ANNUAL REPORT 2005

HANA FINANCIAL GROUP ANNUAL REPORT 2005

18th Fl., DI&S Bldg. 27-3 Yeouido-dong, Yeongdeungpo-gu, 150-705 TEL : (82-2) 2002-1110 Home Page : http://www.hanafn.com NEW START TO BE A 1LEADING FINANCIAL GROUP Contents

05 Financial Highlights 09 Shareholders Information 12 Letter to Shareholders 16 Corporate Timeline 20 Establishment of Hana Financial Group Inc. 22 Hana Financial Group at a Glance 24 Vision & Mission 26 Synergy 28 Business Portfolio | Commercial Banking | Private Banking | Brokerage | Asset Management | | Insurance | Credit Card 40 Commitment to Community 43 Recognition 44 Corporate Governance 45 Board of Directors 48 Leadership 50 Corporate Information 51 Financial Section

2 Financial Highlights

1. Business Volume

2. Earnings INNOVATION 3. Profitability

4 5 4. Asset Quality

5. Capital Adequacy ACHIEVEMENT

6 7 7 Shareholders Information

Major Shareholders as of December 31, 2005

Name No. of Shares % Name No. of Shares % 19,077,762 9.34 NTC-GOVSPORE 3,341,326 1.64 TEMASEK 18,500,000 9.06 Dongbu Insurance Co., Ltd. 3,225,200 1.58 Templeton 16,607,231 8.13 Mirae Asset Securities Co., Ltd. 3,166,068 1.55 Allianz 9,894,000 4.84 CAPITALWORLDGROWTHAND 3,125,000 1.53 National Pension Fund 6,959,100 3.41 SSB-ARTISAN 2,864,480 1.40 POSCO 6,515,450 3.19 MSIL-SRINV(L)LTD 2,689,117 1.32 Korea Investment & Securities Co. 6,372,475 3.12 BONY-MATHEWS 2,341,231 1.15 MSIL-TOSCA 5,269,110 2.58 Korea Life Insurance Co., Ltd. 2,136,350 1.05

Composition of Shareholders as of December 31, 2005

Type of Shareholders No. of Shareholders No. of Shares Owned % and Custodians 268 19,159,036 9.38 Securities Companies 41 4,461,074 2.18 Insurance Companies 10 5,396,560 2.64 HARMONY Investment Trusts 67 1,227,767 0.60 Individual Shareholders 18,847 7,815,486 3.83 Foreign Shareholders 890 147,613,841 72.27 Others 207 18,582,479 9.10 Total* 20,330 204,256,243 100.00

* Total Number of Shares Owned includes 3,565,780 shares of treasury stocks.

Share Data as of December 31, 2005

Type Shares Authorized Shares Issued Treasury Stocks Shares Outstanding Registered Common Share 800,000,000 204,256,243 3,565,780 200,690,463

* As of December 1, 2005, total equity stakes of subsidiaries were transferred for the common shares of Hana Financial Group Inc. in accordance with the all-inclusive stock transfer plan, applying the exchange ratio that was determined by relevant laws and regulations of Republic of Korea. As a result, two of subsidiaries, Hana and Hana Securities, were entitled to some equity ownership of their parent company, Hana Financial Group Inc. In accordance with Korean Financial Accounting Standards, consolidated financial statements of Hana Financial Group Inc. and its affiliates recorded 3,565,780 shares as treasury stocks. During 2006, additional 2,568,050 shares of the Company were disposed of. As end of March, 2006, the Company and its affiliates are accounting for 997,730 shares of treasury stocks.

8 9 8 Stock Price Performance

HFG Hana Bank KOSPI

Per Share Data

2001 2002 2003 2004 2005

Dividends Per Share (Cash - In KRW) 200 500 500 750 400 (Stock - Shares) 0.04 - - - 0.01 EPS (In KRW) 2,457 2,304 3,167 7,728 4,658 BPS (In KRW) 12,692 15,863 19,155 27,656 30,940 Share Price (High - In KRW) 17,050 22,450 24,100 29,900 50,100 Share Price (Low - In KRW) 5,550 14,350 7,700 20,150 24,150 PBR (Times) 0.4 ~ 1.3 0.9 ~ 1.4 0.4 ~ 1.3 0.7 ~ 1.1 0.8 ~ 1.6 PER (Times) 2.3 ~ 6.9 6.2 ~ 9.7 2.4 ~ 7.6 2.6 ~ 3.9 5.2 ~ 10.8

* The figures from 2001 to 2004 represents per share data of Hana Bank. Cash dividend declared per share for 2005 includes Hana Bank's interim dividend of 350 won per share. The interim dividend was declared by the resolution of Hana Bank's BOD meeting dated July 29, 2005.

Stock Listing

Korea Exchange : Common Stock

Registrar and Transfer Agent

Hana Bank : Registrar & Transfer Agency Services Dept., 43-2 Yeouido-dong, Yeongdeungpo-gu, Seoul, Korea TEL : (822) 368 - 5800 COOPERATION 10 Letter to Shareholders

Dear Shareholders,

The recent consolidation and globalization of financial institutions have intensified the competition among financial institutions; as such, we anticipate that Korea’s financial institutions will face a stiffer challenge from other types of network, including the telecommunication network, which is based on wire/wireless communications and the distribution network, which is centered on convenience stores and outlets.

Recent developments in the information and telecommunication sectors have triggered the diversification of customer demand for financial products and shortened product development cycles. Furthermore, as low interest rate takes root and the financial needs of customers become more diverse, funds in the traditional bank products have started to gradually flow into indirect investment products, with the asset management market offering an ample growth potential. To proactively deal with changing market environment, we established the financial holding company, Hana Financial Group Inc. (“HFG”) in December 2005.

With the holding company at the heart of the Group serving as the strategic architect, Hana Financial Group overlooks approximately 700 branches of Hana Bank and DI&S, as well as product development engines such as Hana Securities Co., Ltd., Hana Life Insurance Co., Ltd., Hana Capital Co., Ltd., and Daehan Investment Trust & Management Co., Ltd. (“DIMCO”), in addition to the think tank and IT

Investment Banking

Financial Network Securities (Bank, Securities, Insurance) Bank Firm

Bancassurance

Asset Insurance Telecommunication Distribution Network Management Network (Department Store, Bank Securities Insurance Asset ManagementNon-Financial Company (Internet, Wired/Wireless) Discount Store, Travel) Left) Right) Kyo-Joong Yoon Seung-Yu Kim Private Banking President & Chief Executive Officer Chairman & Chief Executive Officer

Past Present Future Segmentation Universal Banking Network Competition

12 13 service provider such as Hana Institute of Finance and Hana I&S. loyalty - but will also carry on Hana Bank’s corporate culture, which values people, efficiency, and innovation, and further develop it as an integral part of affinity and unity, which will be shared by all In 2006, Hana Financial Group will do its best to establish a desirable group operation model, facilitate executives and staff members of the Group. On another front, The Group will strive to earn the respect harmonious collaboration among affiliated companies, and generate synergies in order to improve the of the local community by faithfully fulfilling our corporate social responsibilities. This year, we will value of the Group as a whole. More specifically, we will develop a Customer Relationship Management contribute to the local community through volunteer activities that would be more systematically (CRM) system at the Group level and closely link it to our product sales channel in order to meet organized with the establishment of Hana Financial Group Foundation. diversified customer needs. Furthermore, we will redefine our channel strategy and, for example, expand Hana Financial Plaza, which combines branches of banks and securities. With its establishment on December 1, 2005, HFG had a short fiscal year in 2005. In accordance with Korean GAAP, HFG and its affiliates reflected the operating results for the period from October 1, 2005 The Group also plans to generate synergies through combined marketing across various business to December 31, 2005 in the consolidated financial statements, posting net income of 216.0 billion won. sectors by applying matrix organizations to each market: corporate banking, retail banking, and private 2006 is HFG’s first full year of business. In the upcoming year, we are confident that we will achieve banking for high net worth individuals, etc. In particular, we expect to see great synergies in terms of even better results with the solid synergy effect as well as improved management efficiency by full- new product development, channel strategy, and the establishment of investment policy. As per cost fledged operation of HFG. synergy, we intend to create synergies through the bundle procurement of IT and disposables at the Group level, the integration of securities systems, and the elimination of overlapping functions within the We firmly believe that our meaningful efforts to establish a most desirable role model as a comprehensive Group. financial group will lead to fruitful results for our shareholders in the future. We ask for your unwavering support as well as your suggestions to make Hana Financial Group a financial group that represents not We believe that establishing a desirable corporate culture and fulfilling corporate social responsibility for only Korea but all of East Asia. the local community are essential in sustaining growth and enhancing the brand value of the Group. Hana Financial Group will not only inherit the traditional values of the financial industry - such as honesty and Thank you.

Entrance of Global Players Trends of Low Growth Implementation of Basel II Environmental Changes - Saturated market - Slowdown in banking - Preference on asset soundness - Fiercer competition - Diversified market needs - Stagnant profitability Seung-Yu Kim Kyo-Joong Yoon Strategic Chairman & Chief Executive Officer President & Chief Executive Officer Needs Need for New Growth Engine

Consolidation Universalization Alternatives (Economy of Scale) (Economy of Scope)

Expand Non-Banking Sector

Asset Management Implementation Secure Market Leading Position Credit Card

Life Insurance

Investment Banking

14 15 Corporate Timeline

1991 1992 1993 1994 1999 2000 2001 2002

Jul Established Hana Bank Jul Started credit card business Jul Received “Korea's Best Bank Nov Won the 3rd runner up of Jan Merged with Boram Bank and Jan First Korean bank to establish Feb Established Hana Allianz Sep Signed the contract for the Dec Total deposits exceeded 3 Award” by Euromoney “Korea Advertisement Award” initiated the PMI process Night Time Banking Center Investment Trust Management merger between Hana Bank trillion won Nov Total deposits reached 5 Mar Named “The Most Customer Feb Successfully increased capital Company and Seoul Bank trillion won Friendly Bank” in the Ison and signed strategic alliance Mar Opened the largest PB center Dec Merger with Seoul Bank - C&CI Survey agreement with Allianz AG, for VIP customers in Korea Launched Hana Bank Apr Completed the post-merger the world’s largest insurance Mar Became the first Korean bank integration of EDPS group to post positive net incomes Apr Obtained an AAA rating from Mar Started “Magic Bank” and dividend payouts for 30 Korea Investors’ Service and operations (multi-purpose consecutive years Korea Ratings ATM within convenience May Selected as exclusive agent to May Received "IR Grand Prize" from shops) sell Tourism Gift Certificates the Korea Economic Daily Apr Initiated Bancassurance joint May First to sell Visa Traveller's operation with Allianz First Money in Korea Life Jun Celebrated the 30th year May Acquired a BBB rating from anniversary since the inception Fitch IBCA, highest rating of Korea International Finance among Korean banks Corporation, Hana Bank’s forebody

1995 1996 1997 1998 2003 2004 2005

Feb Acquired an AA rating in all May Signed for alliance with Jun Recognized as “Korea’s Best Apr Named “Korea’s Best Feb Hana Life Insurance Jan Acquired Qingdao Jan Recognized as “Best Private categories from bank American International Group Bank” by Finance Asia Enterprise” by Asiamoney established International Bank in China Bank in Korea” by Euromoney management evaluation of the Aug Started “Global One Calling Dec Best Bank in Customer Jun First Korean bank to attract May Completed integration of IT Apr Signed strategic alliance with Mar President Jong-Yeol Kim Banking Supervisory Authority Service”, to provide a Satisfaction, ROI’s on USD152 million from IFC systems in the shortest period the Industrial & Commercial inaugurated Apr Total deposits reached 10 discounted international Consumer Survey during the financial crisis of time Bank of China May Acquired Daehan Investment trillion won within a record- phone calls Jun Hana Godanwi Plus chosen as Jun Hana Bank and Dongwon Dec Hana Bank posted a record- & Securities Co., Ltd. breaking 3 years and 9 months “The Best Financial Product” Securities signed MOU for high net income of 1.3 trillion Dec Hana Financial Group Inc. Jun Opened Hana Finance Asia by KMA strategic alliance won established Ltd. in Hong Kong as a local Sep Received “Customer Jul Opened subsidiary Satisfaction Award” from Center Dec Received “Best Customer KMA Satisfaction Award” from Oct Started Chung Chong Hana Korea Management Bank operations Association(KMA) Nov Received the “Human Resources Development Award” from KMA Dec Net income reached 110 billion won, the highest among Korean banks

16 17 SYNERGY

19 Establishment of Hana Financial Group Inc.

Structure of Hana Financial Group Incorporation of HFG If a financial institution has strong product development capabilities but distribution channels, or vice versa, it will always face challenges in leading the market, regardless of its achievements in the short term.

Hana Financial Group, (“the Group”) established its holding company on stipulated by the Commercial Act of Korea. This stock transfer was December 1, 2005. From the beginning, it focused on both the completed in the following order: (1) the subsidiary shareholders development and distribution of diversified financial products and impacted by the stock transfer approved the share transfer plan in the services, by fully utilizing the sales network and the development General Shareholders’ Meeting; (2) all of the share certificates of capabilities of Hana Bank and Daehan Investment & Securities Co. Ltd. subsidiaries subject to the share swap were transferred to the newly (“DI&S“) as well as other product development engines such as asset created financial holding company (HFG); (3) And finally, newly issued management, brokerage, insurance and investment banking. share certificates of the financial holding company (HFG) were allocated to the subsidiary shareholders in proportion to their equity ownership. The Group had secured 683 distribution branches, both domestic and abroad by 2005 year end, including 583 branches from Hana Bank, 78 As a result of the share transfer, (1) existing subsidiary shareholders branches from DI&S, and 22 branches from Hana Securities Co., Ltd. became shareholders of HFG; and (2) HFG took 100% equity ownership of Through this empowered branch network, the Group will commit its best the subsidiaries under the share swap plan. efforts to maximize synergies through organically combining its business channels within subsidiaries of the Group. More specifically, HFG was established according to the following timeline: Further, Hana Financial Group retains one of the most market-competitive product development engines in Korea. Daehan Investment Trust & On May 16, 2005, Hana Bank took the first step in establishing a financial Management Co., Ltd (“DIMCO“) is a leading asset management firm in holding company by launching the HFG Establishment Committee. After Korea with 21 trillion won in assets under management (“AUM“) as of submitting an application for preliminary authorization on July 8 and 2005 year end. Proactively coping with recent changes in the domestic adopting the BOD resolutions for the establishment of HFG on July 29, asset management market, the Group will push further forward with the four companies subject to the share transfer plan, Hana Bank, DI&S, plans to upgrade DIMCO as a world-class player. Hana I&S, and Hana Institute of Finance, attained the preliminary authorization from Financial Supervisory Commission (“FSC“) on As for Hana Securities Co., Ltd., (“Hana Securities“) it will differentiate September 30, 2005. itself in the capital market, investment banking and derivative businesses HFG Incorporation Timeline to serve its corporate clients with more sophisticated and comprehensive The extraordinary General Shareholders’ Meetings of those four corporate financing products and services. In addition, the Group took on companies approved the all-inclusive stock-transfer plan for the Hana Life Insurance Co., Ltd. (“Hana Life“) and Hana Capital Co., Ltd. establishment of HFG on October 17, 2005, and the application for final (“Hana Capital“) as affiliated companies to enhance its capacity for authorization was filed on the same date. developing financial products for the next generation and to satisfy a wide range of customer needs. Afterwards, shareholders who opposed the share transfer had the opportunity until the October 27 deadline, to require the four companies Hana Financial Group Inc.(“HFG“, “Financial Holding Company"), Hana to buy back their equity ownership by exercising their stock appraisal Institute of Finance and Hana Information & System Company Ltd. (“Hana rights. None of the shareholders, however, exercised these rights, which I&S”) will be responsible for the Group’s strategy and business support. affirmed the high expectations for HFG held by the market and HFG will cover managerial strategies and financial management of the shareholders. Group. Meanwhile, Hana I&S will support the Group with information technology and Hana Institute of Finance, the think tank of the Group, will Having received the final approval from FSC on November 11, HFG was be a shared knowledge center within the Group’s knowledge-based incorporated through the share transfer of the four subsidiaries on management. December 1. And, upon the listing of HFG stocks on the on December 12, 2005, the process was completed. HFG was incorporated through an all-inclusive stock transfer as

20 21 Hana Financial Group at a Glance

Organizational Structure of the Group Total Assets 106.3 trillion won | Total Credits 65.5 trillion won | Total Sales 96.9 trillion won | Equity 6.6 trillion won | ROA 1.07 % | ROE 16.28 %

Hana Bank Total Assets 103.0 trillion won | Total Credits 65.0 trillion won | Total Deposits 72.6 trillion won | Equity 5.9 trillion won | Net Income 906.8 billion won | NPL Ratio 0.98 % | BIS CAR 13.29% Hana Institute Hana of Finance Funding Hana Securities Ltd. Total Assets 1.7 trillion won | Stock Brokerage 22.5 trillion won | Equity 339.8 billion won 100% Hana Hana Hana Life Insurance Life 100% Capital Insurance Total Assets 469.4 billion won | Equity 19.6 billion won | Solvency Margin Ratio 146.26 %

50% Hana Capital 50% Total Assets 194.8 billion won | Equity 37.1 billion won | Net Income 7.9 billion won | NPL Ratio 0.09 % Hana Financial Qingdao International Bank Total Assets 219.5 billion won | Loans 162.9 billion won | Equity 52.7 billion won | Group Inc. Net Income 2.8 billion won | NPL Ratio 0.66 % (HFG) 100% Hana Bank Hana I&S 100% Hana Funding Limited 100% owned SPV to issue 200 million US dollar hybrid tier I securities

Daehan Investment & Securities 79% 61% Total Assets 1.3 trillion won | Sale of Beneficiary Certificates 16.7 trillion won | Stock Brokerage 20.7 trillion won | 100% Qingdao Equity 434.7 billion won | Net Income* 52.5 billion won International Normalized for better understanding of readers. Please see ‘Management Discussion & Analysis’ for the details. Bank * Hana Securities Daehan Investment Trust & Management (DIMCO) AUM 21.0 trillion won | Trust & Management Fees 15.6 billion won DI&S Hana I&S 100% IT support of Hana Financial Group DIMCO

Hana Institute of Finance Shared knowledge center of Hana Financial Group

22 23 Vision & Mission

Vision & Mission of Hana Financial Group A Premier Financial Services Network: Hana Financial Group is now raising the bar and preparing to compete as a leading financial group of East Asia.

Carrying on the tradition of Hana Bank, Hana Financial Group will strive noteworthy: DI&S and DIMCO were acquired to enhance the Group’s for a ‘Premier Financial Services Network’. asset management business and distribution channel of indirect investment products. Further, the Group successfully entered consumer As part of actualizing its vision, the Group’s first aim is to become one of finance market through Hana Capital. the top 100 world financial groups in terms of total assets, tier I capital, and market capitalization. From a financial perspective, the Group is In 2006, we will establish an operation system of HFG in order to secure focused on achieving 1.25% or higher ROA, 20% or higher ROE, as well the effectiveness in Group management. Top priority will be given to the as raising the proportion of non-interest income to 40% or higher, of the set up of efficient roles and responsibilities between HFG and its Group’s general operating income. affiliates. Sharing customer information and consolidating business channels within the Group to ensure strong grounds for cross-selling. And To achieve the vision and its targets, the Group will complete four our strategic initiatives at the early stage of HFG will include developing missions: and managing core human resources as well as defining Group culture for its sound growth in the longer-term. - Pursue customer satisfaction as a trustworthy financial service partner Once we complete the above processes, we are expecting substantial - Maximize shareholders’ value as a successful business partner synergistic effects to arise from 2007. We believe that a successful financial holding company system will contribute to boosting our cross- - Create employee empowerment as an employer of choice selling, expanding business channels for complex financial products, and combining product mix development among affiliates. And the flexibility - Contribute to the community as a leading financial group. in the interchange of human resources within the Group will help enhancing its expertise and brand value as a whole. As of 2004 year end, Hana Bank confirmed its strong foothold in the Growth Path to Achieve Vision banking industry by reaching 135th tier I capital and 127th in total assets Leveraging with its organic growth and further consolidation of worldwide. (The Banker, July 2005) Given its reputation for excellence, subsidiaries, Hana Financial Group will grow into the world’s top 100 Hana Financial Group aims to join the world’s top-100 financial groups in financial group in terms of total assets, tier I capital, and market terms of total assets, tier I capital and market capitalization by the end of capitalization by the end of 2009. Our aspiration for excellence will lead 2009. our way to a leading financial group of East Asia.

Hana Financial Group is on the solid growth path to achieve its vision. During 2003 and 2004, Hana Bank confirmed its position as one of the market leaders in the Korean banking industry by successfully integrating Seoul Bank after the merger as well as streamlining its organization and business competencies.

In 2005, Hana Financial Group concentrated on securing a business platform to provide complex financial services through a financial holding company system. Accordingly, expansion in the non-banking sector was

24 25 Synergy

Group Revenue Synergy Group Cost Synergy The business strategy of Hana Financial Group focuses on Maximize synergy by leveraging the core Cost reduction at the Group level with economies maximization of group synergy by creating the optimal combination competencies of each affiliate of scale & scope of the core competencies and the business strengths of its affiliates.

Hana Bank and DI&S, the major distribution channels of the Group, will efforts for cost synergy have already begun with the combined purchase deliver a wide range of financial products to their customers. This of the 2006 office supplies and the integration of group logistics in distribution process will provide them with opportunities to offer multiple January 2006. financial services, and, at the same time, heighten the Group’s market share throughout the financial industry. With high expectations for these synergy effects in the ordinary course of business, the Group is promoting a group business model based on the Affiliates such as Hana Securities, DIMCO, Hana Life, and Hana Capital, following factors: which will serve as the product development engines of the Group, can share the burden of marketing and distribution by allocating those (1) Establishment of an integrated synergy strategy linking various functions to Hana Bank and DI&S. At the same time, they can pursue business portfolios such as banking, brokerage, insurance, credit market expertise in order to develop complex financial products to lead cards, consumer finance, and so forth. ever-changing market trends. (2) Development of diversified financial products that go across business lines and the distribution of associated products in order to offer a In more specific terms, the Group is expecting initial revenue synergy customized product mix that best fits customers’ needs. from following business areas: (3) Diversification of our sales channel to improve customer accessibility. (4) Integration of human resources management to enhance sales power. (1) Cross-selling of beneficiary certificates among bank, asset (5) Enhanced Customer Relationship Management (CRM) to provide management, and securities companies critical information that supports the synergy and marketing strategy (2) Cross-selling of bancassurance products among bank, insurance, and of the Group. Group Synergy Business Model securities companies Pursue business through integrated strategies, products, channels and human resources (3) Enhanced investment banking through co-management or joint The Group’s business model to maximize group synergy has been ventures by bank and securities companies executed since the establishment of HFG. (4) Cross-selling of credit cards and consumer finance products among card business, capital, bank, and securities companies. As of 2005 year end, the Group launched 11 Branch in Branch pilots (BIB) by creating a banking branch that includes business space for other In addition, the Group will enjoy the following cost synergy effects: affiliates such as securities companies. A Branch with Branch (BWB) pilot was also launched and branches of Hana Bank and DI&S were housed in (1) Economy of scale through bulk purchase of IT and office supplies, etc. one building, Daehan Investment & Securities head office. The Group (2) Reduction of funding costs of non-banking affiliates by funding believes that the achievements of such pilots will clearly showcase our through HFG business potential as a comprehensive financial services provider. (3) Efficient organization through intergration and elimination of overlapping functions within the Group

For better efficiency of combined purchasing, purchasing agents of affiliates organized the Group Purchase Committee. The Committee prepares the group purchase list and performs market research before going forward. With the establishment of the Group Purchase Committee,

26 27 BUSINESS PORTFOLIO Business Portfolio: Commercial Banking

The Retail Banking Division aims to enhance profitability in 2006 by Opening up a new page selling more low interest savings and indirect investment products, From the left increasing the proportion of SOHO loans and unsecured loans in the Ho-Sik Nam for the Korean Assistant Manager, Retail Business Promotion Dept. Retail Banking Division, Hana Bank managed portfolio. Hyung-Joon Lee Assistant Manager, Retail Business Promotion Dept. financial industry Retail Banking Division, Hana Bank Hye-Ri Lee Associate, Ogeum Dong Branch Retail Banking Division, Hana Bank Retail Banking customers with good performance, one-to-one marketing of installment Shin-Cho Chung Assistant Manager, Shinsa Dong Branch beneficiary certificates using a CRM score model, and bancassurance Retail Banking Division, Hana Bank Ho-Ju Lee The Retail Banking Division of Hana Financial Group offers compre- services providing differentiated insurance products based on customer Associate, Yangjae Dong Branch Retail Banking Division, Hana Bank hensive financial services and products, including savings, loans, credit grade and age. cards, foreign exchange, insurance and indirect investment to 4 million individual customers. Despite the challenges of the fiercely competitive In 2006, Hana bank’s retail banking business will concentrate on market, the retail banking business at Hana has sustained a solid growth continuously improving its profitability. With a more sophisticated CRM thanks to differentiated marketing strategies for various customer groups system, it plans to select target markets and customers using a more by fully utilizing Customer Relationship Management (CRM). In 2005, sophisticated CRM system, set sales goals for each business line, launch retail deposits totaled 41 trillion won, a 1.6 trillion won increase year-on- promotions leveraging CRM target marketing, and establish a sales year. Moreover, retail lending stood at 32.4 trillion won, up 3.3 trillion system that will call for feedback on sales performance followed by a year-on-year. quick response. The bank will focus on generating powerful sales in 2006 by efficiently combining the CRM system and marketing activities based In 2005, Hana Bank’s retail business has set three initiatives to increase on positive results of CRM implementation in 2004~2005 at branches. low interest savings, unsecured loan and fee income and focused its Furthermore, it will continue to pursue marketing strategies tailored to sales force to implement these initiatives while continuing to strengthen customer groups, using CRM. We will segment the mass customer group, the foundation for retail sales such as cross-selling and risk management. move the low mass customers to a low cost channel through a cost In particular, low interest savings of individual customers recorded a high reduction strategy and conduct more cross-selling to upper mass growth rate (15%) in 2005, standing at 6.4 trillion won, which was an customers to increase the depth of transactions and profitability. In order 840-billion won increase over the last year. The proportion of low-interest to prevent attrition among affluent and VIP customers and to increase the rate savings out of total retail savings has also increased 2.6%, from number of products sold to each customer and profits per customer, the 16.4% in 2004 to 19.0%. bank will perform rigorous customer analysis and CRM. On this basis, it plans to offer differentiated products and services to meet the diverse In light of recent trends in retail banking, such as slower growth in the financial needs of such customers. bank’s traditional capital profits, the fee income business has gained importance. Consequently, Hana bank has selected key fee-income The Retail Banking Division aims to enhance profitability in 2006 by marketing areas such as credit cards, indirect investment products, selling more low interest savings and indirect investment products, bancassurance, KHFC mortgage loans, among others, and has focused its increasing the proportion of SOHO loans and unsecured loans in the sales forces on these businesses. In addition, Hana Bank has targeted managed portfolio. In addition, Hana bank will strive to increase its fee customers and products based on asset size, investment preference, income through expanded credit card revenue and bancassurance financial support needed in each stage of life utilizing the CRM system, operations. The bank will continue to grow its good deposit/savings and conducted effective cross-selling of key fee income sources. customer base within the trade zone and aggressively attract liquidity of Examples of initiatives that have successfully increased retail banking fee e-commerce such as cyber home-shopping transactions to increase low income are cross-selling credit cards to unsecured loan (Family Loan) interest savings. Hana plans to generate significant synergy effects with

29 The Corporate Banking Division will seek to increase asset size by providing differentiated services and products, expand channels in growth regions and increase long-term facility loans, and will improve profitability by increasing foreign exchange and derivatives products, low cost deposit leveraging Cash Management System (CMS) and loan handling fees and other fee income.

the inauguration of Hana Financial Group and active use of sports companies with good credit ratings and has built a stronger relationship marketing techniques before and during 2006 FIFA World Cup period to with them. At the same time, Hana Bank strengthened trade finance and increase the sales volume of indirect investment products in 2006. In increased its market share in this area to 8.8%, up 0.7% year-on-year, addition, the bank will extend its successful 2005 capture of the with the aim to increase fee income, and also made efforts to diversify unsecured-loan niche market to the SOHO loan market in 2006. It will fee income sources through project finance, financial advisory, M&A and strengthen the risk management of SOHO market by building a ABS related services, etc. sophisticated SOHO CSS system and offering differentiated products and a pricing strategy that targets good companies and customers by industry Thanks to such efforts, the number of corporate customers that borrowed and region. more than 500 million won from the bank stood at 8,146 as of the end of 2004, recording a increase of approximately 300 year-on-year and the number of trade finance customers totaled about 79,000 companies, 503 Corporate Banking more than last year end. The corporate lending balance stood at 30.5 trillion won, recording a 1.7 trillion won (6.3%p) increase from last year

Corporate Banking of Hana Financial Group consists of the Corporate end. From the right Finance Division, the Small and Medium Corporate Finance Division and Jong-Dok Baik RM, Large Corporate Banking Division II the Credit Card Division. In 2006, the domestic corporate finance market is expected to grow Hana Bank Ji-Won Kang 4~5% to approximately 350 trillion won, and Hana Bank has set a growth Associate, Jamsil Yeok Branch Small & Medium Corporate Finance Division III The Corporate Finance Division provides general savings and lending target of 10%, to reach 33.5 trillion won. The margin will likely be Hana Bank products, develops customized products, offers financial advisory service, reduced in 2006 due to fierce competition among banks, as our supports export and import, consults on capital management and competitors are expected to increase assets in spite of weakening their and corporate customers’ loyalty and strengthen primary banking operates 9 Relationship Manager (RM) teams and 11 branches dedicated margins. Therefore,we will seek to increase asset size by providing relationship. To this end, we will increase our market share in trade Fourth, Hana Bank will systematically manage its resources and build to conglomerates. differentiated services and products, expand channels in growth regions finance and foreign exchange/transfer to 9.3% in 2006, from 8.8% in expertise. The resource management strategy for the Corporate Finance and increase long-term facility loans, and will improve profitability by 2005 to earn more fee income related to foreign exchange business. In Division will be building expertise and creating a training system The Small and Medium Corporate Finance Division develops and increasing foreign exchange and derivatives products, low cost deposit addition, we will enhance more fee income in the lending business by according to CDP. The training program for RM, a key resource of executes sales strategies based on region and industry by conducting leveraging Cash Management System (CMS) and loan handling fees and improving the fee structure and also strengthen the investment banking corporate finance, will offer nine different courses in order to increase thorough customer analysis. It also selects and manages promising other fee income. Hana Financial Groups’s key initiatives for corporate business, especially project finance, M&A, ABS and SOC services which RM’s capability and nurture specialization by product and by industry. SMEs, conducts research and manages relevant information on SMEs, finance in 2006 will be as follows: conglomerate customers have a stable demand for. To accomplish this, Expert programs on specific products, regions and industries will be and runs 35 RM teams and 76 branches dedicated to SMEs. the Bank will further strengthen the network within the Hana Financial conducted throughout the year. To enhance RM’s expertise in products First, Hana Bank will increase asset size through a larger market share. Group and continue its efforts to identify and expand new sources of and industry knowledge, the research groups on industry trends currently The Credit Division is responsible for creating and revising regulations Companies are expected to map out stable growth in 2006 thanks to the profit, such as settlement products for secondary vendors connected to separate for underwriters and RM will be integrated and RM will receive and systems for corporate lending, operates an organic collaboration overall improvement in macro-economic indices and recovery of the conglomerates in the B2B market, Biz Cards for distribution companies, industry-specific training through seminars and research groups on each system with the Corporate Finance Marketing Division and provides domestic economy, despite remaining uncertainty caused by fluctuation real-estate development funds, etc. industry. credit marketing support functions, evaluates credit risks for corporate of the foreign exchange rate and increased oil prices. While the main lending and performs risk management functions. strategy of 2005 was to expand sound assets according to economic Third, Hana Bank will maximize synergy and performance through conditions, in 2006, Hana Bank will concentrate on medium-grade assets improved systems and processes. The standard unit for performance In 2005, Hana Financial Group focused on selectively increasing lending to secure a high margin and increase long-term credit such as facility evaluation of branches and RMs will change from peer groups to the assets to companies with good credit standing, rather than aggressively loans. In addition, the Bank will actively respond to the needs of the Finance Division so that each Division could share responsibility for its pursuing lending operations, considering the uncertainty in the domestic Korean companies, which have advanced to overseas markets, to provide overall results. To maximize performance, the Division will increase the economy and the widening risk levels between industries and companies. local financial support by building an overseas network with branches in weights for profitability and measure goal achievement levels according The share of sound assets with a corporate bond rating of grade BBB+ or China, Hong Kong, Singapore, etc. to absolute standards rather than relative ones. higher increased 2.3 trillion won, 5.8% from 33.3% in 2004 to 39.1% in 2005. To this end, Hana Bank has conducted various events targeting Second, Hana Bank will improve profitability by enhancing fee income

30 31 Business Portfolio: Private Banking

Hana Bank has introduced the ‘Private Banking’ business model into The history of Hana Bank’s Private Banking dates back to the days of the develop products customized to PB customers and will be dedicated to do Korea and exerted great efforts to create a customized private KIFC, Hana Bank’s predecessor. Indeed, going back to the establishment follow-ups on the products sold. of KIFC, Hana Bank has a long tradition of managing the assets of high banking model in the Korean market. As a result, it was chosen as the net worth individuals. Hana Bank has introduced the ‘Private Banking’ Second, Hana Bank will step up our efforts to develop capable private- ‘Best Private Bank in Korea’ by Euromoney for the two consecutive business model into Korea and exerted great efforts to create a private banking experts. Hana Bank defined four levels in PB career development years, 2005 and 2006, and earned the world-wide recognition for its banking model customized to the Korean market. As a result, it was path (CDP) - Master PB, Senior PB, Premier PB and PB- not only to inform excellence. chosen as the ‘Best Private Bank in Korea’ by Euromoney for the two private bankers about their current standing, but also to introduce a consecutive years, 2005 and 2006, and earned the world-wide performance based compensation scheme and provide appropriate recognition for its excellence. training in the future according to such CDP level. In an effort to enhance the quality of private bankers, the Private Banking Division aims to Currently, 158 private bankers are working at 141 Hana Bank branches. establish an incentive system based on the performance and capability of

From the left These 141 branches consist of 14 Gold Clubs, 126 VIP Clubs and 1 private bankers. Hong-Kyu Kang overseas branch. Hana Bank’s private banking model basically targets PB, Yoido Branch Asset Management Division Hana Bank customers who have deposited more than 100 million won of financial Third, Hana Bank will also make efforts to upgrade our services for VIP Mi-Kyung, Park assets at Hana Bank (High Net Worth customers), and provides customers. We will enhance our Advisory Team, which currently consists PB, Imae Dong Branch Retail Banking Division, Hana Bank specialized services and products to these customers. of tax accountants and real-estate experts to provide better ‘Advisory Sun-Tai Kim Deputy General Manager, Private Banking Promotion Team Services’ and satisfy customer needs related to finance and accounting. Asset Management Division, Hana Bank In 2005, there were approximately 70 thousand HNW customers with In addition, we will strengthen ‘Life Care Services’ to meet customer financial assets of 30 trillion won. Fourteen Gold Clubs operate in key needs for high living standards and cultural events. Life Care Service locations in Seoul for HNW customers who wish to receive particularly aims to take care of Hana Bank’s HNW customers from the comprehensive asset management services. At these Gold Clubs HNW cradle to the grave. customers can receive premium customer consultation and asset management services, differentiated from what is provided at regular Lastly, Hana Bank will make efforts to strengthen compliance in the PB branches. Hana Bank plans to increase the number of Gold Clubs for business in 2006. In line with the anti-money laundering system, which ultra-HNW customers who need more than just advice on investment took effect in January 2006, Hana Bank will provide more training for products, and prefer comprehensive asset management services. To that private bankers and experts in the area of money laundering and will end, it will strengthen sales to ultra-HNW customers. exert efforts to expand necessary systems. Particularly for the safe and transparent management of our VIP customers, Hana Bank plans to Hana Bank PB Division is committed to making a quantum leap in 2006 by increase savings-balance notifications from twice a year to four times a reinforcing the Bank’s existing strength in private banking and by year. Moreover, a list of items to be checked before selling investment upgrading the current system. Hana Bank will not be satisfied to rest on products will be created and other checklists for the PB business will be its achievements over the past decade, but will push for the following updated to strengthen compliance in all areas. initiatives in order to bring about qualitative changes in Korean private banking business.

