediation
The Bank believes that by centralising the management of its non-performing credits, it can implement uniform
policies for non-performing credit resolution, pool institutional knowledge and create a more specialised (and
therefore more efficient) work force. The Bank has a unit that is responsible for managing non-performing
loans. The Credit Management and Collection Department and the Corporate Restructuring Department
generally oversee the process for resolving non-performing loans transferred to it by other business units. When
a loan becomes non-performing, the Bank will begin a due diligence review of the borrower’s assets, send a
notice demanding payment or stating that it will take legal action, and prepare for legal action. At the same time,
the Bank will initiate its non-performing loan management process. Once the Bank has confirmed the details of


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a non-performing loan, it makes efforts to recover amounts owed to it. Methods for resolving non-performing
loans include commencing collection proceedings or legal actions and writing off such loans, and/or transferring
them to the Bank’s subsidiary, Woori Credit Information, which is in charge of collection and authorising this
subsidiary to recover what it can. The Bank has also disposed of a number of non-performing credits to
KAMCO, as well as through Woori Finance Holdings’ joint ventures with several financial institutions and in
other asset securitisation transactions. See “Assets and Liabilities — Asset Quality of Loans — Asset Quality
and Non-Performing Loans — Non-Performing Loan Strategy.”
Market Risk Management
The principal market risks to which the Bank is exposed are interest rate risk, equity price risk and, to a lesser
extent, foreign exchange risk and commodity risk. The Bank divides market risk into risks arising from trading
activities and risks relating to management of its assets and liabilities. The financial instruments that exposes the
Bank to market risks are primarily trading and available-for-sale securities and financial derivatives and, with
respect to commodity risk, commodity derivatives.
The Bank coordinates its risk appetite and risk limits for its trading activities with the GRMC. The risk
management unit reviews on a daily basis reports that include trading profits and losses, position reports, stress
test results and “value at risk” (or “VaR”) results for the Bank’s trading activities. Any violations of the Bank’s
risk limits are reported to the GRMC and GRMT.
Market Risk Management for Trading Activities
The Bank measures market risk from trading activities to monitor and control the risk of its business groups and
teams that perform those activities. Its trading activities consist of:
         •   trading activities for its own account to realise short-term trading profits in debt (primarily Won-
             denominated), equity and foreign exchange markets based on its forecasts of changes in market
             situation and customer demand; and
         •   trading activities involving derivatives transactions, including interest rate and foreign exchange
             swaps, forwards, futures and options and, to a lesser extent, commodity derivatives, primarily to
             sell derivative products to the Bank’s customers and to hedge its own market risk.
Market risk arising from the Bank’s trading activities can be subdivided into interest rate risk, equity risk,
foreign exchange risk and commodity risk:
         •   Interest rate risk is the principal risk to which its trading activities are exposed. This risk arises
             primarily from the Bank’s debt securities. The Bank sets different exposure limits for its interest
             rate risk for its trading and non-trading debt portfolios.
         •   Equity risk arises from price fluctuations in equity securities and derivatives.
         •   Foreign exchange risk arises from foreign currency-denominated assets and liabilities in both its
             trading and non-trading accounts and financial derivatives involving foreign currencies, which are
             not controlled separately on a trading and asset/liability management basis.
         •   Commodity risk arises from price and volatility fluctuations in commodity derivatives.
The Group Risk Management Committee has established a maximum “market risk appetite” for the Bank,
which is defined as the risk capital of the Bank divided by its available capital. “Risk capital” is a benchmark
figure that determines the VaR limits, accumulated loss limits (for trading portfolios) and present value of a
basis point (or “PVBP”) limits (for non-trading available-for-sale assets) for the Bank. Available capital
generally consists of stockholder’s equity and subordinated convertible bonds issued to Woori Finance
Holdings. Using this benchmark, the Bank establishes limits with respect to its market risk appetite on an
annual basis, which as of 30th June, 2011 were as follows.
                                      Trading Portfolio                                          Non-Trading Portfolio
                                                     Accumulated Loss Limit                Special Option
                         VaR Limit                 Quarter               Annual                Limit          PVBP Limit
                                                          (in billions of Won)
             W 20.0                                       W 100.5                W 200.7               —                 W 1.99




                                                                                                                            125
In 2006, the Bank, in preparation for compliance with the new Basel II capital adequacy requirements, began
reflecting the correlation between credit risk, market risk, interest rate risk, operational risk and business risk in
allocating its risk capital. The correlation between such risks reflects applicable FSS guidelines and the
correlation used by Bank’s peer banks. The Bank also broadened the scope of business risk to cover risks arising
from changes in operational environment and increased market competition. Furthermore, in 2006 and 2007, in
preparation for any potential increases in its capital requirements under the new Basel II capital adequacy
requirements, the Bank temporarily expanded the scope of its risk capital management activities by adding a
new risk type, miscellaneous risk, to cover risk not covered by the existing five types and for which risk capital
would not otherwise be allocated. However, following the implementation of Basel II in Korea by the FSS
beginning on 1st January, 2008, the Bank has discontinued its allocation of risk capital for miscellaneous risk
from 2008 and currently allocates risk capital only for the existing five types of risk in line with industry
practice.
The following tables show the allocated risk capital of the Bank for the years ended 31st December, 2008, 2009
and 2010 and for the six month period ended 30th June, 2011.

                                                                                                                                          31st December, 2008(1)
                                                                                                                                      Risk Capital                      Utilisation
Risk Type                                                                                                              Target Asset      Limit         Risk Capital         Ratio
                                                                                                                                 (in billions of Won, except percentages)
Credit risk......................................................................................................         W228,184         W10,289          W8,384            81.5%
Market risk ....................................................................................................              6,620              704             226          32.0
Interest rate risk.............................................................................................                  —               280             274          97.9
Operational risk .............................................................................................                   —               682             579          85.0
Business risk..................................................................................................                  —               388             388         100.0
Total...............................................................................................................      W234,804         W11,526          W9,191            79.7


                                                                                                                                          31st December, 2009(1)
                                                                                                                                      Risk Capital                      Utilisation
Risk Type                                                                                                              Target Asset      Limit         Risk Capital         Ratio
                                                                                                                                 (in billions of Won, except percentages)
Credit risk......................................................................................................         W215,693         W10,132          W7,675            75.7%
Market risk ....................................................................................................              9,670              751             553          73.6
Interest rate risk.............................................................................................                  —               570             547          95.9
Operational risk .............................................................................................                   —               728             600          82.5
Business risk..................................................................................................                  —               836             836         100.0
Total...............................................................................................................      W225,363         W12,294          W9,616            78.2


                                                                                                                                          31st December, 2010(1)
                                                                                                                                      Risk Capital                      Utilisation
Risk Type                                                                                                              Target Asset      Limit         Risk Capital         Ratio
                                                                                                                                 (in billions of Won, except percentages)
Credit risk......................................................................................................         W211,891         W10,697          W8,242            77.0%
Market risk ....................................................................................................              9,062              741             149          20.1
Interest rate risk.............................................................................................                  —               744             328          44.1
Operational risk .............................................................................................                   —               753             564          75.0
Business risk..................................................................................................                  —               686             686         100.0
Total...............................................................................................................      W220,953         W12,852          W9,501            73.9


                                                                                                                                            30th June, 2011(1)
                                                                                                                                      Risk Capital                      Utilisation
Risk Type                                                                                                              Target Asset      Limit         Risk Capital         Ratio
                                                                                                                                 (in billions of Won, except percentages)
Credit risk......................................................................................................         W211,308         W10,843          W5,972            55.1%
Market risk ....................................................................................................              9,282              639             230          36.1
Interest rate risk.............................................................................................                  —               892             407          45.7




                                                                                                                                                                              126
                                                                                                                                               30th June, 2011(1)
                                                                                                                                         Risk Capital                          Utilisation
 Risk Type                                                                                                                Target Asset       Limit         Risk Capital          Ratio
                                                                                                                                    (in billions of Won, except percentages)
 Operational risk .............................................................................................                     —                768              596             77.5
 Business risk..................................................................................................                    —                744              744            100.0
 Total...............................................................................................................        W220,590         W13,100             W7,442              56.8


Note:
(1)     Reflects the correlation between credit risk, market risk, interest rate risk, operational risk and business risk and the removal of
        miscellaneous risk.


The Bank generally manages its market risk at the portfolio level, rather than on a credit-by-credit basis. To
control its exposure, the Bank takes into consideration the VaR limits, accumulated loss limits and PVBP limits
set by the GRMC in determining its internal allocation of risk among its various portfolios. The Bank also sets
its own stop loss limits with respect to particular types of transactions. The Bank uses an integrated market risk
management system called Panorama to manage market risks for its debt and equity trading operations. This
system enables the Bank to generate consistent VaR numbers for all of its trading activities.
Value at Risk analysis. The Bank uses daily VaR to measure market risk. Its daily VaR is a statistically
estimated maximum amount of loss that can occur for a day. It uses a 99 per cent. confidence level to measure
its daily VaR, which means the actual amount of loss may exceed the VaR, on average, once out of 100 business
days. In order to measure VaR the Bank uses the “variance-covariance method” which takes into account the
diversification effects among different risk factors. This method is based on two assumptions: first, that the
distribution of risk factors is normal; and, second, that profit and loss is a quadratic function of the returns.
Different VaR methodologies and distributional assumptions could produce a materially different VaR.
Although VaR is a commonly used market risk management technique, it has some inadequacies. Since it is a
statistical approach, VaR estimates possible losses over a certain period at a particular confidence level using
past market movement data. Past market movements, however, are not necessarily a good indicator of future
events. Another problem with VaR is that 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, VaR may understate or overstate the potential loss. VaR is most
appropriate as a risk measure for trading positions in liquid financial markets and will understate the risk
associated with severe events, such as a period of extreme illiquidity.
The following tables show the Bank’s daily VaRs as of 31st December, 2008, 2009 and 2010 and as of 30th
June, 2011, and the maximum, minimum and average VaRs for the years or period then ended, at a 99 per cent.
confidence level for a one-day holding period, for interest rate risk, equity risk, foreign exchange risk and
commodity risk relating to its trading activities.
                                                                                                                                                                            As of 30th
                                                                                                                                   As of 31st December,                       June,
                                                                                                                           2008            2009            2010               2011
                                                                                                                                           (in millions of Won)
Interest Rate Risk ..........................................................................................              W 8,734        W 24,819         W 3,770            W 6,020
Equity Risk ....................................................................................................                5,350          9,675              1,518            3,699
Foreign Exchange Risk .................................................................................                         6,711         21,357              4,042            4,370
Commodity Risk ...........................................................................................                      2,222          1,365                13                361
Less: Diversification .....................................................................................                    15,228         39,181              5,452            6,239

                                                                                                                                                                          As of and for
                                                                                                                                                                          the six month
                                                                                                                                                                          period ended
                                                                                                                        As of and for the year ended 31st December,         30th June,
                                                                                                                           2008            2009            2010               2011
                                                                                                                                           (in millions of Won)
Overall Trading Activities:
Year-end ........................................................................................................          W    7,790     W 18,844         W 3,890            W 8,216
Maximum during period ...............................................................................                          22,855         18,844           19,617              8,216




                                                                                                                                                                                     127
                                                                                                                                                                 As of and for
                                                                                                                                                                 the six month
                                                                                                                                                                 period ended
                                                                                                             As of and for the year ended 31st December,           30th June,
                                                                                                                 2008             2009                2010           2011
                                                                                                                                  (in millions of Won)
Minimum during period ................................................................................                7,790             8,687            3,039           3,378
Average over period ......................................................................................           13,501            11,499            6,617           5,812

