Consolidated Interim Financial Statements. (With Independent Auditors Review Report Thereon)

Transcription

1 Consolidated Interim Financial Statements (With Independent Auditors Review Report Thereon)

2 Contents Page Independent Auditors Review Report 1 Consolidated Interim Statements of Financial Position 3 Consolidated Interim Statements of Comprehensive Income 4 Consolidated Interim Statements of Changes in Equity 6 Consolidated Interim Statements of Cash Flows 7 9

3 ABCD KPMG Samjong Accounting Corp. 10th Floor, Gangnam Finance Center, 737 Yeoksam-dong, Gangnam-ku, Seoul , Republic of Korea Tel +82 (2) Fax +82 (2) Independent Auditors Review Report Based on a report originally issued in Korean The Board of Directors and Shareholders Korea Development Bank Reviewed financial statements We have reviewed the accompanying consolidated interim financial statements of Korea Development Bank (the Bank ) and its subsidiaries (collectively, the Group ), which comprise the consolidated interim statement of financial position as of, the consolidated interim statements of comprehensive income for the three-month periods and six-month periods ended June 30, 2012 and 2013, and the consolidated interim statements of changes in equity and cash flows for the six-month period ended June 30, 2013, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s responsibility Management is responsible for the preparation and fair presentation of these consolidated interim financial statements in accordance with Korean International Financial Reporting Standards ( K-IFRS ) No.1034 Interim Financial Reporting, and for such internal control as management 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 review 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 the Review Standards for Quarterly and Semiannual Financial Statements 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 auditing standards generally accepted in the Republic of Korea 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. Conclusion Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial statements referred to above are not prepared, in all material respects, in accordance with K-IFRS No.1034 Interim Financial Reporting.

4 ABCD Highlights The following matters may be helpful to the readers in their understanding of the consolidated interim financial statements: As discussed in note 3 to the consolidated interim financial statements, the Group adopted K-IFRS No.1110 Consolidated Financial Statements and re-assessed the control relationships for its investees. The Group applied this change in accounting policies retrospectively, and accordingly restated the comparative information of the consolidated statements of financial position as of January 1, 2012 and December 31, 2012, and the consolidated statements of comprehensive income, changes in equity and cash flows for the three-month and six-month periods ended June 30, Other Matters The statement of financial position of the Group as of December 31, 2012, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us and our report thereon, dated March 12, 2013, expressed an unqualified opinion. The accompanying consolidated statement of financial position of the Group as of December 31, 2012, presented for comparative purposes, is not different from that audited by us in all material respects (except for changes in accounting policies described in note 3). The consolidated interim statements of comprehensive income for the three-month period and six-month period ended June 30, 2012, and the consolidated interim statements of changes in equity and cash flows for the six-month period ended June 30, 2012, which are accompanying this report, do not agree with our report thereon, dated August 31, 2012, due to the changes in accounting policies. The consolidated statement of financial position of the Group as of January 1, 2012, was audited by other auditors in accordance with auditing standards generally accepted in the Republic of Korea and their report thereon, dated March 29, 2012, expressed an unqualified opinion. The accompanying consolidated statement of financial position of the Group as of January 1, 2012, presented for comparative purposes, is not different from that audited by other auditors in all material respects (except for changes in accounting policies described in note 3). The procedures and practices utilized in the Republic of Korea to review such consolidated interim financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated interim financial statements are for use by those knowledgeable about Korean review standards and their application in practice. KPMG Samjong Accounting Corp. Seoul, Korea August 30, 2013 This report is effective as of August 30, 2013, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

5 Consolidated Interim Statements of Financial Position As of, December 31, 2012 and January 1, June 30, 2013 December 31, 2012 (Restated) January 1, 2012 (Restated) Notes Assets Cash and due from banks 4,47,48,52 W 4,758,927 4,006,421 3,805,998 Financial assets held for trading 5,47,48,52 2,190,007 2,759,419 3,839,185 Financial assets designated at fair value through profit or loss 6,47,48,52 356, ,873 70,677 Available-for-sale financial assets 7,47,48,52 34,324,877 30,993,606 30,772,854 Held-to-maturity financial assets 8,47,48,52 147,295 1,494,007 1,525,418 Loans 9,47,48,52 96,371,069 93,047,157 82,591,861 Derivative financial assets 10,47,48,49,52 4,645,356 5,204,552 5,566,162 Investments in associates 11,50 3,192,375 3,292,959 3,037,073 Property and equipment, net 12,50 1,347,987 1,270,146 1,354,868 Investment property, net 13,50 336, , ,666 Intangible assets, net 14,50 2,962,924 3,081,549 3,293,681 Deferred tax assets , , ,033 Other assets 15,47,48,52 18,123,507 19,080,543 12,554,722 Non-current assets held for sale , , ,171 Total assets W 169,207, ,779, ,597,369 Liabilities Financial liabilities designated at fair value through profit or loss 17,47,48,52 W 841, , ,136 Deposits 18,47,48,52 38,705,174 40,039,975 26,851,738 Borrowings 19,47,48,52 26,737,513 24,473,003 27,320,460 Bonds 20,47,48,52 52,220,780 48,473,995 49,012,629 Derivative financial liabilities 10,47,48,49,52 4,066,328 4,121,564 4,524,521 Policy reserves 21 9,946,472 9,190,864 8,042,263 Defined benefit liabilities , , ,814 Provisions , , ,109 Deferred tax liabilities 38 1, , ,861 Current tax liabilities 65, , ,424 Other liabilities 24,47,48,52 15,562,808 16,348,026 10,583,511 Total liabilities 148,874, ,889, ,006,466 Equity Issued capital 25 9,251,861 9,251,861 9,251,861 Capital surplus 25 57,506 57,385 56,698 Capital adjustment 25 1,885 1,885 1,825 Accumulated other comprehensive loss , , ,921 Retained earnings 25 7,898,275 8,484,717 7,913,839 (Regulatory reserve for loan loss of W1,329,825 and W1,034,949 as of June 30, 2013 and December 31, 2012, respectively) (Planned regulatory reserve for loan losses of W125,831 and W294,876 and 1,034,949 as of and December 31, 2012 and January 1, 2012, respectively) - Total equity attributable to equity holders of the Company 17,867,541 18,443,094 17,983,144 Non-controlling interests 2,465,341 2,447,421 2,607,759 Total equity 20,332,882 20,890,515 20,590,903 Total liabilities and equity W 169,207, ,779, ,597,369 See accompanying notes to the consolidated interim financial statements.

