Korea Investment Holdings FY2015 Annual Report

Transcription

1 FY2015 Investment Holdings FY , Uisadangdaero, Yeongdeungpogu, Seoul, Tel : Fax : webmaster@truefriend.com

2 Please visit KIH website for more information. Think Different Contents 02 Financial Highlights 03 Stock Performance 04 CEO s Message 08 Board of Directors 18 Risk Management News Highlights 22 KIH At a Glance Overview of Subsidiaries and Subsubsidiaries 24 Investment & Securities 26 Investment Management 28 Investment Value Asset Management 30 Investment Savings Bank 32 Investment Partners 34 Investment Capital 36 KIARA Advisors 38 EQ Partners 40 Kakao Bank of Management s Discussion & Analysis 44 Overview & Business Environment 45 Analysis of Consolidated Earnings (Audited) 46 Performance of Subsidiaries 62 Independent Auditor s Report 63 Consolidated Statements of Financial Position 65 Consolidated Statements of Comprehensive Income 66 Consolidated Statements of Changes in Equity 67 Consolidated Statements of Cash Flows 68 Notes to Consolidated Financial Statements A t Different Investment Holdings was launched in 2003 as the first and only investment bankingoriented financial holding company in. Since then KIH has continued to innovate and challenge the status quo as it expanded its reach to investment banking, asset management, venture capital, private equity, savings bank, credit finance, and hedge funds. Built on the foundation of a clear and transparent corporate governance structure, KIH continues to lead the market and demonstrate remarkable growth across all business divisions based on relentless efforts to improve its services and products. 160 Organization Chart 161 International Directory

3 Financial Highlights Stock Performance Financial Highlights KIH aims to consistently produce high returns that are sustainable with its diversified business portfolio. Stock Performance In 2015 KIH s share price rose 2.16% while the n securities sector index declined 0.82% due to the stock market rout in China and concerns of interest rate hikes in the U.S. (Unit: KRW billion) FY2014 FY2015 Change YoY FY2014 FY2015 Change Operating Results Operating revenues Operating expenses SG&A expenses Operating income Net income before income tax Net income Financial Position 3, , , , % 27.3% 15.1% 17.6% 29.1% 35.6% Number of common shares Number of preferred shares Number of total outstanding shares Market capitalization (common stock, KRW billion) Market capitalization (preferred stock, KRW billion) Foreign ownership (common stock) Foreign ownership (preferred stock) EPS (KRW) 55,725,992 5,858,251 61,584,243 2, % 4.35% 4,090 55,725,992 5,858,251 61,584,243 2, % 4.61% 5, %p 0.26%p 1,457 Total assets 25, , , % Total liabilities 22, , , % Total shareholders equity 2, , % Based on consolidated KIFRS KIH s Share Price and Trading Volume Operating Income (KRW billion) Net Income (KRW billion) Total Assets (KRW billion) Trading Volume (share) 1,200,000 ( Trading Volume, Share Price) Share Price (KRW ) 70,000 31, ,000,000 60, , , , ,000 50,000 50,000 40, ,000 30, ,000 20,000 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015 FY2013 FY2014 FY2015 FY2013 (April~ December 2013, 9 months)

4 CEO s Message CEO s Message To our valued customers and shareholders, I would like to express my appreciation for your steadfast trust in Investment Holdings. Investment Holdings (KIH) recorded industryhigh earnings in 2015 as consolidated net profit increased 36% yearonyear to KRW billion and ROE came in at 10.8%. Above all we are pleased to say that KIH s business portfolio has become stronger and more stable based on the growth achieved by our subsidiaries and forays into new business segments over the past year. The core subsidiary, Investment & Securities (KIS) is shifting away from the industry practice of focusing on securities brokerage and financial product sales. Its paradigm innovation in retail operations to put the emphasis on clients returns is advancing the domestic wealth management industry to a higher level. KIS is also a top performer in the wholesale business, equity capital market, debt capital market, real estate project finance, derivativelinked securities, and trading. Despite declining service fees and the slump in the equity fund market, Investment Management (KIM), the first asset management firm in, and Investment Value Asset Management (KIVAM), the nation s first asset manager specializing in value investment, recorded operating profit growth of 12% and 16%, respectively, on the back of superior returns produced by their unique product lineup. Attesting to their unrivaled expertise in asset management, KIM and KIS were respectively selected to manage the assets of the investment pool for private pension funds and the Employment Insurance Fund. It is highly symbolic because we now manage assets for all four major domestic public funds, the other two being the investment pool for public funds, and the housing and urban development fund. KIVAM s flagship fund, the Value 10Year Investment Fund (Equity), delivered an accumulated return of 156.4% as of the end of 2015, quadrupling the gains posted by the KOSPI during the same period. Investment Partners, which specializes in venture investments, recorded the highest profit since its inception in It produced a net profit of KRW 49.4 billion with assets under management amounting to KRW 1,440.7

