Industrial Bank of Korea and Subsidiaries Consolidated Interim Financial Statements March 31, 2017 and 2016

Transcription

1 Consolidated Interim Financial Statements March 31, 2017 and 2016

2 Index March 31, 2017 and 2016 Page(s) Report on Review of Interim Financial Statements Consolidated Interim Financial Statements Consolidated Interim Statements of Financial Position... 3 Consolidated Interim Statements of Comprehensive Income Consolidated Interim Statements of Changes in Equity... 6 Consolidated Interim Statements of Cash Flows

3 Report on Review of Interim Financial Statements (English Translation of a Report Originally Issued in Korean) To the Shareholders and Board of Directors of Industrial Bank of Korea Reviewed Financial Statements We have reviewed the accompanying consolidated interim financial statements of Industrial Bank of Korea (the Bank) and its subsidiaries (collectively the referred to as the Group ). These financial statements consist of the consolidated interim statement of financial position of the Group as at March 31, 2016, and the related consolidated interim statements of comprehensive income, changes in equity and cash flows for the three-month periods ended March 31, 2017 and 2016, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea ( Korean IFRS ) 1034 Interim Financial Reporting, and for such internal control as determines is necessary to enable the preparation of consolidated interim financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to issue a report on these consolidated interim financial statements based on our reviews. We conducted our reviews in accordance with quarterly or semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

4 Conclusion Based on our reviews, nothing has come to our attention that causes us to believe the accompanying consolidated interim financial statements are not presented fairly, in all material respects, in accordance with Korean IFRS 1034 Interim Financial Reporting Other Matters We have audited the consolidated statement of financial position of the Group as at December 31, 2016, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, in accordance with Korean Standards on Auditing. We expressed an unqualified opinion on those financial statements, not presented herein, in our audit report dated March 10, The consolidated statement of financial position as at December 31, 2016, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as at December 31, Review standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries. Seoul, Korea May 15, 2017 This report is effective as of May 15, 2017, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2

5 Consolidated Interim Statements of Financial Position March 31, 2017 and December 31, 2016 (in millions of Korean won) Assets Cash and due from banks 23,43 11,433,249 11,699,220 Notes 4,23 7,945,084 8,313,556 4,23 487, ,908 Available-for-sale financial assets 5,23 15,746,123 16,770,997 Held-to-maturity financial assets 6,23 15,485,926 14,133,675 Loans receivable 7,23 197,142, ,037,313 Derivative financial assets for hedge accounting 8,23 149, ,147 Investments in associates 9 108,039 98,223 Investment properties 10,21 68,707 88,503 Property and equipment 11,21 1,837,782 1,820,899 Intangible assets , ,427 Deferred tax assets 13 8,983 7,684 Other assets 14,23,36 6,816,419 9,969,828 Total assets 257,481, ,851,380 Liabilities 4,23 2,406,183 2,620,960 4,23 1,227,398 1,233,788 Deposit liabilities 15,23 101,295, ,984,113 Debts 16,23 27,384,297 26,670,496 Debentures 17,23 90,272,093 90,863,125 Derivative financial liabilities for hedge accounting 8,23 298, ,174 Net defined benefit liabilities 18 15,747 25,090 Provisions , ,453 Deferred tax liablities , ,091 Other liabilities 20,23,36 15,639,470 12,503,682 Total liabilities 239,082, ,803,972 Equity Financial assets held for trading Financial assets designated at fair value through profit and loss Financial liabilities held for trading Financial liabilities designated at fair value through profit and loss Equity attributable to owners of the Parent Company Share capital 24 3,289,756 3,289,756 Hybrid capital instruments 24 1,697,760 1,398,240 Reserves , ,889 Accumulated other comprehensive income , ,596 Retained earnings 25 12,150,604 12,041,487 (Regulatory reserve for credit loss March 31, 2017 : 2,219,478 million December 31, 2016 : 1,922,153 million) (Regulatory reserve for credit loss estimated to be appropriated March 31, 2017 : 138,915 million December 31, 2016 : 297,325 million) Non-controlling interest 98,323 97,440 March 31, 2017 December 31, 2016 (Unaudited) 18,300,623 17,949,968 Total equity 18,398,946 18,047,408 Total liabilities and equity 257,481, ,851,380 The above consolidated interim statements of financial position should be read in conjunction with the accompanying notes.