6 Consolidated Interim Statements of Comprehensive Income (Loss) For the three-month and six-month periods ended and 2012 (In millions of won, except earnings per share information) Notes Threemonth period ended Sixmonth period ended Threemonth period ended June 30, 2012 (Restated) Sixmonth period ended Interest income 26 W 1,304,389 2,599,960 1,354,944 2,735,349 Interest expense 26 (768,728) (1,555,400) (810,889) (1,670,193) Net interest income ,661 1,044, ,055 1,065,156 Net fees and commission income , , , ,356 Dividend income 28 38,916 63,088 19,185 60,791 Net gain (loss) on financial assets and liabilities held for trading 29 (27,727) (17,265) 8,247 9,842 Net gain (loss) on financial assets and liabilities designated at fair value through profit or loss 30 50,638 28,497 (22,195) (15,996) Net gain (loss) on available-for-sale financial assets 31 (216,353) (206,277) (38,448) (10,897) Net gain (loss) on held-to-maturity financial assets ,356 (3,053) Net gain (loss) on derivatives 33 22,731 (63,378) (14,958) 153,978 Net foreign currency transaction gain (loss) 34 38,486 90,212 38,992 (44,523) Other operating income (loss), net 35 (150,370) (281,787) (101,618) (41,445) Non-interest income (loss), net (100,340) (138,360) 65, ,053 Provision for loan loss 9 499, ,344 34, ,483 General and administrative expenses 36,50 339, , , ,064 Operating income (loss) 50 (404,469) (375,176) 229, ,662 Share of profit (loss) of investments in associates 11 4,576 (64,411) 52, ,603 Non-operating income 37 18,112 33, , ,825 Non-operating expense 37 (52,656) (99,382) (69,945) (183,162) Non-operating expense, net (29,968) (130,001) 87,489 89,266 Profit (loss) before income taxes (434,437) (505,177) 316, ,928 Income tax expense (benefit) 38 (119,558) (144,970) 84, ,110 Profit (loss) for the period 25 W (314,879) (360,207) 232, ,818 (Profit (loss) for the period adjusted for regulatory reserve for possible loan losses : (-)W351,995 million and (-)W481,069 million for the three and six-month periods ended, respectively; W148,771 million and W453,862 million for the three and six-month periods ended June 30, 2012, respectively) 4

7 Consolidated Interim Statements of Comprehensive Income (Loss), Continued For the three-month and six-month periods ended and 2012 (In millions of won, except earnings per share information) Threemonth period ended Sixmonth period ended Threemonth period ended June 30, 2012 (Restated) Sixmonth period ended Notes Other comprehensive income (loss) for the period, net of tax Items that are or may be reclassified subsequently to profit or loss: Valuation gain (loss) on available-for-sale financial assets W (78,552) (93,339) (55,730) 206 Equity adjustment from equity method valuation 2,287 5,574 (2,482) (11,645) Exchange differences on translation of foreign operations 55, ,883 (9,900) (33,809) Others comprehensive income (loss) 3,823 4,563 (3,770) (1,528) Items that will not be reclassified to profit or loss: Remeasurements of defined benefit liabilities (1,269) (3,366) (416) (234) (18,240) 38,315 (72,298) (47,010) Total comprehensive income (loss) for the period W (333,119) (321,892) 160, ,808 Profit (loss) attributable to: Equity holders of the Group W (314,320) (355,238) 216, ,189 Non-controlling interest (559) (4,969) 16,287 11,629 Profit (loss) for the period W (314,879) (360,207) 232, ,818 Total comprehensive income (loss) attributable to: Equity holders of the Group W (337,082) (344,470) 154, ,132 Non-controlling interest 3,963 22,578 6,095 (1,324) Total comprehensive income (loss) for the period W (333,119) (321,892) 160, ,808 Earnings (loss) per share Basic and diluted earnings (loss) per share (won) 39 W (170) (192) See accompanying notes to the consolidated interim financial statements. 5