5 CEO s Message billion. It received a rating of A+ in the evaluation of venture capital firms conducted by the Small and Medium Business Administration for 12 consecutive years. We also enjoyed a continued growth in the credit business. Investment Savings Bank is generating stable profits and steadily expanding its business scope. It is the only savings bank in to receive a credit rating of A0. Despite its short history, Investment Capital (KIC) had loans outstanding of KRW billion and reported an operating profit of KRW 6.9 billion in KIC was established in 2014 as the first corporate credit firm in. KIARA Advisors was established in 2008 as s first hedge fund manager based in Singapore. It has garnered recognition at home and abroad as the KIARA Asia Pacific Hedge Fund delivered a strong annual return of 19% in The Group as a whole achieved new business expansion last year. KIH in conjunction with Kakao, the largest SNS platform in, obtained a preliminary approval to establish an internet bank. The Kakao Bank of, which will be the first internetonly bank in the country, is slated to commence operation this year as a subsidiary of KIH. We have also secured industryleading competency in alternative investments with the acquisition of EQ Partners, whose strength lies in global infrastructure. In contrast to 2015 the outlook is not very optimistic for the business environment in A tougher road lies ahead for the n real economy and financial markets in the midst of economic weakness in China and around the world. Competitive pressure is expected to intensify in the domestic and overseas markets. Moreover, the protracted low interest rate trend and the aging society suggest that customers needs will become ever more complicated. KIH has built up a business portfolio of topclass subsidiaries that are leaders in their respective fields by boldly taking on challenges new to the industry and ceaselessly striving to be the best. With our DNA of challenge and success, we will make progress towards our goal of growing into a global leading financial group. As the building blocks to realizing this objective, we will implement the following three key initiatives in First, we will continue with our drive for innovation centered on customers returns. We will affect change in the business paradigm with a view to maximizing satisfaction from asset management for both retail and institutional clients. Second, we will reinforce our global competencies. KIS Vietnam, set up in 2010 by acquiring the 70 th ranked local securities company, has now grown into the sixth largest securities firm in the country. Benchmarking our success in Vietnam, we plan to expand into other emerging markets. We will also strengthen our capabilities in global financial product development to offer unique products. Third, we will continue to diversify into new fields to enhance the Group s future income streams. We ask for your wholehearted support and encouragement as we strive towards our goal of becoming a global leading financial group. Thank you. Most sincerely yours, Namgoo Kim CEO of Investment Holdings KIH will pursue growth with an emphasis on customer satisfaction, rather than simply seeking topline expansion.

6 Board of Directors Board of Directors Yooshin Jung (NonStanding Director) Professor of Business School, Sogang University (2014~present) CEO & President of Venture Investment (2011~2014) CEO & President of Standard Chartered Securities (2008~2011) MA, Renmin University School of Finance, China (2013) Sangcheol Lee (NonStanding Director) Professor of Business School, Dongguk University (2004~present) Associate Dean of Dongguk University Business School (2013~2015) Director of n Accounting Association and Director of Academic Affairs at Management Accounting Association of (2008~present) Ph.D. in Business Administration, Yonsei University, (2002) Jaehwan Kim (NonStanding Director) Professor of Business School, University (2004~present) Assistant Professor, University of Colorado at Boulder (2001~2004) NonStanding Director of Investment Management Holdings (2008~2012) Ph.D. in Business Administration, Ohio State University, USA (2001) Jongseok Bae (NonStanding Director) Professor of Business Administration, University (2002~present) Chief Editor of n Academy of Management (2010~2016) Associate Dean of University Business School (2009~2010) Ph.D. in Business Administration, University of Illinois, USA (1997) Kanghaeng Lee Namgoo Kim Joowon Kim Hobart Lee Epstein VicePresident (Standing Director) CEO (Standing Director) President (Standing Director) (NonStanding Director) VicePresident of Investment Holdings (2016~present) VicePresident of Investment & Securities (2012~2015) Managing Director of Investment & Securities (2005~2011) BA in Economics, Sogang University, (1986) CEO & ViceChairman of Investment Holdings (2011~present) ViceChairman of Investment & Securities (2005~present) CEO & President of Investment Holdings (2003~2011) MBA, Tsinghua University, China (2015) MBA, Keio University, Japan (1991) President of Investment Holdings (2011~present) CEO & President of Investment Management Holdings (2008~2012) VicePresident of Investment Holdings (2006~2011) CEO & President of Investment Partners (2001~2006) MBA, University Business School, (2008) Lodestone Partners LLC (2014~present) VicePresident & Chief Operating Officer of Dongyang Securities (2009~2012) CEO & President of KTB Investment & Securities / KTB Networks (2008~2009) MBA, University of California, Los Angeles, USA (1981)

7 & Securities Kakao Bank of Investment Savings Bank EQ Partners Investment Partners KIARA Advisors Investment Capital Investment Management Investment Value Asset Management EmBRAcINg NEw challenges for a STABLE business PORTFOLIO Embracing new challenges for a stable business portfolio: KIH embraces the role of being an industry pioneer and is continuing to forge new paths to be the best. Investment & Securities posted the highest earnings in its sector for five consecutive years, due to a diversified business model that is not skewed toward securities brokerage. Other nonsecurities subsidiaries including asset management units, savings bank, venture capital company, hedge fund, and private equity managers are also leading in their respective segments with exemplary performances. KIH is generating a stable profit with a business portfolio comprising top performers in their respective fields. Financial investment 2011 Satisfied the criteria to be licensed as a comprehensive financial investment service provider, an industry first 2008 Established the very first retirement planning research institute 2006 Created the very first team specializing in real estate PF 2005 Merger between Dongwon Securities and Investment & Securities Co. rated as the most successful merger between local financial institutions Asset management 2006 Launched Investment Value Asset Management, s first asset management company specializing in longterm value Investment 1974 Launched Investment Management, s first asset management firm Savings bank 2015 Received A0 credit rating for six consecutive years, and recorded 15 straight years of profitability peerless in the industry 2014 Introduced a loan interest model system and mobile loans, an industry first 2014 Merged with Yesung Savings Bank 2001 Acquired Anheung Mutual Trust Bank 1996 Acquired Koryo Mutual Savings Bank Venture capital 2011 Launched s first RMB venture fund ( Investment Zhangjiagang Venture Fund) Credit finance 2014 Established s first corporate credit finance firm Banking 2015 Acquired s first preliminary approval for internetonly bank

