Asia Pacific Equity Research 22 October 2009

Overweight Bank 005280.KS, 005280 KS 3Q09 results review: Solid earnings and extended Price: W14,100 ▲ Price Target: W17,500 visibility Previous: W14,000

• Solid earnings by Busan Bank in 3Q09: Busan Bank (BSB) reported a net profit of W84 billion for 3Q09, which was substantially higher Banks / Bank-centric FHCs than our forecast of W65 billion and the consensus estimate of W69 Gil Hyung KimAC billion. During the quarter, BSB recognized a one-off gain of ~W3 (82-2) 758-5900 billion from the gain on the sale of investment securities. [email protected] • Scott YH Seo Earnings upside mainly driven by improved asset quality: Credit (82-2) 758 5759 costs for BSB (adjusted for the net loss on loan sales) decreased to [email protected] 80bp over average loans in 3Q09 from 96bp in 2Q09 and 210bp in J.P. Morgan Securities (Far East) Limited 1Q09 due to improved credit quality at BSB (pre-charge off/NPL sale Price Performance delinquency ratio of 1.81% in 3Q09 from 2.06% in 2Q09). The quarterly net interest margin was maintained at 3.1% from a quarter 16,000

ago, when adjusted for one-off items (i.e. credit card fee income of W 10,000 +2bp in 2Q09 and FX impact of 5bp in +3Q09). On the other hand, non-interest income declined by around W10 billion in 3Q09 from the 4,000 previous quarter due to lower fee and securities-related income. Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 005280.KS share price (W KOSPI (rebased) • We maintain OW on BSB: We believe BSB offers high earnings YTD 1m 3m 12m visibility due to: (1) resistant NIM due to its strong deposit franchise Abs 152.8% 7.6% 34.3% 82.7% (stability in low-cost deposit flow); (2) prudent management of Rel 105.7% 10.1% 23.2% 44.4% overhead costs (5% reduction in salaries in 4Q09 and 50% cut on the reimbursement of unused vacations in 2010); and (3) persistent asset Company data quality trend. In addition, we believe balance sheet strength at BSB 52-wk range (W) 14,450-4,840 Market cap (WB) 2,632 stemming from the NPL ratio of 1.39% in 3Q09 (target NPL ratio of Market cap (US$MM) 2,233 1.14% by end-FY09) and estimated TCE ratio of 6.6% after equity Share O/S (MM) 187 issuance in 1Q09 should largely mitigate downside risks (i.e. earnings Free float (%) 95 Avg. daily volume (MM) 1.4MM shares and recapitalization) at BSB. Avg. daily value (WB) 16.6 Avg. daily value (US$MM) 14.1 • We raise our earnings estimates and PT: We raise our earnings Exchange rate(Won/US$) W1,179/US$1 Index (KOSPI) 1654.23 estimates by 14.5% and 16.2% for FY09 and FY10, respectively, Date of price 10/21/2009 largely to reflect the better-than-expected asset quality metrics (lower Year-end Dec NPL formation and delinquency ratio) in 3Q09. Due to the revisions in Source: Bloomberg. our model, we increase our DDM-based (Jun-10) share price target from W14,000 to W17,500.

BSB (Bloomberg: 005280 KS; Reuters: 005280.KS): Earnings summary Earnings estimate revisions and valuation Won in billions, year-end December 3Q07 3Q08 2Q09 3Q09 % Y/Y % Q/Q FY09E FY10E FY11E PPOP 118 129129 138 7.0% 6.9% Old EPS (W) 1,209 1,411 1,566 Provisions 6 1533 28 86.5% -15.1% New EPS (W) 1,385 1,639 1,836 Operating profit 112 114 96 110 -3.5% 14.4% % change 14.5 16.2 17.2 Net profit 77 79 70 84 6.4% 18.8% New BVPS (W) 11,393 13,129 15,079 EPS (Won) 2,089 2,135 1,518 1,784 -16.4% 17.5% P/E (x) 10.2 8.6 7.7 Cost/income ratio (%) 46.1% 44.3% 47.9% 43.1% ROE (%) 13.0 13.4 13.0 NPL ratio (%) 0.74% 0.74% 1.58% 1.39% P/BV (x) 1.2 1.1 0.9

Source: Company reports, Bloomberg, J.P. Morgan estimates.