8 Consolidated Interim Statements of Changes in Equity For the three and six-month periods ended and 2012 Issued capital Attributable to equity holders of the Group Accumulated Capital other Capital adjust comprehensive Retained surplus -ment income (loss) earnings Total Noncontrolling interest Total equity Balance at January 1, 2012 W 9,251,861 56,698 1, ,136 7,924,450 17,965,970 2,607,759 20,573,729 Cumulative effect of changing accounting policies, etc ,785 (10,611) 17,174-17,174 Balance at January 1, 2012 (Restated) 9,251,861 56,698 1, ,921 7,913,839 17,983,144 2,607,759 20,590,903 Dividends (347,870) (347,870) - (347,870) Profit for the period , ,189 11, ,818 Changes in valuation gain (loss) on available-for-sale financial assets ,433-2,433 (2,161) 272 Changes in equity in other comprehensive loss of associates (14,641) - (14,641) (547) (15,188) Changes in exchange differences on translation of foreign operations (32,278) - (32,278) (9,342) (41,620) Remeasurements of defined benefit liabilities (337) (308) Other comprehensive income (loss) ,142-1,142 (3,158) (2,016) Income tax effect ,258-9,258 2,592 11,850 Changes in equity of consolidate subsidiaries and others - 3,031 (8) - - 3,023 2,183 5,206 Balance at June 30, 2012 W 9,251,861 59,729 1, ,864 8,158,158 18,196,429 2,608,618 20,805,047 Balance at January 1, 2013 W 9,251,861 57,385 1, ,788 8,517,560 18,438,479 2,447,421 20,885,900 Cumulative effect of changing accounting policies, etc ,458 (32,843) 4,615-4,615 Balance at January 1, 2013 (Restated) 9,251,861 57,385 1, ,246 8,484,717 18,443,094 2,447,421 20,890,515 Dividends (233,147) (233,147) - (233,147) Loss for the period (355,238) (355,238) (4,969) (360,207) Changes in valuation gain (loss) on available-for-sale financial assets (125,244) - (125,244) (11,574) (136,818) Changes in equity in other comprehensive income of associates ,263-6, ,090 Changes in exchange differences on translation of foreign operations , ,537 27, ,011 Remeasurements of defined benefit liabilities (5,971) - (5,971) 1,838 (4,133) Other comprehensive income ,416-2,416 2,732 5,148 Income tax effect ,767-4,767 6,250 11,017 Changes in equity of consolidate subsidiaries and others ,943 2,064 (4,658) (2,594) Balance at W 9,251,861 57,506 1, ,014 7,898,275 17,867,541 2,465,341 20,332,882 See accompanying notes to the consolidated interim financial statements. 6

9 Consolidated Interim Statements of Cash Flows For the six-month periods ended and 2012 Notes (Restated) Cash flows from operating activities Profit (loss) for the period W (360,207) 603,818 Adjustments for: Income tax expense (benefit) 38 (144,970) 176,110 Interest income 26 (2,599,960) (2,735,349) Interest expense 26 1,555,400 1,670,193 Dividend income 28 (63,088) (60,791) Loss (gain) related to financial instruments held for trading 29 4,148 (8,330) Loss (gain) related to financial instruments designated at fair value through profit or loss 30 (26,929) 17,129 Gain on disposal of available-for-sale financial assets 31 (314,008) (155,164) Impairment loss on available-for-sale financial assets 7,31 520, ,061 Loss (gain) related to held-to-maturity financial assets 32 (388) 3,053 Loss (gain) on foreign currency translation 34 (133,330) 21,991 Loss (gain) on valuation of derivatives ,735 (63,736) Net gain on fair value hedged items 33 (50,399) (146,233) Loss (gain) on disposal of investments in associates 35 (6,661) 78 Equity in earnings of investments in associates 11 64,411 (119,603) Provision for loan loss 9 664, ,483 Defined benefit costs 22,36 47,658 40,501 Depreciation of property and equipment 12,36 40,836 38,171 Loss on disposal of property and equipment 12,37 1, Impairment loss on property and equipment 12,37-44 Depreciation of investment property 13,37 2,908 2,629 Impairment loss on investment property Amortization of intangible assets 14,36 122, ,324 Gain on disposal of intangible assets 14,37 (403) - Impairment loss on intangible assets 14, ,161 Loss (gain) on disposal of assets held for sale 16,37 5,329 (78,275) Impairment (reversal) of assets held for sale 16,37 4,439 (1,280) Other operating income (loss), net 260,953 (166,174) 304,498 (1,139,527) Changes in operating assets and liabilities: Due from banks (662,756) (752,099) Financial assets held for trading 687,668 34,490 Financial assets designated at fair value through profit or loss (109,431) (78,144) Loans (6,054,221) (2,561,303) Derivative financial assets 3,795,485 1,675,475 Other assets 1,201,102 (2,537,888) Financial liabilities held for trading - 7,850 Financial liabilities designated at fair value through profit or loss (1,467) (158,256) Deposits (1,334,801) 8,481,788 Policy reserve 755, ,446 Derivative financial liabilities (3,641,259) (1,790,738) Defined benefit liabilities (24,316) (9,090) Provisions (10,005) (15,600) Other liabilities (929,354) 2,506,168 (6,327,748) 5,114,099 Income taxes paid (38,204) (131,315) Interest received 2,503,541 2,579,743 Interest paid (1,270,696) (1,575,827) Dividends received 108, ,458 Net cash provided by (used in) operating activities W (5,080,242) 5,557,449 7