8 Shanghai London Luxembourg Beijing Hong Kong Singapore Tokyo Ho Chi Minh Jakarta New York PAVINg THE way for global growth ANd NEw REVENuES Paving the way for global growth and new revenues: KIH is unrivalled among n financial firms in overseas markets. It is looking beyond to earn new money on the global stage. KIS is providing competitive financial services in major global financial hubs including New York, London, Hong Kong, and Singapore. It was the first n securities firm to enter the Vietnamese market and succeeded in growing the local entity, which ranked 70 th at the time of acquisition to 6 th largest player. KIS is using the experience to further expand into other newly emerging markets. The Shanghai research center launched by Investment Management in 2011 provides indepth market analysis to contribute to generation of stable earnings. Through its local office in Shanghai, Investment Partners formed s first RMB venture fund in In 2015 it created a joint fund with n and Chinese capital that was the largest of its kind in. KIARA Advisors is s first offshore hedge fund manager set up in Singapore. In 2015 its flagship fund achieved a return of 19.3%. Investment & Securities 2008 Became the first n securities firm to enter the Vietnamese market 6 overseas subsidiaries: London (1995), Hong Kong (1997), Singapore (2008), New York (2000), Beijing (2010), Vietnam (2010) 2 offices: Tokyo (1992), Jakarta (2014) Investment Management/ Investment Value Asset Management 2013 Established SICAV fund in Luxembourg 2006 Launched s first fund in Vietnam Venture capital 2015 Formed s largest joint China fund (Shanghai Founder Investment Partnership Corporate Fund) 2010 Opened Beijing office of Investment Partners 2008 Opened Shanghai office of Investment Partners KIARA Advisors 2008 Established as s first offshore hedge fund manager in Singapore SINgAPORE china vietnam

9 Crosscheck Monitor risk parameters Oversee risk activities Set risk limits Report Risk Managment Coordinates communication PRAcTIcINg PREEmPTIVE RISK management for sustainable REVENue generation Practicing preemptive risk management for sustainable revenue generation: KIH pursues industryleading stability and profitability based on stringent risk management. Guided by a systematic risk management framework, KIH classifies, assesses, and analyzes risk to formulate preemptive risk management policies and strategies. This allows KIH to generate stable cash flows and maintain healthy capital adequacy ratios across the board, leading to consistent operating performance in each business field. Preemptive risk management system 2015 Reconstructed Integrated Risk Management System (RMS) 2009 Introduced Integrated Risk Management System (RMS) 2006 Introduced Risk Adjusted Performance Management (RAPM), an industry first

10 Kakao Kakao Bank of BOLdLY SPEARHEAdINg change and creating NEw market VALue Boldly spearheading change and creating new market value: KIH has led change in the financial industry by constantly striving to be the first and best. It embraces fresh challenges to deliver new and superior value to its customers. KIH believes innovation as its raison d'être and will pursue growth that always puts its clients first and foremost. In 2015 KIH secured the first preliminary approval in to create an internetonly bank. It is currently in the process of preparing for the launch of Kakao Bank of in Led by KIH, Kakao Bank of will provide customers with services previously unimaginable in the financial industry to create new value in the market Timeline of Kakao Bank November Financial Supervisory Commission grants preliminary approval for Kakao Bank of October Completed business plan for Kakao Bank of and submitted application for preliminary approval August KIHKakaoKB Kookmin Bank form Kakao Bank of Consortium June Financial Supervisory Commission announces plan to introduce internetonly bank as part of financial reforms

11 Risk Management Risk Management Risk Management at KIH KIH is fully committed to rigorously managing risk, knowing that effective risk management is the key to stable operations. Board of Directors Establishes & approves Group risk management policies KIH sets risk management policies and exposure limits as they pertain to business plans, and then classifies risk into market, credit, operational, legal, and system risks for analysis and reporting. KIH s management and employees fully adhere to risk management processes and principles in carrying out their duties. Group Risk Management Structure KIH s Board of Directors and Group Risk Management Committee lay down Groupwide risk management policies and strategies. They are also responsible for making major decisions regarding the Group s risk limits and investment execution. The Group s Risk Management Department carries out risk monitoring and management at the Group level, monitoring risks facing each subsidiary and providing related guidelines. Additionally, supported by the Risk Management Department, the risk management committees of each subsidiary check for adherence to risk exposure limits, as well as assess, measure and monitor risk. Risk Management at KIH: Grouplevel Risk Control Oversees risk management of all subsidiaries Convenes integrated group risk management sessions and coordinates communications among risk management departments of subsidiaries Sets risk limits for subsidiaries and monitors their compliance Monitors risk parameters via IT system Checks and reports risk management activities on daily/monthly/ quarterly bases Risk Management at Investment & Securities Investment & Securities allots risk limits to each business division based on the guidelines set forth by KIH. The company has a comprehensive risk management organization comprising the Board of Directors, Risk Management Committee, Risk Management Subcommittee, Risk Management Working Committee, Chief Risk Officer (CRO), Risk Management Department, and Division Risk Managers. For effective asset management and risk control, Investment & Securities utilizes an RAPM (Risk Adjusted Performance Measures) framework that evaluates product risks and calculates riskrelated costs. The CRO then considers the risks and business performance before assigning limits for each business unit and product. Business units must then consider the riskrelated costs before making an investment decision. The company s Risk Management Department publishes regular and ad hoc risk management reports featuring detailed Risk Management at KIS, KIM, KIVAM, KIARA Advisors Risk Management at KISB, KIC Risk Management at KIP, EQ Partners analyses of VaR, stress test results as well as market, credit and liquidity risks. The reports provide management with reference material valuable for decisionmaking. The Department also conducts independent studies on the default probability of individual companies to prohibit investment in those falling under a set rating. Risk costs are prorated for different ratings to preemptively manage assets available for investment. Controls VaR, loss limits and trading positions Provides daily monitoring of liquidity Reviews investment decisionmaking process Monitors risk exposure and compliance Monitors loan concentration, large loans and problem loans Manages liquidity in accordance to net fund flows Establishes risk management policies Manages invested assets Reviews investment decisionmaking process