Stress test. In addition to VaR, the Bank performs stress testing to measure market risk. As VaR assumes normal
market situations, the Bank assesses its market risk exposure to abnormal market fluctuations through stress
testing. Stress testing is an important way of supporting VaR since 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 the Bank’s normal expectations. Stress testing projects the anticipated change in value of
holding positions under certain scenarios assuming that the Bank takes no action during a stress event to change
the risk profile of a portfolio. The following table shows the loss that would have occurred in the Bank’s
respective trading portfolios, for which the equity component represents most of its trading risk, as of 30th June,
2011 for assumed short-term extreme changes of a +/-25 per cent. change in the equity market and a +/-125
basis point change from interest rates prevailing in the market on that date, under an abnormal stress
environment.
Equity Market Chart



Market fluctuation (in percentages) ...................................                     (25)%               (15)%          (5)%              5%           15%         25%
Trading portfolio loss (in billions of Won)........................                         W (3)               W (4)         W (5)             W 7          W 29        W 56

Interest Rate Chart
Interest rate fluctuation amount (in basis points) ............. (125) basis                                 (75) basis   (25) basis       25 basis      75 basis     125 basis
                                                                     points                                     points       points          points        points        points
Trading portfolio loss (in billions of Won)........................  W 61                                       W 36         W 12          W (12)        W (35)        W (56)

Stop loss limits. The RMC also approves total accumulated loss and stop loss limits with input from the relevant
trading departments. The Bank has stop loss limits for various trading activities, including:
                •       for trading equity securities in Won, within 25 per cent. of the purchase price of such securities;
                •       for trading fixed income securities in Won, within a specified range of increase in market interest
                        rates (from 30 basis points to 250 basis points, depending on the time remaining until maturity of
                        the relevant fixed income securities);
                •       for available-for-sale equity securities in Won, within 35 per cent. of the book value of such
                        securities;
                •       for available-for-sale fixed income securities in Won, within 10 per cent. of the book value of such
                        securities;
                •       for trading equity or fixed income securities in foreign currencies, within 5 per cent. of the
                        purchase price of such securities; and
                •       for available-for-sale equity or fixed income securities in foreign currencies, within 15 per cent. of
                        the purchase price of such securities.
Interest Rate Risk
Interest rate risk from trading activities arises mainly from the Bank’s trading of Won-denominated debt
securities. The Bank’s trading strategy is to benefit from short-term movements in the prices of debt securities
arising from changes in interest rates. As its trading accounts are marked-to-market daily, the Bank manages its
interest rate risk related to its trading accounts using market value-based tools such as VaR. See “— Asset and
Liability Management — Interest Rate Risk.”
Equity Price Risk
Equity price risk and equity volatility risk result from the Bank’s equity portfolios, which consist mainly of
futures contracts and options and Won-denominated equity securities. This is a result of the strict limits with
respect to VaR and accumulated loss limits imposed by the RMC within the overall limits imposed by the Group



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Risk Management Committee and stop loss limits set by the head of the Bank’s trading department, as well as
stress test limits. Equity risk arises in the context of trading activities for the Bank’s own accounts to realise
short-term trading profits with respect to equity and trading activities involving certain derivatives transactions.
The Bank has focused on its equity exposure as a result of the level of volatility in the stock market. As of 30th
June, 2011, the Bank’s equity trading position for its trading securities was W427 billion.
Foreign Exchange Risk
Foreign exchange risk arises because the Bank has assets, liabilities and off-balance sheet items such as foreign
exchange forwards and currency swaps that are denominated in non-Won currencies. The difference between
foreign currency assets and liabilities is offset against forward foreign exchange positions to obtain the Bank’s
net foreign currency open position. The Bank then determines its maximum foreign exchange exposure for both
trading and asset and liability management purposes by establishing a limit for this net foreign currency open
position. The RMC also establishes VaR limits for the Bank’s foreign exchange business and exposure limits for
its business units.
Assets and liabilities denominated in U.S. dollars account for the majority of the Bank’s foreign currency assets
and liabilities. Those denominated in Japanese yen and the euro account for most of the remainder, the majority
of which have been swapped into U.S. dollars.
The Bank monitors changes in, and matches of, foreign-currency assets and liabilities in order to reduce
exposure to currency fluctuations. The Bank also manages risks relating to exchange rate fluctuations through
foreign exchange dealing, including by its overseas branches. However, the Bank conducts foreign exchange
dealings primarily on behalf of its customers. Counterparties are restricted to domestic and foreign financial
institutions and banks with respect to which the Bank’s International Finance Department has established a
foreign exchange dealing limit. The Bank deals primarily in the Won/U.S. dollar market and its dealings are
subject to what it believes are conservative daily maximum and closing limits and stop loss limits. The
following table sets forth information concerning the Bank’s limits on proprietary foreign exchange dealings as
of 30th June, 2011:
                                                                                   Won/U.S. Dollar Dealing                        Dealings in other currencies
                                                                                        Headquarters                   Headquarters                    Overseas Branches
                                                                                     Total         Individual       Total          Individual          Total          Individual
                                                                                                                   (in millions of U.S.$)
Open position:
Daily maximum limit ..............................................                     $ 1,000             $ 200        $ 200              $ 50             $ 60              $15
Daily closing limit...................................................                       200             50             100              20                 30                 6


Stop loss:
Daily ........................................................................               2.0             0.5            0.8            0.15             0.24             0.05
Monthly ...................................................................                  3.0             0.8            2.0             0.5                 0.6          0.06

The following table shows the Bank’s non-consolidated net open positions at the end of 2008, 2009 and 2010
and as of 30th June, 2011. Positive amounts represent long exposures and negative amounts represent short
exposures.

                                                                                                            As of 31st December,                                      As of 30th
Currency                                                                                  2008                      2009                        2010                  June, 2011
                                                                                                                     (in millions of U.S.$)
U.S.$ .........................................................................                $ 164.00                     $ 7.58                $ (102.02)              $ (39.90)
JP¥ ............................................................................                    1.67                     13.65                     (3.81)                (11.34)
Euro (€).....................................................................                       5.81                      7.43                     34.99                 (14.10)
Others .......................................................................                     25.88                     12.97                     16.33                   7.72
Total..........................................................................                $ 197.56                    $ 41.63                 $ (54.51)              $ (56.62)


Commodity Risk
Commodity risk represents exposures to instruments traded in the metals, petroleum, natural gas and other
commodities markets, and arises principally from the Bank’s trading of U.S. dollar-denominated commodity



                                                                                                                                                                             129
derivatives. Under applicable Korean laws, the Bank may only engage in commodity derivative transactions on
behalf of its corporate customers for hedging purposes. The Bank manages its commodity risk using VaR,
accumulated loss and stress test limits.
Derivative-Related Market Risk
The Foreign Exchange Transaction Regulations of Korea provide that a foreign exchange bank (such as the
Bank) may generally enter into derivative transactions without restriction so long as those transactions are not
linked with credit risks of a party to the transaction or any third party. If they are, the bank must report the
transaction to the Bank of Korea.
Whilst the Bank uses derivatives mainly for hedging purposes, derivative transactions themselves incur market
risk as they involve taking trading positions and trading them to make a profit or loss. The Bank’s derivative
activities include interest rate and cross-currency swaps, foreign exchange forwards, stock index and interest
rate futures, forward rate agreements, currency and over-the-counter equity options and commodity derivatives.
The following table shows the Bank’s gross notional amounts with respect to derivatives relating to foreign
exchange, interest rate, equity, credit and commodities at the end of 2008, 2009 and 2010 and as of 30th June,
2011.
                                                                                                                                                                   As of 30th
                                                                                                                              As of 31st December,                   June,
                                                                                                                      2008           2009             2010           2011
                                                                                                                                      (in billions of Won)
Foreign exchange ........................................................................................            W 110,393      W 60,916         W 57,812      W 58,823
Interest rate ..................................................................................................        80,493         149,833         213,966         211,365
Equity ..........................................................................................................        2,888           2,684           1,681           1,912
Credit ...........................................................................................................           880            584              57             124
Commodity..................................................................................................              3,438              862              498            701
Others ..........................................................................................................            358             —                —              —
Total.............................................................................................................   W 198,450      W 214,879        W 274,013     W 272,925

Substantially all of the derivative products that the Bank purchases are on behalf of its customers or to hedge its
own positions. Market risk from trading derivatives is not significant since the Bank’s derivative trading
activities are primarily driven by customer deals and arbitrage, with very limited open trading positions.
Asset and Liability Management
The Bank’s principal market risk with respect to managing its assets and liabilities is interest rate risk. Interest
rate risk arises due to mismatches in the maturities or re-pricing periods of rate-sensitive assets and liabilities,
such as loans and deposits. Any imbalance of the maturity of the Bank’s interest rate-sensitive assets and
liabilities and the gap resulting from that imbalance may cause net interest income to be affected by changes in
the prevailing level of interest rates. The Bank’s principal asset and liability management objectives are to
generate stable net interest revenues and protect its asset value against interest rate fluctuations.
The Bank uses an integrated asset and liability management system for its Won- and foreign currency-
denominated assets and liabilities. In addition, the Bank’s system also allows it to manage the assets and
liabilities in its trust accounts. Prior to 2009, this system used roll-over modeling to mitigate the difficulty of
predicting maturity with respect to customers’ purchases and cash advances and to calculate actual cash flow of
its customers based on pre-payment, extension of payments, delinquencies, bankruptcies and recoveries. In
January 2009, this system was integrated with those of and Kyongnam Bank and Kwangju Bank, the Bank’s
commercial banking affiliates, and upgraded to include a new statistical analysis system to calculate statistically
estimated maximum amount of loss, as well as an integrated user-interface operated by Woori Finance
Information System. As a part of this upgrade, the Bank changed its methodology to determine interest rate
VaR from the Hull-White model using Monte Carlo simulation to the historical scenario method.
Interest Rate Risk
The Bank manages interest rate risk based on rational interest rate forecasts, using gap analysis to measure the
difference between interest-sensitive assets and interest-sensitive liabilities, using simulations to calculate the
effect of changing interest rates on income. Since Korea does not currently have a well-established derivatives
market, the Bank principally manages this risk by managing maturity and duration gaps between its interest-
earning assets and interest bearing liabilities.



                                                                                                                                                                            130
The Bank measures interest rate risk for Won and foreign currency assets and liabilities in its bank accounts
(including derivatives), and assets and liabilities in its principal guaranteed trust accounts. Most of its interest-
earning assets and interest bearing liabilities are denominated in Won and its foreign currency-denominated
assets and liabilities are mostly denominated in U.S. dollars. Deposits in Won generally bear fixed rates of
interest for fixed time periods (other than deposits payable on demand which constituted, on a non-consolidated
basis under K-IFRS, approximately 33.1 per cent. of its total deposits in Won as of 30th June, 2011). The Bank
generally adjusts the interest rates on these deposits when they are rolled over. In addition, as of 30th June,
2011, 98.4 per cent. of those deposits had current maturities of one year or less. As of 30th June, 2011, on a non-
consolidated basis under K-IFRS, approximately 79.0 per cent. of the Bank’s Won-denominated loans bore
floating rates of interest, and 62.0 per cent. of those loans had current maturities of one year or less.
Interest Rate Gap Analysis. 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. The Bank performs interest rate gap analysis for Won and foreign currency-
denominated assets and trust assets on a monthly basis. It reports these results to the Group Risk Management
Committee on a quarterly basis. For interest rate gap analysis the Bank uses or assumes the following maturities
for different assets and liabilities:
         •   With respect to maturities of assets, for prime rate-linked loans, the Bank applies the actual
             maturities of each loan; furthermore, it assumes the reserves with the Bank of Korea and loans and
             securities classified as substandard or below to have maximum remaining maturities.
         •   With respect to maturities of liabilities, for demand deposits with no fixed maturities, a portion of
             the demand deposits are recognised to have maturities of less than three months as calculated in
             accordance with FSC guidelines.
From July 2004, the Group Risk Management Committee established the interest rate risk limit for the Bank by
directing that the earnings at risk of the Bank should be within 5 per cent. of its estimated net interest income for
a one-year period. The Bank calculates VaR through a standardised asset and liability management system
which uses the historical method to simulate the current portfolio’s net asset value for a one-year holding period
at a 99.9 per cent. confidence level.