10 Consolidated Interim Statements of Cash Flows, Continued For the six-month periods ended and 2012 Notes (Restated) Cash flows from investing activities Disposal of available-for-sale financial assets 7 W 18,884,757 24,417,378 Acquisition of available-for-sale financial assets 7 (20,822,229) (25,865,090) Disposal of held-to-maturity financial assets 8 837, ,772 Acquisition of held-to-maturity financial assets 8 (791,491) (149,850) Disposal of property and equipment 12 5,057 20,371 Acquisition of property and equipment 12 (184,053) (56,562) Disposal of intangible assets Acquisition of intangible assets 14 (29,030) (23,409) Disposal of non-current assets held for sale 47, ,854 Disposal of investment in associates 97, ,326 Acquisition of investment in associates 11 (88,561) (38,999) Net cash used in investing activities (2,042,862) (1,306,675) Cash flows from financing activities Proceeds from borrowings 60,580,641 88,939,814 Repayment of borrowings (58,608,090) (89,841,384) Proceeds from other borrowings (18,261) (2,987) Issuance of bonds 11,126,220 8,682,961 Repayment of bonds (7,808,444) (8,698,681) Dividends paid 25 (233,147) (347,870) Net cash provided by (used in) financing activities 5,038,919 (1,268,147) Effect of exchange rate fluctuations on cash and cash equivalents held 129,853 (1,476) Net increase (decrease) in cash and cash equivalents (1,954,332) 2,981,151 Cash and cash equivalents at beginning of period 7,001,993 3,510,056 Cash and cash equivalents at end of period 46 W 5,047,661 6,491,207 See accompanying notes to the consolidated interim financial statements. 8

11 1. Reporting Entity The accompanying consolidated financial statements comprise Korea Development Bank ( KDB or the Bank ) and its subsidiaries (together referred to as the Group ). General information of the Bank and its subsidiaries is stated below. (1) Controlling company Korea Development Bank (the Bank ) was established on April 1, 1954, in accordance with The Korea Development Bank Act to finance and manage major industrial projects, in order to expedite industrial development and enhance the national economy. The Bank is engaged in the banking industry under The Korea Development Bank Act and other applicable statutes, and in the fiduciary in accordance with the Financial Investment Services and Capital Markets Act. The Bank is a fully-owned subsidiary of the KDB Finance Group ( KDBFG ), which is owned by the Korean government and Korea Finance Corporation ( KoFC ), and its capital stocks amount to W9,251,861 million as of. The Bank s head office is located in Yeouido-dong, Yeongdeungpo-gu, Seoul and its service network as of, is as follows: Domestic Overseas Head Office Branches Branches Subsidiaries Representative offices Total KDB (2) Consolidated subsidiaries The Group s equity ownership in its consolidated direct and indirect subsidiaries as of, and December 31, 2012 are summarized as follows (Korean won in millions, US dollar and Brazilian real in thousands, Hungarian forint in millions): Investor Investee Country Industry Domestic subsidiaries: KDB Korea Infrastructure Fund Korea KDB Value Private Equity Fund II Korea KDB Value Private Equity Fund III Korea KDB Value Private Equity Fund VI Korea KDB Venture M&A Private Equity Fund Korea KDB Turn Around Private Equity Fund Korea Fiscal year end Equity Ownership Acquisition value (%) 2013, Financial investment June, December 32,151 33, Financial investment December Financial investment December 44,286 44, Financial investment December 2,384,911 2,343, Financial investment December Financial investment December 72,816 72,