12 2015 News Highlights News Highlights Investment & Securities is named s best local brokerage house by Asiamoney 4 years running Investment & Securities secures overseas foothold in Indonesia Investment & Securities opened an overseas office in Jakarta, Indonesia. KIS now operates in several countries, having previously opened offices in the London (1995), Hong Kong (1997), New York (2000), Singapore (2008), Vietnam (2010), and Beijing (2010). Among domestic financial institutions, KIS is the most active in expanding into overseas markets as it makes the leap into becoming the best investment bank in Asia. Investment Partners sets up joint China fund In May 2015 Investment Partners and China s Founder Group signed an investment partnership agreement and formed a private equity fund investing in healthcare companies. The fund is expected to grow to KRW 420 billion in the future. KIP is spearheading expansion into overseas markets and is striving to extend its leadership beyond to the global arena. Investment Holdings acquires EQ Partners In October 2015 Investment Holdings acquired management rights to EQ Partners, whose major shareholders included Jack Ma, the founder of Alibaba. With AUM of KRW 1.6 trillion, EQ Partners strength lies in global infrastructure investment. The acquisition of EQ Partners is expected to further diversify Investment Holdings income streams. Investment & Securities was the topranked local brokerage house in in all nine categories for the fourth consecutive year in Asiamoney s 2015 Brokers Poll. KIS strives to provide investors with high quality, marketleading information based on thorough analysis. Investment Value Asset Management s flagship fund records accumulated return of 156% Value 10Year Investment Fund 1 (Equity) is Investment Value Asset Management s flagship fund launched on April 18, As of the end of 2015, it had achieved an accumulated return of 156%. During the same period, the KOSPI rose 38% and the KOSDAQ fell 3%. Based on its superior capabilities and knowhow, KIVAM is preparing to enter the overseas markets and grow into a global asset management company. Employment Insurance Fund selects Investment & Securities as lead asset manager In April 2015 Investment & Securities was selected to be the lead manager of the KRW 7 trillion Employment Insurance Fund. This further strengthened the market presence of KIS, which won the right to manage the National Housing Fund in Investment Management is chosen to manage private pension fund investment pool In September 2015 Investment Management was selected to be the lead asset manager of the first investment pool for private funds, winning the rights to participate in the KRW 75 trillion private pension fund market. The Ministry of Strategy and Finance had chosen KIM to be lead asset manager of the investment pool for public funds in By winning the bid to manage private funds as well, KIM has received recognition from both the government and private sector for its asset management capabilities. Investment Holdings acquires preliminary license for internetonly bank In November 2015 Investment Holdings and its partner Kakao, which has the nation s largest SNS platform, obtained a preliminary license to establish an internetonly bank. Kakao Bank of, which will be the country s first internetonly bank, is preparing to introduce innovative financial services to customers with high levels of stability and security. Investment Capital becomes a subsidiary of Investment Holdings In December 2015 Investment Holdings acquired the full stake in the subsubsidiary Investment Capital held by Investment & Securities. In the one year since its establishment in November 2014 KIC, now a subsidiary of KIH, increased its loan balance from KRW 18.0 billion to KRW billion as of the end of Investment Savings Bank records profits for 15 consecutive years Investment Savings Bank has recorded a profit for 15 straight years. KISB has also received the savings bank industry s top credit rating of A0 for six years running, attesting to its position as the market leader. KISB expanded its reach to the Seoul metropolitan region by merging with Yesung Savings Bank in September 2014 and is positioned to sustain growth in the years to come.

13 KIH At a Glance KIH At a Glance (Subsidiaries and Subsubsidiaries) As of end of March 2016 Overview of Subsidiaries and Subsubsidiaries Investment Holdings key subsidiaries have established leading positions in their respective fields which include investment banking (IB), asset management (AM), private equity/venture capital, and savings bank. It provides a wide variety of products and services through its financial subsidiaries, while effective cooperation among the various financial segments are creating synergies. The core subsidiaries have significantly reinforced their market presence as the IBAM business model pursued it by KIH since its launch in 2003 has successfully taken root. (Unit: %, KRW billion, based on FY2015 consolidated financial statements) Ownership Assets Equity Net Income Investment Holdings 31, , Investment & Securities 100% 28, , Investment Management 100% Investment Value Asset Management 100% Investment Savings Bank* 100% 1, Investment Partners 100% Investment Capital 100% KIARA Advisors 100% EQ Partners** 94.5% Kakao Bank of *** 54.0% * Based on fiscal year of Investment Holdings ** Included as a subsidiary of KIH as of January 2016, KGAAP basis (KIFRS consolidated basis for all except EQ Partners) *** After obtaining preliminary license to launch Internetonly bank in November 2015, it is currently preparing for banking license with plans to start banking business in 2016.