See page 9 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

Company description P&L sensitivity metrics PPOP EPS FY09E impact (%) impact (%) Busan Bank (BSB) is one of the six Net interest margin assumption regional banks in Korea. Most of its Impact of each 10bp increase 6.0% 9.0% branches are located in Busan, the Interest earning asset growth assumption second-largest city in Korea in terms of Impact of each 1 percentage point increase 1.8% 2.7% population and economy. BSB also Non-interest income growth assumption competes with Kyungnam Bank, a Impact of each 5 percentage point increase 1.3% 1.9% regional bank subsidiary of Woori Credit cost assumption Impact of each 10bp decrease 4.1% 6.2% Financial Group, in Busan and

Kyungnam regions. Source: J.P. Morgan estimates.

Price target and valuation analysis Our DDM-based, Jun-10 PT of W17,500 implies 1.3x FY10E P/BV and assumes ROE of 13.5% and CoE of 11.5%.

Business portfolio (Net revenue)

Key assumptions Risk-free rate: 5.3% Non- Market risk premium: 6.0% interest Beta: 1.0 income NII Sustainable ROE 13.5% 10.6% 89.4% Cost of equity 11.5% Terminal “g”: 5.3% J.P. Morgan estimates. Key risks to our PT: Source: J.P. Morgan. * Based on FY09 estimates. • Unexpected regulatory changes could negatively/positively affect our view on the company. EPS estimates: J.P. Morgan vs. consensus W J. P. Morgan Consensus • Higher-than-expected growth could positively affect our view and FY09E 1,385 1,258 earnings forecasts on the company. FY10E 1,639 1,525 FY11E 1,836 1,728 • Unexpected corporate bankruptcies could negatively affect our view Source: Bloomberg, J.P. Morgan estimates. and earnings forecasts on the company. • If the domestic economy deteriorates more than we expect, our forecasts for provisions and earnings could be negatively affected.

Peer group valuation comparison Stock code Price (W) Mkt cap P/BV (x) P/E (x) Rec (Bloomberg) 21-Oct-09 (WB) FY09E FY10E FY09E FY10E KFG OW 105560 KS 62,900 24,302 1.22 1.15 25.72 13.85 SFG OW 055550 KS 48,350 22,928 1.57 1.46 16.71 12.45 WFG N 053000 KS 16,550 13,340 1.03 0.97 19.97 13.54 HFG N 086790 KS 37,250 7,891 0.85 0.82 68.26 11.31 IBK N 024110 KS 15,150 8,236 1.15 1.05 18.44 10.80 KEB OW 004940 KS 14,300 9,222 1.31 1.19 21.04 12.47 DGB OW 005270 KS 16,700 2,206 1.25 1.12 12.05 9.46 BSB OW 005280 KS 14,100 2,632 1.24 1.07 11.21 8.99 JBB N 006350 KS 7,760 414 0.91 0.81 7.15 7.14 Sector average (Weighted by market cap) 1.25 1.17 21.65 12.80 Source: Company reports, Quantiwise, Bloomberg, J.P. Morgan estimates.