First, Hana Bank will make efforts to enhance the competitiveness of our products targeting PB customers in 2006. We will expand our alliances with global asset management companies to provide a wide array of products ranging from domestic investment instruments to off-shore market products. In addition, we will nurture product developers and further develop the portfolio management function within the PB Division. The portfolio manager within the PB Division will forecast domestic and overseas markets, offer a model portfolio based on the forecast results,

32 33 Business Portfolio: Brokerage

In 2006, the brokerage business will pursue marketing strategies at The domestic brokerage market size increased 73% in 2005 compared to The stock market outlook for 2006 is mostly positive; however, we the Group level to enhance its premium services for Hana Financial 2004, thanks to the rise of KOSPI. The equity brokerage market, which anticipate the enthusiasm for equity investment to somewhat cool down demonstrated record growth between 1998 and 1999 with the boom in in accordance with the anticipated interest rate increase and adjustment Group customers by introducing a customer referral system, among venture company investments, began to contract when the dot com in stock related to valuation gains. Hana Financial Group has identified others. In addition, experts will be recruited and internal resources bubble burst in 2000. opportunities to provide a wider range of financial products including will be trained to enhance the quality of direct investment advisory savings, insurance and funds compared to other securities firms that services. However, stock prices bounced back and continued to rise in 2005 with operate only equity brokerage businesses, in order to maximize the the increase in foreign investment and sales of installment equity-type synergy effect in 2006, it will also provide one-stop financial services by From the left funds. Individual investors who had left the stock market also returned, reviewing the group’s channels and creating BIB (Branch in Bank) and Ki-Seung Kim contributing to record growth of the equity market. BWB (Branch with Branch) at appropriate locations. Assistant Manager, Incheon Branch Gangseo Regional Division, DI&S Kyo-Il Song Associate , Apkujung Joongang Branch Hana Financial Group owns Hana Securities Co., Ltd., whose core Hana Securities will focus on maximizing synergy effects within the Retail Brokerage Division, Hana Securities Jin-Young Lee business is equity brokerage, and DI&S, which focuses on selling funds. upholding company system and attracting new customers in 2006. It will Associate, Retail Marketing Team Retail Brokerage Division, Hana Securities These two companies maintain industry average market positions based actively sell products to VIP customers by expanding BIB and Dong-Eun Oh on transaction amount and fee income. Even though the market shares of strengthening its collaboration with Hana Bank’s PB business. Associate, Product Development Strategy Dept. Product Development Strategy Division, DI&S Hana Securities and DI&S are not that large, Hana Securities mainly does business with off-line individual customers and DI&S provides service to In 2006, DI&S will maintain its position in the corporate sales business corporate customers. With this in mind, Hana Financial Group is pursuing and also expand its customer base. DI&S will expand small but cost a plan of structural growth that generates synergy effects to expand its efficient BIBs, thus, leveraging the bank’s branch channel along with customer base at the group level. Hana Securities, and will also market aggressively by enhancing its resource, research and IT systems. Hana Securities created a flexible cost structure to guard against the volatility of stock markets by restructuring labor costs: The proportion of In 2006, the brokerage business will pursue marketing strategies at the performance-based incentive became larger than the base salary after group level to enhance its premium services for Hana Financial Group the Asian foreign exchange crisis of late 1997. This helped Hana customers by introducing a customer referral system, among others. In Securities to remain in the black from 2001 to 2004 while many other addition, experts will be recruited and internal resources will be trained securities firms recorded deficits. Despite its small size, Hana Securities to enhance the quality of direct investment advisory services. These was able to secure a relatively higher profitability by sustaining a experts will be our customers’ partners helping them to increase commission rate of 0.3%, which is higher than the average rate of other customer assets through rigorous risk management. The on-line securities firms (0.2%), because of its large proportion of off-line transaction system for small individual investors will be upgraded to individual customers. In 2005, Hana Securities recorded a brokerage fee ensure higher speed and stability, and accurate investment information income of 67.6 billion won. will be provided swiftly through alliances with external stock-information providers. DI&S converted from an investment trust company specializing in fund sales and asset management to a comprehensive securities firm in 2000, following deregulation. DI&S started its brokerage business in 2001, with institutional investors and on-line transactions accounting for a relatively large proportion of its business. The overall ranking of DI&S is 19 among 53 securities firms but it ranks third in corporate business with 120 brokers, which is only one-third of other medium size industry average securities firms. DI&S recorded a brokerage fee income of 51.8 billion won.

34 35 Business Portfolio: Business Portfolio: Asset Investment Management Banking

From the left From the left Li-Gi Park Yong-Jae Hong Fund Manager, Global Investment Team Head of Derivatives Equity Management Division, DIMCO Hana Investment Banking Group, Hana Securities Se-Jin Choi Myoung-Chul Shin Research Analyst, Equity Investment Strategy Team Project Manager, Investment Banking Department Equity Management Division, DIMCO Investment Banking Division, Hana Bank

The size of the asset management market was 204 trillion won as the As per 2006, Hana Institute of Finance anticipates that the asset Even before the formation of its financial holding company, Hana The bond acquisition/brokerage market was stagnant in 2005 due to end of 2005, recording an annual growth rate 9.7% compared to 186 management market to grow by 10% thanks to the increase in sales Financial Group was widely acknowledged as the pioneer and leader in IB increased interest rates. Under such market conditions, Hana Securities trillion in 2004. related to indirect investment products, full-fledged implementation of a services of the Korean financial market. Through the joint efforts of the marked a shrinkage compared to 2004, but focused on profitable retirement pension system and a greater need for diversified asset Investment Banking Divisions of Hana Bank and Hana Securities, the businesses. It recorded a market share of 2.58% base on corporate bond The asset management market grew 30.6% year on year in 2004. Even management products as we move into an aging society. Considering Group provides the broadest scope of solutions in every aspect of IB acquisition performance as of the end of September 2005, which is though the market growth slowed in 2005, the development and such favorable market conditions, the Group expects further growth in its business to help its clients achieve their financial goals. 1.32%p lower than the end of 2004, however, it increased its market diversification of portfolio during the periods prove that the foundation sales of indirect investment products’ For example, the Group plans to share in total acquisition brokerage fees by 0.27% and recorded 3.37% for qualitative and quantitative growth has been established. expand its sales of beneficiary certificates, with the market leadership of During 2005, IB Division of Hana Bank successfully closed syndicated from that of the last year. DI&S, over 31 trillion won in the upcoming year. financing for LBO, real estate and infrastructure projects exceeding a Specifically, the assets of installment funds that were invested in equity total of $ 2.7 billion and is offering M&A advisory services to clients with Hana Securities has exerted efforts to increase its advisory fee income in increased in 2005, while the flagship products of 2004 were mostly MMF In order to achieve its goals, the Group will further strengthen its product a total transaction value exceeding $ 2.4 billion. service related to real-estate fund products in particular. It stood shoulder and other short-term investment products, bond funds and equity-linked development and asset management capabilities at DIMCO. In particular, to shoulder with leading companies in the industry by realizing an securities. In addition, the capital entrusted to the asset management the Group will focus on the sales of high yield generating fund products The Division also took the leadership role in the co-arrangement of advisory fee income of 7.08% as of the end of September 2005. industry exceeded 200 trillion won for the first time in the last six years such as equity installment, real estate and other alternative investment various acquisition financings such as Haitai Confectionary and Foods since the end of 1999, and grew 9.5% per annum for the past five years, products, and make best efforts in maintaining its market leadership by Co., Ltd. ($472 million syndicated loan), Heavy Industries & In the foreign currency securities acquisition brokerage market, we have showing a clear sign of long-term growth. effectively utilizing its sales channels such as Hana Bank and DI&S. In Machinery Co., Ltd. ($800 million syndicated loan), and Himart Co., Ltd. secured product competitiveness in overseas CB/BW business such as this light, the Group will closely evaluate the profile of each customer ($472 million syndicated loan) working closely with major domestic and the zero-coupon CB. The company has recorded a market share of 8.20% As per the Group, its indirect asset management products sales represent through the Group level CRM system, and establish more comprehensive global sponsors. Among these acquisition financings in 2005, the in terms of fee income related to foreign currency securities as of the end about 24 trillion won. As an affiliate of Hana Financial Group, DI&S holds financial plazas which combine banking and securities companies to syndicated loan regarding Himart was recognized as ‘Best Deal’ in Korea of September 2005 and ranked No. 4 among 54 domestic securities firms a 100% stake in Daehan Investment Trust & Management Co., Ltd. provide customers with one-stop asset management services. by The Asset. operating in Korea in terms of foreign currency securities acquisition (“DIMCO“). DI&S is one of the leading securities companies in the brokerage fee income. distribution of beneficiary certificates with the sales of 16.7 trillion won, In addition, the Group will strive to become a comprehensive asset As for PEF and JV business, the IB Division of the Bank established HCI representing 8.2% of total market share as of 2005 yearend. The management services provider for its customer by expanding Private Equity Fund by a three-way joint venture consisting of Hana Bank, Moreover, Hana Securities has secured more IPO underwriter contracts employees at DI&S also hold 3 sales related licenses per employee on personalized client relationship and providing customized services for Cambridge Capital, and IMM Private Equity Partners LP, which enjoyed a with the bullish stock market in 2005; actively pursued OTC derivatives average as the end of 2005. Its strong commitment in the development of each customer, since the key to growth and customer satisfaction is successful first fund raising with limited partnership commitments to business such as ELS issuance and private equity warrant market; training programs for its specialists played critically important roles in emotionally connecting with customers by helping them achieve their make privately placed equity investments in lower-middle market strengthened joint sales of ELS products through the HFG channel and maintaining its market leadership and the most competitive manpower in financial goals through strong, long-term relationships based on mutual companies in both Korea and the United States. created new sources of income in the ELW market (Open in December the industry. trust. 2005). Hana Financial Group strives to satisfy the various financial needs of our DIMCO, a 100% owned subsidiary of DI&S, manages assets worth 21 corporate customers through Hana Securities as well as the IB Division of It is expected that more comprehensive financing solutions will be trillion won, accounting for 10.3% of the total asset management market. Hana Bank. The IB business of Hana Securities can be classified into two offered to corporate customers through the combination of Hana Moreover, the Group offers its customers not only DIMCO products but categories: Providing brokerage service and advice related to acquisition Securities and Hana Bank’s IB Division. The IB Division within Hana also various asset management products through its sales channels such of securities and selling OTC financial derivatives products. It provides a Financial Group will be further strengthened to establish another best as Hana Bank and DI&S. wide range of services covering bonds, equities, foreign currency practice of the Korean financial industry after the implementation of securities, OTC derivatives, real-estate, financial advices, and others. Capital Market Consolidation Act, scheduled to take effect in 2007.

36 37 Business Portfolio: Business Portfolio: Insurance Credit Card

From the left From the left Hee-Jung Park Yoo-Jin Choi Associate, Human Resources & General Affairs Associate, Credit Card Business Promotion Team Corporate Service Division, Hana Life Credit Card Division, Hana Bank Jang-Won Seo Ji-Hyeon Kang Deputy Manager Sales Team Deputy General Manager, Credit Card Business Promotion Team Sales & Marketing Division, Hana Life Credit Card Division, Hana Bank

Hana Financial Group is providing insurance services as a key pillar of lifelong customer management system through its insurance services. In 2005, the domestic card market witnessed a continuing drop in the was kept in check at 1.8%, a 0.3% decrease compared to 2004. total life care services. It aims to be the premium comprehensive asset card delinquency rate and improvement of asset quality, thanks to credit manager, ensuring richer and fuller lives for our customers. Hana First, we will reorganize the profit structure of bancassurance by selling card companies’ stronger credit management since the card crisis in Compared to 2005, the domestic card market is expected to enter a new Financial Group entered the life insurance market in February 2003 by more insurance products through DI&S, instead of making all bancassurance 2002. The market maintained overall stability with improved profitability phase in 2006, with the overall economy making a full-fledged recovery, creating Hana Life jointly with the Allianz Group, and has since recorded sales through the Hana Bank branch network. We will also diversify following economic recovery, and companies pursuing the credit card card companies completing restructuring and foreign financial institutions continuous growth in the bancassurance market which was fully sources of income by cross-selling more insurance products to customers business line Hyundai, Lotte and banks have demonstrated remarkable advancing into the the Korean card market. This will spur existing card launched in in September, the same year as the market leader. Hana’s of companies affiliated with the Group, by entering into the retirement growth compared to the early movers such as and LG. companies to conduct aggressive marketing in order to dominate at the nurturing of the bacassurance business has been the key source of pension market and by opening an independent agency channel. early stage against the cut-throat competition from foreign financial synergy for the Group. The Credit Card Division of Hana Financial Group also achieved concrete institutions. Therefore, the Card Division of the Group plans to upgrade In particular, we have focused on generating synergy within the Group by and exciting results in 2005 by focusing on business expansion to reach the position of Hana Card in 2006 by concentrating on strategies that Research indicates that the bancassurance market has a very large expanding telemarketing sales to customers of the Group with the official the critical mass at which a credit card company can realize ‘economy of identify excellent card-holders. It will maximize the synergy effect within growth potential because customers are more familiar with a bank launch of Hana Financial Group in December 2005. We have also scale’. The Card Division has developed and launched various new the Group to win in this fierce competition and achieve ‘economy of environment and feel comfortable choosing its financial products.In completed preparations to do business through an independent agency, products, activated its marketing aimed at high performing card holders scale’ with its card assets. addition, customers show a growing interest in economic security after which is a widely used channel in the US, Britain and other advanced and built an infrastructure for the card business. retirement as Korea faces an aging society and prefer a bank’s insurance countries, and is now emerging as a growth channel in Korea. The details of the Card Division’s key initiatives for 2006 are as follows: products such as pension plans. The key initiatives pursued in 2005 by the Card Division of Hana Financial Second, we will endeavor to efficiently manage our customer’s precious Group are as follows: First, we will generate a synergy effect in creating profits through the Insurance sold through the bancassurance channel in 2005 totaled 2.4 long-term assets and generate high returns. In particular, we will use Group’s network. With the inauguration of Hana Financial Group in trillion won based on initial insurance premium payments, showing an diverse investment instruments and provide competitive profitability First is profit and growth. We have enhanced customer loyalty to Hana December 2005, affiliates can share channels and customer information, 8.7% increase from 2.3 trillion won in 2004. Insurance sold through the leveraging maximum capability within the Group. Card by carrying out various promotions and events by customer group enabling them to select customers for target marketing and manage them Hana Bank channel based on the initial premium totaled 324.5 billion and product, and also launched new products such as Auto Card and using the Group level CRM. This will eventually lead to a stronger won and Hana Life product sales amounted to 94.2 billion won. Third, we will offer differentiated insurance services by continuously Outback Card to targeted customer groups, attracted executives and customer relationship and larger profits from the card business. developing innovative products with high added value. Moreover, we will employees of sound companies (organizations) as new card-holders to However, some regulations were revised to limit financial institutions pursue an aggressive market expansion strategy starting from April 2008, secure high quality assets ahead of our competitors. As a result, the Second, we will develop value-added services and customized products from selling more than 25% of one insurance company’s products starting when the second phase of the bancassurance market liberalization takes number of card-holders now exceeds 2.53 million, growing by 24.6% in to meet customers’ needs. Analyses of major trends in 2006 show that from April 2005, even though the original plan was to introduce the place and sales of other protection insurance products are fully allowed. 2005, and the revenue and card account balance increased 13.1% the luxury card market is growing, younger consumers are emerging as bancassurance system in phases as part of the deregulation of the (including 4.7% of corporate purchase card) and 10.8% (including 4.6% of strong economic players and the multi-function IC card is entering the financial industry. This created an unfavorable business environment for Fourth, we will make utmost efforts to constantly improve the quality of corporate purchase card), respectively. market with the development of IT. Therefore, we need to upgrade our Hana Life, the life insurance arm of the Group. Consequently, its our services so that we could be thoroughly prepared to respond to existing approach towards customers and develop more innovative insurance premium income was reduced by 15.7 billion won from 150.9 increasing customer requirements. Second is asset quality management. We have upgraded our credit services and new products to elicit greater customer loyalty to Hana billion won in 2004 to 135.2 billion won in 2005. scoring system (CSS) based on the outstanding risk management Card. techniques of the Bank and have restructured relevant systems and The Group, which took bancassurance to a higher level in the introductory processes so as to improve asset quality by only acquiring high quality stage, will concentrate on the following areas in 2006 in order to actively assets and conducting comprehensive delinquency rate management. As respond to the constantly changing market environment and to build a a result, our card-asset quality was enhanced and the delinquency rate

38 39 Commitment to Community

Hana Financial Group reaches out to the community to share culture, green and its heart.

1. Corporate Philanthropy An indispensable part of our volunteerism is hands-on work such as cleaning, bathing and grooming residents, preparing meals and Wouldn’t it be great if a Hana community member would reach out to laundering, which we perform jointly with our outreach partners. These your parents, living far away, when they needed urgent help? Wouldn’t it partners include ‘House of Joseph‘, a child and teenager welfare center; be wonderful if a member of Hana family would support another Hana ‘House of Peace‘ and ‘House of Bethel‘, a residence for the disabled; family facing a difficult family situation? Couldn’t Hana family members ‘Hope for Blind Children‘ and ‘Nest for Teenagers‘, residence for the exchange useful items to offer a helping hand to colleagues and blind; ‘Aekwangwon‘, ‘House of Hope‘ ‘Jakwangwon‘, the residence for neighbors in need? Hana Community Outreach has been launched to the disabled and ‘SOS Children‘s Village‘, a social welfare center for make such beautiful scenes a reality. abused children.

Hana Community Outreach was first established on September 1, 2004 Volunteer activities have naturally become an integral part of Hana and merged with Somanghwei, Hana Bank’s representative volunteer Financial Group‘s beautiful culture of sharing, thanks to the active organization, in January 1, 2005. Hana Community Outreach has strived participation of other volunteer groups within the Bank such as Change to enhance Hana family members’ awareness of volunteer activities, Frontier and branches near the welfare facilities. naturally creating a culture of sharing among Hana family members. Those activities are slated to expand, both in scope and depth with the Group culture of sharing establishment of Hana Financial Group Foundation, which is scheduled by Hana Community Outreach has trained the children of Hana families for the end of April, 2006. The organization’s ongoing activities, which are volunteer work during summer and winter vacations, helping them to listed below, will be expanded gradually as part of the goal to share with understand the concept of volunteerism first-hand. As part of their its neighbors. training, children went to welfare centers where they role-played as disabled people for a day. This experience helped them to better ‘Hana Community Outreach to the global community’ understand the life of our marginalized and underprivileged neighbors in When Southeast Asian countries were devastated by the tsunami at the society. end of last year, the Hana community actively raised funds in record time and delivered them to tsunami victims through the charity organization The initial training program for new hires of Hana Bank includes time for Good Neighbors, acting according to its motto, ‘The whole world is one a volunteer program. While it is a brief experience, it gives newcomers family.’ an opportunity to experience the organization‘s ‘culture of sharing.‘

On another front, Hana Community Outreach is conducting activities to 12 3 1. Sharing Kimchi with Neighbors In addition, the Hana community extended a helping hand to Southeast 2. Hana Nature Loving Poster Contest Asian and Chinese-Korean workers through a clothing drive, ensuring that help farmers, low-income families and residents of welfare centers 5 3. Hana Happiness Sharing Trust workers did not have to endure the cold of winter. Donated clothing was throughout the year. We are also encouraging Hana family members to 4. YongChun Explosion Victim Aid delivered to a foreign workers’ shelter called ‘Friends of Asia’ in make personal donations such as eyeglasses needed by low-income 4 5. Blood Donation Keumchon, Paju, Kyounggi province as well as to Chinese-Koreans living foreign workers, hematogenous tissue, blood donation certificate and 67 8 6. Car Donation and Beautiful Day in Garibong-dong, through Hana Bank’s Kuro-dong branch. recyclable products. Hana Community Outreach is committed to carry on 7. Habitat ‘Build House of Love’ the ‘culture of sharing‘ of Hana Financial Group by continuing volunteer 8. Establishment of Hana Community Outreach This served as an opportunity for us to build a relationship with ‘Friends activities for our neighbors in need as well as for the needed Hana family of Asia,’ Since then, we have additionally sponsored the building of a members. small second-hand shop called ‘Flower of Sharing’ in one corner of the shelter. We will continue providing support to help residents become ‘Hana Financial Group Foundation‘ to be established for self-reliant. social contribution activities Hana Financial Group will not stop with Hana Community Outreach ‘Hana Community Outreach to neighbors’ activities but will seek other donations and volunteer programs where Hana Community Outreach has implemented systematic volunteer Group affiliates can participate. As part of such efforts, Hana Community activities, thus taking to a new level the past experience of Somanghwei Outreach formed a task force to prepare the establishment of Hana and other volunteer organizations within the Group. Financial Group Foundation in January 2006, and is working hard to

40 41 establish the foundation by April with the initial restricted funds of 30 music in a natural setting, this concert strengthens Hana Bank’s position billion won. as a cultural bank. Recognition Hana Financial Group Foundation will be the focal point of internal and Sponsor of Seoul Foundation for Arts & Culture external social contribution activities. Throughout the activities of the Hana Bank provided consultancy on asset management to Seoul foundation, the Group will implement its specific plans to establish and Foundation for Arts & Culture when the foundation was first established. operate medical treatment facilities for the elderly, establish and operate Now we are sponsoring it to achieve our common goal: nurturing culture. child care centers, support welfare centers for the elderly, disabled and Through this sponsorship, Hana Bank has committed to establishing the teenagers, and provide food to undernourished children. foundation for culture and art, activating culture and art in our daily lives, strengthening the foundation’s function as the hub of the culture and art Hana Financial Group will stand beside our neighbors in need as part of network and creating an image of Seoul as a cultural city. fulfilling its social responsibility. Sponsor of Kwangtong Bridge Restoration Hana Bank is keenly aware of the cultural and historical value of 2. Organizing and Sponsoring Cultural Events Kwangtong Bridge. Spanning Cheonggyecheon Stream, the bridge is connected to the main road where kings once passed in royal procession. Women’s Writing Festival Recognizing its cultural and historical significance, Hana Bank has Hana Bank sponsors a competition for female amateur writers, giving donated 2 billion won for construction costs required to restore them the opportunity to write poetry and essays about their everyday Kwangtong Bridge, thereby contributing to the enhancement of Seoul’s lives and turn their writing ability into a career. The works of grand-prize image as a cultural city. winners have been published in prestigious literary magazines such as Shimsang and World of Art. 3. Green Financial Group Hana Sarang, a Cultural Space Hana Financial Group is the first financial institution to operate a gallery Hana Green Poster Contest requiring no exhibition fees. The gallery, Hana Sarang, provides needy Every year Hana’s banking centers sponsor a poster contest for artists a space to display their work, while offering its customers the elementary school children under the theme of ‘loving nature and caring chance to enjoy various cultural events. for the environment’. The Green Poster Contest is the representative environmental event of Hana Bank, whose goal is to be a Green Bank. Grand Prize Awarded by Monthly Art Magazine This contest embodies Hana Bank’s philosophy: preserving nature and Hana Bank has been awarded the grand prize by Art, a monthly magazine, protecting our environment, while enhancing children’s awareness of 1993 Euromoney in recognition of its contribution to the development of art in Korea. Hana environmental issues. Bank not only installed the work of Nam June Paik to commemorate its “Best Bank in Korea” 30th anniversary but has also purchased many pieces of art and displayed Art Room of Your Dreams 1997 Finance Asia them at our branches. Moreover, the Bank has created the Hana Art time Each year since 2001, the Bank has selected three schools that deposit, which allows customers to invest in art objects, which in turn, participated in the Hana Green Poster Contest, providing the schools with “Best Bank in Korea” enhances public awareness on art. ‘the art room of your dreams’ The award helps children develop creativity, which is such an important part of education at this age. 1998 Asia Money Hana Classic Academy “Best Managed Company in Korea” Hana Classic Academy, co-hosted by Korea Festival Ensemble and Hana Hana Green Concert Bank, combines lively and fascinating lectures with a concert performed Since August 1993, the Hana green concert has presented traditional 1999 The National Customer Satisfaction Index by top musicians. The academy began in 2000, and is currently classic music, pop songs and local chorus performances. This is a free “No.1 in the Banking Sector” conducting its 11th session. concert which promotes the importance of environmental protection and also offers excellent music performances to local communities. 2000 Euromoney Official Sponsor of the Korea Festival Ensemble “Best Domestic M&A House in Korea” The Korea Festival Ensemble, established in 1986, now has Introduction of Environmental Risk Evaluation System approximately 50 chamber musician members. An official sponsor of the When underwriting corporate loans, Hana Bank evaluates each 2001 The National Customer Satisfaction Index Korea Festival Ensemble, Hana Bank provides funds to the ensemble each company’s environmental risks. By restricting loans to companies that “No.1 in the Banking Sector” year. In addition, it sponsors many other performances in order to bring pose high risks to the environment, Hana Bank is helping to prevent the classical music to a wider audience. destruction of our environment. 2002 Finance Asia

Calendar Design Contest Forest Trip Program “Best M&A in Asia” Hana Bank offers university students majoring in design an opportunity to The focus of the forest trip is learning the importance of forests and 2003 CNN design our calendar. More than 400 students and designers currently nature firsthand by visiting national recreational forests in the working in this field participate in the contest each year, which has Metropolitan Seoul area. Open to customers as well as the general “New Century Leader in Asia” become a major design competition in Korea. public, the program draws many family groups. Thus, in addition to being 2004 The Korea Customer Satisfaction Index an environmental event, it serves as a reminder of the importance of Hanaville Forest Concert family bonds. “No.1 in the Banking Sector” Hanaville forest concert takes place on Hana Bank’s outdoor stage, 2005 Euromoney located in Shingal, Kyounggi Province. The chance to enjoy wonderful “Best Private Bank in Korea”

42 43 Corporate Governance Board of Directors

Wang-Ha Cho 4 Jong-Yeol Kim 1 Chairman & CEO, Daehan Investment & Securities President & CEO, Co., Ltd. Hana Bank

The Management Strategy Committee, which consists of the executives of Hana Financial Group Inc. and its affiliates, is principally formed to support harmonious communication and cooperation within the Group. Il-Hyun Suk 2 Seung-Yu Kim 1, 3, 5 Standing Member of Audit Hana Financial Group Inc. believes that the true difference in corporate Committee, Chairman & CEO, Hana Financial Group Inc. governance comes from how we make the system work rather than the Hana Financial Group Inc. way we organize a company. Hana Financial Group Inc., as clarified in its Kyo-Joong Yoon 1, 4 Chairman of the Board of Directors, President & CEO, Articles of Incorporation, will serve as the strategic architect of the Hana Bank Group, to proactively support the autonomy of its affiliates and Hana Financial Group Inc. Non-Standing Director, coordinate their business activities for the sound growth of the Group as Daehan Investment & Securities Co., a whole. Ltd. Non-Standing Director, Hana Securities Co., Ltd. Steering Committee of BOD The Steering Committee of BOD deliberates and resolves matters regarding the realization of reasonable corporate governance; matters regarding effective operation of the BOD and its subcommittees; as well as other matters entrusted by the BOD.

Audit Committee The Audit Committee performs internal audits on accounting and operation as well as any ancillary functions thereto; approves the appointment of independent auditor and evaluates its audit activities; executes countermeasures regarding matters pointed out during the audit; handles matters as provided by the relevant laws and ordinances or the Articles of Incorporation and other matters entrusted by the BOD.

Outside Director Nomination Committee The Outside Director Nomination Committee performs the functions of searching, evaluating, and nominating candidates for outside directors whose qualifications best fit the Group’s strategic goals.

Risk Management Committee The Risk Management Committee determines and approves the policy and basic management plan for dealing with the various types of risks Governance structure of Hana Financial Group Inc. is designed to enable which may occur in the course of group management. its shareholders’ substantial governance through shareholders’ meetings. Management Development & Compensation Committee Shareholders have delegated the managerial right to the Board of The Management Development & Compensation Committee is formed to Directors (“BOD“) through the shareholders’ meeting. And the BOD, in improve the performance of the Group as well as contribute to a fair and order to secure a balance between management functions, entrusts its meritorious reward culture by evaluating performances of the registered subcommittees with part of its rights and responsibilities. Such officers of Hana Financial Group Inc. and the representative directors of subcommittees include the Steering Committee of the BOD, Audit its affiliates. Committee, Outside Director Nomination Committee, Risk Management Committee, and Management Development & Compensation Committee.

Subcommittees of the Board of Directors 44 1. Steering Committee of BOD | 2. Audit Committee | 3. Outside Director Nomination Committee | 4. Risk Management Committee | 5. Management Development & Compensation Committee 45 Jae-Chul Kim 3, 5 Alfred Baldes Ph.D. 1, 3, 4 Chairman, COO & Deputy CEO, 5 Henry Cornell Allianz Dresdner Asset Management Dongwon Group 1, 2, 3, 5 Sang-Boo Yoo Asia Pacific 4 Managing Director, Roy A. Karaoglan Ph.D. 4 Mee-Hyon Lee Goldman Sachs 1, 2, 3, 5 Chairman, POSTECH Joo-Song Kim Banking Advisor, Attorney at Law, Advisor, POSCO Partner, Lee & Ko. President, Karaoglan Global Banking Consulting 1, 2, 3, 4 Sejong Center for the Performing Arts Outside Director, Hana Bank Ki-Che Chang Vice Chairman, Dongbu Insurance Co. Finance Division CEO, Dongbu Group

Subcommittees of the Board of Directors 46 1. Steering Committee of BOD | 2. Audit Committee | 3. Outside Director Nomination Committee | 4. Risk Management Committee | 5. Management Development & Compensation Committee 47 1. Ha-Won Jang 5. Sam-Deuk Kim 2 President, Hana Institute of Finance President & CEO, Hana Capital Co., Ltd. 4 5 7 1 2. Michael Jeung-Sae Lee 6. Jong-Yeol Kim Leadership 3 6 8 President & CEO, Hana Life Insurance Co., Ltd. President & CEO, Hana Bank 3. Wang-Ha Cho 7. Jong-Sik Kim Chairman & CEO, President & CEO, Daehan Investment & Securities Co., Ltd. Hana Information & System Company Ltd. 4. Dong-Jig Han 8. Chang-Sup Rhim President & CEO, President & CEO, Hana Securities Co., Ltd. Daehan Investment Trust & Management Co., Ltd.

48 49 Corporate Information FINANCIAL SECTION Hana Financial Group Inc. Investor Relations 27-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, Republic of Korea, 150-705 18th Floor, Hana Financial Group Inc. TEL : (822) 2002 - 1110 FAX : (822) 2002 - 1401 TEL : (822) 2002 - 1740 FAX : (822) 2002 - 1407 Homepage : http://www.hanafn.com E-mail : [email protected]

[Group Affiliates]

Hana Bank Daehan Investment & Securities Co., Ltd. 101-1 Euljiro 1-ga, Chung-gu, Seoul, Republic of Korea, 100-191 27-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, Republic of Korea, 150-705 TEL : (822) 2002 - 1111 TEL : (822) 3771 - 7114 FAX : (822) 3771 - 7560 TELEX : K23311 SWIFT : HNBNKRSE Reuter Code : HNBH Homepage : http://www.daetoo.com Homepage : http://www.hanabank.com 78 domestic branches as of 31 December 2005 (Including 7 BIBs) 577 domestic and 6 overseas branches as of 31 December 2005 1,050 full-time employees as of 31 December 2005 7,111 full-time employees as of 31 December 2005 Hana Securities Co., Ltd. Hana Bank Hong Kong Branch Hana Securities Tower, 23-3 Yeouido-dong, Yeoungdeungpo-gu, Seoul, Suites 3314-3316 33/F Two International Finance Centre No. 8 Finance Street Republic of Korea, 150-010 Central, Hong Kong TEL : (822) 3771 - 3000 FAX : (822) 3771 - 3899 TEL : (852) 2522 - 3646 FAX : (852) 2526 - 2999 Homepage : http://www.hanastock.co.kr 22 domestic branches as of 31 December 2005 Hana Bank Singapore Branch 590 full-time employees as of 31 December 2005 PWC Building # 23-6, 8 Cross Street Singapore 048424 TEL : (65) 6438 - 4100 FAX : (65) 6438 - 4200 Daehan Investment Trust & Management Co., Ltd. 52 Management Discussion & Analysis 27-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, Republic of Korea, 150-705 Hana Bank Shanghai Branch TEL : (822) 3771 - 7114 FAX : (822) 3771 - 7951 Room 3302-3303, Bank of China Tower, 200 Yin Cheng Road Central, Pudong Homepage : http://www.dimco.co.kr New Area, Shanghai 200120 P.R.China 98 full-time employees as of 31 December 2005 74 Independent Auditors’ Report (Non-Consolidated) TEL : (8621) 5037 - 2121 FAX : (8621) 5037 - 2110 75 Balance Sheet (Non-Consolidated) Hana Life Insurance Co., Ltd. Hana Bank New York Agency 17th Floor, 101-1 Euljiro 1-ga, Chung-gu, Seoul, Republic of Korea, 100-191 76 Statement of Income (Non-Consolidated) 650 Fifth Avenue New York, NY 10019 U.S.A. TEL : (822) 3709 - 7300 FAX : (822) 755 - 0668 77 Statement of Appropriations of Unappropriated Retained Earnings (Non-Consolidated) TEL : (1212) 245 - 4346 FAX : (1212) 245 - 4479 Homepage : http://www.allianzhana.com 111 full-time employees as of 31 December 2005 78 Statement of Cash Flows (Non-Consolidated) Hana Bank Tokyo Branch 79 Notes to Financial Statements (Non-Consolidated) 1st Floor, New Nisseki Bldg., 4 - 2 Marunouchi 3 Chome, Chiyoda-ku, Tokyo, Hana Capital Co., Ltd. Japan 7th Floor, Nara Bldg., 1328-3, Seocho-dong, Seocho-gu, Seoul, 93 Internal Accounting Control System Review Report (Non-Consolidated) TEL : (813) 3213 - 0901 FAX : (813) 3213 - 0975 Republic of Korea 137-858 TEL : (822) 2037 - 1111 FAX : (822) 2037 - 1130 Hana Bank Shenyang Branch Homepage : http://www.hanacapital.co.kr 94 Independent Auditors’ Report (Consolidated) 3rd Floor, Fangyuan Bldg., 1 Yuebin Street, Shenhe District, 42 full-time employees as of 31 December 2005 Shenyang 110013, P.R. China 95 Consolidated Balance Sheet TEL : (8624) 2250 -1111 FAX : (8624) 2250 -5151 Qingdao International Bank 96 Consolidated Statement of Income C.Full Hope Mansion 12, Hong Kong Middle Road, Qingdao P.R.C. Hana Bank Correspondent Banking TEL : (86532) 502 - 6208 FAX : (86532) 502 - 6221 97 Consolidated Statement of Changes in Shareholders' Equity Treasury & Management Department., Treasury Division, Hana Bank Homepage : http://www.qibank.net 98 Notes to Consolidated Financial Statements TEL : (822) 2002 - 2544 FAX : (822) 775 -7472 E-mail : [email protected]

50 Management Discussion & Analysis I. Overview

The Korean economy in 2005 witnessed the slowdown of house mortgage loans after 8.31 policy on real estate transaction as well as the aggravated interest rate competition due to stagnated investment in the corporate sector. This environmental change triggered our income sources to diversify and expanded our sales of indirect investment products, bancassurance and preemption of corporate pension market, etc. HFG, in response, set up a multi-facet financial network to provide a various spectrum of products and services at the same time building up a solid foundation for the business platform to maximize group synergy. With this quantitative growth and qualitative upgrade, the Company posted a record-high share price since Hana Bank era, continuing its track record of shareholders’ value. Reflecting higher expectation from the market and shareholders, the Group successfully secured its position in the Korean financial market with its financial footing at 2005 yearend as briefly shown in Table 1.