                                                                                                                 131
The following tables show, on a non-consolidated basis under K-IFRS, the Bank’s interest rate gap for Won-
denominated accounts and foreign currency-denominated accounts as of 30th June, 2011.
                                                                                                           As of 30th June, 2011
                                                                           0-3 Months     3-6 Months    6-12 Months     1-3 Years        Over 3 Years           Total
                                                                                                            (in billions of Won)
Won-denominated accounts:
Interest-earning assets
Due from banks .................................................           W        560           —               —                 —                  —    W           560
Loans .................................................................         108,667    W 15,247        W 4,987      W       3,504       W       5,994        138,399
Securities ...........................................................            4,358        4,618           5,548            8,690               3,406         26,620
Others ................................................................           6,083         464            1,076            1,154                 559          9,336
Total ..................................................................   W 119,668      W 20,329         W 11,611     W 13,348            W 9,959         W 174,915
Interest-bearing liabilities
Deposits .............................................................     W 78,937       W 23,169         W 27,615     W       8,126       W 6,637         W 144,484
Borrowings ........................................................                 816          160             321            2,075               1,428          4,800
Others ................................................................          13,389        2,530           3,917            5,813               3,134         28,783
Total ..................................................................   W 93,142       W 25,859         W 31,853      W 16,014           W 11,199        W 178,067
Sensitivity gap..................................................                26,526       (5,530)       (20,242)        (2,666)             (1,240)        (3,152)
Cumulative gap................................................                   26,526        20,996            754         (1,912)             (3,152)             —
Percentage of total assets ................................                     12.98%        10.28%          0.37%         (0.94)%             (1.54)%              —
Total assets in Won .........................................                    26,526       (5,530)       (20,242)        (2,666)             (1,240) W 204,303

                                                                                                           As of 30th June, 2011
                                                                           0-3 Months     3-6 Months    6-12 Months     1-3 Years        Over 3 Years           Total
                                                                                                           (in millions of U.S.$)
Foreign currency-denominated accounts:
Interest-earning assets
Due from banks .................................................               $ 1,646        $ 125            $ 30                 —                  —        $ 1,801
Loans .................................................................           6,107          755              48        $       11          $     84           7,005
Securities ...........................................................                5            5               4                 7                 —                 21
Derivatives.........................................................                 81           —              307             622                2,809          3,819
Others ................................................................           9,399        1,766             348              13                   22         11,548
Total ..................................................................       $ 17,238      $ 2,651          $ 737          $ 653           $ 2,915         $ 24,194
Interest-bearing liabilities
Deposits .............................................................          $ 3,732       $ 403          $ 389          $ 592               $ 586           $ 5,702
Borrowings ........................................................               6,189        1,334             403                15                 —           7,941
Derivatives.........................................................              2,243        1,570              —               —                     6          3,819
Others ................................................................           2,120         136            1,017             817                3,987          8,077
Total ..................................................................       $ 14,284      $ 3,443         $ 1,809        $ 1,424           $ 4,579           $ 25,539
Sensitivity gap..................................................                 2,954         (792)         (1,072)           (771)           (1,664)           (1,345)
Cumulative gap................................................                    2,954         2,162          1,090            319              (1,345)               —
Percentage of total assets ................................                     10.97%         8.03%          4.05%          1.18%              (5.00)%                  —
Total assets in U.S.$ ........................................                                                                                              $ 26,925



Duration Gap Analysis. The Bank also performs a duration gap analysis to measure and manage its interest rate
risk. Duration gap analysis is a more long-term risk indicator than interest rate gap analysis, as interest rate gap
analysis focuses only on accounting income and not on the market value of the assets and liabilities. The Bank
emphasises duration gap analysis because, in the long run, its principal concern with respect to interest rate
fluctuations is the net asset value rather than net interest revenue changes.




                                                                                                                                                                  132
The following table shows duration gaps and net asset value changes, on a non-consolidated basis under Korean
GAAP, when interest rate increases by one percentage point as of the specified dates.
                                                                                                               Asset              Liability           Duration          Net asset
Date                                                                                                          duration            duration              gap           value change
                                                                                                                                                                       (in billions
(Won-denominated)                                                                                                                (in years)                              of Won)
30th June, 2008 ...........................................................................................          0.52                 0.79            (0.25)            W 406
31st December, 2008...................................................................................                0.52               0.85             (0.33)                 548
30th June, 2009 ...........................................................................................          0.43                0.80             (0.27)                 884
31st December, 2009...................................................................................                0.39               0.74             (0.29)                 553
30th June, 2010 ...........................................................................................          0.40                0.74             (0.28)                 557
31st December, 2010...................................................................................                0.42               0.70             (0.21)                 418

                                                                                                                Asset              Liability           Duration   Net asset value
Date                                                                                                           duration            duration              gap           change
(Foreign currency-denominated)                                                                                                   (in years)                        (in billions of
                                                                                                                                                                        Won)
30th June, 2008............................................................................................           0.41                0.78             (0.28)           W 90
31st December, 2008...................................................................................                0.40                0.70             (0.24)                  86
30th June, 2009............................................................................................           0.36                0.69             (0.41)                 113
31st December, 2009...................................................................................                0.48                0.89             (0.42)                 129
30th June, 2010............................................................................................           0.75                1.13             (0.34)                (94)
31st December, 2010...................................................................................                0.53                0.95             (0.42)                 125


The following table shows duration gaps and net asset value changes, on a non-consolidated basis under K-
IFRS, when interest rate increases by one percentage point as of 30th June, 2011.
                                                                                                               Asset              Liability           Duration          Net asset
Date                                                                                                          duration            duration              gap           value change
                                                                                                                                                                       (in billions
(Won-denominated)                                                                                                                (in years)                              of Won)
30th June, 2011                                                                                                       0.44                0.59             (0.1)                  307

                                                                                                                Asset              Liability           Duration   Net asset value
Date                                                                                                           duration            duration              gap           change
(Foreign currency-denominated)                                                                                                   (in years)                        (in billions of
                                                                                                                                                                        Won)
30th June, 2011............................................................................................           0.62                0.80             (0.14)              106


The Bank sets interest rate risk limits using the historical simulation method, which uses 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. The following table summarises the
Bank’s interest rate risk on a non-consolidated basis under K-IFRS, taking into account asset and liability
durations among the periods as of 30th June, 2011.
                                                                                                                    As of 30th June, 2011
                                                                    0-3 months                3-6 months         6-12 months       1-3 years              Over 3 years           Total
                                                                                                        (in billions of Won, except maturities in years)
Won-denominated:
Asset position ........................................             W119,035                      W20,439           W11,664             W13,369              W10,705           W175,210

Liability position ...................................                   88,444                      25,152           35,922              16,760                  10,839         177,117

Gap ........................................................          W30,591                     W(4,714)         W(24,258)            W(3,392)                 W(134)          W(1,907)

Average maturity...................................                         0.10                       0.36            0.71                   1.815                 7.40                —
Interest rate volatility ............................                        2.00%                    2.00%              2.00%                 2.00%               2.00%                —
Amount at risk .......................................                    W129                        W(34)           W(344)               W (98)                  W799            W451




                                                                                                                                                                                  133
                                                                                             As of 30th June, 2011
                                                               0-3 months   3-6 months    6-12 months       1-3 years       Over 3 years      Total
                                                                                (in millions of U.S.$, except maturities in years)
Foreign currency-denominated:
Asset position ........................................          $17,091       $2,788           $746             $643            $2,921      $24,189

Liability position ...................................            13,525        3,309           1,510              619               2,556    21,518

Gap ........................................................      $3,567        $(521)          $(764)             $25               $364     $2,671

Average maturity...................................                0.1          0.36            0.71             1.815               7.40

Interest rate volatility ............................               2.00%       2.00%           2.00%             2.00%          2.00%          2.00%

Amount at risk .......................................               $6           $(4)          $(11)              —                   $13       $5


Foreign Exchange Risk
The Bank manages foreign exchange rate risk arising in connection with the management of its assets and
liabilities together with such risks arising from its 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 disparity between inflow and outflow of funds such as
maturity mismatch, including having to obtain funds at a high price or to dispose of securities at an unfavourable
price due to lack of available funds. The Bank manages its liquidity in order to meet its financial liabilities from
withdrawals of deposits, redemption of matured debentures and repayments at maturity of borrowed funds. The
Bank also requires sufficient liquidity to fund loans and extend other forms of credits, as well as to make
investments in securities. The RMC establishes the Bank’s liquidity policies and monitors liquidity on an on-
going basis. The Bank makes constant adjustment to take into account variables affecting its liquidity levels.
The risk management department reviews the uses and sources of funds on a daily basis, taking into
consideration the various goals of the Bank’s business units.
The Bank’s liquidity management goal is to be able, even under adverse conditions, to meet all of its liability
repayments on time and fund all investment opportunities.
The Bank maintains diverse sources of liquidity to facilitate flexibility in meeting its funding requirements. The
Bank funds its 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 one month), issuing debentures and
borrowing from the Bank of Korea. The Bank uses the majority of funds raised by it to extend loans or purchase
securities. Generally, deposits are of shorter average maturity than loans or investments.
In managing liquidity risk, the Bank currently determines gap limits, implements those limits and monitors
maturity gaps using its asset and liability management system. The Bank’s three month accumulated gap limits
for banking accounts are between negative 10 per cent. and 10 per cent. In the foreign currency account, the
limit for a one-week gap has been set as negative 3 per cent. or higher and as negative 10 per cent. or higher for
a one-month gap.
Liquidity is maintained by holding sufficient quantities of assets that can be liquidated to meet actual or
potential demands for funds from depositors and others. Liquidity is also managed 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 that the Bank believes it can raise by issuing securities when required. The Bank seeks to minimise its
liquidity costs by managing its 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.
The FSC requires each Korean bank to maintain a Won liquidity ratio of not less than 100 per cent. (deemed an
“advisory ratio”) and to make monthly reports to the FSC. The FSC defines the Won liquidity ratio as Won-
denominated liquid assets (including marketable securities) due within one month divided by Won-denominated
liabilities due within one month. See “Supervision and Regulation — Liquidity.”
The following table shows the Bank’s liquidity status and limits for Won accounts, on a non-consolidated basis
under K-IFRS, as of 30th June, 2011 in accordance with FSC regulations.




                                                                                                                                              134
                                                                                                                                                                                         As of 30th June, 2011
                                                                                                                                                                                         Three months or less
                                                                                                                                                                                          (in billions of Won)
Assets (A) ......................................................................................................................................................................                  W     56,280
Liabilities (B) ................................................................................................................................................................                       40,047
Liquidity gap .................................................................................................................................................................                        16,233
Liquidity ratio (A/B) .....................................................................................................................................................                            140.53%
Limit ..............................................................................................................................................................................                   100.00%


The FSC requires each Korean bank to maintain a foreign currency liquidity ratio of not less than 85 per cent.
and to make monthly reports to the FSC. The FSC defines the foreign currency liquidity ratio as foreign
currency liquid assets (including marketable securities) due within three months divided by foreign currency
liabilities due within three months. In addition, regarding limits for foreign currency accounts, the FSC requires
each Korean bank to maintain a one-week gap of negative 3 per cent. or higher and a one-month gap of negative
10 per cent. or higher, respectively. See “Supervision and Regulation — Liquidity.”
The following table shows the Bank’s liquidity status and limits for foreign currency accounts, on a non-
consolidated basis under K-IFRS, as of 30th June, 2011 in accordance with FSC regulations.
                                                                                                                                                             As of 30th June, 2011
                                                                                                                                    7 days or less                 1 month or less            3 months or less
                                                                                                                                                  (in millions of U.S.$, except ratios)
Foreign currency assets ..........................................................................................                     $         9,125        $     15,348        $     25,270
Foreign currency liabilities ....................................................................................                                8,560                         14,971                 24,044
Maturity gap (A).....................................................................................................                               565                                377             1,226
Total assets (B).......................................................................................................                        55,870                          55,870                 55,870
Liquidity gap ratio (A/B) .......................................................................................                                  1.01%                           0.68%            105.10%(1)
Limits......................................................................................................................                     (3.00)%                       (10.00)%               85.00%(1)
_________________
Note:
(1)     Liquidity ratio.