2 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

3Q09 results review

Table 1: BSB—Summary of 3Q09 results Won in billions, year-end December 2007 2008 2009 2009 Y/Y Q/Q 3Q 3Q 2Q 3Q (%) (%) BSB’s net interest income in 3Q09 Income statement (Won in billions) gained 2.1% Q/Q due to a marginal Net interest income 180 204 211 216 5.8% 2.1% increase in reported NIM (+3bp Q/Q). Total non-interest income 39 28 37 27 -3.4% -26.6% The NIM gain was largely due to the Net fees and commissions 25 29 23 22 -25.6% -7.1% strengthening of Won which lowered Securities dealing gains 6 0 9 3 n.a. -60.6% funding costs on FX borrowings. Currency/derivatives dealing gains 8 0 17 9 n.a. -45.0% Other operating income 0 -1 -12 -7 n.a. n.a. Total income 219 232 248 243 4.6% -2.1% Non-interest income declined Operating expense 101 103 119 105 1.7% -11.9% significantly as BSB’s securities-related Administrative expense 77 79 83 81 1.5% -3.4% income lowered in 3Q09 (FX and Depreciation 10 9 7 8 -11.0% 11.5% derivative down by W7.4 billion Q/Q and Other administrative expenses 14 14 28 16 11.6% -44.0% investment securities down by W3.1 Operating profit 118 129 129 138 7.0% 6.9% billion Q/Q). Provisions for bad debts 6 15 33 28 86.5% -15.1% Post Provisioning OP 112 114 96 110 -3.5% 14.4% Due to the stringent overhead costs Other non-operating income/(expense) -5 -5 -3 1 n.a. n.a. policy, labor costs were prudently Pretax profits 107 109 93 111 1.4% 18.7% managed, which helped to reduce Tax 30 31 23 27 -11.5% 18.3% operating expenses. This trend should Profit after tax 77 79 70 84 6.4% 18.8% continue as BSB is to cut salary by 5% in Balance sheet (Won in billions) 4Q09 and reimbursement for unused Cash (non-interest bearing) 1,247 853 766 924 8.3% 20.6% vacations would be reduced by 50%. Liquid assets 400 732 558 768 4.9% 37.8% Securities for trading 9 18 10 10 -45.2% -2.6% Securities for investment 4,565 5,178 5,534 5,724 10.5% 3.4% Loan loss provisioning decreased Customers loans (gross) 17,358 19,769 20,115 20,292 2.6% 0.9% significantly due to improving asset (Loan loss provisions) -205 -239 -343 -334 n.a. n.a. quality. Net loss from NPL sales also Fixed assets 367 363 353 353 -2.7% 0.0% came down to W12 billion in 3Q09 from Other assets 758 1,256 1,516 3,223 156.7% 112.6% W15 billion in 2Q09. Total assets 24,500 27,929 28,508 30,959 10.8% 8.6% Customer deposits 15,107 17,205 17,447 18,027 4.8% 3.3% Borrowings 6,859 7,688 7,198 7,372 -4.1% 2.4% Other liabilities 1,097 1,439 1,899 3,503 143.4% 84.5% Loan growth remained lukewarm. Total liabilities 23,062 26,333 26,544 28,902 9.8% 8.9% However, based on discussions with Shareholders' funds 1,439 1,597 1,963 2,057 28.8% 4.8% management, BSB would be more active Total liabilities and equity 24,500 27,929 28,508 30,959 10.8% 8.6% in loan growth from 2010, partially driven Tier-1 capital 1,428 1,585 2,149 2,245 41.6% 4.4% by government-led regional development Total BIS capital 1,976 2,470 3,135 3,180 28.7% 1.4% projects (redevelopment of Busan North Risk weighted assets 17,301 22,125 21,274 21,495 -2.8% 1.0% Harbor and international distribution Valuation & ratio analysis (%) center. Basic headline EPS 2,083 2,129 1,514 1,779 -16.4% 17.5% Diluted headline EPS 2,089 2,135 1,518 1,784 -16.4% 17.5% BVPS 9,807 10,884 10,518 11,018 1.2% 4.8% After sizable NPL charge-off and sale, Adj. BVPS 10,221 11,542 11,338 12,076 4.6% 6.5% BSB’s NPL ratio declined by around ROE (including goodwill) (%) 21.8 19.9 14.7 16.5 20bp Q/Q. BSB seeks to lower NPL ratio ROE (excluding goodwill) (%) 21.8 19.9 14.7 16.5 to 1.14% by end-FY09. As discussed Reported NIM (bps) 305 303 312 315 with management, considering potential Cost/income (%) 46.1 44.3 47.9 43.1 reclassification of NPL of W90 to Loans/deposits (%) 113.5 113.5 113.3 110.7 precautionary loans in 4Q09, the burden NPLs/loans 0.7 0.7 1.6 1.4 would not be significant, in our view. Tier-1 ratio (%) 8.3 7.2 10.1 10.4 BIS CAR (%) 11.4 11.2 14.7 14.8 Source: Company reports, J.P. Morgan estimates.