Table 1. Summarized Financial Information

(Unit : KRW in Billions, %) 2005* Business Volume Total Assets 106,308.5 Assets Under Management 21,021.8 Total Sales 96,922.3 (Total Deposits) 72,961.4 Total Credits 65,514.0 Profitability General Operating Income 2,430.1 Operating Income 1,019.7 Consolidated Net Income 951.4 ROA 1.07% ROE 16.28% EPS (Unit : KRW) 4,658 Cost to Income Ratio** 52.41% Asset Soundness Substandard & Below Ratio 0.98% Coverage against Substandard & Below Credits 128.18% Delinquency Ratio (Hana Bank) 0.89% Capital Adequacy*** BPS ( Unit : KRW) 30,940 Ratio of the Equity Capital to the Requisite Capital 164.99% BIS CAR - Hana Bank 13.29% [ Management Discussion & Analysis (MD&A) of this Annual Report highlights selected information on Hana Financial Group Inc.(HFG) and its affiliates and may not contain all of Tier 1 Ratio - Hana Bank 9.30% the critical information to its readers. HFG was incorporated as of December 1, 2005. In accordance with Statement of Korea Accounting Standards "Financial Holding Company" Net Capital Ratio (SKAS No.101), audit reports and financial statements of HFG, both consolidated and non-consolidated, were prepared based on the performance of HFG and its affiliates during DI&S 193.47% the period beginning October 1, 2005 and ended December 31, 2005. The pro forma income statements in this MD&A, however, reflected HFG and its affiliates' operation in a full Hana Securities 550.06% year to help readers' better understanding on the Group performance in 2005 as a whole. The fiscal year of some of HFG's affiliates, - DI&S, Hana Securities, DIMCO, and Hana Ratio of Equity to Risks - DIMCO 178.07% Life - ends as of March 31. The pro forma income statements in this MD&A, however, were prepared on a calendar year basis to comply with the fiscal year of HFG. Thus, the Solvency Margin Ratio - Hana Life 146.26% business performances of HFG and its affiliates as appeared in pro forma income statements should be understood on a calendar year basis unless otherwise mentioned. In order Adjusted Equity Capital Ratio - Hana Capital 21.40% to prepare those pro forma income statements, this MD&A relied on management assumptions that might affect investors' decision making. DI&S had been under corporate restructuring process by Korea Deposit Insurance Co. (KDIC) prior to its acquisition by Hana Bank as of the end of May, 2005 and incurred non-recurring losses which are irrelevant * Figures are based on the pro forma income statement, which assumed the Group's operation in full year during 2005. to the security firm's ordinary course of business. Accordingly, operating results of DI&S during 2005 were normalized to better reflect its ordinary earning stream. Such ** Cost to Income Ratio excluded goodwill amortization of 44.1 billion won.

normalization amounted to positive 351.9 billion won, including the elimination of loss on the disposition of existing CBOs, etc. in 2005. Also, the financial statements in this *** Capital adequacy ratios of DI&S, Hana Securities, DIMCO, and Hana Life are as of the end of 2005. section reclassified some of detailed accounts to enhance consistency among the accounts of affiliates in different industries. And the classification of financial statements appeared in this section of annual report may differ from those in the audited financial statements. Further, the MD&A section of this Annual Report contains statements that are forward-looking, based on the current beliefs and expectations of HFG's management and are subject to significant risks and uncertainties. These risks and uncertainties could cause HFG and its affiliates' operating results to differ materially from those set forth in such forward-looking statements. Containing aforementioned factors, this MD&A was not audited or reviewed by independent auditors. Therefore, the readers of this section of Annual Report should not expect the same level of assurance on the fairness, accuracy, and completeness of financial information as they do from financial statements audited by independent auditors. For a more complete understanding of events, commitments, 52 uncertainties, and significant accounting estimates, this entire Annual Report should be read carefully. ] 53

HANA FINANCIAL GROUP ANNUAL REPORT 2005 53 II. Summary of Business Performance Table 2-2. Comprehensive Income Statement (Based on Pro Forma Income Statement) Hana Bank Hana Hana Hana Adjust Consoli As aforementioned, the audited income statement of HFG and its affiliates contains only 3 months of operating results due to the short fiscal (Unit : KRW in Billions) Bank Trust* DI&S Securities Life** DIMCO Capital QIB Others*** HFG -ment -dated year. Paragraph 9 of SKAS No.101 provides "Where a financial holding company is created by stock transfer from shareholders of a financial General Operating Income 2,064.2 1.1 195.1 119.0 13.2 18.5 7.9 6.1 5.1 221.2 -221.2 2,430.1 institution, acquisition cost of the stocks acquired by the financial holding company shall be the net assets of the balance sheet (including the Net Interest Income 1,688.4 15.4 13.8 23.0 14.2 1.9 7.9 4.6 0.1 0.0 0.2 1,769.5 quarterly and semi annual) as of the date the financial institution as subsidiary is acquired or the nearest therefrom." Thus, upon the Fees and Commissions Income 566.4 -0.1 170.9 82.9 - 16.5 - 1.0 - -0.2 -16.1 821.3 preparation of HFG's opening balance sheet dated December 1, 2005, the deemed acquisition date of subsidiaries shares to determine the Gains on Disposition & Valuation 71.0 10.3 2.6 8.1 0.2 - - 0.5 - 221.4 -221.4 92.8 value of HFG's investment in associates was set as September 30, 2005, the nearest date of quarterly balance sheets from the date of stock transfer. Consequently, HFG's financial statements at yearend, consolidated or non-consolidated, included the Group's operating results for Other General Operating Income -261.6 -24.5 7.8 5.1 -1.3 0.0 0.1 - 5.0 - 16.1 -253.4 the period after the deemed acquisition date, which began on October 1, 2005 and ended on December 31, 2005. General & Administrative Expenses 1,040.9 - 156.5 76.1 18.6 12.0 5.9 1.4 4.9 1.0 0.4 1,317.7 Pre-Provisioning Income 1,023.3 1.1 38.6 42.9 -5.5 6.5 2.1 4.7 0.2 220.1 -221.6 1,112.4 For comparative purpose, the audited Group income statement was reclassified as shown in Table 2-1. Among the Group affiliates, Hana I&S, Provisioning for Loan Losses (∆) 95.5 - 0.3 0.0 0.1 0.0 -4.2 1.0 0.0 - - 92.7 and Hana Institute of Finance were excluded from consolidation in accordance with regulations allowing exclusions for small sized Operating Income 927.8 1.1 38.3 42.9 -5.5 6.5 6.3 3.7 0.2 220.1 -221.6 1,019.7 subsidiaries for the preparation of consolidated financial statements in Korea. Meanwhile, Hana Life was excluded from consolidation because HFG was not the controlling shareholder despite the 50% of constructive ownership on its outstanding shares. Non-Operating Income 240.3 -1.1 14.2 2.4 0.9 0.0 0.8 0.0 0.0 0.0 -34.0 223.6 Ordinary Income 1,168.1 - 52.5 45.3 -4.6 6.5 7.1 3.7 0.2 220.1 -255.6 1,243.3 Table 2-1. Comprehensive Income Statement (Based on Audited Income Statement) Extraordinary Income 0.0 - - - - - 0.8 - 0.0 - - 0.8 ∆ Hana Bank Hana Hana Adjust Consoli Corporate Income Tax ( ) 261.3 - - 13.1 0.3 1.7 - 0.9 0.0 - - 277.4 (Unit : KRW in Billions) Bank Trust* DI&S Securities DIMCO Capital QIB HFG -ment -dated Income before General Operating Income 483.6 -0.6 49.7 41.6 5.5 1.1 2.1 221.2 -220.6 583.5 Consolidation Adjustments 906.8 - 52.5 32.1 -4.9 4.9 7.9 2.8 0.2 220.1 -255.6 966.7 Net Interest Income 458.8 3.7 3.1 5.6 0.5 2.1 1.5 0.0 0.2 475.6 Minority Interest Income (∆) - - - 12.7 -2.5 - 4.6 0.6 - - - 15.3 Fees and Commissions Income 164.5 0.0 46.0 24.9 5.0 2.3 0.3 -0.2 -12.1 230.7 Consolidated Net Income 906.8 - 52.5 19.5 -2.5 4.9 3.3 2.3 0.2 220.1 -255.6 951.4 Gains on Disposition & Valuation -4.1 7.8 -1.1 31.3 - - 0.2 221.4 -221.0 34.5 * Bank trust includes money trusts that are subject to a guaranteed principal repayment or a fixed rate of return, in accordance with the accounting and reporting guidelines Other General Operating Income -135.6 -12.1 1.8 -20.3 - -3.4 - - 12.3 -157.2 prescribed by the regulatory authorities. General & Administrative Expenses 307.0 - 37.2 20.3 2.7 0.2 0.4 1.0 0.6 369.4 ** Hana Life is not consolidated into the financial statement of the Group since it is the 50:50 joint venture between Hana Bank and Allianz AG. Thus, Hana Life is accounted for under the Equity Method in the financial statements of the Group and Hana Bank. In the Comprehensive Income Statement above, however, Hana Life's operating results were Pre-Provisioning Income 176.6 -0.6 12.5 21.4 2.8 0.9 1.7 220.1 -221.2 214.1 booked as if the insurance company were subject to consolidation to help investors' better understanding. In order to prevent misleading, such revenues and expenses of Hana Life Provisioning for Loan Losses (∆) 0.3 -1.0 0.0 0.0 0.0 -0.9 0.4 - - -1.2 are offset by consolidation adjustments to be reconciled to the result of the Equity Method. *** Others include operating results of Hana Funding Ltd., Hana I&S, and Hana Institute of Finance. Hana Funding Ltd. is Hana Bank's 100% owned SPV that issued USD 200 million Operating Income 176.3 0.4 12.5 21.4 2.8 1.8 1.3 220.1 -221.2 215.4 of hybrid tier I securities. Mainly comprised of 100 year maturity subordinated bonds issued by Hana Bank and the mirror-image tier I preferred shares, its interest revenue and Non-Operating Income 106.1 -0.4 4.1 0.4 0.0 0.9 0.0 0.0 -18.5 92.5 dividend payment are offset in consolidation adjustment. Hana I&S and Hana Institute of Finance are excluded from consolidation in accordance with regulations allowing exclusions for small sized subsidiaries under the financial accounting standards for the preparation of consolidated financial statements. Such as in case of Hana Life, the operating results of Ordinary Income 282.4 - 16.6 21.7 2.8 2.6 1.2 220.1 -239.7 307.9 the 2 subsidiaries were booked as if they were subject to consolidation, but offset by consolidation adjustment. Extraordinary Income 0.0 - 0.0 0.0 0.0 0.0 0.0 - - 0.0 As a bank holding company, HFG's consolidated net income is heavily dependent upon the operating results of Hana Bank. Given that this Corporate Income Tax (∆) 77.1 - - 6.0 0.7 - 0.3 - - 84.1 concentration of earning stream at initial stage were inevitable, management will put a top priority on improving the profitability of our non- Income before Consolidation Adjustments 205.3 - 16.6 15.8 2.1 2.6 0.9 220.1 -239.7 223.8 banking sector for the well balanced group earning structure. Another change from Hana Bank era to address is the composition of General Minority Interest Income (∆) - - - 6.2 - 1.3 0.2 - - 7.7 Operating Income. During 2005, Hana Bank's proportion of Fee Income and Gains on Disposition & Valuation to General Operating Income Consolidated Net Income 205.3 - 16.6 9.5 2.1 1.3 0.7 220.1 -239.7 216.0 marked 27.4% and 3.4%, respectively. On the consolidated pro forma income statement, in contrast, those ratios rise up to meaningful 33.8% and 3.8%, respectively. Management sees to it that the Group has secured a better platform to diversify its income sources than it did * Bank trust includes money trusts that are subject to a guaranteed principal repayment or a fixed rate of return, in accordance with the accounting and reporting guidelines prescribed by the banking regulatory authorities in Korea. in Hana Bank era. The Group will be able to enhance its stability in earning stream against market volatility by increasing the portion of non- interest income from non-banking businesses. In order to properly measure the pure operating performance of its affiliates in various industries, the Group applied General Operating Income approach, which compensates G&A Expenses and Loan Loss Provisioning from Operating Income. The Group recorded 583.5 billion The Group recorded 1,769.5 billion won of Net Interest Income during 2005, the highest portion in General Operating Income. Fee Income won of General Operating Income during the 4th quarter, 2005. In comparison with the annual General Operating Income as appeared in followed with 821.3 billion won, 30.9% of which was earned by DI&S and Hana Securities. G&A Expenses in 2005 cost the Group 1,317.7 Table 2-2, quarterly General Operating Income seems to slide down. However, considering Hana Bank's 92.0 billion won of additional billion won out of its General Operating Income of 2,430.1 billion won to reach 1,112.4 billion won of Pre-Provisioning Income. Thanks to the provisioning in other allowances during the 4th quarter due to regulatory changes to provide allowances for unused credit lines, unconfirmed credit improvement in overall Korean economy and efforts of group members, the Group successfully cut its provisioning costs down to 92.7 guarantees and endorsed bills, we believe that the pure earning stream of the Group remained unaffected. billion won. After deducting the loan loss provisionings, the Group earned 1,019.7 billion won from its operation in 2005. Adding 223.6 billion won of Non-Operating Income, mainly comprised of Gains on Disposition of Investment Securities, the Group posted 1,243.3 billion of With 369.4 billion won of G&A Expenses and 92.5 billion won of Non-Operating Income, the Group recorded 216.0 billion won of Ordinary Income. 2005 was the first year for Hana Bank to account for corporate income tax since its merger of Seoul Bank. As a result, the consolidated net income for the operation during the 4th quarter, 2005. HFG stand-alone income statement includes its affiliates’ operating Group recorded 277.4 billion won of Corporate Income Tax on consolidated basis although HFG successfully maintained its tax-free status as results in the form of gains on investment in affiliates. In the process of consolidation adjustment, such double-counted profits were a financial holding company. And the Group achieved 1,244.1 billion won of Income before Tax, 223.3 billion won higher than that of Hana eliminated. And 4.1 billion won of Gains on Disposition & Valuation on HFG shares held by its affiliates were eliminated and accounted for in Bank in the previous year. After deducting Corporate Income Tax and Minority Interest Income due to consolidation adjustment, the Group's consolidated Net Income in 2005 posted 951.4 billion won. 54 the Group’s consolidated shareholders’ equity, making the difference between HFG’s and the Group’s net income. 55 Table 3. Comprehensive Balance Sheet (As of 2005 Yearend, Based on Audited Balance Sheets) Table 4-1. Business Volume - Total Assets

Hana Bank Hana Hana Adjust Consoli (Unit : KRW in Billions) 2005 (Unit : KRW in Billions) Bank Trust DI&S Securities DIMCO Capital QIB HFL HFG -ment -dated Group Total Assets 106,308.5 Revenue Earning Assets 84,194.8 1,085.5 888.5 890.7 54.6 188.0 212.4 202.7 6,321.5 -7,238.7 86,799.9 Total Assets in Consolidated Balance Sheet 95,859.1 Interest Earning Assets 78,134.6 1,068.1 800.1 843.0 54.0 120.6 212.0 202.7 0.4 -432.5 81,002.8 Group Assets Excluded from Consolidation 10,449.4 Loans 62,385.9 400.8 79.1 81.1 1.7 96.9 162.9 - - -191.9 63,016.5 Assets in Performance Trusts 9,834.2 Fixed Income Securities 14,338.7 667.2 495.8 592.9 0.0 15.1 3.0 202.6 - -202.6 16,112.8 Hana Life Insurance, etc 615.2 Assets Under Management (DIMCO) 21,021.8 Due from Banks 1,409.9 0.1 225.2 169.0 52.3 8.6 46.0 0.1 0.4 -38.0 1,873.5 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - - Likewise, Total Liabilities in consolidated balance sheet of the Group may not properly disclose the Group's total funding by sale of financial Other Revenue Earning Assets 6,060.2 17.4 88.4 47.7 0.6 67.4 0.5 - 6,321.1 -6,806.2 5,797.0 products. Thus, the Group added Trust Deposits and Sale of Beneficiary Certificates to Banking Deposits in order to match Group Total Credit Cards 1,995.0 ------0.2 1,994.9 Assets and AUM. Based on consolidated balance sheet, management measured 61.7 trillion won as banking deposits and 11.3 trillion won Stocks 1,519.7 17.4 88.0 14.2 0.6 2.8 0.0 - 6,321.1 -6,802.51,161.3 as trust deposits. Adding Sales of Beneficiary Certificates of 24.0 trillion won, the Group's Total Sales as of 2005 yearend amounted to 96.9 Lease - - - - - 65.0 - - - -3.5 61.5 trillion won. Management will focus on the growth and balance between Total Assets and Total Sales for a more effective funding and usage Others 2,545.5 0.0 0.4 33.5 0.0 -0.4 0.5 - - - 2,579.4 at the Group level. Non-Revenue Earning Assets 7,807.4 33.2 389.8 769.1 5.5 6.8 7.1 0.7 2.9 36.7 9,059.3 Total Assets 92,002.2 1,118.7 1,278.2 1,659.8 60.1 194.8 219.5 203.3 6,324.4 -7,202.0 95,859.1 Table 4-2. Business Volume - Total Sales Liabilities 86,107.8 1,095.8 843.5 1,320.0 2.2 157.7 166.8 0.7 4.6 -469.2 89,230.0 (Unit : KRW in Billions) Hana Bank DI&S Hana Securities QIB Total Interest Bearing Liabilities 81,739.4 1,043.4 756.0 621.1 0.0 134.1 163.3 - 4.4 -423.6 84,038.1 Total Sales 78,367.0 17,037.2 1,475.8 42.3 96,922.3 Deposits 61,610.1 1,201.4 211.1 220.1 0.0 0.0 42.3 - - -35.4 63,249.7 Total Deposits 72,604.0 315.1 - 42.3 72,961.4 Borrowings 9,265.2 0.0 544.9 400.4 0.0 114.1 121.0 - 4.4 -187.7 10,262.5 Low Cost Deposits 21,232.8 - - 31.3 21,264.1 Time Deposits 29,851.1 - - 8.1 29,859.2 Debentures 10,269.8 0.0 0.0 0.5 0.0 19.9 0.0 - - -200.5 10,089.6 Other Installment Deposits 6,532.9 - - 2.9 6,535.9 Others 594.3 -158.0 0.0 0.0 0.0 0.0 0.0 - - - 436.3 CDs 3,993.3 - - - 3,993.3 Non-Interest Bearing Liabilities 4,368.4 52.4 87.5 698.9 2.2 23.7 3.5 0.7 0.2 -45.6 5,191.8 Trust Deposits 10,993.9 315.1 - - 11,309.0 Shareholders' Equity 5,894.4 22.9 434.7 339.8 57.9 37.1 52.7 202.7 6,319.8 -6,732.8 6,629.1 Sale of Beneficiary Certificates 5,763.0 16,722.1 1,475.8 - 23,960.9 Total Liabilities & Shareholders' Equity 92,002.2 1,118.7 1,278.2 1,659.8 60.1 194.8 219.5 203.3 6,324.4 -7,202.0 95,859.1 Capital Leverage (Times) 15.6 48.9 2.9 4.9 1.0 5.3 4.2 1.0 1.0 1.1 14.5

* Bank trust above includes money trusts that are subject to a guaranteed principal repayment or a fixed rate of return, in accordance with the accounting and reporting guidelines III. Results of Business Operation prescribed by the banking regulatory authorities. As of 2005 yearend, total assets in trust accounts including all types of trust funds amounted to 10,952.9 billion won, net of intratransaction with the Bank. 1. Net Interest Income

As of 2005 yearend, the Group funded 89.2 trillion won from Liabilities and 6.6 trillion won from Shareholders' Equity. Interest Bearing As appears in Table 5, 95.4% of the Group's Net Interest Income for 2005 came from Hana Bank. Interest revenue from Loans held 84.8% of Liabilities were comprised of deposits of 63.2 trillion won, Borrowings of 10.3 trillion won, and Debentures of 10.1 trillion won. During 2005, total Interest Revenues. Meanwhile, interest expense for Deposits took 68.6% of total Interest Expenses, which is a bit lower than the Hana Bank achieved 11.6% of growth in terms of its assets. As a way of funding its growth, Hana Bank issued short-term debentures to take proportion of interest revenue from Loans. Such structural difference may be explained by the recent low interest rate trend in Korea. As advantage of low-interest rate trend that continued during 2005. Such issuance of debentures at the Bank level led to the increase in the suggested in Table 6-1, the proportion of Fixed Income Securities in Interest Earning Assets has dropped since 2003. In sharp contrast, the proportion of Debentures in Interest Bearing Liabilities has been increasing. The reason : profitability. Yields on Fixed Income Securities and Group's Debentures. However, the recent increase in debenture, compared to the funding by time deposits of the same maturity, contributed Costs on Debentures have declined in correlation with low interest rate trend in Korea. And Hana Bank, which takes most of the Group's to cut down the Group's funding expense rather than increase it. Interest Earning Assets and Interest Bearing Liabilities, made a reasonable choice to increase its Net Interest Income by funding more from Debentures and using less in Fixed Income Securities. Due to Hana Bank's reliance on Net Interest Income and security companies' fee-based operation, the Group's funding and usage are primarily bound to the changes in Interest Earning Assets and Interest Bearing Liabilities. The proportion of Loans and Deposits is dominant, Table 5. Group Net Interest Income (Based on Pro Forma Income Statement) taking 65.7% and 66.0% of total usage and funding, respectively. The percentage of Revenue Earning Assets in Total Usage recorded 90.5% Hana Bank Hana Hana Hana Adjust Consoli as of 2005 yearend. With Non-Revenue Earning Assets of 9.1 trillion won, the Group's total usage at 2005 yearend balanced its funding at (Unit : KRW in Billions) Bank Trust DI&S Securities Life DIMCO Capital QIB Others HFG -ment -dated 95.9 trillion won. Interest Revenues 4,166.2 47.7 38.2 39.8 14.3 1.9 14.8 7.7 0.1 0.0 -29.4 4,301.3 Loans 3,580.5 18.4 30.6 2.9 0.5 0.0 10.2 7.2 - - -3.7 3,646.6 Korean GAAP restricts some of the Group's funding and usage from being accounted for in its consolidated financial statements. Exclusion of Fixed Income Securities 555.9 27.1 - 32.3 13.6 0.1 - 0.5 0.1 - -17.7 611.9 Performance Trusts and AUM as well as some of HFG's affiliates - Hana Life, Hana I&S, and Hana Institute of Finance - from consolidation Due from Banks 10.9 0.0 4.0 0.2 0.1 1.8 - - - - -4.4 12.6 Others 18.9 2.2 3.7 4.4 0.0 - 4.6 0.0 - - -3.6 30.2 may underestimate the Group's entire revenue sources. Management believes that these excluded assets should be disclosed to make this Interest Expenses 2,477.8 32.3 24.3 16.8 0.1 - 6.9 3.1 0.0 0.0 -29.6 2,531.8 section of Annual Report more complete. Accordingly, the reconciliation between Total Assets in Consolidated Balance Sheet and Group Deposits 1,708.9 32.3 - - - - - 0.3 - - -4.2 1,737.4 Total Assets is provided in Table 4-1. As a result, management estimated 106.3 trillion won as Group Total Assets including aforementioned Borrowings 251.1 - 22.8 15.0 - - 3.7 2.8 0.0 0.0 -5.4 290.0 excluded assets except AUM in the investment trust accounts of DIMCO. Debentures 478.9 - - 0.0 ------17.9 461.0 Others 38.9 - 1.6 1.8 0.1 - 3.3 0.0 - - -2.1 43.5 Net Interest Income 1,688.4 15.4 13.8 23.0 14.2 1.9 7.9 4.6 0.1 0.0 0.2 1,769.5 (As % of General Operating Income) 81.80% - 7.09% 19.31% - 10.43% 98.98% 74.72% 1.26% -0.01% -0.09% 72.81% 56 57 Hana Bank's Net Interest Margin ("NIM"), the meaningful indicator of its Net Interest Income, recorded 2.32% during 2005, a slide of 6 basis Table 6-2. Reconciliation to NIM under FSS Guideline points year on year. The most attributable to this decrease was a drop in the yields on Loans and Fixed Income Securities due to the prolonged low interest rate trend. Considering the Bank's collection of credit facility from Russia in 2004, management analyzes that the (Unit : KRW in Billions, %) 2005 2004 2003 pure NIM in 2004 was 2.35%, a decrease of 3 basis points from its original 2.38%. We see that NIM in 2005, especially the yield on our Net Interest Margin 2.32% 2.38% 2.24% retail loans, was affected mostly by the drop in overnight call rates during the 4th quarter of 2004. Net Interest Income 1,688.4 1,612.4 1,441.3 Interest Earning Assets 72,648.6 67,665.8 64,204.5 Despite the recovery in overnight call rate during the 2nd half of 2005, we discovered that our NIM was still bound to the low interest rate Reconciliation trend due to the time lag of interest rate maturity. Upside in NIM during 2005, however, is that Hana Bank did not stop its asset growth. The Net Interest Income Adjustment 148.9 -70.6 -61.4 increase in Interest Earning Assets, backed by annual Loans growth of 3.7 trillion won, enabled the Bank to decrease IEA/IBL Gap Ratio by (+) Fees from Cash Advance 73.3 80.1 101.0 2.51% in absolute value, thereby to further eliminate the gap between Net Interest Spread (NIS) and NIM. Thus, management sees that (+) Fees from Card Loans 3.7 7.3 9.5 actual NIM in 2005 slid by 3 basis points from the previous year, but will recover in 2006 along with rebounding market rates and improved (+) Fees from Credit Card Receivables* 188.6 - - IEA/IBL Gap. (+) Fees from Corporate Purchase Card 42.2 - - (-) Deposits Insurance Fees 95.3 96.0 92.1 Table 6-1. Net Interest Spread and Net Interest Margin - Hana Bank (Based on Average Balance) (-) Interest Income on Beneficiary Certificates - - 24.1 (-) Contributions to Credit Guarantee Fund 63.6 61.9 55.8 (Unit : KRW in Billions, %) 2005 2004 2003 Interest Earning Assets Adjustment 3,400.0 2,018.3 1,509.8 Interest Earning Assets (IEA) 72,648.6 67,665.8 64,204.5 (+) Cash Advance 243.7 275.6 483.3 Loans 59,145.4 55,485.9 49,912. (+) Card Loans 27.0 55.4 82.8 Fixed Income Securities 13,134.4 11,940.4 14,032.9 (+) Credit Card Receivables* 747.0 - - Due from Banks 368.9 239.5 259.7 (+) Corporate Purchase Card 845.1 - - Others - - - (+) Domestic Import Usance Bills 1,537.3 1,687.4 1,554.6 Interest Bearing Liabilities (IBL) 75,755.9 72,257.8 68,101.8 (-) Beneficiary Certificates in Investment Trust - - 610.9 Deposits 57,314.6 56,833.6 53,847.4 Net Interest Margin under FSS Guideline 2.42% 2.21% 2.10% Borrowings 8,804.0 7,408.5 8,647.0 Net Interest Income 1,837.2 1,541.8 1,379.9 Debentures 9,008.3 7,399.4 4,906.6 Interest Earning Assets 76,048.6 69,684.1 65,714.3 Others 629.0 616.3 700.9 Yields on IEA 5.73% 6.09% 6.29% * Credit card, corporate purchase card, and their fee income are included in the calculation of NIM under the FSS guideline from the end of 2005. Loans 6.05% 6.41% 6.63% Fixed Income Securities 4.23% 4.62% 5.06% In order to secure consistency in calculation, the Group adopts a slightly different definition of NIM from that of Financial Supervisory Due from Banks 2.95% 2.10% 3.17% Service's (FSS) guideline. Table 6-2 well demonstrates how a change in guideline may distort the actual trend of NIM. Unlike Hana Bank's Others - - - traditional perspective on credit card business, the FSS guideline has included assets and revenues from cash advance and card loans in the Costs on IBL 3.27% 3.47% 3.82% calculation of NIM. At the end of 2005, the FSS guideline changed to include assets and revenues on credit card receivables and corporate Deposits 2.98% 3.29% 3.71% purchase card. This change boosted NIM of 2.21% in 2004 under the FSS guideline up to 2.42% in 2005 under the new guideline. Borrowings 2.85% 2.34% 2.64% Management considers such a difference from the FSS guideline unavoidable, but will adhere to the Group's internal guideline for more Debentures 5.32% 5.99% 7.03% accurate and consistent analysis of the Group's interest income trend. Others 6.18% 4.36% 4.30% IEA/IBL Gap -3,107.2 - 4,592.0 -3,897.3 IEA/IBL Gap Ratio - 4.28% -6.79% -6.07% Net Interest Spread 2.46% 2.62% 2.47% Loan to Deposit Spread 3.07% 3.12% 2.92% Securities to Deposit Spread 1.25% 1.33% 1.35% Net Interest Margin 2.32% 2.38% 2.24% Net of Loan Loss Provisioning 2.19% 1.91% 0.95%

58 59 2. Fees & Commissions Income The credit card business operation, accounting for the majority of the Banking Fees, is divided into general credit cards and corporate purchase cards. Fees from general credit card operations during 2005 totaled 203.8 billion won, an increase by 7.3 billion won from the Hana Financial Group earned 821.3 billion won of Fees & Commissions from its operation during 2005. Such Fee Incomes may be previous year. categorized into Banking and Non-Banking Fees of 475.8 billion won and 345.5 billion won, respectively. Group Banking Fees, of course, are concentrated to Hana Bank, while Non-Banking Fees are spread over the Group's major distribution channels : Hana Bank, DI&S, and Hana Revenues from general credit card operations totaled 272.9 billion won, an increase by 26.5 billion won from the previous year. Such rise was Securities. The details on the Group's fee-based incomes, Banking or Non-Banking, are provided in Table 7 driven by 36.9 billion won of increase in revenues from credit card receivables. Number of credit card issued also increased year on year. Management believes that the Group's credit card portfolio has been freed from asset quality issue and is on the right track for further Table 7. Total Fees & Commissions (Based on Pro Forma Income Statement) growth.

Hana Bank Hana Hana Adjust Consoli Table 8-2. Operation of Corporate Purchase Card - Hana Bank (Unit : KRW in Billions) Bank Trust DI&S Securities Life DIMCO QIB HFG -ment -dated Banking Fees 490.8 - 0.1 - - - 1.0 - -16.1 475.8 (Unit : KRW in Billions, %) 2005 2004 2003 Fees from Credit Card Business* 245.6 ------245.6 Average Balance of Corporate Purchase Card 845.1 770.0 644.5 Fees in KRW 119.1 - 0.1 ------119.2 Fees from Corporate Purchase Card 41.8 38.3 33.9 Fees in Foreign Currencies 55.3 - - - - - 1.0 - - 56.2 Revenues 42.2 38.8 34.3 Fees from Guarantees & Acceptances 7.3 ------7.3 Expenses 0.4 0.5 0.4 Trust Fees 63.5 ------16.1 47.5 Return on Corporate Purchase Card 4.95% 4.97% 5.26% Non-Banking Fees 75.7 -0.1 170.8 82.9 0.0 16.5 - -0.2 - 345.5 Number of Main Contractors 363 332 336 Sales of Beneficiary Certificate 26.8 - 112.9 2.3 - - - - - 142.0 Number of Main & Sub Contractors 138,610 119,433 98,632 Brokerage Fee - - 47.8 54.6 - - - - - 102.4 Subscription & Arrangement - - 3.4 7.9 - - - - - 11.3 Investment Trust/Management Fee - - - - - 15.6 - - - 15.6 Corporate purchase cards, first introduced by Hana Bank in 1999, are now used as a common payment method among corporations. Bancassurance 48.9 - 0.5 0.0 - - - - - 49.4 Compared to general credit card operations, its profitability is not differentiated significantly; However, the Bank appreciates the product's Others - -0.1 6.2 18.1 0.0 0.9 - -0.2 - 24.8 additional benefits such as the attraction of low cost deposits from both corporate customers, or contractors and their sub-contractors, Total Fees & Commissions 566.4 -0.1 170.9 82.9 0.0 16.5 1.0 -0.2 -16.1 821.3 which place the overall yields of the product over others. In addition, purchase card business also greatly contributes to the asset quality of (As % of General Operating Income) 27.44% -12.84% 87.59% 69.64% -0.10% 89.45% 16.15% -0.11% 7.26% 33.80% the total credit card portfolio with its low delinquency ratio. Initiated in 1999 with a total customer base of 882 entities and 15 main * Includes the fees from corporate purchase card. contractors, the business grew to secure 363 main contractors and 138,610 main and sub-contractors in 2005, with the sales volume expanding to 845.1 billion won.

(1) Fees & Commissions - Banking Table 9. Fees in KRW - Hana Bank

(Unit : KRW in Billions) 2005 2004 2003 Table 8-1. Operation of Credit Card Business - Hana Bank Fee Revenues in KRW 184.6 168.9 186.2

(Unit : KRW in Billions, %) 2005 2004 2003 Fees Related to Loan Products 55.6 56.2 49.0 Average Balance of Credit Card* 1,018.2 991.5 1,315.1 Fees on Remittance Services 24.7 25.8 30.1 Credit Card Receivables 747.0 659.6 747.4 Fees on CDs and ATMs 26.6 25.8 22.0 Cash Advances 243.7 275.6 483.3 Fees from Sale of KHFC Mortgage Loans 11.6 3.0 0.0 Card Loans 27.0 55.4 82.8 Fees on Agency 7.8 8.7 7.8 Others 0.5 1.0 1.7 Fees on Alliance Services 8.5 7.1 7.7 Fees from Credit Card Business* 203.8 196.5 215.9 Fees from ABS Operations 3.5 6.9 32.1 Fee Revenues 272.9 246.4 260.8 Others 46.4 35.4 37.5 Revenue from Credit Card Receivables 188.6 151.7 142.3 Fee Expenses in KRW 65.5 84.7 82.0 Revenue from Cash Advance 73.3 80.1 101.0 Fee Expense Related to Loan Products 14.4 39.7 55.2 Revenue from Card Loans 3.7 7.3 9.5 Fee Expense Related to KHFC Mortgage Loans 12.7 10.3 0.0 Other Revenues 7.3 7.4 8.0 Fee Expense to Collect Loans Overdue 4.8 5.2 2.7 Fee Expenses 69.1 50.0 44.9 Others 33.6 29.4 24.1 Return on Credit Card Business 20.01% 19.81% 16.42% Fees in KRW 119.1 84.2 104.2 Number of Credit Card Issued* 3,043,025 2,293,713 2,632,972 Household 2,897,622 2,169,816 2,528,109 Corporate 145,403 123,897 104,863 In 2005, banking fee revenues in Korean won totaled 184.6 billion won, an increase of 15.7 billion won from the previous year. Meanwhile, Sales in Credit Card* 8,917.0 7,746.6 8,041.5 the Bank saved 19.2 billion won in its fee expenses. As a result, total banking fee incomes in won currency amounted to 119.1 billion won, Number of Joint Members 157,202 148,175 173,499 recording 34.9 billion won of increase from the figure of 2004.