The RMC receives reports regarding the Bank’s respective liquidity ratios and liquidity gap ratios on a monthly
basis. Based on those reports, the risk management department reports these results to the Group Risk
Management Committee on a quarterly basis.
Operational and Business Risk Management
Operational risk is difficult to quantify and subject to different definitions. The Bank defines its operational risk
as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events. This definition includes legal risk, but excludes credit risk, market risk, interest rate risk and liquidity
risk, and the Bank categorises its operational risk into business lines and event types for measurement purposes
with respect to its calculations of risk-adjusted return on capital.
The Bank maintains a system of comprehensive policies and has put in place a control framework designed to
provide a stable and well-managed operational environment throughout its organisation and to monitor and
control operational risks. It reviews its operations and level of compliance with its bank-wide risk management
policies and guidelines on an annual basis. As part of this process, the Bank reports any problems discovered
and any remedial actions taken to Woori Finance Holdings’ Audit Committee. Pursuant to the implementation
of Basel II, the Bank has implemented and is operating a Bank-wide operational risk management system, and
implemented an “advanced measurement approach” for operational risk in June 2009. In order to achieve
consistent operational risk management across business lines, the Bank analyses each business line’s processes
and determines the risk profile of such process.
The Bank considers legal and business risk as a part of its operational risk. The uncertainty of the enforceability
of the obligations of its customers and counterparties, including foreclosure on collateral, creates legal risk.
Business risk includes the risk of changes in laws and regulations, which could also adversely affect the Bank.
Legal and business risk is higher in new areas of business where the law is often untested in the courts, although
such risk can also increase in the Bank’s traditional business to the extent that the legal and regulatory landscape
in Korea is changing and many new laws and regulations governing the banking industry remain untested. The
Bank’s legal department seeks to minimise legal risk by using stringent legal documentation, employing


                                                                                                                                                                                                            135
procedures designed to ensure that transactions are properly authorised and consulting legal advisers. The
Bank’s internal auditors also review loan documentation to ensure that these are correctly drawn up to withstand
scrutiny in court should such scrutiny occur.
In connection with its disaster recovery capabilities, the Bank currently meets the guidelines suggested by the
FSC. These generally require that the Bank’s disaster and recovery capabilities enable it to recover data and
resume operations within three hours, with which the Bank currently is in compliance due to a “mirror site” in
operation, which backs up transaction information on a real-time basis. The Bank also has a “back-up site” in
operation, which backs up transaction information on a daily basis. In September 2008, the Bank completed its
implementation of a business continuity plan to prepare for emergency situations and disasters.
The majority of the Bank’s information technology systems are operated by its sister company, Woori FIS
(formerly Woori Finance Information System).




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                                                        MANAGEMENT

  Board of Directors
  The Bank’s board of directors (the “Board”) has the ultimate responsibility for managing the Bank’s affairs. The
  Board currently comprises two Standing Directors and eight Non-Standing Directors. Standing Directors are
  directors who are full-time executive officers, while Non-Standing Directors are directors who are not full-time
  executive officers. It represents a cross-section of respected and experienced members of the academic,
  financial, legal and corporate fields in Korea.
  The Bank’s articles of incorporation provide that the Board can have no less than three directors. Standing
  Directors must comprise not more than 50 per cent. of the total number of directors and there must be at least
  three Non-Standing Directors. Each Standing Director is elected for a three year term of office, and each Non-
  Standing Director is elected for a one-year term of office. These terms are subject to the Korean Commercial
  Code, the Bank Act and related regulations. Each director may be re-elected, subject to these laws and
  regulations.
  The Board meets on a quarterly basis to discuss and resolve various corporate matters. The Board may also
  convene for additional extraordinary meetings at the request of the President or Chairman of the Board. A
  director (other than the President or Chairman of the Board) may request the President or Chairman of the Board
  to convene an extraordinary meeting. In the event that the President or Chairman of the Board rejects such
  request without justifiable reason, another director may convene the extraordinary meeting.
  The names and positions of the Bank’s directors are set forth below. The business address of all of the directors
  is the Bank’s registered office at 203 Hoehyon-dong, 1-ga, Chung-gu, Seoul, Korea.
  Standing Directors
  The Standing Directors are as follows:
              Name              Date of Birth          Position                        Director Since        Date Term Ends

   Soon Woo Lee ............    15th December, 1950    President and Chief Executive   26th March, 2007      2014
                                                       Officer

   Yong Woo Kim ..........      17th November, 1956    Director/Standing Audit         24th March, 2011      2014
                                                       Committee Member

  None of these directors is involved in any significant business activities outside the Bank.
  Soon Woo Lee is the Bank’s President and Chief Executive Officer. He was appointed as President and Chief
  Executive Officer in March 2011. Previously, he served as Executive Vice President and Head of the Consumer
  Banking Business from 2004 to March 2011. He holds a B.A. in law from SungKyunKwan University.
  Yong Woo Kim is a Standing Board Audit Committee member. He was appointed as a Standing Board Audit
  Committee member in March 2011. Prior to joining the Bank, he served as the Second Deputy Secretary
  General of The Board of Audit and Inspection of Korea. He holds an M.A. in public administration from
  Syracuse University.
  Non-Standing Directors
  The Bank’s Non-Standing Directors are selected based on their experience and knowledge in diverse areas,
  which include law, finance, economics, management and accounting. The Bank currently has eight Non-
  Standing Directors. All were nominated by the Board Governance Committee and approved by the Bank’s
  stockholders.
  The Bank’s Non-Standing Directors are as follows:
Name                                   Date of Birth              Position                  Director Since    Year Term Ends(1)

Pal Seung Lee ...............   2nd February, 1944      Non-Standing Director          26th June, 2008        2014
Yong Keun Lee.............      27th April, 1941        Non-Standing Director          24th March, 2011       2013
Chang Ryul Baik...........      17th March, 1948        Non-Standing Director          26th March, 2009       2012
Byung Sam Yu..............      1st February, 1952      Non-Standing Director          25th March, 2010       2012




                                                                                                                              137
Name                                      Date of Birth                         Position                Director Since       Year Term Ends(1)

Soong Pyo Eun .............      21st July, 1952                    Non-Standing Director          24th March, 2011          2013
Hyuk Choi.....................    2nd September, 1955               Non-Standing Director         6th April, 2010            2012
Kang Sik Lee ................     9th July, 1957                    Non-Standing Director          25th March, 2010          2012
Hee Yul Chai ................    23rd January, 1960                 Non-Standing Director         28th March, 2011           2013


  Note:
  (1) The date on which each term will end will be the date of the general stockholders’ meeting in the relevant year.


  Pal Seung Lee has been a Non-Standing Director since 26th June, 2008. He is also the Chairman of the Board
  and the Chairman of Woori Finance Holdings, the Bank’s parent. He previously was the chief executive officer
  of Woori Investment & Securities. He holds a B.A. in law and an M.B.A. from Korea University.
  Yong Keun Lee has been a Non-Standing Director since 24th March, 2011. He previously was an advisor to the
  Andersen Group Korea and the chairman of the FSS. He holds a B.A. in public administration from Korea
  University and an M.A. in public administration from Seoul National University.
  Chang Ryul Baik has been a Non-Standing Director since 26th March, 2009. He previously was the secretary-
  general of the Seoul Economic Forum and the president of Bizcom Management Consulting. He holds a B.A. in
  international trade from Sogang University.
  Byung Sam Yu has been a Non-Standing Director since 25th March, 2010. He currently serves as the Dean of
  the College of Business at Yonsei University. He previously was an assistant professor at Pennsylvania State
  University. He holds a B.A. in statistics from Yonsei University and a Ph.D. in economics from University of
  California at San Diego.
  Soong Pyo Eun has been a Non-Standing Director since 24th March, 2011. He currently serves a professor of
  law and police science at Silla University. He was previously a professor of law at Yeungnam University. He
  holds a B.A. in law from Yonsei University and a Ph.D. in law from University of Tübingen.
  Hyuk Choi has been a Non-Standing Director since 6th April, 2010. He currently serves the Dean of the College
  of Business at Seoul National University. He previously served as the chairman of the Korea Securities
  Association. He holds a B.A. in business administration from Seoul National University and an M.B.A. and a
  Ph.D. in business administration from University of Chicago.
  Kang Sik Lee has been a Non-Standing Director since 25th March, 2010. He currently serves as a general
  manager of risk management at the KDIC. He previously served as the chief legal officer at the KDIC. He
  holds a B.A. in economics from Konkuk University.
  Hee Yul Chai has been a Non-Standing Director since 24th March, 2011. He currently serves a professor of
  economics at Kyonggi University and a non-executive member of the FSC. He holds a B.A. in economics from
  Seoul National University and a Ph.D. in Economics from University of Paris X.
  If any director wishes to enter into a transaction with the Bank in his or her personal capacity, he or she must
  obtain the prior approval of the Board. The director having an interest in the transaction may not vote at the
  meeting during which the Board approves the transaction.
  Executive Officers
  In addition to the two Standing Directors who are also Executive Officers, the Bank currently has the following
  15 Executive Officers.
            Name                                                Date of Birth                             Position
            Yang Jin Kim............................... 1st January, 1956          Senior Vice-President/
                                                                                   Head of Operation & Support Unit

            Kyoung Wan Kim......................... 23rd August, 1956              Executive Vice-President/
                                                                                   Head of Corporate Banking Business Unit

            Si Byung Kim .............................. 6th November, 1956         Executive Vice-President/
                                                                                   Global Head of Investment Banking Group




                                                                                                                                             138
      Name                                              Date of Birth                             Position
      Seung Nam Choi........................... 6th September, 1956        Executive Vice-President/
                                                                           Head of Financial Market Business Unit

      Won Kang..................................... 10th April, 1956       Executive Vice-President/
                                                                           Head of Consumer Banking Business Unit

      Jung Keun Yoo ............................. 11th December, 1956      Executive Vice-President/
                                                                           Head of Institutional Banking Unit

      Jong Chun Kim............................. 2nd September, 1955       Executive Vice-President/
                                                                           Head of Global Business Unit

      Gi Jo Keum .................................. 20th September, 1956   Executive Vice-President/
                                                                           Head of Credit Card Business Unit

      Hwa Young Jung ......................... 22nd January, 1957          Executive Vice-President/
                                                                           Head of Human Resources Unit

      Jong Oun Kim.............................. 21st July, 1957           Executive Vice-President/
                                                                           Head of Risk Management Unit

      Man Ho Seo ................................. 24th March, 1956        Executive Vice-President/
                                                                           Head of Credit Support Unit

      Jang Hak Kim .............................. 27th January, 1957       Executive Vice-President/
                                                                           Head of Small & Medium Corporate Banking Unit

      Seung Gyu Kim ........................... 7th October, 1956          Executive Vice-President/
                                                                           Head of Finance & Management
                                                                           Planning Unit

      Keun Sun Son .............................. 9th March, 1955          Executive Vice-President/
                                                                           Chief Compliance Officer

      Yong Heung Cho ......................... 23rd March, 1956            Executive Vice-President/
                                                                           Chief executive officer of Woori America Bank


None of the Executive Officers is involved in any significant business activities outside Woori Bank.
Yang Jin Kim serves as an Senior Vice President and Head of the Operation & Support Unit. Prior to serving as
Executive Vice President, he served as Chief Compliance Officer. He holds a B.A. in Agricultural Education
from Seoul National University.
Kyoung Wan Kim serves as an Executive Vice President and Head of the Corporate Banking Business Unit.
Prior to serving as Executive Vice President, he was Head of the Housing Finance Business. He holds an M.A.
in Business Administration from Korea University.
Si Byung Kim serves as an Executive Vice President and Head of the Investment Banking Group. Prior to
serving as Executive Vice President, he was Head of the Foreign Exchange Business Unit. He holds a B.A. in
Business Administration from Konkuk University.
Seung Nam Choi serves as an Executive Vice President and Head of the Financial Market Business Unit. Prior
to serving as Executive Vice President, he was Head of the Global Business Division. He holds an M.A. in
Economics from Korea University.
Won Kang serves as an Executive Vice President and Head of the Consumer Banking Business Unit. Prior to
serving as Executive Vice President, he served as Head of the Housing Finance Unit. He holds an M.A. in
International Trade from Sungkyunkwan University.
Jung Keun Yoo serves as an Executive Vice President and Head of the Institutional Banking Unit. Prior to
serving as Executive Vice President, he was Head of the Foreign Exchange Business Unit. He graduated from
Dongji Commercial High School of Trade.
Jong Chun Kim serves as an Executive Vice President and Head of the Global Business Unit. Prior to serving as
Executive Vice President, he was head of a regional operations department at the Bank. He holds a B.A. in
Business Administration from Chonbuk University.