6 Consolidated Interim Statements of Comprehensive Income Three-Month Periods Ended March 31, 2017 and 2016 Three-Month Period Ended March 31 (in millions of Korean won) Notes (Unaudited) (Unaudited) Interest income 1,933,870 1,946,889 Interest expense (680,388) (764,249) Net interest income 26,41 1,253,482 1,182,640 Fee and commission income 203, ,770 Fee and commission expense (111,346) (89,551) Net fee and commission income 27,41 92,224 95,219 Net gains (losses) on financial assets / liabilities held for trading Net losses on financial assets / liabilities designated at fair value through profit and loss Net gains on derivative financial instruments for hedge accounting Other net gains from financial instruments Insurance losses Net gains on foreign currency transactions 28 (125,590) 7, (10,172) (921) 8 27,588 27, , , (12,592) (10,917) 187,068 2,643 Gross operating profit 1,579,177 1,439,754 Impairment losses and other credit provisions 5,7,41 (356,563) (371,477) Net operating profit 1,222,614 1,068,277 General and administrative expenses 30 (504,178) (468,829) Other operating income 31 12,155 37,517 Other operating expenses 32 (152,490) (155,713) Operating profit 578, ,252 Non-operating expenses 33 (5,850) (79) Profit before income tax 572, ,173 Income tax expense 13 (132,897) (103,450) Profit for the period , ,723 (Adjusted profit after provision of regulatory reserve for credit losses March, 31, 2017 : 300,439 million March, 31, 2016 : 252,043 million) Items that will not be reclassified to profit or loss: Remeasurements of net defined benefit liabilities 18,24 (1,242) (1,092) Items that may be subsequently reclassified to profit or loss: Changes in the fair value of available-for-sale financial assets 5,24 (17,269) 45,754 Shares of other comprehensive income of associates 9,24 (341) (437) Exchange differences on translation of foreign operations 24 (55,304) (13,962) Cash flow hedges (27) Changes in valuation of hedges of a net investment in a foreign operation 8,24 15,489 6,840 Other comprehensive income for the period, net of tax (58,646) 37,076 Total comprehensive income for the period 380, ,799 Profit is attributable to: Owners of the Parent Company 438, ,688 Non-controlling interest 1,090 1, , ,723 Total comprehensive income attributable to: Owners of the Parent Company 379, ,771 Non-controlling interest 1,089 1, , ,799 Earnings per share (in Korean won) 37 Basic earnings per share

7 Consolidated Interim Statements of Comprehensive Income Three-Month Periods Ended March 31, 2017 and 2016 Three-Month Period Ended March 31 (in millions of Korean won) Notes (Unaudited) (Unaudited) Diluted earnings per share The above consolidated interim statements of comprehensive income should be read in conjunction with the accompanying notes.

8 Consolidated Interim Statements of Changes in Equity Three-Month Periods Ended March 31, 2017 and 2016 Attributable to owners of the Parent Company Accumulated Other (in millions of Korean won) Notes Hybrid Capital Comprehensive Retained Non-controlling Total Capital Instruments Reserves Income Earnings interest Equity Balance at January 1, ,271,871 1,399, , ,676 11,253,700 90,760 17,293,790 Comprehensive income Profit for the period ,688 1, ,723 Other comprehensive income for the period Change in the fair value of available-for-sale financial assets ,755 - (1) 45,754 Shares of other comprehensive income of associates (437) - - (437) Exchange differences (13,962) - - (13,962) Cash flow hedges (21) - (6) (27) Changes in valuation of hedges of a net investment in a foreign operation , ,840 Remeasurement of net defined benefit liabilities (1,092) - - (1,092) Total comprehensive income for the period , ,688 1, ,799 Transactions with owners Cash dividends (294,469) (206) (294,675) Dividends for hybrid capital instruments (18,248) - (18,248) Issuance of shares 17,885-22, ,903 Others - - (310) (168) Total transactions with owners 17,885-21,708 - (312,575) (206) (273,188) Balance at March 31, 2016 (Unaudited) 3,289,756 1,399, , ,759 11,317,813 91,582 17,435,401 Balance at January 1, ,289,756 1,398, , ,596 12,041,487 97,440 18,047,408 Comprehensive income Profit for the period ,264 1, ,354 Other comprehensive income for the period Change in the fair value of available-for-sale financial assets (17,264) - (5) (17,269) Shares of other comprehensive income of associates (341) - - (341) Exchange differences on translation of foreign operations (55,304) - - (55,304) Cash flow hedges Changes in valuation of hedges of a net investment in a foreign operation , ,489 Remeasurement of net defined benefit liabilities (1,242) - - (1,242) Total comprehensive income (58,645) 438,264 1, ,708 Transactions with owners Cash dividends (315,817) (206) (316,023) Dividends for hybrid capital instruments (14,112) - (14,112) Issuance of hybrid capital instruments , ,520 Others ,445 Total transactions with owners - 299, (329,147) (206) (29,170) Balance at March 31, 2017 (Unaudited) 3,289,756 1,697, , ,951 12,150,604 98,323 18,398,946 The above consolidated interim statements of changes in equity should be read in conjunction with the accompanying notes.

9 Consolidated Interim Statements of Cash Flows Three-Month Periods Ended March 31, 2017 and 2016 Three-Month Period Ended March 31 (in millions of Korean won) Notes (Unaudited) (Unaudited) Cash flows from operating activities Profit for the period 439, ,723 Adjustments of expenses and revenues 43 (760,081) (778,565) Changes in operating assets and liabilities 43 (967,054) (6,159,391) Cash used in operations (1,287,781) (6,560,233) Interests received 1,952,345 1,893,451 Interests paid (785,164) (861,714) Dividends received 70,332 61,628 Income taxes refunded (paid) (16,988) 20,436 Net cash outflow from operating activities (67,256) (5,446,432) Cash flows from investing activities Net decrease in available-for-sale financial assets 1,066, ,909 Net increase in held-to-maturity financial assets (1,352,251) (359,196) Disposal of investments in associates 3,801 39,159 Acquisition of investments in associates (14,589) (16,885) Disposal of property and equipment, and investment properties Acquisition of property and equipment, and investment properties (17,831) (12,021) Disposal of intangible assets 82 1,112 Acquisition of intangible assets (14,507) (1,535) Net cash outflow from investing activities (328,206) (143,428) Cash flows from financing activities Net increase in debts 734,234 1,106,470 Net increase (decrease) in debentures (562,660) 3,760,041 Issuance of shares - 39,903 Issuance of hybrid capital instruments 299,520 - Payment of interest of hybrid capital instruments (14,112) (18,248) Payment of dividends (206) (206) Net cash inflow from financing activities 456,776 4,887,960 Effects of exchange rate changes on cash and cash equivalents (53,750) 3,054 Net increase (decrease) in cash and cash equivalents 7,564 (698,846) Cash and cash equivalents at the beginning of the period 2,863,839 2,689,559 Cash and cash equivalents at the end of the period 43 2,871,403 1,990,713 The above consolidated interim statements of cash flows should be read in conjunction with the accompanying notes.