Overdue as % of Sales Volume 0.36% 0.45% 0.80%

*Excludes corporate purchase card. 60 61 Table 10. Fees in Foreign Currencies - Hana Bank and QIB The Group earned 142.0 billion won of Fees from Sale of Beneficiary Certificates, 41.0% of total Non-Banking Fees. The surge in Sale of Beneficiary Certificates reflects changing market demands for alternative investments under the continuing low interest trends since 2002. (Unit : KRW in Billions) 2005 2004 2003 With the bullish Korean equity market in 2005, such upward trend in indirect investment market became more evident. The composition of Fee Revenues in Foreign Currencies 60.6 65.9 53.8 the sales volume is another indicator of market trend. In 2005, the Group focused on diversifying its sales portfolio and successfully Fees Related to Letter of Credits 36.5 42.3 32.2 increased the sales of equity type funds from the previous year. The growth in sales of new products such as Derivatives and Alternative Fee Revenues in QIB 1.2 0.5 0.4 Investments such as Fund of Funds has been noteworthy, either. In a consolidated basis, the Group sold 24.0 trillion won of beneficiary Other Fee Revenues in Foreign Currencies 22.9 23.1 21.2 certificates during 2005. DI&S took the leadership role in such achievement and the sales by Hana Bank has shown sharp growth during the Fee Expenses in Foreign Currencies 4.3 4.9 6.1 last 3 years. Fee Expenses Related to Letter of Credits 0.3 0.4 0.3 Fee Expenses in QIB 0.2 0.1 0.1 Table 13. Brokerage Fee Other Fee Expenses in Foreign Currencies 3.9 4.4 5.8 2005 2004 2003 Fees in Foreign Currencies 56.2 61.0 47.7 Hana Consoli Hana Consoli Hana Consoli (Unit : KRW in Billions,%) DI&S Securities -dated DI&S Securities -dated DI&S Securities -dated Contract Volume* 29,539.1 60,850.8 90,389.9 45,291.7 55,301.4 100,593.2 45,883.6 51,951.8 97,835.3 Meanwhile, banking fee revenues in foreign currencies recorded 60.6 billion won, a decrease of 5.3 billion from the previous year with the Equity 20,696.5 22,477.2 43,173.7 14,612.9 13,797.0 28,409.9 21,851.7 15,142.3 36,993.9 slow down in sales of LCs and local LCs. The fee revenue from LCs amounted to 36.5 billion won, recording year on year drop of 5.8 billion Futures 6,595.3 37,080.7 43,676.1 28,136.7 39,885.8 68,022.5 22,657.0 35,266.7 57,923.7 won. Table 10 shows details of other fee income in foreign currencies. Options 2,247.3 1,292.8 3,540.1 2,542.2 1,618.6 4,160.8 1,374.9 1,542.8 2,917.8 Table 11. Trust Fees - Hana Bank Brokerage Fees 47.8 54.6 102.4 49.4 35.2 84.6 60.0 38.7 98.8 Fee Revenue 51.8 67.6 119.4 51.9 43.6 95.5 62.8 47.8 110.6 (Unit : KRW in Billions, %) 2005 2004 2003 Fee Expense 4.0 13.0 17.1 2.5 8.4 10.9 2.8 9.1 12 Trust Funds in Average 10,346.4 10,959.2 12,966.2 *Excludes Proprietary trading Principal & Dividend Guaranteed Trusts 1,055.5 1,050.4 1,131.9 Performance Trusts* 9,290.9 9,908.8 11,834.3 Brokerage Fee of 102.4 billion won, 29.6% of the Group's Non-Banking Fee Income in 2005, demonstrated better profitability year on year by Trust Fees 63.5 65.1 125.0 increasing contract volume in equity section. Hana Securities demonstrated its strength in brokerage business by exceeding DI&S in contract Fees from Trust Business 62.8 64.8 124.8 volume of both equity and futures. Either, Hana Securities once again proved its strength in Subscription & Arrangement business in 2005 by Fees on Early Termination 0.7 0.3 0.2 its differentiated services in fixed income securities and securities in foreign currencies, as shown in Table 14.

Return on Trust Business 0.61% 0.59% 0.96% Table 14. Subscription & Arrangement * Excludes public trusts. 2005 2004 2003 Hana Consoli Hana Consoli Hana Consoli The Bank earned 63.5 billion won of fee income from its trust business in 2005, 1.6 billion won of slide from the previous year. The drop is (Unit : KRW in Billions,%) DI&S Securities -dated DI&S Securities -dated DI&S Securities -dated mainly due to the reduction in average trust balance of 617.9 billion won. Return on Trust Business has been tracking a decreasing trend Subsicription & Arrangement Volume 1,698.2 17,590.5 19,288.7 3,823.5 19,276.0 23,099.5 4,315.4 15,068.0 19,383.4 since the restriction on the opening of cost method trust accounts in 2002. However, in 2003, the figure seemed to increase based on non- Equity 19.4 4.6 24.0 0.2 8.8 9.0 33.8 6.5 40.3 recurring factors such as the rapid growth of average balance following the merger, the sales of NPLs and the reversal of allowance for Fixed Income 1,678.8 17,347.8 19,026.5 3,823.3 19,260.3 23,083.6 4,274.6 15,061.5 19,336.1 valuation of receivables. In the absence of such earning factors in 2005, the fee ratio fell down to the expected level. Securities in Foreign Currencies - 238.2 238.2 - 6.9 6.9 6.9 - 6.9 Fees from Subscription & Arrangement 3.4 7.9 11.3 5.0 6.0 11.0 7.0 9.2 16.3

(2) Fees & Commissions - Non-Banking (Based on Pro Forma Income Statement) Table 15. Investment Trust/Management Fee - DIMCO

2005 2004 2003 Table 12. Sale of Beneficiary Certificate Net Net Net (Unit : KRW in Billions,%) Assets Liabilities Assets Assets Liabilities Assets Assets Liabilities Assets 2005 2004 2003 Assets Under Management 21,838.8 817.0 21,021.8 23,265.5 1,128.2 22,137.3 16,299.6 519.3 15,780.3 Hana Hana Consoli Hana Hana Consoli Hana Hana Consoli Real Estate 496.7 3.1 493.6 97.0 0.8 96.2 - - - (Unit : KRW in Billions,%) Bank DI&S Securities -dated Bank DI&S Securities -dated Bank DI&S Securities -dated Fund of Funds 890.7 459.2 431.5 1,136.2 485.7 650.5 - - - Sale of Beneficiary Certificate 5,763.0 16,722.1 1,475.8 23,960.9 3,841.8 16,829.8 1,487.8 22,159.4 862.5 14,370.0 1,150.4 16,382.9 Equity 1,234.7 46.8 1,187.9 486.1 16.2 469.9 835.1 28.3 806.8 Equity Funds 944.1 881.8 19.0 1,844.9 80.7 617.2 77.0 774.9 146.8 1,114.7 96.2 1,357.7 Bonds 6,623.5 90.8 6,532.7 10,717.1 266.0 10,451.1 5,674.4 67.2 5,607.2 Equity Mixed Funds 76.2 1,026.8 60.5 1,163.5 4.8 1,253.1 60.1 1,318.0 - 1,977.7 31.3 2,009.0 Derivatives 750.8 129.8 621.0 466.7 144.6 322.1 322.5 102.1 220.4 Fixed Income Mixed Funds 110.3 3,915.4 247.8 4,273.5 80.3 2,580.4 200.1 2,860.8 7.6 2,013.9 231.2 2,252.7 Mixed Funds 4,626.2 78.0 4,548.2 4,948.6 173.4 4,775.2 5,370.8 314.6 5,056.2 Fixed Income Funds 367.9 5,805.5 581.4 6,754.8 1,157.2 8,155.6 786.6 10,099.4 368.8 5,740.7 540.4 6,649.9 MMFs 7,216.2 9.3 7,206.9 5,413.8 41.5 5,372.3 4,096.8 7.1 4,089.7 MMF 3,339.0 3,858.2 499.1 7,696.3 2,131.7 3,197.9 359.0 5,688.6 318.4 3,314.0 251.3 3,883.7 Investment Trust/Management Fees 15.6 10.6 11.9 Derivatives 328.8 599.3 10.0 938.1 180.3 377.5 5.0 562.8 - 209.0 - 209.0 Alternative Investments 596.7 635.1 58.0 1,289.8 206.8 648.1 - 854.9 20.9 - - 20.9 DIMCO's contribution to the entire Group is more than what appears in its financial statements. The asset management firm handles 21.0 Sales Fees 26.8 112.9 2.3 142.0 10.4 113.5 1.9 125.7 8.1 142.5 3.0 153.6 trillion won of AUM out of its balance sheet at 2005 yearend and provides fund products to the Group's distribution channels. DIMCO earned 15.6 billion won of Investment Trust/Management Fees for its management of AUM. But the company's performance has a greater impact on our clients' investment income and, thus, the Group's Sale of Beneficiary Certificates and Sales Fees. 62 63 Table 16. Sale of Bancassurance Products - Hana Bank IV. General and Administrative Expenses

(Unit : KRW in Billions) 2005 2004 2003 Table 19. Group General and Administrative Expenses (Based on Pro Forma Income Statement) Initial Premium 314.5 197.3 243.3 Bancassurance Fees 48.9 29.4 10.9 Hana Hana Hana Hana Adjust Consoli (Unit : KRW in Billions) Bank DI&S Securities Life DIMCO Capital QIB Others HFG -ment -dated Introduced in 2003, bancassurance has become one of the major fee income sources for the Korean Banks. As such, Hana Bank's Salaries and Wages 457.1 76.6 44.8 5.4 6.8 1.4 0.5 2.6 0.5 - 595.7 Bancassurance Fee and the sales volume as represented by the amount of Initial Premium have both increased for the last 3 years. During Equipment Expenses 354.6 57.3 21.9 9.8 3.7 3.9 0.7 2.0 0.4 -1.2 453.2 2005, the entire Group earned 14.3% of its Non-Banking Fees from bancassurance business and expect further sales growth through the Retirement Benefits 61.4 5.4 3.1 - 0.5 0.1 - 0.2 - - 70.7 newly added distribution channels, DI&S and Hana Securities. Depreciation and Taxes 167.8 17.2 6.3 3.4 0.9 0.5 0.2 0.1 0.1 1.6 198.1 (Amortization of Goodwill) (42.5) ( - ) ( - ) ( - ) ( - ) ( - ) ( - ) ( - ) ( - ) (1.6) (44.1) General and Administrative Expenses 1,040.9 156.5 76.1 18.6 12.0 5.9 1.4 4.9 1.0 0.4 1,317.7 3. Gains on Disposition & Valuation General Operating Income 2,064.2 195.1 119.0 13.2 18.5 7.9 6.1 5.1 221.2 -221.2 2,430.1 Cost to Income Ratio 50.43% 80.20% 63.93% 141.35% 64.85% 74.13% 23.17% 96.51% 0.46% -0.19% 54.22% Table 17. Gains on Disposition & Valuation (Based on Pro Forma Income Statement) (Net of Goodwill Amortization) (48.37%) (80.20%) (63.93%) (141.35%) (64.85%) (74.13%) (23.17%) (96.51%) (0.46%) (0.55%) (52.41%) Hana Bank Hana Hana Adjust Consoli (Unit : KRW in Billions) Bank Trust DI&S Securities Life QIB HFG -ment -dated During 2005, the Group spent 1.3 trillion won of G&A Expenses to earn 2.4 trillion won of General Operating Income. Salaries and Wages, Gains (Losses) on Trading Securities -9.5 9.8 -7.4 -66.6 0.2 0.0 221.4 -221.4 -73.4 along with Equipment Expenses, took 79.6% of the Group's total execution. Regardless of the affiliates' differences by industry, there are Gains (Losses) on Disposition 0.8 3.1 5.2 -54.4 0.1 0.0 - - -45.2 much more room to improve on the Group's current Cost to Income Ratio of 52.41%. Upon the incorporation of HFG, management expects Gains (Losses) on Valuation -10.3 6.7 -12.6 -12.2 0.1 - 221.4 -221.4 -28.2 that cost-efficient corporate culture since Hana Bank era and undergoing bundle procurement of IT system and disposables will greatly Gains on Derivatives 86.3 0.5 10.0 74.7 - - - - 171.5 contribute to saving overlapped costs at the Group level. Gains on Foreign Currencies* -5.8 - - - - 0.5 - - -5.3 Total Gains on Disposition and Valuation 71.0 10.3 2.6 8.1 0.2 0.5 221.4 -221.4 92.8 * In accordance with Korean GAAP, Gains (Losses) on Foreign Currencies of securities companies and insurance companies are accounted for in their Non-Operating Income. V. Asset Quality and Loan Loss Provisioning

General Operating Income of the Group includes Gains on Disposition & Valuation of various assets, such as trading securities, derivatives Table 20. Group Asset Quality and foreign currencies. Considering HFG's 221.4 billion won of Gains on Valuation contains its Gains on Investment in Associates and is offset in consolidation adjustment, the most of the Group's disposition and valuation gains came from Hana Bank and 2 securities companies. Hana Hana Hana Hana Group (Unit : KRW in Billions,%) Bank DI&S Securities Life DIMCO Capital QIB Total Among those gains, Hana Bank's Gains on Derivatives of 86.3 billion won was originated from the disposition and valuation of derivatives Total Credits 64,953.7 117.0 92.1 26.2 5.9 154.1 165.0 65,514.0 related to foreign currencies. Meanwhile, Hana Securities suffered 54.4 billion won of disposition losses on equity linked securities and stock Normal 63,258.4 115.5 88.1 26.2 5.9 153.7 159.5 63,807.4 warrants. The security company, however, earned 74.7 billion won of Gains on Derivatives, mainly based on the back to back derivatives with Precautionary 1,059.6 - - - - 0.3 4.4 1,064.3 equity linked securities stock warrants that are related to the disposition and valuation losses. As a result, Hana Securities recovered the loss Substandard 473.2 0.0 - - - 0.1 0.6 474.0 and resulted in 8.1 billion won of Total Gains for 2005. Doubtful 83.1 - 1.5 - - 0.0 0.4 85.0 Estimated Loss 79.3 1.5 2.4 - - 0.0 0.0 83.3 Loan Loss Allowances 811.2 2.1 4.3 0.1 0.0 3.4 2.1 823.3 4. Other General Operating Income Normal 434.4 0.6 0.4 0.1 0.0 3.1 1.6 440.3 Precautionary 113.0 0.0 0.0 - - 0.2 0.1 113.3 Table 18. Other General Operating Income (Based on Pro Forma Income Statement) Substandard 117.3 0.0 0.0 - - 0.1 0.2 117.6 Hana Bank Hana Hana Hana Adjust Consoli Doubtful 67.2 0.0 1.5 - - 0.0 0.2 68.9 (Unit : KRW in Billions) Bank Trust DI&S Securities Life DIMCO Capital Others -ment -dated Estimated Loss 79.3 1.5 2.4 - - - - 83.3 Deposit Insurance Fee -95.3 ------95.3 Loan Loss Provisioning 95.5 1.3 0.0 0.1 0.1 -4.5 0.4 92.9 Contribution to Credit Guarantee Fund -63.6 0.0 ------63.6 Provisioning as % of Total Credits 0.15% 1.10% 0.04% 0.24% 1.08% -2.89% 0.26% 0.14% Dividend Income 13.6 0.2 1.1 0.3 0.4 0.0 0.1 - - 15.8 Asset Soundness Gains on Reserve for Customers' Claim - - 6.7 4.7 - - - - - 11.4 Precautionary & Below Ratio 2.61% 1.29% 4.26% - - 0.29% 3.35% 2.60% Substandard & Below Ratio 0.98% 1.29% 4.26% - - 0.09% 0.66% 0.98% Insurance Income - - - - -1.7 - - - - -1.7 Coverage Others -116.3 -24.7 - - 0.0 - - 5.0 16.1 -120.0 Against Precautionary & Below 47.85% 137.91% 110.45% - - 763.17% 38.84% 48.24% Other General Operating Income -261.6 -24.5 7.8 5.1 -1.3 0.0 0.1 5.0 16.1 -253.4 Against Substandard & Below 127.62% 137.91% 110.45% - - 2442.14% 198.06% 128.18%

Other General Operating Income includes revenues or expenses which are ancillary to an affiliate's ordinary course of business, such as * Total credits of Hana Bank includes the credit exposure in principal and dividend guaranteed trusts. Loan loss allowances of Hana Bank excludes 2.8 billion won of allowances for unconfirmed guarantees and endorsed bills for the better match between its loan loss reserve and total credits. Deposit Insurance Fee and Contribution to Credit Guarantee Fund in case of Hana Bank and Gains on Reserve for Customers' Claim for securities companies. The most noteworthy change in Other General Operating Income for 2005 was Hana Bank's provisioning of 92.0 billion As of 2005 yearend, the Group's credit exposure based on asset classification criteria of supervisory authorities totaled at 65.5 trillion won. won for other allowances to comply with the FSS recommendation to set aside reserve for unused credit lines, unconfirmed guarantees and Group credits classified as substandard and below amounted 642.3 billion won, 0.98% of Total Credits. Proactively counter measuring credit endorsed bills, which drastically increased other general operating expenses. 24.7 billion won of other expenses in Bank Trust was risks, the Group reserved 823.3 billion won of Loan Loss Allowances to cover 128.18% of its NPLs. accounted for to pay trust fees to banking account and offset in consolidation adjustment. 64 65 As for credit quality of Hana Bank, which takes 99.1% of Total Credits and 98.5% of Loan Loss Allowances, continued its track record of VI. Non-Operating Income excellence in asset soundness. Continuing increase in exports combined with slow but sustainable recovery of domestic demands supported the Bank's improvement in asset quality in both corporate and retail sector. Hana Bank's credits classified as substandard and below dropped Table 23. Non-Operating Income (Based on Pro Forma Income Statement) by 200.0 billion won during 2005 while Total Credits increased by 5.0 trillion won to record 65.0 trillion won at yearend. Specifically, delinquency ratio at 2005 yearend was 0.89%, the lowest since 2002. The ratios have improved overall, and the overdue ratio in the Bank's Hana Bank Hana Hana Hana Adjust Consoli (Unit : KRW in Billions) Bank Trust DI&S Securities Life DIMCO Capital QIB Others HFG -ment -dated credit card business dropped down to 1.80% from 9.95% of 2002. We believe that such improvement in the Group's asset soundness proves Gains (Losses) on Investment Securities 187.9 - -0.1 0.4 -0.6 - -0.4 - - - - 187.1 the credit crisis that has ailed the Korean economy since 2002 has resolved after all. For the reference, the Bank's change in Loan Loss Disposition of Investment Securities 198.4 - 0.0 0.4 -0.6 ------198.2 Allowances and Delinquency Ratios are suggested in Table 21 and 22. Valuation of Investment Securities -10.6 - -0.1 - - - -0.4 - - - - -11.1 Gains (Losses) from the Sale of NPLs 31.2 ------31.2 Table 21. Changes in Loan Loss Allowances - Hana Bank Gains (Losses) on the Sale of Fixed Assets 4.4 - 0.0 -0.2 0.0 0.0 0.0 -0.1 - - - 4.1 2005 Changes in 2005 2004 Changes in 2004 2003 Gains (Losses) from Equity Method 17.5 - 4.9 - - - 0.6 - - - -24.1 -1.1 (Unit : KRW in Billions,%) Ending Bal. Provisioning Write-Offs Adjustment Ending Bal. Provisioning Write-Offs Adjustment Ending Bal. Voluntary Retirement Benefits -0.2 ------0.2 Banking Account 813.7 95.5 -241.8 -3.5 963.5 321.5 -362.8 -105.0 1,109.8 Gains (Losses) on Foreign Currencies - - - 4.2 1.7 ------5.9 Corporate Sector 410.7 73.5 -134.2 -41.9 513.3 195.3 -180.4 -156.8 655.2 Others -0.5 -1.1 9.4 -2.1 -0.1 0.0 0.7 0.1 0.0 0.0 -9.9 -3.4 Retail Sector 368.1 25.5 -65.0 21.1 386.5 78.5 -82.0 34.8 355.2 Non-Operating Income 240.3 -1.1 14.2 2.4 0.9 0.0 0.8 0.0 0.0 0.0 -34.0 223.6 Credit Card Business 34.9 -3.5 -42.6 17.3 63.7 47.7 -100.4 17.0 99.4 Trust Account 0.3 -5.7 - 3.7 2.3 -10.6 -0.2 7.6 5.5 During 2005, the Group recorded 223.6 billion won of Non-Operating Income after dissolving of Equity Method for its affiliates. Due to the Corporate Sector - -5.7 - 3.7 2.0 -10.6 - 7.6 5.0 dissolving process, the consolidated Non-Operating Income of the financial group was less than that of Hana Bank. In 2005, the Bank reaped Retail Sector 0.3 0.0 - - 0.3 - -0.2 - 0.5 240.3 billion won for non-operating income. Specifically, gains on disposition of investment securities totaled at 198.4 billion won, a 60.8 billion won increase from 2004. The increase was mainly due to the disposition gain from the Investment stock and the reduction of the Total 814.0 89.8 -241.8 0.2 965.8 310.9 -363.0 -97.4 1,115.3 expense for Voluntary Retirement Benefits. Table 22. Delinquency Ratio - Hana Bank

(Unit : %) 2005 2004 2003 VII. Du Pont Analysis Delinquency Ratio 0.89 1.20 1.29 Corporate Sector 0.88 1.35 1.28 Table 24. Du Pont Analysis (Based on Pro Forma Income Statement) Retail Sector 0.83 0.99 1.09 Hana Hana Hana Hana Consoli (Unit : %) Bank DI&S Securities Life DIMCO Capital QIB HFG -dated Credit Card Business 1.80 2.10 4.58 Gross Income Ratio 2.67 13.50 8.44 3.58 32.03 6.81 2.79 13.87 2.97 General Operating Income Ratio 2.39 12.58 8.27 3.34 31.97 5.66 2.78 13.87 2.72 Exhibit 1. Vintage Ratio - Hana Bank (Retail Sector) Contribution of Interest Income 1.96 0.89 1.60 3.61 3.34 5.61 2.09 0.00 1.98 In case of vintage ratio in retail sector, cycle 1 roll rate has declined to 2.44% Contribution of Fee Income 0.66 11.02 5.76 0.00 28.59 0.00 0.45 -0.02 0.92 in annual average from 3.08% of 2004, which led the growth in assets with a Contribution of Disposit'n & Valuat'n 0.08 0.17 0.56 0.06 0.00 - 0.25 13.89 0.10 slower increase in overdue amount. In 2005, retail sector achieved more than Contribution of Other Income -0.30 0.50 0.35 -0.33 0.04 0.06 - - -0.28 2.0 trillion won of loan growth as well as cut down on overdue amount by Non-Operating Income Ratio 0.28 0.91 0.16 0.24 0.07 1.14 0.01 0.00 0.25 25.0 billion won (including overdue less than 1 month). Especially, credit Gross Expense Ratio 1.62 10.11 6.21 4.82 23.61 1.24 1.52 0.06 1.91 loans in retail sector recorded 0.34% of overdue more than 1 month, 10 basis G&A Expense Ratio 1.21 10.09 5.29 4.72 20.73 4.20 0.64 0.06 1.48 point down year on year in spite of 21% of annual loan growth. Loan Loss Provisioning Ratio 0.11 0.02 0.00 0.02 0.00 -3.00 0.48 - 0.10 Corporate Tax Ratio 0.30 - 0.91 0.09 2.88 - 0.40 - 0.31 Minority Interest Ratio - - 0.01 -0.01 - 0.03 0.00 - 0.02 Our vintage analysis made it clear that the asset quality of recent credit Return on Assets 1.05 3.39 2.22 -1.24 8.42 5.57 1.28 13.81 1.07 exposure in this sector improved from the previous year. +1 Month overdue Assets on Equity (Times) 15.90 3.90 4.37 15.21 1.04 4.66 4.05 1.00 15.27 ratios during 2005 are stabilized between 0.20% and 0.00%. Management Return on Equity 16.71 13.20 9.70 -18.90 8.78 25.99 5.17 13.82 16.28 expects that the asset growth rate could be effectively managed without deteriorating the Group's asset soundness by way of continuing upgrade of It is true that the large portion of group earnings are based on that of Hana Bank at current stage. The analysis of income and expense credit scoring system and back testing. contribution, however, clarifies the difference between the Bank's stand-alone operating results and the Group's combined earning stream. During 2005, the Group's Gross Income Ratio recorded 2.97%, 30 basis points higher than Hana Bank. Primarily attributable to this rise was Exhibit 2. Vintage Ratio - Hana Bank (Credit Card Business) the increase in the Contribution of Fee Income by consolidating DI&S and Hana Securities. Meanwhile, the Group's Gross Expense Ratio was As for vintage ratio in credit card business, overdue more than 1 month 1.91%, 29 basis point higher than Hana Bank stand-alone. Taking into account that there has been no control tower to manage G&A dropped down to 1.02% at 2005 yearend from 2.98% and 1.30% of 2003 and Expense Ratio at the Group level until the launch of HFG at December 1, 2005, management believes that the existence of HFG as a 2004 yearend, respectively. Cycle 1 roll rate, which is significant in Loss strategic architect could make a difference in the upcoming year. Given Default forecasting, dropped by 2.58% from 9.01% of annual average In sum, the Group recorded ROA of 1.07% and ROE of 16.28% in 2005 based on Pro Forma Income Statement. Hana Bank realized 1.05% of in 2004. This drop in the roll rate contributed to decrease the Group's credit ROA and 16.71% of ROE. Although the performance of Hana Bank seems to slow down in 2005, income before tax, which excludes cost in this sector. corporate tax effects, recorded 1,168.1 billion won, a 14.4% increase from the previous year to continue its upward trend. The Bank’s interest income ratio is 3 basis points lower than that of the previous year, however fee income ratio is 5 basis points higher than that of the As shown in Exhibit 2, vintage per time lapse has been stabilizing since 2004, end of 2005. In addition, Hana Bank realized Gross Expense Ratio of 1.62% with its effective cost control in G&A expenses. As for other which greatly contributed to the slash in the delinquency ratio of credit card affiliates, DI&S maintained ROA of 3.39% and ROE of 13.20% of ROE while Hana Securities recorded ROA of 2.22% and ROE of 9.70%, business. respectively. 66 67 VIII. Capital Adequacy Table 27. Net Capital Ratio - DI&S

Table 25. Required Ratio of the Equity Capital to the Requisite Capital (As of 2005 Yearend) (Unit : KRW in Billions, %) 2005 2004 2003 (Unit : KRW in Billions, %) Requisite Capital* Equity Capital** Investment Deduction Net Capital Net Capital 186.7 -543.3 -1,015.7 HFG 0.3 6,319.2 -6,321.1 -1.9 (+)Shareholders' Equity on B/S 422.4 285.6 -256.7 Hana Bank (Consolidated) 4,945.0 8,215.8 - 8,215.8 (+)Allowances for Current Assets 0.5 0.3 0.6 DI&S (Consolidated) 144.8 186.7 - 186.7 (-)Fixed Assets 233.2 622.0 753.7 Hana Life 14.8 21.7 - 21.7 (-)Prepaid Expenses 3.1 9.0 6.0 Total 5,104.8 14,743.4 -6,321.1 8,422.3 (-)Others - 198.1 - Ratio of the Equity Capital to the Requisite Capital 164.99% Gross Risk Amount 96.5 242.0 319.9 Market Risk 17.6 114.0 156.8 * In accordance with Regulations on Supervision of Financial Holding Company, Requisite Capital of HFG was calculated as 8% of its total assets on non-consolidated balance sheet net of its investment in subsidiaries, underwriting of subordinated debts issued by subsidiaries, and subsidy to subsidiaries. Meanwhile, Requisite Capital of Hana Bank, DI&S, and Counter Party Risk 10.8 8.4 14.4 Hana Life were calculated as provided in the relevant regulations on supervision of their capital adequacy. Fundamental Risk 37.4 34.4 37.9 ** Equity Capital of HFG excludes intangibles and deferred tax assets in accordance with Regulations on Supervision of Financial Holding Company. Shareholders' Equity of Hana Credit Concentration Risk 2.0 85.2 110.9 Bank, DI&S, and Hana Life were calculated as provided in the relevant regulations on supervision of their capital adequacy. Indirect Investment Risk 28.7 - - Net Capital Ratio 193.47% -224.49% -317.55% FSS mandates the quarterly calculation of Ratio of the Equity Capital to the Requisite Capital to measure a financial holding company's capital adequacy on consolidated basis. Thus, HFG does not suggest BIS capital adequacy ratio such as other bank holding companies overseas, but its Ratio of the Equity Capital to the Requisite Capital. Relevant regulations require financial holding companies in Korea to Table 28. Net Capital Ratio - Hana Securities maintain their Ratio of the Equity Capital to the Requisite Capital over 100%. Further, Group affiliates such as Hana Bank, DI&S, Hana (Unit : KRW in Billions, %) 2005 2004 2003 Securities, DIMCO, Hana Life and QIB, must satisfy the capital requirements as promulgated by the relevant regulations on supervision of Net Capital 303.7 288.0 280.9 their industries. HFG and its affiliates' Ratio of the Equity Capital to the Requisite Capital at 2005 yearend was 164.99%, proving its capital (+)Shareholders' Equity on B/S 339.8 319.4 317.7 adequacy at the initial stage. (+)Allowances for Current Assets 0.4 0.2 0.1 (-)Fixed Assets 31.0 30.5 36.6 As for the Group's affiliates, Hana Bank's BIS Capital Ratio at 2005 yearend was 13.29%, up by 1.46% over the year. The Tier 1 Capital (-)Prepaid Expenses 0.3 1.1 0.1 increased to 5,747.3 billion won and it attributed to 1.72% rise in the Tier 1 Capital Ratio. Even though the Tier 2 Capital also increased to (-)Others 5.2 0.0 0.3 2,613.7 billion won, the Tier 2 Capital Ratio declined by 0.26% due to the increase of Investment Deductions, which was attributable to the Gross Risk Amount 55.2 50.7 31.8 Bank's holding of HFG shares as a result of stock transfer to establish the financial holding company. In comparison with 11.4% rise of Risk Market Risk 25.2 26.2 13.8 Weighted Assets, the total BIS Capital increased by 25.1% to result in ascent in BIS Capital Ratio. Counter Party Risk 10.8 5.2 2.7 Fundamental Risk 18.4 16.7 15.3 In case of Net Capital Ratio, DI&S and Hana Securities realized 193.47% and 550.06% respectively. DI&S sharply improved the Net Capital Credit Concentration Risk 0.7 2.6 - Ratio through its acquisition by Hana Bank in 2005. As of 2005 yearend, DI&S had 186.7 billion won of Net Capital an increase of 730.0 Indirect Investment Risk - - - billion won from the end of 2004. For the readers' better understanding on the affiliates, the details on BIS Capital Adequacy Ratio of Hana Net Capital Ratio 550.06% 568.49% 882.84% Bank, Ratio of Equity to Risks of DIMCO, Solvency Margin Ratio of Hana Life, Adjusted Equity Capital Ratio of Hana Capital and BIS Capital Adequacy Ratio of QIB are provided from Table 26 to Table 32. Table 29. Ratio of Equity to Risks - DIMCO Table 26. BIS Capital Adequacy Ratio - Hana Bank (Unit : KRW in Billions, %) 2005 2004 2003 (Unit : KRW in Billions, %) 2005 2004 2003 Net Equity 56.8 52.3 52.5 Tier 1 Capital 5,747.3 4,205.0 3,176.3 Net Assets 57.7 53.1 52.5 Tier 1 from Common Stocks 5,747.3 4,205.0 3,176.3 (+) Adjusted Assets 59.9 54.2 53.2 Tier 1 from Preferred Stocks - - - (-) Adjusted Liabilities 2.2 1.1 0.8 Tier 2 Capital 2,613.7 2,414.2 2,582.7 Subordinated Borrowings - - - Loan Loss Reserves 556.1 579.2 536.5 (-) Deductions 0.9 0.8 - Upper Tier 2 600.0 600.0 600.0 Gross Risks 31.9 31.4 24.2 Lower Tier 2 1,319.9 1,123.8 1,416.2 Market Risk 0.0 0.0 0.4 Others 137.7 111.2 30.0 Counter Party Risk 0.5 1.0 1.0 (-) Investment Deductions 145.3 53.9 45.8 Fundamental Risk 2.7 2.4 2.2 Total BIS Capital 8,215.8 6,565.3 5,713.1 Credit Concentration Risk - - - Risk Weighted Assets 61,812.3 55,495.6 51,131.7 Trust Property Risk 28.7 28.0 20.6 BIS Capital Adequacy Ratio 13.29% 11.83% 11.17% Ratio of Equity to Risks 178.07% 166.36% 217.17% Tier 1 Ratio 9.30% 7.58% 6.21% Tier 2 Ratio * Based on Article 26 of Regulations on Supervision of Indirect Investment Asset Management Business. 68 3.99% 4.25% 4.96% 69 Table 30. Solvency Margin Ratio - Hana Life IX. Risk Management (Unit : KRW in Billions, %) 2005 2004 2003 Solvency Margin 21.7 30.1 9.8 Shareholders' Equity 19.7 33.1 11.4 Risks are natural components arising from the business activities of Hana Financial Group. The Group's risk management framework and Loan Loss Reserve 0.1 0.0 0.0 corporate governance aim for a communication-driven control structure, in which HFG and its affiliates actively discuss major risk issues from Subordinated Debts - - - various perspectives. Net Premium Reserve in Excess 34.3 20.9 8.7 HFG is continuously trying to improve risk management capabilities of its affiliates through identifying their strength and weakness under a Deductions (-) 32.4 23.9 10.3 consistent review framework, targeting consistency of risk management quality over the whole group. HFG’s comprehensive analysis Standard Amount of Solvency Margin 14.8 10.0 4.4 framework of risk management includes identification of potential risks, risk measures, monitoring and control, capital adequacy Solvency Margin Ratio 146.26% 300.63% 224.13% management, reporting, stress test, etc. Detailed improvement plans and actual implementations thereof are, in principle, performed through * Based on Article 7-1 and Article 7-2 of Regulations on Supervision of Insurance Business. reciprocal deliberation processes between HFG and its affiliates.

Risk Governance Table 31. Adjusted Equity Capital Ratio - Hana Capital

(Unit : KRW in Billions, %) 2005 2004 2003 In the Group’s risk governance structure, each affiliate actively controls various risks arising from its business fronts while the holding Adjusted Equity Capital 39.6 30.0 50.9 company establish basic principles, policies, guidelines and strategies for group risk management. Core Capital 37.1 23.0 50.0 Shareholders' Equity 37.1 23.0 50.0 The Group Risk Management Committee (GRMC) comprising six or less directors appointed by board of directors takes responsibilities of Tier 2 Capital 2.6 7.1 0.8 establishing the groups risk management strategies, sustainable risk limits, capital allocation, and other important matters to be considered Loan Loss Reserve 2.6 7.1 0.8 at group level. Each subsidiary also runs its own risk committees or board of directors in charge of risk management, and may bring up, if Adjusted Total Assets 185.2 45.6 90.4 necessary, risk issues to the GRMC or the Group Risk Management Subcommittee (GRMS) for timely decision-making. Certain subsidiaries additionally run Asset and Liability Committee (ALCO) in order to manage interest rate risk, liquidity risk, and fund transfer pricing policies Total Assets on B/S 193.8 86.5 148.5 more thoroughly. (-) Deductions 8.6 40.9 58.2 Adjusted Equity Capital Ratio 21.40% 65.84% 56.27% GRMS, composed of the Group CRO as its chair and the subsidiaries' CROs or relevant officers, deliberate the following matters in a * Based on Article 8.2 of Regulations on Supervision of Credit-Specialized Financial Business. consistent manner. - Matters pertaining to the agenda of the GRMC - Detailed principles and guidelines for risk measurement Table 32. BIS Capital Adequacy Ratio - QIB - Establishment and control of risk limits

(Unit : KRW in Billions, %) 2005 2004 2003 - Risk capital allocation and management Tier 1 Capital 49.7 38.2 29.0 - Other matters requiring joint-discussion on group-wide risk management Tier 1 from Common Stocks 49.7 38.2 29.0 Tier 1 from Preferred Stocks - - - Credit Risk Management Tier 2 Capital 1.7 0.9 0.8 Loan Loss Reserves 1.7 0.9 0.8 Credit risk refers to a risk that may arise from a borrower’s or transaction counterparty’s inability to make payment pursuant to contract or Upper Tier 2 - - - risk of loss due to the worsening of creditworthiness. This risk takes the largest portion of risks that the Group faces on the basis of allocated risk capital. Lower Tier 2 - - - Others - - - Hana Bank operates two separated credit risk management system, in which corporate and retail customers are treated differently. Credit (-) Investment Deductions - - - Risk Management Team primarily takes responsibilities of measuring and controlling credit risks for both corporate and retail customers Total BIS Capital 51.3 39.0 29.8 while Credit Rating Team and Loan Center focus on assigning and validating credit rating of corporate and retail customers, respectively. In Risk Weighted Assets 191.9 80.6 28.1 order to manage concentration risk, Hana Bank has established credit limits on single borrower, borrower group, credit rating, industry, BIS Capital Adequacy Ratio 26.74% 48.44% 106.14% nation and product. In addition, for validity of those limits, reasonableness of such limits are reviewed and adjusted, if necessary, in Tier 1 Ratio 25.88% 47.38% 103.35% reflection of economic conditions and any significant market changes every quarter. Tier 2 Ratio 0.86% 1.06% 2.79%

During 2005, considerable efforts have been put into improvements of credit risk measurement. Validations on both corporate rating model and consumer scoring model have been done and key credit risk parameters other than PD (Probability of Default), i.e. LGD (Loss Given Default) and EAD (Exposure at Default), have also been estimated along with data quality enhancements relevant to them. Meanwhile, system implementation of Marking-to-Market (MTM)-based economic capital measurement in addition to the existing Credit Risk+ model has been started. All these efforts will finally be firm grounds for more accurate credit risk measurement, better risk capital allocation, faster portfolio analysis and compliance to Basel II. 70 71 Historical Simulation are used as supplementary measurement methods. Stress test and back-testing on VaR models are done every day and reported to management. Risk Measurement: HFG employs comprehensive methods to quantify default risks of borrowers or transaction counterparties. Credit risks in consumer sector are Interest Rate Risk relatively easier to forecast but economic cyclical and seasonal than that of corporate. Loss frequency is higher but loss severity is lower than Interest rate risk refers to risk of potential loss of portfolio value or earning due to interest rate changes affecting interest-earning assets and the case of corporate. Hana Bank, in consideration of such differences in the two, applies different rating methodologies and procedures, interest-bearing liabilities. Interest rate risk management basically aims to secure sustainability of Net Interest Income (NII) and Net Portfolio credit pricing, post-origination management processes to corporate and retail sector, respectively. Value (NPV) by controlling potential losses within a certain level.