                                                                                                                           139
Gi Jo Keum serves as an Executive Vice President and Head of the Credit Card Business Unit. Prior to serving
as Executive Vice President, he was Head of the Private Banking Business Unit. He holds a B.A. in Public
Administration from Dankuk University.
Hwa Young Chung serves as an Executive Vice President and Head of the Human Resources Unit. Prior to
serving as Executive Vice President, he was Head of the Corporate Improvement Support Unit. He holds a B.A.
in International Relations from Dongkuk University.
Jong Oun Kim serves as an Executive Vice President and Head of the Risk Management Unit. Prior to serving
as Executive Vice President, he was the Compliance Officer. He holds a B.A. and an M.A. in International
Economics from Jongang University, and an M.B.A. from Pepperdine University.
Man Ho Seo serves as an Executive Vice President and Head of the Credit Support Unit. Prior to serving as
Executive Vice President, he was Head of the E-Business Unit. He holds a B.B.A. in Business Administration
from Sogang University.
Jang Hak Kim serves as an Executive Vice President and Head of the Small & Medium Corporate Banking
Business Unit. Prior to serving as Executive Vice President, he was Head of the U-Banking Business Unit. He
holds a B.A. in Public Administration from Chonnam University.
Seung Gyu Kim serves as an Executive Vice President and Head of the Finance & Management Planning Unit.
Prior to serving as Executive Vice President, he was an Excutive Director at Woori Finance Holdings. He holds
a B.A. in Economics from SungKyunKwan University.
Keun Sun Son serves as an Executive Vice President and Compliance Officer. Prior to serving as Executive Vice
President, he was Head of the Channel Support Unit. He holds an LL.B. in Law from Konkuk University.
Yong Heung Cho serves as an Executive Vice President and Chief Executive Officer of Woori America Bank.
Prior to serving as Executive Vice President, he served as Head of the Finance & Management Planning Unit.
He holds an M.A. in International Economics from University of Essex.
Compensation
The aggregate remuneration and benefits-in-kind that the Bank paid in 2010 to its President and Chief Executive
Officer, its other Standing and Non-Standing Directors, and other Executive Officers was W3,307 million. In
addition, the Bank set aside W408 million in 2010 for allowances for severance and retirement benefits for those
directors and officers. The Bank does not have service contracts with any of these directors or officers that
provide for benefits if employment with the Bank is terminated.
In December 2002, Woori Finance Holdings granted stock options to 18 of the Bank’s directors and officers,
including the President and Chief Executive Officer and Deputy President. These options conferred a right to
purchase an aggregate of 585,000 shares of common stock of Woori Finance Holdings, at an exercise price
ranging from W6,800 to W11,921 per share. The Bank did not record any stock compensation cost in 2008,
2009 and 2010.
Since 2003, Woori Finance Holdings has not granted any stock options to the Bank’s directors or officers.
Committees of the Board of Directors
The Bank currently has five management committees that serve under the Board:
        •    the Board Governance Committee (“BGC”);
        •    the Board Risk Management Committee (“BRMC”);
        •    the Board Audit Committee (“BAC”);
        •    the Audit Committee Member Recommendation Committeee (“ACMRC”); and
        •    the Compensation Committee (“CC”).
The Board appoints each member of these committees except for members of the BAC, who are elected by the
Bank’s stockholders at the general stockholders’ meeting.
Board Governance Committee
The BGC consists of all eight of the Bank’s Non-Standing Directors and one Standing Director: Pal Seung Lee,
Yong Keun Lee, Chang Ryul Baik, Byung Sam Yu, Soong Pyo Eun, Hyuk Choi, Kang Shik Lee, Hee Yul Chai



                                                                                                            140
and Soon Woo Lee. The Chairman is Yong Keun Lee. This committee, which functions as a steering
committee, enables broad management oversight of the Bank’s operations. It is responsible for the following:
         •   evaluating Standing and Non-Standing Directors and Executive Officers as well as their
             compensation and employment arrangements;
         •   recommending Non-Standing Directors;
         •   setting rules and procedures for operations of the Board and its various committees;
         •   communicating with stockholders;
         •   addressing corporate governance issues; and
         •   reviewing all reports to be reported to the Board and other matters that are deemed necessary by
             the Board or various sub-committees of the Board.
The BGC holds meetings every quarter.
Board Risk Management Committee
The BRMC consists of one Standing Director and four Non-Standing Directors: Soon Woo Lee, Yong Keun
Lee, Chang Ryul Baik, Byung Sam Yu and Hee Yul Chai. The Chairman is Soon Woo Lee. It oversees and
makes determinations on all issues relating to the Bank’s risk management system. It implements policies
regarding, monitors and has ultimate responsibility for managing, credit, market and liquidity risk and asset and
liability management. The major roles of the BRMC include:
         •   determining and amending risk management policies, guidelines and limits in conformity with the
             strategy established by the Board;
         •   determining the appropriate level of risks that the Bank should be willing to undertake;
         •   allocating risk capital and approving the Bank’s business units’ risk limit requests;
         •   reviewing the Bank’s risk profile, including the level of risks it is exposed to and the status of its
             risk management operations; and
         •   monitoring the Bank’s compliance with its risk policies.
See “Risk Management.” The BRMC regularly receives reports from the ERMC, which is the body that
coordinates the execution of the committee’s risk-related policies and decisions. The BRMC holds meetings
every quarter.
Board Audit Committee
The BAC consists of three Non-Standing Directors and one Standing Director: Hyuk Choi, Soong Pyo Eun,
Kang Shik Lee and Yong Woo Kim. The Chairman is Hyuk Choi. It reviews all audit and compliance-related
matters and makes recommendations to the Board. The BAC, whose members must meet certain qualifications
as experts under the committee charter, also is responsible for the following:
         •   supervision of internal and external audit processes;
         •   review of compliance and legal matters, including the monitoring of compliance risks;
         •   appointing external auditors and setting internal procedures or making decisions on matters that
             related to auditing; and
         •   overseeing the Bank’s reporting systems and ensuring full compliance with all disclosure rules and
             requirements.
The BAC also makes recommendations on regulatory issues to the FSS, if and when deemed necessary. In
addition, in connection with general meetings of stockholders, the BAC examines the agenda for, and financial
statements and other reports to be submitted by, the Board to each general meeting of stockholders. The internal
and external auditors report directly to the BAC Chairman. The Bank’s external auditor is invited to attend
meetings of the BAC when needed or when matters pertaining to the audit are discussed.
The BAC holds meetings every quarter.




                                                                                                               141
Audit Committee Member Recommendation Committee
The ACMRC consists of seven of the Bank’s Non-Standing Directors: Yong Keun Lee, Chang Ryul Baik,
Byung Sam Yu, Soong Pyo Eun, Hyuk Choi, Kang Shik Lee and Hee Yul Chai. The chairman is Yong Keun
Lee. The ACMRC holds meetings when an audit committee member needs to be appointed.
Compensation Committee
The CC consists of four Non-Standing Directors: Yong Keun Lee, Byung Sam Yu, Kang Shik Lee and Hee Yul
Chai. The chairman is Byung Sam Yu. It is responsible for all matters relating to the following:
        •    setting goals and targets with respect to and evaluating executive performance; and
        •    fixing executive compensation, including incentives and bonuses.
The CC holds regular meetings every quarterly.
Share Ownership
Common Stock
None of the persons who are currently directors or executive officers of the Bank holds any shares of the Bank’s
common stock as of 30th June, 2011.
Stock Options
See “— Board of Directors — Compensation.”




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                              TRANSACTIONS WITH RELATED PARTIES

The Bank has entered into a memorandum of understanding with the KDIC and Woori Finance Holdings in
which the Bank must meet business normalisation targets or specific financial targets, or the KDIC has the right
to impose sanctions on the Bank’s directors or employees or to require the Bank or its subsidiaries to take
certain actions. See “History and Development of the Bank — Relationship with the Government.”
As of 30th June, 2011, the Bank had loans outstanding to its directors and key executive officers in the
aggregate amount of W2,500 million.
None of the Bank’s directors or officers have or had any interest in any transactions effected by the Bank that
are or were unusual in their nature or conditions or significant to the Bank’s 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.
For information regarding transactions with certain of the Bank’s affiliates, see Note 43 of the notes to the
consolidated unaudited financial statements for the six month periods ended 30th June, 2010 and 2011 and Note
24 of the notes to the consolidated audited financial statements for the years ended 31st December, 2009 and
2010 included elsewhere in this Draft Prospectus.




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                                                PRINCIPAL STOCKHOLDERS

 The following table presents information regarding the beneficial ownership of the Bank’s shares at 30th June,
 2011 by each person or entity known to the Bank to own beneficially more than 5 per cent. of the Bank’s
 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.
                                 Number of                                           Percentage of total   Percentage of total
                                 shares of      Percentage of     Number of shares       shares of         shares of common
                                  common        total shares of     of convertible      convertible         stock on a fully
Beneficial Owner                    stock       common stock       preferred stock    preferred stock         diluted basis

Woori Finance Holdings........... 695,956,580            100.0%      70,000,000                  100.0%                 100.0%


 As of 30th June, 2011, none of the Bank’s standing and non-standing directors or the Bank’s executive officers
 owned any shares of its common stock.
 Other than as set forth above, no other person or entity known by the Bank to be acting in concert, directly or
 indirectly, jointly or separately, owned 5.0 per cent. or more of the outstanding shares of the Bank’s common
 stock or exercised control or could exercise control over the Bank as of 30th June, 2011.