10 1. The Bank The Industrial Bank of Korea (the Bank) was established in 1961 under the Industrial Bank of Korea Act to promote independent economic activities of small and medium-sized companies. On May 15, 1992, the Bank converted its equity into shares in accordance with the Industrial Bank of Korea Act, as amended on December 31, On November 30, 1994, the Bank s ordinary shares were listed on KOSDAQ. On December 24, 2003, however, the Bank moved to the domestic securities market through a public offering of its ordinary shares. The Bank and its subsidiaries (the Group ) are mainly involved in offering banking businesses and related financial services to individuals and corporate customers. The Bank also listed million shares of Global Depositary Shares on December 19, 2003, and additionally million shares of ordinary shares were issued on April 22, 2014, on the Luxembourg Stock Exchange. As at March 31, 2016, the Bank s ordinary shares and preferred shares amounted to 2,800 billion and 490 billion, respectively. The Korean government owns 50.91% of the Bank s ordinary and preferred share. The head office of the Bank is located at 79, Euljiro, Jung-gu, Seoul, Korea. The Bank has 572 branches, 44 depositary offices in Korea and 11 overseas offices. 2. Scope of Consolidation and Basis of Preparation 2.1 Scope of Consolidation Subsidiaries of the Group as at March 31, 2017 and December 31, 2016, are as follows: Name of entity Industry Location Ownership interest held by the Group (%) March 31, December Closing date , 2016 IBK Capital Corporation Financial services Korea December 31 IBK Asset Management Co., Ltd. Asset Korea December 31 IBK Credit Information Corp. Credit information services Korea December 31 IBK Securities Co., Ltd Securities investments Korea December 31 IBK System Co., Ltd. Financial system Korea December 31 Industrial Bank of Korea (China) Limited Financial services China December 31 IBK Insurance Co., Ltd. Life insurance (Pension) Korea December 31 IBK Savings Bank Co., Ltd. Mutual Savings Bank Korea December 31 IBK Capital Myanmar Co., Ltd. Microfinancing Myanmar March 31 IBK Private Equity Fund No.3 Investment association Korea December 31 IBK-SKS Private Equity Fund No.4 Investment association Korea December 31 IBK Recovery Private Equity Fund Investment association Korea December 31 8

11 IBK-AJU Star Seekers No.1 Private Equity Fund IBK SKS Private Equity Fund 2012 IBK POSCO TRUBEN Recovery Private Equity Fund No.1 IBK NH Small Giant Private Equity Fund No.1 Technology Financing Private Equity Fund Value Brand Korea No.1 Private Equity Fund IBKC IBKC-TONGYANG Growth 2013 Private Equity Fund IBKC-INNOBIZ Material Special Investment Association IBK Small Business Coexistence Investment Association No.1 IBK Small Business Coexistence Investment Association No.2 IBK Cultural Contents Cooperative Investment Association IBKC-STI Pre-IPO Investment Association No.1 IBK Group Mutual Growth Fund IBK Group Contents IP Investment Fund IBK Group IP Value-up Fund Banks Foundation for young Entrepreneurs IBKC Pioneer Fund Gyeonggi-IBKC-STI Job Creation Fund IBK Group KONEX Fund IBKC-Solidus Future Creation Fund IDV-IP Fishery Intellectual Property Specialty Fund IBK Group IP Creation Fund IBKC-STI New Growth Investment Fund IBK Finance Group Union Contents Investment Fund Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 9

12 IBKC-JNT Secondary Fund 2015 KIF-IBKC/SBI Secondary IT Venture Fund IBKC-SBI Bio Fund No.1 IBKGroup Crowdfunding Matching Fund IBKGroup Future Growth Engine Fund IBK Capital Contents Investment Fund IBKC-Medici Secondary Fund IBKGroup IP Value-up Fund No.2 IBKC-GMB New Growth Industry Investment Fund IBKC-MGI New Economic Growth Pre- IPO Fund KB Haeorum Private Securities 69 Bond, 8 investment funds Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association Investment association KTB Confidence Investment Trust No. 31 Investment association Heungkuk High-class Private Securities Investment Fund No.6 Trust with repayment guarantees of principal Trust with repayment guarantees of principal and interest Investment association Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Korea December 31 Trust Korea - - December 31 Trust Korea - - December 31 Myungdong City Maintenance Business and 1 other City maintenance business Korea ~ ~ December Summary of Subsidiaries (1) IBK Capital Corporation IBK Capital Corporation (IBK Capital) was established on November 1, 1986, to provide services to small start-up companies. On November 6, 1986, the Bank, in accordance with Support for Small and Medium Enterprise Establishment Act, was listed as a small startup business investment organization. However on May 29, 2002, IBK Capital, in accordance with the Specialized Credit Financial Business Act, was engaged in installment financing business and venture capital business. IBK Capital s ordinary share as at March 31, 2017, amounts to 165,452 million. (2) IBK Asset Management Co., Ltd. IBK Asset Management Co., Ltd. was established on October 26, 2004, to engage in investment trust asset and consultation, entrusted investment, and future funds, in accordance with the Capital Market and Financial Investment Business Act. IBK Asset Management Co., Ltd. s ordinary share as at March 31, 2017, is 20,000 million. 10