For corporate credits, credit ratings are performed by credit officers of Credit Rating Team or Relationship Managers (RMs) through corporate As a basic interest rate risk control, interest gap ratios (percentage of interest-earning assets divided by interest-bearing liabilities) by rating models, which are different by corporate size and industry. The assessment models are basically combinations of statistical model and remaining maturities are calculated and reported to GRMS every month. Hana Bank sets limits on interest gap ratios to minimize losses from expert model. Validity of ratings are continuously secured and monitored by loan review function of the Credit Risk Management Team. sharp fluctuations in interest rates. Other interest rate risk measures, such as NII simulation, maturity analysis, duration and interest Earning Consumer credits are screened through Credit Scoring System (CSS), in which objective statistical approaches are used. The CSS includes at Risk (EaR), as well as external information are also considered in establishing control strategy for interest rate risk. In addition, Interest Application Scoring System (ASS), which is applied to new credit applications and Behavioral Scoring System (BSS), which is applied to rate VaR, which is the maximum possible loss incurring from interest rate’s movements toward an unfavorable direction, is measured and extension of existing credits. controlled.

Expected Loss (EL) is calculated by multiplying PD and LGD, which are estimated through historical default data and recovery data. The Liquidity Risk Management estimated EL is then used in credit pricing and loan loss provisioning. Unexpected Loss (UL) is estimated through a Credit Risk+ VaR model with a confidence level of 99.9% and the estimated figure is then utilized in capital allocation for credit risk. Liquidity risk refers to possibility of being unable to meet contractual liability obligations, or being forced to sell assets at lower-than-market prices, or being forced to raise capital at higher-than-market prices, or losing effective investment opportunities. The purpose of liquidity risk Risk Monitoring: management is to secure appropriate level of liquidity by preemptively recognizing liquidity change drivers in consideration of market status and outlook. HFG regularly inspects the Group’s credit risks through GRMC and GRMS. On a monthly basis, in principle, GRMS checks compliance to laws, ordinances, supervisory guidelines and internal policies as well as asset quality changes. Although there are gaps in the level of risk HFG monitors liquidity ratios (current assets divided by current liabilities) of KRW and non-KRW currency, separately, on a monthly basis. monitoring between subsidiaries, HFG will reduce the gaps as soon as possible. In case of Hana Bank, credit portfolio risks are monitored in Hana Bank enforces at least 105% of liquidity ratio on KRW currency and 85% of liquidity ratio on non-KRW currency, in accordance with various ways, such as exposure changes by sector, delinquency status, roll rate, vintage, expected loss, unexpected loss, and early warning supervisory regulations. In addition, maturity mismatch ratios of foreign currency are set to at least 0% for maturity with equal to or less than system, every month. 7 days and at least -10% for maturity with equal to or less than 1 month. The customer behavior analysis system developed in 2004 provides strong basis for estimating real maturities of funds by reflecting early cancellations of contracts. For the other subsidiaries, GRMS monitors Risk Reporting: liquidity ratios of KRW currency every month to ensure sufficient level of liquidity. Each subsidiary reports, at least quarterly, changes in exposure, outstanding balances over limits, concentration risks, changes in risk estimates and risk-adjusted profitability to its management while the holding company additionally checks at a group level. Operational Risk Management

Operational risk refers to risk of loss incurring from inadequate or improper internal procedures, personnel and systems or from external Market Risk Management events. In 2004, Hana Bank has developed an operational risk management system (ORMS), which is comparable to levels of international best practices, for the first time in the nation in cooperation with external consulting houses. This ORMS has enabled a favorable operational Market risk refers to risk that may arise due to fluctuations in market price (interest rate, stock price, foreign exchange, prices of goods) and risk management process cycle, where recognition, monitoring, measurement and risk mitigation procedures are well organized. For better is divided into two categories: price risk for trading assets and interest rate risk for interest-bearing assets and liabilities. operational risk management, system improvements, process reengineering and internal training are continuously being performed.

Price Risk Basel II Price risk is a risk of loss of trading portfolio due to fluctuations of interest rate, stock price and foreign exchange. The purpose of price risk Exhibit 3. Preparation of Basel II Seeking Internal Rating Based (IRB) approach for credit risk, management is to secure profit stability by controlling trading losses within a tolerable level in consideration of capital volume. Assets Internal Model (IM) approach for market risk and Advanced subject to price risk are marketable securities, trading stocks, foreign currency open positions and derivatives. Measurement Approach (AMA) for operational risk, HFG has been putting great efforts to meet Basel II requirements. The efforts HFG’s basic principle of price risk management is establishment of risk limits over investment, loss and Value-at-Risk (VaR). In addition to the include rebuilding of risk data mart, business process limit controls, other efforts including risk-adjusted profit analysis are periodically done in accordance with each subsidiary’s trading portfolio improvements, rating model validation and upgrades, management policies. GRMS and GRMC are reported of such price risk status of the subsidiaries on a monthly basis and a quarterly basis, documentation, and development of various systems relevant to respectively, and check adherence to those limits. Basel II. During 2005, in cooperation with consulting firms including Mercer Oliver Wyman (MOW) and Accenture, credit risk The subsidiaries having Market VaR system all estimate Market VaR at 99% confidence level under the assumption of 10-day holding period. parameters (PD, LGD, and EAD) have been estimated under Basel II Both Daehan Investment and Securities and Hana Securities utilize supervisory risk capital model (standardized) and internal VaR model. In guidelines and Logical Data Mart (LDM) for Basel II has been addition to VaR measures, PV01 (price value of 1 basis point) and duration are measured on bonds while number of contracts and sensitivity designed. The Basel II system implementation for credit risk is such as Delta and Gamma methods are used for derivatives risk measures. expected to be completed by 2006. Basically, the Group seeks to obtain approval on Basel II IRB compliance from the Financial Hana Bank in use of market risk management system developed in 2002 measures and monitors internal VaR as well as supervisory standardized Supervisory Services (FSS) at the end of 2007. In Korea, Basel II capital requirements on a daily basis. Monte Carlo Simulation is used as the primary measurement method while Variance-Covariance Matrices and regulation is applied to bank only, not to financial group. 72 73 HANA FINANCIAL GROUP INC. Independent Auditors’ Report BALANCE SHEET December 31, 2005

The Board of Directors and Shareholders Korean won U. S. dollar Hana Financial Group Inc. ASSETS in millions in thousands (Note 2) Cash and due from bank (Note 14) ￦ 421 US$ 415 We have audited the accompanying balance sheet of Hana Financial Group Inc. (the “Company”) as of December 31, 2005, and the related Equity method investments (Notes 3, 16, 17 and 18) 6,321,090 6,239,971 statements of income, appropriations of unappropriated retained earnings and cash flows for the period from December 1, 2005 (inception) Fixed assets (Note 4) 2,201 2,173 to December 31, 2005, all expressed in Korean won. These financial statements are the responsibility of the Company’s management. Our Other assets (Note 5) 711 702 responsibility is to express an opinion on these financial statements based on our audit. Our opinion, as it relates to the equity accounting Total assets ￦ 6,324,423 US$ 6,243,261 for Hana Bank, is based on the audit report of other auditors on the financial statements of Hana Bank as of and for the year ended December 31, 2005. LIABILITIES AND SHAREHOLDERS' EQUITY We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we Borrowings (Notes 6 and 17) ￦ 4,434 US$ 4,377 plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An Other liabilities (Note 7) 173 171 audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also Total liabilities 4,607 4,548 includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Commitments and contingencies (Note 8)

In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material Shareholders’ equity: respects, financial position of Hana Financial Group Inc. as of December 31, 2005, and the results of its operations, appropriations of Common stock - par value ￦5,000 (Korean won in unit) unappropriated retained earnings and cash flows for the period from December 1, 2005 (inception) to December 31, 2005 in conformity with Authorized - 800,000,000 shares accounting principles generally accepted in the Republic of Korea. Issued and outstanding - 204,256,243 shares 1,021,281 1,008,175 Capital surplus: As described in Note 1, the Company was incorporated, by issuing 204,256,243 common shares (￦1,021,281 million of aggregate par Paid-in capital in excess of par value (Note 9) 5,075,488 5,010,353 value), on December 1, 2005 under the laws of the Republic of Korea to primarily engage in management of its subsidiaries, which operate Retained earnings (Note 10) 211,717 209,001 in financial services industry. Capital adjustments: Changes in investees’ capital accounts (Note 3) 11,330 11,184 As described in Note 3, Statement of Korea Accounting Standards No. 101 “Financial Holding Company” (“SKAS No. 101”), requires a Total shareholders’ equity 6,319,816 6,238,713 financial holding company, in stock swap transactions to acquire a parent company and its subsidiaries that are subject to consolidation with the parent company, to use as acquisition costs the net asset values of such parent company and its subsidiaries that were used in Total liabilities and shareholders’ equity ￦ 6,324,423 US$ 6,243,261 preparing the consolidated balance sheet of the parent company on the closest date prior to the acquisition date. In accordance with SKAS No. 101, on December 1, 2005, the Company recorded the acquisition costs of the subsidiaries using the net asset values as of September 30, 2005, the closest date the consolidated balance sheet was prepared for the acquired parent company and its subsidiaries. As such, the change in the Company’s investments in subsidiaries from December 1, 2005 to December 31, 2005 reflects the change in net asset values of the subsidiaries for the three-month period from October 1, 2005 to December 31, 2005.

The amounts expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set forth in Note 2 to the accompanying financial statements.

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those who are knowledgeable about Korean accounting principles and auditing standards and their application in practice.

February 10, 2006

This audit report is effective as of February 10, 2006, the auditors’ report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the auditors’ report date to the time this audit report is used. Such events and circumstances could significantly affect the accompanying financial statements and may result in modifications to this report. 74 75 HANA FINANCIAL GROUP INC HANA FINANCIAL GROUP INC. STATEMENT OF INCOME STATEMENT OF APPROPRIATIONS OF UNAPPROPRIATED RETAINED EARNINGS For the period from December 1, 2005 (inception) to December 31, 2005 For the period from December 1, 2005 (inception) to December 31, 2005

Korean won U. S. dollar Korean won U. S. dollar in millions in thousands (Note 2) in millions in thousands (Note 2) Operating revenue: Unappropriated retained earnings before appropriations: Valuation gain from equity method investments (Notes 3 and 18) ￦ 221,439 US$ 218,597 Net income for the period ￦ 220,147 US$ 217,322 Operating expenses: Changes in investees’ retained earnings (Note 3) (8,430) (8,321) Interest expense 12 12 211,717 209,001 Valuation loss from equity method investments (Notes 3 and 18) 18 17 Appropriations: Fees, commissions and other expenses 243 240 Legal reserve (Note 10) 22,015 21,732 Administration expenses (Note 11) 1,018 1,005 Dividends (Note 10): 1,291 1,274 Cash dividends (1% of par value) 10,213 10,082 Stock dividends (1% of par value) 10,213 10,082 20,426 20,164 Operating income 220,148 217,323 42,441 41,896 Non-operating income (expense): Non-operating expenses (1) (1) Unappropriated retained earnings to be carried forward to the next year ￦ 169,276 US$ 167,105

Income before taxes 220,147 217,322

Income tax expense (Note 12) - -

Net income ￦ 220,147 US$ 217,322

Basic earnings per share (Korean won and U.S. dollar in units) (Note 13): Ordinary earnings per share ￦ 1,078 US$ 1.06 Net earnings per share ￦ 1,078 US$ 1.06

76 77 HANA FINANCIAL GROUP INC. HANA FINANCIAL GROUP INC. STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS For the period from December 1, 2005 (inception) to December 31, 2005 December 31, 2005

Korean won U. S. dollar 1. Organization and business in millions in thousands (Note 2)

Cash flows from operating activities: Hana Financial Group Inc. (the “Company” or “HFG”) was incorporated on December 1, 2005 under the Financial Holding Company Act, by Net income ￦ 220,147 US$ 217,322 issuing 204,256,243 common shares with the aggregate par value of ￦1,021,281 million to the shareholders of Hana Bank, Daehan Adjustments to reconcile net income to net cash Investment and Securities Co., Ltd., Hana INS Co., Ltd., and Hana Institute of Finance in exchange for those companies’ shares owned by used in operating activities: their shareholders. The Company was established to primarily engage in management of its subsidiaries, which operate in financial services Valuation loss from equity method investments 18 17 industry. Depreciation expense 72 71 The Company’s common shares were listed on the Korea Stock Exchange (“KRX”) on December 12, 2005. Valuation gain from equity method investments (221,439) (218,597) Changes in operating assets and liabilities: The Company’s major shareholders as of December 31, 2005 are as follows: Other liabilities 173 171 Total adjustments (221,176) (218,338) Number of Equity Net cash used in operating activities (1,029) (1,016) shares ownership (%) Cash flow from investing activities: GS Dejakoo LLC and its four affiliate companies 19,077,761 9.34 Acquisition of fixed assets (2,273) (2,244) Angelica Investment Pte. Ltd. 18,500,000 9.06 Increase in other assets (711) (702) Franklin Resources Inc. and its seven affiliate companies 16,607,231 8.13 Net cash used in investing activities (2,984) (2,946) Others 150,071,251 73.47 Cash flow from financing activities: 204,256,243 100.00 Increase in borrowings 4,434 4,377 General information of subsidiaries wholly-owned by the Company is provided below. Net increase in cash and cash equivalents 421 415 Cash and cash equivalents at the beginning of the period - - Hana Bank Cash and cash equivalents at the end of the period ￦ 421 US$ 415 Hana Bank was incorporated in November 1959 under the name of Seoul Bank. Seoul Bank acquired Korea Trust Bank in August 1976. On September 27, 2002, Seoul Bank entered into a combination contract with the former Hana Bank as approved by Seoul Bank’s shareholders on November 14, 2002. On December 1, 2002, upon completion of the merger, with Seoul Bank as the surviving entity, Seoul Bank changed its name to Hana Bank.

Hana Bank has been engaged in commercial and consumer banking, investment trust business and foreign currency exchange business, and other related operations as permitted under the Bank Act, the Trust Business Act and other relevant laws and regulations in the Republic of Korea. Hana Bank is also engaged in bancassurance business since September 26, 2003, after the revision of the Insurance Act.

Hana Bank has 187,750,483 common shares (￦987,161 million of aggregate par value) outstanding and has 577 domestic branches and 6 overseas branches as of December 31, 2005.

Daehan Investment and Securities Co., Ltd. (‘DI&S’)

DI&S was incorporated on January 18, 1977 pursuant to the Security Investment Trust Act for the purpose of providing a wide range of security investment trust services to its customers.

DI&S has 12,000,000 common shares (￦60,000 million of aggregate par value) outstanding and has 78 branch offices in Korea as of December 31, 2005.

Hana INS Co., Ltd. (‘Hana INS’)

Hana INS was incorporated on August 30, 1990 pursuant to the laws of the Republic of Korea for the purpose of developing and maintaining of softwares used in financial services industry. 78 79 HANA FINANCIAL GROUP INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005

Hana INS has 400,000 common shares (￦2,000 million of aggregate par value) outstanding as of December 31, 2005. On October 30, 2003, Hana Bank purchased all of Qingdao Int’l Bank common shares owned by KFB pursuant to a security sale and purchase agreement between Hana Bank and KFB. Hana Bank injected additional capital amounting to US$16,112 thousand and RMB 100 million into Hana Institute of Finance (‘HIF’) Qingdao Int’l Bank in January 2004 and January 2005, respectively.

HIF (formerly, Korea Investment & Economy Research Inc.) was incorporated on July 3, 1990 pursuant to the laws of the Republic of Korea Qingdao Int’l Bank has US$48,502 thousand of capital as of December 31, 2005 and has its headquarters and one branch office in Qingdao for the purpose of engaging in research and analysis on domestic and overseas economy, various industry sectors including financial as of December 31, 2005. industry and selling such research materials. General information of a subsidiary wholly-owned by DI&S is provided below. HIF has 640,000 common shares (￦3,200 million of aggregate par value) outstanding as of December 31, 2005.

General information of subsidiaries controlled by Hana Bank is provided below. Daehan Investment Trust Management Co., Ltd. (‘DIMCO’)

DIMCO was incorporated on June 27, 2000 under the laws of the Republic of Korea for the purpose of managing funds for investors and Hana Securities Co., Ltd. (‘Hana Securities’) providing investment consulting services.

Hana Securities was incorporated on February 7, 1962 pursuant to the laws of the Republic of Korea to engage in underwriting, brokering DIMCO has 9,000,000 common shares (￦45,000 million of aggregate par value) outstanding as of December 31, 2005. and dealing securities. Ownership percentages among the Company and its subsidiaries as of December 31, 2005 are summarized as follows: Hana Securities’ shares of common stock and preferred stock were listed on KRX on November 25, 1986. Investor Investee Number of shares Ownership (%) Hana Securities has 19,154,353 common shares (￦104,508 million of aggregate par value) and 3,689,523 preferred shares (￦24,755 million HFG Hana Bank 187,750,483 100.00 of aggregate par value) outstanding as of December 31, 2005. Hana Securities has 23 branch offices in Korea as of December 31, 2005. DI&S 12,000,000 100.00 Hana INS 400,000 100.00 HIF 640,000 100.00 Hana Capital Co., Ltd. (‘Hana Capital’) Hana Bank Hana Securities (common stock) 12,542,957 65.48 Hana Securities (preferred stock) 1,458,673 39.54 Hana Capital (formerly, Kolon Capital Co., Ltd.) was incorporated on February 13, 1987 pursuant to the laws of the Republic of Korea and Hana Capital 3,609,505 50.13 changed its name to Hana Capital on April 8, 2005. Hana Capital obtained a license to engage in installment financing business on January HFL 1 100.00 9, 1996 in accordance with the Credit Card Business Act and was registered as an installment financing company in accordance with the Qingdao Int’l Bank 38,194,465 79.17 Credit-Specialized Financial Business Act on February 16, 1999 to engage in leasing, installment financing, and corporate and consumer loan HFG 3,547,518 1.74 business. DI&S DIMCO 9,000,000 100.00 Hana Securities HFG 18,262 0.01 Hana Capital has 7,200,000 common shares (￦36,000 million of aggregate par value) outstanding as of December 31, 2005.

Hana Funding Limited (‘HFL’)

HFL, a special purpose entity, was incorporated on December 17, 2002 in the Cayman Islands for the purpose of issuing one common stock and non-cumulative tier one preferred shares (“TOPS”) and acquiring the subordinated bonds with the par value of US$200 million issued by Hana Bank with the proceeds from issuing TOPS.

HFL issued US$1 of common share and US$200 million of TOPS, which are listed on the Singapore Exchange, as of December 31, 2005.

Qingdao International Bank (‘Qingdao Int’l Bank’)

Qingdao Int’l Bank was incorporated under the laws of the People’s Republic of China (“China”) by issuing US$20,000 thousand of common shares to Industrial and Commercial Bank of China and Korea First Bank (“KFB”, presently, First Bank Korea Ltd.) in April 1996 to primarily engage in commercial banking, foreign currency exchange business and other related operations for Korean companies and branches in China. 80 81 HANA FINANCIAL GROUP INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005

2. Summary of significant accounting policies The difference between the acquisition cost of the investee and the Company’s share of the net fair value of the investee’s identifiable assets and liabilities is accounted for as goodwill which is amortized over five years using the straight-line method and charged to valuation gain or loss on equity method investments in the statement of income. Further, the Company’s share of any difference between the net fair Basis of financial statement preparation value of the investee’s identifiable assets and liabilities, and net book value of such assets and liabilities is amortized based on the investee’s accounting treatments on the related assets and liabilities and charged to valuation gain or loss on equity method investments in The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language in the statement of income. conformity with accounting principles generally accepted in the Republic of Korea (“Korean GAAP”). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are Fixed assets informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. Fixed assets are stated at cost. Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which result in the enhancement of the value of the facilities involved are capitalized as additions to fixed assets. Certain supplementary information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations and cash flows, is not presented in the accompanying financial statements. Depreciation of fixed assets is provided using the declining-balance method over five years.

Korean GAAP revisions for 2005 Income taxes

The Korean Accounting Standards Board has issued new Statements of Korea Accounting Standards (“SKAS”) with the intention to revise Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid to the tax Korean GAAP and disclosure rules to meet international practices. The revised accounting standards which are to be applied from the first authorities. Deferred income taxes are provided using the liability method for the tax effect of temporary differences between the tax bases fiscal year starting after December 31, 2004 include equity method investments, income taxes, and provisions, contingent liabilities and of assets and liabilities and their reported amounts in the accompanying financial statements. contingent assets. The Company adopted these new standards on December 1, 2005 (inception). Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In addition, current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are Financial statements translation credited or charged directly to equity.

The accompanying 2005 financial statements are expressed in Korean won and, solely for the convenience of the reader, have been translated into United States dollars at the rate of ￦1,013.00 to US$1, the exchange rate on December 31, 2005. Such translation should Per share amounts not be construed as a representation that the Korean won amounts can actually be converted into United States dollars at the exchange rate used for the purpose of such translation. Net earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period from December 1, 2005 (inception) to December 31, 2005 while ordinary earnings per share is computed by reversing the effect of extraordinary items (net of income taxes), if any. Cash and cash equivalents

Highly liquid deposits and marketable securities with original maturities of three months or less, and which have no significant risk of loss in Use of estimates value by interest rate fluctuations, are considered as cash and cash equivalents. The preparation of financial statements in accordance with Korean GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial Equity method investments statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investments in entities over which the Company has significant influence are accounted for using the equity method, whereby the Company’s initial investment is recorded at acquisition cost and subsequently the carrying value is increased or decreased to reflect the Company’s share of the investee’s income or loss. If the increase or decrease is derived from changes in the investee’s retained earnings, such change is presented as an increase or decrease in the Company’s retained earnings. If the increase or decrease is derived from the investee’s changes in capital surplus or capital adjustments, then such amount is presented as an increase or decrease in a capital adjustment account within shareholders’ equity.

If the Company’s share in the losses of the investee equals or exceeds its interest in the investee, it discontinues recognizing its share of further losses. However, if the Company has other long-term interests in the investee, it continues recognizing its share of further losses to the extent of the carrying amount of such long-term interests.

82 83 HANA FINANCIAL GROUP INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005

3. Equity method investments The realized gain of ￦4,144 million recorded by Hana Bank and unrealized gain of ￦56,894 million recorded by Hana Bank and Hana Securities are included in the Company’s financial statements in valuation gain from equity method investments in the statement of income Equity method investments as of December 31, 2005 consist of the following (Korean won in millions): and in changes in investees’ capital accounts in the balance sheet, respectively, as of December 31, 2005 and for the period from December 1, 2005 (inception) to December 31, 2005. However, on the Company’s consolidated financial statements as of December 31, 2005 and for the period from December 1, 2005 (inception) to December 31, 2005, the realized gain is recorded in the capital surplus and the unrealized Percentage of ownership (%) Acquisition cost Carrying value gain on the Company’s common shares owned by Hana Bank and Hana Securities are not recognized. Hana Bank 100 ￦ 5,099,690 ￦ 5,807,417 DI&S 100 491,923 507,913 Hana INS 100 2,312 2,514 4. Fixed assets HIF 100 3,240 3,246 ￦ 5,597,165 ￦ 6,321,090 Changes in fixed assets for the period from December 1, 2005 (inception) to December 31, 2005 are summarized as follows (Korean won in millions): The difference between the acquisition cost of DI&S and the Company’s share of the DI&S’s net equity at the acquisition date and the amortization amount for the difference during the period from December 1, 2005 (inception) to December 31, 2005 are summarized as Dec. 1, 2005 Acquisition Accumulated follows (Korean won in millions): (inception) cost depreciation Dec. 31, 2005 Vehicles ￦ - ￦ 99 ￦ (4) ￦ 95 Differrence at Unamortized acquisition Amortization difference Furniture and fixtures - 766 (28) 738 DI&S ￦ 73,766 ￦ (591) ￦ 73,175 Leasehold improvement - 795 (30) 765 Purchased software - 613 (10) 603 Changes in equity method investments for the period from December 1, 2005 (inception) to December 31, 2005 are summarized as follows ￦ - ￦ 2,273 ￦ (72) ￦ 2,201 (Korean won in millions):

Acquisition Changes from Carrying 5. Other assets Cost at Retained Capital Current value at Dec 1, 2005 earnings adjustment net income Dec 31,2005 Other assets as of December 31, 2005 represent office lease key money deposits of 711 million for the Company’s headquarters. Hana Bank ￦ 5,099,690 ￦ (8,454) ￦ 510,934 ￦ 205,247 ￦ 5,807,417 ￦ DI&S 491,923 - - 15,990 507,913 Hana INS 2,312 - - 202 2,514 HIF 3,240 24 - (18) 3,246 6. Borrowings ￦ 5,597,165 ￦ (8,430) ￦ 510,934 ￦ 221,421 ￦ 6,321,090 The Company entered into credit line facilities with banks for funding of its working capital. Details of the credit line facilities and Valuations of equity method investments were made by using audited financial statements of the subsidiaries, of which financial outstanding borrowing balances as of December 31, 2005 are summarized as follows (Korean won in millions): information is provided in Notes 16 and 17. Contract Maturity Interest Credit Outstanding Statement of Korea Accounting Standards No. 101 ”Financial Holding Company” (”SKAS No. 101”), requires a financial holding company, in Creditor date date rate (%) line Borrowings stock swap transactions to acquire a parent company and its subsidiaries that are subject to consolidation with the parent company, to use Shinhan Bank 2005/12/07 2006/12/01 3M CD + 1.0 ￦ 30,000 ￦ 57 as acquisition costs the net asset values of such parent company and its subsidiaries that were used in preparing the consolidated balance Kookmin Bank 2005/12/16 2006/04/01 3M CD + 0.9 30,000 4,232 sheet of the parent company on the closest date prior to the acquisition date. In accordance with SKAS No. 101, on December 1, 2005, the Woori Bank 2005/12/21 2006/12/01 3M CD + 1.0 30,000 145 Company recorded the acquisition costs of the subsidiaries using the net asset values as of September 30, 2005, the closest date the ￦ 90,000 ￦ 4,434 consolidated balance sheet was prepared for the acquired parent company and its subsidiaries. As such, the change in the Company’s investments in subsidiaries from December 1, 2005 (inception) to December 31, 2005 reflects the change in net asset values of the subsidiaries for the three-month period from October 1, 2005 to December 31, 2005. 7. Other liabilities Prior to the Company’s acquisition of Hana Bank, DI&S, Hana INS and HIF, Hana Bank owned common shares in DI&S, Hana INS (100%) and Other liabilities as of December 31, 2005 consist of the following (Korean won in millions): HIF (62.5%), and Hana Securities (a majority-owned subsidiary of Hana Bank) owned common shares in HIF (37.5%). On December 1, 2005, the Company provided its common shares to Hana Bank and Hana Securities in exchange for their common shares in DI&S, Hana INS and Amount HIF. As a result, on December 1, 2005 Hana Bank and Hana Securities owned 16,601,438 common shares and 18,262 common shares of the Accounts payable - other 59 Company. On December 16, 2005, Hana Bank sold 13,000,000 shares of the Company to GS Dejakoo LLC and its affiliated company for a ￦ Accrued expenses 44 gain of ￦4,144 million. In addition, Hana Bank and Hana Securities recognized unrealized gain of ￦56,894 million on the Company’s Withholdings 70 common shares they own as of December 31, 2005. ￦ 173 84 85 HANA FINANCIAL GROUP INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005

8. Commitments and contingencies 11. Administration expenses According to conditions for authorization of the Company’s incorporation on December 1, 2005, which was set by Financial Supervisory Administration expenses for the period from December 1, 2005 (inception) to December 31, 2005 consist of the following (Korean won in Commission (“FSC“), the Company is required to achieve 2nd grade level in FSC’s comprehensive evaluation of management performance for millions): its two subsidiaries (DI&S and Hana Securities) within 2 years from the date of authorization. In addition, the Company is required to report Amount actual execution results of management performance improvement plans of these two subsidiaries to Financial Supervisory Service on a Salaries and wages 525 quarterly basis until the Company satisfies the conditions. ￦ Employee benefits 5 Rent 94 9. Capital surplus Entertainment 56 Depreciation 62 Capital surplus represents net asset values of subsidiaries as of September 30, 2005 (which were recorded as acquisition costs of equity Amortization 10 method investments) in excess of par value of the Company’s common shares issued to acquire the equity shares of the subsidiaries at Taxes and dues 7 December 1, 2005. Capital surplus may not be utilized for cash dividends but may only be used to offset deficit, if any, or be transferred to Advertising 43 capital. Others 216 ￦ 1,018

10. Retained earnings

Legal reserve - In accordance with the Financial Holding Company Act, whenever dividends are made, an amount equal to at least 10% 12. Income taxes of net income is required to be appropriated as a legal reserve until the reserve amount equals the aggregate par value of common stock. The Company is subject to corporate income taxes, including resident surtax, at the aggregate rates of 14.3% on taxable income up to ￦100 The legal reserve may not be utilized for cash dividends but may only be used to offset deficit, if any, or be transferred to capital. million and 27.5% on taxable income in excess of ￦100 million.

The 2005 dividend is proposed for an approval at the annual ordinary shareholders’ meeting to be held on March 24, 2005 A reconciliation of income before income taxes for financial reporting purposes and tax loss for corporate income taxes reporting purposes for the period from December 1, 2005 (inception) to December 31, 2005 is summarized as follows (Korean won in millions): The dividend ratio and the ratio of dividend to net income for the period from December 1, 2005 (inception) to December 31, 2005 are summarized as follows (Korean won in millions only for total dividends and net income, otherwise Korean won in units): Amount Income before income taxes ￦ 220,147 Dividends Non-temporary differences: Cash Stock Total Entertainment expenses 33 Total dividends (A) ￦ 10,213 ￦ 10,213 ￦ 20,426 Changes in investees’ retained earnings (8,430) Number of shares outstanding (B) 204,256,243 204,256,243 Changes in investees’ capital accounts 11,330 Dividend per share ((C) = (A) ÷ (B)) ￦ 50 50 Other 1 Par value per share (D) 5,000 5,000 2,934 Dividend ratio (= (C) ÷ (D)) 1% 1% Temporary differences: Valuation gain from equity method investments (221,439) Net income (E) ￦ 220,147 Valuation loss from equity method investments 18 Ratio of dividend Changes in investees’ retained earnings 8,430 to net income (= (A) ÷ (E)) 4.64% Changes in investees’ capital accounts (11,330) (224,321) Tax loss for corporate income tax ￦ (1,240)

Significant changes in cumulative temporary differences, loss carryforwards and deferred income taxes assets/liabilities for the period from December 1, 2005 (inception) to December 31, 2005 are as follows (Korean won in millions):

86 87 HANA FINANCIAL GROUP INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005

Net increase Deferred income tax (*) 14. Related party transactions Beginning (decrease) Ending Assets Liabilities Temporary differences charged(credited) Transactions with related parties (including transactions between subsidiaries) for the period from October 1, 2005 to December 31, 2005 to income tax expenses: are summarized as follows (Korean won in millions): Valuation gain from equity method investments ￦ - ￦ (221,439) ￦ (221,439) ￦ - ￦ (60,896) Related parties Transactions Valuation loss Interest Interest Rental Other from equity method investments - 18 18 5 - Revenue Expense (Loan) (Deposit) income income Total - (221,421) (221,421) 5 (60,896) Hana Bank DI&S ￦ 765 ￦ 229 ￦ - ￦ 152 ￦ 1,146 Tax loss carryforwards - 1,240 1,240 341 - Hana Securities 122 - 3 59 184 - (220,181) (220,181) 346 (60,896) Hana Capital 169 - - 28 197 Temporary differences charged(credited) Qingdao Int’ l Bank 1,587 - - - 1,587 to shareholders’ equity: DI&S HFG - - 94 - 94 Changes in investees’ retained earnings - 8,430 8,430 2,318 - Hana Bank - 339 - 1 340 Changes in investees’ capital accounts - (11,330) (11,330) - (3,116) DIMCO - - 241 - 241 - (2,900) (2,900) 2,318 (3,116) HIF - - 12 - 12 ￦ - ￦ (223,081) ￦ (223,081) ￦ 2,664 ￦ (64,012) Hana Securities Hana Bank - 10 - - 10 Hana Capital Hana Bank - 95 - - 95 (*) As long as the Company does not dispose of equity method investments or liquidate its subsidiaries in the foreseeable future, the Company does not have HFL Hana Bank - - - 4,054 4,054 to pay any income taxes in the future because the Company has the financial structure where deductible expenses in tax computation exceed taxable DIMCO Hana Bank - 27 - - 27 income. Accordingly, the Company did not record deferred income tax assets or liabilities for temporary differences and tax loss carryforwards. HIF DI&S - - - 48 48 Hana Securities - - - 51 51 No income tax expenses were recorded in the financial statements for the period from December 1, 2005 (inception) to December 31, 2005 ￦ 2,643 ￦ 700 ￦ 350 ￦ 4,393 ￦ 8,086 because the Company does not have taxable income and deferred income tax assets or liabilities were not recognized. Outstanding balances with related parties (including balances between subsidiaries) arising from the above transactions as of December 31, The Company has tax losses of ￦1,240 million at December 31, 2005, which may be carried forward and offset against future taxable 2005 are summarized as follows (Korean won in millions): income, if any. This unused tax losses will expire in the fiscal year ending December 31, 2010. Related parties Outstanding balances Leasehold 13. Per share amounts Receivable Payable Loan Deposits deposits Others Total HFG Hana Bank ￦ - ￦ 421 ￦ - ￦ - ￦ 421 Per share amounts for the period from December 1, 2005 (inception) to December 31, 2005 are computed as follows (Korean won in unit): DI&S - - 711 - 711 Hana Bank DI&S 70,000 - - 28 70,028 Ordinary income (*) 220,146,941,863 ￦ Hana Securities 7,247 - - 125 7,372 Net income (*) 220,146,941,863 ￦ Hana Capital - - - 24 24 Weighted-average number of common stocks Qingdao Int’ l Bank 110,417 - - - 110,417 outstanding during the period 204,256,243 shares DIMCO - - - 3 3 Ordinary earnings per share 1,078 ￦ DI&S Hana Bank - 19,290 - - 19,290 Earnings per share (“EPS”) 1,078 ￦ Hana Securities Hana Bank - 8,319 2,141 - 10,460 Hana Capital Hana Bank 3,507 3,552 600 - 7,659 (*) As described in Note 3, valuation gain or loss from equity method investments represents the Company’s share of its subsidiaries’ net income for the HFL Hana Bank - 51 - 203,191 203,242 period from October 1, 2005 to December 31, 2005. Other expenses represent those incurred during the period from December 1, 2005 (inception) to DIMCO Hana Bank - 3,734 - - 3,734 December 31, 2005. DIMCO DI&S - - 503 45 548 HIF Hana Bank - 1,776 - - 1,776 The Company does not have any dilutive securities as of December 31, 2005. Accordingly, the diluted earnings per share is equal to the DI&S - - 403 - 403 basic earnings per share for the period from December 1, 2005 (inception) to December 31, 2005. Hana INS Hana Bank - 1,565 200 - 1,765 ￦ 191,171 ￦ 38,708 ￦ 4,558 ￦ 203,416 ￦ 437,853