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                                    SUPERVISION AND REGULATION

Capital Adequacy and Provisions
The Bank Act requires nationwide banks, such as the Bank, to maintain a minimum paid-in capital of W100
billion and regional banks, such as Kyongnam Bank and Kwangju Bank, to maintain a minimum paid-in capital
of W25 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 per cent. 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 Bank Act, the capital of a bank is divided into two categories, Tier I and Tier II capital. Tier I capital
(core capital) consists of stockholder’s equity, capital surplus, retained earnings, unissued stock dividends and
hybrid Tier I capital instruments. Tier II capital (supplementary capital) consists of revaluation reserves, gains
on valuation of investment in securities (up to certain limits), provisions for credit losses set aside for loans
classified as “normal” or “precautionary” (up to certain limits), perpetual subordinated debt, cumulative
preferred shares (with redemption rights after the fifth anniversary of their date of issuance) and certain other
subordinated debt.
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 FSC requirements that have been formulated based on Bank of
International Settlements, or BIS, standards. These standards were adopted and became effective in 1996, and
were amended effective 1st January, 2008 upon the implementation by the FSC of Basel II. All domestic banks
and foreign bank branches must meet a minimum ratio of Tier I and Tier II capital (less any capital deductions)
to risk-weighted assets of 8 per cent.
In November 2002, the FSS amended the Enforcement Detailed Rules on the Supervision of the Banking
Business to include a more conservative risk-weighting system for certain newly extended home mortgage
loans, which required Korean banks to apply risk-weighted ratios of 50 per cent., 60 per cent. or 70 per cent. in
respect of home mortgage loans depending on the borrower’s debt ratio and whether the home mortgage loans
are overdue. On 28th June, 2007, the FSC further amended the Enforcement Detailed Rules on the Supervision
of the Banking Business and, as a result, the following risk-weight ratios must be applied by Korean banks in
respect of home mortgage loans from 1st January, 2008:
         (1) for those banks which adopted a standardised approach for calculating credit risk capital
             requirements, a risk-weight ratio of 35 per cent.; 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 Enforcement Detailed Rules on the
             Supervision of the Banking Business.
Under the Regulation on Supervision of Banking Business, banks must generally maintain provisions for credit
losses, supplemented by regulatory reserve for credit losses, in respect of their outstanding loans and other
credits (including confirmed guarantees and acceptances and trust account loans) in an aggregate amount
covering not less than:
         •   0.85 per cent. of normal credits (or 0.9 per cent. in the case of normal credits comprising loans to
             borrowers in the construction, wholesale and retail, accommodation and restaurant or real estate
             and housing industries (as classified under the Korean Industry Classification Standard), 1.0 per
             cent. in the case of normal credits comprising loans to individuals and households, and 1.5 per
             cent. in the case of normal credits comprising outstanding credit card receivables and card loans);
         •   7 per cent. of precautionary credits (or 10 per cent. in the case of precautionary credits comprising
             loans to individuals and households, and 15 per cent. in the case of precautionary credits
             comprising outstanding credit card receivables and card loans);
         •   20 per cent. of substandard credits;
         •   50 per cent. of doubtful credits (or 55 per cent. in the case of doubtful credits comprising loans to
             individuals and households, and 60 per cent. in the case of doubtful credits comprising outstanding
             credit card receivables and card loans); and
         •   100 per cent. of estimated loss credits.


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Furthermore, under a 2006 amendment to the Regulation on Supervision of Banking Business, banks must
maintain allowances for credit losses in respect of their confirmed guarantees (including confirmed acceptances)
and outstanding non-used credit lines as of the settlement date in an aggregate amount calculated at the same
rates applicable to normal, precautionary, substandard and doubtful credits comprising their outstanding loans
and other credits as set forth above.
See “— Recent Regulations Relating to Retail Household Loans” and “— Credit Card Business.”
Liquidity
All banks are required to ensure adequate liquidity by matching the maturities of their assets and liabilities in
accordance with the Bank Act. Banks may not invest an amount exceeding 60 per cent. of their Tier I and Tier II
capital (less any capital deductions) in stocks and other securities with a maturity of over three years. This
stipulation does not apply to Government bonds or to Monetary Stabilisation Bonds issued by the Bank of
Korea. The FSC also requires each Korean bank to:
         •    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 per cent. and to
              make monthly reports to the FSS;
         •    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 85
              per cent.;
         •    maintain a ratio of foreign currency liquid assets due within seven days less foreign currency
              liabilities due within seven days, divided by total foreign-currency assets, of not less than negative
              3 per cent.;
         •    maintain a ratio of foreign currency liquid assets due within a month less foreign currency
              liabilities due within a month, divided by total foreign-currency assets, of not less than negative 10
              per cent.;
         •    commencing in June 2012, maintain a ratio of loans in Won to deposits received in Won
              (excluding certificates of deposit) of not more than 100 per cent.; and
         •    submit monthly reports with respect to the maintenance of these ratios.
The Monetary Policy Committee 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 ratio is:
         •    7 per cent. of average balances for Won currency demand deposits outstanding;
         •    0 per cent. 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; and
         •    2 per cent. of average balances for Won currency time and savings deposits, mutual installments,
              housing installments and certificates of deposit outstanding.
For foreign currency deposit liabilities, a 2 per cent. minimum reserve ratio is applied to savings deposits
outstanding and a 7 per cent. minimum reserve ratio is applied to demand deposits. A 1 per cent. minimum
reserve ratio applies to offshore accounts, immigrant accounts and resident accounts opened by foreign
exchange banks.
Financial Exposure to any Individual Customer and Major Stockholder
Under the Bank Act, 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 per cent. 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, banks generally may not extend credit (including loans, guarantees,
purchases of securities (only in the nature of a credit) and any other transactions that directly or indirectly create
credit risk) in excess of 20 per cent. 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 per cent. 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.


                                                                                                                  146
The Bank Act also provides for certain restrictions on extending credits to a major stockholder. A “major
stockholder” is defined as:
         •   a stockholder holding (together with persons who have a special relationship with that stockholder)
             in excess of 10 per cent. (or 15 per cent. in the case of regional banks) in the aggregate of the
             bank’s total issued voting shares; or
         •   a stockholder holding (together with persons who have a special relationship with that stockholder)
             in excess of 4 per cent. in the aggregate of the bank’s (excluding regional banks) total issued
             voting shares (excluding shares subject to the shareholding restrictions on non-financial group
             companies as described below), where the stockholder is the largest stockholder or has actual
             control over the major business affairs of the bank through, for example, appointment and
             dismissal of the officers pursuant to the Enforcement Decree of the Bank Act.
Under these restrictions, banks may not extend credits to a major stockholder (together with persons who have a
special relationship with that stockholder) in an amount greater than the lesser of (x) 25 per cent. of the sum of
the bank’s Tier I and Tier II capital (less any capital deductions) and (y) the relevant major stockholder’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 stockholders must not exceed 25 per cent. of the bank’s
Tier I and Tier II capital (less any capital deductions). However, the foregoing restrictions do not apply to the
Korea Deposit Insurance Corporation, in the event that the Korea Deposit Insurance Corporation becomes a
major shareholder in the process of restructuring of banks.
Interest Rates
Korean banks generally depend on deposits as their primary funding source. There are no legal controls on
interest rates on loans in Korea, except for the limitation on the maximum default interest rate on loans made to
individuals or SMEs pursuant to the Act on Registration of Credit Business, etc. and Protection of Finance
Users and the recent amendment to its Enforcement Decree, which is 39 per cent per annum. Historically,
interest rates on deposits and lending rates were regulated by the Monetary Policy Committee of the Bank of
Korea. Controls on deposit interest rates in Korea have been gradually reduced and, in February 2004, the
Government removed restrictions on all interest rates, except for the prohibition on interest payments on current
account deposits. This deregulation process has increased competition for deposits based on interest rates
offered and, therefore, may increase a bank’s interest expense.
Lending to SMEs
In order to obtain funding from the Bank of Korea at concessionary rates for their SME loans, banks are
required to allocate a certain minimum percentage of any monthly increase in their Won currency lending to
SMEs. Currently, this minimum percentage is 45 per cent. in the case of nationwide banks and 60 per cent. 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
             SMEs; or
         •   lower the bank’s credit limit.
Disclosure of Management Performance
In order to assist the general public, especially depositors and stockholders, in monitoring bank management
performance, the FSC requires commercial banks to make mandatory public disclosures of, among other things,
the following:
         (1) loans bearing no profit made to a single business group in an amount exceeding 10 per cent. 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 as the sum of substandard
             credits, doubtful credits and estimated loss credits), unless the loan exposure to that group is not
             more than W4 billion;
         (2) the occurrence of any financial incident involving embezzlement, malfeasance or misappropriation
             of funds in an amount exceeding 1 per cent. of the sum of the bank’s Tier I and Tier II capital (less
             any capital deductions), unless the bank has lost or expects to lose not more than W1 billion as a
             result of that financial incident, or the governor of the FSS has made a public announcement
             regarding the incident; and



                                                                                                               147
                 (3) any loss due to court judgments or similar decisions in civil proceedings in an amount exceeding 1
                     per cent. 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 W1 billion.
Restrictions on Lending
Pursuant to the Bank Act, commercial banks may not provide:
                 •       loans for the purpose of speculation in commodities or securities;
                 •       loans directly or indirectly to enable a natural or juridical person to buy the bank’s own shares;
                 •       loans to any of the bank’s officers or employees, other than petty loans of up to W20 million in the
                         case of a general loan, W50 million in the case of a general loan plus a housing loan or W60
                         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 shares of a subsidiary corporation of the bank or to
                         enable a natural or juridical person to buy shares of a subsidiary corporation of the bank; or
                 •       loans to any officers or employees of a subsidiary corporation of the bank, other than general loans
                         of up to W20 million or general and housing loans of up to W50 million in the aggregate.
Regulations Relating to Retail Household Loans
The FSC has in recent years implemented a number of changes to the mechanisms by which a bank evaluates
and reports its retail household loan balances and has proposed implementing further changes. As a result of the
rapid increase in retail household loans and related credit risks, the FSC and the FSS increased the minimum
provisioning requirements for retail household loans. These requirements, set forth in the following table,
became effective on 31st December, 2006.
Asset Quality Classification                                                                             Provisioning Ratio on Retail Household Loans
                                                                                                         Before                          Current
Normal................................................................................................   0.75 per cent. or above         1.0 per cent. or above
Precautionary......................................................................................      8.0 per cent. or above          10.0 per cent. or above
Substandard ........................................................................................     20.0 per cent. or above         20.0 per cent. or above
Doubtful..............................................................................................   55.0 per cent. or above         55.0 per cent. or above
Estimated loss.....................................................................................      100.0 per cent.                 100.0 per cent.

In addition, due to a rapid increase in the number of loans secured by homes and other forms of housing, the
FSC and the FSS have implemented regulations designed to curtail extension of new or refinanced loans secured
by housing, including the following:
                 •       as to loans secured by collateral of housing 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 60 per cent.;
                 •       as to loans secured by collateral of housing located in areas of excessive investment as designated
                         by the Government, (i) the loan-to-value ratio for loans with a maturity of not more than three
                         years should not exceed 50 per cent. and (ii) the loan-to-value ratio for loans with a maturity of
                         more than three years should not exceed 60 per cent.;
                 •       as to loans secured by apartments located in areas of high speculation as designated by the
                         Government, (i) the loan-to-value ratio for loans with a maturity of not more than ten years should
                         not exceed 40 per cent.; and (ii) the loan-to-value ratio for loans with a maturity of more than ten
                         years should not exceed (a) 40 per cent., if the price of such apartment is over W600 million, and
                         (b) 60 per cent., if the price of such apartment is W600 million or lower;
                 •       as to loans secured by apartments with appraisal values of more than W600 million in areas of
                         high speculation as designated by the Government or certain metropolitan areas designated as
                         areas of excessive investment by the Government, the borrower’s debt-to-income ratio (calculated
                         as (i) the aggregate annual total payment amount of (x) the principal of and interest on loans
                         secured by such apartment(s) and (y) the interest on other debts of the borrower over (ii) the
                         borrower’s annual income) should not exceed 40 per cent.;