14 24 25 s No. 1 investment bank, Investment & Securities KIS ( Investment & Securities) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) KIM ( Investment Capital) Investment Holdings core subsidiary Highest level of net profit in the sector in FY2011~FY2015 Commission income up 20.1% YoY, net interest income and trading income up 15.5% Balance of financial products, centered on funds, up by KRW 31.5 trillion (+57.9%) YoY KISB ( Investment Savings Bank) As a key subsidiary of Investment Holdings, Investment & Securities produces balanced and stable profit across all business divisions from brokerage and asset management to investment banking and trading. It also demonstrates the highest level of efficiency in the industry. Total Client Assets (KRW trillion) Main Shareholder: Investment Holdings (100%) No. of Employees: 2,465 Client Assets: KRW trillion Shareholders Equity: KRW 3.37 trillion * As of end of December 2015 KIP ( Investment Partners) In order to maintain a competitive advantage in an increasingly competitive market, KIS is concentrating on growing the investment banking and asset management businesses to keep pace with policy changes and market trends while it continues to explore new growth opportunities FY2013 FY2014 FY2015 KIARA CAPITAL / KIARA ADV ISORS Investment & Securities FY2014 Amount Changed 2, , Investment & Securities is a comprehensive securities company that has been a leader in s capital market for the past 40 years as well as a pioneer in corporate financing and asset management. KIS continues to introduce management innovation in order to provide the highest quality comprehensive financial services. While most domestic securities companies have an income structure skewed toward brokerage commissions, KIH has broken away from this mold by consistently strengthening its competencies in investment banking, asset management, and principal investment. As a result, KIH has the most diversified and balanced revenue model in the domestic securities industry. 21, , , , ,819 CEO of Investment & Securities Sangho Ryu YoY (%) The company s vision in 2016 is once again Beyond No. 1, Beyond. It plans to realize the vision by giving priority to the customer and adhering to basic principles while serving its clients as their lifelong financial partner. KIS will adopt a core strategy of strengthening its investment banking and asset management businesses. It will also preemptively respond to the market environment by adopting new systems and introducing new products, and strive to maximize synergy through the internetonly bank. In investment banking KIS plans to expand preipo investment using proprietary capital, acquisition financing, participation in real estate PF development projects, and alternative investments. Its goal is to secure the top spots in the League Table rankings across all sectors. In the retail business, where asset management is at the center of a paradigm shift, KIS will continue to win new customers by increasing assets based on feebased products, boosting sales of new products like individual savings accounts and nontaxable overseas funds, and by promoting accounts that can be opened via the nonfacetoface channel. ROE (%) FY2013 FY2014 FY2015 Yearly net income / Average equity capital FY2013 net income annualized from 9 months performance Net Income (KRW billion, consolidated) FY2013 (April~ December 2013, 9 months) FY2013 FY2014 FY2015

15 26 27 s representative asset manager, Investment Management KIS ( Investment & Securities) KISB ( Investment Savings Bank) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) KIM ( Investment Capital) s first asset management company AUM growth of KRW 3.1 trillion (+9.9%) YoY Net income growth of KRW 2.1 billion (+8.5%) YoY In 2015 the fund market displayed notable growth in not only funds but also the discretionary market as public funds and institutional investors expanded the scale of their investments. In addition the continuation of a low interest rate environment led to a rise in customer demand for a substitute for savings deposits. As a result market funds continued to flow into alternative funds and bond funds. KIP ( Investment Partners) KIARA CAPITAL / KIARA ADV ISORS Investment Management FY2014 Main Shareholder: Investment & Securities (100%) No. of Employees: 246 Total AUM: KRW 34.6 trillion Shareholders Equity: KRW billion * As of end of December 2015 Amount Changed 2, , Investment Management was established in 1974 as the s first asset management company and now has 42 years of history as s representative asset manager. Based on extensive experience, KIM is leading the industry by providing stable and efficient asset management to customers and by steadily growing assets under management (AUM). With top priority on enhancing returns for customers, KIM will evolve into the foremost asset management company not only in but all of Asia by maintaining a rational investment philosophy and meticulous risk management. 21, , , CEO of Investment Management 2,666.3 Hongrae 3,819 Cho YoY (%) Since it was established as the country s first asset management company, KIM has been operating for 42 years with an exceptional investment system and a commitment to putting customers returns first. It continues to grow as s representative asset manager. In 2015, despite the rapidly changing market environment, KIM made every effort to maximize fund performance and increased efficiency to record consistent operating profits. Additionally it secured more institutional capital, including pension funds by being selected as lead asset manager for the investment pool for private funds. It also received a positive response from the market based on the favorable performance of bond funds and income funds. The market for funds and discretionary accounts, driven by institutional investors, is expected to continue expanding in KIM will strive to achieve solid performance in managing the investment pool for public funds and mandate from institutional investors and meet expected returns. We also expect overseas products will once again gain in popularity as the result of growing demand for alternate products to savings and retirement pensions and the introduction of individual savings accounts. With that in mind, KIM will strengthen marketing for alternative funds and retirement funds, which are expected to deliver steady returns. KIM will also use its network of overseas offices to expand overseas products and maintain consistent performance to draw out a positive response from the market. AUM (KRW trillion) FY2013 FY2014 FY2015 Net Income (KRW billion, separate) FY2013 FY2014 FY2015 FY2013 (April~ December 2013, 9 months)