13 (3) IBK Credit Information Corp. IBK Credit Information Corp. (IBK Credit Information) was established on January 18, 2000, to engage in services such as loan collection and credit research. IBK Credit Information s ordinary share as at March 31, 2017, amounts to 3,000 million. (4) IBK Securities Co., Ltd. IBK Securities Co., Ltd. (IBK Securities) was established on May 29, 2008, to engage in trading of security and futures. IBK Securities ordinary share as at March 31, 2017, amounts to 477,000 million. (5) IBK System Co., Ltd. IBK Systems, Co., Ltd. (IBK System) was established on March 22, 1991, to engage in information system development and its sales, and advisory services including consulting on introduction and implementation of computer system. IBK System s ordinary share as at March 31, 2017, amounts to 3,100 million. (6) Industrial Bank of Korea (China) Limited Industrial Bank of Korea (China) Limited was established on June 22, 2009, with five local branches in China. Industrial Bank of Korea (China) Limited s ordinary share as at March 31, 2017, amounts to 322,467 million. (7) IBK Insurance Co., Ltd. IBK Insurance Co., Ltd. was established on July 9, 2010, to engage in retirement insurance and pension contracts, annuity insurance contracts and others, in accordance with the Guarantee of Workers Retirement Benefits Act and the Insurance Business Act. IBK Insurance Co., Ltd. s ordinary share as at March 31, 2017, is 190,000 million. (8) IBK Savings Bank Co., Ltd. IBK Savings Bank Co., Ltd. was incorporated on October 11, 2011, for important business purposes such as protecting depositors in accordance with Depositor Protection Act, maintaining safety of financial system, working on credit business approved by Financial Services Commission, etc. The Bank has acquired 100% of shares on July 15, 2013, and obtained control. The ordinary share as at March 31, 2017, amounts to 106,610 million. (9) IBK Capital Myanmar Co., Ltd. IBK Capital Myanmar Co., Ltd. was established on December 23, 2015, to engage in microfinancing. IBK Capital Myanmar Co., Ltd. s ordinary share as at March 31, 2017, amounts to 3,518 million, and IBK Capital Corporation holds 99.99% of the shares. (10) IBK Private Equity Fund No.3 IBK Private Equity Fund No.3 was established in accordance with the Capital Market and Financial Investment Business Act for investment purposes. IBK Private Equity Fund No.3 s ordinary share as at March 31, 2017, is 11,229 million. The Bank is a general manager of these private equity funds. (11) IBK-SKS Private Equity Fund No.4 IBK-SKS Private Equity Fund No.4 was established in accordance with the Capital Market and Financial Investment Business Act to participate in the investees and others. The Bank is a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at March 31, 2017, is 6,385 million. (12) IBK Recovery Private Equity Fund IBK Recovery Private Equity Fund was established in accordance with the Capital Market and Financial Investment Business Act to participate in the investees and others. IBK recovery private equity fund s ordinary share as at March 31, 2017, is 36,111 million. The Bank and 11

14 IBK Securities hold 79.39%, 19.85% of the shares as joint general partners, respectively, and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. (13) IBK-AJU Star Seekers No. 1 Private Equity Fund IBK-AJU Star Seekers No. 1 Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on October 25, 2012, as an investment entity by operating and investing in equity stakes in other companies. The Bank holds 35.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at March 31, 2017, is 47,024 million. (14) IBK SKS Private Equity Fund 2012 IBK SKS Private Equity Fund 2012, in accordance with Financial Investment Services and Capital Markets Act, was established on January 7, 2013, as an investment entity by operating and investing in equity stakes in other companies. The Bank holds 36.73% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at March 31, 2017, is 200,341 million. (15) IBK POSCO TRUBEN Recovery Private Equity Fund No.1 IBK POSCO TRUBEN Recovery Private Equity Fund No.1, in accordance with Financial Investment Services and Capital Markets Act, was established on May 27, 2013, as an investment entity by operating and investing in equity stakes in other companies. The Bank holds 49.50% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at March 31, 2017, is 60,966 million. (16) IBK NH Small Giant Private Equity Fund IBK NH Small Giant Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on August 9, 2013, as an investment entity by operating and investing in equity stakes in other companies. The Bank holds 50.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at March 31, 2017, is 11,520 million. (17) No.1 Technology Financing Private Equity Fund No.1 Technology Financing Private Equity Fund was established on January 7, 2015, in accordance with the Capital Market and Financial Investment Business Act for investment purposes. The Bank holds 30.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at March 31, 2017, is 59,756 million. (18) Value Brand Korea No.1 Private Equity Fund Value Brand Korea No.1 Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on August 22, 2016, as an investment entity by operating and investing in equity stakes in other companies. The Bank holds 50.00% of the shares as a joint general partner and also the majority of seats in the Investment Committee, granting the Bank the ability to control the entity. The ordinary share as at March 31, 2017, is 13,874 million. (19) IBKC-TONGYANG Growth 2013 Private Equity Fund IBKC-TONGYANG Growth 2013 Private Equity Fund, in accordance with Financial Investment Services and Capital Markets Act, was established on August 18, 2014, as an investment entity by operating and investing in equity stakes in other companies. IBK Capital holds 35.71% of the shares as a general partner. The ordinary share as at March 31, 2017, is 17,444 million. 12