3 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

Figure 1: BSB—Net interest income and quarterly NIM trend % Won in billions

3.4 250 3.3 3.2 200 3.1 3.0 150 2.9 2.8 100 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 Net interest income (RHS) NIM (LHS)

Source: Company reports.

Figure 2: BSB—Overhead costs trend (J.P. Morgan model based) %

70 2.4 2.2 60 2.0 1.8 50 1.6 40 1.4 1.2 30 1.0

07 1Q06 3Q06 1Q07 3Q 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 Cost income ratio (LHS) Cost asset ratio (RHS)

Source: Company reports, J.P. Morgan estimates.

Figure 3: BSB—SME loan delinquency ratio

2.5%

2.1%

1.7%

1.3%

0.9%

0.5% 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09

Delinequncy ratio Delinequncy ratio (Pre-charge off / NPL sale)

Source: Company reports, J.P. Morgan estimates.

4 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

Valuations

Table 2: BSB—Changes in forecasts Won in billions, %, year-end December Pre-provision OP Net profit EPS (W) New Old Chg. New Old Chg. New Old Chg. FY08 473 473 0.0 251 251 0.0 1,715 1,715 0.0 FY09E 487 474 2.8 245 214 14.5 1,385 1,209 14.5 FY10E 600 529 13.5 306 263 16.2 1,639 1,411 16.2 FY11E 639 579 10.4 343 292 17.2 1,836 1,566 17.2 Source: Company data, J.P. Morgan estimates.

Table 3: BSB—Key assumptions Year-end December Price (W): 14,100 Shares outstanding (MM): 187 Market cap (W in billions): 2,632 Normalized ROE (FY11 basis) P/BV-based valuation P/E-based valuation NIM (on avg. assets) 2.9% Risk-free rate 5.3% Fair P/E 9.7x Non-IR/revenues 13.6% Cost of capital 11.5% 12M fwd EPS (W) 1,434 Cost/income 44.3% Long-term growth 5.3% Fair value (W) 13,942 Operating ROA 1.9% Fair P/BV 1.31x Implied value of growth LLP/loans -0.9% PV of terminal value (W) 15,425 12M fwd EPS (W) 1,434 Net ROAA 1.0% PV of dividends to 2009 (W) 700 Capitalized value (W) 12,424 Equity/assets 7.5% Fair value (W) 16,125 Value of growth (W) 1,676 Normalized ROE 13.5% Misvaluation 14% Attrib. to growth 12% Source: Company reports, J.P. Morgan estimates.

Risks to our price target • Unexpected regulatory changes could negatively/positively affect our view on the company. • Higher-than-expected growth could positively affect our view and earnings forecasts on the company. • Unexpected corporate bankruptcies could negatively affect our view and earnings forecasts on the company. • If the domestic economy deteriorates more than we expect, our forecasts for provisions and earnings could be negatively affected. Figure 4: BSB—12-month forward P/BV trend Won

20,000 1.6x 1.3x

15,000 1.0x

0.7x 10,000

0.4x 5,000

0 J-99 J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10

Source: Company reports, J.P. Morgan estimates.