16 28 29 s first value investment company, Investment Value Asset Management KIS ( Investment & Securities) KISB ( Investment Savings Bank) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) KIM ( Investment Capital) s first value investment company AUM of KRW 6.9 trillion, retail AUM of KRW 4.8 trillion Named Best Retail House and Best Pension Fund Manager in the category by Asia Asset Management in Hong Kong in 2014 No. 1 in sales for taxdeductible long term funds Investment Value Asset Management is s first and foremost specialist in longterm value investment. Its core principles are value investment that focuses on the intrinsic value of a company and longterm investment that can endure the ebb and flow of the market. Based on this management philosophy, KIVAM emphasizes risk management and pursues a policy of lowrisk, middlereturn. KIP ( Investment Partners) KIARA CAPITAL / KIARA ADV ISORS Investment Value Asset Management FY2014 Main Shareholder: Investment & Securities (100%) No. of Employees : 63 Total AUM: KRW 6.9 trillion Shareholders Equity: KRW 33.7 billion * As of end of December 2015 Amount Changed 2, , Investment Value Asset Management was established in February 2006 as the first longterm value investment company in. KIVAM makes investments based on the intrinsic value of companies and pursues a lowrisk, middlereturn policy. As of the end of 2015, its 5year rate of return on equity type funds and bond hybrid type funds was among the highest in the industry, proving the advantages of long term value investment. KIVAM will further solidify its position as the representative asset management company as it marks the 10 year anniversary of its founding. 21, , , CEO of Investment Value Asset Management 2,666.3 Raeshin 3,819 Park YoY (%) In order to ensure stability and longterm performance, KIVAM carefully selects investment targets based on both quantitative assessment of various financial metrics, including PER and ROE, and qualitative assessment of a variety of factors including market presence and market entry barriers. KIVAM s risk management system is likewise as thorough and consists of a 3step process: the preliminary stage (review of regulation and investment approval), ongoing assessment (realtime monitoring) and followup (briefing and response). In 2015 the majority of KIVAM funds, including the flagship Value 10year Investment Fund (Equity) and pension funds, recorded accumulated returns that put them in the top 10 percentile. In particular Value 10year Investment Dividend Fund (Equity) which was launched on December 24, 2013, produced a yield of 42% in approximately two years since its inception. KIVAM s efforts to stay true to its principle of value investment while also meeting customer needs put the company in third place in the industry in terms of the 5year return on equity type and equity hybrid type funds. As KIVAM celebrates the 10th year of its establishment, it will build on the abovementioned strengths to reinforce its position as a representative value investment company. Furthermore it will foster an environment more conducive to long term investment by raising overall AUM as well as the share of retail money in AUM. AUM (KRW trillion) FY2013 FY2014 FY2015 Net Income (KRW billion, separate) FY2013 FY2014 FY2015 FY2013 (April~ December 2013, 9 months)

17 30 31 Total Assets (KRW billion) 1, , ,425.2 A bank with strong fundamentals, Investment Savings Bank FY2013 FY2014 FY2015 Based on KIFRS fiscal year of KIH KIS ( Investment & Securities) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) KRW billion YoY increase (+29.7%) in total assets on expansion into Seoul Industry high credit rating of A0, six years running Industry leading asset quality with BIS ratio of 17.0% and NPL ratio of 4.4% Net Income (KRW billion, separate) KISB ( Investment Savings Bank) KIP ( Investment Partners) KIM ( Investment Capital) Main Shareholder: Investment Holdings (100%) No. of Employees: 287 Total Loans: KRW 1,631.5 billion Shareholders Equity: KRW billion * As of end of December 2015 Investment Savings Bank (KISB) maintained stable performance by delivering another year of profits in 2015 with a net income of KRW 31.7 billion. KISB has generated profit for 15 consecutive years and remains in the top tier of the industry in terms of profitability. Savings banks, mainly those affiliated with financial holding companies and largesized private lenders, turned around and recorded profit in 2014 as a result of reform efforts after suffering through a period of contraction in the wake of the sector restructuring in In addition the recent regulatory moves that support financing for the working class such as measures to promote middleinterest rate credit loans are helping to revitalize the savings bank industry. 1.5 FY2013 FY2014 FY2015 Based on KIFRS fiscal year of KIH Asset Quality Indices (%) BIS Ratio NPL Ratio FY2013 FY2014 FY2015 KIARA CAPITAL / KIARA ADV ISORS Investment Savings Bank FY2014 Amount Changed 2, , Investment Savings Bank has been generating profit for 15 consecutive years since its establishment in It recorded a net income of KRW 31.7 billion based on consolidated KIFRS in FY2015, and continues to operate at the highest level of profitability in the industry. KISB also leads the industry in asset quality, recording a BIS ratio of 17.0% and a NPL ratio of 4.4%. It is laying down the foundation for stable and sustainable growth with improved efficiency of its branch network that extends from Seoul to Gyeonggido and Jeollado, as well as its efforts to discover new businesses. 21, , , CEO of Investment Savings 2,666.3 Bank Youngwoo 3,819 Nam YoY (%) KISB has been able to rely on its management knowhow to respond preemptively to a changing environment. As a result it achieved top level results in the industry with return on assets (ROA) of 1.9% and return on equity (ROE) of 11.2%. KISB anticipates 2016 to be another year of challenges and opportunities. Along with low economic growth below 3%, competition is likely to intensify. The maximum lending rate for private lenders was lowered to 27.9% and Internetonly banks, which are due to begin fullscale services in the second half of 2016, are slated to enter the middleinterest rate loan market. To respond to changes in the market, KISB will boost productivity through organizational reshuffling and branch repositioning. A new division will be set up that will be dedicated to overseeing credit loans to grow the credit loan business and strengthen KISB s footing in the middleinterest rate loan market. Additionally KISB will practice thorough risk management and explore opportunities to generate new income streams to pave the way toward stable and sustainable growth.