12 1. Reporting Entity, Continued Acquisition value Equity Ownership (%) Investor Investee Country Industry Fiscal year end KDB Consus Value Private Financial Equity Fund(*1) Korea investment December 260, , Materials & Components Financial M&A Korea investment December 165, , KoFC-KDB Materials and Components Investment Fund No.1(*2) Principals and interests guaranteed trust(*3) Principals guaranteed trust(*3) KDB 1st SPC and 9 SPCs(*4) KDB Shipping Private Fund KL 1st and 16 others Korea Korea Korea Korea Korea Financial investment December 37,500 37, Financial investment December Financial investment December Financial investment December Financial investment December 382, ,071 Over 50% Overseas subsidiaries: KDB KDB Asia Ltd. Hong Kong KDB Ireland Co., Ltd. Ireland KDB Bank Europe Ltd. Hungary Banco KDB Do Brasil S.A Brazil KDB Bank Uzbekistan Uzbekistan KDB Uzbekistan, Ltd. Uzbekistan RBS NB Uzbekistan, Ltd. Uzbekistan Financial service December USD 140,000 Financial USD service December 20,000 Financial HUF service December 21,296 Financial BRL service December 328,396 Financial service December Financial service December - Financial service December - USD 140, USD 20, HUF 21, BRL 328, USD 34, USD 18,440 - USD 16,546 - Domestic sub-sub subsidiary(*5): KDB Consus KDB Life Insurance Co., Ltd. Korea KDB Value Private Equity Fund VI 10 Financial service December 852, , Daewoo Engineering & Construction Co., Ltd. Korea Construction December 3,178,493 3,178, (*1) The entity was included in the scope of consolidation even though the investor holds less than 50% of the voting rights because the investor has power over the investees to control the financial and operating policies of the entity, exposure, or rights, to variable returns from its involvement with the investees and the ability to use its power over the investees to affect the amount of the investor s returns. (*2) Those entities have been fully consolidated even though the investor s ownership is not over 50%, because the investor, as an executive partner, has power over the investees to control the financial and operating policies of the entity, exposure, or rights, to variable returns from its involvement with the investees and the ability to use its power over the investees to affect the amount of the investor s returns.

13 1. Reporting Entity, Continued (*3) The investees were included in the scope of consolidation because the investor has power over the investees to control the financial and operating policies of the entity, and is exposed to variable returns through the contract for preservation of principal and interest or principal only. (*4) The investees are established for the investor s business, or the investor is structured entity which has rights to obtain the majority of the benefits of the investee or if the investor retains the majority of the risks related to the investee. Therefore the investees are included in the scope of consolidation because the investor has power over the investees to control the financial and operating policies of the entity, exposure, or rights, to variable returns from its involvement with the investees and the ability to use its power over the investees to affect the amount of the investor s returns. (*5) The parent company of the sub-sub-sub-subsidiary is a SPE, which is not separately disclosed in the consolidated financial statements. (i) Korea Infrastructure Fund Korea Infrastructure Fund ( KIF ) was established on December 15, 1999 in accordance with the Financial Investment Services and Capital Markets Act ( FSCMA ) and the Private Participation in Infrastructure Act ( PPIA ). KIF is classified as a special purpose vehicle that was established to invest in certain entities that have entered into long-term construction agreements with the national, provincial and municipal governments in Korea. Korea Infrastructure Investment Asset Management Co., Ltd. is KIF s asset manager. Issued capital of KIF amounts to W35,005 million as of June 30, (ii) KDB Value Private Equity Fund II KDB Value Private Equity Fund II ( KDB Value PEF II ) was established on September 27, 2006 in accordance with the FSCMA to engage in investment of securities. Issued capital of KDB Value PEF II amounts to nil as of, as KDB Value PEF II is under liquidation procedures. (iii) KDB Value Private Equity Fund III KDB Value Private Equity Fund III ( KDB Value PEF III ) was established on September 16, 2008 in accordance with the FSCMA to engage in investment of securities. Issued capital of KDB Value PEF III amounts to W43,815 million as of. (iv) KDB Value Private Equity Fund VI KDB Value Private Equity Fund VI ( KDB Value PEF VI ) was established on July 9, 2009 in accordance with the FSCMA to engage in investment of securities. Issued capital of KDB Value PEF VI amounts to W2,388,821 million as of. (v) KDB Venture M&A Private Equity Fund KDB Venture M&A Private Equity Fund ( KDB Venture M&A ) was established on May 2, 2007 in accordance with the FSCMA to engage in investment of securities. KDB Venture M&A Private Equity Fund has no issued capital as of june 30, 2012 as a result of declaring and paying W24,740 million of dividend with its issued capital for the year ended (vi) KDB Turn Around Private Equity Fund KDB Turn Around Private Equity Fund ( KDB Turn Around ) was established on April 8, 2009 in accordance with the FSCMA to engage in private equity financial services. Issued capital of KDB Turn Around amounts to W77,790 million as of. 11