88 89 HANA FINANCIAL GROUP INC. NOTES TO FINANCIAL STATEMENTS December 31, 2005

Guarantees or collateral provided between related parties as of December 31, 2005 are summarized as follows (Korean won in millions): 17. Financing and investment balances of the Company and the subsidiaries

Related parties Guarantee or collateral Funding status of the Company and its subsidiaries as of December 31, 2005 are summarized as follows (Korean won in millions): Benefactor Beneficiary Account Amount Hana Bank HFL Guarantee for F/X ￦ 202,600 Deposits Borrowings Debentures Total Hana Capital L/C 6,691 HFG ￦ - ￦ 4,434 ￦ - ￦ 4,434 Hana Capital L/G 8,863 Hana Bank 63,062,090 9,783,136 10,089,631 82,934,857 Hana Capital Credit line 30,000 DI&S 211,425 - - 211,425 ￦ 63,273,515 ￦ 9,787,570 ￦ 10,089,631 ￦ 83,150,716

The Company and its subsidiaries’ investments classified by financial assets as of December 31, 2005 are summarized as follows (Korean 15. Cash flow information won in millions):

Significant non-cash transactions for the period from December 1, 2005 (inception) to December 31, 2005 are as follows (Korean won in Cash and due millions): Loans Securities from banks Total Amount HFG ￦ - ￦ 6,321,090 ￦ 421 ￦ 6,321,511 Increase in equity method investments and shareholders’ equity Hana Bank 67,159,062 18,148,846 5,962,225 91,270,133 in stock swap transactions at the Company’s incorporation 5,597,165 ￦ DI&S 70,017 526,963 278,205 875,185 Changes in investees’ retained earnings 8,430 Hana INS 1,206 102 1,565 2,873 Changes in investees’ capital accounts 510,934 HIF 364 - 1,776 2,140 ￦ 67,230,649 ￦ 24,997,001 ￦ 6,244,192 ￦ 98,471,842

Changes in the subsidiaries’ allowance for possible loan losses for the period from October 1, 2005 to December 31, 2005 are summarized 16. Financial information of the Company’s subsidiaries as follows (Korean won in millions):

Condensed balance sheets of the subsidiaries valued using the equity method as of December 31, 2005 are summarized as follows (Korean October 1, 2005 Increase (decrease) December 31, 2005 won in millions): Hana Bank ￦ 869,856 ￦ (63,945) ￦ 805,911 DI&S 2,086 11 2,097 Assets Liabilities Equity Hana INS 12 - 12 Hana Bank (*) ￦ 94,766,488 ￦ 88,485,004 ￦ 6,281,484 ￦ 871,954 ￦ (63,934) ￦ 808,020 DI&S (*) 1,279,914 845,283 434,631 Hana INS 3,695 1,181 2,514 The ratio of allowance for possible loan losses to total loans (excluding call loans, inter-bank loans and bonds purchased under resale HIF 3,615 370 3,245 agreements) as of December 31, 2005 is summarized as follows (Korean won in millions): ￦ 96,053,712 ￦ 89,331,838 ￦ 6,721,874

Allowance for (*) Financial information is summarized by using the consolidated financial statements. Loans possible loan losses Ratio (%) Hana Bank ￦ 64,186,577 ￦ 805,911 1.26 Condensed statements of income of the subsidiaries valued using the equity method are summarized as follows (Korean won in millions): DI&S 118,694 2,097 1.77 Hana INS 1,206 12 1.00 Operating Operating Operating Ordinary Net income HIF 364 - - Periods revenue expenses income (loss) income (loss) ￦ 64,306,841 ￦ 808,020 1.26 Hana Bank (*) 12 months ￦ 6,655,724 ￦ 5,673,313 ￦ 982,411 ￦ 1,196,781 ￦ 905,957 Last 3 months 1,690,718 1,503,067 187,651 295,723 205,247 DI&S (*) 9 months 209,441 183,238 26,203 55,526 54,191 Last 3 months 72,662 57,149 15,513 17,305 16,581 Hana INS 12 months 10,403 10,382 21 64 60 Last 3 months 3,775 3,558 217 203 202 HIF 12 months 1,865 1,866 (1) 48 17 Last 3 months 901 889 12 13 (18) Last 3 months ￦ 1,768,056 ￦ 1,564,663 ￦ 203,393 ￦ 313,244 ￦ 222,012

(*) Financial information is summarized by using the consolidated financial statements. 90 91 HANA FINANCIAL GROUP INC. NOTES TO FINANCIAL STATEMENTS Internal Accounting Control System December 31, 2005 Review Report

18. Information of valuation gain (loss) on the equity method investments The Board of Directors and Shareholders Hana Financial Group Inc. Valuation gain (loss) on the equity method investments for the period from October 1, 2005 to December 31, 2005 consists of the following (Korean won in millions): February 10, 2006 Amount Composition (%) Hana Bank ￦ 205,247 92.70 DI&S 15,990 7.22 We have reviewed the report of management’s assessment of internal accounting control system (“IACS”) of Hana Financial Group Inc. (the Hana INS 202 0.09 “Company”) as of December 31, 2005. In accordance with Article 2-2 of the Act on External Audit for Joint-Stock Companies (the ”External HIF (18) (0.01) Audit Law”) of the Republic of Korea, the Company’s management is responsible for assessing the design and operations of its IACS. Our ￦ 221,421 100.00 responsibility is to review management’s assessment and issue a report based on our review.

We conducted our review in accordance with Article 2-3 of the External Audit Law. Our review is limited primarily to inquiries of management and employees, reading of related documents and checking of the operations of the Company’s IACS. We did not perform an 19. Added value information audit of the Company’s IACS and accordingly, we do not express an audit opinion.

The accounts and amounts which are required to be disclosed under Korean GAAP related to the Company’s operations for the period from Based on our review, no material weakness in the design or operations of the Company’s IACS under Article 2-2 of the External Audit Law December 1, 2005 (inception) to December 31, 2005 are as follows (Korean won in millions): as of December 31, 2005 has come to our attention.

Amount This report applies to the Company’s IASC in place as of December 31, 2005. We did not review the Company’s IACS for the period Salaries and wages ￦ 525 subsequent to December 31, 2005. This report has been prepared for Korean regulatory reporting purposes pursuant to the External Audit Employee benefits 5 Law, and may not be appropriate for other purposes or for other users. Rent 94 Depreciation 72 As this report is based on Interim Guidelines on Auditors’ Review and Report on Management’s Assessment of IACS, issued by the Auditing Taxes and dues 7 Standards Committee of the Korean Institute of Certified Public Accountants on March 29, 2005, it applies only from that date until the date ￦ 703 the Standard for Management’s Assessment of IACS and Standard for Auditors’ Review on Management Assessment of IACS become effective. A review performed based on the standards may have different results and accordingly, the content of our report may be different.

20. Approval of financial statements

The accompanying financial statements for the period from December 1, 2005 (inception) to December 31, 2005 will be approved by the annual ordinary meeting of shareholders on March 24, 2006.

Notice to Readers

This report is annexed in relation to the audit of the financial statements for the period from December 1, 2005 (inception) to December 31, 2005 and the review of internal accounting control system pursuant to Article 2-3 of the Act on External Audit for Joint-Stock Companies of the Republic of Korea. 92 93 HANA FINANCIAL GROUP INC. Independent Auditors’ Report CONSOLIDATED BALANCE SHEET December 31, 2005

The Board of Directors and Shareholders Korean won U. S. dollar Hana Financial Group Inc. ASSETS in millions in thousands (Note 2) Cash and due from banks (Notes 3 and 17) ￦ 6,221,959 US$ 6,142,111 We have audited the accompanying consolidated balance sheet of Hana Financial Group Inc. and its subsidiaries (the “Company”) as of Securities (Note 17): December 31, 2005 and the related consolidated statements of income and changes in shareholders’ equity for the period from December 1, Trading securities (Note 4) 2,290,227 2,260,836 2005 (inception) to December 31, 2005, all expressed in Korean won. These consolidated financial statements are the responsibility of the Available-for-sale securities (Note 5) 13,075,760 12,907,957 Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our Held-to-maturity securities (Note 6) 3,096,110 3,056,376 opinion, as it relates to the consolidation of Hana Bank, is based on the audit report of other auditors on the financial statements of Hana Equity method investments (Note 7) 54,733 54,031 Bank as of and for the year ended December 31, 2005. Loans receivable, less allowance for possible losses of ￦808,008 million and plus deferred loan fees of ￦14,121 million (Notes 8 and 17) 66,373,802 65,522,016 We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we Fixed assets (Note 9) 1,470,043 1,451,178 plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An Other assets (Note 17): audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also Guarantee deposits 716,381 707,187 includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall Accounts receivable, less present value discounts of ￦2,024 million 534,169 527,314 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Accrued income 447,855 442,108 Deferred income tax assets (Note 22) 108,380 106,990 In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in Prepaid income taxes 24,108 23,799 all material respects, the financial position of Hana Financial Group Inc. and its subsidiaries as of December 31, 2005, and the results of its Derivative instruments assets 1,077,527 1,063,699 operations and the changes in shareholders’ equity for the period from December 1, 2005 (inception) to December 31, 2005 in conformity Miscellaneous assets (Note 10) 368,074 363,350 with accounting principles generally accepted in the Republic of Korea. 3,276,494 3,234,447 Total assets ￦ 95,859,128 US$ 94,628,952 As described in Note 1, the Company was incorporated, by issuing 204,256,243 common shares (￦1,021,281 million of aggregate par value), on December 1, 2005 under the laws of the Republic of Korea to primarily engage in management of subsidiaries, which operate in LIABILITIES AND SHAREHOLDERS' EQUITY financial services industry. Deposits (Notes 11 and 17) ￦ 63,249,734 US$ 62,438,039 Borrowings (Notes 12 and 18) 10,262,451 10,130,751 Statement of Korea Accounting Standards No. 101 “Financial Holding Company” (“SKAS No. 101”), requires a financial holding company, in Debentures, less discounts on debenture of ￦45,548 million (Notes 13 and 17) 10,089,631 9,960,150 stock swap transactions to acquire a parent company and its subsidiaries that are subject to consolidation with the parent company, to use Other liabilities (Note 17): as acquisition costs the net asset values of such parent company and its subsidiaries that were used in preparing the consolidated balance Severance and retirement benefits, net (Note 14) 77,406 76,411 sheet of the parent company on the closest date prior to the acquisition date. In accordance with SKAS No. 101, on December 1, 2005, the Reserve for possible losses on acceptances and guarantees (Note 16) 17,907 17,677 Company recorded the acquisition costs of the subsidiaries using the net asset values as of September 30, 2005, the closest date the Due to trust accounts 436,326 430,727 consolidated balance sheet was prepared for the acquired parent company and its subsidiaries. As such, the Company’s results of Accrued expenses (Note 21) 1,338,771 1,321,590 operations and the changes in shareholders’ equity from December 1, 2005 (inception) to December 31, 2005 reflect those of the Accounts payable 434,080 428,509 subsidiaries for the three-month period from October 1, 2005 to December 31, 2005. Derivative instruments liabilities 423,157 417,727 Miscellaneous liabilities (Note 15) 2,900,521 2,863,300 The amounts expressed in U.S. dollars, provided solely for the convenience of the reader, have been translated on the basis set forth in Note 5,628,168 5,555,941 2 to the accompanying consolidated financial statements. Total liabilities 89,229,984 88,084,881

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying financial statements Commitments and contingencies (Note 18) are not intended to present the financial position, results of operations and changes in shareholders’ equity in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in Shareholders equity: the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other Common stock - par value ￦5,000 (Korean won in unit) countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those who are knowledgeable Authorized - 800,000,000 shares about Korean accounting principles and auditing standards and their application in practice. Issued - 204,256,243 shares Outstanding - 200,690,463 share 1,021,281 1,008,175 February 10, 2006 Capital surplus (Note 19) 5,078,179 5,013,010 Retained earnings 207,573 204,909 Capital adjustments (Notes 5, 20 and 21) (44,110) (43,545) Minority interests 366,221 361,522 Total shareholders equity 6,629,144 6,544,071 This audit report is effective as of February 10, 2006, the auditors’ report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the auditors’ report date to the time this audit report is used. Such events and circumstances could significantly affect the Total liabilities and shareholders equity ￦ 95,859,128 US$ 94,628,952 accompanying financial statements and may result in modifications to this report. 94 95 HANA FINANCIAL GROUP INC HANA FINANCIAL GROUP INC. CONSOLIDATED STATEMENT OF INCOME CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY For the period from December 1, 2005 (inception) to December 31, 2005 For the period from December 1, 2005 (inception) to December 31, 2005

Korean won U. S. dollar Korean won in millions in millions in thousands (Note 2) Capital Capital Retained Capital Minority Operating revenue: stock surplus earnings adjustments interests Total Interest income (Note 25) ￦ 1,247,323 US$ 1,231,316 Balance at December 1, 2005 (inception) ￦ - ￦ - ￦ - ￦ - ￦ - ￦ - Fees and commission income 164,880 162,764 Common stock issuance 1,021,281 5,075,488 - (499,604) 364,754 5,961,919 Other operating income: Net income - - 216,003 - - 216,003 Gain from trading securities transactions 31,761 31,354 Disposal sof treasury stocks - 4,501 - 391,759 - 396,260 Gain on foreign currency trading 85,864 84,762 Gain on valuation of - - - 62,350 - 62,350 Gain on derivatives 333,287 329,010 available-for-sale securities Other 18,768 18,527 Changes in investees’ capital account - - - 14,361 - 14,361 469,680 463,653 Changes in other capital adjustments - - - (12,976) - (12,976) 1,881,883 1,857,733 Changes in investees’ retained earnings - - (8,430) - - (8,430) Operating expenses: Changes in minority interests - - - - (6,266) (6,266) Interest expense 687,224 678,405 Minority interest income - - - - 7,733 7,733 Fees and commission expenses 26,591 26,249 Others - (1,810) - - - (1,810) Other operating expenses: Balance at December 31, 2005 ￦ 1,021,281 ￦ 5,078,179 ￦ 207,573 ￦ (44,110) ￦ 366,221 ￦ 6,629,144 Loss from trading securities transactions 51,839 51,174 Loss on foreign currency trading 78,238 77,234 U.S. dollars in thousands Loss on derivatives 286,043 282,372 Balance at December 1, 2005 (inception) US$ - US$ - US$ - US$ - US$ - US$ - Other 167,254 165,108 Common stock issuance 1,008,175 5,010,353 - (493,192) 360,073 5,885,409 583,374 575,888 Net income - - 213,231 - - 213,231 Selling and administrative expenses 369,375 364,635 Disposal of treasury stocks - 4,443 - 386,731 - 391,174 1,666,564 1,645,177 Gain on valuation of - - - 61,550 - 61,550 available-for-sale securities Operating income 215,319 212,556 Changes in investees’ capital account - - - 14,176 - 14,176 Changes in other capital adjustments - - - (12,810) - (12,810) Non-operating income (expense): Changes in investees’ retained earnings - - (8,322) - - (8,322) Gain on disposal of fixed assets, net 4,929 4,865 Changes in minority interests - - - - (6,185) (6,185) Rental income 3,728 3,680 Minority interest income - - - - 7,634 7,634 Loss on valuation of equity method investments, net (Note 7) (6,513) (6,429) Others - (1,786) - - - (1,786) Gain on disposal of available-for-sale securities, net 79,279 78,262 Balance at December 31, 2005 US$ 1,008,175 US$ 5,013,010 US$ 204,909 US$ (43,545) US$ 361,522 US$ 6,544,071 Gain from loan sales 3,503 3,458 Other, net 7,594 7,496 92,520 91,332

Income before income taxes and consolidation adjustments 307,839 303,888

Income tax expenses (Note 22) 84,103 83,023

Income before consolidation adjustments 223,736 220,865

Minority interest income 7,733 7,634

Consolidated net income ￦ 216,003 US$ 213,231

Basic earnings per share (Korean won and U.S. dollar in units) (Note 23): Consolidated ordinary earnings per share ￦ 1,111 US$ 1.10 Consolidated net earnings per share ￦ 1,111 US$ 1.10

96 97 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

1. Organization and business Certain trust accounts of Hana Bank (the “Trust Accounts”), which are subject to a guaranteed principal repayment or a fixed rate of return, are included in the accompanying consolidated financial statements in accordance with the accounting and reporting guidelines as prescribed by the banking regulatory authorities. The accompanying consolidated financial statements include Hana Financial Group Inc. (“HFG”) and its controlled subsidiaries (collectively, the “Company”). HFG was incorporated on December 1, 2005 under the Financial Holding Company Act, by issuing 204,256,243 common shares with the aggregate par value of 1,021,281 million to the shareholders of Hana Bank, Daehan Investment and Securities Co., Ltd., ￦ Daehan Investment and Securities Co., Ltd. (“DI&S”) Hana INS Co., Ltd., and Hana Institute of Finance in exchange for those companies’ shares owned by their shareholders. HFG was established to primarily engage in management of its subsidiaries, which operate in financial services industry. DI&S was incorporated on January 18, 1977 pursuant to the Security Investment Trust Act for the purpose of providing a wide range of security investment trust services to its customers. HFG’s common shares were listed on the Korea Exchange (“KRX”) on December 12, 2005.

DI&S has 12,000,000 common shares (￦60,000 million of aggregate par value) outstanding and has 78 branch offices in Korea as of HFG’s major shareholders as of December 31, 2005 are as follows: December 31, 2005.

Number of Equity shares ownership (%) Hana Securities Co., Ltd. (“Hana Securities”) GS Dejakoo LLC and its four affiliate companies 19,077,761 9.34 Angelica Investment Pte. Ltd. 18,500,000 9.06 Hana Securities was incorporated on February 7, 1962 pursuant to the laws of the Republic of Korea to engage in underwriting, brokering Franklin Resources Inc. and its seven affiliate companies 16,607,231 8.13 and dealing securities. Others 150,071,251 73.47 204,256,243 100.00 Hana Securities’ shares of common stock and preferred stock were listed on KRX on November 25, 1986.

Ownership percentages among HFG and its consolidated subsidiaries as of December 31, 2005 are summarized as follows: Hana Securities has 19,154,353 common shares (￦104,508 million of aggregate par value) and 3,689,523 preferred shares (￦24,755 million of aggregate par value) outstanding as of December 31, 2005. Hana Securities has 23 branch offices in Korea as of December 31, 2005. Investor Investee Number of shares Ownership (%) HFG Hana Bank 187,750,483 100.00 Daehan Investment and Securities Co., Ltd. 12,000,000 100.00 Hana Capital Co., Ltd. (“Hana Capital”) Hana Bank Hana Securities (common stock) 12,542,957 65.48 Hana Securities (preferred stock) 1,458,673 39.54 Hana Capital (formerly, Kolon Capital Co., Ltd.) was incorporated on February 13, 1987 pursuant to the laws of the Republic of Korea and Hana Capital Co., Ltd. 3,609,505 50.13 changed its name to Hana Capital on April 8, 2005. Hana Capital obtained a license to engage in installment financing business on January Hana Funding Limited 1 100.00 9, 1996 in accordance with the Credit Card Business Act and was registered as an installment financing company in accordance with the Qingdao Int’l Bank 38,194,465 79.17 Credit-Specialized Financial Business Act on February 16, 1999 to engage in leasing, installment financing, and corporate and consumer loan HFG 3,547,518 1.74 business. DI&S Daehan Investment Trust Management Co., Ltd. 9,000,000 100.00 Hana Securities HFG 18,262 0.01 Hana Capital has 7,200,000 common shares (￦36,000 million of aggregate par value) outstanding as of December 31, 2005.

General information of HFG’s controlled subsidiaries is provided below. Daehan Investment Trust Management Co., Ltd. (“DIMCO”) Hana Bank HDIMCO was incorporated on June 27, 2000 under the laws of the Republic of Korea for the purpose of managing funds for investors and providing investment consulting services. Hana Bank was incorporated in November 1959 under the name of Seoul Bank. Seoul Bank acquired Korea Trust Bank in August 1976. On September 27, 2002, Seoul Bank entered into a combination contract with the former Hana Bank as approved by Seoul Bank’s shareholders DIMCO has 9,000,000 common shares (￦45,000 million of aggregate par value) outstanding as of December 31, 2005. on November 14, 2002. On December 1, 2002, upon completion of the merger, with Seoul Bank as the surviving entity, Seoul Bank changed its name to Hana Bank. Hana Funding Limited (“HFL”) Hana Bank has been engaged in commercial and consumer banking, investment trust business and foreign currency exchange business, and other related operations as permitted under the Bank Act, the Trust Business Act and other relevant laws and regulations in the Republic of HFL, a special purpose entity, was incorporated on December 17, 2002 in the Cayman Islands for the purpose of issuing one common stock Korea. Hana Bank is also engaged in bancassurance business since September 26, 2003, after the revision of the Insurance Act. and non-cumulative tier one preferred shares (“TOPS”) and acquiring the subordinated bonds with the par value of US$200 million issued by Hana Bank with the proceeds from issuing TOPS. Hana Bank has 187,750,483 common shares (￦987,161 million of aggregate par value) outstanding and has 577 domestic branches and 6 overseas branches as of December 31, 2005. HFL issued US$1 of common share and US$200 million of TOPS, which are listed on the Singapore Exchange, as of December 31, 2005. 98 99 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

Detail terms on the subordinated bonds are as follows: 2. Summary of significant accounting policies - Call option: Redeemable in whole but not in part at the option of the issuer on December 17, 2012 (“Reset Date”) or any payment date thereafter. The significant accounting policies followed by the Company in the preparation of its consolidated financial statements are summarized blow. - Interest rate: 8.748% per annum up to the Reset Date, and floating rate after the Reset Date. - Interest payment date: Annually up to the Reset Date, and quarterly after the Reset Date. Basis of consolidated financial statement preparation - Maturity date: December 17, 2101 The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea (“Korean GAAP”). Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with Qingdao International Bank (“Qingdao Int’l Bank”) generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and Qingdao Int’l Bank was incorporated under the laws of the People’s Republic of China (“China”) by issuing US$20,000 thousand of common translated into English (with certain expanded descriptions) from the Korean language financial statements. shares to Industrial and Commercial Bank of China and Korea First Bank (“KFB”, presently, Standard Chartered First Bank Korea Ltd.) in April 1996 to primarily engage in commercial banking, foreign currency exchange business and other related operations for Korean companies and Certain supplementary information attached to the Korean language financial statements, but not required for a fair presentation of the branches in China. Company’s financial position, results of operations and cash flows, is not presented in the accompanying financial statements.

On October 30, 2003, Hana Bank purchased all of Qingdao Int’l Bank common shares owned by KFB pursuant to a security sale and purchase agreement between Hana Bank and KFB. Hana Bank injected additional capital amounting to US$16,112 thousand and RMB 100 million into Korean GAAP revisions for 2005 Qingdao Int’l Bank in January 2004 and January 2005, respectively. The Korean Accounting Standards Board has issued new Statements of Korea Accounting Standards (“SKAS”) with the intention to revise Korean GAAP and disclosure rules to meet international practices. The revised accounting standards which are to be applied from the first Qingdao Int’l Bank has US$48,502 thousand of capital as of December 31, 2005 and has its headquarters and one branch office in Qingdao fiscal year starting after December 31, 2004 include equity method investments, income taxes, and provisions, contingent liabilities and as of December 31, 2005. contingent assets. The Company adopted these new statements in its consolidated financial statements for the period from December 1, 2005 (inception) to December 31, 2005. A summary of companies and financial information of those companies that HFG and its consolidated subsidiaries apply the equity method of accounting as of and for the three-month ended December 31, 2005 is as follows (Korean won in millions): Financial statements translation The accompanying consolidated financial statements are expressed in Korean won and, solely for the convenience of the reader, have been Number of Ownership Net income translated into United States dollars at the rate of ￦1,013.00 to US$1, the exchange rate on December 31, 2005. Such translation should Investor Investee shares (%) Assets Liabilities (loss) not be construed as a representation that the Korean won amounts can actually be converted into United States dollars at the exchange rate ￦ ￦ ￦ HFG Hana INS (*1) 400,000 100.0 3,695 1,181 202 used for purpose of such translation. HIF (*1) 640,000 100.0 3,615 370 (18) Hana Bank Hana Life (*2) 3,000,500 50.0 469,371 449,706 99 Translation of financial statements of overseas branches BC Card 740,520 16.8 384,653 208,673 (9,387) Accounting records of the overseas branches are maintained in foreign currencies. In translating financial statements of overseas branches, Korea Personal the Company applies the appropriate rate of exchange at the balance sheet date. Credit Information 180,000 9.0 45,865 3,621 (3,339) Korea Lease Financing 756,593 18.9 304,040 395,889 27,649 Securities Hana Cambridge IMM 312,000 12.5 11,195 7 (136) Securities that are bought and held are classified as trading securities, available-for-sale securities and held-to-maturity securities, MCIS (*3) 72,000 12.0 30,112 12,502 206 depending on the purpose of the purchase and holding intention. Hana Capital MCIS (*3) 114,000 19.0 30,112 12,502 206 All securities are initially carried at cost, including incidental expenses, determined by the moving average method. (*1) Hana INS Co., Ltd. (“Hana INS”) and Hana Institute of Finance (“HIF”) were excluded from consolidation in accordance with regulations allowing exclusions for small sized subsidiaries for the preparation of consolidated financial statements. Held-to-maturity securities are generally carried at amortized cost. Premium and discounts on debt securities are amortized over the maturity (*2) Hana Life Insurance Co., Ltd (“Hana Life”) was excluded from consolidation since the Company is not the controlling shareholder despite holding 50% of period using the effective interest rate method. the outstanding shares. (*3) Mirae Credit Information Services Corp. (“MCIS”) was excluded from consolidation, since the Company is not the controlling shareholder despite holding Trading and available-for-sale securities are carried at fair value, except for non-marketable equity securities classified as available-for-sale 31% of the outstanding shares. securities, which are carried at cost. The fair value of debt securities, which do not have a quoted market value, is calculated using the present value of future cash flows, discounted at a reasonable interest rate determined based on the credit ratings provided by independent As of December 31, 2005, the net asset value of Korea Travels Co., Ltd. (“Korea Travels”) in which Hana Bank has 14.9% owenership credit rating institutions. interest is ￦(13,402) million. Accordingly, Hana Bank discontinued applying the equity method investment accounting on Korea Travels. Unrealized holding gains or losses on trading securities are recorded as gain or loss in the consolidated statement of income while those resulting from available-for-sale securities are recorded as capital adjustments in the consolidated balance sheet.

If the net realizable value of held-to-maturity securities and available-for-sale securities is less than acquisition cost or carrying value, such 100 101 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

securities are adjusted to net realizable value, with a valuation loss charged to the consolidated statement of income after eliminating any allowance for possible loan losses. The difference recorded as allowance is amortized to current earnings over the related period using the previous recorded capital adjustments for temporary changes. Subsequent recoveries are also recorded in the consolidated statement of effective interest rate method. The amortization is recorded as interest income. income to the extent of previously recorded valuation losses if such recoveries are attributable to events occurring subsequent to the recognition of the valuation loss. Deferred loan fees and expenses The Company defers and amortizes certain fees and expenses associated with originating certain loans. Fees are primarily amounts received Equity method investments from the borrower and are amortized over the life of the associated loan using the effective interest rate method. Expenses are primarily Investments in entities over which the Company has significant influence are accounted for using the equity method, whereby the amounts paid to third parties and are amortized over the life of the associated loan using the straight-line method. Company’s initial investment is recorded at acquisition cost and subsequently the carrying value is increased or decreased to reflect the Company’s share of the investee’s income or loss. If the increase or decrease is derived from changes in the investee’s retained earnings, Fixed assets such change is presented as an increase or decrease in the Company’s retained earnings. If the increase or decrease is derived from the Fixed assets are stated at cost. Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which result in investee’s changes in capital surplus or capital adjustments, then such amount is presented as an increase or decrease in a capital the enhancement of the value of the facilities involved are capitalized as additions to fixed assets. adjustment account within shareholders’ equity. Depreciation of fixed assets is provided using the declining-balance method (the straight-line method for buildings) over the following If the Company’s share in the losses of the investee equals or exceeds its interest in the investee, it discontinues recognizing its share of estimated useful lives: further losses. However, if the Company has other long-term interests in the investee, it continues recognizing its share of further losses to the extent of the carrying amount of such long-term interests. Years Buildings, structures and facilities 50 The difference between the acquisition cost of the investee and the Company’s share of the net fair value of the investee’s identifiable Vehicles, furniture and fixtures and leasehold improvement 5 assets and liabilities is accounted for as goodwill which is amortized over five years using the straight-line method and charged to valuation gain or loss on equity method investments in the consolidated statement of income. Further, the Company’s share of any difference between Intangible assets are amortized using the straight-line method over five years. the net fair value of the investee’s identifiable assets and liabilities, and net book value of such assets and liabilities is amortized based on the investee’s accounting treatments on the related assets and liabilities and charged to valuation gain or loss on equity method Stock issuance costs and debenture issuance costs investments in the consolidated statement of income. New stock issuance costs and debenture issuance costs are deducted from paid-in capital excess of par value and the amounts of debenture issuance, respectively. Debenture issuance costs are amortized as interest expense over the redemption term using the effective interest The Company’s share in the investee’s unrealized profits and losses resulting from transactions between the Company and its investees are rate method. eliminated. Bonds purchased under resale agreements and bonds sold under repurchase agreements Allowance for possible loan losses Bonds purchased on resale agreements and bonds sold on repurchase agreements are included in assets and liabilities, respectively, in the The Company provides the allowance for possible losses from uncollectible corporate loans using the present value method (“PV method”) accompanying consolidated balance sheet. or the expected loss method (“EL method”), depending on the size of the loan. For collective corporate loans, the EL method is used. Accrued severance and retirement benefits The PV method, which is used for large uncollectible loans, computes the collectible amount of expected future cash flows by discounting it In accordance with the Korean Law on Guarantee of Employees’ Severance and Retirement Benefits and the Company’s regulations, at effective interest rates and evaluating it at its present value. employees and directors terminating their employment with at least one year of service are entitled to severance and retirement benefits, based on the rates of pay in effect at the time of termination, years of service and certain other factors. The provision for the year ended The EL method analyzes factors of estimated loss based on probability of default (“PD”) and loss given default (“LGD”), and determines the December 31, 2005 is sufficient to state the liability under the Korean Law on Guarantee of Employees’ Severance and Retirement Benefits loan classification. This credit rating model considers the financial and non-financial factors of borrowers and classifies the borrowers’ and the Company’s regulations at the estimated obligation arising from services performed to and at rates of pay in effect at this date. credit risk by 17 ratings to assess the PD based on historical data for the past five years. LGD is determined by the type of loan and Funding of this liability is not required by Korean law. collateral, and historical data for the past three years. Provision rate is calculated by multiplying PD and LGD. The Company has deposited a portion of its severance and retirement benefits obligation with insurance companies as deposits for group The minimum provision rate for corporate loans should be at least the minimum required provision percentage given by the Regulation on severance and retirement benefits. Such deposits amounted to ￦120,674 million at December 31, 2005. Since the Company’s employees Supervisory of Bank. are individually nominated as the vested beneficiaries of the deposits in respect of what is due to them as of December 31, 2005, those amounts have been offset against the Company’s liability for severance and retirement benefits as of such date. For household loans, provision rates are determined by PD and LGD based on historical data for the past five years. For credit card loans, provisions are calculated based on delinquency roll rates of the past six years. In accordance with the Korean National Pension Law prior to revision, the Company had prepaid a portion of its severance and retirement benefits obligation to the Korean National Pension Corporation (“KNPC”) at the rate of 3% of payroll expense up through March 31, 1999. The minimum provision rate for household and credit loans should be at least the minimum required provision percentage given by the Such prepayments have been offset against the Company’s liability for severance and retirement benefits. In accordance with a revision in Regulation on Supervisory of Bank. Furthermore, the Company adjusts the expected loss rate for loans classified below a certain rating to the Korean National Pension Law, additions to these prepayments were no longer required effective from April 1, 1999. reduce risk in loan losses. Reserve for possible losses on acceptances and guarantees. Troubled debt restructuring Confirmed acceptances and guarantees, contingent acceptances and guarantees and bills endorsed do not appear on the balance sheet, but If the present value of a loan is different from its book value due to a rescheduling of terms as agreed by the related parties (as in the case are presented as off-balance sheet items in the footnotes to the consolidated financial statements. The Company provides a provision for of court receivership, court mediation or workout), the difference in present value of the loan and book value of the loan is recorded as such off-balance sheet items, applying a Credit Conversion Factor (“CCF”) and provision rates, and records the provision as a reserve for 102 103 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

possible losses on acceptances and guarantees. Per share amounts Consolidated net earnings is computed by dividing net consolidated income by the weighted average number of shares of common stock Reserve for unused credit line and cash advance commitments on credit cards outstanding during the period from December 1, 2005 (inception) to December 31, 2005 while consolidated ordinary earnings per share is The Company records reserves for a certain portion of unused credit line and cash advance commitments on credit cards which have been computed by reversing the effect of extraordinary items (net of income taxes), if any. used at least once in the last twelve months. The Company records the provision for such unused balance as miscellaneous liabilities which is calculated by applying CCF and an allowance percentage (corporate: 0.5% or above, household: 0.75% or above and credit card: 1% or Use of estimates above). The preparation of financial statements in accordance with Korean GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial Income taxes statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the estimates. tax authorities. Deferred income taxes are provided using the liability method for the tax effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the accompanying consolidated financial statements. Deferred tax assets and Accounting standards for consolidated financial statements liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In addition, The Company’s investment accounts and the corresponding capital accounts of subsidiaries have been eliminated in the accompanying current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged directly to consolidated financial statements. equity. On acquisition of the investment, any difference between the cost of the investment and the Company’s share of the net fair value of the Recognition of interest income investee’s identifiable assets and liabilities is accounted for as goodwill (negative goodwill) which is amortized over periods of five years Interest income on loans and investments is recognized on an accrual basis. However, the interest income on loans overdue or dishonored is using the straight-line method. recognized on a cash basis, except for those secured and guaranteed by financial institutions, which is recognized on an accrual basis. All significant inter-company transactions and accounts balances among the consolidated companies have been eliminated in consolidation. Foreign currency translation Assets and liabilities denominated in foreign currencies are translated into Korean won using the exchange rates of ￦1,013.00 to US$1, the Investments in 20% to 50% owned companies and small-sized companies stipulated in the financial accounting standards (except for rates in effect as of December 31, 2005. Resulting translation gains and losses are credited (charged) to current operations. consolidated companies) are accounted for using the equity method, and all significant inter-company transactions have been eliminated.

Derivative financial instruments Accounting records of the overseas subsidiaries are maintained in foreign currencies. In translating financial statements of overseas Derivative financial instruments include futures, forwards, options, and swap contracts and are principally linked to interest rates and subsidiaries, the Company applies the appropriate rate of exchange at the consolidated balance sheet date. foreign exchange rates. Derivative financial instruments, regardless of whether they are entered for trading or hedging purposes, are valued at fair value. Derivative contracts not meeting the requirements for hedge accounting treatment are classified as trading contracts with According to the third supplementary of Accounting Standard for Consolidated Financial Statements, it is optional for the Company to gains and losses included in current operations. Derivative contracts qualifying for hedge accounting treatment have unrealized valuation prepare consolidated statement of cash flows for the first period. Thus, the Company did not prepare consolidated statement of cash flows. gains and losses recorded as capital adjustments (cash-flow-hedge derivatives) or as other revenues and expenses in current operations in conjunction with recording unrealized gains and losses for underlying assets or liabilities (fair-value-hedge derivatives). The Company provided guarantees on a principle account of trusts or a minimum rate of return to certain money trust accounts. In relation to such guarantees, the Company’s trust accounts are required to provide a special reserve, which is adjusted to consolidated retained Contingent liabilities earnings in the consolidated financial statements. If the income from trust operations is insufficient to generate the required rate of return, Guarantees of payment for money indebtedness, acceptances of trade bills (except banker’s usance) related to import transactions, the deficiency may be either recovered from previously established special reserves or compensated by the Company’s banking accounts. guarantees issued on opened letters of credit, etc. are classified as confirmed acceptances and guarantees. Both confirmed acceptances Such compensation is accounted for as other operating expenses of the banking accounts and other income of the trust accounts, and guarantees and contingent acceptances and guarantees are presented as off-balance sheet items. The notional amount of derivative respectively, and is eliminated by consolidation adjustments in accordance with the relevant laws and regulations applicable to the trust contracts, bills endorsed and commitments for which the Company has promised to provide credit to borrowers are also presented as off- business. balance sheet items.