18 32 33 A true partner for n ventures, Investment Partners KIS ( Investment & Securities) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) Largest n venture capital firm AUM of KRW 1,440 billion, achieved record high annual net profit of KRW 49.4 billion in 2015 Exemplary track record with pooled IRR of 18.9% on eight matured funds since 2001 KISB ( Investment Savings Bank) KIP ( Investment Partners) KIARA CAPITAL / KIARA ADV ISORS Investment Partners FY2014 KIM ( Investment Capital) Major Shareholder : Investment Holdings (100%) No. of Employees : 49 Total AUM : KRW 1,440.7 billion Shareholders Equity : KRW billion * As of end of December 2015 Amount Changed 2, , Investment Partners invests in promising small and mediumsized enterprises in addition to providing them with business and financial consulting. By building a solid financial foundation and management system, KIP has received a rating of A+ in the venture capital firm assessment conducted by the Small and Medium Business Administration every year since It also led the sector in asset management performance, posting an average IRR of 18.9% over the past 15 years. Buoyed by these results AUM increased by 30.3% last year. 21, , , CEO of Investment 2,666.3 Partners Yerhyun 3,819 Baek YoY (%) Investment Partners is a private equity firm specializing in small and medium sized enterprises. It uncovers promising companies in the early stages and promotes their growth through investments. KIP comprises three divisions. The Investment Division seeks and invests in n SMEs that demonstrate strong potential. With offices in Beijing and Shanghai, the China Division operates RMB funds in China. The Private Equity Division is responsible for creating synergy between divisions, growth expansion investments, and mezzanine investments, as well as decisions regarding M&A and overseas business expansion. KIP will faithfully carry out its role as a global private equity firm focusing on SMEs and establish itself as Asia s leading private equity house. Key initiatives for 2016 Launch new US office: Expansion of US and global network Expand China Division: Target of creating RMB fund worth KRW 420 billion Explore the next Chinese market and review strategy for entry into Southeast Asian market Increase overseas funding/investment capacity: Target investment of KRW 355 billion in 2016 Strengthen system to prepare for AUM of KRW 3 trillion, plan funding and expand pipeline AUM (KRW billion) 1, , FY2013 FY2014 FY2015 Net Income (KRW billion, consolidated) FY2013 FY2014 FY2015 FY2013 (April~December 2013, 9 months)

19 34 35 Corporate credit finance specialist, Investment Capital KIS ( Investment & Securities) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) Corporate credit finance firm established in November 2014 Loan balance stood at KRW billion at December 2015 and surpassed KRW 1 trillion in February 2016, one year after starting operations KIM ( Investment Capital) Investment Capital was established in November 2014 as specialized credit finance company. Its main business includes real estate project financing, corporate loans and structured finance. Major Shareholder : Investment Holdings (100%) No. of Employees: 21 Shareholders Equity : KRW 84.7 billion * As of end of December 2015 KISB ( Investment Savings Bank) KIP ( Investment Partners) KIARA CAPITAL / KIARA ADV ISORS Investment Capital FY2014 Amount Changed 2, , Investment Capital was established in 2014 as a credit finance subsidiary of Investment Holdings. Its main business is extending secured corporate loans targeting investment banking clients of n Investment & Securities. On the strength of synergy with other KIH subsidiaries, KIC s total lending amounted to KRW billion as of the end of 2015 and annual net profit in 2015 was posted at KRW billion. KIC will continue to grow as the leader in credit finance. 21, ,934.8 CEO of Investment 18,549.3 Capital Wootaek Auo , ,819 YoY (%) Loan balance increased by KRW billion from the previous year to KRW billion as of the end of December By February 2016, about one year after starting operations, AUM surpassed KRW 1 trillion. This feat reflects the positive synergy among KIH subsidiaries, including Investment Savings Bank, with its proven credit analysis abilities stemming from diverse experience, and Investment & Securities, the undisputed leader in the n real estate project financing market. KIC is supported by high caliber credit experts and risk management infrastructure. The credit analysis process is divided into three stages, each carried out by the Credit Officers Committee, Credit Assessment Committee and Risk Management Committee. The three committees share risk policies within KIH for enhanced risk management. Going forward KIC plans to make the leap to s leading corporate credit provider by offering optimized solutions to customers based on synergy with other KIH subsidiaries. KIC will continue to diversify its business portfolio beyond secured corporate loans and PF and increase financing for new technology projects with a view to growing the lending balance above the KRW 2 trillion mark in Loans by Category as of December 2015 (KRW billion, %) Secured Corporate Loans Real Estate PF Loans New Technalogy Loan Balance (KRW billion) FY2015 1Q 22.2% (161.3) As of December Q 77.6% (563.8) Q 0.2% (1.5) Q

20 36 37 's first hedge fund manager, KIARA Advisors KIS ( Investment & Securities) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) 's first hedge fund established in Singapore in 2008 Fund NAV of KRW billion KISB ( Investment Savings Bank) KIM ( Investment Capital) Interest rate hikes in the US and the sluggish Chinese economy compounded uncertainty and volatility of Asian stock and commodity markets in the second half of Hedge Fund Research's annual global market index recorded 1.09% and global hedge funds failed to meet investors expected returns. KIP ( Investment Partners) KIARA CAPITAL / KIARA ADV ISORS Major Shareholder: Investment Holdings (100%) No. of Employees: 9 * As of end of December 2015 Despite the challenging market conditions, KIARA Advisors generated stable yields on its major product, KIARA Asia Pacific Hedge Fund, and sustained growth. As a result it succeeded in attracting capital from global investors in just a year after launching the product. KIARA Advisors will further solidify its position as an alternative investment specialist in 2016 by mounting efforts targeting both domestic and global investors against the current backdrop of low interest rates and market uncertainty. KIARA Advisors ( Investment Absolute Return Asia) FY2014 Amount Changed Established as s first offshore hedge fund manager in Singapore in February, 2008, 2,765.3 KIARA Advisors provides Investment alternatives for absolute return based on long/short strategies 2,686.9 and indepth corporate analysis CEO of KIARA Advisors Haeman Yang YoY (%) Fund NAV (KRW billion) Asia Fundamental Equity L/S Bond Type MultiStrategy L/S , , , , ,