14 1. Reporting Entity, Continued (vii) KDB Consus Value PEF KDB Consus Value PEF ( KDB Consus Value ) was established on February 22, 2010 in accordance with the FSCMA to engage in private equity financial services. Issued capital of KDB Consus Value amounts to W639,390 million as of. (viii) Components and Materials M&A PEF Components and Materials M&A PEF ( Components and Materials M&A ) was established on January 28, 2010 in accordance with the FSCMA to engage in private equity financial services. Issued capital of Components and Materials M&A amounts to W198,909 million as of. (ix) KoFC-KDB Materials and Components Investment Fund No.1 KoFC-KDB Materials and Components Investment Fund No.1, ( KoFC-KDB Materials and Components Investment ) was established on June 29, 2010 in accordance with the Act on Special Measures for the Promotion of Specialized Enterprises and other applicable statutes to engage in private equity financial services. Issued capital of KoFC-KDB Materials and Components Investment amounts to W75,000 million as of. (x) Trust Accounts In accordance with K-IFRS, trusts held for development projects, private annuities trusts and pension annuities trusts embedded with credit protection that guarantees a return of principal and interest amounts, which in turn, exposes the Bank to a majority of the residual or ownership risks related to these trusts are included in scope of consolidation. Conversely, unearmarked funds in trusts, new private annuities trusts, pension trusts and new retirement annuities trusts without these productive provisions are excluded from consolidation. (xi) KDB 1st Securitization and 9 other SPCs KDB 1st Securitization and 9 other SPCs, which expose the Group to the majority of the residual or ownership risks related to the SPC or its assets, are included in scope of consolidation. (xii) KDB Shipping Private Fund KL 1st and 16 other funds The Group has power over KDB Shipping Private Fund KL 1st and 16 other funds to control the financial and operating policies, exposure, or rights, to variable returns from its involvement with the investees and the ability to use its power over the investees to affect the amount of the Group s returns. (xiii) KDB Asia Ltd. KDB Asia, Ltd. was incorporated on January 23, 1986 in Hong Kong to provide financial services to Korean companies, engage in investment of securities, and mediate issuance and trading of international securities. Issued capital of KDB Asia Ltd. amounts to USD 140,000 thousand as of June 30, (xiv) KDB Ireland Ltd. KDB Ireland Ltd. was incorporated on June 18, 1997 in the Republic of Ireland to provide financial services to Korean companies and engage in investment of securities. Issued capital of KDB Ireland Ltd. amounts to USD 25,000 thousand as of. (xv) KDB Bank Europe Ltd. KDB Bank Europe Ltd. was incorporated on February 1, 1990 to engage in commercial banking. On December 30, 2002, the Bank wholly assumed the shares of KDB Bank Europe Ltd. from Daewoo Securities Co., Ltd. KDB Hungary changed its name to KDB Europe Ltd. on may 22, Issued capital of KDB Bank Europe Ltd. amounts to HUF 15,340,100 thousand as of. 12

15 1. Reporting Entity, Continued (xvi) Banco KDB Do Brasil S.A. Banco KDB Do Brasil S.A. was incorporated on October 25, 2005 to provide financial services to Korean companies and engage in investment of securities and investment banking activities. Issued capital of Banco KDB Do Brasil S.A. amounts to BRL 324,969 thousand as of. (xvii) KDB Bank Uzbekistan KDB Bank Uzbekistan, as described in Note 50, was established on March 25, 2013, by the merger of UzKDB and RBS NB Uzbekistan, subsidiaries of the Bank, in order to expand operations within Uzbekistan. Issued capital of KDB Bank Uzbekistan amounts to UZS 37,634 million as of June 30, (xviii) KDB Life Insurance Co., Ltd. KDB Life Insurance Co., Ltd. ( KDB Life Insurance ) was established on April 1, 1988 in accordance with the Korea Insurance Business Act to offer insurance policies and generate revenue from applicable premiums and other related sources. Issued capital of KDB Life Insurance amounts to W613,122 million as of. (xix) Daewoo Engineering & Construction Co., Ltd. Daewoo Engineering & Construction Co., Ltd. ( Daewoo E&C ) was established on December 27, 2000 after a spin-off from Daewoo Corporation and is engaged in civil engineering, construction, housing and plant business. Issued capital of Daewoo E&C amounts to W2,078,113 million as of June 30, (3) Changes in subsidiaries Subsidiaries that are newly included in the consolidated financial statements and subsidiaries that are excluded in the consolidated financial statements as of are as follows: (i) Subsidiaries newly included in scope of consolidation as of Reason New contiribution Subsidiaries KDB Shipping Private Fund SPO-2, KDB PIONEER Intellectual Property Rights Private Fund (ii) Subsidiaries excluded from the consolidated financial statements as of Reason Liquidation Subsidiaries KDB Champ 4st SPC, Songsan Ⅱ Industrial Complex Securitization SPC, Samsung Focus Private Fund 35, KDB Private Fund Investment Trust DB-9, Kyobo AXA Tomorrow 6M Private Fund L-10, Hanhwa Private Fund 41, KB Evergreen Private Fund 58, IBK Panorama Private Fund 49, GS Gold Scope Private Fund 17, Private Fund KD-5 13

16 1. Reporting Entity, Continued (4) Financial information of subsidiaries Financial information of subsidiaries included in the consolidated financial statements as of June 30, 2013 and 2012, are as follows: 2013 Net profit (loss) Total comprehensive income Assets Liabilities Equity Revenue Korea Infrastructure Fund 34, ,356 1,228 1,052 1,052 KDB Value Private Equity Fund II ,295 (11,185) KDB Value Private Equity Fund III 57, , ,204 2,170 KDB Value Private Equity Fund VI 12,423,108 7,980,621 4,442,487 4,779,184 (49,191) 11,224 KDB Venture M&A Private Equity Fund 3,059 8,013 (4,954) 3 (339) (5,066) KDB Turn Around Private Equity Fund 6,389 8,597 (2,208) 103 (9,983) 1,648 KDB Consus Value Private Equity Fund 12,032,338 11,425, ,634 1,926,209 (2,133) (43,738) Materials & Components M&A 188,691 6, ,358 3, (9,720) KoFC-KDB Materials and Components Investment Fund No.1 75, , Principals and interests guaranteed trusts 228, ,683 11,995 6,592 (1,692) (1,692) Principals guaranteed trusts 295, ,516 6,111 5,025 (2,605) (2,605) KDB 1st SPC and 9 SPCs 668, ,936 (289,349) 39,303 3,908 3,444 KDB Shipping Private Fund KL 1st and 16 others 425,474 14, ,830 14,460 8,611 27,597 KDB Asia Ltd. 968, , ,988 32,773 8,915 18,937 KDB Ireland Co., Ltd. 383, ,619 81,253 11,849 2,622 7,039 KDB Bank Europe Ltd. 990, , ,932 69,826 4,581 9,427 Banco KDB Do Brasil S.A 269, ,195 39,451 33,316 3,554 3,430 KDB Bank Uzbekistan 875, ,709 79,259 17,654 8,178 9,620 14