5 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

Busan Bank— Rating and price target changes as of October 21, 2009 Company Ticker Date Rating Price target (W) Busan Bank 005280 KS 10/18/2007 OW 21,000 11/14/2007 OW 21,000 11/19/2007 OW 21,000 1/24/2008 OW 18,500 2/15/2008 OW 18,500 4/14/2008 OW 18,500 4/24/2008 OW 18,500 7/17/2008 N 13,000 10/23/2008 N 8,500 2/11/2009 N 6,600 3/6/2009 N 6,600 3/11/2009 N 6,600 4/26/2009 N 6,600 7/2/2009 N 10,000 7/14/2009 OW 13,000 7/24/2009 OW 14,000 Source: Bloomberg, J.P. Morgan.

6 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

All Data As Of 21-Oct-09 Q-Snapshot: Busan Bank

Quant Return Drivers (a Score >50% indicates company ranks 'above average') J.P. Morgan Composite Q-Score Score 0% (worst) to 100% (best)vs Country vs Industry Raw Value 100% HIGH/STRONGER Value P/E Vs Market (12mth fwd EPS)53% 53% 0.9x C 75% P/E Vs Sector (12mth fwd EPS)60% 67% 0.8x O 5% U EPS Growth (forecast) 13% -4.6% 50% Value Score 25% 36% N T Price Momentum 25% 12 Month Price Momentum74% 69% 94.2% R 1 Month Price Reversion23% 41% 4.0% Y 0% LOW/WEAKER Momentum Score 67% 68% 0% 25% 50% 75% 100% Quality Return On Equity (forecast)60% 73% 14.3% I N D U S T R Y Earnings Risk (Variation in Consensus)47% 46% 0.13 Quant Return Drivers Summary (vs Country) Quality Score 52% 66% 100% Earnings & Sentiment Earnings Momentum 3mth (risk adjusted) 79% 87% 182.4 75% 1 Mth Change in Avg Recom.72% 69% 0.03 50% Net Revisions FY2 EPS70% 68% 33% 25% Earnings & Sentiment Score 68% 72% 0% COMPOSITE Q-SCORE* (0% To 100%)52% 64% VALUE PRICE QUALITY EARNINGS

Targets & Recommendations** EPS Revisions**EPS Momentum (%) Historical Total Return (%)

35 Targets Recoms 25 35.0 100 94 30 30.0 20 80 25 25.0 15 60 20 20.0 42 41 (%) 15 10 15.0 40 10 10.0

5 (Local Currency %) 5 5.0 20 4 0 Consensus Changes(4wks)

Consensus Changes(4wks) 0 0.0 0 Up Dn Unchanged Up Dn Unchanged -1 Mth -3 Mth 1Mth 3Mth 1Yr 3Yr FY1 FY2 FY1 FY2 Consensus Growth Outlook (%) 60.0 50.0 40.0 20.9 15.0 19.2 20.0 6.1 0.0 -20.0

-40.0 -30.0 EPS Actual To FY1 EPS FY1 To FY2 EPS FY2 To FY3 Cash Flow FY1 To FY2 Dividends FY1 To FY2 Sales FY1ToFY2

Closest in Country by Size (Consensus. ADV = average daily value traded in US$m over the last 3 mths) CodeName Industry USD MCAP ADV PE FY1 Q-Score* 011170-KR Honam Petrochemical Corp. Chemicals: Specialty 2,463 22.37 3.9 50% 021240-KR Woongjin Coway Co. Ltd. Electronics/Appliances 2,455 8.68 18.1 25% 012630-KR Hyundai Development Co. Engineering & Construction 2,434 16.91 20.4 16% 010120-KR LS Industrial Systems Co. Ltd. Electrical Products 2,393 24.00 19.8 54% 000210-KR Daelim Industrial Co. Ltd. Engineering & Construction 2,323 24.45 8.1 73% 005280-KR Busan Bank Regional Banks 2,285 13.79 11.3 52% 003450-KR Hyundai Securities Co. Ltd. Investment Banks/Brokers 2,249 31.12 10.1 75% 069960-KR Hyundai Department Store Co. Ltd. Department Stores 2,196 7.94 11.6 40% 036570-KR NCsoft Corp. Recreational Products 2,192 62.34 17.9 84% 097950-KR CJ CheilJedang Corp. Food: Major Diversified 2,156 15.19 14.9 36% 032640-KR LG TeleCom Co. Ltd. Telecommunications Equipment 2,151 10.05 7.9 52%