21 38 39 PEF manager specializing in energy & infrastructure, EQ Partners KIM ( Investment Management) PEF manager specializing in energy and infrastructure AUM of KRW 1.6 trillion AUM (KRW trillion) KIS ( Investment & Securities) KISB ( Investment Savings Bank) KIVAM ( Investment Value Asset Management) KIM ( Investment Capital) EQ Partners was included as a subsidiary of Investment Holdings in January Its aim is to secure downside protection in the investment structuring phase and create an opportunity for upside potential with differentiated investment strategies. The focus is to yield sustainable and predictable returns by investing in assets with secure positions in the competing market FY2013 FY2014 FY2015 EQ Partners performs exhaustive monitoring of the business and the industry in the investment and divestment processes as well as conducting preemptive analysis of macroeconomics of the invested region to identify the best time for divestment to maximize ROI. Major Shareholder: Investment Holdings (94.5%) No. of Employees: 16 Total AUM: KRW 1.63 trillion Shareholders Equity: KRW 17.4 billion * As of end of December 2015 KIP ( Investment Partners) A global network of sound and credible partners has enabled EQ Partners to secure proprietary investment opportunities and offer business opportunities. This strong network of trusted partners will continue to drive the firm's growth until it can compete with global PEFs on an equal footing. EQ Partners KIARA CAPITAL / KIARA ADV ISORS FY2014 Amount Changed 2, , EQ Partners is a private equity fund manager with an emphasis on energy and infrastructure sectors with over KRW 1.6 trillion in AUM as of December It is delivering stable returns through its investments in domestic and global ICT infrastructure companies, global resources and infrastructure related assets. In EQ Partners was selected as the sole manager of the ExportImport Bank of s global energy infrastructure fund, attesting to its expertise in energy and infrastructure investment. YoY (%) As of end of 2015 approximately 316 private equity firms were registered with the Financial Supervisory Service with total managed assets amounting to KRW 58.5 trillion. EQ Partners manages KRW 1.6 trillion in assets, translating to a 3% share of the PEF market. Based on its solid investment network and differentiated investment strategy, EQ Partners will continue to seek opportunities in assets that can generate stable return on investment. The goal for fiscal year 2016 is to set up new funds worth KRW 410 billion and execute KRW 200 billion in new investments at home and abroad. 21, ,934.8 CEO of EQ 18,549.3 Partners Jonghoon Kim 2, ,

22 40 41 A new paradigm in banking, Kakao Bank of KIS ( Investment & Securities) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) KIM ( Investment Capital) Granted a preliminary license for the first internetonly bank in in November 2015, leads the formation of Kakao Bank of Main shareholder of Kakao Bank of with 54% stake On November 29, 2015, the government granted Kakao Bank of a preliminary license to enter the banking industry, the first such approval in 23 years. Kakao Bank of was set up by 10 entities, each leaders in their financial or ICT industries, and will differentiate itself from existing banks with unique products/services and cost efficiency. KISB ( Investment Savings Bank) KIP ( Investment Partners) KIARA CAPITAL / KIARA ADV ISORS Kakao Bank of FY2014 Amount Changed Banking with Kakao 2, , Kakao Bank of is the first new entity to receive a license to enter s banking industry in 23 years As an internetonly bank it will practice a new form of banking with products and services in four categories payments and settlements, loans, deposits and customer services all tailored for mobile banking Kakao Bank of will balance innovation and stability based on a differentiated profit structure. 21, ,934.8 CoCEO of Kakao Bank of Yongwoo 18,549.3 Lee, Daniel Yun 2, ,819 YoY (%) Kakao Bank of represents the convergence of finance and ICT. Its three main shareholders are Investment Holdings (54%), Kakao (10%) and KB Kookmin Bank (10%), and its strategic shareholders are ebay (GMarket/Auction), Seoul Guarantee Insurance, Post, YES24, Netmarble, Kona I, and Tencent. By harnessing ICT to enhance services and rationalize channel costs, Kakao Bank of will provide innovative products and services meeting customers demands. By doing so it will contribute to upgrading the level of s banking industry and become the premier internetonly bank in. In 2016 Kakao Bank of will launch four categories of innovative products and services on Kakao s mobile platform. The four categories of payment and settlement, loans, deposits, and customer service will reflect the bank s desire to connect, broaden and share. 1. Payment and settlement: The Kakao platform will allow customers and sellers to communicate with each other directly, which will minimize transaction costs and increase transaction opportunities. The innovative method will attract a wide customer base and the fees from the transactions will lay the foundation for a revenue structure that is more stable than those of existing banks. 2. Loans: The bank will integrate and analyze vast amounts of data of the shareholders customers to establish Kakao Score, a differentiated credit scoring system (CSS) that will enable the bank to provide reasonable interest rates. It will also offer loans aimed at individuals and small and medium business owners with credit ratings of 5~6, and introduce financial services currently unavailable, such as opportunities to improve credit ratings. 3. Ddeposits: The bank will support shared financial goals and offer customized products related to the customer s goals. It will also offer differentiated deposit and installment savings products to preferred customers as interest rate incentives. 4. Ccustomer Service: Like Kakao Universal Point, which can be used anytime, the bank will expand benefits to customers and use artificial intelligence to provide a variety of personal financial services, such as alerting customers about utility bill due dates or electronic transfers as well as 24hour consultations and recommendations on financial products. Equity Structure (%) Investment Holdings Kakao KB Kookmin Bank 10% 26% 10% 54%

23 Investment Holdings l gs Report Co., Ltd Review of Operations IH At a Glance KIS ( Investment & Securities) KIM ( Investment Management) KIVAM ( Investment Value Asset Management) KIM ( Investment Capital) Management s Discussion & Analysis KIP ( Investment Partners) KISB ( Investment Savings Bank) KIC ( Investment Capital) Overview & Business Environment Analysis of Consolidated Earnings (Audited) Performance of Subsidiaries KIARA CAPITAL / KIARA ADVISORS EQ Partners