17 1. Reporting Entity, Continued 2012 Net profit (loss) Total comprehensive income Assets Liabilities Equity Revenue Korea Infrastructure Fund 36, ,680 1,331 1,139 1,139 KDB Value Private Equity Fund II 4,275 14,387 (10,112) 75 (5,119) (5,074) KDB Value Private Equity Fund III 54, , (2,083) (4,561) KDB Value Private Equity Fund VI 12,498,996 7,901,043 4,597,953 3,893,016 (33,642) (44,329) KDB Venture M&A Private Equity Fund 17,075 17,130 (55) 12 (178) 1,543 KDB Turn Around Private Equity Fund 295, ,067 3, ,037 (537) (13,718) KDB Consus Value Private Equity Fund 10,426,448 9,780, ,645 1,456,570 (7,690) 1,905 Materials & Components M&A 193, ,307 1,130 (6) (6) KoFC-KDB Materials and Components Investment Fund No.1 50, , (51) (51) Principals and interests guaranteed trusts 222, ,069-12, Principals guaranteed trusts 463, ,432 13,030 11,896 (3,161) (3,161) KDB 1st SPC and 12 SPCs 1,123,814 1,289,657 (165,843) 11,112 (113,765) (112,425) KDB Shipping Private Fund KL 1st and 26 others 1,452,157 25,086 1,427,071 27,351 24,275 24,376 KDB Asia Ltd. 854, , ,797 21,570 8,015 13,332 KDB Ireland Co., Ltd. 378, ,127 75,077 11,119 2,244 4,291 KDB Bank Europe Ltd. 753, , , ,514 4,311 7,579 Banco KDB Do Brasil S.A 324, ,942 35,919 41, (3,619) KDB Uzbekistan 378, ,725 43,029 10,113 5,896 4,335 RBS NB Uzbekistan, Ltd. 753, ,431 28,344 8,095 2,395 (1,903) 15

18 Korea Development Bank 2. Basis of Preparation (1) Statement of compliance These consolidated interim financial statements were prepared in accordance with K-IFRS No.1034 Interim Financial Reporting as part of the period covered by the Group s K-IFRS annual financial statements. (2) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: - Derivative financial instruments measured at fair value - Financial instruments designated at fair value through profit or loss - Available-for-sale financial instruments measured at fair value - Fair value hedged financial instruments with changes in fair value, due to hedged risks, recognized in profit or loss - Liabilities for defined benefit plans, which are recognized as net of the total present value of defined benefit obligations less the fair value of plan assets and unrecognized past service costs (3) Functional and presentation currency In preparing the Group s financial statements, transactions in foreign currencies are initially recorded by the Company at their respective functional currency rates prevailing at the date of the transaction. The Group s consolidated financial statements are presented in Korean won, which is also the parent company s functional currency. The following entities of the Group have different functional currency from their presentation currency: Functional currency USD UZS BRL HUF Subsidiaries KDB Asia Ltd. KDB Ireland Ltd. KDB Shipping Private Fund KL 1st KDB Shipping Private Fund KL 2nd KDB Shipping Private Fund DA-1 KIAMCO KDB Shipping Private Fund PR1 KDB Shipping Private Fund SH1 KIAMCO KDB Shipping Private Fund PR-2 KIAMCO KDB Shipping Private Fund DA-2 KDB Shipping Private Fund HJ-1 KDB Shipping Private Fund SPO-1 KDB Shipping Private Fund SKR-1 KIAMCO KDB Shipping Private Fund PR-3 KIAMCO KDB Shipping Private Fund PR-4 KIAMCO KDB Shipping Private Fund PR-5 KDB Bank Uzbekistan Banco KDB Do Brasil S.A KDB Bank Europe Ltd. 16

19 Korea Development Bank 2. Basis of Preparation, Continued (4) Use of estimates and judgments The preparation of the financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are evaluated on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated interim financial statements is included in the following notes: - Note 3.(6) Impairment of financial assets - Note 3.(17) Employee benefits Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: - Note 9 Loans - Note 22 Defined benefit liabilities - Note 23 Provisions 17