15 (20) IBKC-INNOBIZ Material Special Investment Association IBKC-INNOBIZ Material Special Investment Association, in accordance with the Specialized Credit Financial Business Act, was established on November 20, 2008, to invest more than 60% of the aggregate capital commitments in material special corporations as defined under the Special Measures Law for the Development of Components Related to the Components & Materials Industry, for the purpose of efficient operation, and distribution of its properties. IBKC- INNOBIZ Material Special Investment Association s contributed capital as at March 31, 2017, is 6,300 million. The Bank holds 16.67% of the shares as a limited partner, while IBK Capital holds 43.33% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to 40% of the equity holds. (21) IBK Small Business Coexistence Investment Association No.1 IBK Small Business Coexistence Investment Association No.1, in accordance with the Specialized Credit Financial Business Act, was established on March 17, 2009, for the purpose of efficient operation, and distribution of its capital. As at March 31, 2017, the Bank holds 50.00% of the shares as a limited partner, while IBK Capital holds 50.00% of the shares as a general partner. The Association s contributed capital as at March 31, 2017, is 1,200 million. IBK Capital is obligated to cover for the loss up to total fees received upon liquidation. (22) IBK Small Business Coexistence Investment Association No.2 IBK Small Business Coexistence Investment Association No.2, in accordance with the Specialized Credit Financial Business Act, was established on April 16, 2012, for the purpose of efficient operation, and distribution of its capital. As at March 31, 2017, the Bank holds 50.00% of the shares as a limited partner, while IBK Capital holds 50.00% of the shares as a general partner. The Association s contributed capital March 31, 2017, is 5,400 million. (23) IBK Cultural Contents Cooperative Investment Association IBK Cultural Contents Cooperative Investment Association was established on April 19, 2012, in accordance with the Specialized Credit Financial Business Act, for the purpose of efficient operation, and asset allocation as a new technology venture capital firm. As at March 31, 2017, total contributed capital is 1,200 million; the Bank holds 33.33% of the shares as a limited partner, and IBK Capital, a subsidiary of the Bank, holds 33.34% of the shares as a general partner. (24) IBKC-STI Pre-IPO Investment Association No.1 IBKC-STI Pre-IPO Investment Association No.1, in accordance with the Specialized Credit Financial Business Act, was established on February 21, 2012, as a technology venture capital investment association that allocates and manages investment in order to promote small businesses. Total contributed capital as at March 31, 2017, is 5,450 million and IBK Capital and Seoul Venture Investment Corporation act as joint general partners and IBK Capital holds 90.00% of the entity. (25) IBK Group Mutual Growth Fund IBK Group Mutual Growth Fund, in accordance with the Specialized Credit Financial Business Act, was established on February 7, 2013, for the purpose of efficient operation, and asset allocation as a new technology venture capital firm. As at March 31, 2017, total contributed capital is 10,400 million; the Bank holds 50.00% of the shares as a limited partner, and IBK Capital, a subsidiary of the Bank, holds 50.00% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to total fees received upon liquidation. (26) IBK Group Contents IP Investment Fund IBK Group Contents IP Investment Fund, in accordance with the Specialized Credit Financial Business Act, was established on April 5, 2013, for the purpose of efficient operation, and asset allocation as a new technology venture capital firm. As at March 31, 2017, total contributed capital is 5,000 million; the Bank holds 45.00% of the shares as a limited partner, and IBK Capital, a subsidiary of the Bank, holds 45.00% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to total fees received upon liquidation. 13