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         •   as to apartments located in areas of high speculation as designated by the Government, a borrower
             is permitted to have only one new loan secured by such apartment;
         •   where a borrower has two or more loans secured by apartments located in areas of high speculation
             as designated by the Government, the loan with the earliest maturity date must be repaid first and
             the number of loans must be eventually reduced to one; and
         •   in the case of a borrower (i) whose spouse already has a loan secured by housing or (ii) who is
             single and under 30 years old, the debt-to-income ratio of the borrower in respect of loans secured
             by apartment(s) located in areas of high speculation as designated by the Government should not
             exceed 40 per cent.
See “Risk Factors — Risks relating to the Bank — Consumer loan portfolio — Government regulation of
consumer lending may hurt the Bank’s consumer banking operations.”
Restrictions on Investments in Property
A bank may possess real estate property only to the extent necessary for the conduct of its business, unless the
aggregate value of that property does not exceed 60 per cent. of the sum of the bank’s Tier I and Tier II capital
(less any capital 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 one year.
Restrictions on Shareholdings in Other Companies
Under the Bank Act, a bank may not own more than 15 per cent. of 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 FSC; or
         •   the acquisition is necessary for the corporate restructuring of the corporation and is approved by
             the FSC.
In the above excepted cases, a bank must satisfy either of the following requirements:
         •   the total investment in corporations in which the bank owns more than 15 per cent. of the
             outstanding shares with voting rights does not exceed 15 per cent. of the sum of Tier I and Tier II
             capital (less any capital deductions); or
         •   the acquisition satisfies the requirements determined by the FSC.
The Bank Act provides that a bank using its bank accounts and its trust accounts may not acquire the shares of
another corporation that is a major stockholder of the bank in excess of an amount equal to 1 per cent. of the
sum of Tier I and Tier II capital (less any capital deductions).
Restrictions on Bank Ownership
Under the Bank Act, a single stockholder and persons who have a special relationship with that stockholder
generally may acquire beneficial ownership of no more than 10 per cent. of a nationwide bank’s total issued and
outstanding shares with voting rights and no more than 15 per cent. of a regional bank’s total issued and
outstanding shares with voting rights. The Government, the KDIC and bank holding companies qualifying under
the Financial Holding Company Act are not subject to this limit. However, following the recent amendment of
the Bank Act, which became effective in October 2009, (i) non-financial group companies generally may not
acquire beneficial ownership of shares of a nationwide bank in excess of 9 per cent. of that bank’s outstanding
voting shares and (ii) a non-financial group company which serves as the largest shareholder of a nationwide
bank or otherwise participates in the management of such bank may not acquire beneficial ownership of shares
of such bank in excess of 4 per cent. of that bank’s outstanding voting shares, unless it obtains the approval of
the FSC (in which case it may acquire beneficial ownership of no more than 10 per cent. of such bank’s
outstanding voting shares). In addition, if a foreign investor, as defined in the Foreign Investment Promotion
Act, owns in excess of 4 per cent. of a nationwide bank’s outstanding voting shares, non-financial group
companies may acquire beneficial ownership of up to 10 per cent. of that bank’s outstanding voting shares, and
in excess of 10 per cent., 25 per cent. or 33 per cent. of that bank’s outstanding voting shares with the approval
of the FSC 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 group companies
described below, may acquire no more than 10 per cent. of a nationwide bank’s total voting shares issued and
outstanding, unless they obtain approval from the FSC in each instance where the total holding will exceed 10



                                                                                                              149
per cent. (or 15 per cent. in the case of regional banks), 25 per cent. or 33 per cent. of the bank’s total voting
shares issued and outstanding, provided that in addition to the foregoing threshold shareholding ratios, the FSC
may, at its discretion, designate a separate and additional threshold shareholding ratio.
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 KDIC on a quarterly basis. The rate is determined under the Enforcement Decree to
the Depositor Protection Act, and may not exceed 0.5 per cent. of the bank’s insurable deposits in any given
year. The current insurance premium is 0.02 per cent. of insurable deposits for each quarter. If the KDIC makes
a payment on an insured amount, it will acquire the depositors’ claims with respect to that payment amount. The
KDIC insures a maximum of W50 million for deposits and interest, regardless of when the deposits were made
and the size of the deposits. This limit does not apply to interest-free settlement accounts (for example, a
checking account) during the period from 1st January, 2001 to 31st December, 2003 and therefore the whole
amount deposited in such accounts is protected.
Restrictions on Foreign Exchange Position
Under the Korean Foreign Exchange Transaction Law, a bank’s net overpurchased and oversold positions may
not exceed 50 per cent. of its stockholder’s equity as of the end of the prior month.
Financial Investment Services and Capital Markets Act
General
In July 2007, the National Assembly of Korea passed the Financial Investment Services and Capital Markets
Act, a new law intended to enhance the integration of the Korean capital markets and financial investment
products industry. The Financial Investment Services and Capital Markets Act became effective as of February
4, 2009.
Consolidation of Capital Markets-Related Laws
Prior to the effectiveness of the Financial Investment Services and Capital Markets Act, different laws regulated
different types of financial institutions. By applying a uniform set of rules to the same financial business having
the same economic function, the Financial Investment Services and Capital Markets Act aims to address the
issues caused by the previous regulatory system under which the same economic function relating to capital
markets-related businesses was governed by multiple regulations. The Financial Investment Services and
Capital Markets Act categorises financial investment businesses into six different functions:
          •   trading of “financial investment products” (as defined below) and underwriting of “securities”(as
              defined below);
          •   brokerage of financial investment products;
          •   establishment of collective investment schemes and the management thereof;
          •   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 listed above, and financial institutions are subject to the regulations
applicable to their relevant financial investment businesses, regardless of the type of the financial institution it
may be. For example, under the Financial Investment Services and Capital Markets Act, derivative businesses
conducted by 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.




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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 carrying a risk of loss of the invested amount.
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, securities
companies, asset management companies, future 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 professional investors.
Financial institution 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 Businesses 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.
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, 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 business 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 professional investors and
provides new or enhanced protections to general investors. For instance, the Financial Investment Services and


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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) absence of the requisite written explanatory materials, without having to prove
fault or causation. With respect to any conflicts of interest between Financial Investment Companies and
investors or between 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
Securities and Exchange Act. For example, the 5 per cent. and 10 per cent. reporting obligations under the
Securities and Exchange Act have become more stringent. The Indirect Investment and Asset Management
Business Act strictly limited the kind of vehicles that could be utilised under a collective investment scheme,
restricting the range of 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 liberalised, 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 investment funds to be more
flexible as to their investments.
Laws and Regulations Governing Other Business Activities
A bank must register with the Ministry of Strategy and Finance (the “MOSF”) to enter the foreign exchange
business, which is governed by the Foreign Exchange Transaction Law. A bank must obtain the permission of
the FSC 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, Government/public bond underwriting business and Government bond dealing
business.
Trust Business
A bank must obtain approval from the FSC 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 Bank Act, assets accepted in trust by a bank in Korea must be segregated from other
              assets in the accounts of that bank, which requires that banks engaged in both banking and trust
              businesses must maintain two separate accounts and two separate sets of records; and
         •    depositors and other general creditors cannot obtain the assets comprising the trust accounts if the
              bank is liquidated or wound-up.
The bank must make a special reserve of 25 per cent. or more of fees and commissions from each unspecified
money trust account for which a bank guarantees the principal amount and a minimum yield until the total
reserve for that account equals 5 per cent. of the trust amount. Since January 1999, the Government has
prohibited Korean banks from offering new guaranteed fixed rate trust account products whose principal and
interest are guaranteed.
Under the Financial Investment Services and Capital Markets Act, which became effective in February 2009, a
bank with a trust business license (such as the Bank) is permitted to offer both specified money trust account
products and unspecified money trust account products. Previously, banks were not permitted to offer
unspecified money trust account products pursuant to the Indirect Investment Asset Management Business Act,
which is no longer in effect following the effectiveness of the Financial Investment Services and Capital
Markets Act. However, Korean regulatory authorities have not yet specifically confirmed that a bank with a
trust business license may engage in offering unspecified money trust account products as provided under the
Financial Investment Services and Capital Markets Act.




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Credit Card Business
General
A bank must obtain the approval of the FSC in order for it to engage in the credit card business. The credit card
business is governed by the Specialised Credit Financial Business Act, enacted on 28th August, 1997 and last
amended on 7th April, 2011. Banks engaged in the credit card business are regulated by the FSC and the FSS.
Disclosure and Reports
Under the Specialised Credit Financial Business Act, a bank engaged in the credit card business must submit its
business reports and reports with respect to its results of operations to the FSC within one month from the end of
each quarter.
Risk of Loss Due to Lost, Stolen, Forged or Altered Credit Cards
Under the Specialised Credit Financial Business Act, a bank engaged in the credit card business is liable for any
loss arising from the unauthorised use of credit cards or debit cards after it has received notice from the
cardholder of the loss or theft of the card. The registered bank is also liable for any loss arising from such
unauthorised use during a period from 60 days prior to its receipt of notice from the cardholder to such notice
date. The registered bank may, however, transfer all or part of the risk of loss during such period to cardholders
if the terms and conditions of the agreement entered into between the registered bank and its cardholders
specifically provide for that transfer, but those terms and conditions do not apply in the event there is no willful
misconduct or negligence by those cardholders. For these purposes, the disclosure of a cardholder’s password
that is made under force or threat will not be deemed to be willful misconduct or negligence by the cardholder.
The registered bank is also responsible for any losses resulting from the use of forged or altered credit cards,
debit cards and pre-paid cards. The registered bank may, however, transfer all or part of this latter risk of loss to
cardholders in the event of willful misconduct or gross negligence by those cardholders if the terms and
conditions of the agreement entered into between the registered bank and its cardholders specifically provide for
that transfer.
For the purposes of liability for forged or altered cards, 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 deemed to be willful misconduct or gross negligence.
Each bank engaged in the credit card business must institute appropriate measures to fulfill these obligations,
such as establishing provisions, purchasing insurance or joining a cooperative association.
Under the Specialised Credit Financial Business Act, the FSC may either restrict the limit or take other
necessary measures against a bank engaged in the credit card business with respect to the following:
          •   maximum limits for cash advances on credit cards;
          •   restrictions on debit cards with respect to per day or per transaction usage;
          •   aggregate issuance limits and maximum limits on the amount per card on pre-paid cards;
          •   matters regarding the standard for calculation of credit limits determined by credit companies
              under Article 14(2)(ii);
          •   matters that need to be observed in determining the limit amounts for credit cards;
          •   matters regarding the details of provisions determined by credit card companies;
          •   matters regarding the management of credit card affiliates;
          •   matters that need to be observed in collecting claims; or
          •   matters that need to be observed in classifying credit card holders so as to apply fee rates to the
              cardholders.
Issuance of New Cards and Solicitation of New Card Holders
The Enforcement Decree to the Specialised Credit Financial Business Act establishes the conditions under
which a bank engaging in the credit card business may issue new cards and solicit new members. New credit
cards may be issued only to the following persons:
          •   persons who are at least 18 years old when they apply for a credit card;



                                                                                                                 153
         •   persons whose capability to pay bills as they come due has been verified using standards
             established by the bank; and
         •   in the case of minors who are at least 18 years and younger than 20 years, persons who submit a
             guardian’s consent along with documents evidencing income, such as an employment certificate or
             a tax certificate.
In addition, a bank engaging in the credit card business may not solicit prospective cardholders by:
         •   providing economic benefits or promising to provide economic benefits in excess of 10 per cent. of
             the annual credit card fee (in the case of annual credit card fees of less than W10,000, the annual
             credit fee will be deemed to be W10,000 for purposes of the foregoing) in connection with issuing
             a credit card;
         •   soliciting applicants members on roads, public places or along corridors used by the general
             public; or
         •   soliciting applicants through visits, except those visits made upon prior consent and visits to a
             business area.
Compliance Rules on Collection of Receivable Claims
Under the Supervisory Regulation of the Specialised Credit Financial Business, a bank engaging in the credit
card business may not:
         •   use violence or threaten violence;
         •   demand payment from or pressure 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) without just cause with respect to payment for the debtor’s
             obligations;
         •   provide false information 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.); or
         •   utilise other uncustomary methods to collect receivables that interfere with the privacy or the peace
             in the workplace of the debtor or his or her related parties.