20 Korea Development Bank 3. Significant Accounting Policies The accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group in its consolidated financial statements as of and for the year ended December 31, (1) Basis of consolidation (i) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of the other entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. If a subsidiary of the Group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date in fair value of the assets transferred, equity instruments issued and liabilities incurred or assumed and the amount of any non-controlling interest in the acquiree. Costs related to acquisition are recognized as expenses when occurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the acquirer measures the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree s identifiable net assets. The excess of the cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. Any goodwill arising from initial consolidation is tested for impairment at least once a year and whenever events or changes in circumstances indicate the need for impairment. If the cost of acquisition is less than the fair value of the Group s share of the net assets acquired, the difference is recognized directly in the consolidated statement of comprehensive income. Intra-group balances, income and expenses, unrealized gain and loss and dividends resulting from intragroup transactions are fully eliminated. Where necessary, adjustments are made to bring the accounting policies of subsidiaries in line with those of the Group. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it recognizes the fair value of any investment retained and any surplus or deficit in profit or loss. 18

21 Korea Development Bank 3. Significant Accounting Policies, Continued (ii) Investments in associates Associates are all entities over which the Group has significant influence but not control. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power. Investments in associates are accounted for by the equity method of accounting and are initially recognized at cost. The Group s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. When the investors share on the fair value of the associates identifiable assets and liabilities exceeds acquisition cost of the associates interest, the excess portion is recognized as the current profit for the year of acquisition. The Group s share of its associates post-acquisition profits or loss is recognized in the statement of comprehensive income, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of loss in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further loss, unless it has incurred obligations or made payments on behalf of the associates. The carrying amount of equity method investments and the long term interest which partially consists of investors net investment are included in interest in the associate. Unrealized gain and loss on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associate. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. (iii) Acquisitions from entities under common control Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established; for this purpose comparatives are revised. The assets and liabilities acquired are recognized at the carrying amounts recognized previously in the Group controlling shareholder s consolidated financial statements. The components of equity of the acquired entities are added to the same components within Group equity except that any share capital of the acquired entities is recognized as part of share premium. The difference between cash paid and acquired net assets is recorded in equity. (iv) Non-controlling Interests Non-controlling interests in a subsidiary are accounted for separately from the parent s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero. (v) Changes in the Parent Company s ownership interest Changes in the Parent Company s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions with owners in their capacity as owners. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss. The difference between the consideration and the adjustments made to non-controlling interest is recognized directly in equity attributable to the owners of the Parent Company. 19

22 Korea Development Bank 3. Significant Accounting Policies, Continued (2) Operating segments An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group s other components. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group s headquarters), head office expenses, and income tax assets and liabilities. The Group s chief operating decision maker (the CEO of the Bank) makes decisions about resources to be allocated to the segment and assess its performance, and makes strategic decisions. (3) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Company entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognized in profit or loss, except for differences arising on the translation of available for sale equity instruments, a financial liability designated as a hedge of the net investment in a foreign operation, or in a qualifying cash flow hedge, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. (ii) Foreign operations If the presentation currency of the Bank is different from a foreign operation s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods: The assets and liabilities of foreign operations are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income. Any goodwill arising on the acquisition of a foreign operation, and any adjustments in fair value to the carrying amounts of assets and liabilities due to such acquisition, are treated as assets and liabilities of the foreign operation. Therefore, such are expressed in the functional currency of the foreign operations and, alongside other assets and liabilities of the foreign operation, translated at the closing exchange rate. In the case of the disposal of a foreign operation, cumulative amounts of exchange difference regarding the foreign operation, recognized separately from other comprehensive income, are recategorized from assets to profit or loss as of the moment the disposal profit or loss is recognized. 20

23 Korea Development Bank 3. Significant Accounting Policies, Continued (iii) Foreign exchange of net investment in foreign operations Monetary items receivable from or payable to a foreign operation, with none or little possibility of being settled in the foreseeable future, are considered a part of the net investment in the foreign operation. Therefore, the exchange difference is recognized as comprehensive profit or loss in the financial statement, and re-categorized to profit or loss as of the disposal of the related net investment. (4) Cash and cash equivalents Cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition, including cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. (5) Non-derivative financial assets The Group recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity assets, loans and receivables and available for sale financial assets. Moreover, the Group recognizes financial assets in the statement of financial position as of the time the Group becomes a party to the contractual provisions of the instrument. Non-derivative financial assets are measured at fair value upon initial recognition and, unless designated at fair value through profit or loss, transaction costs directly regarding acquisition and issuance of such assets are summed to the initial fair value. (i) Financial assets at fair value through profit or loss Any financial asset classified as held-for-trading or designated at fair value through profit or loss at initial recognition is categorized under financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss ( FVTPL ) are measured at fair value upon initial recognition, and changes therein are recognized as profit or loss. Furthermore, transaction costs regarding acquisition upon initial recognition are recognized as profit or loss as incurred. (ii) Held-to-maturity financial assets If a non-derivative financial asset has a fixed maturity with a fixed or determinable payment, and the Group has positive intent and ability to hold such an asset, it is classified as held-to-maturity financial assets. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized costs using the effective interest rate ( EIR ) method. (iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method. Furthermore, the effective interest rate method is applied to recognize interest incomes on financial investments, except short-term loans and receivables, in which the method is immaterial. 21