16 (27) IBK Group IP Value-up Fund IBK Group IP Value-up Fund, in accordance with the Specialized Credit Financial Business Act, was established on April 4, 2013, for the purpose of efficient operation, and asset allocation as a new technology venture capital firm. As at March 31, 2017, total contributed capital is 21,400 million; the Bank holds 50.00% of the shares as a limited partner, and IBK Capital, a subsidiary of the Bank, holds 50.00% of the shares as a general partner. IBK Capital is obligated to cover for the loss up to total fees received upon liquidation. (28) Banks Foundation for young Entrepreneurs IBKC Pioneer Fund Banks Foundation for young Entrepreneurs IBKC Pioneer Fund, a subsidiary, was founded on September 6, 2013, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 18,500 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. Meanwhile, IBK Capital is obligated to cover for the loss up to total fees received upon liquidation. (29) Gyeonggi-IBKC-STI Job Creation Fund Gyeonggi-IBKC-STI Job Creation Fund, a subsidiary, was established on September 30, 2013, for the effective and capital distribution of venture investment under the Support for Small and Medium Enterprise Establishment Act. Total contributed capital amounts to 30,000 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. Meanwhile, IBK Capital is obligated to cover for the loss up to total stated fee in the agreement. (30) IBK Group KONEX Fund IBK Group KONEX Fund, a subsidiary, was founded on October 30, 2013, for the effective and capital distribution of the new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 20,100 million as at March 31, The Bank and IBK Securities own 50.00%, 11.67% of shares as joint limited partners and IBK Capital owns 38.33% of shares as a general partner. (31) IBKC-Solidus Future Creation Fund IBKC-Solidus Future Creation Fund, as a subsidiary, was founded on December 27, 2013, for the effective and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. IBKC-Solidus Future Creation Fund invests its capital to improve the value of superior venture businesses, and ultimately to maximize the value of its investees. Total contributed capital amounts to 18,000 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. (32) IDV-IP Fishery Intellectual Property Specialty Fund IDV-IP Fishery Intellectual Property Specialty Fund, as a subsidiary was founded on July 9, 2013, for the effective and capital distribution of Agricultural, Fisheries and Food Investment Funds under the Act on Formation and Operation of Agricultural, Fisheries and Food Investment Funds. Total contributed capital amounts to 13,500 million as at March 31, 2017, and IBK Capital owns 40.00% of shares as a joint general partner. IBK Capital is obligated to cover for the loss up to 5% of the equity held. As at March 31, 2017, the Bank does not expect any priority funding liability. (33) IBK Group IP Creation Fund IBK Group IP Creation Fund, a subsidiary, was founded on July 11, 2014, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 24,000 million as at March 31, The Bank own 33.33% of shares as joint limited partner and IBK Capital owns 33.34% of shares as a general partner. 14

17 (34) IBKC-STI New Growth Investment Fund IBKC-STI New Growth Fund No.1, a subsidiary, was founded on April 17, 2015, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 9,000 million as at March 31, IBK Capital owns 89.67% of shares as a general partner. (35) IBK Finance Group Union Contents Investment Fund IBK Finance Group Union Contents Investment Fund, a subsidiary, was established on July 24, 2015, for the effective and capital distribution of venture investment under the Support for Small and Medium Enterprise Establishment Act. Total contributed capital amounts to 10,000 million as at March 31, 2017, and the Bank owns 30.00% of shares as a limited partner. Meanwhile, IBK Capital owns 40.00% of shares as a general partner. (36) IBKC-JNT Secondary Fund IBKC-JNT Secondary Fund, as a subsidiary, was founded on January 11, 2016, for the effective and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. IBKC-JNT Secondary Fund invests its capital to improve the value of superior venture businesses, and ultimately to maximize the value of its investees. Total contributed capital amounts to 5,000 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. (37) 2015 KIF-IBKC/SBI Secondary IT Venture Fund 2015 KIF-IBKC/SBI Secondary IT Venture Fund, as a subsidiary, was founded on February 2, 2016, for the effective and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses KIF-IBKC/SBI Secondary IT Venture Fund invests its capital to improve the value of superior venture businesses, and ultimately to maximize the value of its investees. Total contributed capital amounts to 14,000 million as at March 31, 2017, and IBK Capital owns 42.86% of shares as a general partner. (38) IBKC-SBI Bio Fund No.1 IBKC-SBI Bio Fund No.1, a subsidiary, was established on March 8, 2016, for the effective and capital distribution of venture investment under the Support for Small and Medium Enterprise Establishment Act. Total contributed capital amounts to 27,150 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. (39) IBKGroup Crowdfunding Matching Fund IBKGroup Crowdfunding Matching Fund, a subsidiary, was founded on March 31, 2016, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 6,000 million as at March 31, The Bank own 50.00% of shares as joint limited partner and IBK Capital owns 50.00% of shares as a general partner. (40) IBKGroup Future Growth Engine Fund IBKGroup Future Growth Engine Fund, a subsidiary, was founded on April 7, 2016, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 7,000 million as at March 31, The Bank own 50.00% of shares as joint limited partner and IBK Capital owns 50.00% of shares as a general partner. (41) IBK Capital Contents Investment Fund IBK Capital Contents Investment Fund, a subsidiary, was founded on June 14, 2016, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 6,000 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. 15