Source: Factset, Thomson and J.P. Morgan Quantitative Research. For an explanation of the Q-Snapshot, please visit http://jpmorgan.hk.acrobat.com/qsnapshot/ Q-Snapshots are a product of J.P. Morgan’s Global Quantitative Analysis team and provide quantitative metrics summarized in an overall company 'Q-Score.' Q-Snapshots are based on consensus data and should not be considered as having a direct relationship with the J.P. Morgan analysts’ recommendation. * The Composite Q-Score is calculated by weighting and combining the 10 Quant return drivers shown. The higher the Q-Score the higher the one month expected return. On a 14 Year back-test the stocks with the highest Q-Scores have been shown (on average) to significantly outperform those stocks with the lowest Q-Scores in this universe. ** The number of up, down and unchanged target prices, recommendations or EPS forecasts that make up consensus.

7 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

Busan Bank: Summary of financials

Won in billions, year-end December Income Statement FY08 FY09E FY10E FY11E Growth Rates FY08 FY09E FY10E FY11E

Margins (% of Earning Assets) 3.30% 3.27% 3.34% 3.36% Gross Loans 8.9% 5.0% 6.0% 6.0% Earning Assets/Assets 92% 89% 87% 87% Customer deposits 8.3% 5.4% 5.0% 5.0% NIM (as % of avg. Assets) 3.04% 2.93% 2.90% 2.93% Total assets 1.8% 1.6% 1.9% 1.9% Shareholders' equity 11.8% 29.2% 15.2% 14.9% Net Interest Income 819 866 931 991 Net Interest Income 15.7% 5.7% 7.5% 6.4% Total Non-Interest Revenues 90 103 148 156 Total Non-Interest Revenues -40.1% 14.7% 43.6% 5.2% Fee income 140 142 133 140 Total Operating Revenues 5.9% 6.6% 11.4% 6.2% FX/Trading gains (16) 11 13 13 Operating costs 3.4% 10.5% -0.4% 5.8% Other operating income (34) (50) 2 2 Pre-provisioning OP 8.4% 3.0% 23.1% 6.6% Total Operating Revenues 909 969 1,080 1,147 Loan loss provisions 151.4% 50.5% 14.2% -5.8% Operating costs (436) (482) (480) (508) Attributable Net Income -6.4% -2.6% 24.8% 12.0% Operating profit 473 487 600 639 EPS -6.4% -19.2% 18.4% 12.0% Loan loss provisions (112) (168) (192) (181) DPS -64.9% 25.0% 0.0% 20.0% Other provisions (3) 8 3 1 Exceptionals 0 0 0 0 Balance Sheet Gearing FY08 FY09E FY10E FY11E Disposals/ Other income (3) 8 3 1 Loan/Deposit 134.3% 133.6% 133.9% 134.3% Pre-tax Profit 359 327 411 459 Investment/Assets 18.7% 17.9% 17.8% 17.8% Tax (107) (82) (105) (116) Loan/Assets 69.5% 65.2% 65.2% 65.2% Minorities/preference dividends 0 0 0 0 Customer deposits/Liab. 55.0% 52.4% 52.6% 52.8% Attributable Net Income 251 245 306 343 LT Debt/Liabilities 31.2% 27.5% 27.2% 26.9%

Per Share Data FY08 FY09E FY10E FY11E Asset Quality/Capital FY08 FY09E FY10E FY11E Loan loss reserves/Loans 1.5% 1.7% 2.4% 3.0% EPS (Won) 1,715 1,385 1,639 1,836 NPLs/Loans 1.3% 1.1% 1.1% 1.1% Payout ratio 11.7% 18.1% 15.3% 16.3% Growth in NPLs 112.8% -11.0% 4.4% -0.5% NAV (Won) 11,220 11,393 13,129 15,079 Tier 1 Ratio 8.4% 12.4% 13.4% 14.4% Avg. Shares issued (mn) 147 177 187 187 Total CAR 13.2% 17.4% 18.1% 18.8%