                                                                                                               154
                                     THE KOREAN FINANCIAL INDUSTRY

The Korean financial industry includes the following categories of financial institutions:
         •   The Bank of Korea;
         •   banking institutions;
         •   non-banking financial institutions; and
         •   other financial entities, including, but not limited to, securities institutions, credit guarantee
             institutions and venture capital companies.
Korean law requires that financial institutions confirm that their customers use their real names when transacting
business in order to increase financial transaction transparency and to enhance the integrity and efficiency of
Korea’s financial markets. However, in order to ease the liquidity crisis, in 1998, the Government loosened these
rules to allow investors without identification to sell or deposit foreign currencies through domestic financial
institutions and to purchase certain debt securities, including Government bonds. The Government also
strengthened the rules relating to confidentiality for private financial transactions.
The Banking Industry
The banking sector in Korea can be divided into two broad categories: commercial banks and specialised banks.
Commercial banks serve both the general public and corporate sectors. As of 31st December, 2010, commercial
banks consisted of seven nationwide commercial banks (including the Bank), all of which have branch networks
throughout Korea, six regional banks (including Kyongnam Bank and Kwangju Bank) and 37 domestic branches
of foreign banks operating in Korea. Regional banks provide services similar to nationwide banks, but operate in
a geographically restricted region. Domestic branches of foreign banks have operated in Korea since 1967, but
provide a relatively small proportion of Korea’s banking services. As of 31st December, 2010, nationwide and
regional banks had an aggregate of 5,531 domestic branches and offices, 41 overseas branches, 19 overseas
representative offices and 32 overseas subsidiaries.
As in most countries, commercial banks in Korea engage in a wide range of business. Their core activities
include taking deposits, extending loans and discounts, remittances and collections. They also provide
guarantees and acceptances and conduct proprietary-account securities investment. They must obtain specific
authorisation from the FSC for each area of non-bank business in which they engage, such as the trust and credit
card businesses. Bank funding in Korea has traditionally been deposit based since long-term domestic
borrowings are limited, the short-term money market is relatively illiquid and foreign borrowings are regulated
by the Government.
Specialised banks meet the needs of specific sectors of the economy in accordance with Government policy.
These banks are organised under, or chartered by, special laws. There are five specialised banks:
         •   the Korea Development Bank;
         •   the Export-Import Bank of Korea;
         •   Industrial Bank of Korea;
         •   National Agricultural Cooperative Federation; and
         •   National Federation of Fisheries Cooperatives.




                                                                                                              155
The following table sets forth the total loans and non-performing assets of the banking sector (excluding
specialised banks) at year-end from 2004 through 2010 and at 30th June, 2011.

                                                              Total loans    Non-performing assets   Percentage of total
                                                                     (in trillions of Won)
31st December, 2004                                              W 512.3                     W 8.8          1.7%
31st December, 2005                                                 548.0                      5.8            1.1
31st December, 2006                                                 645.4                      4.9            0.8
31st December, 2007                                                 733.5                      4.7            0.6
31st December, 2008                                                 855.1                      7.7            0.9
31st December, 2009                                                 842.6                      6.6            0.8
31st December ,2010                                                 858.8                      9.4            1.1
30th June, 2011(1)                                                  871.4                     10.0            1.1

Source: Monthly Financial Statistics, September 2011. FSS.


Note:
(1) Calculated in accordance with K-IFRS.

The aggregate net profit of the banking sector in Korea (excluding specialised banks) decreased from W6.1
trillion in 2008 to W5.0 trillion in 2009 but increased to W6.3 trillion in 2010. The average return on assets of
the banking sector in Korea (excluding specialised banks) decreased slightly from 0.55 per cent. in 2008 to 0.41
per cent. in 2009 but increased to 0.53 per cent. in 2010. The average net interest margin of the banking sector
in Korea was approximately 2.55 per cent. in 2008, 2.15 per cent. in 2009 and 2.43 per cent. in 2010.
Non-Banking Financial Industry
Non-banking financial institutions include:
           •     investment institutions, including merchant banks, investment trust companies and the Korea
                 Securities Finance Corporation;
           •     savings institutions, including trust accounts of banks, mutual savings and finance companies,
                 credit unions, mutual credit facilities, community credit cooperatives and postal savings;
           •     insurance companies; and
           •     credit card companies.
Investment Institutions. As of 30th, June, 2011, one merchant bank was operating in Korea. Since 1998, at least
29 merchant banks have been closed or merged into commercial banks or securities firms. As of 30th June, 2011,
assets of the one operating merchant bank totaled W1.3 trillion. As of 30th June, 2011, 81 asset management
companies, which manage investment trusts, operated in Korea. As of 30th June, 2011, the total assets under
management of these companies amounted to W299.1 trillion.
Savings Institutions. Korean law permits Korean banks to provide trust account management services. Banks
segregate trust assets and cannot use those assets to satisfy claims of depositors or other creditors. Accordingly,
trust accounts appear separately from banking accounts in the banks’ financial statements. As of 31st December,
2010, assets of trust accounts of all banks providing trust account management services (excluding specialised
banks) totaled W131.4 trillion. Korea had 105 mutual savings banks and 962 credit unions as of 31st December,
2010, with assets totaling W86.9 trillion and W47.8 trillion, respectively.
Insurance. As of 31st December, 2010, 15 domestic life insurance institutions, one branch of a foreign life
insurance company and seven wholly-owned subsidiaries of foreign life insurance companies operated in Korea.
As of that date, those entities had assets totaling approximately W408.5 trillion. The Korean insurance industry
also includes 30 fire and marine insurance companies, of which 10 are listed on the KRX KOSPI Market. As of
31st December, 2010, those entities had assets totaling approximately W99.0 trillion.
Credit Card. As of 31st December, 2010, six credit card companies operated in the country with credit card
receivables and loans totaling approximately W35.3 trillion, of which approximately 1.7 per cent. were
delinquent by one month or more. Of this amount, total credit card receivables were W17.8trillion and total card
loans and cash advances were W13.7 trillion, on a reported basis.




                                                                                                                     156
Money Markets
The Korean money markets consist of the call loan market and markets for other short-term financial
instruments, including treasury bills, monetary stabilisation bonds, negotiable certificates of deposit, repurchase
agreements and commercial paper.
Securities Markets
The Korea Securities Exchange opened in 1956, and KOSDAQ Market and Futures Exchange opened in 1996.
In January 2005, these three securities markets were consolidated into a single securities market named the
Korea Exchange. Currently, there are three independent divisions within the Korea Exchange — namely, the
KRX KOSPI Market, the KRX KOSDAQ Market and the KRX Derivatives Market. The securities and bonds of
major companies, generally, are traded in the KRX KOSPI Market, and, as a securities market, its trading
volume and market capitalisation ranks among the top ten in the world. The securities of companies belonging to
new emerging industries such as information technology, bio-technology and venture capital are primarily traded
in the KRX KOSDAQ Market. Various derivatives products ranging from those based on stock price index,
interest rates, currencies and individual stocks, as well as other conventional derivatives products, are traded in
the KRX Derivatives Market.
Supervision System
A significant change to the supervision system for the financial industry in Korea was effected in the course of
overcoming the financial crisis in the latter part of the 1990s. The FSC was established in 1998, and it assumed
certain responsibilities from the MOSF, including setting regulations on the supervision of financial institutions.
In January 1999, the FSS was established through the merger of several regulatory bodies, and the FSS conducts
supervisory and inspection activities as a regulatory arm of the FSC. In February 2008, the FSC also assumed
the financial policy responsibilities of the MOSF. As a result, the MOSF focuses on economic, tax and foreign
currency policies. The Bank of Korea manages monetary policy focusing on price stabilisation.
Insurance System
In June 1996, the KDIC was established to protect the deposits made by bank customers. In April 1998, the
scope of deposits insured by the KDIC was expanded to also cover deposits made with securities companies,
insurance companies, merchant finance companies, mutual savings banks and credit unions, and, in January
2004, credit unions were again excluded from the KDIC’s insurance coverage. The KDIC insures deposits made
by an individual with a KDIC insured financial institution up to W50 million. Each bank is required to pay
quarterly deposit insurance premiums at the rate of 0.02 per cent. of the average volume of deposits for the
relevant quarter, and, other than certain special deposit products, including foreign currency deposit and
certificates of deposit, almost all deposit products are covered by KDIC insurance.




                                                                                                               157
                       SOURCE OF FUNDS FOR REPAYMENT OF THE BONDS
The Issuer plans to pay principal and interest on the Bonds from income generated from normal operations of the
Issuer.




                                                                                                           158
                           ENCUMBRANCES OVER THE ISSUER’S ASSETS
There is no encumbrance over the Issuer’s assets, except for those incurred from time to time in the normal
course of the Issuer’s business. Such encumbrances are not material and do not have any impact on the business
operation of the Issuer.




                                                                                                          159
          TOTAL OUTSTANDING DEBTS OF THE ISSUER UNDER DEBT INSTRUMENTS
As of the first half of 2011, the total outstanding debts under all bonds, debentures and debt instruments issued
by the Issuer was W39,501,248 million. No Baht-denominated debt instrument has been issued by the Issuer.




                                                                                                             160
                        DUTY ON SUBMISSION OF FINANCIAL STATEMENTS
The Issuer is required to submit the following financial statements to the Financial Services Commission:
(i)     reviewed but unaudited quarterly financial statements within 60 days from the end of quarter;
(ii)    reviewed but unaudited half-year financial statements within 60 days from the end of half-year; and
(iii)   audited annual financial statements within 90 days from the end of each fiscal year.
The issuer will prepare and submit its financial statements in English language to the Office of the Securities and
Exchange Commission of Thailand.




                                                                                                               161
FREQUENT CONTACT FINANCIAL INSTITUTIONS, INTERNATIONAL TECHNICAL ADVISOR,
                      AUDITORS AND LEGAL ADVISORS
1.   Frequent Contact Financial Institutions
     The Hongkong and Shanghai Banking Corporation Limited
     Bank of America Merrill Lynch

2.   International Technical Advisor
     Merrill Lynch International Incorporated
     Seoul Branch
     29F., Seoul Finance Center
     84 Taepyungro 1-Ga, Chung-Gu,
     Seoul, Korea

3.   Auditor
     Deloitte Anjin LLC
     23rd Floor, Hanwha Securities Building
     23-5 Yeouido-dong
     Yeongdeungpo-gu
     Seoul 150-717
     Korea

4.   Legal Advisors to the Lead Arranger and International Technical Advisor
     Legal Advisor as to Thai law:

     Baker & McKenzie Ltd.
     25th Floor, Abdulrahim Place
     990 Rama IV Road
     Bangkok 10500
     Thailand

5.   Legal Advisors to Issuer
     Legal Advisor as to Thai law:

     Norton Rose (Thailand) Limited
     Sindhorn Building
     Tower 2, Floor 14
     130-132 Wireless Road
     Bangkok 10330
     Thailand

     Legal Advisor as to Korean law:

     Yoon & Yang LLC
     19th, 22nd, 23rd, 34th FL., ASEM Tower
     159 Samsung-Dong, Gangnam-Gu
     Seoul 135-798
     Korea




                                                                               162
                                    ISSUER’S CONTACT PERSON IN THAILAND
The Issuer has appointed Dherakupt Consultant Co., Ltd., having its office at 15th Floor, Univest Complex
Building, 546 Ratchadaphisek Road, Chandrakasem, Jatujak, Bangkok 10900, Thailand, Tel: +662-511-1512, as
its contact person in Thailand for the purpose of:
(i)     receiving writ, summon, letters, orders or any other documents relating to the Bonds in Thailand on
        behalf of the Issuer; and
(ii)    contacting relevant government authorities in relation to the issue and offer of the Bonds in Thailand on
        behalf of the Issuer.




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