18 (42) IBKC-Medici Secondary Fund IBKC-Medici Secondary Fund, as a subsidiary, was founded on July 20, 2016, for the effective and capital distribution of Korean Venture Investment Association under the Act on Special Measures for the Promotion of Venture Businesses. IBKC-Medici Secondary Fund invests its capital to improve the value of superior venture businesses, and ultimately to maximize the value of its investees. Total contributed capital amounts to 5,810 million as at March 31, 2017, and IBK Capital owns 42.86% of shares as a general partner. (43) IBKGroup IP Value-up Fund No.2 IBKGroup IP Value-up Fund No.2, a subsidiary, was founded on October 27, 2016, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 2,000 million as at March 31, The Bank own 25.00% of shares as joint limited partner and IBK Capital owns 25.00% of shares as a general partner. (44) IBKC-GMB New Growth Industry Investment Fund IBKC-GMB New Growth Industry Investment Fund, a subsidiary, was founded on January 5, 2017, for the effective and capital distribution of new technology investment association under the Credit Finance Business Act. Total contributed capital amounts to 6,900 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. (45) IBKC-MGI New Economic Growth Pre-IPO Fund IBKC-MGI New Economic Growth Pre-IPO Fund, a subsidiary, was established on March 17, 2017, for the effective and capital distribution of venture investment under the Support for Small and Medium Enterprise Establishment Act. Total contributed capital amounts to 10,000 million as at March 31, 2017, and IBK Capital owns 50.00% of shares as a general partner. (46) Other subsidiaries These consist of private equity funds, whose shares the Bank holds more than 50% of, special purpose companies and trust with repayment guarantees of principal and interest. There are two subsidiaries, including IBKC-GMB New Growth Industry Investment Fund, that were consolidated during the period ended March 31, In addition, there are two subsidiaries, including Samsung Plus Alpha Private Bond Balanced 2, that were liquidated during the period ended March 31, The financial information of subsidiaries as at and for the three-month period ended March 31, 2017, and as at December 31, 2016 and for the three-month period ended March 31, 2016, follows: March 31, 2017 Total assets 16 Total liabilities Total equity Operating income Profit (loss) for the period IBK Capital Corporation 4,863,408 4,235, ,807 66,019 20,014 IBK Asset Management Co., Ltd. 51,953 4,059 47,894 4,063 1,375 IBK Credit Information Corp. 23,074 2,807 20,267 6, IBK Securities Co., Ltd 4,851,522 4,291, , ,473 7,491 IBK System Co., Ltd. 51,584 20,607 30,977 25, Industrial Bank of Korea (China) Limited 3,317,107 2,948, ,623 63,713 3,232 IBK Insurance Co., Ltd. 4,321,350 4,024, , ,117 10,908 IBK Savings Bank Co., Ltd. 905, ,013 97,582 12,131 2,184 IBK Capital Myanmar Co., Ltd. 2, , (119) IBK Private Equity Fund No

19 March 31, 2017 Total assets Total liabilities Total equity Operating income Profit (loss) for the period IBK-SKS Private Equity Fund No.4 29,642-29, (7,490) IBK Recovery Private Equity Fund 28, , (44) IBK-AJU Star Seekers No.1 Private Equity Fund 43, , (15) IBK SKS Private Equity Fund , ,269 3,725 3,122 IBK POSCO TRUBEN Recovery Private Equity Fund No.1 44, , (451) IBK NH Small Giant Private Equity Fund 9, ,799 - (159) No.1 Technology Financing Private Equity Fund 57, , (329) Value Brand Korea No.1 Private Equity Fund 13, ,309 7 (227) IBKC IBKC-TONGYANG Growth 2013 Private Equity Fund 16, ,536 1,896 1,568 IBKC-INNOBIZ Material Special Investment Association 3, , IBK Small Business Coexistence Investment Association No.1 1,527-1,527 - (4) IBK Small Business Coexistence Investment Association No.2 9, , (8) IBK Cultural Contents Cooperative Investment Association 1, , (34) IBKC-STI Pre-IPO Investment Association No.1 5,718-5,718 - (37) IBK Group Mutual Growth Fund 12, , (17) IBK Group Contents IP Investment Fund 4, ,959 2 (242) IBK Group IP Value-up Fund 23,967 1,219 22, Banks Foundation for young Entrepreneurs IBKC Pioneer Fund 19, , Gyeonggi-IBKC-STI Job Creation Fund 28, , (74) IBK Group KONEX Fund 22, , (81) IBKC-Solidus Future Creation Fund 19, , (63) IDV-IP Fishery Intellectual Property Specialty Fund 12, , (34) IBK Group IP Creation Fund 23,140-23, (181) IBKC-STI New Growth Investment Fund 7,760-7,760 5 (187) IBK Finance Group Union Contents Investment Fund 10,271-10, IBKC-JNT Secondary Fund 4,298-4,298 2 (61) 2015 KIF-IBKC/SBI Secondary IT Venture Fund 12, ,819 1,633 (930) IBKC-SBI Bio Fund No.1 28, , (96) IBKGroup Crowdfunding Matching Fund 5, ,802 1 (49) IBKGroup Future Growth Engine Fund 6, ,412 5 (143) IBK Capital Contents Investment Fund 5, ,841 - (51) IBKC-Medici Secondary Fund 5,683-5,683 3 (177) IBKGroup IP Value-up Fund No.2 1,788-1,788 2 (122) IBKC-GMB New Growth Industry Investment 6, ,801 3 (99) 17