Key balance sheet FY08 FY09E FY10E FY11E DuPont Analysis FY08 FY09E FY10E FY11E

Net Customer Loans 19,440 20,381 21,436 22,575 NIR/Avg. Assets 3.0% 2.9% 2.9% 2.9% Gross Loans 19,736 20,723 21,967 23,285 Non IR/Total Rev 9.9% 10.6% 13.7% 13.6% Other Earning Assets 918 759 797 837 Cost/Income 47.9% 49.7% 44.4% 44.3% Average Earning Assets 24,800 26,477 27,850 29,456 Cost/Assets 1.6% 1.6% 1.5% 1.5% Total assets 27,958 31,259 32,896 34,651 Operating ROAA 1.8% 1.6% 1.9% 1.9% Loan/Assets 70.2% 68.3% 66.5% 67.0% Customer deposits 14,477 15,252 16,015 16,816 Other inc:provs 0.0% 0.0% 0.0% 0.0% Other Interest Bearing Liabilities 3,632 5,864 6,158 6,466 Tax 29.9% 25.0% 25.5% 25.3% Average Interest Bearing Liab. 23,887 25,286 26,180 27,351 MI 0.0% 0.0% 0.0% 0.0% Average Assets 26,974 29,608 32,077 33,773 ROAA 0.93% 0.83% 0.95% 1.01% Shareholders' equity 1,646 2,127 2,451 2,815 RoRWA 1.3% 1.2% 1.6% 1.7% Risk Weighted Assets 21,411 18,861 19,950 21,101 Equity/Assets 5.8% 6.4% 7.1% 7.8% Average Risk Weighted Assets 19,682 20,136 19,405 20,526 ROE 16.1% 13.0% 13.4% 13.0% Source: Company data, J.P. Morgan estimates.

8 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures

• Client of the Firm: Busan Bank is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company non-investment banking securities-related services and non-securities-related services. • Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment banking services in the next three months from Busan Bank. • Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other than investment banking from Busan Bank. An affiliate of JPMSI has received compensation in the past 12 months for products or services other than investment banking from Busan Bank.

Busan Bank (005280.KS) Price Chart

29,799 Date Rating Share Price Price Target OW W17,000 OW W18,500 OW W14,000 (W) (W) 25,542 27-Oct-06 UW 11597 11000 OW W14,500 OW W21,000 N W8,500 OW W13,000 31-Jan-07 OW 11454 14500 21,285 18-Mar-07 OW 13610 17000 UW W11,000 OW W20,000 N W13,000 N W6,600 N W10,000 18-Jul-07 OW 15000 20000 17,028 Price(W) 18-Oct-07 OW 15910 21000 12,771 23-Jan-08 OW 12700 18500 16-Jul-08 N 11070 13000 8,514 23-Oct-08 N 7495 8500 11-Feb-09 N 6340 6600 4,257 02-Jul-09 N 9140 10000 14-Jul-09 OW 9710 13000 0 24-Jul-09 OW 11050 14000 Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 06 07 07 07 07 08 08 08 08 09 09 09 09

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Gil Hyung Kim: Busan Bank (005280.KS), Daegu Bank (005270.KS), (086790.KS), (024110.KS), Jeonbuk Bank (006350.KS), Bank (004940.KS), Nice e-Banking Services (063570.KQ), Card (029780.KS), (053000.KS)

9 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2009 Overweight Neutral Underweight (buy) (hold) (sell) JPM Global Equity Research Coverage 39% 46% 15% IB clients* 56% 57% 42% JPMSI Equity Research Coverage 38% 51% 10% IB clients* 76% 72% 56% *Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative.

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10 Gil Hyung Kim Asia Pacific Equity Research (82-2) 758-5900 22 October 2009 [email protected]

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“Other Disclosures” last revised January 30, 2009.

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