Stock options The stock option program allows the Company’s employees to acquire shares of the Company. The option exercise price is generally fixed at below the market price of underlying shares at the grant date. The Company measures compensation cost of cash-settled options using the intrinsic value method and allocates compensation cost, which is recorded as accrued expense, over the vesting period. The Company measures compensation cost of equity-settled options using the fair value method and allocates compensation cost, which is recorded as capital adjustments, over the vesting period. When the equity-settled options are exercised, capital adjustments are i) transferred to capital surplus with the difference between the exercise price and par value in case of new stock issuance or ii) deducted at gain on disposal of treasury stock in case of treasury stock distribution.

Accounting for the trust accounts The Company recognizes, in accordance with the Trust Business Act, trust fees from the trust accounts as income from trust operations. If losses are incurred on trust accounts that have a guarantee of principal repayment trust terms, the losses are recognized as a loss from trust operations. 104 105 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

3. Due from banks 4. Trading securities

Due from banks as of December 31, 2005 consist of the following (Korean won in millions): Trading securities as of December 31, 2005 consist of the following (Korean won in millions):

Counter party Annual interest rate (%) Amount Annual interest rate (%) Amount Due from banks in Korean won: Equity securities - ￦ 261,309 Checking accounts Bank of Korea (“BOK”) - ￦ 2,326,391 Government and public bonds 2.5 ~ 11.0 1,192,697 Certificates of deposits Other banks 3.8 269,643 Finance bonds 3.2 ~ 7.2 315,479 Time deposits Other financial institutions 3.6 ~ 4.3 38,287 Corporate bonds 4.0 ~ 5.3 479,907 Collective fund for default loss KRX 3.7 6,101 Beneficiary certificates - 29,381 Reserve for claims of customers’ deposit Korea Security Finance Corp. (“KSFC”) 3.2 ~ 3.8 342,066 Bonds denominated in foreign currencies - 9,054 Other deposits Other financial institutions 0.0 ~ 3.2 807,328 Others - 2,400 3,789,816 ￦ 2,290,227 Due from banks in foreign currencies: Checking accounts BOK, etc. 0.8 ~ 2.3 413,925 Bonds details as of December 31, 2005 are summarized as follows (Korean won in millions): ￦ 4,203,741 Beginning Effective interest Valuation Ending Restricted balances in due from banks at December 31, 2005 are summarized as follows (Korean won in millions): balance method adjustment gain (loss) Balance (*) Government and public bonds ￦ 1,194,677 ￦ 4,835 ￦ (6,815) ￦ 1,192,697 Counter party Balance Restriction Finance bonds 312,822 (500) 3,157 315,479 Due from banks in Korean won: Corporate bonds 484,232 (235) (4,090) 479,907 Checking accounts BOK ￦ 2,326,391 Reserve for payment of deposits Bonds denominated Collective fund for default loss KRX 6,101 (*1) in foreign currencies 9,300 (179) (67) 9,054 Reserve for claims of customers’ deposits KSFC 342,066 (*2) ￦ 2,001,031 ￦ 3,921 ￦ (7,815) ￦ 1,997,137 Time deposits Woori Bank 9,787 Escrow account for deal settlement Other deposits Others 59 For maintaining checking account (*) Ending balance is valued using the lower appraised amount provided by KIS Pricing Inc. or Korea Bond Pricing Co. Due from banks in foreign currencies: 97,811 Reserve for payment of deposits ￦ 2,782,215 Government and public bonds, and corporate bonds amounting to ￦310,162 million and ￦278,414 million, respectively, are provided as collateral for the Company’s transactions in bond sold under repurchase agreements and government and public bonds amounting to (*1) The collective fund for default losses in the securities market represents funds that are deposited to compensate for market traders: losses arising from ￦82,574 million are provided as collateral for futures transactions the Company entered into as of December 31, 2005. dealing agents’ defaults. The funds are required to be deposited with KRX at certain rate, which is pre-determined according to the KRX membership regulation, of the total value of the securities traded by the Company during the period. Concentrations of trading securities by industry as of December 31, 2005 are summarized as follows (Korean won in millions): (*2) Reserve for claims of customers’ deposits is required to be maintained with the KSFC and other financial institution to pay with respect to customer’ deposits as required under related securities industry regulations. Korean won Ratio (%) Foreign currency Ratio (%) Equity securities: The maturities of due from banks outstanding as of December 31, 2005, are as follows (Korean won in millions): Manufacturing ￦ 200,953 76.9 ￦ -- Construction 15,471 5.9 - - Due from banks Due from banks Wholesale and retail 5,287 2.0 - - in Korean won in foreign currencies Total Others 39,598 15.2 - - Within 1 month ￦ 1,601,191 ￦ 391,183 ￦ 1,992,374 261,309 100.0 - - More than 1 ~ 3 months 574,292 5,065 579,357 Other: More than 3 ~ 6 months 21,826 17,677 39,503 Manufacturing 9,789 0.5 2,025 22.4 More than 6 months ~ 1 year 200,000 - 200,000 Construction 20,588 1.0 - - More than 1 ~ 3 years - - - Financial business 735,325 36.4 4,988 55.1 More than 3 ~ 5 years 1,383,275 - 1,383,275 Public sector 815,571 40.4 - - More than 5 years 9,232 - 9,232 Others 438,591 21.7 2,041 22.5 ￦ 3,789,816 ￦ 413,925 ￦ 4,203,741 2,019,864 100.0 9,054 100.0 ￦ 2,281,173 ￦ 9,054

106 107 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

Concentrations of trading securities by country as of December 31, 2005 are summarized as follows (Korean won in millions): Equity securities (including equity securities denominated in foreign currencies) as of December 31, 2005 are as follows (Korean won in millions): Korean won Ratio (%) Foreign currency Ratio (%) Korea ￦ 2,281,173 100.0 ￦ 7,029 77.6 Beginning Reversal of Capital Ending Japan - - 2,025 22.4 balance impairment adjustments balance ￦ 2,281,173 100.0 ￦ 9,054 100.0 Marketable ￦ 144,477 ￦ 755 ￦ 34,246 ￦ 179,478 Non-marketable 532,029 - 133,731 665,760 The information about trading securities by security type as of December 31, 2005 is summarized as follows (Korean won in millions): ￦ 676,506 ￦ 755 ￦ 167,977 ￦ 845,238

Korean won Ratio (%) Foreign currency Ratio (%) Marketable equity securities (including, equity securities denominated in foreign currencies) as of December 31, 2005 consist of the Equity securities ￦ 261,309 11.4 ￦ -- following (Korean won in millions): Fixed rate bonds 1,990,483 87.3 7,029 77.6 Floating rate bonds - - 2,025 22.4 Number of Ownership Book value Reversal of Capital Ending Beneficiary certificates 29,381 1.3 - - Company shares (%) before valuation impairment loss adjustment balance ￦ 2,281,173 100.0 ￦ 9,054 100.0 Korea Investment Holdings 845,046 1.6 ￦ 25,774 - ￦ 10,563 ￦ 36,337 Daewoo International 573,711 0.6 11,818 - 10,126 21,944 Underlying net assets of the beneficiary certificates as of December 31, 2005 consist of the following (Korean won in millions): Kyobo Securities 1,200,000 3.3 11,021 - 4,999 16,020 KEPCO 355,515 0.1 12,656 - 782 13,438 Balance Ratio (%) Ssangyong Cement Industry 942,100 2.2 15,865 - (2,487) 13,378 Deposits ￦ 94 0.3 Saehan Industries Inc. 2,218,932 4.7 8,831 - 555 9,386 Stocks 15,739 53.6 Hyundai E&C 199,504 0.2 6,584 - 2,424 9,008 Beneficiary certificates 12,186 41.5 SK Securities 5,420,000 1.7 7,479 - 949 8,428 Call loans 900 3.1 KOCRAP 1 1,073,972 4.0 7,754 - 301 8,055 Government and public bonds 264 0.9 Daewoo Securities 380,000 0.2 4,883 - 2,185 7,068 Others, net of liabilities 198 0.6 Dongbu Anam Semiconductor Co. 2,211,000 1.7 7,730 - (810) 6,920 ￦ 29,381 100.0 Ssangyong E&C 514,845 1.8 4,737 - 1,390 6,127 Others - 19,345 755 3,269 23,369 ￦ 144,477 ￦ 755 ￦ 34,246 ￦ 179,478 5. Available-for-sale securities Disposals of Ssangyoung Cement Industry shares and Ssangyong E&C shares are restricted until December 31, 2005 or subject to approval Available-for-sale securities as of December 31, 2005 consist of the following (Korean won in millions): of the creditors committee, respectively. Disposal of Saehan Industries Inc. is also restricted until December 31, 2006. As of December 31, 2005, the marketable equity securities with disposal restrictions amounted to ￦29,488 million including the aforementioned securities. Annual Interest rate (%) Amount The marketable equity securities above are carried at their fair values, with unrealized valuation gains and losses recorded in capital Equity securities - ￦ 844,053 adjustments. Investments in partnerships - 21,062 Government and public bonds 3.3 ~ 5.5 1,346,931 The Company recognized ￦755 million of reversal of impairment losses on marketable equity securities for the period from October 1, 2005 Finance bonds 3.3 ~ 5.5 4,783,427 to December 31, 2005. Corporate bonds 3.0 ~ 7.8 3,978,838 Beneficiary certificates - 1,186,873 Securities denominated in foreign currencies 1.6~10.0 909,141 Others - 5,435 ￦ 13,075,760

Available-for-sale securities amounting to ￦2,123,818 million are provided as collateral for borrowings from BOK and other financial institutions as of December 31, 2005.

108 109 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

Details of non-marketable equity securities as of December 31, 2005 consist of the following (Korean won in millions): Investments in partnership as of December 31, 2005 consist of the following (Korean won in millions):

Number of Ownership Book value Capital Carrying Book value Capital Ending Shares (%) before valuation adjustment value before valuation adjustments balance LG Card (*) 5,377,415 4.3 ￦ 120,556 ￦ 76,063 ￦ 196,619 Venture fund ￦ 12,211 ￦ 1,606 ￦ 13,817 SK Networks (common stock) (*) 13,468,764 5.7 130,728 6,357 137,085 Credit union 224 - 224 SK Networks (preferred stock) 1,126,102 10.1 66,770 3,970 70,740 Stock Market Stabilization Fund 5,737 30 5,767 Hyundai E&C (*) 2,240,154 2.1 42,603 23,945 66,548 Other 1,387 (133) 1,254 Daewoo E&C (*) 4,405,186 1.3 26,409 21,334 47,743 ￦ 19,559 ￦ 1,503 ￦ 21,062 Korea Housing Guarantee 16,942,000 2.6 42,880 3,710 46,590 47,700 0.2 15,836 - 15,836 Beneficiary certificates as of December 31, 2005 consist of the following (Korean won in millions): KSFC 4,047,081 4.8 14,017 (118) 13,899 Korea Asset Management Corp. 1,784,000 3.4 9,110 - 9,110 Book value Capital Ending TU Media 1,300,000 3.0 7,963 88 8,051 before valuation adjustments balance Daewoo Electronics 18,008,780 1.7 7,185 (841) 6,344 Equity securities type ￦ 40,000 ￦ 620 ￦ 40,620 Dawool Real Estate Trust 1,500,000 15.0 3,195 878 4,073 Bonds type 1,131,441 14,812 1,146,253 Korea Aerospace Industries 989,200 6.8 3,788 (524) 3,264 ￦ 1,171,441 ￦ 15,432 ￦ 1,186,873 Sindo Investments 100,000 10.0 2,810 - 2,810 Dawoo Capital CRV 179,975 0.7 2,208 (208) 2,000 Concentrations of available-for-sale securities by country as of December 31, 2005 are summarized as follows (Korean won in millions): Other - 35,971 (923) 35,048 ￦ 532,029 ￦ 133,731 ￦ 665,760 Korean won Ratio (%) Foreign currency Ratio (%) Korea ￦ 12,166,619 100.0 ￦ 810,173 89.1 (*) The Company determined adjusted market value as carrying value using independent valuation servicer’s results because the market price is not regarded U.S.A. - - 26,964 3.0 as fair value due to disposal restrictions. U.K. - - 20,275 2.2 H.K. - - 15,381 1.7 Disposals of Hyundai E&C, and SK Networks and LG Card shares are restricted until December 31, 2006 and 2007, respectively. Disposal of France - - 10,214 1.1 Daewoo E&C shares is subject to approval of the creditors committee. Others - - 26,134 2.9 ￦ 12,166,619 100.0 ￦ 909,141 100.0 The non-marketable equity securities with disposal restrictions amounted to ￦499,927 million as of December 31, 2005 including the aforementioned securities. The information about available-for-securities by industry as of December 31, 2005 is summarized as follows (Korean won in millions):

Non-marketable securities including Samsung Life Insurance amounting to ￦46,601 million were valued at acquisition costs because the Korean won Ratio (%) Foreign currency Ratio (%) fair value cannot be reasonably estimated. Equity securities: Financial services ￦ 376,651 44.6 ￦ 857 72.3 Bonds as of December 31, 2005 are summarized as follows (Korean won in millions): Public sector 640 0.1 125 10.6 Manufacturing 55,524 6.6 203 17.1 Book value Effective interest Capital Ending Construction 137,658 16.3 - - before valuation method adjustments adjustments balance (*) Wholesale and retail 229,852 27.2 - - Government and public bond ￦ 1,361,197 ￦ (33) ￦ (14,233) ￦ 1,346,931 Others 43,728 5.2 - - Finance bonds 4,789,283 4,342 (10,198) 4,783,427 844,053 100.0 1,185 100.0 Corporate bonds 3,990,958 (5,990) (6,130) 3,978,838 Others: Bonds denominated in foreign currencies 909,641 (681) (1,004) 907,956 Financial services 6,773,489 59.8 338,103 37.3 ￦ 11,051,079 ￦ (2,362) ￦ (31,565) ￦ 11,017,152 Public sector 3,873,131 34.2 130,112 14.3 Manufacturing 315,221 2.8 436,702 48.1 (*) Ending balance is valued using the lower of the appraised amounts provided by KIS Pricing Inc. and Korea Bond Pricing Co. Construction 50,866 0.5 3,039 0.3 Wholesale and retail 148,138 1.3 - - Others 161,721 1.4 - - 11,322,566 100.0 907,956 100.0 ￦ 12,166,619 ￦ 909,141

110 111 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

The information about available-for-sale securities by security type as of December 31, 2005 is summarized as follows (Korean won in Structured securities as of December 31, 2005 are as follows (Korean won in millions and U.S. dollar in thousands): millions): Type Issuer Par value Issued date Maturity Fair value Risk Korean won Ratio (%) Foreign currency Ratio (%) Korean won: Equity securities ￦ 844,053 6.9 ￦ 1,185 0.1 Stock Equity Linked Samsung Investments in partnership 21,062 0.2 - - Securities (“ELS”) Securities ￦ 10,000 6/18/2003 9/18/2006 ￦ 9,672 Stock index Fixed rate bonds 8,402,235 69.1 463,647 51.0 Foreign currencies: Floating rate bonds 1,706,961 14.0 383,828 41.9 Interest Range Accrual BNP Paribas US$ 5,000 8/3/2005 8/18/2015 4,974 Interest Convertible bonds - - 45,431 5.3 Range Accrual Lloyds TSB 5,000 8/4/2004 8/18/2015 5,019 Interest Beneficiary certificates 1,186,873 9.8 - - Trends Note UBS 5,000 6/24/2005 9/8/2010 4,944 Interest Others 5,435 - 15,050 1.7 15,000 14,937 ￦ 12,166,619 100.0 ￦ 909,141 100.0 Stock ELS RBS 5,000 9/3/2004 9/17/2006 4,904 Stock index Convertible bond Reigncom Ltd. 15,000 4/26/2005 4/26/2008 14,191 Stock index Realized gain and loss from disposal of available-for-sale securities for the three-month period ended December 31, 2005 are as follows Convertible bond SKC 10,000 12/14/2005 12/14/2007 9,601 Stock index (Korean won in millions): Convertible bond LG Philips 5,000 4/19/2005 4/19/2010 5,305 Stock index Exchange bond CJ Cayman 10,000 5/7/2002 6/7/2006 10,021 Stock index Realized Exchange bond CJ Cayman 6,000 6/24/2003 6/7/2006 6,013 Stock index gain loss 51,000 50,035 Equity securities ￦ 17,922 ￦ - Other HFRX Barclays 5,000 6/30/2004 6/30/2006 5,202 HFRX index Government and public bonds 581 (8) ￦ 80,146 Finance bonds 147 - Beneficiary certificates 60,525 - In addition, the Company has structured securities in loans (privately-placed convertible securities amounting to ￦39,448 million) and other Securities denominated in foreign currencies 112 - liabilities (hybrid securities sold amounting to ￦673,690 million issued by Hana Securities) as of December 31, 2005. ￦ 79,287 ￦ (8)

Underlying net assets included in beneficiary certificates as of December 31, 2005 consist of the following (Korean won in millions): 6. Held-to-maturity securities

Balance Ratio (%) Held-to-maturity securities as of December 31, 2005 consist of the following (Korean won in millions): Deposits ￦ 37,222 3.1 Stocks 222,395 18.7 Annual Government and public bonds 212,678 17.9 Interest rate (%) Amount Debentures issued by financial institutions 632,293 53.3 Government and public bonds 2.5 ~ 6.9 ￦ 1,184,889 Call loans 57,911 4.9 Financial bonds 4.2 ~ 6.0 394,432 Others, net of liabilities 24,374 2.1 Corporate bonds 3.9 ~ 7.3 1,491,439 ￦ 1,186,873 100.0 Bonds in foreign currencies 2.3 ~ 5.5 25,350 ￦ 3,096,110 The maturities of debt securities as of December 31, 2005 are as follows (Korean won in millions): Held-to-maturity securities amounting to ￦2,160,809 million are provided as collateral for borrowings from BOK and other financial Government Debentures issued Securities institutions as of December 31, 2005. and by financial Corporate denominated in public bonds institutions bonds foreign currencies Total Details of held-to-maturity securities as of December 31, 2005 consist of the following (Korean won in millions): Within 1 month ￦ 6,331 ￦ 10,010 ￦ 25,021 ￦ 4,104 ￦ 45,466 More than 1 ~ 3 months 6,617 69,836 84,640 9,826 170,919 Balance before Effective interest Ending More than 3 ~ 6 months 10,170 79,769 100,151 48,635 238,725 amortization method adjustments balance More than 6 months ~ 1 year 36,038 933,961 1,690,072 84,992 2,745,063 Government and public bonds ￦ 1,180,413 ￦ 4,476 ￦ 1,184,889 More than 1 ~ 3 years 858,588 3,643,481 1,675,463 388,560 6,566,092 Financial bonds 394,393 39 394,432 More than 3 ~ 5 years 420,113 46,370 364,893 38,157 869,533 Corporate bonds 1,491,646 (207) 1,491,439 More than 5 ~ 10 years 9,074 - 38,598 132,896 180,568 Bonds in foreign currencies 25,240 110 25,350 More than 10 years - - - 200,786 200,786 ￦ 3,091,692 ￦ 4,418 ￦ 3,096,110 ￦ 1,346,931 ￦ 4,783,427 ￦ 3,978,838 ￦ 907,956 ￦ 11,017,152

112 113 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

Concentrations of held-to-maturity securities by country as of December 31, 2005 are summarized as follows (Korean won in millions): 7. Equity method investments

Korean won Ratio (%) Foreign currency Ratio (%) Equity method investments as of December 31, 2005 are summarized as follows (Korean won in millions): Korea ￦ 3,070,760 100.0 ￦ 15,206 60.0 Singapore - - 6,378 25.1 Book value Equity method valuation Others - - 3,766 14.9 Beginning Acquisition before equity Gain Capital Retaining Carrying Net asset ￦ 3,070,760 100.0 ￦ 25,350 100.0 Company balance (disposal) method (loss) adjustment earnings value value Hana INS ￦ 2,312 ￦ - ￦ 2,312 ￦ 202 ￦ - ￦ - ￦ 2,514 ￦ 2,514 Concentrations of held-to-maturity securities by industry as of December 31, 2005 are summarized as follows (Korean won in millions): HIF 3,239 - 3,239 (18) - 24 3,245 3,245 Hana Life (*1) 9,990 - 9,990 142 (1,130) - 9,002 9,832 Korean won Ratio (%) Foreign currency Ratio (%) BC Card (*1) 31,241 - 31,241 (1,582) (22) - 29,637 29,617 Financial services ￦ 535,758 17.4 ￦ -- MCIS (*1) 808 568 1,376 561 3 - 1,940 5,452 Public sector 2,415,673 78.7 10,144 40.0 Korea Personal Credit Manufacturing 119,329 3.9 15,206 60.0 Information (*2) 4,103 - 4,103 (301) - - 3,802 3,802 ￦ 3,070,760 100.0 ￦ 25,350 100.0 Korea Lease Financing (*1) - - - (5,499) 19,829 (11,141) 3,189 (17,373) The information about held-to-maturity securities by security type as of December 31, 2005 is summarized as follows (Korean won in millions): Korea DNI (*3) 134 (134) ------Kim’s assets (*3) 27 (27) ------Korean won Ratio (%) Foreign currency Ratio (%) Hana Cambridge Fixed rate bonds ￦ 3,070,760 100.0 ￦ 10,144 40.0 IMM (*1,*2) 17 1,404 1,421 (17) - - 1,404 1,403 Floating rate bonds - - 15,206 60.0 ￦ 51,871 ￦ 1,811 ￦ 53,682 ￦ (6,512) ￦ 18,680 ￦ (11,117) ￦ 54,733 ￦ 38,492 ￦ 3,070,760 100.0 ￦ 25,350 100.0

(*1) Difference between carrying value and net asset value represents unamortized goodwill or negative goodwill. The maturities of held-to-maturity bonds as of December 31, 2005 are as follows (Korean won in millions): (*2) The equity method of accounting is applied since Hana Bank is controlling subsidiary’s board of directors despite holding less than 15% of the outstanding shares. Government Debentures issued Bonds (*3) Korea DNI and Kim’s Assets share were fully disposed of during the period. and by financial Corporate denominated in public bonds institutions bonds foreign currencies Total As of December 31, 2005, net asset value of Korea Travels is ￦(13,402) million. Because Hana Bank’s share in the losses With 1month ￦ 10,137 ￦ 20,001 ￦ 25,006 ￦ - ￦ 55,144 of the investee exceeded its interest in the investee, it discontinued applying the equity method accounting on the investments. The More than 1 ~ 3 months 1,985 - 50,066 6,378 58,429 unrecognized Hana Bank’s share in the losses of the investee for the current period and prior periods were ￦(93) million and ￦(1,639) More than 3 ~ 6 months 3,474 40,011 39,983 10,130 93,598 million, respectively. More than 6 months ~ 1 year 53,609 90,005 54,003 3,766 201,383 More than 1 ~ 3 years 722,066 29,415 290,032 5,076 1,046,589 As of December 31, 2005, differences between the cost of the investment and the Company’s portion of the investee’s net asset value are More than 3 ~ 5 years 229,316 120,000 412,551 - 761,867 summarized as follows (Korean won in millions): More than 5 ~ 10 years 164,302 95,000 609,798 - 869,100 More than 10 years - - 10,000 - 10,000 Beginning balance Increase (decrease) Amortization Carrying value 1,184,889 394,432 1,491,439 25,350 3,096,110 ￦ ￦ ￦ ￦ ￦ Hana Life ￦ (923) ￦ - ￦ 93 ￦ (830) BC Card 22 - (2) 20 MCIS (2,735) (1,251) 474 (3,512) Korea Lease Financing - 31,290 (10,728) 20,562 Hana Cambridge IMM - 1 - 1 ￦ (3,636) ￦ 30,040 ￦ (10,163) ￦ 16,241

114 115 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

Details on the investee’s unaudited financial statements are summarized as follows (Korean won in millions): Amount Loans in Korean won: Investee’s net asset Hana Capital Corporate loans for operations 102,276 Closing date Before adjustments Adjustments After adjustments Household loans 23,130 Hana Life Dec 31, 2005 ￦ 19,665 ￦ - ￦ 19,665 125,406 BC Card Dec 31, 2005 175,980 - 175,980 Hana Securities Loans 2,525 MCIS Dec 31, 2005 17,610 - 17,610 Broker’s loans 61,431 Korea Personal Credit Information Dec 31, 2005 42,244 - 42,244 63,956 Korea Lease Financing Dec 31, 2005 (91,849) - (91,849) DI&S Household loans 7,226 Korea Travels Dec 31, 2005 (13,402) - (13,402) Broker’s loans 19,757 Hana Cambridge IMM Dec 31, 2005 11,188 - 11,188 Others 50,000 76,983 The Company obtained unaudited financial statements signed by each of the investee’s representative director and confirmed that DIMCO Household loans 1,676 significant transactions and accounting events recognized were properly reflected on the investee’s financial statements. ￦ 54,110,399

Loans to other financial institutions are summarized as follows (Korean won in millions): 8. Loans

Loans as of December 31, 2005 consist of the following (Korean won in millions): Banks Other financial institutions Total Amount Loans in Korea won ￦ 372,570 ￦ 1,076,248 ￦ 1,448,818 Loans in Korean won ￦ 51,063,316 Loans in foreign currencies - 33,487 33,487 Loans in foreign currencies 3,669,009 Bills bought - 364 364 Bills bought in Korean won 2,829,771 Privately-placed corporate bonds - 571,987 571,987 Bills bought in foreign currencies 2,125,791 ￦ 372,570 ￦ 1,682,086 ￦ 2,054,656 Advance payments on acceptances and guarantees 5,793 Factoring receivables 218,007 Concentrations on loans in Korean won (including bills bought and factoring receivables) and loans in foreign currencies (including factoring Credit card receivables 1,994,862 receivables) by industry as of December 31, 2005 are summarized as follows (Korean won in millions): Bonds purchased under resale agreements 10,000 Call loans 2,577,715 Korean won Ratio (%) Foreign currency Ratio (%) Privately-placed corporate bonds 2,673,425 Manufacturing ￦ 8,824,244 ￦ 2,084,066 ￦ 10,908,310 18.9 67,167,689 Construction 2,143,185 24,752 2,167,937 3.8 Less allowance for possible loan losses (808,008) Wholesale and retail 3,736,073 393,415 4,129,488 7.1 Plus deferred loan fees 14,121 Financial services 1,430,434 104,250 1,534,684 2.7 Total loans ￦ 66,373,802 Real estate and rental 2,488,417 62,922 2,551,339 4.4 Household 30,278,502 1,435 30,279,937 52.4 Loans in Korean won (including bills bought and factoring receivables) as of December 31, 2005 consist of the following (Korean won in Public sector and others 5,209,544 998,864 6,208,408 10.7 millions): ￦ 54,110,399 ￦ 3,669,704 ￦ 57,780,103 100.0

Amount Concentrations on loans in foreign currencies (including factoring receivables) by country as of December 31, 2005 are summarized as Loans in Korean won: follows (Korean won in millions): Hana Bank Corporate loans for operations ￦ 17,457,695 Corporate loans for facilities 2,366,528 Amount Ratio (%) Household loans 30,106,624 Korea ￦ 2,215,890 60.4 Loans for public sector and other 454,273 Japan 17,012 0.5 Inter-bank loans 348,570 Panama 32,234 0.9 Factoring receivables 217,312 Bills bought 2,568,441 Cayman Islands 20,049 0.5 53,519,443 Indonesia 10,789 0.3 Trusts accounts Loans secured with securities 46,983 U.S.A. 391 - Loans secured with real estate 14,228 China 1,539 - Bills bought 261,330 Domestic import usance 1,336,576 36.4 Others 394 Others 35,224 1.0 322,935 ￦ 3,669,704 100.0 116 117 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

Maturities of loans in Korean won (including bills bought and factoring receivables), loans in foreign currencies (including factoring As of December 31, 2005, details of classification of loans and allowance for possible loan losses in accordance with regulations on Korean receivables) and bills bought in foreign currencies as of December 31, 2005 are summarized as follows (Korean won in millions): banking industry are as follows (Korean won in millions):

Loans Bills bought Normal Precautionary Substandard Doubtful Estimated loss Total (*) Loans in Korean won 51,987,102 936,197 452,972 63,127 63,340 53,502,738 Korean won Foreign currencies in foreign currencies Total ￦ ￦ ￦ ￦ ￦ ￦ (Allowance) (381,597) (96,510) (111,663) (50,206) (63,340) (703,316) Within 1 months ￦ 2,559,692 ￦ 504,705 ￦ 1,239,768 ￦ 4,304,165 Loans in foreign currencies 3,618,066 33,905 14,350 2,729 654 3,669,704 More than 1 ~ 3 months 6,170,379 807,608 667,442 7,645,429 (Allowance) (23,045) (2,426) (4,495) (1,859) (654) (32,479) More than 3 ~ 6 months 10,264,891 685,001 197,020 11,146,912 Bills bought More than 6 months ~ 1 year 15,891,486 888,272 15,811 16,795,569 in foreign currencies 2,107,512 13,169 2,424 768 1,918 2,125,791 More than 1 ~ 3 years 8,415,822 449,415 574 8,865,811 (Allowance) (4,111) (1,395) (531) (507) (1,918) (8,462) More than 3 ~ 5 years 3,188,660 196,632 - 3,385,292 Advances payments on More than 5 years 7,619,469 138,071 5,176 7,762,716 acceptance and guarantees 604 1,211 607 2,489 882 5,793 ￦ 54,110,399 ￦ 3,669,704 ￦ 2,125,791 ￦ 59,905,894 (Allowance) (8) (147) (121) (2,163) (882) (3,321) Credit card loans 1,949,894 22,422 825 14,188 7,533 1,994,862 Details of changes in allowance for possible loan losses for the period from October 1, 2005 to December 31, 2005 are as follows (Korean (Allowance) (12,849) (2,583) (406) (12,716) (7,533) (36,087) won in millions): Privately-placed corporate bonds 2,669,340 2,353 - - 1,732 2,673,425 Amount (Allowance) (12,861) (341) - - (1,732) (14,934) Beginning balance ￦ 871,942 Others 321,135 1,072 1,809 1,727 7,185 332,928 Changes in present value discounts (66) (Allowance) (305) (30) (452) (1,437) (7,185) (9,409) Sales of non-performing loans (9,273) Total loans ￦ 62,653,653 ￦ 1,010,329 ￦ 472,987 ￦ 85,028 ￦ 83,244 ￦ 64,305,241 Write-offs (68,200) Total allowance ￦ (434,776) ￦ (103,432) ￦ (117,668) ￦ (68,888) ￦ (83,244) ￦ (808,008) Collection of loans write-off 19,896 Ratio to total loans 97.4% 1.6% 0.8% 0.1% 0.1% 100.0% Reversal of allowance for possible loan losses, net (4,365) Allowance ratio 0.7% 10.2% 24.9% 81% 100% 1.3% Others (1,926) Ending balance ￦ 808,008 (*) Loans classified above include receivables and prepayments regarded as loans and exclude call loans, inter-bank loans and bonds purchased under resale agreements. Changes in allowance for possible loan losses on each account level for the period from October 1, 2005 to December 31, 2005 are as follows (Korean won in millions): Details of loans (including loans written off) sold to third parties for the period from October 1, 2005 to December 31, 2005 are as follows (Korean won in millions): Beginning balance Provision (reversal) Other Ending balance Purchaser Principal Disposal gain Recourse terms Loans in Korean won (*) ￦ 725,915 ￦ 17,652 ￦ (40,251) ￦ 703,316 KAMCO ￦ 1,540 ￦ 17 None Loans in foreign currencies 43,985 (886) (10,620) 32,479 A.R.A. Loan Collection Co., Ltd. 13,182 3,486 None Bills bought in foreign currencies 8,582 111 (231) 8,462 ￦ 14,722 ￦ 3,503 Advances payments on acceptances and guarantees 10,279 (4,357) (2,601) 3,321 The Company sold non-performing loans (“NPL“) to KAMCO under the condition that the Company and KAMCO would finalize selling price Credit card loans 56,495 (12,310) (8,098) 36,087 based on collection performance of the NPL. The outstanding balance of the NPL is ￦309 million as of December 31, 2005. The Company Privately-placed corporate bonds 18,093 (3,115) (44) 14,934 recorded gain (loss) from settlements of selling price as current operations. Estimated loss from settlements of NPL sales amounting to ￦72 Others 8,593 (1,460) 2,276 9,409 million was provided in anticipation of possible loss. ￦ 871,942 ￦ (4,365) ￦ (59,569) ￦ 808,008

Details of restructured loans as of December 31, 2005 are as follows (Korean won in millions): (*) Allowance for possible loan losses on bills bought in Korean won is included. Restructuring detail Before Debt-to-equity Convertible Present value After restructuring swap bonds discounts restructuring Workout ￦ 620,957 ￦ 377,692 ￦ 1,316 ￦ - 241,949 Court receivership 22,134 2,231 - 814 19,089 Court mediation 5,002 - - 59 4,943 Others (*) 242,776 151,879 - - 90,897 ￦ 890,869 ￦ 531,802 ￦ 1,316 ￦ 873 ￦ 356,878

(*) Others represent restructured loans to leasing companies and to companies of which restructuring process was completed. 118 119 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

The Company provided allowance for possible losses for the restructured loans considering each borrower’s repayment ability. Details of insured property and equipment as of December 31, 2005 are follows (Korean won in millions):

Changes in present value discounts originated from troubled debt restructuring for the period from October 1, 2005 to December 31, 2005 Insured amount Insurance period are as follows (Korean won in millions): Buildings ￦ 465,915 Mar. 30, 2005 ~ Mar. 30, 2006 Vehicles, furniture and fixtures 141,985 Mar. 30, 2005 ~ Mar. 30, 2006 Amount Leasehold improvements 32,998 Mar. 30, 2005 ~ Mar. 30, 2006 Beginning balance ￦ 941 Leasehold improvements 2,388 Jun. 18, 2005 ~ Jun. 18, 2006 Interest income (66) ￦ 643,286 Offset against allowance for possible loan losses (2) Ending balance ￦ 873 10. Miscellaneous assets Changes in deferred loan fees, net of expenses for the period from October 1, 2005 to December 31, 2005 are summarized as follows (Korean won in millions): Details of miscellaneous assets as of December 31, 2005 are as follows (Korean won in millions):

Beginning balance Increase (Decrease) Ending balance Amount Deferred loan fees, net of expense ￦ - ￦ 14,852 ￦ (731) ￦ 14,121 Suspense accounts ￦ 39,678 Deposits 15,744 Receivables from spot exchange 25,329 9. Fixed assets Others 48,716 ￦ 129,467 The changes in fixed assets for the period from October 1, 2005 to December 31, 2005 are as follows (Korean won in millions):