20 March 31, 2017 Fund IBKC-MGI New Economic Growth Pre-IPO Total assets Total liabilities Total equity Operating income Profit (loss) for the period Fund 10,001-10, KB Haeorum Private Securities 69 Bond, 8 investment funds 738,185 6, ,767 9,495 2,600 KTB Confidence Investment Trust No. 31 4,472-4, Heungkuk High-class Private Securities Investment Fund No Trust with repayment guarantees of principal and interest 599, ,666 25,801 2, Trust with repayment guarantees of principal 1,254 1, Myungdong City Maintenance Business and 1 other 36,126 70,047 (33,921) 10, December 31, 2016 and March 31, 2016 Total assets 18 Total liabilities Total equity Operating income Profit (loss) for the period IBK Capital Corporation 4,635,471 4,019, ,958 69,441 17,858 IBK Asset Management Co., Ltd. 50,362 2,893 47,469 3,547 1,008 IBK Credit Information Corp. 23,069 2,756 20,313 5, IBK Securities Co., Ltd 3,927,654 3,374, , ,746 8,482 IBK System Co., Ltd. 47,975 16,850 31,125 24, Industrial Bank of Korea (China) Limited 3,508,242 3,117, ,787 56,210 4,039 IBK Insurance Co., Ltd. 4,053,879 3,769, , ,151 7,555 IBK Savings Bank Co., Ltd. 791, ,657 95,431 11,771 3,958 IBK Capital Myanmar Co., Ltd. 3, , IBK Private Equity Fund No ,125 2,120 IBK-SKS Private Equity Fund No.4 34,875-34,875 27,118 28,758 IBK Recovery Private Equity Fund 29, , (127) IBK-AJU Star Seekers No.1 Private Equity Fund 54, , IBK SKS Private Equity Fund ,767 1, , (552) IBK POSCO TRUBEN Recovery Private Equity Fund No.1 45, , (11,226) IBK NH Small Giant Private Equity Fund - 1,252 (1,252) - (125) No.1 Technology Financing Private Equity Fund 58,719-58,719 8 (395) Value Brand Korea No.1 Private Equity Fund 3, , IBKC IBKC-TONGYANG Growth 2013 Private Equity Fund 20,286 1,818 18, (256) IBKC-INNOBIZ Material Special Investment Association 3, ,331 3 (4) IBK Small Business Coexistence Investment Association No.1 1, , IBK Small Business Coexistence 9, ,396 2,744 2,658

21 December 31, 2016 and March 31, 2016 Total assets Total liabilities Total equity Operating income Profit (loss) for the period Investment Association No.2 IBK Cultural Contents Cooperative Investment Association 1, , (274) IBKC-STI Pre-IPO Investment Association No.1 5, ,755 1,543 1,483 IBK Group Mutual Growth Fund 12, , IBK Group Contents IP Investment Fund 5, , (124) IBK Group IP Value-up Fund 29,129 1,461 27, Banks Foundation for young Entrepreneurs IBKC Pioneer Fund 19, , (101) Gyeonggi-IBKC-STI Job Creation Fund 28, , (120) IBK Group KONEX Fund 23, , IBKC-Solidus Future Creation Fund 19, , IDV-IP Fishery Intellectual Property Specialty Fund 12,779-12, (41) IBK Group IP Creation Fund 23, , (85) IBKC-STI New Growth Investment Fund 8, ,947 3 (188) IBK Finance Group Union Contents Investment Fund 9, ,701 5 (47) IBKC-JNT Secondary Fund 4, ,359 1 (43) 2015 KIF-IBKC/SBI Secondary IT Venture Fund 13, ,749 6 (212) IBKC-SBI Bio Fund No.1 28, ,736 - (28) IBKGroup Crowdfunding Matching Fund 6, , IBKGroup Future Growth Engine Fund 2, , IBK Capital Contents Investment Fund 2, , IBKC-Medici Secondary Fund 6, , IBKGroup IP Value-up Fund No.2 2, , IBK Panorama Balanced No. 52, 9 investment funds 804,058 26, ,103 13,148 1,064 KTB Confidence Investment Trust No. 31 4,466-4, Heungkuk High-class Private Securities Investment Fund No (31) IBK Davos Global High-Dividends Master Fund [Equity] 6, , Trust with repayment guarantees of principal and interest 549, ,699 25,757 4, Trust with repayment guarantees of principal 1,218 1, Myungdong City Maintenance Business and 1 other 34,219 68,841 (34,622) 29, Total assets, liabilities and equity represent the amount as at December 31, Operating income and profit (loss) for the period are for the three-month period ended March 31,

22 2.3 Basis of Preparation Application of Korean IFRS The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS). The accompanying consolidated interim financial statements have been condensed, restructured and translated into English from the Korean language financial statements. The Group s condensed consolidated interim financial statements as of March 31, 2017, and for the three-month period ended March 31, 2017, were prepared in accordance with Korean IFRS and are subject to Korean IFRS1034 Interim Financial Reporting. Theses condensed consolidated interim financial statements have been prepared in accordance with Korean IFRS which is effective or early adopted as of March 31, Changes in Accounting Policies and Disclosures (a) New and amended standards adopted by the Group The Group has applied the following standards and amendments for the first time for their annual reporting period commencing January 1, The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. - Amendments to Korean IFRS 1007 Statement of Cash Flows Amendments to Korean IFRS 1007 Statement of Cash flows require to provide disclosures that enable users of interim financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash flows. - Amendments to Korean IFRS 1012 Income Tax Amendments to Korean IFRS 1012 clarify how to account for deferred tax assets related to debt instruments measured at fair value. Korean IFRS 1012 provides requirements on the recognition and measurement of current or deferred tax liabilities or assets. The amendments issued clarify the requirements on recognition of deferred tax assets for unrealized losses, to address diversity in practice. - Amendments to Korean IFRS 1112 Disclosures of Interests in Other Entities Amendments to Korean IFRS 1112 clarify when an entity s interest in a subsidiary, a joint venture or an associate is classified as held for sales in accordance with Korean IFRS 1105, the entity is required to disclose other information except for summarized financial information in accordance with Korean IFRS (b) New standards and interpretations not yet adopted by the Group Certain new accounting standards and interpretations that have been published that are not mandatory for annual reporting period commencing January 1, 2017 and have not been early adopted by the Group are set out below. 20