Property and Intangible Lease Negative equipment assets assets goodwill Total 11. Deposits Beginning balance ￦ 1,310,253 ￦ 135,542 ￦ 23,784 ￦ (2,770) ￦ 1,466,809 Deposits as of December 31, 2005 consist of the following (Korean won in millions): Increase 31,321 6,133 15,405 - 52,859 Disposal (6,341) - (184) - (6,525) Company Description Deposit type Amount Transfer in (out) (4,619) 4,619 - - - Hana Bank Korean won Demand deposits ￦ 3,465,107 Depreciation (25,834) (13,887) (3,288) - (43,009) Time and savings deposits 49,221,016 Amortization - - - 213 213 Mutual installments received 2,522,599 Other - (304) - - (304) Housing installment deposits 255,200 Ending balance ￦ 1,304,780 ￦ 132,103 ￦ 35,717 ￦ (2,557) ￦ 1,470,043 55,463,922 Foreign currencies Demand deposits 599,155 Properties and equipment as of December 31, 2005 are summarized as follows (Korean won in millions): Time and savings deposits 1,518,450 Acquisition Accumulated Net 2,117,605 cost depreciation book values Certificates of deposits 3,993,286 Land ￦ 645,384 ￦ - ￦ 645,384 61,574,813 Buildings 587,269 77,281 509,988 Trust Account Korean won 1,201,404 Vehicles, furniture and fixtures 487,330 378,018 109,312 Hana Securities Korean won Demand deposits 217,090 Leasehold improvements 80,376 57,337 23,039 Time and savings deposits 3,040 Construction in-progress 1,669 - 1,669 220,130 Others 23,586 8,198 15,388 Qingdao Int’l Bank Foreign currencies Demand deposits 34,212 ￦ 1,825,614 ￦ 520,834 ￦ 1,304,780 Time and savings deposits 8,086 42,298 The value of the Company’s land, as determined by the Government of the Republic of Korea for tax administration purposes as of December DI&S Korean won Trust deposits 89,153 31, 2005 is ￦632,282 million. Future, option deposits 73,875 Time and savings deposits 4,462 Amortization on intangible asset and negative goodwill is recorded in selling and administration expense (￦13,887 million) and non- Beneficiary deposits 42,552 operating income (￦213 million), respectively. Other deposits 1,047 211,089 In connection with office lease agreements with third parties, the Company received ￦29,074 million of guarantee deposits and provided ￦ 63,249,734 120 certain of the Company’s land and buildings as collateral. 121 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

Deposits received from financial institutions are summarized as follows (Korean won in millions): Other borrowings as of December 31, 2005 are summarized as follows (Korean won in millions):

Other financial Total Balance Deposit type Banks (*) institutions amount Bonds sold under repurchase agreements Korean won ￦ 1,764,159 Hana Bank: Foreign currencies 99,518 Korean won Demand deposits ￦ 21,532 ￦ 488,989 ￦ 510,521 1,863,677 Time and savings deposits 2,179,879 3,419,761 5,599,640 Bill sold Commercial bills sold 915 Foreign currencies Demand deposits - 21,375 21,375 Notes sold 961,291 Time and savings deposits 37,167 60,271 97,438 962,206 Certificates of deposits 9,822 1,988,641 1,998,463 Call money Korean won 1,876,300 Trust Account: Foreign currencies 20,260 Korean won Trust account deposits 85,276 3,789 89,065 1,896,560 Qingdao Int’l Bank: ￦ 4,722,443 Foreign currencies Demand deposits 2,756 - 2,756 DI&S: Details of borrowings from BOK and other financial institutions are as follows (Korean won in millions): Korean won Beneficiary deposits - 6,843 6,843 ￦ 2,336,432 ￦ 5,989,669 ￦ 8,326,101 Other financial BOK Other banks institutions Total (*) BOK deposits are excluded. Borrowings in Korean won ￦ 543,541 ￦ 127,558 ￦ 969,073 ￦ 1,640,172 Borrowings in foreign currencies - 3,527,957 - 3,527,957 Maturities of deposits as of December 31, 2005 are summarized as follows (Korean won in millions): Bonds sold under repurchase agreements - 494,400 807,250 1,301,650 Notes sold - 10,458 17,318 27,776 Deposits Call money - 230,260 1,666,300 1,896,560 Korean won Foreign currencies Certificates of deposits Total ￦ 543,541 ￦ 4,390,633 ￦ 3,459,941 ￦ 8,394,115 Within 1 month ￦ 9,490,955 940,648 ￦ 692,708 ￦ 11,124,311 More than 1 ~ 3 months 5,888,865 187,933 998,940 7,075,738 The maturities of borrowings as of December 31, 2005 are as follows (Korean won in millions): More than 3 ~ 6 months 6,581,395 145,928 1,704,474 8,431,797 More than 6 months ~ 1 year 14,388,375 184,929 546,844 15,120,148 Borrowings More than 1 ~ 3 years 2,975,486 12,864 49,660 3,038,010 Korean won Foreign currencies Other borrowings Total More than 3 ~ 5 years 16,765,131 479,935 660 17,245,726 Within 1 month ￦ 573,125 ￦ 1,202,051 ￦ 2,126,155 ￦ 3,901,331 More than 5 years 1,006,338 207,666 - 1,214,004 More than 1 ~ 3 months 58,387 1,268,038 769,542 2,095,967 ￦ 57,096,545 ￦ 2,159,903 ￦ 3,993,286 ￦ 63,249,734 More than 3 ~ 6 months 97,852 503,763 813,324 1,414,939 More than 6 months ~ 1 year 113,210 625,766 1,002,623 1,741,599 More than 1 ~ 3 years 519,749 109,850 10,799 640,398 12. Borrowings More than 3 ~ 5 years 276,898 6,087 - 282,985 More than 5 years 184,206 1,026 - 185,232 Borrowings as of December 31, 2005 consist of the following (Korean won in millions): ￦ 1,823,427 ￦ 3,716,581 ￦ 4,722,443 ￦ 10,262,451

Lender Annual Interest rate (%) Ending balance Korean won BOK BOK 2.0 ￦ 543,541 Korean government Government 2.0 ~ 3.3 184,869 Bank borrowings and other IBK, etc. 0.0 ~ 5.3 1,095,017 1,823,427 Foreign currencies Bank overdraft Foreign banks - 265,248 Bank borrowings Citibank, etc. 0.2 ~ 4.9 3,253,798 Offshore DBS, etc. 3.9 ~ 4.8 197,535 3,716,581 ￦ 5,540,008

122 123 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

13. Debentures Maturities of debentures as of December 31, 2005 are as follows (Korean won in millions): Korean won Foreign currencies Total Debentures as of December 31, 2005 consist of the following (Korean won in millions): Within 1 month ￦ 285,676 ￦ - ￦ 285,676 More than 1 ~ 3 months 620,000 - 620,000 Counter parties Annual interest rate Amount More than 3 ~ 6 months 1,219,998 - 1,219,998 Korean won: More than 6 months ~ 1 year 1,645,000 270,448 1,915,448 Subordinated bonds Bank customers 5.1 ~ 8.9 ￦ 3,209,590 More than 1 ~ 3 years 3,639,881 - 3,639,881 Other bonds Financial institutions 3.4 ~ 8.5 6,071,075 More than 3 ~ 5 years 389,991 584,066 974,057 9,280,665 More than 5 years 1,480,119 - 1,480,119 Less present value discounts (41,766) ￦ 9,280,665 ￦ 854,514 ￦ 10,135,179 9,238,899 Foreign currencies: Debentures UBS, etc. 5.3 ~ 6.4 601,264 14. Severance and retirement benefits Subordinated bonds JP Morgan, etc. 6.8 ~ 8.8 50,650 Floating rate bonds Barclays Capital, etc. LIBOR +0.4 ~ 0.8 202,600 Changes in severance and retirement benefits for the period from October 1, 2005 to December 31, 2005 are as follows (Korean won in 854,514 millions): Amount Less present value discounts (3,782) Beginning balance ￦ 190,733 850,732 Severance payments during the period (1,785) ￦ 10,089,631 Provision for severance and retirement benefits 21,421 Other (3) Debentures from financial institutions as of December 31, 2005 consist of the following (Korean won in millions): Ending balance ￦ 210,366

Banks (*) Other financial institutions Total Debentures in Korean won ￦ - ￦ 6,050,575 ￦ 6,050,575 15. Miscellaneous liabilities Debentures in foreign currencies 803,864 - 803,864 Subordinated bonds in foreign currencies 50,650 - 50,650 Miscellaneous liabilities as of December 31, 2005 consist of the following (Korean won in millions): ￦ 854,514 ￦ 6,050,575 ￦ 6,905,089 Amount Subscription deposits received (*1) ￦ 30,425 (*) BOK is excluded Suspense receipts (*1) 634,460 Giro account 34,149 Subordinated bonds as of December 31, 2005 consist of the followings (Korean won in millions): Other reserve 204,003 ELS sold (*2) 673,690 Residual term to maturity Annual interest rate(%) Amount Other 25,439 Korean won Subordinated bonds Over due - ￦ 686 ￦ 1,602,166 Less than 3 months 8.8 ~ 8.9 199,990 (*1) Subscription deposits received represent temporary guarantee deposits required in subscribing for equity securities or debt securities. Suspense receipts Less than 6 months 7.2 ~ 7.3 49,998 represent mainly proceeds from agent sales of stamp and sundry surplus in automated teller machines, etc., which are recorded as liabilities in Less than 1 year 7.4 ~ 7.5 150,000 accordance with regulations in Korean banking industry. Less than 2 years 7.2 ~ 8.3 319,999 (*2) Equity linked securities sold and equity linked securities purchased are not bifurcated from loans and options. The securities are stated at fair value and Less than 3 years 5.6 ~ 7.7 939,382 difference between the fair value and the issued amount is recorded as brokerage commission of the hybrid securities. Less than 4 years 5.9 ~ 6.4 249,992 Less than 5 years 5.2 ~ 5.3 99,999 Other reserve as of December 31, 2005 consists of the following (Korean won in millions): 5 years and above 5.1 ~ 7.3 1,199,544 3,209,590 Beginning balance Increase (decrease) Ending balance Reserve for card mileage ￦ 15,655 ￦ 1,963 ￦ 17,618 Foreign currencies Subordinated bonds 5 years and above 6.8 ~ 8.8 50,650 Reserve for illegal usage 584 170 754 ￦ 3,260,240 Reserve for unused credit line and cash advance commitments 8,669 92,323 100,992 Reserve for lawsuit 80,159 55 80,214 Others - 4,425 4,425 ￦ 105,067 ￦ 98,936 ￦ 204,003

Reasonable estimation about when the Company’s reserve is actually used is not possible due to the uncertainty. 124 125 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

16. Acceptances and guarantees Details of classification of acceptances and guarantees and reserve for possible losses on acceptances and guarantees as of December 31, 2005 are summarized as follows (Korean won in millions): Acceptances and guarantees as of December 31, 2005 consist of the following (Korean won in millions): Acceptances and guarantees Amount Korean won foreign currencies Bills endorsed Total Confirmed acceptances and guarantees in Korean won: Corporate debentures ￦ 211 Outstanding Outstanding Outstanding Outstanding Ratio amount Reserve amount Reserve amount Reserve amount Reserve (%) Collateral for loans 11,820 Normal ￦ 357,022 ￦ 1,943 ￦2,259,266 ￦ 4,422 ￦ 11,408 ￦ 14 ￦ 2,627,696 ￦ 6,379 0.2 Others 348,683 Precautionary 1,801 102 73,230 10,528 - - 75,031 10,630 14.2 360,714 Substandard 1,801 722 - - - - 1,801 722 40.1 Confirmed acceptances and guarantees in foreign currencies: Doubtful 30 21 164 22 - - 194 43 22.2 Acceptances for letters of credit 187,181 Estimated loss 60 60 1 1 - - 61 61 100.0 Letters of guarantee for importers 45,908 ￦ 360,714 ￦ 2,848 ￦2,332,661 ￦ 14,973 ￦ 11,408 ￦ 14 ￦ 2,704,783 ￦ 17,835 0.7 Others 338,297 571,386 Reserve for NPL sold to KAMCO amounting to ￦72 million, described in Note 8, is not included in reserve for possible losses on Contingent acceptances and guarantees: acceptances and guarantees above. Related to L/C opening 1,761,275 Bills endorsed: Bills as collateral 11,408 17. Assets and liabilities denominated in foreign currencies ￦ 2,704,783

Significant assets and liabilities denominated in foreign currencies as of December 31, 2005 are as follows (Korean won in millions or U.S. Concentrations on acceptances and guarantees by industry as of December 31, 2005 are summarized as follows (Korean won in millions): dollar in thousands):

Confirmed acceptance and guarantees Contingent Amount Korean Foreign acceptances Bills Total Korean won U.S. dollar (*) won currencies and guarantees endorsed Amounts Ratio (%) Assets: Manufacturing ￦ 112,398 ￦ 416,716 ￦ 967,626 ￦ 10,376 ￦ 1,507,116 55.7 Cash on hand ￦ 112,724 US$ 111,276 Construction 37,366 1,808 7,156 - 46,330 1.7 Due from banks 413,925 408,612 Wholesale and retail 119,615 127,656 329,316 916 577,503 21.4 Securities 943,545 931,437 Transport and storage 10,257 6,186 3,971 - 20,414 0.7 Loans 3,669,009 3,621,923 Real estate and rental 7,458 58 1,656 - 9,172 0.3 Factoring receivables 695 686 Financial 4,073 104 408 - 4,585 0.2 Bills bought 2,125,791 2,098,510 Public sector and others 69,547 18,858 451,142 116 539,663 20.0 Privately placed bonds 10,130 10,000 ￦ 360,714 ￦ 571,386 ￦ 1,761,275 ￦ 11,408 ￦ 2,704,783 100.0 Call loans 200,715 198,139 Others 306,834 302,896 Concentrations on acceptances and guarantees by country as of December 31, 2005 are summarized as follows (Korean won in millions): Allowance for possible loan losses (40,941) (40,415) ￦ 7,742,427 US$ 7,643,064 Confirmed acceptance and guarantees Contingent Liabilities: Korean Foreign acceptances Bills Total Deposits 2,159,903 US$ 2,132,184 won currencies and guarantees endorsed Amounts Ratio (%) ￦ Borrowings 3,716,581 3,668,885 Korea ￦ 360,714 ￦ 439,303 ￦ 1,708,560 ￦ 11,408 ￦ 2,519,985 93.1 U.S.A - 42 5,767 - 5,809 0.2 Call money 20,260 20,000 Singapore - 13,573 18,149 - 31,722 1.2 Debentures 854,514 843,548 Hong Kong - 10,730 21,089 - 31,819 1.2 Foreign exchanges payables 167,009 164,866 China - 107,738 5,100 - 112,838 4.2 Others 408,576 403,333 Japan - - 2,610 - 2,610 0.1 ￦ 7,326,843 US$ 7,232,816 ￦ 360,714 ￦ 571,386 ￦ 1,761,275 ￦ 11,408 ￦ 2,704,783 100.0 Confirmed acceptances and guarantees ￦ 571,386 US$ 564,055

(*) All foreign currencies other than the U.S. dollar are expressed in the equivalents of U.S. dollars.

126 127 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

18. Commitments and contingencies The Company has entered into various derivatives contracts, including forward exchange contracts, currency futures traded in KRX, interest rate swaps and stock index futures contracts. For the period from October 1, 2005 to December 31, 2005, the Company recorded realized gains amounting ￦82,989 million and realized losses amounting to ￦82,142 million in relation to these transactions. Unsettled derivatives contracts as of December 31, 2005 and related unrealized valuation gain (loss) for the period from October 1, 2005 to December 31, 2005 are summarized as follows (Korean won in millions): The Company has entered into swap contracts to hedge against the risk of changes in the market interest rate and foreign currency exchange rate. For the period from October 1, 2005 to December 31, 2005, the Company recorded realized gains amounting to ￦39,206 Notional amount of unsettled contracts Derivative instruments million and realized losses on hedging derivatives amounting to ￦36,624 million in relation to these transactions. The Company has also Trading Hedging Total Assets Liabilities entered into swaps, futures and option contracts to hedge against the risk of changes in fair value of equity securities. For the period from Currency: October 1, 2005 to December 31, 2005, the Company recorded realized gains amounting to ￦82,350 million and realized losses on hedging Forwards ￦ 6,677,136 ￦ 2,026 ￦ 6,679,162 ￦ 123,556 ￦ 118,594 derivatives amounting to ￦96,150 million. Swaps 3,250,365 - 3,250,365 129,311 154,788 Futures 10,332 - 10,332 - - For the period from October 1, 2005 to December 31, 2005 the Company recorded realized gains amounting to ￦826 million and realized Call options 208,608 - 208,608 1,969 - losses amounting to ￦780 million in relation to other derivative transactions. Put options 213,166 - 213,166 - 2,337 For the loans in foreign currencies, investment securities and issued debentures related to fair-value-hedging transactions, the Company 10,359,607 2,026 10,361,633 254,836 275,719 also recorded gains amounting to ￦10,388 million and losses amounting to ￦3,216 million for the period from October 1, Interest rate: 2005 to December 31, 2005. Futures 365,344 110,244 475,588 - - Swaps 4,919,981 1,133,006 6,052,987 72,636 102,552 As of December 31, 2005, the Company is involved in 140 lawsuits as a defendant and 1,264 lawsuits as a plaintiff. The Company’s 5,285,325 1,243,250 6,528,575 72,636 102,552 aggregate amount of claims pending as a defendant and a plaintiff amounted to approximately ￦185,684 million and ￦194,755 million, Stock: respectively. Swaps 321,095 423,566 744,661 417,814 6,278 Futures 15,961 - 15,961 - - The Company’s material lawsuits in progress as a defendant are as follows (Korean won in millions): Call options 343,073 409,737 752,810 320,096 - Status of lawsuit Put options 1,462,224 - 1,462,224 - 26,463 Plaintiff Amount First trial On appeal Supreme Court trial 2,142,353 833,303 2,975,656 737,910 32,741 Korea Exchange Bank ￦ 85,595 In-progress - - Others: Korea Exchange Bank 6,584 Partially won Partially won In-progress Purchased 11,414 - 11,414 12,145 - Hyundai Marine & Fire Insurance 3,897 Partially won Partially won In-progress Sold 11,414 - 11,414 - 12,145 Korea Exchange Bank, etc. 3,302 Partially won In-progress - 22,828 - 22,828 12,145 12,145 Choi Yong Pyo, etc. (*) 2,744 In-progress - - ￦ 17,810,113 ￦ 2,078,579 ￦ 19,888,692 ￦ 1,077,527 ￦ 423,157 Lee Jung Ok (*) 305 In-progress - - Lee Beum Ju, etc. (*) 1,003 - - - ￦ 103,340 Valuation gain (I/S) Valuation loss (I/S) Hedging Hedging Hedging Hedging (*) The Company will be indemnified against any future losses arising from pending lawsuits against DI&S as of May 31, 2005 in accordance with the Stock Trading effective ineffective Total Trading effective ineffective Total Transfer Agreement entered into between Hana Bank and KIDC in May 2005. Currency: The Company management believes that the outcome of pending lawsuits will not result in a material adverse impact on the Company’s Forwards ￦ 20,751 ￦ - ￦ - ￦ 20,751 ￦ 22,935 ￦ - ￦ - ￦ 22,935 financial position or operations. As of December 31, 2005, the outcome of the above lawsuits, except for lawsuits where the Company Swaps 16,483 - - 16,483 - - - - recorded provision, cannot be predicted, and accordingly, the possible financial effects of the lawsuits have not been reflected on the Call options - - - - 2,364 - - 2,346 accompanying consolidated financial statements. Put options 1,730 - - 1,730 - - - - 38,964 - - 38,964 25,299 - - 25,299 The Company has entered into credit line facilities and CP purchase commitments with several special purpose companies (the “SPCs”), Interest rate: which were established for asset-backed securitization, to enhance liquidity of the SPCs. In accordance with those commitments, the Swaps 23,064 3,068 177 26,309 25,573 9,437 284 35,294 Company is subject to providing liquidity to SPCs with aggregate limit of ￦402,218 million or purchase CPs issued by the SPCs with aggregate limit of ￦77,600 million when SPCs is not able to repay asset-backed bonds’ principal or interest. In addition, Hana Bank has entered into ￦30,000 million of credit line facilities with Hana Capital. No loans were provided or no CPs were Stock: purchased in connection with these commitments as of December 31, 2005. Swaps 30,251 - - 30,251 3,099 - - 3,099 Call options 20,120 - - 20,120 - - - - The Company’s written-off loans and receivables, for which claim rights have not been expired, are ￦988,424 million as of December 31, Put options - - - - 1,555 - - 1,555 2005. 50,371 - - 50,371 4,654 - - 4,654 Others: As of December 31, 2005, the amounts of commitments related to the ordinary business activities are as follows (Korean won in millions): Purchased 1,884 - - 1,884 - - - - Sold - - - - 1,884 - - 1,884 Amount 1,884 - - 1,884 1,884 - - 1,884 Securities purchase commitments ￦ 52,676 ￦ 114,283 ￦ 3,068 ￦ 177 ￦ 117,528 ￦ 57,410 ￦ 9,437 ￦ 284 ￦ 67,131 As of December 31, 2005, the credit line facilities Hana Bank committed to provide amounted to ￦39,653,809 million. 128 129 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

19. Capital surplus Details of Hana Securities’ stock options as of December 31, 2005 are summarized as follows:

3 year vesting period 2 year vesting period HFG stocks held by its subsidiaries are accounted for as treasury stocks and gain on disposal of the stocks is recognized as gain on disposal 2nd 3rd 4th 5th 6th of treasury stocks in capital surplus. Grant date May 27, 2000 May 26, 2001 July 12, 2002 May 28, 2004 June 3, 2005 Exercise price ￦ 5,000 ￦ 5,700 ￦ 6,700 ￦ 5,700 ￦ 10,200 Settlement method Cash Equity Equity Equity Equity 20. Treasury stock No. of employees granted 116315 Number of options: Treasury stocks in balance sheet represent HFG stocks held by Hana Bank and Hana Securities. Changes of the Company’s treasury stocks Granted 131,000 64,000 165,000 39,000 255,000 for the period from October 1, 2005 to December 31, 2005 are summarized as follows (Korean won in millions): Canceled (29,020) (17,000) (25,370) (5,490) (6,000) Exercised (100,980) (41,000) (110,840) (1,510) - Owner Beginning Stock option exercise Decrease (*2) Ending (*3) Outstanding 1,000 6,000 28,790 32,000 249,000 Number of shares Hana Bank (*1) 16,601,438 (53,920) (13,000,000) 3,547,518 Hana Securities (*1) 18,262 - - 18,262 All stock options above can be exercised in three years after the vesting period. 16,619,700 (53,920) (13,000,000) 3,565,780 Carrying amount Hana Bank ￦ 498,404 ￦ (992) ￦ (390,767) ￦ 106,645 Hana Securities 1,200 - - 1,200 22. Income tax expense ￦ 499,604 ￦ (992) ￦ (390,767) ￦ 107,845 The Company is subject to corporate income taxes, including resident surtax, at the aggregate rates of 14.3% on taxable income up to ￦100,000,000 and 27.5% on taxable income in excess of ￦100,000,000. (*1) DI&S, Hana INS and HIF shares held by Hana Bank and Hana Securities were swapped with HFG’s shares at HFG’s incorporation. (*2) Hana Bank sold HFG’s shares to GS Dejakoo LLC and its affiliate companies. Income tax expense for the period from October 1, 2005 to December 31, 2005 consists of the following (Korean won in millions): (*3) According to the Korean Commercial Code, treasury stocks should be sold within six months from the acquisition date. Amount Current income taxes ￦ 42,273 21. Stock options Changes in deferred income tax assets from temporary differences and others 88,772 Changes in deferred income tax assets from tax loss carryforwards 78 Details of Hana Bank’s stock options as of December 31, 2005 are summarized as follows: Deferred income tax which are credited directly to equity (47,020) ￦ 84,103 3 year vesting period 2 year vesting period 2nd 3rd 4th 5th 6th A reconciliation of income before income taxes for financial reporting purposes and taxable income for corporate income taxes reporting Grant date Mar. 20, 2000 Mar. 10, 2001 Apr. 26, 2002 Mar. 26, 2004 Mar. 28, 2005 purposes for the period from October 1, 2005 to December 31, 2005 is summarized as follows (Korean won in millions): Exercise price ￦ 8,500 ￦ 7,300 ￦ 19,750 ￦ 26,100 ￦ 28,300 Number of options: Amount Granted 628,000 276,000 968,500 1,040,000 1,157,000 Income before income taxes ￦ 307,839 Non-temporary differences: Forfeited (156,600) (13,000) (279,500) (94,000) (10,000) Entertainment expenses 4,312 Exercised (438,929) (227,630) (524,287) (215,500) - Stock option (11,022) Outstanding 32,471 35,370 164,713 730,500 1,147,000 Gains on valuation of securities (432) Others 10,212 Hana Bank recorded ￦7,347 million of compensation costs, which is measured using the intrinsic value method over the vesting period, as 3,070 payroll expenses for the period from October 1, 2005 to December 31, 2005. Compensation costs to be recognized after December 31, 2005 Temporary differences: are summarized as follows (Korean won in millions): Accrued interest income (84,953) Gain on valuation of derivatives (14,591) 5th 6th Provision for severance and retirement benefits (81,667) Within 1 year ￦ 1,339 ￦ 10,663 Gain on valuation of securities (67,107) 1 ~ 2 years - 2,666 Impairment losses on investment securities (3,686) ￦ 1,339 ￦ 13,329 Loans written-off 3,747 Allowance for possible loan losses (15,630) Hana Bank changed settlement method for granted stock options from equity-settled options to cash-settled options and changed stock Reserve for other losses 93,419 option valuation method from the fair value method, in which compensation costs are recorded as capital adjustments, to the intrinsic value Gain on valuation of ELS 7,835 Others 36,243 method, in which compensation costs are recorded as accrued expenses. (126,390) Taxable income for corporate income tax reporting ￦ 184,519 130 131 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

As long as HFG, as a standalone entity, does not dispose of equity method investments or liquidate its subsidiaries in the foreseeable future, Deferred income taxes assets (liabilities) charged (credited) to shareholders’ equity for the period from October 1, 2005 to December 31, HFG does not have to pay any income taxes in the future because HFG has the financial structure where deductible expenses in tax 2005 are as follows (Korean won in millions): computation exceed taxable income. Accordingly, HFG did not record deferred income tax assets or liabilities for temporary differences and tax loss carryforwards. Deferred income tax Account Amount Tax effect assets (liabilities) Significant changes in cumulative temporary differences, loss carryforwards and deferred income taxes assets/liabilities for the period from Hana Bank Gain on valuation of available-for-sale securities ￦ 165,611 ￦ 45,543 ￦ (45,543) October 1, 2005 to December 31, 2005 are as follows (Korean won in millions): Increase in investee’s capital accounts 16,769 4,611 (4,611) Decrease in investee’s capital accounts (1,032) (284) 284 Net increase Deferred income tax Retained earnings (11,141) (3,064) 3,064 Beginning (decrease) Ending assets liabilities Gains on disposal of treasury stock 354 97 - Temporary differences charged 170,561 46,903 (46,806) (credited) to income tax expenses: Hana Securities Gain on valuation of available-for-sale securities 431 119 (119) Hana Bank: Gains on disposal of treasury stock (6) (2) - Reserve for other losses ￦ 109,627 ￦ 93,419 ￦ 203,046 ￦ 55,838 ￦ - 425 117 (119) Loan written-off 516,677 3,747 520,424 143,117 - ￦ 170,986 ￦ 47,020 ￦ (46,925) Allowance for possible loan losses 176,365 (15,667) 160,698 44,192 - Interest receivable (66,148) (83,408) (149,556) - (41,128) The effective income tax rate for the period from October 1, 2005 to December 31, 2005 is as follows (Korean won in millions): Gain on valuation of securities 102,198 (65,241) 36,957 10,163 - Provision for severance Amount and retirement benefits 81,719 (81,719) - - - Income tax expenses ￦ 84,103 Impairment losses on investments 186,633 (3,686) 182,947 50,310 - Income before income taxes 307,839 Gain on valuation of derivatives 26,224 (6,228) 19,996 5,499 - Effective income tax rate 27.3% Others (158,246) 36,000 (122,246) - (33,430) Other subsidiaries: Accrued interest income (6,345) (1,545) (7,890) - (2,170) 23. Consolidated net earnings per share and consolidated ordinary earnings per share Allowance for possible loan losses 366 37 403 111 - Provision for severance Consolidated net earnings per share and consolidated ordinary earnings per share for the period from December 1, 2005 (inception) to and retirement benefits 146 52 198 55 - December 31, 2005 are calculated as follows (Korean won in unit): Gain on valuation of securities 1,335 (1,866) (531) - (146) Gain on valuation of derivatives (12,545) (8,363) (20,908) - (5,749) Amount Gain on valuation of ELS 12,812 7,835 20,647 5,678 - Consolidated net income ￦ 216,002,637,463 Reserve for loss on disposal Consolidated ordinary income 216,002,637,463 of treasury stock (6,034) - (6,034) - (1,659) Weighted average number of shares outstanding during the period 194,400,140 Others 526 243 769 210 - Earning per share ￦ 1,111 965,310 (126,390) 838,920 315,173 (84,282) Ordinary earnings per share ￦ 1,111 Temporary differences credited to shareholders’ equity (284,178) (170,986) (455,164) - (125,170) The Company did not issue dilutive securities as of December 31, 2005. Accordingly, the diluted earnings per share is equal to the basic Tax loss carryforwards 38,174 (28,505) 9,669 2,659 - earnings per share for the period from December 1, 2005 (inception) to December 31, 2005. ￦ 719,306 ￦ (325,881) ￦ 393,425 ￦ 317,832 ￦ (209,452)

The Company applied 27.5% as an effective future tax rate in calculating deferred tax effect of temporary differences and tax loss carryforwards.

Hana Bank recognized deferred tax assets on tax loss carryforwards, which will expire in 2006 and deemed to be realizable.

Deferred tax effect of temporary differences from equity method investments, which is not regarded to reverse through disposal of equity method investments or investee’s dividends in foreseeable future, is not recognized as deferred tax assets or liabilities.

Deferred tax effect from temporary differences of Hana Capital and DI&S is not recognized due to its low probability of realization.

132 133 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

24. Dividends Outstanding balances with related parties (including balances among the Company and its subsidiaries) arising the above transactions as of December 31, 2005 are summarized as follows (Korean won in millions): Dividends and the ratio of dividend to net income for the period from December 1, 2005 (inception) to December 31, 2005 are summarized as follows (Korean won in millions only for dividends and net income, otherwise Korean won in unit): Related parties Outstanding balances Dividends Leasehold Cash Stock Receivable Payable Loan Deposits deposits Others Total Dividends: HFG Hana Bank ￦ - ￦ 421 ￦ - ￦ - ￦ 421 Total ￦ 10,213 ￦ 10,213 DI&S - - 711 - 711 Less dividends for treasury stock (178) - Hana Bank DI&S 70,000 - - 28 70,028 Net (A) 10,035 10,213 Hana Securities 7,247 - - 125 7,372 Number of shares: Hana Capital - - - 24 24 Outstanding 204,256,243 204,256,243 Qingdao Int’l Bank 110,417 - - - 110,417 Less treasury stock (3,565,780) - DIMCO - - - 3 3 Net (B) 200,690,463 204,256,243 Hana Life - - - 1,150 1,150 Dividend per share ((C) = (A) (B)) ￦ 50 50 ÷ Trust account - - - 31,235 31,235 Par value per share (D) 5,000 5,000 Korea Lease Financing 380 - - - 380 Dividend ratio (= (C) ÷ (D)) 1% 1% DI&S Hana Bank - 19,290 - - 19,290 Net income (E) ￦ 216,003 Hana Securities Hana Bank - 8,319 2,141 - 10,460 Ratio of dividend to net income (= (A) ÷ (E)) 4.6% Hana Capital Hana Bank 3,507 3,552 600 - 7,659 HFL Hana Bank - 51 - 203,191 203,242 DIMCO Hana Bank - 3,734 - - 3,734 25. Related party transactions DI&S - - 503 45 548 Hana Life Hana Bank - 35 3,632 6,500 10,167 Transactions with related parties (including transactions among the Company and its subsidiaries) for the period from October 1, 2005 to HIF Hana Bank - 1,776 - - 1,776 December 31, 2005 are summarized as follows (Korean won in millions): DI&S - - 403 - 403 Hana INS Hana Bank - 1,565 200 - 1,765 Transactions BC Card Hana Bank - 1,590 - - 1,590 Related parties Interest income Rental Fee and Revenue Expense loan deposit revenue other Total MCIS Hana Bank - 2,542 - - 2,542 Hana Bank DI&S ￦ 765 ￦ 229 ￦ - ￦ 152 ￦ 1,146 Korea Travels Hana Bank - 9,196 - - 9,196 Hana Securities 122 - 3 59 184 ￦ 191,551 ￦ 52,071 ￦ 8,190 ￦ 242,301 ￦ 494,113 Hana Capital 169 - - 28 197 Qingdao Int’l Bank 1,587 - - - 1,587 Guarantee and collateral provided for between related parties as of December 31, 2005 are summarized as follows (Korean won in millions): Hana Life - - - 3,196 3,196 Trust account - - - 12,097 12,097 Related parties Guarantee and collateral BC Card - - - 104 104 Benefactor Beneficiary Account Amount Korea Lease Financing 1 - - - 1 Hana Bank HFL Guarantee for F/X ￦ 202,600 DI&S HFG - - 94 - 94 Hana Capital Credit line facilities 30,000 Hana Bank - 339 - 1 340 Hana Capital L/C 6,691 DIMCO - - 241 - 241 Hana Capital L/G 8,863 HIF - - 12 - 12 Hana Securities Hana Bank - 10 - - 10 Hana Capital Hana Bank - 95 - - 95 HFL Hana Bank - - - 4,054 4,054 DIMCO Hana Bank - 27 - - 27 Trust Account Hana Bank - - - 717 717 HIF DI&S - - - 48 48 Hana Securities - - - 51 51 BC Card Hana Bank - - - 12,544 12,544 MCIS Hana Bank - 23 - - 23 Korea Travels Hana Bank - 78 - - 78 ￦ 2,644 ￦ 801 ￦ 350 ￦ 33,051 ￦ 36,846 134 135 HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

26. Employee welfare 28. Financial statements approval

The Company provides housing loans for employees at favorable interest rates and refunds certain medical expenses for employee benefits. The accompanying consolidated financial statements for the period from December 1, 2005 (inception) to December 31, 2005 will be approved by the annual ordinary meeting of shareholders on March 24, 2006. 27. Financial information of consolidated subsidiaries

Condensed balance sheets of the Company’s consolidated subsidiaries as of December 31, 2005 are summarized as follows (Korean won in millions):

Assets Liabilities Equity Hana Bank ￦ 92,002,202 ￦ 86,107,802 ￦ 5,894,400 Hana Securities 1,664,294 1,324,481 339,813 Hana Capital 193,839 156,763 37,076 HFL 203,340 689 202,651 Qingdao Int’l Bank 219,491 166,815 52,676 DI&S 1,278,241 855,808 422,433 DIMCO 60,099 2,221 57,878 ￦ 95,621,506 ￦ 88,614,579 ￦ 7,006,927

Condensed statements of income of consolidated subsidiaries are summarized as follows (Korean won in millions):

Operating Operating Operating Ordinary Net Period revenue expenses income income income Hana Bank 12 months ￦ 5,944,563 ￦ 5,016,771 ￦ 927,792 ￦ 1,168,068 ￦ 906,752 Last 3 months 1,572,446 1,396,148 176,298 282,338 205,263 Hana Securities 9 months 525,381 483,103 42,278 42,041 30,139 Last 3 months 200,300 178,889 21,411 21,746 15,763 Hana Capital 12 months 19,969 13,787 6,182 7,872 7,872 Last 3 months 6,946 5,179 1,767 2,642 2,642 HFL 12 months 17,674 17,674 - - - Last 3 months 4,054 4,054 - - - Qingdao Int’l Bank 12 months 9,476 5,828 3,648 3,670 2,791 Last 3 months 3,380 2,127 1,253 1,239 919 DI&S 9 months 194,302 174,047 20,255 54,191 54,191 Last 3 months 67,074 54,612 12,462 16,581 16,581 DIMCO 9 months 15,139 9,908 5,231 5,277 3,942 Last 3 months 5,803 2,967 2,836 2,840 2,116

HANA FINANCIAL GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2005

136 137 The images used in this annual report have been captured from the works of Huh, Dal-jae, a maestro of Korean traditional art.

HANA FINANCIAL GROUP ANNUAL REPORT 2005 139